“Focus is to improve
profitability and create
a strong base for future
value growth”
Ericsson Annual Report 2016
ericsson in brief
Ericsson’s vision is a Networked Society where every person
and every industry is empowered to reach their full potential. The
potential of the Networked Society lies in transformation through
mobility. Transformation in the way people organize their individual
lives and carry out vital tasks. Transformation in the way we work,
the way we share information, and the way we do business.
Transformation in the way we consume and the way we create.
To realize the vision of a Networked Society, Ericsson provides
industry- leading high performing solutions for Networks, IT & Cloud
and Media. The aim is to develop, produce and offer products and
services with excellent and sustainable performance, at the right
cost. In the fast developing ICT (Information and Communications
Technology) landscape, the ambition is to be a preferred transfor-
mation partner for existing and new customers.
Ericsson has its headquarters in Stockholm, and the Ericsson
share trades on Nasdaq Stockholm and on NASDAQ, New York.
Net sales
SEK billion
222.6
(2015: 246.9)
Operating income
SEK billion
6.3
(2015: 21.8)
Cash flow from operating activities
SEK billion
14.0
(2015:20.6)
STRATEGIC
EVENTS 2016
Consumer Electronics
Show in Las Vegas
January 6–9
World Economic Forum
Annual Meeting
in Davos
January 20–23
Mobile World Congress
in Barcelona
February 22–25
CEO Hans Vestberg
steps down – CFO Jan
Frykhammar replaces
July 25
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST
SEPTEMBER OCTOBER
NOVEMBER
DECEMBER
JANUARY 2017
Changes in Ericsson’s organization and in the Company’s
reporting structure
Starting July 1, 2016, Ericsson has implemented a series of organizational
and structural changes. The new organizational structure focuses on meeting
changing customer requirements and on capturing market opportunities to
strengthen strategy execution and drive growth and profitability.
The financial reporting during 2016 has been based on the same segment
structure as 2015 with the three reporting segments Networks, Global Ser-
vices and Support Solutions.
From January 1, 2017, financial reporting is done according to a new
structure, with three new financial reporting segments, Networks, IT & Cloud
and Media. The new segments contain both products and services and the
structure aligns company reporting with strategy execution in a simpler and
more transparent way.
In this Annual Report, Ericsson’s operations are described according to
the new organizational structure, while all financial data except for impairment
testing of intangible assets and goodwill are made according to the prior fin-
ancial reporting structure Networks, Global Services and Support Solutions.
2016 segment structure
Networks
Global services
Support solutions
2017 segment structure
Networks
IT & Cloud
Media
Read more at page 36
contents
The business ..........................................
CEO dialogue .................................................. 2
This is Ericsson ................................................ 6
Profit improvement ........................................... 8
This is the market ........................................... 10
The customers ................................................ 14
Networks ........................................................ 16
IT & Cloud ....................................................... 19
Media ............................................................. 22
Global presence .............................................. 24
Customer Group Industry and Society ............. 26
Customer Group IPR & Licensing .................... 28
The People ..................................................... 30
Sustainability and corporate responsibility ....... 32
Reporting structure 2016 ................................ 35
Letter from the Chairman ................................ 37
Results ...................................................
Board of Directors’ report* ............................. 38
Consolidated financial statements* ................ 53
Notes to the consolidated
financial statements* ..................................... 65
Parent Company financial statements* .......... 100
Notes to the Parent Company
financial statements* ..................................... 106
Risk factors* ................................................ 119
Auditor’s report ............................................ 128
Forward-looking statements ......................... 133
Corporate Governance ..........................
Corporate Governance report, 2016 ............. 134
Remuneration report .................................... 162
Shareholders .........................................
Ericsson and the Capital market .................... 166
Share information ......................................... 170
Other information ...................................
Ten-year summary ....................................... 174
Alternative Performance Measures (APM) ..... 176
Financial terminology and
Exchange rates ............................................ 181
Glossary ...................................................... 182
Shareholder information ............................... 183
* Chapters covered by the Auditor’s report.
Media and entertain-
ment conference IBC
in Amsterdam
September 8–12
Ericsson Investor
Update in New York
November 9–10
Börje Ekholm's first
day as CEO
January 16, 2017
Q4 report
January 26, 2017
JANUARY FEBRUARY MARCH APRIL MAY JUNE JULY AUGUST
SEPTEMBER OCTOBER
NOVEMBER
DECEMBER
JANUARY 2017
Contact Investor Relations
investor.relations@ericsson.com
The business – Ericsson in brief
Ericsson | Annual Report 2016
1
THE BUSINESS – CEO dialogue
shifting focus from
growth to profitability
Ericsson’s CEO Börje Ekholm and Jan Frykhammar, who served
as CEO July 2016 – mid January 2017, discuss a number of issues
concerning 2016 and important topics for the Company going forward.
What’s your reflection on the year 2016?
Jan | The negative trend with low mobile broad
band investments accelerated through 2016,
especially in markets with a weak macro-eco-
nomic environment. As a result, the leadership
team and I have been fully committed to the
work to reduce cost and improve efficiency, in
order to secure resilience and competitiveness
for the company. The cost and efficiency pro-
gram, which was intensified in the second half of
2016, is expected to reduce the annual run rate
of operating expenses, excluding restructuring
charges, to SEK 53 billion in the second half of
2017. This is to be compared with SEK 63 billion
for full-year 2014.
Börje | Operators continued to be cautious
with investments in equipment as their revenues
overall have come under pressure. This was
reflected in our results in 2016 which did not
reach our expectations. The short-term reality
is that growth is limited and we have to adjust to
that and prioritize what to focus on. The first task
is to establish profitability and adjust the size of
our operations to the demand level.
What do you consider to be the most
important event during 2016?
Jan | This has been a very special year for me.
I took on the role as a CEO mid-year with the
ambition to stay until the search for a new CEO
was completed.
During 2016 our ambition was to unite the
company around the shift in focus from growth
to profitability. The successful execution of the
intensified activities during the second half of the
year is a clear sign that the mindset of the orga-
nization has changed, enabling us to continue
our work to improve profitability.
Börje | After 10 years as member of the board
I got the question if I wanted to assume the day-
to-day leadership of Ericsson. One of the major
reasons to why I accepted was that I believe that
Ericsson is a great company and that there is
great business potential to exploit. This com-
pany has connected billions of people and soon
we will connect many machines. Another reason
to accepting the job is that I do not have anything
against challenges – on the contrary. They trig-
ger me. Thus, I look forward to refining the strat-
egy to focus investments into areas where
Ericsson both can and must win. Even if I have
a decade of experience working for Ericsson
as a board member, I am assuming this new
responsibility with humility, understanding there
is much left for me to learn.
How will Ericsson restore profitability?
Jan | As reported in 2016, the cost and effi-
ciency program is progressing towards the
target. During the year, we have pushed for
strong accountability and focus on performance
throughout the company. The program has been
expanded to adjust the organization to lower
sales volumes, and the priority has been to exe-
cute on the cost-out activities and to reduce
working capital.
During 2016, operating expenses were sig-
nificantly reduced through headcount reduc-
tions around the world. As the sales decline
impacted the gross margin negatively, we also
intensified the focus on reducing cost of sales,
and thereby improving the gross margin.
2
Ericsson | Annual Report 2016
Earnings per share, diluted
sek
0.52
(2015: 4.13)
Our task is to make our customers
successful, which in turn will make
us successful.”
Börje
Börje | Only consistent profitability and strong
cash flow will provide us the freedom to continue
investing in our research & development and into
our future growth. In the near term, this means
we prioritize profitability over growth. We aim at
establishing competitive cost structures across
all parts of our operations and our portfolio and
continue to execute on our ongoing cost and
efficiency program. We are also reviewing our
overall priorities to focus on the most attractive
areas. This effort involves key teams in the com-
pany, to secure quality of decisions and speed
in implementation once decisions are made.
All these activities are done to ensure that we
remain at the forefront of technological devel-
opment – building on the combined strength
across products, services and solutions.
How will Ericsson work to further improve
customer relations?
Jan | After I assumed the CEO position at the
end of June the leadership team and I spent
three months visiting a majority of Ericsson’s
largest customers. In fact, the whole organiza-
tion has been very active in 2016 in addressing
the demands of our customers with the aim to
support them in expanding their businesses,
monetize on their business ideas and help them
keep pace with the latest industry develop-
ments. The new organization, effective from July
1, has been developed to mirror our customers’
way of working and to better meet the needs of
different customer segments.
Börje | Our task is to make our customers suc-
cessful, which in turn will make us successful.
It may sound like a management cliché, but we
need to make decisions foremost with the cus-
tomer in mind, thereafter Ericsson and finally the
individual business unit. We want to be a partner
to our customers as it is through partnership we
can add true value. It should be easy to do busi-
ness with us, and we need to reduce the com-
plexity and simplify our processes in order to be
more agile in our responses to customers.
Overview of new segments
Networks
IT & Cloud
Media
Main components products
Main components services
Radio,
Transport
Customer Support,
Network Rollout,
Network Managed Services
OSS & BSS, Cloud, NFV/SDN,
Telecom core, IP routing
Consulting & Systems Integration,
IT Managed Services
Media, Compression,
Content delivery
Consulting & Systems Integration,
Broadcast Services
New simplified structure optimized for different customer needs and accountability
The business – CEO dialogue
Ericsson | Annual Report 2016
3
THE BUSINESS – CEO dialogue
During 2016 our ambition was to
create a sense of urgency within the
Company and to change the internal
focus from growth to profitability first.”
Jan
Jan Frykhammar
President and CEO
July 25, 2016 – Jan 15, 2017
What are Ericsson’s competitive
strengths?
Jan | Our strength is in the combination of
our technology and services leadership, com-
bined with our global presence and scale.
There is actually a natural competitive advan-
tage in our unique combination of products
and services, as the network depends on the
services we deliver, and the other way around.
Our 111,464 employees are seriously commit-
ted and have done a great job during 2016
despite the challenging environment.
Börje | Ericsson has shaped an entire industry
and led global technology developments in
mobility. We are only at the beginning of the
mobility journey and as the networks and
applications become even more important in
a 5G connected world, our customers and
the industry look for continuous innovation.
Ericsson is built on amazing innovations and
great people and our technology leadership is
reflected in the 42,000 patents we have in our
IPR portfolio. It is easy to quantify our techno-
logical strength. However, our competitive
advantage arises when we can combine our
products, with services and solutions.
Börje, could you comment on the
strategic direction going forward?
Börje | As CEO of Ericsson one of my main
tasks is to create a long-term strategic plan
and execute on that. Emphasis will be on
refining the strategy to focus investments into
areas where we both can and must win. We
need to ensure that Ericsson remains at the
forefront of technological development –
across our portfolio and markets.
Meeting changing customer requirements
and capturing market opportunities is key to
being successful and to achieve this we need
to continue to build from our core strengths,
in both products and services. The job is to
ensure that Ericsson emerges as an even
stronger leader, providing the industry and our
customers with superior products, services
and solutions.
In the near term, stability will be key to
establishing a strong base for future growth.
This means prioritizing profitability over
growth, but also to diligently continue to work
on efficiency and effectiveness across all
operations.
Stockholm, February 24, 2017
I look forward to
refining the strategy
to focus investments
into areas where
Ericsson both can
and must win.”
Börje
Börje Ekholm
President and CEO
Jan 16, 2017 –
4
Ericsson | Annual Report 2016
Ericsson | Annual Report 2016
Ericsson | Annual Report 2016
5
5
THE BUSINESS – This is Ericsson
This is Ericsson
Ericsson provides high performing solutions for Networks, IT & Cloud, and Media. The company
provides infrastructure, services and software to the telecom industry and other sectors.
Ericsson has approximately 110,000 employees with customers in more than 180 countries.
During 140 years, Ericsson has delivered cus-
tomer value by continuously evolving its busi-
ness portfolio through its core assets – tech-
nology and services, global scale and skills.
This, in combination with its business expertise,
has resulted in a profound technology and
services leadership. Ericsson believes that the
Company’s technological and financial capa-
bility to adapt and the will to change are major
compe titive strengths.
Ericsson’s ability to transform its core busi-
ness and its ambition to enter into new and
adjacent markets are key to generating cus-
tomer and shareholder value.
In 2016, approximately 67% of Ericsson’s busi-
ness was related to services and software sales,
compared with less than 50% ten years ago.
This change reflects the ongoing transformation
from a hardware-centric business to one where
the share of the software and services business
continues to increase. However, competitive
hardware also remains an important perfor-
mance differentiator. The number of product
platforms has been significantly reduced over
time, while the scope has extended from mainly
mobile infrastructure and related services to
include IT, Cloud, support systems, media and
new industry verticals. The workforce is also
going through a transform ation, reflecting the
Company’s business and competence shift. In
2016, approximately 15,000 employees joined
Ericsson and about 20,000 employees left
the Company, resulting in a net reduction of
4,800 employees.
Ericsson’s stakeholders
Customers
A leading ICT
transformation partner
Employees
Attract, develop and
retain best talent
Shareholders
Shareholder
value creator
Society
Responsible and relevant
driver of positive change
6
Ericsson | Annual Report 2016
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Ericsson | Annual Report 2016
7
THE BUSINESS – Profit improvement
Profit improvement
In order to restore profitability, Ericsson is focusing on three areas: efficiency improvements,
monetize Networks and build success in IT & Cloud, Media and Industry and Society. The
cost and efficiency program is progressing towards the target and has been expanded to
adjust the organization to lower sales volumes.
Efficiency improvements
In November 2014, Ericsson launched a global
cost and efficiency program with the aim to gen-
erate savings of SEK 9 billion during 2017, with
half of the savings in operating expenses and the
other half within cost of sales. On July 19, 2016,
the Company announced additional activities,
targeting a new lower annual run rate of operat-
ing expenses, excluding restructuring charges,
of SEK 53 billion in the second half of 2017. This
can be compared with SEK 63 billion for full-year
2014 and equates to double the previously tar-
geted savings in operat ing expenses. All effi-
ciency measures are progressing according to
plan. Operating expenses were SEK 60.5 (64.1)
billion in 2016 and operating expenses excluding
restructuring charges amounted to SEK 56.4
(61.4) billion. Total restructuring charges in 2016
were SEK 7.6 (5.0) billion.
During 2016, the negative industry trends
intensified and thus impacted demand for
mobile broadband, especially in markets with a
weak macro-economic environment. Ericsson’s
sales in Europe also declined, as a result of lower
capacity sales and the completion of large
mobile broadband projects. The sales decline
has impacted the gross margin negatively, and
implemented cost reductions have not been
sufficient to offset the effect. To adapt opera-
tions to a lower mobile broadband market, the
Company has intensified actions to reduce cost
of sales further. The Company’s ambition is to
make cost of sales reductions visible in an
improved gross margin in the second half of
2017 compared to full year 2016.
The scope of the global cost and efficiency
program involves cost of sales reductions in ser-
vice delivery and supply, as well as operating
expense reductions in R&D and SG&A (Selling,
General and Administrative expenses) including
common support functions. Major elements of
the cost of sales improvement plan include
activities related to service delivery such as cen-
tralization, automation and standardization, and
production related activities such as increased
outsourcing and production site consolidation.
The target is to increase production outsourcing
to above 50% in 2017 from less than 40% in
2015. Major elements in the operating expense
improvement plan involve headcount reductions
and outsourcing. The shift in workforce and
competence is also an important long-term,
value-driving priority.
Three focus areas to drive incremental improvements (Illustrative)
Operating margin (incl. restructuring charges)
Build success in
IT & Cloud, Media,
Industry and Society
Monetize
Networks
Efficiency
improvements
2016
2020
8
Ericsson | Annual Report 2016
Monetize Networks
Ericsson’s strong position in both mobile infra-
structure and telecom services has resulted in
a large installed global base to build on, which
Ericsson aims to monetize to increase sales and
improve profitability. In telecom services, the
Company monetizes its strong global footprint in
managed services, with more than 300 ongoing
contracts. In mobile infrastructure, the ambition
is to increase capacity and software sales into
the installed base. While market conditions are
challenging in certain parts of the world, the
Company continues its work to capture busi-
ness opportunities as more markets shift from
3G to 4G. At the same time, the Company
intends to capture growth on the strong 4G foot-
print with the ambition to extend its technology
leadership in the emerging 5G market. The
ambition is to lead in 5G transformation and
thereby also strengthen profitability within the
Networks business. Improving the Network
Rollout business from negative to break-even
or positive result is included in the monetize
Network’s area.
Build success in IT & Cloud, Media
and Industry and Society
Some of the attractive characteristics in the
adjacent areas IT & Cloud, Media and Industry
and Society are recurring revenues and a higher
share of software and professional services.
Over time, growth is primarily expected to be
organic, complemented by selective acquisi-
tions and a broad range of partnerships and
collaborations. The overall ambitions of the
partnerships, collaborations and selective
M&A activities are to expand market footprint,
strengthen competitive assets, fill portfolio gaps,
and, above all, strengthen Ericsson’s ability to
create value and to accelerate profitable growth.
The strategic partnership with Cisco is an exam-
ple of an important collaboration initiative.
The plan also includes expansion and captur-
ing growth through the customer group Industry
and Society in the industry verticals of utilities,
transport and public safety by reusing Ericsson’s
core offerings.
Cost and efficiency program
Ambition summary
2014
November
> SEK 9 billion in net reduction
– ~50% in OPEX
– ~50% in cost of sales
2016
July
> OPEX reduction ambition doubled
> Intensified activities to reduce cost of sales
2016
October
> Further short-term cost of sales actions to
adapt to weaker mobile broadband demand
2017, second half
> OPEX run-rate SEK 53 billion,
excluding restructuring
> Cost of sales reductions visible
in gross margin compared to full
year 2016 levels
Strict discipline across the company to restore financial performance
The business – Profit improvement
Ericsson | Annual Report 2016
9
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THE BUSINESS – This is the market
this is the market
Over the next few years, telecom networks will transform into open, horizontal and program m
able platforms that can connect all clouds to all devices. The increasing amount of industry
use cases, including autonomous cars, massive and critical machinetomachine communi
cations and the vast usage of sensors will require more spectrum – as well as new spectrum.
This will add a new set of requirements to existing telecom networks, creating new business
opportunities for Ericsson.
A market in transformation
The market is transforming, creating new needs
for Ericsson’s customers. By applying network
slicing and virtualization, the network can be
segmented in a smart and efficient way. This
enables operators to expand their business and
address new enterprise segments and industry
verticals. Ericsson has taken a broad approach
with the ambition to lead and drive the digitaliza-
tion and transformation of the telecom industry
as well as of other industries including utility,
transport, and public safety.
Global market trends
For 2016, Ericsson estimates its total address-
able market to be USD ~210 billion, growing to
USD 215–225 billion in 2018, corresponding to a
CAGR of 1–3%. The overall macro environment
in 2016 has been challenging, especially in
emerging markets, with a negative impact on
investment willingness in certain regions and
markets. In developed markets, investments in
Europe have been slow, while investments in the
US have remained stable. Investments in China
have continued on a high level driven by 4G
deployments. Only about 40 percent of the
world’s population was covered by 4G/LTE at
the end of 2015, which means that there is a
great need for additional mobile broadband cov-
erage before the next technology, 5G, becomes
available. The demand and interest in digital
transformation enabled by 5G, IoT (Internet of
Things) and Cloud has accelerated, while at the
same time, the industry convergence continues
across IT, telecom and media.
In 2022, Ericsson estimates that there will be
around 10 billion mobile subscriptions (including
cellular M2M) and over 6.8 billion connected
smartphones. While the earlier generations of
mobile technology offered connectivity to mobile
phones and smartphones, the transition to the
next generation, 5G, will involve devices beyond
smartphones. Ericsson estimates that there will
be 29 billion connected devices in 2022, of
Ericsson’s addressable market (estimate)
Approximately USD 210 billion in 2016
Networks (Products & Services)
IT & Cloud (Products & Services)
Media (Products & Services)
Source: Ericsson estimate
Networks
Lowered investments in major markets, still ~60% global
population is not covered by LTE (end of 2015)
IT & Cloud
Major transformations ahead presenting opportunities
and challenges
Media
Investments pick up as operators consolidate and
choose technology
10
Ericsson | Annual Report 2016
which 18 billion will be related to Internet of
Things. Video is expected to represent 75% of
all mobile traffic in 2022.
New services and IoT communications have
a wide variety of requirements on connectivity
performance, coverage, security and reliability.
Earlier generations of mobile technologies such
as GSM and LTE operate on licensed spectrum.
In 5G, licensed and unlicensed spectrum will be
needed and both traditional (e.g. Wi-Fi, LTE) and
new radio access technologies will be used. In
the existing spectrum, 5G technology is an evo-
lution of LTE networks and therefore backwards
compatible with earlier generations of mobile
communications, while the new spectrum will be
addressed by new technologies. The technolo-
gies will interwork and offer strengthened capa-
bilities to support a broad range of services.
Enriched mobile communications via smart-
phones have different requirements than
machine type of communications.
IoT communications also have different require-
ments depending on if it is critical or massive.
Critical IoT might require high quality of service
(QoS) or telecom grade connectivity, while the
requirements of massive IoT applications such
as smart sensors that connect to the cloud once
in a while, are related to low cost, low energy
consumption and low bandwidth.
In an environment with high data volumes,
low latencies and a large number of devices, the
architecture needs to be horizontalized. The
benefits of a horizontal platform include the
possibility to slice the network to allocate
resources in the most optimal way and to con-
nect a device to applications relevant to that
device in the cloud.
Building network infrastructure in a cloud
environment also requires a decoupling of net-
work functions (software) from hardware, which
is achieved through technology virtualization.
Increased network relevance for other industries
Devices/IoT
Mobility &
connectivity
Cloud &
data
Analytics &
automation
Applications
& services
Enterprise
IT Cloud
5x
Lower latency
10–100x
End-user data rates
1 000x
Mobile data
volumes
10x
Battery life
10–100x
Connected devices
A horizontal, programmable network platform to connect all clouds to all devices
The business – This is the market
Ericsson | Annual Report 2016
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THE BUSINESS – This is the market
5G
Ericsson is at the forefront of the 5G market, having signed 28 MoUs (Memo
randum of Understanding) with operators, and with 20 different industry
partners and some 45 universities and research institutes involved in the
development of 5G. In addition, Ericsson is taking a leading and active role in
5G standardization globally. The Company expects 5G in large commercial
deployments by 2020.
The 5G network will spur both business and
technical innovation across many industries.
Ericsson has several testbeds and is performing
field trials of 5G radio technology, with larger
pre- commercial operator trials planned for 2017.
5G forms a network where fixed and mobile
services converge and will therefore also require
a transformation of both the core network and
the transport network. The network will consist
of different access and connectivity solutions,
driven by software, addressing the demands on
mobile communications beyond 2020. The net-
work will be sustainable, flexible and operation-
ally scalable, addressing multiple industries and
use cases. In fact, it will change the way the tele-
com industry has worked so far.
During the lifetime of traditional mobile com-
munications, the development and adoption of
new technology generations has been done
through standardization processes and bodies.
5G is different as it will include devices beyond
smartphones and therefore have more extensive
adaption. Hence, the broad variety of use cases
requires cross industry collaboration and a com-
bination of conventional standardization and the
use of Open source solutions. Thus, 5G will form
a new global ecosystem with multiple use cases
where Ericsson’s offering includes telecom
transformation as well as digital transformation
of other industries.
The increased traffic capacity and the very
high data rates of 5G technology will require the
development of a new flexible air interface, NX,
and the introduction of new spectrum within the
existing spectrum below 6 GHz, as well as new
spectrum in higher frequency bands up to 100
GHz. As capacity needs have continued to grow,
the use of spectrum has shifted towards higher
frequencies where larger channel bandwidths
are more easily found. Compared to 4G-licensed
spectrum, the efficiency of 5G-licensed spec-
trum is significantly enhanced. Backhaul capac-
ity also needs to evolve further to support future
extreme capacity needs.
With data rates up to 100 times faster, net-
work latency lowered by a factor of five, mobile
data volumes 1,000 times greater than today’s,
and battery life of remote cellular devices
stretched to 10 years or more, 5G will enable
new capabilities, of which greater efficiency,
agile networks and seamless connectivity are
a few examples. The 5G network will also,
supported by its inherent sustainability charac-
teristics, consume much less energy than earlier
generations and be more cost efficient through
automation and hardware optimization.
5G use cases
5G
USE CASES
Broadband and media everywhere
Sensors everywhere
Smart vehicles, transport
Infrastructure, monitor and control
Critical control of remote devices
Interaction human – IoT
12
Ericsson | Annual Report 2016
Creating the
network of the future
The Ericsson and Cisco partnership signed
by two strong and complementary partners
in November 2015, covers areas such as
routing, data centers, networking, cloud,
mobility as well as management and control
and global services capabilities. Since sign-
ing the contract the scope has extended into
the segments of transport, smart city, utility
and web, and has also entailed the introduc-
tion of the Dynamic Service Manager. In
addition, and based on Ericsson’s scale and
skills, the partnership includes the develop-
ment of a joint service portfolio in systems
integration and managed services.
The partnership accelerates market trans-
formation and innovation, and emphasizes
the strategic role of the network in the
digitalized enterprise and public market.
Reflecting good growth, the strategic
partnership has signed more than 100
deals globally.
The business – This is the market
Ericsson | Annual Report 2016
13
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THE BUSINESS – The customers
The Customers
Ericsson’s main customers are telecom operators around the world, representing approxi
mately 90% of revenues in 2016. In addition, the Company has customers in the selected
industries of utility, transport and public safety. The IPR licensing business customer base
is mainly handset suppliers.
Operators
For operators to be competitive, the telecom
networks need to remain a relevant part of pro-
viding high quality user experience, and they
need to deliver added value in new and unique
ways. Operators focus on differentiating their
offerings, investing in agile and efficient net-
works, managing the user experience and com-
plexity and securing good coverage and perfor-
mance for all services. During 2016, there has
also been an increased operator focus on 5G
and IoT, digital transformation and core network
transformation.
As mobile data traffic and the number of
devices continue to increase, operators need to
invest in infrastructure that supports throughput,
performance and the large volumes of devices.
While quality of service is the foundation of suc-
cess, some operators differentiate by investing
in high performing networks, some by swiftly
adapting to market conditions and others by
being first in the market with uniquely designed
service offerings.
Utility, transport and public safety
The industries of utility, transport and public
safety use ICT technologies in the ongoing mar-
ket transformation, which is driven by mobility
and new evolving technologies including smart
grids, intelligent transport systems and services.
Customers in these industries use ICT as an
enabler to enhance the customer experience
through innovation as they develop new busi-
ness models and form new ecosystems.
Handset suppliers
Ericsson’s revenues from IPR (Intellectual Prop-
erty Rights) has a customer base mainly consist-
ing of handset suppliers. Smartphones are
based on mobile technology, and Ericsson’s
essential patents cover 2G, 3G, and 4G tech-
nologies. Over the next few years the IPR and
licensing customer base is expected by Ericsson
to expand to supp liers of IoT-connected devices.
On customers’ agenda
> Higher speeds and decreased latency on 4G
> New spectrum releases
> Increased focus on 5G and IoT
> Digital transformation
> Transformation in Telecom core
> Cross-industry synergies
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Ericsson | Annual Report 2016
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An evolved
go-to market model
Ericsson is a global company, with customers in
more than 180 countries. The new organization
enables increased focus on the customers, both
from a sales and delivery perspective. There are ten
regions, all of which focus on sales and delivery to
operators, and three Customer Groups with an
evolved go-to market model for other customers.
The structure allows the Company to get closer to
customers, in order to enhance customer relations
and increase customer value.
Ericsson | Annual Report 2016
15
PROFIT IMPROVEMENTTHE MARKETTHIS IS ERICSSONBUSINESS STRUCTURETHE PEOPLESUSTAINABILITYREPORTING STRUCTURE
THE BUSINESS – Business structure
Networks
From 2017, the Networks segment consists of two business units, Network Products and
Network Services. The overall focus is on evolving and managing access networks, including
the development of hardware and software for next generation radio access and transport
networks. Networks will be reported separately within the new reporting structure from 2017.
Facts
Customers
Telecom operators
Competitors
Huawei, Nokia, ZTE
Introduction
In Networks, Ericsson supports its operator
customers by leveraging the advantages of tech-
nology and services leadership. The portfolio of
radio networks and backhaul solutions are based
on industry standards and can also be industri-
alized and adjusted to meet the demands of
other industry verticals. In addition, Ericsson’s
services capabilities address operator demand
in an increasingly complex network environment.
The new organizational structure enables a
close set-up between products and services,
and allows technology and services expertise
to stay close to customers, which also supports
simplicity and speed in the delivery process.
Market trends and addressable market
The addressable market for Networks is esti-
mated by Ericsson to be USD 100 billion in 2016,
including both products and services. The total
addressable market for Networks, which is a
combination of the mobile infrastructure market
and the related telecom services market, is esti-
mated by Ericsson to decline by 0–2% CAGR
2016– 2018.
The competitive portfolio of radio networks
and backhaul solutions are based on the tech-
nology platforms that the Company develops for
telecom operators. Telecom operator revenues
in developed markets have been flat during
recent years, and investments in many emerging
markets have been impacted by a weak macro-
economic environment. These circumstances
have impacted the overall RAN (Radio Access
Network) equipment market, which is estimated
by Ericsson to have declined by 10–15% in 2016.
This trend is expected to prevail and the Com-
pany is estimating that the RAN equipment
market will decline by 2–6% in 2017.
Offering – main components
Networks includes several generations of radio
networks as well as small cells and microwave
products. Ericsson offers hardware and soft-
ware both for radio access and transport. The
Company also has a broad and global range
of product-related services comprising design,
optimization, network rollout and customer sup-
port. In addition, Ericsson provides managed
services, which is a vendor agnostic service
business that manages operator networks
regardless of the equipment supplier. The
Company operates and manages any network,
or integrates any network technology, regard-
less of the equipment that is currently installed.
The Networks business
Ericsson product related business
Radio and Site Solutions
Software and Hardware
Network
Rollout
Transport
Software and Hardware
Network
Tuning
Network
Design
Customer
Support
Product vendor agnostic services business
Managed Services
Network Optimization
16
Ericsson | Annual Report 2016
Business model
Mobile broadband
Ericsson’s most traditional business model is
mobile broadband, where the Company delivers
and rolls out telecom networks including all nec-
essary hardware and software. Key aspects for
an operator to roll out a new technology – such
as 4G/LTE – include satisfying end user demand
in an efficient way, while maintaining a high-qual-
ity user experience and maximizing the revenue
potential. When building network coverage
across one or more geographic areas, the cov-
erage phase, there is a large share of hardware,
and the project often includes network rollout
services. For Ericsson, the initial build-out or
rollout phase is capital-intensive and has a lower -
than-average gross margin. Currently LTE cov-
erage is growing quickly in urban, suburban and
rural areas in many countries, and Ericsson esti-
mates that world population coverage by LTE
technology will be above 80% in 2022.
When the network is up and running and
demands for capacity expansions and quality
improvements arise, profitability increases,
driven by an increased share of software sales,
network densification and less complex hard-
ware installations, network optimization and
customer support. This phase is called the cap-
acity phase. The coverage phases are normally
1–2 years while the capacity phase lasts until the
equipment is phased out, normally after 7–10
years in operation. One of the key drivers for
increased capacity in the mobile networks is
increased mobile data usage. Ericsson estimates
that traffic generated by smartphones alone will
increase tenfold between 2016 and 2022.
Managed Services
In Managed Services, Ericsson takes over
aspects of a customer’s business operation as a
commitment over several years. The Managed
Services business model includes three phases.
The initial phase, the transition, is coupled with
lower profitability, as it involves up-front costs
when staff and expertise are transferred from
the customer to Ericsson. In the second phase,
the transformation phase, Ericsson introduces
its global processes, methods and tools and
implements a global delivery model. In the third
phase, Ericsson focuses on optimization and
industrialization by simplifying, implementing
and consolidating resources, processes, meth-
ods and tools to allow for improved profitability.
Managed services contracts are normally 5–7
years long. The first two phases last for 1–1.5
years while the optimization phase represents
the remainder of the contract period.
The Company believes that it has reached
a good balance of contracts in the transition,
transformation and optimization phases.
Priorities
Ericsson is a leading and trusted network part-
ner. Networks’ mid-term priorities are to lever-
age the installed base, improve profitability and
increase the competiveness of its portfolio with
the best total cost of ownership for its custom-
ers, as well as secure leadership in the evolution
to 5G. To leverage the installed base Ericsson
plans to grow its managed services and cus-
tomer support business by addressing end user
experience and network evolution, grow capac-
ity sales and leverage new spectrum. In addition,
Business cycles – mobile broadband
Capacity
> Upgrade, densification, capacity increase
> Shorter order cycles
> Accretive to company gross margin
> More software, support and optimization
services
Coverage
> Break-in and green field
> Open bidding
> More hardware and rollout services
> Dilutive to company gross margin
> Higher capital tied-up
> Network rollout lag Network sales ~2–3 quarters
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The business – Business structure
Ericsson | Annual Report 2016
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THE BUSINESS – Business structure
the Company focuses on increasing the avail-
ability of its new radio platform Ericsson Radio
System. To improve profitability and increase
competitiveness, Ericsson is taking actions
within Networks to improve R&D efficiency,
change the supply strategy to fewer sites and a
higher share of outsourced production, scale
Ericsson Radio System deliveries, leverage its
service delivery efficiency and promote industri-
alization and automation of tools and process in
services delivery. In order to secure leadership in
the evolution to 5G, Networks is offering capabil-
ities for consultation and inte gra tion of solutions
for 5G and IoT, is leveraging 5G software “plug-
ins” (5G software features that can be applied to
4G networks) and is introducing the world’s first
commercial 5G radio. In addi tion, the Company
is driving the 5G ecosystem through collabora-
tion with customers, universities and other
industries and partnerships.
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Ericsson | Annual Report 2016
IT & Cloud
The IT & Cloud business includes two business units: IT & Cloud Products and IT & Cloud
Services. The focus in IT & Cloud is to help telecom operators and selected enterprises
through the digital transformations ahead. This is handled mainly in three domains: Support
Systems (OSS and BSS), Telecom core and IT Cloud. IT & Cloud will be reported separately
within the new reporting structure from 2017.
Facts
Customers
Mainly operators.
Selected enterprises.
Competitors
Services – e.g. Accenture,
Capgemini, IBM
OSS and BSS – e.g. Amdocs,
Huawei, Netcracker, Oracle
Telecom core – e.g. Huawei, Nokia
IT & Cloud Infrastructure – e.g.
Cisco, Dell, HPE, IBM
Introduction
The technology evolution driven by mobility,
broadband, analytics, Internet of Things (IoT)
and cloud is triggering a new wave of digital
transformation. It is not only a technology shift
but also a strong enabler for business transfor-
mation across many industries. For operators,
three main business drivers for transformation
can be defined:
> Digital operations – using cloud, virtualization
and automation to build a more agile and
efficient network and operations
> Digital engagement – as operators move from
just selling connectivity to providing a full cus-
tomer and application centric business, they
need new tools and ways to constantly be
able to engage with customers and partners
> Digital services – the ability to innovate and
introduce services in days, not months, using
insights derived from data analytics to identify
and capture new business
Digital transformation for operators is not only
a way to stay competitive, it is also a necessary
shift to prepare for the growing IoT business.
IT & Cloud address these emerging
demands, and with its extensive product port-
folio and comprehensive service offering, IT &
Cloud is equipped to handle transformations.
The desired position for Ericsson is to
become a leading digital business transforma-
tion partner in and across the support systems,
Telecom core and IT Cloud domains.
Market trends and addressable market
IT & Cloud’s focus is on creating opportunities
for operators to unlock the full potential of mobil-
ity, mobile broadband, analytics, IoT and cloud.
Digital transformation for operators is closely
related to the support systems domain and is
driven by the fact that today’s customers, both
consumers and enterprises, exhibit different
expectations and behavior compared to what
The IT & Cloud business
Products and technology
Consulting
& Systems
Integration
Application
Modernization
&
IT Operations
Customer
Support
Support Systems (OSS and BSS)
Revenue & Customer management
Service provisioning, fulfillment
and assurance
Management and orchestration
Physical and virtual network functions –
e.g. MSS, IMS, VoLTE, EPC NFV infrastructure
Telecom core
Cloud Infrastructure and platform solutions
Hyperscale Datacenter System 8000
IT Cloud
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The business – Business structure
Ericsson | Annual Report 2016
19
THE BUSINESS – Business structure
many incumbent businesses are used to. This
has resulted in many operators realizing that
they need to embrace digital transformation to
change the way they interact with their custom-
ers and to be able to provide a convenient and
context-aware experience across all customer
touch points. In addition, operators increasingly
work with partners to participate in or drive eco-
systems that accelerate innovation and increase
value for consumers and industries. Lastly, to
reach agility, automation and resource efficiency
from software-defined infrastructure, virtualiza-
tion of network functions and software- defined
networking, operators are looking to transform
their back-office operations and IT environments
to take advantage of advanced analytics and
machine learning technology.
The market for Telecom core transformation
is driven by operators wanting the ability to
address new enterprise segments cost effi-
ciently, with new offerings, business models
and use cases based on 5G or IoT, or both. This
need is satisfied by using new Telecom core
technologies like software-defined infrastructure
and networking, virtualization, open systems
and analytics, which allow the operator to slice
its network to serve a particular industry or busi-
ness segment, for example. Slicing provides
dedicated yet dynamic resource utilization and
quality assurance for each business, indepen-
dent of others, at a much lower total cost for
operators.
IT operations are under pressure to deliver
speed, scalability and flexibility that meet busi-
ness demands, while at the same time reducing
CAPEX and OPEX. The virtualization of network
functions and the related horizontal network
architecture creates a market for cloud trans-
formation and convergence of IT and networks.
In addition, new cloud technology allows any
enterprise to build cloud infrastructures to
support their digital transformation, including
architecture and economics equivalent to that of
the traditional cloud service providers. The mar-
ket also shows an increasing interest in making
more use of public clouds for enterprise applica-
tions and in creating a hybrid cloud that shares
resources from private and public clouds to run
their workloads.
The addressable market (products and ser-
vices) for IT & Cloud (telecom operators only)
in 2016 is estimated by Ericsson to be approxi-
mately USD 100 billion, with an estimated
growth rate of 5–7% CAGR 2016–2018.
Offering – main components
Transformation implies journeys from the current
state to a future state in many dimensions of the
business. Ericsson’s IT & Cloud product and
service portfolio provides customer solutions
for all of the above mentioned transformation
journeys. The Company believes that the ability
to offer a combination of products, technology
and expertise in networks, software, cloud and
business processes is a significant competitive
advantage. This ability is highly relevant to other
industries as well as it enables expansion of the
business beyond telecom operators even further.
IT & Cloud Services
With over 17,000 consultants and systems
integrators building and using common best
practices, service automation and asset tools,
Ericsson is in a strong position to guide custom-
ers through the challenging, complex and in
many cases multi-year transformation journeys.
Ericsson’s services capabilities enable customer
engagements ranging from consulting, setting
the business direction and transformation plan,
systems integration and building the new envi-
ronment to establishing business processes
and IT operations on behalf of the customer.
Digital transformation
Business drivers for Ericsson’s customers
Digital operations
Digital engagement
Digital services
Agile processes and
technology adopting
DevOps & Lean
Effortless and con-
sistent customer
experience through
all channels
Innovate to launch
new offerings and
business models
Reduce total cost
through automation
and consolidation
Think “customer first”
in every part of the
organization
Leverage data to
understand and
capture business
20
Ericsson | Annual Report 2016
Business model
The traditional business model has been to offer
products and services. This has over time devel-
oped towards project business with larger and
more complex undertakings. The undertakings
are becoming larger, turning into full transforma-
tion projects with business benefit goals, and
they include hardware and software from multi-
ple vendors. A transformation project can turn
into an IT managed services contract where
Ericsson operates the transformed environment
on behalf of the customer. Over time there will
also be as-a- Service models in the IT & Cloud
market.
Priorities
The business and operational priorities for
IT & Cloud are as follows:
> Monetize the leading position – address the
large installed customer base in Support
Systems and Telecom core to extend the
existing engagements and to grow the recur-
ring revenues
> Re-focus the go-to-market approach – lever-
age the relationship with operator Chief Tech-
nology Officers to address operator Chief
Information Officers. Also investigate oppor-
tunities in the enterprise markets
> Shift the portfolio – re-allocate product invest-
ments to support the growth areas, which are
driven by digital transformations. This also
includes the strategic partnership with Cisco
to broaden the IP portfolio
> Develop service delivery – modernize tools
and methods for service automation,
increase use of partners and open source
and establish digital transformation centers
for knowledge build-up and sharing
> Shift people and competence – continue the
shift towards IT, business process transfor-
mation and cloud competence
The systems integrators implement the new solu-
tions and migrate operations to the new environ-
ment, and the lifespan of the customers’ legacy
applications can be extended with the Applica-
tion Development and Modernization services.
Support Systems products
Ericsson has a market leading comprehensive,
pre-integrated and modular support systems
(OSS and BSS) software offering for Revenue
& Customer Management, Analytics, Service
Orchestration, Assurance and Network Manage-
ment. Improved end-user experience with per-
sonalized offerings, consistent and effortless
omnichannel experiences, simplification of
network complexity, 5G and IoT are all examples
of drivers for a transformed support systems
environment to become a digital operator or
enterprise.
Telecom core products
Ericsson provides a complete end-to-end offer-
ing for communications services including IP
Multimedia Subsystem (IMS) core, application
servers, subscriber databases, mobile soft
switch, VoLTE and evolved packet core. These
network functions are offered as physical or vir-
tual instances to suit a wide range of operator
requirements. Ericsson has a leading portfolio of
virtualized network functions and an end-to-end
portfolio including Service Provider SDN to sup-
port orchestration of virtualized applications in
an automated way. In addition, Ericsson also
provides what is known as NFV infrastructure
which is a common platform for network func-
tions that are virtualized during transformation
of the core network.
IT Cloud products
A cloud system contains a range of compute,
storage and networking modules that work
together to build a wide range of virtual systems.
Ericsson’s Cloud Infrastructure offering entails
software-defined data centers and hardware
platforms, software-defined networks, open
platform technologies and cloud management.
One of the major products is the Hyperscale Data-
center System 8000 – a new generation of data-
center system that uses a disaggregated hard-
ware architecture for better resource utilization.
Ericsson’s cloud infrastructure solutions are
based on open source and OpenStack, making
the solution relevant for any industry. It can be
used for different businesses in different indus-
tries, ranging from telecom cloud to hyperscale
software-defined infrastructure.
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The business – Business structure
Ericsson | Annual Report 2016
21
THE BUSINESS – Business structure
Media
Ericsson’s Media business offering includes products and services, and focuses on new
market entry and expanding the Company’s footprint globally. The segment Media will be
reported separately within the new reporting structure from 2017.
Facts
Customers
Broadcasters, Cable TV opera-
tors, Mobile and fixed operators
Competitors
Accenture, Akamai, Arqiva, Cisco,
Encompass, Harmonic, Huawei,
Nokia
Introduction
Consumer behavior is a key driver in the trans-
formation of the media market. As an increasing
share of TV and video is accessed over a smart-
phone, delivering seamless TV experiences on
smartphones will be a basic requirement as well.
Mobile video consumption is vastly outgrowing
traditional linear consumption. Ericsson offers
innovative solutions that enable content owners,
broadcasters, TV service providers and network
operators to efficiently deliver, manage and
monetize new TV experiences. Ericsson’s ambi-
tion is to be a transformation partner – which
shapes the future of TV. To show its commitment
to the media business the segment Media brings
together media products and services compe-
tence for Content owners, Broadcasters, TV
service providers and Network operators to
support Ericsson’s customers in the ongoing
industry transformation.
Market trends and addressable market
Ericsson estimates that its addressable market
in Media will grow 9–11% CAGR 2016–2018.
The fragmented TV market includes IP
technology, networks and the vast amount
The Media business
Products
Services
Compression, software and hardware
Playout operations and Media management
Video processing and Storage
Access
Cloud based TV-platforms
Content discovery
Media and Content delivery
Sports graphic
Advertisement and analytics
Consulting and Systems Integration
related to own portfolio
22
Ericsson | Annual Report 2016
of video-enabled connected devices that are
driving the transformation of the market.
Ericsson estimates that the share of video traffic
will increase to 75% of total mobile traffic in
2022, compared to 50% today. The industry
convergence and competitive landscape require
a new set of skills and there is an increased
demand for outsourcing of media operations.
While the cable operator market is moving in
the direction of all IP delivery, broadcasters are
seeing increased competitive pressure from the
telecom operators, which are moving into broad-
casting by packaging and distributing content
over broadband. They are expanding their busi-
ness from controlling the bit pipe to also include
production and control of content. This is
reflected for example in AT&T’s move towards
content and its proposed takeover of Time
Warner, and in Verizon’s acquisition of AOL
and Yahoo.
The over-the-top players (OTT) that create
global offerings at lower price points constitute
another group of competitors to broadcasters.
Compared to the global over-the-top players,
broadcasters have a strong advantage in their
localized content. They know the culture and
the local consumption habits, something that
Ericsson in its offering is also trying to leverage.
The aim is to be global but with a localized
managed services model.
Offering – main components
Ericsson develops and delivers software-based
solutions for TV and media and combines a
product portfolio that spans the TV value chain,
with systems integration and managed services.
The portfolio includes compression, software
and hardware-based video processing and stor-
age, content publishing via set-top box or pure
OTT, content delivery and analytics. Services
include broadcast playout, media management,
captioning, content discovery and Systems
Integration. The end to end offering allows
Ericsson to advise, guide, support, implement
and manage its customers’ transformation in
the evolution of TV.
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MediaFirst
At the core of Ericsson’s MediaFirst offering is
the MediaFirst TV platform, which enables per-
sonalization, interactivity and multiscreen view-
ing capabilities. The platform is a software and
cloud-based platform, which was developed to
cater for the creation, management and delivery
of next generation pay TV. Hence the MediaFirst
portfolio includes the cloud TV platform, media
delivery solutions and media processing.
Broadcast managed services
Every year, Ericsson Broadcast Services distrib-
utes more than 4 million hours of programming
in more than 60 languages for more than 500 TV
channels worldwide.
When Ericsson manages broadcast services,
the Company handles the technical platforms
and operational services including content logis-
tics, library management, quality control, playout
services, WebTV and mobile services. The
Media service offering enables broadcasters to
reduce time to market, minimize business con-
tinuity risk and achieve significant OPEX and
CAPEX savings.
Package and Deliver managed services
Ericsson’s end-to-end Package and Deliver
managed services offering includes the cloud
media processing platform. The service platform
utilizes cloud-based tools to deliver highly resil-
ient, secure and flexible non-linear contribution,
archiving and media processing. These services
can deliver scalability, flexibility and elasticity to
broadcasters, TV platforms and content owners.
Business model
Ericsson is moving towards a business model
with a high degree of recurring software and
service sales. In the new organization,
Ericsson’s Media business centrally manages
broadcast and cable customers. The go-to-
market strategy is to move from a fragmented
model to a more focused model to drive sales
in selected top accounts. This will include geo-
graphical prioritization and involve both direct
sales and partnering.
Priorities
Ericsson’s ambition is to be its customers’ video
transformation partner. Focus is on capturing
growth in media through increased software
sales and expanding recurring revenues. Provid-
ing technology that brings cloud capabilities into
the TV network, with the flexibility and elasticity
needed to deploy software applications, contin-
ues to be a top priority. Ericsson’s ambition is to
increase sales to non-operator customers and
work with channel and portfolio partners, while
capturing synergies from the new organization.
The Company is transferring investments from
legacy hardware based products to next-
generation software and cloud based solutions,
while focusing on a go-to-market model that
drives profitable growth.
The business – Business structure
Ericsson | Annual Report 2016
23
THE BUSINESS – Business structure
global presence 24/7
Ericsson is a global company, with customers in more than 180 countries. The Company
has been present in many countries, such as China, Brazil and India, for more than 100 years.
The go-to-market organi zation is based in 10 geographical regions and one region Other.
NORTH AMERICA -6%
Mobile broadband investments were stable.
Professional Services sales were negatively
impacted by a reduced scope in a Managed
Services contract. Support Solutions sales
declined due to delayed investment decisions
by customers. The focus on 5G strongly
increased, with trials ongoing with all
major customers.
SHARE OF GROUP REVENUES: 25%
LATIN AMERICA -16%
Sales decreased following reduced mobile
broadband investments due to a weak macro-
economic environment and due to devaluation
of local currencies. The strong momentum for
digital transformation continued. Professional
Services sales declined due to lower activities
in Managed Services.
SHARE OF GROUP REVENUES: 8%
Legend: ± XX %
The percentage figure shows sales change 2016 compared to 2015, %
24
Ericsson | Annual Report 2016
WESTERN AND
CENTRAL EUROPE -18%
Sales declined as the initial LTE deployments were
finalized. Operators continue to focus on transforming
their networks to meet the increasing demand for
coverage and capacity, while at the same time
improving efficiency.
SHARE OF GROUP REVENUES: 7%
NORTHERN EUROPE
AND CENTRAL ASIA -15%
Sales declined, primarily due to continued lower mobile
broadband investments in Russia. Global Services sales
were flat with a decline in Network Rollout, offset by
increased Managed Services sales in Sweden. OSS
and BSS sales were flat while TV and Media sales
declined.
SHARE OF GROUP REVENUES: 4%
MEDITERRANEAN -10%
Sales declined due to lower investments in mobile
broadband infrastructure, mainly related to capacity
business. Operator investments in ICT transformation
and demand for Managed Services continued.
SHARE OF GROUP REVENUES: 9%
MIDDLE EAST -16%
Sales declined, primarily in Networks due to lower
broadband investments in Egypt, Pakistan, Ethiopia
and Turkey. The decrease was partly offset by growth
in Global Services sales, mainly inNetwork Rollout and
optimization services in Saudi Arabia.
SHARE OF GROUP REVENUES: 9%
NORTH EAST ASIA -3%
Sales declined slightly due to lower investments
in Mainland China and Korea, partly offset by
market share gains in Japan and Taiwan. In
Mainland China 4G deployments continued.
However, reduced investments in legacy tech-
nologies and significantly reduced investment
by one customer, impacted sales negatively.
SHARE OF GROUP REVENUES: 12%
INDIA -20%
Mobile broadband sales declined mainly driven
by delayed spectrum auctions which delayed
operator investments. Professional Services
sales remained stable with operators’ higher
focus on network quality and cost optimization.
SHARE OF GROUP REVENUES: 5%
SUB-SAHARAN
AFRICA -11%
Investments declined, impacted by a weak macro-
economic environment, local currency depreciation in
key markets as well as low oil and commodity prices.
SHARE OF GROUP REVENUES: 4%
SOUTH EAST ASIA
AND OCEANIA 15%
Sales increased, primarily driven by mobile broadband
deployments across several markets. Professional
Services sales developed favorably as operators focus
on efficiency and network optimization services.
SHARE OF GROUP REVENUES: 10%
OTHER -23%
IPR licensing revenues amounted to SEK
10.0 (14.4) billion. Sales in 2015 were positively
impacted by a global patent license agreement
signed with Apple.
SHARE OF GROUP REVENUES: 7%
The business – Business structure
Ericsson | Annual Report 2016
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THE BUSINESS – Business structure
Customer Group
Industry and Society
Customer Group Industry and Society addresses industries beyond telecommunications with
existing Ericsson capabilities, IoT solutions and industry-adapted offerings in order to ensure
scale and efficient operations across the Company. Industry and Society plays an important
role in Ericsson’s strategy to expand the business beyond telecom operators by reusing and
extending the current portfolio of both services and products.
Introduction
The digital transformation offers huge potential
in terms of new innovations, improved efficiency,
sustainability and safety in any industry. The
industries benefit from Ericsson’s mobility exper-
tise and services innovation, including, for exam-
ple, solutions for smart grids in utilities and for
connected vehicles in the automotive industry.
Market trends and addressable market
Ericsson’s selected industries within Industry
and Society – utilities, transport and public
safety – have geographically dispersed net-
works, regulatory frameworks and business
models. This is particularly true for utilities and
transport, which in many ways face conditions
that are similar to those of telecom operators.
Like telecom operators, they need to transform,
increase their operational efficiency, improve
customer experience and deliver a higher
degree of innovation.
Offering – main components
For the selected industries in Industry and Soci-
ety, Ericsson reuses its existing products and
services offerings developed for operator cus-
tomers. Ericsson has also developed a number
of industry-specific cloud solutions, such as
Connected Vehicle Cloud. These industry-
specific solutions combine industry applications,
service enablement, connectivity management
and consulting as well as systems integration
and managed operations services.
Business model
The new organizational structure enables
Ericsson’s technology and service expertise to
be close to the selected industries. Industry and
Society operates with direct sales channels and
work closely with partners to optimize the solu-
tions. Ericsson supports companies not only
through innovative offerings but also through its
analytical capabilities, local and global presence
and ability to support the customers as they
develop and deploy new business models.
Priorities
Industry and Society focuses to profitably
extend the business globally in the utilities,
public safety and transport industries. Ericsson
also evaluates the potential of entering into
other industries.
Three industries in focus
Utilities
Transport
Public safety
26
Ericsson | Annual Report 2016
Ericsson’s
Connected
Vehicle
Marketplace
Scania and Ericsson have
advanced the cooperation in 5G
and connectivity research for com-
mercial vehicles and infrastructure
and entered into strategic partner-
ship around sustainability, digitali-
zation, and connectivity.
One initial result of this partnership
is Scania One, a solution that opens
up a new channel for distribution
and management of digital services
for Scania’s customers. Already at
launch, Scania One comes with a
broad spectrum of services, such
as fleet management, driver tools
and entertainment. Scania One –
based on Ericsson’s Connected
Vehicle Marketplace – is an open,
non-proprietary solution where
existing and coming Scania ser-
vices together with third party ser-
vices constitute an ecosystem for
optimized and efficient transport
solutions, aimed at enhanced value,
productivity and profitability for
Scania’s customers.
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Ericsson | Annual Report 2016
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THE BUSINESS – Business structure
Customer Group
IPR & Licensing
Ericsson has more than 42,000 granted patents. The Company is a net receiver of licensing
royalties and has agreements with the largest handset suppliers in the world. Ericsson
continues to expand its IPR licensing business into new technologies and industries.
Introduction
Ericsson’s technology leadership in mobile
communications is demonstrated by a further
strengthened IPR portfolio of more than 42,000
granted patents compared to 39,000 granted
patents in 2015. Through its IPR licensing, the
Company is able to encourage innovation and
re-invest in further development of the commu-
nications eco-system. At the same time, IPR
licensing strengthens Ericsson’s position as one
of the technology leaders in the ICT industry and
ensures a fair return on the Company’s R&D
investment through fair, reasonable and non-
discriminatory (FRAND) licensing.
IPR licensing revenues were SEK 10.0 (14.4)
billion in 2016 with margins above the Company
average. The Company is currently expanding its
licensing business beyond handset suppliers to
include other industries such as media and IoT
device manufacturers. Internet of Things rep-
resents an opportunity for connected device
manufacturers to expand their product offerings
to new areas, and for Ericsson to expand its IPR
business and become a preferred technology
partner in new industries.
28
Ericsson | Annual Report 2016
Market trends and addressable market
Ericsson’s licensing business promotes open
standards, which enable decreased costs of
technology for consumers through economies
of scale and fair pricing. The open standards
also lower barriers to market entry and, through
interoperability and high performance, enable
large markets for digital products and services.
The majority of today’s IPR licensing revenues
are generated from handset suppliers. The
Company has agreements with the largest
handset suppliers in the world. However, over
the last couple of years an increasing share of
the handset market is represented by the
Chinese suppliers. Ericsson does not yet have
agreements with some of these suppliers, which
affects the IPR licensing revenue negatively in
the short-term. The company is addressing new
handset suppliers with the ambition to sign
license agreements with them.
Ericsson is expanding the licensing business
to cover products beyond handsets as connec-
tivity is introduced in industries other than tele-
communications. By 2022, the number of con-
nected devices is expected by Ericsson to grow
to 29 billion from today’s 16 billion devices.
These other industries need efficient ways to
allow for all connected devices to be adequately
licensed. As standard-essential patents are
licensed, licensing terms are adapted for each
use case to reflect the value of the patented
standardized technology for the device in ques-
tion and its user. The value of wireless connec-
tivity differs greatly depending on the use case,
and FRAND licensing practices are flexible
enough to handle this.
The Avanci platform
In 2016, Ericsson led the formation of Avanci, a
one stop shop for licensing of standard essential
patents for certain IoT applications. Avanci is a
third party entity through which holders of stan-
dard essential patents can license their wireless
technologies to companies and manufacturers
who develop and create connected devices for
the IoT. For device manufacturers, the open
marketplace simplifies access to wireless tech-
nologies. Avanci connects the patent holders
with the companies developing the IoT devices
in an uncomplicated manner and simplifies the
process of identifying what essential patents
are required in each device. Avanci’s initial focus
will be on licenses for connected vehicles and
smart meters.
Offering – main components
Ericsson’s IPR portfolio includes both patents
and technology know-how. Patent licensing
includes giving access to patents for different
technology standards, while in technology
licensing Ericsson provides specifications for
proprietary technologies such as different
interfaces.
Business model
For Ericsson, there is great value in the IPR port-
folio in terms of securing cross-licensing agree-
ments. These agreements are signed with other
IPR patent holders in order to avoid litigation or
disputes, and they give both signing companies
the freedom to market products and solutions
that utilize each other’s technology. As Ericsson
has a strong patent portfolio, the Company
believes that this approach also enables the
Company to commercialize and obtain a fair
return on the IPR portfolio when others use the
Company’s technology.
Over the past five years, annual R&D invest-
ments have been SEK 32–36 billion, and in 2016
revenues from the IPR licensing business were
SEK 10.0 (14.4) billion. As IPR licensing margins
are above the Company average, they have an
accretive impact on profitability.
Priorities
Ericsson’s ambition is to capture growth in the
IPR licensing business by leveraging its tech-
nology leadership, ensuring license agreements
with handset suppliers and expanding its business
to industries other than telecommunications.
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The business – Business structure
Ericsson | Annual Report 2016
29
THE BUSINESS – People
The people
The People strategy is essential for Ericsson during its journey of transformation. Being a
people business, Ericsson’s future success depends on the Company’s ability to attract,
develop, motivate and retain talent.
Ericsson’s core values
Professionalism
Respect
Perseverance
By attracting and developing the best talent and
establishing a high-performance organization,
Ericsson can maintain a leading position in the
industry. The core values of Professionalism,
Respect and Perseverance are part of the
Ericsson culture of creativity and innovation.
The enabling culture empowers individuals and
teams, which continue to transform the business
and fulfill their own potential.
Attracting the best talent
Competition for talent in the ICT industry is
intense and Ericsson works continuously to
attract the best talent.
The work of Ericsson employees can posi-
tively impact the lives of people around the
world. Employees can also volunteer their time in
many of the Company’s Technology For Good
programs to bring the benefits of the Networked
Society to all. In that sense, Ericsson is for peo-
ple who want to make a real difference.
Ericsson strives to be a global employer of
choice with consistent values. At the same time
it is important to meet local needs. Ericsson
wants to be recognized as a company that can
fulfill both personal and career ambitions of
current and potential employees.
Through an employee referral program,
Ericsson involves top talent to attract other top
talent from the market. The “You + Ericsson
Concept” communicates people stories in social
media that demonstrate Ericsson’s culture and
global opportunities. Ericsson also works with
universities all over the world to attract talent
early. Furthermore, the Company works to pro-
mote computer science and STEM (science,
technology, engineering and mathematics)
education together with tech-oriented groups
and community associations.
Skills as a core asset
In a rapidly evolving market, Ericsson’s employ-
ees work hard to develop and evolve the neces-
sary skills needed to maintain a leading position
in the ICT industry and to successfully support
Ericsson’s customers’ transformation journey.
The Company’s approach to learning is two-
pronged: the first prong is a bottom-up app-
roach with a strong focus on skills and career
development at the individual level; the second
A learning organization – 2016 facts and figures
Share of employees
that took formal training
(any mode of delivery)
90%
29
HOURS
Total
learning hours: 2.92 million
courses attended: 17,380
No. of different
Average learning
hours per employee
30
Ericsson | Annual Report 2016
prong is a top-down approach that aims to close
key competence gaps to enable proper execu-
tion of the Company’s business strategies and
operating objectives.
Ericsson Academy prides itself on giving its
employees in around 150 countries easy and
equal access to innovative digital learning.
Ericsson’s new Virtual Faculties, which consist
of the Company’s experts in different areas such
as cloud, 5G, small cell and service delivery,
offer live virtual recordings in interactive sessions
with employees. Through virtual sandboxes,
employees get the possibility to learn about
Ericsson’s portfolio to supplement their work
experience.
Engagement and leadership
Ericsson’s ambition is for employees to stay
motivated and engaged. To measure overall
employee motivation and commitment to the
company’s success, Ericsson conducts an
employee survey – the Employee Engagement
Index.
In 2016, due to organizational changes that
took place from July 1 and a new organizational
structure that was not yet complete, Ericsson
conducted a poll of a representative sample of
25% of the global employee population instead
of the Group wide survey normally conducted
annually. Complex industry and organizational
changes were reflected in overall engagement
levels; the engagement index was 68% in 2016
compared to 76% in 2015. However, for Ericsson
as an organization, the employees continue to
report a very high sense of pride, with 82% stat-
ing that they are “proud to work for Ericsson”,
compared to 88% in 2015.
Developing the right leadership capabilities
and skills is essential for Ericsson’s Networked
society strategy. Strong leadership is critical to
taking the business forward as the Company
continues to evolve.
Diversity at an inclusive workplace
Ericsson is a global company with over 170
nationalities within the organization and custom-
ers in more than 180 countries. With diversity
and inclusion as one of the prime drivers of
culture, Ericsson aspires to be as diverse as the
world in which the Company operates. Diversity
is supported by an inclusive workplace where
people are valued for the different perspectives,
ideas and experiences that they bring to the
Company.
Attracting more women to the technology
sector remains a challenge. One of Ericsson’s
goals for 2020 is for 30 percent of all executives,
line managers and the overall workforce at the
Company to be women. To achieve this goal,
the gender perspective is included in strategic
processes, including talent acquisition and
development programs. Ericsson also works
with universities and through employer branding
to attract more women. Additionally, the Global
Leadership Team members all have diversity
and inclusion objectives related to gender in their
performance management goals.
Diversity & Inclusion Strategy
YOU + ERICSSON
a powerful combination
Values for Customers, Employees, Shareholders
Create an
inclusive work
environment
Enable diverse
representation
Strengthen
employer
brand
Create a high-
performance
culture
Integrate
into business
processes
Leadership
Competency
and Education
Communication
and Engagement
Operational
Excellence and
Innovation
Values, Vision, Mission
Ericsson | Annual Report 2016
31
Ericsson’s values of Professionalism, Respect
and Perseverance are an integral part of
everything the Company does, and so is the
strategy of diversity and inclusion. The Com-
pany believes that by leveraging its global
scale and skills, by innovating and adapting
to new ways of working and by maintaining a
diverse and inclusive workplace, Ericsson is
able to create differentiated value for share-
holders, customers and employees – and
remain a leader in the ICT industry.
The business – People
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THE BUSINESS – Sustainability
Sustainability and
corporate responsibility
As a responsible and relevant driver of positive change in society, Ericsson is committed
to creating business value while reducing risk.
Key focus areas
Ericsson’s Sustainability and Corporate Respon-
sibility (CR) focus areas are conducting business
responsibly, the environment, energy and cli-
mate action, and internet for all. Since launch in
2015, the UN Sustainable Development Goals
(SDGs) to end poverty, fight inequality and injus-
tice and halt climate change provide a frame-
work for describing and measuring Ericsson’s
impacts on society.
Conducting business responsibly
Responsible business practices are embedded
in Ericsson’s operations to manage risks. The
Ericsson Group Management System includes
Group policies, processes and directives
encompassing responsible sourcing, occupa-
tional health and safety, environmental manage-
ment, anti-corruption and human rights. Exter-
nal assurance providers audit the system and
the Ericsson Sustainability and CR report.
Governance
The Code of Business Ethics (CoBE) sets the
tone for how Ericsson conducts business glob-
ally. All employees periodically acknowledge the
CoBE with the next such acknowledgement
planned for 2017. The Code of Conduct applies
to employees and suppliers and is based on the
UN Global Compact (UNGC) ten principles on
human rights, labor conditions, environmental
management and anti-corruption. Ericsson is
com mitted to implementing the UN Guiding
Principles on Business and Human Rights
(UNGP) across its business operations and
addresses and reports on its most salient
human rights issues (the right to privacy, freedom
of expression and labor standards) according to
the UNGP Reporting Framework annually in its
Sustain ability and CR report.
ened through introducing an automated anti-
corruption screening tool for supplier and third-
party due diligence. The tool was piloted in one
region during 2016 and is planned to be further
rolled out in 2017. By the end of 2016, over
95,900 employees have completed the anti-
corruption e-learning launched in 2013.
Ericsson is currently voluntarily cooperating
with inquiries from the United States Securities
and Exchange Commission and the United
States Department of Justice regarding its com-
pliance with the U.S. Foreign Corrupt Practices
Act. These inquiries concern a period from Jan-
uary 1, 2007 and onwards, and the Company
will make additional disclosures regarding these
inquiries to the extent required.
It is important to underline that Ericsson has
a zero-tolerance approach to corruption and the
Company continuously strengthen its compli-
ance processes and how they are implemented.
Over the last year Ericsson intensified its efforts,
adding both internal resources as well as engag-
ing outside counsel to support the overall pro-
cess and give an outside view of the robustness
of its programs.
Human rights
To fulfil its responsibility to respect human rights
in accordance with the UNGP, Ericsson has
developed and strengthened its human rights
framework. The Ericsson Sales Compliance
Process includes a forum that regularly reviews
potential human rights impacts, with mitigation
actions determined by the Sales Compliance
Board where necessary.
Since 2013, Ericsson has performed UNGP-
aligned Human Rights Impact Assessments in
Myanmar, Iran and Ethiopia. In 2016, work was
also initiated to evaluate Cuba from a human
rights perspective.
Anti-corruption
Ericsson has a zero-tolerance approach to
corruption and has invested continuously and
systematically over the past decade in order to
strengthen anti-corruption processes. The
Company’s anti-corruption program, headed by
a Chief Compliance Officer, focuses on preven-
tion and accountability. In 2016 it was strength-
Health and safety
As part of its zero major incidents vision within
Occupational Health and Safety (OHS), Ericsson
applies a risk-based approach to control and pre-
vent work-related hazards. Selected oper ations
undergo internal audits to ensure comp liance
with the OHSAS 18001 standard. To support a
safe work environment for anyone working on
32
Ericsson | Annual Report 2016
the Company’s behalf, Ericsson takes a com-
prehensive and inclusive approach. The Com-
pany reports in the Sustainability and Corporate
Responsibility Report on both its own incidents
and fatalities and those of suppliers building and
servicing networks on behalf of Ericsson.
Environment, energy and climate change
Ericsson is committed to develop and deliver
solutions to support climate action. At the UN
Climate Change Conference of the Parties
(COP 22) in Morocco in 2016, Ericsson and other
leading companies joined world leaders in sup-
porting the goals set out in the Paris Agreement.
In 2016, Ericsson’s Connected Mangroves proj-
ect was one of the five winners of the United
Nations Framework Convention on Climate
Change “Momentum for Change” award at
COP22, which honored ICT initiatives contri-
buting to climate resilience.
Energy performance and water management
Ericsson products are designed with the aim
of minimizing the components, packaging and
climate impacts. In 2016, continued improve-
ments were made in energy performance across
the entire product portfolio, including Ericsson
Radio System (ERS), which provides a 50%
improvement in energy efficiency on previous
generation. ICT also has significant transforma-
tive potential to help other sectors such as
Energy and Transport to reduce their environmen-
tal impact. As a signatory to the UN Global Com-
pact’s CEO Water Mandate, Ericsson signals its
commitment to adopting and implementing a
comprehensive approach to water manage ment.
Global Product Take-Back
The Ericsson Global Product Take-back Pro-
gram oversees responsible treatment of prod-
ucts at the end of their lifecycle. The program
is offered to customers globally free of charge,
not only in markets where this is required by law.
In 2016, 9,600 tons of used products were taken
back for controlled materials recycling. During
take-back, over 98% of the materials are recycled.
Smart, sustainable cities
Deployment of broadband infrastructure is an
enabler of many future services such as smart
grids and intelligent transport. The Stockholm
Royal Seaport project, in which Ericsson has
participated for more than five years, offers a
blueprint for how Swedish innovation can be
applied to the sustainable city design. In 2016,
Ericsson began research into enhanced con-
sumer awareness and control of energy con-
sumption through use of connected appliances.
Internet for all
In 2016, Ericsson launched a suite of business
solutions to increase viability of mobile internet
investments in developing markets. Network
innovations help operators create viable and
inclusive business in rural or off-grid settings by
improving mobile network performance and effi-
ciency and reducing associated network costs,
and by enabling affordable 2G to 3G upgrades.
These solutions build on Ericsson Radio System
to cut total cost of ownership by up to 40% for
operators involved in expanding mobile broad-
band. The Company’s Pure Solar solution
launched in Myanmar for off-grid service with
no diesel backup.
Technology for Good™
In the Networked Society, Ericsson is a leading
advocate for Technology for Good™ using core
competence and technology to address sustain-
able development challenges. Examples include:
> Education – Ericsson is the lead technology
partner in Connect to Learn, a global educa-
tion initiative, now in 23 countries, engaging
16 mobile operators and benefitting about
80,000 students.
> Refugees – Under a global partnership with
the International Rescue Committee (IRC),
Connect to Learn is working in Domiz refugee
camps in Northern Iraq with operator AsiaCell
to provide edu cational support to Internally
Displaced People (IDPs) and refugees in their
host communities.
> Humanitarian Response – Ericsson Res-
ponse, deployed under the ICT Humanitarian
Response Working Group for Haiti, estab-
lished 16 sites to support humanitarian users.
There were six Ericsson Response volunteers
deployed in 2016 to Haiti, with two additional
volunteers supporting the deployment
through the end of January 2017.
Read more about Ericsson’s approach, perfor-
mance and initiatives in the Sustainability and
Corporate Responsibility Report:
www.ericsson.com/sustainability.
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The business – Sustainability
Ericsson | Annual Report 2016
33
THE BUSINESS – Sustainability
Solar breakthrough
in Myanmar
Operators in developing regions are challenged in finding a viable way to
extend network coverage to rural areas that are off the electricity grid.
In Myanmar, 70% of the population lacks access to commercial electricity.
Rural off-grid sites typically use a diesel generator and battery solution,
leading to significant costs and CO2 emissions. Faced with this challenge,
together with mobile operator Telenor, Ericsson has succeeded in deploy-
ing the world’s first 500 Watt solar powered site in Myanmar, making solar
more economical than diesel for the first time.
A number of innovations, including Ericsson’s unique Psi coverage solu-
tion were deployed at the site. The result is a 75% reduction in total site
power consumption while retaining full coverage, service quality and per-
formance. With economy comes scale and with millions of base stations
worldwide, there is opportunity to decrease the dependency on diesel fuel
for off-grid sites, making a significant contribution against global warming
and extend cost effective mobile broadband to the 50% of the world popu-
lation that are currently without Internet access.
34
Ericsson | Annual Report 2016
Reporting structure 2016
For 2016, Ericsson reported three segments, namely Networks, Global Services
and Support Solutions.
The business mix in Global Services was divided
between network rollout services and professio-
nal services, and approximately 2/3 of professio-
nal services sales were recurring. Major compet-
itors included Accenture, Huawei, IBM and Nokia.
Support Solutions
The segment developed and delivered soft-
ware-based solutions for OSS and BSS as well
as TV and media solutions. Sales were domi-
nated by software, while the services part of the
business was reported in Global Services.
Ericsson is transforming the business model
from one based on a revenue from traditional
telecom software licenses to one that empha-
sizes recurring software licensing built on sub-
scription-based software offerings. Due to its
high software content, gross margin was typi-
cally higher than Company average, and at the
same time R&D intensive. Major competitors
included Amdocs, Huawei, IBM and Oracle.
Networks
The segment delivered hardware and software
that are needed for mobile and fixed communi-
cations, several generations of radio networks,
IP and transmission networks, core networks
and cloud. The major business models were
based on network coverage build followed by
network capacity expansions and upgrades with
a revenue mix consisting of hardware and soft-
ware. Gross margins were affected by the busi-
ness mix between sales of network coverage
build-outs, upgrades and network expansions.
A majority of the Company’s Research and
Development (R&D) investments were made
within Networks in 2016. Major competitors
included Huawei, Nokia and ZTE.
Global Services
The segment delivered network rollout services
and professional services such as managed ser-
vices, consulting and systems integration (CSI)
and customer support as well as network design
and optimization services. Through Ericsson’s
service delivery organization and it’s four Global
Service Centers, Ericsson deployed, operated
and evolved networks and related support sys-
tems. Ericsson provided managed services to
networks that were typically multi-vendor, multi-
technology environments. In broadcast services
Ericsson expanded its service portfolio offering
automation and standardization of processes,
methods and tools.
Networks
Share of net sales
SEK 108.3 billion
48.7%
Operating margin
4%
Global Services
Share of net sales
SEK 101.7 billion
45.7%
Operating margin
3%
Support Solutions
Share of net sales
SEK 12.5 billion
5.6%
Operating margin
–8%
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The business – Reporting structure 2016
Ericsson | Annual Report 2016
35
THE BUSINESS – Reporting structure 2016
change in reporting
structure from 2017
Ericsson implemented a new organizational
structure in 2016. The new structure builds on
the Company’s technology leadership, services
leadership and global scale and skills, and it
supports cost reductions and efficiency
improvements. It also removes duplication
across portfolios and capabilities. Ericsson has
adapted its organization to mirror its customers’
ways of working, with the aim to create a more
efficient and purpose-built organization to meet
the needs of different customer segments and
more quickly seize business opportunities.
From January 1, 2017, financial reporting is
done according to a new structure, with three
new financial reporting segments, Networks, IT
& Cloud and Media. The new segments contain
both products and services and the structure
aligns company reporting with strategy execu-
tion in a simpler and more transparent way.
New segment structure (illustrative)
Portfolio ownership
Main owners in 2016 segment structure
Main owners in 2017 segment structure
Networks
Global services
Support solutions
Networks
IT & Cloud
Media
Radio
Transport
Core
Cloud
IP
Customer Support
Consulting & Systems
Integration
Managed Services
Broadcast Services
Network
Design & Optimization
Network Rollout
Radio
Transport
Core
Cloud
IP
Telecom Support
IT1)
Consulting & Systems
Integration
IT2)
Broadcast Services
Telecom Managed
Services
Network
Design & Optimization
Network Rollout
OSS & BSS
TV & Media
OSS & BSS
TV & Media
1) IT Support
2) IT Managed Services
36
Ericsson | Annual Report 2016
letter from
the chairman
Dear shareholders,
During 2016, the market situation became
increasingly challenging, mainly driven by a
weak macro-economic environment. As a result,
the Company increased its focus on improving
profitability and on addressing the needs of cus-
tomers, partly through the implementation of a
series of organizational and structural changes.
At the same time the Board decided that the
time was right for a new leader to drive the next
phase of Ericsson’s transformation.
The ambition was to find a CEO with the right
background, attitude and leadership ability to
take on the challenging situation, and this
resulted in the appointment of Börje Ekholm
as the new CEO. Börje Ekholm will lead the
Company into the next phase, implement and
develop the strategy, while executing on the cost
and efficiency program. The Board believes that
he has deep insight and understanding both of
the commercial consequences and the techni-
cal aspects of the digital transformation enabled
by 5G, IoT and Cloud. The Board would also at
this point like to take the opportunity to thank
Hans Vestberg for his energetic and inspiring
leadership as CEO for almost seven years. We
would also like to thank Jan Frykhammar, who
shifted from CFO to interim CEO, for steering
Ericsson through the second half of 2016 in a
very successful way.
The Board believes that good talent manage-
ment and succession planning are important
tools not only on the executive level but also in
technology and commercial management. By
attracting and developing the best talent and
establishing a high-performance organization,
Ericsson can maintain a leading position in the
highly competitive and ever transforming market.
Also, as Ericsson speeds up strategy implemen-
tation, the Company needs to remain true to its
core values of professionalism, respect and
perseverance, which is reflected in a culture of
endeavor and innovation.
In order to deliver value and to retain the trust
of its stakeholders, Ericsson needs to continu-
ously focus on corporate governance and to
conduct business responsibly to meet demand-
ing financial, social and environmental standards.
The Board invests a significant amount of time in
corporate governance and in 2016 we paid spe-
cial attention to the Company’s anti-corruption
program which in 2016 was strengthened
through the introduction of an automated
anti-corruption screening tool for supplier and
third-party due diligence. Currently Ericsson is
voluntarily cooperating with inquiries from the
United States Securities and Exchange Com-
mission and the United States Department of
Justice regarding its compliance with the U.S.
Foreign Corrupt Practices Act. These inquiries
concern the last ten years and we will make
additional disclosures regarding these inquiries
to the extent required. It is important to underline
that Ericsson has a zero-tolerance approach to
corruption and has over the years continuously
and systematically focused on strengthening
the anti-corruption processes.
For stakeholders in the capital market, includ-
ing our shareholders, Ericsson’s capital struc-
ture is an area of high interest which the Board
invests significant time in analyzing and monitor-
ing. Business plans and investments in R&D and
other assets are carefully evaluated. The Board’s
proposal for the AGM is a dividend of SEK 1.00
for 2016 as we believe that it is prudent to align
the dividend level with 2016 earnings and the
current market outlook. However, the Board
expresses confidence in the ongoing actions to
improve Ericsson’s financial performance, and
has the ambition to increase the dividend over
time as our performance improves.
Ericsson’s ambition is to be a leading trans-
formation partner for existing and new custom-
ers. We as the Board believe the Company’s
assets in combination with close customer
relations and its will to transform, provide a solid
foundation for long term profitable growth and
value creation.
Leif Johansson
Chairman of the Board of Directors
Ericsson | Annual Report 2016
37
FINANCIALS
Board of Directors’ report
Contents
Business in 2016
Financial highlights
Business results – Segments
Business results – Regions
Corporate Governance
Material contracts
Risk management
Sourcing and supply
Sustainability and Corporate Responsibility
Legal proceedings
Parent Company
Post-closing events
Board assurance
39
40
43
45
46
47
47
48
48
50
50
51
52
Reporting structure in 2016
Starting July 1, 2016, Ericsson has implemented an organizational
change. The financial reporting during 2016 has been carried out accord-
ing to the same segment structure as in 2015; Networks, Global Services
and Support Solutions. The 2016 reporting structure is applied in this
Board of Directors’ report.
From January 1, 2017, financial reporting is done according to the new
structure, i.e., by the new segments Networks, IT & Cloud and Media.
Full-year highlights
> Reported sales decreased by –10% mainly due to weaker demand
for mobile broadband, especially in markets with a weak macro-
economic environment. IPR licensing revenues declined to
SEK 10.0 (14.4) billion.
> Operating income declined to SEK 6.3 (21.8) billion due to lower
sales and a changed business mix in mobile broadband, with a
lower proportion of capacity business. This was partly offset by
lower operating expenses.
> Cash flow from operating activities was SEK 14.0 (20.6) billion.
Net cash at year-end was SEK 31.2 billion.
> The Board of Directors proposes a dividend for 2016 of SEK 1.00
(3.70) per share to the AGM.
38
Ericsson | Annual Report 2016 The global cost and efficiency program, first initi-
ated in November 2014, and expanded in 2016,
progressed according to plan. The target of the
program is to reduce the annual run rate of oper-
ating expenses, excluding restructuring charges,
to SEK 53 billion in the second half of 2017.
Operating expenses in 2016 decreased to
SEK 60.5 (64.1) billion which included restruc-
turing charges of SEK –4.1 (–2.8) billion.
Ericsson delivered a full-year cash flow from
operating activities of SEK 14.0 (20.6) billion,
exceeding the 70% cash conversion target.
Net sales
SEK billion
250
200
150
100
50
0
227.8
227.4
228.0
222.6
246.9
2012
2013
2014
2015
2016
Net sales
Operating income and
operating margin
SEK billion
Percent
25
20
15
10
5
0
21.8
8.8
17.8
7.8
16.8
7.4
10.5
4.6
6.3
2.8
2012
2013
2014
2015
2016
15
12
9
6
3
0
Business in 2016
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column design. Prata
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ev frågor.
In 2016, net sales decreased by –10% mainly
due to lower demand for mobile broadband,
especially in markets with a weak macroeco-
nomic environment. Sales declined in all three
segments. Both operating income and margin
decreased compared to last year due to lower
sales and lower gross margin, partly offset by
lower operating expenses.
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IPR licensing revenues were SEK 10.0 (14.4)
billion. IPR licensing revenues in 2015 were posi-
tively impacted by a global patent license agree-
ment signed with Apple, which included an initial
payment.
Full-year sales for the targeted growth areas;
IP network, Cloud, OSS and BSS, TV and Media
as well as Industry and Society, were flat and
accounted for 20% of group sales.
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Operating income
Operating margin
Regional sales – Full year 2016 compared with 2015
SEK
247
billion
–23%
–16%
–18%
–6%
–16%
–20%
–10%
–15%
–11%
–3%
15%
F Y 1 5
M id dle E a st
R e gio n O th er
W e stern a n d C e ntral E uro p e
N orth A
m eric a
m eric a
L atin A
In dia
M e diterra n e a n
S u b - S a h ara n Afric a
N orth ern E uro p e a n d C e ntral A sia
N orth E a st A sia
S o uth E a st A sia a n d O c e a nia
SEK
223
billion
F Y 1 6
Financials – Board of Directors’ report
Ericsson | Annual Report 2016
39
FINANCIALS – Board of Directors’ report
IPR revenues (net)
SEK billion
15
12
9
6
3
0
14.4
10.6
9.9
10.0
6.6
2012
2013
2014
2015
2016
Software, hardware and
services: share of total
sales
Percent
100
80
60
40
20
0
23
24
24
23
22
35
34
34
34
33
42
42
42
43
45
2012
2013
2014
2015
2016
Software
Hardware
Services
Financial highlights
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design. Prata med
Eva/Catta/Sanna om ev
frågor.
Net sales
Reported sales decreased by –10% mainly due
to lower demand for mobile broadband, espe-
cially in markets with a weak macroeconomic
environment. Sales in Europe declined following
completion of mobile broadband projects in
2015. Mobile broadband sales in North America
remained stable while Professional Services
sales declined, mainly due to lower managed
services activities. A significant managed ser-
vices contract in North America was renewed
with reduced scope. Sales in South East Asia
increased, driven by large deliveries in cover-
age projects.
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Type–Options:
1 stapel: 76% 70%
2 staplar: 80% 80%
IPR licensing revenues amounted to SEK 10.0
(14.4) billion. Sales in 2015 were positively
impacted by a global patent license agreement
signed with Apple, which included an initial pay-
ment. The baseline for current IPR licensing con-
tract portfolio is approximately SEK 7 billion on
an annual basis. Smartphone volume growth,
agreements with currently unlicensed handset
suppliers and IoT licensing will determine growth
opportunities going forward.
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Currency exchange rates had no material
impact on full-year sales. Sales, adjusted for
comparable units and currency, decreased
by –10%.
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flat and accounted for 20% of group sales. The
partnership with Cisco has to date generated
more than 100 deals across all regions.
Full-year sales for targeted growth areas were
The sales mix by commodity was: software
22% (23%), hardware 33% (34%) and services
45% (43%).
Gross margin
Gross margin declined to 29.8% (34.8%) due to
a sales mix with lower share of mobile capacity
business, higher share of Global Services sales
and lower IPR licensing revenues as well as
lower Global Services margins. In addition,
restructuring charges included in the gross
margin increased to SEK –3.5 (–2.3) billion.
Restructuring charges and
efficiency program
Restructuring charges amounted to SEK –7.6
(–5.0) billion. The charges were mainly related to
the cost and efficiency program initially announ-
ced in November 2014, and expanded in 2016.
The cost and efficiency program is progressing
according to plan and the target is to reduce the
annual run rate of operating expenses, excluding
restructuring charges, to SEK 53 billion in the
second half of 2017. Efforts continue in order to
reduce cost of sales, targeting to improve gross
margin in the second half of 2017 compared with
full-year 2016. With current plans, total restruc-
turing charges for 2017 are estimated to be
SEK 3 billion.
Operating expenses
Total operating expenses decreased to SEK 60.5
(64.1) billion as a result of the cost and efficiency
program and lower amortizations of intangible
assets. Operating expenses included restruct u-
ring charges of SEK –4.1 (–2.8) billion.
Other operating income and expenses
Other operating income and expenses were
SEK 0.4 (0.2) billion. Currency hedge contract
effects impacted the result with SEK –0.9 (–1.1)
billion. They derive from the hedge contract
balance in USD. The SEK has weakened
against the USD between December 31, 2015
(SEK/USD rate 8.40) and December 31, 2016
(SEK/USD rate 9.06). The negative currency
hedge effects were more than offset by several
minor positive items.
40
Ericsson | Annual Report 2016
Operating income
Operating income decreased to SEK 6.3 (21.8)
billion due to lower sales and lower gross mar-
gin, partly offset by lower operating expenses.
Operating margin was 2.8% (8.8%).
Financial net
The financial net declined to SEK –2.3 (–1.9)
billion following decreased interest rates and
depreciated local currencies in certain markets.
Taxes
Tax cost decreased to SEK –2.1 (–6.2) billion due
to lower net income, offset by prior-year adjust-
ments and non-deductible expenses. These fac-
tors resulted in a tax rate of 53% in 2016 com-
pared with the more normal tax rate of 31% in
2015. Average tax rate for the years 2011–2015
was 32%.
Net income and EPS
Net income decreased to SEK 1.9 (13.7) billion.,
for the same reasons as for the decrease in
operating income. EPS diluted was SEK 0.52
(4.13) and EPS (Non-IFRS) was SEK 2.66 (6.06).
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Cash flow from operating activities was SEK
frågor.
14.0 (20.6) billion. The decline was mainly due
to lower income, larger tax payments and last
year’s signed global patent license agreement
with Apple, which included an initial payment.
Operating net assets decreased by SEK 6.0
billion, supported by reduced trade receivables
and increased provisions. In addition, trade pay-
ables increased supported by implementation
of supply chain financing. Inventory increased
slightly.
Cash outlays related to restructuring charges
were SEK –2.4 (–2.8) billion during the year.
Cash flow from investing activities was
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impacted by investments in property, plant and
equipment of SEK –6.1 (–8.3) billion, with con-
tinued investments in the Global ICT centers.
In addition, SEK –4.5 (–3.3) billion of development
expenses were capitalized. The capitalized devel-
opment expenses refer to development of new
product platforms like the new IPTV platform,
Ericsson MediaFirst, and the new BSS platform,
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Ericsson Revenue Manager. The company
invested SEK 0.6 (2.2) billion in acquisitions of
smaller companies, such as Ericpol and Node-
Prime in 2016.
Cash flow from financing activities amounted to
SEK –11.7 billion, impacted by SEK –12.3 billion of
dividend payouts.
Financial position
Net cash decreased to SEK 31.2 (41.2) billion
due to lower income and increased dividends.
The decrease was partly offset by reduced
operating assets.
Pension liabilities increased by SEK 1.1 billion,
due to decreased discount rates.
In 2016, Standard & Poor’s and Moody’s
downgraded Ericsson’s long-term rating from
BBB+/Baa1 with stable outlook to BBB/Baa3
with negative outlook.
The average maturity of long-term borrow-
ings as of December 31, 2016, was 3.8 years,
compared with 4.8 years 12 months earlier.
Ericsson has an unutilized Revolving Credit
Facility of USD 2.0 billion. The facility expires in
2021. In addition, the company signed a new
EUR 0.5 billion term loan facility in 2016. The new
facility has a tenure of two years with one exten-
sion option of one year. The facility serves for
general corporate purposes and is unutilized.
Intangible assets
The amount of intellectual property rights and
other intangible assets amounted to SEK 51.1
(50.4) billion, including goodwill of SEK 43.4 (41.1)
billion. The goodwill impairment testing has been
based on the new segments that became effec-
tive as per January 1, 2017. For the Media seg-
ment the headroom is SEK 5.6 billion when a
discount of 8.0% is applied. The recoverable
amount is equal to its carrying amount when the
discount factor is increased to 10.0%. For more
information, see Note 3 “Segment reporting”
and Note 10 “Intangible assets.”
Employees
In 2016, the number of employees decreased by
almost 5,000 driven by the ongoing cost and
efficiency program. At year-end 2016, the total
number of employees was 111,464 (116,281).
Working capital
Days
120
100
80
60
40
105
97
62
53
64
56
86
73
57
95
69
56
87
64
53
2012
2013
2014
2015
2016
Days sales outstanding
(Target is less than 90 days)
Inventory days
(Target is less than 65 days)
Payable days
(Target is more than 60 days)
Net cash
SEK billion
50
48.0
47.6
48.0
40
30
20
10
0
41.2
31.2
2012
2013
2014
2015
2016
Debt maturity, Parent
Company
SEK billion
10
9.0
1.5
6.2
4.8
0.9
0.9
0
0
2017
2018
2019
2020
2021
2022
2023
8
6
4
2
0
Notes & bonds
Nordic Investment Bank
European Investment bank
Swedish Export Credit Corporation
MTN Bond
Financials – Board of Directors’ report
Ericsson | Annual Report 2016
41
FINANCIALS – Board of Directors’ report
Research and development,
patents and licensing
In line with the global cost and efficiency pro-
gram, the Company has decreased its R&D
expenses. In 2016, R&D expenses amounted
to SEK 31.6 (34.8) billion. The number of R&D
resources increased mainly due to an acquisi-
tion of Ericpol, a long-time supplier to Ericsson
with software development in Poland and
Ukraine. Approximately 2,000 employees joined
Ericsson from Ericpol. The number of patents
continued to increase and amounted to approxi-
mately 42,000 by end of 2016.
Research and development, patents and licensing
Expenses (SEK billion)
As percent of Net sales
Employees within R&D as
of December 31 1)
Patents 1)
IPR revenues, net
(SEK billion)
2016
31.6
14.2%
2015
34.8
14.1%
2014
36.3
15.9%
24,100
42,000
23,700
39,000
25,700
37,000
10.0
14.4
9.9
1) The number of employees and patents are approximate.
Seasonality
The Company’s sales, income and cash flow
from operations vary between quarters, and are
generally lowest in the first quarter of the year
and highest in the fourth quarter. This is mainly
a result of the seasonal purchase patterns of
network operators.
Most recent five-year average seasonality
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
Sequential change,
sales
Share of
annual sales
–24%
9%
–2%
24%
22%
24%
24%
30%
Off-balance sheet arrangements
There are currently no material off-balance sheet
arrangements that have, or would be reasonably
likely to have, a current or anticipated material
effect on the Company’s financial condition, rev-
enues, expenses, result of operations, liquidity,
capital expenditures or capital resources.
Capital expenditures
For 2016, capital expenditure was SEK 6.1 (8.3)
billion, representing 2.8% of sales. Expenditures
are largely related to test sites and equipment for
R&D, network operation centers and manufac-
turing and repair operations.
Investments have been made in three new
global ICT centers. The centers will support R&D
and services in developing and verifying solu-
tions more efficiently and bringing innovation
faster to the market. The first center, in
Linköping, Sweden, was opened in 2014. The
second center, in Rosersberg, Sweden, was
opened in the beginning of 2016. The third
center, in Montreal, Canada, was opened in
December 2016. The level of capital expenditure
will continue to decline as the investments in the
Global ICT centers peaked in 2015.
In addition, Ericsson has invested in several
buildings in Santa Clara, California and in Man-
chester, U.K. The purpose with the investments
in Santa Clara is to consolidate Ericsson’s Sili-
con Valley operations. In Manchester Ericsson is
investing in a new dedicated customer technical
facility for its broadcast media business. The
new facility is expected to be ready in April 2017
and is part of a larger transformation and invest-
ment strategy.
Apart from these investments, Ericsson
believes that the Company’s property, plant
and equipment and the facilities the Company
occupies are suitable for its present needs.
Annual capital expenditures are normally
around 2% of sales. This corresponds to the
needs for keeping and maintaining the current
capacity level. The Board of Directors reviews
the Company’s investment plans and proposals.
As of December 31, 2016, no material land,
buildings, machinery or equipment were pledged
as collateral for outstanding indebtedness.
Capital expenditures 2012–2016
SEK billion
Capital
expenditures
Of which in
Sweden
Share of
annual sales
2016
2015
2014
2013
2012
6.1
2.0
8.3
2.6
5.3
2.4
4.5
1.9
5.4
1.3
2.8% 3.4% 2.3% 2.0% 2.4%
42
Ericsson | Annual Report 2016
Networks
SEK billion
125
100
75
50
25
0
117.7
117.5
123.7
12
10
10
108.3
12,0
117,5
4
2013
2014
2015
2016
Net sales
Operating margin
%
15
12
9
6
3
0
Business results – Segments
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.
Networks
Background
Networks represented 48.7% of net sales in
2016 (50.1% in 2015), The segment delivers
products and solutions that are needed for
mobile and fixed communication, several gener-
ations of radio networks, IP and transmission
networks, core networks and cloud.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
Business in 2016
“Column type”.
Sales as reported decreased by –12%. The
decrease was mainly due to lower sales of
mobile broadband, reduced sales of core net-
works and lower IPR licensing revenues. Core
networks sales declined due to lower sales of
legacy products, not offset by growth of the
new portfolio.
Mobile broadband investments were nega-
tively impacted by a weak macroeconomic envi-
ronment in a number of markets such as Latin
America, the Middle East and South Africa. In
addition, sales declined in Europe following the
completion of large coverage projects in 2015
and in India due to delayed spectrum auctions.
The sales decline was partly offset by sales growth
in South East Asia where large deliveries in
mobile broadband coverage projects were made.
In North America and in North East Asia,
investments in network equipment were stable.
In Mainland China, large-scale LTE deployments
continued for the third consecutive year.
Sales, adjusted for comparable units and
currency, decreased by –13%.
Operating income and margin decreased,
mainly due to a lower share of mobile broadband
capacity sales and lower IPR licensing revenues.
The decrease was partly offset by reduced oper-
ating expenses, mainly as an effect of the ongo-
ing cost and efficiency program. The work to
improve profitability continued with significant
headcount reductions and structural changes.
Restructuring charges amounted to SEK –4.0
(–2.8) billion and the negative effect from currency
hedge contracts was SEK –0.7 (–0.9) billion.
Financials – Board of Directors’ report
Ericsson | Annual Report 2016
43
Support Solutions
Background
Support Solutions represented 5.6% of net sales
in 2016 (6.1% in 2015). The portfolio of Support
Solutions is designed around measurable per-
formance improvements in an operator’s busi-
ness processes, with software that is scalable,
configurable and that provides end-to-end
capabilities. The business segment develops
and delivers software-based solutions for OSS
and BSS as well as TV and media solutions.
Business in 2016
Sales as reported decreased by –17%, partly
due to lower IPR licensing revenues. OSS and
BSS sales declined due to lower sales of legacy
products and lower software sales in digital
transformation projects where sales are mainly
project milestone based. In addition, sales
declined in markets with a weak macroeco-
nomic environment.
Sales in TV & Media declined due to lower
sales of legacy products primarily in North
America. Customer trials on the next-generation
TV & Media platform are ongoing, but have not
yet translated into sales.
Operating income declined to SEK –1.0 (1.5)
billion mainly due to lower IPR licensing revenues
and lower sales in both OSS and BSS as well as
in TV & Media. Several activities in order to
reduce cost and adjust the organization to lower
business volumes are ongoing.
The overall transition of business models
continues, from traditional telecom software
licenses to recurrent license revenue deals.
FINANCIALS – Board of Directors’ report
Global Services
SEK billion
120
100
80
60
40
20
0
97.4
97.7
108.0
101.7
8
6
6
3
2013
2014
2015
2016
Net sales
Operating margin
Support Solutions
SEK billion
15
12.2
12.7
10
12
15.0
10
12.5
5
0
–5
–10
0
– 8
2013
2014
2015
2016
Net sales
Operating margin
%
12
10
8
6
4
2
0
%
15
10
5
0
–5
–10
Global Services
Background
Global Services represented 45.7% of net sales
in 2016 (43.7% in 2015). The segment delivers
network rollout services and professional services
(i.e., managed services, consulting and systems
integration (CSI), customer support as well as
network design and optimization services).
Obs! Gjord med column design.
Prata med Eva/Catta/Sanna om
ev frågor.
Gör så här: Markera skiktade delar med
vita pilen. Välj Object–Graph–Column.
Där väljer man färg som ska vara på den
översta rundade delen. Kolla särskilt att
“Sliding” är valt på “Column type”. Då blir
alla delar med rundad topp – inte bra ;).
De nedre markeras då med vita pilen och i
Column väljer man “none” och färglägger
som vanligt från paletten swatches.
Business in 2016
Sales as reported decreased by –6%. Profes-
sional Services sales declined due to lower man-
aged services activities in North America where
a contract has been renewed with reduced
scope. CDMA sales declined YoY impacting
Professional Services sales negatively. Network
Rollout sales declined due to lower mobile
broadband demand, primarily in Europe and
Latin America.
Sales, adjusted for comparable units and
currency, decreased by –5%.
Global Services operating income decreased
to SEK 3.3 (8.2) billion. Activities were performed
to adapt the service delivery organization to
lower business volumes and to increase the
efficiency. Restructuring charges increased to
SEK –3.0 (–1.7) billion.
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
“Column type”.
Professional Services operating income
declined to SEK 5.2 (9.6) billion due to increased
restructuring charges of SEK –2.3 (–0.7) billion,
lower sales and a negative impact from large
projects in systems integration transformation,
where operators are looking to transform their IT
environments to increase efficiency and prepare
for 5G. Ericsson has been successful and won
several IT transformation contracts. However,
the short-term margin impact from these con-
tracts is challenging as a consequence of invest-
ments in competence build-up and market
share.
Network Rollout operating income declined
to SEK –1.9 (–1.4) billion due to lower sales in
combination with increased cost and negative
effects from a few contracts in emerging mar-
kets. The effort to improve Network Rollout
profitability continues through efficiency
improvements including implementation of
global methods and tools.
44
Ericsson | Annual Report 2016
Business results – Regions
North America
Mobile broadband investments were stable.
Professional Services sales were negatively
impacted by reduced scope in a managed ser-
vices contract. Support Solutions sales declined
due to delayed investment decisions by custom-
ers. The focus on 5G strongly increased, with
trials ongoing with all major customers.
Latin America
Sales decreased following reduced mobile
broadband investments due to a weak macro-
economic environment in the region and due
to devaluation of local currencies. The strong
momentum for digital transformation continued.
Professional Services sales declined due to
lower activities in managed services.
Northern Europe and Central Asia
Sales declined, primarily due to continued
lower mobile broadband investments in Russia.
Global Services sales were flat with a decline in
Network Rollout, offset by increased Managed
Services sales in Sweden. OSS and BSS sales
were flat while TV & Media sales declined.
Western and Central Europe
Sales declined as the initial LTE deployments
were finalized. Operators continue to focus on
transforming their networks to meet the increas-
ing demand for coverage and capacity, while at
the same time improving efficiency.
Mediterranean
Sales declined due to lower investments in
mobile broadband infrastructure, mainly related
to capacity business. Operator investments in
ICT transformation and demand for managed
services continued.
Middle East
Sales declined, primarily in Networks due to
lower broadband investments in Egypt, Pakistan,
Ethiopia and Turkey. The decrease was partly
offset by growth in Global Services sales, mainly
in network rollout and optimization services in
Saudi Arabia.
Sub-Saharan Africa
Investments declined, impacted by a weak
macroeconomic environment, local currency
depreciation in key markets as well as low oil
and commodity prices.
India
Mobile broadband sales declined mainly driven
by delayed spectrum auctions which delayed
operator investments. Professional Services
sales remained stable with operators’ higher
focus on network quality and cost optimization.
North East Asia
Sales declined slightly due to lower investments
in Mainland China and Korea, partly offset by
market share gains in Japan and Taiwan. In
Mainland China 4G deployments continued.
However, reduced investments in legacy tech-
nologies and significantly reduced investment
by one customer, impacted sales negatively.
South East Asia and Oceania
Sales increased, primarily driven by mobile
broadband deployments across several mar-
kets. Professional Services sales developed
favorably as operators focus on efficiency and
network optimization services.
Other
IPR licensing revenues amounted to SEK 10.0
(14.4) billion. Sales in 2015 were positively impac-
ted by a global patent license agreement signed
with Apple, which included an initial payment.
Sales per region and segment 2016 and percent change from 2015
Networks
Global Services
Support Solutions
Total
Change
2016
Change
SEK million
North America
Latin America
Northern Europe and Central Asia
Western and Central Europe
Mediterranean
Middle East
Sub-Saharan Africa
India
North East Asia
South East Asia and Oceania
Other
Total
Share of total
2016
26,978
7,830
4,767
5,388
7,324
7,553
4,059
5,536
18,077
12,249
8,577
108,338
48.7%
Change
3%
–20%
–23%
–20%
–20%
–36%
–15%
–32%
–3%
22%
–30%
–12%
2016
24,692
9,270
4,059
10,223
12,823
10,473
4,649
4,617
8,564
9,571
2,781
101,722
45.7%
Change
–11%
–14%
–1%
–16%
–4%
8%
–5%
1%
–3%
10%
–3%
–6%
2016
3,077
833
243
599
758
1,130
469
595
724
360
3,760
12,548
5.6%
1) Discontinued segment Modems is not shown separately in the table. SEK 0 (133) million is included as region Other in the total column.
–26%
–2%
–26%
–20%
1%
–9%
–28%
–18%
6%
–33%
–14%
–17%
54,747
17,933
9,069
16,210
20,905
19,156
9,177
10,748
27,365
22,180
15,118 1)
222,608 1)
100%
Financials – Board of Directors’ report
Ericsson | Annual Report 2016
–6%
–16%
–15%
–18%
–10%
–16%
–11%
–20%
–3%
15%
–23%
–10%
45
FINANCIALS – Board of Directors’ report
Corporate Governance
In accordance with the Annual Accounts Act
and the Swedish Corporate Governance Code
(the “Code”), a separate Corporate Governance
Report, including an Internal Control section,
has been prepared and attached to this Annual
Report.
Continued compliance with the Swedish
Corporate Governance Code
Ericsson is committed to complying with
best-practice corporate governance standards
on a global level wherever possible. For 2016,
Ericsson does not report any deviations from
the Code.
Business integrity
Ericsson’s Code of Business Ethics summarizes
the Group’s basic policies and directives gov-
erning its relationships internally, with its stake-
holders and with others. It also sets out how the
Group works to secure that business activities
are conducted with a strong sense of integrity.
Board of Directors
At the Annual General Meeting, held on April 13,
2016, Leif Johansson was re-elected Chairman
of the Board and Nora Denzel, Börje Ekholm, Ulf
J. Johansson, Kristin Skogen Lund, Sukhinder
Singh Cassidy, Hans Vestberg and Jacob Wal-
lenberg were re-elected members of the Board.
Helena Stjernholm and Kristin S. Rinne were
elected new Board members and Roxanne S.
Austin, Alexander Izosimov and Anders Nyrén
left the Board. Hans Vestberg left his positions
within Ericsson, including his Board position,
as of July 25, 2016. As of April 13, 2016, Pehr
Claesson, Mikael Lännqvist and Karin Åberg
were appointed employee representatives by
the unions, with Zlatko Hadzic, Roger Svensson
and Kjell-Åke Soting as deputies.
Management
Hans Vestberg left his position as President and
CEO of the Group effective July 25, 2016 and
was replaced by the Executive Vice President
Jan Frykhammar. Effective January 16, 2017,
Börje Ekholm was appointed new President and
CEO of the Group. The President and CEO is
supported by the Group management, consist-
ing of the Executive Leadership Team (ELT).
A global management system is in place to
ensure that Ericsson’s business is well controlled
and has the ability to fulfill the objectives of major
stakeholders within established risk limits. The
management system also monitors internal con-
trol and compliance with applicable laws, listing
requirements and governance codes.
Remuneration
Remuneration to the members of the Board of
Directors and to Group management, as well as
the Guidelines for remuneration to Group manage-
ment resolved by the Annual General Meeting
2016, are reported in Notes to the consolidated
financial statements – Note C28, “Information
regarding members of the Board of Directors,
the Group management and employees”.
The Board of Directors’ proposal for guide-
lines for remuneration to Group management
The Board of Directors proposes that the 2017
Annual General Meeting of shareholders resolve
on the guidelines below for remuneration to
Group Management for the period up to the
2018 Annual General Meeting. Compared to the
guidelines resolved by the 2016 Annual General
Meeting, it has been added that targets for vari-
able compensation may also include share
price-related targets.
Shareholder value creation
Executive Performance Stock Plan 2014
targets for 2014–2016
Base year 2013
Executive Performance Stock Plan 2015
targets for 2015–2017
Base year 2014
Executive Performance Stock Plan 2016
targets for 2016–2018
Base year 2015
Net sales growth 2–8% CAGR 1)
Net sales growth 2–6% CAGR
Net sales growth 2–6% CAGR
Operating income growth 5–15% CAGR 1)
Operating income growth 5–15% CAGR 2)
Operating income growth 5–15% CAGR 2)
Cash conversion ≥ 70% annually
Cash conversion ≥ 70% annually 2)
Cash conversion ≥ 70% annually 2)
1) Base year 2013 has been adjusted for the impact of the Samsung IPR agreement. 2) Extraordinary restructuring charges are excluded.
46
Ericsson | Annual Report 2016
Guidelines for Remuneration to Group
Management
For Group Management consisting of the Exec-
utive Leadership Team, including the President
and CEO, total remuneration consists of fixed
salary, short- and long-term variable compensa-
tion, pension and other benefits. The following
guidelines apply for the remuneration of the
Executive Leadership Team:
> Variable compensation is in cash and stock-
based programs, awarded against specific
business targets derived from the long-term
business plan approved by the Board of
Directors. Targets may include share price-
related or financial targets at either Group or
unit level, operational targets, employee
engagement targets or customer satisfaction
targets.
> All benefits, including pension benefits, follow
the competitive practice in the home country
taking total compensation into account.
> By way of exception, additional arrangements
can be made when deemed necessary. An
additional arrangement can be renewed but
each such arrangement shall be limited in
time and shall not exceed a period of 36
months and twice the remuneration that the
individual would have received had no addi-
tional arrangement been made.
> The mutual notice period may be no more
than six months. Upon termination of employ-
ment by the Company, severance pay
amounting to a maximum of 18 months fixed
salary is paid. Notice of termination given by
the employee due to significant structural
changes, or other events that in a determining
manner affect the content of work or the con-
dition for the position, is equated with notice
of termination served by the Company.
Executive Performance Stock Plan
The Company has operated a Long-Term Vari-
able Compensation program (LTV), building on
a common platform of investment in, and match-
ing of, Ericsson shares. It has consisted of three
separate plans: one targeting all employees, one
targeting key contributors and one targeting
senior managers. The program has been
designed to encourage long-term value creation
in alignment with shareholders’ interests. The
aim of the plan for senior managers has been to
attract, retain and motivate executives in a com-
petitive market through performance-based
share-related incentives and to encourage the
build-up of significant equity stakes. The perfor-
mance criteria for senior managers under the
Executive Performance Stock Plan have been
approved by the Annual General Meeting.
The targets for the 2014, 2015 and 2016
Executive Performance Stock Plans are shown
in the illustration on page 46. The performance
criteria are:
Up to one-third of the award will vest if the target
for compound annual growth rate of consoli-
dated net sales is achieved.
Up to one-third of the award will vest if the
target for compound annual growth rate of
consolidated operating income, is achieved.
Up to one-third of the award will vest if cash
conversion is at or above 70% during each of the
years, vesting one-ninth of the award for each
year the target is achieved. The cash conversion
targets were reached in 2016, 2015 and 2014.
Before the number of performance shares
to be matched is finally determined, the Board
of Directors shall examine whether the perfor-
mance matching is reasonable considering the
Company’s financial results and position, con-
ditions on the share market and other circum-
stances, and if not, reduce the number of per-
formance shares to be matched.
Since no Stock Purchase Plan will be pro-
posed for 2017, alternative arrangements have
been developed to replace the Executive Perfor-
mance Stock Plan. For the Global Leadership
Team, a share-based program is proposed for
approval by the Annual General Meeting of
shareholders (“AGM”) 2017. Details of the per-
formance criteria are outlined in the notice of
the AGM 2017.
Material contracts
Material contractual obligations are outlined in
Note C31, “Contractual obligations.” These were
entered into in the ordinary course of business
and were primarily related to operating leases
for office and production facilities, purchase
contracts for outsourced manufacturing, R&D
and IT operations, and the purchase of compo-
nents for the Company’s own manufacturing.
Ericsson is party to certain agreements, which
include provisions that may take effect or be
altered or invalidated by a change in control of
the Company as a result of a public takeover
offer. Such provisions are not unusual for certain
types of agreements, such as for example
financing agreements and certain license agree-
ments. However, considering among other
things the Company’s strong financial position,
the Company believes that none of the agree-
ments currently in effect would in and of itself
entail any material consequence for Ericsson
due to a change in control of the Company.
Risk management
Risks are defined in both a short-term and long-
term perspective. They are related to long-term
objectives as per the strategic direction as well
as short-term objectives for next coming year.
Risks are categorized into industry and market
risks, commercial risks, operational risks and
compliance risks. Ericsson’s risk management is
Financials – Board of Directors’ report
Ericsson | Annual Report 2016
47
FINANCIALS – Board of Directors’ report
based on the following principles, which apply
universally across all business activities and
risk types:
> Risk management is an integrated part of
the Ericsson Group Management System.
> Each operational unit is accountable for own-
ing and managing its risks according to poli-
cies, directives and process tools. Decisions
are made or escalated according to defined
delegation of authority. Financial risks are
coordinated through Group Function Finance.
> Risks are dealt with during the strategy pro-
cess, annual planning and target setting,
continuous monitoring through monthly and
quarterly steering group meetings and during
operational processes (customer projects,
customer bid/contract, acquisition, invest-
ment and product development projects).
They are subject to various controls such
as decision tollgates and approvals.
At least twice a year, in connection with the
approval of strategy and targets, risks are
reviewed by the Board of Directors.
A central security unit coordinates manage-
ment of certain risks, such as business interrup-
tion, information security and physical security.
The Group Crisis Management Council deals
with events of a serious nature.
For information on risks that could impact
the fulfillment of targets and form the basis
for mitigating activities, see the other sections
of the Board of Directors’ report, Notes C2
“Critical accounting estimates and judgments,”
C14 “Trade receivables and customer finance,”
C19 “Interest-bearing liabilities,” C20 “Financial
risk management and financial instruments”
and the chapter Risk factors.
Sourcing and supply
Ericsson’s hardware largely consists of electron-
ics. For manufacturing, the Company purchases
customized and standardized components and
services from several global providers as well as
from local and regional suppliers.
The production of electronic modules and
sub-assemblies is mostly outsourced to manu-
facturing services companies, of which the vast
majority are in low-cost countries. Final configu-
ration of products is largely done in-house. This
consists of assembling and testing modules
and integrating them into complete units. Final
assembly and testing are concentrated to a few
sites. Ericsson has 10 manufacturing sites in
Brazil, China, Estonia, India, Mexico and Sweden.
A number of suppliers design and manufac-
ture highly specialized and customized compo-
nents. The Company generally negotiates global
supply agreements with its primary suppliers.
Ericsson’s suppliers are required to comply with
the requirements of Ericsson’s Code of Conduct.
In general, Ericsson has alternative supply
sources and seeks to avoid single source supply
situations.
Variations in market prices for raw materials
generally have a limited effect on total cost of
goods sold. For more information, see the
chapter Risk factors.
Sustainability and
Corporate Responsibility
Sustainability and Corporate Responsibility (CR)
are central to Ericsson’s core business and the
Company’s commitment to the triple bottom line
of responsible financial and environmental per-
formance and socio-economic development.
Ericsson’s ambition is to be a relevant and
responsible driver of positive change. The Com-
pany aims to do this by creating positive impacts
in society and minimizing risks for stakeholders.
Ericsson’s approach to Sustainability and
Corporate Responsibility is integrated into
business operations throughout the value
chain; performance is regularly measured and
assessed. The Board of Directors is briefed on
Sustainability and Corporate Responsibility
issues twice per year, or as needed on an ad
hoc basis. Group policies and directives are
implemented to ensure consistency across
global operations. Ericsson’s annual Sustain-
ability and Corporate Responsibility Report
provides additional information.
Responsible business practices
Since 2000, Ericsson has supported the UN
Global Compact, endorses its ten principles
regarding human rights and labor standards,
anti-corruption and environmental protection,
and reports its Communication on Progress at
the Advanced level. In 2016, for the third year,
Ericsson reported according to the UN Guiding
Principles on Business and Human Rights
Reporting Framework. The Ericsson Group
Management System includes a Code of Busi-
ness Ethics, a Code of Conduct, a Sustainability
Policy and an Occupational Health and Safety
Policy which reflect responsible business prac-
tices. These policies and practices are rein-
forced by employee awareness training and
monitoring, and their implementation is exter-
nally assured.
Anti-corruption
Ericsson’s anti-corruption program, focused on
prevention and accountability, is continuously
strengthened. In 2016, that included: adding
additional resources to the Compliance Office
headed by the Chief Compliance Officer;
launching an automated anti-corruption screen-
ing tool for conducting due diligence of suppliers
and other third parties in Region Northern
Europe and Central Asia, with global rollout
48
Ericsson | Annual Report 2016
planned for 2017. Between 2013 and the end of
2016, more than 95,900 active employees com-
pleted an anti-corruption e-learning course.
Human rights
The Code of Business Ethics and Code of Con-
duct reflect the Company’s ongoing commit-
ment to respect human rights. Ericsson works
actively to integrate the United Nations Guiding
Principles on Business and Human Rights into
its governance framework. Human rights due
diligence was strengthened in areas such as
Sales Compliance which evaluates possible
risks to human rights based on unintended use
of technology according to established criteria
that is implemented globally. During 2016, more
than 600 cases within the Sales Compliance
Process were reviewed; 7% were rejected and
93% were approved or approved with mitigating
conditions.
Since 2013, Ericsson has performed UNGP-
aligned Human Rights Impact Assessments in
Myanmar, Iran and Ethiopia. In 2016, work was
also initiated to evaluate Cuba from a human
rights perspective. During 2016, a review of both
the Code of Conduct and the Code of Business
Ethics was initiated for example to assess the
needs for updates and improvements in light of
new legislation in the UK on modern slavery and
human trafficking.
Responsible sourcing
Suppliers must comply with the requirements of
Ericsson’s Code of Conduct. In 2016, third-party
audits were introduced, which will enhance the
credibility and robustness of supplier audits and
assessments. The Company uses a risk-based
approach to ensure that the high-risk portfolio
areas, and highest-risk markets, are targeted
first. For prioritized areas such as road and vehi-
cle safety, working at heights, working hours and
labor rights, Ericsson performs regular audits
and works with suppliers to ensure measurable
and continuous improvements. Findings are
followed up to ensure that improvements are
made. In 2016, over 330 audits and assess-
ments were performed.
Obs! Stapel gjord med
column design. Prata
med Eva/Catta/Sanna om
ev frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
“Column type”.
Ericsson addresses the issue of conflict min-
erals, including compliance with the US Dodd-
Frank Act and the disclosure rule adopted by
the U.S. Securities and Exchange Commission,
through measures in its sourcing processes.
The Company also works with suppliers on this
issue and engages in industry initiatives such as
the Conflict-Free Sourcing Initiative, driven by
the Global e-Sustainability Initiative and the
Electro nic Industry Citizenship Coalition. Ericsson
encou rages smelters not yet validated as conflict
free to undergo the Conflict-Free Smelter Pro-
gram audit to ensure their conflict-free status.
Occupational health and safety (OHS)
Providing a safe and healthy work environment
is of paramount importance to Ericsson. The
Company takes a transparent and inclusive
approach, which includes engagement with
suppliers. Ericsson has a special focus on sup-
pliers building and servicing networks on behalf
of Ericsson. The vision is zero major incidents.
OHS is integrated across operations globally,
with a focus on awareness and prevention. In
2016, an Incident Review Board and Global OHS
Board were established for overall governance
of OHS.
Supporting climate action
At the UN Climate Change Conference of the
Parties (COP 22) in Marrakech, Morocco in
2016, industries joined world leaders to support
the goals set out in the Paris Agreement, which
entered into force on November 4, 2016.
Ericsson is committed to develop and deliver
solutions to support climate action. An ongoing
priority is improving the life-cycle carbon foot-
print as part of a broader circular economy
approach. The Company works to reduce nega-
tive environmental impacts while delivering solu-
tions that enable a low-carbon economy. As
energy use of products in operation remains the
Company’s most significant environmental
impact, Ericsson works with mobile operators to
encourage network and site energy optimiza-
tion, through innovative products, software and
solutions. Proces ses and controls are in place to
ensure compliance with relevant product-related
environmental, customer and regulatory require-
ments. An important aspect of Ericsson’s
Design for Environment initiatives is materials
management and efficiency.
Ericsson has a long-term objective to main-
tain absolute CO2e emissions from its own activ-
ities for business travel, product transportation
and facilities energy use in 2017 at the same
level as in 2011. To achieve this long-term objec-
tive, the Company aims to reduce CO2e emis-
sions per employee by 30% over five years. The
Company achieved a 5% reduction of CO2e
emissions per employee in 2016.
Over the past five years, CO2e emissions per
employee have been reduced by 45% com-
pared to a 2011 baseline. The company met its
target to reduce twice as much societal CO2
emissions via its product and service offerings
in areas such as utilities (smart meters) and
transportation as emitted from Ericsson’s own
operations.
Radio waves and health
Ericsson employs rigid product testing and
installation procedures with the goal of ensuring
that radio wave exposure levels from products
Ericsson own activities –
carbon footprint intensity target
Tonnes CO2e/Employee
Mtonnes
10
8
6
4
2
0
0,78
6,90
0,69
6,18
0,63
5,43
0,54
0,5
1,0
0,8
0,6
4,56
4,32
0,4
2012
2013
2014
2015
2016
0,2
0,0
Carbon footprint intensity, tonnes
Carbon dioxide equivalents (CO2e)/
Employee
Carbon footprint absolute emission,
Mtonnes
Ericsson life-cycle assessment –
carbon footprint 2016
Mtonnes CO2e
35
30
25
20
15
10
5
0
-5
˜ 34
˜ 3
0.6
˜ 5
˜ –0.4
Activities in 2016
Supply chain
Own activities
Future (lifetime) operation
of products delivered in 2016
Operator activities
Products in operation
End-of-life treatment
˜ Approximately
Financials – Board of Directors’ report
Ericsson | Annual Report 2016
49
FINANCIALS – Board of Directors’ report
and network solutions are below established
safety limits. The Company also provides public
information on radio waves and health, and sup-
ports independent research to further increase
knowledge in this area. Since 1996, Ericsson
has co-sponsored over 100 studies related to
electromagnetic fields and health, primarily
through the Mobile Manufacturers Forum.
To assure scientific independence, firewalls
were in place between the industrial sponsors
and the researchers conducting these studies.
Independent expert groups and public health
authorities, including the World Health Organiza-
tion, have reviewed the total amount of research
and have consistently concluded that the balance
of evidence does not demonstrate any health
effects associated with radio wave exposure from
either mobile phones or radio base stations.
Reporting in accordance with GRI G4 core
Ericsson publishes an annual Sustainability
and Corporate Responsibility report and full
key performance data is made available on the
Ericsson website according to the Global Report-
ing Initiative (GRI) Sustainability Reporting
Guidelines. The performance data is assured
by a third-party.
Legal proceedings
In March 2016, Ericsson and Adaptix Inc. (Adap-
tix) reached a settlement agreement, resolving
all pending litigation between the parties includ-
ing the patent infringement lawsuits filed by
Adaptix against Ericsson with the US District
Court for Eastern District of Texas and with the
Tokyo District Court in Japan.
In 2013, Ericsson filed a patent infringement
lawsuit in the Delhi High Court against Indian
handset company Micromax, seeking damages
and an injunction. As part of its defense, Micro-
max filed a complaint with the Competition
Commission of India (CCI) and the CCI has
decided to refer the case to the Director
General’s Office for an in-depth investigation.
In January 2014, the CCI opened another inves-
tigation against Ericsson based on claims made
by Intex Technologies (India) Limited. Ericsson
has challenged CCI’s jurisdiction in these cases
before the Delhi High Court and is waiting for a
final decision by the Delhi High Court. Ericsson
has made numerous attempts to sign a license
agreement with both Micromax and Intex on
Fair, Reasonable and Non-discriminatory
(FRAND) terms.
In 2012, Wi-LAN Inc., a Canadian patent
licensing company, filed a complaint against
Ericsson in the US District Court for the South-
ern District of Florida alleging that Ericsson’s LTE
products infringe three of Wi-LAN’s US patents.
On May 22, 2015, the Florida Court granted a
Motion for Summary Judgment in favor of
Ericsson, which judgement was in January 2017
vacated by the Court of Appeals for the Federal
Circuit. The case was remanded to the District
Court for further proceedings consistent with the
Federal Circuit’s opinion.
In 2014, Ericsson was joined as a party to-
litigation brought by Unwired Planet against
Google, Samsung and Huawei in the English
High Court in London, in which Unwired Planet
accused the defendants of infringing certain
patents, some of which were purchased from
Ericsson in 2013. Around the same time
Ericsson has also intervened in the similar pro-
ceedings ongoing in the Dusseldorf District
Court in which the defendants also include HTC
and LG. The Defendants’ counter-allegations
included that the agreement entered into
between Unwired Planet and Ericsson in 2013
for the sale of part of Ericsson’s patent portfolio
is invalid because of breach of competition law.
Ericsson has rejected these claims. Unwired
Planet has since settled its cases with Google
and Samsung (both in the UK and Germany).
In connection therewith these defendants’
counter-claims against Ericsson have been
discontinued.
In a decision issued in January, 2016, the
Dusseldorf District Court found that there is no
ground for the allegation that Ericsson’ sale of
patents to Unwired Planet is not in breach of
competition law, and rejected this and all other
allegations made by the defendants’ against
Ericsson. Ericsson remains as intervener in
the German cases. This decision has been
appealed.
Further, in October 2016 Huawei withdrew
its counterclaim against Ericsson in the UK.
In addition to the proceedings discussed
above, the Company is, and in the future may
be, involved in various other lawsuits, claims
and proceedings incidental to the ordinary
course of business.
Parent Company
The Parent Company business consists mainly
of corporate management, holding company
functions and internal banking activities. It also
handles customer credit management, performed
on a commission basis by Ericsson Credit AB.
The Parent Company has 5 (5) branch offices.
In total, the Group has 79 (81) branch and repre-
sentative offices.
Financial information
Income after financial items was SEK 15.6 (16.8)
billion. The Parent Company had no sales in
2016 or 2015 to subsidiaries, while 43% (43%)
of total purchases of goods and services were
from such companies.
Major changes in the Parent Company’s
financial position for the year included:
50
Ericsson | Annual Report 2016
> Increased current and non-current receiv-
ables from subsidiaries of SEK 17.1 billion.
> Decreased gross cash of SEK 5.7 billion.
> Increased current and non-current liabilities
to subsidiaries of SEK 7.6 billion.
At the end of the year, gross cash: cash, cash
equivalents, short-term investments, and inter-
est-bearing securities non-current amounted to
SEK 42.9 (48.6) billion.
Share information
As of December 31, 2016, the total number of
shares in issue was 3,331,151,735, of which
261,755,983 were Class A shares, each carrying
one vote, and 3,069,395,752 were Class B
shares, each carrying one tenth of one vote.
Both classes of shares have the same rights
of participation in the net assets and earnings.
The two largest shareholders at year-end were
Investor AB and AB Industrivärden holding
21.77% and 15.15% respectively of the voting
rights in the Parent Company.
In accordance with the conditions of the Long-
Term Variable Compensation Program (LTV) for
Ericsson employees, 13,275,251 treasury shares
were distributed to employees or sold in 2016.
The quotient value of these shares was SEK
5.00, totaling SEK 66.4 million, representing less
than 1% of capital stock, and compensation
received for shares sold and distributed shares
amounted to SEK 137.8 million.
The holding of treasury stock at December
31, 2016 was 62,192,390 Class B shares. The
quotient value of these shares is SEK 5.00,
totaling SEK 311 million, representing 1.9% of
capital stock, and the purchase price amounts
to SEK 454.3 million.
The Annual General Meeting (AGM) 2016
resolved to issue 26.1 million Class C shares for
the Long-Term Variable Remuneration Program
(LTV). In accordance with an authorization from
the AGM, in the second quarter 2016, the Board
of Directors resolved to repurchase the new
issued shares, which were subsequently con-
verted into Class B shares. The quotient value of
the repurchased shares was SEK 5.00, totaling
SEK 130.5 million, representing less than 1% of
capital stock, and the acquisition cost was
approximately SEK 130.7 million.
Proposed disposition of earnings
The Board of Directors proposes that a dividend
of SEK 1.00 (3.70) per share be paid to sharehol-
ders duly registered on the record date of March
31, 2017, and that the Parent Company shall
retain the remaining part of non-restricted equity.
The Class B treasury shares held by the Parent
Company are not entitled to receive dividend.
Assuming that no treasury shares remain on the
record date, the Board of Directors proposes
that earnings be distributed as follows:
Amount to be paid to the
shareholders
Amount to be retained by the
Parent Company
Total non-restricted equity of
the Parent Company
SEK 3,331,151,735
SEK 41,420,521,393
SEK 44,751,673,128
As a basis for its dividend proposal, the Board
of Directors has made an assessment in accor-
dance with Chapter 18, Section 4 of the Swedish
Companies Act of the Parent Company’s and
the Group’s need for financial resources as well
as the Parent Company’s and the Group’s liquid-
ity, financial position in other respects and long-
term ability to meet their commitments. The
Group reports an equity ratio of 49.6% (51.8%)
and a net cash amount of SEK 31.2 (41.2) billion.
The Board of Directors has also considered
the Parent Company’s result and financial posi-
tion and the Group’s position in general. In this
respect, the Board of Directors has taken into
account known commitments that may have an
impact on the financial positions of the Parent
Company and its subsidiaries.
The proposed dividend does not limit the
Group’s ability to make investments or raise
funds, and it is the Board of Directors’ assess-
ment that the proposed dividend is well-balanced
considering the nature, scope and risks of the
business activities as well as the capital require-
ments for the Parent Company and the Group
in addition to coming years’ business plans and
economic development.
Post-closing events
New segment structure from January 1, 2017
From January 1, 2017, financial reporting is done
according to the new structure, i.e., by the new
segments Networks, IT & Cloud and Media.
Börje Ekholm takes office as
CEO and President
Börje Ekholm takes office as CEO and Presi-
dent. On January 16, 2017, Ericsson announced
that in connection with Börje Ekholm assuming
the position as President and CEO of Ericsson,
Jan Frykhammar, who has temporarily held the
position as President and CEO, remains a mem-
ber of the Executive Leadership Team and is
appointed Executive Vice President and Advisor
to the CEO. Jan Frykhammar will support Börje
Ekholm during a transition period and will focus
on corporate governance and efficiency.
Magnus Mandersson remains Executive
Vice President, advisor to the CEO, focusing
on customer relationships, and a member of
the Executive Leadership Team. Magnus
Mandersson also remains Chairperson of four
out of Ericsson’s ten regions.
Carl Mellander remains acting Chief Financial
Officer and a member of the Executive Leader-
ship Team.
Financials – Board of Directors’ report
Ericsson | Annual Report 2016
51
FINANCIALS – Board of Directors’ report
Board assurance
The Board of Directors and the President
declare that the consolidated financial state-
ments have been prepared in accordance with
IFRS, as issued by the IASB and adopted by the
EU, and give a fair view of the Group’s financial
position and results of operations. The financial
statements of the Parent Company have been
prepared in accordance with generally accepted
accounting principles in Sweden and give a fair
view of the Parent Company’s financial position
and results of operations.
The Board of Directors’ Report for the Ericsson
Group and the Parent Company provides a fair
view of the development of the Group’s and the
Parent Company’s operations, financial pos ition
and results of operations and describes material
risks and uncertainties facing the Parent Com-
pany and the companies included in the Group.
Stockholm, February 24, 2017
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680
Leif Johansson
Chairman
Helena Stjernholm
Deputy Chairman
Jacob Wallenberg
Deputy Chairman
Nora Denzel
Member of the Board
Börje Ekholm
President, CEO and
Member of the Board
Ulf J. Johansson
Member of the Board
Kristin Skogen Lund
Member of the Board
Kristin S. Rinne
Member of the Board
Sukhinder Singh Cassidy
Member of the Board
Pehr Claesson
Member of the Board
Mikael Lännqvist
Member of the Board
Karin Åberg
Member of the Board
Our audit report has been submitted on February 24, 2017
PricewaterhouseCoopers AB
Bo Hjalmarsson
Authorized Public Accountant
Lead Partner
Johan Engstam
Authorized Public Accountant
52
Ericsson | Annual Report 2016
FINANCIALS
CONSOLIDATED FINANCIAL
STATEMENTS with NOTES
Contents
Consolidated financial statements
Consolidated income statement
Consolidated statement of comprehensive income
Consolidated balance sheet
Consolidated statement of cash flows
Consolidated statement of changes in equity
Notes to the consolidated financial statements
C1
C2
C3
C4
C5
C6
C7
C8
C9
C10
C11
C12
C13
C14
C15
C16
C17
C18
C19
C20
C21
C22
C23
C24
C25
C26
C27
C28
C29
C30
C31
C32
Significant accounting policies
Critical accounting estimates and judgments
Segment information
Net sales
Expenses by nature
Other operating income and expenses
Financial income and expenses
Taxes
Earnings per share
Intangible assets
Property, plant and equipment
Financial assets, non-current
Inventories
Trade receivables and customer finance
Other current receivables
Equity and other comprehensive income
Post-employment benefits
Provisions
Interest-bearing liabilities
Financial risk management and financial instruments
Other current liabilities
Trade payables
Assets pledged as collateral
Contingent liabilities
Statement of cash flows
Business combinations
Leasing
Information regarding members of the Board
of Directors, the Group management and employees
Related party transactions
Fees to auditors
Contractual obligations
Events after the reporting period
54
55
56
57
58
61
67
69
72
72
72
72
73
74
74
76
77
78
78
80
80
81
85
86
87
90
90
90
90
90
91
93
94
99
99
99
99
Financials – Consolidated financial statements
Ericsson | Annual Report 2016
53
FINANCIALS – Consolidated financial statements
CONSOLIDATED FINANCIAL
STATEMENTS
Consolidated income statement
January–December, SEK million
Net sales
Cost of sales
Gross income
Gross margin (%)
Research and development expenses
Selling and administrative expenses
Operating expenses
Other operating income and expenses
Share in earnings of joint ventures and associated companies
Operating income
Financial income
Financial expenses
Income after financial items
Taxes
Net income
Net income attributable to:
Stockholders of the Parent Company
Non-controlling interest
Other information
Average number of shares, basic (million)
Earnings per share attributable to stockholders of the Parent Company, basic (SEK) 1)
Earnings per share attributable to stockholders of the Parent Company, diluted (SEK) 1)
1) Based on Net income attributable to stockholders of the Parent Company.
Notes
C3, C4
C6
C3, C12
C3
C7
C7
C8
C9
C9
C9
2016
222,608
–156,243
66,365
29,8%
–31,635
–28,866
–60,501
404
31
6,299
–115
–2,158
4,026
–2,131
1,895
1,716
179
3,263
0.53
0.52
2015
246,920
–161,101
85,819
34.8%
–34,844
–29,285
–64,129
153
–38
21,805
525
–2,458
19,872
–6,199
13,673
13,549
124
3,249
4.17
4.13
2014
227,983
–145,556
82,427
36.2%
–36,308
–27,100
–63,408
–2,156
–56
16,807
1,277
–2,273
15,811
–4,668
11,143
11,568
–425
3,237
3.57
3.54
54
Ericsson | Annual Report 2016
Consolidated statement of comprehensive income
January–December, SEK million
Net income
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements of defined benefits pension plans including asset ceiling
Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
Available-for-sale financial assets
Gains/losses arising during the period
Revaluation of other investments in shares and participations
Fair value remeasurement
Changes in cumulative translation adjustments
Share of other comprehensive income of joint ventures and associated companies
Tax on items that may be reclassified to profit or loss
Total other comprehensive income, net of tax
Total comprehensive income
Total comprehensive income attributable to:
Stockholders of the Parent Company
Non-controlling interests
2016
1,895
2015
13,673
2014
11,143
–1,766
520
–2,026
721
–10,017
2,218
–7
–2
4,235
–362
1
2,619
4,514
4,285
229
–
457
–604
141
–
–1,311
12,362
12,218
144
–
47
8,734
579
5
1,566
12,709
12,981
–272
Financials – Consolidated financial statements
Ericsson | Annual Report 2016
55
FINANCIALS – Consolidated financial statements
Consolidated balance sheet
December 31, SEK million
Assets
Non-current assets
Intangible assets
Capitalized development expenses
Goodwill
Intellectual property rights, brands and other intangible assets
Property, plant and equipment
Financial assets
Equity in joint ventures and associated companies
Other investments in shares and participations
Customer finance, non-current
Interest-bearing securities, non-current
Other financial assets, non-current
Deferred tax assets
Current assets
Inventories
Trade receivables
Customer finance, current
Other current receivables
Interest-bearing securities, current
Cash and cash equivalents
Total assets
Equity and liabilities
Equity
Stockholders’ equity
Non-controlling interest in equity of subsidiaries
Non-current liabilities
Post-employment benefits
Provisions, non-current
Deferred tax liabilities
Borrowings, non-current
Other non-current liabilities
Current liabilities
Provisions, current
Borrowings, current
Trade payables
Other current liabilities
Total equity and liabilities 1)
1) Of which interest-bearing liabilities SEK 26,686 (25,120) million.
56
Ericsson | Annual Report 2016
Notes
C10, C26
C11, C26, C27
C12
C12
C12
C12, C20
C12
C8
C13
C14
C14
C15
C20
C25
C16
C17
C18
C8
C19, C20
C18
C19, C20
C22
C21
2016
2015
8,076
43,387
7,747
16,734
775
1,179
2,128
7,586
4,442
15,522
107,576
30,307
68,117
2,625
24,431
13,325
36,966
175,771
283,347
5,493
41,087
9,316
15,901
1,210
1,275
1,739
–
5,634
13,183
94,838
28,436
71,069
2,041
21,709
26,046
40,224
189,525
284,363
139,817
675
140,492
146,525
841
147,366
23,723
946
2,147
18,653
2,621
48,090
5,411
8,033
25,318
56,003
94,765
22,664
176
2,472
22,744
1,851
49,907
3,662
2,376
22,389
58,663
87,090
283,347
284,363
Consolidated statement of cash flows
January–December, SEK million
Operating activities
Net income
Adjustments to reconcile net income to cash
Changes in operating net assets
Inventories
Customer finance, current and non-current
Trade receivables
Trade payables
Provisions and post-employment benefits
Other operating assets and liabilities, net
Cash flow from operating activities
Investing activities
Investments in property, plant and equipment
Sales of property, plant and equipment
Acquisitions of subsidiaries and other operations
Divestments of subsidiaries and other operations
Product development
Other investing activities
Interest–bearing securities
Cash flow from investing activities
Cash flow before financing activities
Financing activities
Proceeds from issuance of borrowings
Repayment of borrowings
Proceeds from stock issue
Sale/repurchase of own shares
Dividends paid
Other financing activities
Cash flow from financing activities
Effect of exchange rate changes on cash
Net change in cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
C25
Notes
2016
2015
2014
C25
C11
C25, C26
C25, C26
C10
1,895
6,112
8,007
–613
–950
5,933
2,775
3,106
–4,248
6,003
14,010
–6,129
482
–984
362
–4,483
–3,004
5,473
–8,283
5,727
1,527
–1,072
131
–26
–12,263
–39
–11,742
2,757
–3,258
40,224
36,966
13,673
10,611
24,284
–366
824
7,000
–2,676
544
–9,013
–3,687
20,597
–8,338
1,301
–2,201
1
–3,302
–543
5,095
–7,987
12,610
1,179
–1,336
–
169
–11,337
615
–10,710
–2,664
–764
40,988
40,224
11,143
11,200
22,343
–2,924
–710
1,182
1,265
–859
–1,595
–3,641
18,702
–5,322
522
–4,442
48
–1,523
–3,392
6,596
–7,513
11,189
1,282
–9,384
–
–
–9,846
–277
–18,225
5,929
–1,107
42,095
40,988
Financials – Consolidated financial statements
Ericsson | Annual Report 2016
57
FINANCIALS – Consolidated financial statements
Consolidated statement of changes in equity
Equity and Other comprehensive income 2016
Capital stock
Addi tional
paid in capital
16,526
24,731
Retained
earnings
105,268
Stock holders’
equity
Non-control ling
interest
SEK million
January 1, 2016
Net income
Group
Joint ventures and associated companies
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements related to post-employment benefits
Group
Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
Available-for-sale financial assets
Gains (+)/Losses (–) arising during the period
Group
Revaluation of other investments in shares and participations
Group
Changes in cumulative translation adjustments
Group
Joint ventures and associated companies
Tax on items that may be reclassified to profit or loss
Total other comprehensive income, net of tax
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Stock purchase plans
Group
Dividends paid
Transactions with non-controlling interest
December 31, 2016
–
–
–
–
–
–
–
–
–
–
–
131
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,657
24,731
146,525
1,690
26
1,690
26
–1,770
521
–1,770
521
–7
–2
4,188
–362
1
2,569
4,285
–
105
–131
957
–12,058
3
98,429
–7
–2
4,188 1)
–362
1
2,569
4,285
131
105
–131
957
–12,058 2)
3
139,817
841
179
–
4
–1
–
–
47
–
–
50
229
–
–
–190
–
–205
–
675
Total equity
147,366
1,869
26
–1,766
520
–7
–2
4,235
–362
1
2,619
4,514
131
105
–321
957
–12,263
3
140,492
1) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK 2,355 million (SEK 1,592 million in 2015 and 4,794 million in 2014),
and realized gain/losses net from sold/liquidated companies, SEK –90 million (SEK –3 million in 2015 and SEK 3 million in 2014).
2) Dividends paid per share amounted to SEK 3.70 (SEK 3.40 in 2015 and SEK 3.00 in 2014).
58
Ericsson | Annual Report 2016
Equity and Other comprehensive income 2015
SEK million
January 1, 2015
Net income
Group
Joint ventures and associated companies
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements related to post-employment benefits
Group
Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
Revaluation of other investments in shares and participations
Group
Changes in cumulative translation adjustments
Group
Joint ventures and associated companies
Total other comprehensive income, net of tax
Total comprehensive income
Transactions with owners
Sale/repurchase of own shares
Stock purchase plans
Group
Dividends paid
Transactions with non-controlling interest
December 31, 2015
Capital stock
Addi tional
paid in capital
16,526
24,731
Retained
earnings
103,049
Stock holders’
equity
Non-control ling
interest
144,306
1,003
Total equity
145,309
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,526
24,731
13,587
–38
13,587
–38
124
–
13,711
–38
–2,033
722
–2,033
722
457
457
–618
141
–1,331
12,218
–618
141
–1,331
12,218
169
169
865
–11,033
–
105,268
865
–11,033
–
146,525
7
–1
–
14
–
20
144
–
–
–304
–2
841
–2,026
721
457
–604
141
–1,311
12,362
169
865
–11,337
–2
147,366
Financials – Consolidated financial statements
Ericsson | Annual Report 2016
59
FINANCIALS – Consolidated financial statements
Equity and Other comprehensive income 2014
SEK million
January 1, 2014
Net income
Group
Joint ventures and associated companies
Other comprehensive income
Items that will not be reclassified to profit or loss
Remeasurements related to post-employment benefits
Group
Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
Revaluation of other investments in shares and participations
Group
Changes in cumulative translation adjustments
Group
Joint ventures and associated companies
Tax on items that may be reclassified to profit or loss
Total other comprehensive income, net of tax
Total comprehensive income
Transactions with owners
Sale/repurchase of own shares
Stock purchase plans
Group
Dividends paid
December 31, 2014
Capital stock
Addi tional
paid in capital
16,526
24,731
Retained
earnings
98,947
Stock holders’
equity
Non-control ling
interest
140,204
1,419
Total equity
141,623
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,526
24,731
11,624
–56
11,624
–56
–425
–
11,199
–56
–10,014
2,218
–10,014
2,218
47
47
8,578
579
5
1,413
12,981
8,578
579
5
1,413
12,981
–3
–
–
156
–
–
153
–272
–10,017
2,218
47
8,734
579
5
1,566
12,709
106
106
–
106
717
–9,702
103,049
717
–9,702
144,306
–
–144
1,003
717
–9,846
145,309
60
Ericsson | Annual Report 2016
FINANCIALS
notes to the CONSOLIDATED
FINANCIAL STATEMENTS
C1 Significant accounting policies
Introduction
The consolidated financial statements comprise Telefonaktiebolaget LM
Ericsson, the Parent Company, and its subsidiaries (“the Company”) and
the Company’s interests in joint ventures and associated companies. The
Parent Company is domiciled in Sweden at Torshamnsgatan 21, SE-164
83 Stockholm.
The consolidated financial statements for the year ended December 31,
2016 have been prepared in accordance with International Financial
Reporting Standards (IFRS) as endorsed by the EU and RFR 1 “Additional
rules for Group Accounting,” related interpretations issued by the Swedish
Financial Reporting Board (Rådet för Finansiell Rapportering), and the
Swedish Annual Accounts Act. For the financial reporting of 2016, the
Company has applied IFRS as issued by the IASB (IFRS effective as per
December 31, 2016). There is no difference between IFRS effective as per
December 31, 2016, and IFRS as endorsed by the EU, nor is RFR 1 related
interpretations issued by the Swedish Financial Reporting Board (Rådet
för Finansiell Rapportering) or the Swedish Annual Accounts Act in con-
flict with IFRS, for all periods presented.
The financial statements were approved by the Board of Directors
on February 24, 2017. The balance sheets and income statements are
subject to approval by the Annual General Meeting of shareholders.
Amendments applied as from January 1, 2016
There have not been any significant amendments of IFRS concerning the
Company during 2016.
The following changes are not due to changes in IFRS:
Presentation in financial statements
In the consolidated Balance sheet, Interest-bearing securities, non-cur-
rent has been added as a new line and Short term investments has been
renamed Interest-bearing securities, current. On the statement of Cash
flow, the line Short-term investments has been renamed Interest-bearing
securities.
Accounting for bonds
Due to the conditions in the market for government and mortgage bonds
in Sweden, Ericsson intends to hold bonds purchased in its “Asset man-
agement” portfolio until maturity instead of intending to hold them for
trading. Bonds purchased in this portfolio after January 1, 2016 are deter-
mined to be classified as available-for-sale. Bonds held as available-for-
sale with a maturity longer than one year are included in Interest-bearing
securities, non-current. Bonds held as available-for-sale with a maturity
shorter than one year are included in Interest-bearing securities, current.
Unrealized gains and losses are recognized in Other comprehensive
income. When these securities are derecognized, the accumulated fair
value adjustments will be included in financial income.
Alternative Performance Measures, APMs
Ericsson has applied the new guidelines issued by European Securities
and Markets Authority (ESMA) on APMs (Alternative Performance Mea-
sures). In summary, an APM is understood as a financial measure of his-
torical or future financial performance, financial position, or cash flows,
other than a financial measure defined or specified in IFRS. The APMs
presented in this annual report will be reconciled to the most directly rec-
oncilable line items in the financial statements in the chapter “Other infor-
mation – Alternative performance measures.” The APMs presented in this
report may differ from similarly-titled measures used by other companies.
For information on “New standards and interpretations not yet
adopted,” refer to the end of this Note.
Basis of presentation
The financial statements are presented in millions of Swedish Krona
(SEK). They are prepared on a historical cost basis, except for certain
financial assets and liabilities that are stated at fair value: derivative finan-
cial instruments, financial instruments held for trading, financial instru-
ments classified as available-for-sale and plan assets related to defined
benefit pension plans. Financial information in the consolidated income
statement, the consolidated statement of comprehensive income, the
consolidated statement of cash flows and the consolidated statement of
changes in equity with related notes are presented with two comparison
years while for the consolidated balance sheet financial information with
related notes is presented with only one comparison year.
Basis of consolidation and composition of the Group
The consolidated financial statements are prepared in accordance with
the purchase method. Accordingly, consolidated stockholders’ equity
includes equity in subsidiaries, joint ventures and associated companies
earned only after their acquisition.
Subsidiaries are all companies for which Telefonaktiebolaget LM
Ericsson, directly or indirectly, is the parent. To be classified as a parent,
Telefonaktiebolaget LM Ericsson, directly or indirectly, must control another
company which requires that the Parent Company has power over that
other company, is exposed to variable returns from its involvement and
has the ability to use its power over that other company. The financial state-
ments of subsidiaries are included in the consolidated financial statements
from the date that control commences until the date that such control
ceases.
Intra-group balances and any unrealized income and expense arising
from intra-group transactions are fully eliminated in preparing the consoli-
dated financial statements. Unrealized losses are eliminated in the same
way as unrealized gains, but only to the extent that there is no evidence of
impairment.
The Company is composed of a parent company, Telefonaktiebolaget
LM Ericsson, with generally fully-owned subsidiaries in many countries of
the world. The largest operating subsidiaries are the fully-owned telecom
vendor companies Ericsson AB, incorporated in Sweden and Ericsson
Inc., incorporated in the US.
Business combinations
At the acquisition of a business, the cost of the acquisition, being the
purchase price, is measured as the fair value of the assets given, and lia-
bilities incurred or assumed at the date of exchange, including any cost
related to contingent consideration. Transaction costs attributable to the
acquisition are expensed as incurred. The acquisition cost is allocated to
acquired assets, liabilities and contingent liabilities based upon appraisals
made, including assets and liabilities that were not recognized on the
acquired entity’s balance sheet, for example intangible assets such as
customer relations, brands, patents and financial liabilities. Goodwill
arises when the purchase price exceeds the fair value of recognizable
acquired net assets. In acquisitions with non-controlling interests full or
partial goodwill can be recognized. Final amounts are established within
one year after the transaction date at the latest.
In case there is a put option for non-controlling interest in a subsidiary a
corresponding financial liability is recognized.
Non-controlling interest
The Company treats transactions with non-controlling interests as trans-
actions with equity owners of the Company. For purchases from non-con-
trolling interests, the difference between any consideration paid and the
relevant share acquired of the carrying value of net assets of the subsidi-
ary is recorded in equity. Gains or losses on disposals to non-controlling
interests are also recorded in equity.
When the Company ceases to have control, any retained interest in the
entity is remeasured to its fair value, with the change in carrying amount
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
61
FINANCIALS – Notes to the consolidated financial statements
recognized in profit or loss. The fair value is the initial carrying amount for
the purposes of subsequently accounting for the retained interest in an
associate or financial asset. In addition, any amounts previously recog-
nized in Other comprehensive income in respect of that entity are
accounted for as if the Company had directly disposed of the related
assets or liabilities. This may mean that amounts previously recognized in
Other comprehensive income are reclassified to profit or loss.
At acquisition, there is a choice on an acquisition-by-acquisition basis
to measure the non-controlling interest in the acquiree either at fair value
or at the non-controlling interest’s proportionate share of the acquiree’s
net assets.
are recognized in the income statement, unless deferred in Other com-
prehensive income under the hedge accounting practices as described
below.
Changes in the fair value of monetary securities denominated in foreign
currency classified as available-for-sale are analyzed between translation
differences resulting from changes in the amortized cost of the security
and other changes in the carrying amount of the security. Translation dif-
ferences related to changes in the amortized cost are recognized in profit
or loss, and other changes in the carrying amount are recognized in OCI.
Translation differences on non-monetary financial assets and liabilities
are reported as part of the fair value gain or loss.
Joint ventures and associated companies
Joint ventures and associated companies are accounted for in accor-
dance with the equity method. Under the equity method, the investment
in joint venture or associate is initially recognized at cost and the carrying
amount is increased or decreased to recognize the investor’s share of the
profit or loss of the investee after the date of acquisition. If the Company’s
interest in an associated company is nil, the Company shall not, as pre-
scribed by IFRS, recognize its part of any future losses. Provisions related
to obligations for such an interest shall, however, be recognized in relation
to such an interest.
Investments in associated companies, i.e., when the Company has
significant influence and the power to participate in the financial and oper-
ating policy decisions of the associated company, but is not in control or
joint control over those policies. Normally, this is the case in voting stock
interest, including effective potential voting rights, which stand at least at
20% but not more than 50%.
Group companies
The results and financial position of all the group entities that have a func-
tional currency different from the presentation currency are translated into
the presentation currency as follows:
Assets and liabilities for each balance sheet presented are translated at
the closing rate at the date of that balance sheet.
Period income and expenses for each income statement are translated
at period average exchange rates.
All resulting net exchange differences are recognized as a separate
component of Other comprehensive income (OCI).
On consolidation, exchange differences arising from the translation
of the net investment in foreign operations, and of borrowings and other
currency instruments designated as hedges of such investments, are
accounted for in OCI. When a foreign operation is partially disposed of
or sold, exchange differences that were recorded in OCI are recognized
in the income statement as part of the gain or loss on sale.
The Company’s share of income before taxes is reported in item “Share
Goodwill and fair value adjustments arising on the acquisition of a for-
in earnings of joint ventures and associated companies,” included in
Operating Income. This reflects the fact that these interests are held for
operating rather than investing or financial purposes. Ericsson’s share of
income taxes related to associated companies is reported under the line
item “Taxes,” in the income statement.
Unrealized gains on transactions between the Company and its joint
ventures and associated companies are eliminated to the extent of the
Company’s interest in these entities. Unrealized losses are also eliminated
unless the transaction provides evidence of an impairment of the asset
transferred.
Shares in earnings of joint ventures and associated companies
included in consolidated equity which are undistributed are reported in
Retained earnings in the balance sheet.
Impairment testing as well as recognition or reversal of impairment of
investments in each joint venture and associated company is performed
in the same manner as for intangible assets other than goodwill. The entire
carrying value of each investment, including goodwill, is tested as a single
asset. See also description under “Intangible assets other than goodwill”
below.
If the ownership interest in an associate is reduced but significant influ-
ence is retained, only a proportionate share of the amounts previously
recognized in Other comprehensive income are reclassified to profit or
loss where appropriate.
In Note C2, “Critical Accounting Estimates and Judgments,” further dis-
closure is presented in relation to (i) key sources of estimation uncertainty
and (ii) the decision made in relation to accounting policies applied.
Foreign currency remeasurement and translation
Items included in the financial statements of each entity of the Company
are measured using the currency of the primary economic environment
in which the entity operates (‘the functional currency’). The consolidated
financial statements are presented in Swedish Krona (SEK), which is the
Parent Company’s functional and presentation currency.
Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of each respective trans-
actions. Foreign exchange gains and losses resulting from the settlement
of such transactions and from the translation at period-end exchange
rates of monetary assets and liabilities denominated in foreign currencies
eign entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
The Company is continuously monitoring the economies with high
inflation, the risk of hyperinflation and potential impact on the Company.
There is no significant impact due to any currency translation of a
hyper-inflationary economy.
Statement of cash flows
The statement of cash flows is prepared in accordance with the indirect
method. Cash flows in foreign subsidiaries are translated at the average
exchange rate during the period. Payments for subsidiaries acquired or
divested are reported as cash flow from investing activities, net of cash
and cash equivalents acquired or disposed of respectively.
Cash and cash equivalents consist of cash, bank, and interest-bearing
securities that are highly liquid monetary financial instruments with a
remaining maturity of three months or less at the date of acquisition.
Revenue recognition
Background
The Company offers a comprehensive portfolio of telecommunication and
data communication systems, professional services, and support solu-
tions. Products, both hardware and software as well as services, are in
general standardized. The impact of this is that any acceptance terms are
normally only formal requirements. In Note C3, “Segment information,” the
Company’s products and services are disclosed in more detail as per
operating segment.
The Company’s products and services are generally sold under deliv-
ery-type or multi-year recurring services contracts. The delivery type
contracts often contain content from more than one segment.
Accounting treatment
Sales are based on fair values of consideration received and recorded net
of value added taxes, goods returned and estimated trade discounts.
Revenue is recognized when risks and rewards have been transferred to
the customer, with reference to all significant contractual terms, when:
> The product or service has been delivered
> The revenue amount is fixed or determinable
> The customer has received and activation has been made of separately
sold software
> Collection is reasonably assured
62
Ericsson | Annual Report 2016
Estimations of contractual performance criteria impact the timing and
amounts of revenue recognized and may therefore defer revenue recogni-
tion until the performance criteria are met. The profitability of contracts is
periodically assessed, and provisions for any estimated losses are made
immediately when losses are probable.
Allocation and/or timing criteria specific to each type of contract are:
> Delivery-type contracts – These contracts relate to delivery, installation,
integration of products and provision of related services, normally
under multiple elements contracts. Under multiple elements contracts,
accounting is based on that the revenue recognition criteria are applied
to the separately identifiable components of the contract. Revenue,
including the impact of any discount or rebate, is allocated to each ele-
ment based on relative fair values. Networks, Global Services and Sup-
port Solutions have contracts that relate to this type of arrangement.
> Contracts for services – These relate to multi-year service contracts
such as support- and managed service contracts and other types of
recurring services. Revenue is recognized when the services have
been provided, generally pro rata over the contract period. Global-
Services has contracts that relate to this type of arrangement.
> Contracts generating license fees from third-parties for the use of the
Company’s intellectual property rights – License fees are measured
based on the substance of the contract. Examples are a percentage
of sales or currency amount per unit and recognized over the license
period or at a single point of time when no obligations remain. The
amount of consideration shall also be reasonably certain. Networks and
Support Solutions have contracts that relate to this type of arrangement.
For sales between consolidated companies, associated companies, joint
ventures and segments, the Company applies arm’s length pricing.
In Note C2, “Critical accounting estimates and judgments,” a further
disclosure is presented in relation to (i) key sources of estimation uncer-
tainty and (ii) the decision made in relation to accounting policies applied.
Earnings per share
Basic earnings per share are calculated by dividing net income attribut-
able to stockholders of the Parent Company by the weighted average
number of shares outstanding (total number of shares less treasury stock)
during the year.
Diluted earnings per share are calculated by dividing net income attrib-
utable to stockholders of the Parent Company, when appropriately
adjusted by the sum of the weighted average number of ordinary shares
outstanding and dilutive potential ordinary shares. Potential ordinary
shares are treated as dilutive when, and only when, their conversion to
ordinary shares would decrease earnings per share.
Rights to matching shares are considered dilutive when the actual
fulfillment of any performance conditions as of the reporting date would
give a right to ordinary shares.
Financial assets
Financial assets are recognized when the Company becomes a party to
the contractual provisions of the instrument. Regular purchases and sales
of financial assets are recognized on the settlement date.
Financial assets are derecognized when the rights to receive cash flows
from the investments have expired or have been transferred and the Com-
pany has transferred substantially all risks and rewards of ownership.
Separate assets or liabilities are recognized if any rights and obligations
are created or retained in the transfer.
The Company classifies its financial assets in the following categories:
at fair value through profit or loss, loans and receivables, and available-
for-sale. The classification depends on the purpose for which the financial
assets were acquired. Management determines the classification of its
financial assets at initial recognition.
Financial assets are initially recognized at fair value plus transaction
costs for all financial assets not carried at fair value through profit or loss.
Financial assets carried at fair value through profit or loss are initially rec-
ognized at fair value, and transaction costs are expensed in the income
statement.
The fair values of quoted financial investments and derivatives are based
on quoted market prices or rates. If official rates or market prices are not
available, fair values are calculated by discounting the expected future
cash flows at prevailing interest rates. Valuations of foreign exchange
options and Interest Rate Guarantees (IRG) are made by using the Black-
Scholes formula. Inputs to the valuations are market prices for implied
volatility, foreign exchange and interest rates.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss either are designated as
such at initial recognition or are financial assets held for trading. A financial
asset is classified as held for trading if it is acquired principally for the pur-
pose of selling in the near term.
Derivatives are classified as held for trading, unless they are designated
as hedging instruments for the purpose of hedge accounting. Assets held
for trading are classified as current assets.
Gains or losses arising from changes in the fair values of the “Financial
assets at fair value through profit or loss” category (excluding derivatives)
are presented in the income statement within Financial income in the
period in which they arise. Derivatives are presented in the income state-
ment either as Cost of sales, Other operating income, Financial income or
Financial expense, depending on the intent with the transaction.
Loans and receivables
Receivables, including those that relate to customer financing, are sub-
sequently measured at amortized cost using the effective interest rate
method, less allowances for impairment charges. Trade receivables
include amounts due from customers. The balance represents amounts
billed to customers as well as amounts where risk and rewards have been
transferred to the customer but the invoice has not yet been issued.
Collectability of the receivables is assessed for purposes of initial
revenue recognition.
Available-for-sale financial assets
Investments in liquid bonds with low credit risk which are not held for trad-
ing are classified as available-for-sale. If the maturity is longer than one
year the bonds are included in Interest-bearing securities, non-current.
Bonds held as available-for-sale with a maturity shorter than one year are
included in Interest-bearing securities, current. Unrealized gains and
losses are recognized in OCI. When these securities are derecognized,
the accumulated fair value adjustments will be included in financial
income. Under Introduction above the change as from 2016 is described.
Dividends on available-for-sale equity instruments are recognized in the
income statement as part of financial income when the Company’s right
to receive payments is established.
Changes in the fair value of monetary securities denominated in a for-
eign currency and classified as available-for-sale are analyzed between
translation differences resulting from changes in the amortized cost of the
security and other changes in the carrying amount of the security. Trans-
lation differences on monetary securities are recognized in profit or loss;
translation differences on non-monetary securities are recognized in OCI.
Changes in the fair value of monetary and non-monetary securities classi-
fied as available-for-sale are recognized in OCI. When securities classified
as available-for-sale are sold or impaired, the accumulated fair value adjust-
ments previously recognized in OCI are included in the income statement.
Impairment
At each balance sheet date, the Company assesses whether there is
objective evidence that a financial asset or a group of financial assets is
impaired. In the case of equity securities classified as available-for-sale,
a significant or prolonged decline in the fair value of the security below its
cost is considered as evidence that the security is impaired. If any such
evidence exists for available-for-sale financial assets, the cumulative loss
– measured as the difference between the acquisition cost and the cur-
rent fair value, less any impairment loss on that financial asset previously
recognized in profit or loss – is removed from OCI and recognized in the
income statement. Impairment losses recognized in the income statement
on equity instruments are not reversed through the income statement.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
63
FINANCIALS – Notes to the consolidated financial statements
An assessment of impairment of receivables is performed when there
is objective evidence that the Company will not be able to collect all
amounts due according to the original terms of the receivable. Significant
financial difficulties of the debtor, probability that the debtor will enter
bankruptcy or financial reorganization, and default or delinquency in pay-
ments are considered indicators that the trade receivable is impaired. The
amount of the allowance is the difference between the asset’s carrying
amount and the present value of estimated future cash flows, discounted
at the original effective interest rate. The carrying amount of the asset is
reduced through the use of an allowance account, and the amount of the
loss is recognized in the income statement within selling expenses. When
a trade receivable is finally established as uncollectible, it is written off
against the allowance account for trade receivables. Subsequent recov-
eries of amounts previously written off are credited to selling expenses in
the income statement.
Financial liabilities
Financial liabilities are recognized when the Company becomes bound to
the contractual obligations of the instrument.
Financial liabilities are derecognized when they are extinguished, i.e.,
when the obligation specified in the contract is discharged, cancelled or
expires.
Borrowings
Borrowings are initially recognized at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortized cost; any
difference between the proceeds (net of transaction costs) and the
redemption value is recognized in the income statement over the period
of the borrowings using the effective interest method.
Borrowings are classified as current liabilities unless the Company has
an unconditional right to defer settlement of the liability for at least 12
months after the balance sheet date.
Trade payables
Trade payables are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method.
Fair value hedging and fair value hedge accounting
The purpose of fair value hedges is to hedge the variability in the fair value
of fixed-rate debt (issued bonds) from changes in the relevant benchmark
yield curve for its entire term by converting fixed interest payments to a
floating rate (e.g., STIBOR or LIBOR) by using interest rate swaps (IRS).
The credit risk/spread is not hedged. The fixed leg of the IRS is matched
against the cash flows of the hedged bond. Hereby, the fixed-rate bond/
debt is converted into a floating-rate debt in accordance with the policy.
Changes in the fair value of derivatives that are designated and qualify
as fair value hedges are recorded in the income statement, together with
any changes in the fair value of the hedged asset or liability that are attrib-
utable to the hedged risk, when hedge accounting is applied. The Com-
pany only applies fair value hedge accounting for hedging fixed interest
risk on borrowings. Both gains and losses relating to the interest rate
swaps hedging fixed rate borrowings and the changes in the fair value of
the hedged fixed rate borrowings attributable to interest rate risk are rec-
ognized in the income statement within Financial expenses. If the hedge
no longer meets the criteria for hedge accounting, the adjustment to the
carrying amount of a hedged item for which the effective interest method
is used is amortized to the income statement over the remaining period
to maturity.
When applying fair value hedge accounting, derivatives are initially recog-
nized at fair value at trade date and subsequently re-measured at fair value.
financial instruments.” Movements in the hedging reserve in OCI are
shown in Note C16, “Equity and other comprehensive income.”
The fair value of a hedging derivative is classified as a non-current asset
or liability when the remaining maturity of the hedged item is more than 12
months, and as a current asset or liability when the remaining maturity of
the hedged item is less than 12 months. Trading derivatives are classified
as current assets or liabilities.
Financial guarantees
Financial guarantee contracts are initially recognized at fair value (i.e.,
usually the fee received). Subsequently, these contracts are measured at
the higher of:
> The amount determined as the best estimate of the net expenditure
required to settle the obligation according to the guarantee contract.
> The recognized contractual fee less cumulative amortization when
amortized over the guarantee period, using the straight-line-method.
> The best estimate of the net expenditure comprising future fees and
cash flows from subrogation rights.
Inventories
Inventories are measured at the lower of cost or net realizable value on a
first-in, first-out (FIFO) basis.
Risks of obsolescence have been measured by estimating market value
based on future customer demand and changes in technology and cus-
tomer acceptance of new products.
A significant part of Inventories is Contract work in progress (CWIP).
Recognition and derecognition of CWIP relates to the Company’s revenue
recognition principles meaning that costs incurred under a customer con-
tract are recognized as CWIP. When revenue is recognized, CWIP is
derecognized and is instead recognized as Cost of sales.
In Note C2, “Critical accounting estimates and judgments,” further dis-
closure is presented in relation to (i) key sources of estimation uncertainty
and (ii) the decision made in relation to accounting policies applied.
Intangible assets
Intangible assets other than goodwill
Intangible assets other than goodwill comprise intangible assets acquired
through business combinations, such as patents, customer relations,
trademarks and software, as well as capitalized development expenses
and separately acquired intangible assets, mainly consisting of software.
At initial recognition, acquired intangible assets related to business com-
binations are stated at fair value and capitalized development expenses
and software are stated at cost. Subsequent to initial recognition, these
intangible assets are stated at initially recognized amounts less accumu-
lated amortization and any impairment. Amortization and any impairment
losses are included in Research and development expenses, which
mainly consists of capitalized development expenses and technology; in
Selling and administrative expenses, which mainly consists of expenses
relating to customer relations and brands; and in Cost of sales.
Costs incurred for development of products to be sold, leased, or oth-
erwise marketed or intended for internal use are capitalized as from when
technological and economic feasibility has been established until the
product is available for sale or use. Research and development expenses
directly related to orders from customers are accounted for as a part of
Cost of sales. Other research and development expenses are charged to
income as incurred. Amortization of acquired intangible assets, such as
patents, customer relations, trademarks, and software, is made accord-
ing to the straight-line method over their estimated useful lives, not
exceeding ten years.
The Company has not recognized any intangible assets with indefinite
At the inception of the hedge, the Company documents the relationship
useful life other than goodwill.
between hedging instruments and hedged items, as well as its risk man-
agement objectives and strategy for undertaking various hedging trans-
actions. The Company also documents its assessment, both at hedge
inception and on an ongoing basis, of whether the derivatives that are
used in hedging transactions are highly effective in offsetting changes in
fair values or cash flows of the hedged items.
The fair values of various derivative instruments used for hedging
purposes are disclosed in Note C20, “Financial risk management and
Impairment tests are performed whenever there is an indication of
possible impairment. However, intangible assets not yet available for use
are tested annually. An impairment loss is recognized if the carrying
amount of an asset or its cash-generating unit exceeds its recoverable
amount. The recoverable amount is the higher of the value in use and the
fair value less costs to sell. In assessing value in use, the estimated future
cash flows after tax are discounted to their present value using an after-
tax discount rate that reflects current market assessments of the time
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Ericsson | Annual Report 2016
value of money and the risks specific to the asset. Application of after tax
amounts in calculation, both in relation to cash flows and discount rate is
applied due to that available models for calculating discount rate include a
tax component. The after tax discount rate applied by the Company is not
materially different from a discounting based on before-tax future cash
flows and before-tax discount rates, as required by IFRS.
Corporate assets have been allocated to cash-generating units in rela-
tion to each unit’s proportion of total net sales. The amount related to cor-
porate assets is not significant. Impairment losses recognized in prior
periods are assessed at each reporting date for any indications that the
loss has decreased or no longer exists. An impairment loss is reversed if
there has been a change in the estimates used to determine the recover-
able amounts and if the recoverable amount is higher than the carrying
value. An impairment loss is reversed only to the extent that the asset’s
carrying amount after reversal does not exceed the carrying amount, net
of amortization, which would have been reported if no impairment loss
had been recognized.
In Note C2, “Critical accounting estimates and judgments,” further dis-
closure is presented in relation to (i) key sources of estimation uncertainty
and (ii) the decision made in relation to accounting policies applied.
Goodwill
As from the acquisition date, goodwill acquired in a business combination
is allocated to each cash-generating unit (CGU) of the Company expected
to benefit from the synergies of the combination. The Company’s three
operating segments have been identified as CGUs.
An annual impairment test for the CGUs to which goodwill has been
allocated is performed in the fourth quarter, or when there is an indication
of impairment. Impairment testing as well as recognition of impairment of
goodwill is performed in the same manner as for intangible assets other
than goodwill: see description under “Intangible assets other than good-
will” above. An impairment loss in respect of goodwill is not reversed.
Additional disclosure is required in relation to goodwill impairment
testing: see Note C2, “Critical accounting estimates and judgments”
below and Note C10, “Intangible assets.”
Property, plant, and equipment
Property, plant, and equipment consist of real estate, machinery, servers
and other technical assets, other equipment, tools and installation and
construction in process and advance payment. They are stated at cost
less accumulated depreciation and any impairment losses.
Depreciation is charged to income, on a straight-line basis, over the
estimated useful life of each component of an item of property, plant, and
equipment, including buildings. Estimated useful lives are, in general,
25–50 years for real estate and 3–10 years for machinery and equipment.
Depreciation and any impairment charges are included in Cost of sales,
Research and development or Selling and administrative expenses.
The Company recognizes in the carrying amount of an item of property,
plant, and equipment the cost of replacing a component and derecog-
nizes the residual value of the replaced component.
Impairment testing as well as recognition or reversal of impairment of
property, plant and equipment is performed in the same manner as for
intangible assets other than goodwill: see description under “Intangible
assets other than goodwill” above.
Gains and losses on disposals are determined by comparing the pro-
ceeds less cost to sell with the carrying amount and are recognized within
Other operating income and expenses in the income statement.
Leasing
Leasing when the Company is the lessee
Leases on terms in which the Company assumes substantially all the risks
and rewards of ownership are classified as finance leases. Upon initial
recognition, the leased asset is measured at an amount equal to the lower
of its fair value and the present value of the minimum lease payments.
Subsequent to initial recognition, the asset is accounted for in accor-
dance with the accounting policy applicable to that type of asset,
although the depreciation period must not exceed the lease term.
Other leases are operating leases, and the leased assets under such
contracts are not recognized on the balance sheet. Costs under operating
leases are recognized in the income statement on a straight-line basis
over the term of the lease. Lease incentives received are recognized as an
integral part of the total lease expense, over the term of the lease.
Leasing when the Company is the lessor
Leasing contracts with the Company as lessor are classified as finance
leases when the majority of risks and rewards are transferred to the
lessee, and otherwise as operating leases. Under a finance lease, a
receivable is recognized at an amount equal to the net investment in
the lease and revenue is recognized in accordance with the revenue
recognition principles.
Under operating leases the equipment is recorded as property, plant
and equipment and revenue as well as depreciation is recognized on a
straight-line basis over the lease term.
Income taxes
Income taxes in the consolidated financial statements include both
current and deferred taxes. Income taxes are reported in the income
statement unless the underlying item is reported directly in equity or OCI.
For those items, the related income tax is also reported directly in equity
or OCI. A current tax liability or asset is recognized for the estimated taxes
payable or refundable for the current year or prior years.
Deferred tax is recognized for temporary differences between the book
values of assets and liabilities and their tax values and for tax loss carry-
forwards. A deferred tax asset is recognized only to the extent that it is
probable that future taxable profits will be available against which the
deductible temporary differences and tax loss carry-forwards can be uti-
lized. In the recognition of income taxes, the Company offsets current tax
receivables against current tax liabilities and deferred tax assets against
deferred tax liabilities in the balance sheet, when the Company has a legal
right to offset these items and the intention to do so. Deferred tax is not
recognized for the following temporary differences: goodwill not deduct-
ible for tax purposes, for the initial recognition of assets or liabilities that
affect neither accounting nor taxable profit, and for differences related to
investments in subsidiaries when it is probable that the temporary differ-
ence will not reverse in the foreseeable future.
Deferred tax is measured at the tax rate that is expected to be applied
to the temporary differences when they reverse, based on the tax laws
that have been enacted or substantively enacted by the reporting date.
An adjustment of deferred tax asset/liability balances due to a change in
the tax rate is recognized in the income statement, unless it relates to a
temporary difference earlier recognized directly in equity or OCI, in which
case the adjustment is also recognized in equity or OCI.
The measurement of deferred tax assets involves judgment regarding
the deductibility of costs not yet subject to taxation and estimates regard-
ing sufficient future taxable income to enable utilization of unused tax
losses in different tax jurisdictions. All deferred tax assets are subject to
annual review of probable utilization.
In Note C2, “Critical accounting estimates and judgments,” further dis-
closure is presented in relation to (i) key sources of estimation uncertainty
and (ii) the decision made in relation to accounting policies applied.
Provisions and contingent liabilities
Provisions are made when there are legal or constructive obligations as a
result of past events and when it is probable that an outflow of resources
will be required to settle the obligations and the amounts can be reliably
estimated. When the effect of the time value of money is material, dis-
counting is made of estimated outflows. However, the actual outflows as
a result of the obligations may differ from such estimates.
The provisions are mainly related to warranty commitments, restructur-
ing, customer projects and other obligations, such as unresolved income
tax and value added tax issues, claims or obligations as a result of patent
infringement and other litigations, supplier claims and customer finance
guarantees.
Product warranty commitments consider probabilities of all material
quality issues based on historical performance for established products
and expected performance for new products, estimates of repair cost per
unit, and volumes sold still under warranty up to the reporting date.
A restructuring obligation is considered to have arisen when the Com-
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
65
FINANCIALS – Notes to the consolidated financial statements
pany has a detailed formal plan for the restructuring (approved by man-
agement), which has been communicated in such a way that a valid
expectation has been raised among those affected. Provision for restruc-
turing is recorded when the Company can reliably estimate the liabilities
relating to the obligation. Project related provisions include estimated
losses on onerous contracts, contractual penalties and undertakings.
For losses on customer contracts, a provision equal to the total estimated
loss is recorded when a loss from a contract is anticipated and possible
to estimate reliably. These contract loss estimates include any probable
penalties to a customer under a loss contract.
Other provisions include provisions for unresolved tax issues, litigations,
supplier claims, customer finance and other provisions. The Company
provides for estimated future settlements related to patent infringements
based on the probable outcome of each infringement. The actual out-
come or actual cost of settling an individual infringement may vary from
the Company’s estimate.
The Company estimates the outcome of any potential patent infringe-
ment made known to the Company through assertion and through the
Company’s own monitoring of patent-related cases in the relevant legal
systems. To the extent that the Company makes the judgment that an
identified potential infringement will more likely than not result in an
outflow of resources, the Company records a provision based on the
Company’s best estimate of the expenditure required to settle with the
counterpart.
In the ordinary course of business, the Company is subject to proceed-
ings, lawsuits and other unresolved claims, including proceedings under
laws and government regulations and other matters. These matters are
often resolved over a long period of time. The Company regularly assesses
the likelihood of any adverse judgments in or outcomes of these matters,
as well as potential ranges of possible losses. Provisions are recognized
when it is probable that an obligation has arisen and the amount can be
reasonably estimated based on a detailed analysis of each individual issue.
Certain present obligations are not recognized as provisions as it is not
probable that an economic outflow will be required to settle the obligation
or the amount of the obligation cannot be measured with sufficient reli-
ability. Such obligations are reported as contingent liabilities. For further
detailed information, see Note C24, “Contingent liabilities.” In Note C2,
“Critical accounting estimates and judgments,” further disclosure is pre-
sented in relation to (i) key sources of estimation uncertainty and (ii) the
decision made in relation to accounting policies applied.
Post-employment benefits
Pensions and other post-employment benefits are classified as either
defined contribution plans or defined benefit plans. Under a defined con-
tribution plan, the Company’s only obligation is to pay a fixed amount to
a separate entity (a pension trust fund) with no obligation to pay further
contributions if the fund does not hold sufficient assets to pay all employee
benefits. The related actuarial and investment risks fall on the employee.
The expenditures for defined contribution plans are recognized as
expenses during the period when the employee provides service.
Under a defined benefit plan, it is the Company’s obligation to provide
agreed benefits to current and former employees. The related actuarial
and investment risks fall on the Company.
The present value of the defined benefit obligations for current and for-
mer employees is calculated using the Projected Unit Credit Method. The
discount rate for each country is determined by reference to market yields
on high-quality corporate bonds that have maturity dates approximating
the terms of the Company’s obligations. In countries where there is no
deep market in such bonds, the market yields on government bonds are
used. The calculations are based upon actuarial assumptions, assessed
on a quarterly basis, and are as a minimum prepared annually. Actuarial
assumptions are the Company’s best estimate of the variables that deter-
mine the cost of providing the benefits. When using actuarial assump-
tions, it is possible that the actual results will differ from the estimated
results or that the actuarial assumptions will change from one period to
another. These differences are reported as actuarial gains and losses.
They are, for example, caused by unexpectedly high or low rates of
employee turnover, changed life expectancy, salary changes, remeasure-
ment of plan assets and changes in the discount rate. Actuarial gains and
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Ericsson | Annual Report 2016
losses are recognized in OCI in the period in which they occur. The Com-
pany’s net liability for each defined benefit plan consists of the present
value of pension commitments less the fair value of plan assets and is
recognized net on the balance sheet. When the result is a net benefit to
the Company, the recognized asset is limited to the present value of any
future refunds from the plan or reductions in future contributions to the plan.
Interest cost on the defined benefit obligation and interest income on
plan assets is calculated as a net interest amount by applying the discount
rate to the net defined benefit liability. All past service costs are recognized
immediately. Swedish special payroll tax is accounted for as a part of the
pension cost and the pension liability respectively.
Payroll taxes related to actuarial gains and losses are included in deter-
mining actuarial gains and losses, reported under OCI.
In Note C2, “Critical accounting estimates and judgments,” further dis-
closure is presented in relation to key sources of estimation uncertainty.
Share-based compensation to employees
and the Board of Directors
Share-based compensation is related to remuneration to all employees,
including key management personnel and the Board of Directors.
Under IFRS, a company shall recognize compensation costs for share-
based compensation programs based on a measure of the value to the
company of services received under the plans.
This value is based on the fair value of, for example, free shares at grant
date, measured as stock price as per each investment date. The value at
grant date is charged to the income statement as any other remuneration
over the service period. For example, value at grant date is 90. Given the
normal service period of three years within Ericsson, 30 would be charged
per year during the service period.
The amount charged to the income statement is reversed in equity
each time of the income statement charge.
The reason for this IFRS accounting principle is that compensation cost
is a cost with no direct cash flow impact. The purpose of share-based
accounting according to IFRS (IFRS 2) is to present the impact of share-
based programs, being part of the total remuneration, in the income
statement.
Compensation to employees Stock purchase plans
For stock purchase plans, compensation costs are recognized during
the vesting period, based on the fair value of the Ericsson share at the
employee’s investment date. The fair value is based upon the share price
at investment date, adjusted for the fact that no dividends will be received
on matching shares prior to matching and other features that are non-
vesting conditions. The employee pays a price equal to the share price at
investment date for the investment shares. The investment date is consid-
ered as the grant date. In the balance sheet, the corresponding amounts
are accounted for as equity. Vesting conditions are non-market-based
and affect the number of shares that Ericsson will match. Other features
of a share-based payment are non-vesting conditions. These features
would need to be included in the grant date fair value for transactions with
employees and others providing similar services. Non-vesting conditions
would not impact the number of awards expected to vest or valuation
thereof subsequent to grant date. When calculating the compensation
costs for shares under performance-based matching programs, the
Company at each reporting date assesses the probability that the perfor-
mance targets will be met. Compensation expenses are based on esti-
mates of the number of shares that will match at the end of the vesting
period. When shares are matched, social security charges are to be paid
in certain countries on the value of the employee benefit. The employee
benefit is generally based on the market value of the shares at the match-
ing date. During the vesting period, estimated amounts for such social
security charges are expensed and accrued.
Compensation to the Board of Directors
During 2008, the Parent Company introduced a share-based compensa-
tion program as a part of the remuneration to the Board of Directors. The
program gives non-employee Directors elected by the General Meeting of
Shareholders a right to receive part of their remuneration as a future pay-
ment of an amount which corresponds to the market value of a share of
class B in the Parent Company at the time of payment, as further dis-
closed in Note C28, “Information regarding members of the Board of
Directors, the Group management and employees.” The cost for cash
settlements is measured and recognized based on the estimated costs
for the program on a pro rata basis during the service period, being one
year. The estimated costs are remeasured during and at the end of the
service period.
Segment reporting
An operating segment is a component of a company whose operating
results are regularly reviewed by the Company’s chief operating decision
maker, (CODM), to make decisions about resources to be allocated to the
segment and assess its performance. The President and the Chief Execu-
tive Officer is defined as the CODM function in the Company.
The segment presentation, as per each segment, is based on the
Company’s accounting policies as disclosed in this note. The arm’s
length principle is applied in transactions between the segments.
The Company’s segment disclosure about geographical areas is based
on the country in which transfer of risks and rewards occur.
New standards and interpretations not yet adopted
A number of issued new standards, amendments to standards and inter-
pretations are not yet effective for the year ended December 31, 2016 and
have not been applied in preparing these consolidated financial state-
ments.
Below is a list of applicable standards/interpretations that have been
issued and are effective for periods as described per standard.
IFRS 9, “Financial instruments.” The complete version of IFRS 9
replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the-
mixed measurement model and establishes three primary measurement-
categories for financial assets: amortized cost, fair value through OCI and
fair value through profit or loss. The basis of classification depends on the
entity’s business model and the contractual cash flow characteristics of
the financial asset. Investments in equity instruments are required to be
measured at fair value through profit or loss with the irrevocable option
at inception to present changes in fair value in OCI. There is now a new
expected credit losses model that replaces the incurred loss impairment
model used in IAS 39. IFRS 9 also amends the principles for hedge
accounting. This standard is effective as from January 1, 2018. The Com-
pany has not yet finalized the evaluation of any impact on financial result
or position.
for that right. The accounting for lessors will be based on the same classi-
fication as under IAS 17, operating or finance leasing. The definition of a
lease is amended. The standard is effective for annual periods beginning
on or after January 1, 2019. Early adoption is permitted. EU has not yet
adopted the standard. The Company will apply the new standard as from
January 1, 2019. The initial assessment indicates that the main impact on
the balance sheet is expected, where the Company is the lessee, primarily
in contracts for real estate and vehicles.
C2 Critical accounting estimates and judgments
The preparation of financial statements and application of accounting
standards often involve management’s judgment and the use of estimates
and assumptions deemed to be reasonable at the time they are made.
However, other results may be derived with different judgments or using
different assumptions or estimates, and events may occur that could
require a material adjustment to the carrying amount of the asset or liabil-
ity affected. Following are the most important accounting policies subject
to such judgments and the key sources of estimation uncertainty that the
Company believes could have the most significant impact on the reported
results and financial position.
The information in this note is grouped as per:
> Key sources of estimation uncertainty
> Judgments management has made in the process of applying the
Company’s accounting policies.
Revenue recognition
Key sources of estimation uncertainty
Examples of estimates of total contract revenue and cost that are nec-
essary are the assessing of customer possibility to reach conditional
purchase volumes triggering contractual discounts to be given to the
customer, the impact on the Company revenue in relation to performance
criteria and whether any loss provisions shall be made. As disclosed in
note C3 “Segment information” there is no customer for which revenues
exceeds 10% of the Company’s total revenue. It is, however, also dis-
closed that most of the sales are derived from large, multi-year agree-
ments with a limited number of significant customers.
For further discussion on revenue recognition, see Note C1, “Significant
IFRS 15, “Revenue from Contracts with Customers,” establishes a new
accounting policies” and Note C4, “Net sales.”
principle based model of recognizing revenue from customer contracts.
This is a five-step model that requires revenue to be recognized as control
over goods and services are transferred to the customer. IFRS 15 will be
effective for implementation on January 1, 2018. The Company has
evaluated the resulting changes to accounting principles and internal
processes due to the new revenue recognition model and is currently
implementing the changes in line with the implementation date January 1,
2018. The Company is currently assessing the impact of the implementa-
tion of the standard at transition date, including impact on the compara-
tive numbers for prior reporting periods. This exercise is yet to be com-
pleted, therefore it is not practicably possible to disclose reliable esti-
mates of the impact on financial statements at the transition date. The
standard provides a choice of two transition methods, full retrospective or
cumulative effect method. The full retrospective method requires restate-
ment of prior year comparatives and adjustment to equity to the earliest
presented comparative period, i.e. January 1, 2016, whereas with the
cumulative effect method, the impact is adjusted to equity at the transition
date of January 1, 2018. The Company has not decided on the transition
method to be adopted at January 1, 2018 but will consider factors such as
materiality of the impact on prior reporting periods (when reliably estimated),
practicalities and costs of data gathering, in arriving at the decision.
IFRS 16 “Leases”. In January 2016, IASB issued a new lease standard
that will replace IAS 17 Leases and the related interpretations IFRIC 4,
SIC-15 and SIC-27. The standard requires assets and liabilities arising
from all leases, with some exceptions, to be recognized on the balance
sheet. This model reflects that, at the start of a lease, the lessee obtains
the right to use an asset for a period of time and has an obligation to pay
Judgments made in relation to accounting policies applied
Parts of the Company’s sales are generated from large and complex cus-
tomer contracts. Managerial judgment is applied regarding, among other
aspects, conformance with acceptance criteria and if transfer of risks and
rewards to the buyer have taken place to determine if revenue and costs
should be recognized in the current period, degree of completion and the
customer credit standing to assess whether payment is likely or not to
justify revenue recognition.
Trade and customer finance receivables
Key sources of estimation uncertainty
The Company monitors the financial stability of its customers and the
environment in which they operate to make estimates regarding the
likelihood that the individual receivables will be paid. Total allowances for
estimated losses as of December 31, 2016, were SEK 1.7 (1.5) billion or
2.2% (2.0%) of gross trade and customer finance receivables. For further
detailed information, see Note C14, “Trade receivables and customer
finance.”
Credit risks for outstanding customer finance credits are regularly
assessed as well, and allowances are recorded for estimated losses.
Inventory valuation
Key sources of estimation uncertainty
Inventories are valued at the lower of cost and net realizable value. Esti-
mates are required in relation to forecasted sales volumes and inventory
balances. In situations where excess inventory balances are identified,
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
67
Provisions
Key sources of estimation uncertainty
Provisions mainly comprise amounts related to restructuring, warranty,
contractual obligations and penalties to customers and estimated losses
on customer contracts, risks associated with patent and other litigations,
supplier or subcontractor claims and/or disputes, as well as provisions for
unresolved income tax and value added tax issues. In relation to restruc-
turing, the Company is executing a cost and efficiency program that was
first initiated in the last quarter of 2014 and then expanded in the second
quarter of 2016. The estimates related to the amounts of provisions for
restructuring, penalties, claims or losses receive special attention from the
management. At December 31, 2016, provisions amounted to SEK 6.4
(3.8) billion. For further detailed information, see Note C18, “Provisions.”
Judgments made in relation to accounting policies applied
Whether a present obligation is probable or not requires judgment. The
nature and type of risks for these provisions differ and management’s
judgment is applied regarding the nature and extent of obligations in
deciding if an outflow of resources is probable or not.
Contingent liabilities
Key sources of estimation uncertainty
As disclosed under ‘Provisions’ there are uncertainties in the estimated
amounts. The same type of uncertainty exists for contingent liabilities.
Judgments made in relation to accounting policies applied
As disclosed under Note C1, “Significant accounting policies” a potential
obligation that is not likely to result in an economic outflow is classified as
a contingent liability, with no impact on the Company’s financial state-
ments. However, should an obligation in a later period be deemed to be
probable, then a provision shall be recognized, impacting the financial
statements.
Pension and other post-employment benefits
Key sources of estimation uncertainty
Accounting for the costs of defined benefit pension plans and other appli-
cable post-employment benefits is based on actuarial valuations, relying
on key estimates for discount rates, future salary increases, employee
turnover rates and mortality tables. The discount rate assumptions are
based on rates for high-quality fixed-income investments with durations
as close as possible to the Company’s pension plans. In countries where
there is not a deep market in high-quality corporate bonds, the market
yields on government bonds shall be applied. As of 2015, due to the
market situation in Sweden, the Company has applied yields on Swedish
government bonds for the calculation of the defined benefit obligation in
Sweden. The discount rate applied in Sweden was 1.8% (2.1%). At
December 31, 2016, defined benefit obligations for pensions and other
post-employment benefits amounted to SEK 87.2 (78.1) billion and fair
value of plan assets to SEK 64.5 (58.2) billion. For more information on
estimates and assumptions, see Note C17, “Post-employment benefits.”
Foreign exchange risks
Key sources of estimation uncertainty
Foreign exchange risk impacts the financial results of the Company: see
further disclosure in Note C20, “Financial risk management and financial
instruments,” under Foreign exchange risk.
FINANCIALS – Notes to the consolidated financial statements
estimates of net realizable values for the excess volumes are made. Inven-
tory allowances for estimated losses as of December 31, 2016, amounted
to SEK 2.4 (2.6) billion or 7% (8%) of gross inventory. For further detailed
information, see Note C13, “Inventories.”
Deferred taxes
Key sources of estimation uncertainty
Deferred tax assets and liabilities are recognized for temporary differ-
ences and for tax loss carry-forwards. Deferred tax is recognized net of
valuation allowances. The valuation of temporary differences and tax loss
carry-forwards, is based on management’s estimates of future taxable
profits in different tax jurisdictions against which the temporary differ-
ences and loss carry-forwards may be utilized.
The largest amounts of tax loss carry-forwards are reported in Sweden,
with an indefinite period of utilization (i.e. with no expiry date). For further
detailed information, please refer to Note C8, “Taxes.”
At December 31, 2016, the value of deferred tax assets amounted to
SEK 15.5 (13.2) billion. The deferred tax assets related to loss carry-for-
wards are reported as non-current assets.
Accounting for income tax, value added tax, and other taxes
Key sources of estimation uncertainty
Accounting for these items is based upon evaluation of income, value
added and other tax rules in all jurisdictions where the Company performs
activities. The total complexity of rules related to taxes and the accounting
for these require management’s involvement in judgments regarding
classification of transactions and in estimates of probable outcomes of
claimed deductions and/or disputes.
Acquired intellectual property rights and other intangible assets,
including goodwill
Key sources of estimation uncertainty
At initial recognition, future cash flows are estimated, to ensure that the
initial carrying values do not exceed the expected discounted cash flows
for the items of this type of assets. After initial recognition, impairment
testing is performed whenever there is an indication of impairment, except
in the case of goodwill for which impairment testing is performed at least
once per year. Negative deviations in actual cash flows compared to esti-
mated cash flows as well as new estimates that indicate lower future cash
flows might result in recognition of impairment charges.
For further discussion on goodwill, see Note C1, “Significant account-
ing policies” and Note C10, “Intangible assets.” Estimates related to
acquired intangible assets are based on similar assumptions and risks as
for goodwill. In Note C10 “Intangible assets,” it is disclosed that for the
Media segment the headroom is SEK 5.6 billion when a discount of 8.0%
is applied. The recoverable amount is equal to its carrying amount when
the discount factor is increased to 10.0%. For more information, see Note
C10, “Intangible assets.”
At December 31, 2016, the amount of acquired intellectual property
rights and other intangible assets amounted to SEK 51.1 (50.4) billion,
including goodwill of SEK 43.4 (41.1) billion.
Judgments made in relation to accounting policies applied
At initial recognition and subsequent remeasurement, management judg-
ments are made, both for key assumptions and regarding impairment
indicators. In the purchase price allocation made for each acquisition, the
purchase price shall be assigned to the identifiable assets, liabilities and
contingent liabilities based on fair values for these assets. Any remaining
excess value is reported as goodwill.
This allocation requires management judgment as well as the definition
of cash-generating units for impairment testing purposes. Other judg-
ments might result in significantly different results and financial position
in the future.
68
Ericsson | Annual Report 2016
C3 Segment information
Operating segments
When determining Ericsson’s operating segments, consideration has
been given to which markets and what type of customers the products
and services aim to attract, as well as the distribution channels they are
sold through. Commonality regarding technology, research and develop-
ment has also been taken into account. To best reflect the business focus
and to facilitate comparability with peers, three operating segments are
reported:
> Networks
> Global Services
> Support Solutions
> (Modems, closed during second half of 2015)
Networks delivers products and solutions for mobile access, IP and
transmission networks, core networks and cloud. The offering includes:
> Radio access solutions that interconnect with devices such as mobile
phones, tablets and PCs.
> IP routing and transport solutions including routers, Ericsson’s evolved
IP network as well as backhaul including microwave (MINI-LINK) and
optical transmission solutions for mobile and fixed networks
> Core networks are based on the Ericsson Blade Server platform and
include solutions such as the IMS
> A cloud platform that can handle all types of workloads for all clouds;
telecom cloud, IT cloud and commercial cloud.
Global Services delivers managed services, product-related services,
consulting and systems integration services as well as broadcast and
media services. The offering includes:
> Managed Services: Services for designing, building, operating and
managing the day-to-day operations of the customer’s network or solu-
tion; maintenance; network sharing solutions; plus shared solutions
such as hosting of platforms and applications. Ericsson also offers
managed services of IT environments.
Unallocated
Some revenues, costs, assets and liabilities are not identified as part of
any operating segment and are therefore not allocated. Examples of such
items are costs for corporate staff, IT costs and general marketing costs.
Regions
The Regions are the Company’s primary sales channel. The Company
operates worldwide and reports its operations divided into ten geographi-
cal regions and one region Other:
> North America
> Latin America
> Northern Europe & Central Asia
> Western and Central Europe
> Mediterranean
> Middle East
> Sub-Saharan Africa
> India
> North East Asia
> South East Asia & Oceania
> Other.
Region “Other” includes licensing revenues, broadcast services, power
modules, mobile broadband modules, Ericsson-LG Enterprise and other
businesses.
Major customers
The Company does not have any customer for which revenues from
transactions have exceeded 10% of the Company’s total revenues for the
years 2016, 2015 or 2014.
Ericsson derives most of its sales from large, multi-year agreements
with a limited number of significant customers. Out of a customer base of
more than 500, mainly consisting of network operators, the 10 largest
customers accounted for 46% (46%) of net sales. The largest customer
accounted for approximately 7% (7%) of sales in 2016.
For more information, see Risk Factors, “Market, Technology and
> Product-related services: Services to expand, upgrade, restructure or
Business Risks.”
migrate networks; network-rollout services; customer support; network
design and optimization services.
> Consulting and Systems Integration: Technology and operational
consulting; integration of multi-vendor equipment; design and integra-
tion of new solutions and transforming programs.
> Broadcast Services: Services include responsibility for technical
platforms and operational services related to TV content management,
playout and service provisioning.
Support Solutions provides software suites for operators. The offering
includes:
> Operations Support Systems: plan, build and optimize, service fulfill-
ment and service assurance.
> Business Support Systems: revenue management (prepaid, post-paid,
convergent charging and billing), mediation and customer care solutions.
> TV & Media solutions: a suite of open, standards-based solutions and
products for the creation, management and delivery of TV on any
device over any network, including a TV platform for content creation,
content management, on-demand video delivery, advanced video
compression and video-optimized delivery network infrastructure.
> M-Commerce solutions for money transfer: payment transactions and
services between mobile subscribers and operators or other service
providers.
Modems performed design, development and sales of the LTE multi-
mode thin modems solutions, including 2G, 3G and 4G interoperability.
Modems was consolidated into Ericsson in late 2013. Since the integra-
tion, the addressable market for thin modems has been reduced. In addi-
tion, there is strong competition, price erosion and an accelerating pace
of technology innovation. As a consequence, Ericsson announced, on
September 18, 2014, the discontinuation of further development of
modems. Modems have had no impact on Group profit and loss from
the second half of 2015.
Marketing channels
Marketing in a business-to-business environment is expanding, from
being primarily conducted through personal meetings, to on-line forums,
expert blogs and social media. Ericsson performs marketing through:
> Customer engagement with a consultative approach
> Selective focus on events and experience centers for customer experi-
ence and interaction
> Continuous dialogue with customers and target audiences through
social and other digital media (including virtual events)
> Activation of the open social and digital media landscape to strengthen
message reach and impact
> Execution of solutions-driven programs, aligned globally
and regionally.
New segment structure from January 1, 2017
From January 1, 2017, segment reporting is based on a new structure,
with three new operating segments:
> Segment Networks. Products and services with a focus on evolving
and managing our customers’ telecom networks. The portfolio of radio
networks and backhaul solutions are based on industry standards and
can also be industrialized and adjusted to meet the demands of other
industry verticals as utilities, transport and public safety. In addition,
Ericsson services capabilities address operator demand in an increas-
ingly complex network environment.
> Segment IT & Cloud. Products and services providing solutions for
our customers’ digital transformation journeys across the Support
Systems, Telecom core and IT Cloud domains through a combination
of products, technology and expertise in networks, software, cloud and
business processes.
> Segment Media. Products and services that enable content owners,
broadcasters, TV service providers and network operators to efficiently
deliver, manage and monetize new TV experiences.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
69
FINANCIALS – Notes to the consolidated financial statements
Operating segments 2016
Segment sales
Net sales
Operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income
Other segment items
Share in earnings of JV and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses from divestments
Operating segments 2015
Segment sales
Net sales
Operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income
Networks
108,338
108,338
4,727
4%
Global
Services
101,722
101,722
3,308
3%
Support
Solutions
Total
Segments
Unallocated
12,548
12,548
–951
–8%
222,608
222,608
7,084
3%
19
–2,320
–3,018
–107
6
–4,040
–15
46
–869
–1,207
–42
2
–2,984
–
3
–1,276
–196
–92
–
–449
–
68
–4,465
–4,421
–241
8
–7,473
–15
Networks
123,720
123,720
12,943
10%
Global
Services
108,018
108,018
8,215
8%
Support
Solutions
Modems1)
Total
Segments
Unallocated
15,049
15,049
1,504
10%
–33
–1,118
–188
–
1
–480
–
133
133
7
–
246,920
246,920
22,669
9%
–
–
–108
–
–
–15
–
–85
–5,474
–4,705
–20
16
–5,015
1
–
–
–864
–
47
–44
–
–
–
–25
–50
–
–
–785
–
–37
–
–
–
–
–94
138
Group
222,608
222,608
6,299
3%
–115
–2,158
4,026
–2,131
1,895
31
–4,465
–4,421
–241
8
–7,567
123
Group
246,920
246,920
21,805
9%
525
–2,458
19,872
–6,199
13,673
–38
–5,518
–4,705
–20
16
–5,040
–49
Other segment items
Share in earnings of JV and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses from divestments
1) Modems was closed during second half of 2015.
–95
–3,327
–3,197
–20
11
–2,839
–
43
–1,029
–1,212
–
4
–1,681
1
70
Ericsson | Annual Report 2016
Operating segments 2014
Segment sales
Net sales
Operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income
Networks
117,487
117,487
13,544
12%
Global
Services
97,659
97,659
6,067
6%
Support
Solutions
12,655
12,655
–31
0%
Modems
182
182
–2,025
–
Other segment items
Share in earnings of JV and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses from divestments
33
–3,497
–3,225
–34
14
–443
–
32
–1,036
–820
–1
4
–835
–
–52
–902
–124
–2
–
–146
–
–
–168
–160
–
1
–32
–
Total
Segments
Unallocated
227,983
227,983
17,555
8%
13
–5,603
–4,329
–37
19
–1,456
–
–
–
–748
–
–69
5
–
–
–
–
–36
Regions
North America 3)
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
North East Asia 4)
South East Asia & Oceania
Other 1) 2) 3) 4)
Total
1) Of which in Sweden 6)
2) Of which in EU 6)
3) Of which in the United States 6)
4) Of which in China 6)
Net sales
Non-current assets 5)
2016
54,747
17,933
9,069
16,210
20,905
19,156
9,177
10,748
27,365
22,180
15,118
222,608
3,123
38,525
56,748
19,156
2015
58,261
21,357
10,649
19,732
23,310
22,849
10,349
13,381
28,237
19,235
19,560
246,920
3,796
45,585
64,299
18,977
2014
54,509
22,570
12,373
19,706
23,003
21,277
8,749
7,702
27,572
15,858
14,664
227,983
4,144
45,101
55,722
14,335
2016
14,650
1,543
53,647
3,499
1,048
50
36
458
1,556
232
–
76,719
53,111
57,759
11,053
530
2015
14,870
1,321
48,910
3,886
1,208
99
40
390
2,005
278
–
73,007
48,467
53,759
12,325
1,547
5) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
6) Including IPR revenue reported under Other above.
For employee information, see Note C28, “Information regarding members of the Board of Directors, the Group management and employees.”
Group
227,983
227,983
16,807
7%
1,277
–2,273
15,811
–4,668
11,143
–56
–5,598
–4,329
–37
19
–1,456
–36
2014
16,148
1,749
43,868
4,227
1,389
100
54
471
2,217
345
–
70,568
43,298
48,881
13,116
1,370
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
71
FINANCIALS – Notes to the consolidated financial statements
C4 Net sales
Net sales
Sales of products and network rollout services
Professional Services sales
License revenues
Net sales
Export sales from Sweden
2016
2015
2014
135,778
76,816
10,014
222,608
107,036
150,775
81,749
14,396
246,920
117,486
147,235
70,831
9,917
227,983
113,734
C5 Expenses by nature
Expenses by nature
Goods and services
Employee remuneration
Amortization and depreciation
Impairments and obsolescence allowances,
net of reversals
Financial expenses
Taxes
Expenses incurred
Inventory increase/decrease (–/+) 1)
Additions to capitalized development
2016
2015
2014
133,848
77,774
8,886
1,325
2,158
2,131
226,122
–606
–4,483
137,458
80,054
10,223
1,438
2,458
6,199
237,830
–394
–3,548
132,185
70,166
9,927
1,138
2,273
4,668
220,357
–2,929
–1,523
Expenses charged to the income statement
221,033
233,888
215,905
1) The inventory changes are based on changes of net inventory values.
C7 Financial income and expenses
Financial income and expenses
Total restructuring charges in 2016 were SEK 7.6 (5.0) billion and were
mainly related to the cost and efficiency program initially announced in
November 2014. Restructuring charges are included in the expenses
presented above.
Restructuring charges by function
Cost of sales
R&D expenses
Selling and administrative expenses
Total restructuring charges
2016
3,475
2,739
1,353
7,567
2015
2,274
2,021
745
5,040
2014
1,029
304
123
1,456
C6 Other operating income and expenses
Other operating income and expenses
Gains on sales of intangible assets and PP&E
Losses on sales of intangible assets and PP&E
Gains on sales of investments and operations 1)
Losses on sales of investments and operations 1)
Capital gains/losses, net
Other operating revenues/expenses 2)
Total other operating income and expenses
2016
423
–509
219
–96
37
367
404
2015
363
–158
1
–50
156
–3
153
2014
843
–935
8
–44
–128
–2,028
–2,156
1) Includes divestments presented in Note C26 “Business combinations.”
2) Includes revaluation of cash flow hedges of SEK –0.9 billion (SEK –1.1 billion in 2015 and
SEK –2.8 billion in 2014) partly offset by result from trading activities.
Contractual interest on financial assets
Of which on financial assets at fair value through profit or loss
Contractual interest on financial liabilities
Net gains/losses on:
Instruments at fair value through profit or loss 1)
Of which included in fair value hedge relationships
Loans and receivables
Liabilities at amortized cost
Other financial income and expenses
Total
2016
2015
2014
Financial
income
Financial
expenses
Financial
income
Financial
expenses
Financial
income
Financial
expenses
32
–316
–
–68
–
–79
–
–
–
–
–1,355
–729
71
–
218
–292
–115
–2,158
385
–110
–
190
–
–53
–
3
525
–
–
–1,428
–760
152
–
213
–483
713
297
–
624
–
–70
–
10
–
–
–1,376
–651
–123
–
–32
–214
–2,458
1,277
–2,273
1) Excluding net loss from operating assets and liabilities, SEK 234 million (net loss of SEK 165 million in 2015 and net loss of SEK 143 million in 2014), reported as Cost of sales.
72
Ericsson | Annual Report 2016
C8 Taxes
The Company’s tax expense for 2016 was SEK –2,131 (–6,199) million
or 52.9% (31.2%) of income after financial items. The tax rate may vary
between years depending on business and geographical mix.
Income taxes recognized in the income statement
Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)
Share of taxes in joint ventures and associated
companies
Tax expense
2016
–3,654
–489
2,017
2015
–6,641
–104
546
2014
–5,714
–66
1,112
–5
–
–
–2,131
–6,199
–4,668
A reconciliation between reported tax expense for the year and the
theoretical tax expense that would arise when applying statutory tax
rate in Sweden, 22.0%, on the consolidated income before taxes, is
shown in the table below.
Reconciliation of Swedish income tax rate with effective tax rate
Expected tax expense at Swedish tax rate
22.0%
Effect of foreign tax rates
Of which joint ventures and associated
companies
Current income taxes related to prior years
Remeasurement of tax loss carry- forwards
Remeasurement of deductible temporary
differences
Tax effect of non-deductible expenses
Tax effect of non-taxable income
Tax effect of changes in tax rates
Tax expense
Effective tax rate
2016
2015
2014
–886
–536
–
–489
143
119
–1,357
935
–60
–2,131
52.9%
–4,372
–1,101
–3,479
–856
–
–104
–250
185
–1,559
981
21
–6,199
31.2%
–2
–66
–51
–459
–2,125
2,383
–15
–4,668
29.5%
Deferred tax balances
Deferred tax assets and liabilities are derived from the balance sheet
items as shown in the table below.
Tax effects of temporary differences and tax loss carry-forwards
Deferred
tax assets
Deferred
tax liabilities
Net
balance
2016
Intangible assets and property, plant
and equipment
Current assets
Post-employment benefits
Provisions
Other
Loss carry-forwards
Deferred tax assets/liabilities
Netting of assets/liabilities
Deferred tax balances, net
2015
Intangible assets and property, plant
and equipment
Current assets
Post-employment benefits
Provisions
Other
Loss carry-forwards
Deferred tax assets/liabilities
Netting of assets/liabilities
Deferred tax balances, net
Changes in deferred taxes, net
Opening balance, net
Recognized in Net income
Recognized in Other comprehensive income
Acquisitions/disposals of subsidiaries
Currency translation differences
Closing balance, net
1,223
2,352
4,382
1,631
4,557
4,883
19,028
–3,506
15,522
1,056
2,218
4,247
1,813
2,799
4,241
16,374
–3,191
13,183
4,173
501
692
13
274
–
5,653
–3,506
2,147
4,032
568
776
83
204
–
5,663
–3,191
2,472
2016
10,711
2,017
521
–57
183
13,375
13,375
13,375
10,711
10,711
2015
9,601
546
721
121
–278
10,711
Tax effects reported directly in Other comprehensive income amount
to SEK 521 (721) million, of which actuarial gains and losses related to
pensions constituted SEK 520 (721) million.
Deferred tax assets are only recognized in countries where the Com-
pany expects to be able to generate corresponding taxable income in
the future to benefit from tax reductions.
Significant tax loss carry-forwards are related to countries with long or
indefinite periods of utilization, mainly Sweden and Germany. Of the total
SEK 4,883 (4,241) million recognized deferred tax assets related to tax
loss carry-forwards, SEK 3,774 (3,378) million relates to Sweden with
indefinite periods of utilization. The assessment is that the Company will
be able to generate sufficient income in the coming years to also utilize
the remaining part of the recognized amounts.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
73
FINANCIALS – Notes to the consolidated financial statements
Tax loss carry-forwards
Deferred tax assets regarding tax loss carry-forwards are reported to
the extent that realization of the related tax benefit through future taxable
profits is probable also when considering the period during which these
can be utilized, as described below.
As of December 31, 2016, the recognized tax loss carry-forwards
amounted to SEK 20,929 (18,162) million. The tax value of these tax loss
carry-forwards is reported as an asset.
The final years in which the recognized tax loss carry-forwards can be
utilized are shown in the following table.
Tax loss carry-forwards: year of expiration
Year of expiration
2017
2018
2019
2020
2021
2022 or later
Total
Tax loss
carry-forwards
Tax value
301
34
105
259
254
19,976
20,929
95
8
25
83
43
4,629
4,883
In addition to the table above there are tax loss carry-forwards of
SEK 3,936 (5,300) million at a tax value of SEK 950 (1,436) million that
have not been recognized due to judgments of the possibility they will
be used against future taxable profits in the respective jurisdictions.
The majority of these tax loss carry-forwards have an expiration date in
excess of five years.
C9 Earnings per share
Earnings per share
Basic
Net income attributable to stockholders of the
Parent Company (SEK million)
Average number of shares outstanding,
basic (millions)
Earnings per share, basic (SEK)
Diluted
Net income attributable to stockholders of
the Parent Company (SEK million)
Average number of shares outstanding,
basic (millions)
Dilutive effect for stock purchase plans (millions)
Average number of shares outstanding, diluted
(millions)
Earnings per share, diluted (SEK)
2016
2015
2014
1,716
13,549
11,568
3,263
0.53
3,249
4.17
3,237
3.57
1,716
13,549
11,568
3,263
40
3,303
0.52
3,249
33
3,282
4.13
3,237
33
3,270
3.54
C10 Intangible assets
Intangible assets 2016
Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested
businesses 1)
Sales/disposals
Reclassifications
Translation difference
Closing balance
Accumulated amortization
Opening balance
Amortization
Sales/disposals
Translation difference
Closing balance
Accumulated impairment losses
Opening balance
Impairment losses
Closing balance
Net carrying value
Capitalized development expenses
Goodwill
For internal use
To be
marketed
Acquired
costs
Internal
costs
Total
Total
15,307
4,333
–
–1,394
–
–
18,246
–7,995
–1,642
1,394
–
–8,243
–2,038
–85
–2,123
7,880
2,213
–
1,697
150
–
–
–
–
–
–
–
–
2,213
1,847
–2,158
–
–
–
–2,158
–55
–
–55
–
–1,441
–173
–
–
–1,614
–37
–
–37
196
19,217
4,483
–
–1,394
–
–
22,306
–11,594
–1,815
1,394
–
–12,015
–2,130
–85
–2,215
8,076
41,105
–
585
–
–640
2,355
43,405
–
–
–
–
–
–18
–
–18
43,387
Intellectual property rights (IPR),
trade marks and other intangible assets
Trademarks, customer
rel ation ships and
similar rights
Patents and
acquired R&D
24,284
4
175
–842
640
803
31,611
11
2
–28
–
680
Total
55,895
15
177
–870
640
1,483
25,064
32,276
57,340
–15,976
–1,418
812
–735
–17,317
–
–
–
7,747
–25,272
–1,232
28
–469
–26,945
–5,331
–
–5,331
–
–41,248
–2,650
840
–1,204
–44,262
–5,331
–
–5,331
7,747
1) For more information on acquired/divested businesses, see Note C26, “Business combinations.”
74
Ericsson | Annual Report 2016
Intangible assets 2015
Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested
businesses 1)
Sales/disposals
Reclassification
Translation difference
Capitalized development expenses
Goodwill
For internal use
To be
marketed
Acquired
costs
Internal
costs
Total
Total
Intellectual property rights (IPR),
trade marks and other intangible assets
Trademarks, customer
rel ation ships and
similar rights
Patents and
acquired R&D
12,204
3,329
2,213
–
1,478
219
15,895
3,548
38,348
–
23,362
70
31,005
–
–
–
–226
–
–
–
–
–
–
–
–
–
–
–
–226
–
1,165
–
–
1,592
261
–28
–
619
184
–55
–
477
Total
54,367
70
445
–83
–
1,096
Closing balance
15,307
2,213
1,697
19,217
41,105
24,284
31,611
55,895
Accumulated amortization
Opening balance
Amortization
Sales/disposals
Translation difference
Closing balance
Accumulated impairment losses
Opening balance
Impairment losses
Closing balance
Net carrying value
–6,616
–1,379
–
–
–7,995
–2,018
–20
–2,038
5,274
–2,158
–
–
–
–2,158
–55
–
–55
–
–1,441
–
–
–
–1,441
–37
–
–37
219
–10,215
–1,379
–
–
–11,594
–2,110
–20
–2,130
5,493
–
–
–
–
–
–18
–
–18
41,087
–13,444
–2,147
24
–409
–15,976
–
–
–
8,308
–23,058
–1,992
52
–274
–25,272
–5,331
–
–5,331
1,008
–36,502
–4,139
76
–683
–41,248
–5,331
–
–5,331
9,316
1) For more information on acquired/divested businesses, see Note C26, “Business combinations.”
The goodwill impairment testing is based on five-year business plans. The
testing has been based on the new segments that became effective as
per January 1, 2017 due to that the business plans where prepared for the
new segments. In Note C3 “Operating segments” information about the
new segments is disclosed.
The total goodwill for the Company is SEK 43.4 (41.1) billion and is
allocated to the new operating segments Networks, at the sum of SEK
26.2 (n/a) billion, IT & Cloud, at the sum of SEK 9.8 (n/a) billion and Media,
at the sum of SEK 7.4 (n/a) billion. The allocation of goodwill to the new
segments has been done using a relative value approach, except for the
goodwill related to one acquisition where the alternative approach has
been used.
The recoverable amounts for cash-generating units are established as the
present value of expected future cash flows. Estimation of future cash flows
includes assumptions mainly for the following key financial parameters:
> Sales growth
> Development of operating income (based on operating margin or cost
of goods sold and operating expenses relative to sales)
> Development of working capital and capital expenditure requirements.
> The assumptions regarding industry-specific market drivers and mar-
ket growth are approved by Group management and each operating
segment’s management. These assumptions are based on industry
sources as input to the projections made within the Company for the
development 2016–2021 for key industry parameters:
> The number of global mobile subscriptions is estimated to grow from
around 7.9 billion by the end of 2016 to around 9.9 billion by the end of
2021 (including Cellular M2M). Of these, around 7.9 billion will be mobile
broadband subscriptions, taking mobile PC, tablets, routers and Cellu-
lar connected Internet of Things devices and handsets into account.
Out of all phone subscriptions, 6.4 billion will be associated with a
smartphone.
> The overall number of connected things will grow to around 26 billion
devices in 2021, including also M2M and connected consumer elec-
tronics.
> Mobile data traffic volume is estimated to increase by around six times
in the period 2016–2021. The mobile traffic is driven by smartphone
users and video traffic. Smartphone traffic will grow by around seven
times, and video traffic will grow around eight times in the period of
2016–2021.
The assumptions are also based upon information gathered in the
Company’s long-term strategy process, including assessments of new
technology, the Company’s competitive position and new types of busi-
ness and customers, driven by the continued integration of telecom,
data and media industries.
The impairment testing is based on specific estimates for the first five
years and with a reduction of nominal annual growth rate to an average
GDP growth of 1% (3%) per year thereafter. The impairment tests for
goodwill did not result in any impairment.
An after-tax discount rate of 8.0% (8.5%) has been applied for the
discounting of projected after-tax cash flows. The same rate has been
applied for all cash-generating units, since there is a high degree of inte-
gration between them. In addition, when a reasonably higher discount
rate of 10.0% has been applied in the impairment tests, headroom for
Networks and IT & Cloud is still positive.
For the Media segment the headroom is SEK 5.6 billion when a dis-
count of 8.0% is applied. The recoverable amount is equal to its carrying
amount when the discount factor is increased to 10.0%.
Group sales of media products and services declined in 2016 due to
lower sales of legacy products. The transition to next-generation platform
is ongoing with several customer trials. However, this has not yet trans-
lated into sales. Mobile video consumption is growing rapidly however
there are significant M&A activities ongoing in the industry impacting pur-
chasing behavior and the short- to mid-term addressable market growth.
The assumptions for 2015 are disclosed in Note C10, “Intangible
assets” in the Annual Report of 2015.
The Company’s discounting is based on after-tax future cash flows
and after-tax discount rates. This discounting is not materially different
from a discounting based on before-tax future cash flows and before-tax
discount rates, as required by IFRS. In Note C1, “Significant accounting
policies,” and Note C2, “Critical accounting estimates and judgments,”
further disclosures are given regarding goodwill impairment testing.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
75
FINANCIALS – Notes to the consolidated financial statements
C11 Property, plant and equipment
Property, plant and equipment 2016
Real estate
Machinery and other
technical assets
Other equipment,
tools and installations
Construction in progress
and advance payments
Cost
Opening balance
Additions
Balances regarding acquired/divested businesses
Sales/disposals
Reclassifications
Translation difference
Closing balance
Accumulated depreciation
Opening balance
Depreciations
Balances regarding divested businesses
Sales/disposals
Reclassifications
Translation difference
Closing balance
Accumulated impairment losses
Opening balance
Impairment losses
Reversals of impairment losses
Sales/disposals
Translation difference
Closing balance
Net carrying value
6,475
177
–1
–1,410
1,633
258
7,132
–3,634
–506
2
643
4
–138
–3,629
–
–43
–
–
–
–43
3,460
4,560
148
–53
–596
110
117
4,286
–3,779
–330
26
534
1
–103
–3,651
–10
–1
8
–
–
–3
632
28,753
1,519
2
–2,610
4,570
900
33,134
–21,208
–3,585
7
2,434
–4
–705
–23,061
–6
–112
–
39
–
–79
9,994
Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2016, amounted to SEK 476 (394) million.
2,648
16,734
Real estate
Machinery and other
technical assets
Other equipment,
tools and installations
Construction in progress
and advance payments
Property, plant and equipment 2015
Cost
Opening balance
Additions
Balances regarding acquired/divested businesses
Sales/disposals
Reclassifications
Translation difference
Closing balance
Accumulated depreciation
Opening balance
Depreciations
Sales/disposals
Reclassifications
Translation difference
Closing balance
Accumulated impairment losses
Opening balance
Reversals of impairment losses
Sales/disposals
Translation difference
Closing balance
Net carrying value
76
Ericsson | Annual Report 2016
6,378
49
13
–773
771
37
6,475
–2,980
–501
151
–323
19
–3,634
–32
–
32
–
–
2,841
5,273
163
–
–1,006
166
–36
4,560
–4,074
–441
909
–196
23
–3,779
–20
11
–
–1
–10
771
27,026
2,222
32
–2,412
1,994
–109
28,753
–20,406
–3,763
2,403
519
39
–21,208
–14
5
2
1
–6
7,539
Total
44,538
6,129
–52
–4,885
–2
1,472
47,200
–28,621
–4,421
35
3,611
1
–946
–30,341
–16
–156
8
39
–
–125
Total
40,867
8,338
45
–4,441
–
–271
44,538
–27,460
–4,705
3,463
–
81
–28,621
–66
16
34
–
–16
4,750
4,285
–
–269
–6,315
197
2,648
–
–
–
–
–
–
–
–
–
–
–
–
–
2,190
5,904
–
–250
–2,931
–163
4,750
–
–
–
–
–
–
–
–
–
–
–
4,750
15,901
C12 Financial assets, non-current
Equity in joint ventures and associated companies
Opening balance
Share in earnings
Distribution of capital stock
Taxes
Reclassification
Dividends
Divested business 1)
Translation difference
Closing balance 2)
2016
1,210
31
–
–5
–
–84
–15
–362
775
2015
2,793
–38
–1,558
–
–36
–92
–
141
1,210
1) For more information see Note C26, “Business combinations.”
2) Goodwill, net, amounts to SEK 1 (15) million.
There were no major holdings in joint ventures or associated companies in
2016. Significant holdings from previous years are specified below.
All companies apply IFRS in the reporting to the Company as issued
by IASB.
Ericsson’s share of assets, liabilities and income in associated company
Rockstar Consortium
2016
2015
2014
Percentage in ownership interest
Total assets
Total liabilities
Net assets (100%)
Company’s share of net assets (21.26%)
Net sales
Income after financial items
Net income and total comprehensive
income (100%)
Company’s share of net income and other
comprehensive income (21.26%)
21,26% 21.26% 21.26%
7,348
196
21
5
22
–
22
3
–
–
–
–
16
3
–
–642
7,152
1,520
–
–484
–642
–484
–137
–103
Rockstar Consortium LLC (Rockstar) is a company that was formed in
2011 by Apple, Blackberry, Ericsson, Microsoft, and Sony to purchase
approximately 4,000 patent assets out of the original about 6,000 from
the Nortel bankruptcy estate. On December 23, 2014, it was agreed
between the owners of Rockstar and RPX Corporation (RPXC) that RPX
shall purchase the remaining patents of Rockstar. The transaction occured
in 2015 and after that the main part of the capital stock has been distrib-
uted to the owners. Rockstar Consortium has concluded its operations.
Other investments in
shares and participations
Customer finance,
non-current
Interest-bearing
securities, non-current
Derivatives,
non-current
Other financial assets,
non-current
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2,567
133
2,115
234
1,755
2,704
2,011
2,324
–
7,593
–267
–240
–2,333
–2,018
Financial assets, non-current
Cost
Opening balance
Additions
Disposals/repayments/
deductions
Change in value in funded
pension plans 1)
Revaluation
Reclassification
Translation difference
–
2
–
81
–
457
–
1
–
–
–12
23
Closing balance
2,516
2,567
2,137
Accumulated impairment
losses/allowances
Opening balance
Impairment losses/allowances
Disposals/repayments/
deductions
Translation difference
Closing balance
Net carrying value
–1,292
37
–1
–81
–1,337
1,179
–1,524
62
217
–47
–1,292
1,275
–16
–5
12
–
–9
–
–
–7
–
–
7,586
–
–
–
–
–
–
–
–581
19
1,755
–79
–4
67
–
–16
–
–
–
–
–
–
–
–
–
–
–
–
–
–
452
–
–
–
–
–452
–
–
–
–
–
–
–
–
551
–
–
–
–99
–
–
452
–
–
–
–
–
452
5,365
785
5,621
1,882
–187
–1,174
–1,622
62
–
245
4,648
–183
–1
–1
–21
–206
4,442
–740
–
–
–224
5,365
–272
74
–7
22
–183
5,182
2,128
1,739
7,586
1) This amount includes asset ceiling. For further information, see Note C17, “Post-employment benefits.”
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
77
2016
2015
69,430
–1,403
68,027
90
68,117
5,003
–250
4,753
2,625
13,082
72,208
–1,202
71,006
63
71,069
4,066
–286
3,780
2,041
11,101
FINANCIALS – Notes to the consolidated financial statements
C13 Inventories
Inventories
Raw materials, components, consumables and
manufacturing work in progress
Finished products and goods for resale
Contract work in progress
Inventories, net
C14 Trade receivables and customer finance
2016
2015
5,043
12,183
13,081
30,307
6,807
8,778
12,851
28,436
Trade receivables and customer finance
Trade receivables excluding associated companies
and joint ventures
Allowances for impairment
Trade receivables, net
Trade receivables related to associated companies
and joint ventures
The amount of inventories, excluding contract work in progress, recog-
nized as expense and included in Cost of sales was SEK 63,386 (66,886)
million.
Contract work in progress includes amounts related to delivery-type
contracts and service contracts with ongoing work in progress.
Trade receivables, total
Customer finance credits
Allowances for impairment
Customer finance credits, net
Of which current
Reported amounts are net of obsolescence allowances of SEK 2,412
Credit commitments for customer finance
(2,555) million.
Movements in obsolescence allowances
Opening balance
Additions, net
Utilization
Translation difference
Balances regarding acquired/ divested
businesses
Closing balance
2016
2,555
725
–981
113
2015
2,326
1,480
–1,295
44
–
–
2,412
2,555
2014
2,496
691
–979
204
–86
2,326
Days sales outstanding (DSO) were 95 (87) in December 2016.
Movements in allowances for impairment
Opening balance
Additions
Utilized
Reversal of excess amounts
Reclassification
Translation difference
Closing balance
Trade receivables
Customer finance
2016
1,202
356
–156
–28
–
29
1,403
2015
1,123
184
–59
–26
–2
–18
1,202
2016
286
78
–108
–8
–
2
250
2015
408
27
–47
–99
–
–3
286
Aging analysis as per December 31
Total
Of which neither
impaired nor past due
Of which impaired,
not past due
less than
90 days
90 days
or more
less than
90 days
90 days
or more
Of which
past due in the following
time intervals:
Of which past due
and impaired in the following
time intervals:
2016
Trade receivables, excluding associated
companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment
2015
Trade receivables, excluding associated
companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment
69,430
–1,403
5,003
–250
72,208
–1,202
4,066
–286
58,198
–
3,250
–
64,485
–
2,323
–
62
–62
1,480
–64
82
–82
1,419
–24
4,406
–
10
–
3,150
–
4
–
5,423
–
3
–
3,371
–
5
–
10
–10
24
–6
74
–74
16
–9
1,331
–1,331
236
–180
1,046
–1,046
299
–253
78
Ericsson | Annual Report 2016
Credit risk
Credit risk is divided into three categories: credit risk in trade receivables,
customer finance risk and financial credit risk, see Note C20, “Financial
risk management and financial instruments.”
number of customers. As of December 31, 2016, there were a total of 81
(91) customer finance arrangements originated by or guaranteed by the
Company. The five largest facilities represented 55% (50%) of the total
credit exposure in 2016.
Credit risk in trade receivables
Credit risk in trade receivables is governed by a policy applicable to all
legal entities in the Company. The purpose of the policy is to:
> Avoid credit losses through establishing internal standard credit
approval routines in all the Company’s legal entities
> Ensure monitoring and risk mitigation of defaulting accounts, i.e. events
of non-payment and/or delayed payments from customers
> Ensure efficient credit management within the Company and thereby
improve Days sales outstanding and Cash flow
> Define escalation path and approval process for customer credit limits.
The credit worthiness of all customers is regularly assessed. Through
credit management system functionality, credit checks are performed
every time a sales order or an invoice is generated in the source system.
These are based on the credit risk set on the customer. Credit blocks
appear if past due receivables are higher than permitted levels. Release
of a credit block requires authorization.
Letters of credits are used as a method for securing payments from
customers operating in emerging markets, in particular in markets with
unstable political and/or economic environments. By having banks
con firming the letters of credit, the political and commercial credit risk
exposures to the Company are mitigated.
Trade receivables amounted to SEK 69,430 (72,208) million as of
December 31, 2016. Provisions for expected losses are regularly
assessed and amounted to SEK 1,403 (1,202) million as of December 31,
2016. The Company’s nominal credit losses have, however, historically
been low. The amounts of trade receivables closely follow the distribution
of the Company’s sales and do not include any major concentrations of
credit risk by customer or by geography. The five largest customers
represented 27% (30%) of the total trade receivables in 2016.
Customer finance credit risk
All major commitments to finance customers are made only after approval
by the Finance Committee of the Board of Directors, according to the
established credit approval process.
Prior to the approval of new facilities reported as customer finance, an
internal credit risk assessment is conducted in order to assess the credit
rating of each transaction, for political and commercial risk. The credit risk
analysis is made by using an assessment tool, where the political risk rat-
ing is identical to the rating used by all Export Credit Agencies within the
OECD. The commercial risk is assessed by analyzing a large number of
parameters, which may affect the level of the future commercial credit risk
exposure. The output from the assessment tool for the credit rating also
includes an internal pricing of the risk. This is expressed as a risk margin
per annum over funding cost. The reference pricing for political and com-
mercial risk, on which the tool is based, is reviewed using information from
Export Credit Agencies and prevailing pricing in the bank loan market for
structured financed deals. The objective is that the internally set risk
margin shall reflect the assessed risk and that the pricing is as close as
possible to the current market pricing. A reassessment of the credit rating
for each customer finance facility is made on a regular basis.
Risk provisions related to customer finance risk exposures are only made
upon events which occur after the financing arrangement has become
effective and which are expected to have a significant adverse impact on
the borrower’s ability and/or willingness to service the outstanding debt.
These events can be political (normally outside the control of the borrower)
or commercial, e.g. a borrower’s deteriorated creditworthiness.
As of December 31, 2016, the Company’s total outstanding exposure
related to customer finance was SEK 5,003 (4,066) million. As of Decem-
ber 31, 2016, the Company also had unutilized customer finance commit-
ments of SEK 13,082 (11,101) million. Customer finance is arranged for
infrastructure projects in different geographic markets and for a large
Total outstanding customer finance exposure per region as of December 31
Percent
North America
Latin America
Northern Europe & Central Asia
Western & Central Europe
Mediterranean
Middle East
Sub-Saharan Africa
India
North East Asia
South East Asia and Oceania
Total
2016
2015
7
7
5
2
6
31
25
3
–
14
12
16
3
5
13
29
12
1
–
9
100
100
The effect of risk provisions and reversals for customer finance affecting
the income statement amounted to a net negative impact of SEK 24 mil-
lion in 2016 compared to a net positive impact of SEK 33 million in 2015.
Credit losses amounted to SEK 108 (47) million in 2016.
Security arrangements for customer finance facilities normally include
pledges of equipment, pledges of certain assets belonging to the borrower
and pledges of shares in the operating company. If available, third-party
risk coverage is, as a rule, arranged. “Third-party risk coverage” means
that a financial payment guarantee covering the credit risk has been
issued by a bank, an export credit agency or other financial institution.
A credit risk cover from a third-party may also be issued by an insurance
company. A credit risk transfer under a sub-participation arrangement
with a bank can also be arranged. In this case the entire credit risk and
the funding is taken care of by the bank for the part that they cover.
Information about guarantees related to customer finance is included
in Note C24, “Contingent liabilities,” and information about leasing is
included in Note C27, “Leasing.”
The table below summarizes the Company’s outstanding customer
finance as of December 31, 2016 and 2015.
Outstanding customer finance
Customer finance credits
Financial guarantees for third-parties
Accrued interest
Less third-party risk coverage
Ericsson’s risk exposure, including financial guarantees
2016
5,003
124
16
–805
4,338
2015
4,066
70
26
–1,478
2,684
Transfers of financial assets
Transfers where the Company has not derecognized
the assets in their entirety
As of December 31, 2016, there existed no customer financing assets that
the Company had transferred to third parties where the Company did not
derecognize the assets in their entirety. However, it existed such transac-
tions in 2015. The total carrying amount of the original assets transferred
was in 2015 SEK 534 million; the amount of the assets that the Company
continued to recognize in 2015 was SEK 27 million; and the carrying
amount of the associated liabilities was SEK 0.
Transfers where the Company has continuing involvement
During 2016, the Company derecognized financial assets where it had
continuing involvement. A repurchase of these assets would amount to
SEK 630 (0) million. No assets or liabilities were recognized in relation to
the continuing involvement.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
79
Dividend proposal
The Board of Directors will propose to the Annual General Meeting 2017
a dividend of SEK 1.00 per share (SEK 3.70 in 2016 and SEK 3.40 in 2015).
Additional paid in capital
This relates to payments made by owners and includes share premiums
paid.
Retained earnings
Retained earnings, including net income for the year, comprise the earned
profits of the Parent Company and its share of net income in subsidiaries,
joint ventures and associated companies. Retained earnings also include:
Remeasurements related to post-employment benefits
Actuarial gains and losses resulting from experience-based events and
changes in actuarial assumptions, fluctuations in the effect of the asset
ceiling, and adjustments related to the Swedish special payroll taxes.
Revaluation of other investments in shares and participations
The fair value reserve comprises the cumulative net change in the fair
value of available-for-sale financial assets.
Cash flow hedges
The cash flow hedge reserve comprises the effective portion of the
cumulative net change in the fair value of cash-flow-hedging instruments
related to hedged transactions that have not yet occurred.
Cumulative translation adjustments
The cumulative translation adjustments comprise all foreign currency
differences arising from the translation of the financial statements of
foreign operations and changes regarding revaluation of excess value
in local currency as well as from the translation of liabilities that hedge
the Company’s net investment in foreign subsidiaries.
FINANCIALS – Notes to the consolidated financial statements
C15 Other current receivables
Other current receivables
Prepaid expenses
Accrued revenues
Advance payments to suppliers
Derivatives with a positive value 1)
Taxes
Other
Total
2016
4,501
1,584
1,384
1,108
13,974
1,880
24,431
2015
4,883
1,604
515
950
11,582
2,175
21,709
1) See also Note C20, “Financial risk management and financial instruments.”
C16 Equity and other comprehensive Income
Capital stock 2016
Capital stock at December 31, 2016, consisted of the following:
Capital stock
Parent Company
Class A shares
Class B shares
Total
Number of shares
261,755,983
3,069,395,752
3,331,151,735
Capital stock
(SEK million)
1,309
15,348
16,657
The capital stock of the Parent Company is divided into two classes:
Class A shares (quota value SEK 5.00) and Class B shares (quota value
SEK 5.00). Both classes have the same rights of participation in the net
assets and earnings. Class A shares, however, are entitled to one vote per
share while Class B shares are entitled to one tenth of one vote per share.
At December 31, 2016, the total number of treasury shares was
62,192,390 (49,367,641 in 2015 and 63,450,558 in 2014) Class B shares.
Ericsson repurchased 26.1 million shares in 2016 in relation to the Stock
Purchase Plan.
Reconciliation of number of shares
Number of shares Jan 1, 2016
Number of shares Dec 31, 2016
Number of shares
3,305,051,735
3,331,151,735
Capital stock
(SEK million)
16,526
16,657
For further information about the number of shares, see the chapter
Share Information.
80
Ericsson | Annual Report 2016
C17 Post-employment benefits
Ericsson sponsors a number of post-employment benefit plans through-
out the Company, which are in line with market practice in each country.
The year 2016 was characterized by a decrease in discount rates in most
plans. In total, discount rate changes resulted in actuarial losses on
defined benefit obligations of SEK 9 billion. The devel opment of plan
assets was greater than expected resulting in actuarial gains of SEK 4 bil-
lion.
Swedish plans
Sweden has both defined benefit and defined contribution plans based
on collective agreement between the parties in the Swedish labor market:
> A defined benefit plan, known as ITP 2 (occupational pension for sala-
ried employees in manufacturing industries and trade), complemented
by a defined contribution plan, known as ITPK (supplementary retire-
ment benefits). This is a final salary-based plan.
> A defined contribution plan, known as ITP 1, for employees born in
1979 or later.
> A defined contribution plan ITP 1 or alternative ITP, for employees
earning more than 10 income base amount and who have opted out
of the defined benefit plan ITP 2, where rules are set by the Company
and approved by each employee selected to participate.
The Company has by far most of its Swedish pension liabilities under
defined benefit plans which are funded to 55% (52%) through Ericsson
Pensionsstiftelse (a Swedish Pension Foundation). The Pensionsstiftelse
covers the liability up to the value of the defined benefit obligation based
on Swedish GAAP calculations. There are no funding requirements for the
Swedish plans. The disability and survivors’ pension part of the ITP-plan
is secured through an insurance solution with the company Alecta, see
section about Multi-employer plans.
The benefit payments are made by the Company since the liability is
growing and the necessary surplus therefore is not yet reached. For the
unfunded plans the Company meets the payment obligation when it falls
due. The responsibility for governance of the plans and the plan assets
lies with the Company and the Pensionsstiftelse. The Swedish Pensions-
stiftelse is managed on the basis of a capital preservation strategy and
the risk profile is set accordingly. Traditional asset-liability matching (ALM)
studies are undertaken on a regular basis to allocate within different
asset classes.
The plans are exposed to various risks, e.g., a sudden decrease in the
bond yields, which would lead to an increase in the plan liability. A sudden
instability in the financial market might also lead to a decrease in fair value
of plan assets held by the Pensionsstiftelse, as the holdings of plan assets
partly are exposed to equity markets; however, this may be partly offset
by higher values in fixed income holdings. Swedish plans are linked to
inflation and higher inflation will most likely lead to a higher liability. For
the time being, inflation is a low risk factor to the Swedish plans as actual
rate of inflation has not reached the ceiling target set by the Central Bank
of Sweden.
Multi-employer plans
As before, the Company has secured the disability and survivors’ pension
part of the ITP Plan through an insurance solution with the insurance com-
pany Alecta. Although this part of the plan is classified as a multi-em-
ployer defined benefit plan, it is not possible to get sufficient information
to apply defined benefit accounting, as for most of the accrued pension
benefits in Alecta, information is missing on the allocation of earnings
process between employers. Full vesting is instead registered on the last
employer. Alecta is not able to calculate a breakdown of assets and pro-
visions for each respective employer, and therefore, the disability and
survivors’ pension portion of the ITP Plan has been accounted for as a
defined contribution plan.
Alecta has a collective funding ratio which acts as a buffer for its insurance
commitments to protect against fluctuations in investment return and
insurance risks. Alecta’s target ratio is 140% and reflects the fair value of
Alecta’s plan assets as a percentage of plan commitments, then meas-
ured in accordance with Alecta’s actuarial assumptions, which are different
from those in IAS 19R. Alecta’s collective funding ratio was 149% (153%)
as of December 31, 2016. The Company’s share of Alecta’s saving pre-
miums is 0.6%; the total share of active members in Alecta are 2.2%.
The expected contribution to the plan is SEK 136 million for 2017.
Contingent liabilities / Assets pledged as collateral
Contingent liabilities include the Company’s mutual responsibility as a
credit insured company of PRI Pensionsgaranti in Sweden. This mutual
responsibility can only be imposed in the instance that PRI Pensions-
garanti has consumed all of its assets, and it amounts to a maximum of
2% of the Company’s pension liability in Sweden. The Company has a
pledged business mortgage of SEK 2 billion to PRI Pensionsgaranti.
US plans
The Company operates defined benefit pension plans in the US, which
are a combination of final salary pension plans and contribution-based
arrangements. The final salary pension plans provide benefits to mem-
bers in the form of a guaranteed level of pension payable for life. The level
of benefits provided depends on members’ length of service and their
salary in the final years leading up to retirement. Retirees generally do
not receive inflationary increases once in payment.
The other type of plan is a contribution-based pension plan, which
provides a benefit determined using a “cash balance” approach. The
balance is credited monthly with interest credits and contribution credits,
based on a combination of current year salary and length of service.
The majority of benefit payments are from trustee-administered funds;
however, there are also a number of unfunded plans where the Company
meets the benefit payment obligation as it falls due. In the US, the Com-
pany’s policy is at least to meet or exceed the funding requirements of
federal regulations. The funded level in the US Pension Plan is above the
point at which minimum funding would be required for fiscal year 2016.
Plan assets held in trusts are governed by local regulations and prac-
tice, as is the nature of the relationship between the Company and the
trustees (or equivalent) and their composition. Responsibility for govern-
ance of the plans – including investment decisions and contribution
schedules – lies with the Plan Administrative Committee (PAC). The PAC
is composed of representatives from the Company.
The Company’s plans are exposed to various risks associated with
pension plans, i.e., a sudden decrease in bond yields would lead to an
increase in the present value of the defined benefit obligation. A sudden
instability in the financial markets might also lead to a decrease in the fair
value of plan assets held by the trust. Pension benefits in the US are not
linked to inflation; however, higher inflation poses the risk of increased final
salaries being used to determine benefits for active employees. There is
also a risk that the duration of payments to retirees will exceed the life
expectancy in mortality tables.
Other plans
The Company also sponsors plans in other countries. The main plans are
in Brazil, Ireland and the United Kingdom. The plan in Brazil is a pension
plan wholly funded with a net surplus of assets. The plans in Ireland and
the UK are final salary pension plans and are partly or wholly funded. The
plans are managed by corporate trustees with directors appointed partly
by the local company and partly by the plan members. The trustees are
independent from the local company and subject to the specific country’s
pension laws.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
81
FINANCIALS – Notes to the consolidated financial statements
Amount recognized in the Consolidated balance sheet
Amount recognized in the Consolidated balance sheet
2016
Defined benefit obligation (DBO)
Fair value of plan assets
Deficit/surplus (+/–)
Plans with net surplus, excluding asset ceiling 1)
Provision for post-employment benefits 2)
2015
Defined benefit obligation (DBO)
Fair value of plan assets
Deficit/surplus (+/–)
Plans with net surplus, excluding asset ceiling 1)
Provision for post-employment benefits 2)
Sweden
US
Other
Total
38,202
20,956
17,246
–
17,246
37,109
19,271
17,838
–
17,838
22,710
21,545
1,165
–
1,165
19,873
20,114
–241
918
677
26,263
21,984
4,279
1,033
5,312
21,159
18,793
2,366
1,783
4,149
87,175
64,485
22,690
1,033
23,723
78,141
58,178
19,963
2,701
22,664
1) Plans with a net surplus, i.e., where plan assets exceed DBO, are reported as Other financial assets, non-current: see Note C12, “Financial assets.”
The asset ceiling decreased during the year by SEK 46 million from SEK 530 million in 2015 to SEK 484 million in 2016.
2) Plans with net liabilities are reported in the balance sheet as Post-employment benefits, non-current.
Total pension cost recognized in the Consolidated income statement
The costs for post-employment benefits within the Company are distributed between defined contribution plans and defined benefit plans, with a trend
toward defined contribution plans.
Pension costs for defined contribution plans and defined benefit plans
2016
Pension cost for defined contribution plans
Pension cost for defined benefit plans
Total
Total pension cost expressed as a percentage of wages and salaries
2015
Pension cost for defined contribution plans
Pension cost for defined benefit plans
Total
Total pension cost expressed as a percentage of wages and salaries
2014
Pension cost for defined contribution plans
Pension cost for defined benefit plans
Total
Total pension cost expressed as a percentage of wages and salaries
Sweden
1,061
1,314
2,375
1,136
1,806
2,942
953
1,039
1,992
US
687
167
854
729
81
810
562
39
601
Other
1,472
633
2,105
1,375
666
2,041
713
651
1,364
Total
3,220
2,114
5,334
8.9%
3,240
2,553
5,793
9.5%
2,228
1,729
3,957
6.8%
82
Ericsson | Annual Report 2016
Change in the net defined benefit obligation
Change in the net defined benefit obligation
Opening balance
Reclassification
Included in the income statement
Current service cost
Past service cost and gains and losses on settlements
Interest cost/ income (+/–)
Taxes and administrative expenses
Other
Remeasurements
Return on plan assets excluding amounts in interest expense/income
Actuarial gains/losses (–/+) arising from changes in demographic
assumptions
Actuarial gains/losses (–/+) arising from changes in financial assumptions
Experience-based gains/losses (–/+)
Other changes
Translation difference
Contributions and payments from:
Employers 1)
Plan participants
Payments from plans:
Benefit payments
Settlements
Business combinations and divestments
Closing balance
1) The expected contribution to the plans is SEK 1,286 million during 2017.
2) The weighted average duration of DBO is 20.4 years.
Present value of the defined benefit obligation
2016
DBO, closing balance
Of which partially or fully funded
Of which unfunded
2015
DBO, closing balance
Of which partially or fully funded
Of which unfunded
Present value
of obligation
2016 2)
78,141
104
Fair value of
plan assets
2016
–58,178
–104
Total
2016
19,963
–
Present value
of obligation
2015 2)
Fair value of
plan assets
2015
73,752
–
–56,862
–
1,853
–182
2,451
53
–16
4,159
–
–
–2,176
49
2
–2,125
1,853
–182
275
102
–14
2,034
1,975
169
2,446
143
–10
4,723
–
–
–2,172
22
2
–2,148
Total
2015
16,890
–
1,975
169
274
165
–8
2,575
–
–4,280
–4,280
–
1,088
1,088
–405
8,255
–1,550
6,300
1,002
–902
28
–1,568
–
–89
87,175
–
–
–
–4,280
–834
–562
–22
1,568
–
52
–405
8,255
–1,550
2,020
1,768
135
–1,020
883
–
–
–
1,088
1,768
135
–1,020
1,971
168
1,167
–1,243
–76
–1,464
6
–
–
–37
–764
57
–1,550
–127
–
78,141
–579
–38
1,570
34
–
–1,343
19
20
–93
–
–58,178
19,963
–64,485
22,690
Sweden
US
Other
Total
38,202
37,679
523
37,109
36,583
526
22,710
21,956
754
19,873
19,196
677
26,263
23,449
2,814
21,159
18,590
2,569
87,175
83,084
4,091
78,141
74,369
3,772
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
83
Sweden
US
Other
Total
Of which
unquoted
1,819
3,983
8,791
4,093
2,270
–
–
20,956
–
–
3,001
4,588
6,602
2,654
2,426
–
–
19,271
–
–
414
692
18,286
–
1,505
–
648
21,545
–
–
715
612
16,884
–
1,354
–
549
20,114
–
–
793
4,195
13,898
330
476
1,125
1,167
21,984
–
–
141
4,428
12,404
155
233
629
803
18,793
–
–
3,026
8,870
40,975
4,423
4,251
1,125
1,815
64,485
–
–
3,857
9,628
35,890
2,809
4,013
629
1,352
58,178
–
–
14%
19%
70%
100%
65%
100%
69%
19%
12%
79%
100%
71%
100%
48%
Total remeasurements in Other comprehensive income
related to post- employment benefits
Actuarial gains and losses (+/–)
The effect of asset ceiling
Swedish special payroll taxes 1)
Total
2016
–1,955
254
–65
–1,766
2015
–1,507
–55
–464
–2,026
1) Swedish payroll taxes are included in recognized gain/loss during the year in OCI.
Sensitivity analysis of significant actuarial assumptions
Impact on DBO, SEK billion
Discount rate +0.5%
Discount rate –0.5%
2016
2015
–9
+8
–8
+7
FINANCIALS – Notes to the consolidated financial statements
Asset allocation by asset type and geography
2016
Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds
Assets held by insurance company
Other
Total
Of which real estate occupied by the Company
Of which securities issued by the Company
2015
Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds
Assets held by insurance company
Other
Total
Of which real estate occupied by the Company
Of which securities issued by the Company
Actuarial assumptions
Financial and demographic actuarial assumptions 1)
Financial assumptions
Discount rate, weighted average
Demographic assumptions
Life expectancy after age 65 in years, weighted average
2016
2015
2.8%
3.3%
23
23
1) Weighted average for the Group for disclosure purposes only. Country-specific assumptions
were used for each actuarial calculation.
Actuarial assumptions are assessed on a quarterly basis. See also Note
C1 “Significant accounting policies” and Note C2 “Critical accounting
estimates and judgments.”
Sweden
The defined benefit obligation has been calculated using a discount rate
based on yields of Swedish government bonds. IAS 19 Employee Benefits
prescribes that if there is not a deep market in high-quality corporate
bonds the market yields on government bonds shall be applied for the
pension liability calculation.
US
The defined benefit obligation has been calculated using a discount rate
based on yields of high-quality corporate bonds, where “high-quality” has
been defined as a rating of AA and above.
84
Ericsson | Annual Report 2016
C18 Provisions
Provisions
2016
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income statement
Utilization/Cash out
Reclassifications
Translation difference
Closing balance
2015
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income statement
Utilization/Cash out
Reclassifications
Translation difference
Closing balance
Warranty
Restruc turing
528
267
–207
–365
9
16
248
824
723
–59
–984
1
23
528
1,466
5,271
–130
–2,440
1
–5
4,163
801
3,619
–189
–2,766
14
–13
1,466
Other
1,844
808
–352
–348
–18
12
1,946
2,802
634
–230
–1,312
–
–50
1,844
Total
3,838
6,346
–689
5,657
–3,153
–8
23
6,357
4,427
4,976
–478
4,498
–5,062
15
–40
3,838
Provisions will fluctuate over time depending on business mix, market
mix and technology shifts. Risk assessment in the ongoing business is
performed monthly to identify the need for new additions and reversals.
During certain years the Company undertakes restructuring activities that
may require recognition of provisions. Management uses its best judg-
ment to estimate provisions based on this assessment. Under certain
circumstances, provisions are no longer required due to outcomes being
more favorable than anticipated, which affect the provisions balance as a
reversal. In other cases, the outcome can be negative, and if so, a charge
is recorded in the income statement.
For 2016, new or additional provisions amounting to SEK 6.3 billion
were made, and SEK 0.7 billion of provisions were reversed. The actual
cash outlays for 2016 were SEK 3.2 billion compared with the estimated
SEK 2.5 billion. The total cash out for 2016 was made up of warranty pro-
visions of SEK 0.4 billion, restructuring provisions of SEK 2.4 billion and
other provisions of SEK 0.3 billion. The expected total cash outlays in
2017 are approximately SEK 4.4 billion.
Of the total provisions, SEK 946 (176) million is classified as non-cur-
rent. For more information, see Note C1, “Significant accounting policies”
and Note C2, “Critical accounting estimates and judgments.”
Warranty provisions
Warranty provisions are based on historic quality rates for established
products as well as estimates regarding quality rates for new products
and costs to remedy the various types of faults predicted. Provisions
amounting to SEK 0.3 billion were made and due to more favorable
out comes in certain cases reversals of SEK 0.2 billion were made.
The actual cash outlays for 2016 were SEK 0.4 billion, in line with the
expected SEK 0.4 billion. The cash outlays of warranty provisions
during year 2017 are estimated to total approximately SEK 0.1 billion.
Restructuring provisions
In 2016, SEK 5.3 billion in provisions were made and SEK 0.1 billion were
reversed due to a more favorable outcome than expected. Provisions
were mainly related to the cost and efficiency program initially announced
in November 2014. The scope of the structural efficiency measures
involves service delivery, supply and manufacturing, R&D and SG&A (Sell-
ing, General and Administrative expenses). The cash outlays for restruc-
turing provisions were SEK 2.4 billion for the full-year, compared with the
expected SEK 1.2 billion. The cash outlays for 2017 for these provisions
are estimated to total approximately SEK 3.2 billion.
Other provisions
Other provisions include provisions for probable contractual penalties,
tax issues, litigations, supplier claims, and other. During 2016, new pro-
visions amounting to SEK 0.8 billion were made and SEK 0.4 billion were
reversed due to a more favorable outcome. The cash outlays were SEK
0.3 billion in 2016 compared to the estimate of SEK 0.8 billion. For 2017,
the cash outlays for other provisions are estimated to total approximately
SEK 1.1 billion.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
85
FINANCIALS – Notes to the consolidated financial statements
C19 Interest-bearing liabilities
As of December 31, 2016, the Company’s outstanding interest-bearing
liabilities was SEK 26.7 (25.1) billion.
Interest-bearing liabilities
Borrowings, current
Current part of non-current borrowings 1)
Other current borrowings
Total current borrowings
Borrowings, non-current
Notes and bond loans
Other borrowings, non-current
Total non-current interest-bearing liabilities
Total interest-bearing liabilities
1) Including notes and bond loans of SEK 4,900 (0) million.
2016
2015
4,954
3,079
8,033
10,556
8,097
18,653
26,686
435
1,941
2,376
14,699
8,045
22,744
25,120
Notes, bonds, bilateral loans and committed credit
To secure long-term funding, the Company uses notes and bond pro-
grams together with bilateral research and development loans. All out-
standing notes and bond loans are issued by the Parent Company under
its Euro Medium-Term Note (EMTN) program or under its U.S. Securities
and Exchange Commission (SEC) Registered program. Bonds issued at
a fixed interest rate are normally swapped to a floating interest rate using
interest rate swaps leaving a maximum of 50% of outstanding loans at
fixed interest rates. Total weighted average interest rate cost for the long-
term funding during the year was 2.76% (2.58%). The outstanding EUR
bond is revalued based on changes in benchmark interest rates accord-
ing to the fair value hedge methodology stipulated in IAS 39.
In June 2016, the Company exercised its first extension option under
the USD 2 billion multi-currency revolving credit facility, extending the
maturity date to June 2021. One extension option of one year remains.
In November 2016, the Company signed a new EUR 0.5 billion term
loan facility. The new facility has a tenor of two years with one extension
option of one year and the facility serves for general corporate purposes.
Issued–maturing
Notes and bond loans
2007–2017
2010–2020 2)
2012–2022
Total notes and bond loans
Bilateral loans
2012–2019 3)
2012–2021 4)
2013–2020 5)
Total bilateral loans
Committed credit
Long-term committed credit facility 6)
Term loan facility 7)
Total committed credit
Nominal
amount
Coupon
Currency
Book value
(SEK million) 9)
Maturity date
5.375%
4.125%
500
170
1,000
98
98
684
2,000
500
EUR
USD
USD
USD
USD
USD
USD
EUR
4,900 1)
1,540
9,016 8)
15,456
887
889
6,193
7,969
–
–
–
June 27, 2017
December 23, 2020
May 15, 2022
September 30, 2019
September 30, 2021
November 6, 2020
June 5, 2021
November 10, 2018
Unrealized hedge
gain/loss (included
in book value)
–120
–120
1) Interest rate swaps are designated as fair value hedges.
2) Private Placement, Swedish Export Credit Corporation (SEK).
3) Nordic Investment Bank (NIB), R&D project financing.
4) Nordic Investment Bank (NIB), R&D project financing.
5) European Investment Bank (EIB), R&D project financing.
6) Multi-currency revolving credit facility. Unutilized. One one-year extension option remains.
7) Bridge term loan facility. Unutilized. One one-year extension option remains.
8) Market value SEK 9,092 million.
9) Market value is approximately equal to book value except where indicated.
86
Ericsson | Annual Report 2016
C20 Financial risk management and financial instruments
The Company’s financial risk management is governed by a policy
approved by the Board of Directors. The Finance Committee of the Board
of Directors is responsible for overseeing the capital structure and financial
management of the Company and approving certain matters (such as
investments, customer finance commitments, guarantees and borrowing)
and continuously monitors the exposure to financial risks.
The Company defines its managed capital as the total Company equity.
For the Company, a robust financial position with a strong equity ratio,
solid investment grade rating, low leverage and ample liquidity is deemed
important. This provides financial flexibility and independence to operate
and manage variations in working capital needs as well as to capitalize on
business opportunities.
The Company’s overall capital structure should support the financial
targets: to grow faster than the market, deliver best-in-class margins and
generate a healthy cash flow. The capital structure is managed by balanc-
ing equity, debt financing and liquidity in such a way that the Company
can secure funding of operations at a reasonable cost of capital. Regular
borrowings are complemented with committed credit facilities to give
additional flexibility to manage unforeseen funding needs. The Company
strives to finance growth, normal capital expenditures and dividends to
shareholders by generating cash flows from operating activities.
The Company’s capital objectives are:
> To maintain an equity ratio above 40%
> A cash conversion rate above 70%
> To maintain a positive net cash position larger than the pension liability
> To maintain a solid investment grade rating by Moody’s
and Standard & Poor’s.
Capital objectives-related information, SEK billion
Capital
Equity ratio
Cash conversion
Positive net cash
Credit rating
Moody’s
Standard & Poor’s
2016
140
50%
175%
31.2
2015
147
52%
85%
41.2
Baa3, negative
BBB, negative
Baa1, stable
BBB+, stable
The definition of Net cash has been adjusted in order to more clearly rep-
resent Ericsson’s ability to meet financial obligations. Post-employment
benefits are no longer included in the calculation of Net cash. Inter-
est-bearing securities, non-current are now included in Net cash because
these are liquid instruments with low credit risk. The revised definition is
as follows:
Net cash: Cash and cash equivalents plus interest-bearing securities (cur-
rent and non-current) less interest-bearing liabilities (which include:
non-current borrowings and current borrowings).
In October 2016, Moody’s announced that they have downgraded the
senior unsecured debt ratings to Baa2 from Baa1 and the MTN program
rating to Baa2 from Baa1. At the same time, the agency placed the com-
pany’s Baa2/Baa2 ratings on review for further downgrade. In December
2016, Moody’s concluded their review and announced that they have
downgraded the senior unsecured debt ratings to Baa3 from Baa2 and
the MTN program rating to Baa3 from Baa2, with a negative outlook. In
October 2016, S&P announced that they have downgraded the long-term
corporate credit rating on Ericsson to BBB from BBB+, with a negative
outlook.
The Company has a treasury function with the principal role to ensure that
appropriate financing is in place through loans and committed credit facil-
ities, actively managing the Company’s liquidity as well as financial assets
and liabilities, and managing and controlling financial risk exposures in a
manner consistent with underlying business risks and financial policies.
Hedging activities, cash management and insurance management are
largely centralized to the treasury function in Stockholm.
The Company also has a customer finance function with the main
objective to find suitable third-party financing solutions for customers
and to minimize recourse to the Company. To the extent that customer
loans are not provided directly by banks, the Parent Company provides
or guarantees vendor credits. The customer finance function monitors
the exposure from outstanding vendor credits and credit commitments.
The Company classifies financial risks as:
> Foreign exchange risk
> Interest rate risk
> Credit risk
> Liquidity and refinancing risk
> Market price risk in own and other equity instruments.
The Board of Directors has established risk limits for defined exposures
to foreign exchange and interest rate risks as well as to political risks in
certain countries.
For further information about accounting policies, see Note C1,
“Significant accounting policies.”
Foreign exchange risk
The Company is a global company with sales mainly outside Sweden.
Sales and incurred costs are to a large extent denominated in currencies
other than SEK and therefore the financial results of the Company are
impacted by currency fluctuations.
The Company reports the financial statements in SEK. Movements
in exchange rates between currencies that affect these statements are
impacting the comparability between periods.
Line items, primarily sales, are impacted by translation exposure
incurred when converting foreign entities’ financial statements into SEK.
Line items and profitability, such as operating income are impacted by
transaction exposure incurred when financial assets and liabilities,
primarily trade receivables and trade payables, are initially recognized
and subsequently remeasured due to change in foreign exchange rates.
The table below presents the net exposure for the largest cur rencies
impact on sales and also net transaction exposure of these currencies
on profitability.
Currency exposure, SEK billion
Exposure
currency
Sales
translation
exposure
Sales
transaction
exposure
Sales net
exposure
Incurred cost
transaction
exposure 1)
Net
transaction
exposure
USD
EUR
CNY
INR
JPY
AUD
GBP
SAR
BRL
55.2
26.5
15.8
10.5
7.0
5.9
7.1
4.3
4.3
45.8
13.1
–0.3
0.0
0.0
–0.1
–1.7
0.3
0.0
101.0
39.6
15.5
10.5
7.0
5.8
5.4
4.6
4.3
–17.4
–7.4
–5.1
–1.3
4.5
2.1
0.9
2.8
0.6
28.4
5.7
–5.4
–1.3
4.5
2.0
–0.8
3.1
0.6
1) Transactions in foreign currency – internal sales, internal purchases, external purchases.
Translation exposure
Translation exposure relates to sales and cost incurred in foreign entities
when converted into SEK upon consolidation. These exposures cannot
be addressed by hedging, but as the income statement is translated using
average rate, the impact of volatility in foreign currency rates is reduced.
Transaction exposure
Transaction exposure relates to sales and cost incurred in non-reporting
currencies in individual group companies. Foreign exchange risk is as far
as possible concentrated in Swedish group companies, primarily Ericsson
AB. Sales to foreign subsidiaries are normally denominated in the func-
tional currency of the customers, and so tend to be denominated in
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
87
FINANCIALS – Notes to the consolidated financial statements
USD or another foreign currency. In order to limit the exposure toward
exchange rate fluctuations on future revenues and costs, committed and
forecasted future sales and purchases in major currencies are hedged
with 7% of 12-month forecast monthly. By this, the Company will have
hedged 84% of the next month and 7% of the 12th month of an average
forecast of the individual month at any given reporting date. This corre-
sponds to approximately 5–6 months of an average forecast.
Outstanding derivatives contracts that are hedging future sales and
costs incurred are revalued against “Other operating income and
expense.” The sensitivity in “Other operating income and expense” in
relation to this revaluation is dependent on changes in foreign exchange
rates, forecasts, seasonality and hedging policy. USD is the Company’s
largest exposure and at year-end a change by 0.25 SEK/USD would
impact profit and loss with approximately SEK 0.3 billion. Revaluation
results of these derivative contracts amounted to SEK –0.4 billion in 2016.
According to Company policy, transaction exposure in subsidiaries’
balance sheets (i.e., trade receivables and payables and customer finance
receivables) should be fully hedged, except for non-tradable currencies.
Foreign exchange exposures in balance sheet items are hedged
through offsetting balances or derivatives.
Interest rate risk
The Company is exposed to interest rate risk through market value fluct-
uations in certain balance sheet items and through changes in interest
revenues and expenses. The net cash position was SEK 31.2 (41.2) billion
at the end of 2016, consisting of cash, cash equivalents and interest-
bearing securities of SEK 57.9 (66.3) billion, interest-bearing liabilities of
SEK 26.7 (25.1).
The Company manages the interest rate risk by i) matching fixed and
floating interest rates in interest-bearing balance sheet items and ii) avoid-
ing significant fixed interest rate exposure in the Company’s net cash
position. The policy is that interest-bearing assets shall have an average
interest duration of between 6 and 14 months, taking derivative instru-
ments into consideration. Interest-bearing liabilities do not have a firm
target for the duration, nor a firm target for fixed/floating interest rate, as
duration and interest mix are decided based on market conditions when
the liabilities are issued. The treasury function has a mandate to deviate
from the asset management benchmark given by the Board and take for-
eign exchange positions up to an aggregated risk of VaR SEK 45 million
given a confidence level of 99% and a 1-day horizon.
Interest duration, SEK billion
Interest-bearing trading
Interest-bearing assets
Interest-bearing liabilities
< 3M 3–12M
1.4
30.5
29.4
–1.4
–4.6
–18.0
1–3Y
0.0
24.2
–17.4
3–5Y
0.0
11.7
–11.4
>5Y
0.0
–3.9
–9.3
Total
0.0
57.9
–26.7
When managing the interest rate exposure, the Company uses derivative
instruments, such as interest rate swaps. Derivative instruments used for
converting fixed rate debt into floating rate debt are designated as fair
value hedges.
Outstanding derivatives
Outstanding derivatives 1)
Fair value
Asset
Liability
Asset
Liability
2016
2015
Currency derivatives
Maturity within 3 months
Maturity between 3 and 12
months
Total
Interest rate derivatives
Maturity within 3 months
Maturity between 3 and 12
months
Maturity between 1 and 3 years
Maturity between 3 and 5 years
Maturity of more than 5 years
Total
Of which designated in fair
value hedge relations
351
262
613
–
239
191
–
65
495 2)
120
193
137
330
–
82
205
6
116
409
–
316
224
540
5
165
545
53
94
862 2)
338
137
41
178
–
234
243
176
108
761
–
1) Some of the derivatives hedging non-current liabilities are recognized in the balance sheet as
non-current derivatives due to hedge accounting.
2) Of which SEK 0 (452) million is reported as non-current assets.
Sensitivity analysis
The Company uses the VaR methodology to measure foreign exchange
and interest rate risks in portfolios managed by the treasury function. This
statistical method expresses the maximum potential loss that can arise
with a certain degree of probability during a certain period of time. For the
VaR measurement, the Company has chosen a probability level of 99%
and a 1-day time horizon. The daily VaR measurement uses market volatil-
ities and correlations based on historical daily data (one year).
The average VaR calculated for 2016 was SEK 16.3 (11.7) million for the
combined mandates. No VaR-limits were exceeded during 2016.
Financial credit risk
Financial instruments carry an element of risk in that counterparts may
be unable to fulfill their payment obligations. This exposure arises in the
investments in cash, cash equivalents, interest-bearing securities and
from derivative positions with positive unrealized results against banks
and other counterparties.
The Company mitigates these risks by investing cash primarily in well-
rated securities such as treasury bills, government bonds, commercial
papers, and mortgage-covered bonds with short-term ratings of at least
A-2/P-2 or equivalents, and long-term ratings of AAA. Separate credit
limits are assigned to each counterpart in order to minimize risk concen-
tration. All derivative transactions are covered by ISDA netting agree-
ments to reduce the credit risk.
At December 31, 2016, the credit risk in financial cash instruments was
equal to the instruments’ carrying value. Credit exposure in derivative
instruments was SEK 1.1 (1.4) billion.
Liquidity risk
The Company minimizes the liquidity risk by maintaining a sufficient cash
position, centralized cash management, investments in highly liquid inter-
est-bearing securities, and by having sufficient committed credit lines in
place to meet potential funding needs. For information about contractual
obligations, see Note C31, “Contractual obligations.” The current cash
position is deemed to satisfy all short-term liquidity requirements as well
as non-current borrowings.
88
Ericsson | Annual Report 2016
Cash, cash equivalents and interest-bearing securities
SEK billion
Banks
Type of issuer/counterpart
Governments
Corporates
Mortgage institutes
2016
2015
Remaining time to maturity
< 3
months
3–12
months
29.0
0.1
1–5
years
0.2
>5
years
0.0
0.0
8.0
0.0
37.0
40.3
0.5
0.0
0.7
1.3
3.0
7.1
0.0
12.0
19.3
22.4
0.3
0.0
0.0
0.3
0.6
Total
29.3
7.9
8.0
12.7
57.9
66.3
Financial instruments carried at other than fair value
The fair value of the Company’s financial instruments, recognized at fair
value, is determined based on quoted market prices or rates. For further
information about valuation principles, see Note C1, “Significant account-
ing policies.”
Financial instruments, such as trade receivables, borrowings and
payables, are carried at amortized cost which is deemed to be equal to
fair value, except for those noted in the table Notes, bonds, bilateral loans
and committed credits in Note C19, “Interest-bearing liabilities.” When a
market price is not readily available and there is insign i ficant interest rate
exposure and credit spreads affecting the value, the carrying value is
considered to represent a reasonable estimate of fair value.
The instruments are classified as held for trading, loans and receivables,
or available-for-sale. Cash, cash equivalents and interest-bearing securi-
ties are mainly held in SEK unless offset by EUR-funding. Instruments held
for trading with a remaining maturity longer than one year amounted to
SEK 12.0 billion and were reported as Interest-bearing securities, current.
Market price risk in own shares and other listed equity investments
The Company is exposed to fluctuations in its own share price through
stock purchase plans for employees and synthetic share-based com-
pensations to the Board of Directors.
Refinancing risk
Refinancing risk is the risk that the Company is unable to refinance out-
standing debt under reasonable terms and conditions, or at all, at a given
point in time.
Debt financing is mainly carried out through borrowing in the Swedish
and international debt capital markets.
Bank financing is used for certain subsidiary funding and to obtain
committed credit facilities, see Note C19, “Interest-bearing liabilities.”
Funding programs 1)
Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million)
Amount
Utilized
Unutilized
5,000
2)
698
1,000
4,288
–
1) There are no financial covenants related to these programs.
2) Program amount indeterminate.
Fair valuation of the Company’s financial instruments
The Company’s financial instruments accounted for at fair value generally
meet the requirements of level 1 valuation due to the fact that they are
based on quoted prices in active markets for identical assets.
Exceptions to this relates to:
> OTC derivatives with an amount of gross SEK 1.2 (1.8) billion in relation
to assets and gross SEK 0.9 (1.3) billion in relation to liabilities were val-
ued based on references to other market data as currency or interest
rates. These valuations fall under level 2 valuation as defined by IFRS.
> Ownership in other companies and other financial investments where
the Company neither has control nor significant influence. The amount
recognized in these cases was SEK 2.1 (2.1) billion. These assets, clas-
sified as level 3 assets for valuation purposes, have been valued based
on value in use technique.
Stock purchase plans for employees
The obligation to deliver shares under the stock purchase plan is covered
by holding Ericsson Class B shares as treasury stock. A change in the
share price will result in a change in social security charges, which rep-
resents a risk to the income statement. The cash flow exposure is fully
hedged through the holding of Ericsson Class B shares as treasury stock
to be sold to generate funds, which also cover social security payments.
Synthetic share-based compensations to the Board of Directors
In the case of these plans, the Company is exposed to risks in relation to
own share price, both with regards to compensation expenses and social
security charges. The obligation to pay compensation amounts under
the synthetic share-based compensations to the Board of Directors is
covered by a liability in the balance sheet.
For further information about the stock purchase plan and synthetic
share-based compensations to the Board of Directors, see Note C28,
“Information regarding members of the Board of Directors, the Group
management and employees.”
Offsetting financial assets and liabilities
As required by IFRS, the Company has off set financial instruments under
ISDA agreements. The related assets amounted to SEK 1.2 (1.8) billion,
prior to offsetting of SEK 0.1 (0.4) billion, with a net amount of SEK 1.1 (1.4)
billion recognized in the balance sheet. The related liabilities amounted to
SEK 0.9 (1.3) billion, prior to offsetting of SEK 0.1 (0.4) billion, with a net
amount of SEK 0.8 (0.9) billion recognized in the balance sheet.
Financial instruments, book value
SEK billion
Note
Assets at fair value
through profit or loss
Loans and receivables
Available-for-sale
Financial liabilities at
amortized cost
Total
Customer
finance
Trade
receiv ables
C14
C14
4.8
68.1
Interest-
bearing
securities
C12
13.3
7.6
Cash
equiva lents Borrow ings
Trade
payables
Other
financial
assets
Other
current
receiv ables
Other
current
l iabilities
C25
8.9
2.5
C19
C22
C12
0.9
3.5
1.2
C15
1.1
C21
–0.7
4.8
68.1
20.9
11.4
–26.7
–26.7
–25.3
–25.3
5.6
1.1
–0.7
2016
2015
23.5
78.9
8.8
–52.0
59.2
40.2
84.2
1.3
–47.5
78.2
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
89
FINANCIALS – Notes to the consolidated financial statements
C21 Other current liabilities
C24 Contingent liabilities
Other current liabilities
Income tax liabilities
Advances from customers
Accrued interest
Accrued expenses
Of which employee-related
Of which supplier-related
Of which other 1)
Deferred revenues
Derivatives with a negative value 2)
Other 3)
Total
2016
–
5,391
367
30,716
9,414
13,003
8,299
13,990
739
4,800
56,003
2015
3,924
5,038
475
32,629
13,229
12,119
7,281
11,229
939
4,429
58,663
1) Major balance relates to accrued expenses for customer projects.
2) See Note C20, “Financial risk management and financial instruments.”
3) Includes items such as VAT and withholding tax payables and other payroll deductions,
and liabilities for goods received where the related invoice has not yet been received.
C22 Trade payables
Trade payables
Trade payables to associated companies and joint ventures
Trade payables, excluding associated companies and joint
ventures
Total
2016
296
2015
329
25,022
25,318
22,060
22,389
C23 Assets pledged as collateral
Assets pledged as collateral
Chattel mortgages 1)
Bank deposits
Total
1) See also Note C17, “Post-Employment benefits.”
2016
2,240
344
2,584
2015
2,231
295
2,526
Contingent liabilities
Contingent liabilities
Total
2016
1,186
1,186
2015
922
922
Contingent liabilities assumed by Ericsson include guarantees of loans to
other companies of SEK 24 (23) million. Ericsson has SEK 33 (32) million
issued to guarantee the performance of a third-party.
All ongoing legal and tax proceedings have been evaluated, their
potential economic outflows and probability estimated and necessary
provisions made. In Note C2, “Critical Accounting Estimates and Judg-
ments.” further disclosure is presented in relation to (i) key sources of
estimation uncertainty and (ii) the decision made in relation to accounting
policies applied.
Financial guarantees for third-parties amounted to SEK 124 (70) million
as of December 31, 2016. The maturity date for the majority of the issued
guarantees occurs in 2020 at the latest.
C25 Statement of cash flows
Interest paid in 2016 was SEK –1,269 million (SEK 926 million in 2015 and
SEK 1,120 million in 2014) and interest received in 2016 was SEK 110
million (SEK 550 million in 2015 and SEK 1,369 million in 2014). Taxes paid,
including withholding tax, were SEK 9,105 million in 2016 (SEK 7,705 mil-
lion in 2015 and SEK 6,114 million in 2014).
Cash and cash equivalents include cash of SEK 25,577 (22,431) million
and temporary investments of SEK 11,389 (17,793) million. For more infor-
mation regarding the disposition of cash and cash equivalents and unuti-
lized credit commitments, see Note C20, “Financial risk management and
financial instruments.”
Cash and cash equivalents as of December 31, 2016, include SEK 4.2
billion (4.7) in countries where there exist significant cross-border con-
version restrictions due to hard currency shortage or strict government
controls. This amount is therefore not considered available for general
use by the Parent Company.
90
Ericsson | Annual Report 2016
Adjustments to reconcile net income to cash
C26 Business combinations
2016
2015
2014
4,421
148
4,569
4,705
–16
4,689
4,329
–13
4,316
1,815
1,379
1,270
2,650
4,465
4,139
5,518
4,328
5,598
85
–
20
–
31
–
4,550
5,538
5,629
Acquisitions and divestments
Acquisitions
Acquisitions 2014–2016
Total consideration, including cash
Acquisition-related costs 1)
Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Other assets
Provisions, including post-employment benefits
Other liabilities
Total identifiable net assets
Goodwill
9,119
10,227
9,945
Total
2016
920
4
139
19
817
290
–
–290
975
–55 2)
920
2015
2,119
2014
4,767
19
50
271
45
445
572
–
–379
954
1,165
2,119
407
427
2,540
817
–288
–1,150
2,753
2,014
4,767
–6,200
–2,835
–1,235
ated income statement.
1) Acquisition-related costs are included in Selling and administrative expenses in the consolid-
Property, plant and equipment
Depreciation
Impairment losses/reversals of impairments
Total
Intangible assets
Amortization
Capitalized development expenses
Intellectual Property Rights, brands and other
intangible assets
Total amortization
Impairments
Capitalized development expenses
Intellectual Property Rights, brands and other
intangible assets
Total
Total depreciation, amortization and
impairment losses on property, plant and
equipment and intangible assets
Taxes
Dividends from joint ventures/associated
companies 1)
Undistributed earnings in joint ventures/
associated companies 1)
Gains/losses on sales of investments and
operations, intangible assets and PP&E, net 2)
Other non-cash items 3)
Total adjustments to reconcile net income
to cash
84
–26
92
38
249
56
–37
3,172
–156
3,245
128
2,057
6,112
10,611
11,200
1) See Note C12, “Financial assets, non-current.”
2) See Note C6, “Other operating income and expense.”
3) Refers mainly to unrealized foreign exchange, gains/losses on financial instruments.
Acquisitions/divestments of subsidiaries and other operations
Acquisitions
Divestments
2016
Cash flow from business combinations 1)
Acquisitions/divestments of other investments
Total
2015
Cash flow from business combinations 1)
Acquisitions/divestments of other investments
Total
2014
Cash flow from business combinations 1)
Acquisitions/divestments of other investments
Total
1) See also Note C26, “Business combinations.”
–781
–203
–984
–1,867
–334
–2,201
–4,410
–32
–4,442
25
337
362
–
1
1
42
6
48
2) Of which SEK 585 million was acquired goodwill and SEK –640 million refers to a reclassifica-
tion when the preliminary purchase price allocations made in 2015 were finalized 2016.
In 2016, Ericsson made acquisitions with a negative cash flow effect
amounting to SEK 781 (1,867) million. The acquisitions presented below
are not material but the Company gives the information to provide the
reader a summarized view of the content of the acquisitions made.
The acquisitions consist primarily of:
FYI Television: On January 25, 2016, the Company acquired 100% of the
shares in FYI Television, a US based premier entertainment metadata and
rich media content supplier based in Grand Prairie, Texas, with approxi-
mately 150 employees. The acquisition makes it possible to combine FYI
Television’s US-market expertise and reach with Ericsson’s experience in
content discovery in Europe, which is a key component of Ericsson’s TV
and Media strategy to improve the video experience in a multiscreen
world. Balances to facilitate the Purchase price allocation are final.
Ericpol: On April 13, 2016, the Company acquired 100% of the shares in
Ericpol a software development company in Poland within telecommuni-
cations who has been a supplier to Ericsson for over 20 years. Approxi-
mately 2,000 employees joined the Company. With the acquisition of
Ericpol’s operations in Poland and Ukraine, the Company secures well
integrated software development competence within radio, cloud and IP
to enable business continuity. Balances to facilitate the Purchase price
allocation are preliminary.
Nodeprime: On April 15, 2016, the Company acquired 100% of the
shares in Nodeprime a US based company, with an infrastructure man-
agement platform, designed to support the command and control of the
complete ecosystem of components in today’s existing datacenters. Inte-
grated into the Ericsson Hyperscale Datacenter System 8000, this soft-
ware platform enables discovery, analysis and automated configuration of
existing and new datacenter hardware platforms. This allows datacenters
to become hyperscale and adopt distributed infrastructure. By acquiring
Nodeprime’s competence, the Company aims to reduce sourcing risk
and to secure control of roadmap direction and acceleration. Balances to
facilitate the Purchase price allocation are final.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
91
FINANCIALS – Notes to the consolidated financial statements
The preliminary purchase price allocations made in 2015 were finalized
during 2016 with the following effects: An increase in intangible assets of
SEK 585 million and a decrease in goodwill of SEK 640 million.
In order to finalize a purchase price allocation all relevant information
needs to be in place. Examples of such information are final consideration
and final opening balances, which may remain preliminary for a period
of time due to for example adjustments of working capital, tax items or
decisions from local authorities.
Divestments
Divestments 2014–2016
Proceeds
Net assets disposed of
Property, plant and equipment
Investments in joint ventures and associated
companies
Other assets
Other liabilities
Net gains/losses from divestments
Less Cash and cash equivalents
Cash flow effect
2016
25
36
15
5
–114
–58
83
–
25
2015
0
–
–
52
–3
49
–49
–
0
2014
42
–
32
46
–
78
–36
–
42
In 2016, the Company made some minor divestments with a cash flow
effect amounting to SEK 25 (0) million.
Description
Transaction date
Acquisitions 2014–2016
Company
Nodeprime
Ericpol
FYI Television
Envivio
ICON
Sunrise technology
Timelessmind
Apcera
Fabrix
MetraTech
Red Bee Media
Azuki
A US based software development company with an infrastructure management platform.
A software development company in Poland within telecommunications.
A US based premier entertainment metadata and rich media content supplier.
A US-based company with competence in software-defined and cloud-enabled architectures for video processing.
A consulting and systems integration business with approximately 250 employees and consultants.
A business which has a strong track record of delivering complex IT solutions to leading operators in China.
A Canada-based consulting and systems integration business specializing in operations and business support
(OSS and/BSS).
The acquisition of a majority stake in Apcera strengthens Ericsson’s position in enterprise cloud.
The acquisition of Fabrix Systems extends Ericsson’s overall leadership position in TV & Media.
The acquisition of MetraTech accelerates Ericsson’s cloud and enterprise billing capabilities within BSS.
A leading media services company headquartered in the UK with an extensive list of high-profile
broadcast services customers.
A provider of TV Anywhere delivery platforms for service providers, content owners and broadcasters.
Apr 2016
Apr 2016
Jan 2016
Oct 2015
Aug 2015
Jul 2015
Apr 2015
Oct 2014
Oct 2014
Sep 2014
May 2014
Feb 2014
Transaction date
Jul 2016
Divestments 2014–2016
Company
Description
Birla Ericsson Optical Ltd
A divestment of the shares in the associated company.
92
Ericsson | Annual Report 2016
C27 Leasing
Leasing with the Company as lessee
Assets under finance leases, recorded as property, plant and equipment,
consist of:
Expenses in 2016 for leasing of assets were SEK 3,710 (3,449) million,
of which variable expenses comprised SEK 217 (35) million. The leasing
contracts vary in length from 1 to 15 years.
Finance leases
Cost
Real estate
Accumulated depreciation
Real estate
Net carrying value
2016
2015
–
–
–
–
–
701
701
–249
–249
452
The Company’s lease agreements normally do not include any contin-
gent rents. In the few cases they occur, they relate to charges for heating
linked to the oil price index. Most of the leases of real estate contain terms
of renewal, giving the Company the right to prolong the agreement in
question for a predefined period of time.
Leases with the Company as lessor
Leasing income relates to subleasing of real estate as well as equipment
provided to customers under leasing arrangements. These leasing con-
tracts vary in length from 1 to 16 years.
At December 31, 2016, future minimum payment receivables were
distributed as follows:
Due to replacement of former lease contract with operating lease contract
the Company has from 2016 no finance leases.
Future minimum payment receivables
As of December 31, 2016, future minimum lease payment obligations
were distributed as follows:
Future minimum lease payment obligations
2017
2018
2019
2020
2021
2022 and later
Total
Future finance charges
Present value of finance lease liabilities
Finance
leases
Operating
leases
–
–
–
–
–
–
–
–
–
3,120
2,745
1,985
1,575
1,717
5,493
16,635
n/a
n/a
2017
2018
2019
2020
2021
2022 and later
Total
Leasing income in 2016 was SEK 47 (73) million.
Finance
leases
Operating
leases
–
–
–
–
–
–
–
40
21
10
7
7
8
93
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
93
FINANCIALS – Notes to the consolidated financial statements
C28 Information regarding members of the Board of Directors,
the Group management and employees
Remuneration to the Board of Directors
Remuneration to members of the Board of Directors
SEK
Board fees
Number of
synthetic
shares/portion
of Board fee
Value at grant
date of synthetic
shares allocated
in 2016
Number of previously
allocated synthetic
shares outstanding
Net change
in value of
synthetic
shares 1)
Board member
Leif Johansson
Helena Stjernholm
Jacob Wallenberg
Nora Denzel
Börje Ekholm 3)
Ulf J. Johansson
Kristin Skogen Lund
Kristin S. Rinne
Sukhinder Singh Cassidy
Employee Representatives
Pehr Claesson
Mikael Lännqvist
Karin Åberg
Zlatko Hadzic (deputy)
Kjell-Åke Soting (deputy)
Roger Svensson (deputy)
4,075,000
0/0%
990,000
990,000
990,000
742,500
990,000
990,000
990,000
990,000
39,000
31,500
30,000
18,000
19,500
19,500
11,093/75%
7,395/50%
0/0%
8,319/75%
0/0%
3,697/25%
7,395/50%
3,697/25%
–
–
–
–
–
–
A
–
742,454
494,947
–
556,790
–
247,440
494,947
247,440
–
–
–
–
–
–
B
–
–148,979 1)
–444,785 1)
–127,656 1)
–791,841 1)
–
–229,741 1)
–99,315 1)
–112,727 1)
–
–
–
–
–
–
–
–
17,791
5,489
35,360
–
8,293
–
2,513
–
–
–
–
–
–
Committee
fees
Total fees
paid in cash 2)
Total
remuner ation
2016
C
(A+B+C)
400,000
175,000
175,000
250,000
131,250
350,000
250,000
–
175,000
4,475,000 4)
422,500
670,000 5)
1,240,000
316,875
1,340,000 6)
992,500
495,000
917,500
–
–
–
–
–
–
39,000
31,500
30,000
18,000
19,500
19,500
4,475,000
1,015,975
720,162
1,112,344
81,824
1,340,000
1,010,199
890,632
1,052,213
39,000
31,500
30,000
18,000
19,500
19,500
Total
Total
11,905,000
11,905,000
41,596
41,596
2,784,018
2,784,018
69,446
–1,955,044
1,906,250
11,026,875
11,855,849 7)
96,508 8)
–2,422,266 8)9)
1,906,250
11,026,875
11,388,627 7)
1) The difference in value as of the time for payment, compared to December 31, 2015, for synthetic shares allocated in 2011 (for which payment was made in 2016).
The difference in value as of December 31, 2016, compared to December 31, 2015, for synthetic shares allocated in 2012, 2013, 2014 and 2015. Calculated on a share price of SEK 53.50.
The difference in value as of December 31, 2016, compared to grant date for synthetic shares allocated in 2016.
The value of synthetic shares allocated in 2012, 2013, 2014 and 2015 includes respectively SEK 2.75, SEK 3.00, SEK 3.40 and SEK 3.70 per share in compensation for dividends resolved by the
Annual General Meetings 2013, 2014, 2015 and 2016 and the value of the synthetic shares allocated in 2011 includes dividend compensation for dividends resolved in 2012, 2013, 2014 and 2015.
2) Committee fee and cash portion of the Board fee.
3) The Board remuneration resolved by the annual general meeting of shareholders is only for non-employee Board members. Since Börje Ekholm is employed by the Company as President and CEO
since January 16, 2017, his shareholder resolved remuneration has been adjusted accordingly.
4) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced from a business was paid, amounting to SEK 1,406,045.
5) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced from a business was paid, amounting to SEK 210,514.
6) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that has been invoiced from a business was paid, amounting to SEK 219,224.
7) Excluding social security charges and amounts invoiced through a business corresponding to such social security charges in to the amount of SEK 2,248,324.
8) Including synthetic shares previously allocated to the former Directors Roxanne S. Austin and Alexander Izosimov.
9) Including synthetic shares previously allocated to the former Director Nancy McKinstry and Sir Peter L. Bonfield. For these synthetic shares, the net change in value corresponds to the difference in
value as of the time for payment compared to December 31, 2015.
Comments to the table
> The Chairman of the Board was entitled to a Board fee of SEK
4,075,000 and a fee of SEK 200,000 for each Board Committee on
which he served as Chairman.
> The other Directors elected by the Annual General Meeting were enti-
tled to a fee of SEK 990,000 each. In addition, the Chairman of the
Audit Committee was entitled to a fee of SEK 350,000 and the other
non- employee members of the Audit Committee were entitled to a fee
of SEK 250,000 each. The Chairmen of the Finance and Remuneration
Committees were entitled to a fee of SEK 200,000 each and the other
non-employee members of the Finance and the Remuneration Com-
mittees were entitled to a fee of SEK 175,000 each.
> Members of the Board, who are not employees of the Company, have
not received any remuneration other than the fees and synthetic shares
as above. None of the Directors have entered into a service contract
with the Parent Company or any of its subsidiaries, providing for termi-
nation benefits.
> Members and deputy members of the Board who are Ericsson employ-
ees received no remuneration or benefits other than their entitlements
as employees and a fee to the employee representatives and their
deputies of SEK 1,500 per attended Board meeting, and Committee
meeting.
> Board members invoicing for the amount of the Board and Committee
fee from a business may add to the invoice an amount corresponding to
social charges. The social charges thus included in the invoiced
amount are not higher than the general payroll tax that would otherwise
have been paid by the Company. The entire amount, i.e., the cash por-
tion of the Board fee and the Committee fee, including social charges,
constitutes the invoiced Board fee.
> The Annual General Meeting 2016 resolved that non-employee Direc-
tors may choose to receive the Board fee (i.e., exclusive of Committee
fee) as follows: i) 25% of the Board fee in cash and 75% in the form of
synthetic shares, with a value corresponding to 75% of the Board fee
at the time of allocation, ii) 50% in cash and 50% in the form of synthetic
shares, or iii) 75% in cash and 25% in the form of synthetic shares.
Directors may also choose not to participate in the synthetic share
program and receive 100% of the Board fee in cash. Committee fees
are always paid in cash.
The number of synthetic shares allocated is based on a volume-weighted
average of the market price of Ericsson Class B shares on Nasdaq Stock-
holm during the five trading days immediately following the publication of
Ericsson’s interim report for the first quarter 2016; SEK 66.93. The number
of synthetic shares is rounded down to the nearest whole number of shares.
The synthetic shares are vested during the Directors’ term of office and
the right to receive payment with regard to the allocated synthetic shares
occurs after the publication of the Company’s year-end financial state-
ment during the fifth year following the Annual General Meeting which
94
Ericsson | Annual Report 2016
resolved on the synthetic share program, i.e., in 2021. The amount pay-
able shall be determined based on the volume-weighted average price for
shares of Class B during the five trading days immediately following the
publication of the year-end financial statement.
Synthetic shares were allocated to members of the Board for the first
time in 2008 and have been allocated annually since then on equal terms
and conditions. Payment based on synthetic shares allocated in 2011
occurred in 2016 and, in accordance with the terms and conditions for the
synthetic share advance payment was then also made to the former
Director Sir Peter L. Bonfield. The amounts paid in 2016 under the syn-
thetic share programs were determined based on the volume-weighed
average price for shares of Class B on Nasdaq Stockholm during the five
trading days immediately following the publication of the year-end finan-
cial statements for 2015: SEK 74.68 and totalled SEK 2,245,951 excluding
social security charges. The payments made do not constitute a cost for
the Company in 2016. The Company’s costs for the synthetic shares have
been disclosed each year and the net change in value of the synthetic
shares for which payment was made in 2016, is disclosed in the table
“Remuneration to members of the Board of Directors” on page 94.
The value of all outstanding synthetic shares fluctuates in line with the
market value of Ericsson’s Class B share and may differ from year to year
compared to the original value on their respective grant dates. The
change in value of the outstanding synthetic shares is established each
year and affects the total recognized costs that year. As of December 31,
2016, the total outstanding number of synthetic shares under the pro-
grams is 138,105 and the total accounted debt is SEK 8,207,895 (includ-
ing synthetic shares previously allocated to the former Directors Roxanne
S. Austin and Alexander Izosimov).
Remuneration to the Group management
The Company’s costs for remuneration to the Group management are
the costs recognized in the Income statement during the fiscal year.
These costs are disclosed under “Remuneration costs” below.
Costs recognized during a fiscal year in the Income statement are
not fully paid by the Company at the end of the fiscal year. The unpaid
amounts that the Company has in relation to the Group management
are disclosed under “Outstanding balances.”
Remuneration costs
The total remuneration to the President and CEO and to other members
of the Group management, consisting of the Executive Leadership Team
(ELT), includes fixed salary, short- and long-term variable compensation,
pension and other benefits. These remuneration elements are based on
the guidelines for remuneration to Group management as approved by
the Annual General Meeting held in 2016: see the approved guidelines in
section “Guidelines for remuneration to Group management 2016.”
Remuneration costs for the President and CEO and other members of Executive Leadership Team (ELT)
SEK
Salary
Cost for annual variable
remuneration earned in the
year to be paid the year after
Long-term variable
compensation provision
Pension costs
Other benefits
Social charges and taxes
Total
Pres ident and
CEO1) 2016
President and
CEO2) 2016
Total: President
and CEO 2016
Pres ident and
CEO 2015
Other members
of ELT 2016
Other members
of ELT 2015
Total 2016
Total 2015
40,069,7223)
5,812,635
45,882,357
14,165,287
119,501,092
98,777,226
165,383,449
112,942,513
–
–
–
16,173,429
6,230,285
45,485,406
6,230,285
61,658,835
8,240,244
10,350,001
44,080
17,864,315
76,568,362
486,839
1,604,757
25,912
2,376,750
10,306,894
8,727,083
11,954,758
69,992
20,241,066
86,875,256
7,183,919
9,452,006
75,630
14,106,432
9,278,252
29,387,498
12,604,635
29,147,247
8,671,955
24,608,406
8,247,554
23,515,519
18,005,336
41,342,256
12,674,627
49,388,312
15,855,873
34,060,412
8,323,184
37,621,951
61,156,702
206,149,008
209,306,065
293,024,265
270,462,767
1) Hans Vestberg served as President and CEO until July 25, 2016 and left Ericsson as of January 25, 2017. Remuneration costs shown for Hans Vestberg includes this full period.
2) Jan Frykhammar served as President and CEO from July 25, 2016 to January 16, 2017. Remuneration costs shown for Jan Frykhammar includes the period from July 25, 2016 to December 31, 2016
(costs for the rest of the year is included in “Other members of ELT 2016”).
3) Includes severance pay and compensation for unused vacation.
Comments to the table
> Hans Vestberg was President and CEO of Ericsson until July 25, 2016,
and Jan Frykhammar was appointed President and CEO from July 25,
2016.
> During 2016, there were two Executive Vice Presidents who have been
appointed by the Board of Directors, none of which acted as deputy to
the President and CEO during the year. Executive Vice Presidents are
included in the group “Other members of ELT”.
> The group “Other members of ELT” comprises the following persons:
Per Borgklint, Bina Chaurasia (left ELT effective November 15 and
Ericsson December 31, 2016), Ulf Ewaldsson, Jan Frykhammar, Nina
Macpherson, Magnus Mandersson, Helena Norrman, Mats H. Olsson
(left ELT effective May 18 and Ericsson November 18, 2016), Rima
Qureshi, Angel Ruiz (left ELT effective June 30, 2016), Anders Thulin
(left ELT and Ericsson June 30, 2016), and Jan Wäreby (left ELT effec-
tive June 30 and Ericsson November 30, 2016). In addition, Arun Ban-
sal, Niklas Heuveldop, Chris Houghton, Fredrik Jejdling, Anders Lind-
blad, Jean-Philippe Poirault, Charlotta Sund and Elaine Weidman-
Grunewald all joined ELT on July 1, 2016. Carl Mellander joined ELT on
July 25, 2016 and MajBritt Arfert joined ELT on November 15, 2016.
> The salary stated in the table for the President and CEO and other
members of the ELT includes vacation pay paid during 2016 as well as
other contracted compensation expensed in 2016. During 2016, a deci-
sion was taken by the Remuneration Committee to pay out saved vaca-
tion balances. These payments are included in salaries stated above.
> The remuneration costs for 2016 includes termination provisions,
including estimates of future severance pay and compensation for
unused vacation, in respect of individuals who left Ericsson during 2016.
For the former President and CEO, Hans Vestberg, the contractual sev-
erance pay amounted to 18 months’ salary (SEK 21,206,863 excluding
social charges and taxes).
> “Long-term variable compensation provision” refers to the compensa-
tion costs during 2016 for all outstanding share-based plans.
> For the former President and CEO, Hans Vestberg, and other members
of the ELT employed in Sweden before 2011, a supplementary plan is
applied in addition to the occupational pension plan for salaried staff on
the Swedish labor market (ITP) with pension payable from the age of 60
years. These pension plans are not conditional upon future employ-
ment at Ericsson.
Outstanding balances
The Company has recognized the following liabilities relating to unpaid
remunerations in the Balance sheet:
> Ericsson’s commitments for defined benefit based pensions as of
December 31, 2016 under IAS 19 amounted to SEK 13,949,474 for the
President and CEO which includes disability and survivor’s pension.
For other members of the ELT the Company’s commitments amounted
to SEK 44,800,609 of which SEK 38,333,332 refers to the ITP and
early retirement and the remaining SEK 6,467,277 to disability and
survivor’s pensions.
> For previous Presidents and CEOs, the Company has made provisions
for defined benefit pension plans in connection with their active service
periods within the Company.
> Deferred salary, earned in 2016 or earlier, to be paid 12 months after
period end or later, amounts to SEK 9,665,780.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
95
Long-Term Variable compensation
The Stock Purchase Plan
The Stock Purchase Plan has been designed to offer an incentive for all
employees to participate in the Company where practicable. For the 2016
plan, employees are able to save up to 7.5% of their gross fixed salary
(The former President and CEO, Hans Vestberg, could save up to 10% of
gross fixed salary and short-term variable remuneration) for purchase of
Class B contribution shares at market price on Nasdaq Stockholm or
American Depositary Shares (ADSs) on NASDAQ New York (contribution
shares) during a twelve-month period (contribution period). If the contribu-
tion shares are retained by the employee for three years after the invest-
ment and their employment with the Ericsson Group continues during that
time, then the employee’s shares will be matched with a corresponding
number of Class B shares or ADSs free of consideration. Employees in
100 countries participate in the plans.
The table below shows the contribution periods and participation
details for ongoing plans as of December 31, 2016.
Stock Purchase Plans
Plan
Stock Purchase plan
2013
Stock Purchase plan
2014
Stock Purchase plan
2015
Stock Purchase plan
2016
Contribution
period
August 2013 –
July 2014
August 2014 –
July 2015
August 2015 –
July 2016
August 2016 –
July 2017
Number of
participants at
launch
Take-up rate
– percent of eligible
employees
29,000
32,000
33,800
31,500
29%
30%
31%
29%
Participants save each month, beginning with the August payroll, towards
quarterly investments. These investments (in November, February, May
and August) are matched on the third anniversary of each such invest-
ment, subject to continued employment, and hence the matching spans
over two financial years and two tax years.
No Stock Purchase Plan is being proposed for 2017.
The Key Contributor Retention Plan
The Key Contributor Retention Plan is part of Ericsson’s talent manage-
ment strategy and is designed to give recognition for performance, critical
skills and potential as well as to encourage retention of key employees.
Under the program, up to 10% of employees (2016 plan: 10,742 employ-
ees nominated) are selected through a nomination process that identifies
individuals according to performance, critical skills and potential. Partici-
pants selected obtain one extra matching share in addition to the ordinary
one matching share for each contribution share purchased under the
Stock Purchase Plan during a twelve-month period.
Since no Stock Purchase Plan will be proposed for 2017, alternative
arrangements will be developed to replace the Key Contributor Plan.
FINANCIALS – Notes to the consolidated financial statements
Maximum outstanding matching rights
As of December 31, 2016
Number of Class B shares
The President
and CEO
Other members
of the ELT
Stock Purchase Plans 2013–2016
Executive Performance Stock Plans 2013–2016
84,871
388,296
Comments to the table
> For the definition of matching rights, see the description in section
“Long-term variable compensation”.
> Matching result of 39.7% is included for the 2013 plan.
> Cash conversion targets for 2014, 2015 and 2016 were reached.
> During 2016, the two serving Presidents and CEOs received 90,086
matching shares and other members of the ELT received 122,648
matching shares.
Option agreements
Prior to taking office as President and CEO of Ericsson, Board member
Börje Ekholm entered into an option agreement with Investor AB and AB
Industrivärden, shareholders of Ericsson. Each of these two shareholders
has issued 1,000,000 call options to Börje Ekholm on market terms (valu-
ation conducted, using the Black & Scholes model, by an independent
third party). Under the agreements, Börje Ekholm has purchased in total
2,000,000 call options, issued by the shareholders, for a purchase price
of SEK 0.49 per call option. Each call option entitles the purchase of one
Ericsson B share from the shareholders at a strike price of SEK 80 per
share during one year after a seven-year period. Since the President
and CEO has the power to influence the dividend paid by the Company,
a potential conflict of interest exists. The option agreements therefore
contain a strike price recalculation mechanism which is intended to make
the options payoff neutral regardless of what the actual dividends are.
Due to the fact that the call options were purchased on market terms as
described above, no compensation expense has been recognized by
the Company and will not be recognized during the remaining part of the
seven-year period.
Guidelines for remuneration to Group management 2016
For Group management consisting of the Executive Leadership Team,
including the President and CEO, total remuneration consists of fixed
salary, short- and long-term variable compensation, pension and other
benefits.
The following guidelines apply to the remuneration of the Executive
Leadership Team:
> Variable compensation is in cash and stock-based programs awarded
against specific business targets derived from the long-term business
plan approved by the Board of Directors. Targets may include financial
targets at either Group or unit level, operational targets, employee
engagement targets or customer satisfaction targets.
> All benefits, including pension benefits, follow the competitive practice
in the home country taking total compensation into account.
> By way of exception, additional arrangements can be made when
deemed necessary. An additional arrangement can be renewed but
each such arrangement shall be limited in time and shall not exceed a
period of 36 months and twice the remuneration that the individual
would have received had no additional arrangement been made.
> The mutual notice period may be no more than six months. Upon termi-
nation of employment by the Company, severance pay amounting to a
maximum of 18 months fixed salary is paid. Notice of termination given
by the employee due to significant structural changes, or other events
that in a determining manner affect the content of work or the condition
for the position, is equated with notice of termination served by the
Company.
96
Ericsson | Annual Report 2016
Executive Performance Stock Plan targets
2016
Growth (Net sales growth)
Margin
(Operating income growth) 1)
Cash Flow (Cash conversion)
2015
Growth (Net sales growth)
Margin
(Operating income growth) 1)
Cash Flow (Cash conversion)
2014
Growth (Net sales growth) 2)
Margin
(Operating income growth) 2)
Cash Flow (Cash conversion)
Base year
value
SEK billion
Year 1
Year 2
Year 3
246.9
Compound annual growth rate of 2–6%
24.8 Compound annual growth rate of 5–15%
≥70%
≥70%
≥70%
–
228.0
Compound annual growth rate of 2–6%
16.8 Compound annual growth rate of 5–15%
≥70%
≥70%
≥70%
–
225.3
Compound annual growth rate of 2–8%
15.7 Compound annual growth rate of 5–15%
≥70%
≥70%
≥70%
–
The Executive Performance Stock Plan
The Executive Performance Stock Plan has been designed to focus man-
agement on driving earnings and provide competitive remuneration.
Senior managers, including ELT, were selected to obtain up to four or six
extra shares (performance matching shares) in addition to the ordinary
one matching share for each contribution share purchased under the
Stock Purchase Plan. Up to 0.5% of employees (2016 plan: 509 execu-
tives) are offered participation in the plan. The former President and CEO,
Hans Vestberg, could save up to 10% of gross fixed salary and short-term
variable compensation, and could obtain up to nine performance-match-
ing shares in addition to the Stock Purchase Plan matching share for each
contribution share. The performance targets are linked to growth of Net
Sales, Operating Income and Cash Conversion.
The table “Executive Performance Stock Plan targets” show ongoing
Executive Performance Stock Plans as of December 31, 2016.
Since no Stock Purchase Plan will be proposed for 2017, alternative
arrangements will be developed to replace the Executive Performance
Stock Plan. For the Global Leadership Team, a share-based arrangement
is proposed for approval by the 2017 Annual General Meeting of share-
holders.
1) Excluding extraordinary restructuring charges.
2) Base year 2013 has been adjusted for the impact of the Samsung IPR agreement.
Shares for all plans
Plan (million shares)
Originally designated
Outstanding beginning of 2016
Awarded during 2016
Exercised/matched during 2016
Forfeited/expired during 2016
Outstanding end of 2016 1)
Compensation costs charged during 2016 (SEK million) 3)
A
B
C
D
E
F=B+C–D–E
G
Stock Purchase Plan, Key Contributor Retention Plan
and Executive Performance Stock Plans
2016
21.6
–
7.6
–
0.1
7.5
11.7 2)
2015
23.5
4.4
16.1
1.0
0.8
18.7
288.3 2)
2014
22.8
13.5
–
1.0
0.7
11.8
348.5 2)
2013
26.6
11.5
–
3.0
1.5
7.0
250.1 2)
2012
26.2
6.6
–
6.5
0.1
–
58.1 2)
Total
120.7
36.0
23.7
11.5
3.2
45.0
956.7
1) Shares under the Executive Performance Stock Plans were based on the fact that the 2012 plan came out at 33%, in casu 67% lapsed and that the 2013 plan vested for 39.7% and lapsed for 60.3%.
For the other ongoing plans, cost is estimated.
2) Fair value is calculated as the share price on the investment date, reduced by the net present value of the dividend expectations during the three-year vesting period. Net present value calculations
are based on data from external party. For shares under the Executive Performance Stock Plans, the company makes a forecast for the fulfillment of the financial targets for all ongoing plans except
for 2012 and 2013 plans as disclosed under 1) when calculating the compensation cost. Fair value of the Class B share at each investment date during 2016 was: February 15 SEK 63.62, May 15 SEK
50.52, August 15 SEK 50.39 and November 15 SEK 38.83.
3) Total compensation costs charged during 2015: SEK 865 million, 2014: SEK 717 million.
Shares for all plans
All plans are funded with treasury stock and are equity settled. Treasury
stock for all plans has been issued in directed cash issues of Class C
shares at the quotient value and purchased under a public offering at
the subscription price plus a premium corresponding to the subscribers’
financing costs, and then converted to Class B shares.
For all plans, additional shares have been allocated for financing of
social security expenses. Treasury stock is sold on the Nasdaq Stock-
holm to cover social security payments when arising due to matching
of shares. During 2016, 1,706,600 shares were sold at an average price
of SEK 61.31. Sales of shares are recognized directly in equity.
If, as of December 31, 2016, all shares allocated for future matching
under the Stock Purchase Plan were transferred, and shares designated
to cover social security payments were disposed of as a result of the exer-
cise and the matching, approximately 64 million Class B shares would be
transferred, corresponding to 2.0% of the total number of shares out-
standing, or 3,269 million not including treasury stock. As of December
31, 2016, 62 million Class B shares were held as treasury stock.
The table above shows how shares (representing matching rights but
excluding shares for social security expenses) are being used for all out-
standing plans. From up to down the table includes (A) the number of
shares originally approved by the Annual General Meeting; (B) the number
of originally designated shares that were outstanding at the beginning of
2016; (C) the number of shares awarded during 2016; (D) the number of
shares matched during 2016; (E) the number of shares forfeited by partici-
pants or expired under the plan rules during 2016; and (F) the balance left
as outstanding at the end of 2016, having added new awards to the
shares outstanding at the beginning of the year and deducted the shares
related to awards matched, forfeited and expired. The final row (G) shows
the compensation costs charged to the accounts during 2016 for each
plan, calculated as fair value in SEK.
For a description of compensation cost, including accounting treat-
ment, see Note C1, “Significant accounting policies,” section Share-
based compensation to employees and the Board of Directors.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
97
FINANCIALS – Notes to the consolidated financial statements
Employee numbers, wages and salaries
Employee numbers
Average number of employees
North America
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
North East Asia
South East Asia & Oceania
Total
1) Of which in Sweden
2) Of which in EU
2016
2015
Women
2,862
2,343
5,070
2,502
3,035
374
369
4,396
4,297
1,688
26,936
3,650
10,056
Men
10,667
8,672
14,941
11,312
9,718
2,775
1,795
17,983
9,186
2,431
89,480
12,359
33,852
Total
13,529
11,015
20,011
13,814
12,753
3,149
2,164
22,379
13,483
4,119
116,416
16,009
43,907
Women
3,117
2,583
5,256
2,399
3,122
513
520
3,967
4,178
1,200
26,854
4,002
10,052
Men
11,912
9,812
15,549
10,144
10,023
3,215
1,997
17,865
9,446
2,900
92,864
13,106
33,908
Total
15,029
12,395
20,805
12,543
13,145
3,728
2,517
21,832
13,624
4,100
119,718
17,108
43,960
Number of employees by region at year-end
Wages and salaries and social security expenses
Employee wages and salaries
North America
Latin America
Northern Europe & Central Asia 1) 2)
Western & Central Europe 2)
Mediterranean 2)
Middle East
Sub-Saharan Africa
India
North East Asia
South East Asia & Oceania
Total
1) Of which in Sweden
2) Of which in EU
2016
11,547
9,513
19,136
13,646
12,578
3,346
2,086
22,552
13,042
4,018
14,548
10,412
20,700
12,220
12,702
3,639
2,301
21,999
13,706
4,054
111,464
15,303
42,625
116,281
17,041
43,117
2015
(SEK million)
Wages and salaries
Social security expenses
Of which pension costs
2016
60,064
17,710
5,254
2015
60,805
19,249
5,793
Amounts related to the President and CEO and the Executive Leadership
Team are included in the table above.
Remuneration to Board members and Presidents in subsidiaries
(SEK million)
Salary and other remuneration
Of which annual variable remuneration
Pension costs
2016
462
106
38
2015
368
56
47
Number of employees by gender and age at year-end 2016
Board members, Presidents and Group management
by gender at year end
Under 25 years old
25–35 years old
36–45 years old
46–55 years old
Over 55 years old
Percent of total
Women
2,037
10,562
7,036
4,375
1,539
23%
Men
2,767
32,120
27,594
17,817
5,617
77%
Percent
of total
4%
38%
31%
20%
7%
100%
Parent Company
Board members and President
Group Management
Subsidiaries
Board members and Presidents
2016
2015
Women
Men
Women
Men
46%
35%
54%
65%
36%
31%
64%
69%
19%
81%
13%
87%
Employee movements
Headcount at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees
2016
2015
111,464
19,865
15,048
1,148
116,281
16,610
14,836
1,413
98
Ericsson | Annual Report 2016
C29 Related party transactions
During 2016, various minor related party transactions were executed
pursuant to contracts based on terms customary in the industry and
negotiated on an arm’s length basis. For information regarding equity
and Ericsson’s share of assets, liabilities and income in joint ventures and
associated companies, see Note C12, “Financial assets, non-current.
” For information regarding transactions with the Board of Directors and
Group management, see Note C28, “Information regarding members of
the Board of Directors, the Group management and employees.”
For information about the Company’s pension trusts, see Note C17,
”Post-employment benefits.”
C30 Fees to Auditors
Fees to auditors
2016
Audit fees
Audit-related fees
Tax fees
Other fees
Total
2015
Audit fees
Audit-related fees
Tax fees
Other fees
Total
2014
Audit fees
Audit-related fees
Tax fees
Other fees
Total
PwC
Others
Total
90
10
10
16
126
91
11
19
8
129
83
11
15
18
127
3
–
8
11
22
2
–
13
–
15
7
0
4
1
12
93
10
18
27
148
93
11
32
8
144
90
11
19
19
139
During the period 2014–2016, in addition to audit services, PwC provided
certain audit-related services, tax and other services to the Company.
The audit-related services include quarterly reviews, ISO audits, SSAE 16
reviews and services in connection with the issuing of certificates and
opinions and consultation on financial accounting. The tax services
include general expatriate services and corporate tax compliance work.
Other services include, work related to acquisitions and operational effec-
tiveness.
Audit fees to other auditors largely consist of local statutory audits.
C31 Contractual obligations
Contractual obligations 2016
SEK billion
Current and Non-current
debt 1) 2)
Finance lease obligations 3)
Operating leases 3)
Other non-current liabilities
Purchase obligations 4)
Trade payables
Commitments for customer
finance 5)
Total
Payment due by period
<1
year
1–3
years
3–5
years
>5
years
8.0
–
3.1
–
5.3
25.3
13.1
54.8
1.0
–
4.7
0.2
0.5
–
–
6.4
8.8
–
3.3
–
1.2
–
9.4
–
5.5
2.4
–
–
–
13.3
–
17.3
Total
27.2
–
16.6
2.6
7.0
25.3
13.1
91.8
1) Including interest payments.
2) See also Note C19, “Interest-bearing liabilities.”
3) See also Note C27, “Leasing.”
4) The amounts of purchase obligations are gross, before deduction of any related provisions.
5) See also Note C14, “Trade receivables and customer finance.”
For information about financial guarantees, see Note C24, “Contingent
liabilities.”
Except for those transactions described in this report, the Company
has not been a party to any material contracts over the past three years
other than those entered into during the ordinary course of business.
C32 Events after the reporting period
New segment structure from January 1, 2017
From January 1, 2017, financial reporting is done according to the new
structure, i.e., by the new segments Networks, IT & Cloud and Media.
Börje Ekholm takes office as CEO and President
Börje Ekholm takes office as CEO and President. On January 16, 2017,
Ericsson announced that in connection with Börje Ekholm assuming the
position as President and CEO of Ericsson, Jan Frykhammar, who has
temporarily held the position as President and CEO, remains a member of
the Executive Leadership Team and is appointed Executive Vice President
and advisor to the CEO. Jan Frykhammar will support Börje Ekholm during
a transition period and will focus on corporate governance and efficiency.
Magnus Mandersson remains Executive Vice President, advisor to the
CEO, focusing on customer relationships, and a member of the Executive
Leadership Team. Magnus Mandersson also remains Chairperson of four
out of Ericsson’s ten regions.
Carl Mellander remains acting Chief Financial Officer and a member of
the Executive Leadership Team.
Financials – Notes to the consolidated financial statements
Ericsson | Annual Report 2016
99
FINANCIALS
Parent company FINANCIAL
STATEMENTS with NOTES
Contents
Parent Company financial statements
Parent Company income statement and statement
of comprehensive income
Parent Company balance sheet
Parent Company statement of cash flows
Parent Company statement of changes in stockholders’ equity
Notes to the Parent Company financial statements
P1
P2
P3
P4
P5
P6
P7
P8
P9
P10
P11
P12
P13
P14
P15
P16
P17
P18
P19
P20
P21
P22
P23
P24
P25
P26
P27
P28
Significant accounting policies
Other operating income and expenses
Financial income and expenses
Taxes
Intangible assets
Property, plant and equipment
Financial assets
Investments
Inventories
Trade receivables and customer finance
Receivables and liabilities – subsidiary companies
Other current receivables
Equity and other comprehensive income
Untaxed reserves
Post-employment benefits
Other provisions
Interest-bearing liabilities
Financial risk management and financial instruments
Other current liabilities
Trade payables
Assets pledged as collateral
Contingent liabilities
Statement of cash flows
Leasing
Information regarding employees
Related party transactions
Fees to auditors
Events after the reporting period
101
102
104
105
106
106
106
107
107
108
109
110
111
111
112
112
113
114
114
114
115
115
116
116
117
117
117
117
117
118
118
118
100
Ericsson | Annual Report 2016 Parent company FINANCIAL
STATEMENTS
Parent Company income statement
January–December, SEK million
Notes
2016
2015
2014
Net sales
Cost of sales
Gross income
Selling expenses
Administrative expenses
Operating expenses
Other operating income and expenses
Operating income
Financial income
Financial expenses
Income after financial items
Contributions to subsidiaries, net
Taxes
Net income
Parent Company statement of comprehensive income
January–December, SEK million
Net income
Other comprehensive income
Items that may be reclassified to profit or loss
Interest-bearing securities, non-current
Gains/losses arising during the period
Revaluation of other investments in shares and participations
Fair value remeasurement
Total other comprehensive income, net of tax
Total comprehensive income
P2
P3
P3
P14
P4
–
–
–
–70
–1,115
–1,185
2,698
1,513
15,179
–1,140
15,552
–1,100
14,452
–206
14,246
–
–
–
–118
–922
–1,040
2,889
1,849
15,966
–1,014
16,801
–1,500
15,301
–208
15,093
–
–
–
–262
–947
–1,209
3,088
1,879
26,912
–3,228
25,563
–1,700
23,863
–263
23,600
2016
14,246
2015
15,093
2014
23,600
–7
–5
–12
–
457
457
–
46
46
14,234
15,550
23,646
Financials – Parent Company financial statements
Ericsson | Annual Report 2016
101
Notes
P5
P6
P7, P8
P7, P8
P7
P7, P11
P7, P10
P4
P7
P7
P9
P10
P10
P11
P12
P18
P18
2016
2015
547
396
809
456
81,564
330
955
18,667
1,467
179
1,233
7,586
80,928
330
1,067
14,322
1,440
218
1,610
–
112,924
101,180
3
–
43
1,091
35,143
160
2,039
12,991
22,311
73,781
6
1,241
22,337
158
1,949
25,506
23,118
74,315
186,705
175,495
FINANCIALS – Parent Company financial statements
Parent Company balance sheet
December 31, SEK million
Assets
Fixed assets
Intangible assets
Tangible assets
Financial assets
Investments
Subsidiaries
Joint ventures and associated companies
Other investments
Receivables from subsidiaries
Customer finance, non-current
Deferred tax assets
Other financial assets, non-current
Interest-bearing securities, non-current
Current assets
Inventories
Receivables
Trade receivables
Customer finance, current
Receivables from subsidiaries
Current income taxes
Other current receivables
Short-term investments
Cash and cash equivalents
Total assets
102
Ericsson | Annual Report 2016
December 31, SEK million
Stockholders’ equity, provisions and liabilities
Stockholders’ equity
Capital stock
Revaluation reserve
Statutory reserve
Restricted equity
Retained earnings
Net income
Fair value reserves
Non-restricted equity
Provisions
Post-employment benefits
Other provisions
Non-current liabilities
Notes and bond loans
Other borrowings, non-current
Liabilities to subsidiaries
Other non-current liabilities
Current liabilities
Borrowings, current
Trade payables
Liabilities to subsidiaries
Other current liabilities
Notes
P13
P15
P16
P17
P17
P11
P17
P20
P11
P19
2016
2015
16,657
20
31,472
48,149
29,946
14,246
560
44,752
92,901
410
475
885
10,556
7,969
31,559
344
50,428
4,900
586
35,267
1,738
42,491
16,526
20
31,472
48,018
26,913
15,093
572
42,578
90,596
395
412
807
15,228
6,859
24,034
336
46,457
–
459
35,234
1,942
37,635
Total stockholders’ equity, provisions and liabilities
186,705
175,495
Financials – Parent Company financial statements
Ericsson | Annual Report 2016
103
FINANCIALS – Parent Company financial statements
Parent Company statement of cash flows
January–December, SEK million
Operating activities
Net income
Adjustments to reconcile net income to cash
Changes in operating net assets
Inventories
Customer finance, current and non-current
Trade receivables
Trade payables
Provisions and post-employment benefits
Other operating assets and liabilities, net
Cash flow from operating activities
Investing activities
Investments in property, plant and equipment
Investments in intangible assets
Sales/disposals of property, plant and equipment
Investments in shares and other investments
Divestments of shares and other investments
Lending, net
Other investing activities
Short-term investments
Cash flow from investing activities
Cash flow before financing activities
Financing activities
Changes in current liabilities to subsidiaries
Proceeds from issuance of borrowings
Repayment of borrowings
Stock issue
Sale/repurchase of own shares
Dividends paid
Settled contributions from/to (–) subsidiaries
Other financing activities
Cash flow from financing activities
Effect from remeasurement in cash
Net change in cash
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
P18
104
Ericsson | Annual Report 2016
Notes
2016
2015
2014
P23
14,246
1,738
15,984
–3
123
1,179
166
105
54
1,624
17,608
–178
–6
51
–1,478
836
–18,173
–22
3,690
–15,280
2,328
7,882
–
–
131
–26
–12,058
–1,500
–322
–5,893
2,758
–807
23,118
22,311
15,093
2,207
17,300
27
137
1,612
–374
–664
–2,223
–1,485
15,815
–148
–17
–
–166
1
–4,387
–875
5,616
24
15,839
–5,088
–
–
–
169
–11,033
–1,682
63
–17,571
407
–1,325
24,443
23,118
23,600
2,057
25,657
–20
–853
–1,083
–74
–425
2,360
–95
25,562
–223
–902
153
–979
201
–7,918
–
3,435
–6,233
19,329
–5,016
–
–7,982
–
106
–9,702
–431
–619
–23,644
4,804
489
23,954
24,443
Parent Company statement of changes in stockholders’ equity
SEK million
January 1, 2016
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock purchase plans
Repurchase of own shares
Dividends paid
December 31, 2016
January 1, 2015
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock purchase plans
Repurchase of own shares
Dividends paid
December 31, 2015
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
16,526
20
31,472
48,018
100
–
131
–
–
–
–
16,657
16,526
–
–
–
–
–
–
–
–
–
–
–
–
20
20
–
–
–
–
–
–
–
–
–
–
–
–
–
131
–
–
–
–
31,472
48,149
31,472
48,018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
–
–
–
–
–
–
572
–12
–
–
–
–
–
560
115
457
–
–
–
–
–
16,526
20
31,472
48,018
100
572
Other
retained
earnings
Non-
restricted
equity
41,906
42,578
Total
90,596
14,246
14,234
14,234
–
105
24
–131
–12,058
44,092
–
105
24
–131
–12,058
44,752
131
105
24
–131
–12,058
92,901
37,656
37,871
85,889
15,093
15,550
15,550
–
169
21
–
–11,033
41,906
–
169
21
–
–11,033
42,578
–
169
21
–
–11,033
90,596
Financials – Parent Company financial statements
Ericsson | Annual Report 2016
105
FINANCIALS – Notes to the Parent Company financial statements
FINANCIALS
notes to the Parent Company
FINANCIAL STATEMENTS
P1 Significant accounting policies
P2 Other operating income and expenses
The financial statements of the Parent Company, Telefonaktiebolaget LM
Ericsson, have been prepared in accordance with the Annual Accounts
Act and RFR 2 “Reporting in separate financial statements.” RFR 2
requires the Parent Company to use the same accounting principles
as for the Group, i.e., IFRS, to the extent allowed by RFR 2.
The main deviations between accounting policies adopted for the
Group and accounting policies for the Parent Company are:
Subsidiaries, associated companies and joint ventures
The investments are accounted for according to the acquisition cost
method. Investments are carried at cost and only dividends are accounted
for in the income statement. An impairment test is performed annually and
write-downs are made when permanent decline in value is established.
Contributions to/from subsidiaries and shareholders’ contributions
are accounted for according to RFR 2. Contributions from/to Swedish
subsidiaries are reported net in the income statement. Shareholders’
contributions increase the Parent Company’s investments.
Classification and measurement of financial instruments
IAS 39 Financial Instruments: Recognition and Measurement is adopted,
except regarding financial guarantees where the exception allowed in RFR
2 is chosen. Financial guarantees are included in Contingent liabilities.
Deferred taxes
The accounting of untaxed reserves in the balance sheet results in differ-
ent accounting of deferred taxes as compared to the principles applied in
the consolidated statements. Swedish GAAP and tax regulations require
a company to report certain differences between the tax basis and book
value as an untaxed reserve in the balance sheet of the standalone finan-
cial statements. Changes to these reserves are reported as an addition to,
or withdrawal from, untaxed reserves in the income statement.
Pensions
Pensions are accounted for in accordance with the recommendation FAR
SRS RedR 4 “Accounting for pension liability and pension cost” from the
Institute for the Accountancy Profession in Sweden. According to RFR 2,
IAS 19R shall be adopted regarding supplementary disclosures when
applicable.
Business combinations
Transaction costs attributable to the acquisition are included in the cost
of acquisition in the Parent Company statements compared to Group
Statements where these costs are expensed as incurred.
Other operating income and expenses
License revenues and other operating revenues
Subsidiary companies
Other
Net gains/losses (–) on sales of tangible assets
Total
2016
2015
2014
2,414
284
–
2,698
2,584
305
–
2,889
2,882
207
–1
3,088
P3 Financial income and expenses
Financial income and expenses
Financial income
Result from participations in subsidiary
companies
Dividends
Net gains on sales
Result from participations in joint ventures and
associated companies
Dividends
Net gains on sales
Result from other securities and receivables
accounted for as fixed assets
Net gains on sales
Other interest income and similar profit/loss
items
Subsidiary companies
Other
Total
Financial expenses
Losses on sales of participations in subsidiary
companies
Write-down of investments in subsidiary
companies
Net loss from joint ventures and associated
companies
Write-down of participations in other
companies
Interest expenses and similar profit/loss items
2016
2015
2014
14,111
37
15,254
–
24,644
91
81
–
40
73
–
–
1,101
–191
899
–260
249
200
–
740
988
15,179
15,966
26,912
–7
–
–1
–129
–356
–317
–
–
–24
–44
–63
–826
–91
–1,140
14,039
–26
–500
–88
–1,014
14,952
–
–
–103
–1,121
–1,686
–3,228
23,684
Critical accounting estimates and judgments
See Notes to the consolidated financial statements – Note C2, “Critical
accounting estimates and judgments.” Major critical accounting estimates
and judgments applicable to the Parent Company include “Trade and
customer finance receivables” and “Acquired intellectual property rights
and other intangible assets, excluding goodwill.”
Subsidiary companies
Other
Other financial expenses
Total
Financial net
Interest expenses on pension liabilities are included in the interest
expenses shown above.
106
Ericsson | Annual Report 2016
P4 Taxes
P5 Intangible assets
Income taxes recognized in the income statement
Patents, licenses, trademarks and similar rights
Accumulated acquisition costs
Opening balance
Acquisitions
Sales/disposals
Closing balance
Accumulated amortization
Opening balance
Amortization
Sales/disposals
Closing balance
Accumulated impairment losses
Opening balance
Impairment losses
Closing balance
Net carrying value
The balances are mainly related to RF technology.
2016
2015
5,080
6
–
5,086
–3,326
–268
–
–3,594
–945
–
–945
547
5,063
17
–
5,080
–2,925
–401
–
–3,326
–945
–
–945
809
Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)
Tax expense
2016
–54
–113
–39
–206
2015
–69
–130
–9
–208
2014
–87
–170
–6
–263
A reconciliation between actual tax expense for the year and the theoreti-
cal tax expense that would arise when applying the statutory tax rate in
Sweden, 22.0%, on the income before taxes is shown in the table below.
Reconciliation of Swedish income tax rate with actual tax
Expected tax expense at Swedish tax rate 22.0%
Current income taxes related to prior years
Tax effect of non-deductible expenses
Tax effect of non-taxable income
Tax effect related to write-downs of investments
in subsidiary companies
Actual tax expense
2016
–3,176
–113
–14
3,125
–28
–206
2015
–3,366
–130
–13
3,383
–82
–208
2014
–5,250
–170
–326
5,554
–71
–263
Deferred tax balances
Tax effects of temporary differences have resulted in deferred tax assets
as follows:
Deferred tax assets
Deferred tax assets
2016
179
2015
218
Deferred tax assets refer mainly to costs related to customer finance and
post-employment benefits.
Financials – Notes to the Parent Company financial statements
Ericsson | Annual Report 2016
107
FINANCIALS – Notes to the Parent Company financial statements
P6 Property, plant and equipment
Property, plant and equipment
2016
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications
Closing balance
Accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Closing balance
Net carrying value
2015
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications
Closing balance
Accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Closing balance
Net carrying value
Other equipment
and instal lations
Construction
in process and
advance payments
1,686
70
–237
100
1,619
–1,324
–187
231
–1,280
339
1,569
21
–
96
1,686
–1,163
–161
–
–1,324
362
94
108
–45
–100
57
–
–
–
–
57
64
126
–
–96
94
–
–
–
–
94
Total
1,780
178
–282
–
1,676
–1,324
–187
231
–1,280
396
1,633
147
–
–
1,780
–1,163
–161
–
–1,324
456
108
Ericsson | Annual Report 2016
P7 Financial assets
Investments in subsidiary companies, joint ventures and associated companies
Opening balance
Acquisitions and stock issues
Shareholders’ contribution
Repayment of shareholders’ contribution
Write-downs
Disposals
Closing balance
Other financial assets
Subsidiary companies
Associated companies
2016
80,928
458
892
–571
–129
–14
81,564
2015
81,265
7
–
–
–344
–
80,928
2016
2015
330
–
–
–
–
–
330
337
–
–
–
–7
–
330
Other investments in
shares and participations
Receivables from
subsidiaries, non-current
Interest-bearing
securities, non-current
Customer finance,
non-current
Other financial assets,
non-current
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/
deductions
Reclassifications
Fair value remeasurement
Translation difference
1,099
118
–203
–
–5
–
507
159
–24
–
457
–
14,322
3,490
13,290
–
–
7,593
–
–
–
855
–54
–
–
1,086
–
–
–7
–
Closing balance
1,009
1,099
18,667
14,322
7,586
Accumulated write-downs/
allowances
Opening balance
Write-downs/allowances
Disposals/repayments/
deductions
Reclassifications
Translation difference
Closing balance
Net carrying value
–32
–22
–
–
–
–54
955
–11
–21
–
–
–
–32
1,067
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
18,667
14,322
7,586
1) Convertible loan with PanOptis Holdings, LLC signed of 870 MSEK on the 19th of December 2015.
–
–
–
–
–
–
–
–
–
–
–
–
–
1,456
2,200
–2,264
–12
–
96
1,476
–16
–3
11
–
–1
–9
1,467
1,554
2,262
–1,807
–581
–
28
1,456
–79
–3
67
–
–1
–16
1,440
1,610
119
–44
–452
–
–
811
923 1)
–25
–99
–
–
1,233
1,610
–
–
–
–
–
–
–
–
–
–
–
–
1,233
1,610
Financials – Notes to the Parent Company financial statements
Ericsson | Annual Report 2016
109
FINANCIALS – Notes to the Parent Company financial statements
P8 Investments
The following listing shows certain shareholdings owned directly and indirectly by the Parent Company as of December 31, 2016.
A complete listing of shareholdings, prepared in accordance with the Swedish Annual Accounts Act and filed with the Swedish Companies Registra-
tion Office (Bolagsverket), may be obtained upon request to: Telefonaktiebolaget LM Ericsson, External Reporting, SE-164 83 Stockholm, Sweden.
Shares owned directly by the Parent Company
Company
Subsidiary companies
Ericsson AB
Ericsson Shared Services AB
Netwise AB
Datacenter i Rosersberg AB
Datacenter i Mjärdevi Aktiebolag
AB Aulis
Ericsson Credit AB
Other (Sweden)
Ericsson Austria GmbH
Ericsson Danmark A/S
Oy LM Ericsson Ab
Ericsson Participations France SAS
Ericsson Germany GmbH
Ericsson Hungary Ltd.
L M Ericsson Limited
Ericsson Telecomunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson A/S
Ericsson Television AS
Ericsson Corporatia AO
Ericsson España S.A.
Ericsson AG
Ericsson Holdings Ltd.
Other (Europe, excluding Sweden)
Ericsson Holding II Inc.
Companía Ericsson S.A.C.I.
Ericsson Canada Inc.
Belair Networks
Ericsson Telecom S.A. de C.V.
Other (United States, Latin America)
Teleric Pty Ltd.
Ericsson Ltd.
Ericsson (China) Company Ltd.
Ericsson India Private Ltd.
Ericsson India Global Services PVT. Ltd
Ericsson Media Solutions Ltd
Ericsson-LG CO Ltd.
Ericsson (Malaysia) Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson South Africa PTY. Ltd
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other countries (the rest of the world)
Total
Joint ventures and associated companies
ST-Ericsson SA
Rockstar Consortium Group
Ericsson Nikola Tesla d.d.
Total
Reg. No.
Domicile
Percentage of own-
ership
Par value in local
currency, million
Carrying value,
SEK million
556056-6258
556251-3266
556404-4286
556895-3748
556366-2302
556030-9899
556326-0552
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
The Netherlands
Norway
Norway
Russia
Spain
Switzerland
United Kingdom
United States
Argentina
Canada
Canada
Mexico
Australia
China
China
India
India
Israel
Korea
Malaysia
Singapore
South Africa
Taiwan
Thailand
Switzerland
Canada
Croatia
100
100
100
100
100
100
100
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
100
95 1)
100
100
100
–
100
100
100
100
100
100
75
70
100
70
90
49 2)
–
50
21
49
50
361
2
–
10
14
5
–
4
90
13
26
–
1,301
4
44
222
75
161
5
43
–
328
–
2,897
41
–
–
939
–
20
2
65
725
389
9
375
2
2
–
270
90
–
137
1
65
20,731
2,216
306
88
69
6
5
1,642
65
216
196
524
4,232
120
34
5,357
3,200
114
1,670
5
170
–
4,094
680
29,907
15
51
170
1,050
96
100
2
475
147
64
711
2,544
4
1
135
36
17
299
81,564
–
–
330
330
1) Through subsidiary holdings, total holdings amount to 100% of Compania Ericsson S.A.C.I.
2) Through subsidiary holdings, total holdings amount to 100% of Ericsson (Thailand) Ltd.
110
Ericsson | Annual Report 2016
Shares owned by subsidiary companies
Company
Subsidiary companies
Ericsson Cables Holding AB
Ericsson France SAS
Ericsson Telekommunikation GmbH 1)
Ericsson Telecommunicatie B.V.
Ericsson Telekomunikasyon A.S.
Ericsson Ltd.
Creative Broadcast Services Holdings Ltd.
Ericsson Inc.
Ericsson Wifi Inc.
Drutt Corporation Inc.
Redback Networks Inc.
Telcordia Technologies Inc.
Ericsson Telecomunicações S.A.
Ericsson Australia Pty. Ltd.
Ericsson (China) Communications Co. Ltd.
Nanjing Ericsson Panda Communication Co. Ltd.
Ericsson Japan K.K.
Ericsson Communication Solutions Pte Ltd.
Reg. No.
Domicile
Percentage
of ownership
556044-9489
Sweden
France
Germany
The Netherlands
Turkey
United Kingdom
United Kingdom
United States
United States
United States
United States
United States
Brazil
Australia
China
China
Japan
Singapore
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
51
100
100
1) Disclosures Pursuant to Section 264b of the German Commercial Code (Handelsgesetzbuch – HGB)
Applying Section 264b HGB, Ericsson Holding GmbH and Ericsson Telekommunikation GmbH, located in Frankfurt am Main/Germany, are exempted from the obligation to prepare,
have audited and disclose financial statements and a management report in accordance with the legal requirements being applicable for German corporations.
P9 Inventories
Inventories
Finished products and goods for resale
Inventories
P10 Trade receivables and customer finance
Credit risk management is governed on a Group level.
For further information, see Notes to the consolidated financial state-
ments – Note C14, “Trade receivables and customer finance” and Note
C20, “Financial risk management and financial instruments.”
Trade receivables and customer finance
2016
2015
3
3
–
–
Trade receivables excluding associated
companies and joint ventures
Allowances for impairment
Trade receivables, net
Trade receivables related to associated
companies and joint ventures
Trade receivables, total
Customer finance
Allowances for impairment
Customer finance, net
2016
2015
64
–22
42
1
43
2,663
–105
2,558
28
–22
6
–
6
2,871
–190
2,681
Movements in allowances for impairment
Opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference
Closing balance
Trade receivables
Customer finance
2016
2015
22
1
–
–1
–
22
23
–
–
–
–1
22
2016
190
27
–108
–5
1
105
2015
255
27
–47
–42
–3
190
Financials – Notes to the Parent Company financial statements
Ericsson | Annual Report 2016
111
Trade receivables
excluding associated
companies and joint
ventures
Allowances for
impairment of
receivables
Trade receivables
related to associated
companies and
joint ventures
Customer finance
Allowances for
impairment of
customer finance
22
4
30
–
–
8
64
22
–
–4
–
–
10
28
–
–
–
–
–
–22
–22
–
–
–
–
–
–22
–22
1
–
–
–
–
–
1
–
–
–
–
–
–
–
1,438
1,058
3
3
14
147
2,663
1,568
1,075
4
3
11
210
2,871
–
–7
–
–
–6
–92
–105
–
–12
–
–
–8
–170
–190
2016
2,663
122
2,785
16
–805
1,996
2,558
1,091
3,390
2015
2,871
70
2,941
26
–1,431
1,536
2,681
1,241
3,432
P11 Receivables and liabilities –
subsidiary companies
Receivables and liabilities – subsidiary companies
Payment due by period
< 1
year
1–5
years
>5
years
Total
2016
Total
2015
Non-current receivables 1)
Financial receivables
54
18,613
Current receivables
Trade receivables
Financial receivables
Total
Non-current liabilities 1)
Financial liabilities
Current liabilities
Trade payables
Financial liabilities
Total
2,093
33,050
35,143
–
284
34,983
35,267
–
–
–
–
–
–
–
–
–
–
–
18,667
14,322
2,093
33,050
35,143
3,107
19,230
22,337
31,559
31,559
24,034
–
–
–
284
34,983
35,267
233
35,001
35,234
1) Including non-interest-bearing receivables and liabilities, net, amounting to SEK –31,559
(–24,034) million.
P12 Other current receivables
Other current receivables
Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other
Total
2016
267
51
1,077
644
2,039
2015
304
62
973
610
1,949
FINANCIALS – Notes to the Parent Company financial statements
Aging analysis as per December 31
2016
Neither impaired nor past due
Impaired, not past due
Past due in less than 90 days
Past due in 90 days or more
Past due and impaired in less than 90 days
Past due and impaired in 90 days or more
Total
2015
Neither impaired nor past due
Impaired, not past due
Past due in less than 90 days
Past due in 90 days or more
Past due and impaired in less than 90 days
Past due and impaired in 90 days or more
Total
Outstanding customer finance
On-balance sheet customer finance
Financial guarantees for third-parties
Total customer finance
Accrued interest
Less third-party risk coverage
Parent Company’s risk exposure
On-balance sheet credits, net carrying value
Of which current
Credit commitments for customer finance
Transfers of financial assets
Transfers where the Parent Company has not derecognized
the assets in their entirety
As per December 31, 2016 there existed no customer financing assets
that the Parent Company had transferred to third-parties where the Par-
ent Company did not derecognize the assets in their entirety. However, it
existed such transaction in 2015. The total carrying amount of the original
assets transferred, before the transfer, was 2015 SEK 534 million; the
amount of the assets that the Parent Company continues to recognize
was 2015 SEK 27 million; and the carrying amount of the associated liabil-
ities was SEK 0 million.
112
Ericsson | Annual Report 2016
P13 Equity and other comprehensive income
Capital stock 2016
Capital stock at December 31, 2016, consisted of the following:
Capital stock
Class A shares 1)
Class B shares 1)
Total
Number of shares
Capital stock
261,755,983
3,069,395,752
3,331,151,735
1,309
15,348
16,657
1) Class A shares (quotient value SEK 5.00) and Class B shares (quotient value SEK 5.00).
The Board of Directors proposes that a dividend of SEK 1.00 (3.70) per
share be paid to shareholders duly registered on the record date of
March 31, 2017, and that the Parent Company shall retain the remaining
part of non-restricted equity. The Class B treasury shares held by the
Parent Company are not entitled to receive dividend. Assuming that no
treasury shares remain on the record date, the Board of Directors pro-
poses that earnings be distributed as follows:
Proposed disposition of earnings
Proposed disposition of earnings
Amount to be paid to the shareholders
Amount to be retained by the Parent Company
Total non-restricted equity of the Parent Company
SEK 3,331,151,735
SEK 41,420,521,393
SEK 44,751,673,128
Equity and other comprehensive income 2016
January 1, 2016
Net income
Other comprehensive income
Items that may be reclassified to profit or loss
Interest-bearing securities, non-current
Gains/losses arising during the period
Revaluation of other investments in shares and
participations
Fair value remeasurement
Total other comprehensive income,
net of tax
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock Purchase Plans
Repurchase of own shares
Dividends paid
December 31, 2016
Equity and other comprehensive income 2015
January 1, 2015
Net income
Other comprehensive income
Items that may be reclassified to profit or loss
Revaluation of other investments in shares and
participations
Fair value remeasurement
Total other comprehensive income,
net of tax
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Stock Purchase Plans
Repurchase of own shares
Dividends paid
December 31, 2015
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
16,526
–
–
–
–
–
131
–
–
–
–
20
–
–
–
–
–
–
–
–
–
–
31,472
48,018
100
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
131
–
–
–
–
–
–
–
–
–
–
–
–
–
–
572
–
–7
–5
–12
–12
–
–
–
–
–
16,657
20
31,472
48,149
100
560
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
16,526
–
–
–
–
–
–
–
–
–
20
–
–
–
–
–
–
–
–
–
31,472
48,018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
115
–
457
457
457
–
–
–
–
–
16,526
20
31,472
48,018
100
572
Other
retained
earnings
Non-
restricted
equity
41,906
42,578
Total
90,596
14,246
14,246
14,246
–
–
–
–
–
105
24
–131
–12,058
44,092
–7
–7
–5
–12
–12
–
105
24
–131
–12,058
44,752
–5
–12
–12
131
105
24
–131
–12,058
92,901
Other
retained
earnings
Non-
restricted
equity
37,656
37,871
Total
85,889
15,093
15,093
15,093
–
–
–
–
169
21
–
–11,033
41,906
457
457
457
–
169
21
–
–11,033
42,578
457
457
457
–
169
21
–
–11,033
90,596
Financials – Notes to the Parent Company financial statements
Ericsson | Annual Report 2016
113
FINANCIALS – Notes to the Parent Company financial statements
P14 Untaxed reserves
Contributions to Swedish subsidiaries amount to SEK 1,100 (1,500)
million. There were no contributions from Swedish subsidiaries in
2016 and 2015.
P15 Post-employment benefits
The Parent Company has two types of pension plans:
> Defined contribution plans: post-employment benefit plans where the
Parent Company pays fixed contributions into separate entities and
has no legal or constructive obligation to pay further contributions if the
entities do not hold sufficient assets to pay all employee benefits relat-
ing to employee service. The expenses for defined contribution plans
are recognized during the period when the employee provides service.
> Defined benefit plans: post-employment benefit plans where the Parent
Company’s undertaking is to provide predetermined benefits that
the employee will receive on or after retirement. The ITP2 plan for the
Parent Company is partly funded. ITP2 is a supplementary pension
plan for salaried employees born before 1979. Pension obligations
are calculated annually, on the balance sheet date, based on actuarial
assumptions.
Defined benefit obligation – amount recognized in the Balance sheet
Present value of wholly or partially funded pension plans 1)
Fair value of plan assets
Unfunded/net surplus (–) of funded pension plans
Present value of unfunded pension plans
Excess from plan assets not accounted for
Closing balance provision for pensions
2016
832
–1,174
–342
410
342
410
2015
814
–1,080
–266
395
266
395
1) The ITP2 obligation is covered by the Swedish law on safeguarding of pension commitments
and amounts to SEK 825 (804) million.
The defined benefit obligations are calculated based on the actual salary
levels at year-end and based on a discount rate of 2.9%.
Weighted average life expectancy after the age of 65 is 25 years for
women and 23 years for men.
The Parent Company utilizes no assets held by the pension trust.
Return on plan assets was 8.7 (4.7)%.
P16 Other provisions
Other provisions
2016
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance
2015
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance
1) Of which SEK 470 (407) million is expected to be utilized within one year.
114
Ericsson | Annual Report 2016
Plan assets allocation
Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds
Total
Of which Ericsson securities
Change in the defined benefit obligation
Opening balance
Pension costs, excluding taxes, related to defined benefit
obligations accounted for in the income statement
Pension payments
Return on plan assets
Return on plan assets not accounted for
Closing balance provision for pensions
2016
2015
102
223
493
229
127
–
205
538
149
188
1,174
–
1,080
–
2016
395
110
–77
–94
76
410
2015
390
104
–78
–49
28
395
Estimated pension payments for 2017 are SEK 81 million.
Total pension cost and income recognized in the Income statement
2016
2015
2014
Defined benefit obligations
Costs excluding interest and taxes
Interest cost
Credit insurance premium
Total cost defined benefit plans
excluding taxes
Defined contribution plans
Pension insurance premium
Total cost defined contribution plans
excluding taxes
Return on plan assets
Total pension cost, net excluding taxes
74
36
2
68
36
–
112
104
85
85
–18
179
71
71
–21
154
39
54
2
95
65
65
–24
136
Of the total pension cost, SEK 162 (139 in 2015 and 106 in 2014) million is
included in operating expenses and SEK 17 (15 in 2015 and 30 in 2014)
million in the financial net.
Restruc turing
Customer
finance
Other
Total other
provisions1)
50
83
–60
–2
–
71
32
32
–12
–2
–
50
4
–
–
–
–
4
8
–
–4
–
–
4
358
70
–
–28
–
400
1,041
126
–
–809
–
358
412
153
–60
–30
–
475
1,081
158
–16
–811
–
412
p17 Interest-bearing liabilities
As of December 31, 2016, the Parent Company’s outstanding inter-
est-bearing liabilities, excluding liabilities to subsidiaries, stood at
SEK 23.4 (22.1) billion.
Interest-bearing liabilities
Borrowings, current
Current part of non-current borrowings
Other current borrowings
Total current borrowings
Borrowings, non-current
Notes and bond loans
Other borrowings, non-current
Total non-current interest-bearing liabilities
Total interest-bearing liabilities
1) Including notes and bond loans of SEK 4,900 (0) million.
2016
2015
4,900 1)
–
4,900
–
–
–
10,556
7,969
18,525
23,425
14,699
7,388
22,087
22,087
Notes, bonds, bilateral loans and committed credit
To secure long-term funding, the Parent Company uses notes and bond
programs together with bilateral research and development loans. All out-
standing notes and bond loans are issued by the Parent Company under
its Euro Medium-Term Note (EMTN) program or under its U.S. Securities
and Exchange Commission (SEC) Registered program. Bonds issued at
a fixed interest rate are normally swapped to a floating interest rate using
interest rate swaps leaving a maximum of 50% of outstanding loans at
fixed interest rates. Total weighted average interest rate cost for the long-
term funding during the year was 2.76% (2.58%). The outstanding EUR
bond is revalued based on changes in benchmark interest rates accord-
ing to the fair value hedge methodology stipulated in IAS 39.
In June 2016, the Company exercised its first extension option under-
the USD 2 billion multi-currency revolving credit facility, extending thema-
turity date to June 2021. One extension option of one year remains.In
November 2016, the Company signed a new EUR 0.5 billion termloan
facility. The new facility has a tenor of two years with one extension option
of one year and the facility serves for general corporate purposes.
Issued–maturing
Notes and bond loans
2007–2017
2010–2020 2)
2012–2022
Total notes and bond loans
Bilateral loans
2012–2019 3)
2012–2021 4)
2013–2020 5)
Total bilateral loans
Committed credit
Long-term committed credit facility 6)
Term loan facility 7)
Total committed credit
Nominal
amount
Coupon
Currency
Book value
(SEK million) 9)
Maturity date
5.375%
4.125%
500
170
1,000
98
98
684
2,000
500
EUR
USD
USD
USD
USD
USD
USD
EUR
4,900 1)
1,540
9,016 8)
15,456
887
889
6,193
7,969
–
–
–
June 27, 2017
December 23, 2020
May 15, 2022
September 30, 2019
September 30, 2021
November 6, 2020
June 5, 2021
November 10, 2018
Unrealized hedge
gain/loss (included
in book value)
–120
–120
1) Interest rate swaps are designated as fair value hedges.
2) Private Placement, Swedish Export Credit Corporation (SEK).
3) Nordic Investment Bank (NIB), R&D project financing.
4) Nordic Investment Bank (NIB), R&D project financing.
5) European Investment Bank (EIB), R&D project financing.
6) Multi-currency revolving credit facility. Unutilized. One
8) Market value SEK 9,092 million.
9) Market value is approximately equal to book value
one-year extension option remains.
except where indicated.
7) Bridge term loan facility. Unutilized. One one-year extension
option remains.
P18 Financial risk management and financial instruments
Ericsson’s financial risk management is governed on a Group level. For
further information see Notes to the Consolidated Financial Statements,
Note C20, ”Financial Risk Management and Financial Instruments”.
Outstanding derivatives 1)
Fair value
Asset
Liability
Asset
Liability
2016
2015
Currency derivatives
Maturity within 3 months
Maturity between 3 and 12
months
Maturity between 1 and 3 years
Total
Of which internal
572
469
1,041
437
345
157
502
173
377
225
–
602
49
352
225
–
577
398
Fair value
Asset
Liability
Asset
Liability
2016
2015
Interest rate derivatives
Maturity within 3 months
Maturity between 3 and
12 months
Maturity between 1 and 3 years
Maturity between 3 and 5 years
Maturity of more than 5 years
Total
Of which designated in fair
value hedge relations
–
239
191
–
65
495 2)
120
–
82
205
6
116
409
–
5
165
545
53
94
862 2)
338
–
234
243
176
108
761
–
1) Some of the derivatives hedging non-current liabilities are recognized in the balance sheet
as non-current due to hedge accounting
2) Of which SEK 0 (452) million is reported as non-current assets.
Financials – Notes to the Parent Company financial statements
Ericsson | Annual Report 2016
115
FINANCIALS – Notes to the Parent Company financial statements
Note 18, contd.
Cash, cash equivalents and short-term investments 1)
Funding programs 1)
SEK billion
Banks
Type of issuer/counterpart
Governments
Corporations
Mortgage institutes
2016
2015
Remaining time to maturity
< 3
months
3–12
months
14.3
–
1–5
years
–
>5
years
–
–
8.0
–
22.3
23.0
0.5
–
0.7
1.2
2.6
7.1
–
12.0
19.1
22.4
0.3
–
–
0.3
0.6
Total
14.3
7.9
8.0
12.7
42.9
48.6
1) Including interest-bearing securities, non-current.
The instruments are either classified as held for trading or as assets
available-for-sale with maturity less than one year and are therefore short-
term investments. Cash, cash equivalents and short-term investments
are mainly held in SEK unless offset by EUR-funding. Instruments held for
trading with a remaining maturity longer than one year amounted to SEK
11.9 billion and were reported as Interest-bearing securities, current.
Debt financing is mainly carried out through borrowing in the Swedish
and international debt capital markets.
Bank financing is used for certain subsidiary funding and to obtain
committed credit facilities, see Note P17, “Interest-bearing liabilities.”
Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million)
Amount
Utilized Unutilized
5,000
2)
698
1,000
4,302
–
1) There are no financial covenants related to these programs.
2) Program amount indeterminate.
In October 2016, Moody’s announced that they have downgraded the
senior unsecured debt ratings to Baa2 from Baa1 and the MTN program
rating to Baa2 from Baa1. At the same time, the agency placed the com-
pany’s Baa2/Baa2 ratings on review for further downgrade. In December
2016, Moody’s concluded their review and announced that they have-
downgraded the senior unsecured debt ratings to Baa3 from Baa2 and
the MTN program rating to Baa3 from Baa2, with a negative outlook. In
October 2016, S&P announced that they have downgraded the long-term
corporate credit rating on Ericsson to BBB from BBB+, with a negative
outlook.
Fair valuation of the Company’s financial instruments
The Company’s financial instruments generally meet the requirements of
level 1 valuation due to the fact that they are based on quoted prices in
active markets for identical assets.
Exceptions to this relates to:
> OTC derivatives with an amount of gross SEK 1.9 (2.8) billion in relation
to assets and gross SEK 1.2 (2.7) billion in relation to liabilities were val-
ued based on references to other market data as currency or interest
rates. These valuations fall under level 2 valuation as defined by IFRS.
> Ownership in other companies and other financial investments where
the Company neither has control nor significant influence. The amount
recognized in these cases was SEK 1.9 (1.9) billion. These assets, clas-
sified as level 3 assets for valuation purposes, have been valued based
on value in use technique.
Financial instruments, book value
Trade
recei v ables
Inter-
est-bearing
securities
Rec eiv-
ables and
liabilities
sub sidi-
aries
Interest
bearing lia-
bilities
Trade
payables
Cash
equivalent
Other
current
receivables
Other
current
liabilities
Other
financial
assets
P10
P7 / P18
P11
P17
P20
P12
1.1
P19
–0.7
8.9
P7
0.9
0.3
1.0
SEK billion
Note
Assets at fair value through
profit or loss
Loans and receivables
Available-for-sale
Financial Liabilities at
amortized cost
2.6
13.0
7.6
53.8
–66.8
–13
Total
2.6
20.6
–23.4
–23.4
–0.4
–0.4
8.9
1.1
–0.7
2.2
P19 Other current liabilities
P20 Trade payables
Other current liabilities
Trade payables
Accrued interest
Accrued expenses, of which
Employee related
Other
Deferred revenues
Derivatives with a negative value
Other current liabilities
Total
2016
2015
212
616
289
326
16
738
156
195
643
382
261
43
940
121
1,738
1,942
Trade payables excluding associated companies and joint
ventures
Associated companies and joint ventures
Total
All trade payables fall due within 90 days.
116
Ericsson | Annual Report 2016
2016
2015
23.5
56.4
8.6
–90.6
–2.1
40.2
39.4
1.1
–81.7
–1.0
2016
2015
400
186
586
273
186
459
P21 Assets pledged as collateral
P24 Leasing
Assets pledged as collateral
Bank deposits
Total
2016
584
584
2015
526
526
Leasing with the Parent Company as lessee
At December 31, 2016, future payment obligations for leases were
distributed as follows:
Future payment obligations for leases
The major item in bank deposits is the internal bank’s clearing and settle-
ment commitments of SEK 345 (295) million.
P22 Contingent liabilities
Contingent liabilities
Total contingent liabilities
2017
2018
2019
2020
2021
2022 and later
Total
Operating leases
616
520
486
428
400
1,099
3,549
2016
2015
22,677
22,461
Leasing with the Parent Company as lessor
At December 31, 2016, future minimum payment receivables were
distributed as follows:
Contingent liabilities include pension commitments of SEK 17,373 (17,544)
million.
In accordance with standard industry practice, the Company enters
into commercial contract guarantees related to contracts for the supply
of telecommunication equipment and services. The total amount for 2016
was SEK 23,094 (22,420) million. Potential payments due under these
bonds are related to the Company’s performance under applicable
contracts.
For information about financial guarantees, see Note P10, “Trade
Receivables and Customer Finance.”
P23 Statement of cash flows
Interest paid in 2016 amounted to SEK 564 million (SEK 557 in 2015 and
SEK 864 million in 2014) and interest received was SEK 304 million (SEK
1,009 in 2015 and SEK 1,657 million in 2014). Taxes paid, including with-
holding tax, were SEK 121 million in 2016 (SEK 327 million in 2015 and
SEK 321 million in 2014).
Adjustments to reconcile net income to cash
Property, plant and equipment
Depreciation
Total
Intangible assets
Amortization
Total
Total depreciation and amortization on
tangible and intangible assets
Taxes
Write-downs and capital gains (–)/losses
on sale of fixed assets, excluding customer
finance, net
Unsettled group contributions
Unsettled dividends
Other non-cash items
Total adjustments to reconcile
net income to cash
2016
2015
2014
187
187
268
268
455
84
78
1,100
–7
28
161
161
402
402
563
–119
400
1,500
–
–137
171
171
355
355
526
–58
28
1,700
–
–139
1,738
2,207
2,057
Future minimum payment receivables
Operating leases
2017
2018
2019
2020
2021
2022 and later
Total
4
1
–
–
–
–
5
The operating lease income is mainly income from the subleasing of real
estate. See Notes to the consolidated financial statements, Note C27,
“Leasing.”
P25 Information regarding employees
Average number of employees
2016
2015
Men Women
Total
Men Women
Total
209
172
381
209
209
193
17
210
193
193
402
189
591
402
402
192
165
357
192
192
167
19
186
167
167
359
184
543
359
359
Northern Europe &
Central Asia 1) 2)
Middle East
Total
1) Of which in Sweden
2) Of which in EU
Remuneration
Wages and salaries and social security expenses
Wages and salaries
Social security expenses
Of which pension costs
Wages and salaries per region
Northern Europe & Central Asia 1) 2)
Middle East
Total
1) Of which in Sweden
2) Of which in the EU
2016
2015
755
361
221
733
361
194
2016
2015
480
275
755
480
480
479
254
733
479
479
Financials – Notes to the Parent Company financial statements
Ericsson | Annual Report 2016
117
FINANCIALS – Notes to the Parent Company financial statements
Note 25, contd.
Remuneration in foreign currency has been translated to SEK at average
exchange rates for the year.
Remuneration to the Board of Directors and the President and CEO
See Notes to the consolidated financial statements, Note C28, “Informa-
tion regarding members of the Board of Directors, the Group manage-
ment and employees.”
Long-term variable compensation
The Stock Purchase Plan
Compensation costs for all employees of the Parent Company amounted
to SEK 24.7 (21.0) million.
P26 Related party transactions
During 2016, various transactions were executed pursuant to contracts
based on terms customary in the industry and negotiated on an arm’s
length basis.
Ericsson Nikola Tesla d.d.
Ericsson Nikola Tesla d.d. is a company providing the design, sales and
service of telecommunications systems and equipment and an associ-
ated member of the Ericsson Group. Ericsson Nikola Tesla d.d. is located
in Zagreb, Croatia. The Parent Company holds 49.07% of the shares.
For the Parent Company, the major transactions are license revenues
for Ericsson Nikola Tesla d.d.’s usage of trademarks and received
dividends.
Ericsson Nikola Tesla d.d.
Related party transactions
License revenues
Dividends
Related party balances
Receivables
2016
2015
4
81
4
3
72
–
The Parent Company does not have any contingent liabilities, assets
pledged as collateral or guarantees toward Ericsson Nikola Tesla d.d.
ST-Ericsson
ST-Ericsson was formed in 2009 as a joint venture, equally owned by
Ericsson and STMicroelectronics.
In early 2013 the parents agreed to split up and close the joint venture.
The company ST-Ericsson is winding down and all business has been
transferred to parents or divested during 2013. In 2013, the Parent
Company acquired the remaining shares in ST-Ericsson AT SA which
is now a fully owned subsidiary.
The Parent Company does not have any contingent liabilities, assets
pledged as collateral or guarantees towards ST-Ericsson.
P27 Fees to auditors
Fees to auditors
2016
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
2015
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
2014
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
PwC
23
8
1
–
32
22
8
2
–
32
24
7
1
1
33
The allocation of fees to the auditors is based on the requirements in the
Swedish Annual Accounts Act.
During the period 2014–2016, in addition to audit services, PwC provided
certain audit-related services, tax and other services to the Parent Com-
pany. The audit-related services include quarterly reviews, SSAE 16
reviews and services in connection with the issuing of certificates and
opinions and consultation on financial accounting. The tax services
include corporate tax compliance work. Other services include services
related to acquisitions.
P28 Events after the reporting period
Börje Ekholm takes office as CEO and President
Börje Ekholm takes office as CEO and President. On January 16, 2017,
Ericsson announced that in connection with Börje Ekholm assuming the
position as President and CEO of Ericsson, Jan Frykhammar, who has
temporarily held the position as President and CEO, remains a member of
the Executive Leadership Team and is appointed Executive Vice President
and advisor to the CEO. Jan Frykhammar will support Börje Ekholm during
a transition period and will focus on corporate governance and efficiency.
Magnus Mandersson remains Executive Vice President, advisor to the
CEO, focusing on customer relationships, and a member of the Executive
Leadership Team. Magnus Mandersson also remains Chairperson of four
out of Ericsson’s ten regions.
Carl Mellander remains acting Chief Financial Officer and a member of
ST-Ericsson
Related party transactions
License revenues
Dividends
Related party balances
Receivables
Payables
2016
2015
the Executive Leadership Team.
–
–
187
186
–
–
185
186
Other related parties
For information regarding the remuneration of management, see Notes to
the consolidated financial statements, Note C28, “Information regarding
members of the Board of Directors, the Group management and employees.”
118
Ericsson | Annual Report 2016
FINANCIALS
risk factors
You should carefully consider all the information in this
Annual Report and in particular the risks and uncertainties
outlined below. Based on the information currently known
to us, we believe that the following information identifies
the most significant risk factors affecting our business.
Any of the factors described below, or any other risk factors
discussed elsewhere in this report, could have a material
negative effect on our business, revenues, operating and
after-tax results, profit margins, financial condition, cash
flow, liquidity, credit rating, market share, reputation, brand
and/or our share price. Additional risks and uncertainties
not presently known to us or that we currently believe to be
immaterial may also materially adversely affect our business.
Furthermore, our operating results may have a greater
variability than in the past and we may have difficulties
in accurately predicting future developments. See also
“Forward-Looking Statements.”
Market, Technology and Business Risks
Challenging global economic conditions and political unrest
and uncertainty as well as geopolitical risks may adversely
impact the demand and pricing for our products and services
as well as limit our ability to grow.
Challenging global economic conditions and political unrest
anduncertainty as well as geopolitical risk could have adverse,
wide-ranging effects on demand for our products and for the
products of our customers. Adverse global economic conditions
and political unrest and uncertainty as well as geopolitical risk
could cause operators and other customers to postpone invest-
ments or initiate other cost-cutting initiatives to improve their finan-
cial position. This could result in significantly reduced expendi-
tures for our products and services, including network infrastruc-
ture, in which case our operating results would suffer. If demand
for our products and services were to fall in the future, we could
experience material adverse effects on our revenues, cash flow,
capital employed and value of our assets and we could incur
operating losses. Furthermore, if demand is significantly weaker
or more volatile than expected, our credit rating, borrowing oppor-
tunities and costs as well as the trading price of our shares could
be adversely impacted. Should global economic conditions fail to
improve or worsen or should political unrest and uncertainty or
geopolitical problems fail to, improve, or worsen, other business
risks we face could intensify and could also negatively impact the
business prospects of operators and other customers. Some
operators and other customers, in particular in markets with weak
currencies, may incur borrowing difficulties and slower traffic
development, which may negatively affect their investment plans
and cause them to purchase less of our products and services.
The potential adverse effects of an economic downturn include:
> Reduced demand for products and services, resulting in
increased price competition or deferrals of purchases, with
lower revenues not fully compensated through reduced costs
> Risks of excess and obsolete inventories and excess manu-
facturing capacity
Contents
Market, Technology and Business risks
Regulatory, Compliance and Corporate Governance risks
Risks associated with owning Ericsson shares
119
125
127
> Risk of financial difficulties or failures among our suppliers
> Increased demand for customer finance, difficulties in collec-
tion of accounts receivable and increased risk of counter
party failures
> Risk of impairment losses related to our intangible assets as
a result of lower forecasted sales of certain products
> Increased difficulties in forecasting sales and financial results
as well as increased volatility in our reported results
> Changes in the value in our pension plan assets resulting from
for example, adverse equity and credit market developments
and/or increased pension liabilities resulting from, for example,
lower discount rates. Such development may trigger additional
pension trust capitalization needs affecting the company’s
cash balance negatively
> End user demand could also be adversely affected by reduced
consumer spending on technology, changed operator pricing,
security breaches and trust issues.
> On June 23, 2016, the UK held a referendum in which voters
approved an exit from the European Union, commonly referred
to as “Brexit”. As a result of the referendum it is expected that
the British government will begin negotiating the terms of the
UK´s withdrawal from the European Union. The long-term
effects of Brexit will depend on any agreements the UK makes
to retain access to European markets either during a transi-
tional period or permanently as well as on the agreements the
UK makes with other trading partners. Any of the potential
effects of Brexit could have unpredictable consequences for
credit markets and adversely affect our business, results of
operations and financial performance.
> The recent change in political leadership in the U.S. has led to
uncertainty about the U.S.’ position in a number of areas such
as foreign policy, international trade, customs and taxation,
which could adversely affect our business, results of opera-
tions and financial performance.
Financials – Risk factors
Ericsson | Annual Report 2016
119
FINANCIALS – Risk factors
We may not be successful in implementing our strategy or in
achieving improvements in our earnings or in estimating
addressable markets or market CAGR in the markets where
we operate.
There can be no assurance that we will be able to successfully
implement our strategy to achieve future earnings, growth or cre-
ate shareholder value. When deemed necessary, we undertake
specific restructuring or cost-saving initiatives; however, there are
no guarantees that such initiatives will be sufficient, successful or
executed in time to deliver any improvements in our earnings.
Furthermore, this annual report includes certain estimates with
respect to addressable markets as well as with respect to CAGR
in the markets in which we operate, including the Networks, IT &
Cloud, Media, and Industry and Society business. If the underlying
assumptions on which our estimates are based prove not to be
accurate, the actual addressable markets and CAGR may be mate-
rially different from the estimates presented in this annual report.
The telecommunications industry fluctuates and is affected by
many factors, including the economic environment, and deci-
sions made by operators and other customers regarding their
deployment of technology and their timing of purchases.
The telecommunications industry has experienced downturns in
the past in which operators substantially reduced their capital
spending on new equipment. While we expect the network service
provider equipment market, telecommunications services market
and ICT market to grow in the coming years, the uncertainty sur-
rounding the global economic recovery and the geopolitical situa-
tion may materially harm actual market conditions. Moreover, mar-
ket conditions are subject to substantial fluctuation, and could vary
geographically and across technologies. Even if global conditions
improve, conditions in the specific industry segments in which we
participate may be weaker than in other segments. In that case,
our revenue and operating results may be adversely affected.
If capital expenditures by operators and other customers are
weaker than we anticipate, our revenues, operating results and
profitability may be adversely affected. The level of demand from
operators and other customers who buy our products and ser-
vices can change quickly and can vary over short periods of time,
including from month to month. Due to the uncertainty and varia-
tions in the telecommunication industry, as well as in the ICT
industry, accurately forecasting revenues, results, and cash
flow remains difficult.
Sales volumes and gross margin levels are affected by the
mix and order time of our products and services.
Our sales to operators and other customers represent a mix
of equipment, software and services, which normally generate
different gross margins. We sell our own products as well as third-
party products, which normally have lower margins than our own
products. As a consequence, our reported gross margin in a
specific period will be affected by the overall mix of products and
services as well as the relative content of third-party products. In
the areas IT & Cloud, Media and Industry and Society, third-party
products and services represent a larger portion of our business
than our traditional sales, which challenge our business models
including our terms and conditions. Further, network expansions
and upgrades have much shorter lead times for delivery than initial
network build outs. Orders for such network expansions and
upgrades are normally placed at short notice by customers, often
less than a month in advance, and consequently variations in
demand are difficult to forecast. As a result, changes in our prod-
120
Ericsson | Annual Report 2016
uct and service mix and the short order time for certain of our
products may affect our ability to accurately forecast sales and
margins or detect in advance whether actual results will deviate
from market consensus. Short-term variation could have a mate-
rial adverse effect on our business, operating results, financial
condition and cash flow.
We may not be able to properly respond to market trends
in the industries in which we operate, including the conver-
gence of IT and telecom.
We are affected by market conditions and trends within the indus-
tries in which we operate, including the convergence of the IT and
telecom industries. Technological developments largely drive
convergences enabling digitalization and a move from dedicated
hardware to software and cloud based services. This is changing
the competitive landscape as well as value chains and business
models and affects our objective-setting, risk assessment and
strategies. The change lowers entry barriers to the market and
competitors new to our business have entered and may continue
to enter the market and negatively impact our market share in
selected areas. If we fail to understand the market development,
or fail to acquire the necessary competencies to develop and
sell products, services and solutions that are competitive in this
changing business environment, our business, operating results
and financial condition will suffer.
Our business depends upon the continued growth of mobile
communications and the success of our existing customer
base, the telecom operators. If growth slows or if our custom-
ers do not manage to maintain or grow relevance in the emerg-
ing digital value chain or if our products and/or services are
not successful , our customers´ investment in networks may
slow or stop, harming our business and operating results.
A substantial portion of our business depends on the continued
growth of mobile communications in terms of both the number of
subscriptions and usage per subscriber, which in turn drives the
continued deployment and expansion of network systems by our
customers. If operators fail to increase the number of subscribers
and/or usage does not increase, our business and operating results
could be materially adversely affected. Also, if operators fail to mon-
etize services, fail to adapt their business models or experience a
decline in operator revenues or profitability, their willingness to fur-
ther invest in their networks may decrease which will reduce their
demand for our products and services and have an adverse effect
on our business, operating results, and financial condition.
Traffic development on cellular network could be affected if
more traffic is offloaded to WI-FI-networks. Further alternative ser-
vices provided over the internet have profound effects on operator
voice/SMS revenues with possible reduced capital expenses con-
sequences. Our value system is depending on the development
and success of global standards. This could be affected adversely
in the future by industry forces more interested in de-facto stan-
dards and or geo-political forces leading to standards fragment-
ation and increased difficulties of creating economies of scale.
Fixed and mobile networks converge and new technologies,
such as IP and broadband, enable operators to deliver services in
both fixed and mobile networks. We are dependent of the uptake
of such services and the outcome of regulatory and standardiza-
tion activities such as spectrum allocation. If delays in uptake,
standardization or regulation occur, this could adversely affect our
business, operating results, and financial condition.
We face intense competition from our existing competitors
as well as new entrants, including IT companies entering the
telecommunications market, and this could materially
adversely affect our results.
The markets in which we operate are highly competitive in terms
of price, functionality, service quality, customization, timing of
development, and the introduction of new products and services.
We face intense competition from significant competitors, many of
which are very large, with substantial technological and financial
resources and established relationships with operators. We also
encounter increased competition from new market entrants and
alternative technologies are evolving industry standards. In partic-
ular, we face competition from large IT companies and web scale
companies entering the telecommunications market who benefit
from economies of scale due to being active in several industries.
We cannot assure that we will be able to compete successfully
with these companies. Our competitors may implement new tech-
nologies before we do, offer more attractively priced or enhanced
products, services or solutions, or they may offer other incentives
that we do not provide. Some of our competitors may also have
greater resources in certain business segments or geographic
markets than we do. Increased competition could result in
reduced profit margins, loss of market share, increased research
and development costs as well as increased sales and marketing
expenses, which could have a material adverse effect on our busi-
ness, operating results, financial condition and market share.
Additionally, we operate in markets characterized by rapidly
changing technology and also the nature in which this technology
is being brought to market is rapidly changing e.g. through open-
source projects. This results in continuous price erosion and
increased price competition for our products and services. If our
counter measures, including enhanced products and business
models or cost reductions cannot be achieved or do not occur in
a timely manner, there could be adverse impacts on our business,
operating results, financial condition and market share.
Vendor consolidation may lead to stronger competitors
who are able to benefit from integration, scale and
greater resources.
Industry convergence and consolidation among equipment and
services suppliers could potentially result in stronger competitors
that are competing as end-to-end suppliers as well as competi-
tors more specialized in particular areas, which could for example
impact our areas such as IT & Cloud, Media and Industry and
Society. Consolidation may also result in competitors with greater
resources than we have or in reduction of our current scale advan-
tages. This could have a materially adverse effect on our business,
operating results, financial con dition and market share.
A significant portion of our revenue is currently generated
from a limited number of key customers, and operator con-
solidation may increase our dependence on key customers.
We also are significantly dependent on the sales of certain
of our products and services both in core business and
targeted areas.
We derive most of our business from large, multi-year agreements
with a limited number of significant customers. Many of these
agreements are opened up on a yearly basis to renegotiate the
price for our products and services and do not contain committed
purchase volumes. Although no single customer represented
more than 7% of our sales in 2016, our ten largest customers
accounted for 46% of our sales in 2016. A loss of or a reduced
role with a key customer could have a significant adverse impact
on sales, profit and market share for an extended period. In addi-
tion, our dependence on the sales of certain of our products
and services in both core business and targeted areas may have
significant adverse impact on sales, profit and market share.
In recent years, network operators have undergone significant
consolidation, resulting in fewer operators with activities in several
countries. This trend is expected to continue, and intra-country
consolidation is likely to accelerate as a result of competitive pres-
sure. A market with fewer and larger operators will increase our reli-
ance on key customers and may negatively impact our bargaining
position and profit margins. Moreover, if the combined companies
operate in the same geographic market, networks may be shared
and less network equipment and fewer associated services may
be required. Network investments could be delayed by the consoli-
dation process, which may include, among others, actions relating
to merger or acquisition agreements, securing necessary regula-
tory approvals, or integration of businesses. Network operators
also share parts of their network infrastructure through coopera-
tion agreements rather than legal consolidations, which may
adversely affect demand for network equipment. Accordingly,
operator consolidation may have a material adverse effect on our
business, operating results, market share and financial condition.
Certain long-term agreements with customers still include
commitments to future price reductions, requiring us to
constantly manage and control our cost base.
Long-term agreements with our customers are typically awarded
on a competitive bidding basis. In some cases, such agreements
also include a commitment to future price reductions. In order to
maintain our gross margin with such price reductions, we continu-
ously strive to reduce the costs of our products through design
improvements, negotiation of better purchase prices from our
suppliers, allocation of more production to low-cost countries and
increased productivity in our own production. However, there can
be no assurance that our actions to reduce costs will be sufficient
or quick enough to maintain our gross margin in such contracts,
which may have a material adverse effect on our business, oper-
ating results and financial condition.
Growth of our managed services business is difficult to
predict, and requires taking significant contractual risks.
Operators increasingly outsource parts of their operations to
reduce cost and focus on new services. To address this oppor-
tunity, we offer operators various services in which we manage
their networks. The growth rate in the managed services market
is difficult to forecast and each new contract carries a risk that
transformation and integration of the operations will not be as fast
or smooth as planned. Additionally, early contract margins are
generally low and the mix of new and old contracts may negatively
affect reported results in a given period. Contracts for such
services normally cover several years and generate recurring
revenues. However, such contracts have been, and may in the
future be, terminated or reduced in scope, which has negative
impacts on sales and earnings. While we believe we have a strong
position in the managed services market, competition in this area
is increasing, which may have adverse effects on our future
growth, business, operating results and profitability.
Financials – Risk factors
Ericsson | Annual Report 2016
121
FINANCIALS – Risk factors
We depend upon the development of new products and
enhancements to our existing products, and the success
of our substantial research and development investments
is uncertain.
Rapid technological and market changes in our industry require
us to make significant investments in technological innovation.
We invest significantly in new technology, products and solutions.
In order for us to be successful, those technologies, products and
solutions must be accepted by relevant standardization bodies
and by the industry as a whole. The failure of our research and
development efforts to be technically or commercially successful
could have adverse effects on our business, operating results and
financial condition. If we invest in the development of technologies,
products and solutions that do not function as expected, are not
adopted by the industry, are not ready in time, or are not success-
ful in the marketplace, our sales and earnings may materially suffer.
Additionally, it is common for research and development projects
to encounter delays due to unforeseen problems. Delays in pro-
duction and research and development may increase the cost of
research and development efforts and put us at a disadvantage
against our competition. This could have a material adverse effect
upon our business, operating results and financial condition.
We engage in acquisitions and divestments which may
be disruptive and require us to incur significant expenses.
In addition to in-house innovation efforts, we make strategic
acquisitions in order to obtain various benefits such as reduced
time-to-market, access to technology and competence, increased
scale or to broaden our product portfolio or customer base.
Future acquisitions could result in the incurrence of contingent
liabilities and an increase in amortization expenses related to
goodwill and other intangible assets, which could have a material
adverse effect upon our business, operating results, financial
condition and liquidity. Risks we could face with respect to
acquisitions include:
> Difficulties in the integration of the operations, technologies,
products and personnel of the acquired company
> Risks of entering markets in which we have no or limited prior
experience
> Potential loss of employees
> Diversion of management’s attention away from other
business concerns
> Expenses of any undisclosed or potential legal liabilities of the
acquired company
> Difficulties in identifying attractive available targets.
From time to time we also divest parts of our business to optimize
our product portfolio or operations. Any decision to dispose of or
otherwise exit businesses may result in the recording of special
charges, such as workforce reduction costs and industry- and
technology-related write-offs. We cannot assure that we will be
successful in consummating future acquisitions or divestments
on favorable terms or at all. The risks associated with such acqui-
sitions and divestments could have a material adverse effect upon
our business, operating results, financial condition and liquidity.
We are in, and may enter into new, JV arrangements and
have, and may have new, partnerships, which may not be
successful and expose us to future costs.
Our JV and partnership arrangements, including for example our
partnership with Cisco, may fail to perform as expected for various
reasons, including an incorrect assessment of our needs and syn-
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ergies, our inability to take action without the approval of our part-
ners, our difficulties in implementing our business plans, the lack
of capabilities or financial instability of our strategic partners. Our
ability to work with these partners or develop new products and
solutions may become constrained, which could harm our com-
petitive position in the market.
Additionally, our share of any losses from or commitments to
contribute additional capital to such JVs and partnerships may
adversely affect our business, operating results, financial condi-
tion and cash flow.
We rely on a limited number of suppliers of components,
production capacity and R&D and IT services, which
exposes us to supply disruptions and cost increases.
Our ability to deliver according to market demands and contrac-
tual commitments depends significantly on obtaining a timely and
adequate supply of materials, components, production capacity
and other vital services on competitive terms. Although we strive
to avoid single-source supplier solutions, this is not always possi-
ble. Accordingly, there is a risk that we will be unable to obtain key
supplies we need to produce our products and provide our ser-
vices on commercially reasonable terms, or at all. Failure by any
of our suppliers could interrupt our product or services supply or
operations and significantly limit sales or increase our costs. To
find an alternative supplier or redesign products to replace com-
ponents may take significant time which could cause significant
delays or interruptions in the delivery of our products and services.
We have from time to time experienced interruptions of supply
and we may experience such interruptions in the future.
Furthermore, our procurement of supplies requires us to pre-
dict future customer demands. If we fail to anticipate customer
demand properly, an over or under supply of components and
production capacity could occur. In many cases, some of our
competitors utilize the same manufacturers and if they have pur-
chased capacity ahead of us we could be blocked from acquiring
the needed products. This factor could limit our ability to supply
our customers and increase costs. At the same time, we commit
to certain capacity levels or component quantities, which, if
unused, will result in charges for unused capacity or scrapping
costs. We are also exposed to financial counterpart risks to
suppliers when we pay in advance for supplies. Such supply dis-
ruptions and cost increases may negatively affect our business,
operating results and financial condition.
Product or service quality issues could lead to reduced
revenue and gross margins and declining sales to existing
and new customers.
Sales contracts normally include warranty undertakings for faulty
products and often include provisions regarding penalties and/or
termination rights in the event of a failure to deliver ordered prod-
ucts or services on time or with required quality. Although we
undertake a number of quality assurance measures to reduce
such risks, product quality or service performance issues may
negatively affect our reputation, business, operating results and
financial condition. If significant warranty obligations arise due to
reliability or quality issues, our operating results and financial
position could be negatively impacted by costs associated with
fixing software or hardware defects, high service and warranty
expenses, high inventory obsolescence expense, delays in
collecting accounts receivable or declining sales to existing
and new customers.
Due to having a significant portion of our costs in SEK and
revenues in other currencies, our business is exposed to
foreign exchange fluctuations that could negatively impact
o ur revenues and operating results.
We incur a significant portion of our expenses in SEK. As a result
of our international operations, we generate, and expect to con-
tinue to generate, a significant portion of our revenue in currencies
other than SEK. To the extent we are unable to match revenue
received in foreign currencies with costs paid in the same cur-
rency, exchange rate fluctuations could have a negative impact
on our consolidated income statement, balance sheet and cash
flows when foreign currencies are exchanged or translated to
SEK, which increases volatility in reported results.
As market prices are predominantly established in US dollars or
Euros, we presently have a net revenue exposure in foreign curren-
cies which means that a stronger SEK exchange rate would gen-
erally have a negative effect on our reported results. Our attempts
to reduce the effects of exchange rate fluctuations through a vari-
ety of hedging activities may not be sufficient or successful, result-
ing in an adverse impact on our results and financial condition.
Our ability to benefit from intellectual property rights (IPR),
which are critical to our business, may be limited by changes in
regulation relating to patents, inability to prevent infringement,
the loss of licenses to or from third-parties, infringement claims
brought against us by competitors and others and changes
in the area of open standards, especially in light of recent
attention on licensing of open standard essential patents.
Although we have a large number of patents, there can be no
assurance that they will not be challenged, invalidated, or circum-
vented, or that any rights granted in relation to our patents will in
fact provide us with competitive advantages.
We utilize a combination of trade secrets, confidentiality
policies, nondisclosure and other contractual arrangements in
addition to relying on patent, copyright and trademark laws to
protect our intellectual property rights. However, these measures
may not be adequate to prevent or deter infringement or other
misappropriation. In addition, we rely on many software patents,
and limitations on the patentability of software may materially
affect our business.
Moreover, we may not be able to detect unauthorized use or
take appropriate and timely steps to establish and enforce our
proprietary rights. In fact, existing legal systems of some countries
in which we conduct business offer only limited protection of intel-
lectual property rights, if at all. Our solutions may also require us to
license technologies from third-parties. It may be necessary in the
future to seek or renew licenses and there can be no assurance
that they will be available on acceptable terms, or at all. Moreover,
the inclusion in our products of software or other intellectual prop-
erty licensed from third-parties on a non-exclusive basis could
limit our ability to protect proprietary rights in our products.
Many key aspects of telecommunications and data network
technology are governed by industry-wide standards usable by all
market participants. As the number of market entrants and the
complexity of technology increases, the possibility of functional
overlap and inadvertent infringement of intellectual property rights
also increases. In addition to industry-wide standards, other key
industry-wide software solutions are today developed by market
participants as free and open source software. Contributing to
the development and distribution of software developed as free
and open source software may limit our ability to enforce applic-
able patents in the future. Third-parties have asserted, and may
assert in the future, claims, directly against us or against our cus-
tomers, alleging infringement of their intellectual property rights.
Defending such claims may be expensive, time-consuming and
divert the efforts of our management and/or technical personnel.
As a result of litigation, we could be required to pay damages and
other compensation directly or to indemnify our customers for such
damages and other compensation, develop non-infringing prod-
ucts/technology or enter into royalty or licensing agreements. How-
ever, we cannot be certain that such licenses will be available to us
on commercially reasonable terms or at all, and such judgments
could have a material adverse effect on our business, reputation,
operating results and financial condition. Using free and open
source software may allow third-parties to further investigate our
software due to the accessibility of source code. This may in turn
make this software more prone to assertions from third-parties.
Recent attention on licensing of patents necessary to conduct
an open standard (e.g. 2G, 3G and 4G technology), investigations
held by antitrust authorities, court judgments and legislative
change could potentially affect Ericsson’s ability to benefit from its
patent portfolio in the area of such open standards, which could
have a material adverse effect on our business, reputation, oper-
ating results and financial condition. Ericsson holds a leading pat-
ent portfolio in open standards and possible changes regarding
such a portfolio may materially affect our reputation, business,
operating results and financial condition.
We are involved in lawsuits and investigations which, if
determined against us, could require us to pay substantial
damages, fines and/or penalties.
In the normal course of our business we are involved in legal pro-
ceedings. These lawsuits include such matters as commercial
disputes, claims regarding intellectual property, antitrust, tax and
labor disputes. Litigation can be expensive, lengthy and disruptive
to normal business operations. Moreover, the results of complex
legal proceedings are difficult to predict. An unfavorable resolution
of a particular lawsuit could have a material adverse effect on our
business, operating results, financial condition and reputation.
As a publicly listed company, Ericsson may be exposed to law-
suits in which plaintiffs allege that the Company or its officers have
failed to comply with securities laws, stock market regulations or
other laws, regulations or requirements. Whether or not there is
merit to such claims, the time and costs incurred to defend the
Company and its officers and the potential settlement or com-
pensation to the plaintiffs could have significant impact on our
reported results and reputation. For additional information regard-
ing certain of the lawsuits in which we are involved, see “Legal
Proceedings” in the Board of Directors’ Report.
Our operations are complex and several critical operations
are centralized in a single location. Any disruption of our
operations, whether due to natural or man-made events,
may be highly damaging to the operation of our business.
Our business operations rely on complex operations and commu-
nications networks, which are vulnerable to damage or disturb-
ance from a variety of sources. Having outsourced significant
portions of our operations, such as IT, finance and HR operations,
we depend on the performance of external companies, including
their security and reliability measures. Regardless of protection
measures, systems and communications networks are suscepti-
ble to disruption due to failure, vandalism, computer viruses,
security or privacy breaches, natural disasters, power outages
and other events. We also have a concentration of operations on
Financials – Risk factors
Ericsson | Annual Report 2016
123
FINANCIALS – Risk factors
certain sites, including R&D, production, network operation cen-
ters, ICT centers and logistic centers and shared services centers,
where business interruptions could cause material damage and
costs. The delivery of goods from suppliers, and to customers,
could also be hampered for the reasons stated above. Interrup-
tions to our systems and communications may have an adverse
effect on our operations and financial condition.
Cyber security incidents may have a material adverse effect
on our business, financial condition, reputation and brand.
Ericsson’s business operations involve areas that are particularly
vulnerable to cyber security incidents that may impact confidenti-
ality, availability or integrity of products, services, or solutions.
These incidents may include data breaches, intrusions, espionage,
know-how and data privacy infringements, leakage, unauthorized
or accidental modification of data and general malfeasance.
Examples of these areas include, among others, research and
development, managed services, usage of cloud solutions, soft-
ware development, lawful interception, product engineering, IT,
finance and HR operations. Any cyber security incident including
unintended use, involving our operations, product development,
services, our third-party providers or installed product base, could
cause severe harm to Ericsson and could have a material adverse
effect on our business, financial condition, reputation and brand.
Ericsson relies heavily on third-parties to whom we have out-
sourced significant aspects of our IT infrastructure, product devel-
opment, engineering services, finance and HR operations. While
we have taken precautions relating to the selection, integration and
ongoing management of these third-parties, any event or incident
that is caused as a result of vulnerabilities in their operations or
products supplied to us could have a material adverse effect upon
Ericsson, our business, financial condition, reputation and brand,
potentially slowing operations, leaking valuable intellectual prop-
erty or sensitive information or damaging our products which have
been installed in our customers’ networks.
We must continue to attract and retain highly qualified
employees to remain competitive.
We believe that our future success largely depends on our cont-
inued ability to hire, develop, motivate and retain engineers and
other qualified personnel needed to develop successful new
products, support our existing product range and provide ser-
vices to our customers.
Competition for skilled personnel and highly qualified manag-
ers in the industries in which we operate remains intense. We are
continuously developing our corporate culture, remuneration,
promotion and benefits policies as well as other measures aimed
at empowering our employees and reducing employee turnover.
However, there are no guarantees that we will be successful in
attracting and retaining employees with appropriate skills in the
future, and failure in retention and recruiting could have a material
adverse effect on our business and brand.
If our customers’ financial conditions decline, we will be
exposed to increased credit and commercial risks.
After completing sales to customers, we may encounter difficulty
collecting accounts receivables and could be exposed to risks
associated with uncollectable accounts receivable. We regularly
assess the credit worthiness of our customers and based on that
assessment we determine a credit limit for each one of them.
Challenging economic conditions have impacted some of our
customers’ ability to pay their invoices. Although our credit losses
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Ericsson | Annual Report 2016
have historically been low and we have policies and procedures
for managing customer finance credit risk, we may be unable to
avoid future losses on our trade receivables. We have also experi-
enced demands for customer financing, and in adverse financial
markets or more competitive environments, those demands may
increase. Upon the financial failure of a customer, we may experi-
ence losses on credit extended and loans made to such customer,
losses relating to our commercial risk exposure, and the loss of
the customer’s ongoing business. If customers fail to meet their
obligations to us, we may experience reduced cash flows and
losses in excess of reserves, which could materially adversely
impact our operating results and financial condition.
We rely on various sources for short-term and long-term
capital for the funding of our business. Should such capital
become unavailable or available in insufficient amounts or
unreasonable terms, our business, financial condition and
cash flow may materially suffer.
Our business requires a significant amount of cash. If we do not
generate sufficient amounts of capital to support our operations,
service our debt and continue our research and development and
customer finance programs, or if we cannot raise sufficient
amounts of capital at the required times and on reasonable terms,
our business, financial condition and cash flow are likely to be
adversely affected. Access to funding may decrease or become
more expensive as a result of our operational and financial con-
dition, market conditions, including financial conditions in the
Eurozone, or due to deterioration in our credit rating. There can be
no assurance that additional sources of funds that we may need
from time to time will be available on reasonable terms or at all.
If we cannot access capital on a commercially viable basis, our
business, financial condition and cash flow could materially suffer.
Impairment of goodwill or other intangible assets may nega-
tively impact our financial condition and results of operations.
An impairment of goodwill or other intangible assets could adver-
sely affect our financial condition or results of operations. We have
a significant amount of goodwill and other intangible assets; for
example, patents, customer relations, trademarks and software.
Goodwill is the only intangible asset the company has recog-
nized to have indefinite useful life. Other intangible assets are
mainly amortized on a straight-line basis over their estimated
useful lives, but for no more than ten years, and are reviewed for
impairment whenever events such as product discontinuances,
product dispositions or other changes in circumstances indicate
that the carrying amount may not be fully recoverable. Those not
yet in use are tested for impairment annually.
Historically, we have recognized impairment charges related
to intangible assets mainly due to restructuring. Additional impair-
ment charges may be incurred in the future that could be signifi-
cant due to various reasons, including restructuring actions or
adverse market conditions that are either specific to us or the
broader telecommunications industry or more general in nature
and that could have an adverse effect on our operating results
and financial condition.
Negative deviations in actual cash flows compared to esti-
mated cash flows as well as new estimates that indicate lower
future cash flows might result in recognition of impairment charges.
Estimates require management judgment as well as the definition
of cash-generating units for impairment testing purposes. Other
judgments might result in significantly different results and may
differ from the actual financial condition in the future.
Regulatory, Compliance and Corporate
Governance risk
Ericsson may fail or be unable to comply with laws or regul-
ations and could experience penalties and adverse rulings
in enforcement or other proceedings. Compliance with
changed laws or regulations may subject Ericsson to
increased costs or reduced products and services demand.
Compliance failure as well as required operational changes
could have a material adverse impact on our business,
financial condition and brand.
The industries in which we operate are subject to laws and regu-
lations. While Ericsson strives for compliance, we cannot assure
that violations do not occur. If we fail to or are unable to comply
with applicable laws and regulations, we could experience pen-
alties and adverse rulings in enforcement or other proceedings,
which could have a material adverse effect on our business,
fin ancial condition and reputation.
Further changes in laws or regulations could subject us to lia-
bility, increased costs, or reduced products and services demand
and have a material adverse effect on our business, financial con-
dition and brand.
Changes to regulations may adversely affect both our custom-
ers’ and our own operations. For example, regulations imposing
more stringent, time-consuming or costly planning and zoning
requirements or building approvals for radio base stations and
other network infrastructure could adversely affect the timing and
costs of network construction or expansion, and ultimately the
commercial launch and success of these networks. Similarly, tariff
and roaming regulations or rules on network neutrality could also
affect operators’ ability or willingness to invest in network infra-
structure, which in turn could affect the sales of our systems and
services. Additionally, delay in radio frequency spectrum alloca-
tion, and allocation between different types of usage may
adversely affect operator spending or force us to develop new
products to be able to compete.
Further, we develop many of our products and services based
on existing regulations and technical standards. Changes to exist-
ing regulations and technical standards, or the implementation
of new regulations and technical standards relating to products
and services not previously regulated, could adversely affect our
development efforts by increasing compliance costs and causing
delay. Demand for those products and services could also decline.
Regulatory changes in license fees, environmental, health and
safety, privacy (including the cross-border transfer of personal
data for example between the EU and the US), and other regula-
tory areas may increase costs and restrict our operations or the
operations of network operators and service providers. Also indi-
rect impacts of such changes and regulatory changes in other
fields, such as pricing regulations, could have an adverse impact
on our business even though the specific regulations may not
apply directly to our products or us.
Our substantial international operations are subject to
uncertainties which could affect our operating results.
We conduct business throughout the world and are subject to
the effects of general global economic conditions as well as con-
ditions unique to specific countries or regions. We have custom-
ers in more than 180 countries, with a significant proportion of
our sales to emerging markets in the Asia Pacific region, Latin
America, Eastern Europe, the Middle East and Africa.
Our extensive operations are subject to additional risks, includ-
ing civil disturbances, acts of terrorism, economic and geopolitical
instability and conflict, potential misuse of technology leading to
human rights violations, pandemics, the imposition of exchange
controls, economies which are subject to significant fluctuations,
nationalization of private assets or other governmental actions
affecting the flow of goods and currency, effects from changing
climate and difficulty of enforcing agreements and collecting
receivables through local legal systems. Further, in certain mar-
kets in which we operate, there is a risk of protectionist govern-
mental measures implemented to assist domestic market partici-
pants at the expense of foreign competitors. The implementation
of such measures could adversely affect our sales or our ability to
purchase critical components.
We must always comply with relevant export control regulations
and sanctions or other trade embargoes in force in all parts of the
business process. The political situation in parts of the world, par-
ticularly in the Middle East, remains uncertain and the level of sanc-
tions is still high. A universal element of these sanctions are the
financial restrictions with respect to individuals and/or legal enti-
ties, but sanctions can also restrict certain exports and ultimately
lead to a complete trade embargo towards a country. Specifically,
on Iran, the Joint Comprehensive Plan of Action (“JCPOA”) agree-
ment between Iran and other countries have relaxed many of the
nuclear related sanctions towards Iran, particularly the EU sanc-
tions. Although many sanctions against Iran have already been
relaxed, there are provisions to re-introduce sanctions if parts of
the agreement are not met. The change in political leadership in
the U.S. has also led to uncertainty about their position in foreign
policy, including sanctions towards Iran and other sanctioned
countries. Further there is a risk in many countries of unexpected
changes in regulatory requirements, tariffs and other trade barri-
ers, price or exchange controls, or other governmental policies
which could limit our operations and decrease our profitability.
Further export control regulations, sanctions or other forms of
trade restrictions put upon countries in which we are active may
result in a reduction of commitment in those countries. The need
to terminate activities as a result of further trade restrictions may
also expose us to customer claims and other actions. Although
we seek to comply with all such regulations, there can be no assur-
ance that we are or will be compliant with all relevant regulations at
all times. Such potential violations could have material adverse
effects on our business, operating results, reputation and brand.
Financials – Risk factors
Ericsson | Annual Report 2016
125
FINANCIALS – Risk factors
The business operations are complex involving the development,
production and delivery of telecom solutions to customers in a
very large number of jurisdictions. Each jurisdiction has its own
tax legislation and regulations and we therefore face the challenge
of complying with the relevant rules in each of these countries.
These rules involve income taxes and indirect taxes such as VAT
and sales taxes as well as withholding taxes on domestic and
cross border payments and social security charges related to our
employees. Constant changes of the rules and the interpretation
of the legislation also create exposures regarding taxes. This
results in complex tax issues and tax disputes that may lead to
additional tax payment obligations. Being a global operation, we
also face risk of being taxed for the same income in more than one
jurisdiction (double taxation). This could have adverse effects on
our operating results, reputation and brand.
In certain regional markets, there are trade barriers that limit
competition. Should these trade barriers be removed or lowered,
competition may increase, which could have material adverse
effects on our business and operating results.
There has been a concern reported by some media and others,
that certain countries may use features of their telecommunica-
tions systems in ways that could result in potential violation of
human rights. This may adversely affect the telecommunications
business and may have a negative impact for people, our reputa-
tion and brand.
We may fail to comply with our corporate governance
standards, which could negatively affect our business,
operating results, financial condition, reputation and brand.
We are subject to corporate governance laws and regulations as
well as several corporate responsibility and sustainability require-
ments. In some of the countries where we operate, corruption risks
are high, therefore there is a higher focus on anticorruption, for
example with changed legislation in many countries. To ensure that
our operations are conducted in accordance with applicable laws
and requirements, our management system includes a Code of
Business Ethics, a Code of Conduct and a Sustainability Policy, as
well as other policies and directives to govern our processes and
operations. Our commitment to apply the UN Global Compact ten
principles, the UN Guiding Principles on Business and Human
Rights and principles of the World Economic Forum’s Partnering
Against Corruption Initiative to our operations cannot fully prevent
unintended or unlawful use of our technology by democratic and
non-democratic regimes, violation of our Code of Business Ethics,
corruption or violations of our Code of Conduct in the supply chain.
There is also an increased demand from external stakeholders, for
example non-governmental organizations and investors, on trans-
parency about sustainability and corporate responsibility issues
that might be difficult to fulfill. Ericsson is voluntarily cooperating
with inquiries from the United States Securities and Exchange
Commission and the United States Department of Justice regard-
ing its compliance with the U.S. Foreign Corrupt Practices Act.
These inquiries concern the last ten years. While Ericsson is fully
cooperating with the U.S. authorities to answer these and addi-
tional questions, the outcome of these questions is currently not
determinable. While we attempt to monitor and audit internally and
externally our compliance with the policies and directives as well as
our suppliers’ adherence to our Code of Conduct and strive for
continuous improvements, we cannot provide any assurances that
violations will not occur which could have material adverse effects
on our business, operating results, financial condition, reputation,
and brand.
Failure to comply with environmental, health and safety
regulations in many jurisdictions may expose us to
significant penalties and other sanctions.
We are subject to certain environmental, health and safety laws
and regulations that affect our operations, facilities, products and
services in each of the jurisdictions in which we operate. While we
work actively to ensure compliance with material laws, regulations
and customer requirements related to the environment, health,
and safety that apply to us, we can provide no assurance that we
have been, are, or will be compliant with these laws, regulations
and requirements. If we have failed or fail to comply with these
laws, regulations and requirements we could be subject to signifi-
cant penalties and other sanctions that could have a material
adverse effect on our business, operating results, financial con-
dition, reputation and brand. Additionally, there is a risk that we
may have to incur expenditures to cover environmental and health
and safety- liabilities to maintain compliance with current or future
applicable laws and regulations or to undertake any necessary
remediation. It is difficult to reasonably estimate the future impact
of environmental matters, such as climate change and extreme
weather events, including potential liabilities. Adverse future
events, regulations, or judgments could have a material adverse
effect on our business, operating results, financial con dition,
reputation and brand.
Potential health risks related to radiofrequency electro-
magnetic fields may subject us to various product liability
claims and result in regulatory changes.
The mobile telecommunications industry is subject to claims that
mobile devices and other equipment that generate radiofrequency
electromagnetic fields may expose users to health risks. At present,
a substantial number of scientific reviews conducted by various
independent research bodies have concluded that radiofrequency
electromagnetic fields, at levels within the limits prescribed by
public health authority safety standards and recommendations,
cause no adverse effects to human health. However, any perce-
ived risk or new scientific findings of adverse health effects from
mobile communication devices and equipment could adversely
affect us through a reduction in sales or through liability claims.
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Ericsson | Annual Report 2016
Although Ericsson’s products are designed to comply with
currently applicable safety standards and regulations regarding
radio frequency electromagnetic fields, we cannot guarantee that
we will not become the subject of product liability claims or be
held liable for such claims or be required to comply with future
changed regulatory requirements that may have an adverse
effect on our business, operating results, financial condition,
reputation and brand.
Regulations related to “conflict minerals” may cause us
to incur additional expenses, and may make our supply
chain more complex.
In 2012, the US Securities and Exchange Commission (“SEC”)
adopted a rule requiring disclosures of specified minerals ( “con-
flict minerals”) that are necessary to the functionality or production
of products manufactured or contracted to be manufactured by
companies that file periodic reports with the SEC, whether or not
these products or their components are manufactured by third-
parties. While we believe that we are able to fulfill these require-
ments without materially affecting our costs or access to materials
we can provide no assurance that there will not be material costs
associated with complying with the disclosure requirements.
These requirements could adversely affect the sourcing, availa-
bility and pricing of minerals used in the manufacture of certain of
our products. In addition, since our supply chain is complex, we
may not be able to sufficiently verify the origins for these minerals
contained in our products through the due diligence procedures
that we implement, which may harm our reputation. We may also
encounter challenges if customers require that all of the compo-
nents of our products be certified as conflict-free.
Risks associated with owning Ericsson shares
Our share price has been and may continue to be volatile,
especially as technology companies, securities and markets
as a whole remain volatile.
Our share price has been volatile due to various factors, including
our operating performance as well as the high volatility in the
securities markets generally and volatility in telecommunications
and technology companies’ securities in particular. Our share
price is also likely to be affected by future developments in our
market, our financial results and the expectations of financial ana-
lysts, as well as statements and market speculation regarding our
prospects or the timing or content of any public communications,
including reports of operating results, by us or our competitors.
Factors other than our financial results that may affect our share
price include, but are not limited to:
> A weakening of our brand name or other circumstances with
adverse effects on our reputation
> Announcements by our customers, competitors or us regard-
ing capital spending plans of our customers
> Financial difficulties for our customers
> Awards of large supply or service contracts
> Speculation in the press or investment community about the
company and its operations or about the business level or
growth in the telecommunications market
> Technical problems, in particular those relating to the introduc-
tion and viability of new network systems, including LTE evolu-
tion / 5G small cells products and new platforms such as the
HDS 8000 ( Hyperscale Datacenter System) platform.
> Actual or expected results of ongoing or potential litigation
> Announcements concerning bankruptcy or investigations into
the accounting procedures of ourselves or other telecommuni-
cations companies
> Our ability to forecast and communicate our future results in
a manner consistent with investor expectation
Our corporate restructure may not produce
the expected results
Ericsson is undergoing a corporate restructure as well as a com-
pany transformation in an effort to drive efficiency and growth
across the company. This includes changes to the business, man-
agement and a reduction in our workforce. These activities pose
certain risks to our business and may not produce the expected
results which could have an adverse effect on our business, finan-
cial condition, results of operations, reputation, brand and share
price.
Currency fluctuations may adversely affect our share price
or value of dividends.
Because our shares are quoted in SEK on Nasdaq Stockholm
(our primary stock exchange), but in US dollars on NASDAQ New
York (ADSs), fluctuations in exchange rates between SEK and US
dollars may affect our share price. In addition, because we pay
cash dividends in SEK, fluctuations in exchange rates may affect
the value of distributions when converted into other currencies. An
increasing part of the trade in our shares is carried out on alterna-
tive exchanges or markets, which may lead to less accurate share
price information on Nasdaq Stockholm or NASDAQ New York.
Financials – Risk factors
Ericsson | Annual Report 2016
127
FINANCIALS – Auditor’s report
Auditor’s report
To the Annual General Meeting of Telefonaktiebolaget LM Ericsson,
Corporate Identity Number 556016-0680
Report on the audit of the annual accounts and consolidated accounts
Opinion
We have audited the annual accounts and consolidated accounts
of Telefonaktiebolaget LM Ericsson for the year 2016. The compa-
ny’s annual accounts and consolidated accounts of the company
are included on pages 38-127 in this document.
In our opinion, the annual accounts have been prepared in
accordance with the Annual Accounts Act and present fairly, in all
material respects, the financial position of the Parent Company as
at 31 December 2016 and its financial performance and cash
flows 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 at 31
December 2016 and their financial performance and cash flows
for the year then ended, in accordance with International Financial
Reporting Standards (IFRS), as adopted by the EU, and the Annual
Accounts Act. The statutory administration report is consistent
with the other parts of the annual accounts and consolidated
accounts.
We, therefore, recommend that the annual meeting of share-
holders adopt the income statement and balance sheet for the
Parent Company and for the Group.
Basis for opinion
We conducted our audit in accordance with International Stan-
dards on Auditing (ISA) and generally accepted auditing standards
in Sweden. Our responsibilities under those standards are further
described in the Auditor’s responsibilities section. We are inde-
pendent 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 suffi-
cient and appropriate to provide a basis for our audit opinions.
Our audit approach
Overview
> Overall group materiality: SEK 800 million, which represents 5% of the average income before
tax for the last four years adjusted for restructuring costs in 2016 which are covered by separate
audit procedures.
> The scope of our audit is based on our understanding of the risk areas in Ericsson, the signi-
ficance of these risks and how they are handled and controlled within the company. Conse-
quently, the greatest weight is assigned to those risk areas deemed to be most important,
where the risk of material misstatement is the most significant. In this assessment, consideration
has also been given as to whether the preparation of the accounts has been dependent on
management’s estimates and subjective judgements.
> Revenue recognition for major contracts
> Revenue recognition for license fees
> Carrying value of goodwill and other intangible assets
> Provisions
128
Ericsson | Annual Report 2016
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 misstate-
ment. 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 materi-
ality 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 proce-
dures and to evaluate the effect of misstatements, both individu-
ally and in aggregate on the financial statements as a whole.
Overall group materiality
SEK 800 million (SEK 800 million)
How we determined it
Rationale for the materiality
benchmark applied
5% of the average income before tax for the last
four years adjusted for restructuring costs in 2016
which are covered by separate audit procedures.
We choose the adjusted average income before
tax as we consider this measure to be a key driver
of business value for the stakeholders.
We agreed with the Audit Committee that we would report to them
misstatements identified during our audit above SEK 80 million
as well as misstatements below that amount that, in our view,
warranted reporting for qualitative reasons.
Audit scope
The Ericsson Group delivers integrated solutions for a wide range
of customers primarily within the telecommunication industry.
The solutions provided by Ericsson are normally a combination of
hardware, software and services. The customer contracts are
often of a complex nature with a number of performance criteria.
Ericsson has also significant revenues from patent license agree-
ments with other hardware and software suppliers. As a global
player, Ericsson is impacted by the macro economic development
and the customers response to this such as investment levels and
access to financing of investments. The competition within the
industry Ericsson operates is significant which in many markets
have resulted in price pressure. As a result, Ericsson has initiated
several activities to reduce the cost levels and to increase the flexi-
bility in production.
We designed our audit by determining materiality and assess-
ing 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 con-
sidering 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 finan-
cial 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 group conducts business in more than 180 countries and
has centralized systems, procedures and a centralized financing
function. We have organized the audit work by having our central
team to carry out the testing of all centralized systems and proce-
dures whereby the local auditors carry out additional testing
based on our instructions. The 14 most important entities within
the Group represent 71% of net sales and 73% of total assets.
All of these entities were a part of our audit of the consolidated
accounts.
Our audit is carried out continuously during the year with spe-
cial attention at each quarter end. In connection with the issuance
of the interim reports, we report our observations to the Audit
Committee of the Board of Directors and for the third and fourth
quarters, we have also issued public review reports. At the end
of the year, we also report our main observations to the full Board
of Directors.
Financials – Auditor’s report
Ericsson | Annual Report 2016
129
FINANCIALS – Auditor’s report
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.
Key audit matter
How our audit addressed the Key audit matter
Revenue recognition of major contracts
The application of revenue recognition accounting standards is complex and requires
management judgement and estimates. Large and complex customer contracts are
a major part of the business and many of these include multiple elements of products,
software and services as well as complex contract terms. The organization of the
Ericsson Group also results in that a customer contract often involves more than one
legal entity within the group.
Refer to the Annual Report Note C2 – Critical accounting estimates and judge-
ments.
Our audit included a combination of testing of internal controls over financial report-
ing including procedures relating to business case reviews performed by the Groups
central board for complex deals, analytical procedures and detailed tests of major
new contracts. Our audit also included detailed tests of proof of delivery to confirm
that risk had been transferred to the customer as well as data analytics relating to
revenue related manual journal entries.
Based on our work, we noted no significant issues regarding the accuracy of
revenue reported for the year.
Revenue recognition of license fees
With more than 42 000 patents, license fees have a significant effect on the Groups
income. Many license agreements include both up-front fees and fees relating to the
number of units sold by the customer.
Refer to the Annual Report Note C2 – Critical accounting estimates and
judgements.
Our audit included a combination of testing of internal controls over financial
reporting, assessment of the Groups accounting policy for license fees, analytical
procedures and detailed tests of major new contracts.
Based on our work, we noted no significant issues regarding the accuracy of
revenue reported for the year.
Carrying value of goodwill and other intangible assets
Goodwill and other intangible assets are significant to the consolidated accounts and
are sensitive to impairment. Under IFRS, these assets require annual impairment tests
which require management judgment and estimates such as projected cash flows,
future market conditions and discount rates. All of these are subject to judgement and
subjectivity and might be affected by the current turbulence in the global economy.
Refer to the Annual Report Note C2 – Critical accounting estimates and judgements
and Note C10 – Intangible assets.
Our audit included a combination of testing of controls over financial reporting,
analytical procedures and detailed tests of management impairment tests. In our
detailed testing, we have involved our valuation experts to challenge the assump-
tions and estimates made by management.
Based on our work, we noted that there is no indication of impairment of goodwill
or other intangible except for one segment Media. A stress test has been performed
and presented in Note C10- Intangible assets. The future cash flow is based on five
years business plans for the new segments from 2017 Networks, IP & Cloud and
Media and includes several key assumptions. Should the discount rate be increased
from 8% to 10.0% the recoverable amount is equal to the carrying amount,
SEK 7.4 bn for segment Media.
Provisions
The need for provisions are by nature based on judgement and management esti-
mates of future outflow of cash. Ericsson has made provisions relating to customer
projects, warranty, litigations, restructuring and other contractual obligations.
Refer to the Annual Report Note C2 – Critical accounting estimates and judgements
and Note C18 – Provisions.
Our audit included a combination of testing of controls over financial reporting, ana-
lytical procedures and detailed testing to ensure that provisions made are sufficient
for existing commitments and exposures. In our detailed testing, we have also tested
additions to and utilization of provisions made for restructuring to ensure correct
classification. The Profitability Plus program has continued 2016 including significant
reductions in Sweden resulting in restructuring costs of SEK 7.6 bn in 2016.
130
Ericsson | Annual Report 2016
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 1–37,
133 and 162–184 . 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 con-
solidated 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 other-
wise obtained in the audit and assess whether the information
otherwise appears to be materially misstated.
If we, based on the work performed concerning this informa-
tion, 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, mat-
ters related to going concern and using the going concern basis of
accounting. The going concern basis of accounting is however
not applied if the Board of Directors and the Managing Director
intends to liquidate the company, to cease operations, or has no
realistic alternative but to do so.
The Audit Committee shall, without prejudice to the Board of
Director’s responsibilities and tasks in general, among other
things oversee the company’s financial reporting process.
Auditor’s Responsibilities
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. Rea-
sonable assurance is a high level of assurance, but is not a guar-
antee that an audit conducted in accordance with ISAs and gen-
erally accepted auditing standards in Sweden will always detect
a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these annual
accounts and consolidated accounts.
As part of an audit in accordance with ISAs, we exercise profes-
sional judgment and maintain professional scepticism throughout
the audit. We also:
> Identify and assess the risks of material misstatement of the
annual accounts and consolidated accounts, whether due to
fraud or error, design and perform audit procedures responsive
Financials – Auditor’s report
to those risks, and obtain audit evidence that is sufficient and
appropriate to provide a basis for our opinions. The risk of not
detecting a material misstatement resulting from fraud is higher
than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the over-
ride of internal control.
> Obtain an understanding of the company’s internal control rele-
vant to our audit in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the company’s
internal control.
> Evaluate the appropriateness of accounting policies used
and the reasonableness of accounting estimates and related
disclosures made by the Board of Directors and the Managing
Director.
> Conclude on the appropriateness of the Board of Directors’
and the Managing Director’s use of the going concern basis of
accounting in preparing the annual accounts and consolidated
accounts. We also draw a conclusion, based on the audit evi-
dence obtained, as to whether any material uncertainty exists
related to events or conditions that may cast significant doubt
on the company’s and the group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we
are required to draw attention in our auditor’s report to the
related disclosures in the annual accounts and consolidated
accounts or, if such disclosures are inadequate, to modify our
opinion about the annual accounts and consolidated accounts.
Our conclusions are based on the audit evidence obtained up
to the date of our auditor’s report. However, future events or
conditions may cause a company and a group to cease to con-
tinue as a going concern.
> Evaluate the overall presentation, structure and content of the
annual accounts and consolidated accounts, including the dis-
closures, and whether the annual accounts and consolidated
accounts represent the underlying transactions and events in
a manner that achieves fair presentation.
> Obtain sufficient and appropriate audit evidence regarding the
financial information of the entities or business activities within
the group to express an opinion on the consolidated accounts.
We are responsible for the direction, supervision and performance
of the group audit. We remain solely responsible for our opinions.
We must inform the Board of Directors of, among other matters,
the planned scope and timing of the audit. We must also inform of
significant audit findings during our audit, including any significant
deficiencies in internal control that we identified.
We must also provide the Board of Directors with a statement
that we have complied with relevant ethical requirements regard-
ing independence, and to communicate with them all relation-
ships and other matters that may reasonably be thought to bear
on our independence, and where applicable, related safeguards.
From the matters communicated with the Board of Directors,
we determine those matters that were of most significance in the
audit of the annual accounts and consolidated accounts, includ-
ing the most important assessed risks for material misstatement,
and which therefore comprise the key audit matters. We describe
these matters in the auditors’ report unless laws or regulations
preclude disclosure about the matter or when, in extremely rare
circumstances, we determine that a matter should not be com-
municated in the auditors’ report because the adverse conse-
quences of doing so could reasonably be expected to outweigh
the public interest benefits of such communication.
131
Ericsson | Annual Report 2016 FINANCIALS – Auditor’s report
Report on other legal and regulatory requirements
Opinion
In addition to our audit of the annual accounts and consolidated
accounts, we have audited the administration of the Board of
Directors and Managing Directors of Telefonaktiebolaget LM
Ericsson for the year 2016 and the proposed appropriations of the
company’s profit or loss.
We recommend to the annual 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 Directors be discharged
from liability for the financial year.
Basis for opinion
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 suffi-
cient 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 appro-
priations 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 orga-
nization and the administration of the company’s affairs. This
includes among other things continuous assessment of the com-
pany’s and the group’s financial situation and ensuring that the
company’s organization is designed so that the accounting, man-
agement 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 account-
ing in accordance with law and handle the management of assets
in a reassuring manner.
Auditor’s Responsibilities
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.
As part of an audit in accordance with generally accepted
auditing standards in Sweden, we exercise professional judgment
and maintain professional scepticism throughout the audit. The
examination of the administration and the proposed appropria-
tions of the company’s profit or loss is based primarily on the audit
of the accounts. Additional audit procedures performed are based
on our professional judgment with starting point in risk and materi-
ality. This means that we focus the examination on such actions,
areas and relationships that are material for the operations and
where deviations and violations would have particular importance
for the company’s situation. We examine and test decisions
undertaken, support for decisions, actions taken and other circum-
stances that are relevant to our opinion concerning discharge
from liability. As a basis for our opinion on the Board of Directors’
proposed appropriations of the company’s profit or loss we exam-
ined the Board of Directors’ reasoned statement and a selection
of supporting evidence in order to be able to assess whether the
proposal is in accordance with the Companies Act.
Stockholm, February 24, 2017
PricewaterhouseCoopers AB
Bo Hjalmarsson
Authorised Public Accountant
Lead partner
Johan Engstam
Authorised Public Accountant
132
Ericsson | Annual Report 2016
Forward-looking
statements
Although we believe that the expectations reflected in these and
other forward-looking statements are reasonable, we cannot
assure you that these expectations will materialize. Because for-
ward-looking statements are based on assumptions, judgments
and estimates, and are subject to risks and uncertainties, actual
results could differ materially from those described or implied
herein.
Important factors that could affect whether and to what extent any
of our forward-looking statements materialize include, but are not
limited to the factors described in “Risk factors”.
We undertake no obligation to publicly update or revise any for-
ward-looking statements included in this Annual Report, whether
as a result of new information, future events or otherwise, except
as required by applicable law or stock exchange regulation.
This Annual Report includes forward-looking statements, includ-
ing statements reflecting management’s current views relating to
the growth of the market, future market conditions, future events
and expected operational and financial performance. The words
“believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,”
“may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,”
“predict,” “aim,” “ambition,” “target,” “might,” or, in each case,
their negative, and similar words are intended to help identify
forward-looking statements.
Forward-looking statements may be found throughout this docu-
ment, and include statements regarding:
> Our goals, strategies and operational or financial performance
expectations
> Development of corporate governance standards, stock
market regulations and related legislation
> The future characteristics of the markets in which we operate
> Projections and other characterizations of future events
> Our liquidity, capital resources, capital expenditures, our credit
ratings and the development in the capital markets, affecting
our industry or us
> The expected demand for our existing as well as new products
and services
> The expected operational or financial performance of joint
ventures and other strategic cooperation activities
> The time until acquired entities will be accretive to income
> Technology and industry trends including regulatory and
standardization environment, competition and our customer
structure
> Our plans for new products and services including research
and development expenditures.
Financials – Forward-looking statements
Ericsson | Annual Report 2016
133
CORPORATE GOVERNANCE
CORPORATE GOVERNANCE
REPORT 2016
Corporate governance describes how rights and responsibilities are distributed
among corporate bodies according to applicable laws, rules and internal processes.
Corporate governance also defines the decision-making systems and structure
through which owners directly or indirectly control a company.
I believe that a robust corporate culture is fundamental
to maintain credible, competitive and sustainable business opera-
tions worldwide. Having global operations implies challenges.
Therefore, as Chairman of the Board, I must continuously work to
keep good governance, leadership and talent management high
on the agenda in the Board room as well as throughout the global
operations. A robust corporate culture must be anchored in a
strong commitment from the Board and from management who
must clearly emphasize the importance of conducting business
with integrity. Such commitment is fundamental to create and
maintain a robust corporate culture throughout a global organiza-
tion. 2016 has been a year of change for Ericsson with a new
organization, many new members of the Executive Leadership
Team and a new CEO appointed. In a professional executive
recruitment process, evaluating both internal and external candi-
dates, many important in depth considerations are made by the
Board, for example in relation to the Group strategy, talent man-
agement and corporate culture, which is valuable for the Board.
In times of change, stability in terms of corporate culture and core
values becomes even more important.
The Board of Directors also has an important role to give Group
management clear governance frameworks and mandates, and
to set the Group strategy. I always strive to enable an open and
meaningful dialogue, both within the Board and between the
Board and the Group management. The management dialogue
aims to give the Board relevant insights in the business activities
of Ericsson and in the markets in which Ericsson operates. The
Board also visits various parts of the Group’s business operations
as well as engages with customers, partners, academia and
thought leaders in order to gain further insights. I believe that
these insights are necessary for the Board to provide relevant
support to management and add value, while also exercising due
control of the business operations. Ericsson takes compliance
concerns very seriously and the Company uses considerable
resources to investigate alleged compliance concerns.
This Corporate Governance Report 2016 aims to describe how
Ericsson continuously works with these matters and how we
focus on establishing efficient and reliable controls and procedures.
I believe that Ericsson’s continuous corporate governance focus
and work to create a robust corporate culture have an important
role to build trust, and in turn generate value for our investors.
Leif Johansson
Chairman of the Board of Directors
134
Ericsson | Annual Report 2016
Contents
Regulation and compliance
Governance structure
Shareholders
General Meetings of shareholders
Nomination Committee
Board of Directors
Committees of the Board of Directors
Remuneration to Board members
Members of the Board of Directors
Management
Members of the Executive Leadership Team
Auditor
Internal control over financial reporting 2016
Auditor’s report on the Corporate Governance Report
135
136
136
137
138
139
142
145
146
150
154
158
159
161
This Corporate Governance Report is rendered as a separate report added
to the Annual Report in accordance with the Annual Accounts Act ((SFS
1995:1554) Chapter 6, Sections 6 and 8) and the Swedish Corporate
Governance Code.
The report has been reviewed by Ericsson’s auditor in accordance with the
Annual Accounts Act. A report from the auditor is appended hereto.
Key events
> Börje Ekholm was appointed new President and CEO
effective January 16, 2017
> Effective July 25, 2016, Jan Frykhammar was appointed
new President and CEO when the former Director and
President and CEO Hans Vestberg left his positions
> Effective July 1, 2016, new members of the Executive
Leadership Team were appointed following a series of
organizational and structural changes to strengthen
strategy execution
> Kristin S. Rinne and Helena Stjernholm were elected new
members of the Board at the Annual General Meeting
2016
Ericsson’s core values
Regulation and compliance
Professionalism
Respect
Perseverance
Our values are the found-
ation of our culture. They
guide us in our daily work,
in how we relate to each
other and the world around
us and in the way we
do business.
The Code of Business Ethics
and the Code of Conduct
can be found on Ericsson’s
website.
Code of
Business
Ethics
ERICSSON
Code of
Conduct
External rules
As a Swedish public limited liability company
with securities quoted on Nasdaq Stockholm as
well as on NASDAQ New York, Ericsson is sub-
ject to a variety of rules that affect its gover-
nance. The most relevant external rules applica-
ble to us include:
> The Swedish Companies Act
> Applicable EU regulations
> The Rule Book for issuers of Nasdaq
Stockholm
> The Swedish Corporate Governance Code
(the “Code”)
> NASDAQ Stock Market Rules, including
applicable NASDAQ New York corporate
governance requirements (subject to certain
exemptions principally reflecting mandatory
Swedish legal requirements)
> Applicable requirements of the US Securities
and Exchange Commission (the “SEC”)
Internal rules
In addition, to ensure compliance with legal and
regulatory requirements and the high standards
that we set for ourselves, Ericsson has adopted
internal rules that include:
> A Code of Business Ethics
> Group Steering Documents, including Group
policies and directives, instructions and busi-
ness processes for approval, control and risk
management
> A Code of Conduct, which applies to product
development, production, supply and sup-
port of Ericsson products and services
worldwide.
Compliance with regulations
Compliance with the Swedish
Corporate Governance Code
The Code is based on the principle of “comply or
explain” and is published on the website of the Swed-
ish Corporate Governance Board, which adminis-
trates the Code: www.corporategovernanceboard.se.
Ericsson is committed to com plying with best-practice
corporate governance on a global level wherever pos-
sible. This includes continued compliance with the
Code. Ericsson does not report any deviations from
the rules of the Code in 2016.
The articles of association and the work proce-
dure for the Board of Directors also include inter-
nal corporate governance rules.
Code of Business Ethics
Ericsson’s Code of Business Ethics summarizes
fundamental Group policies and directives and
contains rules to ensure that business is con-
ducted with a strong sense of integrity. This is
critical to maintain trust and credibility with
Ericsson’s customers, partners, employees,
shareholders and other stakeholders.
The Code of Business Ethics contains rules
for all individuals performing work for Ericsson
under the staff management of Ericsson. The
Code of Business Ethics has been translated
into more than 30 languages. This ensures that it
is accessible to everyone working for Ericsson.
Upon recruitment, employees acknowledge that
they are aware of the principles of the Code of
Business Ethics. This procedure is repeated
during the term of employment. Through this
process, Ericsson strives to raise awareness
throughout its global operations.
Everyone working for Ericsson has an individ-
ual responsibility to ensure that business prac-
tices adhere to the Code of Business Ethics.
Compliance with applic able
stock exchange rules
There has been no infringement by Ericsson of
applicable stock exchange rules and no breach of
good practice on the securities market reported by
the disciplinary committee of Nasdaq Stockholm
or the Swedish Securities Council in 2016.
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
135
CORPORATE GOVERNANCE – Corporate Governance Report
Shareholders
Ownership percentage (voting rights)
Swedish institutions:
55.17%
Of which:
– Investor AB:
– AB Industrivärden:
(together with SHB Pensions-
stiftelse and Pensionskassan
SHB Försäkringsförening)
21.77%
19.27%
Foreign institutions:
Swedish retail investors:
Others:
34.08%
5.90%
4.85%
Source: Nasdaq
Governance structure
Shareholders may exercise their decision-mak-
ing rights in Telefonaktiebolaget LM Ericsson
(the “Parent Company”) at General Meetings of
shareholders.
A Nomination Committee is appointed each
year by the major shareholders in accordance
with the Instruction for the Nomination Commit-
tee adopted by the Annual General Meeting of
shareholders. The tasks of the Nomination Com-
mittee include the proposal of Board members
and external auditor for election by the Annual
General Meeting of shareholders and proposal
of Board member and auditor remuneration.
In addition to the Board members elected by
shareholders, the Board of Directors consists of
employee representatives and their deputies
that the unions have the right to appoint under
Swedish law. The Board of Directors is ultimately
responsible for the strategy and the organization
of Ericsson and the management of its opera-
tions.
The President and CEO, appointed by the
Board of Directors, is responsible for handling
the day-to-day management of Ericsson in
accordance with guidelines issued by the Board.
The President and CEO is supported by the
Executive Leadership Team.
The external auditor of Ericsson is elected by
the General Meeting of shareholders.
Shareholders
Ownership structure
As of December 31, 2016, the Parent Company
had 465,733 registered shareholders, of which
453,424 were resident or located in Sweden
(according to the share register kept by Euro-
clear Sweden AB). Swedish institutions held
approximately 55.2% of the votes. The largest
shareholders as of December 31, 2016 were
Investor AB with approximately 21.8% of the
votes and AB Industrivärden (together with
Svenska Handelsbankens Pensionsstiftelse and
Pensionskassan SHB Försäkringsförening), with
approximately 19.3% of the votes.
A significant number of the shares held by
foreign investors are nominee-registered, i.e.
held of record by banks, brokers and/or nomi-
nees. This means that the actual shareholder is
not displayed in the share register or included in
the shareholding statistics.
More information on Ericsson’s shareholders
can be found in the chapter “Share Information”
in the Annual Report.
Shares and voting rights
The share capital of the Parent Company con-
sists of two classes of shares listed on Nasdaq
Stockholm: A and B shares. Each Class A share
carries one vote and each Class B share carries
one tenth of one vote. Class A and B shares enti-
tle the holder to the same proportion of assets
and earnings and carry equal rights to divi-
dends.
The Parent Company may also issue Class C
shares, which shares are converted into Class B
shares before they are used to create treasury
stock to finance and hedge long-term variable
compensation programs resolved by the Gen-
eral Meeting of shareholders.
In the United States, the Ericsson Class B
shares are listed on NASDAQ New York in the
form of American Depositary Shares (ADS) evi-
denced by American Depositary Receipts (ADR).
Each ADS represents one Class B share.
The members of the Board of Directors and
the Executive Leadership Team have the same
voting rights on shares as other shareholders
holding the same class of shares.
Governance structure
General Meetings of shareholders
Annual General Meeting/Extraordinary General Meeting
Unions
Board of Directors
Directors elected by the General Meetings of shareholders
3 Directors and 3 Deputies appointed by the Trade Unions
Audit
Committee
Finance
Committee
Remuneration
Committee
Nomination
Committee
External
Auditor
President and CEO
Management
136
Ericsson | Annual Report 2016
Contact the Board of Directors
The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden
boardsecretariat@ericsson.com
Decisions of the AGM 2016 included:
> Payment of a dividend of SEK 3.70 per share
> Re-election of Leif Johansson as Chairman of
the Board of Directors
> Re-election of other members of the Board of
Directors: Nora Denzel, Börje Ekholm, Ulf J.
Johansson, Kristin Skogen Lund, Sukhinder
Singh Cassidy, Hans Vestberg and Jacob
Wallenberg
> Election of new Board members: Kristin S.
Rinne and Helena Stjernholm
> Approval of Board of Directors’ fees:
– Chairman: SEK 4,075,000 (previously
SEK 4,000,000)
– Other non-employee Board members:
SEK 990,000 each (previously SEK 975,000)
– Chairman of the Audit Committee: SEK
350,000 (unchanged)
– Other non-employee members of the Audit
Committee: SEK 250,000 each
(unchanged)
– Chairmen of the Finance and Remunera-
tion Committees: SEK 200,000 each
(unchanged)
– Other non-employee members of the
Finance and Remuneration Committees:
SEK 175,000 each (unchanged)
> Approval for part of the Directors’ fees to be
paid in the form of synthetic shares
> Approval of Guidelines for remuneration to
Group management
> Implementation of a Long-Term Variable
Compensation Program 2016, including
a share issue of and authorization to the
Board to buy back 26,100,000 shares for
the program.
The minutes from the AGM 2016 are available on
Ericsson’s website.
General Meetings of shareholders
Decision-making at General Meetings
The decision-making rights of Ericsson’s share-
holders are exercised at General Meetings of
shareholders. Most resolutions at General Meet-
ings are passed by a simple majority. However,
the Swedish Companies Act requires qualified
majorities in certain cases, for example in case
of:
> Amendment of the Articles of Association
> Resolution to transfer treasury stock to
employees participating in long-term variable
compensation programs.
The Annual General Meeting of shareholders
The Annual General Meeting of shareholders
(AGM) is held in Stockholm. The date and venue
for the meeting are announced on the Ericsson
website no later than at the time of release of
the third-quarter interim financial report in the
preceding year.
Shareholders who cannot participate in
person may be represented by proxy. Only
shareholders registered in the share register
have voting rights. Nominee-registered share-
holders who wish to vote must request to be
entered into the share register by the record
date for the AGM.
The AGM is held in Swedish and is simultane-
ously translated into English. All documentation
provided by the Company is available in both
Swedish and English.
The AGM gives shareholders the opportunity
to raise questions relating to the operations of
the Group. Normally, the majority of the mem-
bers of the Board of Directors and the Executive
Leadership Team is present to answer such
questions.
The external auditor is always present at
the AGM.
Ericsson’s Annual General Meeting 2016
Including shareholders represented by proxy,
3,251 shareholders were represented at the
AGM held on April 13, 2016, representing more
than 69% of the votes.
The meeting was also attended by members
of the Board of Directors, members of the Exec-
utive Leadership Team and the external auditor.
Annual General Meeting 2017
Ericsson’s AGM 2017 will take place on March 29, 2017, at 3 p.m. at Kistamässan
in Stockholm. Further information is available on Ericsson’s website.
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
137
CORPORATE GOVERNANCE – Corporate Governance Report
Nomination Committee
The Annual General Meeting of shareholders
has adopted an Instruction for the Nomination
Committee that includes the tasks of the Nomi-
nation Committee and the procedures for
appointing its members. The Instruction applies
until the General Meeting of shareholders
resolves otherwise. Under the Instruction,
the Nomination Committee shall consist of:
> Representatives of the four largest sharehold-
ers by voting power by the end of the month
in which the AGM was held, and
> The Chairman of the Board of Directors.
The Committee may also include additional
members following a request by a shareholder.
The request must be justified by changes in the
shareholder’s ownership of shares and be
received by the Nomination Committee no later
than December 31 of each year. No fees are
paid to the members of the Nomination
Committee.
Members of the Nomination Committee
The current Nomination Committee members
appointed in May 2016 are:
> Petra Hedengran (Investor AB), Chairman of
the Nomination Committee
> Bengt Kjell (AB Industrivärden, Svenska
Handelsbankens Pensionsstiftelse)
> Johan Held (AFA Försäkring)
> Anders Oscarsson (AMF – Försäkring och
Fonder)
> Leif Johansson, Chairman of the Board of
Directors
The tasks of the Nomination Committee
The main task of the Committee is to propose
Board members for election by the AGM. As
member of the Nomination Committee, the
Chairman of the Board of Directors fulfills an
important role to inform the Committee of the
Company’s strategy and future challenges. Such
insights are necessary for the Committee to be
able to assess the competence and experience
that is required by the Board. In addition, the
Committee must consider independence rules
applicable to the Board of Directors and its
committees.
The Nomination Committee also makes the
following proposals, for resolution by the AGM:
> Proposal for remuneration to non-employee
Directors elected by the AGM and remunera-
tion to the auditor
> Proposal for election of auditor, whereby can-
didates are selected in cooperation with the
Audit Committee of the Board
> Proposal for election of Chairman at the AGM
> Proposal of changes to the Instruction for the
Nomination Committee (if any).
Work of the Nomination Committee
for the AGM 2017
The Nomination Committee started its work by
going through a checklist of its duties under the
Code and the Instruction for the Nomination
Committee and by setting a time plan for its
work ahead. A good understanding of Ericsson’s
business and strategy is important for the mem-
bers of the Nomination Committee. Therefore,
the Chairman of the Board presented his views
to the Committee members on the Company’s
position and strategy. During the fall of 2016, the
Committee also met with Ericsson’s President
and CEO, Jan Frykhammar, who presented his
views in this respect.
The Committee was thoroughly informed of
the results of the evaluation of the Board work
and procedures, including the performance of
the Chairman of the Board. On this basis, the
Committee has assessed the competence and
experience required by Ericsson Board mem-
bers. The Nomination Committee has applied
the Swedish Corporate Governance Code, sec-
tion 4.1, as diversity policy and has continuously
assessed the need for improvement of the com-
position of the Board in terms of diversity in
competence, experience, age, gender and cul-
tural/geographic background. The Nomination
Committee aims to propose a composition of
Board members with complementing experi-
ences and competencies to make it possible for
the Board to contribute to a positive develop-
ment of Ericsson. The Nomination Committee
searches for potential Board member candi-
dates both with a long-term and a short-term
perspective and always focuses on diversity to
ensure that the Board get different perspectives
into the Board work and considerations. The
Nomination Committee also considers the need
for renewal and carefully assesses whether the
proposed Directors have the capability to devote
necessary time and care to the Board work.
In 2016, the Committee met with the Chair-
man of the Audit Committee to acquaint itself
with the assessments made by the Company
and the Audit Committee of the quality and effi-
ciency of external auditor work. The Audit Com-
mittee also provided its recommendations on
external auditor and audit fees.
As of February 24, 2017, the current Nomina-
tion Committee has held six meetings.
Contact the Nomination
Committee
Telefonaktiebolaget LM Ericsson
The Nomination Committee
c/o The Board of Directors Secre-
tariat
SE-164 83 Stockholm
Sweden
nomination.committee
@ericsson.com
Proposals to the Nomination
Committee
Shareholders may submit propos-
als to the Nomination Committee
at any time, but should do so in
due time before the AGM to ensure
that the proposals can be consid-
ered by the Committee. Further
information is available on
Ericsson’s website.
138
Ericsson | Annual Report 2016
Board of Directors
The Board of Directors is ultimately responsible
for the organization of Ericsson and the manage-
ment of Ericsson’s operations. The Board app-
oints the President and CEO who is responsible
for managing the day-to-day operations in accord-
ance with guidelines from the Board. The Presi-
dent and CEO ensures that the Board is updated
regularly on issues of importance to Ericsson.
This includes updates on business develop-
ment, results, financial position and liquidity.
Directors serve from the close of one AGM to
the close of the next, but can serve any number
of consecutive terms.
The President and CEO may be elected a
Director of the Board, but, under the Swedish
Companies Act, the President of a public com-
pany may not be elected Chairman of the Board.
Conflicts of interest
Ericsson maintains rules and regulations regard-
ing conflicts of interest. Directors are disqualified
from participating in any decision regarding
agreements between themselves and Ericsson.
The same applies to agreements between
Ericsson and any third-party or legal entity in
which the Board member has an interest that
may be contrary to the interests of Ericsson.
The Audit Committee oversees the proce-
dures for related-party transactions and has
implemented a pre-approval process for
non-audit services carried out by the external
auditor.
Composition of the Board of Directors
The current Board of Directors consists of nine
Directors elected by the shareholders at the
AGM 2016 for the period until the close of the
AGM 2017. The former Director and President
and CEO, Hans Vestberg, was also elected
Director at the AGM 2016 but, on July 25, 2016,
it was announced that he left his positions with
Ericsson, including his Board position, effective
immediately. The Board of Directors also con-
sists of three employee representatives, each
with a deputy, appointed by the trade unions for
the same period of time.
Work procedure
Pursuant to the Swedish Companies Act, the
Board of Directors has adopted a work proce-
dure and Committee charters outlining rules for
the distribution of tasks among the Board, its
Committees and the President and CEO. This
complements rules in the Swedish Companies
Act and in the Articles of Association of the
Company. The work procedure and the Com-
mittee charters are reviewed, evaluated and
amended by the Board as required or appro-
priate, and are adopted by the Board at least
once a year.
Independence
The Board of Directors and its Committees are
subject to a variety of independence rules under
applicable Swedish law, the Code and appli-
cable US securities laws, SEC rules and the
NASDAQ Stock Market Rules. Ericsson can
rely on exemptions from certain US and SEC
requirements and may decide to follow Swedish
practices in lieu of the NASDAQ Stock Market
independence rules.
The composition of the Board of Directors
meets all applicable independence criteria. The
Nomination Committee concluded before the
AGM 2016 that, for purposes of the Code, at
least six of the nominated Directors were inde-
pendent from Ericsson, its senior management
and its major shareholders. These were Nora
Denzel, Leif Johansson, Ulf J. Johansson, Kristin
S. Rinne, Kristin Skogen Lund and Sukhinder
Singh Cassidy.
Structure of the work of the Board
of Directors
The work of the Board follows a yearly cycle.
This enables the Board to appropriately address
each of its duties and to keep strategy, risk
assessment and value creation high on the
agenda. In addition to Board meetings, the
annual work cycle of the Board includes two
Board Strategic Days held in connection with
Board meetings. The Board Strategic Days
are described below under Training and Board
Strategic Days.
As the Board is responsible for financial over-
sight, financial information is presented and eval-
uated at each Board meeting. Furthermore, the
Chairman of each Committee, reports on Com-
mittee work at each Board meeting and minutes
from Committee meetings are distributed to all
Directors prior to the Board meetings.
At Board meetings, the President and CEO
reports on business and market developments
as well as on the financial performance of the
Group. Strategic issues and risks are also
addressed at most Board meetings. The Board
is regularly informed of developments in legal
and regulatory matters of importance. Board
and Committee meetings may, as appropriate, be
held by way of telephone or video conference,
and resolutions may be taken per capsulam
(unanimous written consent). Such resolutions
are accounted for as Board/Committee meetings.
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
139
CORPORATE GOVERNANCE – Corporate Governance Report
The 2016 annual work cycle of the Board:
> Fourth-quarter and full-year financial
results meeting
Following the end of the calendar year, the
Board held a meeting which focused on the
financial results of the entire year 2015 and
handled the fourth-quarter financial report.
> Board Strategic Day
A Board Strategic Day, focusing on deepen-
ing Board member knowledge of matters of
strategic importance for Ericsson, was held in
connection with a Board meeting in the
spring.
> Board meeting
In March, an ordinary Board meeting was
held to address various matters, including for
example regular executive succession plan-
ning review.
> Statutory Board meeting
The statutory Board meeting was held in con-
nection with the AGM 2016. At this meeting,
members of each of the three Board Commit-
tees were appointed and the Board resolved
on signatory powers.
> First interim report meeting
At the next ordinary meeting, the Board han-
dled the interim financial report for the first
quarter of the year.
> Main strategy meeting
In accordance with the annual cycle for the
strategy process, a main strategy Board
meeting was held, in essence dedicated to
short- and long-term strategies of the Group.
Following the Board’s input on, and approval
of, the overall strategy, the strategy was
cascaded throughout the entire organization,
starting at the Global Leadership Summit
held after the summer with Ericsson’s top
300 leaders.
> Second interim report meeting
At the second interim report meeting, the
Board handled the interim financial report for
the second quarter of the year.
> Follow-up strategy and risk management
meeting
Following the summer, a meeting was held to
address particular strategy matters in further
detail and to finally confirm the Group strat-
egy. The meeting also addressed the overall
risk management of the Group.
> Board Strategic Day
A Board Strategic Day, focusing on deepen-
ing Board member knowledge of matters of
strategic importance for Ericsson, was held in
connection with a Board meeting in October.
> Third interim report meeting
A Board meeting was held to handle the
interim financial report for the third quarter
of the year. At this meeting, the results of the
Board evaluation were presented to and
discussed by the Board.
> Budget and financial outlook meeting
A meeting was held for the Board to address
the budget and financial outlook as well as to
further analyze internal and external risks.
Training and Board Strategic Days
New Directors receive comprehensive training
tailored to their individual needs. Introductory
training typically includes meetings with heads
The Board’s annual work cycle 2016
The annual cycle applied
to the Board’s work allows
the Board to appropriately
address its duties during the
year. It also facilitates the
organization in aligning its
global processes to allow
appropriate Board involve-
ment. This is particularly
relevant for the Group’s
strategy process and risk
management.
Budget and financial
outlook meeting
Third interim report meeting
> Q3 Financial report
> Board work evaluation
Follow-up strategy and
risk management meeting
Board Strategic Day
Second interim report meeting
> Q2 Financial report
140
Ericsson | Annual Report 2016
Fourth-quarter and full-year
financial results meeting
> Financial result of the entire year
Q4
Dec
Jan
Q1
Nov
Feb
Board Strategic Day
Oct
Sep
Mar
Apr
Aug
May
Q3
Jul
Jun
Q2
Board meeting
Statutory Board meeting
(in connection with AGM)
> Appointment of
Committee Members
> Authorization to sign
for the Company
First interim report meeting
> Q1 Financial report
Main strategy meeting
of business units, customer groups and Group
functions, as well as training required by Nasdaq
Stockholm on listing issues and insider rules. In
addition, the company arranges training for
Board members at regular intervals.
Bi-annual Board Strategic Days are arranged
for Board members as part of ordinary Board
meetings, normally spanning one full day each.
The Board Strategic Days focus on combining
strategy issues with making deep dives into
issues of importance for the Ericsson Group.
The purpose of the Board Strategic Days is to
ensure that members of the Board have knowl-
edge and understanding of the business activi-
ties of the Group, the business environment and
the Group’s strategic options and challenges.
Directors’ knowledge in these fields is crucial to
allow well-founded Board resolutions, and to
ensure that the Company takes due advantage
of the different competences of the Directors.
The Board Strategic Days also form an import-
ant platform for contacts between Directors and
talent from different parts of Ericsson’s organiza-
tion where the Board gets the opportunity to
meet Ericsson employees and leaders. Such
contacts and meetings are highly valued by the
Board as part of the Board’s involvement in
Ericsson’s talent management.
During 2016, focus areas at Board Strategic
Days included cyber security, 5G, Industry and
Society, IoT and Media. As a rule, the Board
Strategic Days also include sustainability and
corporate responsibility updates for Board
members.
Auditor involvement
The Board meets with Ericsson’s external audi-
tor in closed sessions at least once a year to
receive and consider the auditor’s observations.
The auditor reports to management on the
accounting and financial reporting practices of
the Group.
The Audit Committee also meets regularly with
the auditor to receive and consider observations
on the interim reports and the Annual Report.
The auditor has been instructed to report on
Organization of the Board work
Number of Committee members as of December 31, 2016
whether the accounts, the management of funds
and the general financial position of the Group
are presented fairly in all material respects.
In addition, the Board reviews and assesses
the process for financial reporting, as described
below under “Internal control over financial
reporting 2016”. Combined with other steps
taken internally, the Board’s and the auditor’s
review of the interim and annual reports are
deemed to give reasonable assurance of the
effectiveness of the internal controls over finan-
cial reporting.
Work of the Board of Directors in 2016
In 2016, 13 Board meetings were held. For
attendance at Board meetings, see the table
on page 145.
Strategy and risk management are always
high on the Board’s agenda and the bi-annual
Board Strategic Days aim at providing the Board
with good insight into these matters. Sustain-
ability and corporate responsibility are increas-
ingly important to Ericsson and are integrated
into Ericsson’s business strategy.
The Board continuously monitors the interna-
tional developments and their possible impact
on Ericsson. Industry transformation, talent
management, cybersecurity, profitability, cost
reductions and efficiency gains are among the
matters that have continued to be in focus
within Ericsson during the year. The Board also
addressed the re-organization carried out during
the year, and the process to appoint a new
President and CEO.
Board work evaluation
A key objective of the Board evaluation is to
ensure that the Board work is functioning well.
This includes gaining an understanding of the
issues that the Board thinks warrant greater
focus, as well as determining areas where addi-
tional competence is needed within the Board
and whether the Board composition is appro-
priate. The evaluation also serves as guidance
for the work of the Nomination Committee.
Board of Directors
12 Directors
Audit Committee
(4 Directors)
Finance Committee
(4 Directors)
Oversight of financial reporting
Oversight of internal control
Financing
Investing
Oversight of auditing
Customer credits
Remuneration Committee
(4 Directors)
Guidelines for remuneration
to Group management
Long-Term Variable Remuner ation
Executive remuneration
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
141
CORPORATE GOVERNANCE – Corporate Governance Report
Each year, the Chairman of the Board initiates
and leads the evaluation of the Board and Com-
mittee work and procedures. Evaluation tools
include detailed questionnaires and discussions.
The services of an external corporate advisory
firm have been retained by the Company to
assist in developing questionnaires, carrying
out surveys and summarizing responses.
In 2016, Directors responded to written
questionnaires, covering the Director’s individual
performance, Board work in general, Committee
work and the Chairman’s performance. The
Chairman was not involved in the development
or compilation of the questionnaire which related
to his performance, nor was he present when
his performance was evaluated. The Chairman
evaluation was coordinated by one of the Dep-
uty Chairmen, Jacob Wallenberg. As part of the
evaluation process, the Chairman of the Board
also had individual discussions with each of the
Directors. The results from the evaluations were
presented to the Board and were thoroughly dis-
cussed. An action plan was developed to further
improve the work of the Board. The Nomination
Committee was informed of the results of the
Board work and Chairman evaluation.
Committees of the Board of Directors
The Board of Directors has established three
Committees: the Audit Committee, the Finance
Committee and the Remuneration Committee.
Members of each Committee are appointed for
one year from amongst the Board members.
In January 2017, the Board resolved to establish
a fourth Board Committee for Technology and
Science as from the statutory Board meeting to
be held in connection with the 2017 Annual
General Meeting of shareholders.
The task of the Committees is mainly to pre-
pare matters for resolution by the Board. How-
ever, the Board has authorized each Committee
to determine and handle certain issues in limited
areas. It may also on occasion provide extended
authorization for the Committees to determine
specific matters.
If deemed appropriate, the Board of Directors
and each Committee have the right to engage
independent external expertise, either in general
or with respect to specific matters.
Prior to the Board meetings, each Committee
submits the minutes of Committee meetings to
the Board and the Chairman of the Committee
reports on the work of the Committee at each
Board meeting.
Audit Committee
On behalf of the Board, the Audit Committee
monitors the following:
> The scope and accuracy of the financial
statements
> Compliance with legal and regulatory require-
ments
> Internal control over financial reporting
> Risk management
> The effectiveness and appropriateness of the
Group’s anti-corruption program.
The Audit Committee also reviews the annual
and interim financial reports and oversees the
external audit process, including audit fees.
The Audit Committee itself does not perform
audit work. Ericsson’s internal audit function
reports directly to the Audit Committee.
Ericsson’s external auditor is elected by the
AGM. The Committee is involved in the prepa-
ratory work for the Nomination Committee to
propose external auditor for election by the AGM.
It also monitors Group transactions and the
ongoing performance and independence of the
auditor with the aim to avoid conflicts of interest.
In order to ensure the auditor’s indepen-
dence, the Audit Committee has established
pre-approval policies and procedures for
non-audit related services to be performed by
the external auditor. Pre-approval authority
may not be delegated to management.
The Audit Committee also oversees
Ericsson’s process for reviewing transactions
with related parties and Ericsson’s whis-
tle-blower procedures.
Members of the Committees as of December 31, 2016
Members of the Committees of the Board of Directors
Audit Committee
Finance Committee
Remuneration Committee
Ulf J. Johansson (Chairman)
Leif Johansson (Chairman)
Leif Johansson (Chairman)
Nora Denzel
Mikael Lännqvist
Kristin Skogen Lund
Pehr Claesson
Helena Stjernholm
Jacob Wallenberg
Börje Ekholm
Sukhinder Singh Cassidy
Karin Åberg
142
Ericsson | Annual Report 2016
Whistle-blower procedures
Ericsson’s whistle-blower tool, Ericsson Comp-
liance Line, managed by an external service pro-
vider, can be used for reporting of alleged viola-
tions of laws or the Code of Business Ethics that:
> are conducted by Group or local manage-
ment, and
> relate to corruption, questionable accounting
or auditing matters or otherwise seriously
affect vital interests of the Group or personal
health and safety.
Violations reported through the Ericsson Com-
pliance Line are handled by Ericsson’s Group
Compliance Forum, consisting of representa-
tives from Ericsson’s internal audit function,
Group Function Legal Affairs, Group Security,
and Group Function Human Resources. Alleged
violations reported in Ericsson Compliance Line
are reported to the Audit Committee. Reports
include information about the incident category
and a description of the report and decision and
output. Investigations relating to severe alleged
violations are handled by Corporate Audit’s
Corporate Investigation team to secure indepen-
dence. Other investigations are handled in the
Regions. The Corporate Investigation team over-
sees these investigations as deemed appropriate.
Members of the Audit Committee
The Audit Committee consists of four Board
members appointed by the Board in connection
with the AGM 2016: Ulf J. Johansson (Chairman),
Nora Denzel, Kristin Skogen Lund and Mikael
Lännqvist (employee representative). The Board
has appointed shareholder elected Board mem-
bers with CEO experience to the Committee.
The composition of the Audit Committee
meets all applicable independence require-
ments, including the conditions for reliance on
an exemption for employee representatives.
The Board of Directors has determined that each
of Ulf J. Johansson, Nora Denzel and Kristin
Skogen Lund is an audit committee financial
expert, as defined under the SEC rule. Each of
these three members is considered indepen-
dent under applicable US securities laws, SEC
rules and NASDAQ Stock Market Rules and
each of them is financially literate and familiar
with the accounting practices of an international
company, such as Ericsson.
Work of the Audit Committee in 2016
The Audit Committee held eight meetings in
2016. Directors’ attendance is reflected in the
table on page 145. During the year, the Audit
Committee reviewed the scope and results of
external financial audits and the independence
of the external auditor. Prior to publishing it, the
Committee also reviewed and discussed each
interim report and the annual report with the
external auditor. The Committee also reviewed
the pre-approval policies and procedures to
secure compliance with new EU regulations
regarding audits, and monitored the external
audit fees and approved non-audit-services
performed by the external auditor in accordance
with such policies and procedures.
The Committee approved the audit plan for
the internal audit function based on among other
things the annual risk assessment, and reviewed
the reports of the internal audit function. The
Committee also received and reviewed reports
under the whistle-blower tool, Ericsson Compli-
ance Line.
The Committee monitored the continued
compliance with the Sarbanes-Oxley Act as
well as the internal control and risk management
process and monitored and evaluated the effec-
tiveness and appropriateness of Ericsson’s
anti-corruption program. In 2016, the Committee
received training on new IFRS rules.
Finance Committee
The Finance Committee’s responsibilities
include:
> Handling matters related to acquisitions,
investments and divestments
> Handling capital contributions to Group and
affiliated companies
> Raising loans, issuing guarantees and similar
undertakings, and approving financial sup-
port to customers and suppliers
> Continuously monitoring the Group’s financial
risk exposure.
The Finance Committee is authorized to deter-
mine matters such as:
> Direct or indirect financing
> Provision of credits
> Granting of guarantees and similar under-
takings
> Certain investments, divestments and
financial commitments.
Members of the Finance Committee
The Finance Committee consists of four Board
members appointed by the Board in connection
with the AGM 2016: Leif Johansson (Chairman),
Pehr Claesson (employee representative),
Helena Stjernholm and Jacob Wallenberg. The
Board has appointed shareholder elected Board
members with extensive industrial and financial
experience to the Committee.
Work of the Finance Committee in 2016
The Finance Committee held 13 meetings in
2016. Directors’ attendance is reflected in the
table on page 145. During the year, the Finance
Committee approved numerous customer
finance credit arrangements and reviewed a
number of potential acquisitions and divest-
ments and real estate investments. The Finance
Committee spent significant time discussing
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
143
CORPORATE GOVERNANCE – Corporate Governance Report
and securing an adequate capital structure, as
well as examining cash flow and working capital
performance. International developments and
their impact on Ericsson are continuously moni-
tored, as well as Ericsson’s financial position and
foreign exchange and credit exposures.
Remuneration Committee
The Remuneration Committee’s responsibilities
include:
> Reviewing and preparing, for resolution by
the Board, proposals on salary and other
remuneration, including retirement compen-
sation, for the President and CEO.
> Reviewing and preparing, for resolution by
the Board, proposals to the AGM on guide-
lines for remuneration to the Executive Lead-
ership Team (ELT).
> Approving proposals on salary and other
remuneration, including retirement compen-
sation, for the other members of the ELT.
> Reviewing and preparing, for resolution by
the Board, proposals to the AGM on the
Long-Term Variable Compensation Program
and similar equity arrangements.
In its work, the Remuneration Committee
considers trends in remuneration, legislative
changes, disclosure rules and the general global
executive remuneration environment. It reviews
salary survey data before preparing salary
adjustment recommendations for the President
and CEO for resolution by the Board and before
approving any salary adjustments for the other
members of the ELT.
Members of the Remuneration Committee
The Remuneration Committee appointed by the
Board in connection with the AGM 2016 consisted
of four Board members: Leif Johansson (Chair-
man), Börje Ekholm, Sukhinder Singh Cassidy
and Karin Åberg (employee representative).
Börje Ekholm left the Committee upon his
appointment as President and CEO on January
16, 2017 and the Committee now consists of
three Board members. The Board has appointed
shareholder elected Board members to the
Committee with experiences from different
markets of relevance to the Group, including the
Swedish and the US markets.
During the year 2016, Piia Pilv advised and
assisted the Remuneration Committee as an
independent expert. At its final meeting of 2016,
the Remuneration Committee resolved to
appoint Peter Boreham from Mercer as its
independent advisor for 2017.
Work of the Remuneration Committee in 2016
The Remuneration Committee held seven meet-
ings in 2016. Director’s attendance is reflected in
the table on page 145.
The Remuneration Committee reviewed and
prepared a proposal for the Long-Term Variable
Compensation program (LTV) 2016 for resolu-
tion by the Board and further approval by the
AGM 2016. It further resolved on salaries and
Short-Term Variable remuneration for 2016 for
the members of the ELT and prepared proposals
regarding remuneration to the President and
CEO for resolution by the Board. It also prepared
guidelines for remuneration to the ELT for resolu-
tion by the Board and subsequent referral to the
AGM for approval. With several changes to the
ELT during 2016, the Remuneration Committee
has also resolved on salaries and Short-Term
Variable remuneration for individuals joining
the ELT.
During the latter part of 2016, the Remunera-
tion Committee reviewed the current LTV struc-
ture and executive remuneration. The resulting
proposals on LTV and guidelines for remunera-
tion to the ELT will be referred to the AGM 2017
for resolution.
For further information on fixed and variable
remuneration, please see Notes to the consoli-
dated financial statements – Note C28 “Informa-
tion regarding members of the Board of Direc-
tors, the Group management and employees”
and the “Remuneration Report” included in the
Annual Report.
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Ericsson | Annual Report 2016
Directors’ attendance and fees 2016
Board member
Leif Johansson
Anders Nyrén 2)
Helena Stjernholm 3) 4)
Jacob Wallenberg
Roxanne S. Austin 5)
Nora Denzel 6)
Börje Ekholm 7)
Alexander Izosimov 8)
Ulf J. Johansson
Kristin Skogen Lund
Kristin S. Rinne 3)
Sukhinder Singh Cassidy 9)
Hans Vestberg 10)
Pehr Claesson
Mikael Lännqvist
Karin Åberg
Zlatko Hadzic
Kjell-Åke Soting
Roger Svensson
Total number of meetings
Fees resolved by the AGM 2016
Number of Board/Committee meetings attended in 2016
Board fees,
SEK 1)
Committee fees,
SEK
Board
Audit
Committee
Finance
Committee
Remuneration
Committee
4,075,000
–
990,000
990,000
–
990,000
742,500
–
990,000
975,000
990,000
990,000
–
39,000 11)
31,500 11)
30,000 11)
18.000 11)
19,500 11)
19,500 11)
400,000
–
175,000
175,000
–
250,000
131,250
–
350,000
250,000
–
175,000
–
–
–
–
–
–
–
13
2
11
12
2
13
12
2
13
13
11
13
7
13
13
13
12
13
13
13
13
4
9
13
13
13
5
3
8
8
8
8
7
2
7
5
7
7
1) Non-employee Directors can choose to receive part of their Board fee (exclusive of Committee
fees) in the form of synthetic shares.
2) Resigned from the Board and from the Finance Committee as of April 13, 2016.
3) Elected member of the Board at the AGM held on April 13, 2016.
4) Appointed member of the Finance Committee as of April 13, 2016.
5) Resigned from the Board and from the Remuneration Committee as of April 13, 2016.
6) Appointed member of the Audit Committee as of April 13, 2016.
7) Board member remuneration resolved by the AGM is only for non-employee Directors elected
by the shareholders. Since January 16, 2017, Börje Ekholm is employed by the Company and his
Board and Committee remuneration have been adjusted accordingly.
8) Resigned from the Board and from the Audit Committee as of April 13, 2016.
9) Appointed member of the Remuneration Committee as of April 13, 2016.
10) Resigned from the Board as of July 25, 2016. Board member remuneration resolved by the AGM
is only for non-employee Directors elected by the shareholders.Hans Vestberg was employed
by the Company.
11) Employee representative Board members and their deputies are not entitled to a Board fee, but
instead get paid compensation in the amount of SEK 1,500 per attended Board and Committee
meeting.
Remuneration to Board members
Remuneration to Board members not employed by the Company
is proposed by the Nomination Committee for resolution by
the AGM.
The AGM 2016 approved the Nomination Committee’s pro-
posal for fees to non-employee Board members for Board and
Committee work. For further information on Board of Directors’
fees 2016, please refer to Notes to the consolidated financial
statements – Note C28 “Information regarding members of the
Board of Directors, the Group management and employees”
in the Annual Report.
The AGM 2016 also approved the Nomination Committee’s
proposal that Board members may be paid part of their Board
fee in the form of synthetic shares. A synthetic share gives the
right to receive a future cash payment of an amount which corre-
sponds to the market value of a Class B share in Ericsson at the
time of payment. The Director’s right to receive payment with
regard to allocated synthetic shares occurs, as a general rule,
after the publication of the Company’s year-end financial state-
ment during the fifth year following the General Meeting that
resolved on the allocation of the synthetic shares. The purpose of
paying part of the Board of Directors’ fee in the form of synthetic
shares is to further align the Directors’ interests with shareholder
interests. For more information on the terms and conditions of the
synthetic shares, please refer to the notice convening the AGM
2016 and to the minutes from the AGM 2016, which are available
at Ericsson’s website.
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
145
CORPORATE GOVERNANCE – Corporate Governance Report
Members of the Board of Directors
Board members elected by the AGM 2016
Leif Johansson
(first elected 2011)
Chairman of the Board of
Directors, Chairman of the
Remuneration Committee and
of the Finance Committee
Born 1951. Master of Science in
Engineering, Chalmers University
of Technology, Gothenburg,
Sweden.
Board Chairman: Astra Zeneca
PLC.
Board Member: Autoliv, Inc.,
Ecolean AB and The
Confederation of Swedish
Enterprise.
Holdings in Ericsson:
103,933 Class B shares 1).
Principal work experience and
other information: Member of
the European Round Table of
Industrialists since 2002, and
served as its Chairman 2009–
2014. President of the Royal
Swedish Academy of Engineering
Sciences since 2012. Chairman of
the International Advisory Board of
the Nobel Foundation. President
and CEO of AB Volvo 1997–2011.
Executive Vice President of AB
Electrolux 1988–1991, President
1991–1994 and President and
CEO of AB Electrolux 1994–1997.
Holds honorary Doctorates at
Blekinge Institute of Technology,
the University of Gothenburg and
Chalmers University of Tech
nology. Awarded the Large Gold
Medal of the Royal Swedish
Academy of Engineering Sciences
in 2011.
Helena Stjernholm
(first elected 2016)
Jacob Wallenberg
(first elected 2011)
Deputy Chairman of the Board of
Directors, Member of the Finance
Committee
Deputy Chairman of the Board of
Directors, Member of the Finance
Committee
Born 1970. Master of Science in
Business Administration,
Stockholm School of Economics,
Sweden.
Board Member: AB
Industrivärden, AB Volvo and
Sandvik AB.
Holdings in Ericsson:
20,060 Class B shares 1), and
11,093 synthetic shares 2).
Principal work experience and
other information: President and
CEO of AB Industrivärden since
2015. Partner in the private equity
firm IK Investment Partners (2008–
2015), with responsibility for the
Stockholm office from 2011 to
2015. Investment Manager at IK
Investment Partners (1998–2008).
Previous experience as consultant
for Bain & Company (1997–1998).
Born 1956. Bachelor of Science
in Economics and Master of
Business Administration, Wharton
School, University of Pennsylvania,
USA. Officer of the Reserve,
Swedish Navy.
Board Chairman: Investor AB.
Deputy Board Chairman: SAS
AB, ABB Ltd, FAM and Patricia
Industries.
Board Member: The Knut and
Alice Wallenberg Foundation, the
Stockholm School of Economics
and The Confederation of Swedish
Enterprise.
Holdings in Ericsson: 227,703
Class B shares 1), and 25,186
synthetic shares 2).
Principal work experience and
other information: Chairman of
the Board of Investor AB since
2005. President and CEO of SEB
in 1997 and Chairman of SEB’s
Board of Directors 1998–2005.
Executive Vice President and
CFO of Investor AB 1990–1993.
Honorary Chairman of IBLAC
(Mayor of Shanghai’s International
Business Leaders Advisory
Council) and member of The
European Round Table of
Industrialists.
The Board memberships and holdings in Ericsson reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
2) Since 2008, the AGM has each year resolved that part of the Board fee may be received in the form of synthetic shares. A synthetic share is a right to receive in the future a payment
corresponding to the value of the Class B share in Ericsson at the time of payment. Please see page 145 for further information.
146
Ericsson | Annual Report 2016
Nora Denzel
(first elected 2013)
Member of the Audit Committee
Börje Ekholm
(first elected 2006)
Ulf J. Johansson
(first elected 2005)
Member of the Remuneration
Committee (until January 15, 2017)
Chairman of the Audit Committee
Born 1945. Doctor of Technology
and Master of Science in Electrical
Engineering, KTH Royal Institute of
Technology, Stockholm, Sweden.
Board Chairman: Acando AB,
Eurostep Group AB and Trimble
Inc.
Holdings in Ericsson:
6,435 Class B shares 1).
Principal work experience and
other information: Founder of
Europolitan Vodafone AB, where
he was the Chairman of the Board
1990–2005. Previous positions at
SpectraPhysics AB as President
and CEO and at Ericsson Radio
Systems AB. Member of the Royal
Swedish Academy of Engineering
Sciences.
Born 1962. Master of Business
Administration, Santa Clara
University, USA. Bachelor of
Science in Computer Science,
State University of New York, USA.
Board Member: Advanced Micro
Devices, Inc.
Holdings in Ericsson:
3,850 Class B shares 1), and 5,489
synthetic shares 2).
Principal work experience and
other information: CEO (interim)
of Outerwall Inc. (January 2015 –
August 2015). Senior Vice
President Big Data, Marketing
and Social Product Design and
General Manager QuickBooks
Payroll Division (2008–2012).
Previous positions include Senior
Vice President and General
Manager of HP’s Global Software,
Storage and Consulting Divisions
(2000–2006), Senior Vice
President Product Operations
Legato Systems (bought by EMC)
and various engineering, marketing
and executive positions at IBM.
NonProfit board member of the
Anita Borg Institute and the
Northern California Chapter of the
National Association of Corporate
Directors (NACD). Industrial
Advisor to the Private Equity
Firm EQT.
Born 1963. Master of Science in
Electrical Engineering, KTH Royal
Institute of Technology,
Stockholm, Sweden. Master of
Business Administration, INSEAD,
France.
Board Chairman: NASDAQ OMX
Group Inc. and KTH Royal Institute
of Technology.
Board Member: Alibaba, Inc. and
Trimble Inc.
Holdings in Ericsson:
1,030,760 Class B shares 1),
2,000,000 call options, and
43,679 synthetic shares 2) .
Principal work experience and
other information: President and
CEO of Telefonaktiebolaget LM
Ericsson since January 16, 2017.
CEO of Patricia Industries, a
division within Investor AB (2015 –
January 15, 2017). President and
CEO of Investor AB (2005–2015).
Formerly Head of Investor Growth
Capital Inc. and New Investments.
Previous positions at Novare
Kapital AB and McKinsey & Co Inc.
Member of the Board of Trustees
of Choate Rosemary Hall.
The Board memberships and holdings in Ericsson reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
2) Since 2008, the AGM has each year resolved that part of the Board fee may be received in the form of synthetic shares. A synthetic share is a right to receive in the future a payment
corresponding to the value of the Class B share in Ericsson at the time of payment. Please see page 145 for further information.
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Ericsson | Annual Report 2016
147
CORPORATE GOVERNANCE – Corporate Governance Report
Board members elected by the AGM 2016, cont.
Kristin Skogen Lund
(first elected 2013)
Member of the Audit Committee
Kristin S. Rinne
(first elected 2016)
Born 1954. Bachelor of Arts,
Washburn University, USA.
Board Member: None.
Holdings in Ericsson: 7,395
synthetic shares2).
Principal work experience and
other information: Previously
Senior Vice President, Network
Technology, Network Architecture
& Planning, at AT&T (2007–2014).
CTO of Cingular Wireless (2005–
2007) and VP Technology & New
Product Development of Cingular
Wireless (2000–2005). Previous
positions within Southwestern Bell
and SBC (1976–2000). Nonprofit
Board member of Curing Kids
Cancer, Washburn University
Foundation and Wycliffe
Associates.
Born 1966. Master of Business
Administration, INSEAD, France.
Bachelor in International Studies
and Business Administration,
University of Oregon, USA.
Board Chairman: The Oslo
Philharmonic Orchestra.
Holdings in Ericsson:
11,990 synthetic shares 2).
Principal work experience and
other information: Director
General of the Confederation of
Norwegian Enterprise (NHO) since
2012. Executive Vice President
and Head of Digital Services and
Broadcast and Executive Vice
President and Head of Nordic
Region, Group Executive Manage
ment at Telenor (2010–2012).
Previous positions include Chief
Executive Officer and Commercial
Director at Aftenposten, Chief
Executive Officer at Scanpix,
Managing Director and Editor in
Chief at Scandinavia Online, and
several positions at the CocaCola
Company, Unilever and Norges
Eksportråd.
Sukhinder Singh Cassidy
(first elected 2015)
Member of the Remuneration
Committee
Born 1970. Bachelor of Arts
Degree in Honors Business
Administration from the Richard
Ivey School of Business, University
of Western Ontario, Canada.
Board Chairman: Joyus.com.
Board Member: Tripadvisor LLC.
Holdings in Ericsson:
6,210 synthetic shares 2).
Principal work experience and
other information: Founder, CEO
and Chairman of Joyus.com
since 2011. Founder of Choose
Possibility Inc. (a benefit corpor
ation focused on gender diversity
in the tech industry). CEO of
Polyvore, Inc. 2010, CEOin
Residence of Accel Partners
2009–2010, senior executive
positions with Google Inc., 2003–
2009, including President, Asia
Pacific and Latin America Sales &
Operations, Vice President Asia
Pacific and Latin America, and
General Manager, Local Search &
Content Partnerships. Previous
positions with Yodlee.com,
Amazon.com, British Sky
Broadcasting Group and Merrill
Lynch.
The Board memberships and holdings in Ericsson reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
2) Since 2008, the AGM has each year resolved that part of the Board fee may be received in the form of synthetic shares. A synthetic share is a right to receive in the future a payment
corresponding to the value of the Class B share in Ericsson at the time of payment. Please see page 145 for further information.
148
Ericsson | Annual Report 2016
Board members and deputies appointed by the trade unions
Pehr Claesson
(first appointed 2008)
Mikael Lännqvist
(first appointed 2015)
Karin Åberg
(first appointed 2007)
Employee representative, Member
of the Finance Committee
Employee representative, Member
of the Audit Committee
Employee representative, Member
of the Remuneration Committee
Born 1966. Appointed by the
union The Swedish Association of
Graduate Engineers.
Holdings in Ericsson:
2,955 Class B shares 1).
Employed since 1997. Has
currently an industry marketing
position within Group Function
Marketing and Communications,
IT & Cloud.
Born 1969. Appointed by the union
IF Metall.
Born 1959. Appointed by the union
Unionen.
Holdings in Ericsson:
1,552 Class B shares 1).
Holdings in Ericsson:
4,596 Class B shares 1).
Employed since 1995. Working as
Analysis Technician within
Business Unit Network Products.
Employed since 1998. Working as
a Service Engineer within the IT
organization.
Zlatko Hadzic
(first appointed 2015)
Kjell-Åke Soting
(first appointed 2016)
Roger Svensson
(first appointed 2011)
Deputy employee representative
Deputy employee representative
Deputy employee representative
Born 1970. Appointed by the union
IF Metall.
Born 1963. Appointed by the
union Unionen.
Holdings in Ericsson:
None 1).
Holdings in Ericsson:
2,797 Class B shares 1).
Employed since 2010. Working as
NPI Operator within Business Unit
Network Products.
Employed since 1996. Working as
EMS Manager within Business
Unit Network Products
Born 1971. Appointed by the union
The Swedish Association of
Graduate Engineers.
Holdings in Ericsson:
16,333 Class B shares 1).
Employed since 1999. Working as
Global Process Architect for Test
within Business Unit Network
Products.
Hans Vestberg was the only Director who held an
operational management position at Ericsson in 2016.
On July 25, 2016, Hans Vestberg left the Board. As of
January 16, 2017, Börje Ekholm has been appointed
President and CEO.
Roxanne S. Austin, Alexander Izosimov and Anders
Nyrén left the Board in connection with the AGM 2016
and Helena Stjernholm and Kristin S. Rinne were
elected new members of the Board at the AGM 2016.
1) The number of shares reflects ownership as of December 31, 2016 and includes holdings by related persons, as well as holdings of any ADS, if
applicable.
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149
CORPORATE GOVERNANCE – Corporate Governance Report
Management
The President/CEO and the Executive
Leadership Team
The Board of Directors appoints the President
and CEO and the Executive Vice Presidents.
The President and CEO is responsible for the
management of daytoday operations and is
supported by the other members of the Execu
tive Leadership Team (ELT). The ELT members
as of December 31, 2016, are presented on
pages 154–158 together with the new CEO
appointed as of January 16, 2017.
The role of the ELT is to:
> Establish a strong corporate culture, a long
term vision and Group strategies and policies,
all based on objectives stated by the Board.
> Determine targets for operational units, allo
cate resources and monitor unit performance.
> Secure operational excellence and realize
global synergies through efficient organiza
tion of the Group.
During 2016, many new appointments to the ELT
were made following the reorganization effec
tive July 1, 2016. During 2016, the ELT had a
great focus on strategy execution and on ensur
ing due implementation of the reorganization
throughout Ericsson. Execution of the costeffi
ciency program has also been a prioritized area.
Remuneration to the Executive
Leadership Team
Guidelines for remuneration to the ELT were
approved by the AGM 2016. For further informa
tion on fixed and variable remuneration, see the
Ericsson Group Management System
Demands
and Expectations
Customers
Key Stakeholders
Business Environment
Management and Control
Vision Policies Directives
Satisfaction through
Value Deliverables
Objectives
Strategies
Results
The Ericsson
Business Processes
Performance
improvement
Performance
evaluation
Organization and Resources
Corporate Culture
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Ericsson | Annual Report 2016
Remuneration Report and Notes to the consoli
dated financial statements – Note C28, “Informa
tion regarding members of the Board of Direc
tors, the Group management and employees” in
the Annual Report.
The Ericsson Group Management System
Ericsson has one global management system,
known as the Ericsson Group Management
System (EGMS) to drive corporate culture and
to ensure that the business is managed:
> To fulfill the objectives of Ericsson’s major
stakeholders (customers, shareholders,
employees).
> Within established risk limits and with reliable
internal control.
> In compliance with relevant applicable laws,
listing requirements, governance codes and
corporate responsibilities.
The EGMS is a framework consisting of rules
and requirements for Ericsson’s business, spec
ified through process and organization descrip
tions, policies, directives and instructions. The
management system is applied in all Ericsson’s
operations globally, and its consistency and
global reach is designed to build trust in the way
Ericsson works. The EGMS is founded on ISO
9001 (international standard for quality manage
ment systems) but is designed as a dynamic
governance system, enabling Ericsson to adapt
the system to evolving demands and expecta
tions, including new legislation as well as cus
tomers’ and other stakeholders’ requirements.
Ericsson does not implement external require
ments without analyzing them and putting them
into the Ericsson context.
The EGMS comprises three elements:
> Management and control
> Ericsson business processes
> Organization and resources.
Management and control
Ericsson’s strategy and targetsetting processes
consider the demands and expectations of
customers as well as other key stakeholders.
Ericsson uses balanced scorecards as tools for
translating strategic objectives into a set of per
formance indicators for its operational units.
Based on annual strategy work, these score
cards are updated with targets for each unit for
the next year and are communicated throughout
the organization.
Groupwide policies and directives govern
how the organization works and are core ele
ments in managing and controlling Ericsson. The
Group Policies and Directives include, among
other things, a Code of Business Ethics, a Code
of Conduct and accounting and reporting direc
tives to fulfill external reporting requirements.
Ericsson has a Group Steering Documents
Committee for purposes of aligning policies and
directives with Group strategies, values and
structures.
Ericsson business processes
As a market leader, Ericsson utilizes the compet
itive advantages that are gained through global
scale and has implemented common processes
and IT tools across all operational units world
wide. Customer requirements are identified,
clarified and formalized in Ericsson Business
Processes where requirements transform from
theory to practice. Ericsson attempts to reduce
costs with efficient and effective process flows
and with standardized internal controls and per
formance indicators.
Organization and resources
Ericsson is operated in two dimensions: one
operational structure and one legal structure.
The operational structure aligns accountability
and authority regardless of country borders and
supports the process flows with crosscountry
operations. In the operational structure, Ericsson
is organized in group functions, segments, busi
ness units, customer groups and regions. The
legal structure is the basis for legal requirements
and responsibility as well as for tax and statutory
reporting purposes. There are more than 200
legal entities within the Ericsson Group with
approximately 80 branch offices with represen
tation (via legal entities, branch and representa
tive offices) in more than 150 countries.
Chief Compliance Officer
Ericsson has a Chief Compliance Officer (CCO),
reporting to the Chief Legal Officer. The CCO’s
responsibilities among other things include to
further develop Ericsson’s anticorruption pro
gram and the CCO regularly reports to the Audit
Committee. Attention from seniormanagement
level on anticorruption and compliance is cru
cial, as is ensuring that these matters are
addressed from a crossfunctional perspective.
Ericsson’s anticorruption program is reviewed
and evaluated by the Audit Committee at least
annually.
Audits, assessments and certification
The purpose of audits and assessments is to
determine levels of compliance and to provide
valuable information for understanding, analyz
ing and continually improving performance.
Management monitors compliance with policies,
directives and processes through internal
selfassessment within all units. This is comple
mented by internal and external audits.
Due to demands and requirements from cus
tomers and other external stakeholders,
Ericsson sometimes needs to take decisions on
certification in order to stay competitive in the
market. Certification means that Ericsson’s inter
pretation of standards or requirements are con
firmed by a thirdparty assessment.
As the EGMS is a global system, groupwide
certificates are issued by a thirdparty certifica
tion body proving that the system is efficient
throughout the whole organization. Ericsson is
currently globally certified to ISO 9001 (Quality),
ISO 14001 (Environment) and OHSAS 18001
(Health & Safety). Selected Ericsson units are
also certified to additional standards, for exam
ple ISO 27001 (Information Security) and TL
9000 (telecomspecific standard). EGMS is also
audited within the scope of the audit plan of
Ericsson’s internal audit function.
Ericsson’s external financial audits are per
formed by PricewaterhouseCoopers, and ISO/
management system audits are performed by
EY. Internal audits are performed by the compa
ny’s internal audit function which reports to the
Audit Committee.
Ericsson conducts audits of suppliers in order
to secure compliance with Ericsson’s Code of
Conduct, which includes rules that suppliers to
the Ericsson Group must comply with.
Risk management
Ericsson’s risk management is integrated into
the operational processes of the business, and
is a part of the EGMS to ensure accountability,
effectiveness, efficiency, business continuity
and compliance with corporate governance,
legal and other requirements. The Board of
Directors also oversees the Company’s risk
management. Risks related to longterm objec
tives for Ericsson’s business units and customer
groups are discussed and strategies are formally
approved by the Board as part of the annual
strategy process. Risks related to annual targets
for the Company are also reviewed by the Board
and then monitored continuously during the
year. Certain transactional risks require specific
Board approval, e.g. acquisitions, divestments
management remuneration, borrowing or cus
tomer finance in excess of predefined limits.
Operational, financial and compliance risks
Operational and financial risk
Operational risks are owned and managed by
operational units. Risk management is embed
ded in various process controls, such as deci
sion tollgates and approvals. Certain crosspro
cess risks are centrally coordinated, such as
information security, IT security, corporate
responsibility and business continuity and insur
able risks. Financial risk management is gov
erned by a Group policy and carried out by the
Treasury and Customer Finance functions, both
supervised by the Finance Committee. The pol
icy governs risk exposures related to foreign
exchange, liquidity/financing, interest rates,
credit risk and market price risk in equity instru
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
151
CORPORATE GOVERNANCE – Corporate Governance Report
ments. For further information on financial risk
management, see Notes to the consolidated
financial statements – Note C14, “Trade receiv
ables and customer finance,” Note C19, “Inter
estbearing liabilities” and Note C20, “Financial
risk management and financial instruments”
in the Annual Report.
Compliance risks
Ericsson has implemented Group policies and
directives in order to comply with applicable
laws and regulations, as well as its Code of
Business Ethics and Code of Conduct. Risk
management is integrated in the Company’s
business processes. Policies and controls are
implemented to comply with financial reporting
standards and stock market regulations.
Risk mitigation
Examples of significant activities to mitigate risks
are:
> Conducting regular supplier Code of Conduct
audits
> Continuously assessing and managing risks
relating to Corporate Responsibility including
anticorruption
> Conducting business continuity management
in an efficient way
> Continuously monitoring information systems
to guard against data breaches
> Reviewing top risks and mitigating actions in
regular monthly reporting and at various inter
nal governance meetings
Strategic and tactical risks
Strategic risks constitute the highest risk to the
Company if not managed properly as they could
have a longterm impact. Ericsson therefore
reviews its longterm objectives, main strategies
and business scope on an annual basis and
continuously works on its tactics to reach these
objectives and to mitigate any risks identified.
Objectives are set for three to five years in the
annual strategy process and for one year in the
target setting process. Risks are assessed and
strategies are developed to achieve the objec
tives. The strategy process in the Company is
well established and involves regions, business
units, customer groups and group functions.
The strategy is summarized and discussed in a
yearly Leadership Summit with approximately
300 leaders from all parts of the business
attending. By involving all parts of the business
in the process, potential risks are identified early
and mitigating actions can be incorporated in
the strategy and in the annual targetsetting pro
cess following the finalization of the strategy.
Key components in the evaluation of risk
related to Ericsson’s longterm objectives
include for example technology development,
cyber security related matters, industry and
market fundamentals, the development of the
economy, the political and international environ
ment, health and environmental aspects and
laws and regulations.
The outcome of the strategy process forms
the basis for the annual targetsetting process,
Strategy process
The annual strategy and
target setting process,
including risk management,
involves regions, business
unit customer groups and
Group functions.
Technology Strategy
Business strategy directives
Quantitative and qualitative
situation analysis
Target Setting
Related risk identification
and mitigation
(12month horizon)
Board target approval
Review of oneyear risks
Region strategy
development
Board quarterly risk monitoring
Board approval of Group strategy
Review of longterm risks
152
Ericsson | Annual Report 2016
Group management strategic direction,
strategic risk identification and mitigation
Q4
Dec
Jan
Q1
Nov
Feb
Group strategy development
(fiveyear perspective)
Oct
Sep
Ericsson
Strategy process
Mar
Apr
Aug
May
Q3
Jul
Jun
Q2
Region strategy directives
Function strategy directives
Functional strategy
development
Strategic risk identification
and mitigation
Leadership Summit on strategy
which involves regions, business units, cus
tomer groups and group functions. Risks related
to the targets are identified as part of this pro
cess together with actions to mitigate the identi
fied risks. Followup of targets, risks and mitigat
ing actions are reported and discussed continu
ously in internal governance meetings and are
reviewed by the Board of Directors.
Ericsson continuously strives to improve its risk
management and believes that it is important
that the entire global organization takes part in
the risk management and strategy work. For
more information on risks related to Ericsson’s
business, see the chapter “Risk factors” in the
Annual Report.
Process to identify and manage strategic and tactical risks for regions, business units and group functions
The process is aligned with the strategy and targetsetting process
Leadership Team meeting and workshop
Preparations
Establish
gross list
Prioritize risks
Assign
responsibility
Manage risks
Compile input:
> Business unit plan, region
plan, functional strategy
including SWOT analysis
> Preparatory meetings/
workshop
Consider the four risk
categories:
> Industry & market risks
> Commercial risks
> Operational risks
> Compliance risks
> Rank the risks based
on business impact
and probability
> Document risk heat
map in relation with
strategic objectives
(up to 5 years) and
with shortterm
targets (1 year)
> Define management
response; accept,
reduce, eliminate
> Assign responsibility
for managing each
top risk
> Agree on cooperation
between units
> Develop mitigation
actions
> Secure risk reviews in
monthly business
reports and gover
nance meetings
Example of risk heat
map document
Risk heat maps are gener
ated by business units,
regions and Group functions
in four risk categories:
> Industry & market
> Commercial
> Operational
> Compliance
RISK HEAT MAP (illustration only)
Time horizon 1–5 years
Industry & Market
Commercial
Operational
Compliance
)
h
g
H
i
,
i
m
u
d
e
M
,
w
o
L
(
y
t
i
l
i
b
a
b
o
r
P
Impact (Low, Medium, High)
Impact (Low, Medium, High)
Impact (Low, Medium, High)
Impact (Low, Medium, High)
Management response
Accept
Reduce
Eliminate
Risk description
Mitigating action
1
2
3
4
5
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
153
CORPORATE GOVERNANCE – Corporate Governance Report
Members of the Executive Leadership Team
Börje Ekholm
President and CEO since
January 16, 2017
Born 1963. Master of Science in
Electrical Engineering, KTH Royal
Institute of Technology,
Stockholm, Sweden. Master of
Business Administration, INSEAD,
France.
Board Chairman: NASDAQ OMX
Group Inc. and KTH Royal Institute
of Technology
Board Member:
Telefonaktiebolaget LM Ericsson,
Alibaba, Inc. and Trimble Inc.
Holdings in Ericsson:
1,030,760 Class B shares 1),
2,000,000 call options, and
43,679 synthetic shares.
Background: President and CEO
of Telefonaktiebolaget LM
Ericsson since January 16, 2017.
CEO of Patricia Industries, a
division within Investor AB (2015 –
January 15, 2017). President and
CEO of Investor AB (2005–2015).
Formerly Head of Investor Growth
Capital Inc. and New Investments.
Previous positions at Novare
Kapital AB and McKinsey & Co Inc.
Member of the Board of Trustees
of Choate Rosemary Hall.
Jan Frykhammar
Executive Vice President and
Advisor to the CEO (since January
16, 2017) and President and CEO
(July 25, 2016 – January 15, 2017)
and Head of Segment Networks
(July 25, 2016 – December 31,
2016)
Magnus Mandersson
Executive Vice President (since
2011), Advisor to the CEO (since
July 1, 2016) and Head of Segment
and Business Unit Global Services
(2010–December 31, 2016)
MajBritt Arfert
Acting Senior Vice President, Chief
Human Resources Officer and
Head of Group Function Human
Resources (since November 15,
2016)
Born 1965. Bachelor of Business
Administration and Economics,
University of Uppsala, Sweden.
Born 1959. Bachelor of Business
Administration, University of Lund,
Sweden.
Born 1963. Bachelor of Human
Resources, University of
Gothenburg, Sweden.
Board Member: Lund University
and the Supervisory Council of
Interogo Foundation.
Board Member: None.
Holdings in Ericsson: 1)
18,681 Class B shares.
Holdings in Ericsson: 1)
53,920 Class B shares.
Background: Head of Business
Unit Global Services (2010–2016).
Previously Head of Business Unit
CDMA, Market Unit Northern
Europe, Global Customer Account
Deutsche Telekom AG and
Product Area Managed Services.
Previously also President and CEO
of SEC/Tele2 Europe and COO of
Millicom International Cellular S.A.
Background: Head of Human
Resources Ericsson Sweden since
September 2015. Previously Vice
President and Head of Human
Resources Business Unit Support
Solutions (2007–2015). Previous
positions include various Human
Resources positions, including
Head of Human Resources for
Sony Ericsson in Germany
(2001–2004).
Board Member: Attendo AB,
Confederation of Swedish
Enterprises, the Swedish
International Chamber of
Commerce and Teknikföretagen.
Holdings in Ericsson: 1)
62,340 Class B shares.
Background: Executive Vice
President and Head of Group
Function Finance (2009–2016).
Previously Senior Vice President
and Head of Business Unit Global
Services. Various previous
positions within Ericsson including
Sales and Business Control in
Business Unit Global Services,
CFO in North America and Vice
President, Finance and
Commercial within the Global
Customer Account Vodafone.
Changes in the Executive Leadership Team
Effective January 16, 2017, the Director Börje Ekholm was appointed new
President and CEO of Ericsson replacing Jan Frykhammar who assumed the
role on July 25, 2016, when the former President and CEO, Hans Vestberg,
left his position. Effective January 16, 2017, Jan Frykhammar assumed the
role as Executive Vice President and Advisor of the CEO .
Bina Chaurasia left her role as Chief Human Resources Officer and Head
of Group Function Human Resources, effective November 15, 2016, and was
replaced by MajBritt Arfert who has been acting in that role since that date.
Ulf Ewaldsson was appointed Chief Technology Officer and Head of Strat
egy on September 20, 2016, and former Chief Strategy Officer, Rima Qureshi
was appointed Head of Region North America on July 1, 2016.
The Board memberships and Ericsson holdings reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
154
Ericsson | Annual Report 2016
Arun Bansal
Senior Vice President and Head of
Business Unit Network Products
(since July 1, 2016)
Per Borgklint
Senior Vice President, Chief
Innovation Officer, Head of
Business United Media (since July
1, 2016) and Head of Segment
Support Solutions (2011–
December 31, 2016)
Ulf Ewaldsson
Senior Vice President, Chief
Technology Officer, Head of
Strategy and Head of Group
Function Strategy and Technology
(since September 20, 2016)
Niklas Heuveldop
Senior Vice President, Chief
Customer Officer and Head of
Group Function Sales (since
July 1, 2016)
Born 1968. Bachelor of
Engineering (Electronics)
University of Jiwaji and
Postgraduate Diploma in
Marketing, Indira Gandhi National
Open University, India.
Board Member: OPCOM Cables
Sdn Bhd, Malaysia.
Holdings in Ericsson: 1)
35,000 Class B shares.
Background: Previously Senior
Vice President and Head of
Business Unit Radio. Joined
Ericsson in 1995 and has held
various senior positions in the
company, including Head of
Region South East Asia and
Oceania and Country Manager in
Indonesia and Bangladesh.
Born 1972. Master of Science in
Business Administration,
Jönköping International Business
School, Sweden.
Born 1965. Master of Science in
Engineering and Business
Management, Linköping Institute
of Technology, Sweden.
Born 1968. Master of Science in
Industrial Engineering and
Management, the Linköping
Institute of Technology, Sweden.
Board Member: None.
Holdings in Ericsson: 1)
7,583 Class B shares.
Background: Senior Vice
President and Head of Business
Unit Support Solutions (2011–
2016). Previously CEO of Net1 (Ice.
net), Canal Plus Nordic and
Versatel. Has also previously held
several leading positions at Tele2.
Board Member: KTH Royal
Institute of Technology, Sweden,
Assa Abloy AB, and TM Forum.
Board Member: The Swedish
American Chamber of Commerce
New York.
Holdings in Ericsson: 1)
44,421 Class B shares.
Holdings in Ericsson: 1)
8,241 Class B shares.
Background: Chief Technology
Officer and Head of Group
Function Technology (2012 –
September 19, 2016). Joined
Ericsson in 1990 and has held
various managerial positions
within Ericsson, including Head of
Product Area Radio within
Business Unit Networks. Member
of the European Cloud Partnership
Steering Board.
Background: Previous positions
include Head of Global Customer
Unit AT&T and a series of senior
leadership positions across
Ericsson, including Head of Market
Unit Central America and
Caribbean. Previously CEO of
ServiceFactory and COO of
WaterCove Networks.
Mats H. Olsson (former Head of Ericsson AsiaPacific) left ELT on May 18,
2017. In connection with the reorganization, effective July 1, 2016, the fol
lowing former ELT members left the ELT: Angel Ruiz (former Head of
Region North America), Anders Thulin (former Chief Information Officer
and Head of Group Function Business Excellence and Common Func
tions) and Jan Wäreby (former Head of Group Function Sales).
In connection with the announcement of the appointment of Börje
Ekholm as new President and CEO of Ericsson, Investor AB and AB
Industrivärden, shareholders in Ericsson, announced that both compa
nies were to enter into an option agreement with Börje Ekholm on market
terms (valuation conducted, using the Black & Scholes model, by an inde
pendent third party) under which each of them would issue 1,000,000 call
options to Börje Ekholm. Under these agreements, Börje Ekholm has pur
chased in total 2,000,000 call options issued by the shareholders, for a
purchase price of SEK 0.49 per call option. Each call option entitles the
purchase of one Ericsson B share from the shareholders at a strike price
of SEK 80 per share during one year after a sevenyear period. See Notes
to the consolidated financial statements – Note C28 “Information regard
ing members of the Board of Directors, the Group management and
employees” in the Annual Report for further information.
The Board memberships and Ericsson holdings reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
155
CORPORATE GOVERNANCE – Corporate Governance Report
Members of the Executive Leadership Team, cont.
Chris Houghton
Senior Vice President and Head of
Region North East Asia (since
August 2015)
Fredrik Jejdling
Senior Vice President and Head of
Business Unit Network Services
(since July 1, 2016)
Anders Lindblad
Senior Vice President and Head of
Business Unit IT & Cloud Products
(since July 1, 2016)
Born 1966. Bachelor of Law,
Huddersfield Polytechnic,
England.
Board Member: None.
Holdings in Ericsson: 1)
21,584 Class B shares.
Background: Previously Head
of Region India and Head of
Customer Unit UK and Ireland.
Has also previously held mana
gement positions within Ericsson
in China, Hungary, India, Ireland,
Japan, Sweden and the UK.
Born 1969. Master of Science in
Economics and Business
Administration, Stockholm School
of Economics, Sweden.
Born 1968. Master of Science in
Industrial Engineering and
Management, Linköping
University, Sweden.
Board Member: None.
Holdings in Ericsson: 1)
8,989 Class B shares.
Background: Previously Head
of Region SubSaharan Africa.
Has held a variety of positions
in commercial operations and
financials, including Head of
Region India, and Head of Sales
and Finance for Business Unit
Global Services. Previous posi
tions include senior positions with
LUX Asia Pacific and Tele2 Group.
Board Member: LUISS Business
School, Rome, Italy.
Holdings in Ericsson: 1)
30,766 Class B shares.
Background: Previously Senior
Vice President and Head of
Business Unit Cloud & IP, and
Head of Region Middle East.
Has held a variety of international
positions in business development
and commercial operations. Has
previously served as a fighter pilot
and air force engineer in the
Swedish Air Force.
Nina Macpherson
Senior Vice President, Chief Legal
Officer, Head of Group Function
Legal Affairs and secretary to the
Board of Directors (since 2011)
Born 1958. Master of Laws, LL.M.,
University of Stockholm, Sweden.
Board Member: The Association
for Swedish Listed Companies
and the Arbitration Institute of the
Stockholm Chamber of
Commerce (SCC).
Holdings in Ericsson: 1)
33,375 Class B shares.
Background: Previously Vice
President and Deputy Head of
Group Function Legal Affairs at
Ericsson. Previous positions also
include private practice and
inhouse attorney. Member of the
Swedish Securities Council.
The Board memberships and Ericsson holdings reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS,
if applicable.
156
Ericsson | Annual Report 2016
Carl Mellander
Acting Chief Financial Officer and
Head of Group Function Finance
and Common Functions (since
July 25, 2016)
Helena Norrman
Senior Vice President, Chief
Marketing and Communications
Officer and Head of Group
Function Marketing and
Communications (since 2014)
Born 1964. Bachelor of Business
Administration and Economics,
University of Stockholm, Sweden.
Born 1970. Master of International
Business Administration,
Linköping University, Sweden.
Board Member: Swedish
Association of Corporate
Treasurers.
Holdings in Ericsson: 1)
22,127 Class B shares.
Background: Previously Vice
President and Head of Treasury
at Ericsson. Has previously held
various positions within finance
and business control within
Ericsson, including Head of
Finance in Region Western and
Central Europe (2010–2015), and
prior to that Head of Finance for
Market Unit Northern Europe.
Board Member: None.
Holdings in Ericsson: 1)
29,588 Class B shares.
Background: Senior Vice
President and Head of Group
Function Communications (2011–
2014). Previously Vice President,
Communications Operations at
Group Function Communications.
Has held various positions within
Ericsson’s global communications
organization since 1998. Previous
positions as communications
consultant.
Jean-Philippe Poirault
Senior Vice President and Head
of Business Unit IT & Cloud
Services (since July 1, 2016)
Rima Qureshi
Senior Vice President and Head
of Region North America (since
July 1, 2016)
Born 1965. Master’s degrees from
École supérieure d’électricité
(CentraleSupelec Group) and
ESTP Paris, France.
Born 1965. Bachelor of
Information Systems and Master
of Business Administration, McGill
University, Montreal, Canada.
Board Member: None.
Holdings in Ericsson: 1)
1,406 Class B shares.
Background: Previously Head
of Consulting and Systems
Integration, Business Unit Global
Services, and Head of Strategy &
Portfolio Innovation. Prior to joining
Ericsson in 2011, President of
AlcatelLucent’s Multimedia, IT
and Telecom Service Business
Unit.
Board Member: MasterCard
Incorporated and GreatWest
Lifeco Inc.
Holdings in Ericsson: 1)
15,165 Class B shares.
Background: Previously Chief
Strategy Officer and Head of
Group Function Strategy (2014
September 19, 2016). Has held
various positions within Ericsson
since 1993 including Senior Vice
President Strategic Projects
(2013–2014), and Head of
Business Unit CDMA Mobile
Systems (2010–2012).
The Board memberships and Ericsson holdings reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS,
if applicable.
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
157
CORPORATE GOVERNANCE – Corporate Governance Report
Members of the Executive Leadership Team, cont.
Auditor
According to the Articles of Association, the Parent Com
pany shall have no less than one and no more than three
registered public accounting firms as external indepen
dent auditor. Ericsson’s auditor is currently elected each
year at the AGM pursuant to the Swedish Companies Act
for a oneyear mandate period. The auditor reports to the
shareholders at General Meetings.
The duties of the auditor include:
> Updating the Board of Directors regarding the plan
ning, scope and content of the annual audit work
> Reviewing the interim reports to assess that the finan
cial statements are presented fairly in all material
respects and providing review opinions over the
interim reports for the third and fourth quarters and the
yearend financial statements
> Reviewing and providing an audit opinion over the
Annual Report
> Advising the Board of Directors of nonaudit services
performed, the consideration paid and other issues
that determine the auditor’s independence.
Auditing work is carried out by the auditor continuously
throughout the year. For further information on the con
tacts between the Board and the auditor, please see
“Work of the Board of Directors” earlier in this Corporate
Governance Report.
Current auditor
PricewaterhouseCoopers AB was elected auditor at the
AGM 2016 for a period of one year, i.e. until the close of
the AGM 2017.
PricewaterhouseCoopers AB has appointed Bo
Hjalmarsson, Authorized Public Accountant, to serve as
auditor in charge. Bo Hjalmarsson is also auditor in
charge in SAS AB and SAAB AB.
Fees to the auditor
Ericsson paid the fees (including expenses) for auditre
lated and other services listed in the table in Notes to the
consolidated financial statements – Note C30, “Fees to
auditors” in the Annual Report.
Charlotta Sund
Senior Vice President and Head of
Customer Group Industry and
Society (since July 1, 2016)
Born 1963. Master of Science in
Industrial Engineering and
Management from the the Institute
of Technology, Linköping
University, Sweden.
Board Member: None.
Holdings in Ericsson: 1)
9,600 Class B shares.
Background: Previously Head of
Region Northern Europe and
Central Asia. Has held a variety of
positions within Ericsson,
including Head of Customer Unit
Industry and Society, Region
Northern Europe and Central Asia,
and Vice President and Head of
Multimedia & Systems Integration,
Market Unit Nordic and Baltics.
Elaine Weidman-Grunewald
Senior Vice President, Chief
Sustainability Officer and Head of
Group Function Sustainability
and Corporate Responsibility
(since July 1, 2016)
Born 1967. Double Master’s
degree in Resource and
Environmental Management and
International Relations, Boston
University Center for Energy and
Environmental Studies in the US.
Board Member: Millennium
Promise.
Holdings in Ericsson: 1)
8,997 Class B shares.
Background: Head of
Sustainability and Corporate
Responsibility and held various
positions in this field at Ericsson
since 2005. Joined Ericsson in
1998 and has previously held
positions in product management,
marketing and sales in the US and
Sweden. Prior to joining Ericsson,
she worked in international sales,
business development and
environmental certification.
The Board memberships and Ericsson holdings reported above are as of December 31, 2016.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS,
if applicable.
158
Ericsson | Annual Report 2016
Internal control over financial reporting 2016
This section has been prepared in accordance with the
Annual Accounts Act and the Swedish Corporate Gover
nance Code and is limited to internal control over financial
reporting.
Since Ericsson is listed in the United States, the
requirements outlined in the SarbanesOxley Act (SOX)
apply, subject to certain exceptions. These regulate the
establishment and maintenance of internal control over
financial reporting as well as management’s assessment
of the effectiveness of the controls.
In order to support highquality reporting and to meet
the requirement of SOX, the Company has implemented
detailed documented controls and testing and reporting
procedures based on the internationally established 2013
COSO framework for internal control. The COSO frame
work is issued by the Committee of Sponsoring Organi
zations of the Treadway Commission (COSO).
Management’s internal control report according to
SOX will be included in Ericsson’s Annual Report on Form
20F and filed with the SEC in the United States.
Disclosure policies
Ericsson’s financial reporting and disclosure policies aim
to ensure transparent, relevant and consistent communi
cation with equity and debt investors on a timely, fair and
equal basis. This will support a fair market value for
Ericsson securities. Ericsson wants current and potential
investors to have a good understanding of how the Com
pany works, including operational performance, pros
pects and potential risks.
To achieve these objectives, financial reporting and
disclosure must be:
> Transparent – enhancing understanding of the eco
nomic drivers and operational performance of the
business, building trust and credibility.
> Consistent – comparable in scope and level of detail to
facilitate comparison between reporting periods.
> Simple – to support understanding of business opera
tions and performance and to avoid misinterpretations.
> Relevant – with focus on what is relevant to Ericsson’s
stakeholders or required by regulation or listing agree
ments, to avoid information overload.
> Timely – with regularly scheduled disclosures as well
as adhoc information, such as press releases on
important events, performed in a timely manner.
> Fair and equal – where all material information is pub
lished via press releases to ensure that the whole
investor community receives the information at the
same time.
> Complete, free from material errors and a reflection of
best practice – disclosures compliant with applicable
financial reporting standards and listing requirements
and in line with industry norms.
Ericsson’s website comprises comprehensive informa
tion on the Group, including:
> An archive of annual and interim reports.
> Access to recent news.
Disclosure controls and procedures
Ericsson has controls and procedures in place to allow
for timely disclosure in accordance with applicable laws
and regulations, including the US Securities Exchange
Act of 1934, and under agreements with Nasdaq Stock
holm and NASDAQ New York. These procedures also
require that such information is provided to management,
including the CEO and the CFO, so timely decisions can
be made regarding required disclosure.
The Disclosure Committee comprises members with
various expertise. It assists management in fulfilling their
responsibility regarding disclosures made to the share
holders and the investment community. One of the main
tasks of the committee is to monitor the integrity and
effectiveness of the disclosure controls and procedures.
Ericsson has investments in certain entities that the
Company does not control or manage. With respect to
such entities, disclosure controls and procedures are
substantially more limited than those maintained with
respect to subsidiaries.
Ericsson’s President and CEO and the CFO evaluated
the Company’s disclosure controls and procedures and
concluded that they were effective at a reasonable assur
ance level as of December 31, 2016. Any controls and
procedures, no matter how well designed and operated,
can provide only reasonable assurance of achieving the
desired control objectives.
Internal control over financial reporting
Ericsson has integrated risk management and internal
control into its business processes. As defined in the
COSO framework, internal control is an aggregation of
components such as a control environment, risk assess
ment, control activities, information and communication
and monitoring.
During the period covered by the Annual Report 2016,
there were no changes to the internal control over finan
cial reporting that have materially affected, or are reason
ably likely to materially affect, the internal control over
financial reporting.
Control environment
The Company’s internal control structure is based on the
division of tasks between the Board of Directors and its
Committees and the President and CEO. The Company
has implemented a management system that is based on:
> Steering documents, such as policies, directives and a
Code of Business Ethics.
> A strong corporate culture.
> The Company’s organization and mode of operations,
with welldefined roles and responsibilities and dele
gations of authority.
> Several welldefined Groupwide processes for plan
ning, operations and support.
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
159
CORPORATE GOVERNANCE – Corporate Governance Report
The most essential parts of the control environment rela
tive to financial reporting are included in steering docu
ments and processes for accounting and financial report
ing. These steering documents are updated regularly to
include, among other things:
> Changes to laws.
> Financial reporting standards and listing requirements,
such as IFRS and SOX.
The processes include specific controls to be performed
to ensure highquality financial reports. The management
of each reporting legal entity, region and business unit is
supported by a financial controller function with execu
tion of controls related to transactions and reporting. The
financial controller functions are organized in a number of
Company Control Hubs, each supporting a number of
legal entities within a geographical area. A financial con
troller function is also established on Group level, report
ing to the CFO.
Risk assessment
Risks of material misstatements in financial reporting
may exist in relation to recognition and measurement of
assets, liabilities, revenue and cost or insufficient disclo
sure. Other risks related to financial reporting include
fraud, loss or embezzlement of assets and undue favor
able treatment of counterparties at the expense of
the Company.
Policies and directives regarding accounting and
financial reporting cover areas of particular significance
to support correct, complete and timely accounting,
reporting and disclosure.
Identified types of risks are mitigated through wellde
fined business processes with integrated risk management
activities, segregation of duties and appropriate delegation
of authority. This requires specific approval of material
transactions and ensures adequate asset management.
Control activities
The Company’s business processes include financial
controls regarding the approval and accounting of busi
ness transactions. The financial closing and reporting
process has controls regarding recognition, measure
ment and disclosure. These include the application of
critical accounting policies and estimates, in individual
subsidiaries as well as in the consolidated accounts.
Regular analyses of the financial results for each sub
sidiary, region and business unit cover the significant ele
ments of assets, liabilities, revenues, costs and cash flow.
Together with further analysis of the consolidated finan
cial statements performed at Group level, these proce
dures are designed to produce financial reports without
material errors.
For external financial reporting purposes, the Dis
closure Committee performs additional control proce
dures to review whether the disclosure requirements
are fulfilled.
The Company has implemented controls to ensure
that financial reports are prepared in accordance with its
internal accounting and reporting policies and IFRS as
well as with relevant listing regulations. It maintains
detailed documentation on internal controls related to
accounting and financial reporting. It also keeps records
on the monitoring of the execution and results of such
controls. This allows the President and CEO and the CFO
to assess the effectiveness of the controls in a way that is
compliant with SOX.
Entitywide controls, focusing on the control environ
ment and compliance with financial reporting policies
and directives, are implemented in all subsidiaries.
Detailed process controls and documentation of controls
performed are also implemented in almost all subsidiar
ies, covering the items with significant materiality and risk.
In order to secure compliance, governance and risk
management in the areas of legal entity accounting and
taxation, as well as securing funding and equity levels,
the Company operates through a Company Control hub
structure, covering subsidiaries in each respective geo
graphical area. During 2016, the Company further devel
oped its internal control function within Group Function
Finance, Financial Control to cover a wider scope than
previously.
Based on a common IT platform, a common chart of
account and common master data, the hubs and shared
services centers perform accounting and financial
reporting services for most subsidiaries.
Information and communication
The Company’s information and communication chan
nels support complete, correct and timely financial
reporting by making all relevant internal process instruc
tions and policies accessible to all the employees
concerned. Regular updates and briefing documents
regarding changes in accounting policies, reporting
and disclosure requirements are also supplied.
Subsidiaries and operating units prepare regular finan
cial and management reports for internal steering groups
and Company management. These include analysis and
comments on financial performance and risks. The
Board of Directors receives financial reports monthly.
Ericsson has established a whistleblower tool, Ericsson
Compliance Line, that can be used for the reporting of
alleged violations that:
> are conducted by Group or local management, and
> relate to corruption, questionable accounting or audit
ing matters or otherwise seriously affect vital interests
of the Group or personal health and safety.
Monitoring
The Company’s process for financial reporting is
reviewed annually by management. This forms a basis
for evaluating the internal management system and inter
nal steering documents to ensure that they cover all sig
nificant areas related to financial reporting. The shared
160
Ericsson | Annual Report 2016
service center and Company Control hub management
continuously monitor accounting quality through a set of
performance indicators. Compliance with policies and
directives is monitored through annual selfassessments
and representation letters from heads and company
controllers in subsidiaries as well as in business units
and regions.
The Company’s financial performance is also reviewed
at each Board meeting. The Committees of the Board
fulfill important monitoring functions regarding remune
ration, borrowing, investments, customer finance, cash
management, financial reporting and internal control.
The Audit Committee and the Board of Directors review
all interim and annual financial reports before they are
released to the market. The Company’s internal audit
function reports directly to the Audit Committee. The
Audit Committee also receives regular reports from the
external auditor. The Audit Committee follows up on
any actions taken to improve or modify controls.
Board of Directors
Stockholm, February 24, 2017
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 5560160680
Auditor’s report on the
corporate governance report
To the general meeting of the shareholders in
Telefonaktiebolaget LM Ericsson, corporate identity
number 556016-0680.
Engagement and responsibility
It is the board of directors who is responsible for the cor
porate governance report for the year 2016 on pages
134–161 and that it has been prepared in accordance
with the Annual Accounts Act.
The scope of the audit
Our examination has been conducted in accordance with
FAR’s auditing standard RevU 16 The auditor’s examina
tion of the corporate governance report. This means that
our examination of the corporate governance report is
different and substantially less in scope than an audit
conducted in accordance with International Standards
on Auditing and generally accepted auditing standards in
Sweden. We believe that the examination has provided
us with sufficient basis for our opinions.
Opinions
A corporate governance report has been prepared. Dis
closures in accordance with chapter 6 section 6 the sec
ond paragraph points 2–6 the Annual Accounts Act and
chapter 7 section 31 the second paragraph the same law
are consistent with the annual accounts and the consoli
dated accounts and are in accordance with the Annual
Accounts Act.
Stockholm, February 24, 2017
PricewaterhouseCoopers AB
Bo Hjalmarsson
Authorized Public Accountant
Lead Partner
Johan Engstam
Authorized Public Accountant
Corporate Governance – Corporate Governance Report
Ericsson | Annual Report 2016
161
CORPORATE GOVERNANCE
REMUNERATION REPORT
Introduction
This report outlines how the remuneration policy is implemented
throughout Ericsson in line with corporate governance best prac-
tice, with specific references to Group management.
The work of the Remuneration Committee in 2016 and the
remuneration policy are explained below, followed by descriptions
of plans and their outcomes.
More details on the remuneration of Group management and
Board members’ fees can be found in the Notes to the Consoli-
dated financial statements – Note C28, “Information regarding
members of the Board of Directors, the Group management and
employees” in the Annual Report.
Board member remuneration is resolved annually by the
Annual General Meeting.
The Remuneration Committee
The Remuneration Committee (the Committee) advises the Board
of Directors on the remuneration to the Group management, con-
sisting of the Executive Leadership Team (ELT). This includes fixed
salaries, pensions, other benefits and short-and long-term vari-
able compensation. The Committee reviews and prepares for
resolution by the Board:
> Proposals on salary and other remuneration, including retire-
ment compensation, for the President and CEO.
> Proposals to the Annual General Meeting on guidelines for
remuneration to the ELT.
> Proposals to the Annual General Meeting on long-term variable
compensation and equity arrangements.
The responsibility of the Committee is also to:
> Approve proposals on salary and other remuneration, including
retirement compensation, for the ELT members.
> Approve proposals on targets for the short-term variable
compensation (STV) for the ELT members. The new President
& CEO, Börje Ekholm, does not have any short-term variable
compensation.
> Approve payout of the short-term variable compensation for
the ELT, based on achievements and performance.
The Committee’s work forms the foundation for the governance
of Ericsson’s remuneration processes, together with Ericsson’s
internal systems and audit controls. The Committee is chaired
by Leif Johansson and its other members are Roxanne S. Austin
and Karin Åberg. Börje Ekholm was a member of the Committee
until his appointment as President and CEO effective January 16,
2017, at which point he left the Committee. All members are non-
executive directors, independent (except for the employee repre-
sentative) as required by the Swedish Corporate Governance Code
and have relevant knowledge and experience of remuneration matters.
The Company’s Chief Legal Officer acts as secretary to the
Committee. The President and CEO, the Senior Vice President,
Head of Human Resources, the Vice President, Head of Total
Rewards and the Head of Executive Remuneration attend Com-
mittee meetings by invitation and assist the Committee in its con-
siderations. Nobody is present at the Committee´s meeting when
issues relating to their own remuneration are being discussed.
The Committee used an independent expert advisor, Piia Pilv,
to assist and advise in its work during 2016. The independent
advisor provided no other services to the Company during 2016.
At its final meeting in 2016, the Committee resolved to appoint
Peter Boreham at Mercer as its independent advisor for 2017.
The Committee is also furnished with national and international
pay data collected from external survey providers and can call on
other independent expertise, should it so require. The Chairman
strives to ensure that contact is maintained, as necessary and
appropriate, with shareholders regarding remuneration.
Further information on the Committee and its responsibilities
can be found in the Corporate Governance Report. These respon-
sibilities, together with the Guidelines for remuneration to Group
management and the Long-Term Variable (LTV) compensation
program is reviewed and evaluated annually in light of matters such
as changes to corporate governance best practice or changes
to accounting, legislation, political opinion or business practices
among peers. This helps to ensure that the policy continues to
provide Ericsson with a competitive remuneration strategy.
The Guidelines for remuneration to Group management are, in
accordance with Swedish law, brought to shareholders annually
for approval.
The Committee held seven meetings during 2016. The winter
meetings focused on following up on results from the 2015 variable
compensation programs and preparing proposals to sharehold-
ers for the 2016 Annual General Meeting (AGM). The Committee
proposed to the Board of Directors to approve the LTV 2013 vest-
ing result. During spring and summer, the Committee reviewed
and approved the remuneration for a number of new appoint-
ments to the ELT as well as revised STV targets for the ELT. During
fall, the Committee completed its annual overview of the global
technology sector pay practices together with the independent
Remuneration policy
Remuneration at Ericsson is based on the principles of per-
formance, competitiveness and fairness. The remuneration
policy, together with the mix of remuneration elements, is
designed to reflect these principles by creating a balanced
remuneration package. The Guidelines for remuneration to
Group management 2016, approved by the AGM, can
be found in Note C28. The auditor’s report regarding
whether the company has complied with the guide lines
for remuneration to Group management during 2016 is
posted on the Ericsson website.
162
Ericsson | Annual Report 2016
advisor. As in previous years, the Committee concluded that
Ericsson’s remuneration level is competitive but that the pay mix is
more fixed in nature with larger emphasis on base salary com-
pared to typical market practice in the US, Europe and Asia. In the
high-tech industry, the prevalent long-term incentive vehicle is
restricted shares (shares that vest based on time only) as retention
and recognition continue to be the key drivers for plan design.
Ericsson’s Long-Term Variable Compensation program (LTV) is
the least competitive remuneration element in terms of design
and levels in the total compensation package. The Committee has
therefore worked to prepare a new long-term incentive arrange-
ment for Ericsson’s Global Leadership Team (GLT) which is pro-
posed for approval at the 2017 Annual General Meeting of share-
holders. Towards the end of 2016, the Committee approved the
CEO proposal for salary adjustments for the ELT and established
the framework for the short-term targets for 2017.
Evaluation of the Guidelines for remuneration to Group
management and of the LTV program
The Committee supports the Board with the review and evaluation
of the Guidelines for remuneration to Group management and
Ericsson’s application of these guidelines. The Committee and the
Board have concluded that the guidelines remain valid and right
for Ericsson and that the only change to the guidelines for 2017
shall be to allow the use of share-price related targets in the vari-
able compensation programs.
The number of participants in the Stock Purchase Plan with the
objective to promote employees to become shareholders were as
of December 1, 2016 approximately 31,500 employees (34,000 as
of December 1, 2015). The evaluation confirms that the Key Con-
tributor Retention Plan meets the purpose of retaining the Compa-
ny’s key employees. The voluntary attrition rate among Key Con-
tributors is far smaller compared to the overall employee attrition
rate. However, the Stock Purchase Plan has been criticized by the
owners and after careful consideration the Committee concluded
that the plan have an unsustainable share dilution effect. There-
fore, the Committee recommended to the Board to not propose a
new Stock Purchase Plan for 2017. Thereby the Executive Perfor-
mance Stock Plan will also be obsolete as it is built on the Stock
Purchase Plan. A new long-term incentive program for the GLT will
be proposed for approval at the 2017 Annual General Meeting of
shareholders. For other senior management and key contributors
in Ericsson, cash-based arrangements will be developed.
Total remuneration in 2016
When considering the remuneration of an individual, it is the total
remuneration that matters. First, the total annual cash compensa-
tion is defined, consisting of the target level of short-term variable
compensation plus fixed salary. Thereafter, target long-term vari-
able compensation is added to get to the total target compensa-
tion and, finally, pension and other benefits are added to arrive at
the total remuneration.
For the ELT, remuneration consists of fixed salary, short-term
and long-term variable compensation, pension and other benefits.
If the size of any one of these elements is increased or decreased
when setting the remuneration, at least one other element has to
change if the total compensation is to remain unchanged.
The remuneration costs for the CEO and the ELT are reported
in Note C28.
Fixed salary
When setting fixed salaries, the Committee con siders the impact
on total remuneration, including pensions and associated costs.
The absolute levels are determined based on the size and com-
plexity of the position and the year-on-year performance of the
individual. Together with other elements of remuneration, ELT
salaries are subject to an annual review by the Committee, which
considers external pay data to ensure that levels of pay remain
competitive and appro priate to the remuneration policy.
Variable compensation
Ericsson strongly believes that, where possible, variable comp-
ensation should be encouraged as an integral part of total remu-
neration. First and foremost, this aligns employees with clear and
relevant targets, but it also enables more flexible payroll costs
and emphasizes the link between performance and pay.
All variable compensation plans have maximum award and
vesting limits. Short-term variable compensation is to a greater
extent dependent on the performance of the specific unit or
function, while long-term variable compensation is dependent
on the achievements of the Ericsson Group.
Ericsson measures business performance according to five
categories of measurements derived from the overall strategy:
growing sales faster than the market, best-in-class operating
margin, strong cash conversion, customer satisfaction and
employee engagement. These categories have formed the basis
for the short- and long-term variable compensation programs and
have set the framework of what measurements shall be used for
variable compensation.
Short-term variable compensation payouts as percentage
of opportunity
Fixed salary, short-term and long-term variable compensation
as percentage of total target compensation for 2016
80
70
60
50
40
30
20
10
0
2012
2013
2014
2015
7.3
0
2016
President and CEO
Average ELT excl. CEO
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
President
40.3
and CEO
frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
Average
pilen. Välj Object–Graph–Column.
ELT excl.
Där väljer man färg och ev tint.
President
Kolla särskilt att “Sliding” är valt på
and CEO
“Column type”.
24.2
35.5
59.0
23.3
17.7
Type–Options:
0
1 stapel: 76% 70%
2 staplar: 80% 80%
20
40
60
80
100
Fixed salary 2016
Short-Term Variable Target 2016
Long-Term Variable (2016 Executive Performance Stock Plan) at half of maximum
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
“Column type”.
Type–Options:
1 stapel: 76% 70%
2 staplar: 80% 80%
Corporate Governance – Remuneration report
Ericsson | Annual Report 2016
163
CORPORATE GOVERNANCE – Remuneration report
Summaries of 2016 short- and long-term variable compensation
What we call it
What is it?
What is the objective?
Who participates?
How is it earned?
Short-term: Compensation delivered over twelve months or less
Fixed salary
Short-Term Variable
compensation (STV)
Fixed compensation
paid at set times
A variable plan that is
measured and paid over
a single year
Attract and retain employees,
delivering part of annual
compensation in a predictable format
Align employees with clear and
relevant targets, providing an
earnings opportunity in return for
performance, and flexible cost
All employees
Enrolled employees, including
Executive Leadership Team.
Approximately 82,800 in 2016
Sales Incentive Plan (SIP)
Tailored versions of
the STV
As for STV, tailored for local or
business requirements, such as sales
Employees in sales.
Approximately 2,800 in 2016
Long-term: Compensation delivered over three years or more
Stock Purchase Plan
(SPP)
All-employee share-
based plan
Key Contributor
Retention Plan (KC)
Share-based plan for
selected individuals
Reinforce a “One Ericsson” mentality
and align employees’ interests with
those of shareholders
Recognize, retain and motivate key
contributors for performance, critical
skills and potential
Where practicable, all
employees are eligible
Up to 10% of employees
Executive Performance
Stock Plan (EPSP)
Share-based plan for
senior managers
Compensation for long-term
commitment and value creation
Senior managers, including
Executive Leadership Team
Market appropriate levels set
according to position and evaluated
according to individual performance
Achievements against set targets.
Reward can increase to up to twice
the target level and decrease to zero,
depending on performance
Similar to STV, but reward can
increase up to three times the target
level depending on performance. All
plans have maximum award and
vesting limits
Buy one share and it will be matched
by one share after three years if still
employed
If selected, get one more matching
share in addition to the SPP one
Subject to performance, get up to
four, six or, for the former President
and CEO, nine further shares
matched to each SPP share for long-
term performance
Short-term variable compensation
Annual variable compensation is delivered through cash-based
programs. Specific business targets are derived from the annual
business plan approved by the Board of Directors and, in turn,
defined by the Company’s long-term strategy. Ericsson strives to
grow faster than the market with best-in-class margins and strong
cash conversion and therefore the starting point is to have three
core targets:
> Net sales
> Operating income
> Cash flow
For the ELT, targets are financial at either Group level (for Heads of
Group functions and business units) or at the individual unit level
(for Heads of regions or customer groups).
The chart on the previous page illustrates how payouts to the
ELT have varied with performance over the past five years.
The Board of Directors decided on the financial targets for the
former CEO (the new CEO does not have any short-term variable
compensation), and the Committee decides on all targets which
are set for the ELT. These targets are cascaded within the organi-
zation and broken down to unit-related targets throughout the
Company. This is always subject to a two-level management
approval process. The Committee monitors the appropriateness
and fairness of Group target levels throughout the performance
year and has the authority to revise them should they cease to be
relevant or stretching or to enhance shareholder value.
During 2016, approximately 85,600 employees participated in
sonal investment, corporate performance and the share price per-
formance. During 2016, share-based compensation was made
up of three different but linked plans: the all-employee Stock Pur-
chase Plan, the Key Contributor Retention Plan and the Executive
Performance Stock Plan.
The Stock Purchase Plan
The all-employee Stock Purchase Plan was designed to offer,
where practicable, an incentive for all employees to participate.
Employees can save up to 7.5% of gross fixed salary (the former
President and CEO, Hans Vestberg, could save up to 10% of
gross fixed salary and short-term variable compensation) for pur-
chase of Class B shares at market price on Nasdaq Stockholm or
ADSs on NASDAQ New York (Contribution Shares) over a twelve-
month period. If the Contribution Shares are retained by the
employee for three years after the investment and employment
with the Ericsson Group continues during that time, then the Con-
tribution Shares will be matched with a corresponding number of
Class B shares or ADSs, as applicable. The plan was introduced
in 2002 and employees in 71 countries participated during its first
year. In December 2016, the number of participants was approxi-
mately 31,500, or approximately 29% of eligible employees in 100
countries.
Participants save each month, beginning with the August
payroll, towards quarterly investments. These investments
(in November, February, May and August) are matched on the
third anniversary of each such investment and hence the
matching spans over two financial years and two tax years.
short-term variable compensation plans.
For the reasons previously outlined, no Stock Purchase Plan is
Long-term variable compensation
Share-based long-term variable compensation plans have been
sub mitted each year for approval by shareholders at the AGM.
All long-term variable compensation plans have been designed
to form part of a well-balanced total remuneration package and to
span over a minimum of three years. As these are variable plans,
outcomes are unknown and rewards depend on long-term per-
The Key Contributor Retention Plan
The Key Contributor Retention Plan has been part of Ericsson’s
talent management strategy. It was designed to recognize individ-
uals for performance, critical skills and potential as well as to
encourage retention of key employees.
Under the program, operating units around the world could
being proposed for 2017.
164
Ericsson | Annual Report 2016
Short-term variable compensation structure
President and CEO 2015
President and CEO 2016 1)
Average ELT 2015 2)
Average ELT 2016 2)
Short-term variable compensation
as percentage of fixed salary
Percentage of short-term variable compensation
maximal opportunity
Target level Maximum level
Actual paid
80%
80%
51%
41%
160%
160%
102%
83%
114%
0%
66%
7%
Group financial
targets
Unit/functional
financial targets
Non-financial
targets
100%
100%
48%
88%
0%
0%
25%
13%
0%
0%
28%
0%
1) This relates to Hans Vestberg. Jan Frykhammar, while serving as President and CEO, remained on his previous short-term variable compensation opportunity, and received no payout for the year.
2) Excludes the President and CEO, differences in target and maximum levels from year to year are typically due to changes in the composition of the ELT.
nominate up to 10% of employees worldwide. Each unit nomi-
nated individuals identified according to performance, critical
skills and potential. The nominations were calibrated in
management teams locally and were reviewed by both local and
corporate Human Resources.
Participants selected obtain one extra matching share in
addition to the one matching share for each contribution share
purchased under the Stock Purchase Plan during a twelve-month
investment period. The plan was introduced in 2004.
Since no Stock Purchase Plan will be proposed for 2017,
alternative arrangements will be developed to replace the Key
Contributor Plan.
the Board of Directors. When undertaking its evaluation of per-
formance, the Board of Directors will consider, in particular, the
impact of larger acquisitions, divestments, the creation of joint
ventures and any other significant capital event on the three
targets on a case-by-case basis.
Since no Stock Purchase Plan will be proposed for 2017, alter-
native arrangements will be developed to replace the Executive
Performance Stock Plan. For the Global Leadership Team, a
share-based arrangement is proposed for approval by the 2017
Annual General Meeting of shareholders. Details of the performance
criteria for the new long-term incentive program are outlined in the
2017 notice of Annual General Meeting of shareholders.
The Executive Performance Stock Plan
The Executive Performance Stock Plan was first introduced in
2004. The plan was designed to focus management on driving
long-term financial performance and to provide market-competi-
tive remuneration. Senior managers, including the ELT, were
selected to obtain up to four or six extra shares (performance-
matching shares). This is in addition to the one matching share for
each contribution share purchased under the all-employee Stock
Purchase Plan. The former President and CEO, Hans Vestberg,
could obtain up to nine performance-matching shares in addition
to the Stock Purchase Plan matching share for each contribution
share. Performance matching is subject to the fulfillment of per-
formance targets.
To support the long-term strategy and value creation the
following targets for the 2016 Executive Performance Stock Plan
were resolved at the AGM on proposal by the Board:
> Net Sales Growth: Up to one-third of the award will vest if the
compound annual growth rate of consolidated net sales is
between 2 and 6% comparing 2018 financial results to 2015.
> Operating Income Growth: Up to one-third of the award will
vest if the compound annual growth rate of consolidated oper-
ating income is between 5 and 15% comparing 2018 financial
results to 2015. Extraordinary restructuring charges are
excluded.
> Cash Conversion: Up to one-third of the award will vest if
cash conversion is at or above 70% during each of the years
2016–2018, vesting one ninth of the total award for each year
the target is achieved. Extraordinary restructuring charges
are excluded.
Before the number of performance shares to be matched are
finally determined, the Board of Directors shall examine whether
the performance matching is reasonable considering the Compa-
ny’s financial results and position, conditions on the share market
and other circumstances, and if not, as determined by the Board
of Directors, reduce the number of performance shares to be
matched to the lower number of shares deemed appropriate by
Benefits and terms of employment
Pension benefits follow the competitive practice in the employee’s
home country and may contain various supplementary plans, in
addition to any national system for social security. Where possible,
pension plans are operated on a defined contribution basis, i.e.
Ericsson pays contributions but does not guarantee the ultimate
benefit. This applies unless local regulations or legislation pre-
scribe that defined benefit plans that do give such guarantees
have to be offered.
For the former President and CEO, Hans Vestberg, and other
members of the ELT employed in Sweden before 2011, a supple-
mentary pension plan is applied in addition to the occupational
pension plan for salaried staff on the Swedish labor market (ITP).
The ELT members employed in Sweden since 2011 are
normally covered by the defined contribution plan under the ITP1
scheme.
For members of the ELT who are not employed in Sweden,
local market competitive pension arrangements apply.
Other benefits, such as company cars and medical insurance,
are also set to be competitive in the local market. The ELT mem-
bers may not receive loans from the Company.
The ELT members locally employed in Sweden have a mutual
notice period of up to six months. Upon termination of employ-
ment by the Company, severance pay can amount to up to
18 months’ fixed salary.
Remuneration policy in practice
Ericsson has taken a number of measures over the years to
enhance the understanding of how the company translates
remuneration principles and policy into practice. This includes
the launch of an Integrated Human Resources IT tool, and provid-
ing e-learning and training programs to line managers. Since then,
enhancements of the IT tool and continuous briefings of line man-
agers on pay principles and their practical execution enabled fur-
ther progress towards globally consistent principles while allowing
room for adaptation to local legislation and pay markets.
Corporate Governance – Remuneration report
Ericsson | Annual Report 2016
165
FOR INVESTORS – Ericsson and the capital market
Ericsson and the
capital market
Roadshows and
Conferences in 2016
United States 30%
Nordic 12%
United Kingdom 14%
Rest of Europe 30%
Other 14%
Institutional Shares
by Geography
United States 36%
Sweden 30%
United Kingdom 13%
Norway 5%
France 2%
Rest of Europe 7%
Rest of World 6%
Purpose of the capital markets
communications
Ericsson’s overall goal is to create shareholder
value. The communication with the capital mar
kets aims to support the Company’s overall goal
by ensuring increased understanding and decre
ased share volatility through transparency and
clear messages. The Investor Relations depart
ment serves as the bridge between the Compa
ny’s strategic planning , development and activi
ties, and the external valuation and perception.
Goals and measurement
Surveys are carried out on a regular basis to
gauge the perceptions of messages at capital
markets days, the web site, road shows and the
availability and credibility of the IR department
and the executive management.
Ericsson aims to maintain a longterm rela tion
ship with its shareholders, and the IR department
monitors shareholder turnover on a regular basis.
IR activities are linked to the Company
strategy and development
Throughout the year, the IR department carries
out a number of activities aiming at meeting the
goals of transparent communication and
increased understanding. There are about 600 IR
meetings with investors and analysts every year.
The IR department also participates in communi
cations such as product launches, M&Aactivities
etc, to ensure that financial communication is
clear and relevant for the capital markets.
Working with other functions in the company
While communication with the rating institutions
primarily falls with Group function Treasury, the IR
department is also involved on a regular basis.
As there is an existing US bond program, as well
as a large shareholder base, Treasury and IR do a
joint annual roadshow to meet bondholders in the
US market.
Sustainability and Corporate Responsibility
(SCR) is of increasing importance for many inves
tors. IR is together with the Ericsson SCR function
performing several activities in this area during
the year, including presentations for stakeholders
and oneonone investor meetings at SRI
(Socially Responsible Investment) focused
conferences.
Activities at Industry events
The IR department also participates at important
industry events such as the annual Mobile World
Congress. The IR activities include communica
tion relating to important Company news, but also
setting up meetings between Com pany spokes
people and different stakeholders.
IR in Transformation
Ericsson is transforming from a leader in telecom
munications and related services into a leader in
the ICT arena.
Simultaneously, the stakeholders in the capital
markets have also transformed in recent years; from
industryspecialists focusing on the technology
sector to generalists covering several sectors. It has
become increasingly important for the financial
communication to make it easy for stakeholders to
make the connection between the Company’s activ
ities and development and its longterm strategy,
thus putting higher demands on clear messages.
With two thirds of Ericsson’s holdings outside
of Sweden, the demand for availability at a global
level also means working with other tools besides
regular meetings, such as digital media.
Important activities during the year 2016 facilitated by IR
> At the Mobile World Con
gress in Barcelona in Febru
ary, Ericsson showcased
5G, Internet of Things and
cloud innovation. Presenta
tions and Q&A sessions were
performed by management
with investors and analysts.
> At the Annual General Meeting
of shareholders in April, the
agenda included a strategy
summary, a review of 2015,
the Sustainability and Cor
porate Responsibility report,
as well as an update on how
Ericsson is leading the way
toward 5G.
> In September, CFO Carl
Mellander and Group
Treasurer Fredrik Wikner
performed the annual US
investor roadshow to meet
share and bondholders.
Ericsson performed 28
investor roadshows in 2016.
166
Ericsson | Annual Report 2016
Share price and trading volume during the year
SEK
90
75
60
45
30
15
0
Trading volume, 000’s
120,000
100,000
80,000
60,000
40,000
20,000
0
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Daily volume traded at Nasdaq Stockholm, 000’s
Ericsson, B
Nasdaq Stockholm Index
Important events during the year 2016
Q4 Report, January 2015:
Reported sales in the quarter
increased by 8% YoY. Sales,
adjusted for comparable
units and currency, decr e
ased by –1%. Profitability
improved YoY, with higher
IPR licensing revenues and
lower operating expenses as
main contributors.
AGM, April: The proposed
dividend of SEK 3.70 (SEK 3.40)
was approved at the AGM.
Record date was April 15.
Q1 Report, April: A continued
weak macroeconomic
environment impacted sales
negatively in some emerging
markets in the Middle East
and Latin America. Gross
margin declined mainly due
to lower margins in Global
Services.
Q2 Report, July: Reported
sales declined –11%. The neg
ative industry trends from the
first quarter intensified To
manage the lower demand,a
set of significant actions was
initiated to further drive effi
ciency improvements and
reduce cost.
Q3 Report, October: The
negative industry trends
accele rated further and
reported sales declined –14%
YoY. Gross margin declined
following lower mobile broad
band capacity sales, a higher
share of services sales and
lower sales in Networks.
CEO change, July: The
Company anno unced that
Hans Vestberg stepped
down as President and CEO.
Jan Frykhammar, Executive
Vice President and CFO,
assumed the CEO position
temporarily.
Announcement of cost
and efficiency program in
Sweden, October: As part of
the global cost and efficiency
program, Ericsson announced
intentions to reduce 3,000
positions in Sweden.
Appointment of new CEO,
October: Ericsson’s Board
names Börje Ekholm new
President and CEO, effective
January 16, 2017
> In November, Ericsson held an
> In November, Elaine Weidman
> CEO Jan Frykhammar and CFO
Investor Update in New York with
approximately 130 attending par
ticipants. For more information,
see page 169.
Grunewald, head of Sustainability and
Corporate Responsibility, participated
and had oneonone meetings at an
SRI (Socially Responsible Investment)
investor conference in Paris.
Carl Mellander participated in meet
ings and made a presentation at an
investor conference in Barcelona in
November. Ericsson participated in
22 investor conferences during 2016.
For investors – Ericsson and the capital market
Ericsson | Annual Report 2016
167
FOR INVESTORS – Ericsson and the capital market
Investors and financial
analysts Q&a
Was Ericsson surprised by the
significant sales decline in 2016?
A macroeconomic environment weaker
than expected had an increasing negative
effect on demand during the year in many
emerging markets, leading to an unex
pected market decline. In addition,
delayed 4G spectrum auctions slowed
down investments in India. Business
in markets such as North America and
mainland China have developed in line
with plan.
What is Ericsson doing to
improve the results?
Profitability has declined and is below
Ericsson’s ambitions. There are three
focus areas to drive incremental profit
improvements; improve efficiency, mone
tize Networks and build success in IT
& Cloud, Media and Industry and Society.
The cost and efficiency program is
tracking towards target and has been
expanded to adjust the organization to
lower sales volumes.
Is Ericsson losing market shares?
The ongoing large deployments in China,
where Chinese vendors have a large
market share, impacts the global market
shares between vendors. The sales reduc
tion in 2016 was driven by weaker demand
in mobile broadband, especially in markets
with weak macroeconomic environment.
What is the situation in
emerging markets?
In 2016, there was a challenging situation
in markets impacted by weak macroeco
nomic environment. The situation is likely
to prevail in 2017 based on current visibil
ity. Future sales development is depending
on macro development in those countries.
After a slowdown it normally takes time
before investments start and activities
are picking up.
Are the ongoing cost reductions
enough for restoring profits?
Ericsson believes the actions are sufficient
to increase profitability with current market
conditions, but are always seeking further
opportunities to reduce cost and increase
efficiency.
Ericsson has a zero tolerance approach to
corruption, and the Company has worked
systematically over the years to continu
ously strengthen and improve its
approach. By the end of 2016, over 95,900
employees have completed the anti corr
uption elearning launched in 2013.
Will recent headcount reductions
impact future innovation and risk
necessary R&D investments?
Ericsson is reducing the cost level in light
of current market conditions, while safe
guarding enough investments in R&D to
secure leadership in future technologies
such as 5G. The reduction also involves
ways of working to increase productivity
and get more value from every dollar
invested in R&D.
There has been several articles in
Swedish media on Ericsson in 2016,
comments?
There have been continued reports in
Swedish media concerning Ericsson.
Ericsson has posted clarifying statements
which are available on the Company’s
website in order to give the correct
company view.
US dollar has strengthened compared
to several currencies, how has
this impacted the result?
Compared to 2015, the USD strengthened
with a positive impact when translating
USD to SEK in the financial statements.
However, the strengthened US dollar also
had a negative impact on operator invest
ments in several markets.
https://www.ericsson.com/thecompany/
press/ericssoncomments
168
Ericsson | Annual Report 2016
Investor Update – the main messages
Ericsson held its Investor Update in New York on November 10,
2016, where the continued focus on accelerating strategy
execution and improved performance was on the agenda.
President and CEO Jan Frykhammar and acting CFO Carl
Mellander were joined by members of the company’s Executive
Leadership Team.
The company gave a market outlook 2016–2018 as well as an
update on progress of implementation and execution of new
company structure.
The event included both presentations as well as extensive Q&A
sessions with members of the Executive Leadership Team.
Ericsson | Annual Report 2016
169
FOR INVESTORS – Share information
Share information
Share trading
The Ericsson Class A and Class B
shares are listed on Nasdaq Stock
holm. In the United States, the Class B
shares are listed on NASDAQ New York
in the form of American Depositary
Shares (ADS) evidenced by American
Depositary Receipts (ADR) under the
symbol ERIC. Each ADS represents
one Class B share.
In 2016, approximately 3.0 (2.3)
billion shares were traded on Nasdaq
Stockholm and approximately 1.3 (0.9)
billion ADS were traded in the United
States (incl. NASDAQ New York). A
total of 4.3 (3.2) billion Ericsson shares
were thus traded on the exchanges in
Stockholm and in the United States.
Trading volume in Ericsson shares
increased by approximately 29% on
Share trading on different
market places (class B shares)
Shares traded, billions
Nasdaq Stockholm and increased by
approximately 38% in the United States
compared to 2015. With the implemen
tation of the Mifid directive in the EU,
share trading has become increasingly
fragmented across a number of venues
and trading categories. Trading on
MTFs and other venues has gained
market shares from stock exchanges
like Nasdaq Stockholm.
Trading in Stockholm represented
37 percent of total trading in 2016,
compared with 37 percent in 2012.
Total trading in Ericsson B on all venues
combined has increased over the past
five years from 6.6 billion shares in
2012 to 7.9 billion shares in 2016. Over
the same period, trading of Ericsson
ADS in the US has increased slightly
from 1.1 billion ADS to 1.3 billion ADS.
8
7
6
5
4
3
2
1
0
2012
2013
2014
2015
2016
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
“Column type”.
Other
London
Boat
Turquoise
BATS ChiX
Stockholm
Changes in number of shares and capital stock 2012–2016
2012
2012
2013
2014
2015
2016
2016
June 29, new issue (Class C shares, later converted to Class Bshares)
December 31
December 31
December 31
December 31
May 11, new issue (Class C shares, later converted to Class Bshares) 1)
December 31
The Ericsson share
Share/ADS listings
Nasdaq Stockholm
NASDAQ New York
Share data
Total number of shares in issue
of which Class A shares,
each carrying one vote 1)
of which Class B shares, each carrying
one tenth of one vote 1)
Ericsson treasury shares, Class B
Quotient value
Market capitalization, December 31, 2016
ICB (Industry Classification Benchmark)
3,331,151,735
261,755,983
3,069,395,752
62,192,390
SEK 5.00
approx. SEK 178 billion
9500
1) Both classes of shares have the same rights of participation in the net assets
and earnings.
Ticker codes
Nasdaq Stockholm
NASDAQ New York
Bloomberg Nasdaq Stockholm
Bloomberg NASDAQ
Reuters Nasdaq Stockholm
Reuters NASDAQ
ERIC A/ERIC B
ERIC
ERICA SS/ERICB SS
ERIC US
ERICa.ST/ERICb.ST
ERIC.O
Number of shares
Share capital (SEK)
31,700,000
3,305,051,735
3,305,051,735
3,305,051,735
3,305,051,735
26,100,000
3,331,151,735
158,500,000
16,525,258,678
16,525,258,678
16,525,258,678
16,525,258,678
130,500,000
16,655,758,678
1) The Annual General Meeting (AGM) 2016 resolved to issue 26,100,000 Class C shares for the LongTerm Variable Compensation Program (LTV). In accordance with an authorization from the AGM, in
the second quarter 2016, the Board of Directors resolved to repurchase the new issued shares, which were subsequently converted into Class B shares. The quotient value of the repurchased shares
was SEK 5.00, totaling SEK 130.5 million, representing less than one percent of capital stock, and the acquisition cost was approximately SEK 130.7 million.
Share performance indicators
Earnings per share, diluted (SEK) 1)
Earnings per share, nonIFRS (SEK) 2)
Dividend per share (SEK) 3)
Total shareholder return (%)
P/E ratio
1) Calculated on average number of shares outstanding, diluted.
2) EPS, diluted, excluding amortizations and writedowns of acquired intangible assets, and
excluding restructuring charges, SEK. A reconcilation of Alternative performance measures is
available on pages 176–180, and in a separate document available on www.ericsson.com/the
company/investors/financialreports
3) For 2016 as proposed by the Board of Directors.
170
Ericsson | Annual Report 2016
2016
0.52
2.66
1.00
–32
101
2015
4.13
6.06
3.70
–9
20
2014
3.54
4.80
3.40
24
26
2013
3.69
5.62
3.00
25
21
2012
1.78
2.74
2.75
–3
36
For definitions of the financial terms used, see Glossary and Financial Terminology.
Share trend
In 2016, Ericsson’s total market capitalization decreased by –34.9% to SEK 178 billion, compared to a
decrease by –12.6% reaching SEK 271 billion in 2015. In 2016, the index, OMX Stockholm, on Nasdaq
Stockholm increased by 5.8%, the NASDAQ composite index increased by 7.5% and the S&P 500
Index increased by 9.5%.
Share turnover and price trend, Nasdaq Stockholm
Earnings per share, diluted
Class A shares, SEK
000’s share traded
monthly
SEK
120
100
80
60
40
20
0
2012
2013
2014
2015
2016
Class B shares, SEK
120
100
80
60
40
20
0
2012
2013
2014
2015
2016
6,000
5,000
4,000
3,000
2,000
1,000
0
000’s share traded
monthly
600,000
500,000
400,000
300,000
200,000
100,000
0
Volume traded, 000’s monthly
Ericsson share
Nasdaq Stockholm Index
Volumes reflect trading on Nasdaq Stockholm only.
Share turnover and price trend, US market
ADS, USD
18
15
12
9
6
3
0
2012
2013
2014
2015
2016
000’s share traded
monthly
300,000
250,000
200,000
150,000
100,000
50,000
0
7
6
5
4
3
2
1
0
5.62
6.06
4.80
4.13
3.69
3.54
2.74
1.78
2.66
0.52
2012
2013
2014
2015
2016
Earnings per share, diluted
Earnings per share, diluted
(nonIFRS) 1)
1) EPS, diluted, excl. restructuring
charges, amortizations and
writedowns of acquired intangible
assets, SEK.
Dividend per share
SEK
4,00
3,50
3,00
2,50
2,00
1,50
1,00
0,50
0,00
3.70
3.40
3.0
2.75
1.00
2012
2013
2014
2015
2016
1)
1) For 2016 as proposed by
the Board of Directors.
P/E ratio
120
100
80
60
40
36
101
20
0
26
21
20
2012
2013
2014
2015
2016
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
“Column type”.
Type–Options:
1 stapel: 76% 70%
2 staplar: 80% 80%
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
“Column type”.
Obs! Gjord med column
design. Prata med
Eva/Catta/Sanna om ev
frågor.
Gör så här: Färglägg inte från
paletten. Markera staplar med vita
pilen. Välj Object–Graph–Column.
Där väljer man färg och ev tint.
Kolla särskilt att “Sliding” är valt på
“Column type”.
Volume traded, 000’s monthly
Ericsson ADS
S&P 500
For investors – Share information
Ericsson | Annual Report 2016
171
FOR INVESTORS – Share information
Share and ADS prices
Principal trading market – Nasdaq Stockholm – share prices
The table below states the high and low share prices for the Class
A and Class B shares as reported by Nasdaq Stockholm for the
periods indicated. Trading on the exchange generally continues
until 5:30 p.m. (CET) each business day. In addition to trading on
the exchange, there is trading off the exchange and on alternative
venues during trading hours and also after 5:30 p.m. (CET).
Nasdaq Stockholm publishes a daily Official Price List of
Shares which includes the volume of recorded transactions in
each listed stock, together with the prices of the highest and
lowest recorded trades of the day. The Official Price List of Shares
reflects price and volume information for trades completed by the
members. The equity securities listed on the Nasdaq Stockholm
Official Price List of Shares currently comprise the shares of
341 companies.
Host market – NASDAQ New York – ADS prices
The table below states the high and low share prices quoted
for the ADSs on NASDAQ New York for the periods indicated. The
NASDAQ New York quotations represent prices between dealers,
not including retail markups, markdowns or commissions, and
do not necessarily represent actual transactions.
Share prices on Nasdaq Stockholm
(SEK)
Class A at last day of trading
Class A high
(April 13, 2016)
Class A low
(October 26, 2016)
Class B at last day of trading
Class B high
(April 13, 2016)
Class B low
(October 26, 2016)
Source: Nasdaq Stockholm.
2016
53.00
2015
79.35
2014
88.25
2013
74.50
2012
63.90
80.80
111.30
91.80
86.95
72.00
45.20
53.50
72.00
82.30
71.55
94.35
50.00
78.50
55.55
65.10
83.60
120.00
96.40
90.95
71.90
43.19
75.30
75.05
64.50
55.90
Share prices on NASDAQ New York
(USD)
ADS at last day of trading
ADS high (April 13, 2016)
ADS low (October 28, 2016)
Source: NASDAQ New York.
2016
5.83
10.20
4.83
2015
9.61
13.14
8.87
2014
12.10
13.61
11.20
2013
12.24
14.22
9.78
2012
10.10
10.60
8.23
Share prices on Nasdaq Stockholm and NASDAQ New York
Period
Annual high and low
2012
2013
2014
2015
2016
Quarterly high and low
2015 First Quarter
2015 Second Quarter
2015 Third Quarter
2015 Fourth Quarter
2016 First Quarter
2016 Second Quarter
2016 Third Quarter
2016 Fourth Quarter
Monthly high and low
August 2016
September 2016
October 2016
November 2016
December 2016
January 2017
Nasdaq Stockholm
SEK per Class A share
SEK per Class B share
NASDAQ New York
USD per ADS 1)
High
Low
High
Low
High
Low
72.00
86.95
91.80
111.30
80.80
107.10
111.30
91.00
83.70
80.40
80.80
66.75
62.50
64.15
62.75
62.50
54.10
56.00
55.70
55.55
50.00
71.55
72.00
45.20
88.75
80.05
72.00
73.00
70.10
58.95
57.20
45.20
60.80
57.20
45.20
47.00
48.00
51.65
71.90
90.95
96.40
120.00
83.60
113.70
120.00
96.40
88.30
83.60
83.60
67.75
62.40
64.10
62.70
62.40
48.09
56.55
55.60
55.90
64.50
75.05
75.30
43.19
92.90
85.85
77.45
75.30
70.65
59.60
56.60
43.19
60.75
56.60
43.19
43.21
47.15
51.25
10.60
14.22
13.61
13.14
10.20
13.14
13.10
11.08
10.58
10.10
10.20
7.88
7.24
7.55
7.25
7.24
5.20
6.02
6.09
8.23
9.78
11.20
8.87
4.83
11.75
10.33
9.23
8.87
8.43
7.03
6.68
4.83
7.10
6.68
4.83
4.83
5.10
5.75
1) One ADS = 1 Class B share.
Source: Nasdaq Stockholm and NASDAQ New York.
172
Ericsson | Annual Report 2016
Shareholders
As of December 31, 2016, the Parent Company had 465,732 sharehold
ers registered at Euroclear Sweden AB (the Central Securities Depository
– CSD), of which 1,049 holders had a US address. According to informa
tion provided by the Company’s depositary bank, Deutsche Bank, there
were 326,213,417 ADSs outstanding as of December 31, 2016, and 3,868
registered holders of such ADSs. A significant number of Ericsson ADSs
are held by banks, brokers and/or nominees for the accounts of their
customers. As of January 10, 2017, the total number of bank, broker
and/or nominee accounts holding Ericsson ADSs was 98,323.
According to information known at yearend 2016, approximately 89%
of the Class A and Class B shares were owned by institutions, Swedish
and international. The major shareholders do not have different voting
rights than other shareholders holding the same classes of shares. As far
as Ericsson knows, the Company is not directly or indirectly owned or con
trolled by another corporation, by any foreign government or by any other
natural or legal person(s) separately or jointly.
The table below shows the total number of shares in the Parent
Company owned by the Executive Leadership Team and Board members
(including Deputy employee representatives) as a group as of December
31, 2016.
The Executive Leadership Team and Board members, ownership
Number of
Class A shares
Number of
Class B shares
Voting rights,
percent
The Executive Leadership
Team and Board members as
a group (32 persons)
0
1,832,757
0.03%
For individual holdings, see Corporate Governance Report.
Geographical ownership breakdown of share capital including retail
shareholders and treasury shares
Percent of capital
Sweden
United States
United Kingdom
Norway
France
2016
35.28%
26.98%
10.89%
4.92%
1.43%
2015
36.36%
26.28%
8.91%
3.36%
2.65%
Other countries
20.50%
22.44%
Source: Nasdaq
Ownership breakdown by type of owner
Percentage of voting rights
Swedish institutions
55.17%
54.66%
2016
2015
Of which:
– Investor AB
– AB Industrivärden 1)
Foreign institutions
Swedish retail investors
Other
21.77%
19.27%
34.08%
5.90%
4.85%
21.50%
20.05%
30.61%
5.53%
9.20%
Source: Nasdaq
1) Together with SHB Pensionsstiftelse and
Pensions kassan SHB Försäkringsförening.
Share distribution 1)
Holding
1–500
501–1,000
1,001–5,000
5,001–10,000
10,001–15,000
15,001–20,000
20,001–
Total, December 31, 2016 2)
No. of
shareholders
365,419
45,099
44,914
5,610
1,455
748
2,487
465,733
No. of
shares A
1,457,693
1,093,403
3,236,158
1,316,871
564,713
416,739
253,670,406
261,755,983
No. of
shares B
Percentage
of share capital
Percentage
of voting rights
Market value
(MSEK)
48,849,958
33,092,910
94,842,186
38,897,905
17,485,788
12,959,667
2,823,083,391
3,069,395,752
1.51%
1.03%
2.94%
1.21%
0.54%
0.40%
92.36%
1,12%
0.77%
2.24%
0.92%
0.41%
0.30%
94.25%
100.00%
100.00%
2,691
1,828
5,246
2,151
965
715
164,479
178,086
1) Source: Euroclear
2) Includes a nominee reporting discrepancy of 183,947 shares.
The following table shows share information as of December 31 2016. with respect to the 15 largest shareholders ranked by voting rights as well as their
percentage of voting rights as of December 31 2015, 2014 and 2013.
Largest shareholders December 31 2016 and percentage of voting rights December 31 2016, 2015 and 2014
Identity of person or group 1)
Investor AB
AB Industrivärden
Svenska Handelsbankens Pensionsstiftelse
Swedbank Robur Fonder AB
AMF Pensionsförsäkring AB
AFA Försäkring AB
Dodge & Cox
BlackRock Institutional Trust Company, N.A.
PRIMECAP Management Company
State Street Global Advisors (US)
Livförsäkringsbolaget Skandia, ömsesidigt
Silchester International Investors, L.L.P.
Norges Bank Investment Management (NBIM)
Hotchkis and Wiley Capital Management, LLC
The Vanguard Group, Inc.
Others
Total
1) Source: Nasdaq
For investors – Share information
Number of Class
A shares
Of total
Class A shares.
percent
Number of Class
B shares
Of total
Class B shares.
percent
2016
Voting rights.
percent
2015
Voting rights.
percent
2014
Voting rights.
percent
115,762,803
86,052,615
23,430,790
18,414
3,500,000
11,723,000
0
0
0
0
6,284,705
0
0
0
0
14,983,656
261,755,983
44.23
32.88
8.95
0.01
1.34
4.48
0.00
0.00
0.00
0.00
2.40
0.00
0.00
0.00
0.00
5.72
80,284,545
1,000,000
0
148,481,687
90,193,315
6,679,127
117,624,985
109,162,871
90,000,000
87,332,521
16,146,318
74,536,381
63,042,678
62,430,121
60,753,704
2,061,727,499
2.62
0.03
0.00
4.84
2.94
0.22
3.83
3.56
2.93
2.85
0.53
2.43
2.05
2.03
1.98
67.17
21.77
15.15
4.12
2.61
2.20
2.18
2.07
1.92
1.58
1.54
1.39
1.31
1.11
1.10
1.07
38.89
21.50
15.20
4.85
2.34
1.73
2.18
2.00
1.48
1.33
1.01
1.59
0.00
1.14
0.51
0.96
42.17
21.50
15.20
4.85
2.51
1.85
2.06
2.08
1.45
0.57
0.92
1.57
0.00
1.14
0.30
0.77
43.26
100.00
3,069,395,752
100.00
100.00
100.00
100.00
Ericsson | Annual Report 2016
173
OTHER INFORMATION
Ten-year summary
For definitions of certain financial terms used, see Financial terminology.
Ten-year summary
Income statement and cash flow items, SEK million
Net sales
Operating expenses
Operating income
Net income
Restructuring charges
Cash flow from operating activities
Year-end position, SEK million
Total assets
Property, plant and equipment
Stockholders’ equity
Non-controlling interest
Per share indicators
Earnings per share, basic, SEK
Earnings per share, diluted, SEK
Dividends per share, SEK
Number of shares outstanding (in millions)
end of period, basic
average, basic
average, diluted
Other information, SEK million
Additions to property, plant and equipment
Depreciations and write-downs/impairments of property, plant and equipment
Acquisitions/capitalization of intangible assets
Amortization and write-downs/impairments of intangible assets
Research and development expenses
as percentage of net sales
Inventory turnover days
Alternative Performance Measures (APMs) 2)
Gross margin
Operating margin
EBITA margin
Cash conversion
Capital employed, SEK million
Return on equity
Return on capital employed
Equity ratio
Capital turnover
Working capital, SEK million
Gross cash, SEK million
Net cash, SEK million 3)
Statistical data, year-end
Number of employees
of which in Sweden
Export sales from Sweden, SEK million
1) For 2016, as proposed by the Board of Directors.
2) A reconciliation to the most directly reconcilable line items in the financial statements for 2016 and five comparison years is available on the following pages.
Reconciliation of ten years is available in a separate document available on www.ericsson.com/thecompany/investors/financial-reports.
3) The definition of Net cash has been adjusted in 2016 (Post-employment benefits are no longer included and Interest-bearing securities, non-current are included).
Net cash for prior periods has been recalculated using the new definition.
174
Ericsson | Annual Report 2016
2016
Change
2015
2014
2013
2012
2011
2010
2009
2008
2007
222,608
–60,501
6,299
1,895
7,567
14,010
283,347
16,734
139,817
675
0.53
0.52
1.00 1)
3,269
3,263
3,303
6,129
4,569
5,260
4,550
31,635
14.2%
69
29.8%
2.8%
4.0%
175.0%
190,901
1.2%
3.2%
49.6%
1.2
89,039
57,877
31,191
111,464
15,303
107,036
–10%
–6%
–71%
–86%
50%
–32%
0%
5%
–5%
–20%
–87%
–87%
–73%
–
–
1%
–26%
–3%
1%
–18%
–9%
–
8%
–
–
–
–
–2%
–
–
–
–
–15%
–13%
–24%
–4%
–10%
–9%
246,920
–64,129
21,805
13,673
5,040
20,597
284,363
15,901
146,525
841
4.17
4.13
3.70
3,256
3,249
3,282
8,338
4,689
5,228
5,538
34,844
14.1%
64
34.8%
8.8%
10.5%
85%
9.3%
11.6%
51.8%
1.3
104,811
66,270
41,150
116,281
17,041
117,486
227,983
–63,408
16,807
11,143
1,456
18,702
293,558
13,341
144,306
1,003
3.57
3.54
3.40
3,242
3,237
3,270
5,322
4,316
6,184
5,629
36,308
15.9%
64
36.2%
7.4%
9.3%
84%
8.1%
9.8%
49.5%
1.2
103,246
72,159
48,014
118,055
17,580
113,734
227,376
–58,509
17,845
12,174
4,453
17,389
269,190
11,433
140,204
1,419
3.72
3.69
3.00
3,231
3,226
3,257
4,503
4,209
4,759
5,928
32,236
14.2%
62
33.6%
7.8%
9.8%
79%
8.7%
10.7%
52.6%
1.3
106,940
77,089
47,634
114,340
17,858
108,944
227,779
–58,856
10,458
5,938
3,447
22,031
274,996
11,493
136,883
1,600
1.80
1.78
2.75
3,220
3,216
3,247
5,429
4,012
13,247
5,877
32,833
14.4%
73
31.6%
4.6%
6.6%
116%
4.1%
6.7%
50.4%
1.3
100,619
76,708
48,041
110,255
17,712
106,997
226,921
–59,321
17,900
12,569
3,184
9,982
280,349
10,788
143,105
2,165
3.80
3.77
2.50
3,211
3,206
3,233
4,994
3,546
2,748
5,490
32,638
14.4%
78
35.1%
7.9%
9.9%
40%
8.5%
11.3%
51.8%
1.2
109,552
80,542
49,521
104,525
17,500
116,507
203,348
–58,630
16,455
11,235
6,814
26,583
281,815
9,434
145,106
1,679
3.49
3.46
2.25
3,200
3,197
3,226
3,686
3,296
7,246
6,657
31,558
15.5%
74
36.5%
8.1%
11.0%
112%
7.8%
9.6%
52.1%
1.1
105,488
87,150
56,387
90,261
17,848
100,070
206,477
–59,963
5,918
4,127
11,259
24,476
269,809
9,606
139,870
1,157
1.15
1.14
2.00
3,194
3,190
3,212
4,006
3,502
11,413
8,621
33,055
16.0%
68
34.0%
2.9%
6.7%
117%
2.6%
4.3%
52.3%
1.1
99,079
76,724
44,604
82,493
18,217
94,829
208,930
–60,558
16,252
11,667
6,760
24,000
285,684
9,995
140,823
1,261
3.54
3.52
1.85
3,185
3,183
3,202
4,133
3,105
1,287
5,568
33,584
16.1%
68
35.5%
7.8%
9.4%
92%
8.2%
11.3%
49.7%
1.2
99,951
75,005
44,524
187,780
–52,041
30,646
22,135
–
19,210
245,117
9,304
134,112
940
6.87
6.84
2.50
3,180
3,178
3,193
4,319
2,914
29,838
5,459
28,842
15.4%
70
39.3%
16.3%
18.0%
66%
17.2%
20.9%
55.1%
1.2
86,327
57,716
30,500
78,740
20,155
109,254
74,011
19,781
102,486
195,150
189,839
180,903
176,653
186,307
182,640
181,680
182,439
168,456
For definitions of certain financial terms used, see Financial terminology.
Income statement and cash flow items, SEK million
Ten-year summary
Net sales
Operating expenses
Operating income
Net income
Restructuring charges
Cash flow from operating activities
Year-end position, SEK million
Total assets
Property, plant and equipment
Stockholders’ equity
Non-controlling interest
Per share indicators
Earnings per share, basic, SEK
Earnings per share, diluted, SEK
Dividends per share, SEK
Number of shares outstanding (in millions)
end of period, basic
average, basic
average, diluted
Other information, SEK million
Additions to property, plant and equipment
Depreciations and write-downs/impairments of property, plant and equipment
Acquisitions/capitalization of intangible assets
Amortization and write-downs/impairments of intangible assets
Research and development expenses
as percentage of net sales
Inventory turnover days
Alternative Performance Measures (APMs) 2)
Gross margin
Operating margin
EBITA margin
Cash conversion
Capital employed, SEK million
Return on equity
Return on capital employed
Equity ratio
Capital turnover
Working capital, SEK million
Gross cash, SEK million
Net cash, SEK million 3)
Statistical data, year-end
Number of employees
of which in Sweden
Export sales from Sweden, SEK million
1) For 2016, as proposed by the Board of Directors.
2) A reconciliation to the most directly reconcilable line items in the financial statements for 2016 and five comparison years is available on the following pages.
Reconciliation of ten years is available in a separate document available on www.ericsson.com/thecompany/investors/financial-reports.
3) The definition of Net cash has been adjusted in 2016 (Post-employment benefits are no longer included and Interest-bearing securities, non-current are included).
Net cash for prior periods has been recalculated using the new definition.
2016
Change
2015
2014
2013
2012
2011
2010
2009
2008
2007
222,608
–60,501
6,299
1,895
7,567
14,010
283,347
16,734
139,817
675
0.53
0.52
1.00 1)
3,269
3,263
3,303
6,129
4,569
5,260
4,550
31,635
14.2%
69
29.8%
2.8%
4.0%
175.0%
190,901
1.2%
3.2%
49.6%
1.2
89,039
57,877
31,191
111,464
15,303
107,036
–10%
–6%
–71%
–86%
50%
–32%
0%
5%
–5%
–20%
–87%
–87%
–73%
–
–
1%
–26%
–3%
1%
–18%
–9%
–
8%
–
–
–
–
–
–
–
–
–2%
–15%
–13%
–24%
–4%
–10%
–9%
246,920
–64,129
21,805
13,673
5,040
20,597
284,363
15,901
146,525
841
4.17
4.13
3.70
3,256
3,249
3,282
8,338
4,689
5,228
5,538
34,844
14.1%
64
34.8%
8.8%
10.5%
85%
195,150
9.3%
11.6%
51.8%
1.3
104,811
66,270
41,150
116,281
17,041
117,486
227,983
–63,408
16,807
11,143
1,456
18,702
293,558
13,341
144,306
1,003
3.57
3.54
3.40
3,242
3,237
3,270
5,322
4,316
6,184
5,629
36,308
15.9%
64
36.2%
7.4%
9.3%
84%
189,839
8.1%
9.8%
49.5%
1.2
103,246
72,159
48,014
118,055
17,580
113,734
227,376
–58,509
17,845
12,174
4,453
17,389
269,190
11,433
140,204
1,419
3.72
3.69
3.00
3,231
3,226
3,257
4,503
4,209
4,759
5,928
32,236
14.2%
62
33.6%
7.8%
9.8%
79%
180,903
8.7%
10.7%
52.6%
1.3
106,940
77,089
47,634
114,340
17,858
108,944
227,779
–58,856
10,458
5,938
3,447
22,031
274,996
11,493
136,883
1,600
1.80
1.78
2.75
3,220
3,216
3,247
5,429
4,012
13,247
5,877
32,833
14.4%
73
31.6%
4.6%
6.6%
116%
176,653
4.1%
6.7%
50.4%
1.3
100,619
76,708
48,041
110,255
17,712
106,997
226,921
–59,321
17,900
12,569
3,184
9,982
280,349
10,788
143,105
2,165
3.80
3.77
2.50
3,211
3,206
3,233
4,994
3,546
2,748
5,490
32,638
14.4%
78
35.1%
7.9%
9.9%
40%
186,307
8.5%
11.3%
51.8%
1.2
109,552
80,542
49,521
104,525
17,500
116,507
203,348
–58,630
16,455
11,235
6,814
26,583
281,815
9,434
145,106
1,679
3.49
3.46
2.25
3,200
3,197
3,226
3,686
3,296
7,246
6,657
31,558
15.5%
74
36.5%
8.1%
11.0%
112%
182,640
7.8%
9.6%
52.1%
1.1
105,488
87,150
56,387
90,261
17,848
100,070
206,477
–59,963
5,918
4,127
11,259
24,476
269,809
9,606
139,870
1,157
1.15
1.14
2.00
3,194
3,190
3,212
4,006
3,502
11,413
8,621
33,055
16.0%
68
34.0%
2.9%
6.7%
117%
181,680
2.6%
4.3%
52.3%
1.1
99,079
76,724
44,604
82,493
18,217
94,829
208,930
–60,558
16,252
11,667
6,760
24,000
285,684
9,995
140,823
1,261
3.54
3.52
1.85
3,185
3,183
3,202
4,133
3,105
1,287
5,568
33,584
16.1%
68
35.5%
7.8%
9.4%
92%
182,439
8.2%
11.3%
49.7%
1.2
99,951
75,005
44,524
78,740
20,155
109,254
187,780
–52,041
30,646
22,135
–
19,210
245,117
9,304
134,112
940
6.87
6.84
2.50
3,180
3,178
3,193
4,319
2,914
29,838
5,459
28,842
15.4%
70
39.3%
16.3%
18.0%
66%
168,456
17.2%
20.9%
55.1%
1.2
86,327
57,716
30,500
74,011
19,781
102,486
Other information – Ten-year summary
Ericsson | Annual Report 2016
175
OTHER INFORMATION – Alternative Performance Measures
alternative performance
measures
This section includes a reconciliation of certain Alternative Perfor-
mance Measures (APMs) to the most directly reconcilable line
items in the financial statements. The presentation of APMs has
limitations as analytical tools and should not be considered in
isolation or as a substitute for related financial measures prepared
in accordance with IFRS.
APMs are presented to enhance an investor’s evaluation of
ongoing operating results, to aid in forecasting future periods and
to facilitate meaningful comparison of results between periods.
Management uses these APMs to, among other things, evaluate
ongoing operations in relation to historical results, for internal
planning and forecasting purposes and in the calculation of
certain performance-based compensation.
The APMs presented in this report may differ from similarly
titled measures used by other companies.
Capital employed
SEK million
Total assets
Non-interest-bearing provisions and liabilities
Provisions, non-current
Deferred tax liabilities
Other non-current liabilites
Provisions, current
Trade payables
Other current liabilities
Capital employed
Capital turnover
SEK million
Net sales
Average capital employed
Capital employed at beginning of period
Captial empoyed at end of period
Average capital employed
Capital turnover (times)
Cash conversion
SEK million
Net income
Net income reconciled to cash
Cash flow from operating activities
Cash conversion (%)
2016
2015
2014
2013
2012
283,347
284,363
293,558
269,190
274,996
Definition
Total assets less non-interest-bearing provisions
and liabilities.
946
2,147
2,621
5,411
25,318
56,003
190,901
176
2,472
1,851
3,662
22,389
58,663
195,150
202
3,177
1,797
4,225
24,473
69,845
189,839
222
2,650
1,459
5,140
20,502
58,314
180,903
211
3,120
2,377
8,427
23,100
61,108
176,653
Reason to use
Capital employed represents the value of the bal-
ance sheet assets that contributes to revenue and
profit generation. It is also used in the calculation of
return on capital employed.
2016
2015
2014
2013
2012
222,608
246,920
227,983
227,376
227,779
Definition
Net sales divided by average capital employed.
195,150
190,901
193,026
1.2
189,839
195,150
192,495
1.3
180,903
189,839
185,371
1.2
176,653
180,903
178,778
1.3
186,307
176,653
181,480
1.3
Reason to use
Capital turnover indicates how effectively invest-
ment capital is used to generate revenues.
2016
1,895
8,007
14,010
175%
2015
13,673
24,284
20,597
85%
2014
11,143
22,343
18,702
84%
2013
12,174
22,002
17,389
79%
2012
5,938
19,015
22,031
116%
Definition
Cash flow from operating activities divided by the
sum of net income and adjustments to reconcile net
income to cash, expressed as percent.
Reason to use
The cash conversion target reflects a high focus on
cash flow in the company. The measurement has
also been used as one of the three targets in the
Long-Term Variable Compensation program (LTV).
176
Ericsson | Annual Report 2016
Earnings per share (non-IFRS)
SEK
EPS diluted
Restructuring charges
Amortization and write-downs of acquired
intangibles
EPS (non-IFRS)
2016
0.52
1.59
0.55
2.66
2015
4.13
1.07
0.86
6.06
2014
3.54
0.31
0.95
4.80
2013
3.69
0.93
1.00
5.62
2012
1.78
0.81
0.96
3.55
Definition
Earnings per share (EPS), diluted, excluding amorti-
zations and write-down of acquired intangible
assets and excluding restructuring charges.
Reason to use
Restructuring charges vary between years. This
measurement gives an indication of the performance
without restructuring and without the impact of
amortizations and write-down of acquired intangible
assets from acquired companies.
EBITA margin
SEK million
Net income
Taxes
Financial income and expenses
Amortization and write-downs of acquired
intangibles
EBITA
Net sales
EBITA margin (%)
2016
1,895
2,131
2,273
2015
13,673
6,199
1,933
2014
11,143
4,668
996
2013
12,174
4,924
747
2012
5,938
4,244
276
2,650
8,949
222,608
4.0%
4,139
25,944
246,920
10.5%
4,328
21,135
227,983
9.3%
4,521
22,366
227,376
9.8%
4,553
15,011
227,779
6.6%
Definition
Earnings before interest, taxes, amortization and
write-downs of acquired intangibles, as a percent-
age of net sales.
Reason to use
Amortizations and write-downs of intangible assets
are normally non-cash items in the annual income
statement, EBITA margin % gives an indication of the
financial performance without the impact from
acquired companies.
Equity ratio
SEK million
Total equity
Total assets
Equity ratio (%)
Gross cash
2016
2015
2014
2013
2012
140,492
283,347
49.6%
147,366
284,363
51.8%
145,309
293,558
49.5%
141,623
269,190
52.6%
138,483
274,996
50.4%
Definition
Equity, expressed as a percentage of total assets.
Reason to use
An equity ratio above 40% is one of the company’s
capital targets. This supports financial flexibility and
independence to operate and manage variations in
working capital needs as well as to capitalize on
business opportunities.
SEK million
Cash and cash equivalents
Interest-bearing securities, current
Interest-bearing securities, non-current
Gross cash
2016
36,966
13,325
7,586
57,877
2015
40,224
26,046
–
66,270
2014
40,988
31,171
–
72,159
2013
42,095
34,994
–
77,089
2012
44,682
32,026
–
76,708
Definition
Cash and cash equivalents plus interest-bearing
securities (current and non-current).
Reason to use
Gross cash is showing total available cash and
interest-bearing securities and is a parameter for
calculating the net cash position.
Other information – Alternative Performance Measures
Ericsson | Annual Report 2016
177
OTHER INFORMATION – Alternative Performance Measures
alternative performance
measures, cont.
Gross margin
SEK million
Gross income
Net sales
Gross margin (%)
2016
2015
2014
2013
2012
66,365
222,608
29.8%
85,819
246,920
34.8%
82,427
227,983
36.2%
76,371
227,376
33.6%
72,080
227,779
31.6%
Net cash
SEK million
Cash and cash equivalents
+ Interest-bearing securities, current
+ Interest-bearing securities, non-current
– Borrowings, current
– Borrowings, non-current
Net cash
2016
36,966
13,325
7,586
8,033
18,653
31,191
2015
40,224
26,046
–
2,376
22,744
41,150
2014
40,988
31,171
–
2,281
21,864
48,014
2013
42,095
34,994
–
7,388
22,067
47,634
2012
44,682
32,026
–
4,769
23,898
48,041
Definition
Reported gross income as a percentage of net sales.
Reason to use
Gross margin shows the difference between net
sales and cost of sales, in percentage of net sales.
Gross margin is impacted by several factors such as
business mix, service share, price development and
cost reductions. Gross margin is an important inter-
nal measure and this number is also provided in the
Income statement as the Company believes that
it provides users of the financial statements with
a better understanding of the Group’s business
development.
Definition
Cash and cash equivalents plus interest-bearing
securities (current and non-current) less interest-
bearing liabilities (which include: non-current
borrowings and current borrowings).
Reason to use
A positive net cash position that is larger than the
pension liability is one of the company’s capital tar-
gets. This creates financial flexibility and indepen-
dence to operate and manage variations in working
capital needs.
Operating expenses, excluding restructuring charges
SEK million
Operating expenses
Restructuring charges
included in R&D expenses
Restructuring charges included in selling and
administrative expenses
Operating expenses,
excluding restructuring charges
2016
2015
2014
2013
2012
–60,501
–64,129
–63,408
–58,509
–58,856
2,739
2,021
1,353
745
304
123
872
924
852
370
–56,409
–61,363
–62,981
–56,713
–57,634
Definition
Reported operating expenses, excluding restructur-
ing charges.
Reason to use
Restructuring charges vary between years and in
order to analyse trends in reported expenses over-
time, restructuring charges are excluded.
178
Ericsson | Annual Report 2016
Operating margin
SEK million
Operating income
Net sales
Operating margin (%)
2016
2015
2014
2013
2012
6,299
222,608
2.8%
21,805
246,920
8.8%
16,807
227,983
7.4%
17,845
227,376
7.8%
10,458
227,779
4.6%
Definition
Reported operating income as a percentage of
net sales.
Reason to use
Operating margin shows the operating income in
per centage of net sales. Operating margin is a key
internal measure and this number is also provided
in the Income statement as the Company believes
that it provides users of the financial statements
with a better understanding of the Group’s financial
performance both short and long term.
Return on capital employed
SEK million
Operating income
Financial income
Total Operating income + Financial income
Average capital empolyed
Capital employed at beginning of period
Capital employed at end of period
Average capital empolyed
Return on capital employed (%)
Return on equity
2016
6,299
–115
6,184
2015
21,805
525
22,330
2014
16,807
1,277
18,084
2013
17,845
1,346
19,191
2012
10,458
1,708
12,166
195,150
190,901
193,026
3.2%
189,839
195,150
192,495
11.6%
180,903
189,839
185,371
9.8%
176,653
180,903
178,778
10.7%
186,307
176,653
181,480
6.7%
Definition
The total of operating income plus financial income
as a percentage of average capital employed.
Reason to use
Return on capital employed is a measure of the
profitability after taking into account the amount of
capital used. A higher return on capital employed
indicates a more efficient use of capital.
SEK million
2016
2015
2014
2013
2012
Net income attributable to stockholders
of the Parent Company
Average stockholders' equity
Stockholders' equity, beginning of period
Stockholders' equity, end of period
Average stockholders' equity
Return on equity (%)
1,716
13,549
11,568
12,005
5,775
146,525
139,817
143,171
1.2%
144,306
146,525
145,416
9.3%
140,204
144,306
142,255
8.1%
136,883
140,204
138,544
8.7%
143,105
136,883
139,994
4.1%
Definition
Net income attributable to stockholders of the
Parent Company as a percentage of average
stockholders’ equity.
Reason to use
Return on equity is a measure of the profitability in
relation to the book value of shareholder equity.
Return on equity is a measure of how investments
are used to generate earnings growth.
Other information – Alternative Performance Measures
Ericsson | Annual Report 2016
179
OTHER INFORMATION – Alternative Performance Measures
alternative performance
measures, cont.
Sales growth adjusted for comparable units and currency
SEK million
Net sales
Acquired/divested business
Net FX impact
Comparable net sales, excluding FX impact
Sales growth adjusted for comparable units
and currency (%)
2016
2015
2014 1)
222,608
–313
254
222,549
246,920
–422
–30,307
216,191
227,983
–2,590
–10,409
214,984
–10%
–5%
–4%
1) Partly adjusted for the initial IPR payment from Samsung in the fourth quarter 2013.
Definition
Sales growth adjusted for the impact of acquisitions
and divestments as well as the effects of foreign
currency fluctuations.
Reason to use
Ericsson’s presentation currency is SEK while the
total revenues are mainly in other currencies.
Reported sales growth is dependent on fluctuations
in SEK versus other currencies and in addition
acquired or divested business can have an impact
on reported net sales. Sales growth adjusted for
comparable units and currency shows the underly-
ing sales development without these parameters.
Working capital
SEK million
Current assets
Current non-interest-bearing
provisions and liabilities
Provisions, current
Trade payables
Other current liabilities
Working capital
2016
2015
2014
2013
2012
175,771
189,525
201,789
190,896
193,254
–5,411
–25,318
–56,003
89,039
–3,662
–22,389
–58,663
104,811
–4,225
–24,473
–69,845
103,246
–5,140
–20,502
–58,314
106,940
–8,427
–23,100
–61,108
100,619
Definition
Current assets less current non-interest-bearing
provisions and liabilities (which include: current pro-
visions; trade payables and other current liabilities).
Reason to use
Due to the need to optimize cash generation to
create value for Ericsson’s shareholders, manage-
ment focuses on working capital and reducing lead
times between orders booked and cash received.
Managing and reducing Working capital is key for
reaching the Cash conversion of the Long-Term
Variable Compensation program (LTV).
180
Ericsson | Annual Report 2016
Financial terminology
CAPEX
Capital expenditures.
Capital employed
Total assets less non-interest-bearing provi-
sions and liabilities (which includes non-current
provisions; deferred tax liabilities; other
non-current liabilities; current provisions; trade
payables and other current liabilities).
Capital turnover
Net sales divided by average capital employed.
Cash conversion
Cash flow from operating activities divided
by the sum of net income and adjustments to
reconcile net income to cash, expressed as
percent.
Cash dividends per share
Dividends paid divided by average number of
basic shares.
Compound annual growth rate (CAGR)
The year-over-year growth rate over a specified
period of time.
Days sales outstanding (DSO)
Trade receivables balance at quarter end
divided by net sales in the quarter and multi-
plied by 90 days. If the amount of trade receiv-
ables is larger than last quarter’s sales, the
excess amount is divided by net sales in the
previous quarter and multiplied by 90 days,
and total DSO are the 90 days of the most
current quarter plus the additional days from
the previous quarter.
Earnings per share (EPS)
Basic earnings per share: profit or loss attribut-
able to stockholders of the Parent Company
divided by the weighted average number of
ordinary shares outstanding during the period.
Earnings per share (EPS diluted)
The weighted average number of shares out-
standing, adjusted for the effects of all dilutive
potential ordinary shares.
Earnings per share (non-IFRS)
Earnings per share (EPS), diluted, excluding
amortizations and write-down of acquired
intangible assets and excluding restructuring
charges.
EBITA margin
Earnings before interest, taxes, amortization
and write-downs of acquired intangibles (intel-
lectual property rights, trademarks and other
intangible assets, see Note C10 “Intangible
assets”) as a percentage of net sales.
Equity ratio
Equity, expressed as a percentage of total
assets.
Gross cash
Cash and cash equivalents plus interest-bear-
ing securities (current and non-current).
Gross margin
Reported gross income as a percentage of net
sales.
Inventory turnover days (ITO days)
365 divided by inventory turnover, calculated as
total cost of sales divided by the average inven-
tories for the year (net of advances from cus-
tomers).
Net cash
Cash and cash equivalents plus interest-bear-
ing securities (current and non-current) less
interest-bearing liabilities (which include
non-current borrowings and current borrow-
ings).
Operating margin
Reported operating income as a percentage of
net sales.
OPEX
Operational expenses.
P/E ratio
The P/E ratio is calculated as the price of a
Class B share at last day of trading divided by
earnings per basic share.
Payable days
The average balance of trade payables at the
beginning and at the end of the year divided
by cost of sales for the year, and multiplied by
365 days.
Return on capital employed
The total of operating income plus financial
income as a percentage of average capital
employed (based on the amounts at January 1
and December 31).
Return on equity
Net income attributable to stockholders of the
Parent Company as a percentage of average
stockholders’ equity (based on the amounts at
January 1 and December 31).
Sales growth, adjusted for comparable units
and currency
Sales growth adjusted for the impact of acquisi-
tions and divestments as well as the effects of
foreign currency fluctuations.
Total shareholder return (TSR)
The increase or decrease in Class B share price
during the period, including dividend,
expressed as a percentage of the share price at
the start of the period.
Value at risk (VaR)
A statistical method that expresses the maxi-
mum potential loss that can arise with a certain
degree of probability during a certain period
of time.
Working capital
Current assets less current non-interest-bear-
ing provisions and liabilities (which include
current provisions, trade payables and other
current liabilities).
Exchange rates
Exchange rates in consolidation
SEK/EUR
Average rate 1)
Closing rate
SEK/USD
Average rate 1)
Closing rate
January–December
2016
2015
9.44
9.56
8.56
9.06
9.34
9.17
8.39
8.40
1) Average for the year for disclosure purpose only.
Period income and expenses for each income statement
are translated at period average exchange rates.
Other information – Financial terminology
Ericsson | Annual Report 2016
181
OTHER INFORMATION
Glossary
2G
The first digital generation of mobile systems.
Includes GSM, TDMA, PDC and cdmaOne.
3G
Third generation mobile system. Includes
WCDMA/HSPA, CDMA2000 and TD-SCDMA.
prepared ‘in accordance’ with the Guidelines.
The Core option contains the essential ele-
ments of a sustainability report. The Core
option provides the background against which
an organization communicates the impacts of
its economic, environmental and social and
governance performance.
4G
See LTE.
Backhaul
Transmission between radio base stations and
the core network.
BSS
Business support systems.
CAGR
Compound Annual Growth Rate.
CDMA
Code Division Multiple Access.
A radio technology on which the cdmaOne (2G)
and CDMA2000 (3G) mobile communication
standards are both based.
Cloud
When data and applications reside in the
network.
GSM
Global System for Mobile Communications.
A first digital generation mobile system.
HDS 8000
A product announced by Ericsson in 2015.
Ericsson HDS 8000 (Hyperscale Datacenter
System) is a new generation of hyperscale data-
center systems that uses Intel® Rack Scale
Architecture.
Heterogeneous network
Densification and enhancement of a network to
increase capacity.
HSPA
High Speed Packet Access.
Enhancement of 3G/WCDMA that enables
mobile broadband.
M-commerce
Mobile commerce.
M2M
Machine-to-machine communication.
Managed services
Management of operator networks and/or
hosting of their services.
Mobile broadband
Wireless high-speed internet access using
the HSPA, LTE and CDMA2000EV-DO
technologies.
Networked Society
Ericsson’s vision of what will happen when
everything that can benefit from being con-
nected is connected, empowering people,
business and society.
NFV
Network Functions Virtualization.
Software implementation of network functions
that can be deployed in virtualized infrastruc-
ture, offering efficient orchestration, automation
and scalability.
ICT
Information and Communication Technology.
OSS
Operations Support Systems.
CO2e
The amount of a particular greenhouse gas,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.
IMS
IP Multimedia Subsystem.
A standard for voice and multimedia services
over mobile and fixed networks using IP.
EDGE
An enhancement of GSM. Enables the trans-
mission of data at speeds up to 250 kbps
(Evolved EDGE up to 1 Mbps.)
IP
Internet Protocol.
Defines how information travels between
network elements across the internet.
EPC
Evolved Packet Core.
The core network of the LTE system.
IPR
Intellectual Property Rights.
Global ICT Centers
Ericsson has built three Global ICT Centers,
facilities that allow the connection of both
Telco and ICT (Information Communication
Technology) equipment and allow access by
over 20,000 engineers globally.
IPTV
IP Television.
A technology that delivers digital television via
fixed broadband access.
JV
Joint Venture.
GRI G4 core
G4 is the fourth generation of GRI Sustainability
Reporting Guidelines. There are two options to
report in accordance with the Guidelines: Core
and Comprehensive. These options designate
the content to be included for the report to be
LTE
Long-Term Evolution.
4G; the evolutionary step of mobile technology
beyond HSPA, allowing data rate above 100
Mbps.
SDN
Software-Defined Network.
A programmable network with physical separa-
tion of decisions about where network traffic is
sent (control plane), from the underlying system
that forward traffic to the selected destinations
(data plane).
VoLTE (Voice over LTE)
VoLTE, based on the IP Multimedia Subsystem
(IMS), is a voice service delivered as data flows
in LTE, over time replacing the legacy
circuit-switched voice network.
WCDMA
Wideband Code Division Multiple Access.
A 3G mobile communication standard.
WCDMA builds on the same core network
infrastructure as GSM.
xDSL
Digital Subscriber Line technologies for broad-
band multimedia communications in fixed-line
networks. Examples: IP-DSL, ADSL and VDSL.
The terms “Ericsson”, “the Company”, “the Group”, “us”, “we”, and “our”
all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.
182
Ericsson | Annual Report 2016
OTHER INFORMATION
SHAREHOLDER INFORMATION
Telefonaktiebolaget LM Ericsson’s Annual
General Meeting of shareholders 2017 will be held
on March 29, 2017, at 3.00 p.m. at Kistamässan,
Arne Beurlings Torg 5, Kista/Stockholm, Sweden.
Registration and notice of attendance
Shareholders who wish to attend the Annual
General Meeting must:
> Be recorded in the share register kept by
Euroclear Sweden AB (the Swedish Securi-
ties Registry) on Thursday, March 23, 2017;
and
> Give notice of attendance to the Company at
the latest on Thursday March 23, 2017. Notice
of attendance can be given by telephone:
+46 8 402 90 54 on weekdays between
10 a.m. and 4 p.m., or on Ericsson’s website:
www.ericsson.com
Notice of attendance may also be given
in writing to:
Telefonaktiebolaget LM Ericsson
General Meeting of shareholders
Box 7835, SE-103 98 Stockholm, Sweden
When giving notice of attendance, please state
the name, date of birth or registration number,
address, telephone number and number of
assistants, if any.
The meeting will be conducted in Swedish
and simultaneously translated into English.
Shares registered in the name of a nominee
In addition to giving notice of attendance,
shareholders having their shares registered in
the name of a nominee must request the nomi-
nee to temporarily enter the shareholder into the
share register as per Thursday, March 23, 2017,
in order to be entitled to attend the meeting.
The shareholder should inform the nominee
to that effect well before that day.
Proxy
Shareholders represented by proxy shall issue
and submit to the Company a power of attorney
for the representative. A power of attorney
issued by a legal entity must be accompanied
by a copy of the entity’s certificate of registration,
or if no such certificate exists, a corresponding
document of authority. Such documents must
not be older than one year unless the power of
attorney explicitly provides that it is valid for a
longer period, up to a maximum of five years.
In order to facilitate the registration at the Annual
General Meeting, the original power of attorney,
certificates of registration and other documents
of authority should be sent to the Company in
advance to the address above for receipt by
Tuesday, March 28, 2017. Forms of power of
attorney in Swedish and English are available
on Ericsson’s website:
www.ericsson.com.
Dividend
The Board of Directors has decided to propose
the Annual General Meeting to resolve on a
dividend of SEK 1.00 per share for the year
2016 and that Friday, March 31, 2017 will be the
record date for dividend.
Financial information from Ericsson
2016 Form 20-F for the US market
> March 31, 2017
Interim reports 2017
> Q1, April 25, 2017
> Q2, July 18, 2017
> Q3, October 20, 2017
> Q4, January 31, 2018
Annual Report 2017
> March, 2018
Other information – Shareholder information
Ericsson | Annual Report 2016
183
OTHER INFORMATION – Shareholder information
MORE INFORMATION
Information about Ericsson and its development is
available on the website: www.ericsson.com
Annual and interim reports and other relevant
shareholder information can be found at:
www.ericsson.com/investors
Ericsson issues a separate Sustainability and Corporate
Responsibility Report. www.ericsson.com/thecompany/
sustainability _corporateresponsibility
For printed publications
Contact details
A printed copy of the Annual Report is provided
on request.
Strömberg Distribution
SE-120 88 Stockholm, Sweden
Phone: +46 8 449 89 57
Email: ericsson@strd.se
Ericsson headquarters
Torshamnsgatan 21
Kista, Stockholm, Sweden
Registered office
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
In the United States
Ericsson’s Transfer Agent
Deutsche Bank, Deutsche Bank Shareholder Services
American Stock Transfer & Trust Company
Investor relations
For questions on the Company, please contact
Investor Relations:
Phone: +46 (10) 719 00 00
Email: investor.relations@ericsson.com
Registered holders
Toll-free number: +1 (800) 937-5449
Interested investors
Direct dial: +1 (718) 921-8124
Email: DB@amstock.com
Ordering a hard copy of the Annual Report
Phone: +1 (888) 301 2504
184
Ericsson | Annual Report 2016
Ericsson Annual Report 2016
Project management
Ericsson Investor Relations
Design and production
Hallvarsson & Halvarsson
Group Management, Board
of Directors photography
Per Myrehed
Printing
Göteborgstryckeriet 2017
Printed on Amber Graphic
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Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 0000
www.ericsson.com
EN/LZT 138 1935 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2017