Mycronic - Annual Report 2018 | FinancialReports.eu

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ANNUAL AND SUSTAINABILITY REPORT 2018

The business partner of choice, enabling the future of electronics

OVERVIEW

Mycronic in brief

Content

Overview and strategy

Mycronic in brief

1 Mycronic in figures
2 CEO comments
4 Strategy: Outlook
6 Strategy: Goals and priorities
8 Strategy: Value creation
10 Strategy: Innovation

Operations

11 Offering: Introduction
12 Offering: Assembly Solutions

Mycronic has developed innovative solutions for advanced electronics production since the 1970s. In the same spirit, we continue today to help our customers to create worldleading production solutions for electronics and display manufacturing with rigorous demands on precision and flexibility. Our operations are conducted through two business areas: Assembly Solutions and Pattern Generators.

Assembly Solutions holds a leading position within systems

for electronics production with a complete offering for SMT, inspection, dispensing solder paste and mounting fluids. Within the field of automation, Mycronic is also leading in assembly equipment for manufacturing camera modules to the automotive industry, and die-bonding systems for manufacturing optoelectronics and microelectronics.

Pattern Generators holds a unique position as the only supplier of mask writers to produce advanced photomask,

which in turn are used by global electronics producers when manufacturing advanced displays for products such as mobile phones, tablets, TVs and computer.

A large share of Mycronic’s net sales is derived from aftermarket business where service is provided to in excess of 3,000 customers in more than 50 countries with over 12,000 installed systems.

18 Offering: Pattern Generators
24 Mycronic’s sustainability report
38 The share

Annual and consolidated accounts

40 Report of the directors
46 Corporate governance report
50 Board of Directors and auditors
52 Group management
54 Financial overview
55 Proposal on disposition of accumulated results

Financial reports

56 Group
60 Parent Company
64 Notes
88 Audit report

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WHO WE ARE

We are innovators with a genuine passion for technology. Our company has more than 1,200 dedicated employees in ten countries around the world. Read more on pages 1 and 10

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WHAT WE DO

We create world-leading production equipment for electronics and display manufacturing with rigorous demands on precision and flexibility. Read more on pages 11–23

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OUR DIRECTION

Mycronic will continue to grow profitability, strengthen its market positions and use leading innovation to create additional value for customers. Read more on pages 2–9

Other

91 Definitions
92 Glossary
93 Shareholder information

Order intake

Net sales

EBIT

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SEK million SEK million SEK million
4,000 4,000 1,000
3,000 3,000 750
2,000 2,000 500
1,000 1,000 250
0 0 0
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
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OVERVIEW

A Swedish innovative company with global operations

Mycronic is a global high-tech company, based in Sweden, that develops, manufactures and markets production equipment which meets the electronics industry’s high demands for precision and flexibility. We have more than 40 years of experience in innovation and developing world-leading production equipment for electronics and display manufacturing.

Mycronic’s innovative capacity and long experience has produced a strong patent portfolio that helps to boost our competitiveness. Innovation work and patent operations are important elements of Mycronic’s strategy.

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Mycronic’s strategy.
>
99% >
1,200
of sales are from
employees in ten
outside of Sweden
countries
>
500
patents
>
40
years of experience
in innovation
> >
50 3,000
With more than 40 years of countries customers and more
experience from development, than 12,000 production
we create world-leading pro- systems
duction solutions for electron-
ics and display manufacturing.
Part of Mycronic’s strategy is to be close to its customers.
Today, we have over 3,000 customers in more than 50 coun-
tries and a total installed base in excess of 12,000 systems.
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Mycronic | Annual and Sustainability Report 2018

CEO COMMENTS

Record figures made possible by long-term business development

Mycronic’s record figures for 2018 provide confirmation that the strategy we have consistently followed since 2013 is delivering. Through our selective acquisitions, unique capacity for innovation and ability to understand the needs of electronic manufacturers and end-users, we have continuously reinforced our offering and our position over the past five years.

It has been a fantastic journey. A successfully implemented strategy, together with the collective expertise, innovative capacity and technological know-how that is characteristic for Mycronic, has paved the way for this year’s record result.

The current strategy was adopted in the autumn of 2013. This has resulted in the transformation of Mycronic from a company with all of its development and manufacturing in Sweden into what has become today – a global company with more than 1,200 employees in ten countries and with nine development units and five production units on three continents.

A stronger company

Mycronic is in all respects a stronger company now than it was in 2013. We were then, as we are now, clear in our ambition to strengthen our position in existing market segments while expanding in adjacent areas. Our leading product development and unique innovative capacity combined with seven selectively chosen acquisitions means we can, five years on, see that our efforts have borne fruit.

As the only supplier in the world of laserbased mask writers for advanced photomasks, we have been successful in continuing to revolutionize the production of high-resolution displays. We have grown in the Asian market. In Assembly Solutions, we now have a leading position in several market segments, where we previously only offered service in surface mount technology. Assembly Solutions now also offers advanced and flexible production solutions in inspection, dispensing and assembly automation. In the latter segment, the acquisition during the year of MRSI Systems has enabled us to also offer die-bonding systems for manufacturing opto and microelectronics. The Group’s aftermarket and service offering has grown and now accounts for almost 30 percent of Mycronic’s sales.

We are convinced that profitability and sustainability go hand in hand. Combining customer demands to quickly produce new, high-performing products with sustainability is a complex challenge, at the same time as it offers growth opportunities for innovative companies such as Mycronic. As a leading supplier, we are firmly committed to continue creating advanced and flexible production solutions that are capable of rapid changeovers, highquality production while helping customers to switch to more sustainable electronics production.

Our rapid growth has been achieved while maintaining profitability, and our acquired units are making significant contributions. As a result of our strategic shift, sales have increased almost fourfold – from almost SEK 1 billion in 2013 to almost SEK 3.8 billion in 2018. Operating profit during the corresponding period grew more than 31 times and EBIT for the year exceeded SEK 1 billion, the first time in Mycronic’s history.

Employees and the corporate culture we have developed are key factors behind our success. Year by year, each employee has contributed to achieving Mycronic’s goals, through their expertise and their commitment to the company’s vision and strategy.

Capacity for innovation for efficient and sustainable electronics production Mycronic has always had the courage to be one step ahead. We continuously read and interpret the market and have particularly analyzed in detail the requirements and wishes of customers and end users. We have noted a favorable order intake for our advanced and competitive production solutions with related software and aftermarket solutions. In Assembly Solutions, our software-based complete solution

Positioned for constant development

The electronics industry is a global, mature industry that is growing in line with or slightly faster than the global economy. It is also an industry that is technologically complex and in most segments strongly competitive.

Ordinary consumers constantly want increased functionality, better image quality,

Mycronic has had the courage to be one step ahead and continues to create unique customer solutions

Mycronic 4.0 is one clear example of how we have developed a production concept that helps our customers to increase productivity and manage the complexity of cutting-edge electronics production when just-in-time production is vital. We also strive to systematically improve sustainability aspects of our products to become a good example for the global industry moving forward. For example, since 2017 we have run a project to radically reduce the energy consumption of mask writers, as the lasers used in mask writers are energy-intensive and are our single greatest source of carbon emissions.

and longer battery life in mobile phones or other electronics. Despite shorter product life cycles, most of us are at the same time interested in buying a product that is sustainable from a social and environmental perspective. The leading manufacturing companies are increasingly integrating sustainability into their business operations, which makes greater demands on us as a supplier of production solutions. Resource use in manufacturing, choice of materials and the volume of electronic waste are examples of sustainability issues that the industry is endeavoring to improve.

Mycronic | Annual and Sustainability Report 2018

CEO COMMENTS

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We have about 400 employees and consultants working with research and development, which has created a solid portfolio with more than 500 patents. To maintain and strengthen the capacity for innovation, it is essential to interact with stakeholders, conduct initiatives to be an attractive employer and to carry out systematic work with diversity. Mycronic is striving to attract, retain and develop cutting-edge expertise and to capture the perspectives of employees with unique personalities, experiences and knowledge. Employees, who work in strategic partnering projects with customers, production equipment manufacturers and leading universities, are driving developments forward.

Solid basis for next step

As I step down as CEO for Mycronic in the spring

of 2019 and hand over to Anders Lindqvist, I do it in the assurance that I am passing on a company with a solid basis for continued profitable growth. Mycronic has a strong team that year after year have demonstrated that it is possible to develop world-leading products, improve market position at the same time as addressing necessary investments in, for example, administration, market and IT systems in a balanced manner.

It has been a fantastic journey to be involved in the transformation of the company together with employees who in a patient, constructive and determined way have improved essentially all areas of the business. This is an impressive achievement in an organization that is rapidly expanding.

There is potential to further improve the

business to make optimal use of the expertise, synergies and economies of scale present within the Group. Supported by this and with continued focus on Mycronic’s established strategy, I am confident that Team Mycronic will continue to do its utmost to create attractive customer solutions that add value. I would like to express my thanks to all employees and stakeholders for making my years at Mycronic into this fantastic journey.

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Lena Olving President and CEO

Mycronic | Annual and Sustainability Report 2018

STRATEGY: OUTLOOK

How we are addressing conditions in the market

Substantial and robust market

The global electronics industry is substantial and constitutes in its entirety just over 3 percent of the total global economy. Overall, the market is robust and the electronics industry is expected to maintain a favorable growth rate of 3.7 percent per year until 2022 (Prismark, December 2018). In 2018, the global electronics industry is expected to have grown to just over USD 2,130 billion (Prismark, December 2018).

The electronics industry is mature, albeit constantly changing. Previously it was strongly influenced by individual dominant driving forces, such as personal computers or mobile communication, but is now driven by developments in a number of additional segments, such as industrial electronics, the automotive industry, medical technology, aviation, space and defense and security.

Seen from a 20-year perspective, Asian markets have driven growth in the electronics industry. According to the research firm Prismark, growth is now more balanced across regions. Asia is still exhibiting a high growth rate and is expected to achieve annual growth of just over 3 percent for the period until 2022 even if the historically high growth rate in China is expected to slow slightly. The USA and Europe are also strong regions that are expected to demonstrate annual growth of just over 3 percent until 2022 (Prismark, October 2018). An increase in electronic content in products and greater prosperity is driving the industry forward, while the current electronics industry has been impacted by developments in the global economy, including events such as political turmoil, increased protectionism and trade agreements.

Mycronic’s perspective

Mycronic has grown rapidly and built a strong global market position. The macroeconomic situation combined with the electronics industry’s trenddriven development has created a continued demand for manufacturing solutions, both in the form of capacity and performance, which Mycronic is addressing with unique production solutions in the company’s business areas. For Assembly Solutions, market developments contribute specifically to increase demand in regions and industrial segments where the business area has its strengths, for example in manufacturing equipment in the automotive industry, optoelectronics and other high-value production in the manufacturing industry. From a geographical perspective, we have a strong position in key markets in Europe, the USA and Asia.

We are now established in all strategically important markets and Mycronic’s installed base with more than 12,000 systems is in over 50 countries. Our manufacturing solutions are used by various customers in small and large-scale electronics manufacturing.

Continual development in the electronics industry

A combination of end-user demands and the product and market innovation in global electronics companies are the main factors driving the industry forward.

From a consumer perspective, expectations for electronics products center around increased functionality, better image quality, longer battery life and a better experience. The cost of electronics is gradually falling. The lower cost scenario is often used to increase the value for end-users through stronger performance and better product properties.

Current displays are increasingly based on newer AMOLED technology that provides better image characteristics and allows greater variation and design of displays, such as bending and folding displays. In the future, end users can expect mobile devices with displays that are 1.5–2 times larger that demonstrate the same or better quality.

As mobile phones become less important for the electronics industry, demands from other segments become more important, with the automotive industry as one such example. This entails increased demands on reliability, flexibility and accuracy in the manufacturing processes. As cars become more advanced and the development of autonomous vehicles progresses, the electronics industry is changing even more.

The presence of electronics in society is expected to continue to increase, which is driving long-term demand for greater production capacity. Access to modern and flexible manufacturing equipment is essential if electronics producers are also to provide their own market innovations and at the same time meet rising demands from end users for better functionality.

Mycronic’s perspective

In recent years, investments in our offering have strengthened Mycronic’s market position. Together with sustained initiatives in research and development, our acquisition strategy is contributing to the creation of an offering that helps our customers to meet the demands of an electronics industry that is constantly changing.

The latest acquisitions of Vi TECHNOLOGY and MRSI have broadened our offering in key segments. To date, the completed acquisitions have more than doubled the addressable market for Mycronic. However, Mycronic is also strengthening and supporting offerings in every business area with new and better solutions. One such example is the complete assembly solution MYPro Line developed for smart factories. Another example is Mycronic’s Prexision-800 system for photomask production that satisfies requirements faced by a growing number of players in the display industry today.

Investment carried out within the scope of Mycronic’s product development program have created a strong portfolio. At the same, we are proactive in broadening our addressable market, through our own initiatives within existing operations and through acquisitions.

As a natural part of Mycronic’s long-term strategy, we have continued to work to develop production systems that address demands in growing markets.

Mycronic | Annual and Sustainability Report 2018

STRATEGY: OUTLOOK

External factors that impact our operations include stringent demands from end users on new technology and the industry’s market development, including digitalization’s growing role for electronics manufacturing and display production. A selection of the driving forces that are changing conditions in the electronics sector and in our business are described below. Mycronic addresses developments in the business environment through the company’s long-term strategy and presents here an overall impact assessment from our perspective.

Digitalization creates new business opportunities

The digitalization of our surroundings is widely evident, such as in mobile communication, automated services, smart assistants in devices, including mobile phones and speakers, e-commerce, medical systems and smart vehicles, to name a few. Society is becoming increasingly digitalized and automated, which is driving and is driven by developments in the electronics industry.

Digitalization impacts all steps in the chain, such as components, electronic devices, infrastructure, software and digital services. Infrastructure includes, for example, large-scale datacenters, established telecom and datacom links as well as the approaching roll-out of 5G. These in turn are driving rising demand for optical communications, based on sophisticated optoelectronics to reach high transfer rates. Digital services and software solutions utilize new breakthroughs such as artificial intelligence and drive the market forward. Connected and intelligent electronics make greater demands on, for example, sensors and low power electronics.

Strong growth in the number of cameras and other sensor systems for advanced integrated driver assistance in modern cars has also contributed to the digitalization of the automotive industry. The field of advanced driver assistance is rapidly expanding and in 2022 the average car is expected to be fitted with at least three cameras (Prismark, May 2018). As digitalization of the automotive industry continues, autonomous vehicles will become more widespread.

Shorter production cycles increase demands

A faster path from development to finished product, increased expectations on the manufacturers’ delivery speed and greater customization to the needs of the end users are all examples of driving forces that are shortening production cycles in the electronics industry.

An electronic product and its characteristics are defined by its building blocks, meaning the electrical components, the manner in which it is put together and by software. The range of components is enormous and ways they can be assembled are countless, which offers electronics manufacturers opportunities to design products that meet their requirements. The ability to quickly and efficiently manufacture pre-series and production lines is a competitive advantage for manufacturers and they also therefore require flexible production solutions. The need for flexible solutions while maintaining efficiency and high quality is also moving gradually higher up in production volumes. Overall, these demands result in production systems that are more integrated and automated with a higher degree of intelligent software support.

In the display industry, the increase in variation is driven by the integration and customization of displays to more product types. Previously, the use of one or more displays was primarily concentrated to computers, TVs and mobile phones, but now cars, watches, dishwashers and information screens are also fitted with more displays.

Mycronic’s perspective

We are adapting our offering to meet demands in customer segments where conditions have changed, which is in line with the company’s long-term strategy. The recent acquisition of American company MRSI Systems, which manufactures die-bonding systems for high-precision assembly of optoelectronics and microelectronics, complements Mycronic’s offering in an expanding market segment.

In addition to Mycronic’s established operations in SMT and dispensing, we currently provide advanced inspection systems and automated assembly solutions for assembling and testing highly precise camera modules, referred to as CMAT systems This enables us to address demand in the rapidly growing markets for advanced automotive electronics.

Digitalization also influences our customers’ production environment and Mycronic is constantly striving to increase the degree of intelligence in our own production systems. In this area, we offer, for example, the software-based complete solution Mycronic 4.0 for the intelligent control of production.

There is gradually increasing demand within the electronics industry for automated production solutions that enable more just-in-time production, where the right amount of circuit boards are produced at the right time to minimize inventories.

The changeover capacity and ability to adapt the production equipment to various production environments is increasingly important. Historically, Mycronic has been highly competitive in flexible production and will also continue to lead developments in the field in the future. Mycronic’s automated and flexible complete solutions with entire assembly lines for electronics manufacturing also provides us stronger opportunities to meet demand driven by the increasing diversity of the electronics industry.

In the Pattern Generators business area, Mycronic is focusing on satisfying the needs of global display manufacturers for increased capability, while we support the industry’s capability demand for the production of different types of photomasks.

Mycronic | Annual and Sustainability Report 2018

STRATEGY: GOALS AND PRIORITIES

Our strategy stands firm

Mycronic’s strategy has been consistently implemented since 2013. The success created by the realization of the strategy has reinforced belief in ourselves, improved our market position and created the right conditions for new initiatives.

Mycronic’s strategy, expressed in financial goals and five strategic guidelines, defines the way forward. It is a forward-looking strategy based on our ability to convert investments into value for our customers and other stakeholders while we continue to grow and remain profitable over time.

Consistent execution of the established strategy and continuous adaption to market

conditions have resulted in a positive financial performance. The earnings trend shows that Mycronic’s strategy is right, though it is also important to enable necessary investments for the future and address market developments in a rapidly changing business environment.

During the past year, Mycronic has carried out many different activities that jointly contribute to the pursuit of our strategic direction

and the realization of the company’s financial goals. Work on the strategy and its prioritized activities are monitored and measured at many levels. The following is a presentation of a small sample of events and activities from 2018.

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Strategic direction Main activities in 2018
Strengthen the position – First Prexision-800 system delivered to a customer in Asia. The system sets a new standard by producing
as a leading supplier within patterns that are almost 25 percent more compact than previously possible.
existing market segments – Launch of SMD Tower 8000, the ultra-compact, storage solution close to production for electronics
components
– Pattern Generators’ system FPS8100 launched to meet increased demand for photomasks for manufacturing
fine metal masks, used for the deposition process of organic material used when manufacturing OLED displays
– Work to leverage synergies in acquired units continued through, among other activities, greater focus on
cross sales between the acquired units’ customer bases
Profitable growth within – Mycronic acquired MRSI Systems and broadens its offering to the automotive industry, driven by ADAS1
adjacent market segments and autonomous vehicles
– Development of the smart assembly solution MYPro Line and the compact SMT systems MY300HX and
MY300EX
Profitable growth in Asia – Of Mycronic’s approximately 1,200 employees, more than 500 are located in Asia
within existing and adjacent – Mycronic is engaged in product development together with strategic partners in Asia
segments – More than 60 percent of Mycronic’s net sales are found in the Asian markets
Ensure innovative – A center for deep learning was set up, together with partners, in San Jose, California to effectively leverage
capacity for increased deep learning’s potential for electronics manufacturing to drive technology development in the industry
competitiveness – Research and development remained a prioritized area while work in the nine different development units
was coordinated to fully realize synergies in acquired companies
– The company has continued to consistently implement the strategy to further strengthen the platform for
future growth
Value creation through – Work continued with clear ambitions and activities to reduce environmental impact at a Group-wide level,
focus on sustainability ensure responsible business, drive innovation and social responsibility
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1) Advanced Conducting Assistance Systems

Mycronic | Annual and Sustainability Report 2018

STRATEGY: GOALS AND PRIORITIES

Mycronic’s mission, vision and our value are important principles in our business operations. In combination with the company’s strategy, these help to express our aim, what we wish to achieve and how we are to act.

VISION

The business partner of choice, enabling the future of electronics.

VALUES

Passion for business
Passion for people
Passion for technology

MISSION

We aim to be the market leader within our key segments across the globe
We continuously improve and develop innovative solutions, products and services to meet the changing needs of our customers
We do not compromise with our goal to deliver sustainable growth, profitability and shareholder value
We meet our challenging goals by engaging the passion and talent of people dedicated to deliver

Mycronic’s long-term financial goals

Growth 5 billion

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Profitability
>15%
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Capital structure
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< 3x
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Net sales, including acquisitions shall reach SEK 5 billion at the end of the business plan period.

Net sales in 2018 were SEK 3,781 million. The net sales target shall be reached through a combination of organic growth and acquisitions.

EBIT before interest and tax shall exceed 15 percent of net sales over a business cycle.

This year’s EBIT margin of 27 percent is primarily due to strong mask writer sales. In 2018, seven mask writers were delivered.

Net debt shall not exceed 3 times the average operating profit before depreciation, amortization, interest and tax. The average is calculated over a three-year period.

The possibility to take on debt allows the Group to expand further to achieve longterm growth and profitability goals.

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Net sales
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EBIT
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Net debt
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SEK million % SEK million SEK million
4,000 40 1,000 4,000
3,000 30 750 3,000
2,000
2,000 20 500
1,000
1,000 10 250
0
0 0 0 –1,000
2014 2015 2016 2017 2018 2014 2015 2016 2017 2018 2014 2015 2016 2017 2018
Net sales EBIT margin EBIT Net debt 3 times EBITDA
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Mycronic | Annual and Sustainability Report 2018

STRATEGY: VALUE CREATION

Long-term value creation

Our genuine commitment to technology development, people and our customers’ business creates the right conditions for a favorable result. This also provides a basis for meeting the expectations of customers, employees and society, which generates value for our shareholders.

Our stakeholders and their expectations

Operations and business model

With its comprehensive business operations and global market presence, Mycronic has a wide range of stakeholders whose trust in us as a company is one prerequisite for our operations. Our aim is to fulfill and exceed their expectations and we therefore maintain a continuous dialogue with our key stakeholders. The result of our stakeholder dialogue can then be used as an important input value for Mycronic’s long-term strategy and business plan.

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Customers

Customer requirements drive the direction of our core operations. Our customers have high expectations and demand dependable and high-quality production systems. High availability and proactive service are other areas valued by our customers.

Mycronic is a high-tech company that creates world-leading production solutions for global electronics producers in our two business areas. Properly functioning work processes are therefore a crucial part of Mycronic’s operations. One key for Mycronic’s diverse operations is a structure and organi sation that creates the right conditions for the various parts of our business model. This includes the whole spectrum, from continuous market analysis to product development, manufacturing operations, installation as well as service and support.

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Employees

Mycronic’s more than 1,200 employees work on a daily basis to realize our offering and implement the company’s goals. Their commitment, expertise and continuous development is crucial if we are to remain successful moving forward.

Shareholders

We have just over 15,000 shareholders, whose capital is a foundation for running our operations. Shareholders expect competitive and sustainable returns on their capital.

Suppliers and partners

As a manufacturer of advanced production solutions, Mycronic relies on suppliers and partners. Ethics, privacy and professionalism are therefore important and also a prerequisite in fulfilling our commitments.

Society as a whole

Mycronic as a company has an important role to play in society and is to contribute to economic growth and to create positive social values, particularly in regions where we conduct operations. Responsible and ethical business is a key factor for sustainable operations.

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Work process
Market analysis Prod
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Long-term strategy, customized offering, functional support systems, financial strength and clear corporate governance are continuous processes that together with our business model help us to achieve our goals.

Mycronic | Annual and Sustainability Report 2018

STRATEGY: VALUE CREATION

manner, socially, economically and environmentally. Good relationships with our key stakeholders and an ability to deliver a high level of quality over time is therefore essential if we are to be successful. In order to live up to the market’s and our own high standards, Mycronic works in accordance with a clear

As an innovation and development company and as a manufacturer of advanced production solutions for electronics and display production, Mycronic plays an important role and influences a number of players, worldwide. We are committed to conducting responsible operations and act in a long-term sustainable

Offering

Assembly Solutions provides a complete offering of production solutions for high-quality electronics production.

SMT includes equipment for non-contact application of solder paste, assembly of electronics components and necessary material management and storage solutions

Code of Conduct, and with Group-wide values that are deeply rooted in the organization.

Read more about Mycronic’s mission, values and Code of Conduct on pages 7 and 28

Mycronic consolidated earnings 2018

26% Net sales growth

Inspection equipment with three-dimensional machine quality assurance, which ensures reliable and qualitative production processes
Dispensing in the form of equipment for high-speed dispensing of solder paste, application of mounting fluids, and coating of circuit boards
Assembly automation with equipment for high-precision assembly of camera modules, for example to the automotive industry, together with die-bonding systems for manufacturing optoelectronics and microelectronics

Aftermarket

Mycronic provides support services at several different levels for all production solutions in both Assembly Solutions and Pattern Generators. Service agreements form an important part of our offering and business model given that service operations ensure the performance and reliability of the production equipment we deliver to our customers. The aftermarket also contributes with stable revenue.

Pattern Generators offers mask writers that are indispensable for manufacturing photomasks. Photomasks are used by world-leading electronics manufacturers for production of the advanced displays used in mobile phones, tablets, TVs and computers, and for applications within, for example, electronic packaging.

21% Increase in EBIT 29% of net sales is derived from aftermarket

1 major acquisition in the form of the American MRSI Systems

Mask writer for manufacturing photomasks that are required in the production of the most advanced displays
Multi-purpose, which is a collective name for mask writers that draw photomasks for use in applications other than displays, for example, electronic packaging, touch screens, or advanced 3D structures.

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– Measuring machines that verify and ensure the quality in manufactured photomasks
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20% increase in proposed dividend

Mycronic | Annual and Sustainability Report 2018

STRATEGY: INNOVATION

Mycronic is investing just over 12 percent of the company’s net sales in research and development for the future. With about 400 employees and consultants dedicated to R&D operations, innovation work is crucial if we are to remain successful moving forward.

the Group’s innovative capacity in the area of die bonding and flexible high-precision equipment for manufacturing electronics assembly systems. Also the most recent acquisition of a minor development company in Japan has strengthened our innovative capacity moving forward.

The clear strategic direction – to ensure innovative capacity to increase competitiveness – enables us to prioritize development efforts as a core component in the company’s strategy. Mycronic’s research and development work is based on Group-wide initiatives and projects, and through business area ventures. Overall, about 400 employees and project-specific consultants work with research and development activities.

Innovation on several levels

To maximize the value generated by our innovation initiatives, Mycronic is working cross-functionally according to a structure that creates space for joint-platform technology development and dedicated product initiatives that further develop existing systems.

Global development work

Our global development work is distributed between nine units in seven countries and includes the innovation hub at the headquarters in northern Stockholm as well as own development or with partners in the USA, France, the Czech Republic, Germany, China and Japan. During the past year, Mycronic has also set up a deep learning center in San Jose, California, together with partners. Mycronic’s acquisition of MRSI Systems in the USA has further reinforced

This ensures a competitive offering for the needs of both today and tomorrow.

Our reputation attracts innovative capacity

Mycronic’s operations and culture has for some time been characterized by continuous

development and pioneering innovation. Our reputation therefore helps us to attract and retain cutting-edge expertise that is crucial if we are to develop new systems and solutions. As an innovative company with well-established cutting-edge expertise and growth ambitions, Mycronic is constantly seeking committed and talented employees for its research and development activities, both in hardware and software.

Software solutions for the future

Software development is an important part of our strategic research and development operations. From a strategic perspective, Mycronic is pragmatic and therefore collaborates with other parties where joint development with other players favors both parties. Currently, Mycronic has more than 60 ongoing collaborations with carefully chosen operators. Several of these projects aim to develop software that is necessary for the production solutions of tomorrow.

Mycronic’s research and development operations follow the Group’s product development strategy, which extends over several years.

Read more about Mycronic’s innovation efforts on pages 34–35

Mycronic | Annual and Sustainability Report 2018

OFFERING: INTRO

High-tech and comprehensive offering

We develop and manufacture world-leading production solutions for the electronics industry and advanced laserbased mask writers for the production of photomasks used in the manufacture of displays. With a leading market position in both of Mycronic’s business areas, we are constantly endeavoring to develop our offering further.

Assembly Solutions provides a complete offering of production solutions for high-quality electronics production.

Assembly automation

Surface mount technology Equipment for the production of circuit boards and storage solutions. We supply, for example, the unique MY700 system for non-contact application of solder paste, the flexible assembly robot MY300 and the intelligent storage tower SMD Tower.

Dispensing

Inspection

Equipment for the assembly of camera modules and die-bonding systems for the production of optoelectronics.

Inspection solutions from Equipment for high-speed Vi TECHNOLOGY for electronics dispensing of solder paste, appliof the highest quality. We offer cation of adhesives, and coating advanced inspection equipment of circuit boards. In this area, for three dimensional inspections Mycronic offers a comprehensive of solder paste on PCBs and for range of products under the Axxon mounted components on circuit brand in China and parts of Asia boards. or under the MYSmart brand in the rest of the world.

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Mask measurement system The new generation of measuring systems for position measurements in the production of photomasks.

Multi-purpose

Advanced mask writers

The new generation of mask writer systems, including Prexision-8/-10, Prexision-80 and Prexision-800 for the display industry.

The FPS series with systems including FPS6100 and FPS8100 for a range of applications, such as advanced electronic packaging and touch screens.

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Aftermarket

Mycronic provides support services for all production solutions in both Assembly Solutions and Pattern Generators.

Mycronic’s two business areas operate in various segments, but are both engaged in innovative and technology-driven operations that can benefit from shared research and development and coordinated business solutions and back-office functions

Mycronic | Annual and Sustainability Report 2018

OFFERING: ASSEMBLY SOLUTIONS

Assembly Solutions

Outcome 2018

Order intake for 2018 increased 51 percent year-on-year to SEK 2,149 million (1,424)
The underlying EBIT, excluding acquisition-related costs, improved significantly to SEK 125 million (19) in 2018
Investments in product development within Assembly Solutions continued. These investments are necessary to secure future growth and competitiveness

Assembly Solutions in figures

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Net sales by region
EMEA, 38%
Americas, 25%
Asia, 37%
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Customers

3,000 customers in more than 50 markets worldwide

	Keyratios 2018 2017 Order intake, SEK million 2,149 1,424 Net sales, SEK million 2,012 1,419 Gross margin, % 42 39 EBIT, SEK million 69 -88 EBIT margin, % 3 -6 Underlying EBIT margin, % 6 1 R&D costs, SEK million 322 280

Mycronic | Annual and Sustainability Report 2018

OFFERING: ASSEMBLY SOLUTIONS

Complete solutions that enable the electronics of tomorrow

Initiatives to further develop an already competitive offering strengthen the position of Assembly Solutions. By combining flexibility, precision and reliability, we deliver production solutions for the electronics of the future. Our ability to meet customer requirements both today and tomorrow create the prerequisites for growth and increased profitability.

Substantial and robust market

The global electronics industry is solid and is expected to continue to grow by an average of 3.7 percent per year until 2022 (Prismark, December 2018). The industry as a whole is mature and established at the same time as it is in constant change in pace with market developments. Previously it was influenced by individually strong segments, such as personal computers or mobile communication, but is now driven by developments in a number of different segments where highly reliable electronics applications are increasingly important in consumer products, industrial electronics, the automotive industry, medical technology, aviation, space and defense and security. In 2018, the global electronics industry is expected to have grown to just over USD 2,130 billion (Prismark, December 2018). Market growth and developments in the electronics industry’s various segments help to boost demand in all divisions within Assembly Solutions.

Demand for advanced production systems for electronics manufacturing remains high and growth is now more balanced across different regions. Asia is still exhibiting a high growth rate and is expected to achieve annual growth of just over 3 percent for the period until 2022 even if the historically high growth rate in China is expected to slow slightly. The USA and Europe are also strong regions that are expected to demonstrate annual growth of just over 3 percent until 2022 (Prismark, October 2018).

From a broader geopolitical perspective, the established and strong electronics industry is also impacted by a general increase in prosperity worldwide and business environment changes in the form of regionalization of markets and the design of trade agreements.

Sustained consumer trends influence market developments

The rate of growth in the electronics industry is based on a number of interacting driving forces,

where the needs of end users is an important factor. This is a significant trend for Assembly Solutions. End users expect increased functionality, better image quality, longer battery life and a better experience in each electronics product. Even if the price levels in different product groups may vary, increased functionality is expected to add to products while the price level remains relatively constant.

Furthermore, the importance of these consumer trends grows when an increasing number of products contain more electronics. New consumer electronics will moreover be smaller and more energy efficient while increasing awareness in both the consumer and supply chain will gradually raise demands on more efficient and responsible resource utilization.

New segments in the electronics industry, with the automotive electronics industry as one clear example, are emerging and bring with them demands for precision in manufacturing operations and assembly processes. As cars become increasingly advanced and are being equipped with more electronics, such as computers, control systems, light sources, displays, and sensors, market developments are contributing to a steadily growing segment.

Changing circumstances

for electronics manufacturers

The fierce competition in the electronics industry is driving the constant pursuit of competitive advantages between players. Production systems that can satisfy market demand are therefore increasingly important.

This development is an advantage for Mycronic and we can see clearly how consumer behavior in combination with the product and market innovations from electronics systems suppliers are reflected in how our customers are developing their production systems.

Jointly, Assembly Solutions’ four divisions offer a complete solution to customers as they face new challenges in manufacturing. At an

overall level, this means production processes are influenced by the diversity of consumer electronics.

A faster path from development to finished product, and increased expectations on the manufacturers’ delivery speed are examples of driving forces that are shortening production cycles in the electronics industry. The ability to quickly and efficiently manufacture pre-series and production series is a competitive advantage for manufacturers and they also therefore require flexible production solutions. In addition, the need for solutions that provide an efficient changeover of products, while maintaining productivity and high quality, is moving gradually higher up in production volumes. Overall, these demands result in production systems that are more integrated and automated with a higher degree of intelligent software support.

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Positioned to achieve goals Assembly Solutions noted strong growth in 2018 with favorable conditions for continued profitability and growth. The robust investments in recent years in the offering, combined with a number of strategic acquisitions, including this year’s acquisition of the US company MRSI Systems, have given us a good position in the global market for advanced production equipment to the electronics industry.

Our installed base of more than 12,000 systems and 3,000 customers in the business area is significant and our strong market presence offers us the right conditions to further expand our aftermarket business.

Mycronic | Annual and Sustainability Report 2018

OFFERING: ASSEMBLY SOLUTIONS

Sought-after systems for a wide range of applications

sity of consumer electronics is shortening production cycles, which is driving demand for production lines with efficient changeovers, a field where Mycronic is world leading.

As the leading Swedish high-tech company supplying the electronics industry with highprecision, flexible and reliable production equipment, Mycronic is addressing a market in continuous change. In recent years, we have changed our position in Assembly Solutions. Historically, the main focus was on flexible SMT systems with multi-purpose functionality that was easy to changeover. Mycronic is now a supplier of complete solutions for electronics manufacturing.

Mycronic’s customer-focused offering gathers together, in addition to comprehensive aftermarket services, many different types of production equipment within the four divisions; surface mount technology, inspection, dispensing and assembly automation. Together with our assembly process software solutions, we help to solve our customers’ challenges in an increasingly complex production environment.

Four divisions create a comprehensive offering

Surface mount technology

Mycronic is endeavoring to expand the company’s addressable market, which is one reason why we are continuously broadening and strengthening our offering. We achieve this through initiatives within existing operations and through acquisitions. In the past year, Mycronic acquired the American company MRSI Systems, which manufactures die-bonding systems for high-precision assembly of optoelectronics and microelectronics.

Within the surface mount technology division, also referred to as SMT, Mycronic offers several types of production systems for flexible and just-in-time electronics manufacturing. Our complete solutions for SMT include machine platforms for high-speed dispensing of solder paste and adhesives, for mounting of electronics components onto circuit boards, for inspection of solder paste and mounted circuit boards as well as board handling systems. In addition, storage solutions and process software comprise important elements in our complete solutions.

We strive to improve the ability of our customers to maintain flexible, reliable and profitable electronics production. Mycronic’s production equipment must therefore satisfy the manufacturing demands of both today and tomorrow. The continued miniaturization is driving the trend toward ever smaller components, circuit boards with higher packing densities, and new production technologies. Moreover, consumer demands on product quality and constantly improved experience at a lower price create a need for more automated production solutions that enable more just-intime production, where the right amount of circuit boards are produced at the right time to minimize the build up of inventories. The diver-

The market

The market for manufacturing equipment associated with surface mount technology was valued at approximately USD 4,800 million in 2018. Pick-and-place machines comprise the largest segment with sales of USD 3,070 million (Protec, January 2019). Year-on-year growth was 17 percent, which illustrates a market that is continuing to grow.

Our SMT customers are usually small or medium-sized subcontractors to both small and

Assembly Solutions offers production equipment in four divisions

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Surface mount Inspection
technology
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Dispensing Assembly
automation
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Smart production planning

Electronics production today, with ever-shorter production series, requires more changeovers of the manufacturing process for new products with larger material and information flows in the factory as a result. At the same time, electronics producers are constantly striving to efficiently use both staff and production systems. This is made possible with an infrastructure that offers data-driven preparation of production data, smart production planning, optimization of production lines and a high degree of automation.

large electronics systems suppliers or manufacturers of their own end products. Customers are found mainly within the space, aviation, automotive, energy, medical, IT and telecom industries. Mycronic’s jet printing technology has enabled us to also address high-volume manufacturers.

Our offering

Mycronic’s offering in SMT includes five main areas:

MY700 Jet printer, a unique technology for non-contact application of solder paste to PCBs
The MY300 pick-and-place machine offers the

Mycronic | Annual and Sustainability Report 2018

OFFERING: ASSEMBLY SOLUTIONS

Intelligent material management

Efficient material management, where the right material is available in the right location at the right time, is an important component to succeed with flexible electronics production. Automation and intelligent storage systems of electronics components play an important role in providing safe storage while a software system maintains realtime control of where the material is located in the factory, how it is used and that it is delivered at the right time to production.

Quality assurance

The manufacturing process in the electronics factory is monitored and quality assured using comprehensive software systems that collect and analyze real-time information from the various subsystems in the factory. On the SMT lines, automated inspection equipment conducts quality assurance on the circuit boards manufactured.

lowest changeover cost on the market for electronics manufacturers. With its unique design and high level of automation, it enables efficient and high-quality component placement

Products to inspect solder paste and mounted circuit boards
Material management systems, such as the new automated storage tower, SMD Tower 8000
Customized process software for factories

Our software-driven complete solution Mycronic 4.0 reinforces our leading position in the flexible electronics production segment, where just-intime production is crucial.

Traditionally, Mycronic’s customers manufacture electronics with high levels of added value in small or medium volumes. Customers therefore rely on flexible equipment that can easily be changed to manufacture new products.

Inspection

As part of our offering in SMT, Mycronic provides world-leading inspection equipment that identifies defects in circuit boards during the manufacturing process and helps to improve and enhance the efficiency of production.

The market

The market for inspection equipment to the

electronics industry includes systems to inspect solder paste (SPI) on PCBs, automated optical inspection (AOI) of mounted components on circuit boards and automated x-ray inspection (AXI) of circuit boards.

Our offering

The acquisition of Vi TECHNOLOGY in 2017 strengthened Mycronic’s position in the market for inspection equipment. Today, we have world-leading expertise in the field and provide products in three main categories: Mycronic’s K series for three-dimensional automated optical inspection of circuit boards, the PI series for advanced three-dimensional inspection of

Mycronic | Annual and Sustainability Report 2018

OFFERING: ASSEMBLY SOLUTIONS

(Prismark, May 2018). Dispensing and protective coating are areas that also extend outside the manufacturing electronics industry, for example in electronic packaging.

solder paste on PCBs and the software suite SIGMA Link, which provides customers with realtime information of the inspection process.

Following the acquisition of Chinese Axxon in 2016, Mycronic is now one of the world’s leading suppliers of dispensing systems and is aiming to become one of the two largest.

Dispensing

Mycronic provides equipment for dispensing adhesives, other mounting fluids and protective coating of circuit boards, which is important to secure the functionality of the electronic products over time and in difficult or challenging environments. The dispensing process is increasingly important in manufacturing operations and is now a natural stage in production to ensure the electronics can withstand vibrations, temperature, humidity and dirt. Mycronic’s offering in dispensing was strengthened with the acquisition of Axxon, which enables us to provide a comprehensive range of products under the Axxon brand in China and parts of Asia and under the MYSmart brand in the rest of the world.

Our offering

The electronics we use daily are found in environments where vibration, temperature, moisture, and dirt can affect the life of the electronics unless the right steps are taken in the manufacturing process. Dispensing of mounting adhesives and coating of circuit boards play an important role in securing the functionality of electronics over time.

Through Axxon’s technology, we can provide a comprehensive range of production equipment for dispensing and coating of circuit boards used in, for example, the consumer electronics, aviation, space and automotive industries in markets worldwide.

The market

The global market for dispensing is stable with sales of approximately USD 770 million in 2017

The product portfolio encompasses produc-

The manufacturing processes for electronics products are changing

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The manufacturing processes are changing in line with the rapid technology development of electronics products. For example, we have all witnessed the major changes in smartphones that are increasingly equipped with a variety of sensors, where high-resolution displays are standard, the processing power is increasing at the same time as products are becoming thinner and can withstand a tougher environment.

Mycronic provides many of the technologies that are completely necessary to meet industry demands for modern production equipment: advanced inspection equipment for the highest possible production yield, jet printing technology to produce electronics of the highest possible quality even for the most difficult applications, dispensing and coating robots for making the electronic component robust and flexible and precise robots for mounting electronic and optical components.

tion systems with dispensing and coating robots and a broad range of applicators to dispense the various adhesives, mounting fluids and coatings used in the production of modern electronics.

Mycronic’s customers can manage electronics production of existing and future products, mounting fluids and component types using the company’s dispensing and coating systems.

Assembly automation

The assembly automation market has existed in the electronics industry for some time, but is becoming gradually more important. Equipment for assembly automation is used in the aviation, space and defense industries, and for camera modules to the automotive industry and life science sector where a high level of precision and reliability are crucial. The continuing miniaturization trend is contributing to rising demand in the market. Assembly automation is also important in new growth segments, such as optics. The continuing digitalization of society requires faster communication speeds, which is in turn driving the development of bandwidth through optical communication based on optoelectronics.

Robotization is contributing to the development of assembly automation. Mounting steps that were previously difficult to automate can now, thanks to advanced robots, be automated. In addition, Assembly automation is absolutely necessary from a quality perspective as components become smaller and smaller and mounting requires extreme precision if the technology is to work.

Mycronic began operating in the area in 2016, following the acquisition of American AEi. This part of the Group’s operations offers automation solutions for assembly and test of highly precise camera modules. The largest customer segment here is for assembly automation to the automotive industry and automotive electronics.

Additional steps were taken in 2018 with the acquisition of MRSI, which provides diebonding systems for the production of microand optoelectronics used in the telecom, defense and aviation industries and in AR/VR electronics. Other application areas include

Mycronic | Annual and Sustainability Report 2018

OFFERING: ASSEMBLY SOLUTIONS

LiDaR (Light Detection and Ranging), which expands our offering to the growing market for automotive electronics.

The market

The market for assembly automation is broad and Mycronic’s addressable market has grown substantially through the acquisition of MRSI Systems. Even if developments in telecom and traditional industries – the defense and aviation sectors, life science and industrial electronics – are creating the need for advanced assembly equipment through their increased focus on sensors, the market potential is expanding through growth sectors such as automotive electronics.

The market for camera modules used in advanced driver assistance systems (ADAS) is one growing part of the automotive electronics segment. In terms of the number of camera devices for vehicles, the annual average growth rate is forecast at 18 percent until 2022, with 300 million devices (Prismark, May 2018) expected to be manufactured by the end of the period, which will create a capacity need for assembly equipment.

The field of LiDaR, which relies on optoelectronics to identify, measure and analyze surroundings, is driven by developments in advanced driver assistance, and by the area of autonomous vehicles.

Within the assembly automation division, where Mycronic addresses the market through its subsidiaries AEi and MRSI, our major customers are subcontractors of electronics and subsystems, for example to the global automotive or communications industries.

Our offering

Our offering in assembly automation is designed to meet market demands for both capacity and capability. Through AEi, Mycronic can provide advanced production systems for assembly and test of camera modules, so-called CMAT systems (Camera Module Assembly and Test) that are tailored to the customers’ various production needs.

In addition, we provide market-leading, flexible ultra-precise die-bonding systems for mounting optoelectronics and microelectronics through MRSI Systems.

Comprehensive service offering

The business area offers service and support to all production systems. With more than 12,000 systems in use worldwide, the company’s aftermarket operations account for an important part of our business. Aftermarket activities now account for about one quarter of the business area’s net sales. In acquired companies, the share is slightly lower which is why there is good potential to continue the

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implementation of our aftermarket offering in these units.

The aftermarket offering in Assembly Solutions includes both preventive and traditional service and maintenance, training in local markets in the customers’ production environment as well as application development, upgrades, and accessories. Aftermarket operations are being steadily developed to provide our customers with a better experience, which also contributes to stable and valuable revenue over time.

Assembly Solutions: Market opportunities

Manufacturers’ pursuit of new competitive advantages in the extremly tough electronics market generates business opportunities for Mycronic. Their needs to manage a more complex production process with new component technologies is driving demand for reliable production equipment with a high degree of flexibility.

Toward greater profitability

At the end of 2018, Assembly Solutions reported stable operations and that conditions remain favorable for continued growth and

profitability. The robust investments in recent years in the offering, combined with a number of strategic acquisitions, including this year’s acquisition of the American company MRSI Systems, have given us the correct position in the global market for advanced production equipment to the electronics industry.

By further customizing our offering and providing modules that can be integrated into a complete solution, we can make it easier for our customers to conduct efficient operations regardless of production environment. Mycronic is continuously striving to increase the degree

of intelligence in our production systems to meet the demand for factory environments that are increasingly intelligent and digital. In this area, we offer the software-based complete solution Mycronic 4.0 for the intelligent control of production.

Investments in research and development remain important for Mycronic’s innovative capacity. Furthermore, our strong local market presence, with service and support operations, and an opportunity to train our customers on-site is an important factor to help our customers develop their operations.

Mycronic | Annual and Sustainability Report 2018

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OFFERING: PATTERN GENERATORS
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Pattern Generators

Outcome 2018

Pattern Generators exhibited continuing strong profitability. EBIT was SEK 955 million (936) in 2018
The EBIT margin was 54 percent
In Pattern Generators, the first Prexision 800 system was delivered to a customer
The market for mask writers was favorable in 2018, which resulted in orders for seven systems

Pattern Generators in figures

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EBIT
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% SEK million
100 1,000
80 800
60 600
40 400
20 200
0 0
2014 2015 2016 2017 2018
EBIT margin EBIT
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Net sales
SEK million
2,000
1,500
1,000
500
0
2014 2015 2016 2017 2018
Net sales
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	Keyratios 2018 2017 Order intake, SEK million 1,492 2,143 Net sales, SEK million 1,769 1,581 Gross margin, % 71 73 EBIT, SEK million 955 936 EBIT margin, % 54 59 R&D costs, SEK million 154 68

Mycronic | Annual and Sustainability Report 2018

OFFERING: PATTERN GENERATORS

Consumer requirements driving demand

The Pattern Generators business area offers Mycronic a unique position as the world’s sole supplier of production equipment for the advanced photomasks that are essential for manufacturing complex displays.

Mask writers that make displays possible

The market for the Pattern Generators business area is equipment for manufacturing and measuring photomasks with related service of the systems. The offering mainly consists of mask writers for manufacturing photomasks to the display industry and measurement systems that quality assure photomasks by measuring the position precision of the written pattern.

Pattern Generators also offers mask writers for the broader multi-purpose segment that uses slightly less complex photomasks, for example, in electronic packaging, touch screens and advanced 3D structures. A very important element of the offering is also service and additional products to the installed base of systems that, in addition to display and multipurpose systems, also encompasses systems for semiconductor applications.

The business area’s innovative and technically highly advanced mask writers enable a high level of productivity and also extremely high quality and precision in writing complex patterns. For Mycronic’s customers, the ability to deliver increasingly advanced photomasks used in the development and manufacture of, for example, new designs of displays is crucial.

The photomask market is not directly related to the number of devices produced by the display industry. Demand for photomasks is primarily driven by technology shifts, such as the transition to AMOLED from LCD, larger displays, new types of designs for displays and increased demands on quality from photomask and display manufacturers and end consumers.

Positive momentum

The market trends for Mycronic’s customers, and their customers, remains stable and positive. The growing number of applications for displays, such as in portable electronics, medical technology and in the automotive industry, is driving the general demand for photomasks.

In addition, innovations by electronics manufacturers are contributing to greater product differentiation with different display types and

designs, which require new and often more photomasks to realize the product.

With these several interacting positive trends in the consumer market and a strong technology and product portfolio, Mycronic is in a good position to meet customer challenges.

Quality demands driving the market

Display users now make increasing demands on the display’s quality. Greater pixel density, more natural color rendering and black, rapid response time, thinner designs, lower energy consumption and material flexibility are all consumer demands that are driving developments in displays, and also the need for advanced photomasks.

The share pf mobile phones with very high-quality displays is expected to grow from 40 percent today to more than 50 percent by 2021 (IHS, May 2018).

With the roll out of 5G, the next generation of mobile network technology, new opportunities for connection and communication will be additional factors that will drive demand for new mobile phone designs, which will have repercussions for the demands made on new models and the photomasks required to manufacture these.

Transformation of the display industry

Mask writers from Mycronic produce photomasks that are then used by all manufactures during the development and manufacturing of advanced displays.

Following a decrease in the growth rate for the display industry by 8 percent in 2018, the rate is expected to grow by 4 percent in 2019 (IHS, February 2019), which is a normalization of the strong growth rate reported by the display industry in 2017. Long-term growth of display size is expected to remain stable as global demand for more, larger and better displays increases.

The displays used today and tomorrow will increasingly use AMOLED technology, which offers better imaging and allows greater flexi-

bility in the design of displays, such as bending and folding displays (see page 21).

The growing value

of complex photomasks

Future generations of more complex displays will require more and advanced photomasks and is therefore driving demand for more advanced mask writers – which Mycronic is constantly endeavoring to satisfy.

The growth in photomasks and revenue for photomasks will primarily be in the segment for advanced photomasks with higher value. Up to 2021, revenue growth for photomasks is expected to average 12 percent (IHS, May 2018).

Assuming the growth of photomasks, with a shift toward more advanced photomasks, the investment need for global manufacturers is centered on more advanced mask writers.

Upgrading installed base

Mycronic provides support through a service organization that is close to the customer and a very large share of the installed systems have service agreements with a high level of support. To ensure a modern installed base of systems, Mycronic has also provided an attractive trade-in program since 2014. For Mycronic’s customers in display applications, this entails a cost-efficient method to renew production equipment as they are offered a scalable configuration of Prexision platforms when replacing their old systems. The trade-in program is an important part of Mycronic’s offering of mask writers.

The future for Pattern Generators

Pattern Generators enter 2019 with confidence.

The business area has a solid order book and with a display industry that requires a growing number of advanced photomasks and with a steady stream of emerging applications, Mycronic will continue to develop its worldleading position as a manufacturer of unique production equipment for manufacturing photomasks of today and tomorrow.

Mycronic | Annual and Sustainability Report 2018

OFFERING: PATTERN GENERATORS

Mask writers crucial for the display industry

Strong offering addresses new market trends

The global electronics industry is undergoing a number of changes that could benefit Mycronic. As more products are fitted with one or more displays, the number of displays increases in absolute terms. But for Mycronic, the pace of development for advanced displays is more important that the volume of manufactured displays.

A general transition from LCD to AMOLED displays is taking place, driven by consumer demand for higher quality in imaging and by the products enabled by AMOLED technology. AMOLED is a more complex display technology that in turn requires more complex photomasks.

As demand increases for more complex photomasks, Mycronic’s most advanced systems will be needed, such as Prexision-80, Prexision-800 and Prexision-MMS.

The average size of TV displays is growing by approximately one inch per year. The number of TV displays that are larger than 60 inches is expected to increase from 26 to 45 million between 2018 and 2022 (IHS, October 2018). The trend toward larger displays is driving demand for Mycronic’s largest mask writer system, Prexision-10.

Mycronic also manufactures the multipurpose systems, FPS6100 and FPS8100, for less complex photomasks for use in, for example, touch screens and electronic packaging.

Unique expertise in photomasks

Mycronic has, over several decades, gathered together and built cutting-edge expertise in the development and production of high-tech mask writers for photomasks. Mycronic’s breadth of unique expertise is required to satisfy the very high demands made by the industry on the mask writer market.

Mycronic’s system can handle photomasks of up to 1,800x2,000 millimeters. The lengthy writing times of up to 2–3 days needed by mask writers to write a photomask places high demands on stable systems, a crucial quality possessed by Mycronic’s mask writers.

Through long-term collaborations with customers and an advanced combination of hardware design and software solutions, Mycronic has developed profound expertise to satisfy the very high demands on production quality and stability.

Based on Mycronic’s lengthy market presence, close cooperation with customers and through continuing initiatives in innovation and technical development for the photomask production in the future, the Pattern Generators business area will continue to offer unique products that satisfy the needs of customers.

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Polarization filter
Protective layer
Color filter
Polarization filter Liquid crystal
Encapsulating layer TFT backplane
Substrate
TFT backplane Light emittingorganic material orLight emittingganic material Light diffuserPolarization filter
Substrate Anode Cathode Backlight
0μA
5μA
5μA
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With AMOLED technology, current passes through the organic material which generates light in each pixel. This reduces the number of layers of material, which increases energy efficiency and flexibility. In the example above, current passes through a green and a blue pixel, which lead these pixels to generate light. One major advantage of AMOLED is an opportunity to create flexible displays.

LCD technology uses background light and a regulated voltage to control the amount of light passing through each pixel. This requires several layers, which makes the displays thicker and more energyintensive than AMOLED displays. Nor can LCD displays be made flexible, which is a major advantage with AMOLED. In the example above, a current passes through a blue pixel, which emits white light that is colored blue by the subsequent blue filter.

The TFT backplane consists of electrical circuits that control the image.

Mycronic | Annual and Sustainability Report 2018

OFFERING: PATTERN GENERATORS

New technology: Folding and bendable displays

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Today, a growing number of mobile phone manufacturers are striving for a device with 100 percent display space, where functions and components are integrated in or behind the display. Many mobile phones also have a display that extends beyond the edge, which is possible using AMOLED technology. This technology also improves image quality and opens for new design factor such as rounded edges.

Until a few years ago, the front of a standard mobile phone was not only a display. Antennas along the edge, a physical mechanical home button occupied a space at the bottom of the screen and the edges of the normal LCDbased display formed a sharp and straight border.

Prexision-800 offers a new and better resolution for photomasks that opens for display models with greater pixel density and more compact circuits. The system offers display manufacturers an opportunity to improve resolution without compromising on productivity.

New generation of systems

for photomask manufacturing

Pattern Generators’ latest generation of advanced mask writer systems comprises the Prexision-8/-80/-800 systems.

The systems manufacture photomasks for display production up to G8 size for displays in smartphones and tablets. With very high pixel density for the most advanced AMOLED and LCD displays, Prexision-80 and Prexision-800 provide unsurpassed image quality.

Prexision-800 satisfies the demands made by the new generation of exposure equipment in display manufacturing. This frees up the full capacity of the exposure equipment, which means a high and reliable level of display production.

As the average size of today’s TV displays gradually increases, demand is rising for production capacity for large displays. Prexision-10 is the only system that can write the largest photomasks (G10/11) required for the cost- efficient volume manufacturing of large, advanced displays.

Greater opportunities with multi-purpose

As global market leader, Mycronic has developed the FPS series with systems including FPS6100 and FPS8100, which have improved writing quality and increased productivity compared with earlier generations. The system can be customized for many different applications and production environments, such as electronic packaging, touch screen, color filter and 3D structures. The system’s flexibility allows for improvements in the existing production and the development of new applications.

Mycronic’s Prexision-MMS is one of the tools used to measure the quality of the photomasks. The latest generation of measuring systems for position and quality measurements in the production of photomasks comprises Prexision-MMS G8 and G10, which have taken position measuring to a new level.

Service and monitoring

of the semiconductor industry

Prexision-800, a new standard for photomasks

Driving forces, including the Internet of Things and the automotive industry’s development of new driver assistance systems and autonomous vehicles, are increasing the need and demand for semiconductors. Mycronic’s installed base of systems for semi-conductor manufacturing has a high level of reliability and is an important, integrated part of Mycronic’s aftermarket business. Pattern Generators continues to focus on

The conditions for display development are defined by the technical capability of the mask writer and exposure equipment where the finished photomask is exposed. Over time, Mycronic’s mask writers have been refined and created the Prexision-800 system, which was launched in the market in 2018 and has set a new standard for photomask production.

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In the future, consumers can look forward to telephones with flexible displays built using AMOLED technology. Future generations of mobile phones may also be fitted with large folding displays.

service of these systems and is continuously monitoring market developments in the semiconductor industry.

Continuing responsibility

for existing system base

Pattern Generators provides support for all systems as a part of Mycronic’s focus on reliability and high availability for the existing system base. Service and maintenance of mask writers is an important part of Pattern Generators’ aftermarket offering. At the same time, the global installed base of mask writers is aging, and thereby more difficult and costly to maintain.

A cost-efficient route to a more modern mask writer is Mycronic’s trade-in program, which was launched in 2014 and to-date has replaced ten systems. With approximately 30 systems older than ten years, the trade-in program is an important part of Mycronic’s offering of mask writers.

The trade-in program is based on the offer of a scalable configuration of the Prexision platform when replacing the customer’s older system, which means the program does not add significant production capacity.

Mycronic continuously strives to develop and improve aftermarket services. This is one important aspect of the Pattern Generators business area, which strengthens the ability to generate steady revenue. Today, more than 90 percent of Mycronic’s systems are supported by a service contract. In the 2018 financial year, aftermarket accounted for about one third of the business area’s net sales.

Mycronic | Annual and Sustainability Report 2018

OFFERING: PATTERN GENERATORS

Main process steps in the photomask and display factory

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Process steps in photomask production

1 Photomasks start out as high-quality quartz glass. The glass is coated with a chrome film and followed by a layer of photoresist. There are several different sizes of photomasks, of which the largest is almost 2x2 meters and used in G10/11 display factories.

2 Mycronic’s mask writers expose the photomask. A laser beam writes a pattern onto the photoresist. The pattern is described in a data file created by the display manufacturer during the design phase of the display. To produce good displays, the exposed pattern must be of very high quality. Requirements for accuracy are at the nanometer level.

3 The photomask is developed in an advanced developing machine and the exposed pattern on the photoresist is etched into the chrome film.

4 The photomask is quality-assured through measurement of the written pattern and its position. Mycronic’s Prexision-MMS is one of the machines used for quality assurance.

5 Final inspection of the photomask occurs with inspection equipment, where the pattern is checked and any defects identified for repair in repair equipment.

6 The photomask is carefully packaged and shipped to the display factory. About 10–15 different photomasks are required to produce a display.

Manufacturing process for displays

1 Photomasks from mask shops arrive at the display factory. Photomask #1 is loaded into the exposure equipment #1 (known as aligner). Photomask #2 is loaded into the exposure equipment #2, etcetera.

2 The basis for the manufacturing process for displays is a thin glass. This is called a substrate. The size of the substrate depends on what generation the display factory belongs to. G10/ G11 is the largest generation where substrates are larger than 3x3 meters. The substrates are coated with a material, for example a conductor, a semiconductor, insulator, or some other type of material. The substrate is then coated with photoresist.

3 The substrate is exposed in the aligner and the first photomask pattern is copied to the photoresist on the substrate. The substrate is typically larger than the photomask, and the photomask is usually duplicated 4–6 times on the same substrate.

4 The substrate is developed and the exposed pattern etched into the material on the substrate.

5 The substrate is measured and inspected to ensure quality in the previous process step. If quality is inadequate, the substrate can in some cases be repaired, but in other cases it must be discarded.

6 A new layer of material is applied, followed by a new layer of photoresist.

7 The substrate is exposed in aligner #2 and the photomask #2 pattern is copied to the photoresist on the substrate.

8 The substrate is developed and the pattern etched into the material on the substrate.

9 The substrate is measured and inspected again to assure quality in the previous process step.

10 The process continues and steps 6–9 are repeated for each photomask. Gradually, a layer-on-layer structure is built up on the substrate. When this is finished, a TFT backplane, or TFT film, has been produced. This is an advanced electrical circuit that controls every pixel in the display. TFT stands for Thin Film Transistor.

11 The substrate is sent to the next process step where a layer of organic material is applied for OLED displays or a color filter for LCD displays.

12 When the process is complete, the substrate is divided, one part for each display. The display is then sent for final assembly and installation into an end product, for example, a mobile display or TV.

Mycronic | Annual and Sustainability Report 2018

OFFERING: PATTERN GENERATORS

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Pattern Generators Market opportunities

New technologies and applications

The variation between display technologies is increasing, which is clear in established electronics segments such as mobile phones and TVs, and also in other product segments. The ongoing transition from LCD to AMOLEDbased displays is clear and is driving the mask writer market.

Besides image quality, the new AMOLED technology enables physically flexible displays for new electronics products that can bend, fold together or roll up.

All advanced displays, regardless of the technology referred to, require the use of photomasks to manufacture larger volumes.

Variation in display size, design, shape and quality are often characteristics that distinguish products from a consumer perspective. Developments in the field of consumer electronics often entail a user interface based on new and more advanced displays, with smart watches as one of several examples. With an increasing number of assistance and monitoring systems in more autonomous vehicles, interfaces are also needed where the information can be presented to users. For these new areas display manufacturers are developing new display models, which increase demand for photomasks. In many cases, this also means that more complex photomasks must

be produced to achieve this large variation in new display models.

Special focus on innovation

The latest and highly advanced Prexision-800 system creates new business and technical opportunities. During the development of a new mask writer, new knowledge is gained and existing skills are refined, which is a natural part of a company’s research and development process.

The Pattern Generators business area strives to continuously develop technologies for new generations of mask writers to always remain in line with the requirements of the display industry. At the same time, the service offering and aftermarket services are further improved for the installed base of mask writers to provide additional customer value.

Tomorrow’s solutions are being driven by a dedicated focus on innovation, where key initiatives are conducted in R&D activities. Innovation work by Pattern Generators is mainly conducted from the headquarters in Sweden, but also utilizes the expertise from Mycronic’s global development centers and partners.

World-leading market position

Mycronic is alone in the market for advanced mask writers for displays and has a leading

position in the multi-purpose segment. Our unique position in the mask writer market is largely based on knowledge, expertise and experience among our employees. Their commitment and longstanding knowledge have resulted in a powerful patent portfolio.

The combination of the challenging demands of the display industry and Mycronic’s own market ambitions, make Pattern Generators to constantly assess how new expertise and technology can be added.

Greater commonality

through shared platform

Through long-term and continuous progress, Mycronic is striving to reuse technology and framework between different products and services. Pattern Generators’ entire offering of systems, services and solutions is as far as possible to be built using the same platform and related software, with certain distinct product differences.

A more uniform technology platform requires continued initiatives and strategic development steps. In the long term, this strategy will entail the development of new functions and performance improvements in a more cost-efficient manner.

Mycronic | Annual and Sustainability Report 2018

SUSTAINABLE DEVELOPMENT

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Mycronic contributes
to more sustainable
electronics production
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Resource use in manufacturing, choice of materials and the rising volume of electronic waste are examples of issues that are of growing importance for players in the electronics industry. We want to help our customers make the transition to more sustainable production.

implementation of Group-wide governance and follow-up within the most essential sustainability areas identified by the Group. Read more on page 27.

Leading companies in the electronics industry are starting to integrate sustainability topics into their business operations. This places increasing demands on Mycronic and other suppliers of production equipment for electronics products and displays.

Our focus is first and foremost on establishing a framework to ensure legal compliance at all levels. In the next step, we aim to move sustainability topics from legal compliance and turn these into a competitive advantage. In the longer term, our goal is that customers will choose Mycronic, not only for our leading solutions, but also because we are a role model in the industry. At the same time, the growing importance of sustainability topics may have a positive impact on our opportunities to attract

From legal compliance to role model Mycronic’s starting point is that operations are to be conducted in a responsible manner throughout the value chain. We are working purposefully to establish processes, guidelines and methods for follow-up in order to achieve this. Mycronic’s internationalization through acquisitions places high demands on the

existing and potential employees, which is a decisive competitive factor for the future.

Reinforced sustainability organization

The Board of Directors is ultimately responsible for sustainability topics, and the CEO together with other members of Group management have overall responsibility for ensuring that Mycronic has effective governance of these issues.

To strengthen opportunities to effectively manage the company’s sustainability agenda, we established an Ethics and Compliance Board (ECB) during the year. The ECB is responsible for drafting guidelines and ensuring the establishment of clear processes for effective review and follow up of compliance. Mycronic’s Board of Directors receives an annual review of Mycronic’s sustainability strategy and receives general information whenever necessary. Since the autumn of 2017, Mycronic has a global quality and sustainability

Mycronic | Annual and Sustainability Report 2018

SUSTAINABLE DEVELOPMENT

director, who is responsible for pursuing global implementation together with representatives from the organization. The line organization has the operative responsibility for sustainability, with each entity responsible for ensuring that work is conducted in accordance with the Code of Conduct and applicable national laws and guidelines. Read more about our Code of Conduct on page 28.

Four focus areas

Mycronic focuses its sustainability work on four areas, which are deemed strategically important for our long-term competitiveness and where we can make the most difference. In 2018, responsibility for each of the four focus areas was delegated to individual members of Group Management to reinforce the basis for the crucial development and implementation efforts that are required. The division of responsibility will facilitate the integration of sustainability topics so they become a natural part of our daily work. We can also see an advantage in distributing responsibility within Group management, to reduce dependence on individuals or functions.

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Sustainability goals defined

The industry has a key role to play to contribute to the UN’s 17 Sustainable Development Goals (SDGs). In our analysis of the contribution made by Mycronic’s four focus areas, we identified that we mainly contribute to six of the SDGs.

During the year, over 30 workshops were held worldwide as a means of obtaining proposals and ideas from employees on how Mycronic can improve its work in the four focus areas. This work resulted in about 500 proposals that were used in 2018 to prepare global, Groupwide goals.

Mycronic’s focus areas and goals

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Focus areas Goals UN SDGs
Responsible business • Integrity in business through clear principles
• Zero-tolerance for corruption
• Responsible sourcing
• High standards in information security
Reduce environmental impact • Reduce energy and material consumption during product life cycle
• Create competitive advantage for sustainable growth
• Reduce carbon dioxide emissions
• Efficient waste management
Social responsibility • Attractive employer
• Zero major incidents through efficient health and safety management
• Increase diversity and equality
• Contribute to sustainable local communities
Enable innovation • Innovation capacity for continued business success
• Engage young people and universities to secure innovation capability
• Design for reduced environmental and social impact
• Offer solutions enabling a future of sustainable electronics production
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Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Dialogue with stakeholders creates focus in our work

A close dialogue with stakeholders is a prerequisite to efficiently understand and contribute to sustainability. In 2018, interviews and surveys were held with customers and a number of workshops were run with employees in order to obtain a picture of our key sustainability topics.

Stakeholder dialogue

tunities at an early stage, we hold regular dialogues with our stakeholders. Interaction takes place in direct dialogues and through surveys, forums and conferences.

to set the right priorities

In order to understand how Mycronic fundamentally impacts individuals, society and the environment, and to identify risks and oppor-

During 2017, a comprehensive stakeholder

dialogue was conducted on sustainability. The dialogues took place with customers, the capital market, employees and suppliers, and offered an opportunity to prioritize seven of 25 listed sustainability topics that Mycronic will focus on moving forward. These dialogues were supplemented in 2018 with information from stakeholders for the acquired companies AEi, Axxon and Vi TECHNOLOGY.

The stakeholder dialogues showed that some of the most important topics for customers are product quality together with product develop-

Value chain

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Manufacturing

Product development

Sourcing

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Sustainability topics
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Reduced carbon dioxide emissions • Efficient waste management • Efficient health and safety management
• Diversity and equality
Sustainability topics • Innovation capacity • Responsible sourcing (includes Reduced carbon dioxide emissions • Energy consumption human rights and labor law) • Efficient waste management • Material consumption • Business ethics and anti-corruption • Efficient health and safety man• Information security agement • Attractive employer • Diversity and equality • Diversity and equality • Attractive employer
Value creation • Develop production equipment • Support global efforts to • Attractive employer that enables a decrease in adverse strengthen human rights and labor • Reduced environmental impact, environmental impact and fulfill law and reduce environmental contribute to local communities by customer needs and demand impact providing jobs, health and safety at work, increased diversity and equality
Risks • If product development does not • Of suppliers do not fulfill • If production processes do not satmeet customer expectations Mycronic’s demands on ethics and isfy our demands on health, safety, or legal requirements responsibility, including human environmental impact and legal rights, labor law and efforts to compliance reduce environmental impact
Risk management • Reduce hazardous substances • Risk assessment in supplier • International implementation • Develop energy-efficient solutions evaluation of management system • Close customer collaboration • Follow-up of supplier code • Systematic health and safety • Safeguard legal compliance and • Supplier audits efforts customer requirements • Assess environmental impact
• Assess environmental impact of of all production units all production units
Ability to influence • High • Medium/high • High

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

ment and innovation. Economic value creation, energy efficiency and business ethics are other highly prioritized topics. The top priorities for employees are working conditions and worklife balance. Product quality is also a key topic for employees. The most important topics for suppliers are product quality, product development and innovation as well as economic value creation. The capital market prioritizes business ethics, economic value creation and human rights in the supply chain.

Materiality analysis focuses work

In order to validate the results of the stakeholder dialogues and determine the most important sustainability topics for Mycronic in future years, the company conducted a materiality analysis in 2017 together with Group management and other key functions. During the first half of

2018, the results of the materiality analysis were used as supporting documentation in drawing up an updated sustainability strategy.

After examining the results of the updated stakeholder dialogues, new discussions took place at the end of 2018 with management about the company’s sustainability priorities, and these confirmed the current sustainability strategy, including focus areas.

The result includes 12 key sustainability topics grouped into four overarching focus areas. Compared with earlier materiality analyses, the new analysis entails minor adjustments to provide a more correct and transparent picture of the company’s impact on sustainable development.

A detailed presentation of this year’s stakeholder dialogues is available in the GRI Appendix.

Mycronic’s sustainability topics

Responsible business

Business ethics and anti-corruption
Responsible sourcing
Information security

Reduce environmental impact

Energy consumption
Material consumption
Reduced carbon dioxide emissions
Efficient waste management

Social responsibility

Attractive employer
Efficient health and safety management
Diversity and equality
Positive contribution to local communities

Enable innovation

Innovation capacity

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Transportation

Reduced carbon dioxide emissions
Responsible sourcing

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Sales

Business ethics and anticorruption
Information security

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Product use

Reduced energy consumption and thereby reduced indirect carbon dioxide emissions

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End-of-life treatment

  - Efficient waste management

Attractive employer
Meet customer requirements for fast delivery with minimal negative environmental impact
Carbon dioxide emissions
Risk of deviations from the Supplier Code of Conduct
Risk of infringement of laws and regulations
Increase transparency in the sales process, strengthen checks when signing agreements as a means of reducing the risk of corruption, ensure compliance with the Code of Conduct
Risk of infringement of Mycronic’s guidelines for exports
Risk of corruption and unethical behavior
Deliver production equipment with a high degree of efficiency and low adverse environmental impact
Product safety risks
Indirect carbon dioxide emissions related to energy consumption
- Reduce environmental impact through responsible waste management and decreased volume of hazardous waste
- Risk of hazardous waste
- There is a lack of processes for waste management (locally)
If deliveries do not meet customer expectations
Based on the customers’ desired delivery time, select transport to minimize negative environmental impact
Continuously improve our policies, processes and training initiatives
In sales work, offer customers energy-efficient solutions
Clear information about waste management for equipment
Provide customers with solutions for waste management
Implement and monitor the Supplier Code of Conduct
Medium
High • Medium
Low

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Focus areas

Responsible business

Our operations are to be conducted in a responsible manner in the parts of the value chain we can control. During the year, we set up an Ethics and Compliance Board as a means of further strengthening governance.

ethics. The ECB comprises six members of Group management together with a legal expert. The CFO leads the work of the team. The ECB is responsible for ensuring clear guidelines for business operations and processes for efficient auditing and follow-up of the organization’s compliance with guidelines. The ECB also supports the line organization, which is responsible for ensuring that approved guidelines are followed in day-to-day operations.

With seven acquisitions and annual growth averaging more than 30 percent over the past five years, Mycronic’s sales have increased from almost SEK 1 billion in 2013 to SEK 3.8 billion in 2018. This growth journey has entailed a challenge for the organization in implementing and following up guidelines at the same pace to ensure that all activities in the value chain are managed in accordance with Mycronic’s requirements and expectations.

During the year, the ECB conducted a review of the sales process to identify and manage risk. The ECB also used spot checks to assess compliance with policies and guidelines. Furthermore, the ECB prioritized the sustainability topics in the area of responsible business that will be the subject of increased focus in the near future.

Group-wide guidelines

for business ethics

During the year, Mycronic’s Code of Conduct was updated as a means of ensuring the inclusion of relevant sections of the Responsible Business Alliance’s Code of Conduct. As a result, sections concerning human rights and labor law were strengthened. The update also reflects the content of the UK Modern Slavery Act. Together with Mycronic’s values, the Code of Conduct provides clear guidelines for employees and external consultants. In 2019, the updated Code of Conduct will be communicated and implemented throughout the organization. The Code of Conduct is part of Mycronic’s induction process for new employees and consultants.

Responsibility in the supply chain

Mycronic has some 900 suppliers and the value of the products it purchases each year is substantial. About half of the value pertains to direct materials in the form of metals, composites, stone, plastic and electronics.

An initial analysis of the company’s suppliers, which was conducted in 2017–2018, shows that approximately 70 percent of purchased value is from suppliers who are based in countries where the potential risk of corruption is low. In other countries, the risk is greater of violations of human rights or challenges in the field of labor law.

Anonymous whistleblower function

In order for employees and external partners to safely report suspected irregularities, an anonymous whistleblower function exists managed by an external law firm, where observations about conditions that violate the Code of Conduct can be reported. In 2018, one matter was reported, which was thoroughly investigated by external experts without detecting any irregularities.

In 2017, Mycronic introduced a separate and enhanced Supplier Code of Conduct that includes human rights and labor rights, occupational health and safety, environmental conditions, conflict minerals and anti-corruption. In 2019, Mycronic’s supplier code will again be updated to correspond to the latest strengthening of the Group-wide Code of Conduct. It will be adapted for implementation at, for example, Mycronic's acquired company Axxon, whose suppliers are relatively small and local in China. The implementation began in 2019 aimed at ensuring that all of the Group’s new suppli-

Ethics and Compliance Board strengthens governance

During the year, Mycronic set up the Ethics and Compliance Board (ECB) as a means of strengthening the Group’s work with business

ers will sign the updated Code. As of 2018, Mycronic also requires new suppliers of direct materials to be certified in accordance with ISO 9001.

Conflict minerals are an important social and ethical issue for the electronics industry. Mycronic is therefore working to map the supply chain. This analysis has begun to gain a picture of how large a share of the metal raw material that is derived from certified smelters. The analysis will be an ongoing initiative that will in the longer term provide a picture of how much of the metal raw material is recycled material and how much is from mines.

Anti-corruption and

responsibility in sales

Through its subsidiaries, agents and distributors, Mycronic is active in some 50 countries. Transparency International considers the risk of corruption to be high in a number of these countries, for example in China and Russia.

Mycronic’s distributors and agents confirmed compliance with the Code of Conduct in 2017–2018. Most of the new distributors and agents included in the acquisitions of recent years have confirmed that they comply with the Code of Conduct. The remainder will be part of a repeated confirmation process to be conducted in 2019 following the drafting and distribution of a separate Code of Conduct specifically targeting agents and distributors.

Today, Mycronic already has rules in place to ensure that we deliver products to countries and customers in accordance with prevailing law. In line with Mycronic’s internationalization and increased legislative requirements and

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Geographical distribution
of suppliers
Asia, 40%
Europe, 55%
USA, 5%
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Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

In the next step, we aim to expand responsibility to leverage a more sustainable approach to conducting business – we want to transition the focus area from legal compliance to business opportunity

global organization throughout the product’s life cycle. In 2018, implementation also began of a global HR management system. Mycronic has a properly functioning IT structure to continue to meet the EU General Data Protection Regulation (GDPR) which came into force on May 25, 2018.

trade barriers, Mycronic is planning to further strengthen controls by clearly including a social and environmental perspective in the process of assessing customer risk.

Strategic importance

of information security

Prioritized IT systems are examined from a security perspective at regular intervals by external experts, at least every other year. Following acquisitions, external specialists review IT security and the results of the review combined with Mycronic’s own guidelines form the basis for how the acquired company is to be integrated into the IT structure.

Information and communication technology entail both opportunities and risks for Mycronic’s ability to achieve its goals. The company has therefore conducted significant investments in IT systems in recent years. This included the implementation in 2017 of a system that enables reliable and efficient distribution of product data within Mycronic’s

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2019 Objectives

Goals

Integrity in business through clear principles • 90 percent of Mycronic’s employees • Zero-tolerance for corruption participated in a global training program in • Responsible sourcing business ethics and information security
Improved control of the sales process through distributors and agents
High standards in information security
Global implementation of the Supplier Code of Conduct, focusing on critical suppliers

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Three questions to Torbjörn Wingårdh, CFO with responsibility for the Responsible business focus area

How can the Responsible business focus area strengthen Mycronic’s business?

Responsibility in our business is a prerequisite for being competitive. In the longer term, I believe we can transition this into a strategic competitive advantage, where our customers choose us because we are a role model.

What are the main challenges?

Our financial growth rate has been very high in recent years, and we must ensure that we draw up, implement and follow up our guidelines consistently in all markets. We must first of all ensure legal compliance. In the next step, we aim to expand responsibility to leverage a more sustainable approach to conducting business – we want to transition the focus area from legal compliance to business opportunity

What is your main focus for work in 2019?

In 2019, we will focus on monitoring the implementation of the new Codes of Conduct and ensure that all guidelines are well established within the Group. We will also engage in dialogue with the line organization about its work and planning of forthcoming training initiatives.

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Focus areas

Reduce environmental impact

As a global supplier to the electronics industry, we impact the environment in several ways and continuously strive to identify and manage environmental impact in the value chain. The focus is on carbon dioxide emissions, energy consumption, material consumption and waste management.

meetings and our employees are encouraged to use these to reduce the number of business trips.

Mycronic applies a precautionary approach and works with preventive measures to reduce or eliminate negative environmental impact. Environmental risk is handled in accordance with applicable environmental legislation and international guidelines.

Part of the environmental impact is from the use of materials in Mycronic’s products. The products contain metal, stone, plastic, glass, batteries and electronics. A small amount of chemicals is used in manufacturing. Efficient material use helps to reduce carbon dioxide emissions, produce less waste and decrease the risk of emissions from incorrect handling.

The greatest impact on the environment is indirectly from the use of our products. The single largest source of carbon dioxide emissions is from lasers in our mask writers, which consume large amounts of energy. Since 2017, the company is running a project to identify and assess more energy-efficient lasers for mask writers.

Environmental management

to reduce environmental impact

The global management of environmental efforts is achieved through the implementation of our integrated management system for quality and environment and through certifications. The aim is to certify all manufacturing sites in the Group, a total of six units, in line with ISO 14001 and ISO 9001. At the end of December 2018, three of these were certified according to ISO 14001 and four to ISO 9001. The training of employees in the company’s environmental considerations takes place

The transportation of products and materials and business travel also contribute to the carbon footprint at several stages of the value chain. As a means of reducing carbon dioxide emissions, we continuously evaluate greener forms of transportation, such as sea freight instead of air freight for the transportation of products and materials. We are continuously investing in equipment and services for digital

Identified carbon footprint 2018: 73,100 metric tonnes of CO2e

Direct emissions Scope 1: 2% Production of heatFuel consumption ing in own facilities by own vehicles

Purchase of electricity and heating for own use

Indirect emissions (other) Scope 3: 97%

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Business travel Use of Waste products

Purchase of direct Transportation materials, packaging and office supplies

through the Code of Conduct and our corporate quality and environmental policy. At the end of 2018, this policy was reworked to make it easier to communicate globally. The implementation will take place at the beginning of 2019, electronically and through management and the intranet. Environmental demands on suppliers are addressed in a special Code of Conduct for this group.

The overall responsibility for environmental issues rests with the company’s quality and sustainability director. There are also environmental and chemicals coordinators at larger manufacturing sites. Environmental topics related to individual products are managed by product owners.

Corporate environmental goals were established at the end of the year. The goals focus on carbon dioxide emissions, energy consumption, material consumption and waste management, and aim to contribute to the UN 2030 Agenda – Goal 12: Responsible consumption and production and Goal 13: Climate action.

Focus on direct and indirect

carbon dioxide emissions

Based on the impact in the value chain, we strive to reduce both direct and indirect emissions. Total carbon dioxide emissions in 2018 were 23 percent higher than in 2017, and amounted to 73,100 metric tonnes of carbon dioxide equivalents (CO₂e). The difference is due to an increase in scope, meaning the inclusion of Axxon, AEi and ViT units. For comparable units, carbon dioxide emissions have decreased.

Direct carbon dioxide emissions (GHG Scope 1) amounted to 1,500 metric tonnes of CO₂e during the year, compared with 500 metric tonnes of CO₂e in 2017. The increase is due to the addition of units. For comparable units, direct carbon dioxide emissions have decreased.

Indirect carbon dioxide emissions (GHG Scope 2) amounted to 900 metric tonnes of CO₂e, compared with 600 metric tonnes of CO₂e one year earlier. Energy consumption in own operations primarily derives from electricity consumption and heating of office and production spaces. The increase stems from the addition of units. For comparable units, indirect carbon dioxide emissions have decreased.

The greatest impact from carbon dioxide

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

In order to ensure that future product generations have a smaller environmental footprint, relevant environmental demands are identified when designing new products.

emissions is from use of our products at customer sites, particularly mask writers where lasers are highly energy-intensive. Approximately 75 percent of the total identified carbon dioxide emissions in 2018 stemmed from energy consumption in the use of products. Other indirect carbon dioxide emissions (GHG Scope 3) amounted to a total of 70,800 metric tonnes of CO₂e, compared with 58,000 metric tonnes of CO₂e in the preceding year. In addition to energy consumption in the use of products, some emissions are from transportation and materials use. The increase stems from the addition of units. For comparable units, other indirect carbon dioxide emissions have decreased.

Smart material and energy use to improve product quality

Several types of material with differing degrees of environmental impact are included in Mycronic’s products – metals, such as stainless steel, aluminum and titan; stone, such as diabase; plastic; glass; batteries and various types of electronic components. Production also requires chemicals that are classified as hazardous to health or the environment. These include process chemicals that are necessary in the manufacturing process and chemicals that are included in products, such as adhesives and fats.

In order to ensure that future product generations have a smaller environmental footprint, relevant environmental requirements are identified when designing new products. Each product owner is responsible for including environmental considerations in the design, development and production of products. A structure with procedures and check lists to guarantee product quality, including environmental impact, is being implemented.

In 2019, we will improve our supervision of the content of our products by implementing a

Goals

Reduce energy and material consumption during product life cycle
Create competitive advantage for sustainable growth
Reduce carbon dioxide emissions
Efficient waste management

tool for material declaration. One of the benefits is easier control of compliance with the EU RoHS directive. This legislation aims to restrict the use of dangerous substances in electrical and electronic equipment, and will apply to sales of our product category in Europe in July 2019. Several projects are ongoing in the Group to ensure that all of our product families are compliant with the RoHS directive.

The work toward increased energy efficiency includes reducing energy consumption of products and solutions. Based on an estimate of electricity consumption in the installed product base, energy consumption in 2018 amounted to 119 GWh. To reduce energy consumption in the use of products, we initiated a project that will replace existing lasers in mask writers with more energy-efficient laser technology. The project aims to reduce energy consumption in mask writers while retaining writing performance.

Efficient waste management

Waste is created during product development, testing, assembly and packaging of systems and spare parts, in office activities and when scrapping systems at customer sites.

Mycronic is working with waste recovery in large parts of its operations. A minor portion of waste goes to energy recovery and landfill, where the natural stone diabase comprises the main portion. Certain electronics as well as some systems are refurbished and upgraded for resale.

To encourage customers to recycle and scrap products in a responsible manner, we offer to take back some equipment. Manuals are available that describe how to dismantle and recycle products and how to scrap the product in a responsible manner, in line with the EU Waste Electric and Electronic Equipment directive (WEEE). The manuals are also available for products sold outside the European market.

2019 Objectives

Improve the process to ensure that products fulfill environmental requirements
Establish and execute a plan to reduce carbon dioxide emissions related to facilities, transportation and business travel
Improve waste sorting and recovery at the major sites

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Three questions to Lena Båvegård, Sr VP Operational Excellence with responsibility for Mycronic’s Reduce environmental impact focus area

How can the Reduce environmental impact focus area strengthen Mycronic’s business?

Work focusing on our key environmental issues will increase confidence in Mycronic and we can become a trusted partner for our customers in their sustainability efforts. This will make us more competitive, strengthen our brand and increase customer satisfaction and profitability. Another positive effect of focused work is to increase our opportunity to sell in all markets, despite ever-increasing environmental demands.

What are the main challenges?

Challenges include reducing a product’s energy consumption, enhancing the efficiency of transportation and making necessary transportation more environmentally friendly. Another challenge is to find reliable metrics for environmental impact in light of the strong growth we have experienced over several years.

What is your main focus for work in 2019?

To improve data collection within the Group, in scope and quality, to obtain more reliable metrics concerning our environmental impact. One important element is to continue the roll out of our global environmental management system. I will also pursue efforts to establish our sustainability strategy worldwide, which will include the launch of shared goals for the whole of Mycronic.

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Focus areas

Social responsibility

We look upon social responsibility as a means to strengthen our operations and achieve competitive advantages. During the year, we continued to introduce clear career paths, to strengthen the attractiveness of critical professional roles.

Since 2014, the company has worked relentlessly to become a workplace with a more even distribution of women and men, where the Swedish operations created a number of measurable goals in 2014 with respect to gender distribution at various levels. At the end of 2018, the figures indicate a slight increase in the percentage of women managers but a slight decrease in the percentage of women employees. Moving forward, Mycronic will monitor developments in gender distribution at a global level. By 2023, the goal is that 25 percent of all managers and 20 percent of all employees will be women. In 2018, the percentage of women managers and employees was 17 and 18 percent, respectively. In, for example, research and development, gender distribution between managers in Sweden is an exemplary 50/50.

Employees are the source of our innovation capacity. At the end of 2018, Mycronic’s workforce included more than 1,200 employees in ten countries of which a significant share work in research and development. Local representation in our main markets offers us an advantage. An international company that has grown rapidly is naturally also facing challenges in terms of time zones, culture and differences in business practice.

Mycronic has a global human resource strategy, which aims to secure long-term skills supply and ensure that we offer a safe, inclusive and healthy place to work. Identified risks linked to the Social responsibility focus area include a shortage of unique expertise, risk of unethical behavior and health and safety risks. After several years of methodical work, we have successfully reduced a number of these risks.

Continuous development of employees Most of our skills development takes place through internal knowledge transfer and activities such as job rotation programs. We have set up a global knowledge network as a means of disseminating and developing know-how within our product areas.

Digitalization of HR system

During the year, we have further developed global digital procedures and processes for talent and succession planning, salaries and compensation. Next year, we will continue with digitalization and include areas such as recruitment and goals and goal achievement.

In California, Mycronic and two partners established in 2018 a Deep Learning Center focused on deep learning and artificial intelligence. The center provides an opportunity to quickly build expertise by collaborating with specialists in a network. Employees from around the world will be stationed at the center, for a shorter or longer period.

During the year, work continued on the introduction of career paths for engineers, to strengthen our attractiveness among an expertise that is critical to our business. The career paths will clarify the development stages available for this category of professionals. The initiative began in 2017 in research and development and the goal is that global career paths for all of the organization’s engineers will be included over the next few years. In 2019, Pattern Generators will roll out its program globally and career paths will be introduced within Assembly Solutions and Operations.

All managers within the Group conduct annual employee development plan talks. The talks are used as a basis to prepare individual development plans. In these discussions, each employee can reach an agreement with their manager about the qualifications needed in the short and longer term so skills development can be adapted to the company’s strategy and employee’s development plan.

During 2019, Mycronic will introduce digital support for the process of employee development plan talks.

Diversity strengthens our capacity

Diversity is a prerequisite for creating a good foundation for continued profitability. We are working systematically to recruit employees with different personalities, background and knowledge. Mycronic has a diversity policy. In 2019, all countries will further develop their local action plans based on the diversity policy, work that will be followed up by the Group’s HR unit. In 2019, we will roll out a training program for all employees about the advantages of diversity in the workplace. In addition, during the year we will gain a better insight into the flow of applicants in recruitment via our new HR system.

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----- Start of picture text -----

25
By 2023, the goal is that 25 percent
of all managers and 20 percent of all
employees will be women.
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----- Start of picture text -----

Percentage women/men
in Group management, 2018
Women, 44%
Men, 56%
The goal is that neither gender is to
represent less than 40 percent of Group
management.
----- End of picture text -----

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Mycronic is to be a safe and secure workplace, with exciting technology. We have excellent conditions to create a stable foundation for future innovation and development work

Safe and healthy workplace

Mycronic’s aim is that no employee is to suffer from illness or injuries due to their work. In order to be an attractive employer, we believe it is a competitive advantage to provide help with physical, ergonomic and psychosocial initiatives. In Sweden, preventive health and safety efforts are focusing on psychosocial work environment factors. Training is provided in, for example, stress management, support for finding a balance between work and private life, certain treatments in conjunction with illness or stressful life situations. Some of this training is available globally and it will continue to be implemented further.

Mycronic is planning to become health and safety certified in accordance with ISO 45001 at major sites in the coming years. Thereby we ensure systematic health and safety procedures focused on reducing and preventing risks in the workplace.

Employee engagement survey

Every second year, a global employee engagement survey is held, the latest in November 2018. Several acquisitions have been completed since the last survey in 2016 and the number of employees has increased 120 percent. The topics covered by the survey are, however, exactly the same now as then. The response rate was 79 percent in 2018. Work to draw up an action plan based on the results at local and global level has begun. The focus is on both organiza-

tional strengths and areas with potential for improvement. The follow-up of plans and activities will take place at the end of 2019.

Employer branding and our

contribution to local communities

We believe an active contribution to the local community where we operate strengthens employee commitment and our own brand. This helps to make us an attractive employer and creates meaningful local collaborations. In 2019, we will create a global strategy to contribute to local communities where we conduct operations, and include a company policy for sponsorship.

To secure our future skills supply, we are also making more young people aware of technology and IT. During the year, we offered eight secondary school students in Sweden four months of work experience through the Tekniksprånget internship program. In Sweden, we also cooperated with Hello World, a nonprofit organization that holds camps for children and young people to raise interest in various technology professions. In December, 40 children and young people between the ages of 8 and 14 visited us and programmed, performed mathematical calculations, tested various programming languages and worked on an exciting robot project. During the year, we were also listed among the 2018 “Career Companies” by Universum in Sweden.

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Three questions to Anette Mullis, Sr VP Human Resources with responsibility for the Social responsibility focus area

How can the Social responsibility focus area strengthen Mycronic’s business?

We are continuing our journey in terms of social responsibility. Initially, HR will work together with our international colleagues, in projects and by creating common global processes, where this is possible, taking into account local requirements. We wish to increase diversity, by recuiting according to our diversity policy, and work together with local communities where we have business operations. By stating that Mycronic is to be a safe and secure workplace, with exciting technology, we mean that the right conditions are in place to create a stable foundation for future innovation and development work.

Goals

Attractive employer
Zero major incidents through efficient health and safety management
Increase diversity and equality
Contribute to sustainable local communities

2019 Objectives

Perform global training for health and safety, diversity and preventive stress management
Provide stimulating work opportunities within our global technology company
Establish global strategy on how we can contribute to local communities

What are the main challenges?

To continue to attract and retain the right talent for Mycronic.

What is your main focus for work in 2019?

To work with skills development for employees and managers. The introduction of system support for goal and development plans offers us an opportunity to improve the follow up of performance and development commitments between managers and employees.

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Focus areas

Enable innovation

During the year, Mycronic was granted almost 50 new patents worldwide. The key to this is an efficient innovation process and corporate culture that stimulates innovation, access to cutting-edge expertise in strategic areas and innovative collaborations with customers, partners and universities.

and developing this innovative culture that has been built up over forty years is essential. This includes encouraging new ideas and having the courage to think outside the box, to find synergies in experience and innovative approach, and to have the ability to make quick decisions.

Investments in the next generation of solutions are driven by market demand for feature-rich and sustainable products. The challenge is to launch new and innovative solutions of higher quality and at lower prices at the right time. Sustainability is integrated at the design and development stage with the aim of developing value-creating solutions for people, society and the environment. One example is our strategic efforts to optimize energy and material use in products.

The development and manufacture of products requires cutting-edge expertise in several fields, including high-precision movements at the nanometer level over large areas, advanced management of large volumes of data at high computing speed, jet printing and dispensing of complex fluids, image processing for preci-

A high level of technological content in products and services places high demands for technical and business innovation. Preserving

sion measurement, inspection and control, alignment algorithms, precision mechanics, and process optimization.

Strategic collaborations with customers, partners and academia are an important part of daily innovation work. A deep understanding of the industry is needed to follow and understand future customer needs and possible solutions. In the same manner, collaboration with academia offers an insight into technological solutions that will serve as a basis for future products. These collaborations together provide a strong foundation for future product development.

Innovation process based on longstanding experience

At the end of December, some 400 employees and consultants were part of our research and development operations (R&D).

The annual R&D budget amounts to approximately 12–15 percent of net sales and

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Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Strategic collaborations with customers, partners and academia are an important part of daily innovation work

is governed by the development plan for each product area. Mycronic’s innovation process has evolved over many years and helps us to objectively appraise innovations. With nine units, two of which are development collaborations, spread across seven countries on three continents, we are well prepared to develop new innovative solutions and add new functionality to existing solutions. We make it easier to rapidly move from idea to concept through our own laboratories and simulators and through a number of smaller innovation laboratories built by us for the rapid development and testing of new ideas.

Strategic and long-term collaboration with other players in the electronics industry takes place through trade organizations, such as iNemi. Our geographical proximity to top universities around Boston, Grenoble and Shenzhen, several Swedish technical universities, the closeness to the Fraunhofer Institute in Germany and the Research Institute of Sweden, also contributes to innovative collaboration and is a good source for recruitment.

In 2018, the company established new global goals to enable innovations. The goals and innovation work the company is pursuing also support the UN 2030 Agenda, in particular Goal 9 for Industry, Innovation, and Infrastructure.

Growing patent portfolio forms basis for future product development

In 2018, almost 50 new patents were granted worldwide. At the end of December, the Group had more than 500 patents.

Several new collaborations were launched during the year, including an initiative together with two partners in the electronics industry – a Center for Deep Learning in electronics (CDLe) in San Jose, USA. The center provides an opportunity to quickly build expertise in a network by collaborating with specialists. Employees from around the world will be stationed at the center, for a shorter or longer period. The initiative is just one example of an ongoing collaboration that helps to strengthen Mycronic’s capacity for innovation.

We are regularly involved in various nonprofit organizations as a means of strengthening the interest in technology among children and young people. For example, in March 2018 the company hosted IGE day (Introduce a Girl to Engineering) for the second time. The event is organized by the non-profit organization Womengineer. Some 20 girls, aged 14 to 15, visited Mycronic in Täby near Stockholm and tried out different technical tasks, for example in our laboratories for logistics and mechatronics. Another occasion was the seminar we organized in May 2018 on the theme of research and development, where students in the ninth grade at Vallatorp school in Täby presented their contribution to the innovation competition First Lego League – Lego® Mindstorms® of robots that they had built themselves. Employees have also lectured at local schools and supported students in various electronics labs.

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Three questions to Johan Franzén, Sr VP Research & Development with responsibility for the Enable innovation focus area

How can the Enable innovation focus area strengthen Mycronic’s business?

The high value of our deliveries to customers offers Mycronic competitive advantages. By focusing on improvements to the innovation process, new ideas can be created that offer new opportunities for our customers to become more innovative and productive. We show customers how they can evolve.

What are the main challenges? To be innovative and to deliver high quality in projects with short lead times.

Goals

Innovation capacity for continued business success
Engage young people and universities to secure innovation capability
Design for reduced environmental and social impact
Offer solutions enabling a future of sustainable electronics production

2019 Objectives

Perform Group-wide innovation activities with a sustainability theme
Define clusters/incubators at selected universities where we can be involved
Perform sustainability analyses by product area

What is your main focus for work in 2019?

Focus is on building a global network for innovation. We are also working to prepare various concepts at an early stage in projects to quickly create prototypes and simulations, where the establishment of our innovation laboratories is an important part.

Mycronic | Annual and Sustainability Report 2018

SUSTAINABILITY

Auditor’s report on the statutory sustainability statement

To the general meeting of the shareholders of Mycronic AB, corporate identity number 556351-2374

Engagement and responsibility

It is the Board of Directors who is responsible for the statutory sustainability statement for the year 2018 on pages 24–35 and that it has been prepared in accordance with the Annual Accounts Act.

The scope of the audit

Our examination has been conducted in accordance with FAR’s auditing standard RevR 12 The auditor’s opinion regarding the statutory sustainability statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and

generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.

Opinions

A statutory sustainability statement has been prepared.

Stockholm 20 March 2019 Ernst & Young AB

Erik Sandström Authorized Public Accountant

Mycronic | Annual and Sustainability Report 2018

THE SHARE

The Mycronic share

Mycronic’s share is listed on Nasdaq Stockholm, Mid Cap. Mycronic focuses on value creation through established financial objectives and by executing the strategy.

Stock trading

Mycronic’s share is listed on Nasdaq Stockholm. In 2018, the total turnover of Mycronic shares on Nasdaq Stockholm amounted to 83.3 million (93.6) shares, corresponding to 85 percent (96) of the total number of shares.

Shareholders

At the end of the year, Mycronic had 15,483 (18,751) shareholders. All shares are of the same class with equal voting rights and the same share of capital and earnings. The quote value is SEK 1 per share. The largest shareholder, Bure Equity, owned 29.9 percent at year-end. The ten largest owners held 65 percent (65) of the total number of shares. Board members and Group management held a total of 0.5 percent (0.5). According to available information, Swedish ownership was 80 percent (90) of shares at the end of 2018.

Price trend

Mycronic’s market capitalization increased 39 percent in 2018 to SEK 11,564 million, from SEK 8,323 million at the end of 2017. The highest closing rate was recorded on November 6 at SEK 121.00 and the lowest closing rate on February 6 at SEK 83.75. OMX Stockholm PI decreased during the year by 8 percent and OMX Stockholm Technology PI rose by 20 percent.

Dividend and proposal

on share buy-back

Mycronic’s objective is to provide both a good return and value growth. Provided that the company’s net debt is lower than three times EBITDA after the stipulated dividend, 30 to 50 percent of the company’s profit after tax is distributed to shareholders. As a basis for the dividend decision, the Board of Directors takes

into account, in addition to the nature, scope and risks associated with the operations, historical development, budgeted development, investment plans and the general economic climate. For 2018, the Board of Directors is proposing, in accordance with the company’s dividend policy, a dividend of SEK 3.00 (2.50) per share. The dividend corresponds to a total of approximately SEK 294 million (245) and 37 percent (39) of net profit for the year. The Board of Directors intends to propose to the 2019 Annual General Meeting a renewed authorization for the Board of Directors to buy-back shares in Mycronic AB. According to the proposal, the number of shares that may be boughtback will be limited to a maximum of 5 percent of shares outstanding in Mycronic AB.

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Ownership structure by geography
Sweden, 79.9% USA, 15.4%
Denmark, 1.6% Finland, 1.4%
Other, 1.7%
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Ownership structure by category
Swedish institutions and companies, 65%
Swedish private investors, 15%
Foreign investors, 20%
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Mycronic | Annual and Sustainability Report 2018

THE SHARE

Ownership structure December 31, 2018

The largest shareholders December 31, 2018

	No of
	share-	No of
Holding by size	holders	shares	%
1–500	11,795	1,451,629	1.5
501–1,000	1,546	1,289,566	1.3
1,001–5,000	1,577	3,668,780	3.7
5,001–10,000	241	1,773,388	1.8
10,001–50,000	200	4,230,626	4.3
50,001–100,000	50	3,735,334	3.8
100,001–	74	81,767,186	83.5
Total	15,483	97,916,509	100.0

Shareholder	No of shares	Holding, %
Bure Equity	29,317,163	29.9
Fjärde AP-fonden	9,420,510	9.6
Oppenheimer Funds	6,000,000	6.1
Swedbank Robur Fonder	5,028,578	5.1
SEB Fonder	4,131,321	4.2
Andra AP-fonden	2,171,919	2.2
Lannebo Fonder	2,091,807	2.1
Handelsbanken Fonder	1,957,003	2.0
Norron Fonder	1,948,281	2.0
Vanguard	1,836,058	1.9
The 10 largest shareholders	63,902,640	65.3
Others	34,013,869	34.7
Total	97,916,509	100.0

Analysts that monitor Mycronic

Company	Analyst
Carnegie	Mikael Laséen
Danske Bank	Fredrik Lithell
Redeye	Victor Westman

Share capital development

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Redeye Victor Westman Increase in number Total number Share capital,
Year of shares of shares SEK thousand
1989 16,000 16,000 1,600
Data per share 1990 3,300 19,300 1,930
2018 2017 1994 1,801 21,101 2,110
No of shares 97,917,509 97,917,509 1997 11,979,399 12,000,500 12,001
Share price at year-end, 1998 2,000,083 14,000,583 14,001
SEK 118.10 85.00 2000 5,100,000 19,100,583 19,101
Equity per share, SEK 24.30 18.18 2001 102,000 19,202,583 19,203
Market value/equity ratio 4.86 4.68 2002 12,700 19,215,283 19,215
Earnings per share, SEK 8.09 6.37 2003 19,951,333 39,166,616 39,167
P/E ratio 14.60 13.34 2009 26,111,057 65,277,673 65,278
Dividend 3.00 [1] 2.50 2010 32,638,836 97,916,509 97,917
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1) Proposed dividend.

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Share price trend 2018
SEK Volume
120 12,000
100 10,000
80 8,000
60 6,000
40 4,000
20 2,000
0 0
Jan Feb Mar Apr Maj Jun Jul Aug Sep Oct Nov Dec
Mycronic OMX Stockholm Number of shares traded, thousand per month
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Share price trend 2014–2018
SEK Volume
120 18,000
100 15,000
80 12,000
60 9,000
40 6,000
20 3,000
0 0
2014 2015 2016 2017 2018
Mycronic OMX Stockholm Number of shares traded, thousand per month
----- End of picture text -----

Source: Monitor by Modular Finance AB. Data compiled and processed from inter alia Euroclear, Morningstar and the Swedish Financial Supervisory Authority.

Mycronic | Annual and Sustainability Report 2018

Annual and consolidated accounts

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Report of the directors

The Board and CEO for Mycronic AB (publ.), corporate identification no. 556351-2374, hereby submit the annual report and consolidated financial statements for the financial year January 1 to December 31, 2018.

Mycronic’s operations

Mycronic has since the 1970s developed innovative solutions for advanced electronics production. In the same spirit, the company continues today to help its customers to create worldleading production solutions for electronics and display manufacturing with rigorous demands on precision and flexibility. Operations are conducted through two business areas: Assembly Solutions and Pattern Generators.

Assembly Solutions holds a leading position within systems for electronics production with a complete offering for SMT, inspection, dispensing solder paste and mounting fluids. Within the field of automation, Mycronic is also leading in assembly equipment for manufacturing camera modules to the automotive industry, and in die-bonding systems for manufacturing optoelectronics and microelectronics.

Pattern Generators holds a unique position as the only supplier of mask writers to produce advanced photomasks, which in turn are used by global electronics producers when manufacturing advanced displays for products such as mobile phones, tablets, TVs and computer displays.

A large share of Mycronic’s net sales is derived from aftermarket business where service is provided to in excess of 3,000 customers in more than 50 countries with over 12,000 installed systems.

Group structure

The Group consists of the Parent Company Mycronic AB and wholly owned subsidiaries in China, France, Germany, Japan, the Netherlands, Singapore, South Korea, the UK and the USA, as well as a dormant company in Taiwan.

After an acquisition in 2018, Mycronic owns 100 percent of MRSI Systems in the USA, see Note 23. In 2017, Mycronic acquired 100 percent of Vi TECHNOLOGY in France. As a result of acquisitions in 2016, Mycronic owns 100 percent of Kognitec and RoyoTech (where of 25 percent was acquired in 2017) in Germany, 100 percent of AEi in the USA, as well as

80 percent of the Chinese company Axxon. All acquisitions were consolidated from the date of acquisition.

Sustainability report

In accordance with the Swedish Annual Accounts Act, Chapter 6, paragraph 11, Mycronic has chosen to establish the statutory sustainability report separately from the Report of the Directors. The sustainability report can be found on pages 24–35 with an accompanying statement from the auditor on page 36.

Personnel

At year-end, the Group had 1,254 employees (1,045), of which 70 were added through the acquisition of MRSI Systems.

The average number of full-time employees in the Group in 2018 was 1,175 (962), of which 336 (322) were employed in Sweden. Women accounted for 16 percent (17) of the average number of Group employees. See Note 15.

Long-term financial goals

The Group’s long-term financial goals were published in February 2017 in the year-end report for 2016 as follows:

Growth

Consolidated net sales including acquisitions will reach SEK 5 billion at the end of the period covered by the business plan, 4 to 7 years.

Profitability

EBIT will exceed 15 percent of net sales over a business cycle.

Capital structure

Net debt will be less than 3 times the average EBITDA (earnings before depreciation/ amortization, interest and tax). The average is calculated over a three-year period.

2018 financial year

In 2018, Mycronic noted order intake, net sales and EBIT at record levels. Order intake rose

2 percent to SEK 3,642 million, while net sales increased 26 percent to SEK 3,781 million.

EBIT rose 21 percent to SEK 1,020 million, corresponding to an EBIT margin of 27 percent. The result was affected primarily by healthy volumes. Mycronic is reinforcing and strengthening its position in several of the company’s market segments, which is reflected in the Assembly Solutions business area’s improvement of its EBIT margin by nearly 10 percentage points for the full year.

Acquisition-related expenses amounted to SEK 56 million, resulting in an underlying EBIT of SEK 1,076 million, corresponding to an underlying operating margin of 28 percent.

Significant events during the year

Product development and product launches

During 2018, Mycronic continued to invest significantly in product development for the purpose of securing future growth by continuing to provide customers with the best and most efficient solutions for their operations.

During the year, the FPS8100 was launched, a new mask writer for the multi-purpose market, and a new ultra-compact storage tower, the SMD Tower 8000 was also launched. In die-bonding, two new systems were launched, the MRSI-H3LD and the MRSI-H3TO. In parallel, the smart assembly solution MYPro Line and the compact SMT systems MY300HX and MY300EX were developed during the year.

Acquisitions

During the year, MRSI Systems was acquired in the USA, a company that develops, manufactures and sells die-bonding systems with very high precision for manufacturing optoelectronics and microelectronics. Mycronic also completed a smaller acquisition of 70 percent of shares in Japanese development partner, including an option to acquire the remaining shares not later than three years from the acquisition date.

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Events after year-end

In January 2019, Mycronic launched two new pick-and-place machine models at the IPC APEX Expo in the USA. These two new compact models, the MY300HX and the MY300EX, offer extended configuration possibilities that significantly improve customers’ production capacity while also maintaining a high level of process quality and availability for demanding applications.

Comments on financial performance

All financial information such as the order intake, income statement and balance sheet items, include acquired companies as of the respective dates of acquisition.

Order intake and order backlog

Order intake, including system and aftermarket sales for both business areas, amounted to SEK 3,642 million (3,567) in 2018. Order intake included seven (ten) mask writers.

The order backlog at year-end was SEK 1,904 million (1,963). The order backlog includes ten mask writers, of which eight with planned delivery in 2019. The order backlog also contains a major upgrade with delivery in 2019.

Net sales

Net sales in 2018 amounted to SEK 3,781 million (3,000), an increase of 26 percent. Of this, 16 percent was attributable to organic growth and 8 percent to acquisitions, with exchange rate effects of 2 percent.

Net sales comprised delivery of seven (ten) mask writers. Assembly Solutions showed strong growth, both organic and from acquisitions in recent years. Acquisitions made during the year (MRSI Systems) contributed SEK 146 million to net sales.

The Group’s net sales were impacted by positive exchange rate effects of SEK 71 million (-22). Recalculated to the exchange rates which prevailed in 2017, net sales reached SEK 3,709 million. Aftermarket sales constituted 29 percent (30) of net sales.

Gross profit and gross margin

Consolidated gross profit amounted to SEK 2,098 million (1,716). The year’s higher gross profit can be explained by greater sales volumes in both business areas. Gross margin amounted to 55 percent (57).

Research and development

Consolidated development expenses in 2018 amounted to SEK 476 million (348). The increase mainly arose in the Pattern Generators business area and the acquired companies Vi TECHNOLOGY and MRSI Systems in the Assembly Solutions business area.

The product program is continuously being modernized through maintenance and minor development efforts. The Group also continued to execute its fast-paced product development strategy. Through collaboration, investments are made in product development for new needs and new markets.

Mycronic’s patent strategy protects its investments in unique technology. At year-end, the Group held more than 500 patents.

Within Assembly Solutions, development expenditures amounted to SEK 312 million (267) in 2018. Expenditures relate to investments for future growth and competitiveness, such as development of new platforms and development of existing products for new needs and new markets, both product-wise and geographically. In 2018, SEK 10 million (21) was capitalized in the balance sheet.

Development expenditures in Pattern Generators increased according to plan to SEK 154 million (68) due to development of the next generation of mask writers along with further development of existing products.

Sales and administration

Expenses for sales and administration amounted to SEK 649 million (491) in 2018.

The increase in expenses is primarily attributable to operating expenses in the acquired companies and investments in the sales organization. The Group expanded the global sales organization both geographically and productwise, conducted marketing activities and a major acquisition.

EBIT

Consolidated EBIT for 2018 amounted to SEK 1,020 million (844), corresponding to an EBIT margin of 27 percent (28). The result was affected primarily by healthy delivery volumes.

The underlying EBIT amounted to SEK 1,076 million (951), with an underlying EBIT margin of 28 percent (32). The difference between EBIT and the underlying EBIT consists of acquisitionrelated costs. These amounted to SEK 56 million in 2018, and related to expensing of acquired inventories at fair value, changes in value of earn-outs, amortization of acquired intangible assets, as well as transaction costs. Acquisition-related expenses were charged in full to Assembly Solutions.

Tax

Consolidated profit before tax amounted to SEK 1,011 million (836) in 2018.

Consolidated tax expenses amounted to SEK 219 million (212).

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Order intake per quarter
SEK million
4,000
3,000
2,000
1,000
0
2016 2017 2018
Q1 Q2 Q3 Q4
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----- Start of picture text -----

Net sales per quarter
SEK million %
4,000 40
3,000 30
2,000 20
1,000 10
0 0
2016 2017 2018
Q1 Q2 Q3 Q4 Growth
----- End of picture text -----

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Profit for the year and earnings per share Consolidated profit after tax for full-year 2018 amounted to SEK 792 million (623).

The number of outstanding shares at yearend was 97,916,509 (97,916,509). Earnings per share amounted to SEK 8.09 (6.37) before and after dilution.

Comments on financial position

The Group’s total assets at year-end 2018 amounted to SEK 4,199 million, compared with SEK 3,244 million at the end of 2017.

Non-current assets amounted to SEK 1,592 million (1,192). Intangible assets amounted to SEK 1,381 million (1,037), of which SEK 1,343 million (1,007) consisted of acquisition-related assets in the form of goodwill, customer relationships, technology and brands.

Capitalized development costs amounted to SEK 32 million (30). During 2018, development projects were capitalized in the amount of SEK 10 million (21). Amortization of previously capitalized development amounted to SEK 7 million (24). Each development project is assessed individually to determine whether the criteria for capitalization in the statement of financial position have been met.

The value of intangible assets with indefinite useful life is impairment tested at least once per year to ensure accurate reporting.

During 2018, inventory increased from SEK 589 million to SEK 868 million, and trade receivables from SEK 512 million to SEK 664 million. The increase is related to the company’s expansion. During 2018, cash and cash equivalents increased marginally from SEK 813 million to SEK 829 million.

Current liabilities amounted to SEK 1,559 million (1,063). Trade payables increased from SEK 155 million to SEK 236 million. Advance payments from customers amounted to SEK

306 million (497). The Group strives to the greatest extent possible to receive advance payments from customers in connection with orders, and especially for sales of mask writers.

At year-end, the Group had interest-bearing liabilities amounting to SEK 1 million (13) while net cash was SEK 827 million (800).

Equity

The Group’s equity on December 31, 2018 was SEK 2,379 million (1,780). The number of outstanding shares at year-end was 97,916,509.

The equity/assets ratio, the percentage of equity of the total assets, was 57 percent (55). At year-end, Mycronic’s market capitalization was SEK 11,564 million (8,323).

Comments on cash flow and investments Consolidated cash and cash equivalents at yearend amounted to SEK 829 million (813). Cash flow for the period was SEK 4 million (609).

Cash flow from operations after changes in working capital generated SEK 702 million (984). Working capital claimed SEK 225 million, mainly through increased capital tied up in inventories and trade receivables related to the company’s growth.

Investments totaled SEK 440 million (181), of which the acquisition of MRSI accounted for SEK 353 million and the earn-out for RoyoTech for SEK 15 million. Other investments comprised the capitalization of product development in an amount of SEK 10 million (21) and tangible assets.

Financing activities claimed SEK 258 million (194), of which dividends of SEK 245 million.

Proposal on guidelines for

remuneration of senior executives

The Board proposes that the AGM decide on the following guidelines for remuneration of senior

executives for the period from the 2019 AGM. The Board can deviate from these guidelines in individual cases if there are special reasons.

The proposal covers the incoming CEO and the other Group management positions, currently a total of nine persons.

When handling matters relating to remuneration of senior executives, external advice is sought when necessary.

The main principle is to offer senior executives market-based remuneration and other terms of employment. Actual levels of remuneration are based on such factors as competence, experience and performance. Total remuneration is proposed to consist of the following elements:

Fixed basic salary

Fixed basic salary for the CEO and other senior executives is reviewed on an annual basis.

Short-term incentive (STI) program

Payment is made when targets are achieved for the company as a whole. Reimbursement can amount to a maximum of 100 percent of fixed basic salary.

Long-term incentive (LTI) program

The company has for some time had an annual recurring share-based incentive program, with two remaining years outstanding. From the 2019 AGM, the Board of Directors is planning to propose that the program be replaced by a new program, LTIP. The previous LTI program is to encourage the acquisition of shares in Mycronic. It is based on the principle that if a senior executive buys shares in Mycronic, the company matches the amount by cash payment of the same amount. The matching amount shall be used to acquire shares in the company. The shares are to be held for a mini-

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Quarterly R&D expenses
SEK million %
160 16
120 12
80 8
40 4
0 0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2017 2018
R&D expenditure Reported cost
R&D costs as % of net sales
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Financial performance
SEK million %
1,200 80
900 60
600 40
300 20
0 0
2016 2017 2018
EBIT EBIT margin Gross margin Underlying EBIT
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REPORT OF THE DIRECTORS

mum of four years. The amount is maximized to SEK 100 thousand after tax for the CEO and SEK 50 thousand after tax for other senior executives. If certain requirements are met after three years, the company shall make an additional payment corresponding to a maximum of 150 percent of the matching amount. The criteria require that the employee still be employed and have retained their acquired shares. In addition, the Board’s established goals for financial performance must be met. This matching amount must also be used to purchase shares in the company and these shares shall be kept for at least one year.

Long-term incentive program (LTIP)

LTIP addresses certain key personnel as a means of increasing and strengthening opportunities to recruit, retain and motivate employees, and to encourage personal, long-term ownership in Mycronic. The Board of Directors proposes, therefore, that the AGM resolves to introduce a long-term incentive program for 2019 (LTIP 2019).

Each participant is entitled, after the end of the qualification period, subject to the employee still being employed, and depending on the fulfillment of specific performance requirements linked to Mycronic’s earnings per share, to receive an allotment of common shares in Mycronic, referred to as performance shares. The allotment of performance shares to participants will be free of charge.

The allotment of performance shares within LTIP 2019 will take place during a limited period following the 2022 AGM. The period until this date will form the qualification period. One prerequisite for participants to be entitled to allotment of performance shares, is that participants continue to be employed by Mycronic throughout the qualification period until allotment. In addition, allotment of performance shares requires the fulfillment of performance requirements linked to Mycronic’s EPS. The number of shares is limited to a maximum of 13,700 for the CEO, 5,200 for senior executives and 2,100 for other key personnel. In the event of a maximal allotment and participation, the program will encompass 183,400 shares.

Pension benefits

The contractual retirement age for the CEO is 65 years, and 65 years for other senior executives. All pension benefits for senior executives are defined contribution plans. This means the company pays an individually agreed defined contribution pension premium for senior exec-

utives and has no other additional pension commitments.

Other benefits

Senior executives are entitled to a company car or cash remuneration with a corresponding value. All senior executives are also covered by healthcare insurance.

Severance conditions

For the CEO, a period of notice of twelve months and twelve months’ severance pay apply upon termination by the company. For other senior executives, a period of notice of six months and six months’ severance pay apply upon termination by the company.

The employment contract with related benefits is valid during the notice period. In cases where a severance payment is made, no other benefits are payable.

The Mycronic share

The share is listed on NASDAQ Stockholm since March 2000. As of January 2, 2015 the share is listed on the Mid Cap list.

Share capital amounts to SEK 98 million. The number of shares is 97,916,509, issued in one class. Every share grants the right to one vote.

The largest shareholder at the end of 2018 was Bure Equity with holdings of 29,317,163 shares, or 29.9 percent of capital and votes. No other shareholder has, either directly or indirectly, more than 10 percent of the company’s shares.

Mycronic does not have any limitations in terms of the transferability of shares due to provisions in the Articles of Association. To the company’s knowledge, there are no agreements between shareholders that result in limitations to the right to transfer shares. Furthermore, the company is not party to any agreement that will have effect, be altered, or cease to apply if control over the company should change as a result of a public tender offer. The Group has no contractual obligations between the company and Board members or between the company and employees other than those reported in the section on remuneration.

Parent Company

Mycronic AB is the Group’s Parent Company. Sales in the Parent Company comprise production solutions for electronics and display manufacturing and aftermarket sales. At year-end 2018, there were 342 persons (326) employed by the Parent Company.

The Parent Company's net sales amounted to SEK 2,621 million (2,335) and included seven (ten) mask writers. EBIT was SEK 943 million

(803). Cash and cash equivalents at year-end amounted to SEK 538 million (596).

Outlook for 2019

The Board's assessment is that consolidated net sales for 2019 will be at a level of SEK 4 billion, excluding any acquisitions made in 2019.

Significant risks and risk management

Mycronic is an international group with subsidiaries all over the world and thus exposed to risks of various kinds. The company can influence these risks to varying degrees. Risks may have a large or small impact on the Group, the Parent Company or subsidiaries within the Group. The significant risks that can affect Mycronic are described below.

Risks and their costs are limited through development of processes and systematic risk management and the Group’s insurance solutions. Risk management is handled on a general level by the Board and at the operational level by Group management.

Financial risk management is centralized in the Parent Company’s finance department, as is handling of insurance. Financial risks are managed in accordance with the financial policy established by the Board.

Market-related risks

The Group’s sales are related to investments within the electronics industry. Sales and profitability are affected by overall economic trends in terms of sales volumes, price trends and customers’ financing options. Through continuous investment in product development and acquisitions, Mycronic addresses several application areas and customer segments, which spreads risk. Furthermore, the Group’s aftermarket business contributes to reducing dependence on system sales.

Mycronic is affected by political decisions and regulations in the more than 50 countries where the Group operates through subsidiaries or through distributors and agents. Through local establishment, knowledge in each market increases.

The bulk of the Group’s operations are in North America, Europe and Asia. During 2018, Mycronic expanded its business in the USA through acquisition. The Group is exposed to country-specific risks such as political decisions or overall changes to the regulatory framework in its respective geographical markets.

Mycronic’s Code of Conduct sets clear requirements for employees, suppliers, distributors and agents to comply with laws and ethical regulations.

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

If Mycronic cannot deliver products and services according to customers’ requirements, or if customers do not fulfill their payment obligations, the Group’s financial position and earnings may be affected.

The Assembly Solutions business area operates in a market with many actors and hence significant competition. Consolidation among companies on the market can result in a stronger financial situation for some competitors. The Group has more than 3,000 customers globally, which lowers dependency on individual customers. Sales are distributed over a large number of systems within different application areas.

The Pattern Generators business area has a customer base of around 30 companies. Dependency on individual customers is high which concentrates customer risk. Sales are distributed over a few, high-value machines and sales processes are long. Low sales to one of these customers can, in the short term, have a major impact on earnings and financial position. Earnings for a report period, e.g. a quarter, can also be affected significantly by delays in the delivery of individual mask writers. There are few competitors and customer relationships are long-lasting.

Technological development within the electronics industry is rapid, which exposes the Group to development risk where development activities do not lead to profitable new business opportunities, a product launch or delivery does not occur on time, or that the cost of developing new products is difficult to estimate.

Average annual growth within the electronics industry is assessed to be on par with, or slightly higher than, total GDP. Consumption of electronics products is increasing worldwide, which is one of the key drivers of the Group’s activities. Mycronic’s development projects are based on thorough feasibility studies, which

combine market studies, technical studies and project preparations. These are important to reduce business risk in product development projects. Development activity is carried out in close cooperation with customers and the sales organization.

Changes in price and lead times for components used in the equipment that the company manufactures can impact Group earnings. Certain components are manufactured by a limited number of suppliers. Mycronic evaluates alternative suppliers of critical components and works to ensure competitive prices and lead times.

Through the Group’s products and global sales, Mycronic assumes product liability. Product liability covers damages arising from utilization of the Group’s products. Mycronic has taken out liability insurance for this risk. There is also a risk that design-, manufacturing- and quality-related defects can lead to costs for product withdrawal or corrective actions. Besides financial consequences, this could entail a negative impact on the company’s brand.

Business-related risks

Mycronic has production facilities around the world. Damage from fire, power failure and water damage can result in production disruptions and delivery problems which can affect the Group’s earnings and financial position.

The Group takes preventative steps to ensure the continuity of operations. This work involves regular maintenance and fire safety training for personnel. The company has contingency plans for acting quickly in the event of a disaster and for limiting damage. The Group has the usual insurances, such as property and business interruption insurance.

Increasing digitalization leads to greater risks related to information security. Mycronic invests continuously in system support and training to identify and prevent risks. This risk

is minimized through permission structures and good internal control.

Mycronic contracts external IT security experts for regular review of prioritized IT- systems. Mycronic’s principle is that this shall occur at least every other year. An external IT specialist conducts a security review in conjunction with acquisitions.

The Group’s earnings in the long term are dependent on its abilities to protect strategically important technology. The Group works purposefully to identify and protect new technology in early stages through patents and held more than 500 patents at year-end 2018.

Employees are, together with customers, the Group’s greatest asset. Talented and motivated employees and managers are a prerequisite for achieving established goals. Personnel expenses are one of the largest expense items. Mycronic works continuously to make the company an attractive employer. Cooperation with universities is a high-priority area for ensuring recruitment opportunities.

Mycronic’s brand is impacted by customer experience of the products supplied and how company representatives behave. An incident or damage within the areas described in this section can affect the brand and lead to diminished confidence. Mycronic works proactively with brand-building measures. Mycronic manages the risk for brand damage through clear communication of its vision and values through ethical regulations and other policies.

Financial risks

Through its global operations, the Group is exposed to the risk of negative changes in earnings and cash flow through currency, credit and financing risks. The single largest financial risk is exchange rate fluctuations. Interest rate risk is limited. Financial risks are described in more detail in Note 34.

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

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Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Corporate governance report

The objective of corporate governance is to ensure that the Mycronic Group is managed as efficiently as possible in order to create shareholder value. This is achieved through a clear division of responsibilities between shareholders, the Board and Group management, as well as through clear regulations and transparent processes.

Framework for corporate governance Corporate governance is based on external governing instruments such as the Swedish Companies Act, the Annual Accounts Act, Nasdaq Stockholm’s Rule Book for Issuers and the Swedish Code of Corporate Governance (the Code), as well as internal governance systems. In 2018, Mycronic complied with the Code in all respects.

The vision, mission, values and Code of Conduct form the basis for internal governance systems. Internal regulations include the Articles of Association, the rules of procedure for the Board of Directors, the Board policy for CEO, the Code of Conduct and several other policy documents that are updated annually. Examples of steering documents include policies for communication and diversity, and the authorization policy.

Shareholders

Mycronic is a Swedish public limited liability company registered in Täby. The share is listed on Nasdaq Stockholm, Mid Cap. Share capital amounts to SEK 97,916,509 spread over 97,916,509 shares. Each share carries one vote.

At the end of 2018, Mycronic had 15,483 shareholders (18,751). Bure Equity AB was the largest shareholder with 29.9 percent of capital and votes at the end of the year. More information on Mycronic’s share and shareholders can

be found in The Mycronic share section of this report on pages 37–38.

The Annual General Meeting (AGM) The AGM is the company’s highest decisionmaking body. All shareholders have the right to participate in the AGM and to exercise their voting rights relative to their shareholdings. Rules regarding the AGM can be found in the Swedish Companies Act and the Articles of Association. Notice to attend the AGM shall be made four to six weeks prior to the meeting through an announcement in Post- och Inrikes Tidningar and in a press release published on the company website. Issuance of the notice shall be announced in Svenska Dagbladet. Shareholders who wish to attend the Meeting must submit an application in accordance with information in the official notification.

AGM 2018

The AGM was held in Stockholm on May 8, 2018. The AGM was attended by shareholders representing 56.9 percent of the share capital and votes.

The AGM took decisions in accordance with the Board’s and the Nomination Committee’s proposals on:

Adoption of the balance sheet and income statement
Disposal of earnings through a dividend of SEK 2.50 per share
Discharge of Board members and the CEO from liability to the company
The number of Board members shall be six without deputy Board members
Selection of a registered public auditing firm
Board fees totaling SEK 2,430,000, of which SEK 700,000 for the Chairman and

SEK 275,000 to each of the other elected Board members. An additional SEK 100,000 was allocated to the Audit Committee Chairman, SEK 50,000 to other members of the Audit Committee, as well as SEK 75,000 to the Remuneration Committee Chairman and SEK 40,000 to other members of the Remuneration Committee

Katarina Bonde, Ulla-Britt Fräjdin-Hellqvist, Per Holmberg and Patrik Tigerschiöld were re-elected to the Board. Anna Belfrage and Robert Larsson were elected to the Board. Patrik Tigerschiöld was elected Board Chairman. Magnus Lindquist declined re-election. In addition to the elected members, two union representatives were appointed from the unions Unionen and Akademikerna to represent employees. The auditing firm Ernst & Young was appointed auditor with authorized public accountant Erik Sandström as lead auditor
Adoption of guidelines for remuneration to senior executives
Adoption of principles for the Nomination Committee
Resolution to authorize the Board of Directors to decide on a new issue and buy-back of own shares limited to a maximum of 5 percent of shares outstanding in Mycronic AB.

Information on the AGM including all proposals and protocols can be found at www.mycronic.com.

AGM 2019

The AGM will be held on May 9, 2019 at 5:00 p.m. in Industrisalen, Näringslivets Hus, Storgatan 19, SE-114 85 Stockholm, Sweden.

Nomination Committee

The Nomination Committee represents the

Corporate governance at Mycronic

In order to govern the Mycronic Group in an efficient manner, governance, management and control has been distributed between shareholders, the Board, the CEO and Group management, with committees and collaborative bodies within specific areas.

Control is exercised by the external auditor and through internal control activities.

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Remuneration Committee
Audit Committee
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Nomination Committee
Shareholders
Board of Directors
CEO
Group management
Auditor
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Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

shareholders. Its task is to present proposals to the AGM for decision regarding the election of Board members, the Board Chairman and auditors, and remuneration for same. The AGM decides how the Nomination Committee should be appointed.

In accordance with this decision, the Nomination Committee totals four persons: representatives from the three largest known owners as of August 31 and the Chairman of the Board. The composition of the Nomination Committee is published at the latest six months prior to the AGM. The Nomination Committee’s proposals are presented in the Notice of the AGM and on Mycronic’s website.

The annual evaluation of the Board’s work is presented to the Nomination Committee and is the basis for its work in proposing Board members. The Nomination Committee bases its work on the requirements of the Swedish Annual Accounts Act and the Code, as well as company-specific requirements. The intention is to have an appropriate Board composition, which shall be characterized by versatility and breadth including age, gender, education, background and experience. The Board of Directors is presented on pages 50–51.

The Nomination Committee for the 2019 AGM consists of Henrik Blomquist (Bure Equity), Thomas Ehlin (Fjärde AP-fonden), Joachim Spetz (Swedbank Robur Fonder) and Patrik Tigerschiöld (Chairman of the Board).

Board of Directors

The Board of Directors (the Board) has overall responsibility for the company’s organization and management. The Board monitors operations, ensures a suitable organization, and establishes guidelines for internal control. The Board establishes strategies and goals and

makes decisions on major investments. The CEO is appointed by the Board and is responsible for ongoing administration.

The responsibilities of the Board are governed by the Swedish Companies Act and in the Procedural Plan. Division of labor between the Board and the CEO is established through written instructions.

The Board consists of six members appointed by the AGM, and two representatives appointed by the unions, Unionen and Akademikerna.

Board activities

The Board works according to the Procedural Plan, which shall ensure that the Board is well-informed and that all Board-related issues are addressed. The Procedural Plan, which is established annually, describes the division of labor between the Board and its committees, and between the Board and the CEO. The Board takes decisions on strategy and budget, confirms financial reports and significant policies including the authorization policy, appoints the CEO and evaluates the CEO’s work, establishes regulations for internal control and monitors the effectiveness of internal control, decides on major investments and agreements, appoints the Audit and Remuneration committees, and evaluates the work of the Board. The Board monitors that approved guidelines on remuneration of senior executives are followed, and proposes guidelines for remuneration for consideration by the AGM.

The Chairman of the Board leads the work of the Board and also represents the company on ownership issues.

Board meetings are prepared by the Chairman of the Board, together with the CEO. The CEO and the company’s CFO, who is responsible for recording the minutes of Board meetings,

attend. In addition, other employees attend when necessary in relation to individual cases. Materials are distributed prior to each meeting. Some questions are prepared in committees.

Recurring items at Board meetings are reviews of the business situation and financial reporting. Board committees report on their activities and raise issues for decision.

In 2018, the Board held 13 meetings. In addition, the Board met during a strategy seminar.

Board committees

The committees’ tasks and work plan are established by the Board in written instructions. The main task of the committees is to prepare matters for Board decision-making.

The Remuneration Committee

The Remuneration Committee is appointed by the Board and consists of three Board members. The Committee is tasked with proposing the CEO’s salary, other remuneration, and terms of employment. The Committee also proposes guidelines for remuneration and terms of employment for other senior executives and the directors of subsidiaries, and proposals for incentive programs. The Remuneration Committee ensures compliance with established guidelines for remuneration of senior executives.

As of the 2018 AGM, the Remuneration Committee consists of Patrik Tigerschiöld (Chairman), Ulla-Britt Fräjdin-Hellqvist and Per Holmberg. The Remuneration Committee held four meetings in 2018.

The Audit Committee

The Audit Committee is appointed by the Board and consists of three Board members. The Committee is tasked with ensuring the quality of financial reporting. This comprises

The Board’s work 2018

During 2018, the Board held 13 meetings, of which one was the statutory meeting, three were by circulation and four were telephone meetings.

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Fourth quarter
• Budget for 2019 established Dec Jan
• Interim report January–September
Nov Feb
Q4 Q1
Oct Mar
Board meetings
Third quarter 2018
• Interim report January–June. Sep Apr
• Board trip with detailed study of Q3 Q2
the acquired Vi TECHNOLOGY
Aug May
Jul Jun
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First quarter

Interim report for fourth quarter and full-year 2017, proposal on dividend
Annual report for 2017 adopted

Second quarter

Review of business operations in acquired companies
Review of forecast and update on development projects
Statutory meeting with decisions on financial signing authority, policies, etcetera. directly after the AGM
Strategy seminar, with adjacent board meeting
Interim report January–March
Decision on acquisition of MRSI Systems LLC

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

reviews of significant accounting and valuation issues. The Audit Committee evaluates the external auditing and assists the Nomination Committee with proposals for the election of the auditor. Employees do not participate during part of certain meetings between the Audit Committee and the external auditor.

Since the 2018 AGM, the Audit Committee consists of Anna Belfrage (Chairman), Katarina Bonde and Ulla-Britt Fräjdin-Hellqvist. In 2018, the Audit Committee held five meetings.

Evaluation of board performance

The Board’s work is evaluated annually. The evaluation is done by external evaluation or self-assessment. The objective is to develop, set targets for, and measure the work of the Board, but also to provide the Nomination Committee a basis for the task of preparing proposals on Board appointments to the upcoming AGM. The Chairman of the Board is responsible for the evaluation. In 2018, the Board of Directors worked with an external assessment, which resulted in a renewed action list. Work with these measures continued during the year.

CEO and Group management

Group management consists of nine persons, including the CEO, see pages 52–53. In 2018, Charlott Samuelsson took over as Sr VP, Pattern Generators, Lena Båvegård as Sr VP, Operational Excellence and Anette Mullis as Sr VP, Human Resources.

The CEO leads the work of Group management, which meets every other week. Issues addressed include financial performance, development projects, leadership and skills provision and other strategic issues. The CEO is responsible for keeping the Board informed of the company’s development. Three times per year, a global management meeting is

organized to strengthen unified communication and control throughout the Group. In addition to Group management, there are several collaborative bodies that prepare and coordinate strategic and operational issues.

External audit

The auditor is appointed by the AGM to review the company’s annual financial statements and the consolidated accounts, as well as the Board’s and CEO’s administration. Audits are conducted in accordance with International Standards on Auditing and generally accepted auditing practices in Sweden. Group management is briefed on audit results continuously. The auditor meets with the Audit Committee on an ongoing basis and with the entire Board annually. The Auditor submits the Auditor’s report to shareholders at the AGM. In 2018, the auditor performed, in addition to the audit, a synoptic review of the third quarter report. Fees to the auditor are paid on an ongoing basis as invoices are approved. See Note 8 for information on auditor remuneration.

External financial reporting

In accordance with the established communication policy, Mycronic continuously reports information on the company’s performance and financial position through interim reports, the annual report and press releases in conjunction with significant events.

In conjunction with interim reports, presentations are held for financial analysts, institutional investors, and the media. Company management and the Director IR & Corporate Communications meet analysts and institutional investors at other external and internal arrangements. Representatives from Mycronic also participate at events arranged by, for example, investment banks and the Swedish Shareholders’ Association. Financial reports,

press releases and other relevant information are presented on the company’s website.

Mycronic observes a 30-day silent period before publication of financial reports, during which the company does not communicate with the financial market by means other than public press releases.

Insiders

On July 3, 2016, the EU Market Abuse Regulation (MAR) regarding insiders and their reporting of securities transactions came into force. Mycronic is obliged to maintain a register of persons in leadership positions and those close to them. This group consists of Board members and Group management. These persons are obliged to report all transactions in Mycronic securities to Finansinspektionen (Sweden’s financial supervisory authority) and to the company. The company is also required to maintain a temporary insider register (log book) of persons who have access to non-public information for a limited period in connection with particular events. This might be the Board, employees or contractors.

Internal control of financial reporting

Internal control is comprised of processes and methods that limit risks for material misstatement in the financial statements, and provide a reasonable assurance of the reliability and accuracy of the financial reporting. Internal control is maintained by the Board, management and employees. Mycronic has chosen to describe its work with internal control based on COSO’s components: the control environment, risk assessment, control activities, information and communication, and monitoring.

Control environment

The control environment consists of a suitable organization, decision-making procedures,

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Attendance at last AGMs
%
60
40
20
0
2015 2016 2017 2018
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Nomination Committee

Name	Representing	Holdings, % August 31, 2018
Henrik Blomquist	Bure Equity	29.9
Thomas Ehlin	Fjärde AP-fonden	9.6
Joachim Spetz	Swedbank Robur Fonder	7.9
Patrik Tigerschiöld	Chairman of Mycronic AB

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

authorization and responsibilities, as expressed in policies and guidelines. Common values provide consensus with the intention of strengthening internal control. Mycronic’s Code of Conduct describes the approach that employees are expected to maintain in matters relating to business ethics and social issues. Examples of steering documents include the formal work plan for the Board and its committees, terms of reference issued by the Board to the CEO, the authorization policy, Code of Conduct, and insider and communication policies. Ensuring processes include a high degree of internal control is the responsibility of the respective department manager. Process descriptions and steering documents are gathered in a digital, Group- wide management system. The Group’s finance and control organization, centrally and at the level of each unit, plays an important role in the reliability of financial information and is responsible for ensuring that complete, accurate financial reporting is completed on time.

Risk assessment

Included in risk assessment is the identification and evaluation of the risk for material misstatement in accounting and reporting and the risk of irregularities and fraud. When assessing risks that affect internal control as it relates to financial reporting, the evaluation is based on likelihood and impact. Risks are linked to processes. Critical processes are evaluated with respect to their efficiency and risk. Critical processes include product development, sourcing, manufacturing, sales, salary and support processes such as financial closing and IT.

Control activities

Control activities should prevent, reveal and resolve deviations. There are controls at all levels within the company and across all departments. Control activities may be automated by

being built into IT systems, such as authorization structures. They may also be manual, such as double checks for disbursements and reconciliations in connection with financial closings. Recurring analysis of results complement daily controls. A financial handbook ensures uniformity of financial reporting within the Group. One system is used across the entire Group for financial reporting. In 2018, Mycronic further developed the standardization of a number of key controls within critical processes. These controls comprise unified Group-wide tools for internal control and governance. Control requirements are important aids for the Board to manage and evaluate information from management and assume responsibility in relation to the risks identified.

Information and communication

The Board and management have established channels for communication to ensure that financial reporting is complete and accurate. Internal communication channels include quality systems and analysis tools as well as the intranet. One way to educate staff on Groupwide rules is through e-learning, which can be linked to tests after completion of the training. Each month, financial information is compiled and distributed to Board members and Group management. External communication is carried out in accordance with the established communication policy. Financial reporting is published in accordance with applicable regulations. The Board approves the Group’s annual report and year-end statement and issues quarterly reports. For the first and third quarters the Board has instructed the CEO to issue the quarterly reports.

Monitoring

Mycronic has no review function in the form of internal audit. The Board has determined that

monitoring of internal control shall be conducted through self-assessment. Self-assessment entails employee involvement, which increases understanding of the importance of internal control. Evaluation of internal control follows a plan approved by the Audit Committee. Risk for material misstatements or deficiencies in the financial reporting are reported. Self-assessment of critical processes is complemented by external evaluation or statements of opinion. Representatives of the central finance and controller department regularly visit the subsidiaries to review and evaluate internal controls. Two of the visits to subsidiaries in 2018 were carried out together with representatives from Ernst & Young. The reviews focused on inventories, customer receivables and authorization procedures. Experiences are continuously shared among representatives from the Group’s finance and HR departments, for example, through global conferences.

In 2018, Mycronic continued efforts to establish an overall process for reporting entities where they follow-up the efficiency of key controls and report back to the Group. The process involves self-assessment of the efficiency of key controls in respective reporting units, with results followed-up and compiled at the Group level and reported to the Audit Committee and then to the Board.

The Audit Committee monitors the internal control work and has ongoing contact with the external auditors. This contributes to the Board’s collective insight into internal control as it relates to financial reporting.

Attendance at meetings in 2018 and remuneration of Board members elected by the AGM

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Attendance Remuneration
Indepen- Board of Audit Remuneration Audit Remuneration
Name Elected dent [1)] Holdings Directors Committee Committee Board Committee Committee
Patrik Tigerschiöld, chairman 2009 No 235,170 13/13 4/4 700,000 75,000
Magnus Lindquist, until 2018 AGM 2007 Yes 7/7 2/2
Katarina Bonde 2010 Yes 2,000 13/13 5/5 275,000 50,000
Ulla-Britt Fräjdin-Hellqvist 2012 Yes 10,000 12/13 5/5 4/4 275,000 50,000 40,000
Per Holmberg 2016 Yes 5,000 13/13 4/4 275,000 40,000
Anna Belfrage, from 2018 AGM 2018 Yes - 5/6 3/3 275,000 100,000
Robert Larsson, from 2018 AGM 2018 Yes - 6/6 275,000
1) According to the Swedish Code of Corporate Governance.
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Patrik Tigerschiöld
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Board Chairman since 2012 and Board member since 2009 Born: 1964 Dependent Board member

Education: MSc Business and Economics Other Board assignments: Chairman of Bure Equity AB, Cavotec SA, the Association for Generally Accepted Principles in the Securities Market and The Swedish Association for Listed Companies. Board member of Ovzon AB, Fondbolaget Fondita AB and member of Ingenjörsvetenskapsakademien

Previous positions: CEO of Bure Equity AB 2010–2013, CEO of Skanditek Industriförvaltning 1999–2010 and CEO of SEB Allemansfonder AB 1995–1999. Committee in Mycronic: Chairman of the Remuneration Committee Shareholding in Mycronic: 235,170

Katarina Bonde Board member since 2010 Born: 1958 Independent Board member President of Kubi LLC Education: MSc, Engineering Physics Other Board assignments: Chairman of Imint Intelligence AB, Opus Group AB and Propellerhead Software AB. Board member of Microsystemation AB, Jarl Securities and Stillfront Group AB. Previous positions: CEO of UniSite Software Inc 2000–2003, CEO of Captura International 1997–2000, Marketing director Dun&Bradstreet Software Inc 1996–1997, Vice President at Timeline Inc 1994–1995, and CEO of Programator Industri AB 1989–1992. Committee in Mycronic: Member of the Audit Committee Shareholding in Mycronic: 2,000

Ulla-Britt Fräjdin-Hellqvist Board member since 2012 Born: 1954 Independent Board member Fräjdin & Hellqvist AB Education: MSc, Engineering Physics Other Board assignments: Chairman of Karlstad Innovation Park. Board

member of Anna+Cie, DataRespons ASA, Holmbergs First Holding AB, HRM Affärsutveckling AB, Insplorion AB, Fräjdin & Hellqvist AB and UBFH Management AB Previous positions: Chairman of among others SinterCast AB (OMX) and Kongsberg Automotive ASA (Oslo stock exchange). Chairman and board member of a number of private, listed and stateowned companies since 1992. Leading positions in Svenskt Näringsliv 2001– 2006, and Volvo Personvagnar 1979–2001 Committee in Mycronic: Member of the Audit Committee and the Remuneration Committee Shareholding in Mycronic: 10,000

Shareholding as of December 31, 2018

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Anna Belfrage

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Board member since 2018 Born: 1962 Independent Board member CFO Södra Skogsägarna ekonomisk förening until May 2019

Education: MSc Business and Economics Other Board assignments: Board member of NOTE AB

Previous positions: Acting CEO Beijer Electronics Group 2014–2015, CFO Beijer Electronics Group 2011–2014, CFO ABS Group (a division of the Cardo Group) 2004–2010, various roles and positions at Dresser Wayne AB, Obducat AB, Åkerlund & Rausing AB, and auditor at Price Waterhouse 1986–1994 Committee in Mycronic: Chairman of the Audit Committee Shareholding in Mycronic: –

Erik Sandström

Auditor-in-Charge, Ernst & Young AB. Born: 1975 Authorized Public Accountant and member of FAR Other assignments: Autoliv, Munters, Gränges, Tradedoubler, Praktikertjänst and Transcom

Robert Larsson

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Board member since 2018 Born: 1967 Independent Board member EVP and Head of Industrial & Digital Solutions at ÅF Pöyry Education: MSc, Mechanical Engineering. Previous positions: A number of senior positions in ABB in Sweden, China and Switzerland

Committee in Mycronic: – Shareholding in Mycronic: –

Peter Sundström[1)]

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Employee representative since 2012 Appointed by Unionen Born: 1976 System architect SMT systems Education: MSc, Engineering Physics Shareholding in Mycronic: –

1) Replaced from May 9, 2019 by Johan Densjö.

Per Holmberg

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Board member since 2016 Born: 1959 Independent Board member Education: MBA, Stockholm School of Economics

Other Board assignments: Executive Chairman Adrian Michel Group, Switzerland Previous positions: President Hexagon MI EMEA 2004–2017. Senior positions in Electrolux 1984–2003.

Committee in Mycronic: Member of the Remuneration Committee Shareholding in Mycronic: –

Tobias Böök[2)]

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Employee representative since 2014 Appointed by Akademikerna Born: 1966 Controller Education: Economist Shareholding in Mycronic: –

2) Replaced from May 9, 2019 by Jörgen Lundberg.

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Group management

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Lena Olving
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President and CEO Employed since 2013

Born: 1956

Education: MSc, Mechanical Engineering Previous positions: Vice President and COO of Saab AB, leading positions including in Group Management at Volvo Car Corporation AB, and CEO of Samhall Högland AB

Board assignments: Board member of Assa Abloy AB, Investment AB Latour, Munters Group AB, IVA:s Näringslivsråd, Teknikföretagen and the Swedish Corporate Governance Board. Chairman of the Royal Swedish Opera Shareholding in Mycronic: 122,100

Niklas Edling Sr VP, Strategy & Portfolio Management Employed since 2011 Born: 1963 Education: MSc, Mechanical Engineering and MSc in Economics and Business Administration

Previous positions: VP Supply Chain & Manufacturing Laerdal Medical and VP Operations Hudson RCI. Board assignments: Board member of Aritco AB Shareholding in Mycronic: 83,586

Torbjörn Wingårdh

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CFO Employed since 2016 Born: 1964

Education: MSc in Economics and Business Administration Previous positions: CFO Business area Saab SDS and senior positions at Investor AB in Sweden and the USA Shareholding in Mycronic: 23,100

Martin Pettersson Sr VP, Operations. Employed since 2016 Born: 1980

Education: MSc, Industrial Management Previous positions: Project Manager ACE Volvo CE, Director Transmissions & Axles/CPM Transmission (China) Volvo CE, Manager Production Engineering Volvo CE and Manager Industrialization and production development Volvo CE. Shareholding in Mycronic: 3,500

Anette Mullis

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Sr VP, Human Resources Employed since 2018 Born: 1965

Education: BSc in Social Work, from Lund University

Previous positions: Various senior global and regional positions as HR Director in the USA and Europe in Ericsson, CSL Behring, Wyeth Pharmaceuticals (now Pfizer) and IKEA Shareholding in Mycronic: 525

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

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Johan Franzén
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Sr VP, Research & Development Employed since 2015 Born: 1978 Education: MSc, Electronic Design Previous positions: Manager SW Applications Volvo CE, Manager Global Electrical and Electronic systems development Volvo CE and Manager Global Technical Support Volvo CE Shareholding in Mycronic: 10,100

Thomas Stetter

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Sr VP, Business Area Assembly Solutions Employed since 2017 Born: 1965

Education: PhD Strategic Management and MSc in Economics and Business Administration

Previous positions: Various senior positions within Siemens, most recently as Head of the Digital Factory Nordics division

Lena Båvegård

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Sr VP, Operational Excellence Employed since 2018 Born: 1967

Education: MSc, Electrical Engineering Previous positions: Various senior positions in Transmode and Infinera, most recently as Sr Dir, Corporate Quality & Sustainability and various senior positions in Q-Med and Ericsson Shareholding in Mycronic: 2,000

Charlott Samuelsson

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Sr VP Business Area Pattern Generators Employed since 1996 Born: 1963

Education: MSc, Engineering Physics Previous positions: Head of global aftermarket, Head of system and application development and Head of business development in the Mycronic Group. Shareholding in Mycronic: 21,260

Shareholding in Mycronic: 3,100

Shareholding as of December 31, 2018

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Financial overview

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SEK million 2018 2017 [1] 2016 2015 2014 2013 2012 2011 2010
Order intake 3,642 3,567 2,455 2,179 2,028 1,053 1,280 1,214 1,388
Order backlog 1,904 1,963 1,342 1,066 702 149 90 176 153
Profit and loss accounts
Net sales 3,780.6 3,000.1 2,319.3 1,815.0 1,475.0 997.0 1,353.9 1,197.6 1,287.8
Gross profit 2,097.5 1,715.9 1,410.2 1,075.6 711.7 446.3 611.9 488.0 633.1
EBITDA 1,093.9 919.0 723.7 565.5 300.9 60.0 94.8 2.4 169.2
EBIT 1,020.0 844.2 691.0 540.3 276.5 32.3 -21.4 -65.7 72.5
Underlying EBIT 1,075.6 951.0 735.1 – – – – – –
Profit/loss before tax 1,011.1 835.7 689.4 540.5 278.1 35.9 -14.6 -57.0 73.7
Tax -218.6 -212.3 -163.1 -98.0 -11.8 -22.1 -29.4 -31.8 -36.9
Profit/loss for the year 792.5 623.4 526.3 442.5 266.2 13.7 -44.0 -88.8 36.8
Balance sheet
Non-current assets 1,592.5 1,192.4 1,224.6 242.0 286.0 281.8 283.9 409.3 402.9
Inventories 868.2 588.6 574.8 275.9 232.7 323.9 329.2 357.5 321.2
Other receivables 910.1 650.8 747.3 326.5 420.0 308.6 277.9 283.5 407.0
Cash and cash equivalents 828.6 812.7 208.6 897.7 661.0 487.3 581.1 536.4 582.6
Total assets 4,199.3 3,244.4 2,755.3 1,742.2 1,599.8 1,401.5 1,472.1 1,586.7 1,713.8
Equity 2379.0 1,780.2 1,411.6 1,268.2 1,207.1 1,165.4 1,168.3 1,231.7 1,314.7
Interest-bearing liabilities 1.2 12.6 10.7 – – – 2.3 6.9 12.3
Other liabilities 1,819.1 1,451.6 1,332.9 474.0 392.7 236.0 301.5 348.1 386.8
Total equity and liabilities 4,199.3 3,244.4 2,755.3 1,742.2 1,599.8 1,401.5 1,472.1 1,586.7 1,713.8
Capital employed 2,380.2 1,792.8 1,422.3 1,268.2 1,207.1 1,165.4 1,170.6 1,238.6 1,327.0
Net debt -827.3 -800.0 -197.9 -897.7 -661.0 -487.3 -578.8 -529.4 -570.4
Cash flow
Cash flow from operating activities 702.4 983.8 461.9 661.4 417.6 -47.2 69.9 -15.4 120.9
Cash flow from investing activities -440.5 -181.1 -768.0 -37.2 -18.4 -35.8 -5.3 -30.8 -36.2
Cash flow from financing activities -258.2 -193.6 -392.4 -391.7 -244.8 -2.0 -4.0 -5.7 223.7
Cash flow for the year 3.7 609.1 -698.6 232.6 154.4 -85.1 60.6 -51.9 308.4
Key ratios
Book-to-bill 1.0 1.2 1.1 1.2 1.4 1.1 0.9 1.0 1.1
Gross margin, % 55.5 57.2 60.8 59.3 48.3 44.8 45.2 40.8 49.2
EBIT margin, % 27.0 28.1 29.8 29.8 18.7 3.2 -1.6 -5.5 5.6
Underlying EBIT margin, % 28.5 31.7 31.7 – – – – – –
Equity/assets ratio, % 56.7 54.9 51.2 72.8 75.5 83.2 79.4 77.6 76.7
Return on equity, % 38.1 39.1 39.3 35.8 22.4 1.2 -3.7 -7.0 3.1
Return on capital employed, % 49.0 52.6 51.4 43.7 23.5 3.1 -1.1 -4.4 6.3
Capital turnover rate, times 1.8 1.9 1.7 1.5 1.2 0.9 1.1 0.9 1.1
Research and development, R&D
R&D costs 476.1 348.0 348.4 266.7 197.7 183.4 290.0 289.0 318.1
R&D costs/net sales, % 12.6 11.6 15.0 14.7 13.4 18.4 21.4 24.1 24.7
Data per share
Number of shares at year end, million 97.9 97.9 97.9 97.9 97.9 97.9 97.9 97.9 97.9
Average number of shares, million 97.9 97.9 97.9 97.9 97.9 97.9 97.9 97.9 82.5
Share price at December 31, SEK 118.10 85.00 98.00 82.25 24.80 12.40 10.25 11.95 17.70
Proposed dividend per share 3.00 2.50 2.00 1.50 0.80 – – – –
Proposed extra dividend – – – 2.50 3.20 2.50 – – –
Earnings per share (number of shares at year-end) 8.09 6.37 5.38 4.52 2.72 0.14 -0.45 -0.91 0.45
Equity per share (number of shares at year-end) 24.30 18.18 14.42 12.95 12.33 11.90 11.93 12.58 15.93
P/E-ratio (number of shares at year end) 15 13 18 18 9 88 neg neg 47
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1) Restated, for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

REPORT OF THE DIRECTORS

Proposal on disposition of accumulated results

At the AGM’s disposal are the following amounts in SEK:

Share premium reserve	201,915,502
Retained earnings	763,751,570
Proft for the year	572,689,294
Total	1,538,356,366

The Board of Directors proposes that the retained earnings and non-re-	The Board of Directors proposes that the retained earnings and non-re-
stricted equity be managed as follows:
Dividend	293,749,527
Carried forward to new account	1,244,606,839
Total	1,538,356,366

Proposal on dividend

The Board of Directors proposes to the AGM a dividend of SEK 3.00 per share, amounting to SEK 293.7 million. The dividend corresponds to 37 percent of the Group’s net profit after tax.

Approval and adoption

As stated below, the annual report and consolidated annual report was approved on March 13, 2019. The consolidated profit and loss accounts and statement of financial position as well as the profit and loss accounts and balance sheet of the Parent Company will be put before the Annual General Meeting for adoption on May 9, 2019.

Statement of assurance

The Board of Directors and the CEO give their assurance that the annual report has been prepared in accordance with Generally Accepted Accounting Standards in Sweden and that consolidated financial statements have been prepared in accordance with Regulation (EC) No. 1606/2002 of the European Parliament and of the Council of July 19, 2002, on the Application of International Accounting Standards.

The annual report and consolidated financial statements give a true and fair view of the financial position and performance of the Group and the Parent Company.

The report of the directors for the Parent Company and the Group gives a true and fair view of the business activities, financial position and results of the Parent Company and the Group, and describes the significant risks and uncertainties to which the Parent Company and the Group companies are exposed.

Täby, March 13, 2019

Patrik Tigerschiöld Katarina Bonde Tobias Böök Ulla-Britt Fräjdin-Hellqvist Chairman of the Board Board member Representing Akademikerna Board member Per Holmberg Anna Belfrage Robert Larsson Peter Sundström Board member Board member Board member Representing Unionen

Lena Olving President and CEO

Our audit report was submitted March 20, 2019.

Ernst & Young AB

Erik Sandström

Authorized Public Accountant

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

Group

PROFIT AND LOSS ACCOUNTS

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SEK thousand Notes 2018 2017 [1]
Net sales 11, 12 3,780,586 3,000,056
Cost of goods sold 7 -1,683,057 -1,284,109
Gross profit 2,097,528 1,715,947
Research and development expenses 7, 10 -476,139 -347,995
Selling expenses 7 -420,834 -309,774
Administrative expenses 7, 8 -228,108 -181,414
Other operating income 9 47,557 17,874
Other operating expenses 7, 9 0 -50,401
EBIT 1,020,003 844,237
Financial income 2,613 846
Financial expenses -11,525 -9,433
Net financial items 16 -8,912 -8,587
Profit before tax 1,011,092 835,650
Tax 18 -218,615 -212,298
Profit for the year 792,477 623,352
Earnings per share, before and after dilution, SEK 8.09 6.37
Average number of shares, before and after dilution, thousands 97,917 97,917
Results attributable to owners of the Parent Company 789,539 623,761
Results attributable to non-controlling interests 2,938 -409
792,477 623,352
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STATEMENTS OF COMPREHENSIVE INCOME
SEK thousand 2018 2017 [1]
Profit for the year 792,477 623,352
Other comprehensive income
Items not to be reclassified to profit and loss
Actuarial loss from defined benefits to employees -2,640 -4,177
Tax relating to actuarial results 591 987
Items to be reclassified to profit and loss
Translation differences upon translating foreign entities 82,234 -53,228
Tax relating to translation differences -6,886 4,936
Hedging of net investments in foreign subsidiaries -6,081 –
The year’s changes in fair value on cash flow hedges -56,158 8,405
Cash flow hedges transferred to profit and loss 35,676 3,660
Tax relating to cash flow hedges 4,380 -2,654
The year’s change in fair value of cash flow hedges 51,115 -42,071
Total comprehensive income for the year 843,592 581,281
Total comprehensive income attributable to owners of the Parent Company 840,670 581,690
Total comprehensive income attributable to non-controlling interests 2,922 -409
843,592 581,281
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1) Restated for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

STATEMENTS OF FINANCIAL POSITION

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SEK thousand Notes Dec 31, 2018 Dec 31, 2017 [1]
ASSETS
Intangible assets 20 1,380,603 1,036,953
Tangible assets 21 105,985 69,525
Non-current receivables 25 22,498 17,085
Deferred tax assets 18 83,407 68,818
Total non-current assets 1,592,492 1,192,380
Inventories 26 868,180 588,560
Tax receivables 41,418 20,589
Trade receivables 11, 27, 35 663,919 512,405
Prepaid expenses and accrued income 11, 28 139,952 70,165
Other receivables 64,777 47,609
Cash and cash equivalents 34, 35 828,571 812,667
Total current assets 2,606,818 2,051,995
TOTAL ASSETS 4,199,310 3,244,375
EQUITY AND LIABILITIES
Equity
Share capital 97,917 97,917
Other contributed capital 1,337,386 1,337,386
Reserves 22,214 -30,967
Retained earnings including profit/loss for the year 918,553 375,855
Equity attributable to owners of the Parent Company 2,376,070 1,780,191
Holdings of non-controlling interests 2,892 -30
Total equity 2,378,962 1,780,161
Liabilities
Non-current provisions 29 47,746 35,796
Deferred tax liabilities 18 162,683 118,840
Other non-current liabilities 35 50,181 233,465
Total non-current liabilities 260,609 388,102
Current interest-bearing liabilities 35 1,239 12,642
Advance payments from customers 11 305,508 497,422
Trade payables 35 236,425 154,656
Tax liabilities 70,838 48,909
Other liabilities 307,825 124,950
Accrued expenses and deferred income 11, 30 592,187 211,700
Current provisions 31 45,717 25,834
Total current liabilities 1,559,739 1,076,113
Total liabilities 1,820,348 1,464,214
TOTAL EQUITY AND LIABILITIES 4,199,310 3,244,375
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1) Restated for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

STATEMENTS OF CASH FLOW

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SEK thousand Notes 2018 2017 [1]
Operating activities
Profit before tax 1,011,092 835,650
Adjustments for non-cash items and other
Depreciation/amortization and impairment of assets 73,888 74,737
Capital gain/loss on the sale of non-current assets -271 111
Unrealized foreign exchange differences -27,484 6,674
Provisions for employee benefits 128 610
Other provisions 19,872 7,324
Write down of inventories and similar items 25,487 5,614
Revaluation of contingent considerations -10,703 31,671
Effect of application of IFRS 15 – 3,727
Paid income tax -164,422 -153,316
Cash flow from operating activities before changes in working capital 927,587 812,803
Cash flow from changes in working capital
Inventories -196,637 -10,866
Trade receivables -92,566 70,901
Other receivables -83,987 34,107
Trade payables 73,525 -36,619
Other current liabilities 74,448 113,429
Cash flow from operating activities 702,370 983,755
Investing activities
Investments in subsidiaries 23 -367,430 -132,981
Investments in intangible assets 20 -14,758 -21,593
Investments in tangible assets 21 -54,006 -28,282
Sale of tangible assets 0 218
Increase in non-current receivables 25 -5,151 -579
Decrease in non-current receivables 25 862 2,103
Cash flow from investing activities -440,483 -181,115
Financing activities
Dividends paid to Parent Company shareholders -244,791 -195,833
Increase in loans – 2,274
Redemption of loans -13,430 –
Cash flow from financing activities -258,221 -193,559
Cash flow for the year 3,665 609,081
Cash and cash equivalents at beginning of year 812,667 208,589
Exchange differences in cash and cash equivalents 12,239 -5,003
Cash and cash equivalents at end of year 828,571 812,667
Interest received and paid
Interest received 2,613 846
Interest paid -11,304 -9,114
-8,691 -8,268
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1) Restated for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

The share capital consists of 97,916,509 (97,916,509) shares. The shares are of the same class and each share carries one vote.

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Reserves
Holdings
Other of non-
Share contributed Hedge Translation Retained controlling
SEK thousand capital capital reserve [1] reserve earnings Total interests Total equity
Equity, January 1, 2017 97,917 1,337,386 -9,869 17,783 -31,606 1,411,611 – 1,411,611
Effect of retroactive application of IFRS 15, Note 1 -17,278 -17,278 -17,278
Adjusted equity, January 1, 2017 97,917 1,337,386 -9,869 17,783 -48,884 1,394,333 1,394,333
Net profit/loss for the year (recalculated, Note 1) 623,761 623,761 -409 623,352
Other comprehensive income
Items not to be reclassified to profit and loss
Actuarial loss from defined benefits to employees -4,177 -4,177 -4,177
Tax relating to actuarial results 987 987 987
Items to be reclassified to profit and loss 0
Translation differences at translating
foreign entities -53,228 -53,228 -53,228
Tax relating to translation differences 4,936 4,936 4,936
Cash flow hedges transferred to profit and loss 3,660 3,660 3,660
The year’s changes in fair value on cash flow hedges 8,405 8,405 8,405
Tax attributable to cash flow hedges -2,654 -2,654 -2,654
The year’s change in fair value of cash flow
hedges 9,411 -48,292 -3,190 -42,071 – -42,071
Total comprehensive income for the year 9,411 -48,292 620,572 581,691 -409 581,282
Transactions with owners
Dividends (SEK 2.00 per share) -195,833 -195,833 -195,833
Transactions with non-controlling interests 379 379
Total transactions with owners – – – – -195,833 -195,833 379 -195,454
Closing equity December 31, 2017/
Opening equity January 1, 2018 97,917 1,337,386 -458 -30,509 375,855 1,780,191 -30 1,780,161
Profit for the year 789,539 789,539 2,938 792,477
Other comprehensive income
Items not to be reclassified to profit and loss
Actuarial loss from defined benefits to employees -2,640 -2,640 -2,640
Tax relating to actuarial results 591 591 591
Items to be reclassified to profit and loss
Translation differences upon translating
foreign entities 82,250 82,250 -16 82,234
Tax relating to translation differences -6,886 -6,886 -6,886
Hedging of net investments in foreign subsidiaries -6,081 -6,081 -6,081
The year’s changes in fair value on cash flow hedges -56,158 -56,158 -56,158
Cash flow hedges transferred to profit and loss 35,676 35,676 35,676
Tax relating to cash flow hedges 4,380 4,380 4,380
The year’s change in fair value of cash flow hedges -16,102 69,283 -2,050 51,131 -16 51,115
Total comprehensive income for the year -16,102 69,283 787,489 840,670 2,922 843,592
Transactions with owners
Dividends (SEK 2.50 per share) -244,791 -244,791 -244,791
Total transactions with owners – – – – -244,791 -244,791 – -244,791
Closing equity, December 31, 2018 97,917 1,337,386 -16,560 38,774 918,553 2,376,070 2,892 2,378,962
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1) The hedge reserve pertains to cash flow hedges of currency risk in contracted flows. Transfers to profit and loss were recognized in net sales and were entirely due to the impact the hedge item had on profit and loss. Of the closing hedge reserve, SEK 6,652 thousand related to continuing hedges and SEK 9,908 thousand to settled hedges.

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

Parent Company

PROFIT AND LOSS ACCOUNTS

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SEK thousand Notes 2018 2017 [1]
Net sales 11, 12 2,621,119 2,334,933
Cost of goods sold -1,076,001 -936,942
Gross profit 1,545,118 1,397,990
Research and development expenses 10 -353,319 -278,931
Selling expenses -155,528 -148,243
Administrative expenses 8 -125,866 -111,069
Other operating income 9 32,364 1,687
Other operating expenses 9 0 -57,983
EBIT 942,769 803,451
Result from financial investments
Interest income and similar items 16 34,112 11,179
Interest expenses and similar items 16 -8,474 -6,352
Profit after financial items 968,407 808,278
Appropriations 17 -234,900 -204,000
Profit before tax 733,507 604,278
Tax 18 -160,818 -134,925
Profit for the year 572,689 469,353
STATEMENTS OF COMPREHENSIVE INCOME
SEK thousand 2018 2017 [1]
Profit for the year 572,689 469,353
Other comprehensive income – –
Total comprehensive income for the year 572,689 469,353
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1) Restated for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

BALANCE SHEETS

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SEK thousand Notes Dec 31, 2018 Dec 31, 2017 [1]
ASSETS
Non-current assets
Intangible assets 20 3,712 0
Tangible assets 21 51,836 37,431
Financial assets
Participation in Group companies 22 1,048,696 994,705
Receivables from Group companies 24 712,008 275,511
Other non-current receivables 25 1,045 2,958
Deferred tax assets 18 4,145 8,001
Total financial assets 1,765,895 1,281,175
Total non-current assets 1,821,442 1,318,606
Current assets
Inventories 26 446,244 346,603
Current receivables
Trade receivables 11 117,336 137,178
Receivables from Group companies 363,870 212,979
Other receivables 41,739 24,279
Prepaid expenses and accrued income 11, 28 116,183 52,159
Total current receivables 639,127 426,595
Cash and cash equivalents 538,082 595,788
Total current assets 1,623,453 1,368,987
TOTAL ASSETS 3,444,895 2,687,593
EQUITY AND LIABILITIES
Equity
Restricted equity
Share capital 97,917 97,917
Statutory reserve 0 0
97,917 97,917
Non-restricted equity
Share premium reserve 201,916 201,916
Retained earnings 763,751 539,190
Profit for the year 572,689 469,353
1,538,356 1,210,458
Total equity 1,636,273 1,308,375
Untaxed reserves 17 645,700 410,800
Non-current liabilities
Non-current provisions 704 481
Other non-current liabilities 6,680 184,136
Total non-current liabilities 7,384 184,617
Current liabilities
Advance payments from customers 11 193,538 439,015
Trade payables 162,868 104,346
Liabilities to Group companies 32,203 24,141
Current tax liabilities 53,586 38,746
Other liabilities 252,450 48,351
Accrued expenses and deferred income 11, 30 449,538 120,779
Current provisions 31 11,354 8,424
Total current liabilities 1,155,537 783,802
Total liabilities 1,162,922 968,418
TOTAL EQUITY AND LIABILITIES 3,444,895 2,687,593
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1) Restated for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

STATEMENTS OF CASH FLOW

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SEK thousand Notes 2018 2017 [1]
Operating activities
Profit after financial items 968,407 808,278
Adjustments for non-cash items
Depreciation/amortization and impairment of assets 12,931 10,988
Capital gain/loss on the sale of non-current assets – –
Unrealized foreign exchange differences -41,659 39,035
Provisions 5,953 816
Write down of inventories and similar items 20,224 4,196
Interests not received -2,149 -2,077
Effect of application of IFRS 15 – 3,727
Paid income tax -133,185 -119,167
Cash flow from operating activities before changes in working capital 830,523 745,796
Changes in working capital
Inventories -115,649 -67,807
Trade receivables 23,525 136,214
Other receivables -234,228 -46,924
Trade payables 58,617 1,530
Other liabilities 80,333 120,190
Cash flow from operating activities 643,121 888,999
Investing activities
Investments in subsidiaries -18,438 -169,528
Investments in intangible assets 20 -4,076 –
Investments in tangible assets 21 -31,187 -12,813
Increase in non-current receivables 24, 25 -402,335 -432
Decrease in non-current receivables 24, 25 – 25,407
Cash flow from investing activities -456,036 -157,366
Financing activities
Dividends paid to Parent Company shareholders -244,791 -195,833
Cash flow from financing activities -244,791 -195,833
Cash flow for the year -57,706 535,800
Cash and cash equivalents at beginning of year 595,788 59,988
Cash and cash equivalents at end of year 538,082 595,788
Additional information
Interest received and paid
Interest received 16,476 9,102
Interest paid -5,405 -5,099
11,071 4,003
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1) Restated for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

FINANCIAL REPORTS

PARENT COMPANY STATEMENTS OF CHANGES IN EQUITY

The share capital consists of 97,916,509 (97,916,509) shares. The shares are of the same class and each share carries one vote.

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Restricted equity Non-restricted equity
Retained
earnings
Share premium including profit/
SEK thousand Share capital Statutory reserve reserve loss for the year Total equity
Equity, January 1, 2017 97,917 0 201,916 752,301 1,052,133
Effect of retroactive application of IFRS 15, Note 1 -17,278 -17,278
Adjusted equity, January 1, 2017 97,917 0 201,916 735,023 1,034,855
Net profit for the year (recalculated, Note 1) 469,353 469,353
Total comprehensive income for the year 469,353 469,353
Transactions with owners
Dividends -195,833 -195,833
Closing equity, December 31, 2017 97,917 0 201,916 1,008,543 1,308,375
Profit for the year 572,689 572,689
Total comprehensive income for the year 572,689 572,689
Transactions with owners
Dividends -244,791 -244,791
Closing equity, December 31, 2018 97,917 0 201,916 1,336,441 1,636,273
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Mycronic | Annual and Sustainability Report 2018

NOTES

Notes

Note 1 Accounting policies, general information

Mycronic AB (publ) and its subsidiaries, together comprising the Group, are engaged in the development, manufacture and sales of advanced production equipment to the electronics industry. Sales are generated almost exclusively outside Sweden.

The subsidiaries are based in China, France, Germany, Japan, Singapore, South Korea, Taiwan, the Netherlands, the UK and the USA. In addition, there are a large number of distributors and agents around the world.

The Parent Company is listed on NASDAQ, Stockholm in the category Mid Cap. The consolidated annual report has been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB) as endorsed by the EU. Furthermore, the Swedish Financial Reporting Board’s recommendation RFR 1, Supplementary Accounting Rules for Groups, has been applied.

New and forthcoming accounting standards

None of the new standards, revised standards and interpretations of existing standards that shall be applied as of the financial year beginning on January 1, 2018 have any material impact on the Group or Parent Company financial statements in addition to what is specified below.

IFRS 9 Financial Instruments covers accounting for financial assets and liabilities and replaces IAS 39. In line with IAS 39, financial assets are classified into different categories, some of which are measured at amortized cost and some at fair value. To assess how financial instruments shall be accounted for in accordance with IFRS 9, a company must assess its contractual cash flows, and the business model under which financial instruments are held. IFRS 9 also introduces a new model for impairment of financial assets. The main objective of the new model is earlier recognition of credit losses than required under IAS 39. For financial liabilities, IFRS 9 conforms largely with IAS 39. Changed criteria for hedge accounting under IFRS 9 may result in more economic hedging strategies meeting the requirements for hedge accounting than under IAS 39.

The standard is applied by the Group as of January 1, 2018. IFRS 9 contains amended classification categories compared with IAS 39. The amended classification did not result in any change in carrying amounts upon the transition to IFRS 9. According to IFRS 9, allowances are made for expected credit losses if a credit exposure exists, usually on initial recognition. However, this amendment did not have any material transition effect, which is why no such effect was recognized in equity. As of January 1, 2018, the Group applies hedge accounting in accordance with IFRS 9. All hedging relationships existing at the time of transition to IFRS 9 qualified for continued hedge accounting and did not result in any transition effect. The Group did not restate the comparative year 2017, which is recognized according to IAS 39.

IFRS 15 Revenue from Contracts with Customers replaces all previously published standards and interpretations for managing revenues with a single model for revenue recognition. The standard is based on the principle that revenue should be recognized when a promised product or service is transferred to the customer, i.e., when the client has obtained control over it, which can happen over time or at a point in time. Revenue shall consist of the amount that the company expects to receive in exchange for the delivered goods or services. The standard is applied by the Mycronic Group and the Parent Company as of January 1, 2018, with full retrospective. When applying the new standard, system sales are divided within the Pattern Generators business area into several separate performance obligations, with the result that a smaller portion of system revenues will be reported over time and at a later date than for the current standard. The effects of the new standard are shown in the tables below. Comparative figures in accounts and notes are restated to account for the effects of the new standard.

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Effect of the Group’s and Parent Company’s Jan–Dec
income statement, SEK thousand 2017
Net sales -1,103
Cost of goods sold -3,569
Other income and expenses 945
EBIT -3,727
Tax 820
Loss for the year -2,907
Effect on earnings per share -0.03
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Effect of the Group’s statements of financial position Dec 31,
and Parent Company’s balance sheet, SEK thousand 2017
ASSETS
Deferred tax assets 5,693
Total assets 5,693
EQUITY AND LIABILITIES
Accrued expenses and deferred income -2,800
Deferred income 35,786
Current provisions -7,108
Total liabilities 25,878
Retained earnings -17,278
Profit for the year -2,907
Equity -20,185
Total equity and liabilities 5,693
Total effect is attributable to owners of the Parent Company.
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A number of new or revised IFRSs have not yet entered into effect and have not been applied early in the preparation of the Group and Parent Company financial statements. The IFRSs that will affect the Group or Parent Company financial statements are described below. None of the other new standards, revised standards or interpretations published by IASB, are expected to have any material impact on the financial reporting.

As of January 1, 2019, IFRS 16 Leases replaces the current standard, IAS 17 Leases and the associated interpretations IFRIC 4, SIC 15 and SIC 27. IFRS 16 entails that a majority of all leases are to be recognized in the statement of financial position. In 2018, Mycronic identified and evaluated the Group’s lease contracts and analyzed the effects of the transition to IFRS 16. No leases were reclassified and only contracts classified as leases under IAS 17 will be subject to IFRS 16.

When the standard comes into force on January 1, 2019, Mycronic will apply the modified retrospective approach, entailing that comparative information from prior periods will not be presented. The lease liability comprises the discounted remaining lease payments at January 1, 2019. For all leases, the right-of-use asset is an amount corresponding to the lease liability adjusted for prepaid or accrued lease payments recognized in the statement of financial position on the first day of application. Accordingly, the transition to IFRS 16 has no effect on equity.

Mycronic has chosen to apply the practical exemptions regarding leases where the underlying asset has a low value and for leases with a lease term of less than 12 months. These leases will not be included in amounts recognized in the statement of financial position. Nor will leases be included that were originally of a term longer than 12 months but which end in 2019. Mycronic’s material leases currently primarily comprise rented premises, but also vehicles and office equipment. Rented premises will be presented as one class of underlying assets, and vehicles and office equipment will be presented under Other, as they are not considered material individually. In the transition to IFRS 16, these leases will be recognized in the statement of financial position, which will involve an increase in the Group’s total assets as a result of the addition of right-of-use assets and lease liabilities. The lease payments recognized earlier as other external expenses will be replaced by depreciation costs for the right-of-use assets, which are recognized in EBIT and interest on the lease liability, which is recognized as a financial expense. The lease fee is divided between repayment of the lease liability and payment of interest.

In the transition to IFRS 16, all remaining lease payments were measured at present value applying Mycronic’s incremental borrowing rate. At the date of initial application, the following adjustments will be recognized in Mycronic’s statement of financial position:

	Right-of-use assets SEK 179 million
	Deferred income SEK -5 million
	Lease liabilities SEK 174 million

Mycronic | Annual and Sustainability Report 2018

NOTES

Basis of valuation

The assets and liabilities are stated at cost, unless otherwise specified. The functional currency of the Parent Company is Swedish kronor (SEK). SEK is also the reporting currency of the Parent Company and the Group. This means that the financial statements are presented in SEK. All amounts are stated in SEK thousand unless otherwise specified.

Accounting estimates and classifications

The preparation of financial reports in accordance with IFRS requires the company’s management to make certain accounting judgments, estimates and assumptions that affect how accounting policies are applied and the reported amounts of assets, liabilities, revenues and expenses. The actual results may differ from these estimates and assessments.

The estimates and assumptions are reviewed regularly. Adjustments to estimates are reported for the period in which they occur if the change only affected this period or in the period that the change is made and future periods if the change affects both the current and future periods.

Assessments made by the company management in terms of applying IFRS that significantly impact financial reports and completed estimates and that can result in major adjustments to the financial reports for the subsequent year are described in more detail in Note 4.

Non-current assets and liabilities essentially consist of amounts that are expected to be recovered or settled later than twelve months from the closing date. Current assets and liabilities essentially consist of amounts that are expected to be recovered or settled within twelve months from the closing date. Any deviations from these principles for recovery or payment will be described in notes associated with the relevant balance sheet item.

Note 2 Accounting policies for the Group

Consolidated reporting

Subsidiaries are companies where the Parent Company has a controlling influence. A controlling influence exists when the investor has an influence over the investment object, which in a substantial manner affects the possibility of returns, when the investor is exposed to, or has the right to, variable returns from the investment object and when the investor can use its influence to affect the size of the returns.

The consolidated financial statements are prepared in accordance with the purchase method of accounting, whereby the acquisition of a subsidiary is regarded as a transaction in which the Group indirectly acquires the subsidiary’s assets and assumes its liabilities and contingent liabilities. The Group’s cost of acquisition is determined through an acquisition analysis in connection with the purchase. The analysis determines the acquisition value of the shares or operations, as well as the fair value on the date of acquisition for acquired identifiable assets as well as assumed liabilities or contingent liabilities. The cost of acquisition for the subsidiary shares and operations is measured as the aggregate of the fair values on the date of acquisition of assets given, liabilities incurred or assumed and equity instruments issued in exchange for control of the acquired net assets. Contingent considerations are valued at fair value. In business combinations where the cost of acquisition exceeds the fair value of acquired net assets, the difference is recognized as goodwill. If the cost of acquisition is less than the fair value of acquired net assets, the difference is recognized in the profit and loss account. Transaction costs are reported directly in operating profit.

When contingent considerations are revalued at fair value, the revaluation is recognized in operating profit.

The financial statements of the subsidiaries are included in the consolidated financial statement from the date of acquisition and up to the date on which controlling influence ends.

Intra-group receivables and liabilities, revenues or costs and unrealized profits or losses that arise from intra-group transactions between Group companies are eliminated in full when the consolidated financial statements are prepared.

Foreign currency translation

Functional currency

Items included in the financial statements of the Group’s subsidiaries are measured using the currency of the primary economic environments in which the subsidiary operates (functional currency). The functional currencies are CNY, EUR, GBP, JPY, KRW, SEK, SGD, TWD and USD.

Transactions

Transactions in foreign currency are translated to the functional currency at the exchange rate in effect on the transaction date.

Sales transactions in foreign currency within the Pattern Generators segment are translated at the spot rate with the exception of sales of spare parts and service contracts for which an approximate exchange rate for the month is used. Sales transactions in foreign currency from sales within Assembly Solutions are reported at an approximate exchange rate for the month. When a contract sale is hedged, the cumulative gain or loss on the hedging instrument, normally a forward exchange contract, is recognized against net sales when the hedged sales transaction is recognized in the income statement.

Monetary assets and liabilities in foreign currency are translated to the functional currency at the closing day rate. Exchange rate gains/losses arising on translation are recognized in the profit and loss account for the year. Non-monetary assets and liabilities carried at cost are translated at the exchange rate that applied on the transaction date. Non-monetary assets and liabilities carried at fair value are translated to the functional currency at the rate of exchange prevailing on the date when the fair value was determined. Forward exchange contracts are used to protect assets and liabilities from foreign exchange risk.

A financial hedge is reflected in the accounts, in that both the underlying asset/ liability and the hedging instrument are translated at the closing day exchange rate, while changes in the exchange rates are recognized through profit and loss. Value fluctuations concerning operating assets and liabilities are recognized in the income statement under other operating income/expenses.

Financial statements of foreign operations

Assets and liabilities in foreign group companies are translated from that company’s functional currency to SEK at the closing day exchange rate.

Revenue and expenses in the respective Group company’s profit and loss account are translated to SEK at the average rate of exchange that is a reasonable approximation of actual rates on the respective transaction dates. All exchange differences arising from the translation of foreign operations are recognized in other comprehensive income and are accumulated in a separate translation reserve within consolidated equity.

Net investments in foreign operations

Exchange differences arising with the translation of long-term loans that form part of the net investment in a foreign operation are deferred to a translation reserve in other comprehensive income together with the related tax effects.

When a foreign operation is disposed of, the cumulative exchange differences relating to that foreign operation are realized through a reclassification from the translation reserve to the year’s consolidated profit and loss.

Reporting of operating segments

A segment is an identified part of the Group that engages in business activities from which it may earn revenues and incur expenses and for which discrete financial information is available. A segment’s operating results are reviewed regularly by the entity’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess performance. In the Group, this function has been identified as the CEO. The segments correspond to the Group’s business areas.

Intangible assets

Capitalized costs for business systems

Expenditures for business systems are recognized as intangible assets at cost with a deduction for accumulated amortization. The investment in a business system includes costs incurred for adaptation and implementation of a fully integrated business system and consists of both internally generated and externally acquired assets. Capitalized costs for business systems are amortized straight-line over the expected useful life of the asset, which is three years. Amortization is initiated when the business system is ready for use. Costs for maintenance of the business system are expensed as they are incurred.

Capitalized development costs

Mycronic develops high-tech products on the cutting edge of technology. Several different types of development projects need to be conducted in order to achieve a few commercial products.

Costs related to research undertaken with the prospect of gaining new scientific or technical knowledge in the Group’s operations are expensed as they are incurred. Development projects, where knowledge and understanding gained from research and practical experience are directed towards developing new products or processes, are recognized as intangible assets in the statement of financial position when they meet the criteria for capitalization. Development costs may be capitalized if the company can demonstrate the technical and commercial feasibility of completing the product or process, the intention and ability to complete the development and use or sell the asset. It must also be probable that future economic benefits related to the asset will flow to the company and the asset cost can be reliably measured. The reported value includes all directly attributable costs, such as those for materials and services as well as compensation to employees.

Other development costs are expensed in the profit and loss account for the period in which they arise.

Individual assessment is made of all ongoing research and development projects to determine which costs for the respective project are capitalizable and to look for any indications of impairment.

Amortization of capitalized development costs is started when the respective development project is completed, normally when it begins generating revenue and is carried out on a straight-line basis over a period of three years for pattern generators and five years for SMT equipment. Amortization was recognized as research and development costs in the profit and loss accounts until the second quarter of 2018. From the third quarter of 2018, the amortization of capitalized

Mycronic | Annual and Sustainability Report 2018

NOTES

development costs is included in the acquisition cost of inventories, which by extension impacts the cost of goods sold in the Group. Given that the amortization involves relatively insignificant amounts, the comparative figures were not restated.

Goodwill

Goodwill is measured at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units and is annually tested for impairment. Goodwill is attributable to acquisitions.

Other intangible assets

Other intangible assets consist of brand, technology and customer relationships, and are measured at cost less accumulated amortization and possible impairment losses. These assets are attributable to acquisitions.

Tangible assets

Tangible assets are measured at cost less accumulated depreciation and possible write-downs. The acquisition costs include the acquisition price as well as charges for transportation to the site and preparation efforts in order to use the equipment according to the intended purpose of the acquisition.

The item Equipment includes self-produced equipment used primarily for research and development as well as test and training equipment. The acquisition cost of self-produced, non-current assets includes expenses for materials, employee benefits and salaries and other production costs that are considered to be directly attributable to the assets.

The reported value of a tangible asset is removed from the statement of financial position upon disposal or sale of the asset or when there are no future economic benefits anticipated from using or disposing/selling the asset. Gains/losses on the sale or disposal of tangible assets are calculated as the difference between the net realizable value and carrying amount of the item and are recognized in the profit and loss account among other operating income/expenses. Gains and losses are recognized as other operating income/expenses.

Subsequent expenses are added to the acquisition cost if it is likely that the future economic benefits of the assets will be realized by the company and the acquisition cost can be estimated reliably. All other additional expenditures are accounted as costs when they arise.

A future expense is added to the acquisition cost if the expense involves the replacement of identified components or parts thereof. In cases where a new component has been produced, the expense is added to the acquisition cost. Any non-depreciated costs for replacement components or parts of such components are discarded and expensed as the replacement is made. Repairs are expensed on an ongoing basis.

Tangible assets are depreciated on a straight-line basis over their expected useful life starting from when they are accessible for use.

Leases

All existing lease agreements, including property leases, are classified as operating leases. Assets that are leased according to operating leases are as a rule not reported as assets in the statement of financial position. Operating lease agreements do not give rise to liabilities. In these cases, the lease expense is reported within operating expenses in the profit and loss account. The property leasing charge, consisting of a fixed portion and an interest portion, is recognized as a lease expense in the profit and loss account. Variable charges are expensed in the period in which they incur.

Financial instruments

The financial assets recognized in the statement of financial position include cash and cash equivalents, trade receivables and derivatives. Financial liabilities include trade payables, loans payable, deferred considerations and derivatives.

Recognition and derecognition from the statement of financial position

A financial asset or liability is recognized in the statement of financial position when the company initially becomes party to the contractual provisions of the instrument. Financial assets are recognized when the company has performed and there is a contractual obligation for the counterparty to pay, even if no invoice has been sent. Trade receivables are recorded in the statement of financial position when an invoice has been sent. Financial liabilities are recognized when the counterparty has performed and there is a contractual obligation to pay, even if no invoice has been received. Trade payables are recorded when an invoice has been received.

A financial asset is derecognized from the statement of financial position when the company’s rights under the agreement are realized, expire or the company has relinquished control of the asset. The same applies for a part of a financial asset. A financial liability is derecognized from the statement of financial position when the obligation specified in the agreement is fulfilled or otherwise extinguished. The same applies for a part of a financial liability.

A financial asset and a financial liability are set off and netted in the statement of financial position only when a legal right of set off exists and there is an intent and ability to set off and net these items or to simultaneously realize the asset and settle the liability.

Acquisitions and sales of financial assets are recognized on the trade date. The trade date is the date on which the company commits to acquire or sell the asset.

Classification and valuation of financial assets

Debt instruments: the classification of financial assets that are debt instruments is based on the Group’s business model for managing the asset and the character of the asset’s contractual cash flow. The instruments are classified as:

Amortized cost
Fair value through other comprehensive income
Fair value through profit and loss

The Group’s assets in the form of debt instruments are classified at amortized cost. Financial assets classified at amortized cost are measured initially at fair value with the addition of transaction costs. Trade receivables are recognized initially at the invoiced value. Following initial recognition, the assets are measured in accordance with the effective interest method. Assets classified at amortized cost are held in accordance with the business model to collect contractual cash flows that are solely the payment of the principal and interest on the principal outstanding. Assets are subject to a loss allowance for expected loan losses. Derivative instruments are classified at fair value in profit and loss, except where hedge accounting is applied, see also below. Fair value is determined according to the description in Note 35.

Classification and valuation of financial liabilities

Financial liabilities are classified at amortized cost with the exception of derivatives and contingent considerations. Financial liabilities classified at amortized cost are measured initially at fair value including transaction costs. After initial recognition, these are measured at amortized cost according to the effective interest method.

Derivative instruments are classified at fair value in profit and loss, except where hedge accounting is applied, see also below. Contingent considerations related to business combinations are recognized at fair value in profit and loss. Upon valuation of contingent considerations, level 3 in the valuation hierarchy is applied.

Reporting of derivative instruments and hedges

Derivative instruments consist of forward exchange contracts that are used to reduce transaction exposure in foreign currencies. Derivative instruments are not used for speculative purposes. All derivative instruments are measured at fair value in the statement of financial position.

In the Group, derivatives that are used to hedge probable future commercial inflows in foreign currency, in other words, inflows from sales, and which meet the requirements for hedge accounting, are reported according to the rules for hedge accounting for cash flow hedges. The Group applies hedge accounting in accordance with IFRS 9. This means that the effective portion of fair value changes on derivative instruments is recognized in the hedge reserve in other comprehensive income. The profit and loss attributable to the ineffective portion is recognized immediately in the income statement under other operating income/expenses. The fair value of derivatives is measured as the quoted market prices of currency and interest rates on the closing date.

Amounts accumulated in other comprehensive income are reversed to net sales in the income statement in the periods when the hedged item is reflected in profit and loss, i.e. upon revenue recognition. When a hedged instrument expires, is sold or no longer meets the hedge accounting criteria and the cumulative gains/losses are recognized in other comprehensive income, these gains/losses are retained in other comprehensive income, and are recognized in profit and loss when the forecast transaction is ultimately recognized in the profit and loss account. The effective portion is recognized in net sales when the hedged item affects profit and loss, while the ineffective portion is recognized in other operating income/ expenses. When a forecast transaction is no longer expected to occur, the cumulative gains/losses recognized in other comprehensive income are immediately released to the profit and loss account among other operating income/expense.

As of 2018, the Group also applies hedge accounting of net investments in foreign operations. The exchange rate effects on hedging instrument debt in foreign currency is recognized in other comprehensive income, insofar as the hedge is effective. With this, exchange rate changes on the debt meet exchange rate differences from net investments in foreign operations as presented in other comprehensive income, and the amount accumulates in the translation reserve. The exchange rate effects remain in the translation reserve until such time as the net investment is divested, when the accumulated amount in the reserve is reclassified to profit and loss.

When hedge transactions are entered into, the relationship between the hedge instrument and the hedged risk is formally documented, including the company’s risk management objective and strategy for undertaking the hedge. The Group also documents its assessment, both at the inception of a hedge and at each reporting date, on the effectiveness of the hedge instrument used in the hedge transaction in offsetting changes in cash flows or value. Changes in the hedge reserve and translation reserve are reported in other comprehensive income.

Comparative year according to IAS 39

Financial instruments are recognized in accordance with IAS 39 in the comparative year 2017. IAS 39 had other classification categories compared with IFRS 9. The classification categories according to IAS 39 still involved corresponding recognition at amortized cost and fair value respectively in profit and loss or in other comprehensive income.

Mycronic | Annual and Sustainability Report 2018

NOTES

Furthermore, IAS 39 used another method for provisions for credit losses, which meant the provision was made when a credit event was identified, unlike the method in IFRS 9 where provision is effected for expected credit losses.

As of January 1, 2018, the Group applies hedge accounting in accordance with IFRS 9, instead of hedge accounting according to IAS 39 for the comparative year. The transition has not entailed any change in carrying amounts.

Otherwise for the Group, no differences exist between the standards. The transition from IAS 39 to IFRS 9 has had no material impact on the Group, see Note 35.

Inventories

Inventories are valued at the lowest of acquisition cost or net realizable value. Inventories are carried out at cost calculated on a first-in, first-out basis and include all costs arising from the purchase of the inventory assets and costs incurred in bringing the goods to their existing location and condition. For manufactured goods and work in progress, the cost includes a reasonable share of indirect costs based on normal capacity. Deductions are made for internal profit arising from intra-group sales.

Net realizable value is the estimated selling price less the estimated costs for completion and selling costs in operating activities.

Impairment

Impairment testing of tangible and intangible assets and participations in subsidiaries

If there is an indication of impairment, the asset’s recoverable amount is calculated (see below). For goodwill and other intangible assets with indefinite useful lives and intangible assets that are not ready for use, the recoverable value is calculated annually. If it is not possible to establish an independent cash flow for an individual asset, and its fair value less the sales costs cannot be used, the assets are grouped during impairment testing at the lowest level at which the identifiable cash flow can be identified, a so-called cash-generating unit.

An impairment is recognized when the recorded value of an asset or cashgenerating unit (group of units) exceeds the recoverable value. An impairment is recognized as a cost in the profit and loss account for the year. When the need for impairment has been identified for a cash-generating unit (group of units) the impairment amount is firstly distributed to goodwill. Then the remaining assets in the unit (group of units) are impaired proportionally.

The recoverable value is the highest of fair value less selling costs and the value in use. In measuring the value in use, future cash flows are discounted using a discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

goodwill. Also not observed are temporary differences for participations in subsidiaries that are not expected to be reclassified in the foreseeable future. The valuation of deferred tax is based on how underlying assets or liabilities are expected to be recognized or paid. Deferred tax is calculated using the tax rates and tax regulations enacted or substantively enacted by the closing date.

Deferred tax assets for deductible temporary differences and tax loss carryforwards are only recognized to the extent that they are expected to be used. The value of deferred tax assets is reduced when it is no longer expected to be used.

Any additional income tax that arises in relation to dividend is recognized on the same date as the dividend is recognized as a liability.

Employee benefits

Pension commitments and other post-employment benefits

Pension commitments are classified either as defined contribution or defined benefit pension plans. Pension commitments in the Group are mainly fulfilled through payment of premiums according to a defined contribution pension plan. A defined contribution pension plan is classified as the plans where a company’s obligation is limited to the charges the company has undertaken to pay. In such cases, the size of the employee’s pension is dependent on the charges paid by the company to the plan or to an insurance company and the capital return offered by the charges. Consequently, the employee carries the actuarial risk (that the compensation may be lower than expected) and the investment risk (that the invested assets will be insufficient to offer the expected compensation). The company’s obligations regarding charges to defined contribution plans are charged to the profit and loss account for the period in which the employees render the related service to the company.

In the Japanese, Korean and French subsidiaries, there are defined benefit commitments to employees for benefits after the end of employment. When employment ceases, through termination or retirement, the accumulated amount of benefit is paid out immediately. The commitment is valued in the Group in accordance with IAS 19. Defined benefit pension plans set forth an amount for the pension benefit that an employee will receive at retirement depending on factors such as age, period of service and salary. The liability on the balance sheet for defined benefit pension plans is the present value of the defined benefit commitment at the end of the reporting period less the fair value of the plan assets.

The defined benefit pension commitment is calculated annually by independent actuaries with the application of what is known as the projected unit credit method. Revaluation of defined benefit net liability is recognized in other comprehensive income. Other costs are recognized in operating profit.

Termination benefits

Impairment of financial instruments

The Group’s financial assets and contract assets, except for those classified at fair value in profit and loss, are subject to impairment for expected credit losses. Impairment for credit losses according to IFRS 9 is forward-looking and a loss allowance is made when there exists an exposure for credit risk, normally in initial recognition. Expected credit losses are reflected in the present value of all deficits in cash flow relating to default either for the next 12 months or for the anticipated remaining term of the financial instrument, depending on the type of asset and on the credit deterioration since initial recognition. The expected credit losses reflect an objective, probability-weighted outcome that takes into account a number of scenarios based on reasonable and verifiable forecasts. The valuation of expected credit losses reflects any collateral and other credit enhancements in the form of guarantees.

The simplified approach applies for trade receivables and contract assets. A loss allowance is recognized, in the simplified approach, for the receivable or asset’s anticipated remaining time to maturity.

For other items covered by expected credit losses, an impairment model is applied with three steps. Initially, and on every balance-sheet date, a loss allowance is recognized for the next 12 months, or alternatively for shorter periods depending on the remaining time to maturity (step 1). If a material increase in credit risk has occurred since the initial recognition, a loss allowance is recognized for the asset’s remaining term (step 2). For assets where credit is deemed to have deteriorated, a provision remains for expected credit losses for the remaining term (step 3). For assets and receivables where credit is deemed to have deteriorated, the calculation is based on interest income on the asset’s carrying amount, net of loss allowance, unlike the gross amount used in the earlier steps.

The financial assets are recognized in the balance sheet at amortized cost, meaning net of gross value and loss allowance. Changes to the loss allowance are recognized in profit and loss.

An expense is recognized on the termination of employees only when the company is demonstrably committed, without realistic possibility of withdrawal, by a detailed, formal plan to terminate an employee or group of employees before the normal retirement date. When termination benefits are provided as a result of an offer made to encourage voluntary redundancy, the expense is recognized if it is probable that the offer will be accepted and the number of employees who will accept the offer can be reliably estimated.

Short-term employee benefits

For short-term employee benefits, the undiscounted amount of benefits expected to be paid in respect of service rendered in a period are recognized in that period. A provision for the expected cost of profit sharing and bonus payments is recognized when the Group has a legal or informal obligation to make such payments in respect of service rendered by employees and a reliable estimate of the expected cost can be made.

The cost of long-term incentives (LTI) are recognized in the period when the vesting conditions are met, until the date on which the relevant employees become fully entitled to the compensation.

Provisions

A provision is different from other liabilities because the payment time or the size of the payment is not clear. A provision is recognized in the statement of financial position when there is a legal or informal obligation as a result of an event occurring, and it is likely that an outflow of financial resources will be needed to meet the obligation and that this amount can be reliably estimated.

Provisions are made using the best estimate of what will be required to fulfill the existing obligation on the closing date.

Warranties

Taxation

Income tax consists of current tax and deferred tax. Income tax is reported in the profit and loss account for the year, except when underlying transactions were reported in other comprehensive income or in equity, whereby related tax effects are reported in other comprehensive income or in equity.

Current tax is the tax payable or refundable for the current year, with the tax rates enacted or substantively enacted by the closing date. Current tax also includes adjustment of current tax from previous periods.

Deferred tax is calculated according to the balance sheet method on the basis of temporary differences between the carrying amount of an asset or liability and its tax base. Temporary differences are not taken into consideration in consolidated

A provision for warranties is recognized when the underlying products or services are sold. The provision is based on historical data regarding warranties and an overall review of potential outcomes in relation to the probabilities of such outcomes.

Restructuring

A provision for restructuring is recognized when there is an established, detailed and formal restructuring plan, and the restructuring has either been started or has been made public. No provisions are made for future operating costs.

Mycronic | Annual and Sustainability Report 2018

NOTES

Revenue recognition

The Group’s net sales consist of revenue arising from the sale of goods (systems and system upgrades, spare parts and accessories) and services. Sales are denominated mainly in USD, EUR, JPY and CNY.

Revenue is recognized when a promised product or service is transferred to the customer, i.e., when the client has obtained control over it, which can happen over time or at a point in time. Revenue shall consist of the amount that the company expects to receive in exchange for the delivered goods or services. Revenue is reported net of any discounts.

Revenue related to sale of services, primarily linked to service agreements, is recognized upon provision of the service. Service agreements that are invoiced in advance are progressively recognized over the term of the agreement. Service contracts that are invoiced in arrears are reported as income over the course of the agreement. Costs for the provision of service are expensed as incurred. See Note 11 Revenue from Contracts with Customers.

Financial income and expenses

Financial income consist of interest income on invested assets, and dividends. Dividend is reported when the right to receive dividends has been established. Financial expenses consist mainly of interest expenses.

Operating expenses

The Group’s expenses mainly refer to materials and supplies, personnel costs and other external expenses, primarily consisting of consulting fees. An assessment is made of costs incurred but not invoiced by suppliers for work performed during the financial year, and a corresponding provision is recognized in accrued expenses in the statement of financial position. Costs related to research are expensed as incurred. Costs for development projects that meet the criteria for capitalization are reported as intangible assets. From the third quarter 2018, the amortization of capitalized development costs is included in the acquisition cost of inventories, which by extension impact the cost of goods sold in the Group.

Earnings per share

Earnings per share are calculated on consolidated profit for the year divided by the number of shares outstanding at year-end.

Note 3 Accounting policies of the Parent Company

The annual financial statements of the Parent Company are presented in accordance with the Swedish Annual Accounts Act (1995:1554) and the Swedish Financial Reporting Board’s recommendation RFR 2, Accounting for Legal Entities (January 2018). The Swedish Financial Reporting Board’s statements for listed enterprises are also applied. RFR 2 means that in the report for the legal entity, the Parent Company shall apply all EU-approved IFRSs and statements as far as possible within the framework of the Annual Accounts Act, the law of safeguarding pension commitments and with respect to the connection between accounting and taxation. The recommendation indicates which exceptions and additions to IFRS that shall be made.

The differences between the Group’s and the Parent Company’s accounting policies are shown below. The accounting policies for the Parent Company shown below have been consistently applied to all periods presented in the Parent Company’s financial statements.

Changes in accounting policies

Unless otherwise specified below, the Parent Company’s accounting policies in 2018 have been modified in accordance with what is specified above for the Group.

Classification and disposition

A profit and loss account and a statement of comprehensive income are reported for the Parent Company and the Group. The Parent Company is using the titles of balance sheet and cash flow analysis for the statements that in the Group are titled as statement of financial position and statement of cash flows. Profit and loss account and balance sheet for the Parent Company are presented according to the Swedish Annual Accounts Act structure, while the statement of comprehensive income, report of changes in equity and cash flow analysis are based on IAS 1 Presentation of Financial Statements and IAS 7 Consolidated Cash Flow Statements.

Development expenses

All costs, for both research and development, are expensed as incurred.

Taxation

In the Parent Company untaxed reserves are reported in the balance sheet with no split to equity and deferred tax liability, unlike the Group reporting. Correspondingly, no split is done between appropriations and deferred tax costs in the profit and loss accounts in the Parent Company.

Group contribution

Group contributions, received and submitted, are reported as appropriations in the Parent Company.

Merger reporting

Mergers of subsidiaries are recognized in accordance with the consolidated value method. According to the method, if there are any differences between assets and liabilities booked in the merged company and consolidated values, the latter are used. The profit and loss in the merged company is included in the profit and loss accounts of the acquiring company from the beginning of the period in which the merger was finalized.

Subsidiaries

In the Parent Company, participation in Group companies are accounted for according to the cost method. This means that transaction expenses and contingent considerations are included in the reported value of holding in subsidiaries. Transaction expenses are recognized in the consolidated financial statements directly in the earnings when these arise. Contingent considerations are measured in the Parent Company assuming the probability that a purchase consideration will be paid and changes impact historical cost. The consolidated financial statements recognize contingent considerations at fair value with changes in value in profit and loss. The Parent Company recognizes the full amount of dividends received from subsidiaries as revenue in profit and loss for the year.

Exchange-rate differences on long-term loans that form part of the Parent Company’s net investments in foreign operations are recognized in profit and loss.

Financial instruments and hedge accounting

In view of the connection between accounting and taxation, the rules on financial instruments and hedge accounting in IFRS 9 are not applied by the Parent Company as a legal entity.

In the Parent Company, financial non-current assets are valued at cost, less any impairment and financial current assets at the lower of cost and net realizable value. In connection with impairment and recognition according to the lower of cost or net realizable value, impairment of the debt instrument is applied for expected credit losses in accordance with IFRS 9.

When hedging receivables and liabilities in foreign currency using forward contracts, the spot exchange rate is used on the day when the currency is hedged to value the hedged receivable or liability. The difference between the forward contract rate and the spot rate at the time of entering into the contract (forward premium) is allocated over the life of the forward contract. Allocated forward premiums are reported as other operating income and other operating expenses, respectively.

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 4 Critical accounting estimates and assumptions

The Group management and the Audit Committee discuss the development, selection and information regarding the Group’s critical accounting policies and estimates, as well as the application of these policies and estimates.

Note 5 Capital management and disposition of accumulated results

The Board supervises the Group’s capital structure and financial management, approves matters related to acquisitions, investments and financing and monitors the Group’s exposure to financial risks. In early 2017, the Board and Group management decided on new financial goals:

Critical estimates when applying the Group’s accounting policies

The preparation of financial statements to conform with IFRS requires the management to make certain assumptions that affect the application of the company’s accounting policies. When preparing the financial statements, the Group management is also required to make certain estimates and assumptions about the future that affect the reported amounts of assets and liabilities on the closing date. Revenues and expenses are also affected by the estimates. The actual results may differ from these estimates. The key assumptions and estimates are specified below.

Capitalized development costs

Development projects, where knowledge and understanding gained from research and practical experience are directed towards developing new products or processes, are recognized as intangible assets in the statement of financial position when they meet the criteria for capitalization. The reported value includes all directly attributable costs, such as those for materials and services as well as compensation to employees. Individual assessment is made of major ongoing research and development projects to determine whether these criteria have been met.

Because it may be difficult to distinguish between research and development projects, this judgment can be affected by individual interpretations.

Evaluating useful life periods and impairment requirements for intangible assets

Assets with an indefinite useful life, meaning goodwill and brands, are not amortized but are tested annually, or as required, for impairment. Assets that are subject to amortization/depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Impairment losses are recognized in the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable value is the highest of an asset’s fair value less selling costs and the value in use. During impairment testing, assets are grouped at the lowest level with separate identifiable cash flow (cash-generating units). The value in use is based on cash flow forecasts, built on the Group management’s and Board’s business plan for the coming five years, for the cash-generating unit to which the values belong. These assessments can have a large impact on the Group’s reported values of intangible assets.

Amortization of intangible assets is based on the estimated useful life of the asset. Depending on which useful life is determined for an asset, this can have a significant impact on the Group’s reported profit. The expected residual value of an intangible asset at the end of its useful life is always set to zero.

Inventories

Inventories are valued at the lowest of acquisition cost or net realizable value. For manufactured goods and works in progress, the acquisition cost includes a fair share of indirect costs based on normal production capacity. Incorrect assumptions in the company’s inventory accounting model give an incorrect cost allocation which affects the book value of inventories and the reported cost of goods sold.

Acquisitions and valuation of contingent considerations

In connection with business combinations, acquired assets, liabilities and contingent considerations are valued at fair value. Contingent considerations are subsequently valued at fair value at each reporting period. The valuation model is based on assumptions about future financial performance of the acquired company. These estimates have a major impact on the valuation of acquired assets and liabilities as well as reported values of contingent considerations. See Note 23 for reporting of acquisitions.

Growth

Consolidated net sales including acquisitions will reach SEK 5 billion at the end of the period covered by the business plan, 4 to 7 years.

Profitability

EBIT will exceed 15 percent of net sales over a business cycle.

Capital structure

Net debt will be less than 3 times the average EBITDA (earnings before depreciation/ amortization, interest and tax). The average is calculated over a three-year period.

Mycronic defines capital as equity according to the statement of financial position, SEK 2,378,962 thousand (1,780,161), adjusted for unrealized gains/losses reported in other comprehensive income included in the hedge reserve. Capital amounts to SEK 2,395,522 thousand (1,780,619).

Mycronic's dividend policy

The objective of the company is to provide both good returns and value growth. Between 30 and 50 percent of net profit will be distributed to the shareholders, provided the company has a net debt lower than 3 times EBITDA after stipulated dividend. In each case, account shall be taken of the company's financial position, profitability trends, growth potential and future investment needs.

	At the AGM’s disposal are the following amounts in SEK: Share premium reserve	201,915,502
	Retained earnings (recalculated, Note 1)	763,751,570
	Proft for the year Total	572,689,294 1,538,356,366
	The Board of Directors proposes that the retained earnings and non-re- stricted equity be managed as follows:
	Dividend	293,749,527
	Carried forward to new account	1,244,606,839

Proposal on dividend

The Board of Directors proposes to the AGM a dividend of SEK 3.00 per share, amounting to SEK 293.7 million. The dividend corresponds to 37 percent of the Group’s net profit after tax.

Note 6 Events after year-end

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 7 Operating expenses

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Group
2018 2017 [1]
Costs allocated by type of cost (excluding capitalized
work for own use)
Raw materials and consumables 1,147,049 699,598
Changes in finished goods and products in progress -101,991 35,986
Personnel costs 924,413 709,892
Depreciation/amortization and impairment of assets 73,888 74,737
Other external costs 865,586 714,329
2,908,944 2,234,543
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1) Restated for comparability, see Note 1

Note 8 Fees for auditing and non-auditing services

Note 9 Other operating income/expenses

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Group Parent Company
2018 2017 [1] 2018 2017 [1]
Other operating income
Exchange rate gains 13,884 – 31,502 –
Other 33,673 17,874 862 1,687
47,557 17,874 32,364 1,687
Other operating expenses
Exchange rate losses – -17,747 – -57,624
Other – -32,654 – -360
– -50,401 – -57,983
of which, exchange rate
differences on derivatives
recognized in profit and loss
at fair value -18,006 9,017 -36,382 -1,639
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1) Restated for comparability, see Note 1

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Group Parent Company
2018 2017 2018 2017
Fees and compensation,
auditing, etc.
Auditing assignments, EY 7,393 4,818 2,424 1,602
Auditing assignments, other 284 86 – –
Non-auditing assignments,
EY 496 491 496 316
Tax consulting, EY 1,219 1,167 – 80
Other assignments, EY 3,938 588 – 504
13,330 7,150 2,920 2,502
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Auditing assignments refer to the auditing of the consolidated financial statements, the accounts and the administration of the Board of Director’s and the CEO, other tasks that befall on the company’s auditor and advice or other assistance prompted by observations from such audits or the performance of such tasks. All other work is classified as other assignments. The 2018 AGM re-elected Ernst & Young as auditor.

Other operating income and operating expenses excluding exchange rate losses, are mainly attributable to value changes in contingent considerations.

Note 10 Research and development expenses

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Group Parent Company
2018 2017 2018 2017
R&D expenditure
Assembly Solutions 311,541 266,984
Pattern Generators 154,464 68,318
466,044 335,302 353,319 278,931
Capitalized development
Assembly Solutions -10,006 -21,018
-10,006 -21,018 – –
Amortization on capitalized
development
Assembly Solutions 3,669 24,130
3,669 24,130 – –
Amortization of acquired
technology 16,471 9,581
Reported cost 476,139 347,995 353,319 278,931
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Mycronic | Annual and Sustainability Report 2018

NOTES

Note 11 Revenue from Contracts with Customers

The distribution of Revenue from Contracts with Customers by business area, geographical markets and type of good or service is summarized in the table below.

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2018 2017
Assembly Pattern Assembly Pattern
Solutions Generators Group Solutions Generators [1] Group [1]
Geographical market
EMEA 756,499 – 756,499 566,947 – 566,947
Americas 511,788 177,795 689,583 339,690 25,779 365,469
Asia 743,574 1,590,930 2,334,504 512,426 1,555,215 2.067 640
Total 2,011,861 1,768,725 3,780,586 1,419,063 1,580,993 3,000,056
Type of good/service
System 1,504,609 1,172,776 2,677,385 1,060,654 1,028,425 2,089,079
Aftermarket 507,252 595,949 1,103,201 358,409 552,568 910,977
Total 2,011,861 1,768,725 3,780,586 1,419,063 1,580,993 3,000,056
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1) Restated for comparability, see Note 1

Revenue from aftermarket sales consists primarily of service revenue from both business areas, upgrades from the Pattern Generators business area and spare parts and accessories from the Assembly Solutions business area.

The distribution of Revenue from Contracts with Customers by timing of revenue recognition is summarized in the table below.

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Group
Timing of revenue recognition 2018 2017 [1]
Products transferred at a point in time 3,125,928 2,482,246
Service transferred over time 654,658 517,810
Total 3,780,586 3,000,056
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1) Restated for comparability, see Note 1

Information about trade receivables, contract assets and contract liabilities from contracts with customers are summarized in the table below.

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Group Parent Company
Contract balances 2018 2017 [1] 2018 2017 [1]
Trade receivables,
see Note 27 663,919 512,405 117,336 137,178
Contract assets 103,120 41,140 87,442 35,864
Contract liabilities 690,877 553,265 548,376 480,946
Total 1,457,916 1,106,810 753,154 653,988
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Performance obligations

Assembly Solutions

System sales in the Assembly Solutions business area is normally divided into two separate performance obligations; system and installation. The system portion is recognized as income at a point in time while the installation is recognized over time. Aftermarket sales in Assembly Solutions includes goods, such as spare parts and accessories, which are recognized as income at a point in time and service revenue that is recognized over time.

Pattern Generators

System sales in the Pattern Generators business area is divided into three separate performance obligations; system, installation and service-type warranty. The system portion is recognized as income at a point in time while the installation and warranty are recognized over time. Aftermarket sales mainly comprise revenue from service contracts that is recognized as income over time and upgrades that are normally recognized at a point in time.

In the Pattern Generators business area, combined agreements exist where two or more agreements are signed at the same time, or almost at the same time, with the same customer and when other criteria for recognizing the agreements as combined are satisfied. These combined agreements can include performance obligations such as system, installation, service-type warranty and upgrades.

Remaining performance obligations

Remaining performance obligations as per December 31, 2018 amounted to SEK 1,904 million, including advances and deferred income recognized as contract liabilities. The remaining performance obligations include ten mask writers, of which eight with planned delivery in 2019, and major upgrade with delivery in 2019.

1) Restated for comparability, see Note 1

Contract assets mainly pertain to the Group’s right to reimbursement for work performed but not invoiced linked to system sales in the Pattern Generators business area. Contract assets are transferred to trade receivables when the Group issues an invoice to the customer, which normally takes place when the terms for the installation are met.

Contract liabilities mainly consist of advance payments on systems orders received in the Pattern Generators business area, unmet performance obligations related to system sales in the Pattern Generators business area and prepaid service revenue in both business areas. Of the SEK 553 million recognized as contract liabilities on the opening date, SEK 431 million was recognized as revenue as of December 31, 2018.

In the Pattern Generators business area, payment is normally made for system orders when the order is confirmed and in conjunction with shipping and a smaller portion is paid after installation is approved. Payments for upgrades are normally received after installation is approved. Service contracts are paid monthly or every quarter in arrears.

In the Assembly Solutions business area, payment is normally made for system orders when the order is confirmed and after shipping, and a smaller portion is paid after installation is approved. Payments for spare parts and accessories normally take place after delivery. See Note 35 for average credit periods. Service contracts are normally paid in advance, annually or every quarter.

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 12 Segment reporting

The company has two segments. One segment comprises operations in the Assembly Solutions business area. Operations comprise development, manufacture and marketing of advanced production equipment for flexible electronics production. The equipment is used for application of solder paste or other assembly fluids on PCBs, surface mounting of electronic components on PCBs, inspection, as well as assembly of camera modules and die-bonding systems for manufacturing optoelectronics.

The other segment comprises operations in the Pattern Generators business area. Operations comprise development, manufacture and marketing of highly accurate laser pattern generators for the production of photomasks. The systems are used by electronics companies in the manufacture of displays among other items. The systems that are used in photomask production are produced in a similar way despite different application areas, distributed in a similar manner and are largely sold to similar customers.

The accounting principles of the segments are the same as for the Group. Net sales per geographical market is established based on the domicile of the customer.

Consolidated net sales comprise revenue from sales of goods and services. Services mainly consist of service contracts, which normally include spare parts.

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Net sales per geographical Group Parent Company
market 2018 2017 [1] 2018 2017 [1]
Sweden 32,461 41,513 32,263 41,731
Europe outside Sweden 709,828 516,005 373,359 303,518
Americas 689,583 365,469 447,751 224,959
Asia 2,334,504 2,067,640 1,755,529 1,758,599
Other countries 14,210 9,429 12,217 6,126
Total 3,780,586 3,000,056 2,621,119 2,334,933
of which, system sales 2,677,385 2,089,079 1,783,716 1,519,642
of which, aftermarket sales 1,103,201 910,977 837,403 815,291
3,780,586 3,000,056 2,621,119 2,334,933
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1) Restated for comparability, see Note 1

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Non-current assets per Group Parent Company
geographical market 2018 2017 2018 2017
Sweden 162,228 145,445 55,548 37,431
Europe outside Sweden 112,698 114,262
USA 620,053 272,857
China 571,489 561,836
Rest of Asia 20,119 12,078
Total 1,486,588 1,106,478 55,548 37,431
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2018 2017
Assembly Pattern Group- Assembly Pattern Group-
Net sales and profit/loss before taxes Solutions Generators wide Group Solutions Generators [1] wide Group [1]
Income from external customers 2,011,861 1,768,725 3,780,586 1,419,063 1,580,993 3,000,056
Total income 2,011,861 1,768,725 – 3,780,586 1,419,063 1,580,993 – 3,000,056
of which no (two) customers represent
more than 10 percent of total sales – 701,110
Gross profit 838,800 1,258,728 2,097,528 557,497 1,158,451 1,715,947
Gross margin, % 42 71 55 39 73 57
Operating expenses and profit/loss before tax
R&D expenditure -311,541 -154,464 -466,005 -266,984 -68,318 -335,302
Capitalized development costs 10,006 – 10,006 21,018 – 21,018
Amortization of capitalized development costs -3,669 – -3,669 -24,130 – -24,130
Amortization of acquired technology -16,471 – -16,471 -9,581 – -9,581
Selling expenses -339,865 -76,968 -4,000 -420,834 -225,304 -80,469 -4,000 -309,774
Administrative expenses -148,698 -79,411 -228,108 -115,957 -65,457 -181,414
Other income and expenses 40,890 6,667 47,557 -24,192 -8,335 -32,527
Financial income and expenses -8,912 -8,912 -8,587 -8,587
Profit/loss before tax 69,451 954,552 -12,912 1,011,092 -87,633 935,870 -12,587 835,650
Assets
Capitalized development costs 32,337 32,337 29,670 29,670
Inventories 570,783 297,397 868,180 311,267 277,293 588,560
Trade receivables 506,139 157,780 663,919 361,606 150,799 512,405
Investments
Capitalized development costs 10,006 – 10,006 21,018 – 21,018
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1) Restated for comparability, see Note 1

Note 13 Transactions with related parties

Intra-group transactions

Of the Parent Company’s purchases during the year, SEK 317 million (276) was attributable to Group companies. Of the year’s sales, SEK 1,028 million (881) was attributable to Group companies. All transactions are conducted on market terms.

Transactions with persons in senior positions

Except what is described in Note 15, no transactions have taken place with persons in senior positions.

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 14 Depreciation/amortization by function

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2018 2017
Develop-
Customer ment [1] / Customer Devel-
relation- Business technology Tangible relation- Business opment Tangible
Group ships Brands systems expenses assets Total ships Brands systems expenses assets Total
Cost of goods sold – – 3,669 9,882 13,551 – – – – 8,257 8,257
Research and
development
expenses – – 500 20,165 9,047 29,712 – – 116 33,616 6,327 40,060
Selling expenses 20,252 4,000 – – 1,762 26,014 17,592 4,000 – – 1,248 22,841
Administrative
expenses – – 459 – 4,152 4,611 – – – – 2,221 2,221
20,252 4,000 959 23,834 24,843 73,888 17,592 4,000 116 33,616 18,053 73,378
Parent Company
Cost of goods sold – – 82 – 4,573 4,655 – – – – 4,504 4,504
Research and
development
expenses – – 81 – 6,873 6,953 – – – – 5,785 5,785
Selling expenses – – 11 – 530 541 – – – – 511 511
Administrative
expenses – – 190 – 591 781 – – – – 189 189
– – 364 – 12,567 12,931 – – – – 10,988 10,988
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1) From the third quarter 2018, the amortization of capitalized development costs is included in the acquisition cost for inventories, which by extension impacts the cost of goods sold in the Group. Given that the amortization is for relatively insignificant amounts, the comparative figures were not restated.

Note 15 Employees, personnel costs and remuneration to senior executives

Remuneration to the Board and senior executives Principles applied in 2018

The Chairman and the members of the Board are remunerated according to AGM decision. Members of the Board that are appointed by unions do not receive remuneration. No fees are paid to the boards of the subsidiaries.

Other senior executives refer to the eight individuals who together with the CEO make up the Group management team. The Group management team is further presented on pages 52–53.

The total remuneration for the CEO and other senior executives consists of basic salary, short-term incentive STI, long-term incentive LTI, other benefits and pension benefits.

STI is paid according to the fulfillment of Group targets with a maximum of 80 percent of an annual basic salary. For 2018, STI could reach a maximum of SEK 8.1 million, excluding social security expenses.

LTI is to encourage the acquisition of shares in Mycronic. If a senior executive buys shares in Mycronic the company matches the amount by cash payment of the same amount. The matching amount shall be used to acquire shares in the company. The share must be kept for four years. LTI is maximized to SEK 100 thousand after tax for the CEO and SEK 50 thousand after tax for each of the other senior executives. If certain requirements are met after three years, the company shall make an additional payment corresponding to a maximum of 150 percent of the matching amount. The criteria mean that the employee still must be employed and have retained their acquired shares. In addition, the Board’s established goals for financial performance must be met. Also this matching amount shall be used to acquire shares in the company, that must be kept for at least one year. If the employee terminates the employment within one year from payment of the matching amount, Mycronic has the right to reclaim the amount.

Other benefits consist of company car, housing, travel to and from Stockholm and the place of residence as well as healthcare insurance.

The principles for remuneration of the CEO and other senior executives are approved by the AGM. The principles for remuneration are prepared by the Board’s Remuneration Committee. The board passes a decision on the proposed principles, which is then put to the AGM for approval.

In handling matters related to remuneration, external advice is sought when necessary. The main principle is to offer senior executives market-based remuneration and other terms of employment. Actual levels of remuneration are determined on the basis of factors such as competence, experience and performance.

Total remuneration

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Group Parent Company
Salaries and remuneration 2018 2017 2018 2017
The Board, CEO and senior
executives 29,391 25,724 29,391 23,498
Other employees 659,916 498,733 202,629 187,199
Total salaries and remu-
neration 689,307 524,457 232,020 210,697
Social security expenses 145,097 107,001 79,971 71,768
Pension expenses 58,777 42,338 37,837 30,791
Total costs 893,181 673,796 349,828 313,257
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The reported remuneration of employees includes variable salary at an amount of SEK 88 million (41) excluding social security expenses, of which SEK 26 million (15) refer to the Parent Company. The STI program covers all employees in the Parent Company.

Mycronic | Annual and Sustainability Report 2018

NOTES

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2018 2017
Audit Audit
Remuneration of the Board Board fees Committee Total Board fees Committee Total
Patrik Tigerschiöld, Chairman of the Board and
Chairman of the Remuneration Committee 700 75 775 550 30 580
Anna Belfrage, chairman of the Audit Committee 275 100 375 – – –
Katarina Bonde 275 50 325 220 30 250
Per Holmberg 275 40 315 220 30 250
Ulla-Britt Fräjdin-Hellqvist 275 90 365 220 60 280
Robert Larsson 275 – 275 – – –
Magnus Lindquist – – – 220 70 290
Total remuneration of the Board 2,075 355 2,430 1,430 220 1,650
Other remu- Other Pension
Remuneration of the CEO and other senior executives 2018 Basic salary neration STI LTI benefits expenses Total
Lena Olving, CEO 4,329 496 2,940 595 423 2,201 10,984
Other senior executives (8 persons) 12,649 543 3,843 1,566 339 5,713 24,653
Total remuneration 16,978 1,039 6,783 2,161 762 7,914 35,637
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The LTI remuneration refers to the year’s payments. The cost for the year amounted to SEK 2,565 thousand. Pension expenses for other senior executives for the year include premiums attributable to pensionable remuneration for previous periods.

		Other remu-			Other	Pension
Remuneration of the CEO and other senior executives 2017	Basic salary	neration	STI	LTI	benefts	expenses	Total
Lena Olving, CEO	4,191	941	2,072	595	729	2,065	10,593
Other senior executives (8 persons)	11,636	280	2,758	1,601	2,110	3,818	22,203
Total remuneration	15,827	1,221	4,830	2,196	2,839	5,883	32,796

In 2018, the following principles for remuneration of the CEO and other senior executives were applied. The Group management team consists of 9 (9) persons.

Fixed basic salary

Fixed basic salary for the CEO and other senior executives is reviewed on an annual basis. The basic monthly salary to the CEO amounted to SEK 360,775 in 2018.

Short-term incentive (STI) program

STI is paid according to the fulfillment of Group targets with a maximum of 80 percent of an annual basic salary. For 2018, STI to the CEO amounts to SEK 2,940 thousand and to other senior executives SEK 3,843 thousand. The outcome of STI for 2018 reached 84 percent of the maximum amount. In a departure from ordinary guidelines, the CEO, who is leaving her position, is entitled to receive STI for her basic salary in 2019, in line with the supplementary agreement signed in 2018.

Long-term incentive (LTI) program

LTI is to encourage the acquisition of shares in Mycronic. If a senior executive buys shares in Mycronic the company matches the amount by cash payment of the same amount. The matching amount shall be used to acquire shares in the company. The share must be kept for four years. The amount is maximized to SEK 100 thousand after tax for the CEO and SEK 50 thousand after tax for other senior executives. If certain requirements are met after three years, the company shall make an additional payment corresponding to a maximum of 150 percent of the matching amount. The criteria mean that the employee still must be employed and have retained their acquired shares. In addition, the Board’s established goals for the company’s earnings per share must be met. Also this matching amount shall be used to acquire shares in the company, which must be kept for at least one year. In a departure from ordinary guidelines, the CEO, who is leaving her position, is entitled to receive amounts for the LTI programs signed, in line with the supplementary agreement signed in 2018.

Other benefits

Other benefits consist of company car and free healthcare insurance. For the CEO, other benefits also include housing and a free rail pass.

Pension

Pension and health insurance is in the form of defined contribution pension premiums. For the CEO, the cost for pension and health insurance benefits can amount to a maximum of 35 percent of basic salary. For other senior executives, pension and health insurance can amount to a maximum of 30 percent of basic salary. In 2017, the Board decided to make an additional pension payment of SEK 600 thousand to the CEO. In 2018, the Board decided to make a similar pension payment of SEK 600 thousand to the CEO. The employment contract with the CEO specifies a retirement age of 62 years. The retirement age for other senior executives is 65 years. There are no other pension benefits other than paid pension premiums.

Employment terms and severance

The employment contract with the CEO specifies a notice period of twelve months in the event of dismissal by the company. The CEO is entitled to fixed basic salary and other benefits during the notice period. No benefits are payable after this period. After the notice period the CEO is entitled to termination benefits corresponding to 12 months’ salary.

For other senior executives, a period of notice of six months and six months’ severance pay apply upon termination by the company. The employment contract, with related benefits, is valid during the notice period.

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Group Parent Company
% of women 2018 2017 2018 2017
Board of Directors 50 40 50 40
Other senior executives 44 38 44 38
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Board and senior executives in the Parent Company consist of 17 (16) persons. The proportion of women in the Parent Company’s Board is based on the members who are appointed by the AGM.

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2018 2017
Average number of which of which
of employees Total women Total women
Parent Company
Sweden 336 71 322 67
Total in Parent Company 336 71 322 67
France 81 19 27 4
Japan 72 9 50 8
China 395 48 341 44
Netherlands 11 2 9 2
Singapore 10 1 8 2
United Kingdom 13 3 13 4
South Korea 35 6 33 6
Germany 44 6 38 5
USA 177 25 121 19
Total in subsidiaries 838 119 640 94
Total in Group 1,175 190 962 161
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Mycronic | Annual and Sustainability Report 2018

NOTES

Note 16 Net financial items

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Group Parent Company
2018 2017 2018 2017
Interest income from
Group companies – – 17,092 10,829
Other interest income
(loans and trade
receivables) 2,613 846 1,573 350
Interest income in
accordance with effective
interest method [1] 2,613 846 18,665 11,179
Dividend from
Group companies – – 15,447 –
Financial income/Interest
income and similar items 2,613 846 34,112 11,179
Interest expenses in
accordance with effective
interest method [1] -11,525 -9,433 -8,474 -6,352
Financial expenses/
Interest expenses and
similar items -11,525 -9,433 -8,474 -6,352
Financial net/Result from
financial investments -8,912 -8,587 25,638 4,827
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Note 17 Appropriations and untaxed reserves

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Parent Company
Appropriations 2018 2017
Changes in tax allocation reserve -235,000 -204,000
Changes in depreciation exceeding plan 100 –
-234,900 -204,000
Untaxed reserves
Allocation reserve 636,000 401,000
Accumulated additional depreciation 9,700 9,800
645,700 410,800
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1) Financial Instruments classified at amortized cost.

Note 18 Income tax

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Group Parent Company
2018 2017 [1] 2018 2017 [1]
Current tax
The year’s tax expense -173,449 -165,513 -156,962 -135,628
-173,449 -165,513 -156,962 -135,628
Deferred tax
Deferred tax on temporary
differences -45,166 -49,364 -3,856 703
Deferred tax on capitalized
loss carryforwards previ-
ously not accounted for – 2,579 – –
-45,166 -46,785 -3,856 703
Total reported tax -218,615 -212,298 -160,818 -134,925
Reconciliation of Group Parent Company
effective tax rate 2018 2017 [1] 2018 2017 [1]
Profit before tax 1,011,092 835,650 733,507 604,278
Tax according to tax rate
in the Parent Company 22
(22)% -222,440 -183,843 -161,372 -132,941
Effect of different tax rates
in foreign subsidiaries 2,752 1,677 – –
Non-deductible/
non-taxable items -298 -10,866 1,036 -1,670
Increase in loss carry-
forwards without corre-
sponding capitalization
of deferred tax -7,066 -1,186 – –
Temporary differences for
which deferred tax assets
have not been accounted -958 -7,383 – –
Effect of changed tax rate -313 -7,231 -164 –
Other 9,708 -3,466 -318 -314
Reported effective tax -218,615 -212,298 -160,818 -134,925
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Tax items recognized
in other comprehensive Group Parent Company
income 2018 2017 2018 2017
Actuarial result from
defined benefits to
employees 591 987 – –
Cash flow hedges 4,380 -2,654 – –
Exchange differences
on foreign currency loans
treated as net investments
in subsidiaries -6,886 4,936 – –
-1,915 3,269 – –
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1) Restated for comparability, see Note 1

Mycronic | Annual and Sustainability Report 2018

NOTES

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2018 2017
Recognized deferred tax assets and liabilities, Group Deferred tax assets Deferred tax liabilities Deferred tax assets [1] Deferred tax liabilities
Tangible assets – -3,792 1,079 –
Intangible assets – -27,254 – -35,354
Derivatives used as hedge instruments 2,287 – 214 –
Trade receivables 8,497 – 1,075 –
Inventories 29,991 – 30,999 –
Untaxed reserves – -142,054 – -90,376
Provisions 14,375 – 9,617 –
Accrued expenses and deferred income 8,284 – 12,005 –
Other 15,185 -47 4,317 –
Loss carryforwards 15,252 – 16,402 –
Tax assets/liabilities 93,871 -173,147 75,708 -125,730
Setoff -10,464 10,464 -6,890 6,890
Net tax assets/liabilities 83,407 -162,683 68,818 -118,840
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Setoff of tax assets and tax liabilities is carried out within the same tax entity. The Group’s deferred tax liabilities net amounted to SEK 79,276 thousand (50,023). Of the year’s changes, in total SEK 29,253 thousand, SEK 45,166 thousand (46,785) was recognized in the profit and loss and SEK -14,195 thousand (3,302) was recognized in other comprehensive income and SEK -1,718 thousand (-14,769) was added through business combinations.

Tax assets regarding loss carryforwards are only recognized to the extent that they are expected to be used. At the end of the year, the Group’s accumulated loss carry forwards amounted to SEK 276 million. Tax assets were recognized at an amount of SEK 15 million, corresponding to loss carryforwards of SEK 51 million. Loss carryforwards mainly refer to subsidiaries in France and can be utilized without a time limit.

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Recognized deferred tax assets and liabilities, 2018 2017
Parent Company Deferred tax assets Deferred tax liabilities Deferred tax assets [1] Deferred tax liabilities
Tangible assets – – 50 –
Trade receivables 916 – 140 –
Provisions 2,138 – 1,251 –
Accrued expenses and deferred income 1,091 – 6,560 –
Tax assets/liabilities 4,145 – 8,001 –
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1) Restated for comparability, see Note 1

Note 19 Leases

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Group Parent Company
Operating leases 2018 2017 2018 2017
The year’s expensed lease
charges (operating leases) 56,431 36,644 15,445 14,798
of which, variable fees 237 96 – –
Future payments under
operating leases and other
lease agreements (nominal)
Within one year 56,064 35,960 14,872 12,713
Between one and five years 92,953 98,506 60,970 49,212
Later than five years 44,031 55,842 40,783 44,599
Total 193,048 190,307 116,625 106,524
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The major part of the Group’s leasing contracts refers to premises.

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 20 Intangible assets

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Development
Business systems expenses Technology License
Group 2018 2017 2018 2017 2018 2017 2018 2017
Accumulated cost
Opening balance at January 1 30,285 29,754 811,293 790,275 120,663 104,831 17,084 17,084
Investments during the year 4,752 575 10,006 21,018 – – –
Investments through business combinations 737 – – – 44,965 20,352 – –
The year’s exchange rate differences 20 -44 – – 5,731 -4,520 – –
Closing balance, accumulated cost at December 31 35,794 30,285 821,299 811,293 171,359 120,663 17,084 17,084
Accumulated amortization
Opening balance at January 1 -29,870 -29,754 -781,623 -757,493 -34,352 -24,750 -17,084 -17,084
The year’s amortization -959 -116 -7,339 -24,130 -16,495 -9,602 – –
Closing balance, accumulated amortization at December 31 -30,829 -29,870 -788,962 -781,623 -50,847 -34,352 -17,084 -17,084
Closing balance, residual value according to plan
at December 31 4,965 415 32,337 29,670 120,512 86,311 – –
Customer
relationships Brands Goodwill Total
Group 2018 2017 2018 2017 2018 2017 2018 2017
Accumulated cost
Opening balance at January 1 155,008 177,334 62,556 64,065 742,029 748,476 1,938,918 1,931,819
Investments during the year – – – – – – 14,758 21,593
Investments through business combinations 28,846 -12,830 10,123 – 240,082 24,122 324,753 31,644
The year’s exchange rate differences 8,259 -9,496 1,644 -1,509 37,531 -30,569 53,185 -46,138
Closing balance, accumulated cost at December 31 192,113 155,008 74,323 62,556 1,019,642 742,029 2,331,613 1,938,918
Accumulated amortization
Opening balance at January 1 -33,033 -15,557 -6,000 -2,000 – – -901,964 -846,639
The year’s amortization -20,252 -17,477 -4,000 -4,000 – – -49,045 -55,325
Closing balance, accumulated amortization at December 31 -53,285 -33,033 -10,000 -6,000 – – -951,009 -901,964
Closing balance, residual value according to plan
at December 31 138,828 121,975 64,323 56,556 1,019,642 742,029 1,380,603 1,036,953
Business systems License Total
Parent Company 2018 2017 2018 2017 2018 2017
Accumulated cost
Opening balance at January 1 29,754 29,754 17,084 17,084 46,839 46,839
Investments during the year 4,076 – – – 4,076 –
Closing balance, accumulated cost at December 31 33,830 29,754 17,084 17,084 50,915 46,839
Accumulated amortization
Opening balance at January 1 -29,754 -29,754 -17,084 -17,084 -46,839 -46,839
The year’s amortization -364 – – – -364 –
Closing balance, accumulated amortization at December 31 -30,118 -29,754 -17,084 -17,084 -47,203 -46,839
Closing balance, residual value according to plan at December 31 3,712 – – – 3,712 –
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Each development project is assessed individually to determine whether the criteria for capitalization in the statement of financial position have been met. Capitalized costs consist of internally produced assets. The residual value is fully attributable to the Assembly Solutions business area. Estimated useful life is five years. Other intangible assets mainly refer to business combinations. See Note 23. In June 2018, intangible assets in the form of technology, customer relationships, brand and goodwill were added through the acquisition of MRSI. Technology and customer relationships have estimated useful lives of seven years.

The acquisition of Vi TECHNOLOGY was carried out at the end of October 2017. In connection with the acquisition, intangible assets were identified in the form of technology and goodwill. The estimated useful life of technology is seven years.

In conjunction with the acquisition of AEi in November 2016, intangible assets in the form of customer relationships, technology and goodwill were added. The estimated useful life of technology and customer relationships is 10 years.

The acquisition of Axxon was carried out at the end of October 2016. In the acquisition analysis, assets in technology, customer relationships, brand and goodwill were identified. Technology and customer relationships have estimated useful lives of seven years.

In connection with the acquisition of Mycronic Technologies AB in 2009, values were identified in the company’s technology, brand, customer relationships and goodwill. The values in technology and customer relationships were fully amortized at the end of 2016. Due to the phasing out of the MYDATA brand, the company began

amortization of the brand in 2016 with an estimated useful life of five years. Information about depreciation/amortization by function is provided in Note 14. The carrying amount of intangible assets with indefinite useful lives, excluding goodwill, amount to SEK 54 million (43) and refers to brands. Useful life has been defined as indefinite where the time period, during which an asset is deemed to contribute economic benefits, cannot be determined.

Impairment testing of intangible assets

The recognized value of goodwill and brands with indefinite lives are annually assessed through impairment testing of the cash-generating unit based on the unit’s value in use. The cash-generating units referred to are the recently acquired company MRSI and the Assembly Solutions business area excluding MRSI. The carrying amount of goodwill and brands in MRSI amount to SEK 244 million and SEK 10 million respectively. The value in use is based on cash flow forecasts, built on the Group management’s and Board’s business plan for the coming five years. After the business plan period, the expected growth rate is 2 percent (2). The discount factor used to determine recoverable value is 14.8 percent (14.5) before tax and 12.0 percent (11.5) after tax. The most important assumptions in the five-year business plan relate to sales volumes, margins, operating profit, working capital, capital expenditure and discount factors. Since the recoverable value thus calculated exceeds the carrying amount, no indication of impairment has been reported. Impairment due to probable changes in important assumptions is not expected.

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 21 Tangible assets

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Improvements to Machinery and Construction
leased property equipment in progress Total
Group 2018 2017 2018 2017 2018 2017 2018 2017
Accumulated cost
Opening balance at January 1 – – 391,849 366,053 4,092 11,105 395,941 377,158
Investments during the year 5,314 – 34,385 21,046 14,307 7,237 54,006 28,282
Reclassifications to machinery and equipment – – 2,486 13,775 -2,486 -13,775 – –
Reclassifications to inventory – – -10,332 -1,848 – – -10,332 -1,848
Reclassifications other 708 – -29 – -223 -475 456 -475
Investments through business combinations 269 – 11,220 2,831 – – 11,489 2,831
Historical cost sold/scrapped equipment – – -8,466 -8,676 – – -8,466 -8,676
The year’s exchange rate differences 4 – 2,783 -1,332 – – 2,788 -1,332
Closing balance, accumulated cost at December 31 6,295 – 423,896 391,849 15,690 4,092 445,881 395,941
Accumulated depreciation, amortization and impairment
Opening balance at January 1 – – -326,416 -317,087 – – -326,417 -317,087
Depreciation reclassifications to inventory – – 1,998 – – – 1,998 –
Depreciation sold/scrapped equipment – – 8,170 8,356 – – 8,170 8,356
Reclassifications other -114 – 1,309 368 – – 1,195 368
The year’s amortization -1,224 – -23,619 -18,053 – – -24,843 -18,053
Closing balance, accumulated depreciation, amortization
and impairment at December 31 -1,338 – -338,558 -326,416 – – -339,897 -326,416
Closing balance, residual value according to plan at
December 31 4,957 – 85,338 65,433 15,690 4,092 105,985 69,525
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Machinery and Construction
equipment in progress Total
Parent Company 2018 2017 2018 2017 2018 2017
Accumulated cost
Opening balance at January 1 248,574 233,279 4,092 11,105 252,666 244,384
Investments during the year 16,120 5,577 15,067 7,237 31,187 12,813
Reclassifications to machinery and equipment 2,486 13,775 -2,486 -13,775 – –
Reclassifications to inventory -5,990 -1,848 – – -5,990 -1,848
Reclassifications other – – -223 -475 -223 -475
Historical cost sold/scrapped equipment – -2,208 – – – -2,208
Closing balance, accumulated cost at December 31 261,190 248,574 16,450 4,092 77,640 252,666
Accumulated depreciation, amortization and impairment
Opening balance at January 1 -215,235 -206,810 – – -215,235 -206,810
Depreciation reclassifications to inventory 1,998 354 – – 1,998 354
Depreciation sold/scrapped equipment 2,208 – – – 2,208
The year’s amortization -12,567 -10,988 – – -12,567 -10,988
Closing balance, accumulated depreciation, amortization
and impairment at December 31 -225,804 -215,235 – – -225,804 -215,235
Closing balance, residual value according to plan at December 31 35,386 33,339 16,450 4,092 51,836 37,431
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Tangible assets are depreciated on a straight-line basis over their expected useful life. Depreciation is started when the assets are accessible for use, as follows:

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|||
|---|---|
|Land improvements|20 years|
|Clean room facilities|10 years|
|Other permanent equipment|5–40 years|
|Machinery and equipment|3–5 years|
|Computers|3 years|

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Mycronic | Annual and Sustainability Report 2018

NOTES

Note 22 Participation in Group companies

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Parent Company
2018 2017
Opening balance, historical cost 997,112 876,004
Acquisitions 9,818 75,347
Value changes contingent considerations 44,174 45,761
Closing balance, accumulated cost 1,051,104 997,112
Opening balance, impairment -2,407 -2,407
Closing balance, accumulated impairment -2,407 -2,407
Closing balance, carrying amount 1,048,696 994,705
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Holdings of shares and participations in Group

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companies Directly owned subsidiaries Corp. ID no. Domicile/country No of shares % of capital Carrying amount
Mycronic Technologies Corporation 607215 Japan 200 100 3,823
Mycronic Co, Ltd. 80271004 Taiwan 1,600,000 100 4,332
Mycronic Co, Ltd. 134111-0136974 South Korea 810 100 12,832
Mycronic (Shanghai) Co, Ltd. 310 000 400 631 000 China – 100 5,857
Mycronic S.A.S. 333 906 139 000 355 France 10,000 100 8,092
Mycronic Ltd. 2524693 United Kingdom 24,000 100 5,812
Mycronic Inc. 04-3219080 USA 10,000 100 39,561
Mycronic Pte Ltd. 199601416W Singapore 1,000 100 477
Mycronic BV 17131339 Netherlands 180 100 8,261
Mycronic GmbH HRB 53381 Germany 4 100 29,600
Micronic Mydata AB 556963-0360 Stockholm 50,000 100 50
Mydata Automation AB 556963-0329 Stockholm 50,000 100 50
RoyoTech Digitalelektronik GmbH HRB 92792 Germany 5 100 76,749
Kognitec Vertrieb and Service GmbH HRB 203153 Germany 4 100 5,110
Shenzhen Axxon Automation Co, Ltd 91440300682020147E China – 80 762,541
VIT S.A.S. 451 028 567 France 1,309,638 100 75,347
Mycronic Fukuoka Co, Ltd 2 290 001 052 547 Japan 700 70 10,202
1,048,696
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||||
|---|---|---|
|Indirectly owned Group companies|
|Automation Engineering, Inc.|USA|100|
|MRSI Systems, LLC|USA|100|
|Vision Inspection Technology Asia Pte Ltd.|Singapore|100|
|Shenzhen Axxon Piezo Co., Ltd.|China|70|

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Mycronic | Annual and Sustainability Report 2018

NOTES

Note 23 Business combinations

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MRSI Other
Acquisition analyses 2018 2018
Acquisition price
Cash paid for acquisitions 390,084 2,929
Deferred considerations for acquisitions (estimated fair value) 39,358 6,230
Total 429,442 9,159
Acquired assets and liabilities at fair value
Technology 44,965 –
Customer relationships 28,788 –
Brands 10,123 –
Other intangible assets – 734
Tangible assets 10,300 1,737
Non-current receivables 1,911 4,673
Inventories 84,359 –
Current receivables 29,834 13,457
Cash and cash equivalents 36,983 3,516
Non-current liabilities -2,036 -5,259
Current liabilities -54,602 -10,963
Total 190,625 7,894
Goodwill 238,817 1,264
Changes in cash and cash equivalents from acquisitions 2018 2017
Cash paid for acquisitions during the year -393,013 -77,721
Cash and cash equivalents in acquired subsidiaries 40,499 6,587
Paid deferred considerations for acquisitions in previous years -14,916 -61,847
Total -367,430 -132,981
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Acquisition of MRSI

In the second quarter, 100 percent of shares were acquired in MRSI Systems, LLC in the USA. MRSI develops, manufactures and sells die-bonding systems with very high precision for manufacturing optoelectronics and microelectronics. The largest customer segment is the industry for optical communication, which is reporting favorable growth driven by increasing speeds in telecom and datacom. Other customer segments include the defense and aerospace industry, life science and the advanced manufacturing industry, where growth is driven by miniaturization of components. The purchase consideration was USD 41 million, corresponding to SEK 357 million, on a cash-free and debt-free basis. Under certain circumstances, based on parameters such as sales and earnings, there is a possible maximum contingent consideration of USD 20 million to be paid in 2020. The total acquisition price was SEK 429 million. The acquisition analysis was finalized in the fourth quarter. In the acquisition analysis, intangible assets in the form of technology, customer relationships, brand and goodwill were identified. Technology and customer relationships have estimated useful lives of seven years. According to the acquisition analysis, goodwill amounted to SEK 239 million. Goodwill was mainly attributable to the company’s strong position as external supplier in a growth market and the expertise present in the company’s employees as well as synergies, such as a global presence in the market segment in question. The acquisition price was adjusted for contingent considerations, which were deemed to correspond to fair value. Transaction costs related to the acquisition amounted to SEK 7 million. The company was consolidated into the Mycronic Group as of June 1, 2018. The operations of MRSI impacted consolidated net sales in the amount of SEK 146 million and contributed to consolidated EBIT in the amount of SEK 24 million from the acquisition date. If the acquisition had taken place at the beginning of the year, the Group’s net sales would have been impacted by SEK 196 million and EBIT by SEK 20 million.

Acquisition of Japanese development partner

In the second quarter, 70 percent of shares were acquired in a Japanese development partner, including an option to acquire the remaining 30 percent of shares not later than three years from the acquisition date. The total acquisition price was SEK 9 million. According to the adopted acquisition analysis, goodwill amounted to SEK 1 million. The company was consolidated into the Mycronic Group as of June 1, 2018.

Acquisitions completed in 2017

The acquisition of 100 percent of shares in Vi TECHNOLOGY in France was carried out at the end of October 2017. The total acquisition price was SEK 78 million. In connection with the acquisition, intangible assets were identified in the form of technology and goodwill. According to the acquisition analysis, goodwill was SEK 19 million. Estimated useful life of technology is seven years.

Note 24 Non-current receivables from Group companies

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Parent Company
2018 2017
Opening balance, carrying amount 275,511 318,399
Additions 436,497 12,080
Deductions – -54,968
Closing balance, carrying amount 712,008 275,511
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The Parent Company applies similar impairment as the Group for anticipated credit losses for current and non-current receivables from Group companies. No material increase in credit risk is deemed to exist on the balance-sheet date for any receivable from Group companies. The assessment is that expected credit losses are not material and no provision has therefore been recognized.

Note 25 Other non-current receivables

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Group Parent Company
2018 2017 2018 2017
Opening balance, carrying
amount 17,085 22,854 2,958 7,596
Additions 7,973 2,093 47 432
Deductions -2,560 -7,863 -1,960 -5,070
Closing balance, carrying
amount 22,498 17,085 1,045 2,958
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Receivables mainly refer to deposits regarding lease of premises, long-term advance payments and pension insurance premiums for employees in Japan. Additional items primarily relate to acquisitions and the increase in deposits for the lease of premises. Deductions primarily refer to lower long-term advance payments.

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 26 Inventories

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Group Parent Company
2018 2017 2018 2017
Components 322,810 199,123 222,203 164,349
Finished goods 309,521 202,892 71,296 40,664
Products in progress 235,850 186,546 152,745 141,591
868,180 588,560 446,244 346,603
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Note 27 Trade receivables, impairment, age analysis and other

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2018 2017
Loss given Loss given
Group Gross Impairment default Gross Impairment default
Trade receivables not due 539,943 1,400 0.3% 374,148 275 0.1%
Trade receivables, overdue 0–30 days 38,245 520 1.4% 72,976 652 0.9%
Trade receivables, overdue 30–90 days 54,428 2,275 4.2% 37,306 958 2.6%
Trade receivables, overdue 90–180 days 28,581 3,651 12.8% 10,801 1,556 14.4%
Trade receivables, overdue 180–360 days 11,539 4,027 34.9% 14,522 1,734 11.9%
Trade receivables, overdue >360 days 9,256 6,201 67.0% 11,737 3,910 33.3%
681,993 18,074 2.7% 521,490 9,085 1.7%
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Trade receivables overdue amount to 21 percent (28) of total gross trade receivables.

In the Assembly Solutions business area, sales are conducted to a large number of customers in several countries where payment terms differ from those of the company. Part of the company’s sales are also conducted via distributors, which can also contribute to longer payment processes. Historically, credit losses are very limited. The company judges that the risk of losses is very low except for impairment done. The maximum credit risk exposure refers to the reported value of trade receivables.

The Group’s impairment of trade receivables and contract assets is conducted in accordance with the simplified approach for recognizing expected credit losses. This means a provision is made for the remaining time to maturity for the expected credit losses, which are expected to be less than one year for all of the receivables above. The Group makes a provision for expected credit losses based on individual assessments concerning receivables in the Pattern Generators business area, where known information about the counterparty and forward- looking information is taken into account. The Assembly Solutions business area applies an impairment model based on historical percentage loss combined with forward-looking information and individual assessments. Changes to the provision for expected credit losses are recognized as selling expenses in EBIT.

Any credit enhancements in the form of credit insurance and letters of credit are taken into account in impairment. Mycronic writes down a receivable when there is no longer an expectation of payment and when active measures to receive payment are completed.

Five customers represent 24 percent (18) of trade receivables outstanding. For further information on the concentration and customer risk in trade receivables outstanding, see Note 34.

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Group
Provision for expected credit losses 2018 2017 [1]
Opening balance, carrying amount 9,085 8,785
Additions 11,251 3,405
Utilized during the year -768 -263
Unutilized during the year -1,493 -2,842
Closing balance, carrying amount 18,074 9,085
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1) Provisions for doubtful trade receivables in accordance with IAS 39.

Note 28 Prepaid expenses and accrued income

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Group Parent Company
2018 2017 2018 2017
Accrued sales revenue 103,120 41,140 87,442 35,864
Other prepaid expenses 36,833 29,025 28,741 16,295
139,952 70,165 116,183 52,159
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Note 29 Non-current provisions

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Group
2018 2017
Post employment benefits 39,785 31,307
Other non-current provisions 7,961 4,489
Closing balance, carrying amount 47,746 35,796
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Post employment benefits

In the Japanese and South Korean subsidiaries, provisions are made for long-term employee benefits. On certain conditions, a lump-sum payment is made to employees when their employment is terminated, either due to retirement or when the employee leaves the company for some other reason. The French subsidiaries also have small obligations regarding post employment benefits. In South Korea payments are made to plan assets after decision by the employer. Other pension obligations are unfunded. Defined benefit obligations expose the Group for risks related to, for example, discount rates and salary increases. Plan assets are affected by changes in market values.

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Group
Pension expenses 2018 2017
Amounts recognized in income statement
Current service cost 4,241 6,583
Net interest 546 335
Expenses, defined benefit plans 4,786 6,918
Amounts recognized in other comprehensive income
Remeasurement of pension obligations 2,578 3,545
Remeasurement of plan assets 63 4
Expenses/(income) defined benefit plans 2,640 3,549
Total pension expenses, defined benefit plans 7,427 10,467
Amounts recognized in statement of financial position 2018 2017
Present value of defined benefit obligation,
funded plans 35,541 28,690
Fair value of plan assets -18,178 -15,100
Net liability, funded plan 17,363 13,590
Present value of defined benefit obligation,
unfunded plans 22,422 17,717
Net liability recognized in statement
of financial position 39,785 31,307
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Mycronic | Annual and Sustainability Report 2018

NOTES

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Change in present value of defined benefit obligation 2018 2017
Opening balance, defined benefit obligation 46,408 38,634
Current service cost 4,241 6,583
Interest expenses 902 640
Remeasurement of pension obligations
– Demographic assumptions 1,169 628
– Financial assumptions 365 -935
– Experience adjustments 1,044 4,479
Pension payments -2,419 -3,230
Effect from acquired companies 3,353 –
Exchange rate difference 2,901 -392
Closing balance, defined benefit obligation 57,963 46,408
Change in fair value of plan assets 2018 2017
Opening balance, plan assets 15,100 14,546
Interest income 357 305
Return excluding interest income -63 -4
Employer’s contribution 2,804 –
Pension payments from plan assets -726 –
Exchange rate difference 706 254
Closing balance, plan assets 18,178 15,100
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Significant actuarial Japan South Korea
assumptions 2018 2017 2018 2017
Discount rate, % 0.5 0.4 2.4 2.8
Future salary increases, % 2.5 2.6 6.0 6.0
Sensitivity analysis dis- Change in value,
count rate Change in assumption SEK thousand
Assumption
Discount rate, % -0.50/+0.50 +2,022/-1,792
Future salary increases -0.50/+0.50 -2,171/+2,383
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The sensitivity analysis is based on changes in a single actuarial assumption, while other assumptions remain unchanged. This method shows the obligation’s sensitivity to a single assumption. This is a simplified method since the assumptions are usually correlated. Weighted duration for the defined benefit obligations are estimated to ten years.

The discount rate is determined for each currency with reference to the market interest rate at the end of the report period, which is aligned with the average weighted duration of the pension liability. When determining the market interest rate, first-class corporate bonds are used.

Forecast pension payments to the plans for next year amount to SEK 1 million. Additional amounts can be paid to plan assets after decision of the employer.

Information on Alecta pension commitments

For some 40 employees in Sweden, the ITP 2 plan’s defined-benefit pension commitments for retirement and family pension are secured through an insurance in Alecta.

According to a statement from the Swedish Financial Reporting Board, UFR 10 Reporting of the ITP 2 pension plan financed through insurance in Alecta, this is a defined-benefit plan that comprises several employers.

For the 2018 financial year, the company has not had access to information to be able to report its proportional share of the plan’s obligations, plan assets and costs, making it impossible to report the plan as a defined benefit plan. The ITP 2 pension plan secured through insurance in Alecta is therefore reported as a defined contribution plan. The premium for the defined benefit retirement and family pension is individually calculated and depends on salary, previously vested pension and expected remaining period of service.

Anticipated fees in 2019 for ITP 2 insurance taken out with Alecta amount to SEK 2 million. In 2018, the costs for premium based pension amounted to SEK 45 million (36).

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Group
Other non-current provisions 2018 2017
Opening balance, carrying amount 4,489 2,172
Additions through acquisitions 3,142 1,273
The year’s provision 330 1,044
Closing balance, carrying amount 7,961 4,489
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Note 30 Accrued expenses and deferred income

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Group Parent Company
2018 2017 [1] 2018 2017 [1]
Salaries and social expenses 138,492 104,318 51,826 42,070
Commissions 11,561 4,396 179 86
Deferred income 385,369 55,843 354,838 41,931
Other accrued expenses 56,764 47,142 42,695 36,691
592,187 211,700 449,538 120,779
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1) Restated for comparability, see Note 1

Accrued salaries and social expenses include, among other things, variable salaries, STI.

Note 31 Current provisions

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Group Parent Company
2018 2017 [1] 2018 2017 [1]
Opening balance,
carrying amount 25,834 12,690 8,424 6,884
The year’s provision 46,808 29,359 12,444 11,949
Utilized during the year -14,464 -15,100 -9,514 -10,409
Unutilized during the year -12,460 -1,114 – –
Closing balance,
carrying amount 45,717 25,834 11,354 8,424
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1) Restated for comparability, see Note 1

Current provisions mainly consist of warranty provisions. A provision for warranties is recognized when the underlying products are sold. The provision is based on historical data regarding warranties and an overall review of potential outcomes in relation to the probabilities of such outcomes.

Note 32 Pledged assets

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Group Parent Company
2018 2017 2018 2017
Collateral provided
for liability items in
the balance sheet
Credit institutions
Chattel mortgages 89,000 89,000 89,000 89,000
89,000 89,000 89,000 89,000
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Note 33 Contingent liabilities

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Group Parent Company
2018 2017 2018 2017
Commitment for billing
by credit insurance
through EKN 1,220 1,182 1,220 1,182
Parent Company guarantee – – 53,826 –
Other 365 – – –
1,585 1,182 55,046 1,182
Of which, falling due:
Within one year 1,070 139 705 139
Between one and five years 515 1,042 54,341 1,042
1,585 1,182 55,046 1,182
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Mycronic | Annual and Sustainability Report 2018

NOTES

Note 34 Financial risks

Financial risks arise due to negative fluctuations in Mycronic’s earnings and cash flow as a consequence of changes in exchange rates and interest rates, credit risks and financing risks. The single largest financial risk is exchange rate fluctuations. Financial risks are managed in accordance with the financial policy established by the Board.

Foreign exchange risk – transaction exposure

Transaction exposure is the risk that changes in exchange rates for sales and sourcing in foreign currencies will affect consolidated earnings and the value of assets and liabilities.

Mycronic’s sales are done almost exclusively in foreign currency. A large part of the Group’s expenses are incurred in Swedish kronor. Sales within the Assembly Solutions business area occur primarily in USD, EUR and CNY. All sales within the Pattern Generators business area are in foreign currency, primarily USD, JPY and KRW. Changes in exchange rates have a greater impact on income than on expenses. Mycronic’s net currency exposure is significant (refer to the table below for revenue and expenses by currency). Currency hedging is undertaken in accordance with the established finance policy.

For sales of mask writers the company uses forward exchange contracts to hedge contracted cash flows, which consist of orders received. As the delivery date approaches, the lowest hedged portion of the respective contracted inflows increases, in accordance with the finance policy. Forecast inflows not covered by underlying orders are not hedged. Hedge accounting is used within the Pattern Generators business area.

For sales of surface mount equipment, forward exchange contracts, corresponding to at least 50 percent of the order backlog in EUR and USD, are used. Hedge accounting is not used within the Assembly Solutions business area.

Effects from transaction exposure

If sales for 2018 within the Pattern Generators business area were translated at the average exchange rates for 2017, without consideration of forward exchange contracts, revenues would have been SEK 2 million higher. Turnover was negatively affected by forward exchange contracts in the amount of SEK 36 million. The EBIT for Pattern Generators was adversely affected by SEK 45 million as a result of forward exchange contracts. If sales for 2018 within the Assembly Solutions business area were translated at the average exchange rates for 2017, revenues would have been SEK 73 million higher. EBIT for the business area was affected negatively by forward exchange contracts at an amount of SEK 8 million. Based on 2018 sales volumes and expenses, without consideration of forward exchange contracts, the effect on consolidated EBIT of a 10-percent change in the exchange rate of the most important currencies compared to SEK would be about SEK 199 million (165). Equity would be affected in the same amount after tax.

Foreign exchange risk – translation exposure

Translation exposure is the risk Mycronic is exposed to when translating the financial statements of subsidiaries to SEK.

Effects from translation exposure

Translation of the balance sheets of foreign subsidiaries to SEK generated a positive translation difference of SEK 69 million (neg: 48) after tax. At the end of 2018, net investment in foreign subsidiaries was SEK 614 million. A change of 10 percent against those currencies where Mycronic has foreign net investments would affect the Group’s equity by SEK 61 million after tax, without consideration of hedge accounting.

Interest risks

Interest risk refers to the risk for changes in interest rate levels affecting consolidated earnings.

Mycronic’s interest risk is limited. Investments in interest-bearing financial instruments or bank accounts with fixed interest are done in accordance with liquidity plans, meaning that investments, which may not exceed six months, are held to maturity. During 2018, no investments were made in interest-bearing financial instruments.

Credit risk

Credit risk is partly tied to sales and partly to liquidity management. For sales, there is a risk that customers do not fulfill their payment obligations. For liquidity management, there is a risk that the counterparty will not be able to fulfill its obligations.

Exposure to credit risks

Mycronic sells only a few mask writers to a limited number of customers, which concentrates the credit risk. Customers are, however, major manufacturers of photomasks where the mask writers comprise a small portion of the equipment in a production facility. Customers are well-known and have good credit worthiness historically. In order to reduce customer credit risk, Mycronic strives to obtain advances from customers to the highest degree possible. Especially in business transactions with new customers or within new geographic areas, the credit risk is managed through Mycronic requiring letters of credit or other collateral. Sales of SMT equipment are spread over a large number of customers and the credit risk is therefore limited. Credit risk is managed through credit control. Credit limits are established and monitored.

Credit exposure in trade receivables at year-end was SEK 664 million (512). The average credit period was 79 days (82) for the Assembly Solutions business area and 32 days (54) for the Pattern Generators business area. For information on the aging structure of trade receivables and provisions for doubtful trade receivables, see Note 27.

Mycronic’s maximum financial credit exposure consists of the fair values of financial assets, see Note 35. At year-end 2018, the total financial credit exposure, excluding trade receivables, was SEK 832 million (818), of which SEK 829 million (813) was cash and cash equivalents. Cash and cash equivalents consisted only of bank balances, as was the case one year earlier. Cash and cash equivalents are to be invested in banks or other interest-bearing financial instruments with credit ratings of at least A1/P1/K1. For cash and cash equivalents and other financial instruments, Mycronic applies a rating-based method combined with other known information and forward-looking factors. No material increase in credit risk is deemed to exist on the balance-sheet date for any receivable or asset. In cases where the amount is not considered immaterial, a provision is recognized for expected credit losses even for these financial instruments.

Liquidity risks

Liquidity risk refers to the risk that the company may not be able to meet its payment obligations on the settlement date. Mycronic’s net cash at the end of 2018 was SEK 827 million. Investments of excess liquidity are done in such a way that the Group assumes no significant liquidity risk. This means that excess liquidity is placed in bank deposits or in other interest-bearing instruments where it is possible to liquidate on short notice. Liquidity is monitored continuously. Liquidity forecasts are compiled quarterly in order to provide a basis for decisions on possible investments.

Liquidity reserve

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SEK million 2018 2017
Credit line 2,052 737
Cash and cash equivalents 829 813
Total 2,880 1,550
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Exposure per currency

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Currency % of revenue % of expenses Average rate 2018 Average rate 2017 Closing rate 2018 Closing rate 2017
USD 49 23 8.6921 8.5380 8.9710 8.2322
EUR 15 17 10.2567 9.6326 10.2753 9.8497
JPY (100) 16 8 7.8654 7.6091 8.1197 7.3084
GBP 2 1 11.5928 10.9896 11.3482 11.1045
SEK 1 36 1.0000 1.0000 1.0000 1.0000
KRW (100) 6 2 0.7894 0.7554 0.8038 0.7726
CNY 11 14 1.3135 1.2631 1.3068 1.2642
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Mycronic | Annual and Sustainability Report 2018

NOTES

Note 35 Financial assets and liabilities

The following table present the Group’s financial assets and liabilities, stated at book and fair value and classified in accordance with IFRS 9 categories. The Group’s financial assets and liabilities for the comparative year 2017 are presented in accordance with IAS 39’s classification categories.

Risk management

A description of the Group’s financial risks and risk management is provided according to IFRS 7 in Note 34.

Fair value and carrying amount

IFRS 13 Fair Value Measurement includes a valuation hierarchy regarding data to be used in the valuation. This valuation hierarchy is divided into three levels: Level 1: According to quoted prices in active markets for identical instruments. Level 2: Based on inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly.

Level 3: Based on inputs that are not observable in market data.

Mycronic uses level 2 according to the valuation hierarchy when measuring forward exchange contracts at fair value through current market prices and current exchange rates on the closing day.

At valuation of contingent considerations related to business combinations, level 3 in the valuation hierarchy is applied.

Financial assets and liabilities per valuation category

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Financial assets/liabilities
measured at fair value Financial assets/liabilities Total
in comprehensive income, measured at fair value Financial assets/liabilities carrying Total fair
Group 2018 hedge accounting in profit and loss measured at amortized cost amount value
Financial assets
Trade receivables 663,919 663,919 663,919
Forward exchange contracts 1,378 1,644 3,022 3,022
Cash and cash equivalents 828,571 828,571 828,571
Total assets 1,378 1,644 1,492,490 1,495,512 1,495,512
Financial liabilities
Contingent considerations 277,477 277,477 277,477
Current interest-bearing liabilities 1,239 1,239 1,239
Trade payables 236,425 236,425 236,425
Forward exchange contracts 9,842 719 10,561 10,561
Total liabilities 9,842 278,196 237,664 525,702 525,702
Recognized loss (change in value) -18,006
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The first application of IFRS 9 had no impact on the Group’s equity as of January 1, 2018. Nor has the transition to IFRS 9 motivated any change in the measurement of financial instruments other than the designation of classification categories: Loan receivables and accounts receivable under IAS 39 are classified and measured under IFRS 9 at amortized cost. Financial assets and liabilities measured at fair value in the income statement last year continue under IFRS 9 to be classified and measured at fair value in profit and loss. The impact of the first application of expected credit losses was of an immaterial nature for the Group. For this reason,

no further provisions were made with regards to the transition, which is why the carrying amount for assets recognized at amortized cost and contract assets was not affected.

The Group’s maximum credit risk in financial assets consists of the net amount in the table above.

The fair value of the Parent Company’s derivatives is equal to the fair value of the Group’s derivatives.

	Derivatives,	Derivatives, recognized	Loans and	Liabilities, recognized		Total
	hedge	at fair value through	trade	at fair value through	Other	carrying	Total fair
Group 2017	accounting	proft and loss	receivables	proft and loss	liabilities	amount	value
Financial assets
Trade receivables			512,405			512,405	512,405
Other receivables	3,977	881				4,858	4,858
Cash and cash equivalents			812,667			812,667	812,667
Total assets	3,977	881	1,325,072			1,329,930	1,329,930

Financial liabilities
Contingent considerations				247,751		247,751	247,751
Current interest-bearing liabilities					12,642	12,642	12,642
Trade payables					154,656	154,656	154,656
Forward exchange contracts	4,564	1,522				6,086	6,086
Total liabilities	4,564	1,522	–	247,751	167,298	421,135	421,135
Recognized proft (change in value)		9,017

Mycronic | Annual and Sustainability Report 2018

NOTES

Contingent considerations

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Group
2018 2017
Opening balance, carrying amount 247,751 268,387
Estimated liabilities related to acquisitions 45,588 –
Settled liabilities -14,916 -46,601
Changes in value reported in profit and loss -10,703 31,744
Exchange rate differences recognized in other com-
prehensive income. 9,756 -5,779
Closing balance, carrying amount 277,477 247,751
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The balance sheet item is related to contingent considerations for the acquisitions of Axxon and MRSI as well as a smaller amount related to the acquisition of a Japanese development partner. See Note 23.

In the fourth quarter of 2016, 80 percent of the shares in Axxon were acquired with the option of acquiring the remaining 20 percent after three years for CNY 80–180 million. At the end of 2018, it was confirmed that the conditions for the maximum contingent consideration had been met in accordance with the earlier assessment. This confirmation entailed that the future discount rate was adjusted downward from 12.2 percent to 4.2 percent. This discount had a negative impact on earnings of SEK 14 million. The transaction is expected to be completed in the fourth quarter of 2019.

Changes in value reported in profit and loss include a positive effect of SEK 55 million from a revalued contingent consideration related to the acquisition of AEi in the fourth quarter of 2016. Since the acquisition, AEi has developed well, but the criteria for the earn-out were not met. The contingent considerations for MRSI were calculated at their present value with a discount rate of 14.6 percent.

As per December 31, 2018, the maximum amount of contingent considerations amounted to SEK 425 million.

Financial liabilities, maturity structure (future non-discounted cash flows)

	Nom.
	amount	Within	3 months–
Group December 31, 2018	in SEK	3 months	1 year 1–3 years
Contingent considerations	295,333	-	235,224 60,109
Liabilities to credit institutions	1,239	45	94 1,100
Trade payables	236,425	203,543	29,806 3,076
Forward exchange
contracts	23,088	1,546	10,884 10,659
	556,085	205,134	276,008 74,944

At year-end, the balance sheet item Cash and cash equivalents consisted solely of bank balances, as it did in the preceding year. Granted unutilized bank overdraft facilities amount to SEK 2,052 million (737).

	Nom.
	amount	Within	3 months–
Group December 31, 2017	in SEK	3 months	1 year	1–3 years
Contingent considerations	299,468	14,287	–	285,181
Liabilities to credit
institutions	12,990	174	12,816	–
Trade payables	154,656	92,059	62,597	–
Forward exchange
contracts	10,801	3,727	6,087	987
	477,914	110,247	81,500	286,168

Hedge instruments December 31, 2018

The Group’s holdings of forward exchange contracts and debt in foreign currency at December 31, 2018, can be broken down into the following underlying amounts and maturities. The forward exchange contracts fall due at a time when the secured flows are expected to affect earnings. The table shows the nominal amounts of the forward exchange contracts, in SEK thousands.

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Maturity
Group 2018 within 3 months 3 months–1 year 1–3 years Total
Hedge instruments – hedge accounting applied
Forward exchange contracts – cash flow hedge of currency
risk, transaction exposure (contract sale)
Sold JPY, bought SEK, nominal amounts 16,742 207,916 – 224,658
Average hedged forward contract rate, JPY/SEK 0.0828 0.0796 – 0.0798
Sold USD, bought SEK, nominal amounts 28,460 173,373 261,387 463,220
Average hedged forward contract rate, USD/SEK 8.5209 8.6406 8.6195 8.6213
Debt in foreign currency – currency hedging of
net investment in foreign operations
CNY debt, nominal amount (value on balance-sheet date) – 235,224 – 235,224
Hedge instruments – non-hedge accounting
Forward exchange contracts – hedge of currency risk,
transaction exposure (contract sale)
Sold EUR, bought SEK, nominal amounts 27,751 – – 27,751
Average hedged forward contract rate, EUR/SEK 10.2781 – – 10.2781
Sold JPY, bought SEK, nominal amounts 9,503 – – 9,503
Average hedged forward contract rate, JPY/SEK 0.0805 – – 0.0805
Sold USD, bought SEK, nominal amounts 133,837 2,685 – 136,522
Average hedged forward contract rate, USD/SEK 8.9523 8.9505 – 8.9523
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Mycronic | Annual and Sustainability Report 2018

NOTES

Hedge instruments December 31, 2017

The Group’s holdings of forward exchange contracts and debt in foreign currency at December 31, 2017, can be broken down into the following underlying amounts and maturities. The forward exchange contracts fall due at a time when the secured flows are expected to affect earnings. The table shows the nominal amounts of the forward exchange contracts, in SEK thousands.

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Maturity
Group 2017 within 3 months 3 months–1 year 1–3 years Total
Hedge instruments
Forward exchange contracts
Sold EUR, bought SEK, nominal amounts 44,820 1,980 – 46,800
Average hedged forward contract rate, EUR/SEK 9.8506 9.8998 – 9.8526
Sold JPY, bought SEK, nominal amounts 290 108,459 9,886 118,635
Average hedged forward contract rate, JPY/SEK 0.0738 0.0753 0.0741 0.0752
Sold USD, bought SEK, nominal amounts 168,879 177,177 15,350 361,406
Average hedged forward contract rate, USD/SEK 8.0726 7.9380 7.7098 7.9902
Hedge instruments identified in hedging Period – change in fair value
relationship as of December 31, 2018 for measurement of ineffectiveness
Recognized value
Effects of hedge accounting on financial position and asset (+) Balance Hedge
earnings Nominal amount liability (-) sheet item instruments Hedged item
Cash flow hedge of currency risk, transaction
exposure (contract sale)
Forward exchange contracts, Sold JPY, bought SEK 33,492 651 Other receivables
Forward exchange contracts, Sold JPY, bought SEK 191,166 -4,752 Other liabilities
Total 224,658 -4,101 -19,901 19,901
Forward exchange contracts, Sold USD, bought SEK 222,072 728 Other receivables
Forward exchange contracts, Sold USD, bought SEK 241,148 -5,090 Other liabilities
Total 463,220 -4,362 -36,257 36,257
Currency hedging of net investment in foreign operations
Debt in foreign currency, CNY thousands 180,000 -227,296 Other liabilities -6,081 6,081
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Hedge accounting

The Group applies hedge accounting in accordance with IFRS 9 regarding debt in foreign currency used to hedge currency risk in net investments in foreign operations and for forward exchange contracts used to currency hedge future cash flows in the Pattern Generators business area. When entering into the hedge transaction, the relationship between the hedging instrument and the hedged item is documented, as is the objective of risk management and the strategy. The Group determines the hedge ratio between hedge instruments and the hedge item based on the hedge ratios in place in the actual hedges. The hedge ratio is 1:1 for all hedges.

Hedges are designed so they are expected to be effective, meaning there is expected to be a financial link as the hedge instrument counteracts changes to

fair value or cash flow regarding currency risk in the hedged item. The financial link is preferably determined through a qualitative analysis of critical terms in the hedging relationship. If changes in circumstances influence the hedging relationship so that critical terms no longer match, the Group uses qualitative methods (hypothetical derivative approach) to assess its effectiveness. Sources of hedge ineffectiveness pertaining to the hedge of net investments in foreign operations include the risk that the volume of the hedge instrument exceeds the net investment. Sources of hedge ineffectiveness pertaining to cash flow hedge of currency risk in future sales includes the impact of the parties’ credit risk in measuring forward exchange contracts and imperfectly matching cash flows between hedge instruments and hedged cash flows.

Mycronic | Annual and Sustainability Report 2018

NOTES

Note 36 Reconciliation alternative performance measures

The European Securities and Markets Authority (ESMA) has issued guidelines regarding alternative performance measures for listed companies. These relate to financial key figures used by management, to control and evaluate the Group’s business, which cannot be directly inferred from the financial statements. Alternative performance measures are also considered to be of interest to external investors and analysts who monitor the company. For financial definitions, see page 91. Amounts below are stated in SEK million.

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Return on equity 2018 2017
Profit for the year 792.5 623.4
Average equity 2,079.6 1,595.9
38.1% 39.1%
Return on capital employed
Profit before tax 1,011.1 835.6
Financial expenses 11.5 9.4
Profit before financial expenses 1,022.6 845.0
Average balance sheet total 3,721.8 2,999.9
Average non-interest-bearing liabilities 1,635.3 1,392.3
Average capital employed 2,086.5 1,607.6
49.0% 52.6%
Capital turnover rate
Net sales 3,780.6 3,000.1
Average balance sheet total 3,721.8 2,999.9
Average non-interest-bearing liabilities 1,635.3 1,392.3
Average capital employed 2,086.5 1,607.6
1.8 1.9
Book-to-bill
Order intake 3,641.9 3,567.2
Net sales 3,780.6 3,000.1
1.0 1.2
EBITDA
EBIT 1,020.0 844.2
Depreciation/amortization 73.9 74.7
1,093.9 919.0
Underlying EBIT
EBIT 1,020.0 844.2
Acquisition-related costs
Cost of goods sold 18.6 42.3
Operating expenses 37.0 64.5
1,075.6 951.0
Equity per share
Equity at balance day 2,379.0 1,780.2
Number of shares at year-end, thousand 97,917 97,917
24.30 18.18
Earnings per share
Profit for the year 792.5 623.4
Number of shares at year-end, thousand 97,917 97,917
8.09 6.37
Net cash
Cash and cash equivalents 828.6 812.7
Interest-bearing liabilities -1.3 -12.6
827.3 800.0
----- End of picture text -----

Mycronic | Annual and Sustainability Report 2018

AUDITOR’S REPORT

Auditor’s report

To the general meeting of the shareholders of Mycronic AB (publ), corporate identity number 556351-2374

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS

Opinions

We have audited the annual accounts and consolidated accounts of Mycronic AB (publ) except for the corporate governance statement on pages 46–53 for the year 2018. The annual accounts and consolidated accounts of the company are included on pages 40–87 in this document.

In our opinion, the annual accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the parent company as of 31 December 2018 and its financial performance and cash flow for the year then ended in accordance with the Annual Accounts Act. The consolidated accounts have been prepared in accordance with the Annual Accounts Act and present fairly, in all material respects, the financial position of the group as of 31 December 2018 and their financial performance and cash flow for the year then ended in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and the Annual Accounts Act. Our opinions do not cover the corporate governance statement on pages 46–53. The statutory administration report is consistent with the other parts of the annual accounts and consolidated accounts.

We therefore recommend that the general meeting of shareholders adopts the income statement and balance sheet for the parent company and the group.

Our opinions in this report on the annual accounts and consolidated accounts are consistent with the content of the additional report that has been submitted to the parent company’s audit committee in accordance with the Audit Regulation (537/2014) Article 11.

Basis for Opinions

We conducted our audit in accordance with International Standards on Auditing (ISA) and generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements. This includes that, based on the best of our knowledge and belief, no prohibited services referred to in the Audit Regulation (537/2014) Article 5.1 have been provided to the audited company or, where applicable, its parent company or its controlled companies within the EU.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Key Audit Matters

Key audit matters of the audit are those matters that, in our professional judgment, were of most significance in our audit of the annual accounts and consolidated accounts of the current period. These matters were addressed in the context of our audit of, and in forming our opinion thereon, the annual accounts and consolidated accounts as a whole, but we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context.

We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying financial statements.

VALUATION OF FINISHED GOODS AND PRODUCTS IN PROGRESS

Description

As of December 31, 2018, Inventory of finished goods and products in progress amount to 545 MSEK. A detailed specification of the composition of the inventory is presented in note 26 of the annual report. Inventories are valued at the lower of cost and net realizable value. Finished goods and products in progress is recognized at production cost less any obsolescence. Production cost is calculated using a stock accounting model to allocate direct and indirect production related costs to the manufactured products. The allocation of costs is affected by management’s estimates and assumptions and an incorrect allocation of costs affects the valuation of finished goods and products in progress as well as cost of goods sold. Thus, we have considered valuation of finished goods and products in progress as a key audit matter. A presentation of the applied accounting principles on valuation of finished goods and products in progress is described in the section of accounting principles in note 2 of the annual report. The estimates and assumptions associated with the valuation of inventory of finished goods and products in progress is described in note 4.

How our audit addressed this key audit matter

In our audit, we have evaluated the company’s accounting procedures for determining the acquisition cost of finished goods and products in progress and evaluated whether applied accounting principles are in accordance with current regulations.

Further, we have also examined calculations, tested a sample for pricing of materials, components and processing costs as well as assessed the reasonableness of used prices and assumptions when distributing direct and indirect production costs. We have evaluated used calculations by comparing outputs to historical data as well as estimated forecasts of future production costs. We have tested a sample of direct and indirect costs allocated to inventory of finished goods and products in progress.

Finally, we have examined the information provided in the annual report.

VALUATION OF GOODWILL

Description

Goodwill amounts to 1 020 MSEK in the statement of financial position as of December 31, 2018. A presentation of the applied accounting principles on goodwill is described in the section of accounting principles in note 2 of the annual report. As described in note 2, the Company tests for impairment annually and when an indication of impairment of goodwill exists. The recoverable amounts are determined with a calculation of the value in use of each cash generating unit by calculating the present value of estimated future cash flows. Used forecasts of future cash flows are based on the forecast set for the following year, supplemented by an individual assessment of an additional four years.

How our audit addressed this key audit matter

In the audit for the financial year, we have evaluated the company’s process for conducting impairment tests. Based on established criteria, we have examined how the company identifies cash-generating units. We have evaluated the valuation methods and calculation models used. We have assessed the reasonableness of assumptions, conducted sensitivity analysis, and compared historical outcomes to evaluate the reliability of previous forecasts. The reasonableness of the discount rate and long-term growth used for each unit has been evaluated through comparisons with other companies in the same industry.

Finally, we have examined the information disclosed in the annual report.

Note 20 describes significant assumptions used in the calculation of the value in use and contains a sensitivity analysis for changed assumptions. As the value in use is dependent upon these assumptions, we have assessed valuation of goodwill as a key audit matter.

Mycronic | Annual and Sustainability Report 2018

AUDITOR’S REPORT

ACQUISITION IN USA

Description

In 2018, Mycronic acquired 100% of the shares of MRSI Systems LLC. In addition to the purchase price of 390 MSEK, a contingent consideration will be paid during the year 2020 with a maximum value of 20 MUSD dependent on the sales and net results of the acquired business. The contingent liability has been recorded at the fair value of MSEK 39. Thus, the total purchase price amounts to 429 MSEK.

In connection with the acquisition the company allocated values based on the purchase price to acquired assets and liabilities to the consolidated financial statements. The valuation of acquired assets and liabilities requires assumptions about the future financial performance as well as other related assumptions. The estimates and assumptions associated with acquisitions is presented in note 4 of the annual report. Any changes in assumptions can affect the estimated purchase price as well as the fair value of acquired assets and liabilities. Thus, we consider the acquisition a key audit matter. A detailed description of the acquisition as well as specification of the purchase price allocation is presented in note 23 of the annual report.

Other Information than the annual accounts and consolidated accounts

This document also contains other information than the annual accounts and consolidated accounts and is found on pages 1-39. The Board of Directors and the Managing Director are responsible for this other information.

Our opinion on the annual accounts and consolidated accounts does not cover this other information and we do not express any form of assurance conclusion regarding this other information.

In connection with our audit of the annual accounts and consolidated accounts, our responsibility is to read the information identified above and consider whether the information is materially inconsistent with the annual accounts and consolidated accounts. In this procedure we also take into account our knowledge otherwise obtained in the audit and assess whether the information otherwise appears to be materially misstated.

If we, based on the work performed concerning this information, conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors and the Managing Director are responsible for the preparation of the annual accounts and consolidated accounts and that they give a fair presentation in accordance with the Annual Accounts Act and, concerning the consolidated accounts, in accordance with IFRS as adopted by the EU. The Board of Directors and the Managing Director are also responsible for such internal control as they determine is necessary to enable the preparation of annual accounts and consolidated accounts that are free from material misstatement, whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, The Board of Directors and the Managing Director are responsible for the assessment of the company’s and the group’s ability to continue as a going concern. They disclose, as applicable, matters related to going concern and using the going concern basis of accounting. The going concern basis of accounting is however not applied if the Board of Directors and the Managing Director intends to liquidate the company, to cease operations, or has no realistic alternative but to do so.

The Audit Committee shall, without prejudice to the Board of Director’s responsibilities and tasks in general, among other things oversee the company’s financial reporting process.

Auditor’s responsibility

Our objectives are to obtain reasonable assurance about whether the annual accounts and consolidated accounts as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinions. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs and generally accepted auditing standards in Sweden will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

How our audit addressed this key audit matter

In our audit for the financial year, we have examined the acquisition agreement and the parameters on which the contingent consideration is based. We have in relation to this assessed the company’s assumptions regarding future earnings development and, hence, the size of the contingent consideration.

We have examined the balance sheet related to the acquired business that furthermore is used as the underlying information for the purchase price allocation related to the acquired business. Further, we have assessed the applied procedure to allocate the purchase price to the acquired assets and liabilities. We have engaged valuation specialists to assess the reasonableness of the applied valuation model and the assumptions made. We have also assessed the reasonableness of the assumptions made to determining the fair value of the contingent consideration.

Finally, we have examined the disclosures in the annual report concerning the acquisition.

Identify and assess the risks of material misstatement of the annual accounts and consolidated accounts, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinions. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of the company’s internal control relevant to our audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the Board of Directors and the Managing Director.
Conclude on the appropriateness of the Board of Directors’ and the Managing Director’s use of the going concern basis of accounting in preparing the annual accounts and consolidated accounts. We also draw a conclusion, based on the audit evidence obtained, as to whether any material uncertainty exists related to events or conditions that may cast significant doubt on the company’s and the group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the annual accounts and consolidated accounts or, if such disclosures are inadequate, to modify our opinion about the annual accounts and consolidated accounts. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause a company and a group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the annual accounts and consolidated accounts, including the disclosures, and whether the annual accounts and consolidated accounts represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or business activities within the group to express an opinion on the consolidated accounts. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the planned scope and timing of the audit. We must also inform of significant audit findings during our audit, including any significant deficiencies in internal control that we identified. We must also provide the Board of Directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we determine those matters that were of most significance in the audit of the annual accounts and consolidated accounts, including the most important assessed risks for material misstatement, and are therefore the key audit matters. We describe these matters in the auditor’s report unless law or regulation precludes disclosure about the matter.

Mycronic | Annual and Sustainability Report 2018

AUDITOR’S REPORT

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

Opinions

In addition to our audit of the annual accounts and consolidated accounts, we have also audited the administration of the Board of Directors and the Managing Director of Mycronic AB AB (publ) for the year 2018 and the proposed appropriations of the company’s profit or loss.

We recommend to the general meeting of shareholders that the profit be appropriated in accordance with the proposal in the statutory administration report and that the members of the Board of Directors and the Managing Director be discharged from liability for the financial year.

Basis for opinions

We conducted the audit in accordance with generally accepted auditing standards in Sweden. Our responsibilities under those standards are further described in the Auditor’s Responsibilities section. We are independent of the parent company and the group in accordance with professional ethics for accountants in Sweden and have otherwise fulfilled our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Managing Director

The Board of Directors is responsible for the proposal for appropriations of the company’s profit or loss. At the proposal of a dividend, this includes an assessment of whether the dividend is justifiable considering the requirements which the company’s and the group’s type of operations, size and risks place on the size of the parent company’s and the group’s equity, consolidation requirements, liquidity and position in general.

The Board of Directors is responsible for the company’s organization and the administration of the company’s affairs. This includes among other things continuous assessment of the company’s and the group’s financial situation and ensuring that the company’s organization is designed so that the accounting, management of assets and the company’s financial affairs otherwise are controlled in a reassuring manner. The Managing Director shall manage the ongoing administration according to the Board of Directors’ guidelines and instructions and among other matters take measures that are necessary to fulfill the company’s accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor’s responsibility

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with generally accepted auditing standards in Sweden will always detect actions or omissions that can give rise to liability to the company, or that the proposed appropriations of the company’s profit or loss are not in accordance with the Companies Act.

As part of an audit in accordance with generally accepted auditing standards in Sweden, we exercise professional judgment and maintain professional skepticism throughout the audit. The examination of the administration and the proposed appropriations of the company’s profit or loss is based primarily on the audit of the accounts. Additional audit procedures performed are based on our professional judgment with starting point in risk and materiality. This means that we focus the examination on such actions, areas and relationships that are material for the operations and where deviations and violations would have particular importance for the company’s situation. We examine and test decisions undertaken, support for decisions, actions taken and other circumstances that are relevant to our opinion concerning discharge from liability. As a basis for our opinion on the Board of Directors’ proposed appropriations of the company’s profit or loss we examined the Board of Directors’ reasoned statement and a selection of supporting evidence in order to be able to assess whether the proposal is in accordance with the Companies Act.

The auditor’s examination of the corporate governance statement

The Board of Directors is responsible for that the corporate governance statement on pages 46–53 has been prepared in accordance with the Annual Accounts Act.

Our examination of the corporate governance statement is conducted in accordance with FAR´s auditing standard RevU 16 The auditor´s examination of the corporate governance statement. This means that our examination of the corporate governance statement is different and substantially less in scope than an audit conducted in accordance with International Standards on Auditing and generally accepted auditing standards in Sweden. We believe that the examination has provided us with sufficient basis for our opinions.

A corporate governance statement has been prepared. Disclosures in accordance with chapter 6 section 6 the second paragraph points 2–6 of the Annual Accounts Act and chapter 7 section 31 the second paragraph the same law are consistent with the other parts of the annual accounts and consolidated accounts and are in accordance with the Annual Accounts Act.

Ernst & Young AB, Jakobsbergsgatan 24, 111 44 Stockholm, was appointed auditor of Mycronic AB (publ) by the general meeting of the shareholders on the May 8, 2018 and has been the company’s auditor since the May 6, 2013.

Our objective concerning the audit of the administration, and thereby our opinion about discharge from liability, is to obtain audit evidence to assess with a reasonable degree of assurance whether any member of the Board of Directors or the Managing Director in any material respect:

has undertaken any action or been guilty of any omission which can give rise to liability to the company, or
in any other way has acted in contravention of the Companies Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of the company’s profit or loss, and thereby our opinion about this, is to assess with reasonable degree of assurance whether the proposal is in accordance with the Companies Act.

Stockholm 20 March 2018 Ernst & Young AB

Erik Sandström Authorized Public Accountant

Mycronic | Annual and Sustainability Report 2018

DEFINITIONS

Definitions

Acquisition-related costs

Acquisition-related costs include expensing of acquired inventories at fair value, amortization of acquired intangible assets, revaluation of earn-outs and transaction costs.

Book-to-bill

Order intake in relation to net sales. Used to show future expected net sales development.

Gross margin

Gross profit as a percentage of net sales. Used to show profitability from sales of goods and services.

Gross profit

Net sales less costs for goods sold. Used to show profitability from sales of goods and services.

Net debt/net cash

Capital employed

Total assets reduced by non-interest bearing liabilities. Used to show the ability to meet capital needs from operations.

Interest-bearing liabilities less cash and cash equivalents. Used to show ability to repay all debts at expiry date.

Order backlog

Capital turnover rate

Net sales divided by average capital employed. Used to show how much capital operations use.

Remaining orders for goods, valued at balance exchange rate. Used to show secured future net sales of goods.

Order intake

Cash flow from financing activities

Payments of dividends, increase and amortization of loans.

Cash flow from investing activities

Net capital investments in subsidiaries and other business combinations, building, machinery and equipment, capitalized development and financial non-current assets.

Cash flow from operating activities

Profit after financial items adjusted for non-cash items, income tax paid and changes in working capital.

Earnings per share

Earnings for the year divided by the number of shares at the end of the period. Used to set the value of the company earnings per share.

Orders received for goods and services, valued at average exchange rates. The order intake also includes revaluation of the order backlog at closing exchange rate. Used to show orders received.

Organic growth

Change in net sales or order intake excluding increases attributable to acquisitions, recalculated to the preceding year’s exchange rates, as a percentage of the preceding year’s net sales or order intake. Net sales and order intake from acquired companies are included in calculating organic growth from the first turn of the month occurring 12 months after acquisition.

P/E ratio per share

Share price at December 31 divided by earnings per share.

R&D costs

EBIT

Profit from operations, before financial items and tax.

EBIT margin

Operating profit as a percentage of net sales. Used to show profitability from operations.

EBITDA

Operating results, EBIT, before depreciation/amortization. EBITDA is a component in the company’s financial goals and dividend policy.

Equity per share

Equity at balance day divided by the number of shares at the end of the year. Used to set the value of the company per share.

Equity/assets ratio

Equity as a percentage of total assets. Used to show how much of assets are financed by equity.

Costs attributable to R&D activities including costs of personnel engaged in R&D. Reduced by capitalized development costs.

Return on capital employed

Profit before financial expenses as a percentage of average capital employed. Used to show return on capital needed by operations.

Return on equity

Net profit as a percentage of average equity. Used to show return on shareholders capital over time.

Underlying EBIT and underlying EBIT margin

Underlying EBIT consists of operating profit excluding acquisition-related costs. The underlying EBIT margin is underlying EBIT as a percentage of net sales. Used to describe how operations are developing and performance excluding acquisition-related costs.

Working capital

Current assets less current liabilities. Used to show short-term capital needs for operations.

Mycronic | Annual and Sustainability Report 2018

GLOSSARY

Glossary

ADAS

Advanced Driver Assistance System. Systems to support the driver of a vehicle.

Lithography

A technique to transfer a pattern from a template to a solid material.

Mask writer

AMOLED

Active-Matrix Organic Light-Emitting Diode. In an AMOLED display, each pixel is its own light source. This enables the production of thinner, more energy-efficient displays.

Exposure equipment used for the manufacture of photomasks.

Multi-purpose market

A broad market segment for many different application areas. Examples include electronic packaging and touch screen applications.

AR/VR

Augmented Reality/Virtual Reality. Augmented Reality (AR) is a live view of a physical, realistic environment where elements have been enhanced using computer-generated sensory impressions, such as sound, video, graphics or GPS data. The technology can be used to increase understanding of the current reality in contrast to Virtual Reality (VR) that replaces the real world with a simulated world.

Assembly fluids

In electronics manufacturing many different types of fluids are used in the assembly process. A few examples are adhesives and conductive adhesives.

Nanometer, nm

One billionth of a meter, or one millionth of a millimeter.

OLED

Organic Light Emitting Diode. OLED works in the same manner as conventional light emitting diodes, but instead of semiconductors, thin organic films are used to produce strong and vivid colors with a very high level of contrast. OLED displays use this technology as their light source, which offers several advantages in image quality compared with LCD. OLED technology also enables flexible displays.

Photomask

Circuit board

A curcuit board is a board of insulated material containing a pattern of electrical conductors. See also Printed circuit board (PCB).

Die Bonding

Die Bonding is a process where Die, which is a small block of semiconducting material on which a specified functional circuit is manufactured, is bonded either to its packaging or to a substrate, which enables communication with the external environment.

Dispensing

Dispensing is used in the manufacturing of electronics to apply adhesives, solder paste or other mounting fluids onto circuit boards.

Electronic packaging

The manufacturing step that packages a semiconductor chip so that it is protected and can be connected to other electronics components in electronic products.

Fine metal mask

The photomask used for the deposition process of organic material used when manufacturing OLED displays

Internet of Things

A collective term for when machines, vehicles, goods, household appliances, clothing and other items are equipped with built-in sensors. Units can communicate and in this way behavior adapted to the situation is created.

A photomask can be compared to a photo negative. A pattern is written with a Mycronic mask writer and transferred to the end product by a lithographic process. The photomask consists of a transparent substrate of glass or quartz that is covered with a thin layer of chrome and a layer of photoresist. Photoresist is a light-sensitive material that can be developed and then washed away after exposure to light. After writing, the photoresist is developed and the pattern is transferred to the chrome layer by etching.

Pick and Place

A term for robots that pick and place electronic components on a circuit board.

Pixel

Earlier called “dot” and “pel” (short for picture element), the smallest element in a raster graphic. Uses include showing images on displays.

Printed circuit board (PCB)

Circuit boards are PCBs with mounted electrical components. A circuit board can have surface or through-hole mounting or a combination. The components can be mounted on one side or both.

Semiconductors

An electronic component containing more than one circuit element. Examples include memories, processors and amplifiers.

Solder paste

Material that creates electrical and mechanical connection between the PCB and its electronic components.

Jet printing

A technology for non-contact application of solder paste on circuit boards.

Surface mounting

The dominant technology within electronics production where components are mounted onto the surface of a circuit board.

LCD

LCD (Liquid Crystal Display) is a technology for the manufacturing of displays. LCD is based on liquid crystal material, an electrically active fluid. There are two main LCD technologies: active (TFT-LCD) and passive (PM-LCD or TN/STN LCD).

TFT-LCD

TFT-LCD, an active LCD display, providing better image quality and faster response than a passive. It is the standard technology in computers and LCD-TVs. The active LCD displays have at least one Thin Film Transistor (TFT) in each pixel.

LiDaR

Light Detection and Ranging. LiDaR is an optical measuring instrument that measures characteristics of reflected light to identify distance and/or other characteristics of a distant object. Everyday applications for optical telemeters include use in the construction industry and in speed monitoring.

Mycronic | Annual and Sustainability Report 2018

SHAREHOLDER INFORMATION

Shareholder information

FINANCIAL REPORTING FINANCIAL YEAR 2019

Interim report January–March, April 25, 2019 Interim report January–June, July 17, 2019 Interim report January–September, October 24, 2019 Year-end report 2019, February 6, 2020

ANNUAL GENERAL MEETING 2019

The AGM will be held on Thursday, May 9, 2019 at 5:00 p.m. at Industrisalen in Näringlivets Hus, Storgatan 19 in Stockholm. Light refreshments will be offered from 4:00 p.m. prior to the AGM.

Right to participate in the AGM

FINANCIAL INFORMATION

The 2018 annual report will be published on the website and through a press release on April 8, 2019 at the latest.

Financial reports and press releases are available on the website. Through a subscription service on the investor pages of the website, it is possible to register to obtain reports and press releases.

DISTRIBUTION OF THE ANNUAL AND SUSTAINABILITY REPORT 2018

A printed annual report is distributed to those who request it. The annual report is also available on Mycronic’s website, www.mycronic.com.

Shareholders who wish to participate in the AGM must be registered in the share register held by Euroclear Sweden AB as of May 3, and advise the company of their intention to participate at the AGM no later than May 3, 2019, at 12:00 noon.

Registration

Registration can take place on the website, www.mycronic.com or by telephone +46 8 518 01 551. The registration should include name, address, telephone number, personal or corporate identification number and registered shareholding.

Power of attorney, when needed, should be sent by email in connection with the registration to [email protected] or by mail to the following address: Computershare AB, “Mycronics årsstämma”, Box 630, SE-182 16 Danderyd, Sweden.

Re-registration of nominee shares

To be entitled to participate in the AGM, shareholders whose shares are held in the name of a nominee must request temporary shareholder registration in the share register. This request is made to the bank or fund manager who manages the shares in custody.

Shareholders must advise their manager well in advance of May 3, 2019 so the registration can be finalized in time.

Production: Mycronic and Springtime-Intellecta

Photo: Mycronic, Alamy Stock Photo (Kevin Galvin, Oleksiy Maksymenko Photography), Björn Dahlgren, Cecilie Arcurs, Getty Images/aaaaimages, Istockphoto, Jesper Holmgren, Johnér (Hans Bjurling, Mikael Svensson), Magnus Elgqvist, Shutterstock (Oleksiy Mark, Serpetko, Olena Yakobchuk) Illustrations: Dan Larsson

==> picture [125 x 51] intentionally omitted <==

Print: TMG Sthlm Translation: The Bugli Company AB

Mycronic | Annual and Sustainability Report 2018

SWEDEN

Mycronic AB PO Box 3141 Nytorpsvägen 9 SE-183 03 Täby Sweden www.mycronic.com

FRANCE

Mycronic S.A.S. 1 rue de Traversière - CS 80045 94513 Rungis Cedex 1 France

Vi TECHNOLOGY Rue de Rochepleine 38120 Saint Egrève France

JAPAN

Mycronic Technologies Corporation Chofu Center Bldg. 1-18-1 Chofugaoka, Chofu-shi Tokyo 182-0021 Japan

NETHERLANDS

Mycronic B.V. High Tech Campus 10 5656 AE Eindhoven Netherlands

SINGAPORE

Mycronic Pte Ltd. 9 Tagore Lane, #02-08/09 9@Tagore Singapore 787472

UNITED KINGDOM

Mycronic Ltd. Unit 2, Concept Park Innovation Close Poole, Dorset, BH12 4QT United Kingdom

SOUTH KOREA

Mycronic Co. Ltd. 3rd floor Jung-San Bldg. 1026-8 Sanbon-Dong, Gunpo-Si, Gyounggi-Do, 15808 South Korea

GERMANY

Mycronic Fukuoka 4F, Chofu Hakata Business Center 9-20, Tsunabamachi, Hakata-ku Fukuoka-city Fukuoka, 812-0024 Japan

CHINA

Mycronic Co. Ltd. Unit 106, E Block Lane 168, Da Duhe Road. Putuo District, 200062 Shanghai China

Shenzhen Axxon Automation Co., Ltd A14 Building, Silicon Valley Power Automotive Innovation Park Guanlan Guiyue Road No 334 Long Hua district, Shenzhen, 518110 China

Mycronic GmbH Biberger Straße 93 D-82008 Unterhaching bei München Germany

RoyoTech Digitalelektronik GmbH Wächterhofstraße 50 D-85635 Höhenkirchen Germany

USA

Mycronic Inc. 320 Newburyport Turnpike Rowley, MA 01969 USA

Automation Engineering, Inc. 299 Ballardvale Street, Suite 3 Wilmington, MA 01887 USA

MRSI Systems 101 Billerica Ave #3 North Billerica, MA 01862 USA

AI assistant

Mycronic — Annual Report 2018

2946_10-k_2020-07-23_e0d3a0b0-d9ef-4efd-869f-f18aa6147268.pdf

Mycronic in brief

Content

Overview and strategy

Operations

Annual and consolidated accounts

Financial reports

WHO WE ARE

WHAT WE DO

OUR DIRECTION

Other

Order intake

Net sales

EBIT

A Swedish innovative company with global operations

Record figures made possible by long-term business development

A stronger company

Positioned for constant development

Mycronic has had the courage to be one step ahead and continues to create unique customer solutions

Solid basis for next step

How we are addressing conditions in the market

Substantial and robust market

Mycronic’s perspective

Continual development in the electronics industry

Mycronic’s perspective

Digitalization creates new business opportunities

Shorter production cycles increase demands

Mycronic’s perspective

Mycronic’s perspective

Our strategy stands firm

VISION

VALUES

MISSION

Mycronic’s long-term financial goals

Long-term value creation

Our stakeholders and their expectations

Operations and business model

Customers

Employees

Shareholders

Suppliers and partners

Society as a whole

Offering

Aftermarket

Innovation on several levels

Global development work

Our reputation attracts innovative capacity

Software solutions for the future

High-tech and comprehensive offering

Assembly automation

Dispensing

Inspection

Multi-purpose

Advanced mask writers

Aftermarket

Assembly Solutions

Outcome 2018

Assembly Solutions in figures

Complete solutions that enable the electronics of tomorrow

Substantial and robust market

Sustained consumer trends influence market developments

Changing circumstances

for electronics manufacturers

Sought-after systems for a wide range of applications

Four divisions create a comprehensive offering

Surface mount technology

The market

Smart production planning

Our offering

Intelligent material management

Quality assurance

Inspection

The market

Our offering

Dispensing

Our offering

The market

Assembly automation

Mycronic Annual Report 2018