2017

ANNUAL REPORT 2017

THE AUTOMOTIVE INDUSTRY is a market with growing potential for us, partly due to customer demand for more functions and partly due to innovation among automobile manufacturers.

Annual General Meeting

The Annual General Meeting of IAR Systems Group AB (publ), corporate identification number 556400-7200, will be held at 6:00 p.m. on Wednesday, April 25, 2018, at Sp?rvagnshallarna, Birger Jarlsgatan 57 A in Stockholm.

At the end of March, IAR Systems Group's annual report will be available on IAR Systems' website (investors) and at the company's offices at Kungsgatan 33 in Stockholm and Strandbodgatan 1 in Uppsala, Sweden.

Notification Shareholders who wish to participate in the Annual General Meeting ("AGM") must: >> be recorded in the share register maintained by Euroclear Sweden AB not later

than Thursday, April 19, 2018. >> provide notification of their intention to participate in the AGM not later

than Thursday, April 19, 2018, in writing to IAR Systems Group AB (publ), Kungsgatan 33, SE-111 56 Stockholm, Sweden, or via the company's website w w w. /investor s.

The notification should include: >> name, address, telephone number, personal or corporate identification number

and registered shareholding.

To be entitled to participate in the AGM, shareholders whose shares are registered in the name of a nominee should request that the shares be temporarily re-registered in their own name in good time prior to April 19, 2018. When applicable, proof of authorization, such as proxy forms and certificates of registration, should be sent to the company prior to the AGM. Shareholders who wish to be accompanied by one or two assistants must inform the company by the same date and in the same manner applicable to shareholders.

2018

FINANCIAL CALENDAR 2018 Year-end report 2017 Interim report January-March 2018 2018 Annual General Meeting Interim report January-June 2018 Interim report January-September 2018

February 6, 2018 April 25, 2018 April 25, 2018

August 15, 2018 9 November 2018

IAR SYSTEMS IN 60 SECONDS

We provide superior technology and services, enabling companies worldwide to build the products of today and the innovations of tomorrow.

Our products are used by many of the world's largest corporations as well as thousands of small and medium-sized

companies.

Our customers are located across

the entire globe and in a number of different sectors.

IAR Systems Group AB is listed on the Mid Cap list of Nasdaq Stockholm.

We have 163 employees in ten offices on three

continents.

Net sales 2017

SEK 345m NETTOOMS?TTNING

MSEK 400

+5%

300

200

100

0 2013

2014

2015

2016

2017

Operating profit 2017

SEK 107.4m R?RELSERESULTAT

MSEK 120

100

80

60

40

20

0 2013

2014

2015

+11%

2016 2017

Cash flow 2017

SEK 123.9m +8% KASSAFL?DE FR?N DEN L?PANDE VERKSAMHETEN

MSEK 150

125 100

75

50

25

0 2013

2014

2015

2016

2017

Proposed dividend: SEK 5.00.

IAR SYSTEMS GROUP ANNUAL REPORT 2017 1

COMMENTS FROM THE CEO

Exciting year underpinned by our leading technology

We have been active in the embedded systems industry for a long time ? longer than most in many respects. The industry has historically always been highly conservative, with the same business development patterns, the same relationships taking new forms and fundamentally the same solutions for new products. 2017 was the year in which we developed beyond our traditional sphere.

Using our leading technology and strong organization as a basis, we have shaken up the traditional aspects of the industry and developed in new directions. We were particularly successful in this regard this year, partly due to a newly-established relationship with Express Logic as well as our equity stake in Secure Thingz and a collaboration with Amazon Web Services (AWS), which is a new player for both us and the industry. You can read more about these relationships later in the Annual Report. For now, I would instead like to explain why these relationships are important for us and our future.

Over the past few years, we have spoken a lot about the rapidly increasing complexity in terms of product development among our customers. The pressure is mounting, not only as a result of new functions and requirements for energy efficiency, but also due to a desire to see greater connectivity between developed products and other products, internal networks and the Internet. When we have asked our customers, wireless functions are often highlighted as the most challenging aspect a developer can face.

The industry's solution when it comes to satisfying customers' growing need for less complexity is to link products and solutions together via a platform for developers. Renesas was the first to do so, but the trend has continued during year and can be seen most clearly among us, the suppliers. One example

is our collaboration with Express Logic regarding our respective offerings. The fact that AWS is making a serious move into the embedded systems industry is perhaps no great surprise given its potential, but it is very exciting. AWS, which is one of the world's leading companies with major resources, focuses on offering cloud services. This differs considerably from using the processor as a basis, which is otherwise the most common format in our industry. The fact that both AWS and Renesas chose us for our technology, quality and organization naturally feels extremely inspiring and gives us motivation for the future.

Connecting a product is not just a matter of advantages and customer benefit. It also results in increased vulnerability and security risks for our customers and our customers' customers. The two greatest security risks are perhaps not the ones most often discussed in the media. One such risk is product overproduction, meaning that the number of products produced in the manufacturing process at the factories exceeds the number ordered by our customers. Another is the risk of theft of the developed software in the product itself. It can be easy to steal developed software, since digital information is considerably easier to handle than a physical product. In short, these security risks ? which are becoming increasingly common ? are the reason we see potential in our investment in Secure Thingz. Through this investment, we can realize a new product

that focuses on securing our customers' development and providing them with a way to create secure products while also eradicating the risk of overproduction.

Our technology and product quality were crucial to the exciting developments that took place in 2017. We also offer a global organization that provides support throughout the entire process. Together, these factors have played a central role in our success over the past few years.

Once again this year, the performance of our regions varied, from quarter to quarter and between various countries. This resulted in a highly positive trend in Asia during the year, particularly in Japan. While the Americas and Europe varied widely during the year, overall the regions reported growth ? although not as strong as we would have hoped. Naturally, it feels fantastic to have surpassed the magic number of SEK 100m in terms of operating profit, and, given our long-term view, it also feels reassuring that we have seen growth in 38 of the last 44 quarters.

Looking ahead, the focus in 2018 will be on realizing the plans we have drawn up for the year together with our new partners. I am confident the year will be bring more new products as well as closer ? rather than more ? relationships. We also need to be clearer when describing our strengths, our operating environment and our ambition.

Using both familiar and new-found approaches, we will guide our customers, employees, alliances and owners towards new and exciting experiences in 2018.

Stockholm, March 8, 2018

STEFAN SKARIN CEO, IAR Systems Group AB

@sskarin

2 IAR SYSTEMS GROUP ANNUAL REPORT 2017

"Our technology and product quality were crucial to the exciting developments that took place in 2017. We also offer a global organization that provides support throughout the entire process. Together, these factors have played a central role in our success over the past few years." STEFAN SKARIN CEO, IAR Systems

STEFAN in the Brunkeberg tunnel, a stone's throw from IAR Systems' offices on Kungsgatan in Stockholm.

COMMENTS FROM THE CEO IAR SYSTEMS GROUP ANNUAL REPORT 2017 3

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