Annual Report

INTRODUCTION

This is NOTE	2
CEO's statement	4

OPERATIONS

Vision, business concept, strategy and targets	6
Business model	8
Value-creating partnerships with customers	10
Market and competitors	11
Risk management	13
Sustainability	15
UN Global Compact	16
Human resources	18

THE NOTE SHARE

Share data and shareholders	20

FORMAL ANNUAL ACCOUNTS

Report of the Directors	23
Five-year summary	28
Consolidated Financial Statements	30
Notes on the Consolidated Financial Statements	34
Parent Company Financial Statements	46
Notes on the Parent Company's Financial Statements	50
Corporate Governance Report	54
Auditor's report	64

Addresses	68

Shareholders' information

Annual General Meeting

The AGM (Annual General Meeting) will be held at 2:00 p.m. on Thursday, 20 April at Spårvagnshallarna, Birger Jarlsgatan 57 A, Stockholm, Sweden. Information on the notification procedure for the Meeting will be uploaded to the website, www.note.eu, jointly with the invitation to the Meeting by no later than four weeks prior to the Meeting.

Notification

Shareholders intending to participate in the AGM must be recorded in the share register maintained by Euroclear Sweden AB by 12 April, and notify NOTE of their intention to participate by no later than 12 April.

Business

Information on the agenda of the AGM is published in the Swedish Official Gazette and will be available on NOTE's website. Documentation is also available from NOTE coincident with notification of intention to participate at the Meeting.

Dividend

The Board of Directors is proposing that dividend of SEK 0.70 (0.70) per share is paid to shareholders for the financial year 2016.

Nomination Committee

The Nomination Committee has the following members:

Kjell-Åke Andersson Personal holdings and held by family

Johan Hagberg Personal holdings

Fredrik Hagberg Personal holdings and company

Jonas Hagströmer Creades AB

Financial information

Calendar

Interim Report, Jan–Mar 20 Apr 2017 Interim Report, Jan–Jun 17 Jul 2017 Interim Report, Jan–Sep 17 Oct 2017

Investor relations contacts

Henrik Nygren Chief Financial Officer +46 (0)70-977 06 86 E-mail: [email protected]

Ordering financial information

Financial and other relevant information can be ordered from NOTE. Out of consideration for the environment, a subscription service is readily available from NOTE's website. Website: www.note.eu E-mail: [email protected] Tel: +46 (0)8 568 99000 Address: NOTE AB (publ), Box 1285, 164 29 Kista, Sweden

This is NOTE

NOTE is one of the leading manufacturing and logistics partners for electronics-based products in northern Europe. NOTE produces advanced electronics, on assignment for customers that set high standards.

NOTE produces PCBAs, subassemblies and box build products, often embedded in complex control, monitoring and security systems. NOTE's customers are mainly in the industrial, communication, medtech, defence and high end consumer sectors.

Its customer base includes global corporations active on the world market, and local enterprises whose primary sales are in northern Europe. NOTE's business model is based on offering customers

advanced consulting services, as well as effective and pioneering manufacturing and logistics solutions for the optimal overall cost. NOTE's customer offering covers complete product lifecycles, from design to after-sales.

In Western Europe, NOTE operates manufacturing units located in geographical regions with high industrial activity and innovation standards. These units provide advanced production technology services in close collaboration with customers, such as component selection, developing test equipment, prototyping and serial production.

NOTE's units in Estonia and China are located close to large final markets and in regions with strong production traditions and high competence levels. In addition to development-oriented services, these units also offer cost-efficient volume manufacture of PCBAs and box build products.

Key facts

31 December 2016: 863.
Manufacturing units in Sweden, Finland, the UK, Estonia and China.
Share: NOTE's initial public offering was in 2004. The share is quoted on Nasdaq Stockholm (Small Cap/ Industrial Goods & Services). At year-end 2016, the share price was SEK 17.00. Market capitalisation was SEK 491 m, divided between 28,872,600 shares.

History: Founded in 1999.
Employee headcount on 31 December 2016: 863.
Manufacturing units in Sweden, Finland, the UK, Estonia and China.
Share: NOTE's initial public offering was in 2004. The share is quoted on Nasdaq Stockholm (Small Cap/ Industrial Goods & Services). At year-end 2016, the share price was SEK 17.00. Market capitalisation was SEK 491 m, divided between 28,872,600 shares.
Overview of 2016, SEK million	2016	2015	Delta
Sales	1,098.1	1,121.5	–23.4
Operating profit	60.2	45.2	15.0
Operating margin	5.5	4.0	1.5
Profit after financial items	54.5	39.8	14.7
Profit after tax	45.2	34.6	10.6
Cash flow after investments	40.9	5.2	35.7

Operating profit 2016

Cash flow after investments 2016

SEK 40.9^M

CEO's statement

I can look back at my first year as CEO with great satisfaction. It's been a privilege to join such an exciting and strong company with competent people and interesting customers worldwide. I've been able to see our operations with new eyes, and I'm convinced that our courage to dare question things, to good things differently and even better, are the reasons that we're in such a strong position today and well prepared for our future.

Growth focused on profitability

Sales were up 1 percent last year, adjusted for the divestment of our Norwegian operation. Going forward, we added extra impetus in sales to increase our rate of expansion going forward, through channels including a centralised new business sales function in Sweden. In the year, we secured a large number of new customer partnerships. In addition, we implemented a CRM system, which will assure quality and support our sales team in their vital efforts.

The modest sales gains of the previous year were a consequence of our strategy of growth with profitability. One result of this strategy is having the courage to accept or reject–as part of focusing on our core markets, we closed down our Norwegian operation in the year. We are now considering the potential to keep progressing in Europe and other markets offering good potential.

Smaller cost base

In 2016, operating profit grew by 33 percent and our operating margin expanded by 1.5 percentage points, a result of higher service sales and laborious efforts on our cost side, which will continue. Effective cost structure is critical to profitability in our sector, and here, sourcing is a vital component. To strengthen our sourcing function, I decided that our VP of Sourcing should be a member of group management. Additionally, we

started a more structured exchange of best practice and consistent monitoring between units. In this way, we will ensure that best processes and working methods are applied group wide. We also secured a lower cost base through a review of our employee headcount.

Quality and sustainability

Quality is the foundation that we build our business on. NOTE has been making significant investments in its machinery, processes and people for many years. We are a business partner that helps our customers on sophisticated electronics production and logistics solutions, where quality is critical. Quality thinking is part of our DNA, which is deep-rooted in our organisation–from microlab through the production of advanced satellite communication systems, to how we relate to each other. Our stringent quality standards justify the trust our customers show us, and get them to come back to us year after year. Long-term customer relationships are the key to sustainable profitability.

Like quality, sustainability is a precondition for building success in the longer term. NOTE has been a member of the Global Compact, started on a UN initiative, since 2011. In 2016, we continued to secure our production chain from an ethical perspective, through means including a higher share of sourcing from strategic contracted suppliers, which we have better insight and potential to

influence than other suppliers. We also conducted external and internal audits to ensure compliance with our policies, and obviously, we're endeavouring to reduce our environmental impact further. One important component of sustainability work is to influence our stakeholders to join the Global Compact, as we have. We will continue this work next year.

More expansion in Europe and China

Our customer relationships, lasting many years, and focus on the efficient management of working capital, have laid the foundation of our strong Balance Sheet. This is important for several reasons. Firstly, our customers want a financially secure partner when they outsource all or parts of manufacturing to us. Secondly, we want to play an active role in sector consolidation in Europe, where Sweden is an important market. Swedish growth is good, and there is a stable base of wellmanaged industrial corporations that we can secure profitable partnerships with.

We will continue to investigate new approaches and solutions, and create successful collaborations to offer our customers superior financials, while simultaneously growing our business. We are also searching keenly for how we can take our next step in China. Its domestic market is huge, and we are well placed for continued expansion there.

We are always on the look-out for improvements, and have to change faster than our surroundings.

Close customer dialogue

Our customers operate in a wide variety of exciting sectors such as medtech, industrial and defence. We are also expanding in segments like start-ups and the Internet of Things, the latter being the collective term for products not previously associated with high electronics content, but with the aid of technology, offer us new potential, such as the remote control of buildings and homes. In 2017, we will also endeavour to increase the share of service sales, and thus leverage our competence further to expand our margins.

We have a broad customer base, with over 200 active accounts in different segments and geographical regions. This not only brings us the courage to move into new sectors, but also reduces our exposure to unpleasant surprises and cyclicality, even if they are difficult to eliminate completely. Being fast-moving and maintaining a close dialogue with our customers limits this risk. Flexibility is part of our core business, and inventory and logistics are other components. In the year, we worked on optimising the inventory management and logistics of every unit, which helped improve cash flow by SEK 35.7 m year on year.

More value for customers and shareholders

Despite me taking a positive view of the future at the time of writing, there are clouds on the horizon that are creating

uncertainty. We have large customers in the UK and US, where clearly, political uncertainty has increased, which risks impacting our market. Meanwhile, we are retaining our successful strategy. I'm confident of us creating value for our customers and shareholders as we move forward in partnership with all our competent and hard-working people.

Stefan Hedelius CEO and President

Vision, business concept, strategy and targets

Digitalisation and the need to be constantly connected is growing, as is the usage of electronics in products that used to be mechanical. NOTE is playing an active role in this process. Its goal is to be the best collaboration partner in the sector, with leading-edge delivery precision and quality for a competitive total cost.

Vision

NOTE–the customer's obvious manufacturing and logistics partner.

Business concept

NOTE is a leading northern European manufacturing and logistics partner with an international platform for manufacturing electronics-based products that require high technology competence and flexibility through product lifecycles.

Business targets and strategy

NOTE will be the best collaboration partner in the industry with leading-edge delivery precision and quality for a competitive overall cost.

To make the market's most competitive offering, NOTE should actively contribute to safeguarding customers' value chains and sharpening their competitiveness through commitment, professionalism, a quality focus, flexibility and active value creation.

Profitable growth will be achieved by:

Expanding NOTE's customer base with new accounts in the industrial, communication, medtech, defence and high end consumer sectors.
Expanding business with existing customers, while simultaneously evolving its service portfolio for current customers.
Sharpening competitiveness through industry-leading quality and delivery precision, further improvements to NOTE's sourcing and logistics operation, optimising capacity utilisation and enhancing internal processes.
Executing carefully selected production take-overs and acquisitions.

Financial targets

Growth target

NOTE will increase its market shares organically and through acquisitions.

Profitability target

NOTE will grow with profitability. Its target is for a minimum return on operating capital of 20 percent. For the long term and over a business cycle, profitability will also exceed the average of other mid-sized international and comparable competitors.

Capital structure target The minimum equity ratio should be 30 percent.

Dividend target

NOTE's dividend should be adapted to average profit levels over a business cycle, and for the long term, be 30–50 percent of profit after tax. Dividends should also be available for modifying its capital structure.

Values

Committed

"We make it work." We are solution oriented and create a stimulating working environment, internally and for our customers.

Professional

We strive to do business in a way that is proactive, transparent and fair.

Quality focused

"Get it right from the start." There's a quality focus in everything we do.

Flexible

We are always looking for the most cost-efficient way to satisfy customer demand, adjusting setups as required.

Value creating

We take a long-term view of what we do, and financial stability is important to us. We're proud of being able to create value by safeguarding our customers' value chains.

Business model

PRODUCTION AFTER-SALES G R O W T H M A ^T ^U ^R ^I T Y ^D ^E ^C ^L ^I ^N ^E DEVELOPMENT NOTE manufactures electronics and box build products on assignment from customers–everything from sophisticated mammography equipment and satellite communication systems to smart electricity meters. Focusing on quality, NOTE manufactures products that have to cope in demanding environmental conditions such as extreme cold, heat, humidity, desert and tropical rainstorms.

I ^N ^T ^R ^O ^D ^U ^C ^T ^I ^O ^N A partner with a strong overall offering

NPI* NOTE manufactures PCBAs and box build electronic products. NOTE delivers flexible solutions right through product lifecycles–from design to after-sales.

Its customer offering especially addresses the high mix/low to medium volume segment, i.e. products in small to mid-sized batches. This sets high standards of technological competence and flexibility of manufacture, because products in this segment often have to be adapted to satisfy specific customer needs over time. Often, these items are embedded in customers' OEM products, such as control systems, sophisticated

communication equipment and various types of metrology instrument.

SERIAL PRODUCTION PRODUCT MAINTENANCE /SPARE PARTS DESIGN PROTOTYPES After making several investments in sophisticated manufacturing capacity, in recent years, NOTE has also successfully executed high-volume electronics production, primarily in its Chinese operation.

VALUE CHAIN PRODUCT LIFECYCLE NOTE specialises in electronics and box build products. For additional customer needs, NOTE has a well-established partnering model, which assures competence in segments like mechanics, plastics, cables and displays. Because cost of materials is often the largest cost component of a finished product, NOTE offers competitive pricing of electronic components and other production materials. NOTE ensures this

^T ^E ^R ^M ^I ^N ^A ^T ^I ^O ^N by applying a structured, quality-assured sourcing process and highly functional interaction between its central and local sourcing functions.

& SERVICE NOTE's customers are mainly in the industrial, communication, medtech, defence and high end consumer sectors.

Getting things right from the start creates value-added

A close, early-phase dialogue with customers brings NOTE complete understanding of the product and its lifecycle. In combination with highly developed sourcing competence, this offers great potential to manage production and the supply chain so that overall cost is

* New Product Introduction, NOTE adopts a highly developed business process for customers about to launch a new product on the market. NOTE increases customer profitability by actively contributing experience and know-how in selecting materials, sourcing, testing, production, quality and logistics.

favourable. In this way, NOTE creates value-added for its customers by avoiding many costly mistakes and re-thinks.

The geographical closeness NOTE offers customers is really important when projects require continuous contact and the extensive exchange of knowledge between the parties. NOTE provides competence in materials selection, improved producibility and the creation of testing routines and efficient testing methodologies in close interaction with its customers. The intention is to create the best products imaginable, optimised for serial production, as early as at the design phase. Prototyping and pilot series are part of this, to determine final product design. NOTE helps cut time to market, which reduces capital tied-up and offers competitive edges for the customer.

Over and above industrialisation services, NOTE also offers serial production, sophisticated logistics solutions and after-sales services. Customer needs determine the location of serial production. Needs may vary based on market conditions, cost structure, the type of product, its lifecycle phase, volume, geographical final market and currency risks.

Quality policy and working methods

NOTE creates competitiveness for its customers by delivering the right quality at the right time for a favourable overall cost. NOTE's services are in continuous evolution and improvement, with the aim of meeting customers' current standards and expectations. NOTE maintains a very sharp focus on quality and delivery precision, and in recent years, has achieved sector leadership in these segments.

ISO 9000 is a family of international standards that are the foundation of NOTE's quality work. All its manufacturing units hold ISO 9001 certification. Most of NOTE's manufacturing units also hold the ISO 13485 medtech standard.

While ISO-certified management systems are the foundation of quality work, NOTE's focus, attitude, consistent follow-up and methodical work are what produces the really great results. NOTE has been working very systematically on these issues for many years, and the pay-off has been rapid–the number of customer complaints has steadily reduced by some 25 percent every year of the last four years. NOTE is very proud of this rate of improvement, which it views as sector leading.

Value-creating partnerships with customers

NOTE is a flexible company that wants to create value through cost-efficient solutions for technologically sophisticated products in partnership with its customers. Meet Aifloo, Hövding and Microdata–just three of NOTE's 200-plus customers.

Aifloo creates security for seniors and people suffering from illnesses NOTE Norrtälje had the privilege of being there from the development start-up of

Swedish product Aifloo, an automated system to enable independence and safety for seniors and people suffering from illnesses.

NOTE has been contributing the development of testing and production since 2015, and now manufactures the complete system, consisting of a wristband and a device in each room that detects movements or falls etc. This sophisticated system learns the user's movement patterns and habits, and triggers alarms if things don't seem right. To date, all production has been at Norrtälje, Sweden, but is scalable and can be transferred elsewhere in the world if required.

"We were looking for a local provider with a complete a portfolio of services. With NOTE, we had the necessary closeness to our R&D team in Sweden, and production close to our first market," explains Felix Etzler, one of Aifloo's co-founders.

Hövding–the world's first airbag for cyclists

Hövding is the result of intensive research that began in 2005. Sophisticated sensors enable Hövding to track the cyclist's movement patterns and react if an accident is about to occur. The airbag then inflates, keeps the cyclist's neck in position, while providing the best shock absorption in the world.

NOTE Lund, which is close to Hövding's head office, has been assisting on the production of PCBAs and electronics for Hövding 2.0 since 2012. The partnership includes technical services such as lifecycle analysis, prototyping, followed by serial production by NOTE Estonia. Production was transferred to NOTE China in 2016, due to Hövding's final assembly being transferred to Asia.

"NOTE's services offering covers the product lifecycle end to end, which is valuable to us," says Marie Hult-Johansson, Hövding's Strategic Purchaser, adding "when we started, we needed a reliable and competent production partner close to our team in Malmö, and continuing our partnership with NOTE since has been a natural step."

Microdata Telecom–a world leader in RF filter technology

Microdata Telecom is a Swedish company that develops manufactures (via partners) and sells compact RF filter products such as TMAs (tower mounted amplifiers). Its core customers are mobile operators and OEMs* worldwide. The company was founded in 1981 and has been a NOTE customer since 2008.

Work involves the manufacture and testing of products, as well as developing new products, plus logistics. The partnership commenced through the Norrtälje unit, and transferred to NOTE's Chinese unit in 2010.

"Our business relationship with NOTE is a full-fledged partnership. We can always rely on their flexibility and get help quickly when we need it," comments Peter Sandberg, Microdata's Chief Operating Officer, continuing, "they also satisfy our challenging quality and cost-consciousness standards."

*OEM, original equipment manufacturer, manufactures products that can consist of components produced in-house or sourced externally.

Market and competitors

NOTE is active on the market for outsourced electronics manufacturing, which is under fundamental transformation due to the increasing usage of electronics in society.

Background

Europe is unique in the global market for manufacturing services. Compared to the rest of the world, there is no other continent that has as many high-cost countries close to those with significantly lower cost levels. This has influenced the structure and evolution of the European market.

Most market participants in Europe are domestic, smaller enterprises with long histories, often associated with one or a few customers. The global players that have started up in Europe primarily locate their operations in Eastern European countries.

Generally, the value players located in Western Europe add for their customers could be regarded as more specialised services, while the value from those located in Eastern Europe is primarily driven by cost considerations.

The market for outsourced electronics production has emerged and evolved as a consequence of customers' increasing focus on core business, more electronics content in various types of product, the growing demand for manufactured products and a way to cut costs and capital tied-up.

The market in 2016

Conditions were fairly stable on several of NOTE's European markets in the year. Demand progressed positively in Sweden and Estonia. Sales growth in China was very positive in the first half-year–although activity was slower on several major accounts after the summer. The progress in Finland was similar.

A number of structural deals were also made on the northern European market in the year.

Basically, these involve established local and regional players trying to grow.

Market trends, customer needs and future prospects

The market has undergone major transformation in recent years, the primary drivers being price pressure on components, more outsourcing, the relocation of production

to low-cost countries, demands for shorter lead-times from idea to finished product, and robust economic progress in growth regions with the resulting emergence of new end-user markets.

Going forward, it's likely that important factors will remain the search for costefficient production, rationalisation, as well as continued production migration from West to East. But market demand for manufacturing services is also expected to increase. More sophisticated technology

will enable the lead-times from idea to finished product to reduce, and sophisticated logistics solutions will be a central component of service portfolios, to provide the flexibility that customers need.

NOTE also expects that decisions to outsource to low-cost countries to secure significant reductions in per unit prices will keep getting more nuanced and increasingly adopt the overall cost perspective. Key parameters to consider are transport costs, exchange rates, manual labour input and product owner needs for flexibility and short lead-times.

Several sector commentators are forecasting fairly limited growth of two percentage points during the coming years on the European market for outsourced electronics production.

Somewhat higher growth is expected in the Western European industrial and communication industries–the segments that NOTE is primarily exposed to. In the medtech and defence sectors, where NOTE has increased its focus, growth is expected to be higher than the market generally.

Customer structure and regional allocation

Globalisation and intensifying competition are sharpening the focus on core business. The demand for shorter leadtimes and greater flexibility is a trend that looks like sustaining. This sets challenging standards on supply chains, to manage the costs and capital tied-up implicit in a higher level of service.

Demands for effective administration and greater globalisation mean that at present, purchasing organisations are

dealing with expanding product ranges, without resources necessarily increasing correspondingly. This implies greater complexity, and accordingly, businesses require a strong and competent partner in product development, supply chain, industrialisation, box build products and after-sales services, for example.

Competitors

A few of NOTE's competitors active on the Nordic market are Enics, Kitron, Orbit One and Scanfil. There is also a range of regional and local players, often niche oriented, who address one or several of NOTE's markets.

Risk management

OPERATIVA RISKER OPERATIONAL RISKS OPERATIVA RISKER
RISK	EXPOSURE AND MANAGEMENT	RISK	EXPOSURE AND MANAGEMENT
Customers NOTE has a large number of active accounts, the 15 The risk that a customer largest in sales terms represented 58 percent of its sales leaves NOTE or does not in 2016. In most cases, NOTE manufactures a range of fulfil its commitments. products for each customer. Usually, customers choose to place all their production of each product with the same supplier, so they can achie ve economies of scale and limit material commitments and risks. Accordingly, NOTE's production volumes are closely linked to which products, and where in product lifecycles,	IT IT-related disruptions can cause production down time, loss of invoicing and/or reduced efficiency in administration and sales.	NOTE's operations require IT systems that work well. NOTE has a selection of local applications and operating envi ronments with varying functionality and capacity. Following a far-reaching, group-wide project, a common business specific ERP system has been introduced at all of NOTE's Swedish units. This is a key step in realizing the ambition of further harmonizing internal processes and systems support throughout the group.
	the customer's products lie. Accordingly, sales variations can be significant for individual customers. Usually, mate rials risk is regulated through agreements with customers. NOTE follows up on material risks continuously.	Capacity risk The risk of not having suf ficient capacity in plants.	Overall, NOTE has good production capacity. Production is of a similar nature in several of the group's units and NOTE can transfer production from one unit to another. However, sudden fluctuations in demand can lead to challenging sit uations relating to capacity utilisation in the group's units.
Environmental risks The risk that operations cause damage to the environment and costs for complying with new more stringent environmental	Unlike many other sectors like the heavy engineering and raw materials industries, NOTE's business has a fairly limited environmental impact. To comply with app licable environmental legislation, NOTE has essentially transferred to lead-free production, like the rest of the electronics industry.	Materials Price and access to materials.	The price and access to electronic components and other production materials vary significantly depending on market conditions. NOTE has a central organisation to deal with group-wide sourcing.
directives. Liability NOTE's role includes it being a collaboration partner to Risks in addition to the its customers, but not a product owner. Accordingly, above environmental risks NOTE's responsibility includes conducting the selec where NOTE may be liable tion of material and production in accordance with for payment due to com the customer's specification. Usually, the standards mitments in its business. applying to NOTE's documentation of services rendered are extensive and can be considered complex. Quality	Inventories The risk of components and production materials not being consumed, and thus losing value.	NOTE has inventories corresponding to some 15–20 percent of sales. Sourcing on its customers' behalf is normally formalised through agreements with customers. Considering the complexity of electronics production and variation in demand, NOTE collaborates closely with customers to limit the risk of obsolescence in inventories. Obsolescence risk is monitored continuously.
	monitoring of NOTE's production and strategic suppliers
	is a continuous process. NOTE's insurance cover is assessed to be reasonable and is adapted to operational risks. Where possible and financially viable, there is insurance cover for issues including specific costs that may arise as a result of production faults. The market for outsourced electronics production is usu ally considered fairly cyclical. There is a risk that deterio ration in the global economy, or a reduction in demand on NOTE's major markets, would impact NOTE's sales and		FINANCIAL RISKS
		RISK	EXPOSURE AND MANAGEMENT
Cyclical and seasonal variations		Currency The risk that a fluctuation in exchange rates affects the group's profit, cash flow or Balance Sheet negatively.	Against the background of an increasing share of value-added being generated in foreign units and the purchasing of electronic components and other produc tion materials being largely in foreign currencies (EUR/ USD), NOTE has fairly extensive currency management. With the aim of limiting currency risks, NOTE trades in currency forwards and similar instruments.
earnings negatively. NOTE's business model is intended to promote profitable sales growth in combination with low investment and overheads in high-cost countries. NOTE sells to a large number of customers, who es sentially, are active in the industrial, communication and security industries. The 15 largest customers in sales terms represented 58 percent of consolidated sales in 2016. The ambition is to focus on sectors with more stable demand and relatively long product lifecycles and	Financing The risk that refinancing loans is more difficult or costly, and that accor dingly, NOTE's solvency is negatively affected.	NOTE has a substantial need for external finance, prima rily linked to the working capital of operations. Different sources of finance are continuously evaluated in close collaboration with NOTE's lenders. Considering the cyclicality of its operations, funding costs and NOTE's prospects of re-financing are closely linked to market conditions and NOTE's profitability and cash flow.
Production downtime Downtime in production affecting deliveries to customers and causing extra costs.	customer assignments. Because NOTE conducts advanced manufacture of electronics, it is subject to high demands on efficient processes and state-of-the-art production equipment. The risk of production downtime is limited by production being of a similar nature across several of the group's units. Accordingly, NOTE can transfer production from one unit to another, and have its units interact on production, which limits its risks from long-term production downtime. NOTE has extensive insurance cover, including cover to minimise the loss of contributions caused by produc tion downtime where possible and financially viable.	Customer credit The risk that a customer is unable to pay its debt to NOTE.	Overall, NOTE has a diversified customer base where its biggest customer (group) comprises some 9 percent of sales. In terms of NOTE's business agreements, there are some individual customers that do create fairly high exposure in accounts receivable–trade and inventories, including outstanding purchase orders. Were these customers' solvency to deteriorate, this could have an adverse impact on NOTE's earnings. NOTE evaluates and credit checks new and existing customers. Ongoing financial reporting includes close monitoring of accounts receivable–trade and inventories, including outstanding purchase orders.
Competence The risk of not possessing sufficient competence in all parts of business.	NOTE provides sophisticated production services which require high technical competence across several seg ments. NOTE endeavours for staff to achieve continuous competence development.

Sustainability

Sustainability issues are integrated into NOTE's business activities. NOTE has been a member of the Global Compact since 2011, which was started on a UN initiative.

Overview raises standards

Taking an integrated approach to sustainability issues is highly significant to the effectiveness of overall outcomes. These issues cover everything from helping customers select components with positive environmental and quality performance, to locating production close to final markets, and as far as possible, utilising shared transport to limit environmental impact. In tandem with improving its customers' impact on the environment and wider society, NOTE endeavours to conduct itself responsibly on those markets where it is active.

Environmental policy and working methods

NOTE endeavours to secure long-term, sustainable development by producing with the minimum possible environmental impact. NOTE strives to comply with, or exceed, applicable legislation, and pursues continuous improvement in the environmental segment.

NOTE's environmental work complies with international ISO guidelines, under the ISO 14000 family of standards. All the group's manufacturing units hold ISO 14001 environmental certification, and are audited by internal and external resources.

Despite variations in the environmental legislation of individual countries, NOTE has the constant ambition of all its units following a consistent line of

environmental work. NOTE units exchange best practice, best-in-class actions and proposals for improvement. Manufacturing units sort the waste from consumables at source, and monitor energy consumption continuously. NOTE also applies environmental consideration to other parts of its business, through channels including discussions with its customers regarding sourcing materials and production setups.

Electronic scrap, glass and paper are recycled. NOTE conducts improvement projects to reduce waste, energy consumption and CO2 emissions. Corrugated board and combustible waste are compacted to minimise the amount of waste transport, which affects the environment.

In its transport, NOTE also coordinates its freight agreements group wide to optimise transportation, and thus limit energy consumption and CO2 emissions.

NOTE conducts regular environmental audits of strategic suppliers.

Ethics

NOTE has been a member of the Global Compact, which has formulated ten principles that member companies undertake to comply with, since 2011. These principles apply to human rights, labour law, the environment and anti-corruption.

Each year, NOTE submits its COP (Communication on Progress) to the UN, which reviews the work it has conducted within the group, and with external stakeholders.

In 2016, NOTE updated and consolidated its policy initiatives and conducted a new employee satisfaction survey. Consistent with previous years, and within the auspices of its internal control work, NOTE has a documented process for evaluating risk and compliance with policies. In 2017, the aim is to continue to reinforce policy work and encourage positive social progress in the locations where NOTE has a presence.

NOTE's Code of Conduct is based on the Global Compact, and a full version is available at www.note.eu. A summary of the actions completed and prepared by NOTE units related to Global Compact principles follows on the next page.

UN Global Compact

HUMAN RIGHTS

PRINCIPLE 1: BUSINESSES SHOULD SUPPORT AND RESPECT THE PROTECTION OF INTERNATIONALLY PROCLAIMED HUMAN RIGHTS

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006. NOTE endeavours to develop business with companies that have the corresponding ethical rules on accountability.

RESULTS 2016

NOTE works actively and continuously to ensure compliance with its Code of Conduct. In the year, NOTE encouraged existing and new customers and suppliers to join, or support, the UN Global Compact by communicating the significance of these issues. NOTE signed agreements with another nine strategic and contracted suppliers, who accepted NOTE's Code of Conduct or have their own, equivalent code.

NOTE conducted follow-up audits on 12 suppliers that had previously accepted NOTE's Code of Conduct and the ten principles of the UN Global Compact.

The share of sourcing from strategic and contracted suppliers increased from approximately 47 to 49 percent.

NOTE supported UNICEF in its work to uphold and reinforce children's rights. This organisation works with families, wider society and public authorities in over 190 countries.

GOALS 2017

Influence customers and suppliers to accept NOTE's Code of Conduct and to join the UN Global Compact, or support its ten principles.

Continuously follow up on NOTE's Code of Conduct and the ten principles of the UN Global Compact in supplier audits.

Increase the share of sourcing from strategic and contracted suppliers by three percentage points.

Work to help children and uphold their rights.

PRINCIPLE 2: BUSINESSES SHOULD ENSURE THAT THEY ARE NOT COMPLICIT IN HUMAN RIGHTS ABUSES

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006. NOTE's Human Rights Policy has been implemented in

all units' business systems.

RESULTS 2016

NOTE works actively and continuously to ensure compliance with its Code of Conduct internally. Internal audits were conducted to ensure compliance with relevant policies, laws and ordinances. In the year, NOTE continued to work actively to reduce the usage of conflict minerals.

GOALS 2017

Continue to reinforce NOTE's Human Rights Policy.

LABOUR LAW

PRINCIPLE 3: BUSINESSES SHOULD UPHOLD THE FREEDOM OF ASSOCIATION AND THE EFFECTIVE RECOG-NITION OF THE RIGHTS TO COLLECTIVE BARGAINING

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006.

All NOTE employees are entitled to collective bargaining, and to form, and join, trade unions. Collective agreements are in place at the majority of NOTE's units.

Some of NOTE's subsidiaries use OHSAS 18001 as a guideline. OHSAS 18001 is a far-reaching, global and verifiable occupational health and safety standard, which includes auditing and certification by an external party.

RESULTS 2016

NOTE signed agreements with another nine strategic and contracted suppliers, who accepted NOTE's Code of Conduct or have their own, equivalent code. NOTE conducted follow-up audits on 12 suppliers that had previously accepted NOTE's Code of Conduct and the ten principles of the UN Global Compact. The results of audits indicate that suppliers are complying with relevant laws and regulations.

The share of sourcing from strategic and contracted suppliers increased from approximately 47 to 49 percent.

In the year, NOTE continued its work on reducing the usage of conflict minerals.

OHSAS 18001 was implemented at the unit in China.

GOALS 2017

Influence customers and suppliers to accept NOTE's Code of Conduct and join the UN Global Compact, or support its ten principles.

Continuously follow up on NOTE's Code of Conduct and the ten principles of the UN Global Compact in supplier audits.

Increase the share of sourcing from strategic and contracted suppliers by three percentage points. Implement OHSAS 18001 as a guideline in more

PRINCIPLE 4: BUSINESSES SHOULD UPHOLD THE ELIMINATION OF ALL FORMS OF FORCED AND COMPULSORY LABOUR

APPROACH

NOTE units.

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006.

As part of its business principles, NOTE and its customers' and suppliers' employees should enter employment

and contracts of their own free will. Some of NOTE's subsidiaries use OHSAS 18001 as a guideline. OHSAS 18001 is a far-reaching, global and verifiable occupational health and safety standard, which includes auditing and certification by an external party.

RESULTS 2016 AND GOALS 2017

See principle 3.

PRINCIPLE 5: BUSINESSES SHOULD UPHOLD THE EFFECTIVE PROHIBITION OF CHILD LABOUR

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006.

NOTE complies with relevant laws and ordnances on child labour. NOTE does not employ children and does not collaborate with companies that use children as part of their workforce.

RESULTS 2016 AND GOALS 2017

See principle 3.

PRINCIPLE 6: BUSINESSES SHOULD UPHOLD THE ELIMINATION OF DISCRIMINATION IN RESPECT
OF EMPLOYMENT AND OCCUPATION

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006. NOTE believes in a workplace where all employees have

equal opportunities to work and progress. NOTE sees and benefits from all employees' specific

competence and developmental opportunities, regardless of sex, ethnicity, sexual orientation, disability, age and social background.

NOTE's units are encouraged to work on integrating equal opportunities and diversity in all parts of their operations.

Some of NOTE's units use OHSAS 18001 as a guideline. OHSAS 18001 is a far-reaching, global and verifiable occupational health and safety standard, which includes auditing and certification by an external party.

RESULTS 2016

NOTE conducted a group-wide employee satisfaction survey in the year. Response frequency increased from 76 to 84 percent. Based on responses, NOTE has formulated plans with clear activities and a schedule for execution. The results are also utilised in NOTE's future planning and development work.

NOTE signed agreements with another nine strategic and contracted suppliers, who accepted NOTE's Code of Conduct or have their own, equivalent code. Follow-up audits were conducted on 12 suppliers that had previously accepted NOTE's Code of Conduct and the ten principles of the UN Global Compact. The results of audits indicate that suppliers are complying with relevant laws and regulations.

The share of sourcing from strategic and contracted suppliers increased from approximately 47 to 49 percent. OHSAS 18001 was implemented at the unit in China.

GOALS 2017

Conduct a group-wide employee satisfaction survey and use its results in business processes.

Influence customers and suppliers to accept NOTE's Code of Conduct and to join the UN Global Compact, or support its ten principles.

Continuously follow up on NOTE's Code of Conduct and the ten principles of the UN Global Compact in supplier audits. Increase the share of sourcing from strategic and

contracted suppliers by three percentage points.

Implement OHSAS 18001 as a guideline in more NOTE units.

ENVIRONMENT

PRINCIPLE 7: BUSINESSES SHOULD SUPPORT A PRECAUTIONARY APPROACH TO ENVIRONMENTAL CHALLENGES

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006.

All NOTE's units hold ISO 14001 certification. NOTE's units run improvement projects in the environmental segment, and measure a series of environmental factors such as electronic scrap, energy consumption, CO2 emissions and transport. All units have environmental targets, which are monitored regularly.

NOTE is endeavouring to increase the share of sourcing from strategic and contracted suppliers. NOTE has a good understanding of these suppliers' environmental work, and can help them to evolve and improve in this segment.

RESULTS 2016

NOTE works actively and continuously to ensure compliance with its Code of Conduct.

NOTE's units work on the basis of individual targets and circumstances in the environmental segment. A variety of initiatives are ongoing, including the Finnish, UK and Estonian units gradually replacing work lights with LED equivalents. The power consumption for lighting at these units reduced by 20 percent in the year.

The Estonian unit also exchanged its production equipment for machinery that is more environmentally friendly and has lower energy consumption.

NOTE signed new contracts with freight companies with well-developed environmental work.

In the year, NOTE encouraged existing and new customers and suppliers to join, or support, the UN Global Compact by communicating the significance of these issues. NOTE signed agreements with another nine strategic and contracted suppliers, who accepted NOTE's Code of Conduct or have their own, equivalent code.

Follow-up audits were conducted on 12 suppliers that had previously accepted NOTE's Code of Conduct and the ten principles of the UN Global Compact.

The share of purchasing from strategic and contracted suppliers increased from approximately 47 to 49 percent.

GOALS 2017

Continued progress towards still more environmentally friendly production and environmental transportation.

Influence customers and suppliers to accept NOTE's Code of Conduct and to join the UN Global Compact, or support its ten principles.

Continuously follow up on NOTE's Code of Conduct and the ten principles of the UN Global Compact in supplier audits.

Increase the share of sourcing from strategic and contracted suppliers by three percentage points.

PRINCIPLE 8: UNDERTAKE INITIATIVES TO PROMOTE GREATER ENVIRONMENTAL RESPONSIBILITY

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006.

All NOTE's units hold ISO 14001 certification. NOTE works actively on developing guidelines and methodologies designed to minimise the company's negative environmental impact. Employees are encouraged to participate in this process.

RESULTS 2016 AND GOALS 2017 See principle 7.

PRINCIPLE 9: ENCOURAGE THE DEVELOPMENT AND DIFFUSION OF ENVIRONMENTALLY FRIENDLY TECHNOLOGY

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006.

All NOTE's units hold ISO 14001 certification. NOTE takes a positive view of developing environmental technology and actively supports new manufacturing methods and components that are more environmentally friendly. NOTE conducts environmental audits when introducing new equipment, technology and logistics solutions. Experience is shared between group units.

An environmental perspective is considered jointly with customers when tailoring product manufacture. NOTE has implemented a database for identifying RoHS, Reach and conflict minerals in components.

RESULTS 2016 AND GOALS 2017 See principle 7.

ANTI-CORRUPTION

PRINCIPLE 10: BUSINESSES SHOULD WORK AGAINST CORRUPTION IN ALL ITS FORMS, INCLUDING EXTORTION AND BRIBERY

APPROACH

NOTE has been using its Code of Conduct, which supports the ten principles of the UN Global Compact, since 2006.

NOTE has an Anti-Corruption Policy, including a whistle-blower process, which has been implemented in all units' business systems.

NOTE encourages employees to resolutely counteract all forms of corruption, blackmail and extortion. Simultaneously, NOTE expects the corresponding attitudes from its customers and suppliers. NOTE does not accept any gifts, whether to customers or from suppliers, other than items of lesser value. NOTE's Purchasing Policy includes the prohibition of bribery and corruption, with sourcing managed according to ethical rules.

NOTE has group-wide and local authorisation procedures expedient for its business.

RESULTS 2016

NOTE works actively and continuously to ensure compliance with its Code of Conduct.

NOTE continued to enhance its internal control processes in the year. NOTE conducted internal follow-ups and audits of its Anti-Corruption Policy, and verified that its authorisation processes are functioning. No observations were made in these audits. No instances of suspected corruption were reported through the whistleblower process. In the year, NOTE encouraged existing and new customers and suppliers to join, or support, the UN Global Compact by communicating the significance of these issues. NOTE signed agreements with another nine strategic and contracted suppliers, who accepted NOTE's Code of Conduct or have their own, equivalent code.

NOTE conducted follow-up audits on 12 suppliers that had previously accepted NOTE's Code of Conduct and the ten principles of the UN Global Compact.

The results of audits indicate that suppliers are complying with relevant laws and regulations on anti-corruption.

The share of sourcing from strategic and contracted suppliers increased from approximately 47 to 49 percent.

GOALS 2017

Influence customers and suppliers to accept NOTE's Code of Conduct and join the UN Global Compact, or support its ten principles.

Continuously follow up on NOTE's Code of Conduct and the ten principles of the UN Global Compact in supplier audits. Increase the share of sourcing from strategic and contracted suppliers by three percentage points.

Sustainability issues are securing greater significance in the business world. We think that's positive.

Stefan Hedelius, CEO and President

Human resources

NOTE exists to solve customers' complex problems every day. And it is NOTE's people–with their ingenuity, commitment and drive to help customers–who create the strength of its business.

NOTE possesses a global organisation with operations in Sweden, Finland, the UK, Estonia and China. One of its key missions is to develop the interaction between units. This work is done through channels including a number of functional forums, in segments including quality, sourcing, accounting and sales. NOTE is working on harmonising its working methods and monitoring tools, as well as clarifying guidelines. Its improvement and development process involves many employees group wide. NOTE continuously monitors business-related key performance indicators such as ongoing

central and local improvement projects. The workforce was upsized and downsized in the year to cope with demand fluctuations and to implement rationalisation. Overall, the workforce decreased by 101 employees. The VP of Sourcing also joined group management. Staff turnover was 15 percent in the group overall, of which 7 percent was in the European units.

Training

To assure quality and competence in the electronics assembly process, several NOTE units maintain long-term collaborations with external partners in soldering

and electronics assembly training. Usually, these training packages involve practical work and the certification of qualified electronic assemblers. Several NOTE units offer opportunities for students to write their masters' dissertations.

Employee of the Month

Achieving our goal of being the best collaboration partner in the sector, with leading delivery precision and quality for a competitive overall cost, demands a lot from everyone involved. To recognise the people that have contributed something really special, NOTE have an Employee of

Alice Cruickshank

Alice Cruickshank has worked at NOTE UK for nearly nine years. Two years ago, she was appointed Materials Controller, but because the UK operations are relatively small, she's often involved in all aspects of operations. Her leadership is constructive and clear, and she's a great ambassador for NOTE through her ability to create good relationships with suppliers, customers and her own team.

"Flexibility and responsiveness are key to success in this sector, alongside the ability to prioritize and build an efficient organization," she comments. Communication is a key aspect of her leadership: "Being able to communicate well is necessary if you want to inspire people and get them to feel committed to NOTE's goals," comments Alice, who enjoys doing things differently and a little better each day.

Aili Leppik

NOTE's solutions require attention to detail and perfection down to the smallest components, and quality is measured continuously across all NOTE's units. Aili Leppik works on process development at NOTE in Pärnu, Estonia and is responsible for reaching the quality goals at the plant.

The biggest challenge she faces is to handle situations that are out of her direct control. "My motto is to do things right from the start, as it saves time and money," Aili comments. Her focus on quality contributed to being awarded Employee of the month in December 2016.

Alen Liao

Although solving technical problems is essential to NOTE, it's not enough just to deliver a product, because needs frequently change during the development process. A dialogue about different solutions is often necessary before getting where we want to be. Alen Liao is one of our operators in Tangxia, China, who continuously works to customize delivery according to customer needs, without compromising quality. Alen has the ability to address the challenges that arise while simultaneously communicating the solution to the customer.

Alen is one of the many reasons that NOTE keeps gaining the renewed trust of its customers again and again. "My goal is to make continuous improvements and to deliver above the customer's expectations," Alen comments.

the Month award. This might be someone who has made an extra contribution, or been a great ambassador for NOTE.

One further ambition of this award is to make an extra contribution to a greater feeling of solidarity within the group and share real examples of how our people conduct themselves when they perform at their best, towards customers or colleagues, for example. Each year, a winner is selected from the people recognised each month. The Employee of the Year for 2016 was Alen Liao from China. We introduce Alen, and some of the other winners, below.

Average number of employees*

976

Andreas Lindmark

Andreas works as a Technical Project Manager for NOTE Norrtelje. Where others see problems, he sees solutions, as he demonstrated when NOTE's new group-wide ERP system had to be implemented at NOTE Norrtelje. Andreas was assigned to integrate several mission-critical systems into one, involving all functions and process owners.

Andreas' leadership and solution-oriented perspective was a major asset in this extensive project. His motto is: "There's always a solution, the challenge is finding it." By applying creativity and the ability to get everyone in the team working towards the same goal, the project was executed and completed on schedule.

He still enjoys his work after being with NOTE for about 20 years: "My role as a Technical Project Manager is really broad based, and over the years, I've met many new challenges, which have been stimulating and driven me on," he says.

Employee satisfaction survey

The employee satisfaction survey of the year was redesigned to give a clearer view of leadership, and an insight into how operations are working day to day. Having leadership that works every day is fundamental, and all employees feeling that they can deliver value-added every day is just as important. The response frequency increased from 76 to 84 percent. NOTE created a plan of clear activities, with a schedule for execution, based on responses. The outcome is being analysed and utilised in NOTE's future planning and development work.

Division between sexes

Satu Mustonen

NOTE is an employer that creates the conditions for its staff to develop–and many stay for a long time. Satu Mustonen started on the factory floor 22 years ago and has taken many steps up the internal career ladder at NOTE in Hyvinkää, Finland. Her positive attitude and ability to create new solutions are valuable to NOTE.

"The best thing about NOTE is that they look after their employees", commented Satu. For 16 years she has been active in purchasing material for prototypes, an area where the biggest challenge is presented by adhering to tight schedules in parallel projects.

Average number of employees* by country

Kamran Shahabi

After several successful years as a sales manager at NOTE's Norrtälje plant, Kamran Shahabi decided to take a break from NOTE. "When the opportunity arose, I wanted to try working in a different sector," Kamran says, and explains that he worked as a sales manager in a US consumables company for a year. During that year, however, he decided that he wanted to get back to the electronics sector, and particularly to NOTE.

"NOTE is the sector's strongest operator," according to Kamran. "Although I learnt a lot from changing sector and employer, I missed the opportunities for my creativity."

Kamran is now working at head office north of Stockholm, in sales to new customers, a function that's important to NOTE's expansion on the Swedish market. "Here, I get the opportunity to develop and do what I'm good at," he concludes.

Share data and shareholders

NOTE's share price climbed by 43 percent in the year. Over the past two years, the increase has been just over 130 percent.

Share price performance

NOTE's share price increased by 43 percent in the year to a closing price of SEK 17.00 (11.90). The high in the year was SEK 17.40, on 29 December. The low of the year of SEK 10.00 was on 20 January. The stock exchange OMX Stockholm Small Cap PI index increased by 18 percent in the year.

At the end of the year, NOTE's market capitalisation was SEK 491 (344) million. The number of shareholders increased by 32 percent in 2016, to 3,517 (2,660) at year-end.

Turnover

17,462,510 NOTE shares were traded over the Stockholm Stock Exchange in 2016, corresponding to a rate of turnover of 61 percent. An average of 69,022 shares were traded per day.

Dividend policy

The dividend should be adapted to average profit levels over a business cycle and, for the long term, comprise 30–50 percent of profit after tax. Dividends should also be usable to adapt the capital structure.

The Board of Directors is proposing a dividend of SEK 0.70 (0.70) per share, corresponding to SEK 20.2 million, is paid to shareholders for the financial year 2016.

Trading

Listing:	Nasdaq Stockholm
Segment:	Small Cap
Sector:	Industrial Goods & Services
Ticker symbol:	NOTE
ISIN code:	SE0001161654
No. of shares as of
31 December 2016:	28,872,600

10 largest shareholders as of 31 December 2016, by holding

Name		No. of shares Proportion of capital/votes, %
Creades AB	7,780,915	26.95
Johan Hagberg	4,538,155	15.72
Avanza Pension	1,215,667	4.21
Kjell-Åke Andersson with family	1,162,372	4.03
Nordnet Pensionsförsäkring AB	846,944	2.93
Staffan Bolinder	600,000	2.08
Myggenäs Gård AB	596,659	2.07
Consensus Småbolag	501,792	1.74
Stefan Bozzao	460,000	1.59
Fredrik Hagberg	442,932	1.53
Total	18,145,436	62.85

Division by size, holdings by shareholder as of 31 December 2016

Size of holding	No. of shareholders		No. of shares Proportion of capital/votes, %
1–500	1,654	311,843	1.08
501–2,000	1,074	1,243,223	4.31
2,001–5,000	433	1,538,278	5.33
5,001–20,000	262	2,645,683	9.16
20,001–50,000	53	1,729,419	5.99
50,001–500,000	33	4,524,022	15.67
500,001–5,000,000	7	9,099,217	31.51
5,000,001–9,500,000	1	7,780,915	26.95
Total	3,517	28,872,600	100.0

Share price 2012–2016

Share capital history

		Increase in	Increase in share	Total no.	Total share	Quotient value
Year	Transaction	no. of shares	capital (SEK)	of shares	capital (SEK)	(SEK)
1999	Incorporation	3,000	300,000	3,000	300,000	100.00
2000	Bonus issue	27,000	2,700,000	30,000	3,000,000	100.00
2000	Split 10:1	270,000	–	300,000	3,000,000	10.00
2002	New share issue	84,000	840,000	384,000	3,840,000	10.00
2003	New share issue	15,000	150,000	399,000	3,990,000	10.00
2004	Split 20:1	7,581,000	–	7,980,000	3,990,000	0.50
2004	Option exercise	310,200	155,100	8,290,200	4,145,100	0.50
2004	New share issue	1,334,000	667,000	9,624,200	4,812,100	0.50
2010	New share issue	19,248,400	9,624,200	28,872,600	14,436,300	0.50

Formal Annual Accounts

FORMAL ANNUAL ACCOUNTS

Report of the Directors	23
Five-year summary	28
Consolidated Financial Statements	30
Notes on the Consolidated Financial Statements	34
Parent Company's Financial Statements	46
Notes on the Parent Company's Financial Statements	50
Corporate Governance Report	54
Auditor's report	64

Addresses	68

Report of the Directors

OPERATIONS–GENERAL

NOTE is one of the leading Northern European manufacturing and logistics partners for production of electronicsbased products. NOTE has especially strong market positioning in the high mix/ low to medium volume market segment, i.e. for products in short to medium-sized batches that require high technical competence and flexibility.

NOTE produces PCBAs, sub-assemblies and box build products. NOTE's offering covers the complete product lifecycle, from design to after-sales.

The group consists of the parent company and wholly owned subsidiaries in Sweden, Norway (until April 2016 inclusive), Finland, the UK, Estonia and China.

OPERATIONS IN 2016

NOTE is one of the leading electronics manufacturers in the Nordics, and a stable business partner for Swedish and multinational customers seeking advanced production and logistics solutions in industrial electronics.

In 2016, market conditions were fairly stable on many of NOTE's markets in Europe. Demand for NOTE's services and solutions made positive progress in Estonia and Sweden. NOTE's Chinese operations experienced very strong sales growth in the first six months. After the summer, however, we noted decreased activity from some major customers in China. NOTE also witnessed similar progress in Finland. Sales were weaker than expected on the Norwegian and UK markets, which NOTE approached via relatively small local units. In order to sharpen its focus on markets with positive sales growth, NOTE divested its Norwegian subsidiary in the second quarter.

Sales were SEK 1,098.1 million in the year, down slightly on the previous year. Adjusted for the sale of the Norwegian operation, sales growth was 1 percent. To improve the level of service to one

of our international customers, NOTE introduced a new logistics setup during the autumn with finished goods stored in close proximity to final assembly, which temporarily decreased deliveries.

NOTE secured the confidence of many new customers in the year. NOTE perceives more positive potential to increase sales and market shares over time, from existing and new business customers.

One key factor is that NOTE has significantly strengthened its position in medtech. In the summer, we commenced batch deliveries under a substantial, advanced manufacturing assignment for an established global customer. As the next step, NOTE decided to obtain certification for the manufacture of medtech products for its plant in China. More than half of its facilities are now certified for producing medical devices. In Sweden, NOTE intensified its extensive prototyping partnership with a leading customer in the defence industry. The collaboration holds significant potential for serial production looking ahead.

The IoT (Internet of Things) is another segment with strong potential. NOTE is currently pursuing several industrialization projects in the IoT with promising prospects.

NOTE gradually improved profitability during the year. An increased service content, combined with a number of successful cost-cutting actions, contributed to the profit improvement. Operating profit for the full year increased by SEK 15.0 million to SEK 60.2 million, corresponding to a 1.5 percent increase in operating margin to 5.5 percent. In the fourth quarter, operating margin expanded to 5.7 percent (3.4 percent).

NOTE has a sharp focus on ensuring first-class quality and delivery precision for customers. The efficient management of working capital is another critical success factor. This is why NOTE takes a focused approach to rationalising the

utilisation of working capital. Flexible and thought-through logistics setups are critical to NOTE's and its customers' financing and cash flow.

Including continued aggressive investment in advanced production equipment, cash flow (after investments) improved to SEK 40.9 (5.2) million, corresponding to SEK 1.42 (0.18) per share.

NOTE is financially well equipped for the future. Its Balance Sheet remains one of the sector's strongest, with low net debt and an equity to assets ratio of 45.8 percent.

SALES AND RESULTS OF OPERATIONS 2016 Group

Sales

NOTE sells to a large customer base, essentially active in the industrial, communication and security industries in northern Europe, and to customers in the defence industry and medtech. An increasing sales share is also direct from China, to customers in Asia and the US.

Demand for NOTE's services continued to perform positively in the year. Progress remained positive in Estonia and Sweden. Sales growth in China was very strong in the first half of the year, followed by a partial slowdown for some of our major customers. Progress in Finland was similar.

After a period of declining demand from a few major Norwegian customers, the subsidiary in Norway was divested in the second quarter of the year. In 2015, the Norwegian operation had sales of approximately SEK 54 million, but made a negative contribution to NOTE's operating profit. This transaction had only a marginal impact on operating profit in the second quarter.

NOTE endeavours to secure long-term customer relations and partnerships. In the period, several closer collaborations on new product generations were established with several customers in NOTE's strong customer base.

NOTE has also been working exten sively for some time to keep expanding its customer base, improve sales and capacity utilisation in the group's units. As a result of these marketing initiatives, NOTE secured many new customer rela tionships–most of them with European and Asian SMEs. Several of these partnerships, which usually start with industrialisation services (service sales, prototyping and pilot series), have now resulted in serial production and higher volumes.

Sales were SEK 1,098.1 (1,121.5) mil lion in the year. The impact of exchange rate fluctuations was minor, and adjusted for the sale of the Norwegian operation in the second quarter, sales growth for comparable units was 1 percent. Batch shipments to a leading multinational player in the medtech sector commenced in the summer. NOTE perceives significant potential in this partnership.

Direct sales from Industrial Plants in Estonia and China continued to grow. These sales maintained positive progress, representing 42 percent (37 percent) of total sales. The increase was partly an effect of the transfer of account mana gement responsibility from Nearsourcing Centres to Industrial Plants, a natural component of NOTE's business model.

NOTE's 15 largest customers in sales terms represented 58 percent (57 percent) of the group's sales. As in the previous year, no single customer (group) represented more than about 9 percent of total sales.

Results of operations

In order to sharpen competitiveness and create the potential for further profitable sales growth, NOTE has been conducting methodical improvement work at all units for several years. This work is conducted locally at each unit and through a number of group-wide projects. Over and above initiatives to expand and develop its customer offering, its focus is on measures that improve delivery precision and quality, as well as cost and working capital rationalisation. In tandem with this process, NOTE is progressively implementing a group-wide, businessspecific ERP system. The new system is now live in all Swedish units, enabling further streamlining by harmonising inter nal processes and systems support.

Gross margin grew by 1.1 percentage points to 12.0 percent (10.9 percent), mainly as a result of an expanded service content and focused cost-cutting initiatives.

Sales and administration overheads for the period reduced by 9 percent, mainly as a result of the divestment of the Norwegian operation in the second quarter. Furthermore, compared to the previous year, NOTE has conducted ini tiatives to reinforce its sales organisation further. Overheads were 6.5 percent (7.0 percent) of sales.

Other operating expenses/income, which normally consist of revaluations of foreign currency assets and liabili ties, were SEK 0.3 (1.5) million. NOTE conducts fairly extensive management of foreign currencies, primarily USD and EUR. We're continuously seeking to limit currency risk, and the wide fluctuations on the currency markets, mainly in the summer, had only a marginal impact on NOTE's operating profit.

Operating profit in the period impro ved by SEK 15.0 million to SEK 60.2 (45.2) million, implying a 1.5 percentage point operating margin increase to 5.5 percent (4.0 percent).

Stable progress of working capital and continued low market interest rates contributed to an unchanged net finan cial income/expense of SEK –5.7 (–5.4) million.

Profit after financial items was SEK 54.5 (39.8) million, equating to a profit margin increase of 1.5 percent to 5.0 percent (3.5 percent).

Profit after tax was SEK 45.2 (34.6) million, or SEK 1.57 (1.20) per share. The tax expense for the period correspon ded to 17 percent (13 percent) of profit before tax.

Parent company

The parent company, NOTE AB (publ), is primarily focused on the management, coordination and development of the group. Revenue for the year was SEK 31.8 (29.9) million, and mainly related to intra-group services.

Net financial income/expense includes SEK 4.6 (7.0) million of dividends received from subsidiaries, as well as a net of group contributions received and paid of SEK 24.3 (15.9) million. The revaluation of shares in subsidiaries also had a negative impact on net financial income/expense. The parent company's profit/loss after tax was SEK –18.2 (13.1) million.

FINANCIAL POSITION, CASH FLOW AND INVESTMENTS Cash flow

Competing successfully in the high mix/ low to medium volume market segment sets high standards on flexible produc tion, short lead-times in manufacture, the effective supply of materials and the ability to deliver custom logistics solu tions. Accordingly, NOTE focuses sharply on continuously improving its business methods and internal processes in these segments. This challenge is especially ap parent during new project start-ups and in rapid demand upturns and downturns, and relates mainly to the complexity of materials supply and changing lead-times of electronic components.

The global market for electronic components can be considered fairly cyclical. Progress in the year, as in 2015, was fairly stable with good access to electronics components. This benefitted NOTE's materials planning and logistics.

Expanded prototype manufacture and start-ups of new serial production continued to set challenging demands on flexibility at the sourcing and produc tion stages. Stock levels were relatively stable in the year. The implementation of new logistics solutions, including finished goods being stored in close proximity to one major international customer's manufacturing facility, led to some increase in stock after the summer. This

meant capital tied up in stock, including prepayments for materials, increased by 9 percent year-on-year. At the same time, the customer's payment terms were adjusted, meaning that total working capital tied-up was marginal.

For natural reasons, accounts receivable–trade have reduced since year-end, and were 1 percent down year on year at the end of 2016. NOTE continually monitor its credit risk and the progress of customer credit terms. Despite increased international sales, and growing customer demand for extended credit terms, customer credit terms were comparable to the previous year.

Accounts payable–trade mainly relate to sourced electronic components and other production materials. NOTE is working actively to keep evolving its partnership model for suppliers, which involves changes including concentrating sourcing on fewer, quality-assured suppliers. This has contributed to more efficient utilisation of working capital. At the end of the period, accounts payable–trade were some 2 percent down on last year.

The combination of continued positive profit performance with rationalisation of working capital, contributed to cash flow after investments for the year improving to SEK 40.9 (5.2) million, corresponding to SEK 1.42 (0.18) per share.

Equity to assets ratio

According to NOTE's externally communicated financial targets, its equity to assets ratio should not fall below 30 percent. The equity to assets ratio at the end of the year was 45.8 percent (43.3 percent). The proposed dividend of SEK 0.70 per share, or SEK 20.2 million would reduce the equity to assets ratio by some 3 percentage points.

Liquidity

NOTE is maintaining a sharp focus on measures to further improve the group's liquidity and cash flow.

The group's available cash and cash equivalents, including unutilised overdraft facilities, were SEK 127.1 (104.7)

million at the end of the year. Factored accounts receivable–trade were some SEK 123 (121) million. Net debt at the end of the year was SEK 60.4 (81.9) million.

Investments

Capital expenditure on fixed assets amounted to SEK 15.8 (22.8) million in the year, corresponding to 1.4 percent (2.0 percent) of sales. Capital expenditure mainly consisted of projects to improve efficiency and quality.

To satisfy the increased demand for electronics manufacturing in China, NOTE brought another advanced surface mounting line on stream in the fourth quarter of 2015. Largely as a result, depreciation and amortisation according to plan increased to SEK 14.8 (12.8) million.

RESEARCH AND DEVELOPMENT ACTIVITIES

As a manufacturing partner, NOTE is closely involved in its customers' development processes through its operations, including contributing to the industrialisation phase and guiding and developing manufacturing processes for its customers. This work is continuous and not reported separately in the accounts.

NOTE continued to work on developing the group-wide ERP system in the year. The costs, which satisfy the criteria for capitalised expenditure, have been capitalised in the Balance Sheet.

THE NOTE SHARE

The total number of shares of the company is 28,872,600. All shares are of the same class and have a quotient value of SEK 0.50 per share.

There are no limitations on transferring shares in the form of pre-emption clauses or similar that the company is aware of. As of the reporting date there were two shareholders with a shareholding of more than 10 percent, Creades AB with 27.0 (16.0) percent and Johan Hagberg with 15.7 (6.9) percent of the votes.

The company's Board members are elected annually by the AGM, which also approves amendments of the Articles of Association. Otherwise, there are no known circumstances that could affect possibilities to acquire the company through a public takeover bid for the shares of NOTE.

For more information on the share and shareholders, see the NOTE share on pages 20–21.

HUMAN RESOURCES

The average number of full-time employees was 987 (940) in the year, 573 (523) of them being women and 414 (417) men. At year-end, NOTE had 863 (964) employees.

Work attendance in the group was 96,0 (96,4) percent of regular working hours and staff turnover was 14,6 (12,0) percent.

For more information on employees, see Operations on pages 18–19.

GUIDELINES FOR REMUNERATING SENIOR MANAGERS

Senior managers means the members of NOTE's Group management.

Remuneration to NOTE's management for 2016 was decided in accordance with The Board of Director's guidelines which were adopted by the AGM 2016.

Basic salary will consider individual responsibilities, experience and performance and will be subject to annual review. Performance-related pay is dependent on individual satisfaction of quantitative and qualitative targets, subject to a maximum of 100 percent of basic salary.

Pensionable age is 65. NOTE offers benefits similar to the ITP scheme (supplementary pensions for salaried employees). The dismissal pay and severance pay of a manager may not exceed an aggregate maximum of remueration over 24 months. The Board is entitled to depart from these guidelines if there are special circumstances in individual cases.

For more information on remuneration, see Note 8, Employees, personnel expenses and remuneration to senior managers, on page 38.

ENVIRONMENT Reporting obligation and certification

The operations in Sweden are U-classified (not subject to regulation by a dedicated national body), and do not require advance testing or reporting. Instead, the regulatory authority (municipal environmental and health board) can require actions or further investigation–of required for environmental or health reasons.

All NOTE's production units have ISO 14001 environmental certification.

EU directives

The WEEE directive regulates the processing of electronic waste. Because NOTE does not have producer liability, no provisioning for processing electronic waste from consumer electronics has been made in accordance with IFRIC 6. This responsibility rests with product owners.

The EU Reach regulation formalises the usage of chemicals. NOTE is classed as a downstream user and/or end-user of chemicals, and is only subject to the obligation to register substances and prepare risk assessments in those cases where the company uses what are known as SVHC materials.

For more information on environmental matters, see Operations on page 15.

SIGNIFICANT RISKS OF OPERATIONS Operational risks

NOTE is one of the leading northern European manufacturing and logistics partners for production of electronics-based products. It has especially strong market positioning in the high mix/low to medium volume market segment, i.e. for products in small to medium-sized batches that require high technology competence and flexibility.

NOTE produces PCBAs, sub-assemblies and box build products. The customer offering covers complete product lifecycles, from design to after-sales. NOTE's role includes it serving as a collaboration partner to customers, but not a product owner.

NOTE's Nearsourcing business model, which is designed to increase sales growth combined with reduced cost of overheads and investments in high-cost countries, is a way to reduce the risks of operations.

For more information on operational risks, see Operations on page 14.

Financial risks

Through its operations, the group is exposed to different forms of financial risks, such as borrowing and interest risk, currency risk, as well as liquidity and credit risks. Essentially, the group is financed through equity, loans and accounts payable–trade. Depending on economic and market conditions, NOTE's prospects of securing the required funding and liquidity should be considered as a significant risk.

Invoicing is in Swedish krona and foreign currency, mainly USD and EUR. Otherwise, Exchange rate risks lie mainly in the sourcing of production materials. Net exposure in foreign currency is essentially hedged through binding agreements where the customer bears the currency risk, and partly through cash flow hedges. The hedged currencies are USD and EUR.

For more information on financial risks, see Operations on page 13 and Note 24 Financial risks and finance policy, on page 44.

POST-BALANCE SHEET EVENTS

The Extraordinary General Meeting on 20 January 2017, convened as a result of changes to the ownership structure, elected Johan Hagberg, John Hedberg and Per Ovrén to the Board and re-elected Kjell-Åke Andersson and Bahare Hederstierna. John Hedberg was elected Chairman.

NOTE sold a property in Lund, southern Sweden, for SEK 44 million at the beginning of March. It simultaneously signed a multi-year lease contract with NOTE Lund as tenant. This transaction had a positive impact on operating profit in the first quarter of approximately SEK 20 million.

EXPECTATIONS OF FUTURE PROGRESS

NOTE is focusing on profitable growth, and sees good potential to increase market shares. Its ambition is to develop its offering in the service segment to further increase this share of business.

PROPOSED APPROPRIATION OF PROFITS

The Board of Directors propose that profit be appropriated as follows (SEK):

Total	52,763,320
Carried forward	32,552,500
Distributed to shareholders	20,210,820
Total	52,763,320
Profit for the year	–18,243,624
Brought forward	71,006,944

BOARD OF DIRECTORS' COMMENTS ON THE PROPOSED DIVIDEND

Against the background of NOTE's profit performance, the Board of Directors proposes a dividend payment to the shareholders of SEK 0.70 (0.70) per share, corresponding to SEK 20.2 (20.2) million. The proposed dividend to shareholders amounts to 38 percent of the company's profit as of the balance sheet date and reduces the group equity ratio from 45.8 percent to 42.9 percent calculated on year-end figures.

The Board of Directors considers that the proposed dividend conforms to The Swedish Companies Act's caution rule and is justified on the basis of stipulations relating to the company's equity, investment requirement, liquidity and financial position and the risks associated with the nature and scale of its operations.

With regard to NOTE's results of operations and financial position otherwise, please refer to the Income Statement and Balance Sheet and the Notes to the Financial Statements below. NOTE's financial year covers the period 1 January to 31 December inclusive. All amounts are in SEK 000 unless otherwise indicated.

Five-year summary

SEK m

Consolidated Income Statement	2016	2015	2014	2013	2012
Net revenue	1,098.1	1,121.5	964.0	907.0	1,029.2
Gross profit	131.7	122.5	102.4	72.5	92.6
Operating profit	60.2	45.2	31.8	9.0	25.9
Profit before tax	54.5	39.8	28.8	1.2	19.1
Profit for the year	45.2	34.6	24.6	0.7	12.6
Consolidated Balance sheet
ASSETS
Non-current assets	152.3	156.7	154.1	134.5	134.8
Current assets	542.2	506.5	458.8	406.3	441.2
TOTAL ASSETS	694.5	663.2	612.9	540.8	576.0
EQUITY AND LIABILITIES
Equity	318.0	287.1	270.2	238.1	260.5
Non-current liabilities	9.3	12.1	12.0	6.7	7.0
Current liabilities	367.2	364.0	330.7	296.0	308.5
TOTAL EQUITY AND LIABILITIES	694.5	663.2	612.9	540.8	576.0
Consolidated Cash Flow Statement
Cash flow from operating activities	48.6	18.7	15.7	4.2	98.1
Cash flow from investing activities	–7.7	–13.5	–13.2	–6.2	–1.1
CASH FLOW AFTER INVESTING ACTIVITIES	40.9	5.2	2.5	–2.0	97.0
Cash and cash equivalents at beginning of period	47.3	35.2	40.8	70.7	29.3
Cash flow before financing activities	40.9	5.2	2.5	–2.0	97.0
Cash flow from financing activities	–17.0	7.3	–10.6	–28.2	–54.9
Exchange rate difference in cash and cash equivalents	0.4	–0.4	2.5	0.3	–0.7
CASH AND CASH EQUIVALENTS AT END OF YEAR	71.6	47.3	35.2	40.8	70.7
Consolidated key figures
Earnings per share, SEK	1.57	1.20	0.85	0.02	0.44
Cash flow per share after investing activities, SEK	1.42	0.18	0.09	–0.07	3.36
Market capitalisation at end of period	491	344	209	188	218
Operating margin, %	5.5	4.0	3.3	1.0	2.5
Profit margin, %	5.0	3.5	3.0	0.1	1.9
Return on operating capital, %	16.1	12.9	10.1	3.1	7.9
Return on equity, %	14.9	12.4	9.7	0.3	4.9
Operating capital (average)	373.7	351.7	314.7	291.4	328.6
Interest-bearing net debt	60.4	81.9	64.3	56.8	27.4
Equity to assets ratio, %	45.8	43.3	44.1	44.0	45.2
Net debt/equity ratio, multiple	0.2	0.3	0.2	0.2	0.1
Interest coverage ratio, multiple	8.6	5.3	4.8	1.1	2.9
Capital turnover rate (operating capital), multiple	2.9	3.2	3.1	3.1	3.1
Sales per employee, SEK 000	1,113	1,193	1,080	1,071	1,164

Operating margin 2016

Equity to assets ratio 2016

Cash flow per share 2016

For Financial definitions, see Note 30 on page 45.

Financial accounts

Consolidated Income Statement

SEK 000	NOTE	2016	2015
Net revenue	2, 3	1,098,080	1,121,500
Cost of goods sold and services		–966,418	–998,993
Gross profit		131,662	122,507
Selling expenses		–42,349	–46,765
Administrative expenses		–29,447	–31,992
Other operating revenue	4	23,507	23,707
Other operating expenses	5	–23,203	–22,203
Operating profit	3, 6, 7, 8, 9, 27	60,170	45,254
Financial income		1,493	3,826
Financial expenses		–7,189	–9,260
Net financial income/expense	10	–5,696	–5,434
Profit before tax		54,474	39,820
Tax	11	–9,254	–5,184
Profit for the year		45,220	34,636
Basic and diluted earnings per share, SEK	17	1.57	1.20

Consolidated Statement of Other Comprehensive Income

SEK 000	2016	2015
Profit for the year	45,220	34,636
Other comprehensive income
Items that can be subsequently reversed in the Income Statement:
Exchange rate differences	6,034	–3,007
Cash flow hedges	–1	–421
Tax on cash flow hedges and exchange rate difference	–158	209
Total other comprehensive income, net after tax	5,875	–3,219

Total comprehensive income for the year	51,095	31,417

Consolidated Balance Sheet

SEK 000	NOTE	31 Dec 2016	31 Dec 2015
Assets
Intangible assets	12	80,371	80,371
Property, plant and equipment	3, 13	65,349	65,930
Long-term receivables	14	1,616	1,462
Deferred tax assets	11	4,995	8,898
Total non-current assets		152,331	156,661
Inventories	3, 15	206,336	189,863
Accounts receivable–trade	23, 24	249,835	252,110
Tax receivables		3,405	5,508
Other receivables	14, 23	2,929	3,485
Prepaid expenses and accrued income	16	8,032	8,331
Cash and cash equivalents	23, 26	71,590	47,298
Total current assets		542,127	506,595
TOTAL ASSETS		694,458	663,256
Equity	18
Share capital		14,436	14,436
Other paid-up capital		217,862	217,862
Reserves		4,247	–1,556
Retained profit		81,481	56,399
Total equity		318,026	287,141
Liabilities
Long-term interest-bearing liabilities	19, 23, 24	6,815	9,744
Deferred tax liabilities	11	2,464	2,359
Total non-current liabilities		9,279	12,103
Current interest-bearing liabilities	19, 23, 24	125,169	119,466
Accounts payable–trade	23, 24	171,301	175,044
Tax liabilities		2,810	310
Other liabilities	21	21,352	21,361
Accrued expenses and deferred income	22	46,510	47,819
Other provisions	20	11	12
Total current liabilities		367,153	364,012
TOTAL EQUITY AND LIABILITIES		694,458	663,256

For information on the group's pledged assets and contingent liabilities see Note 25 on page 45.

Consolidated Statement of Changes in Equity

SEK 000	Share capital	Other paid-up capital	Reserves	Retained profit	Total equity
Opening equity, 1 Jan 2015	14,436	217,862	1,663	36,199	270,160
Comprehensive income
Profit for the year				34,636	34,636
Other comprehensive income
Exchange rate differences			–3,007		–3,007
Cash flow hedges			–421		–421
Tax on cash flow hedges and exchange rate difference			209		209
Total comprehensive income			–3,219	34,636	31,417
Dividend				–14,436	–14,436
Closing equity, 31 Dec 2015	14,436	217,862	–1,556	56,399	287,141

SEK 000	Share capital	Other paid-up capital	Reserves	Retained profit	Total equity
Opening equity, 1 Jan 2016	14,436	217,862	–1,556	56,399	287,141
Comprehensive income
Profit for the year				45,220	45,220
Other comprehensive income
Exchange rate differences			5,961	73	6,034
Cash flow hedges
Tax on cash flow hedges and exchange rate difference			–158		–158
Total comprehensive income			5,803	45,293	51,096
Dividend				–20,211	–20,211
Closing equity, 31 Dec 2016	14,436	217,862	4,247	81,481	318,026

Consolidated Cash Flow Statement

SEK 000	NOTE	2016	2015
	26
Operating activities
Profit before tax		54,474	39,820
Reversed depreciation and amortisation		14,791	12,835
Other non-cash items		–1,754	–1,066
Tax paid		–439	–4,137
		67,072	47,452
Change in working capital
Increase (–)/decrease (+) in inventories		–24,970	13,233
Increase (–)/decrease (+) in trade receivables		–8,554	–53,904
Increase (+)/decrease (–) in trade liabilities		15,051	11,979
		–18,473	–28,692
Cash flow from operating activities		48,599	18,760
Investing activities
Purchase of property, plant and equipment		–7,403	–11,040
Purchase of intangible assets		–1,574	–2,495
Sale of subsidiary/operation, net liquidity effect		3,987	–
Sale of financial assets		–2,759	–
Cash flow from investing activities		–7,749	–13,535
Financing activities
Borrowings		5,396	21,755
Amortisation of loans		–2,177	–
Dividends paid		–20,211	–14,436
Cash flow from financing activities		–16,992	7,319
Cash flow for the year		23,858	12,544
Cash and cash equivalents
At beginning of period		47,298	35,160
Cash flow before financing activities		40,850	5,225
Cash flow from financing activities		–16,992	7,319
Exchange rate difference in cash and cash equivalents		434	–406
Cash and cash equivalents at end of period		71,590	47,298

Notes on the Consolidated Financial Statements

NOTE 1 Critical accounting principles

Consistency with standards and law

The consolidated accounts have been prepared in accordance with International Financial Reporting Standards (IFRS) issued by the International Accounting Standards Board (IASB), as endorsed by the EU and interpretation statements from the International Financial Reporting Interpretations Committee (IFRIC). RFR's (Rådet för finansiell rapportering, the Swedish Financial Reporting Board) recommendation RFR 1, Supplementary Accounting Rules for Groups, has been applied.

Basis of preparation of the consolidated financial statements

The parent company's functional currency is the Swedish krona, which is also the presentation currency for the parent company and group. Unless otherwise stated, all amounts are rounded to the nearest thousand.

Judgements made by management when applying IFRS that have a significant impact on the financial statements and estimates made that may imply significant restatements of following years' financial statements are reviewed in more detail in Note 28.

The following accounting principles for the group have been applied consistently for all periods presented in the consolidated financial statements, unless stated otherwise below. The group's accounting principles have been applied consistently on reporting and consolidating the parent company and subsidiaries.

The annual accounts and consolidated accounts were approved by the Board for issuance on 27 March 2017. The Consolidated Income Statement and Balance Sheet will be subject to adoption at the AGM (Annual General Meeting) on 20 April 2017. Swedish and English-language versions of this Report have been produced. In the event of any discrepancy between the two, the Swedish version shall apply.

None of the IFRS or IFRIC interpretation statements that are mandatory for the first time for the financial year that began on 1 January 2016 or later are expected to have any material impact on the group.

New standards and interpretation statements that have not yet been applied by the group

A number of new standards and interpretation statements come into effect for financial years beginning after 1 January 2016 and have not been applied to the preparation of these financial statements. None are expected to have any material impact on the consolidated financial statements apart from the following:

IFRS 9 "Financial Instruments" deals with the classification, measurement and recognition of financial assets and liabilities and replaces those parts of IAS 39 that deal with the classification and measurement of financial instruments. The standard retains a mixed measurement model that has been simplified in some respects. There will be three measurement categories; amortised cost, fair value through other comprehensive income and fair value through profit or loss. How an instrument is classified depends on the company's business model and the characteristics of the instrument. IFRS 9 also implements a new model for measuring credit loss reserves that is based on expected credit losses. For financial liabilities, the classification and measurement does not change apart from in the case when a liability is recognised at fair value through profit or loss based on the fair value option. IFRS 9 reduces the requirement for applying hedge accounting by replacing the 80–125 criterion with a requirement for an economic relationship between the hedging instrument and the hedged item, and that the hedging ratio should be the same as used in risk management. The standard should be applied for financial years beginning 1 January 2018. Prospective application is permitted. The group started work on examining the consequences of IFRS 9 on its financial statements in the year. The effect has not yet been fully investigated.

IFRS 15 "Revenue from Contracts with Customers" regulates the recognition of revenue. The basic principle of IFRS 15 is that a company recognises revenue in the manner that best reflects the transfer of the goods or service offered to the customer. This recognition is conducted with the aid of a five-step model. The principles that IFRS 15 is based on should give the user of financial statements more useful information regarding the company's revenues. This increased liability of disclosure requires the presentation of information regarding revenue type, the timing of settlement, uncertainty associated with revenue recognition and cash flow relating to the company's customer contracts. According to IFRS 15, revenue should be recognised when the customer gains control over the sold good or service, and is able to use or receive benefit from that good or service. IFRS 15 replaces IAS 18 Revenue and IAS 11 Construction Contracts, as well as the associated SIC and IFRIC interpretation statements. IFRS 15 comes into effect on 1 January 2018. Prospective application is permitted. The group started work on examining the consequences of IFRS 15 on its financial statements in the year. The effect has not yet been fully investigated.

In January 2016, the IASB published a new lease standard, IFRS 16 "Leases," which will replace IAS 17 Leases and the associated SIC and IFRIC interpretation statements. This standard requires that the assets and liabilities relating to all lease arrangements, with certain exceptions, are recognised in the Balance Sheet. This recognition is based on the approach that the lessee is entitled to use the asset for a specific period of time and bears the simultaneous liability to pay for this entitlement. The standard is applicable to financial years beginning 1 January 2019. Prospective application is permitted. The EU has not yet endorsed this standard. The group started work on examining the consequences of IFRS 16 on its financial statements in the year. The effect has not yet been fully investigated.

None of the other IFRS or IFRIC interpretation statements that have yet to come into effect are expected to have any material impact on the group.

Operating segments

Operating segments are reported in a manner consistent with internal reporting submitted to the chief operating decision maker. The chief operating decision maker is that function with responsibility for allocating resources and judging the results of an operating segment. In the group, this function has been identified as the CEO, who takes strategic decisions.

Classification, etc

Essentially, the non-current assets and non-current liabilities of the group exclusively comprise amounts expected to be recovered or paid after more than 12 months from year-end. Essentially, the current assets and current liabilities of the group only comprise amounts expected to be recovered or paid within 12 months of the reporting date.

Consolidation principles

Subsidiaries

Subsidiaries are companies under the controlling influence of NOTE AB. A controlling influence implies the direct or indirect right to formulate a company's financial and operational strategies with the aim of receiving economic rewards. When judging whether a controlling influence exists, potential shares conferring voting rights that can be exercised or converted without delay are considered.

The group comprises the parent company and 13 wholly owned companies. Subsidiaries are reported in accordance with acquisition accounting. Acquisition accounting means that acquisition of a subsidiary is considered as a transaction whereby the group indirectly acquires the subsidiary's assets and takes over its liabilities and contingent liabilities. The consolidated cost is determined using an acquisition analysis relating to the acquisition. This analysis determines partly the cost of participations or operation, and partly the fair value of acquired identifiable assets and liabilities and contingent liabilities taken over on the acquisition date. The cost of subsidiary shares and operations is the total of the fair value of assets paid, liabilities arising or taken over, and for equity instruments issued that are submitted as payment in exchange for the acquired net assets. In business combinations where the acquisition cost exceeds the fair value of acquired assets and liabilities and contingent liabilities taken over that are recognised separately, the difference is recognised as goodwill. When the difference is negative, this is recognised directly in the Income Statement. Subsidiary financial statements are consolidated from the acquisition date until the date the controlling influence ceases. For acquisitions until 2009 inclusive, transaction expenses directly attributable to the acquisition were also included in cost. For acquisitions from 2010 onwards, transaction costs are recognised in the Income Statement.

Transactions to be eliminated on consolidation

Receivables from and liabilities to group companies, revenues or expenses and unrealised gains or losses arising from group transactions, are fully eliminated when preparing the consolidated financial statements.

Foreign currency

Foreign currency transactions and balance sheet items

Foreign currency transactions are translated to the functional currency (SEK) at the rate of exchange ruling on the transaction date. Foreign currency monetary assets and liabilities are translated to the functional currency at the rates of exchange ruling at the reporting date. The exchange rate differences arising on translation are recognised in the Income Statement. The exceptions are when the transactions are hedges that satisfy the requirements of hedge accounting, when the loss/gain is recognised in other comprehensive income.

Exchange rate gains and losses relating to loans and cash and cash equivalents are recognised as financial revenue or expenses in the Income Statement. All other exchange rate gains and losses are recognised as other operating revenue or expenses in the Income Statement.

Financial statements of foreign operations

The assets and liabilities of foreign operations including goodwill and other consolidated surpluses and deficits are translated to Swedish krona at the rates of exchange ruling at the reporting date. The revenues and expenses of foreign operations are translated to Swedish krona at an average rate of exchange, which is an approximation of the rates of exchange ruling at each transaction date. Translation differences arising from the currency translation of foreign operations are recognised in other comprehensive income.

Revenues

Sales of goods and executing services assignments

Revenues from the sale of goods and manufacturing services are recognised in the Income Statement when the significant risks and rewards associated with ownership of the product have been transferred to the buyer and when it is probable that the future economic rewards will flow to the company and these rewards can be measured reliably. If there is significant uncertainty regarding payment, associated expenses or the risk of returns, and if NOTE retains a commitment in the ongoing management usually associated with ownership, no revenues are recognised. Revenues only include the gross inflows of economic rewards the company receives, or may receive, on its own behalf. Revenues are recognised at the actual value of what is received, or will be received, less deductions for

discounting. Revenues for consulting services are recognised according to the percentage of completion method provided that the labour hours incurred are clearly identifiable and can be measured reliably.

Central government support

Central government support is recognised in accordance with IAS 20. Central government subsidies are recognised in the Income Statement and Balance Sheet when they are received. Central government subsidies received as remuneration for expenses that have already been charged to profits in previous periods are recognised in the Income Statement in the period when the receivable from central government arises. Central government subsidies for investments are recognised as a reduction of the carrying amount of the asset.

Lease arrangements and financial income and expenses

In the consolidated accounts, leases are classified as finance or operating leases. Finance leases occur when essentially, the financial risks and rewards associated with ownership transfer to the lessee. If this is not the case, the arrangement is an operating lease.

Operating leases

Payments for operating lease arrangements are recognised in the Income Statement on a straight-line basis over the lease term. Rewards received on signing a contract are recognised as a portion of the total lease expense in the Income Statement.

Finance leases

Assets held through finance lease arrangements are recognised as assets in the Consolidated Balance Sheet in accordance with the principles for owned assets. The obligation to pay future lease payments is recognised as long-term and current liabilities.

Minimum lease payments are allocated between interest expenses and amortisation of the outstanding liability. Interest expenses are allocated over the lease term so that each accounting period is charged with an amount corresponding to a fixed interest rate for the liability recognised in each period. Variable expenditure is expensed in the periods it occurs.

Financial income and expenses

Financial income and expenses comprise interest income on bank balances and receivables, interest expenses on loans, exchange rate differences and un-realised and realised gains on financial investments and derivative instruments used in financing activities.

Interest income/ expenses are recognised according to the effective interest method. Effective interest is the interest that discounts estimated future payments received and made during the expected term of a financial instrument, at the financial asset's or liability's recognised net value. The calculation includes all expenditure paid or received from contract counterparties that is a part of effective interest, transaction expenses and all other premiums and discounts.

Financial instruments

Financial instruments recognised in the Balance Sheet include cash and cash equivalents, accounts receivable–trade, derivatives and loans receivable on the assets side. Accounts payable–trade, derivatives and borrowings are recognised under liabilities and equity.

A financial asset or financial liability is recognised in the Balance Sheet when the company becomes party to the instrument's contracted terms. Accounts receivable–trade are recognised in the Balance Sheet when invoices are sent. Liabilities are recognised when the counterparty has delivered and there is a contracted obligation to pay, even if no invoice has been received. Accounts payable–trade are recognised when invoices are received.

A financial asset is de-recognised from the Balance Sheet when the contracted rights are realised, mature or the company relinquishes control over them. The same applies to part of a financial asset. A financial liability is de-recognised from the Balance Sheet when the contracted obligation is satisfied or otherwise extinguished. The same applies to part of a financial liability.

A financial asset and financial liability is offset and recognised at a net amount in the Balance Sheet only when there is a legal right to offset the amount and there is an intention to settle the items at a net amount or to simultaneously realise the asset and settle the liability.

Purchases and sales of financial assets are recognised on the transaction date, which is the date the company undertakes to purchase or sell the asset.

NOTE conducts impairment tests for its financial assets at the end of each reporting period. A financial asset is only impaired if there is objective evidence that it is impaired due to "loss events" that affect future cash flows of the asset and can be measured reliably. The asset's impairment loss is recognised in the Income Statement.

Subsequent recognition then depends on the following classification. IAS 39 classifies financial instruments in categories. This classification depends on the purpose of the acquisition of the financial instrument. Management determines the classification at the original time of acquisition. The categories are as follows:

Loans receivable and accounts receivable–trade

"Loans receivable and accounts receivable–trade" are non-derivative financial assets with fixed payments or payments that can be determined, and are not listed on an active market. The receivables occur when the company supplies funds, goods or services directly to the borrower without the intention of conducting trade in the claim. This category also includes acquired receivables. These assets are initially recognised at fair value including transaction costs, and then at amortised cost by applying the effective interest method, less potential provisioning for impairment. "Loans receivable and accounts receivable– trade" are included in current assets apart from items with maturities of more than 12 months from the end of the reporting period, which are classified as non-current assets.

Other financial liabilities

Loans and other financial liabilities such as accounts payable–trade, are included in this category. Initially, these liabilities are recognised at fair value including transaction costs, and then at amortised cost by applying the effective interest method, less potential provisioning for value impairment.

Factoring

NOTE uses factoring as part of its external funding. A factored trade receivable is recognised as a whole as a pledged asset in consolidated contingent liabilities. The factoring liability is recognised as a current interest-bearing liability in tandem with payment. Upon full payment from the customer, the amount of the accounts receivable–trade and the factoring liability are written down to zero, and NOTE's contingent liability ceases.

Regarding NOTE's factoring financing in Estonia, 90 percent of the risk in accounts receivable–trade has been transferred to the creditor. This financing is also reported as factoring, in accordance with applicable regulations.

Cash flow hedging

Currency exposure regarding future forecast flows is partly hedged through currency forwards. Currency forwards that hedge future flows are recognised in the Balance Sheet at fair value. Changes to fair value are recognised in other comprehensive income and are reclassified from equity to profit or loss in those periods when the hedged item affects profit or loss.

When a forecast transaction is no longer expected to occur, the accumulated gain or loss recognised in other comprehensive income is immediately reclassified from equity to the Income Statement.

Cash and cash equivalents

Cash and cash equivalents consist of cash funds and immediately available balances with banks and corresponding institutions.

Property, plant and equipment

Property, plant and equipment are recognised in the group at cost less deductions for accumulated depreciation and potential impairment losses. The cost includes the purchase price and expenses directly attributable to bringing the asset into the location and condition for use in accordance with the purpose of its acquisition. The accounting principles for impairment losses are reported below.

Property, plant and equipment that comprise components of differing useful lives are treated as separate components of property, plant and equipment.

The carrying amount of property, plant and equipment is de-recognised from the Balance Sheet on disposal or sale, or when no future economic rewards are expected from using or disposing of/selling the asset. Profits or losses arising upon disposal or sale of an asset comprise the difference between the sales price and the asset's carrying amount less direct selling expenses. Profits and losses are recognised as other operating revenue/ expenses.

Additional expenditure

Additional expenditure is added to cost only if it is likely that the future economic rewards associated with the asset will arise for the company, and the cost can be measured reliably. All other additional expenditure is recognised as a cost in the period it occurs. Additional expenditure is added to cost to the extent that the performance of the asset is improved in relation to the level applying when originally acquired. All other additional expenditure is recognised as a cost in the period it occurs. Whether expenditure relates to the exchange of identifiable components, or parts thereof, is decisive to evaluation of when additional expenditure is added to cost, whereupon such expenditure is capitalised. Even in those cases where new components are added, expenditure is added to cost. Potential carrying amounts not expensed on exchanged components, or parts of components, are retired and expensed at exchange. Repairs are expensed on an ongoing basis.

Depreciation principles

Depreciation is on a straight-line basis over the estimated useful lives of assets. Land is not depreciated. The group utilises component depreciation, which means that the components' estimated useful lives are the basis for depreciation.

Estimated useful lives: Land improvements 20 years

Buildings, real estate used in business operations	see below
Leasehold improvements–permanent equipment,
servicing facilities etc. in buildings	5 years
Leasehold improvements–permanent installation, buildings	20 years
Permanent equipment, servicing facilities etc. in buildings	see below
Plant and machinery	5 years
Equipment, tools fixtures and fittings	4 or 5 years

Real estate used in business operations comprises a number of components with differing useful lives. The main division is buildings and land. However, buildings comprise several components, whose useful lives vary. The useful lives of these components are assessed to vary between 10 and 100 years.

The following main groups of components have been identified and are the basis for depreciation on buildings:

Framework	100 years
Additions to framework, interior walls, etc.	20–40 years

Fixtures and fittings, heating, electricity, ventilation and sanitation, etc. 20–40 years
Exterior surfaces, frontage, external roofing, etc. 20–30 years
Interior surfaces, mechanical equipment, etc. 10–15 years

The depreciation methods applied and residual values and useful lives of assets are reevaluated at each year-end.

Intangible assets

Goodwill

Goodwill is the difference between the cost of a business combination and the fair value of acquired assets, liabilities taken over and contingent liabilities.

Goodwill is recognised at cost less potential accumulated impairment losses. Goodwill from a business combination is allocated to the groups of cash generating units that are expected to benefit from the synergies of the business combination. NOTE allocates goodwill to the Nearsourcing and Industrial Plants business segments. Goodwill is subject to impairment tests at least yearly.

Other intangible assets

Other intangible assets acquired by the group are recognised at cost less accumulated amortisation (see below).

Expenses incurred for internally generated goodwill and internally generated trademarks and brands are recognised in the Income Statement when the expense occurs.

In 2014, the group commenced implementation of a new ERP system whose cost was covered by purchased consulting hours and time allocated to the project internally, which satisfies the criteria for capitalised expenditure.

Additional expenditure

Additional expenditure for capitalised intangible assets is recognised as an asset in the Balance Sheet only when it increases the future economic rewards for the specific asset to which it is attributable. All other expenditure is expensed as it occurs.

Amortisation

Amortisation is recognised in the Income Statement on a straight-line basis over the estimated useful lives of intangible assets, providing such useful lives are not indefinite. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are:

Trademarks, brands and similar rights	5 years
Capitalised expenditure on software	10 years
Capitalised expenditure for process development	3–5 years

Inventories

Inventories are recognised at the lower of cost and net realisable value. Net realisable value is the estimated sales price in operating activities less estimated expenditure for completion and achieving a sale.

Cost is calculated by applying the FIFO (first in first out) method and includes expenditure arising from the acquisition of inventory items and their transportation to their current location and condition. The cost of producing finished goods and work in progress includes a reasonable proportion of indirect expenses based on normal capacity utilisation.

The cost of finished and semi-finished goods produced by the company includes direct production expenses and a reasonable proportion of indirect production expenses. Valuations consider normal capacity utilisation.

Inventories are recognised net of deductions for individually judged risk of obsolescence.

Impairment

With the exception of inventories and deferred tax assets, the carrying amounts of the group's assets are subject to impairment tests at each reporting date. If there is such indication, the asset's recoverable value is calculated. Assets exempted by the above are subject to impairment tests in accordance with the relevant standards.

An impairment loss is recognised when an asset or cash-generating unit's carrying amount exceeds its recoverable value. An impairment loss is charged to the Income Statement. Impairment losses on assets attributable to cash-generating units (group of units) are primarily assigned to goodwill. A proportional impairment loss of the unit's other constituent assets (group of units) is effected subsequently.

Measuring recoverable values

Recoverable values on accounts receivable–trade are calculated as the original receivable less the amounts not expected to be received. The recoverable value of other assets is measured as the greater of fair value less selling expenses and value in use.

Reversal of impairment losses

Impairment losses of accounts receivable–trade are reversed if a subsequent increase in recoverable value can be objectively attributed to an event that has occurred after the impairment loss was effected. Goodwill impairment losses are not reversed. Impairment losses on other assets are reversed if changes to the assumptions forming the basis for calculating the recoverable value have occurred. An impairment loss is only reversed to the extend the asset's carrying amount after reversal does not exceed the carrying amount the asset would have had if no impairment loss had been effected, considering the depreciation or amortisation that would then have been effected.

Share capital

Dividends

Dividends are recognised as a liability after the AGM has approved the dividends.

Defined-contribution pension plans

Obligations regarding expenditure on defined-contribution plans are recognised as an expense in the Income Statement when they occur.

A defined contribution pension plan is a pension plan by which NOTE pays fixed charges to a separate legal entity. NOTE does not have any legal or informal obligation to pay further contributions if this legal entity does not have sufficient assets to pay all benefits to employees associated with employees' service during current or previous periods.

Defined-benefit pension plans

The group had one traditional assurance defined-benefit plan until 2009 inclusive, which was discontinued during 2010, and there were no defined benefit pension plans as of the reporting date.

Remuneration on notice of termination

A cost for remuneration coincident with the notices of termination to staff is recognised only if the company has demonstrably committed to terminate employment before the normal time, without the realistic possibility of withdrawing its decision, by a formal detailed plan. When remuneration is disbursed as an offering to encourage voluntary redundancies, a cost is recognised if it is probable that the offer will be accepted and that the number of employees who will accept the offer can be reliably estimated.

Provisions

Provisions are recognised in the Balance Sheet when the group has an obligation, and it is likely that an outflow of economic resources will be necessary to fulfil the obligation and the amount can be reliably measured. Provisions are measured at the present value of the amounts expected to be required to fulfil the obligation.

Restructuring program and other non-recurring expenses

A restructuring program provision is recognised when the group has determined an executable and formal restructuring program plan, and the restructuring program has either begun or been publicly disclosed.

Non-recurring expenses mean expenses of significant amounts, and simultaneously, of such a nature that they can be considered as non-operating and not recurrent each year. For example, non-recurring expenses are impairment of assets in disputes and expenses relating to changing CEOs.

Tax

Income tax comprises current tax and deferred tax. Income tax is recognised in the Income Statement apart from when the underlying transaction is recognised directly in other comprehensive income or directly against equity, whereupon the associated tax effect is recognised in other comprehensive income or directly in equity.

Current tax is tax to be paid or received for the current year, applying the tax rates enacted or substantively enacted as of the reporting date, which also includes adjustments to current tax attributable to previous periods.

Deferred tax is calculated according to the balance sheet method, proceeding from temporary differences between carrying amounts and taxable values of assets and liabilities. The following temporary differences are not considered; for temporary differences arising in the first-time recognition of goodwill, the first-time recognition of assets and liabilities that are not business combinations, and that at the time of the transaction neither influence reported nor taxable profits. Nor are temporary differences attributable to participations in subsidiaries not expected to be reversed within the foreseeable future considered. The measurement of deferred tax is based on how the carrying amounts of assets or liabilities are expected to be realised or settled. Deferred tax is calculated by applying the tax rates and tax regulations that are enacted or substantively enacted as of the reporting date.

Deferred tax assets on taxable temporary differences and loss carry-forwards are only recognised to the extent it is likely that they will be utilised. The value of deferred tax assets is reduced when it is no longer considered likely that they can be utilised.

Earnings per share

The measurement of earnings per share is based on the consolidated profit for the year and on the weighted average number of shares outstanding in the year. When measuring earnings per share after dilution, the average number of shares is adjusted to take into account effects of any diluting ordinary shares, which, in the relevant reporting period, derive from options issued to senior management.

Contingent liabilities

A contingent liability is recognised when there is a possible commitment resulting from events that have occurred and whose incidence is only confirmed by one or more uncertain future events, or when there is a commitment that is not recognised as a liability or provision because it is not likely that an outflow of resources will be necessary or the size of the commitment can be reliably measured.

NOTE 2 Allocation of revenue

All group sales are derived from EMS operations, i.e. contract manufacture services for electronics products.

NOTE 3 Operating segments

Significant key figures for NOTE's operating segments are in the following table, in accordance with the application of IFRS 8. Essentially, these consist of Nearsourcing Centres and Industrial Plants. Nearsourcing Centres are the selling units in Sweden, Norway (until April 2016 inclusive), Finland and the UK, where development-oriented work is conducted close to customers. Industrial Plants are largely manufacturing units in Estonia and China. Other units consist of business-support, group-wide operations.

	Other units and
		Nearsourcing Centre Industrial Plants		eliminations			Total
	2016	2015	2016	2015	2016	2015	2016	2015
NET REVENUE
External net revenue	638,097	704,666	459,983	416,834	–	–	1,098,080	1,121,500
Internal net revenue	6,229	4,484	127,222	147,103	–133,451	–151,587	–	–
Net revenue	644,326	709,150	587,205	563,937	–133,451	–151,587	1,098,080	1,121,500
OPERATING PROFIT
Operating profit	25,565	25,160	39,026	30,084	–4,421	–9,990	60,170	45,254
Operating profit	25,565	25,160	39,026	30,084	–4,421	–9,990	60,170	45,254
Financial income and expenses–net							–5,696	–5,434
Profit before tax							54,474	39,820
SIGNIFICANT ASSETS BY SEGMENT
Property, plant and equipment	24,064	25,494	41,045	40,369	240	67	65,349	65,930
Inventories	106,679	94,650	99,657	95,213	–	–	206,336	189,863
External accounts receivable–trade	126,230	124,875	123,180	126,877	425	358	249,835	252,110
Total assets	375,282	388,122	319,305	284,733	–129	–9,599	694,458	663,256
OTHER INFORMATION
Investments in property, plant and equipment	6,522	6,131	6,918	14,044	746	80	14,186	20,255
Depreciation and amortisation	–5,783	–6,650	–7,762	–6,172	–1,246	–13	–14,791	–12,835
Other non-cash items (excl. depreciation and amortisation)	390	–4,116	3,587	2,679	–5,731	371	–1,754	–1,066
Average number of employees	298	350	670	573	19	17	987	940

NOTE's registered office is in Sweden. Revenues from external customers in Sweden were SEK 452.8 (452.2) million, and from other countries SEK 645.3 (669.3) million. Generally speaking, NOTE has a diversified customer base where no single customer represents more than 10 percent of total group sales. Non-current assets in Sweden (excluding financial) were SEK 59.4 (58.1) million, in Estonia SEK 19.6 (17.6) million, the UK SEK 4.4 (5.1) million, Norway SEK – (5.9) million and in other countries SEK 58.8 (56.4) million as of the reporting date. Deferred tax assets in Sweden were SEK –1.9 (–0.2) million, in Norway SEK – (3.8) million, the UK SEK 4.2 (4.2) million and other countries SEK 2.7 (1.1) million as of the reporting date.

2016 2015

NOTE 4 Other operating revenue
	2016	2015
Exchange gains on trade receivables/liabilities	16,322	21,509
Other	7,185	2,198

Total 23,507 23,707

Exchange losses on trade receivables/liabilities –18,580 –21,167 Other –4,623 –1,036 Total –23,203 –22,203

NOTE 7 Operating leases

Premises rent	31 Dec 2016	31 Dec 2015
Lease arrangements payable within one year	11,553	15,591
Lease arrangements payable between one and five years	25,436	26,125
Total	36,989	41,716

Group costs for premises rent in 2016 were 12,676 (15,828).

Other operating leases	31 Dec 2016	31 Dec 2015
Lease arrangements payable within one year	2,646	2,733
Lease arrangements payable between one and five years	5,222	3,589
Total	7,868	6,322

Group costs for other operating leases were 2,659 (2,921) in 2016.

NOTE 6 Operating expenses by type

NOTE 5 Other operating expenses

	2016	2015
Cost of goods and materials	–669,036	–695,750
Personnel expenses	–251,491	–259,865
Depreciation and amortisation	–14,791	–12,835
Other	–126,099	–131,503
Total	–1,061,417	–1,099,953

NOTE 8 Employees, personnel expenses and remuneration to senior management

Expenses for employee benefits	2016	2015
Salaries and benefits	–192,994	–196,640
Pension expenses, defined-benefit plans	–	–
Pension expenses, defined-contribution plans	–12,880	–14,811
Social security contributions	–45,617	–48,414
Total	–251,491	–259,865

Alecta

The commitments for retirement and survivors' pensions for salaried employees in Sweden are largely insured through a policy with Alecta. Statement UFR3 from The Swedish Financial Reporting Board, Classification of ITP plans financed by insurance in Alecta, defines this as a defined-benefit multi-employer plan. For the financial year 2016, the company did not have access to sufficient information enabling the plan to be reported as a defined-benefit plan. Thus, ITP (Supplementary Pensions for Salaried Employees) plans insured through Alecta are reported as defined-contribution plans.

The expenditure for pension policies with Alecta in the year were SEK 2.9 (2.8) million. The charges for next year are estimated at some SEK 3.0 million. The group's share of total expenditure to the plan is negligible and is less than 0.015 percent. Alecta's surplus can be divided between policyholders and/or beneficiaries. At year-end 2016, Alecta's surplus, expressed as a collective consolidation ratio was 149 (153) percent. The collective consolidation ratio comprises the market value of Alecta's assets as a percentage of insurance commitments calculated in accordance with Alecta's actuarial calculation assumptions, which are not consistent with IAS 19.

Defined-contribution pension plans

The group has defined-contribution pension plans in Sweden for white-collar and blue-collar staff, which the companies fund fully. There are defined-contribution plans in foreign countries, which are partly paid by subsidiaries and partly covered through employees' contributions. Payments to these plans is on an ongoing basis subject to the regulations of each plan.

	2016	2015
Expenses for defined-contribution plans*	–12,880	–14,811

*Includes 2,904 (2,839) for an ITP plan insured with Alecta.

Senior management's remuneration		Basic salary,		Performance
		Directors' fees related pay		Other benefits			Pension expenses	Total
Remuneration and other benefits		2016	2015	2016	2015	2016	2015	2016	2015	2016	2015
Chairman of the Board:	Kristian Teär, left after year-end	–300	–300	–	–	–	–	–	–	–300	–300
Board members:	Kjell-Åke Andersson	–100	–100	–	–	–	–	–	–	–100	–100
	Bruce Grant, left after year-end	–100	–100	–	–	–	–	–	–	–100	–100
	Bahare Hederstierna	–100	–67	–	–	–	–	–	–	–100	–67
	Stefan Johansson, left after year-end	–160	–160	–	–	–	–	–	–	–160	–160
	Henry Klotz, left after year-end	–100	–100	–	–	–	–	–	–	–100	–100
	Daniel Nyhrén Edeen, left after year-end	–100	–100	–	–	–	–	–	–	–100	–100
CEO:	Stefan Hedelius, took up position in March 2016	–3,078	–	–688	–	–117	–	–507	–	–4,390	–
	Peter Laveson, left after year-end	–	–4,207	–	–281	–	–65	–	–942	–	–5,495
Other senior management (4 (3) people)*		–5,023	–3,273	–696	–485	–294	–177 –1,925 –1,048		–7,938	–4,983
Total		–9,061	–8,407	–1,384	–766	–411	–242	–2,432	–1,990	–13,288 –11,405

Comments on the table:

Salary, benefits and Directors' fees are remuneration charged to consolidated profit for 2016. There was a profitability-based, performance-related remuneration program for the CEO, senior managers, subsidiary Presidents and other key staff, during the financial year 2016. This program had 20 (19) participants. In 2016, an estimated outcome of SEK 2,3 (1,6) million excluding social security contributions, was charged to the group's profit, of which SEK 1,4 (0,8) million related to senior managers. The Report of the Directors states the details of the remuneration guidelines for senior managers.

*The total number of senior managers at the end of the year.

Average number of employees	2016	Of which men		2015 Of which men
Sweden	233	72%	253	60%
Norway	11	48%	40	48%
UK	28	50%	32	50%
Finland	45	60%	43	62%
Estonia	246	25%	237	28%
China	424	34%	335	41%
Group total	987	42%	940	44%

	2016	2015
Division between sexes in group managemen Board members, Presidents	Share of women 28%	Share of women 28%
Other senior management, 4 (3) people*	0%	0%

*The total number of senior managers at the end of the year. A total of three people for the first half-year. A total of four people for the second half-year.

NOTE 9 Auditors' fees and reimbursement

	2016	2015
PwC
Auditing assignment	–970	–910
Other services	–291	–227
Other Auditors
Auditing assignment	–423	–438
Auditing in addition to audit assignment	–7	–31
Other services	–633	–673

Auditing of the consolidated accounts was conducted through the whole year. No separate fees were payable for reviewing interim reports.

NOTE 10 Net financial income/expense

	2016	2015
Interest income on bank balances	187	80
Exchange rate gains	1,306	3,746
Other	–	–
Financial income	1,493	3,826
Interest costs on financial liabilities measured
at amortised cost	–2,161	–2,543
Bank charges	–2,730	–2,362
Exchange rate losses	–1,434	–3,398
Other	–864	–957
Financial expenses	–7,189	–9,260
Net financial income/expense	–5,696	–5,434

NOTE 11 Tax

Reported in Income Statement		2016	2015		Reconciliation of effective tax		%	2016	%	2015
Current tax expense (–)/tax revenue (+)				Profit before tax				54,474		39,820
Tax expense for the period		–5,428	–2,867		Tax at applicable rate for parent company		–22.0	–11,984	–22.0	–8,760
Adjustment of tax attributable to previous year		306	1,644			Effect of other tax rates for foreign subsidiaries	4.1	2,239	2.9	1,135
					Non-deductible expenses		–1.2	–681	–1.3	–522
Deferred tax expense (–)/tax revenue (+)				Non-taxable revenue			8.7	4,745	9.4	3,732
Deferred tax relating to temporary differences/ appropriations		1,039	–1,342	Un-reported tax revenue on loss for the year			–0.7	–390	–5.4	–2,139
Deferred tax revenue/expense in capitalised/utilised tax value in loss carry-forward		–5,171	–2,541	forwards		Tax attributable to utilised portion of loss carry	–	–	0.1	32
Adjustment of tax attributable to previous year		–	–78		Tax attributable to previous year		0.6	306	3.9	1,566
Total reported tax in group		–9,254	–5,184	Other			–6.4	–3,489	–0.6	–228
					Total reported tax in group		–17.0	–9,254		–13.0 –5,184
	Deferred tax asset					Deferred tax liability			Net
Recognised in Balance Sheet	31 Dec 2016		31 Dec 2015		31 Dec 2016	31 Dec 2015		31 Dec 2016		31 Dec 2015
Property, plant and equipment	–34		–39		2,024	1,944		–2,058		–1,983

		Deferred tax asset Deferred tax liability			Net
Recognised in Balance Sheet	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015	31 Dec 2016	31 Dec 2015
Property, plant and equipment	–34	–39	2,024	1,944	–2,058	–1,983
Derivatives measured at fair value	15	12	–	–	15	12
Loss carry-forwards	2,610	7,654	–	–	2,610	7,654
Provisions	2,404	1,271	–	–	2,404	1,271
Untaxed reserves	–	–	440	415	–440	–415
Tax receivables/liabilities	4,995	8,898	2,464	2,359	2,531	6,539

Deferred tax assets on loss carry-forwards

Approximately half of deferred tax assets are attributable to loss carry-forwards. The remainder relates to temporary differences relating to valuation of fixed assets and provisions, which will be divided over a number of years.

Deferred tax assets are recognised in deductible loss carry-forwards to the extent it is likely that they can be utilised against future taxable profits. None of the loss carry-forwards are subject to time limitation, approximately SEK 1 million are expected to be utilised in 2017. Deductible temporary differences and tax loss carry-forwards for which deferred tax assets have not been reported in the Income Statement and Balance Sheet amounted to SEK 0.4 (2.3) million.

Provisions for deferred tax	31 Dec 2016	31 Dec 2015
Carrying amount at beginning of period	2,359	2,570
Amount provisioned in period	150	28
Amounts utilised in period	–45	–239
Carrying amount at the end of period	2,464	2,359

Change in deferred tax in temporary differences and loss carry-forwards

			2015					2016
	Balance as of 1 Jan	Reported in Income Statement	Reported against Comprehen sive Income	Reported directly in equity	Balance as of 31 Dec	Balance as of 1 Jan	Reported in Income Statement	Reported against Comprehen– sive Income	Reported directly in equity	Balance as of 31 Dec
Property, plant and equipment	–1,763	–220	–	–	–1,983	–1,983	–75	–	–	–2,058
Derivatives measured at fair value	–301	194	119	–	12	12	3	–	–	15
Loss carry-forward	11,110	–2,617	–399	–440	7,654	7,654	–5,171	127	–	2,610
Provisions	2,736	–1,459	–	–6	1,271	1,271	1,136	–3	–	2,404
Untaxed reserves	–558	143	–	–	–415	–415	–25	–	–	–440
Total	11,224	–3,959	–280	–446	6,539	6,539	–4,132	124	–	2,531

NOTE 12 Intangible assets

The useful life of goodwill is indefinite while the useful lives of other intangible assets is definite and conforms to what is stated in Note 1, Critical accounting principles. Intangible assets with definite useful lives are amortised on a straight-line basis over their useful lives

	Goodwill, purchased	Capitalised expenditure for software	Trademarks and brands etc	Total
Cumulative cost
Opening balance, 1 Jan 2015	72,637	12,011	1,732	86,380
Investments	–	2,308	188	2,496
Reclassification and exchange rate effects	–200	–623	–21	–844
Sales and retirements	–	–302	–	–302
Closing balance, 31 Dec 2015	72,437	13,394	1,899	87,730
Opening balance, 1 Jan 2016	72,437	13,394	1,899	87,730
Investments		1,574		1,574
Reclassification and exchange rate effects	–17	–279	27	–269
Sales and retirements	–	–	–	–
Closing balance, 31 Dec 2016	72,420	14,689	1,926	89,035
Accumulated amortisation and impairment
Opening balance, 1 Jan 2015	–2,030	–2,751	–1,492	–6,273
Reclassification and exchange rate effects	–	–	9	9
Amortisation for the year	–	–1,300	–97	–1,397
Sales and retirements	–	302	–	302
Closing balance, 31 Dec 2015	–2,030	–3,749	–1,580	–7,359
Opening balance, 1 Jan 2016	–2,030	–3,749	–1,580	–7,359
Reclassification and exchange rate effects			–13	–13
Amortisation for the year		–1,172	–120	–1,292
Sales and retirements	–	–	–	–
Closing balance, 31 Dec 2016	–2,030	–4,921	–1,713	–8,664
Carrying amounts
As of 1 Jan 2015	70,607	9,260	240	80,107
As of 31 Dec 2015	70,407	9,645	319	80,371
As of 1 Jan 2016	70,407	9,645	319	80,371
As of 31 Dec 2016	70,390	9,768	213	80,371

Amortisation and impairment are included in

following Income Statement lines	2016	2015
Cost of goods sold and services	–1,292	–1,397
Administrative expenses	–	–
Total	–1,292	–1,397

Impairment testing of goodwil

NOTE allocates and tests goodwill in the Nearsourcing Centres and Industrial Plants operating segments. The following table states goodwill values by operating segment.

	31 Dec 2016	31 Dec 2015
Nearsourcing Centres	58,216	58,233
Industrial Plants	12,174	12,174
Total	70,390	70,407

Important variables	Method for defining values
Growth in the forecast period	Market growth has been estimated at 5 (5) percent during the forecast period for all units. Market growth is based on historical experience, estimates in sector research and other externally available information.
Growth after the forecast period	Growth after the forecast period is estimated at 2.0 (2.0) percent.
Cost of materials	The cost of electronic components is expected to reduce during the forecast period, partly because of continued ra tionalisation of the production process and partly through increased purchasing volumes and improved co-ordination or purchasing processes.
Personnel costs	Payroll expenses have been estimated using collective agre ements and considering historical pay increases. In addition, a growing share of production being conducted in the group's plants in low-cost countries has also been considered.

Impairment tests are based on measurement of value in use, a value based on cash flow forecasts totalling 3 (3) years. Cash flow for the first year is based on budget set by the Board of Directors. The following two years are based on the company's best judgement. Cash flow beyond the forecast period is extrapolated using the assessed growth rate as follows.

Impairment testing is conducted in the two operating segments–Nearsourcing Centres and Industrial Plants. As operations are monitored otherwise, goodwill is monitored and impairment is tested at operating segment level.

Testing is based on estimated present values of future cash flows for each constituent legal entity of the operating segment. The present value of these aggregated cash flows are then compared with the goodwill and capital employed that is allocated to the operating segment.

The present value of forecast cash flow is calculated by applying a discount rate after tax based on risk-free interest and the risk judged to be associated with the operation. Against the background of NOTE mainly having shared borrowings, and that the group's entities operate on the same markets, the same discount rate after tax of 9.2 (9.0) percent has been applied for both operating segments. The discount rate before tax amounts to 11.8 (11.1) percent.

The recoverable values for both Nearsourcing Centres and Industrial Plants exceed carrying amounts.

Sensitivity analysis, goodwill impairment testing

With the above calculation assumptions and considering the growth and profitability potential estimated by NOTE in its business model, there is no impairment of goodwill values at the reporting date.

If there is no market growth during or after the forecast period, this would not cause any impairment. An increase of the discount rate after tax by one percentage point, from 9.2 till 10.2 percentage points, would not imply any impairment.

Value in use reduces but still significantly exceeds the carrying amount of both Nearsourcing Centres and Industrial Plants.

NOTE 13 Property, plant and equipment

	Buildings and land (real estate used in business opera tions)	Cost incurred on other party's property	Machinery and other plan	Equipment, tools, fixtures and fittings	Total
Cumulative cost
Opening balance, 1 Jan 2015	46,441	8,583	149,418	46,110	250,552
Investments	254	607	18,750	644	20,255
Sales	–	–	–8,968	–5,257	–14,225
Reclassification and exchange rate effects	–838	50	–1,132	–303	–2,223
Closing balance, 31 Dec 2015	45,857	9,240	158,068	41,194	254,359
Opening balance, 1 Jan 2016	45,857	9,240	158,068	41,194	254,359
Investments	–	211	13,054	921	14,186
Sales	–	–	–6,436	–3,124	–9,560
Reclassification and exchange rate effects	957	–235	–4,907	–4,629	–8,814
Closing balance, 31 Dec 2016	46,814	9,216	159,779	34,362	250,171
Depreciation and impairment
Opening balance, 1 Jan 2015	–21,533	–6,530	–118,874	–44,529	–191,466
Depreciation for the year	–1,142	–462	–8,478	–1,356	–11,438
Sales	–	–	7,629	5,257	12,886
Reclassification and exchange rate effects	468	–30	882	269	1,589
Closing balance, 31 Dec 2015	–22,207	–7,022	–118,841	–40,359	–188,429
Opening balance, 1 Jan 2016	–22,207	–7,022	–118,841	–40,359	–188,429
Depreciation for the year	–715	–618	–11,610	–556	–13,499
Sales	–	–	5,241	2,970	8,211
Reclassification and exchange rate effects	–551	292	5,127	4,027	8,895
Closing balance, 31 Dec 2016	–23,473	–7,348	–120,083	–33,918	–184,822
Carrying amounts
As of 1 Jan 2015	24,908	2,053	30,544	1,581	59,086
As of 31 Dec 2015	23,650	2,218	39,227	835	65,930
As of 1 Jan 2016	23,650	2,218	39,227	835	65,930
As of 31 Dec 2016	23,341	1,868	39,696	444	65,349

Depreciation and impairment is included in the following Income Statement lines

	2016	2015
Cost of goods sold and services	–13,091	–11,045
Administrative expenses	–269	–158
Selling expenses	–139	–235
Total	–13,499	–11,438

Leased production equipment via several different lease contracts*

	2016	2015
Opening balance	33,641	26,358
Investments	5,552	9,283
Sales / obsolescence	–	–2,000
Accumulated depreciation	–15,361	–12,224
Total	23,832	21,417

*Included under Plant and machinery in the table showing Property, plant and equipment.

Information on central government support in the group

The aggregate cost of the assets the support is intended to cover amounts to – (2,652) in the period. The cost reduced by – (468) or enacted government support. Total utilised, but not received, investment subsidies amount to – (543) on the reporting date. Pledged assets for subsidies received in 2016 and the previous year amounted to 0, åwith repayment obligation for investment support in the event of the specified terms not being satisfied.

Collateral

As of 31 December 2016, property with a carrying amount of 23,341 (23,650) was pledged as collateral for bank borrowings. As of 31 December 2016, there is ownership reservation on machinery, with a carrying amount of 913 (1,082).

NOTE 14 Long-term receivables and other receivables

Long-term receivables	31 Dec 2016	31 Dec 2015
Interest-bearing loans	–	–
Other long-term receivables	1,616	1,462
Total	1,616	1,462
Other receivables that are current asset
Interest-bearing loans	–	–
VAT	1,333	1,076
Other	1,596	2,409
Total	2,929	3,485

NOTE 15 Inventories

	31 Dec 2016	31 Dec 2015
Raw materials and consumables	157,763	160,110
Products in process	17,567	14,679
Finished goods and goods for re-sale	42,981	27,077
Obsolescence provision	–11,975	–12,003
Total	206,336	189,863

The expensed inventories for the year are stated in Note 6, Operating expenses by type, on page 37.

NOTE 16 Prepaid expenses and accrued income

	31 Dec 2016	31 Dec 2015
Accrued income	2,812	2,352
Prepaid services	958	951
Prepaid rent	2,020	2,088
Prepaid licenses	1,169	1,241
Prepaid insurance	323	413
Prepaid lease payments	187	271
Other prepaid expenses	563	1,015
Total	8,032	8,331

NOTE 17 Earnings per share

	Before dilution		After dilution
Earnings per share	2016	2015	2016	2015
Earnings per share, SEK	1.57	1.20	1.57	1.20

The calculation of earnings per share for 2016 has been based on profit for the period o 45,220 (34,636) and on a weighted average number of outstanding shares in 2016 of 28,872,600 (28,872,600).

Earnings per share after dilution

NOTE has not issued any instruments that could cause dilution.

NOTE 18 Equity

	Aktieslag A
No. of shares (thousands)	31 Dec 2016	31 Dec 2015
Issued as of 1 January	28,873	28,873
lssued as of 31 December–paid up	28,873	28,873

As of 31 December 2016 registered share capital comprised 28,872,600 shares with a quotient value of SEK 0.50 each. There were no outstanding warrants or other instruments that could result in dilution effects as of 31 December 2016. Shareholders are entitled to dividends, and shareholdings confer the voting rights of one vote per share at the AGM.

Other paid-up capital

Equity that is contributed by the owners. This includes a portion of share premium reserves transferred to the statutory reserve as a 31 December 2005 and a premium of SEK 4 per share in the rights issue of 2010, less issue expenses.

Reserves

Translation reserve	31 Dec 2016	31 Dec 2015
Opening translation reserve	–1,541	1,258
Translation differences for the year	5,805	–2,799
Closing translation reserve	4,264	–1,541

The translation reserve includes all exchange rate differences arising from translating financial statements from foreign operations that prepared their financial statements in currencies other than the currency the consolidated financial statements are presented in. The parent company and group present their financial statements in Swedish kronor. The translation reserve also includes the effect of exchange rate differences on long-term internal loans that are equivalent to equity in subsidiaries.

Hedging reserve	31 Dec 2016	31 Dec 2015
Opening hedging reserve	–16	405
Forecast cash flow hedges for the year	–1	–421
Closing hedging reserv	–17	–16

The hedging reserve includes the cash flow hedges whose effectiveness is partly tested in accordance with IAS 39 and partly relates to the forecast flows that have not yet affected the Consolidated Income Statement and Consolidated Balance Sheet.

Retained profit including profit for the period

Retained profits including profit for the period include accrued profits of the parent company and its subsidiaries. Previous provisions to statutory reserves, excluding transfers to share premium reserve are included in retained profit including profit for the year.

Capital management

The Board of Directors and management of NOTE have set the following financial targets:

Growth target

NOTE will increase its market share organically and through acquisitions.

Profitability target

Capital structure target

The minimum equity ratio should be 30 percent. At year-end, the equity to assets ratio was 45.8 (43.3) percent.

Dividend target

The dividend should be adapted to the average profit level over a business cycle and should constitute 30–50 percent of profit after tax for the long term. The dividend should also be available to adapt the capital structure.

NOTE 19 Interest-bearing liabilities

Non-current liabilities	31 Dec 2016	31 Dec 2015
Bank loans	325	555
Finance lease liabilities, fixed assets	6,490	9,189
Total	6,815	9,744
Current liabilities
Overdraft facility	–	–
Factoring	117,851	112,455
Short-term portion of bank loans	230	230
Short-term portion of finance lease liabilities	7,088	6,781
Total	125,169	119,466

Pledged assets

25,506 (24,874) of collateral for bank loans, finance lease liabilities and overdraft facilities is pledged in the company's land and buildings (see also Note 13) and 212,409 (220,310) in operations. Collateral for factoring is issued at an amount of 123,694 (120,506) in pledged accounts receivable–trade.

90 percent of the risk associated with customer receivables–trade for NOTE's factoring engagements in Estonia have been transferred to the lender. To comply with applicable regulations, this financing is also reported as factoring, totaling 17,189 (11,902).

Fair value on non-current liabilities	Carrying amount		Fair value
	2016	2015	2016	2015
Finance lease liabilities, fixed assets	6,490	9,189	5,827	8,482

The fair value of current liabilities corresponds to their carrying amount, because the discounting effect is not significant. Fair value is based on discounted cash flow with interest based on average loan interest of 9.2 (8.4) percent.

Finance lease liabilities

Finance lease liabilities are due for payment as follows:

	2016			2015
	Minimi lease			Minimi lease
	payments Interest Prinipal			payments Interest Prinipal
Within one year	7,740	652	7,088	7,349	568	6,781
Between one and five years	7,087	597	6,490	9,958	770	9,189
Total	14,827		1,249 13,578	17,307		1,338 15,970

For more information, see Note 24 Financial risks and finance policy on page 44.

NOTE 20 Provisions

Short-term portion of provision	31 Dec 2016	31 Dec 2015
Other	11	12
Total	11	12

2015	Restructur ing program	Other	Total
Carrying amount at beginning of period	4,000	12	4,012
Provisions in the period	–	–	–
Amounts utilised in the period	–4,000	–	–4,000
Un-utilised amounts reversed in the period	–	–	–
Carrying amount at end of period	–	12	12


2016	Restructur ing program	Other	Total
Carrying amount at beginning of period	–	12	12
Provisions in the period	–	11	11
Amounts utilised in the period	–	–12	–12
Un-utilised amounts reversed in the period	–	–	–

NOTE 21 Other current liabilities

	31 Dec 2016	31 Dec 2015
Staff withholding tax	4,298	3,840
Social security contributions	3,765	3,680
VAT	8,120	10,924
Other	5,169	2,917
Total	21,352	21,361

NOTE 22 Accrued expenses and deferred income

	31 Dec 2016	31 Dec 2015
Accrued salaries and benefits	10,462	11,183
Accrued social security contributions	7,616	5,653
Accrued vacation payment	18,806	18,665
Other	9,626	12,318
Total	46,510	47,819

NOTE 23 Financial instruments by category

31 Dec 2016	Loans and accounts receivable	Derivatives used for hedging purposes	Other financial liabilities	Total
Assets in the Balance Sheet
Accounts receivable–trade and other financial receivables Cash and cash equivalents	249,835 71,590	– –	– –	249,835 71,590
Total assets	321,425	–	–	321,425
Liabilities in the Balance Sheet
Interest-bearing liabilities	–	–	131,984	131,984
Other liabilities Accounts payable–trade and	–	70	–	70
other financial liabilities	–	–	171,301	171,301
Total liabilities	–	70	303,285	303,355

31 Dec 2015	Loans and accounts receivable	Derivatives used for hedging purposes	Other financial liabilities	Total
Assets in the Balance Sheet
Accounts receivable–trade and
other financial receivables	252,110	–	–	252,110
Cash and cash equivalents	47,298	–	–	47,298
Total assets	299,408	–	–	299,408
Liabilities in the Balance Sheet
Interest-bearing liabilities	–	–	129,210	129,210
Other liabilities Accounts payable–trade and	–	56	–	56
other financial liabilities	–	–	175,044	175,044
Total liabilities	–	56	304,254	304,310

NOTE 24 Financial risks and finance policy

Through its operations, the group is exposed to various types of financial risk such as currency risks, funding and interest risks and liquidity and credit risks. The group's finance policy stipulates that financial risks are to be kept at the lowest possible level.

The group's finance policy for managing financial risk has been formulated by the Board and constitutes a framework for risk management. The policy's overall goal is to ensure the company's long and short-term access to capital, to adapt the financial strategy to the company's operations to enable the attainment and retention of a stable long-term capital structure, and to achieve the best possible financial income/expenses within stated risk limits.

The group's guidelines for loan financing state that there should be one main lender.

The parent company is primarily focused on the management, co-ordination and development of the group, as well as group reporting and communication with shareholders. The group's operations are conducted in legal subsidiaries, and accordingly, the actual risks occur there.

Agreement terms

Financial assets mainly consist of cash and cash equivalents and accounts receivable– trade. The risk associated with accounts receivable–trade increases with the number of outstanding days of credit. There is a market tendency to require longer credit terms.

NOTE's funding consists of a combination of factoring and traditional overdraft facilities. Pledged accounts receivable–trade were 124 (121) million at year-end.

The interest terms on the factoring and overdraft facilities are based on a variable base rate plus fixed percentage interest rates, average interest of 1.8 (2.3) percent was charged to consolidated profit.

NOTE has agreed on a number of covenants to its lender as security for the liabilities.

Liquidity risks

Liquidity risk means the risk of being unable to fulfil payment obligations resulting from insufficient liquidity or difficulties in raising external borrowings. Operations are funded through means such as SEK 318.0 (287.1) million of equity and interest-bearing liabilities of SEK 132.0 (129.2) million, utilised overdrafts of SEK – (–) million are included. The un-utilised overdraft facility was SEK 55.5 (57.4) million at year-end. Financial liabilities comprise loans and the utilised portion of the overdraft and factoring facilities.

Age analysis, financial liabilities

2016, SEK million	Total	Within 1 mth.	1–3 mth.	3 mth. –1 yr.	1–5 yr.	5 yr. or longer
Bank credit facilities inclu ding overdraft & factoring*	118.4	79.0	20.4	18.7	0.3	–
Finance lease liabilities*	13.6	0.6	1.7	4.8	6.5	–
Accounts payable–trade	171.3	113.2	50.4	7.7	–	–
Total	303.3	192.8	72.5	31.2	6.8	–

2015, SEK million	Total	Within 1 mth.	1–3 mth.	3 mth. –1 yr.	1–5 yr.	5 yr. or longer
Bank credit facilities inclu ding overdraft & factoring*	113.8	51.8	27.4	34.0	0.6	–
Finance lease liabilities*	17.6	0.5	1.6	5.1	10.4	–
Accounts payable–trade	175.1	120.0	50.2	4.9	–	–

*Factoring and overdraft facilities are subject to estimated average interest of 1.8 (2.3) percentage points. A majority of these credits mature within three months. Finance lease liabilities are subject to estimated average interest of 9.2 (8.3) percentage points and a majority of these credits mature within 1–5 year.

Interest risks

Interest risk is the risk that the value of a financial instrument varies due to changes in market interest rates. Interest risks can partly comprise changes in fair value, price risk, and partly changes in cash flow, cash flow risk. Interest fixing periods are a significant factor influencing interest risk. Long interest fixing periods mainly affect cash flow risk, while shorter interest fixing periods affect price risk.

The management of the group's interest exposure is centralised, implying that the central finance function is responsible for identifying and managing this exposure.

The group's exposure to market risk for changes in interest levels is mainly attributable to the group's financial net debt which amounted to SEK 60,4 (81,9) million at year end.

There were no interest derivatives as of the reporting date, and accordingly, all interest was variable.

Translation exposure

The group's foreign net assets are divided between the following currencies, amounts in SEK 000 and percentage share of NOTE's total equity:

	31 Dec 2016		31 Dec 2015
Currency	Belopp	%	Belopp	%
CNY	79,159	24.9	50,108	17.5
EUR	44,469	14.0	33,974	11.8
GBP	–1,485	–0.5	306	0.1
NOK	2,790	0.9	7,042	2.5
Total	124,933	39.3	91,430	31.9

Credit risks

Credit risks in financing activities

Credit risk consists of a party of a transaction being unable to fulfil its financial commitments.

Credit risks in accounts receivable–trade

The risk that the group's customers do not fulfil their commitments, i.e. that payments for accounts receivable–trade are not received, is a credit risk. The group's customers are subject to credit checks, implying the collection of information on customers' financial positions from various credit agencies. The group has prepared rules stating the level of decisions for credit limits, and how valuations of credits and doubtful debts should be managed. Bank guarantees or other collateral are required for customers with low creditworthiness or insufficient credit histories.

The ten biggest customers provide approximately 48 (47) percent of sales. The group has a relatively good diversification of customers across a range of industrial sectors.

Age analysis, accounts receivable–trade	31 Dec 2016	31 Dec 2015
Not overdue accounts receivable–trade	187,664	192,007
Overdue accounts receivable–trade 0–30 days	30,983	38,194
Overdue accounts receivable–trade > 30 days–60 days	15,471	13,796
Overdue accounts receivable–trade > 60 days	15,717	8,113
Total	249,835	252,110

Currency risks

The group is exposed to various types of currency risk. The primary exposure is for purchases and sales in foreign currency, where risks can partly comprise fluctuations in the currency of the financial instrument, customer or supplier's invoice, partly the currency risk in expected or contracted payment flows, termed transaction exposure. Against the background of underlying pricing of electronic components being basically in USD, despite actual purchasing often being conducted in EUR, NOTE considers it relevant to disclose the effects of the aggregate exposure to EUR and USD.

Currency risk fluctuations also exist in the translation of foreign subsidiaries' assets and liabilities to the functional currency of the parent company, termed translation exposure.

Foreign currency expenses and purchases are largely hedged through binding contracts, where the customer assumes the full currency risk. Invoicing is largely in local currency and the majority is denominated in Swedish kronor, Euro or USD and with a fairly even division between these currencies. NOTE adopts a centralised view of managing currency hedges. NOTE's corporate finance function hedges net flows in foreign currency on rolling six-month forecasts, based on the limits stipulated in NOTE's finance policy.

Allocation 6 months from the closing date

		Net exposure from sales and purchasing in foreign cur rencies		Total hedging	Percantage		Average exchange rate
	2016	2015	2016	2015	2016	2015	2016	2015
EUR	1,645	2,925	380	493	23%	17%	9.47	9.20
USD	6,077	6,372	1,995	1,955	33%	31%	8.56	8.43

The group classifies its forward contracts used for hedging forecast transactions as cash flow hedging.

Assets and liabilities measured at fair value

NOTE's derivative instruments held for hedge accounting are based on valuation tier 2 of IFRS 7, i.e. fair value is based on observable data from an independent source.

Materials risks

Because a high proportion of the group's sales values comprise materials, both the price and access to materials are decisive to profitability. NOTE's strategic sourcing company NOTE Components AB manages a substantial portion of materials sourcing agreements.

Sensitivity analysis

The following table illustrates the effect on the group from changes in a number of parameters.

	Effect on comprehensive income
		2016		2015
Market risk, SEK million	+/– 2% +/– 5%		+/– 2% +/– 5%
Change in sales price to customers	17.1	42.8	17.5	43.7
Change in sales volume	4.7	11.7	4.6	11.5
Change in materials price*	10.4	26.1	10.9	27.1
Change in payroll overheads	4.0	10.0	4.2	10.5
Change in interest rates	0.9	2.4	1.3	3.2
Change in EUR/USD exchange rate on customer and supplier liabilities as of 31 Dec 2016	0.6	1.5	0.9	2.2
Currency change on net assets in foreign subsidiaries	2.4	6.0	1.7	4.3

*Disregarding price adjustment clauses to customers.

NOTE 25 Pledged assets and contingent liabilities

In the form of pledged assets for own liabilities and provisions	31 Dec 2016	31 Dec 2015
Property mortgage	25,506	24,874
Floating charge	212,409	220,310
Ownership reservation on machinery	913	1,082
Factored accounts receivable–trade	122,579	120,506
Total	361,407	366,772
Contingent liabilities
Guarantees issued	48,561	56,063
County administrative board, conditional loan	492	290
Total	49,053	56,353

NOTE 26 Cash Flow Statements

Interest paid	2016	2015
Interest received	–55	200
Interest paid	–3,642	–3,178

Other non-cash items
Impairment losses	6,740	1,226
Unrealised exchange rate differences	1,059	–176
Capital gain/loss on sale of property, plant and equipment	–8	1,338
Other items not affecting liquidity	–9,544	–3,454
Total	–1,754	–1,066

Cash and cash equivalents	31 Dec 2016	31 Dec 2015
Cash and bank balances	71,590	47,298
Un-utilised overdraft facilities	55,524	57,438
Total	127,114	104,736

NOTE 27 Close relations

	2016	2015
Sale of goods and services to related parties	–	–
Purchases from related parties	–3,380	–1,000
Liability to related party as of 31 December	953	–
Receivable from related party as of 31 December	–	–

Related parties refers to company owned by a parent company/subsidiary Board member. Purchasing from related parties was conducted on an arm's length basis. Transactions with key staff in executive positions, see Note 8, Employees, personnel expenses and remuneration to senior management, on page 38.

NOTE 28 Critical estimates and judgements

Critical judgements when applying the group's accounting principles

Some critical accounting estimates made when applying the group's accounting principles are reviewed below.

Accounts receivable–trade and inventories

Accounts receivable–trade and inventories are the largest asset items in value terms on the reporting date. Both these items are reported as net values after deducting for impairment losses, based on individual judgement. The obsolescence reserve on the reporting date 31 December 2016 was SEK –12.0 (–12.0) million and the reserve for doubtful debt was SEK –7.8 (–3.7) million. Note 24 provides more information on the judgements made and information on the risks associated with these asset items.

Goodwill

The group's goodwill relates to the Swedish and foreign subsidiaries. Goodwill is subject to impairment tests in accordance with IAS 36 Impairment of Assets. On 31 December 2016, goodwill on consolidation was SEK 70.4 (70.4) million. Note 12 states more information on the measurement of goodwill items.

Deferred tax assets

The group's deferred tax assets mainly consist of provisions and capitalised loss carryforwards in foreign subsidiaries. On the reporting date 31 December 2016, the consolidated deferred tax asset was SEK 5.0 (8.9) million. Note 11 states more information on the group's deferred tax assets.

NOTE 29 Post-balance sheet events

New composition of Board of Directors

NOTE 30 Financial definitions

Market capitalisation – Share price multiplied by total number of outstanding shares.

Equity per share – Equity divided by the number of shares at year-end.

Attendance – Attendance as a percentage of regular working-hours.

Average number of employees – Average number of employees calculated on the basis of hours worked.

Rate of capital turnover (operating capital), multiple – Sales divided by operating capital.

Net investments in property, plant and equipment – Investments in property, plant and equipment, excluding acquisitions of assets and liabilities, less sales and retirements for the year.

Net debt/equity ratio, multiple – Interest-bearing net debt divided by equity.

Sales per employee – Sales divided by the average number of full-time employees.

Operating capital – Total assets less cash and cash equivalents, non-interest bearing liabilities and provisions.

Staff turnover – Number of employees whose employment was terminated voluntarily in the year as a percentage of the average number of employees.

Earnings per share – Profit after tax divided by the average number of shares.

Return on equity – Net profit for the year as a percentage of the average equity for the most recent twelve-month period.

Return on operating capital – Operating profit as a percentage of the average operating capital for the most recent twelve-month period.

Interest-bearing net debt – Interest-bearing liabilities and provisions less cash and interest-bearing receivables.

Interest coverage ratio, multiple – Operating profit plus financial income divided by financial expenses.

Operating margin – Operating profit as a percentage of net sales.

Equity to assets ratio – Equity as a percentage of total assets.

Profit margin – Profit after financial items as a percentage of net sales.

Parent Company Income Statement

SEK 000	NOTE	2016	2015
Net revenue		31,792	29,877
Cost of sold services		–16,130	–17,954
Gross profit		15,662	11,923
Selling expenses		–10,992	–10,806
Administrative expenses		–11,187	–10,950
Other operating revenue	2	505	91
Other operating expenses	3	–15,644	–1,742
Operating profit	4, 5, 6, 15	–21,656	–11,484
Profit from financial items	7
Profit from participations in group companies		6,576	22,817
Interest income, etc.		2,773	8,000
Interest costs, etc.		–2,153	–3,901
Profit after financial items		–14,460	15,432
Appropriations	8	–	–
Profit before tax		–14,460	15,432
Tax	9	–3,784	–2,311
Profit for the year		–18,244	13,121

Parent Company Statement of Other Comprehensive Income

SEK 000	2016	2015
Profit for the year	–18,244	13,121
Other comprehensive income
Items that can be subsequently reversed in the Income Statement:
Fair value reserve	637	–953
Tax on fair value reserve	–280	210
Total comprehensive income for the year	–17,887	12,378

Parent Company Balance Sheet

SEK 000	NOTE	31 Dec 2016	31 Dec 2015
ASSETS
Non-current assets
Intangible assets	10
Capitalised expenditure on development work		1,209	790
Property, plant and equipment	10	239	67
Financial assets
Participations in group companies	16	221,429	248,564
Receivables from group companies	11	9,569	36,565
Deffered tax assets	9	–	1,303
Total financial assets		230,998	286,432
Total non-current assets		232,446	287,289
Current assets
Short-term receivables
Receivables from group companies		43,836	35,656
Other receivables	12	–	818
Prepaid expenses and accrued income		1,497	1,488
Total short-term receivables		45,333	37,962
Cash and bank balances	17	34,920	28,393
Total current assets
		80,253	66,355
TOTAL ASSETS		312,699	353,644
EQUITY AND LIABILITIES
Equity
Restricted equity
Share capital (28,872,600/28,872,600 class A shares)		14,436	14,436
Statutory reserve		148,161	148,161
Non-restricted equity
Profit brought forward		71,007	77,740
Profit for the year		–18,244	13,121
Total equity		215,360	253,458
Current liabilities
Accounts payable–trade		1,738	1,752
Liabilities to group companies		79,543	86,784
Other liabilities		8,578	716
Accrued expensed and deferred income	13	7,480	10,934
Total current liabilities		97,339	100,186
TOTAL EQUITY AND LIABILITIES		312,699	353,644

Summary Statement of Changes in Parent Company's Equity

	Restricted equity			Non-restricted equity
SEK 000	Share capital	Statutory reserve	Profit brought forward	Profit for the year	Total equity
Opening equity, 1 Jan 2015	14,436	148,161	98,627	–181	261,043
Appropriation of profit			–181	181	–
Comprehensive income
Profit for the year				13,121	13,121
Other comprehensive income
Fair value reserve			–953		–953
Tax on fair value reserve			210		210
Effect of change in accounting principle			–5,527		–5,527
Total comprehensive income			–6,270	13,121	6,851
Transactions with shareholders
Dividend			–14,436		–14,436
Closing equity, 31 Dec 2015	14,436	148,161	77,740	13,121	253,458

	Restricted equity		Non-restricted equity
SEK 000	Share capital	Statutory reserve	Profit brought forward	Profit for the year	Total equity
Opening equity, 1 Jan 2016	14,436	148,161	77,740	13,121	253,458
Appropriation of profit			13,121	–13,121	–
Comprehensive income
Profit for the year				–18,244	–18,244
Other comprehensive income
Fair value reserve			637		637
Tax on fair value reserve			–280		–280
Total comprehensive income			357	–18,244	–17,887
Transactions with shareholders
Dividend			–20,211		–20,211
Closing equity, 31 Dec 2016	14,436	148,161	71,007	–18,244	215,360

Parent Company Cash Flow Statement

SEK 000	NOTE	2016	2015
Operating activities	17
Profit before tax		–14,460	15,432
Reversed depreciation		244	101
Other non-cash items		17,358	10,066
Tax paid		–763	–19
		2,379	25,580
Cash flow from change in working capital
Increase (–)/decrease (+) in trade receivables		–15,798	–4,768
Increase (+)/decrease (–) in trade liabilities		9,731	27,013
		–6,067	22,245
Cash flow from operating activities		–3,688	47,825
Investing activities
Purchase of intangible assets		–588	–80
Purchase of property, plant and equipment		–589	–
Sale of property, plant and equipment		404	–
Purchase of financial assets		–50	–
Sale of financial assets		15,397	–
Cash flow from investing activities		14,574	–80
Financing activities
Amortisation of loans		–	–1,591
Dividends paid		–20,211	–14,436
Group contributions received		23,865	18,504
Group contributions paid		–8,013	–22,857
Cash flow from financing activities		–4,359	–20,380
Cash flow for the year		6,527	27,365
Cash and cash equivalents
At beginning of period		28,393	1,028
Cash flow before financing activities		10,886	47,745
Cash flow from financing activities		–4,359	–20,380
Cash and cash equivalents at end of period		34,920	28,393

Notes on the Parent Company's Financial Statements

NOTE 1 Critical accounting principles

Parent company accounting principles

The parent company has prepared its annual accounts in accordance with the Swedish Annual Accounts Act and RFR's (Rådet för finansiell rapportering, the Swedish Financial Reporting Board) recommendation RFR 2, Accounting for Legal Entities. RFR's statements for listed companies have also been adopted. RFR 2 stipulates that in its annual accounts as a legal entity, the parent company should adopt all IFRS and statements endorsed by the EU, providing this is possible within the framework of the Swedish Annual Accounts Act, The Swedish Pension Obligations Vesting Act (Tryggandelagen) and with consideration to the relationship between accounting and taxation. This recommendation states the exemptions and supplements to be made from and to IFRS.

Accordingly, the parent company adopts those principles presented in Note 1 on page 34, of the consolidated accounts, subject to the exemptions stated below. These principles have been applied consistently for all years presented, unless otherwise stated.

Subsidiaries

Participations in subsidiaries are reported in the parent company in accordance with the cost method. Dividends received are only recognised as revenues if they are sourced from earnings accrued after the acquisition. Dividends exceeding these accrued earnings are considered as a re-payment of the investment and reduce the value of the participations.

Loans to subsidiaries

The parent company lends funds to subsidiaries in foreign currency. A portion of these loans is considered as a portion of net investments in subsidiaries, and accordingly, revaluation at closing day rates from these loans is recognised in equity in the fair value reserve. Other loans receivable in foreign currency are revalued at closing day rates and the revaluation is recognised in the Income Statement.

Financial guarantees

The parent company has granted sureties in favour of subsidiaries. In accordance with IFRS, these obligations are classified as financial guarantee agreements. For such agreements, the parent company applies the relaxation of RFR 2 point 72, and accordingly reports the surety as a contingent liability. When the company judges that it is likely that payment will be required to settle the obligation, a provision is made.

Borrowing costs

The company expenses all borrowing costs immediately.

Revenues

Sales of goods and conducting services assignments.

The revenue of services assignments in the parent company is recognised in accordance with Chap. 2 §4 of the Swedish Annual Accounts Act when the services are complete. All parent company sales are to other group companies.

Property, plant and equipment

Property, plant and equipment in the parent company are recognised at cost less deductions for accumulated depreciation and potential impairment losses in the same manner as for the group, but with a supplement for potential revaluations.

Intangible assets

The parent company has begun the process of implementing a new group-wide ERP system. Effective 1 January 2015, the parent company is applying the exemption of RFR 2 that permits expenditure for development, which pursuant to IAS 38 p. 57 should be recognised as an asset in the Balance Sheet, to be expensed in the period that it arises instead. Instead, capitalisation is in the group. Remaining intangible assets and the parent company have estimated useful lives of 10 years.

Leases

All lease arrangements in the parent company are reported in accordance with the rules for operating leases.

Tax

In the parent company, untaxed reserves are reported including deferred tax liabilities.

Group contributions and shareholders' contributions for legal entities

The company reports group contributions and shareholders' contributions in accordance with statements from the RR Emerging Issues Task Force. Shareholders' contributions are recognised directly to the recipient's equity and capitalised in shares and participations of the issuer, to the extent no impairment losses are necessary.

NOTE 2 Other operating revenue

	2016	2015
Exchange gains on trade receivables/liabilities	233	91
Gain on disposal/retirement of non-current asset	189	–
Other operating revenue	83	–
Total	505	91

NOTE 3 Other operating expenses

	2016	2015
Impairment of current asset	–14,863	–1,597
Loss on disposal/retirement of non-current asset	–92	–
Exchange losses on trade receivables/liabilities	–689	–145
Total	–15,644	–1,742

NOTE 4 Auditors' fees and reimbursement

	2016	2015
PwC
Auditing assignment	–470	–434
Auditing in addition to audit assignment	–	0
Tax consultancy	–	0
Other services	–295	–227
Total	–765	–661

NOTE 5 Employees, personnel expenses and remuneration to senior management

Expenses for employee benefits		2016	2015
Salaries and benefits			–15,131	–15,513
Pension expenses, defined-contribution plans			–3,162	–3,729
Social security contributions			–6,569	–6,564
Total			–24,862	–25,806

		of which		of which
Average number of employees	2016	men	2015	men

	2016	2015
Division between sexes in management	Share of women	Share of women
Board of Directors	13%	13%
Other senior management 4 (4) people*	0%	0%

Sweden 13 72% 12 67%

*The company's management had a total of four members for much of the year.

Salaries, other benefits and social security contributions

	Salaries and benefits (of which bonus)			Social security (of which pension expense)
	2016	2015	2016	2015
Management*	–9,661	–9,173	–4,945	–5,353
	(–1,287)	(–766)	(–1,537)	(–1,988)
Other employees	–6,430	–7,266	–4,786	–4,941
	(–222)	(–262)	(–1,625)	(–1,741)

Management means the Board of Directors and the group management.

*Unpaid remuneration to the departing CEO amounts to SEK – (2.7) million at the end of the year, of which SEK – (0.5) million was benefits and pensions. The company's management had a total of four members for much of the year.

NOTE 6 Operating leases

	31 Dec 2016	31 Dec 2015
Lease arrangements payable within one year	1,198	1,121
Lease arrangements payable between one and five years	2,510	557
Total	3,708	1,678

Parent company expenses for operating leases were 1,300 (2,024). VA significant proportion of operating leases relates to rents for premises. In addition. NOTE is party to lease agreements relating to cars and office equipment.

NOTE 7 Net financial income/expense

Profit from participations in group companies	2016	2015
Capital gain/loss on the sale of shares in group companies	–22,185	–
Dividend from group companies	4,583	6,965
Group contributions, received	25,769	23,865
Group contributions, paid	–1,591	–8,013
Total	6,576	22,817
Interest income etc.
Interest income, group companies	1,444	2,346
Interest income, other	47	1
Exchange rate differences	1,282	5,653
Total	2,773	8,000
Interest costs, etc.
Interest costs, other	–247	–338
Exchange rate differences	–1,565	–3,174
Other	–341	–389
Total	–2,153	–3,901

NOTE 8 Appropriations

	2016	2015
Tax allocation reserve, provision/dissolved for the year	–	–
Total	–	–

NOTE 9 Tax

Reported in Income Statement			2016	2015
Current tax expense (–)/tax revenue (+)
Tax expense/tax revenue for the period			–2,481	–
Deferred tax expense (–)/tax revenue (+)
Deferred tax revenue/expense in capitalised/utilised tax values of
loss carry-forwards				–2,311
Total reported tax			–3,784	–2,311

Reconciliation of effective tax	%	2016	%	2015
Profit before tax		–14,460		15,432
Tax at applicable rate for parent company	–22.0%	3,181	–22.0	–3,395
Non-deductible expenses	56.3%	–8,147	–2.4	–372
Non-taxable revenue	–7.0%	1,018	9.9	1,533
Tax attributable to previous years	–2.1%	302	–0.5	–77

Tax attributable to dissolution of fair value reserve 1.0% –138 – – Total 26.2% –3,784 –15.0 –2,311

NOTE 10 Intangible assets and Property, plant and equipment

	Capitalised expenditure on development work	Equipment, tools, fixtures and fittings
Cumulative cost
Opening balances 1 Jan 2015	7,964	183
Purchases	–	80
Sales and retirements	–7,086	–49
Closing balance, 31 Dec 2015	878	214
Opening balances 1 Jan 2016	878	214
Purchases	588	589
Sales and retirements	–	–342
Closing balance, 31 Dec 2016	1,466	461
Depreciation
Opening balance, 1 Jan 2015	–	–183
Depreciation for the year	–88	–13
Sales and retirements	–	49
Closing balance, 31 Dec 2015	–88	–147
Opening balance, 1 Jan 2016	–88	–147
Depreciation for the year	–169	–75
Sales and retirements	–	–
Closing balance, 31 Dec 2016	–257	–222
Carrying amounts
1 Jan 2015	7,964	–
31 Dec 2015	790	67
1 Jan 2016	790	67
31 Dec 2016	1,209	239

Depreciation is included in the following

Income Statement lines	2016	2015
Cost of goods sold and services	–162	–101
Selling expenses	–82	–
Total	–244	–101

In 2015, the parent company decided to transfer to utilising the exemption in RFR 2 for intangible assets, which allows expenditure for development to be expensed in the period it arises. The net effect of capitalisation in the previous year reduced the parent company's retained earnings. For more information, see Note 1 Critical accounting principles on page 50.

NOTE 11 Long-term receivables

Receivables from group companies	31 Dec 2016	31 Dec 2015
Cumulative cost
At beginning of year	36,565	42,348
Purchase	2	0
Impairment	–11,956	–
Re-payment	–15,042	–5,783
Total	9,569	36,565

NOTE 12 Other receivables

	31 Dec 2016	31 Dec 2015
Tax receivable	–	818
Total	–	818

NOTE 13 Accrued expenses and deferred income

	31 Dec 2016	31 Dec 2015
Accrued consulting fees	760	487
Accrued salaries and benefits	3,915	4,670
Accrued social security contributions	915	3,059
Accrued vacation payment	1,713	2,068
Other	177	650
Total	7,480	10,934

NOTE 14 Pledged assets and contingent liabilities

Contingent liabilities	31 Dec 2016	31 Dec 2015
Rent guarantee	216	216
Sureties in favour of subsidiaries	48,345	63,897
Total	48,561	64,113

NOTE 15 Close relations

Close relation	Yearr	Sales of goods and services to related parties	Purchases from related parties	Liability to related party as of 31 December	Receivable from related party as of 31 December
Company owned by Board member	2016	–	220	78	–
Company owned by Board member	2015	–	–	–	–

Transactions with staff in executive positions

For the Board of Directors', the CEO's and other senior managers' salaries and other benefits, expenses and commitments relating to pensions and similar benefits, as well as agreements on severance pay, see Note 8 on page 38.

NOTE 16 Group companies

Specification of the parent company's direct holdings of shares in subsidiaries

		31 Dec 2016	31 Dec 2015
Subsidiary Sweden/Corporate identity no./Registered office	No. of shares	Carrying amount	Carrying amount
NOTE Components AB, 556602-2116, Danderyd, Sweden	1,000	100	100
NOTE International AB, 556655-6782, Danderyd, Sweden	1,000	100	100
NOTE Järfälla AB, 556749-2409, Järfälla,Sweden	1,000	0	0
NOTE Lund AB, 556317-0355, Lund, Sweden	10,661	43,091	43,091
NOTE Norrtelje AB, 556235-3853, Norrtälje, Sweden	1,000	60,719	60,719
NOTE Nyköping-Skänninge AB, 556161-4339, Skänninge, Sweden	9,000	8,190	8,190
NOTE Skellefteå AB, 556430-0183, Skellefteå, Sweden	5,000	16,078	16,078
NOTE Torsby AB, 556597-6114, Torsby, Sweden	30,000	3,000	3,000
Lyckefastigheten 2 i Lund AB, 559081-5261, Lund, Sweden	500	50	–
Subsidiary other/Corporate identity no./Registered office
IONOTE Electronics (Dongguan) Ltd, 441900400100981, Dongguan, China	1	47,630	47,630
NOTE Hyvinkää Oy, 1931805-1, Hyvinkää, Finland	80	1,347	1,347
NOTE Norge AS, 982 609 380, Oslo, Norway	1,000	–	27,185
NOTE Pärnu OÜ, 10358547, Pärnu, Estonia	1	26,887	26,887
NOTE UK Ltd, 5257074, Telford, UK	1,850,000	14,237	14,237
Summa		221,429	248,564

The participating interest is 100 (100) percent in all companies

Cumulative cost	31 Dec 2016	31 Dec 2015
At beginning of year	281,601	276,770
Sales	50	–
Divestment	–27,185	–
Shareholder contributions	–	4,831
	254,466	281,601
Cumulative impairment
At beginning of year	–33,037	–33,037
Sales	–	–
Impairment for the year	–	–
	–33,037	–33,037
Net carrying amount	221,429	248,564

NOTE 17 Cash Flow Statement

Interest paid and dividend received	2016	2015
Interest received	1,491	1,784
Interest paid	–246	–338
Dividend received	4,583	6,965
Other non-cash items
Anticipated dividends from subsidiaries	–	–
Impairment of financial assets	42,048	–
Impairment of current asset	–	1,527
Group contributions received/paid in the year	–24,178	7,977
Other items not affecting liquidity	–512	562
Total	17,358	10,066
Cash and cash equivalents	31 Dec 2016	31 Dec 2015
Cash and bank balances	34,920	28,393
Un-utilised credit facilities
Un-utilised credit facilities	45,000	45,000

NOTE 18 Information on the parent company

NOTE AB (publ) is a Swedish-registered limited company with its registered office in Danderyd, Sweden. The parent company's shares are listed on Nasdaq Stockholm Stock Exchange.

The address of the head office is NOTE AB (publ), Box 711, 182 17 Danderyd, Sweden. The corporate identity number is 556408-8770. The consolidated accounts for 2016 comprise the parent company and its subsidiaries, collectively termed the group.

Corporate Governance Report

Introduction

The regulatory structure for governing and controlling NOTE primarily consists of the Swedish Companies Act, applicable regulations for listed companies, the Swedish Code of Corporate Governance (the Code) as well as internal guidelines.

Articles of Association

The Articles of Association are approved by the Annual General Meeting (AGM) and include a number of mandatory duties of a more fundamental nature in accordance with applicable legislation. The Articles of Association stipulate items including the company's registered office, operations, the amount of share capital, the number of shares and how the AGM is convened.

The Articles of Association also state items including the Board of Directors consisting of a minimum of three and a maximum of ten ordinary members. The Board members are elected annually at

Laws and practice

More information on the laws and practice formalising Swedish corporate governance are available at sites including:

The Swedish Corporate Governance Board, www.bolagsstyrning.se, where the Swedish Code of Corporate Governance is stated.

the AGM for the period until the end of the following AGM.

Resolutions on amending the Articles of Association are taken at Annual or Extraordinary General Meetings. Invitations to shareholders' meetings that are to deal with amendments of the Articles of Association should be issued at the earliest six and the latest four weeks prior to such meetings.

Shareholders

At the end of 2016, NOTE had two shareholders representing more than 10 percent of the shares of the company each. Creades AB represented 27.0 percent and Johan Hagberg represented 15.7 percent. For more information on the share and shareholders, see the NOTE share on pages 20–21.

Shareholders' meetings

The Shareholders' Meeting is the company's chief decision-making body,

NASDAQ Stockholm, www.nasdaqomx.com, which states the rules for issuers
The Swedish Financial Supervisory Authority, www.fi.se, which states Authority's statutes and information on insiders.

where shareholders exercise their voting rights. All shareholders recorded in the share register on the record date, and that have duly notified the company of their participation, are entitled to participate in the Meeting and vote for their total holdings of shares, personally or by proxy. Each share corresponds to one vote. Individual shareholders that wish to have a matter considered at the Meeting can request this with NOTE's Board of Directors at the address published on the company's website, in good time before the meeting. Resolutions of the Meeting are published after the Meeting in a press release and the minutes of the Meeting is published on the website www.note.eu. NOTE's AGM will be held in Danderyd or Stockholm, Sweden.

The Annual General Meeting should be held within six months of the end of the financial year. The AGM considers matters relating to items including dividend to shareholders, adopting the Income Statement and Balance Sheet, discharging the Board members and CEO from liability, electing Board members, the Chairman of the Board and Auditors, and approving the guidelines for remunerating senior management and fees for the Board of Directors and Auditors.

Annual General Meeting 2016

NOTE's AGM was held on 19 April 2016 at Spårvagnshallarna in Stockholm, Sweden. Shareholders representing a total of 44.7 percent of the capital and votes attended the Meeting.

The Meeting resolved on matters including re-electing Kjell-Åke Andersson, Bruce Grant, Stefan Johansson, Henry Klotz, Daniel Nyhrén Edeen, Kristian Teär and Bahare Hedenstierna as Board members for the period until the next Annual General Meeting is held. Kristian Teär was elected Chairman.

The AGM approved fees in accordance with the Nomination Committee's proposal. In accordance with the Board of Directors' proposal, the Meeting approved a dividend to shareholders of SEK 0.70 per share and authorised the Board of Directors to decide on purchases and transfers of treasury shares.

Nomination Committee

The AGM resolves on how the Nomination Committee is appointed. The AGM 2016 resolved that the Nomination Committee for the forthcoming AGM shall be formed by the four largest shareholders that wish to participate, each appointing a representative at least six months prior to the AGM, with the Chairman of the company's Board of Directors serving as convener. If one or more of the shareholders waives its right when Nomination Committee members are to be appointed, the next largest shareholder is then offered the corresponding opportunity.

Changes to NOTE's ownership structure in December 2016 also caused changes to the composition of its Nomination Committee. Initially, the Committee members were Bruce Grant, Johan Hagberg, Jonas Hagströmer and Peter Svanlund. Because shareholders represented by Bruce Grant and Peter Svanlund were no longer one of the four largest, they put their seats at the Committee's disposal in accordance with the principle for appointing the Nomination Committee. Kjell-Åke Andersson and Fredrik Hagberg were appointed as new members of the Committee.

The duty of the Nomination Committee is to consult on, and submit proposals to, the AGM regarding:

Election of a Chairman of the Meeting.
Election of the Chairman of the Board and Board members.
Directors' fees for the Chairman, other Board members and remuneration for Committee work.
Election and remuneration of the external Auditor.
Decision on principles of composition of the Nomination Committee for the next AGM.

A report on the work of the Nomination Committee will be presented at the AGM 2017. No special remuneration was paid to the members of the Nomination Committee.

Auditors

The AGM appoints the Auditors. The Auditors review the company's annual accounts, consolidated accounts and accounting records, and the administration by the Board of Directors and CEO.

The Senior Auditor also presents an Audit Report to the AGM. The AGM 2016 elected Öhrlings PricewaterhouseCoopers AB as audit firm, with Niklas Renström as Auditor in Charge until the AGM 2017.

Board of Directors

The duty of the Board of Directors is to manage the company's affairs on behalf of the shareholders. The Board of Directors judges the group's financial situation on an ongoing basis, determines budgets and annual financial statements.

The Board of Directors is also responsible for formulating and monitoring the company's strategies through plans and objectives, decisions on acquisitions and divestments of operations, major investments, appointments and remuneration of the CEO and senior management, as well as ongoing monitoring of operations in the year.

Each year, the Board of Directors adopts an approvals list, finance policy, instructions for financial reporting and for the Board of Directors, and rules of procedure, which formalise matters including the division of responsibilities between the Board of Directors and the CEO, alongside the Instructions for the CEO.

The Chairman of the Board leads the Board of Directors' work and ensures that it is conducted in accordance with the Swedish Companies Act, applicable regulations for listed companies, including the Code and other laws and ordinances. The Chairman is also responsible for maintaining ongoing contact with the group management, and for ensuring that the Board's decisions are implemented appropriately.

Each year, the Board of Directors' work is evaluated through a survey compiled and reported to the Board of Directors and Nomination Committee.

In 2016, NOTE's Board of Directors had seven members elected by the Annual General Meeting and two employee representatives, one being a deputy. Due to changes to NOTE's ownership structure, the composition of NOTE's Board of Directors also changed in January 2017.

The Board of Directors has a general composition of sector knowledge and competence from Board work and management of listed companies as well as financing, accounting, structural change and sales, and strategic sourcing.

Board work in 2016

Each scheduled Board meeting conducts a review of operations, results of operations and financial position of the group and outlook for the remainder of the year.

Nomination Committee members for the AGM 2017

Committee member	Share of capital/votes, % 31 Dec 2016
Kjell-Åke Andersson, personal holdings and family	4.0
Johan Hagberg, personal holdings	15.7
Fredrik Hagberg, personal holdings and company	3.6
Jonas Hagströmer, Creades AB	27.0

Board member	Position	Board meetings	Remuneration Committee	Audit Committee	Director's fee, SEK	Committee fee, SEK
Kristian Teär (left 20 January 2017)	Chairman	6/6	2/2	3/3	225,000**	–
Kjell-Åke Andersson	Member	6/6	2/2	–	100,000*	15,000***
Bruce Grant (left 20 January 2017)	Member	3/6	2/2	–	75,000**	–
Bahare Hederstierna	Member	6/6	2/2	–	100,000*	–
Stefan Johansson (left 20 January 2017)	Member	6/6	2/2	3/3	75,000**	45,000**
Henry Klotz (left 20 January 2017)	Member	3/6	2/2	–	75,000**	–
Daniel Nyhrén Edeen (left 20 January 2017)	Member	5/6	2/2	–	75,000**	–
Niklas Björklund (since 31 May 2016)	Employee representative, member	4/6	1/2	–	–	–
Anette Malmström (since 31 May 2016)	Employee representative, deputy	4/6	1/2	–	–	–

Board of Directors 2016–attendance and remuneration Attendance statistics

*Fee for the period 19 April 2016–19 April 2017.

**Fee for the period 19 April 2016–19 January 2017.

***Fee for the period 20 January 2017–19 April 2017.

In addition, the Board takes a standpoint on overall issues such as the company's strategy, sales and marketing, financing, budget and long-term operational planning.

The Board of Directors endeavours for NOTE to be an employer where all staff get an equal opportunity to work and develop. Employees' specific competences should also be valued, regardless of their sex, ethnicity, sexual orientation, disability, age or social background. The Board of Directors encourages the integration of equal opportunities and diversity into all aspects of operations.

The Board of Directors held six meetings where minutes were taken in the year. Employees of the company participated in Board meetings to submit reports. The company's Auditor attended one Board meeting in the year. The company's CFO served as secretary.

Audit Committee

The members of the Audit Committee are appointed at the Board meeting following election for one year at a time. The main duty of the Audit Committee is to consult on matters for the Board of Directors'

decision. The Audit Committee is not authorised to reach decisions independently. Reporting to the Board on issues considered at Audit Committee meetings is either in writing or orally at the following Board meeting. In the financial year, the Audit Committee members were Stefan Johansson and Kristian Teär.

The duties of the Audit Committee are to:

Work on quality-assuring financial reporting.
Discuss the audit and the view of the company's risks with the Auditor.
Follow up on external Auditors' reiews and appraise their work.
Set guidelines for services in addi tion to auditing that the company may purchase from the Auditor.
Support the Nomination Committee in preparing proposals for Auditors and their remuneration.
Ensure that the company has systems for internal control.

The Audit Committee maintains a close and regular collaboration with the group's finance function regarding internal and external reporting of financial information. There is also a collaboration developed on matters of internal control, selection and appraisal of auditing principles and models.

In the financial year 2016, the Audit Committee monitored compliance with the adopted guidelines and held three meetings with the company's Auditors, to discuss audit issues and internal controls. The Auditors' written reports were distributed to the Board of Directors after review and comments from the company.

The following main issues were considered:

Following up on the Auditor's reporting on the financial statement and ongoing reviews.
Appraisal of the Auditor's measures during the year.
Following up on the internal audit function's review in the year. The focus has been on valuations of inventories, accounts receivable–trade and goodwill, and auditing foreign subsidiaries.

Remuneration Committee

The members of the Remuneration Committee are appointed at the Board meeting following election for one year at a time. The Remuneration Committee consisted of the Board of Directors in 2016. The duties of the Remuneration Committee are to:

Consult on matters regarding remuneration principles, remuneration and other employment terms for group management.
Monitor and evaluate programs for performance-related pay for group management, subsidiary Presidents and other key staff.
Monitor and evaluate application of the guidelines for remuneration to senior management that the AGM has resolved on and applicable remuneration structures and remuneration levels in the company.

In the financial year, the Board of Directors discussed remuneration issues and monitored compliance with adopted guidelines. The following main issues were considered:

Evaluation and approval of remuneration structures for group management.
Specifying the profitability-based, variable remuneration program for group management, subsidiary Presidents and other key individuals, which ran during 2016.

After an evaluation, the Remuneration Committee concluded that:

NOTE is following the guidelines for remunerating senior management that the AGM 2016 resolved on.
Applicable remuneration structures and levels are reasonable against the background of the company's operations.

Compensation from the profitabilitybased, variable remuneration program that ran during 2016 for group management, subsidiary presidents and other key individuals amounted to SEK 2.3 million.

Guidelines for remuneration and other benefits for senior management

For information on these guidelines, refer to the Report of the Directors on page 25. For information on remuneration and other benefits, see Note 8, Employees, personnel expenses and remuneration to senior management, on page 38.

The group's operational governance

Chief Executive Officer NOTE's CEO leads ongoing operations. This responsibility covers accounting issues, monitoring the group's strategies and business performance and ensuring

that the Board of Directors receives the necessary information to be able to take well-founded decisions. The CEO reports to the Board of Directors, informing them of how operations are progressing based on the decisions they have taken. Written instructions define the division of responsibility between the Board of Directors and the CEO.

Group management

NOTE's group management is responsible for various parts of operations. This responsibility covers the preparation and execution of the group's overall strategies.

During the financial year, the group management held regular meetings to review results of operations, the conditions of operations and strategic and operational issues.

Governance of subsidiaries

Subsidiaries' operations are monitored monthly on the basis of a series of operational targets, financial targets and key figures.

Internal controls and risk management

Control environment The division of roles and responsibilities

between the Board of Directors and CEO is determined annually at the Board meeting

following election via the rules of procedure for the Board of Directors and CEO and instructions for financial reporting.

Ongoing work to maintain effective internal controls has been delegated to, and is managed primarily by, the CEO and the group's finance function. NOTE also works in close collaboration with its auditors.

The fundamental guidelines for internal control are managed via policies, instructions and similar governance documents. The content of these documents is updated and evaluated where necessary. The Board of Directors is responsible for key governance documents, and the group's finance function is responsible for other documents. NOTE has also developed an internal reporting package for financial information, which is monitored monthly within the group.

Risk assessment

Through its operations, NOTE is exposed to a number of operational and financial risks. NOTE's finance policy states the limits within which financial risks should be managed. The finance policy is updated annually and adopted by the Board of Directors. NOTE also has a procedure for formalising management of the biggest risks in operations. The risks are evaluated from a matrix of probability and degree of financial effect. Existing control measures

for the biggest risks in this matrix have been documented and additional controls introduced where required.

Guidelines and limits relating to risk assessments are updated at least yearly. For more information on risks and risk management, see Operations on page 14 and Note 24, Financial risks and finance policy on page 44.

Monitoring control activities

The monitoring of NOTE's units is undergoing continuous progress. The units' financial and operational progress is followed closely in various forums. Matters that are addressed include financial key ratios and monitoring of goal-oriented activities relating to quality, cost, delivery and growth.

The need for an internal audit function is evaluated yearly. Considering the group's limited size and scope, the Board of Directors considers that NOTE does not need a separate internal audit function. The practical management of internal controls is conducted by NOTE's finance function.

Group management

	HENRIK NYGREN	ROBERT ROSENZWEIG	STEFAN HEDELIUS	FREDRIK SCHULTZ
Position	Chief Financial Officer	Chief Operating Officer	Chief Executive Officer	Chief Sales Officer
Employed	2006	2010	2016	2015
Born	1956	1967	1969	1972
Education	M.Sc. (Eng.) industrial engineering and manage ment.	Accountant, studied inter national economics.	Undergraduate studies in economics, various international executive education programmes.	Graduate of the Swedish Air Force Officer Training School, political econo mics qualifications.
Other significant assignments	None.	None.	Board member of AddLife AB and Momentum Group AB. Board deputy of Say hello to all of our friends AB.	None.
Professional experience	CFO and business control ler of major listed Swedish and international industrial groups such as SSAB, Danaher Corporation and Snap-on Incorporated. Previous experience of business development and trade sales for companies including Retriva AB.	Business Developer with Nobia AB, COO of Johnson Pump AB and other senior positions in Alfa Laval.	Global Marketing Manager of SAS, and prior to that, various executive positions within Ericsson for many years, including heading up Operations, Service and Sales, as well as serving as Strategy & Marketing VP.	Many years' experience of the EMS sector from senior positions in supply chain, sourcing and sales in multinational groups such as Flextronics and Enics.
NOTE holdings*	30,000 shares	65,692 shares	23,000 shares	20,000 shares
Option holdings in NOTE**	86,618 options	86,618 options	317,599 options	86,618 options

*Including potential holdings by related persons or affiliated companies.

**Call options issued by Creades AB.

Board of Directors

JOHN HEDBERG JOHAN HAGBERG KJELL-ÅKE ANDERSSON BAHARE HEDERSTIERNA

Position	Chairman	Board member	Board member	Board member
Elected	2017	2010	2017	2015
Born	1972	1946	1971	1981
Education	M.Sc. (Econ.).	M.Sc. (Eng.).	Political economist and mathematician.	M.A. (Econ.).
Main occupation	CEO of Creades AB.	Board work and consulting in corporate management.	Professional investor.	Category Manager of Knorr Bremse GmbH.
Other directorships	Board member of Acne Studios AB and LOTS Group AB.	Chairman of the Board of Cervitrol AB, Domitech AB and MedicPen AB. Board member of Mekatronik Konsult i Lund AB.	None.	None.
Professional experience	Former Partner of Nordic Capital, and prior to that, CEO of Relacom AB, Procurement & Business Development Director of Bonnier newspapers and management consultant at McKinsey & Co.	Over 40 years' expe rience in industry, about 30 years in the EMS sector. Various positions including development engineer, production manager and CEO for companies including Electrolux and NOTE.	Former mathematics teacher, entrepreneur and active in the enter tainment industry, as well as cultural producer active within regional adult education provider ABF Stockholm.	Ten years within purcha sing and supply chain in the vehicle industry. Broad experience of various positions at Volvo Cars and Volvo Trucks, most recently as Strategic Purchasing Manager for electronics at Volvo Trucks.
NOTE holdings*	0 shares	1,162,372 shares	4,593,184 shares	0 shares

Non-affiliated to company and management	Yes	Yes	Yes	Yes
Non-affiliated to major shareholders	No, CEO of Creades AB, which holds >10 percent of NOTE's shares.	Yes	No, holds >10 percent of NOTE's shares.	Yes

*As of 28 Feb 2017, including potential holdings by related persons or affiliated companies.

PER OVRÉN

NIKLAS BJÖRKLUND ANETTE MALMSTRÖM

Board member	Board member, Employee representative	Deputy, Employee representative
2017	2016	2016
1977	1971	1969
M.Sc. (Econ.).	Electrical/Telecom Technician.	Political economics and political science qualifi cations.
Head of Business Deve lopment, Purchasing & Financial Control, Bilia AB.	Business Development Manager for NOTE.	Key Account Manager for NOTE.
None.	None.	None.
Many years, broad-based experience of line roles, investment and strategy consulting for Bilia AB, Investment AB Öresund, Johnson Pump and Bain & Company.	Experience of the EMS sector, and employee of a NOTE acquisition since 1989. 20 years' experience of sales and marketing. Prior to that, Production Manager, Assembler and Tester. Retained firefighter/Team Leader at Torsby Rescue Service.	Experience of the EMS sector, and employee of a NOTE acquisition since 1989. Various positions including Team Leader, Deputy Manager of the Development function of NOTE Norrtelje, and of NOTE's former sales office in Strasbourg.
0 shares	0 shares	0 shares

Yes	Yes	Yes
Yes	Yes	Yes

The Board of Directors and CEO hereby certify that the consolidated accounts have been prepared in accordance with IFRS as endorsed by the EU and give a true and fair view of the group's financial position and results of operations. The annual accounts have been prepared in accordance with generally accepted accounting principles and give a true and fair view of the parent company's financial position and

results of operations. The Reports of the Directors of the group and parent company give a true and fair view of the group's and parent company's operations, financial position and results of operations and review the significant risks and uncertainty factors facing the parent company and group companies.

John Hedberg Kjell-Åke Andersson

Chairman Board member

Board member Board member Board member

Johan Hagberg Bahare Hederstierna Per Ovrén

Board member, Employee representavitve

Niklas Björklund Anette Malmström Deputy, Employee representavitve

Stefan Hedelius CEO

Danderyd, Sweden, 27 March 2017

As stated above, the annual accounts and consolidated accounts were approved for issuance by the Board of Directors on 27 March 2017. The Consolidated Income Statement and Consolidated Balance Sheet and the Parent Company Income Statement and Parent Company Balance Sheet will be subject to adoption at the Annual General Meeting on 20 April 2017.

Our Audit Report was presented on 27 Mars 2017

Niklas Renström Auditor in Charge Authorised Public Accountant Öhrlings PricewaterhouseCoopers AB

Auditor's report

To the general meeting of shareholders in NOTE AB (publ) corporate identity number 556408-8770

REPORT ON THE ANNUAL ACCOUNTS AND CONSOLIDATED ACCOUNTS Opinions

We have audited the annual accounts and consolidated accounts of NOTE AB (publ) for the year 2016, with the exception of the corporate governance report found on pages 54–61. The annual accounts and consolidated accounts of the company are included on 22–62 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 parent company as of 31 December 2016 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 2016 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 include the corporate governance report found on pages 54–61. 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.

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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinions.

Our audit approach

Audit scope

We designed our audit by determining materiality and assessing the risks of material misstatement in the consolidated financial statements. In particular, we considered where management made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions

and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the consolidated financial statements as a whole, taking into account the structure of the Group, the accounting processes and controls, and the industry in which the group operates.

The Note Group consists of ten operating companies. Of these companies, there are five which we deem to comprise significant units in the context of the audit of the consolidated accounts. The group auditing team is involved in the audit of all of the Swedish subsidiaries and of two significant foreign companies regarding which we apply one of the audit programs produced by the group team. This audit program includes the evaluation of the design and effectivity of the selected controls in the processes essential to the financial reporting. Furthermore, the audit program includes activities in the form of testing of details, supplemented with analytical procedures regarding the group's significant income statement and balance sheet items, based on our risk assessment of the group. A majority of the subsidiaries in the group are also subject to statutory audits according to local requirements. In terms of the areas we identified to be of special significance to the audit of the group, our audit activities, which included the examinations based on the audit program produced by the group team, addressed 88 percent of the group's net sales, 94 percent of the group's accounts receivable, and 95 percent of the group's inventories, as well as the items, goodwill and shares in subsidiaries.

Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall materiality for the financial statements as a whole. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

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.

Valuation of accounts receivables

We refer to Note 24, Financial risks and the finance policy. The NOTE group sells products to a larger number of customers over the entire world. The customer structure is relatively wide spread with customers within a variety of industries. The payment terms for the customers are dependent on customer-specific premises and the established customer agreements.

The value of the stock of outstanding accounts receivables is dependent on the degree to which the customers will pay for the goods which are purchased, alternatively sold by, NOTE. The company's information on individual customer's payment capacity is limited. According to the accounting policies applied by NOTE, management undertakes an individual testing of all accounts receivable which have fallen due for payment. Based on the individual testing of these items, a provision is determined for the risk in these outstanding accounts receivable. As the application of the accounting policies require assessment by management, there is a risk that incorrect valuations can arise.

Considerations in the audit of the valuation of accounts receivable

We have evaluated the design and effectiveness of certain selected controls in the sales process, the management of the accounts receivable and as regards payments from customers. These have included, for example, credit assessments and reconciliations of accounts receivable. We have also studied the company management's analyses of the development of

the average credit period (DSO) and outstanding credit risks. Furthermore, we have evaluated the processes for the valuation of accounts receivable and have tested, on a random sample basis, the reported provisions against the company's assessment documentation.

In addition to the text of the controls in the sales process and valuation of accounts receivable, we have both had written contact with a selection of customers to confirm outstanding balances of accounts receivable and have also followed up the payments of a selection of accounts receivable.

Valuation of inventories

We refer to Note 15, Inventories. In NOTE group's production units there are inventories of raw materials and other input goods, products in progress, and own manufactured finished products.

NOTE undertakes customer-specific manufacturing of electronic components based on production orders from customers. There is also manufacturing based on forecasts presented by the customer. Due to NOTE's manufacturing of customer-specific components based on the premises described above, there is a risk of obsolescence in the inventories. According to the accounting policies applied by NOTE, an individual testing of the inventory per customer is undertaken whereby inventory associated with the risk of obsolescence is assessed. Based on this individual testing, a provision per customer-specific inventory is reported. As the application of the accounting policies requires assessments by management, there is a risk that incorrect valuations can arise.

Considerations in the audit of the valuation of inventories We have evaluated the design and effectiveness of certain selected controls in NOTE's processes for purchasing raw materials and inventory management.

In addition to testing the controls of the purchasing processes and inventory management, the company's obsolescence reserves were examined through random sample testing of details in the company's valuation documentation. In addition, detailed examinations were made on the basis of random sample testing of the pricing of the raw materials inventory and of the calculations of the mark up for products in progress and as regards the finished goods inventory. In addition, we examined the significant units' inventories in terms of the length of time the goods had been in the inventory.

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 1–21. 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 Board of Director's Audit Committee shall, without impacting the Board's responsibilities and duties in general, monitor the company's financial reporting.

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.

A further description of our responsibility for the audit of the annual accounts and consolidated accounts is available on Revisorsnämnden's website: www.revisorsinspektionen.se/rn/ showdocument/documents/rev dok/revisors_ansvar.pdf. This description is part of the auditor´s report.

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS OPINIONS 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 NOTE AB (publ) for the year 2016 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 fulfil the company's accounting in accordance with law and handle the management of assets in a reassuring manner.

Auditor's responsibility

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. 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.

A further description of our responsibility for the audit of the administration is available on Revisorsnämnden's website: www.revisorsinspektionen.se/rn/showdocument/documents/ rev_dok/revisors_ansvar.pdf. This description is part of the auditor´s report.

Auditor's examination of the corporate governance report

The Board of Directors is responsible for that the corporate governance statement on pages 38–42 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.

Discrepancies between reports

Swedish and English-language versions of this Report have been produced. In the event of any discrepancy between the two, the Swedish version shall apply.

Niklas Renström Authorised Publice Accountant Öhrlings PricewaterhouseCoopers AB

Stockholm, Sweden, 27 March 2017

Addresses

NOTE AB (publ)

NOTE Pärnu OÜ

Borgarfjordsgatan 7 164 40 Kista Sweden

Laki 2 80010 Pärnu Estonia

NOTE Components AB

NOTE Torsby AB

Borgarfjordsgatan 7 164 40 Kista Sweden

Inova Park 685 29 Torsby

Sweden

NOTE Hyvinkää Oy

Avainkierto 3 05840 Hyvinkää Finland

NOTE Lund AB

Maskinvägen 3 227 30 Lund Sweden

NOTE Norrtelje AB

Vilhelm Mobergs gata 18 761 46 Norrtälje Sweden

NOTE UK Ltd Stroudwater Business Park Brunel Way Stonehouse GL10 3SX Gloucestershire UK

NOTE Electronics (Dongguan) Co Ltd

No. 6 Ling Dong 3 Road Lincun Industrial Center Tangxia 523710 Dongguan Guangdong Province China

Website: www.note.eu E-mail: [email protected]

NOTE AB (publ) Annual Report 2016 Corporate identity number 556408-8770

Text and graphic desing: NOTE AB (publ). Production: NOTE AB (publ), Oxenstierna och Partners and Redesign. Images: Jann Lipka. Printing: Billes Tryckeri AB. Translation: Turner & Turner.

AI assistant

NOTE — Annual Report 2016

3087_10-k_2017-03-30_28179282-9690-42c5-a11e-278e3058b810.pdf

Annual Report

Contents

INTRODUCTION

OPERATIONS

THE NOTE SHARE

FORMAL ANNUAL ACCOUNTS

Shareholders' information

Annual General Meeting

Notification

Business

Dividend

Nomination Committee

Financial information

Calendar

Ordering financial information

This is NOTE

Key facts

Operating profit 2016

CEO's statement

Growth focused on profitability

Smaller cost base

Quality and sustainability

More expansion in Europe and China

Close customer dialogue

More value for customers and shareholders

Vision, business concept, strategy and targets

Vision

Business concept

Business targets and strategy

Profitable growth will be achieved by:

Financial targets

Profitability target

Dividend target

Values

Committed

Professional

Quality focused

Value creating

Business model

I N T R O D U C T I O N A partner with a strong overall offering

Getting things right from the start creates value-added

Quality policy and working methods

Value-creating partnerships with customers

Hövding–the world's first airbag for cyclists

Microdata Telecom–a world leader in RF filter technology

Market and competitors

Background

The market in 2016

Market trends, customer needs and future prospects

Customer structure and regional allocation

Competitors

Risk management

Sustainability

Sustainability issues are integrated into NOTE's business activities. NOTE has been a member of the Global Compact since 2011, which was started on a UN initiative.

Overview raises standards

Environmental policy and working methods

Ethics

UN Global Compact

HUMAN RIGHTS

APPROACH

RESULTS 2016

GOALS 2017

PRINCIPLE 2: BUSINESSES SHOULD ENSURE THAT THEY ARE NOT COMPLICIT IN HUMAN RIGHTS ABUSES

APPROACH

RESULTS 2016

GOALS 2017

LABOUR LAW

APPROACH

RESULTS 2016

GOALS 2017

APPROACH

RESULTS 2016 AND GOALS 2017

PRINCIPLE 5: BUSINESSES SHOULD UPHOLD THE EFFECTIVE PROHIBITION OF CHILD LABOUR

APPROACH

RESULTS 2016 AND GOALS 2017

APPROACH

RESULTS 2016

NOTE Annual Report 2016

I ^N ^T ^R ^O ^D ^U ^C ^T ^I ^O ^N A partner with a strong overall offering