highlights of the year

Transcription

1 Annual Report 2007

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3 Enea is a world leader in embedded systems and advanced technical systems development. The company has a broad portfolio of in-house developed software. Enea s operating system can be found in half of all 3G mobile phones and base stations in the world. The company s professional services and software are in demand from global leaders in technologically advanced industries such as telecommunications and aerospace, as well as industrial, medtech and automotive engineering. The common denominator is complex requirements for high-availability systems systems that work in realtime without delay. Enea has about 550 employees worldwide. The company s shares are listed on the OMX Nordic Exchange in Stockholm. Enea is celebrating its 40th anniversary in highlights of the year Net sales increased by 9 percent to SEK 821 (750) million. 250 Software revenues rose 15 percent to SEK 312 (271) million. Operating profit was up 7 percent to SEK 72 (68) million 200 and operating margin was 9 (9) percent. 150 Profit after tax improved to SEK 71 (48) million. Earnings per share were SEK 0.19 (0.13). 100 Continued focus on expanding the product portfolio 50 capitalized product development costs SEK 26 (33) million. Breakthrough deal in mobile telephony for 3G with 0 Chinese ZTE. We grew within Linux through the acquisition of QiValue. Rising interest for Enea Element middleware software. Orders from clients such as MobiTV, Hughes, and 4DK Technologies. Developed Enea dspeed Platform together with client. Major consulting contract signed with US-based Honeywell. Enea software in more than 350 million new mobile phones in Net sales, SEK million Software Services Operating 1 2 3margin, 4 1 2SEK 3 4million Operating margin Expenses Sales % North America 19 % Sales by market area EMEAA 6 % Sales by segment Other 23 % Nordic Region 76 % Telecom, infrastructure 44 % Telecom handsets 33 % contents highlights of the year 1 letter from the president 2 software 4 services 6 the enea share 9 five year review 10 directors report 12 consolidated income statement and balance sheet 14 changes in shareholders equity group 15 consolidated cash flow statement 15 income statement and balance sheet parent company 16 changes in shareholders equity parent company 17 cash flow statement parent company 17 notes 18 audit report 29 glossary 29 board of directors 30 senior executives 31 addresses 32 annual general meeting 32 1

4 letter from the president Enea is a world-leading provider of software and services primarily to the telecom industry. In 2008 we are celebrating 40 years as a technology pioneer in embedded systems. In 2007, our software was provided to over 350 million mobiles worldwide and is embedded in over half the radio base stations in the world. Enea has completed yet another prosperous year. In 2007 we achieved good profitability and high growth, especially in software operations. Enea reported its best operating profit ever for the fourth quarter of We have invested heavily in our offering and at the same time demonstrated solid profitability in relation to the industry. Strong offering The ongoing repositioning of the company is proceeding according to plan. Over the past two years we have developed and launched several new products such as Enea LINX and OSE Net, platform solutions such as Enea Element, Enea Accelerator, and Enea dspeed Platform, development tools such as Enea Optima, as well as new improved versions of our traditional offering with the focus on the OSE operating system family. We have broadened our offering of consulting services, such as expertise in the Linux operating system and low-cost development services in Romania. And we have strengthened Enea s capacity for marketing and sales. During 2007 we have seen strong interest in Enea s offering. For example, Chinese ZTE chose to have OSE included in all of its 3G telephones. With Enea dspeed Platform, which we developed together with one of our largest clients, Enea is among the technology pioneers with a solution that can handle extremely high demands for performance and bandwidth. We sold seven installations of our middleware for telecommunication infrastructure, Enea Element three of them during the fourth quarter. We have also found the right format to successfully provide and package our consulting services, as well as to provide clients with more know-how and larger projects. A growing part of our new offering involves providing software integrated with consulting services as total solutions to our customers challenges. Rapidly changing market Enea is active in a high-tech market consisting mainly of a handful of North American players. A few years ago the company initiated a repositioning process toward a greater market focus and it is gratifying to be able to conclude that the restructuring process to modernize the company has been successful. The general market for embedded systems market shows solid growth. The telecom market in particular is in flux, with several operators and equipment manufacturers issuing warnings forecasting lower growth. Nevertheless, because Enea targets segments with higher growth, such as software and services with a focus on 3G, LTE and mobile broadband, the company contends that it has good prospects for continued growth. Enea continually adapts its management and organization in response to changing market conditions. The price pressure we see in the market may be to Enea s advantage, as our modern portfolio of software and consulting services can help clients optimize their product development. The value generated becomes obvious when Enea offers pre-integrated total solutions that substantially reduce development time and therefore development costs for clients products. Stronger distribution channels more important Enea has dedicated considerable resources to expanding its offering in recent years. Product investments will continue, but at a lower rate of investment than to date. As Enea broadens its offering we will now focus more on further strengthening Enea s distribution capacity and our ability to reach out to clients and deliver complete solutions. These activities may involve smaller complementary acquisitions. 2

5 Secure our position As a technology pioneer, Enea is always on the cutting edge. With our strengthened position on the market, the prospects are good for harvesting the fruits of the company s repositioning work of recent years. Against this background we view the future with confidence and expect continued growth at the same rate, or somewhat faster, than the market at large. With our modern portfolio of software and consulting services we can help clients to optimize their product development. For a technology and expertise-focused company like Enea, the ambition and enterprising spirit of our employees constitute the foundation of our success, which we would like to illustrate in this annual report and with photos of some of Enea s more than 560 employees. In closing I would like to take this opportunity to thank our clients, our talented employees, and our shareholders for this past year. Johan Wall, President and CEO Devoted sailor 3

6 software In just seconds your mobile phone connects your call to Thailand. The heart-lung machine pumps oxygenated air at just the right moment. Enea s software is embedded in many everyday products and has the job of ensuring that they work without delay. The more that our everyday things are controlled by processors, the more Enea s software is used. Systems that work in realtime are Enea s specialty, particularly in telecom. Business model software Third part products and other 11 % Good market for embedded software Both the general market for embedded software and the one with a focus on telecoms were good during Growth in telecom was mainly driven by strong growth in subscribers on new markets and increased demand for mobile broadband, network convergence, and advanced content services. The United States and parts of Europe demonstrated the strongest growth. The trend continued with Asian telecom players who are beginning to establish a serious global presence. Software with high demands for precision Enea s software is developed for products with stringent demands for accuracy immediate response to new commands, and where precision in fractions of seconds is crucial. With its traditional product portfolio, which includes the OSE operating system family, Enea has held a world-leading position in this segment for the past few decades. In recent years Enea has invested heavily in expanding its product portfolio with a deliberate focus on new niches, in areas such as middleware, where strong growth is expected. The new and traditional products are integrated in platforms that tie together the entire communications process between the hardware and the functions of the end product, the application. The products are used in many different fields, but the emphasis is on telecommunications, where Enea works with leading players such as Alcatel-Lucent, Ericsson, Nokia, Nokia Siemens Networks, Sony Ericsson, Motorola, and ZTE. Enea s software can be found in both mobile phones and in infrastructure in the equipment required to send without delay mobile calls through telecom operators networks. A continued strategic initiative focusing on research and development is the basis of Enea s success and will ensure that Enea will remain on the cutting edge in the field of technological development. 100 Perpetual 11 % Net sales software, SEK million Recurring sales 78 % Enea benefits from two global trends Millions of new wireless subscribers will be added in the developing countries, which will increase operators requirements for capacity. And in addition to ordinary voice traffic, growing quantities of data are being transmitted as people use their mobile phones increasingly to send photos and videos and to surf on the Internet. These two global trends benefit Enea since our software has the capacity to handle the extremely large quantities of data in the mobile networks that are required for tasks such as watching TV on the mobile Enea s software saves time and resources for clients Since research and development are resource-intensive, more and more clients have realized that Enea s solutions save both time and resources. There is logic in buying readymade solutions rather than devoting resources to developing value-generating applications in-house, especially for new players with limited resources. By purchasing software from Enea they can bring their products to market faster to start generating revenues. Together with its partners Enea has total solutions that no individual competitor can offer at this time. The solutions are generic and hardware-independent. There is a clear advantage for clients to be able to purchase a total solution. Realtime operating systems Realtime operating systems are used in many different types of products, and must therefore be able to be adapted for different purposes. Performance, scaleability, operating reliability, and capacity for multiprocessor systems are crucial specifications. Source code, configuration possibilities, development environment, and support also play an important role, over and above commercial and technological requirements, when choosing a realtime operating system. As a complement Enea offers development tools to its clients. Enea s OSE realtime operating system is one of the world s most commonly used systems. It is successfully used in half of all 3G mobile phones and base stations in the world. Enea Accelerator a package solution Enea Accelerator is a package solution that enables operators to offer a reliable internet connection for the best quality in multimedia services. The platform solution includes Enea LINX, which can communicate between different processors in an embedded system. Enea LINX is an open-source application that supports Linux and OSE, but can also be adapted to other operating systems. The solution includes Enea Element, which sits between the operating system and the client s applications, as well as Polyhedra and Enea dspeed Platform. Polyhedra is a relational database that is suitable for high-speed data management at the server level. Enea dspeed Platform comprises a pre-integrated platform solution that is well suited to the next-generation mobile network. 4

7 Michael Ventrella, VP Software Sales North America Hockey dad with a passion for sports cars and road racing

8 services Enea has satisfied customers. Much of the secret lies in the commitment of our employees to solving challenging tasks. Our engineers work on consulting projects such as developing embedded systems for telecommunications that are used by billions of people, control systems for airbags that save lives, and system for the aviation industry with stringent safety requirements. Working on projects that are noticed and offer crucial functionality is a strong motivator for achieving maximum performance. Net sales services, SEK million Good market for consulting services in Nordic region and North America The consulting services market continued to show steady growth during 2007, mainly in the Nordic countries, but also in North America. Market conditions have been demanding with continued price pressures on consultants and a shortage of skilled personnel. Despite these conditions, Enea s consulting operations performed well during the year. One clear trend is the increased demand for total solutions in which software and consultancy services are provided as a whole. The trend toward increased consolidation in the market continued. Smart engineers provide innovative solutions Enea has over 350 engineers who work in consulting projects with system development, system integration, testing primarily of embedded systems for clients in the fields of aerospace and telecommunications, as well as in automotive, medical, and industrial engineering. The assignments are carried out either as projects for fixed services, or with on-site staffing. Moreover, Enea offers quality assurance of program code and system training programs, such as testing and testing systems, another of Enea s specialties. The common denominator for Enea s consulting offering is that with our experience and cutting edge expertise we can help our clients to accelerate and streamline their product development. Embedded system specialists Many clients do not have the time, resources, or specialized expertise to work with system development. With forty years of experience Enea has built up both human and structural capital in developing embedded systems in order to skillfully and cost effectively solve the client s challenges while maintaining high standards of excellence. Enea also has the capacity to conduct the client s ongoing development work as a project, a longer undertaking or with outsourcing to low-cost countries. During the year Enea established operations in Romania which in the long term will handle larger volumes, particularly on a project basis. Parts of Enea s own software development are also carried out in Romania Gross profit/loss services, SEK million Gross profit margin Gross margin % Stronger position in Linux One clear trend during the year is that the open source operating system Linux is becoming entrenched as a serious alternative in embedded systems. The addition of Linux means new opportunities for Enea, with new areas of expertise and an expanding market. Through the acquisition of technology consultants QiValue Technologies AB Enea has further strengthened its position in Linux. During the year Enea started the Enea Linux Competence Center (ELCC) with the goal of becoming a leading supplier of embedded systems based on Linux. With this acquisition we can now solve our clients challenges from several perspectives Total solutions One of Enea s strengths is total solutions, in which both software and consulting services are offered for integration, testing, and maintenance. Enea s specialists help clients to modify and develop components, systems, or interfaces. Assignments vary from individual projects to complete system integration. Training The expertise that Enea s consultants possess is coveted. Enea has extensive experience of devising and offering courses and seminars. The programs maintain high standards and are taught by consultants within the company s specialties. Courses are held in everything from hardware and various programming languages, to testing, test system development, and project management. The programs are offered as standard courses, or customized together with the client. Testing and verification Enea offers advanced system testing services and can help to organize the process. Enea s consultants can also develop testing systems, which are becoming increasingly important to ensure that the end products achieve optimal functionality and quality. Certification of hardware and software is another field in which Enea possesses extensive expertise. 6

9 Madeleine Ymerson, Test Specialist Scout leader who enjoys swing dancing

10 Ingela Camp, Project Manager Research & Development Loves to travel with France as her favorite destination

11 the enea share ownership structure december Total number of shareholders 16,599 19,991 Change in share capital since 1998 Year Share capital Newly issued shares Number of shares Event Shareholder categories, in percent Foreign investors Swedish investors of which Institutions Mutual funds Private individuals, incl small businesses Owner categories December 31, 2007 Percentage of Number of share capital shares and votes Ten largest individual shareholders SIS SegaInterSettle AG 49,381, Per Lindberg 35,280, Lgt Bank in Lichtenstein Ltd 21,454, Electro Medicinska AB 19,361, DnB NOR ASA 18,603, JP Morgan Bank 15,557, Barclays Bank Plc 3,701, Joachim Waldén 3,014, Bo Steinholtz 2,905, Second AP fund 2,612, Total, ten largest shareholder 171,872, ,680,900 1,536, ,680,900 4,608,540 6,144,720 Split 4: Conversion to one class of stock ,845, ,507 6,276,227 Non-cash issue ,920,214 59,944 6,336,171 Non-cash issue ,712, ,618 6,969,788 New share issue ,712, ,274, ,244,700 Split 25: ,877,235 3,300, ,544,700 New share issue ,923, , ,463,619 Non-cash issue ,107,843 3,693, ,156,862 Non-cash issue ,215, ,156, ,313,724 New share issue ,215, ,313, ,215, ,313, ,265, , ,301,916 New share issue ,355,713 1,812, ,114,264 New share issue Enea is covered by the following analysts: Karl Berglund ABG Sundal Collier Jonas Elofsson Kaupthing Bank Andreas Joelsson SEB Enskilda Greger Johansson RedEye Other 195,241, Enea AB 1 5,941, Total 367,114, Possible dilution from stock option programs, Enea TekSci Inc. 2 maturity Dec. 31, 2009, strike price SEK ,000, maturity Dec. 20, 2010, strike price SEK ,500, Total 370,614, Including 710,000 shares paid after As at December 31, 2007, the option program has not led to dilution. Source: VPC, Nordic Central Securities Depository The Enea Share (Ticker: enea) Earnings per share, SEK Diluted 2007 earnings per share, SEK Cash Aktien flow per share, OMX Stockholm_PI SEK Omsatt antal aktier 1000-tal (inkl. efteranm.) Diluted cash flow per share, SEK ,0 30 Equity per share, SEK Diluted 3,5 equity per share, SEK Dividend per share, SEK ,0 Share price at December 31, SEK P/E 2,5 ratio neg. Price/equity ratio, % The share SIX IT No. of shares traded, thousands (incl. after hours) 2,0 0,3 1. Figures for 2003 were not restated to IFRS. jan feb mar apr maj jun jul aug sep okt nov dec ,0 3,5 3,0 2,5 2,0 Aktien SHARE TREND ,0 3,5 3,0 2,5 The OMX share Stockholm_PI SIX IT Omsatt antal No. of aktier shares 1000-tal traded, (inkl. thousands efteranm.) (incl. after hours) ,0 0,3 Aktien OMX Stockholm_PI Omsatt antal aktier 1000-tal (inkl. efteranm.) jan 2007 feb Janmar Febapr Marmaj Aprjun Mayjul Junaug Jul sep Augokt Sep nov Octdec Nov Dec , The share SIX IT No. of shares traded, thousands (incl. after hours) ,5 Akt 2007 The share 4,0 3,5 3,0 SIX IT No. of shares traded, thousands (incl. after hours) 3,5 3,0 2,5 2,0 Source: OMX AB jan feb mar apr maj jun jul aug sep okt nov dec

12 five year review Income Statement, SEK million Net sales Operating expenses Operating profit/loss Net financial items Profit/loss before tax Tax Profit/loss for the year Balance Sheet, SEK million Intangible assets Other fixed assets Accounts receivable and other current assets Cash and cash equivalents Total assets Shareholders equity Provisions, non-current liabilities and minority interests Current liabilities Total shareholders equity and liabilities Cash flow, SEK million Cash flow from operating activities before change in working capital Cash flow from change in working capital Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities Cash flow for the year Key ratios Operating margin (%) Profit margin (%) Return on capital employed (%) Return on equity (%) Capital employed (SEK million) Interest coverage ratio (times) neg. Equity/assets ratio (%) Liquidity ratio (%) Risk-weighted capital ratio (%) Average number of employees Net sales per employee (SEK thousand) 1,500 1,497 1,427 1, Value added per employee (SEK thousand) Figures for 2003 were not restated to IFRS. Goodwill amortization was SEK 25.2 million in Including minority share before Cash flow, SEK million Equity/assets ratio and return on equity, rolling 12, % Earnings and equity per share, SEK Equity/assets ratio Return on equity Earnings per share Sharesholders equity per share ,09 1, ,06 0, ,03 0, , ,0 10

13 Dung Vi, Software engineer An ace at speed tic tac toe

14 directors report The Board of Directors and the President of Enea AB (publ), , hereby submit this annual report and consolidated financial statements for the 2007 fiscal year, the company s thirty-ninth year in business. Operations Enea is active in embedded systems and advanced system development and offers both software and consulting services in an international market. Enea is a global provider of software in real-time technology, embedded systems, middleware, development tools, and database technology, mainly for telecom applications. Product development is carried out in USA, Sweden, the UK, and Romania. Enea mainly sells its software through its own subsidiaries in Sweden, USA, France, Germany, the UK, and Japan. Consulting operations focus on complex technical system development, specializing in realtime systems and data/telecommunications in USA and Nordic markets. Enea has offices in several locations in North America and Sweden. The Group s clients are active in fields such as telecom equipment, mobile phones, avionics, medtech and automotive engineering/infotainment. These clients include Alcatel-Lucent, Autoliv, Boeing, Bombardier, Ericsson, Fujitsu, General Dynamics, Honeywell, Hughes, Infineon, LSI (Agere), Lockheed Martin, MobiTV, Motorola, Nokia, Nokia Siemens Networks, Saab, Samsung, Sony Ericsson, Yamaha, and ZTE. A growing portion of Enea s offering involves providing software integrated with consulting services as complete solutions to customers problems and challenges. The Group s activities are divided into three geographic regions: the Nordic region, North America, and EMEAA (Europe, Middle East, Asia, and Africa). Operations are organized in the following units: Market Operations, including all sales consulting units and market communications. R&D, including all product development. Product Management, including product management. Finance and Administration, including finance, IT, human resources, and office services. Significant events during the financial year Business has developed favorably during the year with steady demand for Enea s products and consulting services, as well as several new clients. In 2007 Enea continued to expand operations with new products and services, including platform solutions such as Enea Accelerator and Enea dspeed Platform and new product releases, such as our OSE operating system and our middleware product Enea Element. At the same time, Enea broadened its offering of products to meet market demand for integrated total solutions. Enea s traditional software portfolio over 70 percent of which is generated by recurring revenues has shown robust growth and profitability, particularly in the Nordic market. Interest in the new middleware and platforms segment is growing and Enea now has ten reference customers for Enea Element. The utilization rate for the Nordic consulting business continues to be high. The operation has new leadership and the focus is on growth and improving operating margins. Consulting services in USA have developed according to plan, resulting in several key orders during the year. Enea acquired QiValue Technologies AB during the year, a Swedish company that specializes in consulting services and training in Linux. For more information, please see note 24. Sales and earnings Consolidated net sales increased by 9 percent to SEK 821 (750) million. Currency-adjusted growth was 11 percent. Software revenues increased by 15 percent to SEK 312 (271) million, mainly attributable to the Nordic region. Currency-adjusted growth was 17 percent. Consulting and other revenues increased by 6 percent to SEK 509 (479) million, mainly attributable to the Nordic region. Currency-adjusted growth was 8 percent. Operating profit for the year rose to SEK 72 (68) million. Net sales outside the Nordic countries accounted for 24 (26) percent of the Group s total sales. Profit after tax increased to SEK 71 (48) million. Loss carryforwards had a positive effect on tax expense of SEK 13 million. Financial position Cash flow from operating activities increased to SEK 66 (6) million. At yearend cash and cash equivalents amounted to SEK 156 (146) million. The Group has no interest-bearing liabilities and therefore has a positive net cash position. The Group does not need additional capital at this time. Research and development The Group s division Enea Software develops software for embedded systems. Enea capitalized software development costs amounting to SEK 26 (33) million for the year. Research and development account for 12 (10) percent of the Group s total operating expenses. Financial risks and policies as well as other risks and uncertain factors In light of factors such as the Group s high percentage of cash and cash equivalents and long-term customer relationships, the Group s financial risks are limited. Just over half of consolidated revenues are attributable to Ericsson including SonyEricsson. Enea strives to increase revenues from other customers, while further developing business with the Ericsson companies. For more information on financial risks and policies, as well as other risks and uncertain factors, please see note 21. For important estimates and assumptions, please see note 22. Parent Company Enea AB The Parent Company s net sales for 2007 amounted to SEK 29 (29) million and profit after net financial items increased to SEK 95 ( 15) million. Net financial items were SEK 118 (2) million including income from holdings in Group companies for SEK 113 (0) million. Cash and cash equivalents on December 31 were SEK 120 (117) million. The Parent Company s investment were SEK 6 (1) million and the average number of employees was 20 (19). The Enea share As at December 31, the registered share capital consisted of 367,114,264 common shares with a par value of SEK 0.05 each. Holders of common shares are entitled to dividends (to be specified at a later date) and each share grants the right to one vote at the Annual General Meeting. The provisions of the articles of association do not impose any restrictions on the transferability of shares or on each shareholder s right to vote at the Annual General Meeting. Shareholders representing at least one tenth of voting rights for all shares in the company are Per Lindberg, in part through Electro Medicinska AB (total of 14.9 percent of share capital and votes) and SIS SegaInterSettle AG (13.5 percent of share capital and votes). 12

15 The Annual General Meeting resolved in May 2007 to authorize the Board of Directors to resolve on the acquisition of own shares up to a maximum of ten percent of all shares in Enea AB at the current share price until the 2008 Annual General Meeting. The purpose of the acquisition of own shares is to be able to continuously adapt Enea s capital structure to its capital requirements and to facilitate financing, completely or in part, in conjunction with corporate acquisitions. During 2007 Enea AB repurchased 5,941,000 (0) of its own shares on the OMX Nordic Exchange in Stockholm at an average share price of SEK 2.32 for a total of SEK 13,770,000. Each share has a par value of SEK Total holdings of own shares correspond with 1.6 percent of share capital. The Annual General Meeting in May 2007 also resolved, for the purpose of facilitating acquisitions, to grant the Board of Directors the authority to issue new shares in the company equivalent to an increase of a maximum of five percent of share capital with potential for deviation from shareholders pre-emption rights and with provisions for noncash consideration or set-off or other terms and conditions pursuant to Chapter 13, section 5, first paragraph, point 6 of the Swedish Companies Act. The company is not a party to agreements on changing control over the company. For more information please see The Enea Share on page 11 and note 14 Shareholders equity. Personnel In 2007 the Enea Group had an average of about 550 employees, including 74 percent in Sweden, 21 percent in North America, and 5 percent in the EMEAA. Enea Group employees include 50 percent with an M.Sc. in engineering or equivalent, 39 percent with a B.A. or equivalent, 1 percent with a Tech. Lic. degree, 2 percent with a PhD in engineering, and 8 percent in the category other education Employees include 81 percent men and 19 percent women. Enea works continually with recruitment and skills enhancement. Enea follows local practices with respect to employment and working conditions. Environmental impact Enea sells software and consulting services. The products themselves have no environmental impact. In 2007 Enea initiated an analysis to find ways to reduce its environmental impact. Corporate governance Enea s corporate governance is based on Swedish legislation, the listing agreement with OMX Nordic Exchange in Stockholm, and the directives and recommendations issued by relevant organizations. The OMX Nordic Exchange in Stockholm has implemented the Swedish Code of Corporate Governance in its regulatory framework and the Code now applies to all listed Swedish companies and other listed companies with a market capitalization that exceeds SEK 3 billion. Although Enea is not subject to mandatory compliance, the Board has decided that the company will gradually adapt to the Code. Enea already meets most of the Code s main requirements. Among other things, the Board has set up audit, remuneration, and nomination committees, the Board members elected by the Annual General Meeting have completed OMX training for board members, the Board carries out regular selfassessment of its performance, and the Annual General Meeting agenda complies with Code recommendations. Additional information about corporate governance at Enea can be found on the company s website at The work of the Board Enea AB s Board of Directors consists of six directors elected by the Annual General Meeting, as well as two directors and a deputy elected by the employee organizations. All directors elected by the AGM are independent in the code for purposes of corporate governance. The President, who is not a Board member, participates at all Board meetings. Other employees participate at Board meetings on an as-needed basis. Each board meeting includes an executive session during which the Board of Directors meet without the presence of the President or executive management. Each year the Group s auditor reports on observations from the audit and an analysis of the company s internal controls to the Board of Directors. The guidelines for the work of the Board are laid out in the rules of procedure, which also specify the division of duties among the Board, the Chairman, and the President. The rules of procedure also contain guidelines regarding the number of regular Board meetings and agenda items to be discussed at regular Board meetings. Board activities during 2007 included follow up of and reporting on current business operations, as well as questions about acquisitions, strategy, organization, and financial matters. The Board held 9 (8) minuted meetings in 2007, one of which was a twoday workshop that focused on the Group s strategy. All directors attended all meetings with a few exceptions. Remuneration guidelines for senior executives The following remuneration guidelines for senior executives were in effect for No changes are expected to be proposed for Remuneration to the president was decided by the Chairman of the Board and directors chosen by the AGM, based on a recommendation from the compensation committee, which consists of Staffan Ahlberg (chairman) and Jan Rynning (board member). The remuneration guidelines for senior executives adopted by the Annual General Meeting were followed during Senior executives include the President and five additional individuals. Salaries and other terms of employment for executive management are set at market rates. In addition to a fixed base salary, senior executives also receive a limited variable salary based on financial performance in relation to a set target. Variable remuneration to the President and senior executives in 2007 was SEK 4 (4) million and pensions were SEK 2 (2) million. Remuneration to certain senior executives in the Enea Group may also be paid in the form of share-based compensation. In the event of dismissal by the company, the President receives termination benefits equal to twelve months salary and benefits. The term of notice for other senior executives is three to twelve months. For more information, please see note 4 Employees and personnel expenses and note 20 Pensions, share-based compensation, and benefits of senior executives Future developments In 2008 we expect the market for embedded systems to continue to grow for both software and consultancy services. Substantially higher growth is expected in niches such as middleware. Enea s long-term objective, over one business cycle is to achieve 15 percent annual growth with an average operating margin over 10 percent. Proposed allocation of Enea AB s profit Funds at the disposal of the AGM: Share premium reserve 1,379,822 Retained earnings 91,659,432 Profit for the year 111,376,694 Total 204,415,948 The Board of Directors and President recommend that Enea AB s profit be carried forward to new account. For further information about the company s financial position and performance, please see the following income statement and balance sheets with related notes. The Parent Company s Board of Directors approved the financial reports for publication on March 18,

16 group Income statement SEK thousand (January 1 December 31) Note Software revenues 311, ,445 Consulting revenues 508, ,633 Net sales 2 820, ,078 Operating expenses Cost of goods sold and services - software costs 10 36,582 46,486 - consulting and marketing expenses 393, ,404 Gross profit 390, ,188 Selling and marketing expenses 173, ,665 Product development expenses 90,896 65,463 Administration expenses 53,584 64,492 Operating profit 3, 4, 5, 6, 7, 11 72,061 67,568 Financial income 7,483 4,151 Financial expense 2,643 2,454 Net financial income and expense 8 4,840 1,697 Profit before tax 76,901 69,266 Tax 9 5,739 20,881 Profit for the year 71,162 48,385 Earnings per share, SEK Earnings per share fully diluted, SEK balance sheet SEK thousand (December 31) Assets Intangible assets , ,584 Equipment, tools, fixtures and fittings 11 15,253 14,942 Financial investments Deferred tax assets 9 8,858 0 Total fixed assets 199, ,080 Inventories 8,976 1,902 Tax assets 9 0 9,147 Accounts receivable , ,684 Prepaid expenses and accrued income 13 30,694 33,600 Other receivables 3,073 2,182 Cash and cash equivalents 155, ,402 Total current assets 424, ,917 Total assets 624, ,997 Shareholders equity 14 Share capital 18,356 18,265 Other paid-in capital 713, ,396 Reserves 11,730 7,230 Retained earnings including profit for the year 285, ,959 Total shareholders equity 434, ,472 Long-term liabilities Long-term liabilities, non interest-bearing 24 8,880 0 Total long-term liabilities 8,880 0 Current liabilities Accounts payable 63,561 56,707 Income tax liability 9 4,828 3,446 Other liabilities 28,936 23,898 Accrued expenses and deferred income 16 83,463 96,474 Total current liabilities 180, ,525 Total shareholders equity and liabilities 624, ,997 14

17 Summary of changes in the group s shareholders equity 2006 Other paid- Retained earnings Total SEK thousand (December 31) Share capital in capital Legal reserves incl. profit for the year equity Opening equity January 1, , ,909 1, , ,229 Translation difference for the year 8,678 Profit for the year 48,385 48,385 Total recognized income and expenses 8,678 48,385 39,707 New share issue Equity December 31, , ,396 7, , , SEK thousand (December 31) Opening equity January 1, , ,396 7, , ,472 Translation difference for the year 4,500 4,500 Profit for the year 71,162 71,162 Total recognized income and expenses 4,500 71,162 66,662 New share issue Employee stock option program 1,290 1,290 Repurchase of own shares 13,770 13,770 Equity December 31, , ,289 11, , ,638 Consolidated Cash Flow Statement SEK thousand (December 31) Note 18, Operating activities Profit before tax 76,901 69,266 Adjustment for non-cash items 17,366 15,107 94,267 84,373 Tax paid 4,068 6,657 Cash flow from operating activities before change in working capital 90,199 77,716 Cash flow from change in working capital Change in operating receivables 12,858 90,062 Changes in operating liabilities 10,946 17,895 Cash flow from change in working capital 23,804 72,167 Cash flow from operating activities 66,395 5,549 Investing activities Acquisition of intangible assets 36,350 28,342 Acquisition of fixed assets 6,203 6,158 Acquisition of financial assets Sale of fixed assets 0 0 Cash flow from investment activities 42,744 34,627 Financing activities New share issue Repurchase of own shares 13,770 0 Cash flow from financing activities 12, Cash flow for the year 10,865 28,542 Cash and cash equivalents, beginning of year 146, ,080 Exchange rate difference in cash and cash equivalents 1,294 3,136 Cash and cash equivalents, end of year 155, ,402 15

18 parent company Income statement SEK thousand (January 1 December 31) Note Net sales 29,423 28,585 29,423 28,585 Operating expenses Administration expenses 52,629 45,976 Operating loss 3, 4, 5, 6, 7, 11 23,206 17,391 Income from holdings in group companies 8 113,287 0 Interest income and similar profit/loss items 8 9,092 4,639 Interest expense and similar profit/loss items 8 4,021 2,510 Net financial income and expense 118,358 2,129 Profit before tax 95,152 15,262 Tax 9 16,224 19,296 Profit for the year 111,376 4,034 balance sheet SEK thousand (December 31) Assets Intangible assets 10 3,384 0 Equipment, tools, fixtures, and fittings 11 6,452 7,487 Participations in group companies , ,847 Total fixed assets 242, ,334 Tax assets Accounts receivable Receivables, group companies , ,575 Prepaid expenses and accrued income 13 5,312 5,515 Other receivables 414 1,239 Cash and bank 120, ,913 Total current assets 412, ,894 Total assets 654, ,228 Shareholders equity 14 Restricted equity Share capital (367,114,264 shares) 18,356 18,265 Legal reserve 299, ,668 Unrestricted equity Share premium reserve 1, Retained earnings 91,659 49,619 Profit for the year 111,376 4,034 Total shareholders equity 522, ,073 Liabilities Accounts payable 5,793 7,064 Income tax liability 9 2,681 0 Liabilities to group companies , ,748 Other liabilities Accrued expenses and deferred income 16 8,975 7,651 Total current liabilities 132, ,155 Total shareholders equity and liabilities 654, ,228 16

19 Summary of changes in the Parent Company s shareholders equity 2006 SEK thousand (December 31) Restricted equity Unrestricted equity Share Legal Share premium Accumulated Profit/loss capital reserve reserve deficit for the year Total equity Opening equity January 1, , , , ,884 Group contributions received 49,619 Total change in net assets recognized directly in equity, excluding transactions with shareholders 49,619 49,619 Profit/loss for the year 4,034 4,034 Total changes excluding transactions with shareholders 49,619 4,034 53,653 New share issue Transfer of accumulated deficit to legal reserve 10,334 10,334 Closing equity December 31, , , ,619 4, , SEK thousand (December 31) Opening equity January 1, , , , ,073 Group contributions received 50,486 50,486 Total changes reported directly against shareholders equity, excluding transactions with shareholders 50,486 50,486 Profit for the year 111, ,376 Total changes excluding transactions with shareholders 50, , ,862 New share issue Employee stock option program 1,290 1,290 Repurchase of own shares 13,770 13,770 Closing equity December 31, , ,668 1,380 91, , ,439 Cash Flow Statement, Parent Company SEK thousand (December 31) Note Operating activities Profit/loss before tax 95,152 15,262 Adjustment for non-cash items 108,885 2,424 13,733 12,838 Tax paid Cash flow from operating activities before change in working capital 13,971 12,944 Cash flow from change in working capital Change in operating receivables 75,202 12,786 Changes in operating liabilities 115,607 2,229 Cash flow from change in working capital 190,809 15,015 Cash flow from operating activities 204,780 27,959 Investing activities Acquisition of fixed assets 10 5,463 1,155 Divestment of financial fixed assets 0 0 Cash flow from investing activities 5,463 1,155 Financing activities Dividend 226,600 0 New share issue Repurchase of own shares 13,770 0 Cash flow from financing activities 213, Cash flow for the year 3,571 28,578 Cash, cash equivalents, and short-term investments, beginning of year 116, ,491 Exchange rate difference in cash and cash equivalents 0 0 Cash and cash equivalents, end of year 120, ,913 17

20 notes 1 Accounting principles Compliance with norms and laws The annual accounts have been prepared in accordance with the Swedish Annual Accounts Act, International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), and the interpretations of the International Financial Reporting Interpretations Committee (IFRIC) as approved by the EU Commission for application within the EU. In addition, the Swedish Financial Accounting Council s recommendation RR 30:06 on Supplementary rules for consolidated financial statements has been applied. The Parent Company applies the same accounting principles as the Group, except in the cases indicated under the section Parent Company s Accounting Principles. Any deviations between the polices applied by the Parent Company and the Group are a result of limitations in the scope for IFRS conformity in the Parent Company due to its application of the Swedish Annual Accounts Act and the Pension Protection Act, etc., and in certain cases tax considerations. Assumptions in the preparation of the financial reports for the Parent Company and the Group The functional currency of the Parent Company is Swedish kronor (SEK), which is also the presentation currency of the Parent Company and the Group. The consolidated financial statements are thus presented in SEK. Assets and liabilities are recognized at cost. The preparation of financial reports in accordance with IFRS requires the Board of Directors and Management to make estimates and assumptions that affect the application of accounting principles and the carrying amounts of assets, liabilities, revenue, and expenses. Estimates and assumptions are based on historical experience and a number of other factors which under current conditions appear to be reasonable. The result of these estimates and assumptions is then used to determine the carrying value of assets and liabilities otherwise not clearly indicated by other sources. Actual outcomes may deviate from these estimates. The estimations and assumptions are revised regularly. The effects of changes in estimations are reported in the period in which the changes were made if the changes affected this period only, or in the period the changes were made and future periods if the changes affect both the current period and future periods. When applying IFRS, assessments made by the Company s executive management and Board of Directors which have a significant effect on the financial statements and estimations made that may result in substantial adjustments to the following year s financial statements are described in greater detail in note 21. The following accounting standards for the Group have been consistently applied in all periods presented in the consolidated financial statements, unless stated otherwise below. The accounting principles of the Group have been consistently applied to reporting and consolidation of the subsidiaries. Changed Accounting Principles The same Accounting principles were used in the 2007 annual report as in the 2006 annual report. Segment reporting In accounting terms, a segment is an identifiable part of the Group that either supplies products or services within a certain economic environment (geographical area), or products or services (business segments) which are exposed to risks and opportunities that differ from those for other segments. Information about segments is only submitted for the Group, in accordance with IAS. The Group s activities are divided into three geographic regions: the Nordic region, North America, and EMEAA (Europe, Middle East, Asia, and Africa). This is the Group s primary segment. Operations are organized in the units Market Operations, R&D, Product Management and Finance and Administration.»Software«and»consulting and other«comprise the Group s secondary segments. Classification, etc. Fixed assets and long-term liabilities in the Parent Company and the Group essentially consist exclusively of amounts expected to be recovered or settled more than twelve months after the closing date. Current assets and current liabilities essentially consist exclusively of amounts expected to be recovered or settled within twelve months from the closing date. Principles of Consolidation Subsidiaries Subsidiaries are defined as entities over which Enea AB has a controlling influence. Control is the power to, directly or indirectly, govern the financial and operating policies of an entity so as to obtain benefits from its activities. When assessing whether one enterprise controls another enterprise, the existence and effect of potential voting rights currently exercisable or convertible is considered. Subsidiaries are recognized in accordance with the purchase method. Under the method an acquisition is treated as a transaction in which the group indirectly acquires the subsidiary s assets and assumes its liabilities and contingent liabilities. The consolidated cost is determined by an analysis at the time of the business combination. In the analysis, the cost of the participations or operations is determined, as well as the fair value of the identifiable assets and the assumed liabilities and contingent liabilities at the acquisition date. The cost of the shares in the subsidiary and the operations, respectively, consists of the fair values on the acquisition date for assets, liabilities incurred or assumed, and equity instruments issued and used as consideration for the net assets acquired and the transaction cost directly attributable to the acquisition. In a business combination where cost exceeds the net carrying amount of acquired assets and assumed liabilities and contingent liabilities, the difference is recognized as goodwill. When the difference is negative it is recognized directly in the income statement. The financial statements of subsidiaries are consolidated from the date of the acquisition until the date when control ceases. Transactions that are eliminated in consolidation Intra-group receivables and payables, revenue and expenses, and unrealized gains or unrealized losses arising in intra-group transactions, are fully eliminated in the preparation of the consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no indication of impairment loss. Foreign currency Foreign currency transactions Foreign currency transactions are translated into the functional currency at the exchange rate on the date of the exchange transaction. Foreign currency monetary assets and liabilities are translated into the functional currency at the exchange rate on the balance sheet date. Exchange differences arising on translations are reported in the income statement. Translation differences on non-monetary assets and liabilities, recorded at historical purchase values, are translated at the exchange rate on the date of the transaction. Non-monetary assets and liabilities carried at fair value are translated to the functional currency at the rate ruling when the fair values were determined, after which all resulting exchange differences are recognized in the same manner as other fair value adjustments for the asset or liability. The functional currency is the currency of the primary economic environment in which the company operates. Group companies consist of the Parent Company and subsidiaries. The functional currency and reporting currency of the Parent Company is Swedish kronor. The reporting currency for the Group is also Swedish kronor. Financial statements of foreign operations Assets and liabilities of foreign operations, including goodwill and other consolidated surplus and deficits, are translated to SEK at the exchange rate in effect on the balance sheet date. Revenues and expenses for a foreign operation are translated to SEK using an average exchange rate that approximates the exchange rates on the dates of the transactions. Translation differences arising on translation of foreign operations are recognized directly in consolidated equity as a translation reserve. When a foreign operation is divested, cumulative translation differences attributable to the company are realized in the consolidated income statement. Cumulative translation differences are reported as a separate category under equity, Reserves, under Translation Reserve, and consist of translation differences accumulated since January 1, Cumulative translation differences prior to January 1, 2004 are allocated to other categories under equity and are not recognized separately. Revenues Valuation of work in progress in service companies Revenue and expenditure are recorded in the statement of operations in relation to the assignment s degree of completion, which is determined on the basis of accrued assignment expenses in relation to the estimated assignment expenses for the complete assignment. Anticipated losses are charged to expenses immediately. Revenue recognition Services are mainly conducted on current account and taken up as revenue as the work is carried out. Services based on a functional undertaking are taken up as revenue linearly over the stipulated period as the services are provided. Projects carried out at a fixed price are recognized as revenue as the work is completed according to the percentage of completion method. If a risk of loss is deemed to exist, individual provisions are performed on an ongoing basis. The company also has revenue from software sales arising from royalties, license fees, service contracts and buyouts. Royalties and licence fees are recognized on an accrual basis in accordance with the substance of the relevant agreement. Licence fees and buyouts are taken up as revenue upon full delivery of the software according to the contract, when no essential obligations remain after the date of delivery. Support agreements usually cover a twelve-month period and revenues accrue during the term of the agreement. Criteria for taking license revenues up as revenue are: Written agreement signed by both parties. Delivery has occurred. License fees consist of a fixed amount or are calculated according to a reliable method and offer no option to cancel, or have a credit period of less than 12 months. Assurance of payment has been received. Software and other sales are taken up as revenue upon delivery, when control over the item is transferred to the buyer and revenue can be reliably calculated. Operating expenses and financial income and expense Payments under operating leases Payments under operating leases are recognized in the income statement on a straight-line basis over the term of the lease. Benefits received in connection with the signature of an agreement are entered as part of the total lease expense in the income statement. 18