Nordic Semiconductor Annual Report 08

Transcription

1 Nordic Semiconductor Annual Report 08

2 Global leader in short-range, wireless radio communication Innovative technology and advanced circuit solutions Top-quality expertise specializing in chip design Bluetooth low energy collaboration with the world s leading wireless communication companies Attractive company for investment in the growth market of short-range wireless communication Report from the CEO 4 Key figures 5 Events in Report from the Board of Directors 7 Member of the Board of Directors 11 Income statement 12 Balance sheet 14 Statement of changes of equity 16 Cash flow statement 17 Notes 18 Corporate Governance 43 Auditor`s report 46 Shareholder information 48 About Nordic Semiconductor From idea to market 52 From product to market 54 From idea to product 56 Time aspect 58 Glossary 59

3 Report from the CEO Key figures 2008: Strong volume growth and good design win activities 2008 was another good year for Nordic Semiconductor We gained market share in all key target segments, while releasing a total of three brand new class-leading parts with higher ASPs (Average Selling Prices) to replace our first generation of previous market-leading 2.4GHz IP value-added radios. This contributed to increase in our ASP in Q4. Our wireless product shipping volumes also increased by 61%: from 41 million units in 2007 to 66 million in Nordic is also actively participating in the development of the forthcoming Bluetooth Low Energy wireless technology specification. We have a large, dedicated engineering team working extremely hard to ensure that Nordic will be first to market with a standalone Bluetooth low energy part. We are already seeing a strong interest from the telecoms sector, and Nordic Semiconductor expects to have its first products available during Q3/Q In 2008 we continued to strengthen our global sales force, and in the US, for example, we added a total of four new regional sales managers to the Nordic team. Our Supply chain operations were also relocated to Asia in order to support the growth in our shipping volumes by being next door to where our parts are made. All of these developments mean that Nordic Semiconductor is now in a position to double its revenue with marginal increases in manpower. Nordic Semiconductor s largest segment wireless PC peripherals also produced strong growth for the company. One of the most significant drivers has been the accelerating conversion from increasingly outdated 27MHz wireless technology to Nordic s latest 2.4GHz radios. We see this trend only continuing given that today 27 MHz technology is still employed in around 60-70% of the wireless mice and keyboards shipped worldwide. Similarly, the fast expanding intelligent sports segment is gradually shifting from aging 5kHz radio solutions to 2.4GHZ wireless technology. Our close work with the key companies in this segment helped produce a 40% increase in this sector for us last year. Nordic Semiconductor also successfully won some major gaming applications during 2008, in-line with a general increase in demand for more interactive and immersive wireless control from gamers. The performance of our integrated radios in terms of their low latency, ultra-low power consumption and excellent coexistence characteristics makes them a perfect choice for this kind of application. In the wireless audio segment we had a major design win that entered production in late 2008, and will continue into The demand for advanced, next generation RF wireless controllers to replace conventional but now decades-old (and thus severely limited) infrared light-based units will only increase. Nordic is well positioned to secure a significant market share of this transition. We also continue to support our existing customers in the industrial market, and will offer design support to new customers that exhibit a synergy for Nordic Semiconductor s main product portfolio. I am excited about the prospects for 2009, but obviously recognize that there is likely to be a drop in global consumer demand compared to previous years. That said, I expect the underlying conversion rate of older wireless technology to Nordic s latest 2.4GHz parts to be higher, resulting in good, continued growth for Nordic Semiconductor going forward into Best regards, Svenn-Tore Larsen CEO, Nordic Semiconductor * 2006* 2005* 2004 Operations** Operating revenue 319,3 272,0 262,7 276,5 235,1 Operating profit 21,1 0,5 16,0 44,5 24,1 Profit before taxes 56,1-4,9 14,5 52,2 18,6 Net profit for the year 40,8-3,5 10,6 37,6 12,6 Internal development R&D*** 43,4 32,3 33,1 22,8 26,6 Payroll taxes on options**** 0 0,0 0,4-8,3-12,9 Ordrer backlog 36,9 52,8 60,9 30,9 74,4 Profitability (%) Operating margin 1 6,6 0,2 6,1 16,1 10,3 Profit margin 2 17,6-1,8 5,5 18,9 7,9 Return on total capital 3 19,6-2,0 6,4 28,8 14,3 Return on capital employed 4 24,8-2,4 7,9 38,6 20,5 Return on equity 5 18,1-1,7 5,8 28,7 13,9 Capital structure** Total capital 315,6 255,9 247,2 208,7 154,3 Equity 237,3 214,2 202,3 160,0 101,9 Equity ratio (%) 6 75,2 83,7 81,8 76,7 66,0 Capital expenditures 25,9-0,9 6,0 21,9 6,3 Liquidity Shareholders equity as of Desember** 135,3 108,4 90,3 74,6 62,8 Liquidity ratio 1 7 4,4 7,9 5,4 4,0 3,3 Liquidity ratio 2 8 2,2 3,8 2,2 1,7 1,6 Net interest-bearing items 9 135,3 108,4 90,3 74,6 62,9 The share Market price as of December 18,0 22,5 47,0 66,5 66,0 Earnings per share (NOK) 10 1,2 0,6 0,3 1,2 0,4 Price/earning ratio (P/E) 15,0 37,5 156,7 57,3 161,0 Cash flow per share (NOK) 11 1,5 1,2 0,6 1,7 0,7 Market price of share/cash flow 12,0 19,1 82,5 39,4 98,4 Dividend per share 1, Number of shares outstanding (average 1,000) Personell Average number of employees Salary and benefits 91, * Adjusted for sale of Dataconverter activities in 2007 ** Amounts in NOK million *** Internal development of own standard components and high-speed data converter (recognized as expenses) **** Provision for ordinary payroll tax recognized on (p.t. 14.1%) current option scheme. Paid by option holder. 1 Operating margin: Operating profit/loss as percentage of operating revenues 2 Net profit margin: Profit/loss before tax as percentage of operating revenues 3 Return on total equity: Profit/loss before tax, plus financial expenses as percentage of average total equity 4 Return on working capital: Profit/loss before tax, plus financial expenses as percentage of average total equity with deduction for interest-free current liabilities and interest-free long-term liabilities 5 Return on shareholders equity: Profit/loss after tax as percentage of average equity 6 Equity ratio: Shareholders equity as percentage of total equity as of December 31 7 Liquidity ratio 1: Current assets divided by current liabilities 8 Liquidity ratio 2: Most liquid current assets divided by current liabilities 9 Net interest-bearing position: Liquid assets plus interest-bearing receivables minus interest-bearing current liabilities minus interest-bearing long-term liabilities 10 Earnings per share: Net profit/loss for the year divided by average number of outstanding shares 11 Cash flow per share: Profit/loss before extraordinary items plus depreciation, amortization and impairments minus current tax on ordinary profit/loss for the year divided by average number of outstanding shares 5

4 Events in 2008 Report from the Board of Directors During 2008, Nordic Semiconductor has made significant progress in positioning the company as the leading supplier of 2.4 GHz proprietary radios to large branded goods manufacturers. In terms of profit, 2008 was a good year, and earnings per share from continuing operations increased to NOK 1.18 from NOK 0.61 in First quarter 2008 Nordic Semiconductor received its first order from a new customer in the game segment. Nordic Semiconductor s solution is aimed at replacing existing technology in a volume product for the consumer market. The components shall be delivered in the first quarter of Shortly afterwards, the company received a new order from this new customer. After a prolonged decline in the game segment, the company is now seeing work on a number of new designs with Nordic Semiconductor technology aimed at specialised game controllers. Nordic Semiconductor s strategy focuses on developing its own products, but also provides assistance to existing customers with their own designs. During the quarter, the company received an order for three new designs from an existing customer, with a time perspective of 18 months. Second quarter 2008 At the company s Annual General Meeting, the shareholders elected two new board members; Annfrid Standal and Terje Rogne. Among the employees, Jon Helge Nistad from the design department in Trondheim was elected as a board representative. Nordic Semiconductor held a Capital market day, which had a good turnout and a large Internet audience. The management team and a representative from Nike in the USA reviewed the strategy, the markets and the products that are creating growth in Nordic Semiconductor s turnover. Third quarter 2008 At the start of the quarter, Nordic Semiconductor received its largest order to date for the nrf24z1 component for the wireless transfer of sound. The component will be used in a new consumer product that is expected to be launched in Later in the quarter, the company received more large orders for components, which must be notified in accordance with the guidelines. This implies that the volumes in the quarter are likely to exceed previous quarters and contribute to good growth. Nordic Semiconductor has continued to buy its own shares in the market throughout the year. The market was given notification on a number of occasions in the third quarter that the company had bought its own shares. The product family that is based on the successful radio nrf24l01 continues to grow. Nordic Semiconductor launched the new nrf24le1, which combines the radio with a microprocessor and flash-based memory. The launch is a key part of the company s strategy to aim the product range at components with a higher value for the customers and a higher unit price. Fourth quarter 2008 The development of the Bluetooth Low Energy technology is continuing with major resources being invested by Nordic Semiconductor, among others. The specification of the technology reached approval level 0.7 on the path to a 1.0 approval, which is expected to be attained in the second half of The financial crisis worsened and created a great deal of turbulence in the industry worldwide. Bad news concerning the reduced consumption of consumer goods, bank losses and lower share prices was experienced on a global basis. Nordic Semiconductor is well equipped in relation to its finances, technology and markets to survive a difficult period and to take the opportunity to exploit the possibility to expand. Nordic Semiconductor is a global leader in short-range radio communication headquartered in Norway. Using proprietary technology, aims to lead the way in three design solutions, and use this as the starting point to offer turn-key components, whereby the customer receives the entire electronics system on one chip. Main events in 2008 Nordic Semiconductor s strong portfolio of customers has contributed to bringing the company several steps forward during Many of these customers have increased volumes of existing consumer products and also supplemented their product line with new wireless products. In addition, Nordic Semiconductor has brought new customers and designs into volume production in The total sales volume of wireless components grew from 41 million components in 2007 to 66 million in Through the introduction of a new component based on the highly successful nrf24l01 radio, Nordic Semiconductor took another step towards higher integration of functionality and increased component prices. The average selling price (ASP) for the portfolio of wireless products increased by 7% in US dollars during the course of the year. The higher ASP is attributed to a strong focus on product and customer mix, and the addition of new integrated products with a higher customer value. In September 2008, Nordic Semiconductor launched another integrated component in the L01 family. This newest component has been well received and several customers have initiated design work. Nordic maintained a high level of internal design activities during the year. This has yielded several new components, which have either already been launched or are being prepared for launch in Bluetooth Low Energy, a new global standard for short-range wireless radio communication with ultra low power consumption, has been subject to extensive interoperability testing and the specifications are being finalised prior to final approval in the second half of The USD exchange rate is a significant parameter in the calculation of Nordic Semiconductor s revenue as more than 90% of the company s revenue is in USD. Following 3.5 years of falling USD/NOK rates, the USD saw a sharp upturn in the fourth quarter of At the end of June 2008, the USD rate was 5.09, while at the start of the year the USD rate was However, the year average remained 5% lower than the previous year. In October 2008, the global financial crisis hit the consumer markets. As consumers globally started to react to the increased uncertainty, the consumer industry began to reduce production volumes and purchase order volumes from suppliers. The overview of new orders and future volumes became increasingly unclear. After year end, the scope and longevity of the financial crisis and its impact on consumer behaviour and sales volumes still remain uncertain. The effect on Nordic Semiconductor was seen in the fourth quarter sales volumes, which were up 43% compared to 2007, but lower than the growth rate of 65% for the preceding three quarters. Market conditions Nordic Semiconductor s volumes grew at a fast pace through most of The market for wireless consumer products was generally strong. Bluetooth and Wi-Fi volumes grew by an estimated 35-40% in 2008*. Nordic Semiconductor s proprietary radios increased their market share through a growth rate of 61% in the same period. The general market growth can be attributed to the improved quality and user-friendliness of the various technologies, reduced component prices and the firm foothold that wireless technology has attained in the consumer product market. The consumer product manufacturers are constantly gaining more experience within wireless technology solutions, which is triggering the use of the technology in a growing range of products and applications. Nordic Semiconductor continues to target the consumer electronics verticals of PC accessories, game controllers, intelligent sports equipment and audio equipment, and is also progressing in other verticals such as toys, consumer health, radio frequency identification (RFID) and equipment for the hearing impaired (verticals are categorised into the segment Other). Nordic Semiconductor pursues and works with the market leaders in all of its markets. Nordic Semiconductor s portfolio of customers with applications in volume production increased steadily throughout The majority of these customers have new products under development based on proven technology from Nordic Semiconductor. Concurrently, the company s sales force carries out work on an ongoing basis to identify new customers and applications for wireless products. Nordic Semiconductor strengthened its competitive position in The company s comparative advantages are its leading technology platform and the large installed base. Effective R&D and sales efforts reinforced the company s position in this area in 2008.With its new range of products, the company has again raised the bar by introducing high performance and cost-effective components with integrated functionality. Research and development Research and development is Nordic Semiconductor s foundation for growth and profitability. Investment in this area continued to increase in The company s R&D activities generate results by linking all parts of the organization. Consumer and market insight are combined with technological expertise to develop added value for the customer. R&D is crucial for further development of both the proprietary business area as well as for establishing Nordic Semiconductor as the *ABI Research 7

5 Svenn-Tore Larsen CEO Tore Engebretsen Chairman of the Board Anne-Cecilie Fagerlie Vise-chairman Kjell Bråthen Terje Rogne Annfrid Standal Jon Helge Nistad Lars Sundell leading supplier of Bluetooth Low Energy radios as from Flow of new orders and order reserve Nordic Semiconductor saw a flow of new orders amounting to NOK million in 2008, compared to new orders of NOK million in At year-end, the company had an order reserve of NOK 36.9 million, compared to NOK 52.4 million in Income statement, balance sheet and cash flow Nordic Semiconductor had operating revenues of NOK million in 2008 compared to NOK million from continuing operations in 2007; an increase of 17%. The development in 2008 was marked by increased sales of components for wireless communication and a gradually increasing average selling price (ASP) per component. Sales were affected by a lower average exchange rate. Operating expenses in 2008 were NOK million compared to NOK million in R&D accounted for NOK 65.3 million in 2008 compared to NOK 51.9 million in The total R&D spending was 16% of operating income in 2008; an increase from 14% in Operating profit for 2008 was NOK 21.1 million compared to NOK 0.5 million from continuing operations in The net result in 2008 was NOK 35.0 million; an increase of NOK 40.5 million from NOK -5.5 million in 2007 due to the sharp appreciation of the US dollar in the last months of Net profit before taxes for 2008 was NOK 56.1 million compared to NOK 28.9 million in 2007, including a one-time gain of NOK 33.9 from the sale of assets. After a tax cost of NOK 15.3 million, Nordic Semiconductor had a net profit for 2008 of NOK 40.8 million, with earnings per share (EPS) of NOK The corresponding figures for 2007 were a net profit of NOK 21.6 million and EPS of NOK Nordic Semiconductor s balance sheet total at the end of 2008 was NOK 315.6million compared to NOK million at the beginning of the year. The company had NOK million in cash and cash equivalents at yearend compared to NOK million at the beginning of the year, and no interest-bearing debt. Current liabilities accounted for 20% of total capital at year-end Cash flow from operating activities was NOK 70.5 million in Net cash flow was NOK 26.9 million in 2008, compared to NOK 16.7 million in Pursuant to 3-3 of the Norwegian Accounting Act, it is hereby confirmed that the prerequisites for continued operations are present and that the accounts have therefore been prepared accordingly. The financial statements for 2008 have been prepared and presented in accordance with IFRS. The financial statements for the parent company have been prepared in accordance with IFRS pursuant to 3 9 of the Norwegian Accounting Act. The explanation of accounting principles in Note 2 describes important matters relating to the treatment of accounts pursuant to IFRS. Shareholder equity The company s equity was NOK million as of 31 December 2008, giving an equity ratio of 75% of the total balance sheet. NOK million is retained earnings and the remaining NOK 85.4 million is paid-in capital. During 2008, total equity increased by NOK 23.1 million from NOK million in The company s unrestricted equity was NOK million at year-end 2008, compared to NOK124.9 million at year-end The number of shares as of 31 December 2008 was 35,134,120, distributed among 799 shareholders, 51 of whom were not Norwegian residents. Foreign shareholders owned a total of 16% of the share capital; a decrease from 17% at yearend See also the list of the largest shareholders and the board members and management s securities in the company in Note 18. Risk management It is neither desirable nor possible to eliminate all risk relating to the company s business activities. However, the Board of Directors strives to ensure that risk is managed carefully and systematically in the company and regards this as a prerequisite for long-term value creation for shareholders, employees and society at large. In Nordic Semiconductor, growth opportunities and potential will always be assessed against the associated risk. Nordic Semiconductor s risk exposure is largely divided into operational risk and financial risk. The company s exposure to operational risk is affected both by company-specific internal and external factors. The most important internal risk categories are processes, technology, facilities, employees and management control. The most important external categories are operating parameters: suppliers, customers, competitors and consumer market fluctuations. Financial risks are mainly related to changes in USD exchange rates, accounts receivable and financial contracts. Five areas of risk have been identified as particularly important with regard to risk management: Supplier performance The strong volume growth in recent years underlines the company s reliance on being sufficiently prioritised by its subcontractors. With the current supplier arrangement, the company has the capacity to significantly expand its operation. Sales volume volatility The gradual shift in sales towards consumer products has increased the volatility and reduced the visibility of the company s future revenue stream. Foreign exchange exposure The company s international activities expose it to fluctuations in exchange rates, particularly in relation to the US dollar (USD). Accounts receivable The most significant proportion of the company s receivables is due from foreign distributors, predominately in Asia. The company s receivables are not credit insured, but credit monitoring routines are in place for setting up credit lines, providing security (payment guarantees) and demanding advance payments when required. Corporate governance See the detailed description on pages of this report. Personnel and organisation At the end of 2008, Nordic Semiconductor had 121 employees (2007: 107) of whom 15 were employed outside of Norway (2007:7). Cooperation between management and the employee representatives functions well and makes a valuable contribution to addressing the challenges faced by the company. There were 15 female employees at the end of 2008, corresponding to 12% of total employees. There were 78 full-time employees in Trondheim, including 6 women (8%), 28 in Oslo, including 7 women (25%), and 15 in Hong Kong, South Korea, Japan, the Philippines, Taiwan and the USA, including 2 women (13%). The average salary for women was 72% of the average salary for men. Gender equality is a fundamental principle of the company, and efforts are being made to rectify the gender imbalance when recruiting for all positions within the company and the Board of Directors. Absence due to illness was 1.2% in 2008 compared to 2.9% in No occupational illnesses or injuries were reported in Nordic Semiconductor does not own or operate manufacturing facilities. Manufacturing is done through third parties that comply with the ISO environmental standard, among others. Consequently, there is little pollution associated with the company s operations. Nordic Semiconductor seeks to limit resource consumption, prevent unnecessary environmental pollution and manage waste in an environment-friendly and resource-efficient manner. The company has established routines to monitor these conditions, thereby meeting the requirements of ISO 9001:2000 certification. Nordic Semiconductor complies with all current laws and regulations, and has already begun using the most environmentfriendly casing for semi-conductors that is available on the market. This enables the company to market itself as a green supplier, which also gives it an advantage with major customers who have their own, stringent environmental standards. The Board of Directors wishes to thank all the company s employees for their positive contribution to the business in One of the company s strengths is the close cooperation between the management and employee organisations. Corporate governance Nordic Semiconductor s governance systems are based on principles that follow the system described in the Norwegian Code of Conduct for Corporate Governance, and largely conform to current international guidelines for good corporate governance. A more detailed description of corporate governance in Nordic Semiconductor can be found on pages of this annual report.. Senior executive salaries and other remuneration The Board of Directors decides all important matters related to salaries and other remuneration to senior executives. In accordance with Norwegian company legislation, the Board of Directors has also drawn up a proposal for guidelines on the remuneration of the executive management, which will be considered and decided at this year s Annual General Meeting. The draft guidelines and details of remuneration and contractual arrangements can be found in Note 11 to the financial statements for Nordic Semiconductor. Allocation of profit for the year In 2008, Nordic Semiconductor s profit for the year totalled NOK 40.8 million. The Board of Directors proposes to transfer the profit in its entirety to other equity. Unrestricted equity amounted to NOK million at year-end. Based on the company s market position and financial situation, the Board of Directors will propose to the Annual General Meeting that a dividend is paid in 2009 in the amount of NOK 1.00 per share. The Board evaluates the dividend amount on an annual basis. Outlook Beyond circumstances mentioned in this report, nothing has occurred since the end of the financial year that affects the assessment of the accounts presented. The Board of Directors regards 2009 as a year of opportunities for Nordic Semiconductor, but against a backdrop of a challenging global financial situation. In 2008, a substantial number of important, larger customers and applications using Nordic Semiconductor s products accounted for the major part of the growth. The majority of these customers continue to add new wireless applications to their products. In addition, new customers in the portfolio are expected to add revenue, laying the foundation for future growth. The steady stream of new designs confirms Nordic Semiconductor s leading market and technology position. Within PC accessories, the conversion from 27 MHz to 2.4 GHz radio technology is steadily progressing. Due to the development of a number of new integrated circuits and prospering sales, Nordic Semiconductor has 9

6 Member of the Board of Directors Overview of the members of the Board of Directors, length of service and ownership interests in the company. recently succeeded in capturing market shares from the 27 MHZ technology through the company s own 2.4 GHz solutions for wireless mice and keyboards. A total of 27 MHZ suppliers still account for 60 70% of the sales volume in the market for mice and keyboards. Nordic Semiconductor has now entered the next phase of converting a major part of this remaining volume to Nordic s 2.4 GHz technology over the next two years. The positive effect of this conversion is expected to eclipse the effect of the financial crisis. The ongoing financial crisis intensified during the fourth quarter of The bulk of Nordic Semiconductor s customers are large or medium-sized consumer goods manufacturers, and the loss of consumer buying power was substantial and visible in all global markets. However, a major part of the reduced revenue at the end of 2008 came as a result of a dramatic reduction in inventories in the whole value chain. Nordic Semiconductor s revenue growth is built around a combination of technology replacement (i.e. 27 MHz to 2.4 GHz) and the addition of new products and customers using wireless technology, and is to a less extent dependent on the growth in the general consumer market. Nonetheless, a continued drop in consumer spending worldwide will have a negative effect on Nordic Semiconductor s volumes. More than 90% of Nordic Semiconductor s 2008 revenue was generated in USD. The exchange rate in the fourth quarter of 2008 was substantially strengthened relative to previous quarters, and this had a positive effect on revenue and profits. This situation has continued into the first quarter of The exchange rate fluctuations have been substantial and affected the company s financial figures. The majority of the company s direct production costs are also in USD, while operating expenses are mostly in NOK. Nordic Semiconductor has followed its strategy in relation to the launch of new integrated components with increased functionality and customer value. This strategy enabled the company to increase the ASP compared to 2007, and the future volume growth will to a larger extent be reflected in increased revenue. Nordic Semiconductor continued to allocate substantial resources to product development and specification of the new Tore Engebretsen Chairman of the Board Trondheim, 2. april 2009 Svenn-Tore Larsen CEO Bluetooth Low Energy standard for wireless communication. The Bluetooth Special Interest expects the specifications to be approved in the second half of The Board of Nordic Semiconductor expects this initiative to contribute to the company s further growth when the market for the new technology is established. Despite the risk and major challenges identified in Nordic Semiconductor s markets and operation, the Board of Directors expects the company to show continued profitable growth in The Board of Directors and CEO confirm that åto the best of our knowledge, the financial statements for 2008 have been prepared in accordance with current accounting standards and give a true and fair view of the company and the group s assets, liabilities, financial position and results of the operations, and that the report by the Board of Directors provides a fair overview of the company and the group s development, financial results and position, and describes the key risks and uncertainties faced by the companies. Tore Engebretsen (1951) Chairman of the Board, shareholder elected Election period: Shares: Cand. real. degree from the University of Oslo, with a major in theoretical physics (1978). One of the founders of VMETRO ASA, and company CEO from its founding in 1986 until Prior to this he was employed by Norsk Data, among others. Chairman of the Board of Nordic Semiconductor since 2001, Chairman of the Board of VMETRO ASA since 2003 and member of the Board of PROFDOC ASA since Anne-Cecilie Fagerlie (1958) Vice-chairman, shareholder elected Election period: Shares: 0 With a M.Sc. in Computer Engineering from NTH (now NTNU) in 1983, Ms. Fagerlie started to work for Arthur Andersen/Andersen Consulting (now Accenture) where she became a partner in From 2002, she was Senior Vice President IT in Aker Kvaerner. In June 2006 she became General Manager Nordics in Avanade, an international consultant company owned by Accenture and Microsoft. Ms. Fagerlie sits on the board of Datarespons ASA and Valeo Finans. Kjell Bråthen (1964) Board member, shareholder elected Election period: Shares: Kjell Bråthen has a M. Sc. in Business from BI, and is also an authorized financial analyst from NHH/NFF. Currently engaged in professional investment activities through companies he owns. Previously worked as a manager at various pension funds and mutual funds, most recently Alfred Berg Asset Management ( ). Currently sits on boards of Norwegian and Swedish listed and non-listed companies (including Freetel AB, Refleks AS, Nett.2.3. AS). Terje Rogne (1954) Board member, shareholder elected Election period: Shares: 0 Currently a Director for Apptix ASA, Unified Messaging Systems AS and Newphone AS. From 1994 to 2004, he served as the CFO for Tandberg ASA. From 2004 through 2007, he then served as the Head of Operations and Investor Relations. Rogne currently serves as an adviser to Tandberg s Executive group. Prior to Tandberg, he was head of Finance with Kvaerner AS. Rogne has an MBA from University of San Diego and a Bachelor of Business Degree from the Oslo School of Business Administration. Annfrid Standal (1965) Board member, shareholder elected Election period: Shares: 0 Annfrid Standal has an MBA from the Norwegian School of Economics and Business administration. From 1995 to 2000, Standal worked in financial analysis and business development in Telenor and completed a 2 year management training course in Telenor. Following a 2 year term as senior consultant in PA Consulting, Standal in 2002 joined Orange in Copenhagen/London as the finance director for Orange World Services and other units within the mobile operator. From 2005 Standal has held the position as CFO in RiksTV in Norway. Jon Helge Nistad (1981) Board member, employee representative Election period: Shares: 0 Jon Helge Nistad is Master of Sc. in Electrical Engineering (Analog/Mixed Signal Design) from NTNU. He has been working for Nordic Semiconductor since 2006 with embedded software and hardware development. Mr. Nistad is the Chief Employee representative in Nordic Semiconductor Lars Sundell (1972) Board member, employee representative Election period: Shares: Mr. Sundell holds an Electronic Engineer degree from NTNU (The Norwegian University of Science and Technology), Lars Sundell has been employed at Nordic Semiconductor since He is currently working as a project manager and digital designer. In addition he has earlier worked as an analog designer. Sundell is the representative for the employees of the company s Oslo division. Kjell Bråthen Terje Rogne Anne-Cecilie Fagerlie Annfrid Standal Lars Sundell Jon Helge Nistad 11

7 Income statement January 1 - December 31 All figures in NOK thousands Note Operating revenue and expenses 2.11/ 3 Sales revenues / 3/ 5 Other operating income /5 Profit from sale of capital assets Total operating revenues Direct project expenses Cost of goods /11/13/19 Salary expenses /13 Depreciation durable capital assets /13/21 Other operating expenses Total operating expenses Operating earnings Financial income and expenses 7/22 Interest income /22 Financial expenses on currency exchange /22 Interest expenses /22 Financial expenses on currency exchange Net financial earnings Ordinary earnings before tax expense Tax expenses on ordinary earnings EARNINGS FOR YEAR before discontinued operations Discontinued operation EARNINGS FOR YEAR after discontinued operations Transfers Transfer from other earned equity Total transfers Continued operation 9 Earnings per share (NOK) 1,18 0,60 9 Earnings per share diluted (NOK) 1,18 0,60 Discontinued operation 9 Earnings per share (NOK) 0,00 0,02 9 Earnings per share diluted (NOK) 0,00 0,02 wireless playing 13

8 Balance sheet as of December 31 All figures in NOK1000 Note Assets Non-current assets Intangible assets 2.9/13 Capitalized development expenses /13 Other intangible assets Total intangible assets Note Equity and debt Equity capital Paid-in equity 18 Share capital Own shares Shares held-in treasury Total Paid-in equity Tangible fixed assets 2.8/12 Real property /12 Operating equipment, tools, office machines, etc Total durable capital assets Earned equity Other earned equity Total earned equity Total equity Financial non-current assets 14 Long-term debt receivables Shares in subsidiaries Total financial non-current assets Total non-current assets Current assets Holdings 2.7/4 Components Total holdings Receivables 2.5/16 Customer receivables Projects in progress Other receivables Total receivables Debt Provisions for obligations 2.12/19 Pension obligations Deferred Tax Total provisions for obligations Short-term debt 20 Supplier debt Taxes due Projects in progress Unpaid government fees Other short-term debt Total short-term debt Total debt TOTAL EQUITY AND DEBT /17 Bank deposits, cash, etc Total current assets Trondheim, April 2, 2009 TOTAL ASSETS Tore Engebretsen Chairman of the Board Svenn-Tore Larsen CEO Kjell Bråthen Terje Rogne Anne-Cecilie Fagerlie Annfrid Standal Lars Sundell Jon Helge Nistad 15

9 Statement of changes of equity Cash flow statement All figures in NOK thousand All figures in NOK thousand Consolidation of Shareholder Equity Note Share Premium Own Other Total capital reserve shares earned equity equity Equity capital as of Profit for the year Purchase of own shares Equity capital as of Profit for the year Conversion differential Purchase of own shares Equity capital as of Consolidation of Shareholder Equity Note Share Premium Own Other Total capital reserve shares earned equity equity Equity capital as of Profit for the year Purchase of own shares Equity capital as of Profit for the year Purchase of own shares Equity capital as of Cash flow from operational activities Earnings before tax expenses Tax paid for the period Ordinary depreciation Profit on disposal of non-current assets Changes in inventory, receivables and supplier debt Difference in expensed pension and pension plan payments/disbursements Changes in other accrual items Net cash flow from operational activities Cash flow from investment activities Disbursements from purchase of durable capital assets Payments from sale of durable capital assets Disbursements from purchase of intangible assets Net cash flow from investment activities Cash flow from financing activities Payments of loans from employees Change own shares Net cash flow from financing activities Effect of currency exchange rate changes Net change in cash and cash equivalents Net change in cash and cash equivalents from descontinued operation Holdings of cash and cash equivalents as of Holdings of cash and cash equivalents as of

10 Notes Note 1 GenerAL The is listed on the Oslo Stock Exchange and is a joint-stock company based in Norway. The Company s head office is located at Otto Nielsens vei 12, 7052 Trondheim, Norway. The parent company has a wholly-owned subsidiary, Nordic Semiconductor Inc. The company s business activities are described in note 3. The group accounts were approved for publication by the Board of Directors on April 2, 2009, and will be presented for approval at the Annual General Meeting on May 7, Note 2 Accounting Principles 2.1 Main principle The group accounts for Nordic Semiconductor ASA ( the Parent Company ) and its whollyowned and controlled subsidiary, together called the, are prepared in accordance with International Financial Reporting Standards (IFRS) as established by the EU. The group accounts are based on the principles of historic cost accounting, with the exception of the following assets: Financial instruments assessed at actual value, with changes in value via the income statement (interest fund) 2.2 Changes to accounting principles The applied accounting principles are in accordance with those applied in previous years with the following exceptions: The group has applied the following new, adjusted IFRS and IFRIC interpretations throughout the year. The application of these amended standards and interpretations have had no effect on the s accounts, but may have resulted in an increase in supplementary information. IFRIC 11 Payment with own or s equity instrument IFRIC provides guidance in how IFRS 2 Share-based payments should be applied in payment with the company s own equity instruments or equity instruments belonging to other companies in the. The has applied IFRIC 11 as of January 1, 2008, but has no share-based remuneration at the present time. IFRIC 13 Incentive programs for customers This interpretation goes into effect for accounting periods beginning before or after July 1, 2008, and assumes requirements on the accounting of customer s points. The has no such arrangements and is therefore not affected. IFRIC 14 IAS 19 The limit on a defined benefit asset, minimum funding requirements and their interaction IFRIC 14 provides general guidelines on the calculation of the limit for entering net pension assets as assets. In addition, it explains how pension obligations or assets are affected by the possibility of a requirement for minimum financing of the pension plan. The has made use of IFRIC 14 starting January 1, 2008, but this standard has not significantly affected the. Critical accounting-related assessments, estimates and assumptions The preparation of financial accounts in accordance with IFRS requires that management use assessments, estimates and assumptions that influence the amount reported in the financial statements and notes. Management bases its estimates and assessments on previous experience and on various other factors deemed to be reasonable and sensible given the specific circumstances. These assessments form the basis for evaluating the accounting value of assets and obligations that are not possible based on other available sources. The actual earnings may differ from these estimates. The main areas of uncertainty for assessments and estimates on the balance sheet date, and which represent a significant risk for creating significant changes to the value of assets and liabilities recorded in the accounts in the following financial year are discussed below. Assessments Management has not encountered any particular problems in connection with accounting principles that have a significant effect on amounts in the financial statements for the year, apart from assessments associated with estimates. Use of estimates in the preparation of financial statements The cost related to pension obligations depends upon actuarial calculations. The actuarial calculations are made based on expectations regarding the discount rate, expected return on pension funds, future increases in wages/salaries, annual adjustment in the National Insurance base rate, annual adjustment of pensions, average turnover and death rates. Based on the natural long-term nature of these obligations, such estimates entail a large degree of uncertainty. Further details are given in note 19. The book value of pension obligations as of December 31, 2008 and 2007 was NOK 11,035,000 and NOK 5,831,000 respectively. Internally produced intangible non-current assets relating to development of new products are entered in the balance sheet in accordance with the criteria listed in note 2.9. In order to determine the amount to be capitalized, it is necessary for management to make forecasts for expected future earnings for the product as well as the period over which the financial benefits are expected to last. Entered development costs are subject to amortization on a straight-line basis over the estimated economic life of the asset, normally 3-5 years. Uncertainty exists with respect to the estimated economic life in terms of the amount of time the market window will be open for the product. This in turn depends on the future technological development in the market. The book value of capitalized development costs as of December 31, 2008 and 2007 was NOK 16,047,000 and NOK 13,499,000 respectively. Estimates and the underlying premises are continually reassessed. Changes in accounting estimates are accounted for in the period in which such changes occur. If such changes also apply to future periods, the effect is distributed between current and future periods. Consolidation principle A subsidiary is a company in which the has a controlling influence over financial and operating principles. Controlling influence is normally achieved when the owns - directly or indirectly - more than 50% of the ordinary shares in the company. Such companies are included in the financial statements from the time at which the acquires control over the company. In the same manner the company is removed from financial statements when control over the company ceases. Transactions between companies, claims and unrealized group profits are eliminated in the accounts. Unrealized losses are also eliminated unless the transaction shows that the transferred asset has a reduced value. The newly established subsidiary uses the same accounting principles as the Parent company/. In notes in which the figures from the do not differ from those of the Parent Company, the combined figures will be presented. 2.3 Foreign currency The presents its financial statements in NOK. This is also the functional currency of the Parent Company. Transactions in foreign currency are converted at the exchange rate current at the time of the transaction. Any foreign exchange gains or losses arising as a result of changes in the exchange rate between the time of the transaction and the time of payment are subject to profit/loss recognition. A company with a different functional currency is consolidated by: assets and liabilities converted at the closing rate on the balance sheet date income and expenses are converted to average exchange rates per month all conversion differences are shown on a separate line as part of the statement of changes in equity 2.4 Cash and cash equivalents Cash includes cash on hand and bank balances. Cash equivalents are short-term liquid investments convertible into cash within three months and in a known amount and do not involve any significant risk factors. 2.5 Accounts receivable Accounts receivable are entered at amortized cost. Interest is disregarded if it is insignificant. If there is objective evidence of a loss of value, the difference between the posted value and the present value of future cash flows discounted with the receivables original effective interest rate will be posted. 2.6 Hedging Hedge accounting is not employed. Efforts are made to reduce foreign currency risk by matching revenues and costs in the various currencies. Financial derivatives not entered in the accounts as hedging instruments are evaluated at fair value. Changes to actual value are accounted for on an ongoing basis. 2.7 Inventory Inventory, components and components under production are entered at the lower of cost and net realizable value calculated after deduction for obsolescence. Net realizable value is estimated as market price during normal operations after deduction for production costs, marketing and distribution. Costs are determined using the FIFO method. Semifinished goods includes variable costs and fixed costs that can be allocated to goods based upon normal capacity. Obsolete inventory is written down in full. 2.8 Non-current assets Non-current assets, with the exception of buildings, are valued at acquisition cost less accumulated depreciation. When property is sold or disposed of, acquisition cost and accumulated depreciation are reversed in the accounts and any profit or loss from disposal is subject to profit/loss recognition. The company s building is an apartment valued at acquisition cost. Acquisition cost of non-current assets is the purchase price, including fees/taxes and direct purchasing costs associated with commissioning the non-current asset for use. Expenditure incurred after the non-current asset has been committed to use, for items such as repair and maintenance, is normally expensed. In cases where increased income can be shown as a result of repair/maintenance, the costs for this will be accounted for in the balance sheet as a non-current asset. Depreciation is calculated on a straight-line basis over the following periods of time: Office and lab equipment Computer equipment Installations in buildings 3-5 years 3-4 years 5 years Depreciation period and method are reviewed annually to ensure that the method and period used correspond to the financial realities of the non-current assets. This also applies to disposal value. Financial leases The does not have any significant financial leases. Operational leases Leases where the most significant risk rests with the counterparty are classified as 19