Ericsson
Annual Report
2017
Stabilize
and simplify
ericsson.com
Contents
01
The business
2 CEO comment
4 This is Ericsson
6 Strategy and financial targets
12 Segments
16 Business model
02
Financials
18 Letter from the Chairman
19 Board of Directors’ report
32 Consolidated financial
statements
40 Notes to the consolidated
financial statements
80 Parent Company financial
statements
86 Notes to the Parent Company
financial statements
99 Risk factors
108 Auditor’s report
113 Forward-looking statements
04
Sustainability
05
Share information
147 Sustainability Performance
160 The Ericsson share
and Risk report
03
Corporate governance
114 Corporate governance report
141 Remuneration report
06
Other information
164 Ten-year summary
166 Alternative Performance
Measures
170 Financial terminology
and exchange rates
171 Glossary
172 Shareholder information
The annual accounts and consolidated accounts
of the Company are included on pages 19–107
in this document.
Cover photo:
Ericsson employee using Augmented Reality.
Ericsson in brief
Ericsson has been at the forefront of
innovation for more than 140 years
and as the market continues to
transform and user demands con-
tinue to change – so does Ericsson.
It all started in a mechanical
workshop in Stockholm where Lars
Magnus Ericsson designed tele-
phones and Hilda Ericsson produced
them by winding copper wire coils.
Over the years, inclusion and
diversity have remained important
building blocks of the company, and
are fundamental to the culture and
its core values of respect, professio-
nalism and perseverance.
Ericsson has revolutionized com-
munications with new switching
techniques and digital technology,
and has been leading the develop-
ment of mobile communications.
When broadband was in its infancy
Ericsson was already working on the
technology that would become 3G,
1
and was developing 4G long before
the smartphone became ubiquitous.
Now 5G is around the corner and
Ericsson is investing for technology
leadership in 5G.
Ericsson has its headquarters in
Stockholm, and the Ericsson shares
trade on Nasdaq Stockholm and the
Ericsson ADSs trade on NASDAQ,
New York.
Highlights 2017
– January 16; President and CEO Börje Ekholm
– October 9; The nomination committee pre-
– December 11; Verizon selected Ericsson
took office.
– March 28; The focused business strategy was
presented with the target to significantly
improve the operating margin with a long-term
target of more than 12%.
– April 25 Q1; Provisions and adjustments
related to certain customer contracts, asset
write-downs and restructuring of a total of
SEK 13.4 billion.
– June 26; Vodafone UK selected Ericsson to
evolve its 4G networks in London and southern
England to improve capacity and end-user
performance.
– July 18 Q2; Cost reduction activities to
achieve an annual run rate reduction of
at least SEK 10 billion by mid-2018 were
presented.
sented its intention to propose Ronnie Leten as
new Chairman of the Board, as current Chair-
man of the Board Leif Johansson steps down.
– October 20 Q3; Strong performance in Net-
works driven by the Ericsson Radio System
portfolio.
– November 8; Capital Markets Day where tar-
gets for 2020 were presented; sales of SEK
190–200 billion, 37–39% gross margin and
at least 10% operating margin, supporting
the long-term target of more than 12%.
to provide equipment for their commercial 5G
launch in the United States.
– December 14; Deutsche Telekom selected
Ericsson as supplier for its current and future
network in Germany.
– January 31 Q4; Write-down of assets impacted
the result by SEK –14.5 billion. In addition,
provisions and customer project adjustments
amounted to SEK –3.2 billion.
Net sales
SEK billion
Reported operating income
SEK billion
Adjusted operating income1)
SEK billion
Free cash flow
SEK billion
Number of employees
201.3
(2016: 222.6)
–38.1
(2016: 6.3)
1.7
(2016: 13.9)
5.1
(2016: 0.3)
100,700
(2016: 111,500)
1) Reported operating income excluding restructuring charges (SEK –8.5 billion), write-down of assets (SEK –17.8 billion),
gains/losses on sales of certain investments and operations (SEK 0.3 billion), provisions and adjustments related to certain
customer projects announced March 28, 2017 (SEK –8.4 billion) and provisions and adjustments related to certain market
and customer projects announced in Q2 2017 (SEK –5.5 billion).
Contact
investor.relations@ericsson.com
Ericsson | Annual Report 2017
2
The business – CEO comment
2017 – a year of starting over
2017 was a tough year. We started to execute on our
focused strategy and we laid the foundation for achieving
our financial targets.
The telecom industry is a key driver of econo-
mic growth and innovation.
The power of change that mobile technol-
ogy unleashes is extraordinary. No other tech-
nology has ever scaled as fast. By 2023, less
than 35 years after the introduction of mobile
technology, it’s predicted that there will be 9.1
billion mobile subscriptions and research
shows a strong correlation between growth in
mobile broadband adoption and GDP growth.
And the potential of mobility has only just
begun. Yet with extraordinary change, comes
challenges. Our customers, the service provid-
ers, need to become more efficient, more
digital and find new growth. This puts pressure
on the industry and pressure on us as a com-
pany, but it also creates new opportunities.
When assuming the role as new CEO in the
beginning of 2017, we initiated a strategic
review. Our starting point was to listen to our
customers combined with in-depth analysis of
our portfolio and performance. In March we
presented our focused strategy.
Our mission is to enable our customers
to capture the full value of connectivity with
three core pillars – technology leadership,
product led solutions and global scale and skill.
Stabilize and simplify
To be successful and relevant to our custom-
ers, we need to be profitable. The first phase
is therefore to simplify the organization and to
restore stability and profitability.
We appointed a new Executive Team and
simplified organizational structure. In 2017,
the structure was built on three business
areas: Networks, Digital Services and
Managed Services, and five market areas
which were created based on the structure of
our large customers. In January 2018, a new
business area called Emerging Business was
created. Ericsson’s organizational structure is
efficient and responsive to customer needs,
with strong accountability.
Invest in areas where we can and must win
We are investing in Networks to strengthen
our current offerings and to lead the way in 5G.
We are investing in Digital Services to secure
leadership in the control and monetization
layers in the networks and to increase our
cloud delivery competence. We automate
Managed Services and we invest in innovation
including IoT, Artificial Intelligence and other
new technologies in Emerging Business.
In Networks we are investing in R&D both
for technology and cost leadership. This
includes preparing for 5G and securing a lead-
ing position in that technology wave, but also
making our 4G offering more competitive both
for us and our customers. Increased R&D
investments in Networks is therefore a key
driver for increased gross margins. Despite a
declining topline during the year we were able
to strengthen our adjusted gross margin1) in
Q4 to 36% (32%) YoY, by increasing share of
Ericsson Radio System (ERS) deliveries and
improvements in service delivery efficiency.
ERS represented 71% of radio unit deliveries
in Q4 2017.
In Managed Services, our first priority is
on restoring profitability. We set out to review
42 challenged contracts and to date we have
either exited, renegotiated or transformed 23
1) Networks Q4 2017 reported gross margin excluding restructuring charges of SEK –1.1 billion and excluding
SEK –0.4 billion related to market and customer project adjustments announced in the Q2 2017 report.
Networks Q4 2016 reported gross margin excluding restructuring charges of SEK –1.1 billion.
Börje Ekholm
President and CEO
“Going into 2018, we
are fully committed to
our plans and targets
and we expect to see
tangible results of our
turnaround during
the year.”
Ericsson | Annual Report 2017 The business – CEO comment
3
of those with a positive impact on operating
profit with SEK 0.5 billion. To capture opportu-
nities from new technologies and business
models we invest in becoming a leader in
data- and analytics-driven operations enabled
by automation, machine learning and artificial
intelligence. By doing so we will be able to
further improve our profitability and increase
the value we provide to our customers.
Our profitability in Digital Services has been
unsatisfactory for quite some time. Digital
Services is strategically important for our
future success and for the success of our cus-
tomers, as they virtualize their networks and
become fully digital enterprises. In 2017 Digi-
tal Services reported significant losses and our
first priority has been to stabilize our product
roadmaps and large transformation projects.
We have made great progress during the year.
We are now focusing on restoring profitability,
by increasing software content but also by
taking costs out in service delivery.
In Emerging Business, we will develop new
partnership based services and innovate new
sources of revenues for our customers. We will
scale new opportunities as we are doing with
our Internet of Things (IOT) platform and
Unified Delivery Network (UDN).
During the year we have also explored
strategic opportunities for our Media business;
Media Solutions and Red Bee Media (former
Broadcast and Media Services). That process
has now been concluded, including evaluation
of various options such as partnerships,
divestments and continued in-house develop-
ment, with the objective to maximize share-
holder value. We have also substantially
improved operational performance in both
units during the year, which has given us more
strategic flexibility. Both units ended the year
with only limited losses.
Given the importance of Media Solutions
for our customers, we have decided to partner
with One Equity Partners and retain a 49%
ownership stake. This allows us to capture the
upside of the business while at the same time
taking active part in the expected consolida-
tion of the industry. We have chosen to keep
Red Bee Media as the bids received did not
reflect the value of the business. We will con-
tinue to develop the business as an indepen-
dent entity within Ericsson, and build on the
improvements in the operations accomplished
during the year.
Financial ambitions
By executing on our focused strategy, we will
improve profitability. Our long-term target is
an operating margin of at least 12%. Looking
more near term, we have robust plans in place
which will take us to a gross margin of
37–39% and an operating margin of at least
10%, excluding restructuring charges, in 2020.
A part of delivering on the short-term target is
to reduce our cost by at least SEK 10 billion in
service delivery and common group functions
by mid-2018. During the second half of 2017,
we reduced our internal and external work-
force by almost 15,000 net and the annual
run-rate effect of cost savings is approxi-
mately SEK 6 billion. The impact on the P&L is
still limited but will be increasingly visible in
the first half of 2018.
Beyond 2020, reaching the long-term
target will be driven by a combination of 5G
ramp up, a software-led Digital Services busi-
ness, new growth opportunities in Managed
Services via analytics and automation, and
scaling of selected Emerging Business ven-
tures.
Ericsson at its best
Our success is driven by our people. We aim to
work in the same way as the technology we
create – think fast, cut through complexity,
and knock down barriers – to best serve our
customers.
We will continue to recruit for the future.
By recruiting in priority areas of the business,
we will both increase the pace of product
development and lead in future technologies.
In 2017 we recruited 3,800 R&D engineers.
Zero-tolerance to corruption
It is important to underline that Ericsson has
a zero-tolerance approach to corruption and
that the company over the years continuously
and systematically has focused on strengthen-
ing its anti-corruption processes. Through
Ericsson’s Code of Business Ethics, we work to
secure that business activities are conducted
with a strong sense of integrity.
Currently Ericsson cooperates, on a volun-
tary basis, with United States Securities and
Exchange Commission and United States
Department of Justice to answer inquiries
related to compliance with the U.S. Foreign
Corrupt Practices Act. These inquiries cover
the last ten years and we will communicate
and disclose information about these inquiries
if materiality arises.
To sum up
2017 was a year of starting over. We have a
new strategy, a simplified company structure
and strong plans in place to improve our per-
formance. 2017 was also the year when 5G
went from vision to reality and the first com-
mercial contracts were signed. This also cre-
ated traction for our 5G-ready 4G portfolio.
The success of the ERS platform shows that
technology leadership and a competitive
portfolio pays off, both in terms of customer
feedback and margin improvements.
Going into 2018, we are fully committed
to our plans and targets and we expect to
see tangible results of our turnaround during
the year.
Börje Ekholm
President and CEO
Ericsson | Annual Report 2017 4
The business – This is Ericsson
Ericsson in brief
We are a technology company with the mission to enable
our customers to capture the full value of connectivity.
Our strategy builds on technology leadership, product-led
solutions and global scale and skill.
At the forefront of technology
R&D
investments
SEK million
37,900
(2016: 31,600)
Number of
R&D engineers
23,600
(2016: 24,000)
The market’s
strongest
portofolio of
patents
45,000
(2016: 42,000)
Business structure 2017
The business areas Networks, Digital Services
and Managed Services are organized to reflect
our ambition to serve customers with offerings
that address their key priorities:
– relentless efficiency
– digital experience
– new revenue streams
Each business area has different strategic
priorities.
In Networks, focus is to expand gross
margin by investing in R&D for technology
and cost leadership.
Our reporting structure
In Digital Services, focus is shifting to
software-led solutions and on adjusting
the cost base.
In Managed Services, contract reviews are
first priority and investments in automation
and artificial intelligence have started.
In addition, we have Emerging Business
where a structured approach to technology
and business innovations will over time drive
new growth. Emerging Business as well as
Media Solutions, Red Bee Media and iconectiv
are all businesses that are externally reported
within segment Other.
In line with the focused business strategy
presented in March 2017, we are divesting or
downsizing assets that are not part of our core
businesses such as for example fiber rollout
and low end field maintenance. During the
year we divested Ericsson Power Modules.
In January 2018 the strategic review of the
Media business was concluded. 51% of Media
Solutions will be divested to an external part-
ner, while we will continue to develop Red Bee
Media as an independent and focused in-
house media service business.
SEGMENT
NETWORKS
SEGMENT
DIGITAL SERVICES
SEGMENT
MANAGED SERVICES
SEGMENT
OTHER
Includes business area
Networks
Includes business area
Digital Services
Includes business area
Managed Services
Net sales
SEK 128.0 billion
Operating income
SEK 7.6 billion
Net sales
SEK 41.0 billion
Operating income
SEK –27.7 billion
Net sales
SEK 24.5 billion
Operating income
SEK –4.3 billion
Includes:
– Emerging Business
– iconectiv
– Media Solutions
– Red Bee Media
Net sales
SEK 7.9 billion
Operating income
SEK –13.8 billion
Ericsson | Annual Report 2017 The business – This is Ericsson
5
Our market areas
Our geographical structure contains five market areas, to enable clear customer interfaces and faster
time to market. In addition there is one market area Other. Our gegraphical market areas are responsible
for selling and delivering the competitive solutions that our business areas develop.
North America
Net sales:
SEK 49.6 billion
Number of
employees:
10,000
Europe and
Latin America
Net sales:
SEK 56.2 billion
Number of
employees:
49,200
Middle East and
Africa
Net sales:
SEK 25.1 billion
Number of
employees:
4,500
South East Asia,
Oceania and India
Net sales:
SEK 30.6 billion
Number of
employees:
24,500
North East Asia
Net sales:
SEK 23.5 billion
Number of
employees:
12,500
Other
Net sales:
SEK 16.4 billion
Mainly revenues
related to IPR and the
media business
A global company
Our people are key to ensuring Ericsson’s future success and our con-
tinued technology leadership. We focus on attracting the best talent,
supporting competence development and enabling a work culture
that supports our people to bring out the best version of Ericsson.
We recruit and retain talent, regardless of age, race, gender, national-
ity or sexual orientation. Our core values – respect, professionalism,
and perseverance – define our company culture, and guide us in our
daily work and in the way we do business.
Customers in more
than 180 countries
Employees of
160 nationalities
Ericsson | Annual Report 2017 6
The business – Strategy and financial targets
Focused business strategy
Our focused business strategy takes its start-
ing point in our customers, the service provid-
ers. It is a large and profitable customer group
that plays a vital role in society by digitalizing
the economy, to date creating more than 8
billion mobile subscriptions. So far, these
subscriptions are mainly connecting consum-
ers to voice and mobile broadband services. A
key challenge for the service providers is that
while traffic in the mobile networks is growing
rapidly, revenues are growing at a much
slower pace than traffic, driving a need to con-
tinuously improve efficiency. Going forward,
service providers will play a central role also in
the digitalization of industries, which will enable
them to create new opportunities and capture
revenue streams in the enterprise space.
To summarize, the service provider market
is large and profitable but challenged with
finding new growth within their existing con-
sumer market. The services they provide are,
however, fundamental to society and to peo-
ple around the world and will become even
more important in the future when the net-
works will connect not only people but also
things, transforming industries and society.
Value creation in three key areas
We have identified three core areas in which
we can support our service provider customers
to leverage the full value of connectivity and
enable their success.
Firstly, they need to continuously drive
efficiency, relentlessly lowering the cost of
delivering traffic in the networks. Also, 5G
will increase spectrum efficiency which will
lower cost.
Secondly, they need to go truly digital to
enable faster service provisioning, faster
network configuration and to make services
easier to use. This will be increasingly impor-
tant in order to attract new customers, but it
will also help them to lower their costs further.
Finally, they need to capture new revenue
streams and new opportunities enabled by
emerging technologies such as 5G and IoT.
In our business study of 5G’s market potential
we have identified the opportunity for service
providers to expand their revenues by
more than 30% by going beyond the mobile
broadband business into enterprise and
industrial applications.
We support our customers’ priorities to drive value creation in three key areas
RELENTLESS EFFICIENCY
DIGITAL EXPERIENCE
NEW REVENUE STREAMS
– Virtualization and automation for
massive scale efficiencies
– Spectrum efficiency
(VoLTE, 4G, 5G)
– Energy efficiency
– New approaches using artificial intelli-
gence, cloud, automation and analytics
create a unique end-user experience
– Significantly reducing lead-time and
increase flexibility in launching services
– 5G enables new use cases
– IoT extends the value of connectivity
– Digitalization of industries
– Distributed network cloud
Ericsson | Annual Report 2017 The business – Strategy and financial targets
7
them to focus on the services they provide to
their customers.
In Emerging Business we explore ways to
leverage connectivity to create new revenue
streams for our customers, such as IoT.
All business areas address the same
customer group, the service providers, and
they all build their offerings and strategies
on the three core strategic pillars described
above. It is a competitive advantage for us to
be able to combine the different offerings from
the business areas into customer solutions
that address each customer’s unique needs,
while keeping the scale advantage within
each business area.
Three core pillars
Based on our customers’ priorities, we have
developed a focused business strategy. It is
built on three core pillars – technology leader-
ship, product-led solutions and global scale
and skill.
Technology leadership
Technology leadership enables us to bring the
most innovative and best solutions to market
and to do it ahead of competition, giving our
customers an advantage. At the same time,
technology leadership is a key driver for cost
leadership as we use the latest technology to
bring the cost down in our products. This ben-
efits both us and our customers.
Product-led solutions
Product-led solutions implies that we put
software and hardware at the core of our
customer solutions. These are complemented
by services offerings such as installation,
roll-out, system integration, support and
consulting. Focus is on pre-integrated solu-
tions that create scale and ease of use for
our customers.
A focused business strategy
Global scale and skill
One important dimension is our strong rela-
tionships with our customers, the world’s
leading service providers. The other dimension
is the importance of the competence and
people we have within Ericsson, close to our
customers all across the world – be it in R&D,
production, service delivery, sales or any of the
supporting functions.
Business structure
Based on our core strategic pillars we have
divided our business into three business areas:
Networks, Digital Services and Managed
Services. In addition, in January 2018 we
added business area Emerging Business.
In Networks we provide the hardware,
software and services that build the actual
networks.
Digital Services is a software-led business
that focuses on operating, controlling and
monetizing the network.
With our Managed Services offering we
can operate our customers’ networks, allowing
Enabling the full value of connectivity for service providers
Networks’ ambitions
Highly scalable, modular
platforms offering lowest
total cost of ownwership,
best user experience in
4G and leadership in 5G
Digital Services’ ambitions
To digitalize service provid-
ers through cloud and auto-
mation, providing cost
efficient cloud native solu-
tions in Core and OSS/BSS
Managed Services’
ambitions
Long lasting cost efficient
performance through smart
automation, analytics and
business practice
Other business
ambitions
To innovate new sources of
revenue for our customers,
e.g. in IoT and new services
based on partnerships
Technology leadership
Product-led solutions
Global scale and skill
Ericsson | Annual Report 2017 8
The business – Strategy and financial targets
Target of more than 12% operating margin on a sustainable basis
The focused business strategy that we pre-
sented in March 2017, states our ambition to
improve returns to shareholders, including the
target to reach more than 12% operating
margin on a sustainable basis excluding
restructuring charges.
The near-term focus is on performance
turnaround and there are robust plans in place
to reach a gross margin of 37–39% and an
operating margin of at least 10% in 2020,
excluding restructuring charges.
Beyond 2020, our ambition is to drive con-
tinued improvements and capture upsides
from innovation and emerging business, to
reach our long term target of at least 12%
operating margin. Key priorities are 5G driven
Networks business ramp up, a software-led
Digital Services business, new growth and
profitability improvements in Managed
Services via analytics and automation and
finally scaling of Emerging business such
as IoT and UDN.
Reaching the 2020 target
The target for company net sales is SEK 190–
200 billion in 2020. Net sales are expected to
decline compared to the SEK 201 billion in
2017, partly due to the current declining Radio
Access Network (RAN) market, but also to a
large extent due to the focused business strat-
egy. However there are growth opportunities
in specific areas; in Networks there are selec-
tive market expansion opportunities enabled
by increased investments in R&D for technol-
ogy and cost leadership, and there are oppor-
tunities to scale in Emerging Business.
Gross margin expansion driven
by cost reduction program
A large share of the gross margin expansion
is expected to be realized over the next 1–2
years, driven by the ongoing cost reduction
program of at least SEK 10 billion that is
expected to be completed by mid 2018.
Robust plan for topline development
SEK billion
Illustrative reconciliation to 2020 target
However, to stay competitive, cost efficiency
will continue to be in focus.
Approximately 70% of this cost reduction
program is related to cost of sales and
addresses areas such as service delivery effi-
ciencies, reductions in supply, IT and real
estate costs. To enable additional gross mar-
gin improvements, sales will be concentrated
to product-led solutions, leading to an
improved sales mix with a higher share of
software sales and a lower share of services
sales. Other strategy related items that are
intended to drive gross margin improvements
include for example increased R&D invest-
ments to strengthen cost leadership.
Increased R&D investments combined with
structural cost reductions in SG&A
The R&D ramp-up is expected to drive profit-
ability, secure technology and cost leadership
and to protect the long-term business. Tech-
nology leadership will also allow us to capture
market share and to increase scale advantage.
The company target to reduce SG&A will be
achieved by a simplified organization and
improved G&A efficiencies and right-sizing
efforts. The profitability target for 2020
requires that all business segments improve
their operating margins compared to current
levels.
Working capital efficiency and
free cash flow in focus
Our ambition is to retain a strong balance
sheet and positive free cash flow. We aim to
secure financial resilience, improve perfor-
mance visibility, increase accountability and
drive focus on profit and cash. The target is to
improve collection and credit management,
as well as sourcing and supply chain manage-
201.3
RAN market1)
2017 –8%
2018 –2%
2019 –1%
2020 0%
Growing
markets but
headwind from
shift to software-
led business
200
190
2017
FX
Review of
Managed
Services, NRO
and I&S2)
1) Radio Access Network market.
2) Industry & Society customers (not traditional service providers).
RAN market
development
Digital Services
transformation
Portfolio
review
2020
Ericsson | Annual Report 2017 The business – Strategy and financial targets
9
ment, with a long term ambition to reach
below 100 working capital days compared to
105 days December 31, 2017. Sharp discipline
in both CAPEX and M&A activities as well as
cost reductions are other major elements to
drive positive free cash flow. The target is to
generate positive free cash flow each year
up until 2020, and beyond 2020 to generate
strong positive free cash flow.
To support this we apply financial discipline
with priority on profitability and return on
capital over growth. As one of several mea-
sures to drive this change, we are introducing a
value-based steering model in the 2018 short-
term variable compensation program, which
also takes cost of capital into account.
Key activities in 2017
During the year there was strong progress in
strategy execution. A simplified company
structure and organization, with clear
accountability and strong governance, was
put in place. There is good progress in the
contract reviews in Managed Services and
during the year 23 contracts were either
exited, renegotiated or transformed. The
portfolio review is well underway and during
the year we divested our power module busi-
ness while we explored strategic opportunities
for the Media business. In January 2018 we
concluded the strategic review of the Media
business.
Cost reduction progress
We have a target of reducing cost with at least
SEK 10 billion by mid 2018 compared to the
baseline, second quarter 2017 runrate. As per
December 31, 2017, we have executed an
annual net saving runrate of SEK 6 billion.
50% of the SEK 10 billion cost reductions
relate to service delivery costs. The headcount
reduction in service delivery, amounted to
7,700 in 2017.
IT, indirect spend and supply represents
some 30% of the 10 billion cost reduction
target. The emphasis is on reduction of IT
spend, indirect spend as well as real estate site
footprint and facility management. In 2017,
Ericsson identified a number of sites to be
closed down.
The balance, or 20% of the SEK 10 billion
cost program, relates to support functions.
In this area, we have reduced the total G&A
head count with 1,100 by year end 2017.
For more details on progress, see Board of
Directors’ report.
We have deliberately taken selling and
R&D expenses out of the cost reduction scope
to protect the business and to invest in tech-
nology leadership. There is also a clear separa-
tion between taking out structural costs
through the cost reduction program, and
rightsizing the organization for lower business
volumes.
Restructuring charges for 2017 were SEK
8.5 billion, and in 2018 we expect restructur-
ing charges of SEK 5–7 billion.
Implementing the targets
In the process to improve financial perfor-
mance, all business areas are critical for suc-
cess and all have clear focus areas. In Net-
works, focus is to expand gross margin by
investing in R&D for technology and cost
leadership. In Digital Services, focus is shifting
to software-led solutions and on adjusting the
cost base. In Managed Services, contract
reviews are ongoing and investments in auto-
mation and artificial intelligence have started.
Finally, a structured approach to technology
and business innovations are expected to over
time drive new growth in Emerging Business.
Adjusted gross margin1)
Illustrative reconciliation to 2020 target
Adjusted operating margin1)
Illustrative reconciliation to 2020 target
5%
2–4%
37–39%
>10%
30%
SEK
7 b.
2017
MS&NRO2)
scope
review and
contract
exits
Right-
sizing
SEK
10 billion
cost program
Capita-
lization
impact
2020
Networks
strategy
driven
improve-
ments
Digital
Services
software
sales
1%
2017
Gross
margin
SG&A
R&D
investments
2020
1) Reported gross income excluding restructuring charges (SEK –5.2 billion), write-down of assets
1) Reported operating income excluding restructuring charges (SEK –8.5 billion), write-down of assets
(SEK –0.7 billion), total provisions and adjustments related to certain customer projects announced
March 28 2017 (SEK –6.7 billion) and total provisions and adjustments related to certain market
and customer projects announced in Q2 2017 (SEK –3.7 billion).
2) Managed Services and Network Rollout.
(SEK –17.8 billion), total gains/losses on sales of certain investments and operations (SEK 0.3
billion), total provisions and adjustments related to certain customer projects announced March 28
2017 (SEK –8.4 billion) and total provisions and adjustments related to certain market and
customer projects announced in Q2 2017 (SEK –5.5 billion).
Ericsson | Annual Report 2017 10
The business – Strategy and financial targets
A main driver in 5G development
Ericsson helps the advancement of game-changing technologies like remote surgery.
Introduction
Previous generations of mobile networks
addressed consumers predominantly for voice
and SMS in 2G, web browsing in 3G, and
higher-speed data and video streaming in 4G.
The transition from 4G to 5G will serve both
consumers and multiple industries. With
global mobile data traffic expected to grow
eight times by the end of 2023, there is a need
for a more efficient technology, higher data
rates and improved spectrum utilization. New
applications such as 4K/8K video streaming,
virtual and augmented reality and industrial
use cases will also require higher bandwidth,
greater capacity, security, and lower latency.
Equipped with these capabilities, 5G will bring
new opportunities for people, society, and
businesses.
5G will create value in three main areas
Three areas of usage and applications drive
5G development:
1. Enhanced mobile broadband
Mobile broadband is the first case for 5G,
addressing traffic growth demands and higher
consumer experience needs. It also enables
access to multimedia content such as 4K
streaming on a mobile device or on-site live
experiences. Fixed Wireless Access, as another
use case example, can provide connectivity for
households and Small Medium Enterprises
(SMEs) using wireless technologies.
2. Massive machine-type communications
Realizing internet of things, enabling connec-
tivity for millions of devices which typically
transmit a low volume of non-delay-sensitive
data (low bandwidth and not latency critical).
Examples of use cases for massive machine-
type communications are tracking of goods,
fleet management and smart metering.
3. Critical machine-type communication
Ultra-reliable, resilient and instantaneous
connectivity with stringent requirements on
availability, latency and throughput. Examples
of use cases are wireless control of industrial
manufacturing and production processes,
remote medical surgery and transportation
safety.
What will 5G mean for Ericsson’s
customers?
The introduction of 5G will enable new ser-
vices, new ecosystems and new revenue
streams. By addressing industry digitalization
with 5G, we estimate that service providers
can benefit from a market opportunity of
approximately USD 600 billion globally in
2026. We anticipate that service providers will
find the greatest opportunities in the manu-
facturing and energy/utilities sectors. Captur-
ing this market potential requires investment
in technology, as well as business develop-
ment, go-to-market models, and organiza-
tional adaptation.
The availability of 5G
Ericsson has, together with our partners, been
working on 5G technology for several years in
the labs, and in 2017 we continued to take
these technologies into advanced outdoor
field trials. The 5G standardization has been
accelerated and is planned to be finalized by
mid-2018. The first commercial 5G networks
and devices based on the 3GPP standards are
expected in 2019, with major network deploy-
ments from 2020. Ericsson estimates the
number of 5G subscriptions to reach one
billion by the end of 2023.
Technology at the heart of 5G
Whereas 2G, 3G and 4G were primarily radio
focused, 5G will represent an entire system
with radio, a telecom core, and operations
support systems (OSS) – all transformed to
support new requirements. This process will
involve new radio technologies, a virtualized
cloud-based core, and end-to-end manage-
ment and orchestration to facilitate automa-
tion and new concepts like network slicing.
While the system in itself will not be standard-
ized, many technology areas and interfaces
will be standardized in different environments.
Ericsson’s 5G position
Ericsson is well positioned for 5G. By the end
of 2017 we had 38 MoUs for 5G trials and
collaborations. These early trials are key to
developing leading technologies for the 5G
standard as well as competitive product port-
folios. In addition, we have announced three
5G deals, one in North America (Verizon) and
two in Europe (Vodafone in the UK and Swiss-
com in Switzerland).
The ecosystem is essential to 5G. To better
understand new use cases and support our
customers, we are collaborating with 45 uni-
versities and institutes as well as 22 industry
partners.
Ericsson is a main driver of industry stan-
dardization for 5G. As early as 2011, we
started to lead the industry discussions around
5G, scoping out 5G services and requirements,
and doing R&D in the area of the 5G technical
concept. Our number of contributions to the
standardization body 3GPP in 2016 was
higher than any other company. Ericsson’s 5G
technical contributions have been recognized
with numerous 5G awards.
Already today we have an advanced 5G
portfolio, enabling today’s networks to evolve
smoothly to the next generation of networks.
Ericsson | Annual Report 2017 The business – Strategy and financial targets
11
Financial ambition
Long term target beyond 2020 – invest and grow1)
The foundation – a focused business strategy
Operating margin >12 %
Technology leadership
Product-led solutions
Global scale and skill
Group financial targets 20201)
Sales
Gross margin
R&D
SG&A
190 – 200
SEK billion
37 – 39%
2020 target breakdown by segment1)
Networks
Operating
margin
>10%
Free
cash flow
Positive
Digital Services
Net sales
Operating margin
Net sales
Operating margin
SEK 128 – 134 billion
15 – 17%
SEK 42 – 44 billion
Low single digit
Managed Services
Other
Net sales
Operating margin
Net sales
Operating margin
SEK 20 – 22 billion
4 – 6%
SEK 3 – 5 billion
Break-even
1) Excluding restructuring charges.
Ericsson | Annual Report 2017
12
The business – Segments
Networks
Offering – main components
Networks’ solutions support all radio access
technologies and we offer hardware, software
and related services both for radio access and
transport with a focus on service providers
This encompasses all cellular generations
offering best performance, low total cost of
ownership, smooth evolution and a broad
range of network capabilities (from Gigabit
LTE to Massive IoT).
The product-related services comprise of
design, tuning, network rollout and customer
support.
Market
Mobile connectivity, mobility and omnipresent
connectivity are increasingly important for
society, consumers and industries and mobile
data traffic has grown exponentially.
However, the Networks business has been
challenged in the recent years with a declining
overall RAN market and market share. We
expect the overall RAN market to continue to
decline by –2% in 2018, –1% in 2019 and to
increase slightly by 1 % in 2020. Today,
Ericsson is one of the largest global suppliers
of mobile telecom equipment.
Business model
The contracts are primarily based on a trans-
actional approach, where Ericsson is develop-
ing, selling, licensing and delivering hardware,
software and services that are purchased by
customers for its specific functionality or capa-
bility. One example could be to build and install
a 4G network for a service provider in a specific
country or region. The Networks business also
includes recurring revenue streams such as
customer support and software revenues.
Strategic priorities
The target for Networks in 2020 is to reach an
operating margin of 15–17% (excluding
restructuring charges) and net sales of SEK
128–134 billion. The expected market devel-
opment for 2018 and 2019 as well as the
contraction of the network rollout business, as
we focus on our own products, will have a
negative impact on sales.
Selective market expansion and sales
growth supported by technology leadership
are major long-term growth drivers. To drive
gross margin improvements, we are investing
in R&D for technology and cost leadership.
The cost leadership will support selected
market share expansion in 4G, building a foun-
dation for 5G expansion. The Ericsson Radio
System (ERS), the radio platform launched in
2016, brings added capabilities and competi-
tiveness as well as cost reductions including
service delivery efficiency.
In 2017 61% of total radio deliveries were
based on the ERS platform. The target is to
reach 100% ERS deliveries before the end of
2018.
The business focus is to develop solutions
based on modular and flexible platforms to
offer our customers the lowest sustainable
total cost of ownership, best network perfor-
mance and a smooth evolution to 5G.
We also focus on reducing cost of sales in
the service delivery and in the supply chain.
Customers
Service providers
Competitors
Huawei, Nokia, Samsung
and ZTE
Ericsson’s market
position1)
Top two in Radio Access
Network equipment
Market outlook Radio
Access Network equip-
ment 2018–20202)
–2% (2018), –1% (2019)
and 1% (2020)
Net sales
SEK 128.0 billion (–9%)
Reported operating
income SEK 7.6 billion
Adjusted operating
income3) SEK 17.2 billion
1) Q3 2017, source: Dell’Oro.
2) 2017, source: Dell’Oro.
3) Reported operating income excluding SEK –9.5 billion related to; restructuring charges, write-down of assets, gains on sales of certain investments and operations, provisions and adjustments related to certain
customer projects announced March 28 2017, and provisions and adjustments related to certain market and customer projects announced in Q2 2017.
Ericsson | Annual Report 2017 The business – Segments
13
Digital Services
Offering – main components
Ericsson provides solutions that realize our
customers’ digital transformations. These
solutions consist primarily of software and
services in the areas of monetization and
management systems (OSS/BSS), telecom
core (packet core and communication ser-
vices), cloud & NFV (Network Functions Virtu-
alization) infrastructure, and application
development and modernization.
Business model
Ericsson develops, sells, licenses and delivers
software and services for specific functions or
capabilities in our customers’ operations. The
new strategic direction of Digital Services is to
shift from a service-led to a software-led sales
approach, supported by industrialized services
capabilities. This is expected to change the
sales mix towards a much higher portion of
software content.
In addition, the segment will move to a
higher share of recurring revenues. Going
forward Ericsson believes that subscription
based aaS (as a Service) delivered functions
and capabilities will be the dominant model,
especially for tier 2 and tier 3 service providers.
Market
The ongoing digitalization drives new oppor-
tunities for service providers. It gives possibili-
ties to program 4G and 5G core networks for
specific consumer and industry needs, to
automate operations to become radically
more efficient and to serve and engage with
customers digitally. Consequently, service
providers increasingly invest in the areas
where Digital Services provide solutions.
We estimate the addressable market to
grow between 1% and 4% CAGR 2017 to
2020 depending on network domain, software
and hardware combined. The market for leg-
acy products is declining while the market for
virtualized and cloud based solutions is grow-
ing. There is also an ongoing shift from larger
systems integration contracts, into a market
where service providers instead are purchas-
ing pre-integrated software suites.
Strategic priorities
Segment Digital Services reported significant
negative results in 2017 mainly due to reduced
legacy product sales, losses in large service-
led transformation contracts, and asset write-
downs. The latter partly as a consequence of
the focused business strategy.
Top priority is to reduce the losses and
turning the segment around to profitable
business. This turnaround is executed in three
steps: Stability – Profitability – Growth
The first step has been to get stability in the
business, stability in product roadmaps and
stability in key customer contracts. With
increased stability in 2017, focus has
expanded to improve profitability while the
third step will be on sales growth.
The financial target for 2020 is to achieve
a low single digit positive operating margin.
Key for this is the execution of the previously
mentioned strategy; to increase software sales
and shift the portfolio from legacy products to
new cloud-native products. Net sales in 2020
is estimated to be relatively stable compared
to 2017, but gross margin is expected to ben-
efit from a sales mix change where increased
software sale offset the reduced services sales.
In addition, focus is on improved operational
efficiency through an industrialized and auto-
mated service delivery, and through strict
governance and management of critical multi-
year customer projects.
The long-term ambition for Digital Services
is to become the telecom industry’s leading
soft ware provider by addressing the service
providers’ needs for programmable networks,
automated operations and digital engage-
ments.
Customers
Service providers
Competitors
Telecom and IT players, for
example Amdocs, Cisco,
Huawei, Netcracker, Nokia
Ericsson’s market
position1)
Varies depending on area.
No 1 in PacketCore, no 1 in
IMS core (VoLTE), no 1 in
mediation in a fragmented
OSS/BSS market (2016)
Market outlook
(Ericsson estimate)
1–4% CAGR 2017–2020
for software and hardware
combined, depending on
network domain
Net sales
SEK 41.0 billion (–10%)
Reported operating
income SEK –27.7 billion
Adjusted operating
income2) SEK –9.6 billion
1) PacketCore and IMS core (VoLTE) – Q3 2017.
2) Reported operating income excluding SEK –18.1 billion related to; restructuring charges, write-down of assets, gains on sales of certain investments and operations, provisions and adjustments related to certain
customer projects announced March 28 2017, and provisions and adjustments related to certain market and customer projects announced in Q2 2017.
Ericsson | Annual Report 2017 14
The business – Segments
Managed Services
Offering – main components
Ericsson provides managed services and
network optimization to service providers.
Through these offerings, customers entrust us
to run the operations of their network/IT
systems and optimize network performance.
Our main differentiators are our deep under-
standing of service provider processes and our
tools for advanced automation.
Business model
In Managed Services, Ericsson assumes
responsibility for areas within a customer’s
network/IT operations for an agreed period,
typically 3–7 years.
The managed services business model
includes three phases – transition, transfor-
mation and optimization.
The transition phase is associated with
lower profitability as it involves up-front costs
when staff and expertise are transferred from
the customer to Ericsson.
During the transformation phase, we intro-
duce our global processes, methods and tools
and implement a global delivery model.
In the final phase, optimization, we focus
on optimization and industrialization by sim-
plifying, implementing and consolidating
resources, processes, methods and tools to
allow for improved profitability.
Managed services contracts are frequently
renewed. Furthermore, the nature of the man-
ages services business gives a higher than
Group average working capital turnover ratio,
which gives Managed Services a higher return
on investment than the other segments. We
can also optimize customers’ networks for a
shorter project duration, delivering increased
network performance or increased perfor-
mance of specific applications according to
scope agreed with the customer.
Market
The main drivers for the managed services and
network design and optimization business are
the increasingly complex network and IT
systems that service providers face; high
demand for better customer experience, along
with increased pressure to reduce costs. We
expect the market to have a growth of 2–4%
CAGR 2017–2020.
Strategic priorities
The target is to achieve a 4–6% operating
margin and sales of SEK 20–22 billion in
2020. Contract profitability and managing risk
is prioritized over growth. One important
initiative undertaken to improve profitability is
the contract review process. This involves 42
contracts (out of more than 300), which are
unprofitable. These contracts will be either
exited, renegotiated or transformed. In 2017,
23 contracts out of the 42 were completed,
resulting in an annualized profit improvement
of SEK 0.5 billion. Sales in 2020 are expected
to decline compared to 2017 as a result of the
contract review process. We expect the con-
tract review process to be completed by 2019.
The main business focus will be to deliver
high levels of operational performance com-
bined with further cost efficiency through
advanced automation and analytics, and to
pursue new contracts with a broad service
delivery scope.
Customers
Service providers
Competitors
Huawei, Nokia, ZTE
Ericsson’s market
position
Top two
Market outlook
(Ericsson estimate)
2–4% CAGR 2017–2020
Net sales
SEK 24.5 billion (–11%)
Reported operating
income –4.3 billion
Adjusted operating
income1) SEK –1.0 billion
1) Reported operating income excluding SEK –3.2 billion related to; restructuring charges, write-down of assets, gains on sales of certain investments and operations, provisions and adjustments related to certain
customer projects announced March 28 2017, and provisions and adjustments related to certain market and customer projects announced in Q2 2017.
Ericsson | Annual Report 2017 The business – Segments
15
Other
Business models and offering
Segment Other consists of four businesses;
Emerging Business, iconectiv, Media solutions
and Red Bee Media (former Broadcast services).
In Emerging Business focus is to develop
new partnership based services and to inno-
vate new sources of revenues for the service
providers and for the Group. Examples of
innovation efforts, in which we are investing,
are Internet of Things platforms (IoT) and
Unified Delivery Network(UDN). Ericsson’s
UDN is a global Content Delivery Network
(G-CDN) that connects content providers all
over the world with the service providers. First
commercial deployments started in 2017, and
customer contracts included NTT DOCOMO
where UDN will enable NTT DOCOMO sub-
scribers to access and enjoy a diverse range of
high-quality content over the mobile network.
iconectiv provides interconnection solu-
tions that include network and operations
management, numbering, registry, security
and identity, and messaging solutions. The
iconectiv business offers services that enable
service providers and enterprises to discover,
route and interact with their customers in a
secure manner.
Media solutions include platforms for com-
pression, software and hardware-based video
processing and storage, content publishing via
set-top box or pure OTT (Over the Top), con-
tent delivery and analytics.
Red Bee Media consists of technology-
enabled services, where Ericsson handles the
technical platform, operational and systems
integration related services. The service is
provided for broadcasters and content owners
and the contracts are multi-year.
Strategic priorities
Total operating expenses invested in Emerg-
ing Business and iconectiv in 2017 was SEK
2.8 billion, almost a doubling compared to
2016. We see good traction with our UDN
solutions with a strong pipeline of new cus-
tomers and for IoT we continue to see strong
customer interest in our Device Connection
Platform, especially in automotive.
The targets for 2020 in segment Other
include scaling the Emerging Business and
iconectiv to SEK 3–5 billion in net sales and to
achieve a break-even operating income. The
key strategy is to run the businesses like in-
house startups, business incubators, with clear
financial targets and with regular review of
business performance compared to target
milestones.
The targets for 2020 exclude Media Solu-
tions and Red Bee Media. In March 2017,
Ericsson announced its focused business strat-
egy. Consequently, the company decided to
explore strategic opportunities for Media
Solutions and Red Bee Media.
In January 2018 the strategic review of the
Media business was concluded. 51% of Media
Solutions will be divested to an external part-
ner, while we will continue to develop Red Bee
Media as an independent and focused in-
house media service business.
Customers
Broadcasters, Cable TV
operators, service
providers
Competitors
Different competitors
depending on area.
Akamai, Cisco, Huawei,
Nokia, Samsung
Ericsson’s market
position
Varies depending on area
Market outlook
(Ericsson estimate)
Varies depending on area
Net sales
SEK 7.9 billion (–11%)
Reported operating
income –13.8 billion
Adjusted operating
income1) SEK –4.8 billion
1) Reported operating income excluding SEK –9.0 billion related to; restructuring charges, write-down of assets, gains on sales of certain investments and operations, provisions and adjustments related to certain
customer projects announced March 28 2017, and provisions and adjustments related to certain market and customer projects announced in Q2 2017.
Ericsson | Annual Report 2017 16
The business – Business model
Business model
We create value to our stakeholders by providing industry-leading, high
performing, sustainable and cost effective solutions to our customers.
We have always driven our technology development with the intention
to improve people’s lives and contribute to the betterment of society, while
at the same time providing shareholder value. We take active measures to
ensure that we are a responsible and relevant driver of positive change.
Our business and operations
External factors
– Technological development
– Market innovations
– End-user trends and behaviour
– Sustainable development
– Geopolitical conditions and
macro environment
– Standardization
– Cooperations and partnerships
– Regulations
Company purpose
Innovating
Tech nology for
Good
Mission
Enabling the
full value of
connectivity for
service providers
Strategy
– Technology
leadership
– Product-led
solutions
– Global scale
and skill
Wanted position
sustainability
and corporate
responsibility
To be a responsible
and relevant driver of
positive change in
society
Business area responsibility
Develop competitive global business solutions.
d
n
a
s
d
e
e
n
t
e
k
r
a
M
s
d
n
a
m
e
d
r
e
m
o
t
s
u
c
Networks
Digital Services
Managed Services
l
p
o
e
v
e
D
Develop
Group function responsibility Provide an effective support platform,
drive synergies, align ways of working and driving the corporate agenda.
Our key assets, a foundation for stakeholder value creation
Number
of patents
45,000
Employees
worldwide
100,700
R&D
employees
23,600
Services
professionals
55,000
Ericsson | Annual Report 2017
The business – Business model
17
Our business and operations
Core values
– Respect
– Professionalism
– Perseverance
Group long-term
(beyond 2020)
financial targets
– Operating
margin >12%
– Strong free
cash flow
Market area responsibility
Sell and deliver customer solutions.
Networks
Digital Services
Managed Services
Develop
Sell
Deliver
Group function responsibility Provide an effective support platform,
drive synergies, align ways of working and driving the corporate agenda.
Our key assets, a foundation for stakeholder value creation
Customers
in 180 countries
Established
relationship
with world leading
service providers
Key stakeholders and our focus
Shareholder value, 2017
Customers
Enabling the full value of
connectivity
Employees
Attract, develop and retain the
best talent
Society
Responsible and relevant
driver of positive change
Shareholders
Create shareholder value
– Net sales SEK 201.3 billion
– Operating margin (%) negative
– Free cash flow SEK 5.1 billion
Dividend
SEK 3.3 billion
Total
shareholder
return 3%
Ericsson | Annual Report 2017 18
Financials – Letter from the Chairman
Letter from the Chairman
Dear shareholders
The year of 2017 was a year of change and
execution, reflected in a determination to
address financial performance and value
creation. It started out with Börje Ekholm
assuming the position as CEO. The Board is
convinced that he will succeed in leading the
Company to improved performance and prof-
itability. He is also passionate about innova-
tion and we believe that he will constantly
drive Ericsson to remain at the forefront of
technology.
Already in the first quarter of 2017, the
Company presented a new focused business
strategy and a new executive team. The
Board, and the major shareholders, fully sup-
port the strategy, which creates a solid foun-
dation for Ericsson to serve its customers, the
service providers, in the best way, by support-
ing them in their value creation. We, as a
Board, are fully committed and supportive to
the Company’s long-term target of at least
12% operating margin.
The strategy implies simplifying the organi-
zation and restoring profitability, while at the
same time investing in the business for tech-
nology and cost leadership. The Board
believes that in addition to simplicity, stability
and accountability, general good talent man-
agement, succession plans and performance
based remuneration, are important contribu-
tors to improved performance. At the AGM
2017, the Board presented a new compensa-
tion package for senior management to reflect
a closer link between company performance
and shareholder value.
The three core values of respect, profes-
sionalism and perseverance remain a solid
platform in times of change, reflecting a trans-
parent and empowering culture. The Board
invests considerable time on corporate gover-
nance, and how to conduct business responsi-
bly. Ericsson faces the same challenges as
other global companies in ensuring that it
conducts its business in an ethical and com-
pliant way. Since 2013 the Company has been
voluntarily cooperating with inquiries from
the United States Securities and Exchange
Commission and the United States Depart-
ment of Justice regarding its compliance
with the U.S. Foreign Corrupt Practices Act in
multiple regions.
Ericsson has a zero-tolerance approach
to corruption and during 2017 an external
counsel, appointed by the Board, assessed the
Group’s anti-corruption program, with sugges-
tions on how to improve the program further.
In 2017 the Company also established
Regional Compliance Offices and Business
Partner Review Boards in every market area
and introduced an Ethics and Compliance
vetting process that reviews ethics and com-
pliance-related behavior of senior leaders.
In order to retain the trust of its stakeholders,
the Company and all its employees need to
meet demanding financial, social and environ-
mental standards.
For stakeholders in the capital market,
including our shareholders, the capital struc-
ture is of high relevance. The Board continu-
ously analyses and monitors the capital struc-
ture and carefully evaluates business plans
and investments in R&D and other assets. We
increased our focus on free cash flow during
the year and the full-year number of SEK 5.1
billion mark a clear improvement over 2016.
For the first time in five years, the full-year free
cash flow exceeded the dividend payout. For
the AGM, the Board proposal is a dividend of
SEK 1.00 (1.00) for 2017. The Board expresses
confidence in the ongoing profitability
improvement actions, and has the ambition
to increase the dividend over time as the
financial performance improves.
The Company has a new ownership con-
stellation, with Cevian Capital as one of its
largest shareholders beside Investor and
Industrivärden. After 2017 it is now natural
for me to stand down, and to let the owners
propose a new Chairman at the Annual
General Meeting of shareholders 2018.
So after seven years, it is now time for me
to hand over to my proposed successor Ronnie
Leten, and I wish him and Ericsson all the best.
Leif Johansson
Chairman of the Board
Ericsson | Annual Report 2017 Board of Directors’ report
Financials – Board of Directors’ report
19
Contents
19 Business in 2017
20 Financial highlights
23 Business results – Segments
25 Business results – Market areas
26 Corporate Governance
27 Material contracts
27 Risk management
28 Sourcing and supply
28 Sustainability and
Corporate Responsibility
28 Legal proceedings
29 Parent Company
29 Post-closing events
31 Board assurance
Net sales
SEK billion
250
200
150
100
50
0
246.9
227.4
228.0
222.6
201.3
2013
2014
2015
2016
2017
Net sales
Operating income (loss) and
operating margin
SEK billion
30
20
10
0
–10
–20
–30
–40
17.8
7.8
16.8
7.4
21.8
8.8
6.3
2.8
–38.1
2013
2014
2015
2016
2017
–18.9
%
15
10
5
0
–5
–10
–15
–20
Operating income
Operating margin
Reporting structure in 2017
The 2017 reporting structure is applied in this Board of Directors’ report with the following
segments; Networks, Digital Services, Managed Services and Other.
Full-year highlights
– Reported sales decreased by –10% to SEK 201.3 (222.6) billion with a decline in all segments.
Sales adjusted for comparable units and currency declined also by –10%. IPR licensing reve-
nues amounted to SEK 7.9 (10.0) billion.
– Operating income declined to SEK –38.1 (6.3) billion, mainly due to write-down of assets
as well as provisions and customer project adjustments.
– Cash flow from operating activities was SEK 9.6 (14.0) billion. Free cash flow amounted
to SEK 5.1 (0.3) billion. Net cash at year-end was SEK 34.7 (31.2) billion.
– The Board of Directors proposes a dividend for 2017 of SEK 1.00 (1.00) per share to the AGM.
Business in 2017
In 2017, net sales decreased by –10% with
a decline in all segments as described in more
detail below. The sales decrease in Networks
was mainly due to lower demand for radio
access network equipment. The sales
decrease in Digital services and Other was
mainly due to lower sales of legacy products.
The sales decline in Manages Services was
mainly due to a renewed contract in North
America in 2016 that was reduced in scope.
IPR licensing revenues were SEK 7.9
(10.0) billion.
In 2017 a focused business strategy was
set and a new organizational structure was
implemented. In addition, the company initi-
ated a cost saving program with the target to
reduce annual cost by SEK 10 billion by mid
2018. Together, this resulted in a write-down
of assets of SEK –17.8 billion and restructur-
ing charges of SEK –8.5 (–7.6) billion. When
the focused business strategy was announced
in March 2017, the company also identified
risks related to certain market and customer
projects. These provisions and adjustments
amounted to SEK –8.4 billion in Q1 2017. In the
Q2 2017 report, the company identified a risk
of further market and customer project adjust-
ments of SEK 3 – 5 billion The review of such
risks was completed in the second half of the
year and resulted in total provisions and cus-
tomer project adjustments of SEK –5.5 billion
Due to technology and portfolio shifts, the
company has reduced the capitalization of
development expenses for product platforms
and software releases and the deferral of
hardware costs. As a consequence, higher
Market area sales – full-year 2017 compared with 2016
SEK
223
billion
–10%
–19%
–14%
–11%
–5%
–6%
SEK
201
billion
F Y 1 6
E uro p e a n d
m eric a
L atin A
O th er
N orth E a st A sia
M id dle E a st a n d Afric a
N orth A
m eria
S o uth E a st A sia,
O ce a nia a n d In dia
F Y 1 7
Ericsson | Annual Report 2017
20
Financials – Board of Directors’ report
IPR revenues (net)
SEK billion
15
12
9
6
3
0
14.4
10.6
9.9
10.0
7.9
2013
2014
2015
2016
2017
Software, hardware and
services: share of total sales
%
100
80
60
40
20
0
24
24
23
22
21
34
34
34
33
34
42
42
43
45
45
2013
2014
2015
2016
2017
Software
Hardware
Services
amortization than capitalization of develop-
ment expenses and higher recognition than
deferral of hardware costs had a negative
impact on operating income of SEK –2.9
(3.8) billion.
Operating income was SEK –38.1
(6.3) billion.
Ericsson delivered a full-year cash flow
from operating activities of SEK 9.6 (14.0)
billion. Free cash flow amounted to SEK 5.1
(0.3) billion. Net cash at year end was
SEK 34.7 (31.2) billion.
Financial highlights
Net sales
Reported sales decreased by SEK –21.3 billion
or –10%, with a SEK –13.0 billion or –9%
decrease in Networks, SEK –4.3 billion or
–10% decrease in Digital Services, SEK –3.0
billion or –11% in Managed Services and SEK
–1.0 billion or –11% in segment Other. The
sales decrease in Networks was mainly due to
lower demand for radio access network (RAN)
equipment, which was estimated by an exter-
nal source to decline by –8% for full-year
2017. The sales decrease in segments Digital
Services and Other was mainly due to lower
sales of legacy products. The sales decline in
Managed Services was mainly due to a
renewed contract in North America in 2016
that was reduced in scope.
IPR licensing revenues amounted to SEK
7.9 (10.0) billion. The revenues in 2016 were
positively impacted by two signed contracts
which included certain one-time items. The
baseline for the current IPR licensing contract
portfolio is approximately SEK 7 billion on an
annual basis.
Sales adjusted for comparable units and
currency decreased by –10%.
The sales mix by commodity was: software
21% (22%), hardware 34% (33%) and ser-
vices 45% (45%).
Gross margin
Gross margin declined to 22.1% (29.8%) due
to provisions and customer projects adjust-
ments of SEK –10.4 billion, write-down of
assets of SEK –0.7 billion and lower IPR
licensing revenues at SEK 7.9 (10.0) billion.
In addition, restructuring charges included
in the gross margin increased to SEK –5.2
(–3.5) billion.
Due to technology and portfolio shifts, the
company has reduced the capitalization of
development expenses for software releases
and the deferral of hardware costs. As a con-
sequence, higher amortization than capital-
ization of development expenses and higher
recognition than deferral of hardware costs
had a negative impact on gross income of
SEK –2.6 (–0.5) billion.
Operating expenses
Operating expenses increased to SEK –70.6
(–60.5) billion, mainly as a result of provisions
and customer project adjustments of SEK –3.5
billion and write-down of assets of SEK –4.1
billion. In addition, operating expenses
increased due to higher amortized than capi-
talized development expenses with a negative
effect on operating expenses of SEK –0.3 (4.3)
billion. Operating expenses included restruc-
turing charges of SEK –3.3 (–4.1) billion of
which the sale of the global ICT center in
Montreal generated a restructuring charge of
SEK –1.3 billion. Operating expenses, exclud-
ing write-down of assets, provisions and cus-
tomer project adjustments as well as restruc-
turing charges were SEK –59.7 (–56.4) billion.
Other operating income and expenses
Other operating income was SEK 1.2 (2.0)
billion. In 2017, the power modules business
was divested, which resulted in a gain of SEK
0.3 billion. Other operating expenses declined
to SEK –13.3 (–1.6) billion negatively
impacted by write-down of goodwill of
SEK –13.0 billion.
As of 2017, the funding of foreign
exchange forecast hedging is managed
through foreign exchange loans (USD) instead
of foreign exchange derivates. Therefore,
revaluation and realization effects are
included in financial expenses instead of other
operating income and expenses. In 2016, the
currency hedge contract effects impacted
other operating income and expenses by
SEK –0.9 billion.
Restructuring charges and cost savings
Restructuring charges amounted to SEK –8.5
(–7.6) billion. This was lower than the earlier
estimate of SEK 9–10 billion. The restructur-
ing charges mainly relate to cost savings. The
target is to implement such savings with an
annual run rate effect of at least SEK 10 billion
by mid-2018. Approximately 30% of the cost
savings are targeted at administrative
expenses and 70% at cost of sales.
Total restructuring charges for 2018 are
estimated to be SEK 5–7 billion.
Consequences of technology
and portfolio shifts
Due to technology and portfolio shifts the
company is reducing the capitalization of
development expenses for product platforms
and software releases and the deferral of
hardware costs. As a consequence, higher
amortization than capitalization of develop-
ment expenses and higher recognition than
deferral of hardware costs had a negative
impact on operating income.
Ericsson | Annual Report 2017 Working capital
Days
120
100
80
60
40
105
87
64
64
56
53
97
62
53
101
64
60
95
69
56
2013
2014
2015
2016
2017
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
47.6
48.0
40
30
20
10
0
41.2
34.7
31.2
2013
2014
2015
2016
2017
Debt maturity, Parent Company
SEK billion
10
8
6
4
2
0
8.13
1.39
5.61
0.8
4.88
4.86
1.8
1.23
0
0
2018
2019
2020
2021
2022
2023
2024
2025
Notes & bonds
Nordic Investment Bank
European Investment bank
Swedish Export Credit Corporation MTN Bond
Impact from amortization and capitalization of
development expenses and from recognition and
deferral of hardware costs
SEK billion
Cost of sales
R&D expenses
Total impact on operating
income
2017
–2.6
–0.3
–2.9
2016
–0.5
4.3
3.8
Operating income (loss)
Operating income (loss) decreased to SEK
–38.1 (6.3) billion, mainly due to write-down
of assets of SEK –17.8 billion, provisions and
customer project adjustments of SEK –13.9
billion and lower sales.
In addition, higher amortization than capi-
talization of development expenses and
higher recognition than deferral of hardware
costs had a negative impact on operating
income of SEK –2.9 (3.8) billion.
Operating margin was –18.9% (2.8%).
Financial net
The financial net improved to SEK –1.2 (–2.3)
billion, mainly due to lower negative effects of
foreign exchange revaluation. Lower interest
rates partly offset the improvement. New
borrowings have been signed on more favor-
able terms and risk reduction, in both currency
exchange and interest rates, has been
improved in 2017.
The currency hedge effects, which derive
from the hedge loan balance in USD, impacted
financial net by SEK 0.5 billion. The SEK has
strengthened against the USD between
December 31, 2016 (SEK/USD rate 9.06) and
December 31, 2017 (SEK/USD rate 8.20).
Taxes
Taxes were SEK 4.3 (–2.1) billion following
the negative net income. The effective tax rate
was 11%, negatively impacted by non-de-
ductible expenses (mainly goodwill impair-
ment), by revaluation of deferred tax assets
due to the change in U.S. corporate income tax
rate, and by an allowance related to certain
Swedish tax assets.
Net income (loss) and EPS
Net income (loss) decreased to SEK –35.1
(1.9) billion, for the same reasons as for the
decrease in operating income. EPS diluted was
SEK –10.74 (0.52) and EPS (non-IFRS) was
SEK –4.04 (2.66).
Employees
The number of employees on December 31,
2017 was 100,735, a net reduction of more
than 10,000 employees in 2017.
Cash flow
Cash flow from operating activities was SEK
9.6 (14.0) billion. The decline was due to lower
income and increased cash outlays related to
Financials – Board of Directors’ report
21
restructuring charges. The cash flow was
supported by a reduction of operating assets.
Cash outlays related to restructuring charges
were SEK –5.3 (–2.4) billion.
Cash flow from investing activities was
impacted by investments and sale of property,
plant and equipment with a net effect of
SEK –2.9 (–5.6) billion. In addition, product
development decreased by SEK –1.4 (–4.5)
billion due to reduced capitalization of product
platform development following technology
shifts. The cash flow was supported by the
sale of Power Modules and the ICT center
in Montreal.
Cash flow from financing activities was
positive at SEK 5.5 (–11.7) billion due to
increased net borrowings of SEK 8.6 billion. Div-
idends of SEK 3.4 (12.3) billion were paid out.
The increased focus on free cash flow and
release of working capital, in combination with
low investing activities, resulted in a free cash
flow of SEK 5.1 (0.3) billion. The more even
distribution of cash flow over the year and
the amount of free cash flow mark a clear
improvement over 2016. For the first time
in five years, the full-year free cash flow
exceeded dividend payout.
Financial position
Gross cash increased to SEK 67.7 (57.9) billion
and net cash increased to SEK 34.7 (31.2)
billion. Post-employments benefits increased
by SEK 1.3 billion due to decreased discount
rates and normal service cost, offset by returns
on pension assets.
The average maturity of long-term borrow-
ings as of December 31, 2017, was 4.4 years,
compared with 3.8 years 12 months earlier.
Ericsson has an unutilized Revolving Credit
Facility of USD 2.0 billion. The facility will
expire in 2022. In 2017, Ericsson concluded
the following financing activities to strengthen
the balance sheet and extend the average
debt maturity profile:
– Issue of one EUR 500 million 4-year bond
– Issue of one EUR 500 million 7-year bond
– Repayment of one EUR 500 million bond
at maturity date.
– The company received a USD 200 million
payment relating to Francisco Partners’
investments for a 16.7% ownership in
Ericsson’s independent subsidiary iconec-
tiv. Due to the structure of the investment,
IFRS accounting standards stipulate that
the main part of the USD 200 million should
be treated as borrowings, non-current.
– Ericsson raised USD 220 million from the
Nordic Investment Bank (NIB) and USD
150 million from the Swedish Export Credit
Corporation (SEK). The credit agreements
mature in 2023 and 2025 respectively. Of
these new funds, USD 98 million replaced
a credit with NIB that was set to mature
in 2019.
Ericsson | Annual Report 2017 22
Financials – Board of Directors’ report
In 2017, Standard & Poor’s downgraded
Ericsson’s long-term rating from BBB with
negative outlook to BB+ with stable outlook.
Moody’s downgraded Ericsson’s long-term
rating from Baa3 with negative outlook to Ba2
with negative outlook.
Most recent five-year average seasonality
Sequential
change, sales
Share of
annual sales
First
quarter
Second
quarter
Third
quarter
Fourth
quarter
–26%
9%
–2%
23%
22%
24%
24%
29%
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 antici-
pated material effect on the Company’s finan-
cial condition, revenues, expenses, result of
operations, liquidity, capital expenditures or
capital resources.
Capital expenditures
For 2017, capital expenditure was SEK 3.9 (6.1)
billion, representing 1.9% of sales. Expenditu-
ares are largely related to test sites and equip-
ment for R&D, network operation centers and
manufacturing and repair operations.
Ericsson believes that the Company’s
property, plant and equipment and the facili-
ties 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, 2017, no material land,
buildings, machinery or equipment were
pledged as collateral for outstanding
indebted ness.
Capital expenditures 2013–2017
SEK billion
2017 2016 2015 2014 2013
Capital
expenditures
Of which in
Sweden
Share of
annual sales
3.9
6.1
8.3
5.3
4.5
1.5
2.0
2.6
2.4
1.9
1.9% 2.8% 3.4% 2.3% 2.0%
Intangible assets
The amount of intellectual property rights and
other intangible assets amounted to SEK 32.0
(51.1) billion, including goodwill of SEK 27.8
(43.4) billion. The goodwill impairment testing
was based on the new segments that became
effective as per October 1, 2017 and resulted
in a write-down of goodwill of SEK –13.0
billion triggered by the implementation of the
focused business strategy and new organiza-
tional structure. For more information, see
Note C3, “Segment reporting” and Note C10,
“Intangible assets.”
Research and development,
patents and licensing
In 2017, R&D expenses amounted to SEK 37.9
(31.6) billion. The increase is mainly due to
higher amortized than capitalized develop-
ment expenses with a negative effect of SEK
–0.3 (4.3) billion and write-down of assets
of SEK –2.5 billion. The number of R&D
resources were 23,600. The number of patents
continued to increase and amounted to
approximately 45,000 by end of 2017.
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)
2017
37.9
18.8%
2016
31.6
14.2%
2015
34.8
14.1%
23,600
45,000
24,100
42,000
23,700
39,000
7.9
10.0
14.4
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.
Ericsson | Annual Report 2017 Networks
SEK billion
200
150
100
50
0
157.8
141.0
128.0
28.3
17.6
7.6
2015
2016
2017
Net sales
Operating income
Financials – Board of Directors’ report
23
Business results – Segments
Networks
Networks represented 64% (63%) of net sales
in 2017. The segment delivers products and
services that are needed for mobile and fixed
communication, several generations of radio
networks and transmission networks.
Net sales
Sales as reported decreased by –9% YoY to
SEK 128.0 (141.0) billion. Networks sales
declined in all market areas except for North
America, where sales grew slightly. The
decrease was mainly due to lower operator
investments in mobile broadband, both prod-
ucts and services. In addition, the IPR licens-
ing business declined to SEK 6.5 (8.2) billion.
Sales adjusted for comparable units and
Digital Services
Digital Services represented 20% (20%) of net
sales in 2017. The segment is providing solu-
tions for operators’ digital transformation jour-
neys across the support systems BSS and OSS,
Telecom Core, and IT Cloud domains through
a combination of products, technology and
expertise in networks, software, cloud, and
business processes.
Net sales
Sales as reported decreased by –10% to SEK
41.0 (45.3) billion, due to lower sales of legacy
products and related services, primarily in OSS,
BSS and Packet Core. IPR and licensing reve-
nues declined to SEK 1.4 (1.8) billion.
Sales adjusted for comparable units and
Digital Services
currency decreased by –10%.
currency decreased by –9%.
SEK billion
49.4
50
45.3
41.0
40
30
20
10
0
–10
–20
–30
–3.4
–6.7
–27.7
2015
2016
2017
Net sales
Operating income (loss)
Gross margin
Gross income decreased to SEK 40.6 (47.1)
billion and gross margin decreased to 31.7%
(33.4%). The gross margin decrease was
mainly due to provisions and customer project
adjustments made in the year. Higher amorti-
zation than capitalization of development
expenses and higher recognition than deferral
of hardware costs, together amounting to SEK
–1.5 (0.2) billion, also had a negative impact
on gross margin. This is a consequence of
technology and portfolio shifts. Gross margin
was positively impacted by higher hardware
margins.
Operating income
Operating income decreased to SEK 7.6 (17.6)
billion due to lower sales with lower IPR licens-
ing revenues, provisions and customer project
adjustments, write-down of assets made in
the year as well as increased operating
expenses. The higher operating expenses are
partly due to the strategic decision to increase
investments in Networks’ R&D. Higher amor-
tization than capitalization of development
expenses and higher recognition than deferral
of hardware costs together amounted to SEK
–1.5 (1.0) billion. Write-down of intangible
assets and goodwill amounted to SEK –0.4
billion. Restructuring charges were SEK –4.8
(–3.4) billion. Operating margin decreased to
6.0% (12.5%).
Gross margin
Gross income declined to SEK 4.4 (16.1) billion
and gross margin decreased to 10.6%
(35.5%). The gross margin decrease was
mainly due to write-down of assets as well as
provisions and customer project adjustments.
In addition, there was a negative impact from
higher costs in ongoing large transformation
projects and from reduced sales of legacy
products including related services.
Operating income (loss)
Operating income (loss) declined to –27.7
(–6.7) billion, mainly due to write-down of
assets as well as provisions and customer
project adjustments. In addition, operating
income was negatively impacted by lower
gross margin and lower sales. Write-down
of intangible assets and goodwill amounted
to SEK –8.7 billion.
The full-year negative impact of higher
amortized than capitalized development
expenses was SEK –1.3 (2.1) billion. This was
partly offset by cost reductions, impacting
both R&D and selling and administrative
expenses. Restructuring charges were SEK
–2.5 (–3.2) billion. Operating margin declined
to –67.5% (–14.7%).
Ericsson | Annual Report 2017
24
Financials – Board of Directors’ report
Managed Services
SEK billion
35
30
25
20
15
10
5
0
–5
30.6
27.5
24.5
0.0
–0.5
–4.3
2015
2016
2017
Net sales
Operating income (loss)
Other
SEK billion
10
9.1
8.8
7.9
5
0
–5
–10
–15
–20
–3.1
–4.1
–13.8
2015
2016
2017
Net sales
Operating income (loss)
Managed Services
Managed Services represented 12% (12%)
of net sales in 2017. The segment delivers
managed services and network optimization
to telecom operators. Through these offerings,
customers entrust Ericsson to run the opera-
tions of their network/IT systems and opti-
mize network performance.
Net sales
Sales as reported decreased by –11% to SEK
24.5 (27.5) billion, mainly a result of the earlier
communicated rescoped Managed Services
Networks contract in North America. In addi-
tion, sales were negatively impacted by com-
pletion of 23 contracts, out of the 42 identified
to be exited, renegotiated or transformed.
Sales in Managed Services IT showed good
growth.
Sales adjusted for comparable units and
currency decreased by –11%.
Gross margin
Gross income declined to SEK –1.8 (1.1) bil-
lion. Gross margin was –7.4% (3.9%), nega-
tively affected by provisions and customer
project adjustments as well as an asset write-
down made in the year. In addition, gross
margin was negatively impacted by lower
sales and negative development in contracts
identified to be exited, renegotiated or trans-
formed.
Operating income (loss)
Operating income (loss) decreased to
SEK –4.3 (–0.5 ) billion due to lower sales,
reduced gross margin and increased oper-
ating expenses. Restructuring charges
amounted to SEK –0.7 (–0.4 ) billion.
Operating margin was –17.4% (–1.8%).
Other
Segment Other represented 4% (4%) of net
sales in 2017. The segment consists of four
businesses; Media solutions, Red Bee Media,
Emerging business and iconectiv.
Net sales
Sales as reported decreased by –11% to SEK
7.9 (8.8) billion, due to lower sales in Media
Solutions, w here sales of legacy products and
related services declined. Red Bee Media sales
declined by –8% YoY, due to renegotiations
and scope changes of contracts. The decline
was partly offset by growth in Emerging
Business and iconectiv.
Sales adjusted for comparable units and
currency decreased by –11%.
Gross margin
Gross income declined to SEK 1.4 (2.1) billion
and gross margin decreased to 17.5%
(24.1%). The gross margin decrease was
mainly due to write-down of assets of SEK
–0.4 billion. Gross margin excluding asset
write-downs was stable YoY.
Operating income (loss)
Operating income (loss) declined to –13.8
(–4.1) billion, mainly due to write-down of
intangible assets and goodwill of SEK –8.1 bil-
lion. Operating income (loss) excluding asset
write-downs declined, mainly due to increased
investments in Emerging Business, higher
amortized than capitalized development
expenses of SEK –0.1 (0.7) billion and lower
sales. The decline was partly offset by cost
reductions in both Media Solutions and Red
Bee Media. Restructuring charges amounted
to SEK –0.5 (–0.6 ) billion. Operating margin
was –175.8% (–46.5%).
Ericsson | Annual Report 2017
Financials – Board of Directors’ report
25
Business results – Market areas
South East Asia, Oceania and India
Sales declined due to lower mobile broadband
investments in Thailand, Indonesia and India.
Growth in Digital Services was driven by
growth in Australia, Singapore and Indonesia,
mainly related to core network solutions.
Middle East and Africa
Sales declined in a challenging macroeco-
nomic environment with cautious investments
in broadband. Digital Services sales declined
slightly. Managed Services sales declined due
to effects of completed contract reviews.
Other1)
Sales declined due to lower IPR licensing
revenues and lower sales in Media Solutions,
where sales of legacy products and related
services declined. IPR licensing revenues
amounted to SEK 7.9 (10.0) billion. IPR licens-
ing revenues in 2016 were positively impacted
by two signed contracts which included cer-
tain one-time items.
North East Asia
Sales in Mainland China declined due to
reduced LTE investments. Sales in Taiwan
declined following a new network deployment
for one operator in 2016. The markets in Korea
and Japan stabilized and Ericsson increased
its market share in Japan.
North America
North America sales declined due to a renego-
tiated large managed services contract with
reduced scope. Networks sales increased
slightly, driven by network expansions to cater
for increased data traffic. Digital Services sales
declined slightly.
Europe and Latin America
Sales declined, mainly due to timing of major
projects in Mexico and termination of a large
contract in Italy. In addition, capex constraints
in mobile broadband in Europe impacted sales
negatively, as operators focus investments in
fixed infrastructure. The decline was partially
offset by network modernizations in Brazil.
Sales per market area and segment 2017 and percent change from 2016
SEK million
2017
Change
2017
Change
2017
Change
2017
Change
2017
Change
Networks
Digital Services
Managed Services
Other
Total
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa
Other 1)
Total
Share of total
22.5
16.0
38.8
29.2
14.0
7.4
128.0
64%
–9%
–14%
2%
–13%
–16%
–20%
–9%
4.9
5.7
7.5
14.1
7.3
1.5
41.0
20%
9%
–20%
–2%
–13%
–1%
–37%
–10%
3.2
1.8
3.3
12.6
3.7
–
24.5
12%
–5%
18%
–47%
0%
–7%
–
–11%
17%
44%
26%
89%
–52%
–13%
–11%
0.0
0.0
0.1
0.3
0.0
7.4
7.9
4%
30.6
23.5
49.6
56.2
25.1
16.4
201.3
100%
–6%
–14%
–5%
–10%
–11%
–19%
–10%
1) Market Area “Other” includes licensing revenues, the majority of segment Other business and other businesses.
Ericsson | Annual Report 2017 26
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 Gover-
nance 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 2017,
Ericsson does not report any deviations from
the Code.
Business integrity
Ericsson’s Code of Business Ethics summa-
rizes the Group’s basic policies and directives
gov erning its relationships internally, with its
stakeholders 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 March
29, 2017, Leif Johansson was re-elected
Chairman of the Board and Nora Denzel, Börje
Ekholm, Kristin Skogen Lund, Sukhinder Singh
Cassidy, Kristin S. Rinne, Helena Stjernholm
and Jacob Wallenberg were re-elected mem-
bers of the Board. Jon Fredrik Baksaas, Jan
Carlson and Eric A. Elzvik were elected new
Board members and Ulf J. Johansson left the
Board. As of March 29, 2017, Kjell-Åke Soting,
Roger Svensson and Karin Åberg were
appointed employee representatives by
the unions, with Torbjörn Nyman, Anders Ripa
and Loredana Roslund as deputies.
Management
Effective January 16, 2017, Börje Ekholm took
office as new President and CEO of the Group.
The President and CEO is supported by the
Group management, consisting of the Execu-
tive Team. During 2017 a number of changes
were made to the composition of the Execu-
tive Team due to the implementation of a new
business strategy and a simplified organiza-
tional structure.
Ericsson has a global management system
(EGMS) to ensure that Ericsson’s business is
well controlled and has the ability to fulfill the
objectives of major stakeholders within estab-
lished risk limits. The management system
also monitors internal control 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 2017, are reported in Note C28,
“Information regarding members of the Board
of Directors, the Group management and
employees.”
The Board of Directors’ proposal for
guidelines for remuneration to Group
management
The Board of Directors proposes that the 2018
Annual General Meeting of shareholders
resolve on the guidelines below for remunera-
tion to Group Management for the period up to
the 2019 Annual General Meeting. Compared
to the guidelines resolved by the 2017 Annual
General Meeting, it has been added that the
mutual notice period can be increased to a
maximum of 12 months on a case by case
basis, with the condition that in all circum-
stances, fixed salary during the notice period
plus any severance pay payable in total will
not exceed an amount equivalent to the
individual’s 24 months fixed salary.
Guidelines for Remuneration to Group
Management
For Group Management consisting of the
Executive Team, including the President and
CEO, total remuneration consists of fixed
salary, short- and long-term variable compen-
sation, pension and other benefits. The follow-
ing guidelines apply for the remuneration of
the Executive 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 tar-
gets, employee engagement targets or
customer satisfaction targets.
Ericsson | Annual Report 2017 Financials – Board of Directors’ report
27
– All benefits, including pension benefits,
Material contracts
follow the competitive practice in the home
country taking total compensation into
account.
– By way of exception, additional arrange-
ments can be made when deemed neces-
sary. 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 remu-
neration that the individual would have
received had no additional arrangement
been made.
– The standard mutual notice period is no
more than six months. Upon termination of
employment by the Company, severance
pay amounting to a maximum of 18
months fixed salary is paid. Notice of termi-
nation given by the employee due to signif-
icant 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 termina-
tion served by the Company.
Material contractual obligations are outlined
in Note C31, “Contractual obligations.” These
were primarily related to operating leases for
office and production facilities, purchase con-
tracts 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 agreements. However, considering
among other things the Company’s strong
financial position, the Company believes that
none of the agreements currently in effect
would in and of itself entail any material
consequence for Ericsson due to a change
in control of the Company.
– On a case to case basis, the mutual notice
Risk management
period can be increased to no more than 12
months in which case there will be a corre-
sponding reduction in severance pay
(where applicable). In all circumstances,
fixed salary during the notice period plus
any severance pay payable will not
together exceed an amount equivalent to
the individual’s 24 months fixed salary.
Long-term Variable Compensation Program
2017 (LTV 2017) for the Executive Team
The Company has operated a Long-Term
Variable Compensation program (LTV) up
until 2017, building on a common platform
of investment in, and matching of, Ericsson
shares. It has consisted of three separate
plans: one targeting all employees, one target-
ing key contributors and one targeting senior
managers. The program has been designed to
encourage long-term value creation in align-
ment with shareholders’ interests. No Stock
Purchase Plan was proposed for 2017.
Instead the share-based Long-Term Variable
Compensation Program 2017 (LTV 2017) for
the Executive Team was introduced. LTV 2017
was approved by the Annual General Meeting
of shareholders (“AGM”) 2017. Details of LTV
2017 are explained in Note C28, “Information
regarding members of the Board of Directors,
the Group management and employees.”
Risks are defined in both a short-term and
long-term perspective. They are related to
long-term objectives as per the strategic direc-
tion as well as short-term objectives for next
coming year. Risks are categorized into indus-
try and market risks, commercial risks, opera-
tional risks and compliance risks. Ericsson’s
risk management is 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
owning and managing its risks according
to policies, directives and process tools.
Decisions are made or escalated according
to defined delegation of authority. Financial
risks are coordinated through Group Func-
tion Finance and Common Functions.
– Risks are dealt with during the strategy
development and target setting, continuous
monitoring through monthly and quarterly
steering group meetings and during oper-
ational processes (customer projects, cus-
tomer bid/contract, acquisition, investment
and product development projects). They
are subject to various controls such as
decision tollgates and approvals.
Ericsson | Annual Report 2017 28
Financials – Board of Directors’ report
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 man-
agement of certain risks, such as business
interruption, information security and physical
security. The Group Crisis Management Coun-
cil 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 “Finan-
cial risk management and financial instru-
ments” and the chapter Risk factors.
Sourcing and supply
Ericsson’s hardware largely consists of elec-
tronics. 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
configuration 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
4 manufacturing sites in Brazil, China, Estonia
and Sweden and 7 delivery centers across all
continents.
A number of suppliers design and manu-
facture highly specialized and customized
components. The Company generally negoti-
ates 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 sup-
ply situations.
Variations in market prices for raw materi-
als 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 environmental performance
and socio-economic development.
Ericsson’s ambition is to be a responsible
and relevant driver of positive change in soci-
ety. To do this, Ericsson is committed to creat-
ing business value while reducing risk for the
Company and its stakeholders related to the
environment, social and employee matters,
human rights, and corruption. Ericsson’s
approach to sustainability and corporate
responsibility is integrated into Ericsson’s
business operations. The sustainability and
corporate responsibility performance is regu-
larly measured, assessed and assured.
Ericsson has for the first time prepared and
attached to this Annual Report a Sustainability
Report in accordance with the Swedish Annual
Accounts Act named the Sustainability Perfor-
mance and Risk Report 2017. The Sustainabil-
ity Performance and Risk Report 2017 con-
tains information regarding the development,
performance, position and impact of the
Ericsson Group activities in this area, descrip-
tions of Ericsson’s sustainability and corporate
responsibility related policies, the outcome of
these policies, the principal risks related to
those matters linked to the Company’s opera-
tions, as well as a description on how Ericsson
manages those risks. Non-financial key perfor-
mance indicators are also presented. A brief
description of Ericsson business model, which
forms part of the Sustainability Performance
and Risk report 2017 can be found on pages
16–17 in the Annual Report.
Legal proceedings
In 2013, Ericsson filed a patent infringement
lawsuit in the Delhi High Court against Indian
handset company Micromax, seeking dam-
ages and an injunction. As part of its defense,
Micromax filed a complaint with the Competi-
tion 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
investigation 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 Micro-
max and Intex on Fair, Reasonable and Non-
discriminatory (FRAND) terms and Ericsson
and Micromax reached a settlement agree-
ment in January 2018 resolving the patent
infringement dispute between the parties.
In 2012 and 2013, Intellectual Ventures
(“IV”) filed patent infringement lawsuits in the
United States District Court for the District of
Delaware accusing a number of Ericsson’s U.S.
customers of infringing 16 U.S. Patents,
Ericsson | Annual Report 2017 seeking an injunction and monetary damages.
IV subsequently filed another wave of lawsuits
in the District of Delaware accusing a number
of Ericsson’s U.S. customers of infringing 12
U.S. Patents, seeking monetary damages.
Ericsson successfully invalidated a number of
IV’s patents through inter partes review pro-
ceedings. Ericsson and its customers were also
successful on a variety dispositive motions
before trial in both cases. Ericsson anticipates
that IV will appeal these rulings. During the
third quarter of 2017 IV filed additional law-
suits in the Eastern District of Texas asserting
patent infringement by Ericsson and a number
of Ericsson’s U.S customers.
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 80 (79) branch
and representative offices.
Financial information
Loss after financial items was SEK –2.0 (15.6)
billion. The Parent Company had no sales in
2017 or 2016 to subsidiaries, while 40%
(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:
– Increased current and non-current receiv-
ables from subsidiaries of SEK 2.0 billion.
– Increased gross cash of SEK 7.4 billion.
– Increased current and non-current liabili-
ties to subsidiaries of SEK 0.1 billion.
– Increased impairment of investments
in subsidiaries of SEK 9.0 billion.
– Decreased dividend from subsidiaries
of SEK 7.0 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 50.3 (42.9) billion.
Share information
As of December 31, 2017, the total number of
shares in issue was 3,334,151,735, of which
261,755,983 were Class A shares, each carry-
ing one vote, and 3,072,395,752 were Class B
shares, each carrying one tenth of one vote.
Both classes of shares have the same rights
Financials – Board of Directors’ report
29
of participation in the net assets and earnings.
The largest shareholders of the Parent Com-
pany at year-end were Investor AB with
approximately 22.18% of the votes (6.61% of
the shares), AB Industrivärden with 15.14%
of the votes (2.61% of the shares) and Cevian
Capital with 4.38% of the votes (7.39% of
the shares).
In accordance with the conditions of the
Long- Term Variable Compensation Program
(LTV) for Ericsson employees, 14,926,891
treasury shares were distributed to employees
or sold in 2017. The quotient value of these
shares was SEK 5.00, totaling SEK 74.6 mil-
lion, representing approximately 1% of capital
stock, and compensation received for shares
sold and distributed shares amounted to
SEK 101.1 million.
The holding of treasury stock at December
31, 2017 was 50,265,499 Class B shares. The
quotient value of these shares is SEK 5.00,
totaling SEK 251 million, representing 1.5% of
capital stock, and the purchase price amounts
to SEK 365.1 million.
The Annual General Meeting (AGM) 2017
resolved to issue 3.0 million Class C shares for
the Long-Term Variable Remuneration Pro-
gram (LTV). In accordance with an authoriza-
tion from the AGM, in the second quarter 2017,
the Board of Directors resolved to repurchase
the new issued shares, which were subse-
quently converted into Class B shares. The
quotient value of the repurchased shares was
SEK 5.00, totaling SEK 15.0 million, represent-
ing less than 1% of capital stock, and the
acqui sition cost was approximately SEK 15.1
million.
Proposed disposition of earnings
The Board of Directors proposes that a divi-
dend of SEK 1.00 (1.00) per share be paid to
sharehol ders duly registered on the record
date of April 3, 2018, 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 Direc-
tors 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 3,334,151,735
SEK 36,243,787,145
SEK 39,577,938,880
As a basis for its dividend proposal, the Board of
Directors has made an assessment in accord-
ance with Chapter 18, Section 4 of the Swedish
Companies Act of the Parent Company’s and
Ericsson | Annual Report 2017 30
Financials – Board of Directors’ report
the Group’s need for financial resources as well
as the Parent Company’s and the Group’s
liquidity, financial position in other respects
and long-term ability to meet their commit-
ments. The Group reports an equity ratio of
38.4% (49.6%) and a net cash amount of
SEK 34.7 (31.2) billion.
The Board of Directors has also considered
the Parent Company’s result and financial
position 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-bal-
anced considering the nature, scope and risks
of the business activities as well as the capital
requirements for the Parent Company and the
Group in addition to coming years’ business
plans and economic development.
Events after the reporting period
Ericsson strengthens focus on innovation
and makes changes to Executive Team
On January Jan 31 2018, Ericsson announced
changes to the group structure and its Execu-
tive Team. A Business Area Emerging Business
was created to increase focus on innovation
and new business development. Effective April
1, 2018, Åsa Tamsons is appointed Senior Vice
President and head of Business Area Emerg-
ing Business and member of Ericsson’s Execu-
tive Team. The new Business Area Emerging
Business will be reported under Segment
Other.
Business Area Digital Services is under-
going significant transformation to create a
profitable and strong offering in this strategi-
cally important area. Ulf Ewaldsson has
decided to step down from leading the unit,
following the completion of its build up phase.
Jan Karlsson, currently head of Solution Area
BSS, will step in as acting head of Business
Area Digital Services. Ulf Ewaldsson will take
on a role as advisor to CEO Börje Ekholm.
The company is also simplifying its group
function structure, from currently six functions
to four. In light of the change in responsibilities
Elaine Weidman- Grunewald has decided
to leave the company to pursue other oppor-
tunities.
Ericsson concludes strategic review of
Media Solutions and Red Bee Media
On January 31 2018, Ericsson concluded the
review of strategic opportunities for its Media
business – Media Solutions and Red Bee
Media – which was initiated in conjunction
with the announcement of the company’s
focused business strategy on March 28, 2017.
Ericsson has implemented substantial perfor-
mance improvement programs while continu-
ing to invest in the respective business. Both
units have made significant progress during
2017.Outcome of the strategic review:
– One Equity Partners new majority owner
in Media Solutions, Ericsson will retain
49% of the shares
– Media Solutions assets and staff to transfer
to independent company upon closing,
expected Q3 2018
– Continued in-house development of
Red Bee Media
Ericsson | Annual Report 2017 Board assurance
The Board of Directors and the President declare
that the consolidated financial statements 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 opera-
tions. The financial statements of the Parent Com-
pany have been prepared in accordance with gener-
ally accepted accounting principles in Sweden and
give a fair view of the Parent Company’s financial
position and results of operations.
Financials – Board of Directors’ report
31
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 Company and the
companies included in the Group.
Stockholm, February 23, 2018
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680
Leif Johansson
Chairman
Helena Stjernholm
Deputy Chairman
Jacob Wallenberg
Deputy Chairman
Jon Fredrik Baksaas
Member of the Board
Jan Carlson
Member of the Board
Nora Denzel
Member of the Board
Kristin Skogen Lund
Member of the Board
Börje Ekholm
President, CEO and
Member of the Board
Kristin S. Rinne
Member of the Board
Eric A. Elzvik
Member of the Board
Sukhinder Singh Cassidy
Member of the Board
Kjell-Åke Soting
Member of the Board
Roger Svensson
Member of the Board
Karin Åberg
Member of the Board
Our audit report has been submitted on February 23, 2018
PricewaterhouseCoopers AB
Bo Hjalmarsson
Authorized Public Accountant
Lead Partner
Johan Engstam
Authorized Public Accountant
Ericsson | Annual Report 2017 32
Financials – Consolidated financial statements with notes
Consolidated financial
statements with notes
Contents
Consolidated financial statements
33 Consolidated income statement
34 Consolidated statement of comprehensive income (loss)
35 Consolidated balance sheet
36 Consolidated statement of cash flows
37 Consolidated statement of changes in equity
Notes to the consolidated financial statements
40
48
49
52
52
52
52
53
54
54
56
57
58
58
60
60
61
65
66
67
70
70
70
70
70
71
72
73
79
79
79
79
C1 Significant accounting policies
C2 Critical accounting estimates and judgments
C3 Segment information
C4 Net sales
C5 Expenses by nature
C6 Other operating income and expenses
C7 Financial income and expenses
C8 Taxes
C9 Earnings per share
C10 Intangible assets
C11 Property, plant and equipment
C12 Financial assets, non-current
C13 Inventories
C14 Trade receivables and customer finance
C15 Other current receivables
C16 Equity and other comprehensive income (loss)
C17 Post-employment benefits
C18 Provisions
C19 Interest-bearing liabilities
C20 Financial risk management and financial instruments
C21 Other current liabilities
C22 Trade payables
C23 Assets pledged as collateral
C24 Contingent liabilities
C25 Statement of cash flows
C26 Business combinations
C27 Leasing
C28 Information regarding members of the Board
of Directors, the Group management and employees
C29 Related party transactions
C30 Fees to auditors
C31 Contractual obligations
C32 Events after the reporting period
Ericsson | Annual Report 2017 Consolidated financial statements
Financials – Consolidated financial statements
33
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
Other operating expense
Share in earnings of joint ventures and associated companies
Operating income (loss)
Financial income
Financial expenses
Income after financial items
Taxes
Net income (loss)
Net income (loss) attributable to:
Stockholders of the Parent Company
Non-controlling interest
Other information
Average number of shares, basic (million)
Earnings (loss) per share attributable to stockholders of the Parent Company, basic (SEK) 1)
Earnings (loss) per share attributable to stockholders of the Parent Company, diluted (SEK) 1)
1) Based on Net income (loss) attributable to stockholders of the Parent Company.
Notes
C3, C4
C6
C6
C3, C12
C3
C7
C7
C8
C9
C9
C9
2017
201,303
–156,758
44,545
22.1%
–37,887
–32,676
–70,563
1,154
–13,286
24
–38,126
–361
–843
–39,330
4,267
–35,063
–35,206
143
3,277
–10.74
–10.74
2016
222,608
–156,243
66,365
29,8%
–31,635
–28,866
–60,501
1,987
–1,583
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
1,568
–1,415
–38
21,805
525
–2,458
19,872
–6,199
13,673
13,549
124
3,249
4.17
4.13
Ericsson | Annual Report 2017 34
Financials – Consolidated financial statements
Consolidated statement of comprehensive income (loss)
January–December, SEK million
Net income (loss)
Other comprehensive income (loss)
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 interest-bearing securities
Gains/losses arising during the period
Reclassification adjustments on gains/losses included in profit or loss
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 (loss), net of tax
Total comprehensive income (loss)
Total comprehensive income (loss) attributable to:
Stockholders of the Parent Company
Non-controlling interests
2017
–35,063
2016
1,895
2015
13,673
970
–547
–1,766
520
–2,026
721
68
5
99
–3,378
–
–16
–2,799
–37,862
–37,987
125
–7
–
–2
4,235
–362
1
2,619
4,514
4,285
229
–
–
457
–604
141
–
–1,311
12,362
12,218
144
Ericsson | Annual Report 2017 Financials – Consolidated financial statements
35
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
2017
2016
4,593
27,815
4,148
12,857
624
1,279
2,178
25,105
5,897
21,228
8,076
43,387
7,747
16,734
775
1,179
2,128
7,586
4,442
15,522
105,724
107,576
24,960
63,210
1,753
22,300
6,713
35,884
154,820
260,544
30,307
68,117
2,625
24,431
13,325
36,966
175,771
283,347
99,540
636
100,176
139,817
675
140,492
25,009
3,596
901
30,500
2,776
62,782
6,350
2,545
26,321
62,370
97,586
23,723
946
2,147
18,653
2,621
48,090
5,411
8,033
25,318
56,003
94,765
260,544
283,347
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 33,045 (26,686) million.
Ericsson | Annual Report 2017
36
Financials – Consolidated financial statements
Consolidated statement of cash flows
January–December, SEK million
Operating activities
Net income (loss)
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
Notes
C25
C11
C25, C26
C25, C26
C10
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
C25
2017
2016
2015
–35,063
18,583
–16,480
3,995
798
1,380
2,413
4,785
12,710
26,081
9,601
–3,877
1,016
–289
565
–1,444
–463
–11,578
–16,070
–6,469
13,416
–4,830
15
83
–3,424
218
5,478
–91
–1,082
36,966
35,884
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
Ericsson | Annual Report 2017 Financials – Consolidated financial statements
37
Consolidated statement of changes in equity
Equity and Other comprehensive income (loss) 2017
Capital stock
Addi tional
paid in capital
16,657
24,731
Retained
earnings
98,429
Stock holders’
equity
Non-control ling
interest
SEK million
January 1, 2017
Net income (loss)
Group
Joint ventures and associated companies
Other comprehensive income (loss)
Items that will not be reclassified to profit or loss
Remeasurements related to post-employment benefits
Tax on items that will not be reclassified to profit or loss
Items that may be reclassified to profit or loss
Available-for-sale interest-bearing securities
Gains (+)/Losses (–) arising during the period
Reclassification adjustments relating to available-for-sale
financial assets disposed of in the year
Revaluation of other investments in shares and participations
Changes in cumulative translation adjustments
Tax on items that may be reclassified to profit or loss
Total other comprehensive income (loss), net of tax
Total comprehensive income (loss)
Transactions with owners
Stock issue
Sale of own shares
Repurchase of own shares
Long-term variable compensation plans
Dividends paid
Transactions with non-controlling interest
December 31, 2017
–
–
–
–
–
–
–
–
–
–
–
15
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,672
24,731
139,817
–35,227
21
–35,227
21
956
–544
956
–544
68
5
99
–3,349
–16
–2,781
–37,987
–
98
–15
885
–3,273
–
58,137
68
5
99
–3,349 1)
–16
–2,781
–37,987
15
98
–15
885
–3,273 2)
–
99,540
675
143
–
14
–3
–
–
–
–29
–
–18
125
–
–
–88
–
–151
75
636
Total equity
140,492
–35,084
21
970
–547
68
5
99
–3,378
–16
–2,799
–37,862
15
98
–103
885
–3,424
75
100,176
1) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK –2,484 million (SEK 2,355 million in 2016 and 1,592 million in 2015),
and realized gain/losses net from sold/liquidated companies, SEK –24 million (SEK –90 million in 2016 and SEK –3 million in 2015).
2) Dividends paid per share amounted to SEK 1.00 (SEK 3.70 in 2016 and SEK 3.40 in 2015).
Ericsson | Annual Report 2017 38
Financials – Consolidated financial statements
Equity and Other comprehensive income 2016
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 interest-bearing securities
Gains (+)/Losses (–) arising during the period
Revaluation of other investments in shares and participations
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
Long-term variable compensation plans
Dividends paid
Transactions with non-controlling interest
December 31, 2016
Capital stock
Addi tional
paid in capital
16,526
24,731
Retained
earnings
105,268
Stock holders’
equity
Non-control ling
interest
–
–
–
–
–
–
–
–
–
–
–
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
–362
1
2,569
4,285
131
105
–131
957
–12,058
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
Ericsson | Annual Report 2017
Financials – Consolidated financial statements
39
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
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
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
Long-term variable compensation plans
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
–2,033
722
–2,033
722
457
457
–618
141
–1,331
12,218
169
865
–11,033
–
105,268
–618
141
–1,331
12,218
169
865
–11,033
–
146,525
124
–
7
–1
–
14
–
20
144
–
–
–304
–2
841
13,711
–38
–2,026
721
457
–604
141
–1,311
12,362
169
865
–11,337
–2
147,366
Ericsson | Annual Report 2017 40
Financials – Notes to the consolidated financial statements
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,
2017 have been prepared in accordance with International Financial Report-
ing 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 2017, the Company has applied
IFRS as issued by the IASB (IFRS effective as per December 31, 2017). There
is no difference between IFRS effective as per December 31, 2017, and IFRS
as endorsed by the EU, nor is RFR 1 related interpretations issued by the Swed-
ish Financial Reporting Board (Rådet för Finansiell Rapportering) or the Swed-
ish Annual Accounts Act in conflict with IFRS, for all periods presented.
For information on “New standards and interpretations not yet adopted,”
refer to the end of this Note.
The financial statements were approved by the Board of Directors on Febru-
ary 23, 2018. The balance sheets and income statements are subject to
approval by the Annual General Meeting of shareholders.
Amendments applied as from January 1, 2017
There have not been any significant amendments of IFRS concerning the
Company during 2017.
IAS 7 ” Statement of Cash Flows” is amended in relation to disclosure about
changes in liabilities arising from financing activities. A new table is presented
in Note C25, “Statement of Cash flows.”
Alternative Performance Measures, APMs
Ericsson has since 2016 applied the new guidelines issued by European Secu-
rities and Markets Authority (ESMA) on APMs (Alternative Performance Mea-
sures). Free cash flow has been added 2017 as an APM. Free cash flow rep-
resents the cash generated by operations less net capital expenditures and
other investments. Free cash flow can be used to expand the business, pay
dividends and reduce debt. Free cash flow is reconciled to IFRS measures in
the chapter “Other information – Alternative performance measures.”
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 financial instruments,
financial instruments held for trading, financial instruments classified as avail-
able-for-sale and plan assets related to defined benefit pension plans. Finan-
cial information in the consolidated income statement, the consolidated state-
ment 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, Telefonaktiebo-
laget 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 statements 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 consolidated
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., incorpo-
rated 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 liabilities 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 liabili-
ties that were not recognized on the acquired entity’s balance sheet, for exam-
ple 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 transac-
tions with equity owners of the Company. For purchases from non-controlling
interests, the difference between any consideration paid and the relevant
share acquired of the carrying value of net assets of the subsidiary 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 recog-
nized in profit or loss. The fair value is the initial carrying amount for the pur-
poses of subsequently accounting for the retained interest in an associate or
financial asset. In addition, any amounts previously recognized in Other com-
prehensive 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 reclassi-
fied 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.
Joint ventures and associated companies
Joint ventures and associated companies are accounted for in accordance 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 com-
pany is nil, the Company shall not, as prescribed 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 signifi-
cant influence and the power to participate in the financial and operating policy
Ericsson | Annual Report 2017 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 effec-
tive potential voting rights, which stand at least at 20% but not more than 50%.
The Company’s share of income before taxes is reported in item “Share 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 ven-
tures 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 influence
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 disclo-
sure 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 Compa-
ny’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 transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at period-end exchange rates of mone-
tary assets and liabilities denominated in foreign currencies are recognized in
the income statement, unless deferred in Other comprehensive 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 differences
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.
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 compo-
nent 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 differ-
ences that were recorded in OCI are recognized in the income statement as
part of the gain or loss on sale.
Financials – Notes to the consolidated financial statements
41
Goodwill and fair value adjustments arising on the acquisition of a foreign
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 remain-
ing 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 solutions.
Products, both hardware and software as well as services, are in general stan-
dardized. 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 delivery-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
Estimations of contractual performance criteria impact the timing and
amounts of revenue recognized and may therefore defer revenue recognition
until the performance criteria are met. The profitability of contracts is periodi-
cally 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 sepa-
rately identifiable components of the contract. Revenue, including the
impact of any discount or rebate, is allocated to each element based on
relative fair values.
– Contracts for services – These relate to multi-year service contracts such as
support- and managed service contracts and other types of recurring ser-
vices. Revenue is recognized when the services have been provided, gener-
ally pro rata over the contract period.
– Contracts generating license fees from third-parties for the use of the Com-
pany’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 Digital services 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.
Ericsson | Annual Report 2017 42
Financials – Notes to the consolidated financial statements
In Note C2, “Critical accounting estimates and judgments,” a further disclo-
sure is presented in relation to (i) key sources of estimation uncertainty and (ii)
the decision made in relation to accounting policies applied.
Earnings per share
Basic earnings per share are calculated by dividing net income attributable
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 attributable
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 fulfill-
ment 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 Company
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 recognized 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 purpose
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 statement 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 subse-
quently 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 trading
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 Inter-
est-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.
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 foreign
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. Translation 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 classified as available-for-sale are
recognized in OCI. When securities classified as available-for-sale are sold or
impaired, the accumulated fair value adjustments previously recognized in OCI
are included in the income statement.
Impairment in relation to financial assets
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 pro-
longed 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 current 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 recog-
nized in the income statement on equity instruments are not reversed through
the income statement.
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 difficul-
ties of the debtor, probability that the debtor will enter bankruptcy or financial
reorganization, and default or delinquency in payments are considered indica-
tors 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 receiv-
ables. Subsequent recoveries 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.
Ericsson | Annual Report 2017 Financials – Notes to the consolidated financial statements
43
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 attributable to
the hedged risk, when hedge accounting is applied. The Company 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 borrow-
ings and the changes in the fair value of the hedged fixed rate borrowings
attributable to interest rate risk are recognized 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.
At the inception of the hedge, the Company documents the relationship
between hedging instruments and hedged items, as well as its risk manage-
ment objectives and strategy for undertaking various hedging transactions.
The Company also documents its assessment, both at hedge inception and
on an ongoing basis, of whether the derivatives that are used in hedging trans-
actions 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 financial instru-
ments.” 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 cur-
rent 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 amor-
tized over the guarantee period, using the straight-line-method.
impairment. An impairment loss is recognized if the carrying amount of an
asset or its cash-generating unit exceeds its recoverable amount. The recover-
able amount is the higher of the value in use and the fair value less costs of
disposal. 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 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. An impairment loss in respect of goodwill is not reversed.
Write-downs of goodwill are reported under other operating expenses.
Additional disclosure is required in relation to goodwill impairment testing:
see Note C2, “Critical accounting estimates and judgments” below and Note
C10, “Intangible assets.”
Intangible assets
Intangible assets other than goodwill
Intangible assets other than goodwill comprise intangible assets acquired
through business combinations, such as patents, customer relations, trade-
marks and software, as well as capitalized development expenses and sepa-
rately acquired intangible assets, mainly consisting of software. At initial
recognition, acquired intangible assets related to business combinations 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 accumulated 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 otherwise
marketed or intended for internal use are capitalized as from when technologi-
cal 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 according to the straight-line method over their esti-
mated useful lives, not exceeding ten years.
The Company has not recognized any intangible assets with indefinite
useful life other than goodwill.
Impairment tests are performed whenever there is an indication of possible
impairment. Tests are performed as for goodwill, see above. However, intangi-
ble assets not yet available for use are tested annually.
– The best estimate of the net expenditure comprising future fees and cash
Corporate assets have been allocated to cash-generating units in relation to
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 customer
acceptance of new products.
A significant part of Inventories is Contract work in progress (CWIP). Recog-
nition and derecognition of CWIP relates to the Company’s revenue recogni-
tion principles meaning that costs incurred under a customer contract 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 disclo-
sure 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.
An annual impairment test for the CGUs to which goodwill has been allo-
cated is performed in the fourth quarter, or when there is an indication of
each unit’s proportion of total net sales. The amount related to corporate
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.
In Note C2, “Critical accounting estimates and judgments,” further disclo-
sure is presented in relation to (i) key sources of estimation uncertainty and (ii)
the decision made in relation to accounting policies applied.
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 esti-
mated useful life of each component of an item of property, plant, and equip-
ment, 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 develop-
ment 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 derecognizes the
residual value of the replaced component.
Ericsson | Annual Report 2017 44
Financials – Notes to the consolidated financial statements
Impairment testing as well as recognition or reversal of impairment of
property, plant and equipment is performed in the same manner as for intangi-
ble assets other than goodwill, see description under “Intangible assets other
than goodwill” above.
Gains and losses on disposals are determined by comparing the proceeds
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 accordance 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 con-
tracts 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 other-
wise 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 liabil-
ity 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 proba-
ble that future taxable profits will be available against which the deductible
temporary differences and tax loss carry-forwards can be utilized. In the recog-
nition 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 deductible 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 difference 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 recog-
nized 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 regarding
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 disclo-
sure 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, discounting 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 restructuring, customer and supplier
related provisions, warranty commitments 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 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 Company
has a detailed formal plan for the restructuring (approved by management),
which has been communicated in such a way that a valid expectation has been
raised among those affected. Provision for restructuring 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,
customer finance and other provisions. The Company provides for estimated
future settlements related to patent infringements based on the probable out-
come of each infringement. The actual outcome or actual cost of settling an
individual infringement may vary from the Company’s estimate.
The Company estimates the outcome of any potential patent infringement
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 proceedings,
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 reliability.
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 presented in rela-
tion 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 contribution 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 actu-
arial and investment risks fall on the employee. The expenditures for defined
Ericsson | Annual Report 2017 Financials – Notes to the consolidated financial statements
45
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 former
employees is calculated using the Projected Unit Credit Method. The discount
rate for each country is determined by reference to market yields on high-qual-
ity 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 determine the cost of providing the benefits.
When using actuarial assumptions, 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, remeasurement
of plan assets and changes in the discount rate. Actuarial gains and losses are
recognized in OCI in the period in which they occur. The Company’s net liability
for each defined benefit plan consists of the present value of pension commit-
ments 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 immedi-
ately. Swedish special payroll tax is accounted for as a part of the pension cost
and the pension liability respectively.
Cash settled plans
The total compensation expense for a cash settled plan is equal to the pay-
ments made to the employees at the date of end of the service period. The fair
value of the synthetic shares, being the cash equivalents of shares, is therefore
reassessed and amended during the service period. Otherwise the accounting
is similar to a share settled plan.
For further detailed information, see Note C28, “Information regarding
members of the Board of Directors, the Group management and employees.”
Compensation to the Board of Directors
During 2008, the Parent Company introduced a share-based compensation
program as a part of the remuneration to the Board of Directors (a synthetic
share program). The program gives non-employee Directors elected by the
General Meeting of shareholders a right to receive part of their remuneration
as a future payment 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
disclosed in Note C28, “Information regarding members of the Board of Direc-
tors, 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 Executive 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.
Payroll taxes related to actuarial gains and losses are included in determin-
The Company’s segment disclosure about geographical areas is based on
ing actuarial gains and losses, reported under OCI.
the country in which transfer of risks and rewards occur.
In Note C2, “Critical accounting estimates and judgments,” further disclo-
For further information, see Note C3, “Segment information.”
sure 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 employees, including
key management personnel and the Board of Directors and could be settled
either in shares or cash.
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. The conditions under a program shall be
considered as prescribed in IFRS 2.
The share-based programs are as of 2017 both share – and cash set-
tled but as from 2017 granted plans are, except for plans for the Execu-
tive team, cash settled.
Share settled plans
Compensation costs are recognized during the vesting period, based on the
fair value of the Ericsson share at the grant date, as well as considering perfor-
mance – and market conditions. Examples of performance conditions could be
revenue and profit targets while market conditions relates to the development
of the Parent Company´s share price.
The amount charged to the income statement for these plans is reversed in
equity each time of the income statement charge. The reason for this IFRS
accounting principle is that compensation cost for a share settled pro-
gram is a cost with no direct cash flow impact. All plans have service
conditions and some of them have performance or market conditions. For
further detailed information, see Note C28, “Information regarding mem-
bers of the Board of Directors, the Group management and employees.”
Accounting Policy – New standards and interpretations
A number of issued new standards, amendments to standards and interpreta-
tions are not yet effective for the year ended December 31, 2017 and have not
been applied in preparing these consolidated financial statements. 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” is effective from January 1, 2018. The
complete version of IFRS 9 replaces most of the guidance in IAS 39, which
had been applied in the current reporting period ended December 31, 2017.
IFRS 15, “Revenue from Customer Contracts” is effective from January 1,
2018. This new standard replaces guidance in IAS 18 and IAS 11, which had
been applied in the current reporting period ended December 31, 2017.
IFRS 16, “Leases” is effective from January 1, 2019. This new standard
replaces guidance in IAS 17 Leases and the related interpretations IFRIC 4,
SIC-15 and SIC-27.
The following table illustrates the impact of the implementation of IFRS 9
and IFRS 15 on equity and other balance sheet items at the transition date of
January 1, 2018. IFRS 15 will be applied on a full retrospective basis which
means that the comparative financial statements will be restated. IFRS 9 will
be applied at January 1, 2018 which means that the opening balances at
January 1, 2018 will be adjusted, but the previous periods will not be restated.
Ericsson | Annual Report 2017 46
Financials – Notes to the consolidated financial statements
Estimated impact of IFRS 9 and IFRS 15 on Balance sheet items
ASSETS
Non-current assets
Deferred tax assets
Current assets
Inventories
Contract assets
Trade receivables
EQUITY AND LIABILITIES
Equity
Non-current liabilities
Borrowings, non-current
Current liabilities
Contract liabilities
Other current liabilities
As reported
31.12. 2017
IFRS 15
restatement
Restated
balance
31.12. 2017
IFRS 9
adjustment
Adjusted
balance at
1.1.2018
21,228
24,960
–
63,210
735
21,963
407
22,370
587
13,120
–15,105
25,547
13,120
48,105
–
–
–1,240
25,547
13,120
46,865
100,176
–2,605
97,571
–1,401
96,170
30,500
–
62,370
–
30,500
22,121
–20,179
22,121
42,191
568
–
–
31,068
22,121
42,191
IFRS 9 – Financial instruments
The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS
9 updates the classification, measurement and impairment of financial assets
as well as provides new requirements for hedge accounting. The Company will
apply IFRS 9 retrospectively on the required effective date, January 1, 2018,
and will not restate comparative information. The transition to IFRS 9 is esti-
mated to reduce equity by SEK 1.4 billion on January 1, 2018. The main impact
from adopting IFRS 9 will be that impairment losses for trade receivables and
contract assets will be calculated based on lifetime expected credit losses
(ECL) instead of objective evidence that the Company will not be able to col-
lect, as under the previous standards. This does not represent a change in
expected cash flows collected by the Company. Rather, this represents a
change in the timing of the recognition of losses, which in most cases is earlier
under IFRS 9 compared to the previous standards. At transition, the loss allow-
ance for trade receivables is estimated to increase by SEK 1.2 billion. The other
changes from implementing IFRS 9 are described below.
– Investments in liquid bonds with low credit risk which are not held for trad-
ing were classified as available-for-sale under the previous standards.
These instruments are held in a portfolio managed on a fair value basis
and will therefore be classified fair value through profit or loss (FVTPL).
There will be no change in the valuation of these assets.
– Trade receivables are managed in a business model whose objective is
achieved through both collection of contractual cash flows and selling of
assets. Therefore, trade receivables will be classified as fair value through
other comprehensive income (FVOCI).
– Customer finance assets are managed in a business model with the objec-
tive to realize cash flows through the sale of assets. Therefore, customer
finance will be classified FVTPL. There will be no change in the carrying
value of these assets at transition.
– Investments in equity instruments, which were classified as available-for-
sale under previous standards, will be classified as FVTPL with no impact
on carrying value.
– Notes, bonds, and loans issued by the Parent Company are managed on a
fair value basis and will therefore be designated as FVTPL with changes in
fair value due to changes in credit risk realized in OCI. As a result, the carry-
ing value of borrowings is estimated to increase by SEK 0.6 billion. Fair value
hedge accounting will not be applied to any borrowings as from 2018.
IFRS 15 – Revenue from Contracts with Customers
IFRS 15 replaces guidance in IAS 18 and IAS 11. This standard establishes
a new principle-based model of recognizing revenue from customer contracts.
It introduces a five-step model that requires revenue to be recognized when
control over goods and services are transferred to the customer.
The Company will adopt the full retrospective method for transition which
requires restatement of prior year comparatives and adjustment to equity in
the earliest presented comparative period, i.e. January 1, 2016 (‘initial applica-
tion date’).
The Company has completed its assessment of the impact of IFRS 15 to its
financial statements for all relevant comparative periods. Additional processes
were implemented as part of the quantification exercise to accurately identify
material transition impact, thus enabling it to be disclosed as part of the finan-
cial reporting process.
The impact of IFRS 15 is estimated to be a net reduction to equity at transi-
tion date, January 1, 2018, of SEK 2.6 billion.
The main impacted areas are described below.
Discount in a contract
The definition of a contract in IFRS 15 is stricter than standards effective prior
to 2018 (previous standards) in that a contract exists only when enforceable
rights and obligations are present. The majority of the Company’s business is
conducted via frame agreements. Typically, a customer purchase order,
together with a frame agreement, creates a firm enforceable commitment.
The stricter definition of a contract affects how discounts are accounted for,
as discounts shall be applied over the value and duration of a contract.
Under the previous standards, the Company considers a broader interpre-
tation of a contract from which it reasonably expects to derive benefit. For a
business covered by frame agreement this may result in a longer timeframe for
recognition of related discounts as future expected purchases are included in
the assessment. The impact of IFRS 15 is that these discounts shall be recog-
nized as a reduction in revenue earlier.
Customized solution contract
Under IFRS 15 revenue for customized solution contracts shall be recognized
over time if certain criteria are met. These contracts relate to the construction
of assets specifically customized for the customer and with no alternative use
to the Company. IFRS 15 also requires the Company to have enforceable right
to payment for performance completed to date.
The Company recognized revenue under previous standards over the dura-
tion of these contracts based on defined delivery milestones. No significant
changes are expected in the method of measuring progress of completion over
the duration of the contract. However, the additional requirement under IFRS
15 will ensure that revenue is recognized for performance completed to date
based on enforceable right to payment that exists at that point. The Company
has identified ongoing contracts where revenue will be deferred as the perfor-
mance completed to date is restricted under IFRS 15 to enforceable billing
rights under the contracts.
Ericsson | Annual Report 2017
Transfer of control for equipment
Under IFRS 15, revenue shall be recognized when control over the equipment
is transferred to the customer at a point in time. This assessment shall be
viewed from a customer’s perspective considering indicators such as transfer
of titles and risks, customer acceptance, physical possession, and billing rights.
For hardware sale, transfer of control is usually deemed to occur when equip-
ment arrives at the customer site and for software sale, when the licences are
made available to the customer. Contractual terms may vary, therefore judg-
ment will be applied when assessing the indicators of transfer of control.
The accounting treatment under previous standards focused on a risk and
reward assessment. The Company has identified contracts where the transfer
of control under IFRS 15 differs from the previous risk and reward assessment.
The resulting impact is a delay in revenue recognition on these contracts.
Under previous standards revenue is recognized on these contracts when risk
of the equipment are transferred at handover points, but the definition of trans-
fer of control in IFRS 15 means that other factors such as billing right and physi-
cal possession together indicate that transfer of control occurs at a later point.
Presentation of contract related balances
The new requirement for classification and presentation of contract related
balances under IFRS 15 will result in a separate presentation of the contract
asset and contract liability balances. At transition date, contract asset balance,
estimated to be SEK 13.1 billion, will be presented separately within current
assets. Under previous standards these balances have been included within
trade receivables as the accounting policy (see Note C1) for 2017 states that
trade receivables include amounts where risks and rewards have been trans-
ferred to the customer but not yet invoiced. Under IFRS 15, these balances will
be presented as contract assets since the Company concluded that they relate
to contract assets that are conditional on terms other than only the passage
of time.
At transition date, contract liability balance, estimated to be SEK 22.1 billion,
will be presented separately within current liabilities. Under previous standards
these balances have been disclosed as deferred revenue within other current
liabilities, and the Company concluded that they meet the definition of con-
tract liability under IFRS 15.
The Company has considered the key areas impacted above and imple-
mented the significant changes to the accounting principles, internal processes
and internal controls framework to reflect the new revenue recognition model
from January 1, 2018.
The Company expects to use a number of estimates and judgments in
determining the amount and timing of revenue under IFRS 15, particularly
when determining the transaction price and its allocation to performance
obligations identified under the contract. Transaction price may consist of
variable elements such as performance related price and contract penalties
that are estimated at the commencement of the contract (and periodically
thereafter). Judgment is used in the estimation process based on historical
experience with the type of business and customer.
IFRS 15 also requires revenue to be allocated to each performance obliga-
tions by reference to their standalone selling prices. The Company considers
that an adjusted market assessment approach should be used to estimate
stand-alone selling prices for its products and services for the purposes of
allocating transaction price.
Financials – Notes to the consolidated financial statements
47
As the Company will adopt the full retrospective method for IFRS 15 imple-
mentation, the impacts on equity (at initial application date of January 1,
2016) and on the income statement (for years 2016 and 2017) are presented
in the tables below.
Estimated impact of IFRS 15 on Equity
December 31, 2015
December 31, 2016
As reported
147,366
140,492
Impact of
IFRS 15
–4,353
–5,235
Restated
143,013
135,257
Estimated impact of IFRS 15 on Income statement items
2017
Net sales
Cost of sales
Gross income
Operating income (loss)
Taxes
Net income (loss)
2016
Net sales
Cost of sales
Gross income
Operating income
Taxes
Net income
As reported
Impact of
IFRS 15
Restated
201,303
–156,758
44,545
–38,126
4,267
–35,063
222,608
–156,243
66,365
6,299
–2,131
1,895
4,075
–703
3,372
3,372
–742
2,630
–2,292
1,160
–1,132
–1,132
249
–883
205,378
–157,461
47,917
–34,754
3,525
–32,433
220,316
–155,083
65,233
5,167
–1,882
1,012
IFRS 16 – Leases
In January 2016, IASB issued a new lease standard, IFRS 16, 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 always obtains the right to use an asset for a
period of time and has an obligation to pay for that right. The accounting for
lessors will be based on the same classification 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. The Company will
apply the new standard as from January 1, 2019. The initial assessment indi-
cates that the main impact on the balance sheet is expected, where the Com-
pany is the lessee, primarily in contracts for real estate and vehicles. The Com-
pany plans to apply a modified transition method. The impact on the financial
statements is not yet defined. In Note C27, “Leasing,” disclosure is given about
future lease payments.
Ericsson | Annual Report 2017
48
Financials – Notes to the consolidated financial statements
C2 Critical accounting estimates and judgments
The preparation of financial statements and application of accounting stan-
dards 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 liability affected. Examples
of this could occur at change of strategy or restructuring. Judgments for
accounting policies to be applied as well as estimates may also be impacted
due to this. Following are the most important accounting policies subject to
such judgments and the key sources of estimation uncertainty that the Com-
pany 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 Compa-
ny’s accounting policies.
Revenue recognition
Key sources of estimation uncertainty
When estimating total contract revenue and cost examples of factors to con-
sider are customer volumes in relation to discounts, the Company´s perfor-
mance in relation to the customer contracts and loss provisions. 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 disclosed that
most of the sales are derived from large, multi-year agreements with a limited
number of significant customers. See also comment about change in account-
ing estimates for customer contracts under Provisions below.
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, 2017, the value of deferred tax assets amounted to SEK
21.2 (15.5) billion. The deferred tax assets related to loss carry-forwards 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, in addition goodwill impair-
ment testing is performed at least once per year. Negative deviations in actual
cash flows compared to estimated cash flows as well as new estimates that
indicate lower future cash flows might result in recognition of impairment
charges. As disclosed in note C10, “Intangible assets” impairment has been
recognized due to significant changes during 2017 in the accounting estimates
for future cash flows. Write-downs for intangible assets and goodwill
amounted to SEK 17.2 billion for 2017.
For further discussion on revenue recognition, see Note C1, “Significant
At December 31, 2017, the amount of acquired intellectual property rights
accounting policies” and Note C4, “Net sales.”
Judgments made in relation to accounting policies applied
Parts of the Company’s sales are generated from large and complex customer
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 recog-
nized in the current period, degree of completion and the customer credit stand-
ing 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 environ-
ment 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, 2017, were SEK 3.6 (1.7) billion or 5.1% (2.2%) 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. Estimates
are required in relation to forecasted sales volumes and inventory balances.
In situations where excess inventory balances are identified, estimates of net
realizable values for the excess volumes are made. Inventory allowances for
estimated losses as of December 31, 2017, amounted to SEK 2.4 (2.4) billion
or 9% (7%) 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 differences and
for tax loss carry-forwards. Deferred tax is recognized net of valuation allow-
ances. 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 differences and loss carry-forwards
may be utilized.
and other intangible assets amounted to SEK 32.0 (51.1) billion, including
goodwill of SEK 27.8 (43.4) billion.
For further discussion on goodwill, see Note C1, “Significant accounting
policies”. Estimates related to acquired intangible assets are based on similar
assumptions and risks as for goodwill. For more information, see Note C10,
“Intangible assets.”
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 indica-
tors. 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 judgments might
result in significantly different results and financial position in the future.
Provisions
Key sources of estimation uncertainty
Provisions are mainly related to estimates for restructuring program execution
and additional costs and settlements in relation to customers and suppliers.
Other sources for estimation uncertainty are patent and other litigations as
well as for unresolved income tax and value added tax issues. As commented
above in the initial part of this note the amounts may come to differ due future
reassessments and outcomes. As disclosed in note C18, “Provisions” provisions
have been recognized due to significant changes during 2017 in the account-
ing estimates for customer contracts resulting in identification of onerous
contracts.
At December 31, 2017, provisions amounted to SEK 9.9 (6.4) 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.
Ericsson | Annual Report 2017 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 statements.
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 applicable
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. The impact of applying an alternative discount rate based on
Swedish covered bonds is disclosed in Note C17, “Post-employment benefits.”
At December 31, 2017, defined benefit obligations for pensions and other
post-employment benefits amounted to SEK 87.6 (87.2) billion and fair value
of plan assets to SEK 64.9 (64.5) 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.
C3 Segment information
Operating segments from October 1, 2017
When determining Ericsson’s operating segments, consideration has been
given to the financial reporting reviewed by the Chief Operating Decision
Maker (CODM). Markets and what type of customers the products and services
aim to attract has been considered, 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, four operating segments are reported;
– Networks
– Digital Services
– Managed Services
– Other (includes Emerging Business, iconectiv, Media Solutions
and Red Bee Media).
Segment Networks includes mobile radio access networks, transport solutions
and site solutions, as well as related services such as network rollout, network
tuning and customer support. 82% of the IPR licensing revenues are reported
as part of segment Networks.
Segment Digital Services includes products and services for service providers
in the areas of OSS & BSS, Packet Core, Communication Services, NFV and
Cloud Infrastructure. It also includes ADM and consulting services. 18% of the
IPR licensing revenues are reported as part of segment Digital Services.
Financials – Notes to the consolidated financial statements
49
Segment Managed services covers vendor agnostic services to manage
service providers networks and includes networks managed services, IT
managed services and network design and optimization.
Segment Other includes Emerging Business, iconectiv, Media Solutions and
Red Bee Media. Emerging business are investment areas to support service
providers in finding new revenues streams, examples being connectivity ser-
vices and platforms for Internet of Things. Iconectiv is an interconnection
solution for service providers and enterprises coming from the former Telcordia
business. In both Media Solution and Red Bee Media, Ericsson is exploring
strategic opportunities.
Market areas
The market areas are the Company’s primary sales channel with the responsi-
bility to sell and deliver customer solutions.
The Company operates worldwide and reports its operations divided into
five geographical market areas:
– Europe and Latin America
– Middle East and Africa
– North America
– North East Asia
– South East Asia, Oceania and India.
In addition, licensing revenues and the majority of segment Other are
externally reported as market area Other.
Major customers
The Company does not have any customer for which revenues from trans-
actions have exceeded 10% of the Company’s total revenues for the years
2017, 2016 or 2015.
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 45% (46%) of net sales. The largest customer accounted for
approximately 7% (7%) of sales in 2017.
For more information, see Risk Factors, “Market, Technology and Business
Risks.”
Previous segment structure, between January 1, 2017 and
September 30, 2017
During this period, there were three operating segments: Networks, IT & Cloud
and Media/Other. As from Oct 1, 2017, the segment structure as described
above (Networks, Digital Services, Managed Services, Other) was introduced.
Financials for the period between January 1 and September 30, 2017, has
been restated to the present segment structure.
Segment Networks. Products and services with a focus on evolving and man-
aging our customers’ telecom networks. The portfolio of radio networks and
backhaul solutions are based on industry standards and can also be industrial-
ized 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 increasingly complex network environment.
Segment IT & Cloud. Products and services providing solutions for our custom-
ers’ 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/Other. Products and services that enable content owners,
broadcasters, TV service providers and network operators to efficiently deliver,
manage and monetize new TV experiences.
Ericsson | Annual Report 2017 50
Financials – Notes to the consolidated financial statements
Operating segments 2017
Segment sales
Net sales
Gross income
Gross margin (%)
Operating income (loss)
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income (loss)
Other segment items
Share in earnings of JV and associated companies
Amortization
Depreciation
Impairment losses
Restructuring expenses
Gains/losses on sale of investments and operations
Operating segments 2016
Segment sales
Net sales
Gross income
Gross margin (%)
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 on sale of investments and operations
Networks
127,966
127,966
40,622
32%
7,644
6%
22
–1,104
–1,883
–1,413
–4,828
316
Networks
140,984
140,984
47,099
33%
17,570
12%
11
–1,526
–2,532
–90
5
–3,413
72
Digital
Services
40,981
40,981
4,361
11%
–27,672
–68%
Managed
Services
24,494
24,494
–1,816
–7%
–4,274
–17%
Other
7,862
7,862
1,378
18%
–13,824
–176%
Total
Segments
201,303
201,303
44,545
22%
–38,126
–19%
8
–2,465
–1,268
–9,349
–2,513
–56
Digital
Services
45,298
45,298
16,081
36%
–6,663
–15%
22
–1,923
–1,061
–38
2
–3,176
27
–6
–14
–193
–108
–675
1
Managed
Services
27,501
27,501
1,062
4%
–507
–2%
–
–18
–341
–12
1
–382
18
–
–765
–759
–8,571
–485
–67
Other
8,825
8,825
2,123
24%
–4,101
–46%
–2
–998
–487
–101
–
–596
6
24
–4,348
–4,103
–19,441
–8,501
194
Total
Segments
222,608
222,608
66,365
30%
6,299
3%
31
–4,465
–4,421
–241
8
–7,567
123
Unallocated
–
–
–
–
–
–
–
–
–
–
–
Unallocated
–
–
–
–
–
–
–
–
–
–
–
–
–
Group
201,303
201,303
44,545
22%
–38,126
–19%
–361
–843
–39,330
4,267
–35,063
24
–4,348
–4,103
–19,441
–8,501
194
Group
222,608
222,608
66,365
30%
6,299
3%
–115
–2,158
4,026
–2,131
1,895
31
–4,465
–4,421
–241
8
–7,567
123
Ericsson | Annual Report 2017
Financials – Notes to the consolidated financial statements
51
Operating segments 2015
Segment sales
Net sales
Gross income
Gross margin (%)
Operating income
Operating margin (%)
Financial income
Financial expenses
Income after financial items
Taxes
Net income
Networks
157,791
157,791
59,653
38%
28,290
18%
Digital
Services
49,443
49,443
21,264
43%
–3,389
–7%
Managed
Service
30,597
30,597
1,655
5%
–19
–
Other segment items
Share in earnings of JV and associated companies
Amortization
Depreciation
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses on sale of investments and operations
–1
–2 042
–2 865
–
10
–2 765
–32
–33
–2 469
–1 012
–
3
–1 875
–10
10
–47
–388
–
1
–238
–7
Other
9,089
9,089
3,246
36%
–3,077
–34%
–14
–960
–440
–20
2
–162
–
Total
Segments
246,920
246,920
85,818
35%
21,805
9%
–38
–5 518
–4 705
–20
16
–5 040
–49
Unallocated
–
–
–
–
–
–
–
–
–
–
–
–
–
Market areas
South East Asia, Oceania & India
North East Asia 4)
North America 3)
Europe & Latin America 1) 2)
Middle East & Africa
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)
2017
30,568
23,506
49,621
56,175
25,073
16,360
201,303
2,989
36,072
52,322
14,937
2016
32,597
27,185
52,003
62,543
28,104
20,176
222,608
3,123
38,525
56,748
19,156
2015
32,155
28,106
55,063
73,603
33,002
24,991
246,920
3,796
45,585
64,299
18,977
2017
512
1,516
8,387
39,559
63
–
50,037
34,381
37,895
7,092
1,123
2016
690
1,556
14,650
59,737
86
–
76,719
53,111
57,759
11,053
530
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
246,920
246,920
85,818
35%
21,805
9%
525
–2,458
19,872
–6,199
13,673
–38
–5,518
–4,705
–20
16
–5,040
–49
2015
668
2,005
14,870
55,325
139
–
73,007
48,467
53,759
12,325
1,547
Ericsson | Annual Report 2017
52
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
2017
2016
2015
123,990
69,408
7,905
201,303
86,812
135,778
76,816
10,014
222,608
107,036
150,775
81,749
14,396
246,920
117,486
C6 Other operating income and expenses
Other operating income and expenses
2017
2016
2015
Other operating income
Gains on sales of intangible assets and PP&E
Gains on sales of investments and operations 1)
Other operating revenues
Total other operating income
Other operating expenses
Losses on sales of intangible assets and PP&E
Losses on sales of investments and operations 1)
Write-down of goodwill 2)
Other operating expenses 3)
47
324
783
1,154
–74
–130
–12,966
–116
423
219
1,345
1,987
–509
–96
–
–978
363
1
1,204
1,568
–158
–50
–
–1,207
–1,415
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
2017
2016
2015
Total other operating expenses
–13,286
–1,583
1) Includes divestments presented in Note C26, “Business combinations.”
2) For more information about the write-down of goodwill, see Note C10, “Intangible assets.”
3) Includes revaluation of cash flow hedges of SEK 0 billion (SEK –0.9 billion in 2016 and
SEK –1.1 billion in 2015) partly offset by result from trading activities.
128,211
76,502
8,451
11,531
843
–4,267
221,271
4,070
–1,444
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
Expenses charged to the income statement
223,897
221,033
233,888
1) The inventory changes are based on changes of net inventory values.
Total restructuring charges in 2017 were SEK 8.5 (7.6) billion and were
primarely related to the initiated cost reduction program. The restructuring
charges in 2017 includes mainly severence cost and the write-down of
SEK –1.3 billion of the ICT center in Canada. 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
2017
5,242
2,307
952
8,501
2016
3,475
2,739
1,353
7,567
2015
2,274
2,021
745
5,040
C7 Financial income and expenses
Financial income and expenses
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
Available for sale
Loans and receivables
Liabilities at amortized cost
Other financial income and expenses
Total
2017
Financial
income
–75
–92
–
–231
–
40
–102
–
7
–361
Financial
expenses
–
–
–1,027
543
2
–
–
72
–431
–843
2016
Financial
income
32
–316
–
–68
–
–
–79
–
–
Financial
expenses
–
–
–1,355
–729
71
–
–
218
–292
–115
–2,158
2015
Financial
income
385
–110
–
190
–
–
–53
–
3
525
Financial
expenses
–
–
–1,428
–760
152
–
–
213
–483
–2,458
1) Excluding net loss from operating assets and liabilities, SEK 451 million (net loss of SEK 234 million in 2016 and net loss of SEK 165 million in 2015), reported as Cost of sales.
Ericsson | Annual Report 2017
C8 Taxes
The Company’s tax benefit for 2017 was SEK 4,267 (–2,131) million or 10.8%
(52.9%) of income after financial items. The tax rate may vary between years
depending on business and geographical mix. Items reported for income taxes
include a reasonable estimate of the impact of the material aspects of the
United Sates Tax Cuts and Jobs Act, which was signed into law on December
22, 2017, on the current and deferred tax assets and liabilities.
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/benefit
2017
–4,168
83
8,355
2016
–3,654
–489
2,017
2015
–6,641
–104
546
Financials – Notes to the consolidated financial statements
53
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
2017
Intangible assets and property, plant
and equipment
Current assets
Post-employment benefits
Provisions
Other
Loss carry-forwards
–3
–5
–
4,267
–2,131
–6,199
Deferred tax assets/liabilities
Netting of assets/liabilities
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.
Tax effects of non-deductible expenses includes the effect of an impairment
of goodwill. The tax effect of rate change mainly includes the effect of the
reduction in the U.S. corporate income tax rate.
Reconciliation of Swedish income tax rate with effective tax rate
Expected tax expense at Swedish tax rate 22.0%
Effect of foreign tax rates
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/benefit
Effective tax rate
2017
8,652
205
83
–150
127
–4,144
480
–986
4,267
10.8%
2016
–886
–536
–489
143
119
–1,357
935
–60
–2,131
52.9%
2015
–4,372
–1,101
–104
–250
185
–1,559
981
21
–6,199
31.2%
Deferred tax balances, net
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
Changes in deferred taxes, net
Opening balance, net
Recognized in net income (loss)
Recognized in other comprehensive income (loss)
Acquisitions/disposals of subsidiaries
Reclassification to current tax
Currency translation differences
Closing balance, net
894
2,667
4,886
1,846
3,556
10,712
24,561
–3,333
21,228
1,223
2,352
4,382
1,631
4,557
4,883
19,028
–3,506
15,522
2,374
866
704
15
275
4,234
–3,333
20,327
901
20,327
4,173
501
692
13
274
–
5,653
–3,506
13,375
2,147
13,375
2017
13,375
8,355
–563
–
–462
–378
20,327
2016
10,711
2,017
521
–57
–
183
13,375
Tax effects reported directly in Other comprehensive income (loss) amount
to SEK –563 (521) million, of which actuarial gains and losses related to
pensions constituted SEK –547 (520) million.
Deferred tax assets are only recognized in countries where the Company
expects to be able to generate corresponding taxable income in the future to
benefit from tax reductions.
Deferred tax assets and liabilites have been adjusted for the effect of the
reduction of the U.S. corporate income tax rate.
Tax loss carry-forwards
Significant tax loss carry-forwards are related to Sweden, the United States
and Germany. These countries have long or indefinite periods of utilization.
Of the total SEK 10,712 (4,883) million recognized deferred tax assets related
to tax loss carry-forwards, SEK 8,795 (3,774) million relates to Sweden.
Ericsson | Annual Report 2017
54
Financials – Notes to the consolidated financial statements
Note 8, contd.
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, 2017, the recognized tax loss carry-forwards amounted
to SEK 47,360 (20,929) million. The increase is primarily attributable to tax-
able losses realized in 2017, by Swedish legal entities. Under Swedish law, tax
losses can be carried forward indefinitely. The tax value of these loss carry-for-
wards is reported as a tax asset based on the indefinite utilization period and
the expectation that significant taxable income will be realized in future years
by these Swedish legal entities to offset these loss carry-forwards.
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
2018
2019
2020
2021
2022
2023 or later
Total
Tax loss
carry-forwards
Tax value
–
37
74
197
870
46,182
47,360
–
9
15
32
218
10,438
10,712
In addition to the table above there are tax loss carry-forwards of SEK 4,544
(3,936) million at a tax value of SEK 842 (950) 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 (loss) attributable to stockholders of
the Parent Company (SEK million)
Average number of shares outstanding,
basic (millions)
Earnings (loss) per share, basic (SEK)
Diluted
Net income (loss) attributable to stockholders
of the Parent Company (SEK million)
Average number of shares outstanding,
basic (millions)
Dilutive effect for stock purchase (millions)
Average number of shares outstanding,
diluted (millions)
Earnings (loss) per share, diluted (SEK)
2017
2016
2015
–35,206
1,716
13,549
3,277
–10.74
3,263
0.53
3,249
4.17
–35,206
1,716
13,549
3,277
–
3,277
–10.74
3,263
40
3,303
0.52
3,249
33
3,282
4.13
When a company reports a loss, the number of shares used for calculating
earnings diluted per share shall be the same as for basic calculation.
C10 Intangible assets
Intangible assets 2017
Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested businesses 2)
Sales/disposals
Translation difference
Closing balance
Accumulated amortization
Opening balance
Amortization
Sales/disposals
Reclassification
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
18,246
1,340
2,213
–
–
–
–
–
–
–
19,586
2,213
–8,243
–2,586
–
–101
–
–10,930
–2,123
–2,058
–4,181
4,475
–2,158
–
–
–
–
–2,158
–55
–
–55
–
1,847
104
–
–1,019
–
932
–1,614
–95
1,019
101
–
–589
–37
–187
–224
119
22,306
1,444
–
–1,019
–
22,731
–12,015
–2,681
1,019
–
–
–13,677
–2,215
–2,245
–4,460
4,593
43,405
–
–122
–
–2,484
40,799
–
–
–
–
–
–
–18
–12,966
–12,984
27,815
IPR1). brands and
other intangible
assets
Total
57,340
336
101
–152
–1,693
55,932
–44,262
–1,667
152
–
1,343
–44,434
–5,331
–2,019
–7,350
4,148
1) Intellectual property rights.
2) For more information on acquired/divested businesses, see Note C26, “Business combinations.”
Ericsson | Annual Report 2017 Intangible assets 2016
Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested businesses 2)
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
Financials – Notes to the consolidated financial statements
55
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
–
–
–
–
–
2,213
–2,158
–
–
–
–2,158
–55
–
–55
–
1,697
150
–
–
–
–
1,847
–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
IPR1), brands
and other
intangible assets
Total
55,895
15
177
–870
640
1,483
57,340
–41,248
–2,650
840
–1,204
–44,262
–5,331
–
–5,331
7,747
1) Intellectual property rights.
2) For more information on acquired/divested businesses, see Note C26, “Business combinations.”
The total goodwill for the Company is SEK 27.8 (43.4) billion and is allocated
to the operating segments Networks, with SEK 24.3 billion, Digital Services,
with SEK 2.6 billion and segment Other, with SEK 0.9 billion. Managed Services
does not carry goodwill. The impairment testing has been based on the seg-
ments that became effective as per October 1, 2017. More information is
disclosed in Note C3 “Segment information.”
Write-down during 2017
The impairment write-down of SEK 13.0 billion was triggered by the focused
business strategy and the new organizational structure implemented and
externally communicated during the year. In Digital Services the strategy was
shifted from a services-lead to a product-lead strategy, and actions include
accelerating the introduction of the new products, streamlining the services
organization and tightening the contract scoping as the sales of legacy prod-
ucts and related services decline in 2017. For the Media Business strategic
opportunities was explored. These changes have significantly impacted the
approved business plans and have had a significant impact on the estimated
future cash flows used for calculating the recoverable amounts.
The following write-downs of goodwill have been made: Segment Digital
Services of SEK 6.9 billion and segment Other SEK 6.1 billion (of which SEK 6.0
billion relates to Media Solutions). These amounts are reported on line item
Other operating income and expenses.
In addition to goodwill, the following write-downs of intangibles and capi-
talized development expenses have been made: Segment Networks SEK 0.4
billion related to technologies that are no longer planned to be used, segment
Digital Services SEK 1.8 billion related to intangibles, of which Sunrise tech-
nology SEK 0.5 billion and capitalized development expenses following from
the focused business strategy, segment Other SEK 2.0 billion related to the
changed strategy for the Media Solutions and Red Bee Media businesses, of
which intangibles for Red Bee SEK 0.8 billion. These amounts are reported on
line items Research and development expenses SEK 2.6 billion and Selling
and administrative expenses SEK 1.6 billion.
Impairment write-down by Segment 2017
SEK billion
Networks
Digital
Services
Other
Goodwill
Intangible assets
Capitalized development
expenses
Total write-down
–
0.1
0.3
0.4
6.9
0.9
0.9
8.7
6.1 1)
1.0
1.0
8.1
1) Of which Media Solutions SEK 6.0 billion and Red Bee Media SEK 0.1 billion.
Total
13.0
2.0
2.2
17.2
Goodwill allocation
The goodwill in 2016 was tested for the segments Networks, IT & Cloud and
Media. There was no impairment indication in the segment structure at the end
of the third quarter 2017. In the fourth quarter of 2017, goodwill was reallo-
cated to the new segments Networks, Digital Services and Other. For the
allocation a relative value approach was considered but was not used, since
the new segments are from an acquisition point of view essentially the same as
the previous segments Networks, IT & Cloud and Media. Instead the goodwill
values for the previous Networks segment was allocated to the current Net-
works segment, the values for the previous IT & Cloud segment was allocated
to the current segment Digital Services and the values for the previous Media
segment was allocated to three Cash Generating Units (CGU:s), within the
current segment Other. The allocation within this segment was made using
the relative value approach, except for the goodwill related to one acquisition,
belonging to Media solutions, where the alternative approach was used. No
goodwill was allocated to the current segment Managed Services, which was
carved out of the previous Networks and IT & Cloud segments. The reason for
not allocating goodwill to this segment is that it has not grown the business
by external acquisitions.
Segment Other consists of three CGU:s. This is a result of the change in
strategic direction and organization, where various options like partnerships,
divestments and continued in-house development have been evaluated for
the business operations Media Solutions, Red Bee Media and iconectiv. As a
result these business operations now have cash inflows that are largely inde-
pendent of the cash inflows from other CGU:s.
Impairment tests
Each operating segment is a CGU, except for segment Other which consists of
three CGU:s. The goodwill impairment testing is based on five-year business
plans for all CGU:s, except for two within segment Other, where fair value less
cost of disposal has been used.
Value in use has been applied which, except for two CGU:s, see below, which
means that the recoverable amounts for CGU:s are established as the present
value of expected future cash flows based on business plans approved by
management.
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.
Ericsson | Annual Report 2017 56
Financials – Notes to the consolidated financial statements
Note 10, contd.
– The assumptions regarding industry-specific market drivers and market
growth are based on industry sources as input to the projections made
within the Company for the development 2017–2023 for key industry
parameters:
– By 2023, less than 35 years after the introduction of digital mobile tech-
nology, it’s predicted that there will be 9.1 billion mobile subscriptions.
– The number of mobile subscriptions is estimated to grow from around 7.8
billion by the end of 2017 to around 9.1 billion by the end of 2023. Out of
all mobile subscriptions, 7.3 billion will be associated with a smartphone.
The number of 5G subscriptions is forecasted to reach 1 billion by the end
of 2023.
– By 2023, over 30 billion connected devices are forecasted, of which around
20 billion will be related to the IoT. Connected IoT devices include connected
cars, machines, meters, sensors, point-of-sale terminals, consumer electron-
ics and wearables.
– Mobile data traffic volume is estimated to increase by around eight times in
the period 2017–2023. The mobile traffic is driven by smartphone users and
video traffic. Smartphone traffic will grow by around nine times, and mobile
video traffic is forecast to grow by around 50% annually through 2023 to
account for approximately 75% of all mobile data traffic.
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 business and customers,
driven by the continued integration of telecom, data, and media industries.
For the value in use method 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% (1%) per year thereafter. An after-tax
discount rate of 8.5% (8.0%) has been applied for the discounting of projected
after-tax cash flows. The same rate has been applied for all CGU:s, since there
is a high degree of integration between them.
During the year various options including divestments have been evaluated
for the two CGU:s Media Solutions and Red Bee Media. As a result of this
indicative market bids became available and therefore the fair value less cost
of disposal method was used for these two CGU:s. The indicative market bids
have been classified as level 3 in the fair value hierarchy. There are no remain-
ing goodwill values for these units.
In addition, when a reasonably higher discount rate of 11.0% has been
applied in the impairment tests, headroom for the CGU:s Networks and iconec-
tiv is still positive. For segment Digital Services the remaining goodwill value
after the 2017 write-down is SEK 2.6 billion and the remaining value of intan-
gible assets is SEK 2.0 billion. If the discount rate in the impairment test would
have been increased by two percentage points to 10.5%, all goodwill and
intangible assets for this segment would have had to be written down.
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. The assumptions for 2016 are
disclosed in Note C10, “Intangible assets” in the Annual Report of 2016.
C11 Property, plant and equipment
Property, plant and equipment 2017
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
Translation difference
Closing balance
Accumulated impairment losses
Opening balance
Impairment losses
Sales/disposals
Translation difference
Closing balance
Net carrying value
Real estate
Machinery and other
technical assets
Other equipment,
tools and installations
Construction in progress
and advance payments
7,132
150
–9
–1,323
757
–197
6,510
–3,629
–458
9
349
99
–3,630
–43
–297
200
–
–140
2,740
4,286
183
–134
–457
56
–115
3,819
–3,651
–279
85
442
93
–3,310
–3
–42
4
–1
–42
467
33,134
1,317
–12
–5,387
2,226
–664
30,614
–23,061
–3,366
11
4,263
491
–21,662
–79
–1,872
1,050
–9
–910
8,042
2,648
2,227
–
–185
–3,039
–43
1,608
–
–
–
–
–
–
–
–
–
–
–
1,608
Total
47,200
3,877
–155
–7,352
–
–1,019
42,551
–30,341
–4,103
105
5,054
683
–28,602
–125
–2,211
1,254
–10
–1,092
12,857
Contractual commitments for the acquisition of property, plant and equipment
as per December 31, 2017, amounted to SEK 350 (476) million.
In 2017 impairment losses have been made of SEK 2.2 (0.2) billion, where
SEK 1.2 billion were related to the divest and sale of the ICT center in Canada,
as rapid technology development allows the Company to consolidate test
activities to the two remaining centers in Sweden. The impairment loss of SEK
2.2 billion by segment was Networks SEK 1.0 billion, Digital Services SEK 0.7
billion, Managed Services SEK 0.1 billion and Other SEK 0.4 billion.
Ericsson | Annual Report 2017 Financials – Notes to the consolidated financial statements
57
Property, plant and equipment 2016
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
Real estate
Machinery and other
technical assets
Other equipment,
tools and installations
Construction in progress
and advance payments
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
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
4,750
4,285
–
–269
–6,315
197
2,648
–
–
–
–
–
–
–
–
–
–
–
–
–
2,648
16,734
C12 Financial assets, non-current
Equity in joint ventures and associated companies
Opening balance
Share in earnings
Distribution of capital stock
Taxes
Dividends
Divested business
Translation difference
Closing balance ¹)
1) Goodwill, net, amounts to SEK 1 (1) million.
2017
775
24
–95
–3
–77
–
–
624
2016
1,210
31
–
–5
–84
–15
–362
775
There were no major holdings in joint ventures or associated companies in
2017. 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
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%)
2017
21.26%
20
–
2016
21.26%
22
–
2015
21.26%
21
5
20
3
–
–
–
–
22
3
–
–
–
–
16
3
–
–642
–642
–137
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 distributed to the owners. Rockstar Consortium has
concluded its operations.
Ericsson | Annual Report 2017 58
Financials – Notes to the consolidated financial statements
Note 12, contd.
Financial assets, non-current
Other investments in
shares and participations
Customer finance,
non-current
Interest-bearing
securities, non-current
Derivatives,
non-current
Other financial assets,
non-current
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
Cost
Opening balance
Additions
Disposals/repayments/ deductions
Change in value in funded pension
plans 1)
Revaluation
Reclassification
Translation difference
2,516
146
–43
–
99
–
–50
2,567
133
–267
–
2
–
81
Closing balance
2,668
2,516
Accumulated impairment losses/
allowances
Opening balance
Impairment losses/allowances
Disposals/repayments/ deductions
Translation difference
Closing balance
Net carrying value
–1,337
–126
25
49
–1,389
1,279
–1,292
37
–1
–81
–1,337
1,179
2,137
1,788
–1,100
–
–
–570
–18
2,237
–9
–56
6
–
–59
1,755
2,704
–2,333
7,586
54,687
–37,241
–
–
–12
23
–
73
–
–
–
7,593
–
–
–7
–
–
2,137
25,105
7,586
–16
–5
12
–
–9
–
–
–
–
–
–
–
–
–
–
2,178
2,128
25,105
7,586
1) This amount includes asset ceiling. For further information, see Note C17, “Post-employment benefits.”
–
86
–
–
–
–
–
86
–
–
–
–
–
86
452
–
–
–
–
–452
–
–
–
–
–
–
–
–
4,648
503
–375
1,300
27
–
–169
5,934
–206
–1
77
7
–123
5,811
5,365
785
–187
–1,622
62
–
245
4,648
–183
–1
–1
–21
–206
4,442
C13 Inventories
Inventories
Raw materials, components, consumables
and manufacturing work in progress
Finished products and goods for resale
Contract work in progress
Inventories, net
2017
2016
4,015
8,864
12,081
24,960
5,043
12,183
13,081
30,307
The amount of inventories, excluding contract work in progress, recognized as
expense and included in Cost of sales was SEK 58,901 (63,386) million.
Contract work in progress includes amounts related to delivery-type
contracts and service contracts with ongoing work in progress.
Reported amounts are net of obsolescence allowances of SEK 2,425
(2,412) million.
C14 Trade receivables and customer finance
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
Trade receivables, total
Customer finance credits
Allowances for impairment
Customer finance credits, net
Of which current
Credit commitments for customer finance
2017
2016
66,487
–3,335
63,152
58
63,210
4,223
–292
3,931
1,753
9,706
69,430
–1,403
68,027
90
68,117
5,003
–250
4,753
2,625
13,082
Movements in obsolescence allowances
Days sales outstanding (DSO) were 101 (95) in December 2017.
Opening balance
Additions, net
Utilization
Translation difference
Balances regarding acquired/divested businesses
Closing balance
2017
2,412
1,319
–1,210
–91
–5
2,425
2016
2,555
725
–981
113
–
2,412
2015
2,326
1,480
–1,295
44
–
2,555
Movements in allowances for impairment
Opening balance
Additions
Utilized
Reversal of excess amounts
Reclassification
Translation difference
Closing balance
Trade receivables
Customer finance
2017
1,403
3,544
–1,485
–48
–66
–13
3,335
2016
1,202
356
–156
–28
–
29
1,403
2017
250
85
–3
–27
–
–13
292
2016
286
78
–108
–8
–
2
250
Ericsson | Annual Report 2017
Note 12, contd.
Financials – Notes to the consolidated financial statements
59
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
2017
Trade receivables, excluding associated
companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment
2016
Trade receivables, excluding associated
companies and joint ventures
Allowances for impairment
Customer finance credits
Allowances for impairment
66,487
–3,335
4,223
–292
69,430
–1,403
5,003
–250
56,059
–
1,841
–
58,198
–
3,250
–
15
–15
2,029
–104
62
–62
1,480
–64
2,924
–
4
–
4,406
–
10
–
4,169
–
99
–
5,423
–
3
–
220
–220
29
–20
10
–10
24
–6
3,100
–3,100
221
–168
1,331
–1,331
236
–180
Credit risk
Credit risk is divided into three categories: credit risk in trade receivables,
customer finance risk and financial credit risk, see Note C1 “Significant
accounting policies” and Note C20, “Financial risk management and financial
instruments.”
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 authoriza-
tion.
Letters of credits are used as a method for securing payments from custom-
ers 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 66,487 (69,430) million as of December
31, 2017. Provisions for expected losses are regularly assessed and amounted
to SEK 3,335 (1,403) million as of December 31, 2017. The Company’s nomi-
nal 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 19% (27%) of the total trade receiv-
ables in 2017.
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 rating 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 commercial 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 inter-
nally 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 effec-
tive and which are expected to have a significant adverse impact on the bor-
rower’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, 2017, the Company’s total outstanding exposure
related to customer finance was SEK 4,223 (5,003) million. As of December 31,
2017, the Company also had unutilized customer finance commitments of SEK
9,706 (13,082) million. Customer finance is arranged for infrastructure projects
in different geographic markets and for a large number of customers. As of
December 31, 2017, there were a total of 79 (81) customer finance arrange-
ments originated by or guaranteed by the Company. The five largest facilities
represented 64% (55%) of the total credit exposure in 2017.
Total outstanding customer finance exposure per market area as of December 31
Percent
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa
Other
Total
2017
2016
24
–
7
12
56
1
17
–
7
19
56
1
100
100
The effect of risk provisions and reversals for customer finance affecting the
income statement amounted to a net negative impact of SEK 59 million in
2017 compared to a net positive impact of SEK 24 million in 2016. Credit
losses amounted to SEK 24 (108) million in 2017.
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 cover-
age 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
Ericsson | Annual Report 2017 60
Financials – Notes to the consolidated financial statements
Note 14, contd.
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, 2017 and 2016.
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
2017
4,223
77
14
–505
3,809
2016
5,003
124
16
–805
4,338
Transfers of financial assets
Transfers where the Company has continuing involvement
During 2017, there were no new financial assets transferred where the
Company had continuing involvement. However, during 2016 the Company
derecognized financial assets where it had continuing involvement. A repur-
chase of these assets would amount to SEK 380 (630) million. No assets or
liabilities were recognized in relation to the continuing involvement.
C15 Other current receivables
Other current receivables
Prepaid expenses
Accrued revenues
Advance payments to suppliers
Derivatives with a positive value 1)
Taxes
Other
Total
2017
2,546
1,342
338
1,207
15,291
1,576
22,300
2016
4,501
1,584
1,384
1,108
13,974
1,880
24,431
1) See also Note C20, “Financial risk management and financial instruments.”
C16 Equity and other comprehensive
income (loss)
Capital stock 2017
Capital stock at December 31, 2017, consisted of the following:
Capital stock
Parent Company
Class A shares
Class B shares
Total
Number of shares
261,755,983
3,072,395,752
3,334,151,735
Capital stock
(SEK million)
1,309
15,363
16,672
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 earn-
ings. 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, 2017, the total number of treasury shares was 50,265,499
(62,192,390 in 2016 and 49,367,641 in 2015) Class B shares. Ericsson repur-
chased 3.0 million shares in 2017 in relation to the Stock Purchase Plan.
Reconciliation of number of shares
Number of shares Jan 1, 2017
Number of shares Dec 31, 2017
Number of shares
3,331,151,735
3,334,151,735
Capital stock
(SEK million)
16,657
16,672
For further information about the number of shares, see the chapter
Share Information.
Dividend proposal
The Board of Directors will propose to the Annual General Meeting 2018
a dividend of SEK 1.00 per share (SEK 1.00 in 2017 and SEK 3.70 in 2016).
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.
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.
Ericsson | Annual Report 2017 C17 Post-employment benefits
Ericsson sponsors a number of post-employment benefit plans throughout
the Company, which are in line with market practice in each country. The year
2017 was characterized by a decrease in discount rates in most plans. In total,
financial assumption changes resulted in actuarial losses on defined benefit
obligations of SEK 2.1 billion. The devel opment of plan assets was greater
than expected resulting in actuarial gains of SEK 2.4 billion.
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 salaried
employees in manufacturing industries and trade), complemented by
a defined contribution plan, known as ITPK (supplementary retirement
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 53% (55%) through Ericsson Pensionsstif-
telse (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 grow-
ing 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 man-
aged 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 company
Alecta. Although this part of the plan is classified as a multi-employer 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 employ-
ers. 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 insur-
ance 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 accor-
dance with Alecta’s actuarial assumptions, which are different from those in
IAS 19R. Alecta’s collective funding ratio was 154% (149%) as of December
31, 2017. The Company’s share of Alecta’s saving pre miums is 0.5%; the total
Financials – Notes to the consolidated financial statements
61
share of active members in Alecta are 2.0%. The expected contribution to the
plan is SEK 94 million for 2018.
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 4.5
billion to PRI Pensionsgaranti.
US plans
The Company operates both defined contribution and 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 members 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 Company’s
policy is at least to meet or exceed the funding requirements of federal regula-
tions. The funded level in the US Pension Plan is above the point at which
minimum funding would be required for fiscal year 2017.
Plan assets held in trusts are governed by local regulations and practice,
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; how-
ever, 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.
UK plans
The Company operates both defined benefit and defined contribution plans
in the UK. Most defined benefit plans in the UK are closed to future pension
accrual.
The defined benefit plans provide benefits to members in the form of a
guaranteed level of pension payable for life. The level of benefits provided is
defined by the Trust Deed & Rules and depends on members’ length of service
and their salary. Pensions in payment are generally updated in line with the UK
retail price index, subject to caps defined by the rules.
The plans’ assets are held in trusts and are invested in a diverse range of
assets. The plans are governed by local regulations and responsibility for the
governance of the plans lies with the Trustee Directors, who are appointed by
the Company from its employees and from the plans’ members. Independent
professional trustees sit on a number of the Boards.
The plans remain exposed to various risks associated with defined benefit
plans, e.g. a decrease in bond yields or increase in inflation would lead to an
increase in the present value of the defined benefit obligation. Alternatively,
the duration of payments to retirees could exceed the life expectancy assumed
in the current mortality tables leading to an increase in liabilities. A sudden
instability in the financial markets might also lead to a decrease in the fair
value of the plans’ assets. The Company and Trustees’ aim is to reduce the
plans’ exposure to the key risks over time.
Ericsson | Annual Report 2017 62
Financials – Notes to the consolidated financial statements
Note 17, contd.
Other plans
The Company also sponsors plans in other countries. The main plans are in
Brazil and Ireland. The plan in Brazil is a pension plan wholly funded with a net
surplus of assets. The plan in Ireland is a final salary pension plan and is partly
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.
Amount recognized in the Consolidated balance sheet
Amount recognized in the Consolidated balance sheet
2017
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)
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)
Sweden
US
UK
Other
Total
41,166
21,938
19,228
–
19,228
38,202
20,956
17,246
–
17,246
21,005
20,402
603
83
686
22,710
21,545
1,165
–
1,165
13,246
14,599
–1,353
1,685
332
14,088
14,061
27
481
508
12,228
8,000
4,228
535
4,763
12,175
7,923
4,252
552
4,804
87,645
64,939
22,706
2,303
25,009
87,175
64,485
22,690
1,033
23,723
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 30 million from SEK 484 million in 2016 to SEK 454 million in 2017.
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
2017
Pension cost for defined contribution plans
Pension cost for defined benefit plans
Total
Total pension cost expressed as a percentage of wages and salaries
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
Sweden
1,096
1,824
2,920
1,061
1,314
2,375
1,136
1,806
2,942
US
473
168
641
687
167
854
729
81
810
UK
173
38
211
185
38
223
136
57
193
Other
Total
1,228
592
1,820
1,287
595
1,882
1,239
609
1,848
2,970
2,622
5,592
9.5%
3,220
2,114
5,334
8.9%
3,240
2,553
5,793
9.5%
Ericsson | Annual Report 2017 Financials – Notes to the consolidated financial statements
63
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
Present value
of obligation
2017 2)
87,175
–
Fair value of
plan assets
2017
–64,485
–
1,793
296
2,198
143
–13
4,417
–
–
–1,892
45
2
–1,845
Total
2017
22,690
–
1,793
296
306
188
–11
2,572 3)
Present value of
obligation
2016 2)
Fair value of
plan assets
2016
78,141
104
–58,178
–104
1,853
–182
2,451
53
–16
4,159
–
–
–2,176
49
2
–2,125
Total
2016
19,963
–
1,853
–182
275
102
–14
2,034 3)
–
–2,438
–2,438
–
–4,280
–4,280
–396
2,110
–219
1,495
–
–
–
–2,438
–396
2,110
–219
–943
–405
8,255
–1,550
6,300
–
–
–
–4,280
–405
8,255
–1,550
2,020
–2,275
2,262
–12
1,002
–834
168
–880
27
–2,173
–141
–
87,645
–583
–23
2,173
–
–
–1,463
4
–
–141
–
–64,939
22,706
–902
28
–1,568
–
–89
87,175
–562
–22
1,568
–
52
–1,464
6
–
–
–37
–64,485
22,690
1) The expected contribution to the plans is SEK 1,364 million during 2018.
2) The weighted average duration of DBO is 20.1 years.
3) Excluding the impact of the asset ceiling of SEK 50 million in 2017 and SEK 80 million in 2016.
Present value of the defined benefit obligation
2017
DBO, closing balance
Of which partially or fully funded
Of which unfunded
2016
DBO, closing balance
Of which partially or fully funded
Of which unfunded
Sweden
US
UK
Other
Total
41,166
40,665
501
38,202
37,679
523
21,005
20,319
686
22,710
21,956
754
13,246
13,246
–
14,088
14,088
–
12,228
9,465
2,763
12,175
9,361
2,814
87,645
83,695
3,950
87,175
83,084
4,091
Ericsson | Annual Report 2017 64
Financials – Notes to the consolidated financial statements
Note 17, contd.
Asset allocation by asset type and geography
2017
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
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
Sweden
US
UK
Other
Total
Of which
unquoted
3,124
4,079
8,663
4,269
1,803
–
–
21,938
–
–
1,819
3,983
8,791
4,093
2,270
–
–
20,956
–
–
382
795
17,650
–
1,478
–
97
20,402
–
–
414
692
18,286
–
1,505
–
648
21,545
–
–
834
3,116
9,331
244
160
–
914
14,599
–
–
420
2,526
10,010
132
270
–
703
14,061
–
–
88
2,432
3,494
212
208
1,200
366
8,000
–
–
373
1,669
3,888
198
206
1,125
464
7,923
–
–
4,428
10,422
39,138
4,725
3,649
1,200
1,377
64,939
–
–
3,026
8,870
40,975
4,423
4,251
1,125
1,815
64,485
–
–
0%
16%
68%
100%
66%
100%
41%
14%
19%
70%
100%
65%
100%
69%
Actuarial assumptions
Financial and demographic actuarial assumptions 1)
Financial assumptions
Discount rate, Sweden
Discount rate, US
Discount rate, UK
Discount rate, weighted average of Total
Demographic assumptions
Life expectancy after age 65 in years, weighted average
2017
2016
1.6%
3.7%
2.6%
2.5%
1.8%
4.1%
2.7%
2.8%
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 (DBO) has been calculated using a discount
rate based on the 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. As of December 31, 2017, the discount rate applied in
Sweden was 1.6% compared to 1.8% as of December 31, 2016. If the discount
rate had been based on Swedish covered bonds, the discount rate would have
been 2.8% as of December 31, 2017 and 3.1% as of December 31, 2016. If
these discount rates based on Swedish covered bonds had been applied for the
pension liability calculation, the DBO would have been approximately SEK 9
billion lower as of both December 31, 2017 and December 31, 2016.
US and UK
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.
Total remeasurements in Other comprehensive income (loss)
related to post- employment benefits
Actuarial gains and losses (+/–)
The effect of asset ceiling
Swedish special payroll taxes 1)
Total
2017
1,210
27
–267
970
2016
–1,955
254
–65
–1,766
1) Swedish payroll taxes are included in recognized gain/loss during the year in OCI.
Sensitivity analysis of significant actuarial assumptions
SEK billion
2017
2016
Impact on the DBO of an increase in the discount rate
Discount rate, Sweden +0.5%
Discount rate, US +0.5%
Discount rate, UK +0.5%
Discount rate, weighted average of Total +0.5%
Impact on the DBO of an decrease in the discount rate
Discount rate, Sweden –0.5%
Discount rate, US –0.5%
Discount rate, UK –0.5%
Discount rate, weighted average of Total –0.5%
–4.5
–1.1
–1.5
–8.1
+5.2
+1.2
+1.8
+9.3
–4.3
–1.3
–1.7
–8.3
+5.0
+1.3
+1.9
+9.4
Ericsson | Annual Report 2017 C18 Provisions
Provisions
2017
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income statement
Utilization/Cash out
Reclassifications
Translation difference
Closing balance
2016
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income statement
Utilization/Cash out
Reclassifications
Translation difference
Closing balance
Financials – Notes to the consolidated financial statements
65
Restruc turing
Customer
related
Suppliers
related
Warranty
4,163
5,448
–207
–5,327
1
–35
4,043
1,466
5,271
–130
–2,440
1
–5
4,163
74
4,105
–
–1,532
–10
5
2,642
92
51
–6
–64
–3
4
74
134
1,885
–90
–262
–50
–4
1,613
182
82
–69
–64
–
3
134
248
242
–2
–267
5
–1
225
528
267
–207
–365
9
16
248
Other
1,738
799
–63
–833
–59
–159
1,423
1,570
675
–277
–220
–15
5
1,738
Total
6,357
12,479
–362
12,117
–8,221
–113
–194
9,946
3,838
6,346
–689
5,657
–3,153
–8
23
6,357
Provisions will fluctuate over time depending on business mix, market
mix and technology shifts. Risk assessment in the ongoing business is per-
formed 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 judgment 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 2017, new or additional provisions amounting to SEK 12.5 billion were
made, and SEK 0.4 billion of provisions were reversed. The actual cash outlays
for 2017 were SEK 8.2 billion compared with the estimated SEK 4.4 billion. The
higher outcome compared to the estimate relates to the restructuring and the
customer project adjustments, as well as that certain provisions where identi-
fied and paid out during 2017. The expected total cash outlays in 2018 are
approximately SEK 6.0 billion.
Of the total provisions, SEK 3.6 (0.9) billion is classified as non-current.
For more information, see Note C1, “Significant accounting policies” and
Note C2, “Critical accounting estimates and judgments.”
Restructuring provisions
In 2017, SEK 5.4 billion in provisions were made and SEK 0.2 billion were
reversed due to a more favorable outcome than expected. The scope of the
structural efficiency measures involves service delivery, supply and manufac-
turing, R&D and SG&A (Selling, General and Administrative expenses). The
cash outlays for restructuring provisions were SEK 5.3 billion for the full-year,
compared with the expected SEK 3.2 billion. The cash outlays for the full-
year also includes provisions identified and paid out during 2017. The cash
outlays for 2018 for these provisions are estimated to total approximately
SEK 3.0 billion.
Customer related
Customer related provisions include provision for contractual discounts,
contractual penalties, and onerous contracts. During 2017, new provisions
amounting to SEK 4.1 billion were made, mainly due to additional project
costs and customer settlements. The cash outlays were SEK 1.5 billion in 2017
compared to the estimated of SEK 0.0 billion. For 2018, the cash outlays for
these provisions are estimated to total approximately SEK 1.9 billlion.
Supplier related
Supplier related provisions include provision for supplier claims/guarantees.
During 2017, new provisions amounting to SEK 1.9 billion were made and SEK
0.1 were reversed due to more favorable outcome. The cash outlays were SEK
0.3 billion in 2017 compared to the estimated of SEK 0.1 billion. For 2018, the
cash outlays for this provision is estimated to total approximately SEK 0.2
billion.
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 0.2
billion were made. The actual cash outlays for 2017 were SEK 0.3 billion, in line
with the expected SEK 0.1 billion. The cash outlays of warranty provisions
during year 2018 are estimated to total approximately SEK 0.2 billion.
Other provisions
Other provisions include provisions for probable contractual penalties,
tax issues, litigations, and other. During 2017, new pro visions amounting to
SEK 0.8 billion were made and SEK 0.1 billion were reversed due to a more
favorable outcome. The cash outlays were SEK 0.8 billion in 2017 compared
to the estimate of SEK 1.0 billion. For 2018, the cash outlays for other provi-
sions are estimated to total approximately SEK 0.7 billion.
Ericsson | Annual Report 2017 66
Financials – Notes to the consolidated financial statements
C19 Interest-bearing liabilities
As of December 31, 2017, the Company’s outstanding interest-bearing liabili-
ties was SEK 33.0 (26.7) billion.
Interest-bearing liabilities
Borrowings, current
Current part of non-current borrowings 1)
Other borrowings, current
Total borrowings, current
Borrowings, non-current
Notes and bond loans
Other borrowings, non-current
Total borrowings, non-current
Total interest-bearing liabilities
1) Including notes and bond loans of SEK 0 (4,900) million.
2017
2016
89
2,456
2,545
20,560
9,940
30,500
33,045
4,954
3,079
8,033
10,556
8,097
18,653
26,686
To secure long-term funding, the Company uses notes and bond programs
together with bilateral research and development loans. All outstanding 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 under the Asset
and liability management mandate described in Note C20, “Financial risk
management and financial instruments.” Total weighted average interest rate
cost for the long-term funding during the year was 1.68% (2.76%). The out-
standing EUR bonds and USD bond are revalued based on changes in bench-
mark interest rates according to the fair value hedge methodology stipulated
in IAS 39.
In February 2017, the Company issued a Euro denominated 500 million
4-year bond with a fixed coupon rate of 0.875% and a Euro denominated 500
million 7-year bond with a fixed coupon rate of 1.875%. The proceeds were
used to refinance debt maturing in 2017 and for general corporate purposes.
In April 2017, the Company exercised its second extension option under the
USD 2 billion multi-currency revolving credit facility, extending the maturity
date to June 2022.
In June 2017, the Company repaid the Euro demoninated 500 million bond
issued in 2007.
In December, Ericsson raised USD 220 million from the Nordic Investment
Bank (NIB) and USD 150 million from AB Svensk Exportkredit. The credit
agreements mature in 2023 and 2025 and extended Ericsson’s debt maturity
profile. Of these new funds, 98 million replaced credit with NIB that was set to
mature in 2019.
Notes, bonds, bilateral loans and committed credit
Issued-maturing
Notes and bond loans
2010–2020 1)
2012–2022
2017–2021
2017–2024
2017–2025 1)
Total notes and bond loans
Bilateral loans
2012–2021 3)
2013–2020 4)
2013–2023 3)
Total bilateral loans
Committed credit
Long-term committed credit facility 5)
Total committed credit
Nominal
amount
Coupon
Currency
Book value
(SEK million)
Market value
(SEK million)
Maturity date
Unrealized hedge
gain/loss (included
in book value)
4.125%
0.875%
1.875%
170
1,000
500
500
150
98
684
220
2,000
USD
USD
EUR
EUR
USD
USD
USD
USD
USD
1,394
8,180 2)
4,897 2)
4,862 2)
1,227
1,488
8,223
4,846
4,824
1,432
December 23, 2020
May 15, 2022
March 1, 2021
March 1, 2024
December 22, 2025
20,560
20,813
805
5,609
1,797
8,211
–
–
830
5,724
1,972
8,526
–
–
September 30, 2021
November 6, 2020
June 15, 2023
June 5, 2022
9
7
–7
9
1) Private Placement, Swedish Export Credit Corporation (SEK).
2) Interest rate swaps are designated as fair value hedges.
3) Nordic Investment Bank (NIB), R&D project financing.
4) European Investment Bank (EIB), R&D project financing.
5) Multi-currency revolving credit facility. Unutilized.
Ericsson | Annual Report 2017 Financials – Notes to the consolidated financial statements
67
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 invest-
ment grade rating, low leverage and ample liquidity is deemed important. This
provides financial flexibility and independence to operate and manage varia-
tions in working capital needs as well as to capitalize on business opportunities.
The Company’s overall capital structure should support the financial targets.
The capital structure is managed by balancing 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 expen-
ditures and dividends to shareholders by generating cash flows from operat-
ing 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 (Baa2)
and Standard & Poor’s (BBB).
Capital objectives-related information, SEK billion
Capital
Equity ratio
Cash conversion
Positive net cash
Post-employment benefits
Credit rating
Moody’s
Standard & Poor’s
1) Impacted by a negative result.
2017
100
38%
–58% 1)
34.7
25.0
2016
140
50%
175%
31.2
23.7
Ba2, negative
BB+, stable
Baa3, negative
BBB, negative
In May 2017, Moody’s announced that they have downgraded the senior
unsecured debt ratings to Ba1 from Baa3 and the MTN program rating to Ba1
from Baa3, with a stable outlook. In October 2017, Moody’s announced that
they have downgraded the senior unsecured debt ratings to Ba2 from Ba1 and
the MTN program rating to Ba2 from Ba1. At the same time, the agency placed
the company’s Ba2/Ba2 ratings on review for further downgrade. In March
2017, Standard & Poor’s (S&P) announced that they had downgraded the
long-term corporate credit rating on Ericsson to BBB– from BBB, with a nega-
tive outlook. In July 2017, S&P announced that they had downgraded the
long-term corporate credit rating on Ericsson to BB+ from BBB–, with a stable
outlook.
The Company has a treasury function with the principal role to ensure that
appropriate financing is in place through loans and committed credit facilities,
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 activi-
ties, 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 cur-
rency fluctuations.
The Company reports the financial statements in SEK. Movements
in exchange rates between currencies that affect these statements are impact-
ing 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
BRL
SAR
GBP
52.4
24.6
13.1
9.4
7.1
7.1
5.7
5.1
5.6
37.2
13.2
–0.2
0.0
0.0
–0.3
0.0
0.1
–0.9
89.6
37.8
12.9
9.4
7.1
6.8
5.7
5.2
4.7
–15.3
–8.4
–6.2
–1.6
4.6
3.3
0.7
2.3
0.8
21.9
4.8
–6.4
–1.6
4.6
3.0
0.7
2.4
–0.1
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 weighted 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 cur-
rencies in individual group companies. Foreign exchange risk is as far as possi-
ble concentrated in Swedish group companies, primarily Ericsson AB. Sales to
foreign subsidiaries are normally denominated in the functional currency of the
customers, and so tend to be denominated in 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.
The hedged volumes are funded by loans since April 2017. Previously, deriva-
tive contracts were used.
Ericsson | Annual Report 2017 68
Financials – Notes to the consolidated financial statements
Note 20, contd.
Outstanding loans that are funding hedged net future sales and costs
incurred are revalued against “Financial expense.” The sensitivity in “Financial
expense” in relation to this revaluation is dependent on changes in foreign
exchange rates, forecasts, seasonality and hedging policy. USD is the Compa-
ny’s largest exposure and at year-end a change by 0.25 SEK/USD would
impact profit and loss with approximately SEK 0.1 billion. Realization and
revaluation results of these loans and derivative contracts amounted to SEK
0.5 billion and SEK 0.0 billion respectively in 2017.
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 and loans funding
forecast hedges.
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 34.7 (31.2) billion at the end of 2017,
consisting of cash, cash equivalents and interest- bearing securities of SEK 67.7
(57.9) billion, offset by interest-bearing liabilities of SEK 33.0 (26.7) billion.
The Company manages the interest rate risk by matching fixed and floating
interest rates in interest-bearing balance sheet items. The policy is that the net
sensitivity on a 1 basis point move on interest-bearing assets matching inter-
est-bearing liabilities, taking derivatives into consideration, is less than SEK 10
million. The average exposure during 2017 was SEK 2.1 million per basis point
shift. The treasury function has a mandate to deviate from floating interest on
net liquidity and take foreign exchange positions up to an aggregated risk of
VaR SEK 45 million given a confidence level of 99% and a 1-day horizon.
Sensitivity to interest rate increase of 1 basis point, SEK million
< 3M 3–12M
1–3Y
3–5Y
>5Y
Total
0
0
0
0
0
0
1
1
–3
0
0
–3
–4
6
–4
–2
–1
3
–1
1
–8
9
–4
–3
Interest-bearing assets
Interest-bearing liabilities
Derivatives
Total
Outstanding derivatives
Outstanding derivatives 1)
Fair value
Asset
Liability
Asset
Liability
2017
2016
Currency derivatives
Maturity within 3 months
Maturity between 3 and 12
months
Maturity between 1 and 3 years
Maturity between 3 and 5 years
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
130
215
25
754
1,125
10
1
34
83
39
168
44
542
147
–
–
689
35
–
105
54
43
237
–
351
262
–
–
613
–
239
191
–
65
495 2)
120
193
137
–
–
330
–
82
205
6
116
409
–
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 86 (0) million is reported as non-current assets.
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.
Sensitivity analysis
The Company uses the VaR methodology to measure foreign exchange and
interest rate risks in portfolios managed by the treasury function. This statisti-
cal method expresses the maximum potential loss that can arise with a certain
degree of probability during a certain period of time. For the VaR measure-
ment, the Company has chosen a probability level of 99% and a 1-day time
horizon. The daily VaR measurement uses market volatilities and correlations
based on historical daily data (one year).
The average VaR calculated for 2017 was SEK 17.2 (16.3) million for the
combined mandates. No VaR-limits were exceeded during 2017.
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 invest-
ments 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 equiv-
alents, and long-term ratings of AAA. Separate credit limits are assigned to
each counterpart in order to minimize risk concentration. All derivative transac-
tions are covered by ISDA netting agreements to reduce the credit risk.
At December 31, 2017, the credit risk in financial cash instruments was
equal to the instruments’ carrying value. Credit exposure in derivative instru-
ments was SEK 1.3 (1.1) billion.
Liquidity risk
The Company minimizes the liquidity risk by maintaining a sufficient cash posi-
tion, centralized cash management, investments in highly liquid interest-bear-
ing 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.
Cash, cash equivalents and interest-bearing securities
SEK billion
Banks
Type of issuer/counterpart
Governments
Corporates
Mortgage institutes
2017
2016
Remaining time to maturity
< 3
months
3–12
months
26.4
0.2
1–5
years
0.2
>5
years
0.1
9.5
0.3
0.2
36.4
37.0
1.0
0.0
0.0
1.2
1.3
11.5
0.0
16.7
28.4
19.3
0.8
0.0
0.8
1.7
0.3
Total
26.9
22.8
0.3
17.7
67.7
57.9
The instruments are classified as held for trading, loans and receivables, or
available-for-sale. Cash, cash equivalents and interest-bearing securities 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 5.0 billion
and were reported as Interest-bearing securities, current.
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.”
Ericsson | Annual Report 2017 Funding programs 1)
Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million)
Amount
Utilized
Unutilized
5,000
2)
1,519
1,000
3,481
–
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 1.4 (1.2) billion in relation to
assets and gross SEK 1.1 (0.9) billion in relation to liabilities were valued
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 recog-
nized in these cases was SEK 2.1 (2.1) billion. These assets, classified as
level 3 assets for valuation purposes, have been valued based on value in
use technique.
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 accounting 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.
Financial instruments, book value
Financials – Notes to the consolidated financial statements
69
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 1.4 (1.2) billion, prior to
offsetting of SEK 0.1 (0.1) billion, with a net amount of SEK 1.3 (1.1) billion
recognized in the balance sheet. The related liabilities amounted to SEK 1.0
(0.9) billion, prior to offsetting of SEK 0.1 (0.1) billion, with a net amount of SEK
0.9 (0.8) billion recognized in the balance sheet.
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 other share-based compensation for
employees and the Board of Directors. Some of the plans are share settled and
some are cash settled as further disclosed in Note C1, “Significant accounting
policies” and Note C28, “Information regarding members of the Board of
Directors, the Group management and employees .”
Share-based plans for employees
The obligation to deliver shares under the stock purchase plan and the Long-
term Variable Compensation Program 2017 for the Executive Team (LTV
2017) 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 hedged
through the holding of Ericsson Class B shares as treasury stock to be sold to
generate funds, which also cover social security payments.
Cash settled plans to employees and the Board of Directors
In the case of synthetic share programs (a cash settled program as defined in
IFRS) to Board members and cash settled plans to employees, the Company is
exposed to risks in relation to own share price, both with regard to compensa-
tion expenses and social security charges. The obligations to pay compensa-
tion amounts under the synthetic share-based compensations to the Board of
Directors and employees are covered by a liability in the balance sheet.
For further information about the stock purchase plan, LTV 2017, the cash
settled plans to employees and the 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.”
Customer
finance
Trade
receiv ables
C14
C14
3.9
63.2
Interest-
bearing
securities
Cash equiva-
lents Borrow ings
Trade
payables
Other
financial
assets
Other
current
receiv ables
Other
current
l iabilities
C12
6.1
0.3
25.4
C25
14.3
3.2
C19
C22
C12
0.9
5.0
1.3
C15
1.2
C21
–0.9
SEK billion
Note
Assets at fair value through
profit or loss
Loans and receivables
Available-for-sale
Financial liabilities at
amortized cost
Total
3.9
63.2
31.8
17.5
–33.0
–33.0
–26.3
–26.3
7.2
1.2
–0.9
2017
2016
21.6
75.6
26.7
–59.3
64.6
23.5
78.9
8.8
–52.0
59.2
Ericsson | Annual Report 2017 70
Financials – Notes to the consolidated financial statements
C21 Other current liabilities
C25 Statement of cash flows
Interest paid in 2017 was SEK –794 million (SEK –1,269 million in 2016 and
SEK –926 million in 2015) and interest received in 2017 was SEK 1 million
(SEK 110 million in 2016 and SEK 550 million in 2015). Taxes paid, including
withholding tax, were SEK –4,724 million in 2017 (SEK –9,105 million in 2016
and SEK –7,705 million in 2015).
Cash and cash equivalents include cash of SEK 18,403 (25,577) million and
temporary investments of SEK 17,481 (11,389) million. For more information
regarding the disposition of cash and cash equivalents and unutilized credit
commitments, see Note C19, “Interest-bearing liabilities.”
Cash and cash equivalents as of December 31, 2017, include SEK 3.1 (4.2)
billion in countries where there exists 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.
Adjustments to reconcile net income to cash
Property, plant and equipment
Depreciation
Impairment losses/reversals of impairments
Total
Intangible assets
Amortizations
Capitalized development expenses
Intellectual Property Rights, brands and other
intangible assets
Total amortizations
Impairments
Capitalized development expenses
Intellectual Property Rights, brands and other
intangible assets
Goodwill
Total impairments
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
2017
2016
2015
4,103
2,211
6,314
4,421
148
4,569
4,705
–16
4,689
2,681
1,815
1,379
1,667
4,348
2,245
2,019
12,966
17,230
21,578
2,650
4,465
4,139
5,518
85
–
–
85
20
–
–
20
4,550
5,538
27,892
9,119
10,227
–9,805
–6,200
–2,835
77
84
–21
–26
92
38
–167
607
–37
3,172
–156
3,245
18,583
6,112
10,611
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.
Other current 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
2017
6,955
383
29,196
8,935
10,491
9,770
20,110
926
4,800
62,370
2016
5,391
367
30,716
9,414
13,003
8,299
13,990
739
4,800
56,003
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
2017
286
2016
296
26,035
26,321
25,022
25,318
C23 Assets pledged as collateral
Assets pledged as collateral
Chattel mortgages 1)
Bank deposits
Total
1) See also Note C17, “Post-Employment benefits.”
C24 Contingent liabilities
Contingent liabilities
Contingent liabilities
Total
2017
4,740
475
5,215
2016
2,240
344
2,584
2017
1,561
1,561
2016
1,186
1,186
Contingent liabilities assumed by the Company include guarantees of loans to
other companies of SEK 24 (24) million. Ericsson has SEK 0 (33) 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 Judgments,” 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 80 (124) million
as of December 31, 2017. The maturity date for the majority of the issued
guarantees occurs in 2020 at the latest.
Ericsson | Annual Report 2017 Acquisitions/divestments of subsidiaries and other operations
Acquisitions
Divestments
2017
Cash flow from business combinations 1)
Acquisitions/divestments of other investments
Total
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
1) See also Note C26, “Business combinations.”
–62
–227
–289
–781
–203
–984
–1,867
–334
–2,201
Reconciliation of liabilities arising from financing activities
Opening balance
Cash flows
Proceeds from issuance of borrowings
Repayment of borrowings
Non-cash changes
Effect of foreign exchange movement
Changes in fair value
Closing balance 1)
459
106
565
25
337
362
–
1
1
2017
26,686
13,416
–4,830
–2,155
–72
33,045
1) Of which Borrowing, current SEK 2,545 million and Borrowings, non-current SEK 30,500 million. For
more information, see Note C19, ”Interest-bearing liabilities”.
In addition to the above numbers SEK 201 million is allocated to the financing cash flow
due to hedging of derivatives.
Financials – Notes to the consolidated financial statements
71
C26 Business combinations
Acquisitions and divestments
Acquisitions
Acquisitions 2015–2017
Total consideration, including cash
Acquisition-related costs 1)
Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Other assets
Other liabilities
Total identifiable net assets
Goodwill 2)
Total
2017
62
49
–
12
101
1
25
139
–77
62
2016
920
4
139
19
817
290
–290
975
–55
920
2015
2,119
19
271
45
445
572
–379
954
1,165
2,119
1) Acquisition-related costs are included in Selling and administrative expenses in the consolid ated
income statement.
2) Of which SEK 0 (585) million was acquired goodwill and SEK –77 (–640) million refers to a reclassi-
fication when the preliminary purchase price allocations were finalized between the years.
In 2017, Ericsson made acquisitions with a negative cash flow effect amount-
ing to SEK 62 (781) million.
Divestments
Divestments 2015–2017
Proceeds
Net assets disposed of
Property, plant and equipment
Investments in joint ventures and associated
companies
Goodwill
Other assets
Other liabilities
Net gains/losses from divestments
Less Cash and cash equivalents
Cash flow effect
2017
459
62
–
45
219
–180
146
313
–
459
2016
25
36
15
5
–114
–58
83
–
25
2015
–
–
–
52
–3
49
–49
–
–
In 2017, the Company made divestments with a cash flow effect amounting to
SEK 459 (25) million.
Ericsson | Annual Report 2017 72
Financials – Notes to the consolidated financial statements
Note 26, contd.
Acquisitions 2015–2017
Company
Nodeprime
Ericpol
FYI Television
Envivio
ICON
Sunrise technology
Timelessmind
Description
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 delivering complex IT solutions.
A Canada-based consulting and systems integration business specializing in operations and business support
(OSS/BSS).
Transaction date
Apr 2016
Apr 2016
Jan 2016
Oct 2015
Aug 2015
Jul 2015
Apr 2015
Transaction date
Sep 2017
Jul 2016
Divestments 2015–2017
Company
Description
Power Modules
Birla Ericsson Optical Ltd
A divestment of the power modules business.
A divestment of the shares in the associated company.
C27 Leasing
Due to replacement of former lease contract with operating lease contract the
Company has from 2016 no finance leases.
As of December 31, 2017, future minimum lease payment obligations were
distributed as follows:
Future minimum lease payment obligations
2018
2019
2020
2021
2022
2023 and later
Total
Operating
leases
3,491
2,927
2,506
1,966
1,442
4,787
17,119
Expenses in 2017 for leasing of assets were SEK 4,194 (3,710) million,
of which variable expenses comprised SEK 101 (217) million. The leasing
contracts vary in length from 1 to 16 years.
The Company’s lease agreements normally do not include any contingent
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 pre-
defined 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 contracts
vary in length from 1 to 15 years.
At December 31, 2017, future minimum payment receivables were
distributed as follows:
Future minimum payment receivables
2018
2019
2020
2021
2022
2023 and later
Total
Leasing income in 2017 was SEK 44 (47) million.
Operating
leases
83
87
85
87
87
184
613
Ericsson | Annual Report 2017
C28 Information regarding members of the Board of Directors, the Group management and employees
Financials – Notes to the consolidated financial statements
73
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 2017
Number of previously
allocated synthetic
shares outstanding
Net change
in value of
synthetic
shares 1)
Board member
Leif Johansson
Helena Stjernholm
Jacob Wallenberg
Jon Fredrik Baksaas
Jan Carlson
Nora Denzel
Börje Ekholm
Eric A. Elzvik
Kristin Skogen Lund
Kristin S. Rinne
Sukhinder Singh Cassidy
Employee Representatives
Pehr Claesson 3)
Mikael Lännqvist 3)
Kjell-Åke Soting
Roger Svensson
Karin Åberg
Zlatko Hadzic (deputy) 3)
Torbjörn Nyman (deputy) 4)
Anders Ripa (deputy) 4)
Loredana Roslund (deputy) 4)
4,075,000
0/0%
990,000
990,000
990,000
990,000
990,000
–
990,000
990,000
990,000
990,000
15,000
9,000
27,000
37,500
33,000
6,000
13,500
13,500
13,500
8,661/50%
12,992/75%
12,992/75%
12,992/75%
4,330/25%
–
4,330/25%
4,330/25%
8,661/50%
4,330/25%
–
–
–
–
–
–
–
–
–
A
–
494,976
742,493
742,493
742,493
247,460
–
247,460
247,460
494,976
247,460
–
–
–
–
–
–
–
–
–
B
–
–13,606 1)
128,459 1)
–42,874
–42,874
23,549 1)
339,168 1)
–14,289
60,646 1)
–18,598 1)
3,393 1)
–
–
–
–
–
–
–
–
–
–
11,093
18,202
–
–
5,489
33,203
–
11,990
7,395
6,210
–
–
–
–
–
–
–
–
–
Committee
fees
Total fees
paid in cash 2)
Total
remuner ation
2017
C
(A+B+C)
400,000
175,000
175,000
175,000
175,000
425,000
–
350,000
250,000
200,000
175,000
4,475,000
670,000
422,500 5)
422,500
422,500
1,167,500
–
1,092,500
992,500
695,000
917,500
–
–
–
–
–
–
–
–
–
15,000
9,000
27,000
37,500
33,000
6,000
13,500
13,500
13,500
4,475,000
1,151,370
1,293,452
1,122,119
1,122,119
1,438,509
339,168
1,325,671
1,300,606
1,171,378
1,168,353
15,000
9,000
27,000
37,500
33,000
6,000
13,500
13,500
13,500
Total
Total
13,153,000
13,153,000
73,618
73,618
4,207,271
4,207,271
93,582
93,582
422,974
2,500,000
11,445,500
16,075,745 6)
632,329 7)
2,500,000
11,445,500
16,285,100 6)
1) The difference in value as of the time for payment, compared to December 31, 2016, for synthetic
shares allocated in 2012 (for which payment was made in 2017).
The difference in value as of December 31, 2017, compared to December 31, 2016, for synthetic shares
allocated in 2013, 2014, 2015 and 2016. Calculated on a share price of SEK 53.85.
2) Committee fee and cash portion of the Board fee.
3) Left the Board in connection with the Annual General Meeting of shareholders 2017.
4) Joined the Board in connection with the Annual General Meeting of shareholders 2017.
5) In addition, an amount corresponding to statutory social charges in respect of the part of the fee that
The difference in value as of December 31, 2017, compared to grant date for synthetic shares allocated
has been invoiced from a business was paid, amounting to SEK 174,460.
in 2017.
The value of synthetic shares allocated in 2013, 2014, 2015 and 2016 includes respectively SEK 3.00,
SEK 3.40, SEK 3.70 and SEK 1.00 per share in compensation for dividends resolved by the Annual
General Meetings 2014, 2015, 2016 and 2017 and the value of the synthetic shares allocated in
2012 includes dividend compensation for dividends resolved in 2013, 2014, 2015 and 2016.
6) Excluding social security charges and amounts invoiced through a business corresponding to such
social security charges in to the amount of SEK 2,964,677.
7) Including synthetic shares previously allocated to the former Directors Roxanne S. Austin and
Alexander Izosimov. 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, 2016.
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 entitled to
a fee of SEK 990,000 each. In addition, the Chairman of the Audit Commit-
tee 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, Remuneration and Technology and
Science Committees were entitled to a fee of SEK 200,000 each and the
other non-employee members of these Committees 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 termination
benefits.
– Members and deputy members of the Board who are Ericsson employees
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 portion of the Board fee
and the Committee fee, including social charges, constitutes the invoiced
Board fee.
– The Annual General Meeting 2017 resolved that non-employee Directors
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 Stockholm
during the five trading days immediately following the publication of Ericsson’s
interim report for the first quarter 2017; SEK 57.15. 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 statement during the
fifth year following the Annual General Meeting which resolved on the synth-
etic share program, i.e., in 2022. The amount payable 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 finan-
cial statement.
Ericsson | Annual Report 2017 74
Financials – Notes to the consolidated financial statements
Note 28, contd.
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 condi-
tions. Payment based on synthetic shares allocated in 2012 occurred in 2017
and, in accordance with the terms and conditions for the synthetic share
advance payment was then also made to the former Directors Roxanne S.
Austin and Alexander Izosimov. The amounts paid in 2017 under the synthetic
share programs were determined based on the volume-weighed average price
for shares of Class B on Nasdaq Stockholm during the five trading days imme-
diately following the publication of the year-end financial statements for 2016:
SEK 51.92 and totalled SEK 2,788,056 excluding social security charges. The
payments made do not constitute a cost for the Company in 2017. The Com-
pany’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 2017,
is disclosed in the table “Remuneration to members of the Board of Directors”
on page 73.
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, 2017, the total
outstanding number of synthetic shares under the programs is 167,200 and
the total accounted debt is SEK 9,440,105.
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 Team (ET), includes fixed
salary, short- and long-term variable compensation, pension and other bene-
fits. These remuneration elements are based on the guidelines for remunera-
tion to Group management as approved by the Annual General Meeting held
in 2017: see the approved guidelines in section “Guidelines for remuneration
to Group management 2017.”
Remuneration costs for the President and CEO and other members of Executive Team (ET)
SEK
Salary 3)
Annual variable
remuneration provision earned
for the year
Long-term variable
compensation provision
Pension costs
Other benefits
Social charges and taxes
Total
Pres ident and
CEO1) 2017
13,980,639
–
6,119,323
7,365,132 4)
315,263
8,728,588
36,508,946
President and
CEO2) 2017
Total: President
and CEO 2017
Pres ident and
CEO 2016
Other members of
ET 2017
Other members of
ELT 2016
Total 2017
Total 2016
398,531
14,379,170
45,882,357
162,159,462
119,501,092
176,538,632
165,383,449
–
–
162,941
2,923
165,666
730,061
–
–
7,331,278
6,230,285
7,331,278
6,230,285
6,119,323
7,528,073
318,187
8,894,255
8,727,083
11,954,758
69,992
20,241,066
9,840,643
31,592,635
17,311,905
52,086,808
9,278,252
15,959,966
18,005,336
29,387,498
12,604,635
29,147,247
39,120,708
16,630,091
60,981,063
41,342,256
12,674,627
49,388,312
37,239,007
86,875,256
280,322,732
206,149,008
317,561,739
293,024,265
1) Börje Ekholm served as President and CEO from January 16, 2017. Remuneration costs shown for Börje Ekholm includes the period from January 16, 2017, to December 31, 2017.
2) Jan Frykhammar served as President and CEO from January 1, 2017, to January 15, 2017. Remuneration costs shown for Jan Frykhammar includes the period from January 1, 2017, to January 15, 2017
(costs for the rest of the year is included in “Other members of ET 2017”).
3) Includes severance pay and compensation for unused vacations.
4) Cash payment in lieu of defined contribution payment, made in a cost neutral way for Ericsson.
Comments to the table
– Jan Frykhammar was President and CEO of Ericsson until January 15, 2017,
and Börje Ekholm was appointed President and CEO from January 16,
2017.
– The remuneration costs for 2017 include termination provisions, including
estimates of future severance pay and compensation for unused vacation,
in respect of individuals who left Ericsson during 2017.
– “Long-term variable compensation provision” refers to the compensation
– Effective April 1, 2017, the Executive Leadership Team (ELT) was replaced
costs during 2017 for all outstanding share-based plans.
by Executive Team (ET).
– During 2017, Jan Frykhammar and Magnus Mandersson were appointed
as Executive Vice Presidents by the Board of Directors, none of which acted
as deputy to the President and CEO. Both were relieved from their duties
as Executive Vice Presidents on November 6, 2017, and replaced by Fredrik
Jejdling effective November 7, 2017. Fredrik Jejdling did not act as deputy
to the President and CEO in 2017. Executive Vice Presidents are included in
the group “Other members of ET”, except for the period between January 1,
2017, and January 15, 2017, when Jan Frykhammar is included in President
and CEO.
– The group “Other members of ET” comprises of the following persons:
MajBritt Arfert, Arun Bansal, Ulf Ewaldsson, Niklas Heuveldop, Chris Houghton,
Fredrik Jejdling, Nina Macpherson, Carl Mellander, Helena Norrman, Elaine
Weidman-Grunewald. In addition, Rafiah Ibrahim, Peter Laurin and Nunzio
Mirtillo joined ET on April 1, 2017. Anders Lindblad (left ET effective April 1,
and Ericsson August 31, 2017), Per Borgklint (left ET effective April 1, and
Ericsson September 30, 2017), Charlotta Sund (left ET effective April 1, and
Ericsson October 26, 2017), Jean-Philippe Poirault (left ET April 1, 2017,
and will leave Ericsson on June 30, 2018), Rima Qureshi (left ET effective
May 11, and Ericsson November 5, 2017), Jan Frykhammar (left ET effec-
tive November 7, 2017, and will leave Ericsson on March 31, 2018), Magnus
Mandersson (left ET effective November 7, 2017, and will leave Ericsson on
June 30, 2018).
– The salary stated in the table for the President and CEO and other members
of the ET includes vacation pay paid during 2017 as well as other contracted
compensation expensed in 2017.
– For members of the ET 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 employment at
Ericsson.
Outstanding balances
The Company has recognized the following liabilities relating to unpaid remu-
nerations in the Balance sheet:
– Ericsson’s commitments for defined benefit based pensions as of December
31, 2017, for other members of ET under IAS 19 amounted to SEK
45,651,263 (SEK 44,800,609) of which SEK 36,957,641 (SEK 38,333,332)
refers to the ITP and early retirement, and the remaining SEK 8,693,622
(SEK 6,467,277) to disability and survivors’ pensions. The President and
CEO does not have a Swedish defined benefit based pension plan, hence,
Ericsson bears no commitment.
– 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.
Maximum outstanding matching rights
As of December 31, 2017
Number of Class B shares
The President
and CEO
Other members of
the ET
Stock Purchase Plans 2014–2016
Executive Performance Stock Plans 2014–2016
–
183,054
Ericsson | Annual Report 2017 Comments to the table
– For the definition of matching rights, see the description in section “Long-
term variable compensation”.
– Matching result of 33.33% is included for the 2014 plan.
– Cash conversion targets for 2015 and 2016 were reached, but it was not
reached in 2017.
– During 2017, no matching shares were received by President and CEO since
Börje Ekholm is not entitled for the Stock Purchase and Executive Perfor-
mance Stock Plans. Jan Frykhammar’s matching shares are included in
‘Other members of the ET’.
– During 2017, other members of the ET received 79,285 matching shares.
Option agreements
Prior to taking office as President and CEO of Ericsson, Board member Börje
Ekholm entered into an option agreement in 2016 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 (valuation
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 sev-
en-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 2017
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 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 additional arrangement been made.
– The mutual notice period may be no more than six months. Upon termina-
tion of employment by the Company, severance pay amounting to a maxi-
mum 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.
Long-Term Variable compensation
The Long-Term Variable Compensation Program 2017
for the Executive Team
The Long-Term Variable Compensation Program 2017 for the Executive Team
(LTV 2017) is an integral part of the Company’s remuneration strategy. The
LTV 2017 has been approved by the Annual General Meeting (AGM) of share-
holders 2017 and is designed to provide long-term incentives for members of
the Executive Team (ET) and to incentivize the Company’s performance creat-
ing long-term value. The aim is to attract, retain, and motivate the executives
in a competitive market through performance based share related incentives
and to encourage the build-up of significant equity holdings to align the inter-
ests of the participants with those of the shareholders.
Financials – Notes to the consolidated financial statements
75
The LTV 2017 includes all members of ET, a total of 16 employees in 2017.
Awards under LTV 2017 are granted to the participant, provided that certain
performance conditions set out below are met, to receive a number of shares,
free of charge, following expiration of a three-year vesting period (“Perfor-
mance Share Awards”). Allotment of shares pursuant to Performance Share
Awards are subject to the achievement of the performance conditions, as set
out below, and generally requires that the participant retains his or her employ-
ment over a period of three years from the date of grant (the “Vesting Period”).
All major decisions relating to LTV 2017 are taken by the Remuneration Com-
mittee, with approval by the full Board of Directors as required.
The participants were granted Performance Share Awards on May 18, 2017.
The value of the underlying shares in respect of the Performance Share Award
made to the President & CEO was 180% of the annual base salary, and for
other participants 22.5% of the participants’ respective annual base salaries
at the time of grant. The share price used to calculate the number of shares to
which the Performance Share Award entitles was calculated as the vol-
ume-weighted average of the market price of Class B shares on Nasdaq Stock-
holm during the five trading days immediately following the publication of the
Company’s interim report for the first quarter of 2017.
The vesting of Performance Share Awards is subject to the satisfaction of
challenging performance conditions which will determine what portion, if any,
of the Performance Share Awards will vest at the end of the Performance
Period as defined below. The two performance criteria are based on absolute
Total Shareholder Return (TSR) and relative TSR development for the Class B
share over the period January 1, 2017 to December 31, 2019 (the “Perfor-
mance Period”). The details on how the TSR development will be calculated
and measured are explained in minutes from the AGM 2017 under Item 17,
and summarized below:
LTV 2017 and EPP 2017 Performance Targets
Year
Target
Criteria
Weight
Vesting
2017
Absolute TSR
2017
Relative TSR
Range:
6%–14%
Ranking of
Ericsson:
12–5
50%
50%
0%–200%
(linear pro-rata )
0%–200%
(linear pro-rata )
Provided that the above performance criteria have been met during the Per-
formance Period and that the Participant has retained his or her employment
(unless special circumstances are at hand) during the Vesting Period, allot-
ment of vested shares will take place as soon as practically possible following
the expiration of the Vesting Period.
When determining the final vesting level of Performance Share Awards, the
Board of Directors shall examine whether the vesting level is reasonable con-
sidering the Company’s financial results and position, conditions on the stock
market and other circumstances, and if not, reduce the vesting level to lower
level deemed appropriate by the Board of Directors.
In the event delivery of shares to the Participants cannot take place under
applicable law or at a reasonable cost and employing reasonable administra-
tive measures, the Board of Directors will be entitled to decide that Participants
may, instead, be offered cash settlement.
Originally designated shares for LTV 2017 was comprising a maximum of
3 million shares, 0,7 million shares were granted for ET during 2017 with share
price of SEK 57.15 at grant date. Fair value for LTV 2017 was SEK 65.68,
compensation cost was SEK 9.9 million for 2017. The fair value, calculated at
grant date for LTV 2017 is the average of the fair values established for abso-
lute and relative TSR performance conditions on the grant date of May 18,
2017, using a Monte Carlo model, which uses a number of inputs, including
expected dividends, expected share price volatility and the expected period
to exercise.
The accounting treatment for LTV 2017 is prescribed in IFRS 2 Share-based
payment as described in note C1 Significant accounting policies. As it is a
share-settled plan with market conditions the total compensation expense is
calculated based on the fair market value at grant date and recognized over
the service period of three years. The amount is fixed for the service period,
except for any persons leaving or added to the plan. Only such changes of
persons adjust the total compensation expense.
Ericsson | Annual Report 2017 76
Financials – Notes to the consolidated financial statements
Note 28, contd.
The Executive Performance Plan 2017 (EPP 2017)
The Executive Performance Plan 2017 (EPP 2017) is also an integral part of
the Company’s remuneration strategy. The aim is to attract, retain, and moti-
vate senior managers in a competitive market through performance based
long-term cash incentive supporting the achievement of the Company’s long-
term strategies and business objectives.
Under the EPP 2017, up to 500 senior managers (452 nominated in 2017)
are selected through a nomination process that identifies individuals according
to performance, potential, critical skills, and business critical roles. There are
two award levels at 15% and 22.5% of the participants’ annual gross salary.
Participants are assigned a potential award, which is converted into a number
of synthetic shares based on the same market price of Class B shares used for
the LTV 2017. The three-year vesting period is the same as for the LTV 2017.
The vesting level of the award is subject to the achievement of the same per-
formance conditions over the same Performance Period defined for the LTV
2017, and generally requires that the participant retains his or her employment
over the Vesting Period. At the end of the Vesting Period, the allotted synthetic
shares are converted into a cash amount, based on the market price of Class B
shares Nasdaq Stockholm at the payout date, and this final amount is paid to
the Participant in cash gross before tax.
The accounting treatment for EPP 2017 is prescribed in IFRS 2 Share-based
payment as described in Note C1, “Significant accounting policies.” At the start
of the service period, compensation costs are calculated as for the LTV 2017.
As it is a cash settled plan the compensation expense is remeasured during the
service period, considering the impact of the share price development targets,
being the same as under the LTV 2017. Total compensation expense for the
Company is the same as the total pay-out to the employee.
2017 Key Contributor Plan
The 2017 Key Contributor Plan is part of Ericsson’s talent management strat-
egy and is designed to recognize the best talent, individual performance,
potential and critical skills as well as encourage the retention of key employees.
Under the program, up to 7,000 employees (6,876 employees nominated in
2017) are selected through a nomination process that identifies individuals
according to performance, potential, critical skills, and business critical roles.
There are two award levels at 10% and 25% of the participants’ annual gross
salary. Participants are assigned a potential award, which is converted into a
number of synthetic shares based on the same market price of Class B shares
used for the LTV 2017. There is a mandatory three-year retention period for
receiving the award and the award is subject only to continued employment
until the end of the retention period. The value of each synthetic share is driven
by the absolute share price performance of Class B shares during the retention
period. At the end of the retention period, the synthetic shares are converted
into a cash amount, based on the market price of Class B shares Nasdaq Stock-
holm at the payout date, and this final amount is paid to the Participant in cash
gross before tax.
The cost of the cash based plans (the Executive Performance Plan 2017 and
the 2017 Key Contributor Plan) in 2017 is shown in the table below:
Compensation cost under LTV cash based plans
(SEK million)
Executive Performance Plan
Key Contributor Plan
Total compensation cost
Number of
synthetic shares
(million)
Compensation
cost year 2017 1)
2.3
11.8
14.1
31.4 2)
138.6 3)
170.0
2014–2016 Long-Term Variable compensation programs
Until 2017, share-based compensation was made up of three different but
linked plans: the all-employee Stock Purchase Plan, the Key Contributor Reten-
tion Plan, and the Executive Performance Stock Plan.
The Stock Purchase Plan
The Stock Purchase Plan was designed to offer an incentive for all employees
to participate in the Company where practicable. For the 2016 and earlier
plans, employees were able to save up to 7.5% of their gross fixed salary 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 contribution
shares are retained by the employee for three years after the investment 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, 2017.
Stock Purchase Plans
Plan
Stock Purchase plan 2014
Stock Purchase plan 2015
Stock Purchase plan 2016
Contribution
period
August 2014 –
July 2015
August 2015 –
July 2016
August 2016 –
July 2017
Number of
participants at
launch
Take-up rate
– percent of eligible
employees
32,000
33,800
31,500
30%
31%
29%
No Stock Purchase Plan was proposed in 2017.
The accounting treatment for SPP is prescribed in IFRS 2 Share-based
payment as described in Note C1, “Significant accounting policies.” This plan is
a stock purchase share-settled plan. The total cost for a plan for the three years
of service is based on the number of shares that vest, due to savings and calcu-
lated based on the fair value of the shares as defined at grant date.
The Key Contributor Retention Plan
The Key Contributor Retention Plan was part of Ericsson’s talent management
strategy and was 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 were selected through a nomination process
that identifies individuals according to performance, critical skills and poten-
tial. Participants selected obtained 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 was proposed for 2017, a cash-based 2017
Key Contributor Plan was introduced replacing the Key Contributor Retention
Plan. The Key Contributor Plan 2017 is described above.
The accounting treatment for the Key Contributor Retention Plan is the
same as for the Stock Purchase Plan, however, these employees receive two
shares for each share invested.
Executive Performance Stock Plan targets
1) 7.5 months between May 18 and December 31, 2017.
2) Fair value at grant date, SEK 65.68.
3) Fair value based on share price as of December 18, 2017, SEK 56.55.
Year 2017 is the first year under these plans and therefore the liability is equal to the cost for the year.
The accounting treatment for 2017 Key Contributor Plan is prescribed in
IFRS 2 Share-based payment as described in Note C1, “Significant accounting
policies.” At grant date the share price was SEK 57.15. As it is a cash settled
plan the compensation expense is remeasured during the service period,
considering the Ericsson share price development during the service period.
The total cost for a plan for the three years of service is equal to the pay-out.
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)
1) Excluding extraordinary restructuring charges.
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%
–
Ericsson | Annual Report 2017 Financials – Notes to the consolidated financial statements
77
The Executive Performance Stock Plan
The Executive Performance Stock Plan was designed to focus management on
driving earnings and provide competitive remuneration. Senior managers,
including ET, were selected to obtain up to four or six extra shares (perfor-
mance 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 were offered participation in the plan. The performance targets
were 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, 2017.
Since no Stock Purchase Plan was proposed for 2017, share-based Long-
Term Variable Compensation Program 2017 (LTV 2017) was introduced for
ET with the approval of shareholders in the 2017 Annual General Meeting
of shareholders. For the senior managers, a cash based 2017 Executive
Performance Plan (EPP 2017) was introduced replacing the Executive Per-
formance Stock Plan. The LTV 2017 and the EPP 2017 are described above.
The accounting treatment for the Executive Performance Stock Plan is
prescribed in IFRS 2 Share-based payment as described in note C1 Significant
accounting policies. This plan is a stock purchase share-settled plan with
performance conditions. The total cost for a plan for the three years of service
is based on the number of shares that vest, due to fulfillment of targets and
savings. The costs are calculated based on the fair value of the shares as
defined at grant date.
Shares for LTV 2013–2016
Plan (million shares)
Originally designated
Outstanding beginning of 2017
Awarded during 2017
Exercised/matched during 2017
Forfeited/expired during 2017
Outstanding end of 2017 1)
Compensation costs charged during 2017 (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
7.5
17.1
1.4
1.6
21.6
274.5 2)
2015
23.5
18.7
–
1.6
1.7
15.4
315.4 2)
2014
22.8
11.8
–
3.2
1.9
6.7
234.1 2)
2013
26.6
7.0
–
6.8
0.2
–
51.5 2)
Total
94.5
45.0
17.1
13.0
5.4
43.7
875.5
1) Shares under the Executive Performance Stock Plans were based on the fact that the 2013 plan came out at 39.7%, in casu 60.3% lapsed and that the 2014 plan vested for 33% and lapsed for 67%. 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 2013 and 2014 plans as
disclosed under 1) when calculating the compensation cost. Fair value of the Class B share at each investment date during 2017 was: February 15 SEK 46.77, May 15 SEK 54.46 and August 15 SEK 46.19.
3) Total compensation costs charged during 2016: SEK 957 million, 2015: SEK 865 million.
Shares for LTV 2013–2016 and LTV 2017
LTV 2013–2016 and LTV 2017 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’ financ-
ing costs, and then converted to Class B shares.
For all these plans, additional shares have been allocated for financing of
social security expenses. Treasury stock is sold on the Nasdaq Stockholm to
cover social security payments when arising due to matching of shares. During
2017, 1,827,600 shares were sold at an average price of SEK 53.82. Sales of
shares are recognized directly in equity.
If, as of December 31, 2017, 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 exercise and the
matching, approximately 45 million Class B shares would be transferred,
corresponding to 1.4% of the total number of shares outstanding, or 3,284
million not including treasury stock. As of December 31, 2017, 50 million Class
B shares were held as treasury stock.
Employee numbers, wages and salaries
Employee numbers
Average number of employees by gender and market area
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America 1) 2)
Middle East and Africa
Total
1) Of which in Sweden
2) Of which in EU
The table above shows how shares (representing matching rights but exclud-
ing shares for social security expenses) are being used for all outstanding
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 desig-
nated shares that were outstanding at the beginning of 2017; (C) the number
of shares awarded during 2017; (D) the number of shares matched during
2017; (E) the number of shares forfeited by participants or expired under the
plan rules during 2017; and (F) the balance left as outstanding at the end of
2017, 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 2017 for each plan, calculated as fair value in SEK.
For a description of compensation cost, including accounting treatment, see
Note C1, “Significant accounting policies,” section Share-based compensation
to employees and the Board of Directors.
Women
5,212
4,189
2,337
13,135
920
25,793
3,299
10,534
2017
Men
19,773
8,657
8,595
40,647
3,904
81,576
11,013
31,130
Total
24,985
12,846
10,932
53,782
4,824
107,369
14,312
41,664
Women
6,106
4,297
2,862
12,928
743
26,936
3,650
10,056
2016
Men
20,499
9,186
10,667
44,558
4,570
89,480
12,359
33,852
Total
26,605
13,483
13,529
57,486
5,313
116,416
16,009
43,907
Ericsson | Annual Report 2017
78
Financials – Notes to the consolidated financial statements
Note 28, contd.
Number of employees by market area at year-end
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America 1) 2)
Middle East and Africa
Total
1) Of which in Sweden
2) Of which in EU
C29 Related party transactions
2017
24,495
12,456
10,009
49,231
4,544
2016
26,570
13,042
11,547
54,873
5,432
100,735
13,864
39,508
111,464
15,303
42,625
During 2017, 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
2017
Audit fees
Audit-related fees
Tax fees
Other fees
Total
2016
Audit fees
Audit-related fees
Tax fees
Other fees
Total
2015
Audit fees
Audit-related fees
Tax fees
Other fees
Total
PwC
Others
Total
89
11
13
9
122
90
10
10
16
126
91
11
19
8
129
2
–
4
7
13
3
–
8
11
22
2
–
13
–
15
91
11
17
16
135
93
10
18
27
148
93
11
32
8
144
The total fee to PwC and their networks of firms is SEK 122 millions. For 2017 SEK 39 million has been
paid to the auditors for the audit engagement to the audit firm PricewaterhouseCoopers AB, SEK 10 mil-
lion for other statutory engagements, SEK 3 million for tax advisory services and SEK 5 million for other
services. No valuation services has been performed.
During the period 2015–2017, 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 corporate tax
compliance work. Other services include, work related to acquisitions and
operational effectiveness.
Audit fees to other auditors largely consist of local statutory audits.
Number of employees by gender and age at year-end 2017
Under 25 years old
25–35 years old
36–45 years old
46–55 years old
Over 55 years old
Percent of total
Women
1,611
9,776
6,452
4,205
1,490
23%
Men
2,283
27,458
25,301
16,741
5,418
77%
Percent
of total
4%
37%
31%
21%
7%
100%
Employee movements
Headcount at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees
Employee wages and salaries
Wages and salaries and social security expenses
(SEK million)
Wages and salaries
Social security expenses
Of which pension costs
2017
2016
100,735
21,791
11,062
676
111,464
19,865
15,048
1,148
2017
58,966
17,536
5,592
2016
60,064
17,710
5,254
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 1)
2017
347
79
32
2016
462
106
38
1) Pension costs are over and above any social secutity charges and taxes.
Board members, Presidents and Group management
by gender at year end
Parent Company
Board members and President
Group Management
Subsidiaries
Board members and Presidents
2017
2016
Women
Men
Women
Men
43%
36%
57%
64%
46%
35%
54%
65%
19%
81%
19%
81%
Ericsson | Annual Report 2017
Financials – Notes to the consolidated financial statements
79
C31 Contractual obligations
Contractual obligations 2017
SEK billion
Current and Non-current
debt 1) 2)
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
2.8
3.5
0.4
6.2
26.3
9.7
48.9
8.9
5.4
0.7
0.9
–
–
15.9
14.3
3.4
–
0.7
–
–
18.4
7.9
4.8
1.7
–
–
–
14.4
Total
33.9
17.1
2.8
7.8
26.3
9.7
97.6
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.”
C32 Events after the reporting period
Ericsson strengthens focus on innovation and makes
changes to Executive Team
On January Jan 31 2018, Ericsson announced changes to the group structure
and its Executive Team. A Business Area Emerging Business was created to
increase focus on innovation and new business development. Effective April 1,
2018, Åsa Tamsons is appointed Senior Vice President and head of Business
Area Emerging Business and member of Ericsson’s Executive Team. The new
Business Area Emerging Business will be reported under Segment Other.
Business Area Digital Services is undergoing significant transformation to
create a profitable and strong offering in this strategically important area. Ulf
Ewaldsson has decided to step down from leading the unit, following the
completion of its build up phase. Jan Karlsson, currently head of Solution Area
BSS, will step in as acting head of Business Area Digital Services. Ulf Ewalds-
son will take on a role as advisor to CEO Börje Ekholm.
The company is also simplifying its group function structure, from currently
six functions to four. In light of the change in responsibilities Elaine Weidman-
Grunewald has decided to leave the company to pursue other opportunities.
Ericsson concludes strategic review of Media Solutions
and Red Bee Media
On January 31 2018, Ericsson concluded the review of strategic opportunities
for its Media business – Media Solutions and Red Bee Media – which was
initiated in conjunction with the announcement of the company’s focused
business strategy on March 28, 2017. Ericsson has implemented substantial
performance improvement programs while continuing to invest in the respec-
tive business. Both units have made significant progress during 2017.Outcome
of the strategic review:
– One Equity Partners new majority owner in Media Solutions, Ericsson will
retain 49% of the shares
– Media Solutions assets and staff to transfer to independent company upon
closing, expected Q3 2018
– Continued in-house development of Red Bee Media
Ericsson | Annual Report 2017 80
Financials – Parent Company financial statements with notes
Parent Company
financial statements with notes
Contents
Parent Company financial statements
81 Parent Company income statement and statement
of comprehensive income
82 Parent Company balance sheet
84 Parent Company statement of cash flows
85 Parent Company statement of changes in stockholders’ equity
Notes to the Parent Company financial statements
86
87
87
87
87
88
89
90
91
91
92
92
93
94
94
94
95
95
96
96
97
97
97
97
97
98
98
98
P1 Significant accounting policies
P2 Other operating income and expenses
P3 Financial income and expenses
P4 Taxes
P5 Intangible assets
P6 Property, plant and equipment
P7 Financial assets
P8 Investments
P9 Inventories
P10 Trade receivables and customer finance
P11 Receivables and liabilities – subsidiary companies
P12 Other current receivables
P13 Equity and other comprehensive income
P14 Untaxed reserves
P15 Post-employment benefits
P16 Other provisions
P17 Interest-bearing liabilities
P18 Financial risk management and financial instruments
P19 Other current liabilities
P20 Trade payables
P21 Assets pledged as collateral
P22 Contingent liabilities
P23 Statement of cash flows
P24 Leasing
P25 Information regarding employees
P26 Related party transactions
P27 Fees to auditors
P28 Events after the reporting period
Ericsson | Annual Report 2017 Parent Company
financial statements
Parent Company income statement
January–December, SEK million
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 (loss)
Parent Company statement of comprehensive income (loss)
January–December, SEK million
Net income (loss)
Other comprehensive income
Items that may be reclassified to profit or loss
Interest-bearing securities, non-current
Gains (+)/Losses (–) arising during the period
Reclassification adjustments relating to available-for-sale financial
assets disposed of in the year
Revaluation of other investments in shares and participations
Fair value remeasurement
Tax on items that may be reclassified to profit and loss
Total other comprehensive income, net of tax
Total comprehensive income (loss)
Financials – Parent Company financial statements
81
Notes
2017
2016
2015
P2
P3
P3
P14
P4
–
–
–
–256
–1,038
–1,294
1,616
322
7,524
–9,821
–1,975
–120
–2,095
–53
–2,148
–
–
–
–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
2017
–2,148
2016
14,246
2015
15,093
68
5
102
–14
161
–7
–
–5
–
–12
–
–
457
–
457
–1,987
14,234
15,550
Ericsson | Annual Report 2017 82
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
Notes
P5
P6
P7, P8
P7, P8
P7
P7, P11
P7, P10
P4
P7
P7
P9
P10
P10
P11
P12
P18
P18
2017
2016
329
346
72,318
330
1,076
17,847
1,782
210
1,228
25,105
547
396
81,564
330
955
18,667
1,467
179
1,233
7,586
120,571
112,924
1
3
112
942
37,927
160
2,032
6,446
18,715
66,335
43
1,091
35,143
160
2,039
12,991
22,311
73,781
186,906
186,705
Ericsson | Annual Report 2017
Financials – Parent Company financial statements
83
Notes
P13
P15
P16
P17
P17
P11
P17
P20
P11
P19
2017
2016
16,671
20
31,473
48,164
41,005
–2,148
721
39,578
87,742
395
207
602
20,802
7,969
31,511
341
60,623
–
695
35,444
1,800
37,939
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
December 31, SEK million
Stockholders’ equity, provisions and liabilities
Stockholders’ equity
Capital stock
Revaluation reserve
Statutory reserve
Restricted equity
Retained earnings
Net income (loss)
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
Total stockholders’ equity, provisions and liabilities
186,906
186,705
Ericsson | Annual Report 2017
84
Financials – Parent Company financial statements
Parent Company statement of cash flows
January–December, SEK million
Operating activities
Net income (loss)
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
Notes
P23
P18
2017
2016
2015
–2,148
9,510
7,362
1
–167
1,023
761
–283
783
2,118
9,480
–149
–6
4
–201
317
–3,254
–91
–13,195
–16,575
–7,095
425
12,565
–5,979
15
83
–3,273
–1,100
573
3,309
190
–3,596
22,311
18,715
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
Ericsson | Annual Report 2017 Financials – Parent Company financial statements
85
Parent Company statement of changes in stockholders’ equity
SEK million
January 1, 2017
Capital stock
16,657
Total comprehensive income (loss)
Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation
Repurchase of own shares
Dividends paid
December 31, 2017
January 1, 2016
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation
Repurchase of own shares
Dividends paid
December 31, 2016
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
20
–
–
–
–
–
–
20
20
–
–
–
–
–
–
31,472
48,149
100
–
–
–
–
–
–
–
15
–
–
–
–
31,472
48,164
31,472
48,018
–
–
–
–
–
–
–
131
–
–
–
–
–
–
–
–
–
–
100
100
–
–
–
–
–
–
560
161
–
–
–
–
–
721
572
–12
–
–
–
–
–
–
15
–
–
–
–
16,672
16,526
–
131
–
–
–
–
16,657
20
31,472
48,149
100
560
Other
retained
earnings
44,092
Non-
restricted
equity
44,752
Total
92,901
–2,148
–1,987
–1,987
–
98
3
–15
–3,273
38,757
–
98
3
–15
–3,273
39,578
15
98
3
–15
–3,273
87,742
41,906
42,578
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
Ericsson | Annual Report 2017 86
Financials – Notes to the Parent Company financial statements
Notes to the Parent Company
financial statements
P1 Significant accounting policies
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 subsid-
iaries 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 different
accounting of deferred taxes as compared to the principles applied in the
consolidated statements. Swedish GAAP and tax regulations require a com-
pany to report certain differences between the tax basis and book value as an
untaxed reserve in the balance sheet of the standalone financial 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.
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.”
Accounting Policy
New standards and interpretations
A number of issued new standards, amendments to standards and interpreta-
tions are not yet effective for the year ended December 31, 2017 and have not
been applied in preparing the Parent Company financial statements. 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”
is effective from January 1, 2018. The complete version of IFRS 9 replaces
most of the guidance in IAS 39, which had been applied in the current report-
ing period ended December 31, 2017. The transition of IFRS 15 on January 1,
2018 will have no impact on the parent company. IFRS 9 will be applied at
January 1, 2018 which means that the opening balances at January 1, 2018
will be adjusted, but the previous periods will not be restated.
The transition to IFRS 9 is estimated to reduce equity by SEK 0.4 billion on
January 1, 2018.
IFRS 9 – Financial instruments
The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS
9 updates the classification, measurement and impairment of financial assets
as well as provides new requirements for hedge accounting. The Company will
apply IFRS 9 retrospectively on the required effective date, January 1, 2018,
and will not restate comparative information. The changes from implementing
IFRS 9 are described below.
– Investments in liquid bonds with low credit risk which are not held for trad-
ing were classified as available-for-sale under the previous standards.
These instruments are held in a portfolio managed on a fair value basis and
will therefore be classified fair value through profit or loss (FVTPL). There
will be no change in the valuation of these assets.
– Trade receivables are managed in a business model whose objective is
achieved through both collection of contractual cash flows and selling of
assets. Therefore, trade receivables will be classified as fair value through
other comprehensive income (FVOCI). Impairment losses for trade receiv-
ables will be calculated based on lifetime expected credit losses. There will
be no material change in the carrying value of these assets at transition.
– Customer finance assets are managed in a business model with the objec-
tive to realize cash flows through the sale of assets. Therefore, customer
finance will be classified FVTPL. There will be no change in the carrying
value of these assets at transition.
– Investments in equity instruments, which were classified as available-for-
sale under previous standards, will be classified as FVTPL with no impact on
carrying value.
– Notes, bonds, and loans issued by the Parent Company are managed on a
fair value basis and will therefore be designated as FVTPL with changes in
fair value due to changes in credit risk realized in OCI. As a result, the carry-
ing value of borrowings is estimated to increase by SEK 0.6 billion. Fair value
hedge accounting will not be applied to any borrowings as from 2018.
– Internal loans are managed by Group Treasury and all internal credit facili-
ties are reviewed on regular basis. Internal loans are managed to collect
contractual cash flows and will therefore be designated as amortized cost.
Impairment losses will be calculated based on expected credit losses.
There will be no change in the carrying value of these assets at transition.
Ericsson | Annual Report 2017 Financials – Notes to the Parent Company financial statements
87
P2 Other operating income and expenses
P4 Taxes
Other operating income and expenses
Income taxes recognized in the income statement
License revenues and other operating revenues
Subsidiary companies
Other
Net gains/losses (–) on sales of tangible assets
Total
2017
2016
2015
1,486
133
–3
1,616
2,414
284
–
2,698
2,584
305
–
2,889
Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)
Tax expense
2017
–55
–30
32
–53
2016
–54
–113
–39
–206
2015
–69
–130
–9
–208
A reconciliation between reported tax expense for the year and the theoretical
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 effective tax
Expected tax income 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
Tax expense
2017
461
–30
–123
1,616
–1,977
–53
2016
–3,176
–113
–14
3,125
–28
–206
2015
–3,366
–130
–13
3,383
–82
–208
Deferred tax balances
Tax effects of temporary differences have resulted in deferred tax assets as
follows:
1,286
–1,107
1,101
–191
899
–260
7,524
15,179
15,966
Deferred tax assets
Deferred tax assets
2017
210
2016
179
Deferred tax assets refer mainly to costs related to customer finance,
provisions and post-employment benefits.
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
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 com-
panies
Write-down of participations in other companies
Interest expenses and similar profit/loss items
Subsidiary companies
Other
Other financial expenses
Total
Financial net
2017
2016
2015
7,254
14
14,111
37
15,254
–
77
–
81
40
73
–
–
–7
–
–9,000
–129
–356
–
–126
70
–340
–425
–9,821
–2,297
–
–24
–
–44
–63
–826
–91
–1,140
14,039
–26
–500
–88
–1,014
14,952
Interest expenses on pension liabilities are included in the interest expenses
shown above.
P5 Intangible assets
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.
2017
2016
5,086
–
–
5,086
5,080
6
–
5,086
–3,594
–218
–
–3,812
–3,326
–268
–
–3,594
–945
–
–945
329
–945
–
–945
547
Ericsson | Annual Report 2017 88
Financials – Notes to the Parent Company financial statements
P6 Property, plant and equipment
Property, plant and equipment
2017
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications
Closing balance
Accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Closing balance
Net carrying value
2016
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
1,619
88
–184
34
1,557
–1,280
–195
180
–1,295
262
1,686
70
–237
100
1,619
–1,324
–187
231
–1,280
339
57
61
–
–34
84
–
–
–
–
84
94
108
–45
–100
57
–
–
–
–
57
Total
1,676
149
–184
–
1,641
–1,280
–195
180
–1,295
346
1,780
178
–282
–
1,676
–1,324
–187
231
–1,280
396
Ericsson | Annual Report 2017 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
Financials – Notes to the Parent Company financial statements
89
Subsidiary companies
Associated companies
2017
81,564
57
–
–303
–9,000
–
72,318
2016
80,928
458
892
–571
–129
–14
81,564
2017
2016
330
–
–
–
–
–
330
330
–
–
–
–
–
330
Accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/ deductions
Reclassifications
Fair value remeasurement
Translation difference
Closing balance
Accumulated write-downs/
allowances
Opening balance
Write-downs/allowances
Disposals/repayments/ deductions
Translation difference
Closing balance
Net carrying value
Accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/ deductions
Reclassifications
Fair value remeasurement
Translation difference
Closing balance
Accumulated write-downs/
allowances
Opening balance
Write-downs/allowances
Disposals/repayments/ deductions
Reclassifications
Translation difference
Closing balance
Net carrying value
Other investments in
shares and participations
Receivables from
subsidiaries, non-current
Interest-bearing
securities, non-current
Derivatives,
non-current
Customer finance,
non-current
2017
2016
2017
2016
2017
2016
2017
2016
2017
2016
1,009
145
–20
–
102
–
1,236
–54
–126
20
–
–160
1,076
1,099
118
–203
–
–5
–
1,009
–32
–22
–
–
–54
955
18,667
643
–
–
–
–1,463
17,847
14,322
3,490
–
–
–
855
18,667
7,586
54,687
–37,241
–
73
–
25,105
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
7,593
–
–
–7
–
7,586
–
–
–
–
–
17,847
18,667
25,105
7,586
–
86
–
–
–
–
86
–
–
–
–
–
86
452
–
–
–452
–
–
–
–
–
–
–
–
–
1,476
2,036
–1,019
–570
–
–82
1,841
–9
–70
21
–1
–59
1,456
2,200
–2,264
–12
–
96
1,476
–16
–3
11
–1
–9
1,782
1,467
Other financial assets,
non-current
2017
2016
1,233
20
–111
–
–
–
1,142
–
–
–
–
–
–
1,610
119
–44
–452
–
–
1,233
–
–
–
–
–
–
1,142
1,233
Ericsson | Annual Report 2017 90
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, 2017.
A complete listing of shareholdings, prepared in accordance with the Swedish Annual Accounts Act and filed with the Swedish Companies Registration 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
Reg. No.
Domicile
Percentage of own-
ership
Par value in local
currency, million
Carrying value, SEK
million
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
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
–
108
939
–
20
2
65
544
291
9
285
2
2
–
270
90
–
137
1
65
20,731
2,216
306
88
69
6
5
1,645
94
216
196
524
4,232
120
34
3,857
3,200
114
270
5
170
–
1,994
684
25,907
15
51
170
1,050
118
100
2
475
122
51
711
2,279
4
1
135
36
17
295
72,316
–
–
330
330
Joint ventures and associated companies
ST-Ericsson SA
Rockstar Consortium Group
Ericsson Nikola Tesla d.d.
Total
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.
Ericsson | Annual Report 2017
Financials – Notes to the Parent Company financial statements
91
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
83
100
100
100
51
100
100
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.
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.
2017
2016
1
1
3
3
For further information, see Notes to the consolidated financial statements
– Note C14, “Trade receivables and customer finance” and Note C20, “Finan-
cial risk management and financial instruments.”
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
Trade receivables, total
Customer finance
Allowances for impairment
Customer finance, net
Movements in allowances for impairment
2017
2016
137
–26
111
1
112
2,884
–159
2,725
64
–22
42
1
43
2,663
–105
2,558
Opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference
Closing balance
Trade receivables
Customer finance
2017
2016
2017
22
–
–
–
4
26
22
1
–
–1
–
22
105
82
–3
–17
–8
159
2016
190
27
–108
–5
1
105
Ericsson | Annual Report 2017 92
Financials – Notes to the Parent Company financial statements
Note 10, contd.
Aging analysis as per December 31
2017
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
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
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 Company has continuing involvement
During 2017, there were no new financial assets transferred where the Com-
pany had continuing involvement. However, during 2016 the Company
derecognized financial assets where it had continuing involvement. A repur-
chase of these assets would amount to SEK 380 (630) million. No assets or
liabilities were recognized in relation to the continuing involvement.
Trade receivables
excluding associated
companies and joint
ventures
Allowances for impair-
ment of receivables
Trade receivables related
to associated companies
and
joint ventures
Customer finance
Allowances for impair-
ment of customer
finance
26
18
59
–
–
34
137
22
4
30
–
–
8
64
2017
2,884
77
2,961
14
–505
2,470
2,725
942
2,784
2016
2,663
122
2,785
16
–805
1,996
2,558
1,091
3,390
–
–
–
–
–
–26
–26
–
–
–
–
–
–22
–22
1
–
–
–
–
–
1
1
–
–
–
–
–
1
970
1,751
4
1
29
129
2,884
1,438
1,058
3
3
14
147
2,663
–
–60
–
–
–20
–79
–159
–
–7
–
–
–6
–92
–105
P11 Receivables and liabilities –
subsidiary companies
Receivables and liabilities – subsidiary companies
Payment due by period
< 1
year
1–5
years
>5
years
Total
2017
Total
2016
Non-current receivables 1)
Financial receivables
–
17,845
Current receivables
Trade receivables
Financial receivables
Total
Non-current liabilities 1)
Financial liabilities
Current liabilities
Trade payables
Financial liabilities
Total
861
37,066
37,927
–
934
34,510
35,444
–
–
–
–
–
–
–
–
–
–
–
17,845
18,667
861
37,066
37,927
2,093
33,050
35,143
31,511
31,511
31,559
–
–
–
934
34,510
35,444
284
34,983
35,267
1) Including non-interest-bearing receivables and liabilities, net, amounting to SEK –31,511 (–31,559)
million.
P12 Other current receivables
Other current receivables
Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other
Total
2017
295
49
1,213
475
2,032
2016
267
51
1,077
644
2,039
Ericsson | Annual Report 2017 P13 Equity and other comprehensive income
Capital stock 2017
Capital stock at December 31, 2017, consisted of the following:
Financials – Notes to the Parent Company financial statements
93
The Board of Directors proposes that a dividend of SEK 1.00 (1.00) per share
be paid to shareholders duly registered on the record date of April 3, 2018, 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 enti-
tled to receive dividend. Assuming that no treasury shares remain on the record
date, the Board of Directors proposes that earnings be distributed as follows:
Capital stock
Class A shares 1)
Class B shares 1)
Total
Number of shares
Capital stock
261,755,983
3,072,395,752
3,334,151,735
1,309
15,363
16,672
Proposed disposition of earnings
Proposed disposition of earnings
1) Class A shares (quotient value SEK 5.00) and Class B shares (quotient value SEK 5.00).
Amount to be paid to the shareholders
Amount to be retained by the Parent Company
Total non-restricted equity of the Parent Company
SEK 3,334,151,735
SEK 36,243,787,145
SEK 39,577,938,880
Equity and other comprehensive income (loss) 2017
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
January 1, 2017
Net income (loss)
Other comprehensive income
Items that may be reclassified to profit or loss
Interest-bearing securities, non-current
Gains (+)/Losses (–) arising during the period
Reclassification adjustments relating to avail-
able-for-sale financial assets disposed of in the
year
Revaluation of other investments in shares and
participations
Fair value remeasurement
Tax on items that may be reclassified to profit
and loss
Total other comprehensive income,
net of tax
Total comprehensive income (loss)
Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation
Repurchase of own shares
Dividends paid
December 31, 2017
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 par-
ticipations
Fair value remeasurement
Total other comprehensive income,
net of tax
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation
Repurchase of own shares
Dividends paid
December 31, 2016
16,657
–
–
–
–
–
–
–
15
–
–
–
–
20
–
–
–
–
–
–
–
–
–
–
–
–
31,472
48,149
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
15
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
–
–
560
–
68
5
102
–14
161
161
–
–
–
–
–
16,672
20
31,472
48,164
100
721
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
16,526
–
–
–
–
–
131
–
–
–
–
20
–
–
–
–
–
–
–
–
–
–
31,472
48,018
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
131
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
572
–
–7
–5
–12
–12
–
–
–
–
–
16,657
20
31,472
48,149
100
560
Other
retained
earnings
44,092
Non-
restricted
equity
44,752
Total
92,901
–2,148
–2,148
–2,148
–
–
–
–
–
–2,148
–
98
3
–15
–3,273
38,757
68
5
102
–14
68
5
102
–14
161
– 1,987
161
– 1,987
–
98
3
–15
–3,273
39,578
15
98
3
–15
–3,273
87,742
Total
90,596
Other
retained
earnings
41,906
Non-
restricted
equity
42,578
14,246
14,246
14,246
–
–
–
14,246
–
105
24
–131
–12,058
44,092
–7
–5
–7
–5
–12
14,234
–12
14,234
–
105
24
–131
–12,058
44,752
131
105
24
–131
–12,058
92,901
Ericsson | Annual Report 2017 94
Financials – Notes to the Parent Company financial statements
P14 Contributions
Contributions to Swedish subsidiaries amount to SEK 120 (1,100) million.
There were no contributions from Swedish subsidiaries in 2017 and 2016.
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 relating 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.
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 obli-
gations accounted for in the income statement
Pension payments
Return on plan assets
Return on plan assets not accounted for
Closing balance provision for pensions
2017
2016
175
220
485
239
101
1,220
–
2017
410
101
–81
–46
11
395
102
223
493
229
127
1,174
–
2016
395
110
–77
–94
76
410
Defined benefit obligation – amount recognized in the Balance sheet
Estimated pension payments for 2018 are SEK 73 million.
Present value of wholly or partially funded pension plans
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
2017
867
–1,220
–353
395
353
395
2016
832
–1,174
–342
410
342
410
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 3.9 (8.7)%.
P16 Other provisions
Other provisions
2017
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance
2016
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance
1) Of which SEK 204 (470) million is expected to be utilized within one year.
Total pension cost and income recognized in the Income statement
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
2017
2016
2015
65
36
3
74
36
2
68
36
–
104
112
104
65
65
–35
134
85
85
–18
179
71
71
–21
154
Of the total pension cost, SEK 133 (162 in 2016 and 139 in 2015) million is
included in operating expenses and SEK 1 (17 in 2016 and 15 in 2015) million
in the financial net.
Restruc turing
Customer
finance
71
5
–
–63
–
13
50
83
–60
–2
–
71
4
–
–
–
–
4
4
–
–
–
–
4
Other
400
199
–
–409
–
190
358
70
–
–28
–
400
Total other
provisions1)
475
204
–
–472
–
207
412
153
–60
–30
–
475
Ericsson | Annual Report 2017
P17 Interest-bearing liabilities
As of December 31, 2017, the Parent Company’s outstanding interest-bearing
liabilities, excluding liabilities to subsidiaries, stood at SEK 28.8 (23.4) 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 0 (4,900) million.
2017
2016
–
–
–
4,900 1)
–
4,900
20,560
8,211
28,771
28,771
10,556
7,969
18,525
23,425
To secure long-term funding, the Company uses notes and bond programs
together with bilateral research and development loans. All outstanding 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
Notes, bonds, bilateral loans and committed credit
Financials – Notes to the Parent Company financial statements
95
swapped to a floating interest rate using interest rate swaps under the Asset
and liability management mandate described in Note C20, “Financial risk
management and financial instruments.” Total weighted average interest rate
cost for the long-term funding during the year was 1.68% (2.76%). The out-
standing EUR bonds and USD bond are revalued based on changes in bench-
mark interest rates according to the fair value hedge methodology stipulated
in IAS 39.
In February 2017, the Company issued a Euro denominated 500 million
4-year bond with a fixed coupon rate of 0.875% and a Euro denominated 500
million 7-year bond with a fixed coupon rate of 1.875%. The proceeds were
used to refinance debt maturing in 2017 and for general corporate purposes.
In April 2017, the Company exercised its second extension option under the
USD 2 billion multi-currency revolving credit facility, extending the maturity
date to June 2022.
In June 2017, the Company repaid the Euro demoninated 500 million bond
issued in 2007.
In December, Ericsson raised USD 220 million from the Nordic Investment
Bank (NIB) and USD 150 million from AB Svensk Exportkredit. The credit
agreements mature in 2023 and 2025 and extended Ericsson’s debt maturity
profile. Of these new funds, 98 million replaced credit with NIB that was set to
mature in 2019.
Issued–maturing
Notes and bond loans
2010–2020 1)
2012–2022
2017–2021
2017–2024
2017–2025 1)
Total notes and bond loans
Bilateral loans
2012–2021 3)
2013–2020 4)
2013–2023 3)
Total bilateral loans
Committed credit
Long-term committed credit facility 5)
Total committed credit
Nominal
amount
Coupon
Currency
Book value
(SEK million)
Market value
(SEK million)
Maturity date
Unrealized hedge
gain/loss (included
in book value)
4.125%
0.875%
1.875%
170
1,000
500
500
150
98
684
220
2,000
USD
USD
EUR
EUR
USD
USD
USD
USD
USD
1,394
8,180 2)
4,897 2)
4,862 2)
1,227
1,488
8,223
4,846
4,824
1,432
December 23, 2020
May 15, 2022
March 1, 2021
March 1, 2024
December 22, 2025
20,560
20,813
805
5,609
1,797
8,211
–
–
830
5,724
1,972
8,526
–
–
September 30, 2021
November 6, 2020
June 15, 2023
June 5, 2022
9
7
–7
9
1) Private Placement, Swedish Export Credit Corporation (SEK).
2) Interest rate swaps are designated as fair value hedges.
3) Nordic Investment Bank (NIB), R&D project financing.
4) European Investment Bank (EIB), R&D project financing.
5) Multi-currency revolving credit facility. Unutilized.
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
Fair value
Asset
Liability
Asset
Liability
2017
2016
2017
2016
Currency derivatives
Maturity within 3 months
Maturity between 3 and 12
months
Maturity between 1 and 3 years
Maturity between 3 and 5 years
Total
Of which internal
323
215
25
755
1,318
159
643
200
–
658
1,501
783
572
469
–
1,041
437
345
157
–
502
173
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
10
1
34
84
39
168
44
35
–
105
54
43
237
–
–
239
191
–
65
495 2)
120
–
82
205
6
116
409
–
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 86 (0) million is reported as non-current assets.
Ericsson | Annual Report 2017 96
Financials – Notes to the Parent Company financial statements
Note 18, contd.
Cash, cash equivalents and short-term investments 1)
SEK billion
Banks
Type of issuer/counterpart
Governments
Corporations
Mortgage institutes
2017
2016
Remaining time to maturity
< 3
months
3–12
months
1–5
years
>5
years
9.4
9.5
0.3
0.2
19.4
22.3
1.0
11.5
16.7
28.2
19.1
1.0
1.2
0.8
0.8
1.6
0.3
Total
9.4
22.8
0.3
17.7
50.2
42.9
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 4.7
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 commit-
ted credit facilities, see Note P17, “Interest-bearing liabilities.”
Funding programs 1)
Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million)
Amount
Utilized Unutilized
5,000
2)
1,519
1,000
3,481
–
1) There are no financial covenants related to these programs.
2) Program amount indeterminate.
Financial instruments, book value
In May 2017, Moody’s announced that they have downgraded the senior
unsecured debt ratings to Ba1 from Baa3 and the MTN program rating to Ba1
from Baa3, with a stable outlook. In October 2017, Moody’s announced that
they have downgraded the senior unsecured debt ratings to Ba2 from Ba1 and
the MTN program rating to Ba2 from Ba1. At the same time, the agency placed
the company`s Ba2/Ba2 ratings on review for futher downgrade. In March
2017, S&P announced that they had downgraded the long-term corporate
credit rating on Ericsson to BBB- from BBB, with a negative outlook. In July
2017, S&P announced that they had downgraded the long-term corporate
credit rating on Ericsson to BB+ from BBB-, with a stable 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 1.3 (1.9) billion in relation to
assets and gross SEK –1.0 (1.2) billion in relation to liabilities were valued
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, classified
as level 3 assets for valuation purposes, have been valued based on value
in use technique.
Trade
recei v ables
Inter-
est-bearing
securities
Rec eiv ables
and liabili-
ties 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
2.7
6.1
25.1
55.8
P12
1.2
P19
–0.9
14.3
P7
1.0
0.2
1.0
SEK billion
Note
Assets at fair value through
profit or loss
Loans and receivables
Available-for-sale
Financial Liabilities at
amortized cost
Total
2.7
31.2
–70.0
–14.2
–28.8
–28.8
–0.5
–0.5
14.3
1.2
–0.9
2.2
P19 Other current liabilities
P20 Trade payables
Other current liabilities
Accrued interest
Accrued expenses, of which
Employee related
Other
Deferred revenues
Derivatives with a negative value
Other current liabilities
Total
2017
2016
Trade payables
187
620
275
345
5
927
61
212
616
289
326
16
738
156
1,800
1,738
Trade payables excluding associated companies and joint
ventures
Associated companies and joint ventures
Total
All trade payables fall due within 90 days.
2017
2016
21.7
58.7
26.1
–99.3
7.2
23.5
56.4
8.6
–90.6
–2.1
2017
2016
509
186
695
400
186
586
Ericsson | Annual Report 2017
Financials – Notes to the Parent Company financial statements
97
P21 Assets pledged as collateral
P24 Leasing
Assets pledged as collateral
Bank deposits
Total
2017
715
715
2016
584
584
Leasing with the Parent Company as lessee
At December 31, 2017, 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 settlement
commitments of SEK 475 (345) million.
P22 Contingent liabilities
Contingent liabilities
Total contingent liabilities
2017
2016
22,620
22,677
Contingent liabilities include pension commitments of SEK 17,404 (17,373)
million.
In accordance with standard industry practice, the Company enters into
commercial contract guarantees related to contracts for the supply of tele-
communication equipment and services. The total amount for 2017 was
SEK 20,604 (23,094) 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 Receiv-
ables and Customer Finance.”
P23 Statement of cash flows
Interest paid in 2017 amounted to SEK 494 million (SEK 564 million in 2016
and SEK 557 million in 2015) and interest received was SEK 419 million
(SEK 304 million in 2016 and SEK 1,009 million in 2015). Taxes paid, includ-
ing withholding tax, were SEK 311 million in 2017 (SEK 121 million in 2016
and SEK 327 million in 2015).
2018
2019
2020
2021
2022
2023 and later
Total
Operating leases
559
529
434
394
327
815
3,058
Leasing with the Parent Company as lessor
At December 31, 2017, future minimum payment receivables were distributed
as follows:
Future minimum payment receivables
2018
2019
2020
2021
2022
2023 and later
Total
Operating leases
5
1
–
–
–
–
6
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
Adjustments to reconcile net income to cash
Average number of employees
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
2017
2016
2015
195
195
218
218
413
–270
9,126
120
–
121
187
187
268
268
455
84
78
1,100
–7
28
161
161
402
402
563
–119
400
1,500
–
–137
9,510
1,738
2,207
2017
2016
Men Women
Total
Men Women
Total
Northern Europe & Cen-
tral Asia 1) 2)
Middle East
Total
1) Of which in Sweden
2) Of which in EU
200
184
384
200
200
200
24
224
200
200
400
208
608
400
400
209
172
381
209
209
193
17
210
193
193
402
189
591
402
402
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
2017
2016
717
314
175
755
361
221
2017
2016
420
297
717
420
420
480
275
755
480
480
Remuneration in foreign currency has been translated to SEK at average
exchange rates for the year.
Ericsson | Annual Report 2017
98
Financials – Notes to the Parent Company financial statements
Note 25, contd.
Remuneration to the Board of Directors and the President and CEO
See Notes to the consolidated financial statements, Note C28, “Information
regarding members of the Board of Directors, the Group management and
employees.”
Long-term variable compensation
Compensation costs for employees of the Parent Company for the cash based
plan amounted to SEK 5.2 million and the cost for share based plan amounted
to SEK 5.7 (24.7) million. See Notes to the consolidated financial statements,
Note C28, “Long-term variable compensation”.
P26 Related party transactions
During 2017, 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 associated 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
2017
2016
6
77
6
4
81
4
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.
ST-Ericsson
Related party transactions
License revenues
Dividends
Related party balances
Receivables
Payables
2017
2016
–
–
218
186
–
–
187
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.”
P27 Fees to auditors
Fees to auditors
2017
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
2016
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
2015
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
PwC
29
9
3
4
45
23
8
1
–
32
22
8
2
–
32
The allocation of fees to the auditors is based on the requirements in the
Swedish Annual Accounts Act.
During the period 2015–2017, in addition to audit services, PwC provided
certain audit-related services, tax and other services to the Parent Company.
The audit-related services include quarterly reviews, SSAE 16 reviews and
services in connection with the issuing of certificates and opinions and con-
sultation on financial accounting. The tax services include corporate tax
compliance work. Other services include services related to acquisitions.
P28 Events after the reporting period
Ericsson strengthens focus on innovation and makes
changes to Executive Team
On January Jan 31 2018, Ericsson announced changes to the group structure
and its Executive Team. A Business Area Emerging Business was created to
increase focus on innovation and new business development. Effective April 1,
2018, Åsa Tamsons is appointed Senior Vice President and head of Business
Area Emerging Business and member of Ericsson’s Executive Team. The new
Business Area Emerging Business will be reported under Segment Other.
Business Area Digital Services is undergoing significant transformation
to create a profitable and strong offering in this strategically important area.
Ulf Ewaldsson has decided to step down from leading the unit, following the
completion of its build up phase. Jan Karlsson, currently head of Solution Area
BSS, will step in as acting head of Business Area Digital Services. Ulf Ewaldsson
will take on a role as advisor to CEO Börje Ekholm.
The company is also simplifying its group function structure, from currently
six functions to four. In light of the change in responsibilities Elaine Weidman-
Grunewald has decided to leave the company to pursue other opportunities.
Ericsson concludes strategic review of Media Solutions
and Red Bee Media
On January 31 2018, Ericsson concluded the review of strategic opportunities
for its Media business – Media Solutions and Red Bee Media – which was
initiated in conjunction with the announcement of the company’s focused
business strategy on March 28, 2017. Ericsson has implemented substantial
performance improvement programs while continuing to invest in the res-
pective business. Both units have made significant progress during 2017.
Outcome of the strategic review:
– One Equity Partners new majority owner in Media Solutions, Ericsson will
retain 49% of the shares
– Media Solutions assets and staff to transfer to independent company upon
closing, expected Q3 2018
– Continued in-house development of Red Bee Media
Ericsson | Annual Report 2017 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, liquid-
ity, 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 difficul-
ties 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 and uncer-
tainty as well as geopolitical risk could have adverse, wide-ranging
effects on demand for our products and for the products of our custom-
ers. Adverse global economic conditions and political unrest and uncer-
tainty as well as geopolitical risk could cause operators and other cus-
tomers to postpone investments or initiate other cost-cutting initiatives
to improve their financial position. This could result in significantly
reduced expenditures for our products and services, including network
infrastructure, 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 opportunities 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 cus-
tomers. 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
– Risk of financial difficulties or failures among our suppliers
– Increased demand for customer finance, difficulties in collection
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
Financials – Risk factors
99
Contents
99 Market, Technology and Business risks
105 Regulatory, Compliance and Corporate Governance risks
107 Risks associated with owning Ericsson shares
– 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 dis-
count rates. Such development may trigger additional pension trust
capitalization needs affecting the company’s cash balance nega-
tively
– End user demand could also be adversely affected by reduced con-
sumer 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, the British government has begun 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 transitional 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 unpre-
dictable consequences for credit markets and adversely affect our busi-
ness, results of operations and financial performance.
The 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 operations and financial performance.
We may not achieve some or all of the expected benefits
of our restructuring plan and our restructuring may adversely
affect our business.
We announced a restructuring plan in 2017 to realign our cost structure
in connection with a company transformation to achieve operating
efficiencies and drive profitability. Implementation of the restructuring
plan may be costly and disruptive to our business. For example, restruc-
turing charges of SEK –8.5 (–7.6) b. had a significant negative impact
on our reported 2017 results. We may also not be able to obtain the cost
savings and benefits that were initially anticipated in connection with
our restructuring. Additionally, as a result of our restructuring, we may
Ericsson | Annual Report 2017 100
Financials – Risk factors
experience a loss of continuity, loss of accumulated knowledge and/or
inefficiency during transitional periods. Reorganization and restructur-
ing can require a significant amount of management and other employ-
ees’ time and focus, which may divert attention from operating and
growing our business. Restructuring activities can create unanticipated
consequences and negative impacts on the business, and we cannot be
sure that any ongoing or future restructuring efforts will be successful or
generate expected cost savings. Factors that may impede a successful
implementation include the retention of key employees, the impact of
regulatory matters, and adverse economic market conditions. If we fail
to achieve some or all of the expected benefits of restructuring, or if we
do not complete the restructuring on schedule, it could have a material
adverse effect on our competitive position, business, financial condition,
results of operations, cash flows, reputation and share price.
We may not be successful in implementing our strategy or in achiev-
ing improvements in our profitability or in estimating addressable
markets or market CAGR in the markets in which we operate.
There can be no assurance that we will be able to successfully imple-
ment our strategy to achieve future profitability, growth or create share-
holder value. When deemed necessary, we undertake specific restruc-
turing 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 growth rate in the market segments in which we
operate, including the Networks, Digital Services, Managed Services
and Other. If the underlying assumptions on which our estimates are
based prove not to be accurate, the actual performance or addressable
markets and CAGR may be materially 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 tech-
nology 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 surrounding the global economic
recovery and the geopolitical situation may materially harm actual mar-
ket conditions. Moreover, market 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 services can change quickly and
can vary over short periods of time, including from month to month.
Due to the uncertainty and variations in the telecommunication indus-
try, 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 service providers and other customers represent a mix
of equipment, software and services, which normally generate different
gross margins. Our service provider customers still represent the main
part of our business and are also the main focus for sales going forward.
We provide all our customers with solutions based on 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 ser-
vices as well as the relative content of third-party products. In our Digi-
tal Services and Other segments, third-party products and services
represent a larger portion of our business than our traditional sales,
which impact our business models. 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 nor-
mally placed at short notice by customers, often less than a month in
advance, and consequently variations in demand are difficult to fore-
cast. As a result, changes in our product 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 material 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 convergence
of IT and telecom.
We are affected by market conditions and trends within the industries 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 soft-
ware and cloud based services. This is changing the competitive land-
scape 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 new competitors including 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 or anticipate the market trends and 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 commu-
nications and the success of our existing customer base, the telecom
operators. If growth slows or if our customers do not manage to main-
tain or grow relevance in the digital value chain or if our products
and/or services are not successful, our customers’ investment in net-
works 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 deploy-
ment 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 further 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 networks could be affected if more
traffic is offloaded to WI-FI-networks. Further alternative services
provided over the internet have profound effects on operator voice/SMS
revenues with possible reduced capital expenses consequences. Our
Ericsson | Annual Report 2017 value system depends on the development and success of global stan-
dards. This could be affected adversely in the future by industry forces
more interested in de-facto standards and or geo-political forces lead-
ing 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 on the uptake of such services
and the outcome of regulatory and standardization 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 telecommunica-
tions 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 develop-
ment, 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 particular, we face competition from
large IT companies and web scale companies entering the telecommu-
nications 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 technologies 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 develop-
ment costs as well as increased sales and marketing expenses, which
could have a material adverse effect on our business, operating results,
financial condition and market share.
Additionally, we operate in markets characterized by rapidly chang-
ing 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 ser-
vices suppliers could potentially result in stronger competitors that are
competing as end-to-end suppliers as well as competitors more special-
ized in particular areas, which could for example impact certain of our
segments such as Digital Services, and Other. Consolidation may also
result in competitors with greater resources than we have or in the
reduction of our current scale advantages. This could have a materially
adverse effect on our business, operating results, financial con dition
and market share.
Financials – Risk factors
101
A significant portion of our revenue is currently generated from a
limited number of key customers, and operator consolidation may
increase our dependence on key customers. We also are significantly
dependent on the sales of certain of our products and services.
We derive most of our business from large, multi-year agreements with
a limited number of significant customers. Many of these agreements
are reviewed on a yearly basis to renegotiate the price for our products
and services and do not contain committed purchase volumes. Although
our largest customer represented approximately 7% of our sales in
2017, our ten largest customers accounted for 45% of our sales in 2017.
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 addition, our dependence on the sales of certain of our products
and services may have a significant adverse impact on sales, profit
and market share.
In recent years, service providers have undergone significant conso-
lidation, 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 pressure. A market with
fewer and larger operators will increase our reliance 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 consolidation process, which may include, among others,
actions relating to merger or acquisition agreements, securing neces-
sary regulatory approvals, or integration of businesses. Network opera-
tors also share parts of their network infrastructure through cooperation
agreements rather than legal consolidations, which may adversely
affect demand for network equipment. Accordingly, operator consolida-
tion may have a material adverse effect on our business, operating
results, market share and financial condition.
Certain long-term agreements with customers include commitments
to future price reductions, requiring us to constantly manage and con-
trol 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 continuously 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 con-
tracts, which may have a material adverse effect on our business, oper-
ating results and financial condition.
The development 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 opera-
tors various services in which we manage their networks. The develop-
ment of 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 reve-
nues. However, such contracts have been, and may in the future be,
termi nated or reduced in scope, which has negative impacts on sales
and earnings. Competition in managed services is increasing, which
may have adverse effects on our future business, operating results
and profitability.
Ericsson | Annual Report 2017 102
Financials – Risk factors
Our debt increases our vulnerability to general adverse economic and
industry conditions, limits our ability to borrow additional funds, and
may limit our flexibility in planning for, or reacting to, changes in our
business and industry.
As of December 31, 2017, our outstanding debt was SEK 33.0 billion. In
addition, in 2017, each of Standard & Poor’s and Moody’s downgraded
Ericsson’s long-term rating to below investment grade. This degree of
leverage and our long-term ratings could have important consequences,
including:
– making it more difficult for us to make payments
on our indebtedness;
– increasing our vulnerability to general economic and
industry conditions;
– requiring a substantial portion of cash flow from operations to be
dedicated to the payment of principal and interest on our indebted-
ness, thereby reducing our ability to use our cash flow to fund our
operations, capital expenditures and future business opportunities;
– restricting us from making strategic acquisitions or causing us to
make non-strategic divestitures;
– limiting our ability to obtain additional financing for working capital,
capital expenditures, debt service requirements, acquisitions and
general corporate or other purposes; and
– limiting our ability to adjust to changing market conditions and
placing us at a competitive disadvantage compared to our com-
petitors who are less highly leveraged.
We may be able to incur substantial additional indebtedness in the
future. If new indebtedness is added to our current debt levels, the
related risks that we now face could increase.
If our financial performance were to deteriorate, we may not be able
to generate sufficient cash to service all of our indebtedness and may be
forced to take other actions to satisfy our obligations under our indebt-
edness, which may not be successful.
We depend upon the development of new products and enhance-
ments 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 techni-
cally or commercially successful could have adverse effects on our busi-
ness, operating results and financial condition. If we invest in the devel-
opment 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 successful in the marketplace, our sales and earnings may materi-
ally suffer. Additionally, it is common for research and development proj-
ects to encounter delays due to unforeseen problems. Delays in produc-
tion 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 busi-
ness, 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 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 incur-
rence 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:
– Insufficiencies of technologies and products acquired, such as unex-
Our ability to make scheduled payments on or to refinance our debt
pected quality problems
obligations depends on our financial condition and operating perfor-
mance, which is subject to prevailing economic and competitive condi-
tions and to certain financial, business and other factors beyond our
control. While we believe that we currently have adequate cash flows to
service our indebtedness, if our financial performance were to deterio-
rate significantly, we might be unable to maintain a level of cash flows
from operating activities sufficient to permit us to pay the principal,
premium, if any, and interest on our indebtedness.
– 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 key employees
– Diversion of management’s attention away from other
business concerns
– Expenses of any undisclosed or potential legal liabilities
If, due to such a deterioration in our financial performance, our cash
of the acquired company
flows and capital resources were to be insufficient to fund our debt
service obligations, we may be forced to reduce or delay investments
and capital expenditures, or to sell assets, seek additional capital or
restructure or refinance our indebtedness. These alternative measures
may not be successful and may not permit us to meet our scheduled
debt service obligations. In addition, if we were required to raise addi-
tional capital in the current financial markets, the terms of such financ-
ing, if available, could result in higher costs and greater restrictions on
our business. In addition, if we were to need to refinance our existing
indebtedness, the conditions in the financial markets at that time could
make it difficult to refinance our existing indebtedness on acceptable
terms or at all. If such alternative measures proved unsuccessful, we
could face substantial liquidity problems and might be required to dis-
pose of material assets or operations to meet our debt service and other
obligations.
From time to time we also divest parts of our business to optimize
our product portfolio or operations. Any decision to dispose of or other-
wise 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 you that we will be successful in con-
summating future acquisitions or divestments on favorable terms or at
all. The risks associated with such acquisitions and divestments could
have a material adverse effect upon our business, operating results,
financial condition and liquidity. Risks we could face with respect to
divestments include:
– Difficulties in the separation of the operations, technologies,
products and personnel of the business divested
– Potential loss of key employees
– Expenses of any undisclosed or potential legal liabilities of the
business divested
Ericsson | Annual Report 2017 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 part-
nership with Cisco, may fail to perform as expected for various reasons,
including an incorrect assessment of our needs and synergies, our
inability to take action without the approval of our partners, our difficul-
ties in implementing our business plans, the lack of capabilities or finan-
cial instability of our strategic partners. Our ability to work with these
partners or develop new products and solutions may become con-
strained, which could harm our competitive position in the market.
Additionally, our share of any losses from or commitments to contrib-
ute additional capital to such JVs and partnerships may adversely affect
our business, operating results, financial condition 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 contractual
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 possible. Accordingly, there is a risk
that we will be unable to obtain key supplies we need to produce our
products and provide our services 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
components 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 predict
future customer demands. If we fail to anticipate customer demand
properly, an over or under supply of components and production capac-
ity could occur. In many cases, some of our competitors utilize the same
manufacturers and if they have purchased 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 disruptions 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 prod-
ucts and often include provisions regarding penalties and/or termina-
tion rights in the event of a failure to deliver ordered products 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, busi-
ness, 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.
Financials – Risk factors
103
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 oper-
ating results.
We incur a significant portion of our expenses in SEK. As a result of our
international operations, we generate, and expect to continue to gener-
ate, a significant portion of our revenue in currencies other than SEK.
To the extent we are unable to match revenue received in foreign cur-
rencies with costs paid in the same currency, 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 generally have
a negative effect on our reported results. Our attempts to reduce the
effects of exchange rate fluctuations through a variety of hedging activ-
ities may not be sufficient or successful, resulting 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 stan-
dards, 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 circumvented, 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 con-
duct business offer only limited protection of intellectual 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 property 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 technol-
ogy 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 inadver-
tent infringement of intellectual property rights also increases. In addi-
tion to industry-wide standards, other key industry-wide software solu-
tions 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 customers, alleging infringement of their intellectual prop-
erty rights. Defending such claims may be expensive, time-consuming
and divert the efforts of our management and/or technical personnel.
Ericsson | Annual Report 2017 104
Financials – Risk factors
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 products/technology
or enter into royalty or licensing agreements. How ever, we cannot be
certain that such licenses will be available to us on commercially rea-
sonable 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 asser-
tions 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, operating results and financial con-
dition. Ericsson holds a leading patent 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 proceed-
ings. 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 lawsuits
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 offi-
cers and the potential settlement or com pensation to the plaintiffs could
have significant impact on our reported results and reputation. For
additional information regarding 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 distruption 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 communica-
tions networks, which are vulnerable to damage or disturb ance from a
variety of sources. Having outsourced significant portions of our opera-
tions, such as IT, finance and HR operations, we depend on the perfor-
mance of external companies, including their security and reliability
measures. Regardless of protection measures, systems and communi-
cations networks are susceptible 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 certain sites, including R&D, production, network operation centers,
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 ham-
pered for the reasons stated above. Interruptions 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 vulner-
able to cyber security incidents that may impact confidentiality, avail-
ability 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, software development, lawful interception, product
engineering, IT, finance and HR operations. Any cyber security incident
including unintended use, involving our operations, product develop-
ment, 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 outsourced
significant aspects of our IT infrastructure, product development, engi-
neering services, finance and HR operations. While we have taken
precautions relating to the selection, integration and ongoing manage-
ment 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, finan-
cial condition, reputation and brand, potentially slowing operations,
leaking valuable intellectual property or sensitive information or damag-
ing our products which have been installed in our customers’ networks.
Threat actors may target specific employees, or other members of
Ericsson’s workforce, through technological and non-technological
means.
Recent trends have shown that there is a willingness to target end users
of technology, rather than enterprises. This has manifested itself in the
rise of threats such as ransomware, phishing and other extortion meth-
ods. With a diverse workforce of approximately 100,000 employees,
Ericsson is susceptible to risks of disruption or information loss resulting
from large scale attacks towards our employees, or society at large. This
could have a material adverse effect on our business, financial condi-
tion, reputation and brand.
Ericsson may be found non-compliant to privacy regulations and
may be subject to regulatory penalties.
The introduction of more stringent privacy regulations by regulators in
many markets in which Ericsson operates has introduced a risk that
Ericsson may be found to be non-compliant to privacy legislation, either
accidentally, through the actions of third parties, or otherwise, and
subject to penalties levied against Ericsson, with the associated dam-
age to Ericsson’s brand and reputation. Due to the diverse nature of
privacy legislation worldwide, any single incidence of Ericsson being
subjected to penalties may, as a result, lead to regulatory agencies in
other jurisdictions levelling separate penalties or judgements against
Ericsson. Due to the nature of Ericsson’s business and the amount of
personally identifiable information of which Ericsson is the controller
or processor, such an event could have far ranging consequences, even
if it was caused by a third party outside of the control of Ericsson.
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 quali-
fied personnel needed to develop successful new products, support our
existing product range and provide services to our customers.
Competition for skilled personnel and highly qualified managers in
the industries in which we operate remains intense. We are continuously
Ericsson | Annual Report 2017 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 appro-
priate 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 col-
lecting 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 deter-
mine a credit limit for each one of them. Challenging economic condi-
tions have impacted some of our customers’ ability to pay their invoices.
We may be unable to avoid future losses on our trade receivables. We
have also experienced 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 busi-
ness, financial condition and cash flow may materially suffer.
Our business requires a significant amount of cash. If we do not gener-
ate 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 condi-
tion 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 condi-
tions 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 have impacted and
may continue to negatively 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 signifi-
cant amount of goodwill and other intangible assets; for example, pat-
ents, customer relations, trademarks and software.
Goodwill is the only intangible asset the company has recognized 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 goodwill and other intangible assets 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. For example, for the
year ended December 31, 2017, we wrote down SEK –13.0 billion of
Financials – Risk factors
105
goodwill. Additional impairment charges may be incurred in the future
both in relation to goodwill and other intangible assets that could be
significant due to various reasons, including strategy changes, restruc-
turing actions or adverse market conditions that are either specific to us
or the broader industries in which we operate 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 estimated
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-gener-
ating 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 liability,
increased costs, or reduced products and services demand and have a
material adverse effect on our business, financial condition and brand.
Changes to regulations may adversely affect both our customers’
and our own operations. For example, regulations imposing more strin-
gent, time-consuming or costly planning and zoning requirements or
building approvals for radio base stations and other network infrastruc-
ture 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 infrastructure, which in turn could affect the sales of
our systems and services. Additionally, delay in radio frequency spec-
trum allocation, 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 existing regu-
lations 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, environ-
mental, health and safety, privacy (including the cross-border transfer of
personal data for example between the EU and the US), and other regul-
atory areas may increase costs and restrict our operations or the opera-
tions of network operators and service providers. Also, indirect 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.
Ericsson | Annual Report 2017 106
Financials – Risk factors
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 conditions
unique to specific countries or regions. We have customers 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, including
civil disturbances, acts of terrorism, economic and geopolitical instabil-
ity 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 markets in which we operate, there is a risk of protec-
tionist governmental measures implemented to assist domestic market
participants at the expense of foreign competitors. The implementation
of such measures could adversely affect our sales or our ability to pur-
chase critical components.
We must always comply with relevant export control regulations and
sanctions or other trade embargoes in force. The political situation in
parts of the world, particularly in the Middle East, remains uncertain and
the level of sanctions is still relatively high from a historical perspective.
A universal element of these sanctions is the financial restrictions with
respect to individuals and legal entities, but sanctions can also restrict
certain exports and ultimately lead to a complete trade embargo
towards a country. Specifically, on Iran, the implementation of the Joint
Comprehensive Plan of Action (“JCPOA”) has led to a reduction of sanc-
tions, particularly on the EU side. Although some of the sanctions
against Iran have been reduced, there are provisions to re-introduce
these sanctions if parts of the agreement are not met. The change in
political leadership in the U.S. has also led to an increased uncertainty
about the country’s position in foreign policy, including the commitment
to the JCPOA and sanctions towards Iran and other countries. Further
there is a risk in many countries of unexpected changes in regulatory
requirements, tariffs and other trade barriers, price or exchange controls,
or other governmental policies which could limit our operations and
decrease our profitability. Furthermore export control regulations, sanc-
tions or other forms of trade restrictions targeting 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 inherent risks.
Although we seek to comply with all export control and sanctions regu-
lations, there can be no assurance 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.
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 with-
holding taxes on domestic and cross border payments and social secu-
rity 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 jurisdic-
tion (double taxation). This could have adverse effects on our operating
results, reputation and brand.
In certain regional markets, there are trade barriers that limit compe-
tition. Should these trade barriers be removed or lowered, competition
may increase, which could have material adverse effects on our busi-
ness and operating results.
There has been a concern reported by some media and others, that
certain countries may use features of their telecommunications 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 reputation 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 requirements. In
some of the countries where we operate, corruption risks are high, there-
fore there is a higher focus on anticorruption. To ensure that our opera-
tions are conducted in accordance with applicable laws and require-
ments, 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. However, 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 tech-
nology by democratic and non-democratic regimes, violation of our
Code of Business Ethics, corruption, fraud, embezzlement, or violations
of anti-trust legislation, trade restrictions and international sanctions or
our Code of Conduct in Ericsson or in the supply chain. There is also an
increased demand from external stakeholders, for example non-govern-
mental organizations and investors, on transparency about sustainabil-
ity 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 Depart-
ment of Justice regarding its compliance with the U.S. Foreign Corrupt
Practices Act. These inquiries currently concern the period from January
2007 onwards. While the outcome of these inquiries is currently not
determinable, they could result in penalties or other measures that are
significant. While we attempt to monitor and audit internally and exter-
nally our compliance with the policies and directives as well as our sup-
pliers’ 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
Ericsson | Annual Report 2017 Financials – Risk factors
107
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 analysts, 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 regarding
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 introduction
and viability of new network systems, including LTE evolution / 5G
small cells products and new platforms
– Actual or expected results of ongoing or potential litigation or
investigations
– Announcements concerning bankruptcy or investigations into the
accounting procedures of ourselves or other telecommunications
companies
– Our ability to forecast and communicate our future results in
a manner consistent with investor expectation
– Compliance concerns relating to governance and regulatory matters
Currency fluctuations may adversely affect our share price
or value of dividends.
Because our shares are quoted in SEK on Nasdaq Stockholm (our pri-
mary 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 alternative exchanges or markets, which
may lead to less accurate share price information on Nasdaq Stockholm
or NASDAQ New York.
failed or fail to comply with these laws, regulations and requirements
we could be subject to significant 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 electromag-
netic 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. 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 require-
ments 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 ( “conflict minerals”)
that are necessary to the functionality or production of products manu-
factured or contracted to be manufactured by companies that file peri-
odic reports with the SEC, whether or not these products or their compo-
nents are manufactured by third- parties. While we believe that we are
able to fulfill these requirements 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 require-
ments. 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 components of our products be certified
as “conflict-free”.
Ericsson | Annual Report 2017 108
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 2017. The company’s
annual accounts and consolidated accounts of the company are
included on pages 19-107 in this document.
In our opinion, the annual accounts have been prepared in accor-
dance with the Annual Accounts Act and present fairly, in all material
respects, the financial position of the Parent Company as at 31 Decem-
ber 2017 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 2017 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 shareholders
adopt the income statement and balance sheet for the Parent Company
and for the Group.
Our opinions in this report on the annual accounts and consolidated
accounts are consistent with the content of the additional report that
has been submitted to the parent company’s audit committee in
accordance with the Audit Regulation (537/2014) Article 11.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (ISA) and generally accepted auditing standards in Sweden.
Our responsibilities under those standards are further described in the
Auditor’s responsibilities section. We are independent of the parent
company and the group in accordance with professional ethics for
accountants in Sweden and have otherwise fulfilled our ethical respon-
sibilities in accordance with these requirements. This includes that,
based on the best of our knowledge and belief, no prohibited services
referred to in the Audit Regulation (537/2014) Article 5.1 have been
provided to the audited company or its controlled companies within
the EU.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our audit opinions.
Our audit approach
Overview
– Overall group materiality: SEK 600 million, which represents 5% of the average income before tax for the
last four years adjusted for restructuring costs, write down of assets and provisions and adjustments related
to customer projects which are covered by separate audit procedures.
– The scope of our audit is based on our understanding of the risk areas in Ericsson, the significance of these
risks and how they are handled and controlled within the company. Consequently, 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
– Carrying value of goodwill, other intangible assets and deferred tax assets
– Provisions and allowances related to projects
Ericsson | Annual Report 2017 Financials – Auditor’s report
109
Materiality
The scope of our audit was influenced by our application of-materiality.
An audit is designed to obtain reasonable assurance whether the finan-
cial statements are free from material misstatement. Misstatements
may arise due to fraud or error. They are considered material if individu-
ally or in aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of the consolidated
financial statements.
Based on our professional judgement, we determined certain quanti-
tative thresholds for materiality, including the overall group materiality
for the consolidated financial statements as a whole as set out in the
table below. These, together with qualitative considerations, helped us
to determine the scope of our audit and the nature, timing and extent of
our audit procedures and to evaluate the effect of misstatements, both
individually and in aggregate on the financial statements as a whole.
Overall group materiality
SEK 600 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 , write
down of assets and provisions and adjustments
related to customer projects 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 60 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 cus-
tomers 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 agreements with other hardware and software
suppliers. As a global player, Ericsson is impacted by the macro eco-
nomic development and the customers response to this such as invest-
ment levels and access to financing of investments. The competition
within the industry Ericsson operates is significant which in many mar-
kets have resulted in price pressure. As a result, Ericsson has initiated
several activities to reduce the cost levels and to increase the flexibility
in production.
We designed our audit by determining materiality and assessing the
risks of material misstatement in the consolidated financial statements.
In particular, we considered where management made subjective
judgements; for example, in respect of significant accounting estimates
that involved making assumptions and considering future events that
are inherently uncertain. As in all of our audits, we also addressed the
risk of management override of internal controls, including among other
matters consideration of whether there was evidence of bias that repre-
sented a risk of material misstatement due to fraud.
We tailored the scope of our audit in order to perform sufficient work
to enable us to provide an opinion on the consolidated financial state-
ments 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 procedures whereby the
local auditors carry out additional testing based on our instructions. The
14 most important entities within the Group represent 72% of net sales
and 75% 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 special
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.
Ericsson | Annual Report 2017 110
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
judgements
Carrying value of goodwill, other intangible assets and deferred tax assets
Goodwill, other intangible assets and deferred tax assets are significant to the
con solidated 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.
Tax losses carry forward, SEK 47 billion mainly relates to Sweden. Ericsson
has recognized deferred tax assets of SEK 9 billion mainly related to Sweden
with indefinite periods of utilization.
Refer to the Annual Report Note C2 – Critical accounting estimates and
judgement Note C10 – Intangible assets and note C8 – Taxes.
Provisions and allowances related to projects
The need for provisions are by nature based on judgement and management
estimates of future outflow of cash. Ericsson has made provisions and allow-
ances 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 internal controls over finan-
cial reporting including procedures relating to business case reviews per-
formed 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 cus-
tomer as well as data analytics relating to revenue related manual journal
entries. Our audit also included an assessment of the preliminary effects
from the new revenue standard (IFRS15) to be applied from 2018.
Based on our work, we noted no significant issues regarding the accuracy
of revenue reported for the year.
Our audit included a combination of testing of controls over financial
reporting, analytical procedures and detailed tests of management impair-
ment tests of intangible assets and recognition of deferred tax assets. In our
detailed testing, we have involved our valuation experts to challenge the
assumptions and estimates made by management.
Due to the establishment of a new strategic direction, organisation and
new cash generating units an impairment write down of assets of SEK 17
billion including goodwill, SEK 13 billion was made. A stress test has been
performed and presented in Note C10 –Intangible assets. The future cash
flow is based on five years business plans and includes several key assump-
tions. Should the discount rate be increased from 8,5 % to 10,5% all goodwill
and intangible assets within segment Digital Services SEK 4.6 billion would
have had to be written-off.
Our audit included a combination of testing of controls over financial
reporting, analytical procedures and detailed testing to ensure that provisions
and allowances 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 restruc-
turing program has continued during 2017 including significant reductions in
Sweden resulting in restructuring costs of SEK 8,5 billion.
Adjustments and allowances for customer projects of SEK –14 billion
accounted for in 2017 mainly refers to allowances for customer contracts in
certain markets, provisions for supplier claims and provisions for onerous
con tracts. We have evaluated the timing of these adjustments and has con-
cluded that they refer to new strategic decisions and new estimates due to
new facts and circumstances and should consequently be accounted for in 2017.
Ericsson | Annual Report 2017 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 1–18, 113
and 141–173. 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 consoli-
dated accounts, our responsibility is to read the information identified
above and consider whether the information is materially inconsistent
with the annual accounts and consolidated accounts. In this procedure
we also take into account our knowledge otherwise obtained in the
audit and assess whether the information otherwise appears to be
materially misstated.
If we, based on the work performed concerning this information,
conclude that there is a material misstatement of this other information,
we are required to report that fact. We have nothing to report in this
regard.
Responsibilities of the Board of Directors
and the Managing Director
The Board of Directors and the Managing Director are responsible for
the preparation of the annual accounts and consolidated accounts and
that they give a fair presentation in accordance with the Annual
Accounts Act and, concerning the consolidated accounts, in accordance
with IFRS as adopted by the EU. The Board of Directors and the Manag-
ing Director are also responsible for such internal control as they deter-
mine is necessary to enable the preparation of annual accounts and
consolidated accounts that are free from material misstatement,
whether due to fraud or error.
In preparing the annual accounts and consolidated accounts,
The Board of Directors and the Managing Director are responsible for
the assessment of the company’s and the group’s ability to continue as
a going concern. They disclose, as applicable, matters related to going
concern and using the going concern basis of accounting. The going
concern basis of accounting is however not applied if the Board of
Directors and the Managing Director intends to liquidate the company,
to cease operations, or has no realistic alternative but to do so.
The Audit Committee shall, without prejudice to the Board of Direc-
tor’s responsibilities and tasks in general, among other things oversee
the company’s financial reporting process.
Auditor’s Responsibility
Our objectives are to obtain reasonable assurance about whether the
annual accounts and consolidated accounts as a whole are free from
material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinions. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs and generally accepted auditing standards in
Sweden will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these
annual accounts and consolidated accounts.
As part of an audit in accordance with ISAs, we exercise professional
judgment and maintain professional 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 to those risks, and
Financials – Auditor’s report
111
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinions. The risk of not detecting a material misstate-
ment resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, mis-
representations, or the override of internal control.
– Obtain an understanding of the company’s internal control relevant
to our audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opin-
ion on the effectiveness of the company’s internal control.
– Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures
made by the Board of Directors and the Managing Director.
– Conclude on the appropriateness of the Board of Directors’ and the
Managing Director’s use of the going concern basis of accounting in
preparing the annual accounts and consolidated accounts. We also
draw a conclusion, based on the audit evidence obtained, as to
whether any material uncertainty exists related to events or condi-
tions 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 con-
ditions may cause a company and a group to cease to continue as
a going concern.
– Evaluate the overall presentation, structure and content of the
annual accounts and consolidated accounts, including the disclo-
sures, 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 signifi-
cant audit findings during our audit, including any significant deficien-
cies in internal control that we identified.
We must also provide the Board of Directors with a statement that
we have complied with relevant ethical requirements regarding inde-
pendence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.
From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit of
the annual accounts and consolidated accounts, including the most
important assessed risks for material misstatement, and which there-
fore 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 communicated in the auditors’ report because the
adverse consequences of doing so could reasonably be expected to
outweigh the public interest benefits of such communication.
Ericsson | Annual Report 2017 112
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 also audited the administration of the Board of
Directors and Managing Directors of Telefonaktiebolaget LM Ericsson
for the year 2017 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 statu-
tory administration report and that the members of the Board of Direc-
tors 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 inde-
pendent of the parent company and the group in accordance with pro-
fessional ethics for accountants in Sweden and have otherwise fulfilled
our ethical responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient
and appropriate to provide a basis for our opinions.
Responsibilities of the Board of Directors
and the Managing Director
The Board of Directors is responsible for the proposal for appropriations
of the company’s profit or loss. At the proposal of a dividend, this
includes an assessment of whether the dividend is justifiable consider-
ing the requirements which the company’s and the group’s type of oper-
ations, size and risks place on the size of the parent company’s and the
group’s equity, consolidation requirements, liquidity and position in
general.
The Board of Directors is responsible for the company’s organization
and the administration of the company’s affairs. This includes among
other things continuous assessment of the company’s and the group’s
financial situation and ensuring that the company’s organization is
designed so that the accounting, management of assets and the com-
pany’s financial affairs otherwise are controlled in a reassuring manner.
The Managing Director shall manage the ongoing administration
according to the Board of Directors’ guidelines and instructions and
among other matters take measures that are necessary to fulfil the
company’s accounting in accordance with law and handle the manage-
ment of assets in a reassuring manner.
Auditor’s Responsibility
Our objective concerning the audit of the administration, and thereby
our opinion about discharge from liability, is to obtain audit evidence to
assess with a reasonable degree of assurance whether any member of
the Board of Directors or the Managing Director in any material respect:
– have undertaken any action or been guilty of any omission which can
give rise to liability to the company, or in any other way have 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 guar-
antee 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 appro-
priations 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 appropriations of the company’s profit
or loss is based primarily on the audit of the accounts. Additional audit
procedures performed are based on our professional judgment with
starting point in risk and materiality. This means that we focus the
examination on such actions, areas and relationships that are material
for the operations and where deviations and violations would have
particular importance for the company’s situation. We examine and test
decisions undertaken, support for decisions, actions taken and other
circumstances that are relevant to our opinion concerning discharge
from liability. As a basis for our opinion on the Board of Directors’ pro-
posed appropriations of the company’s profit or loss we examined the
Board of Directors’ reasoned statement and a selection of supporting
evidence in order to be able to assess whether the proposal is in accor-
dance with the Companies Act.
PricewaterhouseCoopers AB, Torsgatan 21, 113 97 Stockholm, was
appointed auditor of Telefonaktiebolaget LM Ericsson AB by the annual
general meeting of the shareholders on the 29 March 2017 and has
been the company’s auditor since at least 1993.
Stockholm, February 23, 2018
PricewaterhouseCoopers AB
Bo Hjalmarsson
Authorised Public Accountant
Lead partner
Johan Engstam
Authorised Public Accountant
Ericsson | Annual Report 2017
Forward-looking statements
Financials – Forward-looking statements
113
We caution investors that these statements are subject to risks and
uncertainties many of which are difficult to predict and generally
beyond our control that could cause actual results to differ materially
from those expressed in, or implied or projected by, the forward-looking
information and statements.
Important factors that could affect whether and to what extent any
of our forward-looking statements materialize include but are not lim-
ited to the factors described in the section Risk Factors.
These forward-looking statements also represent our estimates and
assumptions only as of the date that they were made. We expressly
disclaim a duty to provide updates to these forward-looking statements,
and the estimates and assumptions associated with them, after the
date of this Annual Report, to reflect events or changes in circumstances
or changes in expectations or the occurrence of anticipated events,
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, including
statements reflecting management’s current views relating to the
growth of the market, future market conditions, future events, financial
condition, and expected operational and financial performance, includ-
ing, in particular the following:
– Our goals, strategies, planning assumptions and operational
or financial performance expectations;
– Industry trends, future characteristics and development
of the markets in which we operate;
– Our future liquidity, capital resources, capital expenditures,
cost savings and profitability;
– The expected demand for our existing and new products and
services as well as plans to launch new products and services
including research and development expenditures;
– The ability to deliver on future plans and to realize potential
for future growth;
– The expected operational or financial performance of strategic
coop eration activities and joint ventures;
– The time until acquired entities and businesses will be integrated
and accretive to income; and
– Technology and industry trends including the regulatory and
standardization environment in which we operate, competition
and our customer structure.
The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,”
“likely,” “projects,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,”
“should,” “would,” “predict,” “aim,” “ambition,” “seek,” “potential,” “target,”
“might,” “continue,” or, in each case, their negative or variations, and
similar words or expressions are used to identify forward-looking state-
ments. Any statement that refers to expectations, projections or other
characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements.
Ericsson | Annual Report 2017 114
Corporate governance – Corporate governance report
Corporate governance report 2017
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.
Having global operations implies challenges and I believe that a robust
corporate culture is fundamental to maintain credible, competitive and
sustainable business operations worldwide. In 2017, Börje Ekholm took
office as new President and CEO for the Ericsson Group, a new focused
business strategy and a simplified organization were implemented and
a smaller Group leadership team was formed with the Executive Team.
In times of change, stability in terms of corporate culture and core val-
ues becomes even more important. The corporate culture must be
anchored in a strong commitment from the Board and from manage-
ment who must clearly emphasize the importance of conducting busi-
ness with integrity. The Board of Directors has an important role to give
Group management clear governance frameworks and mandates, and
to set the Group strategy. We always strive to have an open and mean-
ingful dialogue, both within the Board and between the Board and the
Group management.
Business integrity and compliance is fundamental to build trust.
Ericsson takes compliance concerns very seriously and uses consider-
able resources to investigate alleged compliance concerns and to take
preventive actions. In 2017, the Code of Business Ethics was updated
and rolled out within the global operations to raise awareness among
Ericsson’s workforce.
The industries in which Ericsson operates are in transformation and
during my time as Chairman of the Ericsson Board, the Board composi-
tion has also gone through considerable change. Expertise from rele-
vant industries, such as IT, software, telecommunications and infra-
structure has been added to the Board and the diversity and gender
balance have notably improved comparing two shareholder elected
female Board members in 2011 with five elected in 2017.
This Corporate Governance Report 2017 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
Contents
115 Regulation and compliance
116 Governance structure
116 Shareholders
117 General Meetings of shareholders
118 Nomination Committee
119 Board of Directors
122 Committees of the Board of Directors
125 Remuneration to Board members
126 Members of the Board of Directors
130 Management
134 Members of the Executive Team
138 Auditor
139 Internal control over financial reporting 2017
140 Auditor’s report on the Corporate Governance Report
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 took office as new President and CEO
effective January 16, 2017, replacing Jan Frykhammar
– Effective April 1, 2017, changes were made in the
com position of the Executive Team in line with the new
business strategy and the simplified organizational structure
– Jon Fredrik Baksaas, Jan Carlson and Eric A. Elzvik were
elected new members of the Board at the Annual General
Meeting 2017
Ericsson | Annual Report 2017 Ericsson’s core values
Regulation and compliance
Corporate governance – Corporate governance report
115
The articles of association and the work proce-
dure for the Board of Directors also include internal
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 conducted
with a strong sense of integrity. This is critical to
maintain trust and credibility with Ericsson’s cus-
tomers, 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. Everyone working
for Ericsson has an individual responsibility to
ensure that business practices adhere to the Code
of Business Ethics.
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.
In 2017, the Code of Business Ethics was
updated. Among the updates was the introduction
of a new chapter on corruption and financial irregu-
larities reflecting Ericsson’s zero-tolerance against
corruption. Following the update, an acknowledg-
ment project was rolled out throughout the global
Ericsson organization to serve as a reminder of the
most fundamental Group policies and directives,
and encourage the review of other steering docu-
ments that relate to each individual’s role and
responsibilities.
External rules
As a Swedish public limited liability company with
securities quoted on Nasdaq Stockholm as well
as on NASDAQ New York, Ericsson is subject to a
variety of rules that affect its governance. The most
relevant external rules applicable 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 applica-
ble 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 business
processes for approval, control and risk manage-
ment
– A Code of Conduct, which applies to product
development, production, supply and support
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 Swedish Corporate
Governance Board, which administers the Code:
www.corporategovernanceboard.se. Ericsson is com-
mitted to com plying with best-practice corporate gover-
nance on a global level wherever possible. This includes
continued compliance with the Code. Ericsson does not
report any deviations from the rules of the Code in 2017.
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 com-
mittee of Nasdaq Stockholm or the Swedish Securities
Council in 2017.
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
1 ERICSSON CODE OF CONDUCT
Ericsson | Annual Report 2017 116
Corporate governance – Corporate governance report
Governance structure
Shareholders
Shareholders
Ownership percentage (voting rights)
Swedish institutions:
Of which:
– Investor AB:
– AB Industrivärden:
(together with SHB Pensions -
stiftelse and Pensionskassan
SHB Försäkringsförening)
– Cevian Capital:
Foreign institutions:
Private Swedish investors:
Others:
Source: Nasdaq
58.47%
22.18%
19.26%
4.38%
30.54%
5.36%
5.63%
Shareholders may exercise their decision-
making 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 accor-
dance with the Instruction for the Nomination
Committee adopted by the Annual General
Meeting of shareholders. The tasks of the
Nomination Committee 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 con-
sists 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 operations.
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 Team.
The external auditor of Ericsson is elected
by the General Meeting of shareholders.
The Head of Ericsson’s internal audit func-
tion and the Chief Compliance Officer report to
the Audit Committee of the Board of Directors.
Ownership structure
As of December 31, 2017, the Parent Com-
pany had 433,779 registered shareholders, of
which 421,587 were resident or located in
Sweden (according to the share register kept
by Euroclear Sweden AB). Swedish institutions
held approximately 58.47% of the votes. The
largest shareholders as of December 31, 2017
were Investor AB with approximately 22.18%
of the votes (6.61% of the shares) and AB
Industrivärden (together with Svenska Han-
delsbankens Pensionsstiftelse and Pension-
skassan SHB Försäkringsförening), with
approximately 19.26% of the votes (3.31% of
the shares) and Cevian Capital with 4.38% of
the votes (7.39% of the shares).
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 sharehold-
ers can be found in the chapter “Share Infor-
mation” in the Annual Report.
Shares and voting rights
The share capital of the Parent Company
consists 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 entitle the holder to the same
proportion of assets and earnings and carry
equal rights to dividends.
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 General 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)
evidenced by American Depositary Receipts
(ADR). Each ADS represents one Class B share.
The members of the Board of Directors and
the Executive Team have the same voting
rights on shares as other shareholders holding
the same class of shares.
Governance structure
General Meeting of shareholders
Annual General Meeting/Extraordinary General Meeting
Nomination
Committee
Unions
Board of Directors
Directors elected by the General Meetings of shareholders
3 Directors & 3 Deputies appointed by the Unions
External
Auditors
Audit &
Compliance
Committee1)
Finance
Committee
Remuneration
Committee
Technology
& Science
Committee
President and CEO
Management
Head of
internal audit function
Chief Compliance
Officer
1) New name as of January 2018. During 2017, the Committee was named the Audit Committee.
Ericsson | Annual Report 2017
Contact the Board of Directors
Telefonaktiebolaget LM Ericsson
The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden
boardsecretariat@ericsson.com
Corporate governance – Corporate governance report
117
General Meetings of shareholders
Decision-making at General Meetings
The decision-making rights of Ericsson’s
shareholders are exercised at General Meet-
ings of shareholders. Most resolutions at Gen-
eral Meetings are passed by a simple majority.
However, the Swedish Companies Act requires
qualified majorities in certain cases, for exam-
ple 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 simulta-
neously translated into English. All documen-
tation provided by the Company is available
in both Swedish and English.
The AGM gives shareholders the opportu-
nity to raise questions relating to the opera-
tions of the Group. Normally, the majority of
the members of the Board of Directors and
the Executive Team is present to answer
such questions.
The external auditor is always present
at the AGM.
Ericsson’s Annual General Meeting 2017
Including shareholders represented by proxy,
2,552 shareholders were represented at the
AGM held on March 29, 2017, representing
more than 68% of the votes.
The meeting was also attended by mem-
bers of the Board of Directors, members of
the Executive Team and the external auditor.
Decisions of the AGM 2017 included:
– Payment of a dividend of SEK 1 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,
Kristin Skogen Lund, Kristin S. Rinne,
Sukhinder Singh Cassidy, Helena Stjern-
holm and Jacob Wallenberg
– Election of new Board members: Jon
Fredrik Baksaas, Jan Carlson, and Eric A.
Elzvik
– Approval of Board of Directors’ fees:
- Chairman: SEK 4,075,000 (unchanged)
- Other non-employee Board members:
SEK 990,000 each (unchanged)
- 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)
- Chairman of the Technology and Science
Committee: SEK 200,000 (new)
- Other non-employee members of the
Technology and Science Committee:
SEK 175,000 (new)
– 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 2017 for the Exec-
utive Team, including a share issue of and
authorization to the Board to buy back
3,000,000 shares for the program
The minutes from the AGM 2017 are available
on Ericsson’s website.
Annual General Meeting 2018
Ericsson’s AGM 2018 will take place on March 28, 2018, at 3 p.m. at Kistamässan in Stockholm.
Further information is available on Ericsson’s website.
Ericsson | Annual Report 2017 118
Corporate governance – Corporate governance report
Nomination Committee
– Proposal for election of Chairman at
The Annual General Meeting of shareholders
has adopted an Instruction for the Nomination
Committee that includes the tasks of the Nom-
ination Committee and the procedures for
appointing its members. The Instruction
applies until the General Meeting of share-
holders resolves otherwise. Under the
Instruction, the Nomination Committee
shall consist of:
– Representatives of the four largest share-
holders 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
are:
– Johan Forssell (Investor AB), Chairman
of the Nomination Committee
– Bengt Kjell (AB Industrivärden, Svenska
Handelsbankens Pensionsstiftelse)
– Christer Gardell (Cevian Capital) (addi-
tional Nomination Committee member
added in June 2017 due to increased
holdings by Cevian Capital)
– 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 expe-
rience that is required by the Board. In addi-
tion, the Committee must consider indepen-
dence rules applicable to the Board of Direc-
tors and its committees.
The Nomination Committee also makes the
following proposals, for resolution by the AGM:
– Proposal for remuneration to non-em-
ployee Directors elected by the AGM and
remuneration to the auditor
– Proposal for election of auditor, whereby
candidates are selected in cooperation with
the Audit Committee of the Board
the AGM
– Proposal of changes to the Instruction
for the Nomination Committee (if any).
Work of the Nomination Committee
for the AGM 2018
The Nomination Committee started its work
by going through a checklist of its duties under
the Code and the Instruction for the Nomina-
tion Committee and by setting a time plan for
its work ahead. In July 2017, it was made
public that the Chairman of the Board, Leif
Johansson, will not stand for re-election at the
Annual General Meeting 2018. An important
task of the Nomination Committee has been
to propose his successor and the Nomination
Committee worked with this efficiently and
constructively during almost three months.
In October, 2017, it was made public that the
Nomination Committee intends to propose
Ronnie Leten as new Chairman of the Board
and Kurt Jofs as a new member of the Board.
The complete proposals of the Nomination
Committee are presented in connection with
the notice convening the AGM 2018.
A good understanding of Ericsson’s busi-
ness and strategy is important for the Nomina-
tion Committee. Therefore, the Chairman of the
Board presented his views to the Committee on
the Company’s position and strategy. During
the fall of 2017, the Committee also met with
Ericsson’s President and CEO, Börje Ekholm,
who presented his views in this respect.
The Committee has analyzed the needs of
competencies in the Board and has also met
with the current Board members to get their
views regarding the Board work and possible
needs for changes. The Nomination Commit-
tee has been carefully informed of the results
of the Board work evaluation led by the Chair-
man of the Board. On this basis the Nomina-
tion Committee has assessed the competence
and experience required by Ericsson’s Board
members and the need for improvement of the
composition of the Board in terms of diversity
in age, gender and cultural/geographic back-
ground. The Nomination Committee has
applied the Swedish Corporate Governance
Code, section 4.1, as diversity policy. The Nom-
ination Committee aims to propose a compo-
sition of Board members with complementing
experiences and competencies to make it
possible for the Board to contribute to a posi-
tive development of Ericsson. The Nomination
Committee searches for potential Board mem-
ber candidates 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 consid-
erations. The Nomination Committee also
considers the need for renewal and carefully
assesses whether the proposed Directors have
Contact the Nomination Committee
Telefonaktiebolaget LM Ericsson
The Nomination Committee
c/o The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden
nomination.committee@ericsson.com
Proposals to the Nomination
Committee
Shareholders may submit proposals 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.
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
119
the capability to devote necessary time and
care to the Board work.
In 2017, the Committee met with the
Chairman of the Audit Committee to acquaint
itself with the assessments made by the Com-
pany and the Audit Committee of the quality
and efficiency of external auditor work. The
Audit Committee also provided its recommen-
dations on external auditor and audit fees.
As of February 21, 2018, the current Nomi-
nation Committee has held 12 meetings.
and competencies that is diverse also in terms
of age, gender and cultural/geographical
background. The current Board composition is
the result of the work of the Nomination Com-
mittee prior to the AGM 2017. The Board con-
sists of Board members with experiences from
different cultural/geographic areas, competen-
cies from different industry sectors and, exclud-
ing the President and CEO, the gender diversity
among the shareholder elected Board mem-
bers is equal.
Board of Directors
The Board of Directors is ultimately responsi-
ble for the organization of Ericsson and the
management 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 President and CEO ensures
that the Board is updated regularly on issues
of importance to Ericsson. This includes
updates on business development, 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
regarding 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
and diversity
The current Board of Directors consists of
eleven Directors elected by the shareholders at
the AGM 2017 for the period until the close of
the AGM 2018. The Board of Directors also
consists of three employee representatives,
each with a deputy, appointed by the trade
unions for the same period of time.
The Nomination Committee advised before
the AGM 2017 that the Nomination Committee
had applied the Swedish Corporate Gover-
nance Code, section 4.1, as diversity policy with
the aim to propose a composition of Board
members with complementing experiences
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 Com-
panies Act and in the Articles of Association
of the Company. The work procedure and the
Committee 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 Swed-
ish 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 2017 that, for purposes of the Code,
at least eight of the nominated Directors were
independent from Ericsson, its senior manage-
ment and its major shareholders. These were
Jon Fredrik Baksaas, Jan Carlson, Nora Den-
zel, Eric A. Elzvik, Leif Johansson, Kristin S.
Rinne, Kristin Skogen Lund and Sukhinder
Singh Cassidy.
At each Board meeting, a non-executive
session is held without Ericsson management
present.
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.
Ericsson | Annual Report 2017 120
Corporate governance – Corporate governance report
As the Board is responsible for financial
oversight, financial information is presented
and evaluated at each Board meeting. Further-
more, the Chairman of each Committee,
reports on Committee work at each Board
meeting and minutes from Committee meet-
ings 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 confer-
ence, and resolutions may be taken per cap-
sulam (unanimous written consent). Such
resolutions are accounted for as Board/
Committee meetings.
The 2017 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 2016 and
handled the fourth-quarter financial report.
– Board Strategic Day
A Board Strategic Day, focusing on deep-
ening Board member knowledge of mat-
ters 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
planning review.
– Statutory Board meeting
The statutory Board meeting was held in
connection with the AGM 2017. At this
meeting, members of each of the Board
Committees were appointed and the Board
resolved on signatory powers.
– First interim report meeting
At the next ordinary meeting, the Board
handled the interim financial report for the
first quarter of the year.
– Main strategy meeting
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 strat-
egy, 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
A meeting was held to address particular
strategy matters in further detail and to
finally confirm the Group strategy. 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 the 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.
The Board’s annual work cycle 2017
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
involvement. This is particularly
relevant for the Group’s strategy
process and risk management.
Budget and financial outlook meeting
– Board work evaluation
Fourth-quarter and full-year
financial results meeting
– Financial result of the entire year
Third interim report meeting
– Q3 Financial report
Board Strategic Day
Follow-up strategy and risk
management meeting
Second interim report meeting
– Q2 Financial report
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
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
121
– 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. At this meeting, the results of
the Board evaluation were presented to
and discussed by the Board.
Training and Board Strategic Days
New Directors receive comprehensive training
tailored to their individual needs. Introductory
training typically includes meetings with
heads of business areas and Group functions,
as well as training required by Nasdaq Stock-
holm 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 ordi-
nary 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 knowledge and understanding
of the business activities of the Group, the
business environment and the Group’s strate-
gic options and challenges. Directors’ know-
ledge in these fields is crucial to allow well-
founded Board resolutions, and to ensure that
the Company takes due advantage of the
different competencies of the Directors. The
Board Strategic Days also form an important
platform for contacts between Directors and
talent from different parts of Ericsson’s organi-
zation 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 2017, focus areas at Board Strate-
gic Days included 5G strategy, deep dive in
digital services and innovation update.
Auditor involvement
The Board meets with Ericsson’s external
auditor in closed sessions at least once a year
to receive and consider the auditor’s observa-
tions. The auditor provides information 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 obser-
vations on the interim reports and the Annual
Report. The auditor reports on 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 2017. 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 assur-
ance of the effectiveness of the internal con-
trols over financial reporting.
Work of the Board of Directors in 2017
In 2017, 13 Board meetings were held. For
attendance at Board meetings, see the table
on page 125. In addition to regular Board
meetings the Board receives information
updates, in writing or in telephone meetings,
as deemed appropriate.
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.
Sustainability and corporate responsibility are
increasingly important to Ericsson and are
integrated into Ericsson’s business strategy.
The Board continuously monitors the inter-
national developments and their possible
impact on Ericsson. Industry transformation,
technology, compliance, talent management,
profitability, cost reductions and efficiency
gains are among the matters that have
Organization of the Board work
Number of Committee members as of December 31, 2017
Board of Directors
14 Directors
Audit and Compliance Committee1)
(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
Technology and Science
Committee
(4 Directors)
Technology strategy and planning
Technology ecosystem and
partnerships
Science direction
1) New name as of January 2018. During 2017, the Committee was named the Audit Committee.
Ericsson | Annual Report 2017 122
Corporate governance – Corporate governance report
continued to be in focus within Ericsson during
the year. The Board also addressed the re-
organization carried out during the year.
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
additional 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.
Each year, the Chairman of the Board
initiates and leads the evaluation of the Board
and Committee work and procedures. Evalua-
tion tools include detailed questionnaires and
discussions. The services of an external corpo-
rate advisory firm have been retained by the
Company to assist in developing question-
naires, carrying out surveys and summarizing
responses.
In 2017, Directors responded to a written
questionnaire, covering the Board work in
general. 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 discussed. An
action plan was developed to further improve
the work of the Board. The Nomination Com-
mittee was informed of the results of the
Board work evaluation.
Committees of the
Board of Directors
The Board of Directors has established four
Committees: the Audit Committee, the
Finance Committee, the Remuneration Com-
mittee and the Technology and Science Com-
mittee. Members of each Committee are
appointed for one year from amongst the
Board members.
The task of the Committees is mainly to
prepare matters for resolution by the Board.
However, 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 Com-
mittees 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 Commit-
tee submits the minutes of Committee meet-
ings to the Board and the Chairman of the
Committee reports on the work of the Commit-
tee 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
requirements
– 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 per-
form audit work. The Head of Ericsson’s inter-
nal 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, there are pre-approval policies and
procedures in place for audit and non-audit
related services to be performed by the exter-
nal auditor. Pre-approval authority may not
be delegated to management.
Members of the Committees as of December 31, 2017
Members of the Committees of the Board of Directors
Audit and Compliance Committee1)
Finance Committee
Remuneration Committee
Eric A. Elzvik (Chairman)
Leif Johansson (Chairman)
Leif Johansson (Chairman)
Nora Denzel
Kristin Skogen Lund
Karin Åberg
Helena Stjernholm
Roger Svensson
Jacob Wallenberg
Jon Fredrik Baksaas
Sukhinder Singh Cassidy
Kjell-Åke Soting
Technology and Science
Committee
Kristin S. Rinne (Chairman)
Jan Carlson
Nora Denzel
Roger Svensson
1) New name as of January 2018. During 2017, the Committee was named the Audit Committee.
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
123
The Chief Compliance Officer regularly
keeps the Audit Committee informed of the
anti- corruption work and since October 2017,
the Chief Compliance Officer reports directly
to the Audit Committee.
The Audit Committee also oversees
Ericsson’s process for reviewing transactions
with related parties and Ericsson’s whistle-
blower procedures.
Whistle-blower tool
Ericsson has grievance mechanisms under
which employees, suppliers and others can
report conduct that they believe constitutes
a violation of laws or the Code of Business
Ethics. If such channels for reporting are not
available or appropriate, and if the alleged
violation
– is conducted by Group or local manage-
ment, and
– relates to corruption, questionable
accounting, deficiencies in the internal
control of accounting or auditing matters or
otherwise seriously affect vital interests of
the Group or personal health and safety,
the violation may be reported through
Ericsson’s external whistle-blower tool, man-
aged by an external service provider: Ericsson
Compliance Line.
Violations reported through 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 through the
Ericsson Compliance Line and certain other
channels are reported to the Audit Committee.
Investigations relating to severe alleged viola-
tions are handled by the Corporate Investiga-
tion team of the internal audit function to
secure independence. Other investigations are
handled in the market areas. The Corporate
Investigation team oversees these investiga-
tions as deemed appropriate.
Members of the Audit Committee
The Audit Committee consists of four Board
members appointed by the Board in connec-
tion with the AGM 2017: Eric A. Elzvik (Chair-
man), Nora Denzel, Kristin Skogen Lund and
Karin Åberg (employee representative). The
Board has appointed shareholder elected
Board members with CFO or 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 Eric A. Elzvik, 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 interna-
tional company, such as Ericsson.
Work of the Audit Committee in 2017
The Audit Committee held 9 meetings in 2017.
Directors’ attendance is reflected in the table
on page 125. A new Audit Committee Chair-
man was appointed in 2017 and the Chairman
has focused on reviewing and improving the
ways of working and procedures of the Com-
mittee. 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, the Com-
mittee also reviewed and discussed each
interim report and the annual report with the
external auditor. The Committee also moni-
tored 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 Compliance Line.
The Committee monitored the continued
compliance with the Sarbanes-Oxley Act as
well as the internal control and risk manage-
ment process and monitored and evaluated
the effectiveness and appropriateness of
Ericsson’s anti-corruption program. In 2017,
the Committee received training on new rele-
vant IFRS rules applicable to the Company, as
well on information security, data analytics
and HR compliance processes.
Since October 2017, the Chief Compliance
Officer reports directly to the Audit Committee
and early 2018, the Board of Directors resolved
to rename the Audit Committee to the Audit
and Compliance Committee to emphasise the
compliance focus of the Committee.
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 finan-
cial support to customers and suppliers
– Continuously monitoring the Group’s
financial risk exposure.
Ericsson | Annual Report 2017 124
Corporate governance – Corporate governance report
The Finance Committee is authorized to
determine 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 connec-
tion with the AGM 2017: Leif Johansson
(Chairman), Helena Stjernholm, Roger Svens-
son (employee representative) and Jacob
Wallenberg. The Board has appointed share-
holder elected Board members with extensive
industrial and financial experience to
the Committee.
Work of the Finance Committee in 2017
The Finance Committee held 14 meetings in
2017. Directors’ attendance is reflected in the
table on page 125. During the year, the
Finance Committee approved numerous
customer finance credit arrangements and
reviewed a number of potential acquisitions
and divestments and real estate investments.
The Finance Committee spent significant time
discussing 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 monitored, as well as
Ericsson’s financial position and foreign
exchange and credit exposures.
Remuneration Committee
The Remuneration Committee’s responsibili-
ties include:
– Reviewing and preparing, for resolution by
the Board, proposals on salary and other
remuneration, including retirement com-
pensation, 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
Team.
– Reviewing and preparing, for resolution
by the Board, proposals to the AGM on
the Long-Term Variable Compensation
Program (LTV) and similar equity arrange-
ments.
– Approving proposals on salary and other
remuneration, including retirement com-
pensation, for the other members of the
Executive Team.
– Approve proposals on targets for the short-
term variable compensation (STV) for the
Executive Team members (other than the
President and CEO).
– Approve payout of the STV for the Execu-
tive Team members (other than the Presi-
dent and CEO), based on achievements
and performance.
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 Executive Team.
Members of the Remuneration Committee
The Remuneration Committee appointed by the
Board in connection with the AGM 2017 con-
sisted of four Board members: Leif Johansson
(Chairman), Jon Fredrik Baksaas, Sukhinder
Singh Cassidy and Kjell-Åke Soting (employee
representative). 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 2017, Peter Boreham from
Mercer advised and assisted the Remunera-
tion Committee as an independent expert.
Work of the Remuneration
Committee in 2017
The Remuneration Committee held 7 meet-
ings in 2017. Director’s attendance is reflected
in the table on page 125.
The Remuneration Committee reviewed
and prepared a proposal for a new revised LTV
2017 for the Executive Team, for resolution by
the Board and further approval by the AGM
2017. It further resolved on salaries and STV
for 2017 for the members of the Executive
Team and prepared proposals regarding
remuneration to the President and CEO for
resolution by the Board. It also prepared
guidelines for remuneration to the Executive
Team for resolution by the Board and subse-
quent referral to the AGM for approval. With
several changes to the Executive Team during
2017, the Remuneration Committee has also
resolved on salaries and STV remuneration for
individuals joining the Executive Team.
During the latter part of 2017, the Remu-
neration Committee reviewed the current LTV
structure and executive remuneration. The
resulting proposals on LTV and guidelines for
remuneration to the Executive Team will be
referred to the AGM 2018 for resolution.
For further information on fixed and vari-
able remuneration, please see Notes to the
consolidated financial statements – Note C28
“Information regarding members of the Board
of Directors, the Group management and
employees” and the “Remuneration Report”
included in the Annual Report.
Technology and Science Committee
The responsibilities of the Technology and
Science Committee include:
– Reviewing and preparing for consideration
and/or resolution by the Board, matters
related to technology strategy and plan-
ning for the Group, monitoring the Group’s
technology ecosystem and relationships
and partnerships
– Reviewing and preparing for consideration
and/or resolution by the Board, matters
related to science direction and influence
on a geopolitical level.
Members of the Technology and
Science Committee
The Technology and Science Committee
consists of four Board members appointed by
the Board in connection with the AGM 2017:
Kristin S. Rinne (Chairman), Jan Carlson, Nora
Denzel and Roger Svensson (employee repre-
sentative). The Board has appointed Board
members to the Committee with extensive
experience within technology.
Work of the Technology and Science
Committee in 2017
The Technology and Science Committee held
4 meetings in 2017. Directors’ attendance
is reflected in the table on page 125. The
Techno logy and Science Committee was
established in 2017 and during the year, the
Committee has put emphasis on establishing
efficient and appropriate ways of working
and on identifying its most relevant points
of contact within the Ericsson organization.
Focus areas of the Committee during 2017
included:
– deep dives into selected 5G technology
subjects,
– handling of technology shifts with an
industry and partnering focus, and
– research and development.
Ericsson | Annual Report 2017 Directors’ attendance and fees 2017
Board member
Leif Johansson
Helena Stjernholm
Jacob Wallenberg
Jon Fredrik Baksaas2)3)
Jan Carlson2)4)
Nora Denzel4)
Börje Ekholm5)
Eric A. Elzvik2)6)
Ulf J. Johansson7)
Kristin Skogen Lund
Kristin S. Rinne8)
Sukhinder Singh Cassidy
Pehr Claesson9)
Mikael Lännqvist10)
Kjell-Åke Soting11)
Roger Svensson12)
Karin Åberg13)
Zlatko Hadzic14)
Torbjörn Nyman15)
Anders Ripa15)
Loredana Roslund15)
Total number of meetings
Corporate governance – Corporate governance report
125
Fees resolved by the AGM 2017
Number of Board/Committee meetings attended in 2017
Board fees,
SEK 1)
Committee fees,
SEK
Board
Audit
Committee
Finance
Committee
Remun.
Committee
Tech. and
Science
Committee
4,075,000
990,000
990,000
990,000
990,000
990,000
–
990,000
–
990,000
990,000
990,000
15,000 16)
9,000 16)
27,000 16)
37,500 16)
33,000 16))
6,000 16)
13,500 16)
13,500 16)
13,500 16)
400,000
175,000
175,000
175,000
175,000
425,000
–
350,000
–
250,000
200,000
175,000
–
–
–
–
–
–
–
–
–
13
13
13
9
9
13
13
9
4
13
13
12
4
4
13
13
13
4
9
9
9
13
14
14
14
6
8
14
9
7
2
9
2
7
9
7
5
7
5
2
7
4
4
4
4
4
1) Non-employee Directors can choose to receive part of their Board fee (exclusive of Committee fees)
in the form of synthetic shares.
10) Resigned as employee representative and member of the Audit Committee as of March 29, 2017.
11) Appointed employee representative and member of the Remuneration Committee as of March 29,
2) Elected member of the Board at the AGM held on March 29, 2017.
3) Appointed member of the Remuneration Committee as of March 29, 2017.
4) Appointed member of the Technology and Science Committee as of March 29, 2017.
5) Board member remuneration resolved by the AGM is only for non-employee Directors elected by the
shareholders.
6) Appointed Chairman of the Audit Committee as of March 29, 2017.
7) Resigned from the Board and Audit Committee as of March 29, 2017.
8) Appointed Chairman of the Technology and Science Committee as of March 29, 2017.
9) Resigned as employee representative and member of the Finance Committee as of March 29, 2017.
2017 (previously deputy).
12) Appointed employee representative and member of the Finance Committee and the Technology and
Science Committee Remuneration Committee as of March 29, 2017 (previously deputy).
13) Appointed member of the Audit Committee as of March 29, 2017.
14) Resigned as deputy employee representative as of March 29, 2017.
15) Appointed deputy employee representative as of March 29, 2017.
16) 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 2017 approved the Nomination
Committee’s proposal for fees to non-em-
ployee Board members for Board and Com-
mittee work. For further information on Board
of Directors’ fees 2017, 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 2017 also approved the Nomina-
tion Committee’s proposal that Board mem-
bers 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 pay-
ment of an amount which corresponds to the
market value of a Class B share in Ericsson at
the time of payment. The Directors’ 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 statement during the fifth year fol-
lowing the General Meeting that resolved on
the allocation of the synthetic shares. The
purpose of paying part of the Board of Direc-
tors’ 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 2017 and to the minutes from the
AGM 2017, which are available at Ericsson’s
website.
Ericsson | Annual Report 2017 126
Corporate governance – Corporate governance report
Members of the Board of Directors
Board members elected by the AGM 2017
Leif Johansson
(first elected 2011)
Helena Stjernholm
(first elected 2016)
Jacob Wallenberg
(first elected 2011)
Chairman of the Board of Directors,
Chairman of the Remuneration
Committee and of the Finance
Committee
Deputy Chairman of the Board of
Directors, Member of the Finance
Committee
Deputy Chairman of the Board of
Directors, Member of the Finance
Committee
Jon Fredrik Baksaas
(first elected 2017)
Member of the Remuneration
Committee
Born 1954. Master of Science in
Economics, NHH Norwegian School
of Economics & Business
Administration, Norway.
Nationality: Norway
Board Member: Svenska
Handelsbanken AB.
Holdings in Ericsson: 12,992
synthetic shares 2).
Principal work experience and
other information: President and
CEO of Telenor (2002–2015).
Previous positions within the Telenor
Group since 1989, including deputy
CEO, Chief Financial Officer and
CEO of TBK AS. Previous positions
include CFO of Aker AS, finance
director of Stolt Nielsen Seaway AS
and controller at Det Norske Veritas,
Norway and Japan. Member of the
GSMA Board (2008–2016) and
Chairman of the GSMA Board
(2014–2016).
Born 1951. Master of Science in
Engineering, Chalmers University of
Technology, Gothenburg, Sweden.
Born 1970. Master of Business
Administration, Stockholm School of
Economics, Sweden.
Nationality: Sweden
Nationality: Sweden
Board Member: AB Industrivärden,
AB Volvo and Sandvik AB.
Holdings in Ericsson:
20,060 Class B shares 1), and 19,754
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).
Board Chairman: Astra Zeneca PLC.
Board Member: Autoliv, Inc. and
Ecolean AB.
Holdings in Ericsson:
138,933 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.
The Board memberships and holdings in Ericsson reported above are as of December 31, 2017.
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 125 for further information.
Born 1956. Bachelor of Science
in Economics and Master of
Business Administration, Wharton
School, University of Pennsylvania,
USA. Officer of the Reserve, Swedish
Navy.
Nationality: Sweden
Board Chairman: Investor AB.
Deputy Board Chairman: SAS AB,
ABB Ltd, FAM and Patricia
Industries.
Board Member: The Knut and Alice
Wallenberg Foundation and the
Stockholm School of Economics.
Holdings in Ericsson: 427,703 Class
B shares 1) and 31,194 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 steering com-mittee of the
European Round Table of
Industrialists, Deputy Chairman of
the Swedish-American Chamber of
Commerce US, member of the
International Advisory Board of the
Atlantic Council, Washington DC,
member of the International Busi-
ness Council of the World Economic
Forum, Trilateral Commission and
the Advisory Board of Tsinghua
University.
Ericsson | Annual Report 2017
Corporate governance – Corporate governance report
127
Jan Carlson
(first elected 2017)
Member of the Technology and
Science Committee
Nora Denzel
(first elected 2013)
Börje Ekholm
(first elected 2006)
Member of the Audit Committee and
the Technology and Science
Committee
Born 1960. Master of Science degree
in Engineering Physics and Electrical
Engineering, the University of
Linköping, Sweden.
Nationality: Sweden
Board Chairman: Autoliv Inc.
Board Member: BorgWarner Inc.,
Teknikföretagen, The Confederation
of Swedish Enterprise and Zenuity AB.
Holdings in Ericsson: 7,900 Class B
Shares1) and 12,992 synthetic
shares 2).
Principal work experience and
other information: President and
CEO of Autoliv Inc. since 2007 and
Chairman of Autoliv Inc. since 2014.
Positions within the Autoliv Group
since 1999, including President
Autoliv Europe, Vice President
Engineering of Autoliv and President
Autoliv Electronics. Previous
positions include President of
Saab Combitech and of Swedish
Gate Array.
Born 1962. Master of Business
Administration, Santa Clara
University, USA. Bachelor of Science
in Computer Science, State
University of New York, USA.
Born 1963. Master of Science in
Electrical Engineering, KTH Royal
Institute of Technology, Stockholm,
Sweden. Master of Business
Administration, INSEAD, France.
Nationality: Sweden and USA
Board Member: Alibaba, Inc.
Holdings in Ericsson:
1,030,760 Class B shares 1),
33,203 synthetic shares 2), and
2,000,000 call options 3)..
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. Holds honorary
Doctorate at KTH Royal Institute
of Technology, Sweden.
Nationality: USA
Board Member: Advanced Micro
Devices, Inc. and Talend, Inc.
Holdings in Ericsson:
3,850 Class B shares 1), and 9,819
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. Non-Profit 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.
Eric A. Elzvik
(first elected 2017)
Chairman of the Audit Committee
Born 1960. Master of Business
Administration, Stockholm School
of Economics, Sweden.
Nationality: Sweden and
Switzerland
Board Member: Global Gateway
South and Landis+Gyr Group AG.
Holdings in Ericsson:
10,000 Class B shares 1) and 4,330
synthetic shares 2).
Principal work experience and
other information: Chief Financial
Officer and member of the Group
Executive Committee of ABB Ltd
(2013–2017). Division CFO ABB
Discrete Automation & Motion
(2010–2012) and division CFO
Automation Products Division
(2006–2010). Previous positions
within the ABB Group since 1984,
including senior management
positions within finance, mergers
& acquisitions and new ventures.
Industrial advisor to private equity.
The Board memberships and holdings in Ericsson reported above are as of December 31, 2017.
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 125 for further information.
3) Call options issued by AB Industrivärden (1,000,000 call options) and Investor AB (1,000,000 call options), each entitling the purchase of one Ericsson B share from AB Industrivärden/
Investor AB respectively (further information is available in the 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).
Ericsson | Annual Report 2017 128
Corporate governance – Corporate governance report
Board members elected by the AGM 2017, cont.
Kristin Skogen Lund
(first elected 2013)
Member of the Audit Committee
Kristin S. Rinne
(first elected 2016)
Sukhinder Singh Cassidy
(first elected 2015)
Chairman of the Technology and
Science Committee
Member of the Remuneration
Committee
Born 1954. Bachelor of Arts,
Washburn University, USA.
Nationality: USA
Board Member: None.
Holdings in Ericsson: 16,056
synthetic shares 2).
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). Non-profit Board
member of Curing Kids Cancer,
Washburn University Foundation
and Wycliffe Associates. Member of
the Advisory Board of Link Labs.
Born 1966. Master of Business
Administration, INSEAD, France.
Bachelor in International Studies
and Business Administration,
University of Oregon, USA.
Nationality: Norway
Board Chairman: The Oslo
Philharmonic Orchestra.
Holdings in Ericsson:
16,320 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 Coca-Cola
Company, Unilever and Norges
Eksportråd.
Born 1970. Bachelor of Arts Degree
in Honors Business Administration,
the Richard Ivey School of Business,
University of Western Ontario,
Canada.
Nationality: Canada
Board Chair: Choose Possibility, Inc.
Board Member: Tripadvisor LLC and
Urban Outfitters, Inc.
Holdings in Ericsson:
10,540 synthetic shares 2).
Principal work experience and
other information: Founder and
Chairwoman of Joyus.com (2011–
2017) and CEO (2011–2016).
Founder of Choose Possibility, Inc.
(a benefit corpor ation focused on
gender diversity in the tech industry).
CEO of Polyvore, Inc. 2010, CEO-in-
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, 2017.
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 125for further information.
Ericsson | Annual Report 2017 Board members and deputies appointed by the trade unions
Corporate governance – Corporate governance report
129
Kjell-Åke Soting
(first appointed 2016)
Roger Svensson
(first appointed 2011)
Karin Åberg
(first appointed 2007)
Employee representative, Member
of the Remuneration Committee
Employee representative, Member
of the Finance Committee and of the
Technology and Science Committee
Employee representative, Member
of the Audit Committee
Born 1963. Appointed by PTK.
Born 1971. Appointed by the PTK.
Nationality: Sweden
Holdings in Ericsson:
3,639 Class B shares 1).
Nationality: Sweden
Holdings in Ericsson:
18,000 Class B shares 1).
Employed since 1996. Working as
Supplier Quality Assurance Manager
within Business Area Networks.
Employed since 1999. Working as
Global Process Architect for Test
within Business Area Networks.
Born 1959. Appointed by LO, the
Swedish Trade Union Confederation.
Nationality: Sweden
Holdings in Ericsson:
5,290 Class B shares 1).
Employed since 1998. Working as a
Service Engineer within the IT
organization.
Torbjörn Nyman
(first appointed 2017)
Anders Ripa
(first appointed 2017)
Loredana Roslund
(first appointed 2017)
Deputy employee representative
Deputy employee representative
Deputy employee representative
Born 1961. Appointed by LO, the
Swedish Trade Union Confederation.
Nationality: Sweden
Holdings in Ericsson:
29,361 Class B shares1).
Born 1962. Appointed by PTK.
Nationality: Sweden
Holdings in Ericsson:
1,790 Class B shares and
408 Class A shares 1).
Employed since 1996. Working as
ICT Strategic Product Manager
within Business Area Networks.
Employed since 1998. Working as a
Security Solution Manager for Public
Safety LTE and 5G.
Born 1967. Appointed by PTK.
Nationality: Sweden
Holdings in Ericsson:
1,421 Class B shares 1).
Employed since 1994. Working as
Project Manager within R&D within
Business Area Networks.
Börje Ekholm was the only Director who held an
operational management position at Ericsson in 2017.
Effective January 16, 2017, Börje Ekholm took office as
President and CEO. Ulf J. Johansson left the Board in
connection with the AGM 2017 and Jon Fredrik Baksaas,
Jan Carlson and Eric A. Elzvik were elected new
members of the Board. In connection with the AGM
2017, the employee representatives Pehr Claesson,
Mikael Lännquist and Zlatko Hadzic (deputy) left the
Board and Torbjörn Nyman, Anders Ripa and Loredana
Roslund were appointed new deputy employee
representatives.
1) The number of shares reflects ownership as of December 31, 2017 and includes holdings by related persons, as well as holdings of any ADS, if applicable.
Ericsson | Annual Report 2017 130
Corporate governance – Corporate governance report
Management
The President/CEO and the Executive Team
The Board of Directors appoints the President
and CEO and the Executive Vice President(s).
The President and CEO is responsible for the
management of day-to-day operations and is
supported by the other members of the Execu-
tive Team.
The role of the Executive Team is to:
– Define Group strategies and policies, drive
corporate agenda and establish a strong
corporate culture.
– Determine targets for operational units,
allocate resources and monitor unit perfor-
mance.
– Secure operational excellence and realize
global synergies through efficient organi-
zation of the Group.
Börje Ekholm took office as new President and
CEO in January 2017. Subsequently, in March
2017, Ericsson presented a focused business
strategy and a new simplified organizational
structure to be effective April 1, 2017. The
changes were implemented among other
things to improve efficiency, restore profitabil-
ity and to make it easier for customers to do
business with Ericsson. The simplified organi-
zational structure includes three business
areas, five market areas and a number of
supporting group functions.
Business areas are responsible for devel-
oping competitive product-led business solu-
tions, including both products and services
and for investing in research and development
for technology and cost leadership.
Ericsson Group Management System
Demands
and Expectations
Customers
Key Stakeholders
Business Environment
Management and Control
Steering Documents
Roles & Responsibilities
Operating Model
Satisfaction through
Value Deliverables
Strategy
& Risk
Results
Ericsson
Business Processes
Performance
Improvement
Performance
Evaluation
Organization and
Resources
Culture
Market areas are responsible for selling
and delivering customer solutions. Resources
are moved closer to the customers in order to
establish leading positions in critical markets.
Group functions are responsible for provid-
ing an effective support platform to the market
areas and business areas to drive synergies
and align ways of working across units and for
driving the corporate agenda .
The reorganization implied a number of
new appointments to the Executive Team. The
Executive Team members as of December 31,
2017, are presented on pages 134–137. The
main focus for the Executive Team during
2017 was to execute on the focused strategy,
stabilize and simplify the business to restore
profitability, including simplified ways of work-
ing, acceleration of cost reductions and portfo-
lio- and contract reviews.
Remuneration to the Executive Team
Guidelines for remuneration to the Executive
Team were approved by the AGM 2017. For
further information on fixed and variable
remuneration, see the Remuneration Report
and Note C28, “Information regarding mem-
bers of the Board of Directors, the Group
management and employees”.
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.
EGMS is a framework consisting of rules and
requirements for Ericsson’s business, specified
through process and organization descrip-
tions, policies, directives and instructions. The
management system is applied in Ericsson’s
operations globally, and its consistency and
global reach is designed to build trust in the
way Ericsson works. EGMS is founded on
ISO 9001 (international standard for quality
management systems) but is designed as
a dynamic governance system, enabling
Ericsson to adapt the system to changing
demands and expectations, including new
legislation as well as customers’ and other
stakeholders’ requirements. Ericsson imple-
ments external requirements only after
thorough analyzis and after putting them
into the Ericsson context.
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
131
EGMS consists of three main elements:
– Management and control
– Ericsson business processes
– Organization and resources
Management and control
Ericsson’s strategy process includes the whole
chain from business intelligence and strategic
forecasting to deployment of developed strat-
egies into targets and programs in coordinated
cycles.
Group-wide policies and Group directives
and instructions govern how the organization
works and are core elements in managing and
controlling Ericsson. The Group policies, direc-
tives and instructions 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
Ericsson business processes is a set of defined
Group-wide processes integrated in EGMS.
They describe how Ericsson delivers value
to customers, proactively and on-demand.
Ericsson business processes offer capabilities
to translate customer requirements into
defined products, solutions and services
offered by Ericsson.
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
cross-country operations. In the operational
structure, Ericsson is organized in group func-
tions, segments, business areas and market
areas. 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 representation (via legal entities,
branch and representative offices) in more
than 150 countries.
Chief Compliance Officer
Ericsson has a Chief Compliance Officer (CCO),
heading up the Compliance Office, whose
responsibilities among other things include to
further develop Ericsson’s anti-corruption
program. Attention from senior-management
level on anti-corruption and compliance is
crucial, as is ensuring that these matters are
addressed from a cross-functional perspec-
tive. Ericsson’s anti-corruption program is
reviewed and evaluated by the Audit Commit-
tee at least annually and since October 2017,
the CCO reports directly and formally to the
Audit Committee.
Audits, assessments and certification
The purpose of audits and assessments is to
determine levels of compliance and to provide
valuable information for understanding, ana-
lyzing and continually improving performance.
Management monitors compliance with poli-
cies, directives and processes through internal
self-assessment within all units. This is com-
plemented by internal and external audits.
Due to demands and requirements from
customers 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
interpretation of standards or requirements
are confirmed by a third-party assessment.
As the EGMS is a global system, group-
wide certificates are issued by a third-party
certification 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 example ISO 27001 (Informa-
tion Security) and TL 9000 (telecom-specific
standard). EGMS is also audited within the
scope of the audit plan of Ericsson’s internal
audit function.
Ericsson’s external financial audits are
performed by PricewaterhouseCoopers, and
ISO/management system audits are per-
formed by EY. Internal audits are performed
by the company’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 com-
ply 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 and certain transactional risks
require specific Board approval, e.g. acquisi-
tions, divestments management remunera-
tion, borrowing or customer finance in excess
of pre-defined limits.
Ericsson | Annual Report 2017 132
Corporate governance – Corporate governance report
Strategic and tactical risks
Strategic risks constitute the highest risk to
the Company if not managed properly as they
could have a long-term impact. The Group
stategy, developed by the Executive Team,
is approved by the Board of Directors and is
executed througout the organization in busi-
ness areas and market areas. The strategy is
discussed in a yearly leadership summit with
approximately 300 leaders from all parts of
the business represented. As part of the strat-
egy work, main risks related to the long-term
(three-four years) objectives and the strate-
gies to reach these, as well as risks and miti-
gating actions to reach short-term (one-year)
targets are identified. These risks and actions
are regularly followed-up in governance meet-
ings and are presented to the Board of Directors.
Key components in the evaluation of risk
related to Ericsson’s long-term objectives
include for example technology development,
cyber security related matters, industry and
market fundamentals, the development of the
economy, the political and international envi-
ronment, health and environmental aspects
and laws and regulations.
Ericsson continuously strives to improve
its risk management. For more information
on risks related to Ericsson’s business, see the
chapter “Risk factors” in the Annual Report.
Operational, financial and compliance risks
Operational and financial risk
Operational risks are owned and managed
by operational units. Risk management is
embedded in various process controls, such
as decision tollgates and approvals. Certain
cross-process risks are centrally coordinated,
such as information security, IT security, cor-
porate responsibility and business continuity
and insurable risks. Financial risk manage-
ment is governed by a Group policy and car-
ried out by the Treasury and Customer Finance
functions, both supervised by the Finance
Committee. The policy governs risk exposures
related to foreign exchange, liquidity/financ-
ing, interest rates, credit risk and market price
risk in equity instruments. For further informa-
tion on financial risk management, see Notes
to the consolidated financial statements –
Note C14, “Trade receivables and customer
finance,” Note C19, “Interest-bearing liabili-
ties” and Note C20, “Financial risk manage-
ment 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 report-
ing 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 anti-corruption
– Conducting business continuity manage-
ment 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
internal governance meetings
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
133
Process to identify and manage strategic and tactical risks for regions, business units and group functions
The process is aligned with the strategy and target-setting process
Leadership Team meeting and workshop
Preparations
Establish
gross list
Prioritize risks
Assign
responsibility
Manage risks
Compile input:
– Business area plan, market
area 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 short-term
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 governance
meetings
Example of risk heat
map document
Risk heat maps are generated
by business areas, market
areas 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
,
i
i
)
h
g
H
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
Ericsson | Annual Report 2017
134
Corporate governance – Corporate governance report
Members of the Executive Team
Börje Ekholm
President and CEO since
January 16, 2017
Fredrik Jejdling
Executive Vice President (since
November 7, 2017) and Head of
Business Area Networks (since April
1, 2017)
MajBritt Arfert
Senior Vice President, Chief Human
Resources Officer and Head of
Group Function Human Resources
(since April 1, 2017)
Arun Bansal
Senior Vice President and Head of
Market Area Europe & Latin America
(since April 1, 2017)
Born 1963. Master of Science in
Electrical Engineering, KTH Royal
Institute of Technology, Stockholm,
Sweden. Master of Business
Administration, INSEAD, France.
Nationality: Sweden and USA
Board Member: Telefonaktiebolaget
LM Ericsson, and Alibaba, Inc.
Holdings in Ericsson: 1)
1,030,760 Class B shares,
33,203 synthetic shares, and
2,000,000 call options2).
Background: 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.
Changes in the Executive Team
Born 1969. Master of Science in
Economics and Business
Administration, Stockholm School of
Economics, Sweden.
Nationality: Sweden
Board Member: Teknikföretagen.
Holdings in Ericsson: 1)
11,245 Class B shares.
Background: Senior Vice President
and Head of Business Unit Network
Services (July 2016–March 2017).
Has held a variety of positions
in commercial operations and
financials, including Head of Region
Sub-Saharan Africa, 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.
Born 1963. Bachelor of Human
Resources, University of
Gothenburg, Sweden.
Nationality: Sweden
Board Member: None.
Holdings in Ericsson: 1)
20,485 Class B shares.
Background: Acting Head of Group
Function Human Resources
(November 2016–March 2017),
Head of Human Resources Ericsson
Sweden (September 2015–March
2017). 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).
Born 1968. Bachelor of Engineering
(Electronics), University of Jiwaji,
India, and Postgraduate Diploma in
Marketing, Indira Gandhi National
Open University, India.
Nationality: India
Board Chairman: Ericsson
Nikola Tesla d.d.
Board Member: OPCOM Cables Sdn
Bhd, Malaysia.
Holdings in Ericsson: 1)
38,063 Class B shares.
Background: Senior Vice President
and Head of Business Unit Network
Products (July 2016–March 2017).
Joined Ericsson in 1995 and has
held various senior positions in the
company, including Senior Vice
President and Head of Business Unit
Radio, Head of Region South East
Asia and Oceania and Country
Manager in Indonesia and
Bangladesh and have worked in
Malaysia and USA.
Effective January 16, 2017, the Director Börje Ekholm was appointed
new President and CEO of Ericsson and effective the same day Jan
Frykhammar assumed the role as Executive Vice President and Advisor
of the CEO. Following the re-organization announced in March 2017,
the following previous Executive Team members left the Executive
Team, effective April 1, 2017: Per Borgklint, Anders Lindblad, Charlotta
Sundh and Jean-Philippe Poirault. New members of the Executive
Team appointed effective the same day were Rafiah Ibrahim, Peter
Laurin and Nunzio Mirtillo.
May 11, 2017, Rima Qureshi, left the Executive Team. Niklas Heuveldop
has since then assumed the role as Head of Market Area North America
in addition to his role as Chief Strategy Officer and Head of Technology
& Emerging Business (where he is now acting). Effective November 7,
2017, Fredrik Jejdling, Head of Business Area Networks, was appointed
new Executive Vice President and the previous Executive Vice Presi-
dents Jan Frykhammar and Magnus Mandersson left the Executive
Team effective the same day.
The Board memberships and Ericsson holdings reported above are as of December 31, 2017.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
2) Call options issued by AB Industrivärden (1,000,000 call options) and Investor AB (1,000,000 call options), each entitling the purchase of one Ericsson B
share from AB Industrivärden/Investor AB respectively (further information is available in the 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).
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
135
Ulf Ewaldsson
Senior Vice President and Head
of Business Area Digital Services
(April 1, 2017–January 31, 2018)
Born 1965. Master of Science in
Engineering and Business
Management, Linköping Institute of
Technology, Sweden.
Nationality: Sweden
Board Member: Assa Abloy AB, KTH
Royal Institute of Technology,
Sweden, and TM Forum.
Holdings in Ericsson: 1)
52,373 Class B shares.
Background: Chief Technology
Officer and Head of Group Function
Strategy and Technology
(September 2016–March 2017) and
Head of Group Function Technology
(2012–September 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.
Niklas Heuveldop
Senior Vice President, Head of Market
Area North America and Acting Chief
Strategy Officer and Head of
Technology & Emerging Business
(since September 12, 2017)
Born 1968. Master of Science in
Industrial Engineering and
Management, the Linköping
Institute of Technology, Sweden.
Nationality: Sweden
Board Member: The Swedish-
American Chamber of Commerce
New York.
Holdings in Ericsson: 1)
13,368 Class B shares.
Background: Senior Vice President,
Chief Strategy Officer and Head of
Group Function Technology &
Emerging Business (April 1, 2017–
September 12, 2017) and Acting
Head of Market Area North America
(May 12, 2017–September 12,
2017). Previously Chief Customer
Officer and Head of Group Function
Sales (July 2016–March 2017).
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.
Chris Houghton
Senior Vice President and Head of
Market Area North East Asia (since
April 1, 2017)
Rafiah Ibrahim
Senior Vice President and Head of
Market Area Middle East & Africa
(since April 1, 2017)
Born 1966. Bachelor of Law,
Huddersfield Polytechnic, United
Kingdom.
Nationality: United Kingdom
Board Member: None.
Holdings in Ericsson: 1)
27,066 Class B shares.
Background: Head of Region North
East Asia (2015–March 2017). Has
also previously held mana gement
positions within Ericsson, including
Head of Region India, Head of
Customer Unit UK and Ireland and
various management positions
within Ericsson in China, Hungary,
India, Ireland, Japan, Sweden and
the UK.
Born 1958. Masters of Digital
Communications Engineering,
Imperial College of Science and
Technology, University of London,
United Kingdom.
Nationality: Malaysia
Board Member: None.
Holdings in Ericsson: 1)
27,989 Class B shares.
Background: Previously Head of
Region Middle East (July 2016–
March 2017). She has held
management positions within
Ericsson, including Head of
Customer Unit Etisalat, Head of
Marketing Business Line Broadcast
Services, Global Customer Unit for
Warid, Head of Ericsson in
Bangladesh and Head of Market
Unit North Africa.
The Board memberships and Ericsson holdings reported above are as of December 31, 2017.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
Ericsson | Annual Report 2017 136
Corporate governance – Corporate governance report
Members of the Executive Team, cont.
Peter Laurin
Senior Vice President and Head of
Business Area Managed Services
(since April 1, 2017)
Nina Macpherson
Senior Vice President, Chief Legal
Officer, Head of Group Function
Legal Affairs and secretary to the
Board of Directors (since 2011)
Carl Mellander
Senior Vice President, Chief
Financial Officer and Head of Group
Function Finance and Common
Functions (since April 1, 2017)
Nunzio Mirtillo
Senior Vice President and Head of
Market Area South East Asia,
Oceania & India (since April 1, 2017)
Born 1971. Master of Technology,
Chalmers University of Technology,
Sweden, and Master of Business
Administration, Gothenburg School
of Economics and Commercial Law,
Sweden.
Nationality: Sweden
Board Member: Byggvesta AB.
Born 1958. Master of Laws, LL.M.,
University of Stockholm, Sweden.
Nationality: Sweden
Board Member: The Association for
Swedish Listed Companies and the
Arbitration Institute of the
Stockholm Chamber of Commerce
(SCC).
Holdings in Ericsson: 1)
8,086 Class B shares.
Holdings in Ericsson: 1)
42,495 Class B shares.
Background: Previously Head of
Region Northern Europe and Central
Asia. Previous management
positions within Ericsson include
Head of Ericsson’s Global Customer
Unit Vodafone (2013–2016) and
various positions in North America,
Asia and Europe. Previous positions
outside Ericsson include positions in
Arthur D. Little and Mediatude Ltd.
Background: Previously Vice
President and Deputy Head of
Group Function Legal Affairs at
Ericsson. Previous positions also
include private practice and
in-house attorney. Member of
the Swedish Securities Council.
Born 1964. Bachelor of Business
Administration and Economics,
University of Stockholm, Sweden.
Born 1961. Master in Electronic
Engineering, Sapienza University,
Italy.
Nationality: Sweden
Board Member: None.
Holdings in Ericsson: 1)
27,203 Class B shares.
Background: Acting Chief Financial
Officer and Head of Group Function
Finance and Common Functions
(July 2016–March, 2017). Has
previously held various positions
within finance and business control
within Ericsson, including Vice
President and Group Treasurer and
Head of Finance in Region Western
and Central Europe. Previous
positions include Head of Finance /
CFO positions within the telecom
operator space and defense
industry.
Nationality: Italy
Board Member: None.
Holdings in Ericsson: 1)
32,653 Class B shares.
Background: Previously Head of
Region Mediterranean. Previous
management positions within
Ericsson include Head of Sales
Networks for Western Europe within
Business Unit Networks, Head of
Business Operations in Market Unit
South East Europe and Key Account
Manager for Wind Italy, Vodafone
Italy and other customers.
The Board memberships and Ericsson holdings reported above are as of December 31, 2017.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
137
Helena Norrman
Senior Vice President, Chief
Marketing and Communications
Officer and Head of Group Function
Marketing and Communications
(since 2014)
Elaine Weidman-Grunewald
Senior Vice President, Chief
Sustainability and Public Affairs
Officer and Head of Group Function
Sustainability and Public Affairs
(June 14, 2017–January 31, 2018)
Born 1970. Master of International
Business Administration, Linköping
University, Sweden.
Nationality: Sweden
Board Member: None.
Holdings in Ericsson: 1)
35,740 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.
Born 1967. Double Master’s degree
in Resource and Environmental
Management and International
Relations, Boston University Center
for Energy and Environmental
Studies, USA.
Nationality: Sweden and USA
Board Member: Millennium Promise
and SWECO AB.
Holdings in Ericsson: 1)
9,856 Class B shares.
Background: Senior Vice President
and Head of Group Function
Sustainability and Corporate
Responsibility (July 2016–June 14,
2017). Joined Ericsson in 1998 and
previous positions include Head of
Sustainability and Corporate
Responsibility, and positions in
product management, marketing
and sales in the US and Sweden.
Prior positions before joining
Ericsson, include positions in
international sales, business
development and environmental
certification.
The Board memberships and Ericsson holdings reported above are as of December 31, 2017.
1) The number of shares includes holdings by related persons, as well as holdings of any ADS, if applicable.
Ericsson | Annual Report 2017 138
Corporate governance – Corporate governance report
Auditor
According to the Articles of Association, the
Parent Company shall have no less than one
and no more than three registered public
accounting firms as external independent
auditor. Ericsson’s auditor is currently elected
each year at the AGM pursuant to the Swedish
Companies Act for a one-year mandate period.
The auditor reports to the shareholders at
General Meetings.
The duties of the auditor include:
– Updating the Board of Directors regarding
the planning, scope and content of the
annual audit work
– Reviewing the interim reports to assess
that the financial statements are presented
fairly in all material respects and providing
review opinions over the interim reports for
the third and fourth quarters and the year-
end financial statements
– Providing an audit opinion over the Annual
Report
– Advising the Board of Directors of non-au-
dit 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 contacts 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 2017 for a period of one
year, i.e. until the close of the AGM 2018.
Under applicable rules for auditor rotation,
Ericsson must appoint a new audit firm no
later than in 2021.
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
audit-related and other services listed in the
table in Note C30, “Fees to auditors”.
Internal control over financial
reporting 2017
This section has been prepared in accordance
with the Annual Accounts Act and the Swedish
Corporate Governance Code and is limited to
internal control over financial reporting.
Since Ericsson is listed in the United States,
the requirements outlined in the Sarbanes-
Oxley Act (SOX) apply, subject to certain
exceptions. These regulate the establishment
and maintenance of internal control over fin an-
cial reporting as well as management’s assess-
ment of the effectiveness of the controls.
In order to support high-quality reporting
and to meet the requirement of SOX, the Com-
pany has implemented detailed documented
controls and testing and reporting procedures
based on the internationally established 2013
COSO framework for internal control. The
COSO framework is issued by the Committee
of Sponsoring Organizations of the Treadway
Commission (COSO).
Management’s internal control report
according to SOX will be included in Ericsson’s
Annual Report on Form 20-F 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 communication 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 under-
standing of how the Company works, includ-
ing operational performance, prospects and
potential risks.
To achieve these objectives, financial
reporting and disclosure must be:
– Transparent – enhancing understanding
of the economic 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 operations and performance
and to avoid misinterpretations.
– Relevant – with focus on what is relevant
to Ericsson’s stakeholders or required by
regulation or listing agreements, to avoid
information overload.
– Timely – with regularly scheduled disclo-
sures as well as ad-hoc information, such
as press releases on important events,
performed in a timely manner.
– Fair and equal – where all material infor-
mation is published 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 report-
ing standards and listing requirements and
in line with industry norms.
Ericsson’s website comprises comprehensive
information 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, includ-
ing the US Securities Exchange Act of 1934,
and under agreements with Nasdaq Stock-
holm and NASDAQ New York. These proce-
dures 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 sharehold-
ers 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 con-
trols 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 assurance level as of
December 31, 2017. Any controls and proce-
dures, no matter how well designed and oper-
ated, 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 assessment,
control activities, information and communi-
cation and monitoring.
During the period covered by the Annual
Report 2017, there were no changes to the
internal control over financial reporting that
have materially affected, or are reasonably
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 imple-
mented a management system that is based on:
– Steering documents, such as policies, direc-
tives and a Code of Business Ethics.
– A strong corporate culture.
– The Company’s organization and mode of
operations, with well-defined roles and
responsibilities and delegations of authority.
– Several well-defined Group-wide processes
for planning, operations and support.
Ericsson | Annual Report 2017 Corporate governance – Corporate governance report
139
The most essential parts of the control
environment relative to financial reporting are
included in steering documents and processes
for accounting and financial reporting. 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 high-quality financial
reports. The management of each reporting
legal entity, region and business unit is sup-
ported by a financial controller function with
execution of controls related to transactions
and reporting. The company controller func-
tions are organized in a number of Company
Control Hubs, each supporting a number of
legal entities within a geographical area.
A financial controller function is also estab-
lished on Group level, reporting to the CFO.
Risk assessment
Risks of material misstatements in financial
reporting may exist in relation to recognition
and measurement of assets, liabilities, reve-
nue and cost or insufficient disclosure. Other
risks related to financial reporting include
fraud, loss or embezzlement of assets and
undue favorable treatment of counterparties
at the expense of the Company.
Policies and directives regarding account-
ing 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 well-defined business processes with
integrated risk management activities, segre-
gation 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 business transactions. The
financial closing and reporting process has
controls regarding recognition, measurement
and disclosure. These include the application
of critical accounting policies and estimates, in
individual subsidiaries as well as in the consol-
idated accounts.
Regular analyses of the financial results
for each subsidiary, region and business unit
cover the significant elements of assets, liabili-
ties, revenues, costs and cash flow. Together
with further analysis of the consolidated
financial statements performed at Group level,
these procedures are designed to produce
financial reports without material errors.
For external financial reporting purposes,
the Dis closure Committee performs additional
control procedures 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.
Entity-wide controls, focusing on the con-
trol environment and compliance with finan-
cial reporting policies and directives, are
implemented in all subsidiaries. Detailed
process controls and documentation of con-
trols performed are also implemented in
almost all subsidiaries, 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 Com-
pany operates through a Company Control
hub structure, covering subsidiaries in each
respective geographical area. During 2016,
the Company further developed its internal
control function within Group Function
Finance, Financial Control to cover a wider
scope than previously.
Based on a common IT platform, a com-
mon 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 communica-
tion channels support complete, correct and
timely financial reporting by making all rele-
vant internal process instructions and policies
accessible to all the employees concerned.
Board of Directors
Stockholm, February 23, 2018
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680
Regular updates and briefing documents
regarding changes in accounting policies,
reporting and disclosure requirements are
also supplied.
Subsidiaries and operating units prepare
regular financial and management reports for
internal steering groups and Company man-
agement. These include analysis and com-
ments on financial performance and risks. The
Board of Directors receives financial reports
monthly. Ericsson has established a whis-
tleblower tool, Ericsson Compliance Line, that
can be used for the reporting of alleged viola-
tions that:
– are conducted by Group or local manage-
ment, and
– relate to corruption, questionable account-
ing, deficiencies in the internal control of
accounting or auditing matters or other-
wise 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 man-
agement system and internal steering docu-
ments to ensure that they cover all significant
areas related to financial reporting. The shared
service center and Company Control hub
management continuously monitor account-
ing quality through a set of performance indi-
cators. Compliance with policies and directives
is monitored through annual self-assessments
and representation letters from heads and
company controllers in subsidiaries as well
as in business areas and market areas.
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.
Ericsson | Annual Report 2017 140
Corporate governance
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 corporate gover-
nance report for the year 2017 on pages 114–139 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 examination of the corporate gover-
nance report. This means that our examination of the corporate gover-
nance 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. Disclosures in accor-
dance with chapter 6 section 6 the second 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 23, 2018
PricewaterhouseCoopers AB
Bo Hjalmarsson
Authorized Public Accountant
Lead Partner
Johan Engstam
Authorized Public Accountant
Ericsson | Annual Report 2017 Remuneration report
Corporate governance – Remuneration report
141
Introduction
This report outlines how the remuneration policy is implemented
throughout Ericsson in line with corporate governance best practice,
with specific references to Group management.
The work of the Remuneration Committee in 2017 and the remuner-
ation 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 Consolidated 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, consisting of
the Executive Team (ET). This includes fixed salaries, pensions, other
benefits and short-and long-term variable compensation. The Commit-
tee reviews and prepares for resolution by the Board:
– Proposals on salary and other remuneration, including retirement
compensation, for the President and CEO.
– Proposals to the Annual General Meeting on guidelines for remuner-
ation to the ET.
– Proposals to the Annual General Meeting on long-term variable
compensation and equity arrangements.
Swedish Corporate Governance Code and have relevant knowledge and
experience of remuneration matters.
The Company’s Chief Legal Officer acts as secretary to the Commit-
tee. The President and CEO, the Senior Vice President, Chief Human
Resources Officer and Head of Group Function Human Resources, the
Vice President, Head of Total Rewards and the Head of Executive
Remuneration attend Committee meetings by invitation and assist the
Committee in its considerations. No employee is present at the Commit-
tee´s meeting when issues relating to their remuneration are being
discussed.
The Committee used an independent expert advisor, Peter Boreham,
to assist and advise in its work during 2017. At its meeting in October
2017, the Committee resolved to continue with Peter Boreham as its
independent advisor for 2018. 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 responsibilities,
together with the Guidelines for Remuneration to Group Management
and the Long-Term Variable Compensation Program 2017 (LTV 2017)
for the Executive Team 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 prac-
tices 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
The responsibility of the Committee is also to:
– Approve proposals on salary and other remuneration, including
accordance with Swedish law, brought to shareholders annually
for approval.
retirement compensation, for other members of the ET.
– Approve proposals on targets for the short-term variable
compensation (STV) for the ET members other than the President
and CEO.
– Approve payout of the STV for the ET members other than the
President & CEO, 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 Sukhinder Singh Cassidy, Jon Fredrik Baksaas,
and Kjell-Åke Soting. All members are non- executive directors, inde-
pendent (except for the employee representative) as required by the
The Committee held seven meetings during 2017. The meeting in
February 2017 focused on following up on results from the 2016 vari-
able compensation programs and preparing proposals to shareholders
for the 2017 Annual General Meeting (AGM). In this meeting, the Com-
mittee proposed Financial Target Levels for the 2017 Short-Term Vari-
able Compensation (STV) program and the LTV 2014 vesting result to
the Board of Directors for approval. The new Long-Term Variable Com-
pensation Program 2017 (LTV 2017) for the Executive Team was also
proposed. During March 2017, in line with the company reorganization
approved by the Board, the Committee reviewed and approved the
remuneration for new appointments to the ET as well as revised Short-
Term Variable Compensation (STV) targets for the ET. In addition, a
new Additional Short-Term Incentive Opportunity (STI) was proposed
Remuneration policy
Remuneration at Ericsson is based on the principles of performance,
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 remu-
neration to Group management 2017, 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 2017 is posted on the Ericsson website.
Ericsson | Annual Report 2017
142
Corporate governance – Remuneration report
to be introduced for a number of selected ET positions with the intention
of transferring this percentage of the variable remuneration to LTV in
2018. In the May 2017 meeting, the STV Targets for ET based on the
new organization structure were agreed effective from April 1, 2017.
Also in this meeting, the Committee resolved how to treat write-downs,
provisions and increased restructuring charges in Ericsson for purposes
of determining the outcome of 2017 STV compensation. In the October
2017 meeting, the independent advisor presented the 2017 report on
Executive Remuneration market issues and trends, and the Committee
resolved to recommend to the Board that the Long-Term Variable Com-
pensation Program for the Executive Team, structure and conditions for
2018 (LTV 2018) remain unchanged from LTV 2017, but to review the
targets before the proposal is referred to the Board for resolution. In the
final meeting of the year in November, the Committee reviewed the
adjusted proposal on 2018 Guidelines for Remuneration to Group Man-
agement and agreed to recommend to the Board to propose these to
AGM 2018. In this meeting the Committee also resolved to recommend
to the Board that the Total Shareholder Return (TSR) comparator group,
the relative TSR performance target and the absolute TSR performance
target remain unchanged from LTV 2017 for LTV 2018. The 2018 salary
review for the President and CEO was discussed and it was resolved
that the Committee Chairman would refer the matter to the Board for
discussion and resolution. Also, the revision of individual remuneration
packages for the ET members were resolved. Finally, the Committee
resolved to submit an unchanged work procedure for 2018 for Board
resolution. Both the 2018 salary review for President and CEO, and the
Remuneration Committee work procedure for 2018 were approved by
the Board in the last Board meeting in 2017 in December.
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 2018 shall be to adjust notice
period and severance conditions for ET positions on a case by case basis
if necessary with the condition that in all cases fixed salary during the
notice period plus any severance pay payable will not together exceed
an amount equivalent to the individual’s 24 months fixed salary.
In 2017, with approval from AGM, a new Long-Term Variable Com-
pensation Program (LTV 2017) for the Executive Team was introduced.
Following an evaluation by the Remuneration Committee and the
Board of LTV 2017, the Board has resolved to propose to AGM in 2018
to approve a LTV program similar in design to LTV 2017 . While LTV
2017 only included three-year targets relating to TSR, the targets for
LTV 2018 have been developed to also include a one-year Group Oper-
ating Income target for 2018. It is proposed for all targets to have a
three-year vesting period. Also for LTV 2018, the value of the underlying
shares in respect of the Performance Share Awards made to Executive
Team members (other than the President & CEO) is proposed to be
increased from 22.5% to between 30% and 70% of the respective
annual base salaries. This will be done by way of transferring some part
of the short-term variable compensation opportunity to the long-term
variable compensation, following the principle of total remuneration to
remain unchanged. The aim is to support achieving the Company’s
2020 targets and to increase the long-term focus and alignment with
the long-term expectations of the shareholders.
Total remuneration in 2017
When considering the remuneration of an individual, it is the total
remuneration that matters. First, the total annual cash compensation
is defined, consisting of the target level of short-term variable com-
pensation plus fixed salary. Thereafter, target long-term variable com-
pensation is added to get to the total target compensation and, finally,
pension and other benefits are added to arrive at the total remuneration.
For the ET, 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 President and CEO and the ET are
reported in Note C28, “Information regarding members of the Board
of Directors, the Group management and employees.”
Fixed salary
When setting fixed salaries, the Committee con siders the impact on
total remuneration, including pensions and associated costs. The abso-
lute levels are determined based on the size and complexity of the posi-
tion and the year-on-year performance of the individual. Together with
other elements of remuneration, ET 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 remunera-
tion policy.
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 2017
80
70
60
50
40
30
20
10
0
President
and CEO
35.7
64.3
2013
2014
2015
2016
7.7
0.0
2017
Average ET excl.
President and CEO
60.6
26.1
13.4
0
20
40
60
80
100
President and CEO
Average ET excl. CEO
Since 2017, the President and CEO does not have any short-term variable compensation.
Fixed salary 2017
Short-Term Variable Target 2017
Long-Term Variable (2017 Executive Performance Stock Plan) at half of maximum
Ericsson | Annual Report 2017 Corporate governance – Remuneration report
143
Summaries of 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
Sales Incentive Plan (SIP)
Tailored versions of
the STV
Attract and retain employees,
delivering part of annual
compensation in a predictable format
All employees
Align employees with clear and
relevant targets, providing an
earnings opportunity in return
for performance at flexible cost
As for STV, tailored for local
or business requirements,
such as sales
Enrolled employees, including
Executive Team, approximately
76,200 in 2017
Employees in Sales.
Approximately 2,300 in 2017
Market appropriate levels set
according to position andevaluated
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
to up to three times the target level
depending on performance.
All plans have maximum award
and vesting limits
Long-term: Compensation delivered over three years or more
Long-Term Variable
Compensation Program
2017 (LTV 2017)
Executive Performance
Plan 2017 (EPP 2017)
2017 Key Contributor Plan
Share-based plan for
Executive Team members
Cash-based plan for
senior managers
Cash-based plan for
selected individuals
Stock Purchase Plan (SPP)
All employee
share-based plan
Compensate for long-term
commitment and value creation in
alignment with shareholder interests
Compensate for long-term
commitment and value creation in
alignment with shareholder interests
Recognize best talent, individual
performance, potential, critical skills
& retention
Reinforce a “one Ericsson” mentality
and align employees’ interests with
those of shareholders
Executive Team members
Subject to achievement of
performance conditions
Senior managers
Cash award subject to achievement
of performance conditions
Up to 7,000 employees
Cash award at the end of mandatory
3 years retention
Where practicable, all
employees are eligible
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
Key Contributor Retention
Plan (KC)
Share-based plan for
selected individuals
Recognize, retain and motivate key
contributors for performance, critical
skills and potential
Up to 10% of employees
Buy one share and it will be matched
by one share after three years if
still employed
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
If selected, get one more matching
share in addition to the SPP one
Variable compensation
Ericsson believes that, where possible, variable comp ensation should
be encouraged as an integral part of total remuneration. First and fore-
most, this aligns employees with the relevant unit’s and the Group’s
performance, but it also enables more flexible payroll costs and empha-
sizes 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 depen-
dent on the performance of the specific unit or function, while long-term
variable compensation is dependent on the achievements of the
Ericsson Group.
Short-term variable compensation
Annual variable compensation is delivered through cash-based pro-
grams. 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 achieve 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 ET, targets are financial at either Group level (for Heads of Group
functions and business areas) or at the individual unit level (for Heads
of market areas).
The chart on the previous page illustrates how payouts to the
ET have varied with performance over the past five years.
The President and CEO does not have any short-term variable
compensation, and the Committee decides on all targets which are
set for other members of the ET. These targets are cascaded within the
orga nization and broken down to unit-related targets throughout the
Company. 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 2017, approximately 78,500 employees participated in
short-term variable compensation plans.
Long-term variable compensation
Share-based long-term variable compensation plans have been
submitted 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 personal commitment,
corporate performance and the share price performance.
The Long-Term Variable Compensation Program 2017
for the Executive Team
The Long-Term Variable Compensation Program 2017 for the Execu-
tive Team (LTV 2017) is an integral part of the Company’s remuneration
strategy. The LTV 2017 has been approved by the Annual General
Meeting (AGM) of shareholders 2017 and is designed to provide long-
term incentives for members of the Executive Team (ET) and to incen-
tivize the Company’s performance creating long-term value. The aim is
Ericsson | Annual Report 2017 144
Corporate governance – Remuneration report
Short-term variable compensation structure
President and CEO 2017 1)
President and CEO 2016 2)
Average ET 2017
Average ET 2016 3)
Short-term variable compensation
as percentage of fixed salary
Percentage of short-term variable compensation
maximal opportunity
Target level Maximum level
Actual paid
Group financial
targets
Unit/functional
financial targets
Non-financial
targets
0%
80%
44%
41%
0%
160%
88%
83%
0%
0%
7%
7%
0%
100%
43%
88%
0%
0%
57%
13%
0%
0%
0%
0%
1) This relates to Börje Ekholm only; Jan Frykhammar left the President and CEO position as of January 16, 2017.
2) 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.
3) 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.
to attract, retain, and motivate the executives in a competitive market
through performance based share related incentives and to encourage
the build-up of significant equity holdings to align the interests of the
participants with those of the shareholders.
The LTV 2017 includes all members of ET, a total of 16 employees in
2017. Awards under LTV 2017 are granted free of charge entitling the
participant, provided that certain performance conditions set out below
are met, to receive a number of shares, free of charge, following expiration
of a three-year vesting period (“Performance Share Awards”). Allotment
of shares pursuant to Performance Share Awards are subject to the
achievement of the performance conditions, as set out below, and gener-
ally requires that the participant retains his or her employment over a
period of three years from the date of grant (the “Vesting Period”). All
major decisions relating to LTV 2017 are taken by the Remuneration
Committee, with approval by the full Board of Directors as required.
The participants were granted Performance Share Awards on May 18,
2017. The value of the underlying shares in respect of the Performance
Share Award made to the President & CEO was 180% of the annual base
salary, and for other participants 22.5% of the participants’ respective
annual base salaries at the time of grant. The share price used to calculate
the number of shares to which the Performance Share Award entitles was
calculated as the volume-weighted average of the market price of Class B
shares on Nasdaq Stockholm during the five trading days immediately
following the publication of the Company’s interim report for the first
quarter of 2017.
The vesting of Performance Share Awards is subject to the satisfaction
of challenging performance conditions which will determine what por-
tion, if any, of the Performance Share Awards will vest at the end of the
Performance Period as defined below. The two performance criteria are
based on absolute Total Shareholder Return (TSR) and relative TSR
development for the Class B share over the period January 1, 2017 to
December 31, 2019 (the “Performance Period”). The details on how the
TSR development will be calculated and measured are explained in min-
utes from the AGM 2017 under Item 17, and summarized in the below:
LTV 2017 and EPP 2017 Performance Targets
Year
Target
Criteria
Weight
Vesting
2017
2017
Absolute
TSR
Relative
TSR
Range:
6%–14%
Ranking of Ericsson:
12–5
50%
50%
0%–200%
(linear pro-rata )
0%–200%
(linear pro-rata )
is reasonable considering the Company’s financial results and position,
conditions on the stock market and other circumstances, and if not, as
determined by the Board of Directors, reduce the vesting level to lower
level deemed appropriate by the Board of Directors.
In the event delivery of shares to the Participants cannot take place
under applicable law or at a reasonable cost and employing reasonable
administrative measures, the Board of Directors will be entitled to
decide that Participants may, instead, be offered cash settlement.
Originally designated shares for LTV 2017 was comprising of a maxi-
mum of 3.0 million shares, 0.7 million shares were granted for ET during
2017 with a share price of SEK 57.15 at grant date. Fair value for LTV
2017 was SEK 65.68, compensation cost was SEK 9.9 million for 2017.
The fair value, calculated at grant date for LTV 2017, is the average of
the fair values established for absolute and relative TSR performance
conditions on the grant date of May 18, 2017, using a Monte Carlo
model, which uses a number of inputs, including expected dividends,
expected share price volatility and the expected period to exercise.
The Executive Performance Plan 2017 (EPP 2017)
The Executive Performance Plan 2017 (EPP 2017) is also an integral
part of the Company’s remuneration strategy. The aim is to attract,
retain, and motivate senior managers in a competitive market through
performance based long-term cash incentive supporting the achieve-
ment of the Company’s long-term strategies and business objectives.
Under the EPP 2017, up to 500 senior managers (452 nominated in
2017) are selected through a nomination process that identifies individ-
uals according to performance, potential, critical skills, and business
critical roles. There are two award levels at 15% and 22.5% of the par-
ticipants’ annual gross salary. Participants are assigned a potential
award, which is converted into a number of synthetic shares based on
the same market price of Class B shares used for the LTV 2017. The
three-year vesting period is the same as for the LTV 2017. The vesting
level of the award is subject to the achievement of the same perfor-
mance conditions over the same Performance Period defined for the
LTV 2017, and generally requires that the participant retains his or her
employment over the Vesting Period. At the end of the Vesting Period,
the allotted synthetic shares are converted into a cash amount, based
on the market price of Class B shares Nasdaq Stockholm at the payout
date, and this final amount is paid to the Participant in cash gross
before tax.
Provided that the above performance criteria have been met during
the Performance Period and that the Participant has retained his or her
employment (unless special circumstances are at hand) during the
Vesting Period, allotment of vested shares will take place as soon as
practicability possible following the expiration of the Vesting Period.
When determining the final vesting level of Performance Share
Awards, the Board of Directors shall examine whether the vesting level
2017 Key Contributor Plan
The 2017 Key Contributor Plan is part of Ericsson’s talent management
strategy and is designed to recognize the best talent, individual perfor-
mance, potential and critical skills as well as encourage the retention
of key employees. Under the program, up to 7,000 employees (6,876
employees nominated in 2017) are selected through a nomination
process that identifies individuals according to performance, potential,
Ericsson | Annual Report 2017 critical skills, and business critical roles. There are two award levels at
10% and 25% of the participants’ annual gross salary. Participants are
assigned a potential award, which is converted into a number of syn-
thetic shares based on the same market price of Class B shares used
for the LTV 2017. There is a mandatory three-year retention period for
receiving the award and the award is subject only to continued employ-
ment until the end of the retention period. The value of each synthetic
share is driven by the absolute share price performance of Class B
shares during the retention period. At the end of the retention period, the
synthetic shares are converted into a cash amount, based on the market
price of Class B shares Nasdaq Stockholm at the payout date, and this
final amount is paid to the Participant in cash gross before tax.
The cost of the cash based plans (the Executive Performance Plan
2017 and the 2017 Key Contributor Plan) in 2017 is shown in the
table below:
Compensation cost under LTV cash based plans
(SEK million)
Executive Performance Plan
Key Contributor Plan
Total compensation cost
Number of synthetic shares
(million)
Compensation
cost year20171)
2.3
11.8
14.1
31.4 2)
138.6 3)
170.0
1) 7,5 months between May 18 and December 31, 2017.
2) Fair value at grant date, SEK 65.68.
3) Fair value based on share price as of December 18, 2017, SEK 56.55
Year 2017 is the first year under these plans the liability is equal to the cost for the year.
2014–2016 Long-Term Variable compensation programs
Until 2017, share-based compensation was made up of three different
but linked plans: the all-employee Stock Purchase Plan, the Key Contrib-
utor Retention Plan and the Executive Performance Stock Plan.
The Stock Purchase Plan
The Stock Purchase Plan was designed to offer an incentive for all
employees to participate in the Company where practicable. For the
2016 and earlier plans, employees were able to save up to 7.5% of their
gross fixed salary 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 contribution shares are retained by the
employee for three years after the investment 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, 2017.
Stock Purchase Plans
Plan
Stock Purchase plan 2014
Stock Purchase plan 2015
Stock Purchase plan 2016
Contribution
period
August 2014 –
July 2015
August 2015 –
July 2016
August 2016 –
July 2017
Number of
participants at
launch
Take-up rate
– percent of eligible
employees
32,000
33,800
31,500
30%
31%
29%
No Stock Purchase Plan was proposed in 2017.
The Key Contributor Retention Plan
The Key Contributor Retention Plan was part of Ericsson’s talent
management strategy and was designed to give recognition for per-
formance, critical skills and potential as well as to encourage retention
of key employees. Under the program, up to 10% of employees were
Corporate governance – Remuneration report
145
selected through a nomination process that identifies individuals
according to performance, critical skills and potential. Participants
selected obtained 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 was proposed for 2017, a cash-based
2017 Key Contributor Plan was introduced replacing the Key Contribu-
tor Retention Plan. The Key Contributor Plan 2017 is described above.
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)
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%
–
Base year
value
SEK billion
Year 1
Year 2
Year 3
228.0
Compound annual growth rate of 2–6%
16.8 Compound annual growth rate of 5–15%
≥70%
≥70%
≥70%
–
1) Excluding extraordinary restructuring charges.
The Executive Performance Stock Plan
The Executive Performance Stock Plan was designed to focus manage-
ment on driving earnings and provide competitive remuneration. Senior
managers, including ET, 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 were offered participation in
the plan. The performance targets were 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, 2017.
Since no Stock Purchase Plan was proposed for 2017, share-based
Long-Term Variable Compensation Program 2017 (LTV 2017) was
introduced for ET with the approval of shareholders in the 2017 Annual
General Meeting of shareholders. For the senior managers, a cash based
2017 Executive Performance Plan (EPP 2017) was introduced replac-
ing the Executive Performance Stock Plan. The LTV 2017 and the EPP
2017 are described above.
The accounting treatment of all the long-term variable compensation
programs are explained in Note C28, “Information regarding members
of the Board of Directors, the Group management and employees.”
Benefits and terms of employment
Pension benefits follow the competitive practice in the employee’s
home country and may contain various supplementary plans, in addi-
tion 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 prescribe that defined benefit
plans that do give such guarantees have to be offered.
Individuals with a Swedish employment, who were appointed to the
ET before 2011, are members of a supplementary pension plan in addi-
tion to the occupational pension plan for salaried staff on the Swedish
labor market (ITP). These pension plans are not conditional upon future
employment at Ericsson.
Ericsson | Annual Report 2017 146
Corporate governance – Remuneration report
Those, in Sweden, appointed to the ET since 2011 participate in the
defined contribution plan (ITP1) which applies for the wider workforce
in Sweden. For ET members employed outside of Sweden, local market
competitive pension arrangements apply.
Due to the fact that the President and CEO is resident in the United
States, and not in Sweden, it is not possible to enroll him in ITP1. Tax
legislation in the US and Sweden significantly complicates a pension
arrangement. Therefore, the President and CEO receives a cash pay-
ment in lieu of a defined contribution pension. This cash payment is
treated as salary for the purposes of tax and social security and is made
in way which is cost neutral for Ericsson.
Other benefits, such as company cars and medical insurance, are
also set to be competitive in the local market. The ET members may not
receive loans from the Company.
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 providing e-learning and training pro-
grams to line managers. Since then, enhancements of the IT tool and
continuous briefings of line managers on pay principles and their practi-
cal execution enabled further progress towards globally consistent
principles while allowing room for adaptation to local legislation and
pay markets.
Ericsson | Annual Report 2017 Sustainability Performance and Risk report
Sustainability Performance and Risk report
147
“Ericsson’s Board of Directors is keenly aware of the fact
that proactive management of sustainability and corporate
responsibility (CR) issues creates considerable value for a
wide range of stakeholders in the short, medium and long
term. That’s why our commitment to delivering results along
the triple bottom line of financial, environmental and socio-
economic performance is so important. We want to ensure
proactive and meaningful results, and be as transparent
as we can be about our activities. By doing so we open
ourselves up for feedback that can help us improve, as
well as providing inspiration for others.”
Leif Johansson
Chairman of the Board of Directors
Contents
148 About this Sustainability Performance
and Risk report
149 Sustainability and corporate responsibility
150 Governance and policies
151 Sustainability risk management
152
153
154
155
156
157
158
Climate change
Efficient use of natural resources
Occupational health and safety
Radio waves and health
Diversity
Respect for human rights
Anti-corruption
159 Auditor’s Report
This Sustainability Performance and Risk report is
rendered as a separate report added to the Annual
Report in accordance with the Annual Accounts Act
(SFS1995:1554, chapter 6, section 11). The report
has been reviewed by Ericsson’s auditor in accor-
dance with the Annual Accounts Act. A report from
the auditor is appended hereto.
Dominica 2017 after Hurricane Maria (category 5). Ericsson Response volunteer working in disaster afflicted areas.
Ericsson | Annual Report 2017 148
Sustainability Performance and Risk report
About this Sustainability
Performance and Risk report
2017 marks the 25th year that Ericsson has
reported on sustainability matters, evolving
over time from environmental performance to
the broader triple bottom line approach,
including environmental, social and economic
development aspects that Ericsson has today.
The report contains information regarding
the development, performance, position and
impact of Ericsson Group activities, relating to
environmental, social, employee, human
rights, anti-corruption and bribery matters.
The report describes the Ericsson Group’s
sustainability and corporate responsibility
related policies, the outcome of these policies
and the principal risks related to those matters
linked to the Group’s operations. Further, it
describes how Ericsson manages those risks.
Selected non-financial key performance indi-
cators relevant to Ericsson’s business are
highlighted. A brief description of Ericsson’s
business model is available in the Annual
Report 2017 on pages 16–17.
This Sustainability Performance and Risk
report is prepared in accordance with the
Swedish Annual Accounts Act.
Ericsson has reported in accordance with
Global Reporting Initiative (GRI) Sustainabil-
ity Reporting Guidelines since 2006 and the
UN Guiding Principles Reporting Framework
(UNGP) since 2014. The Sustainability and
Corporate Responsibility Report 2017 and
additional information available online
includes more detailed information on
Ericsson’s sustainability and corporate respon-
sibility performance. Ericsson has been a UN
Global Compact signatory since 2000 and
has reported a Communication on Progress
annually according to UN Global Compact
Advanced Level criteria since 2013. In addi-
tion, Ericsson publishes other annual state-
ments and reports such as a Modern Slavery
and Human Trafficking Statement in accor-
dance with the UK Modern Slavery Act and
a Conflict Minerals Report under US rules.
Unless otherwise stated, all information
and data pertains to activities undertaken
from January 1, 2017, to December 31, 2017.
The report covers the Ericsson Group, i.e.
Telefonaktiebolaget LM Ericsson and its sub-
sidiaries. The report has been reviewed by
PricewaterhouseCoopers AB; see the Inde-
pendent Auditor’s Assurance Report on
page 159.
ICT training for youth trainers in Northern Uganda, Whitaker Peace & Development Initiative (WPDI) project as part of our Connect to Learn initiative.
Ericsson | Annual Report 2017 Sustainability and
corporate responsibility
Sustainability Performance and Risk report
149
Sustainability and corporate responsibility are
integrated into Ericsson’s business processes
and the Company’s commitment to the triple
bottom line of responsible environmental
performance and social and economic devel-
opment is made clear to its stakeholders.
Ericsson’s ambition is to be a responsible
and relevant driver of positive change in soci-
ety. Ericsson is committed to creating business
value while reducing risk related to environ-
mental, social, employee, human rights,
corruption and bribery matters. Ericsson’s
sustainability and corporate responsibility
performance is regularly measured, assessed
and assured. Group policies and directives
have been implemented to ensure consistency
across global operations.
Ericsson’s principal risks relating to sustain-
ability and corporate responsibility are identi-
fied in Ericsson’s risk management framework.
The Board of Directors is briefed on sus-
tainability and corporate responsibility issues
regularly, or as needed on an ad hoc basis.
In 2017, the Chief Sustainability & Public
Affairs Officer was a member of Ericsson’s
Executive Team and reported to the President
and CEO, and was responsible for handling the
day-to-day management of Ericsson’s sus-
tainability and corporate responsibility
agenda.
Community Health Worker in the Millennium Villages Project.
Ericsson | Annual Report 2017 150
Sustainability Performance and Risk report
Governance and policies
The Code of Business Ethics
The Code of Business Ethics sets the tone for
how Ericsson conducts business globally, and
is a guiding framework to support everyone
performing work for Ericsson. The Code of
Business Ethics is periodically reviewed and
acknowledged by employees and has been
translated into more than 30 languages to
ensure that it is accessible to all employees
and stakeholders. During 2017, 99% of active
employees acknowledged that they have read
and understood the Code of Business Ethics.
Employees are encouraged to report any
conduct that they believe, in good faith, to be a
violation of laws or the Code of Business Eth-
ics. Ericsson provides employees and external
stakeholders with a dedicated communication
channel, called the Ericsson Compliance Line,
for the reporting of serious compliance con-
cerns involving group or local management
and which relates to;
a) corruption or fraud
b) questionable accounting
or auditing matters
c) other matters that might seriously
affect the vital interest of Ericsson
or personal health and safety.
The process around reporting of violations has
been strengthened and further developed to
include both centrally and locally reported
allegations of violations in 2017. For this
reason there is a significantly higher number
of reports in 2017 in comparison with 2016.
During 2017 the Company received 412
cases reported through Ericsson’s whistle-
blower tool, the Ericsson Compliance Line.
This tool is available via phone or secure web-
site, 24/7, 365 days a year, and is available in
188 countries and in over 75 languages.
Reported violations are handled by Ericsson’s
Group Compliance Forum, which consists of
representatives from Ericsson’s internal audit
function, Group Function Legal Affairs, Group
Security, and Group Function Human
Resources. The Forum briefs the Audit Com-
mittee about all reported violations, providing
them with the incident category, a description
of the alleged violation, and information about
the decision and outcome.
The Code of Conduct
Ericsson’s Code of Conduct applies to employ-
ees and suppliers and is based on the UN
Global Compact ten principles on human
rights, labor conditions, environmental man-
agement and anti-corruption. Ericsson is also
committed to implementing the UN Guiding
Principles on Business and Human Rights
across its business operations.
Suppliers must comply with Ericsson’s
Code of Conduct requirements. The Company
uses a risk-based approach to assess compli-
ance with the Code of Conduct requirements
as part of supplier agreements. The Company
has a strong focus on risk mitigation, targeting
high-risk portfolio areas and high-risk mar-
kets. For prioritized areas such as road and
vehicle safety, working at heights, working
hours and labor rights, Ericsson performs regu-
lar audits and works with suppliers to ensure
measurable and continuous improvements,
and has also introduced consequence man-
agement. Findings are followed up to ensure
that improvements are made.
Since 2017, the Ethics and Compliance
Board – comprised of several members of the
Executive Team and chaired by the CEO – has
been responsible to oversee the overall gover-
nance of compliance within the Group.
Responsible business practices are embedded
in Ericsson’s operations to prevent, mitigate
and adapt to risks. The Ericsson Group Man-
agement System (EGMS) includes policies,
processes and directives encompassing
responsible sourcing, occupational health and
safety, environmental management, anti-cor-
ruption and human rights, for example. Exter-
nal assurance providers audit the EGMS.
Some of the Group Policies and Directives
that are of particular relevance from a sustain-
ability and corporate responsibility perspective
are the Code of Business Ethics, the Code of
Conduct, the Sustainability Policy, the Occu-
pational Health and Safety Policy, the Electro-
magnetic Fields and Health Policy, the Sales
Compliance Policy and the Anti-corruption
Group Directive, which reflect how Ericsson
shall work to secure responsible business
practices. These policies and practices are
reinforced by employee awareness training and
monitoring. Compliance to Group Policies are
mandatory for all employees and operations
unless a deviation is approved by the CEO.
Reported Compliance Concerns
(2017)1)
35%
26%
412
3%
14%
11%
11%
Fraud, corruption & regulatory
breach issues
Operations issues
Conflicts of interest
Miscellaneous
Security issues
Human resources issues
1) Reporting Violations received and reported to Audit
Committee (mainly received via Ericsson Compliance
Line but also via certain other channels such as mail
addressed to Group Functions or Market Areas
excluding unrelated spam e-mails).
Source: Ericsson
Ericsson | Annual Report 2017 Sustainability risk management
Sustainability Performance and Risk report
151
Sustainability risks are defined according to
short-term and long-term perspectives. They
are related to long-term objectives as per
the strategic direction as well as short-term
objectives for the coming year. According to
Ericsson’s risk framework, sustainability risks
are categorized into industry and market risks,
commercial risks, operational risks and com-
pliance risks. The Company follow its risk
management principles, which apply across
all business activities, to manage sustaina-
bility risks.
Materiality assessment is a central com-
ponent of the Company’s sustainability and
corporate responsibility strategy, target set-
ting, risks and opportunities management,
and reporting process related to its impact on
society and environment. Ericsson considers a
wide range of economic, environmental and
social impacts significant to the business, or
which substantively influence the views and
decisions of our key stakeholders. Since 2012,
the Company has used a materiality assess-
ment to review significant issues on an annual
basis, taking into account emerging trends,
stakeholder feedback and other input. Adjust-
ments are made as needed to incorporate
critical issues as they arise.
The Group Function Sustainability and
Public Affairs coordinates management of
certain sustainability risks, such as occupa-
tional health and safety, human rights, and
environmental related risks. Risks related to
corruption are coordinated by Group Function
Legal Affairs, and diversity issues are coordi-
nated by Group Function Human Resources.
For information on risks that could impact
the fulfillment of targets and form the basis for
mitigating activities, see the Annual Report
2017, Note C20 “Financial risk management
and financial instruments” and the Risk Fac-
tors section in the Board of Directors’ report in
the Annual Report 2017.
Engineers deploying radio equipment in Japan, taking care to ensure a safe working environment on a rooftop site.
Ericsson | Annual Report 2017 152
Sustainability Performance and Risk report
Climate change
Ericsson’s research on the carbon footprint of
ICT from a lifecycle perspective shows that
only one-third of the carbon footprint is from
direct impacts such as own activities, manu-
facturing and transport of network infrastruc-
ture equipment. The other two-thirds of the
carbon footprint of ICT comes from the energy
used while products are in operation.
In 2017 the Company bolstered its com-
mitment to the Paris Climate Accord by joining
the Science Based Targets (SBT) initiative.
Ericsson’s targets have been recognized as
SBT Targets.
Ericsson own activities
As part of Ericsson climate action, the Com-
pany manages the carbon footprint caused as
Main risks include:
– Increasing regulatory require-
ments on product energy
consumption
– Extreme weather events could
affect our supply chain, our own
operations and customers
a direct impact of its own activities by focusing
on the following areas: reducing energy usage
in facilities, shifting from air to surface product
transport, reducing the impact of business
travel and improving fleet vehicle management.
Over the past six years, Ericsson has
reduced CO2e1) emissions in absolute terms by
48%. The Company has achieved its long-
term objective to maintain absolute CO2e
emissions from Ericsson’s own activities for
facility energy use, business travel, and prod-
uct transportation in 2017 at the same level as
2011. See figure “Carbon footprint target,
Ericsson’s own activities“.
In 2017, the Company updated its long-
term target to reduce the CO2e emissions
caused by Ericsson’s own activities by 35%,
including business travel, product transporta-
tion, facility energy use and fleet vehicles by
2022 (baseline 2016).
Products in operation
Two-thirds of the total carbon footprint of ICT
comes from products in operation. In light of
this, product energy performance is a very
important area in which Ericsson can help its
customers. As part of Ericsson’s climate action
plan, the Company continuously invests to
improve the energy performance of its offer-
ings with the aim to develop innovative prod-
ucts and solutions that will enable the mobile
industry to meet current and future traffic
demands while simultaneously addressing the
energy and climate challenge. Ericsson
addresses the whole network including hard-
ware, software, network performance and site
dimensions, and considers both the installed
base and network modernization.
In 2017, Ericsson defined a new target with
the aim to achieve a 35% energy saving in its
newly launched Ericsson Radio System versus
the legacy portfolio by 2022.
One example related to the Company
product portfolio is Ericsson’s 5G-ready multi-
standard baseband, which supports Massive
IoT, LTE, WCDMA, GSM, and Transport Con-
nectivity simultaneously on a single board.
The baseband replaces four boards in the
previous generation while supporting the
same capacity with more than 50% energy
savings.
1) CO2e = Carbon dioxide equivalent
Ericsson life-cycle assessment –
carbon footprint 2017
Carbon footprint target, Ericsson’s own activities1)
Mtonnes CO2e
Tonnes CO2e/Employee
10
8
6
4
2
0
0.8
7.9
Baseline
2011
0.4
3.8
2012
2013
2014
2015
2016
2017
Mtonnes
1.0
0.8
0.6
0.4
0.2
0.0
Carbon footprint intensity, tonnes Carbon dioxide equivalent (CO2e)/Employee
Carbon footprint absolute emission, Mtonnes
1) Ericsson’s own activities including facility energy use, business travel, and product transportation.
Source: Ericsson
35
30
25
20
15
10
5
0
–5
˜ 3
0.55
˜5
Activities in 2017
Supply chain
Ericsson own activities
˜34
˜ –0.4
Source: Ericsson
Future (lifetime) operation
of products delivered in 2017
Operator activities
Products in operation
End-of-life treatment
~ Approximately
Ericsson | Annual Report 2017 Sustainability Performance and Risk report
153
Main risks include:
– Materials scarcity may impact
supplier ability to deliver compo-
nents
– Increased regulatory require-
ments on sustainable sources of
raw materials
– Low levels of product take-
back may result in products
ending up in poorly managed
waste treatment
Efficient use of natural resources
As a global Company efficient use of natural
resources is important and the Company uses
circular economy thinking as a platform for
innovative product design and business devel-
opment.
Ericsson’s circular economy approach
builds on more than 20 years of life-cycle
assessments (LCA), including data on raw
material extraction, design, manufacturing,
transport, use of products and end-of-life
management.
As a Company that purchases electronic
components Ericsson acknowledges the
potential risks in our supply chain associated
with resource exploitation such as mining of
minerals but also water scarcity and risks of
pollution. Some of these risks include armed
conflicts, human rights violations and negative
environmental impacts. In 2017 the Company
strengthened its Code of Conduct to cover
responsible sourcing of raw materials and
made it more clear that all suppliers shall
exercise due diligence with respect to the
sourcing and extraction of raw materials. The
due diligence shall be consistent with relevant
parts of the OECD Due Diligence Guidance.
Electrical and electronic waste (e-waste)
Waste from electrical and electronic equip-
ment is one of the fastest growing waste
streams in the world. Minimizing waste is key
in a circular economy context, and regulatory
frameworks in many countries are developing
detailed standards requirements on design for
recyclability, reuse and recovery.
In 2005 Ericsson launched its global
Product Take-Back Program to minimize the
environmental impact of its products at their
end of life and secure that they are handled
according to high environmental standards.
Ericsson has been taking back e-waste ever
since. The Company offers the program to its
customers in 180 countries around the world.
Ericsson has selected a limited number of
certified recycling partners that all meet inter-
nationally recognized environmental and
recycling standards.
Enabling efficient reuse and recycling
starts with design choices, and the Company
uses a life-cycle approach to address relevant
environmental aspects. The key streams of
recycled material are ferrous metals, precious
metals and plastics. More than 94% of the
collected products are material recycled, 5%
goes to energy recovery and less than 1% is
sent to landfill.
A big challenge is to increase the volume
of take-back products at end of life, which is
mainly due to the extensive second-hand
market for used equipment. Ericsson retrieved
over 11,890 tonnes of e-waste from our cus-
tomers in 2017, in addition we retrieved
approximately 360 tonnes of batteries. The
Company sees a risk that some products might
end up in the informal waste sector where
poor working conditions and health risks to
workers can occur.
To minimize this risk, Ericsson remains
committed to its goal of retrieving 20,000
tonnes by 2020. The Company has started
a project to review and improve its product
take-back operations. Together with some of
its customers Ericsson has also made a joint
commitment to manage e-waste more effec-
tively and thereby save valuable resources.
Ericsson | Annual Report 2017 154
Sustainability Performance and Risk report
Occupational health and safety
The ability to provide a safe and healthy work-
ing environment is fundamental to the Com-
pany’s commitment to conduct business
responsibly, as reflected in its Occupational
Health and Safety (OHS) Policy. Considering
customers’ perspectives on OHS is key, as the
Company sees that OHS requirements are
becoming increasingly common in our busi-
ness delivery around the globe.
The Company takes an inclusive, risk-
based approach to OHS that includes its
employees and anyone working on the Com-
pany’s behalf. This is significant because
contractors carry out the bulk of the installa-
tion and service work around the world.
Main risks include:
– Failure to meet legal and
customer requirements
– Lack of compliance to occupa-
tional health and safety stan-
dards in the supply chain
Ericsson’s vision is zero major incidents. To
achieve this, the Company works continuously
to raise awareness about how to prevent injuries
and work-related ill health, and strives to ensure
that both the Company and its suppliers work
towards the best OHS practices in the industry.
An Ericsson Global OHS Board advises on
general actions to improve work methods and
reduce risks, as well as providing decisions and
guidance on the development and implemen-
tation of OHS strategy and practices.
A Global Incident Review Board is com-
prised of senior executives that are responsible
for examining major incidents and determin-
ing if root causes of major incidents were
within or outside of Ericsson’s control. It also
ensures appropriate actions are taken to pre-
vent re-occurance.
Since reported fatalities and the vast
majority of major incidents have occurred with
contractors in recent years, Ericsson knows
that improving OHS in the supply chain is key.
Ericsson focuses its efforts where the Com-
pany has significant operations that could
present high risks to health and safety, and
where the largest number of incidents occur.
The three biggest causes of major incidents in
2017 were: traffic, working at heights, and
working with electricity.
In 2017 Ericsson developed and launched
a global Driving Safety Awareness program in
several local languages. It includes a driving
safety awareness course along with workshops
and activities to ensure that its employees and
its suppliers are fully aware of the risks and how
committed the Company is to reducing them.
In 2017 the Company rolled out a new
consequence management program. Gov-
erned by the Procurement Board, the program
emphasizes health and safety compliance
with our suppliers, and requires the updating
of existing contracts to ensure that they
reflect Ericsson’s global OHS requirements.
The program also makes it clear that Ericsson
may end a supplier contract if persistent
violations occur.
Occupational health and safety by market area
Fatalities (Ericsson employees)1,2)
Fatalities (supply chain and others)1,2)
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa
Total
2017
2016
2015
2014
2013
2017
2016
2015
2014
2013
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
0
0
0
0
1
0
0
0
0
0
0
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa
Total
6
1
0
6
10
23
6
2
0
6
3
17
4
0
0
4
19
27
7
0
2
6
6
1
1
2
4
7
21
15
Major incidents (Ericsson employees)1,2)
Major incidents (supply chain and others) 1,2)
2017
20163) 2015
2014
2013
2017
20163) 2015
2014
2013
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa
Total
8
13
2
123
7
153
21
13
4
92
7
137
2
8
0
63
3
76
0
0
0
22
3
25
0
7
0
22
0
29
South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa
Total
1) Due to organizational changes, figures disclosure in previous Sustainability and Corporate Responsibility Reports have been consolidated to Market Areas.
2) Reported incidents via Ericsson Global Incident Reporting Tool.
3) Nominal discrepancies in incident reporting when initially reported.
16
6
2
24
12
60
12
6
0
23
8
49
13
0
2
31
46
92
17
0
4
15
8
44
3
4
2
16
10
35
Source: Ericsson
Ericsson | Annual Report 2017 Sustainability Performance and Risk report
155
Main risks include:
– Perceived health risks related to
radio frequency electromagnetic
fields may increase regulatory
requirements and cause infra-
structure deployment delays
Radio waves and health
In accordance with the Group Policy on Elec-
tromagnetic Fields and Health, Ericsson tests
radio products with the goal of ensuring that
radio wave exposure levels from products and
network solutions are below established
safety limits. The Company also provides
information on radio waves and health to
customers and the general public.
Ericsson supports 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 & Wire-
less Forum (MWF), an international associa-
tion of companies with an interest in mobile
and wireless communications including the
evolution to 5G and the Internet of Things. To
assure scientific independence, firewalls were
in place between the industrial sponsors and
the researchers conducting these studies, and
all results were made available by publication
in the open scientific literature. Independent
expert groups and public health authorities,
including the World Health Organization
(WHO), have reviewed the available 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.
Ericsson is currently developing products
and solutions for the fifth generation (5G)
mobile communication networks. Although
5G is expected to have capabilities that will
extend far beyond previous generations, it will
be based on similar radio technologies and the
same radio wave safety guidelines apply. Like
current products, Ericsson designs and tests
the 5G equipment for compliance with estab-
lished radio wave exposure limits. The Com-
pany is also actively involved in the develop-
ment of technical standards for 5G to enable
that products can be properly tested and that
information can be provided to customers on
how to install the 5G equipment to ensure that
there are no health and safety risks for the
general public and workers.
Ericsson Radio Systems.
Ericsson | Annual Report 2017 156
Sustainability Performance and Risk report
Main risks include:
– Transformation to improve profit-
ability as per commitment to
shareholders impacts both the
number of new recruits and
reduction of current workforce
– Limited availability of female
STEM (Science, Technology, Engi-
neering and Mathematics) pro-
files may impact gender diversity
– Societal inequalities in countries
with high business outlook could
impact gender diversity
Diversity
Ericsson believes diversity has a positive
impact on all aspects of its business. The Com-
pany strategy recognizes that its culture is one
of its biggest strengths, together with global
presence and an innovative mindset. The
Company’s definition of diversity goes beyond
race, color and gender to also include sexual
orientation, gender identity, marital status,
pregnancy, parental status, religion, political
opinion, nationality, ethnic background, social
origin, social status, indigenous status, disabil-
ity, age, union membership or employee repre-
sentation, or any other characteristic protected
by local law.
To create the game-changing technology
that is needed in a fully connected world,
Ericsson must continue to recognize and
unleash the potential of the diverse bright
minds that make up this Company.
The Company strives to be a gender-
intelligent organization that recognizes and
values the differences that both men and
women bring to the workplace. In 2013
Ericsson set a global long-term ambition to
increase the number of women in its organiza-
tion. The gender diversity ambition is to have a
workforce that is 30% female by 2020, includ-
ing leaders and executives.
Ericsson have worked with annual gender
diversity plans since we communicated its
ambition in 2013. The Company is making
progress toward the target but is not yet where
it wants to be. Women account for 23% of
Ericsson’s total workforce and 20% of line
managers. Female representation on the
Executive Team remained the same in 2017,
but there was an increase in female represen-
tation among the top 200 leadership positions
in the Company, 27% in 2017 compared to
25% in 2016.
Ericsson’s focused strategy of recruiting
female talent shows good progress with
29% of hires during 2017 being women.
In Ericsson’s leadership development pro-
grams, women make up 39% of the partici-
pants in the executive programs and 34% in
the early career programs. Business transfor-
mation, reorganizations, mergers and acquisi-
tions may to some extent have an impact on
the gender ratios, and are thus monitored
carefully and reviewed in connection to any
larger changes within the Company.
To further improve the gender-neutrality
competence of those involved in the recruit-
ment process the Company introduced a
training course and an accompanying toolkit
in 2017. The Company also reviewed the
majority of all job postings in 2017 to ensure it
uses gender-neutral language. Ericsson will
continue to increase the number of women
hired, and there is a comparable attrition rate
for female and male.
Currently nearly 40% of traffic to the
Ericsson career site consists of women, com-
pared to approximately 20% in 2015. Ericsson
attributes the increase as a cumulative result
of featuring more women across our channels,
our careers blogs and a focused recruitment
strategy. Ericsson careers-related blog posts
have over 50% female subscribers.
Building a gender-intelligent organization
requires the engagement of both men and
women. Ericsson wants to maintain a con-
structive dialogue, extend its network of role
models and confirm that equality is a human
issue, not a women’s issue.
The #metoo campaign that emerged late in
2017 has been a great opportunity and forum
not only for society more broadly but also for
Ericsson. It has deepened our discussions in
the Company and moved us towards con-
structing concrete actions to improve equality
in the workplace for all. The goal is to involve
all employees in efforts to improve gender
relations, drive gender equality and minimize
bias and stereotypes.
Ericsson | Annual Report 2017 Sustainability Performance and Risk report
157
Respect for human rights
Ericsson works actively to integrate the United
Nations Guiding Principles on Business and
Human Rights (UNGP) into its governance
framework; and addresses and reports on its
most salient human rights issues according to
the UNGP Reporting Framework. This Report-
ing Framework states that a Company’s
salient human rights issues are those rights
that are at risk of the most severe negative
impact through the Company’s activities or
business relationships. Ericsson has defined
its salient human rights issues as the right to
privacy, the right to freedom of expression and
labor rights. These are highlighted in the Code
of Business Ethics and the Code of Conduct
which both reflect the Company’s ongoing
commitment to respect human rights.
The right to privacy is identified as a salient
issue for Ericsson and to Ericsson’s stakehold-
ers because if our technology is used for unin-
tended purposes, it could violate people’s right
to privacy.
Freedom of expression is identified as a
salient issue for Ericsson’s business and stake-
holders because increasing people’s ability to
exercise their freedom of expression is a possi-
bility to realize human rights as well as one of
the key ways that Ericsson can add value for
the customers’ customers.
The labor rights of the Company’s employ-
ees and the employees of its suppliers are
identified as a salient issue. Ericsson is com-
mitted to living up to the values in the Code of
Business Ethics and the Code of Conduct
across the value chain. Our employees are also
our most valuable resource. If they are not
treated fairly we risk losing them.
The UNGP requires companies to have a
human rights due diligence process to identify,
prevent, mitigate and account for how they
address their impacts on human rights. Shift,
the leading non-profit center of expertise on
the UN Guiding Principles, has worked with
Ericsson to systematically embed a human
rights framework across the Company since
2012. This work significantly strengthened
Ericsson’s due diligence processes in areas
such as sales, sourcing, mergers and acquisi-
tions and operations. The Company continues
to strengthen these areas and select particular
focus areas or processes each year to address.
In 2017 Ericsson’s focus was on responsible
sourcing and the issue of modern slavery as
well as continued work to strengthen the Sales
Compliance process.
The purpose of the Ericsson Sales Compli-
ance Process is to identify sales that could
potentially have an adverse effect on human
rights, with mitigation actions determined by
the Sales Compliance Board where necessary.
During 2017, close to 850 cases were
reviewed within the Sales Compliance process.
On the sourcing side, potential suppliers
must complete a mandatory Supplier Self-
Assessment and Ericsson requests suppliers
and their subcontractors to comply with the
Code of Conduct requirements. The Company
follows a risk-based approach to identify
relevant suppliers to be audited.
Since 2013, Ericsson has performed
Human Rights Impact Assessments in
Myanmar, Iran and Ethiopia. During 2016–
2017, work was also initiated to evaluate
Cuba from a human rights perspective, and
to mitigate any potential human right risks.
The Company also manages human rights
related risks by continuously raising aware-
ness among employees, suppliers and cus-
tomers about Ericsson’s commitment to
respect human rights across the value chain.
Ericsson also provides training about human
rights, the Code of Conduct and the Code of
Business Ethics.
Main risks include:
– Misuse of technology could
impact the right to privacy
– Lack of adherence to labor
standards in the supply chain
Cases reviewed in the Sales
Compliance Process (2017)
5%
25%
70%
846
Cases approved
Cases approved with conditions
Cases rejected
Source: Ericsson
Ericsson | Annual Report 2017 158
Sustainability Performance and Risk report
Main risks include:
– Employees’ failure to comply with
anti-corruption laws, regulations
and guidance
– Brand and reputational damage
– Lack of awareness of Ericsson
Compliance Line
Anti-corruption
Corruption carries serious legal and reputa-
tional risks; impedes business growth; dam-
ages relations with staff, customers, share-
holders, suppliers and society as a whole; and
is a considerable obstacle to economic and
social development in countries around the
world. With customers in 180 countries, many
of which are considered to be exposed to a
high risk of corruption, prevention and
accountability are paramount for Ericsson.
Ericsson has a zero-tolerance approach to
corruption expressed in the Company’s Code
of Business Ethics. The Company has embed-
ded this guiding principle at its highest levels
and implemented it throughout its global
organization with a set of policies and pro-
cesses. This includes an anti-corruption direc-
tive with more detailed guidelines, for example
about appropriate levels of gifts and enter-
tainment.
The Company’s anti-corruption program,
focusing on prevention and accountability, is
headed by a Chief Compliance Officer, who
since October 2017 reports directly to the
Audit Committee of the Board of Directors.
The Audit Committee also reviews and evalu-
ates the program at least annually. Further,
since 2016, an Ethics and Compliance Board,
comprised of several members of the Execu-
tive Team and chaired by the CEO, has been
responsible for the overall governance of
compliance within the Group.
During 2016–2017 we invited external
experts to evaluate the robustness of our
anti-corruption program. Following the
review, we adjusted the anti-corruption pro-
gram to closer align with the US Foreign Cor-
rupt Practices Act (FCPA). In 2017, the pro-
gram was strengthened with adding resources
on group level and appointing Regional Com-
pliance Officers in all Market Areas. Moreover,
one of the elements of the Group targets for
sustainability and corporate responsibility is
anti-corruption.
In 2017 the Company continued to roll out
an automated anti-corruption screening tool
for supplier and third party due diligence,
which was launched in 2016. By the end of
2017, close to 93% of active employees had
completed the Company’s anti-corruption
e-learning course since the training was
launched in 2013. A customized online anti-
corruption training is also available for
Ericsson’s suppliers on the Company website.
In 2017, Ericsson introduced a vetting
process that focuses on ethics and compli-
ance. So far we have used it for appointments
to the Executive Team and for approximately
110 employees in exposed positions. All mem-
bers of the current Executive Team have been
vetted, and all future recruitments to these
positions will also go through mandatory
vetting. Business Partner Review Boards have
been established in all Market Areas to over-
see mitigation of the corruption risks in rela-
tion to onboarding of new business partners.
Ericsson is currently voluntarily cooperating
with inquiries from the United States Securi-
ties and Exchange Commission and the United
States Department of Justice regarding its
compliance with the U.S. Foreign Corrupt
Practices Act. As of today, these inquiries
concern a period from January 1, 2007 and
onwards, and the Company will make addi-
tional disclosures regarding these inquiries
to the extent required.
Board of Directors
Stockholm, February 23, 2018
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680
Ericsson | Annual Report 2017 Auditor’s report
Sustainability Performance and Risk report
159
Auditors’ limited assurance report on the statutory sustainability report
To the general meeting of the shareholders in Telefonaktiebolaget LM Ericsson, corporate identity number 556016-0680
Introduction
We have been engaged by Telefonaktiebolaget LM Ericsson AB (publ) (“Ericsson”) to undertake a limited assurance engage-
ment of Ericsson’s statutory sustainability report, “Sustainability Performance and Risk Report” for the year 2017 on pages
147–158.
Responsibilities of the Board and Management
The Board of Directors are responsible for the preparation of a sustainability report in accordance with the Annual Accounts
Act. This responsibility includes the internal control relevant to the preparation of a sustainability report that is free from
material misstatements, whether due to fraud or error.
Responsibilities of the Auditor
Our responsibility is to express a conclusion on the sustainability report based on the procedures we have performed,
and to make a statement on the statutory sustainability report.
We have conducted our limited assurance engagement in accordance with ISAE 3000 Assurance Engagements Other than
Audits or Reviews of Historical Financial Information issued by IAASB. A limited assurance engagement consists of making
inquiries, primarily of persons responsible for the preparation of the sustainability report, and applying analytical and other
limited assurance procedures.
We have conducted our examination of the statutory sustainability report in accordance with RevR 12 Auditor’s report on
the statutory sustainability report issued by FAR. A limited assurance engagement and an examination in accordance with
RevR 12 is different and substantially less in scope than an audit conducted in accordance with IAASB’s Standards on Auditing
and other generally accepted auditing standards in Sweden.
The procedures performed consequently do not enable us to obtain assurance that we would become aware of all signifi-
cant matters that might be identified in a reasonable assurance engagement. Accordingly, we do not express a reasonable
assurance conclusion.
The audit firm applies ISQC 1 International Standard on Quality Control and accordingly maintains a comprehensive
system of quality control including documented policies and procedures regarding compliance with ethical requirements,
professional standards and applicable legal and regulatory requirements.
Our procedures are based on the requirements on sustainability reporting in the Annual Accounts Act. We believe that the
evidence we have obtained is sufficient and appropriate to provide a basis for our conclusions below.
Conclusions
Based on the limited assurance procedures we have performed, nothing has come to our attention that causes us to believe
that the sustainability report is not prepared, in all material respects, in accordance with the criteria in the Annual Accounts Act.
A statutory sustainability report has been prepared.
Stockholm, February 23, 2018
PricewaterhouseCoopers AB
Bo Hjalmarsson
Authorized Public Accountant
Fredrik Ljungdahl
Expert Member of FAR
Ericsson | Annual Report 2017
160
Share information – The Ericsson share
The Ericsson share
Share trading
The Ericsson Class A and Class B shares are listed on Nasdaq Stockholm. 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 2017, approximately 3.1 (3.0) billion shares were traded on Nasdaq Stockholm
and approximately 1.2 (1.3) billion ADS were traded in the United States (incl. NASDAQ
New York). A total of 4.3 (4.3) billion Ericsson shares were thus traded on the exchanges
in Stockholm and in the United States. In 2017, trading volume in Ericsson shares
increased by approximately 2% on Nasdaq Stockholm and decreased by approximately
5% in the United States compared to 2016.
With the implementation of the Mifid direc-
tive in the EU, share trading has become
increasingly fragmented across a number
of venues and trading categories. Trading
on mulitlateral trading facilities (MTFs) and
other venues has gained market shares from
stock exchanges like Nasdaq Stockholm.
Trading in Stockholm represented 39%
of total trading in 2017, compared with 37%
in 2013. Total trading in Ericsson Class B
shares on all venues combined has increased
over the past five years from 5.5 billion shares
in 2013 to 7.9 billion shares in 2017. Over the
same period, trading of Ericsson ADS in the
US has increased from 1.0 billion shares in
2013 to 1.2 billion shares in 2017.
Share trading on different
market places (class B shares)
Shares traded, billions
8
7
6
5
4
3
2
1
0
2013
2014
2015
2016
2017
Stockholm
Cboe BXE/CXE
Turquoise
London
BOAT
Other
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, 2017
ICB (Industry Classification Benchmark)
3,334,151,735
261,755,983
3,072,395,752
50,265,499
SEK 5.00
approx. SEK 179 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
Changes in number of shares and capital stock 2013–2017
2013
2014
2015
2016
2016
2017
2017
December 31
December 31
December 31
May 11, new issue (Class C shares, later converted to Class B-shares) 1)
December 31
May 10, new issue (Class C shares, later converted to Class B-shares) 2)
December 31
Number of shares
Share capital (SEK)
3,305,051,735
3,305,051,735
3,305,051,735
26,100,000
3,331,151,735
3,000,000
3,334,151,735
16,525,258,678
16,525,258,678
16,525,258,678
130,500,000
16,655,758,678
15,000,000
16,670,758,678
1) The Annual General Meeting (AGM) 2016 resolved to issue 26,100,000 Class C shares for the Long-Term Variable Compensation Program 2016. 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.
2) The AGM 2017 resolved to issue 3,000,000 Class C shares for the Long-Term Variable Compensation Program 2017. In accordance with an authorization from the AGM, in the second quarter 2017, 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, totaling MSEK 15, representing less than
0.1% of capital stock, and the acquisition cost was approximately SEK 15.1 million.
Share performance indicators
Earnings (loss) per share, diluted (SEK) 1)
Earnings (loss) per share, non-IFRS (SEK) 2)
Dividend per share (SEK) 3)
Total shareholder return (%)
P/E ratio
2017
–10.74
–4.04
1.00
3
n/a
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
1) Calculated on average number of shares outstanding, diluted.
2) EPS, diluted, excluding amortizations and write-downs of acquired intangible assets, and excluding restructuring charges, SEK.
A reconcilation of Alternative performance measures is available on pages 166–169.
3) For 2017 as proposed by the Board of Directors.
For definitions of the financial terms used, see Glossary and Financial Terminology.
Ericsson | Annual Report 2017 Share information – The Ericsson share
161
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 indi-
cated. 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 informa-
tion for trades completed by the members.
Share prices on Nasdaq Stockholm
(SEK)
Class A at last day of trading
Class A high
(June 2, 2017)
Class A low
(September 21, 2017)
Class B at last day of trading
Class B high
(June 2, 2017)
Class B low
(September 21, 2017)
2017
53.25
2016
53.00
2015
79.35
2014
88.25
2013
74.50
64.80
80.80
111.30
91.80
86.95
44.17
53.85
45.20
53.50
72.00
82.30
71.55
94.35
50.00
78.50
64.95
83.60
120.00
96.40
90.95
43.75
43.19
75.30
75.05
64.50
Source: Nasdaq Stockholm
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 New York
(USD)
ADS at last day of trading
ADS high (July 12, 2017)
ADS low (September 21, 2017)
2017
6.68
7.47
5.52
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
Source: NASDAQ New York
Share prices on Nasdaq Stockholm and NASDAQ New York
Period
Annual high and low
2013
2014
2015
2016
2017
Quarterly high and low
2016 First Quarter
2016 Second Quarter
2016 Third Quarter
2016 Fourth Quarter
2017 First Quarter
2017 Second Quarter
2017 Third Quarter
2017 Fourth Quarter
Monthly high and low
August 2017
September 2017
October 2017
November 2017
December 2017
January 2018
1) One ADS = 1 Class B share.
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
86.95
91.80
111.30
80.80
64.80
80.40
80.80
66.75
62.50
61.00
64.80
62.90
56.00
52.60
48.74
54.50
55.30
56.00
59.10
50.00
71.55
72.00
45.20
44.17
70.10
58.95
57.20
45.20
50.50
54.00
44.17
45.20
45.79
44.17
45.20
49.18
51.50
50.70
90.95
96.40
120.00
83.60
64.95
83.60
83.60
67.75
62.40
60.20
64.95
63.35
56.80
52.85
47.15
54.45
55.60
56.80
59.22
64.50
75.05
75.30
43.19
43.75
70.65
59.60
56.60
43.19
49.45
54.55
43.75
45.18
45.88
43.75
45.18
49.23
51.60
50.38
14.22
13.61
13.14
10.20
7.47
10.10
10.20
7.88
7.24
6.76
7.43
7.47
6.74
6.40
5.88
6.61
6.56
6.74
7.37
9.78
11.20
8.87
4.83
5.52
8.43
7.03
6.68
4.83
5.61
6.20
5.52
5.56
5.75
5.52
5.56
5.84
6.12
6.28
Source: Nasdaq Stockholm and NASDAQ New York.
Ericsson | Annual Report 2017 162
Share information – The Ericsson share
Shareholders
As of December 29, 2017, the Parent Company had 433,778 shareholders
registered at Euroclear Sweden AB (the Central Securities Depository – CSD),
of which 976 holders had a US address. According to information provided by
the Company’s depositary bank, Deutsche Bank, there were 312,577,282
ADSs outstanding as of December 31, 2017, and 3,677 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 17, 2018,
the total number of bank, broker and/or nominee accounts holding Ericsson
ADSs was 77,388.
According to information known at year-end 2017, approximately 89% of
the Class A and Class B shares were owned by institutions, Swedish and inter-
national. 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 controlled by another corpora-
tion, 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, 2017.
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 (30 persons)
408
2,045,329
0,04%
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
Bahamas
2017
42.60%
26.37%
10.91%
4.20%
1.25%
2016
35.28%
26.98%
10.89%
4.92%
1.23%
Other countries
14.67%
20.70%
Source: Nasdaq
Ownership breakdown by type of owner
Percentage of voting rights
Swedish institutions
Of which:
– Investor AB
– AB Industrivärden 1)
– Cevian Capital
Foreign institutions
Swedish retail investors
Other
2017
58.47%
2016
55.17%
22.18%
19.26%
4.38%
30.54%
5.36%
5.63%
21.77%
19.27%
34.08%
5.90%
4.85%
Source: Nasdaq
1) Together with SHB Pensionsstiftelse and Pensionskassan
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, 2017 2)
No. of
shareholders
343,539
40,807
40,360
5,011
1,305
640
2,116
433,779
No. of
shares A
1,397,245
1,048,320
3,133,590
1,226,246
577,235
403,401
253,969,946
261,755,983
No. of
shares B
Percentage
of share capital
Percentage
of voting rights
45,186,318
29,820,447
84,741,490
34,630,068
15,578,370
11,010,962
2,851,270,556
3,072,395,752
1.40%
0.93%
2.64%
1.08%
0.48%
0.34%
93.13%
100%
1.04%
0.71%
2.04%
0.82%
0.38%
0.26%
94.75%
100%
Market value
(MSEK)
2,507,687
1,661,654
4,730,193
1,930,127
869,633
614,421
167,064,819
179,387,017
1) Source: Euroclear
2) Includes a nominee reporting discrepancy of 157,541 shares.
The following table shows share information as of December 31 2017 with respect to the 15 largest shareholders ranked by voting rights as well as their
percentage of voting rights as of December 31 2017, 2016 and 2015.
Largest shareholders December 31, 2017 and percentage of voting rights December 31 2017, 2016 and 2015
Identity of person or group1)
Investor AB
AB Industrivärden
Cevian Capital
Svenska Handelsbankens Pensionsstiftelse
AMF Pensionsförsäkring AB
Swedbank Robur Fonder AB
BlackRock Institutional Trust Company, N.A.
Dodge & Cox
Hotchkis and Wiley Capital Management, LLC
AFA Försäkring AB
PRIMECAP Management Company
Silchester International Investors, L.L.P.
The Vanguard Group, Inc.
State Street Global Advisors (US)
Livförsäkringsbolaget Skandia, ömsesidigt
Others
Total
1) Source: Nasdaq
Number of
Class A shares
Of total Class
A shares
percent
Number of
Class B shares
Of total Class
B shares
percent
Of total Class
A+B shares
percent
2017 Voting
rights percent
2016 Voting
rights percent
2015 Voting
rights percent
115,762,803
86,052,615
305,861
23,430,790
7,870,000
35,458
0
0
0
10,723,000
0
0
321,298
0
4,747,922
12,506,236
261,755,983
104,584,545
44.23
1,000,000
32.88
246,168,565
0.12
0
8.95
80,999,298
3.01
120,001,341
0.01
119,816,623
0.00
117,323,642
0.00
117,016,796
0.00
8,806,580
4.10
84,209,679
0.00
81,685,213
0.00
72,997,853
0.12
74,122,413
0.00
1.81
23,165,094
4.78 1,820,498,110
100 3,072,395,752
3.40
0.03
8.01
0.00
2.64
3.91
3.90
3.82
3.81
0.29
2.74
2.66
2.38
2.41
0.75
59.25
100
6.61
2.61
7.39
0.70
2.67
3.60
3.59
3.52
3.51
0.59
2.53
2.45
2.20
2.22
0.84
54.98
100
22.18
15.14
4.38
4.12
2.81
2.12
2.11
2.06
2.06
2.04
1.48
1.44
1.34
1.30
1.24
34.19
100
21.77
15.15
0.00
4.12
2.20
2.61
1.92
2.07
1.10
2.18
1.58
1.31
1.07
1.54
1.39
40.00
100
21.50
15.20
0.00
4.85
1.73
2.34
1.48
2.00
0.51
2.18
1.33
0.00
0.96
1.01
1.59
43.31
100
Ericsson | Annual Report 2017 Share trend
In 2017, Ericsson’s total market capitalization increased by 0.7% to SEK 179 billion, compared to a decrease by
–34.9% reaching SEK 178 billion in 2016. In 2017, the index, OMX Stockholm, on Nasdaq Stockholm increased
by 6.4%, the NASDAQ composite index increased by 28.2% and the S&P 500 Index increased by 19.4%.
Share information – The Ericsson share
163
Share turnover and price trend, Nasdaq Stockholm
Class A shares, SEK
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
Class B shares, SEK
120
100
80
60
40
20
0
2013
2014
2015
2016
2017
Volume traded, 000’s monthly
Ericsson share
Nasdaq Stockholm Index
Volumes reflect trading on Nasdaq Stockholm only.
000’s share traded
monthly
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
Earnings per share, diluted
SEK
8
6
4
2
0
–2
–4
–6
–8
–10
–12
5.62
4.80
3.69
3.54
6.06
4.13
2.66
0.52
–4.04
2013
2014
2015
2016
2017
–10.74
Earnings per share, diluted
Earnings per share, diluted
(non-IFRS) 1)
1) EPS, diluted, excl. restructuring charges,
amortizations and write-downs of acquired
intangible assets, SEK.
Dividend per share
SEK
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0
3.70
3.40
3.00
1.00
1.00
2013
2014
2015
2016
2017 1)
Share turnover and price trend, US market
ADS, USD
000’s share traded
monthly
1) For 2017 as proposed by
the Board of Directors.
18
15
12
9
6
3
0
2013
2014
2015
2016
2017
300,000
250,000
200,000
150,000
100,000
50,000
0
Volume traded, 000’s monthly
Ericsson ADS
S&P 500
Ericsson | Annual Report 2017
164
Other information – Ten-year summary
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 (loss)
Net income (loss)
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 (loss) per share, basic, SEK
Earnings (loss) 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
Free cash flow
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
Statistical data, year-end
Number of employees
of which in Sweden
Export sales from Sweden, SEK million
1) For 2017, as proposed by the Board of Directors.
2) A reconciliation to the most directly reconcilable line items in the financial statements for 2017 and ten comparison years is available on the following pages.
2017
Change
2016
2015
2014
2013
2012
2011
2010
2009
2008
201,303
–70,563
–38,126
–35,063
8,501
9,601
260,544
12,857
99,540
636
–10.74
–10.74
1.00 1)
3,284
3,277
3,317
3,877
6,314
1,759
21,578
37,887
18.8%
64
22.1%
–18.9%
–10.7%
–58%
5,109
158,230
–29.4%
–22.0%
38.4%
1.2
59,779
67,702
34,657
100,735
13,864
86,812
–10%
17%
–
–
12%
–31%
–8%
–23%
–29%
–6%
–
–
0%
0%
0%
0%
–37%
38%
–
–
20%
–
–7%
–
–
–
–
–
–17%
–
–
–
0%
–33%
17%
11%
–10%
–9%
–19%
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
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%
254
1.2%
3.2%
49.6%
1.2
89,039
57,877
31,191
111,464
15,303
107,036
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%
7,515
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%
4,593
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%
8,337
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%
14,992
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%
–169
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%
17,058
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%
4,085
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%
22,611
182,439
8.2%
11.3%
49.7%
1.2
99,951
75,005
44,524
78,740
20,155
109,254
190,901
195,150
189,839
180,903
176,653
186,307
Ericsson | Annual Report 2017 Other information – Ten-year summary
165
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 (loss)
Net income (loss)
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 (loss) per share, basic, SEK
Earnings (loss) 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
Free cash flow
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
Statistical data, year-end
Number of employees
of which in Sweden
Export sales from Sweden, SEK million
1) For 2017, as proposed by the Board of Directors.
2) A reconciliation to the most directly reconcilable line items in the financial statements for 2017 and ten comparison years is available on the following pages.
2017
Change
2016
2015
2014
2013
2012
2011
2010
2009
2008
201,303
–70,563
–38,126
–35,063
8,501
9,601
260,544
12,857
99,540
636
–10.74
–10.74
1.00 1)
3,284
3,277
3,317
3,877
6,314
1,759
21,578
37,887
18.8%
64
22.1%
–18.9%
–10.7%
–58%
5,109
158,230
–29.4%
–22.0%
38.4%
1.2
59,779
67,702
34,657
100,735
13,864
86,812
–10%
17%
–
–
12%
–31%
–8%
–23%
–29%
–6%
–
–
0%
0%
0%
0%
–37%
38%
20%
–7%
–
–
–
–
–
–
–
–
–
–
–
–17%
0%
–33%
17%
11%
–10%
–9%
–19%
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
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%
254
190,901
1.2%
3.2%
49.6%
1.2
89,039
57,877
31,191
111,464
15,303
107,036
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%
7,515
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%
4,593
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%
8,337
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%
14,992
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%
–169
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%
17,058
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%
4,085
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%
22,611
182,439
8.2%
11.3%
49.7%
1.2
99,951
75,005
44,524
78,740
20,155
109,254
Ericsson | Annual Report 2017 166
Other information – Alternative performance measures
Alternative performance measures
This section includes a reconciliation of certain Alternative Performance
Measures (APMs) to the most directly reconcilable line items in the
financial statements. The presentation of APMs has limitations as ana-
lytical tools and should not be considered in isolation or as a substitute
for related financial measures prepared in accordance with IFRS.
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
APMs are presented to enhance an investor’s evaluation of ongoing
measures used by other companies.
operating results, to aid in forecasting future periods and to facilitate
Free cash flow was added in 2017 as an APM.
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
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
260,544
283,347
284,363
293,558
269,190
274,996
280,349
281,815
269,809
285,684
3,596
901
2,776
6,350
26,321
62,370
158,230
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
280
2,250
2,248
5,985
25,309
57,970
186,307
353
2,571
3,296
9,391
24,959
58,605
182,640
461
2,270
2,035
11,970
18,864
52,529
181,680
311
2,738
1,622
14,039
23,504
61,032
182,439
Definition
Total assets less non-interest-bearing provisions
and liabilities.
Reason to use
Capital employed represents the value of the balance sheet assets that contributes to revenue and profit generation.
It is also used in the calculation of return on 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)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
201,303
222,608
246,920
227,983
227,376
227,779
226,921
203,348
206,477
208,930
190,901
158,230
174,566
1.2
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
181,680
182,640
186,307
182,640
184,474 182,160
1.1
1.2
182,439
181,680
182,060
1.1
168,456
182,439
175,448
1.2
Definition
Net sales divided by average capital employed.
Reason to use
Capital turnover indicates how effectively investment capital is used to generate revenues.
Cash conversion
SEK million
Net income (loss)
Net income reconciled to cash
Cash flow from operating activities
Cash conversion (%)
2017
–35,063
–16,480
9,601
–58%
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%
2011
12,569
25,182
9,982
40%
2010
11,235
23,725
26,583
112%
2009
4,127
20,983
24,476
117%
2008
11,667
25,985
24,000
92%
Definition
Cash flow from operating activities divided by the sum of
net income (loss) 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).
Ericsson | Annual Report 2017 Other information – Alternative performance measures
167
Earnings (loss)per share (non-IFRS)
SEK
Earnings (loss) per share, diluted
Restructuring charges
Amortization and write-downs of acquired intangibles
Earnings (loss) per share (non-IFRS)
2017
–10.74
1.93
4.77
–4.04
2016
2015
2014
2013
2012
0.52
1.59
0.55
2.66
4.13
1.07
0.86
6.06
3.54
0.31
0.95
4.80
3.69
0.93
1.00
5.62
1.78
0.81
0.96
3.55
Definition
Earnings (loss) per share (EPS), diluted, excluding
amortizations 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 (loss)
Taxes
Financial income and expenses
Amortization and write-downs of acquired intangibles
EBITA
Net sales
EBITA margin (%)
Definition
Earnings (loss) before interest, taxes, amortization and
write- downs of acquired intangibles, as a percentage of
net sales.
Equity ratio
SEK million
Total equity
Total assets
Equity ratio (%)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
–35,063
–4,267
1,204
16,652
–21,474
201,303
–10.7%
1,895
2,131
2,273
2,650
8,949
222,608
4.0%
13,673
6,199
1,933
4,139
25,944
246,920
10.5%
11,143
4,668
996
4,328
21,135
227,983
9.3%
12,174
4,924
747
4,521
22,366
227,376
9.8%
5,938
4,244
276
4,553
15,011
227,779
6.6%
12,569
5,552
–221
4,470
22,370
226,921
9.9%
11,235
4,548
672
5,944
22,399
203,348
11.0%
4,127
2,116
–325
7,817
13,735
206,477
6.7%
11,667
5,559
–974
3,280
19,532
208,930
9.4%
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.
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
100,176
260,544
38.4%
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%
145,270
280,349
51.8%
146,785
281,815
52.1%
141,027
269,809
52.3%
142,084
285,684
49.7%
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.
Free cash flow
SEK million
Cash flow from operating activities
Net capital expenditures and other investments
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
Free cash flow
2017
9,601
–3,877
1,016
–289
565
–1,444
–463
5,109
2016
2015
2014
2013
2012
14,010
20,597
18,702
17,389
22,031
2011
9,982
2010
2009
2008
26,583
24,476
24,000
–6,129
482
–984
362
–4,483
–3,004
254
–8,338
1,301
–2,201
1
–3,302
–543
7,515
–5,322
522
–4,442
48
–1,523
–3,392
4,593
–4,503
378
–5,429
568
–3,147 –11,529
9,452
–1,641
1,540
14,992
465
–915
–1,330
8,337
–4,994
386
–3,181
53
–1,515
–900
–169
–3,686
124
–4,006
534
–3,286 –19,321
1,239
–1,443
2,606
4,085
454
–1,644
–1,487
17,058
–4,133
1,373
–74
1,910
–1,409
944
22,611
Definition
Cash flow from operating activities less net capital
expenditures and other investments.
Reason to use
Free cash flow represents the cash that the company generates after capital expenditures and other investments.
The free cash flow can be used to expand the business, pay dividends and reduce debt.
Ericsson | Annual Report 2017 168
Other information – Alternative performance measures
Gross cash
SEK million
Cash and cash equivalents
Interest-bearing securities, current
Interest-bearing securities, non-current
Gross cash
2017
35,884
6,713
25,105
67,702
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
2011
38,676
41,866
–
80,542
2010
30.864
56,286
–
87,150
2009
22,798
53,926
–
76,724
2008
37,813
37,192
–
75,005
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.
Gross margin
SEK million
Gross income
Net sales
Gross margin (%)
Definition
Reported gross income as a percentage of net sales.
Net cash
SEK million
Cash and cash equivalents
+ Interest-bearing securities, current
+ Interest-bearing securities, non-current
– Borrowings, current
– Borrowings, non-current
Net cash
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
44,545
201,303
22.1%
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%
79,721
226,921
35.1%
74,254
203,348
36.5%
70,199
206,477
34.0%
74,269
208,930
35.5%
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 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 business development.
2017
35,884
6,713
25,105
2,545
30,500
34,657
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
2011
38,676
41,866
–
7,765
23,256
49,521
2010
30,864
56,286
–
3,808
26,955
56,387
2009
22,798
53,926
–
2,124
29,996
44,604
2008
37,813
37,192
–
5,542
24,939
44,524
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 targets.
This creates financial flexibility and independence to operate and manage variations in working capital needs
Operating expenses, excluding restructuring charges
SEK million
2017
2016
2015
2014
2013
2012
Operating expenses
Restructuring charges included in R&D expenses
Restructuring charges included in selling and administrative
expenses
Operating expenses, excluding restructuring charges
–70,563 –60,501 –64,129 –63,408 –58,509 –58,856
852
2,739
2,021
2,307
304
872
952
370
–67,304 –56,409 –61,363 –62,981 –56,713 –57,634
1,353
924
745
123
Definition
Reported operating expenses, excluding restructuring
charges.
Reason to use
Restructuring charges vary between years and in order to analyse trends in reported expenses overtime,
restructuring charges are excluded.
Operating margin
SEK million
Operating income (loss)
Net sales
Operating margin (%)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
–38,126
201,303
–18.9%
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%
17,900
226,921
7.9%
16,455
203,348
8.1%
5,918
206,477
2.9%
16,252
208,930
7.8%
Definition
Reported operating (loss) 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.
Ericsson | Annual Report 2017 Other information – Alternative performance measures
169
Return on capital employed
SEK million
Operating income (loss)
Financial income
Total Operating income (loss) + Financial income
Average capital empolyed
Capital employed at beginning of period
Capital employed at end of period
Average capital empolyed
Return on capital employed (%)
2017
–38,126
–361
–38,487
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
2011
17,900
2,882
20,782
2010
16,455
1,047
17,502
2009
5,918
1,874
7,792
2008
16,252
3,458
19,710
190,901
158,230
174,566
–22.0%
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%
182,640
186,307
184,474
11.3%
181,680
182,640
182,160
9.6%
182,439
181,680
182,060
4.3%
168,456
182,439
175,448
11.3%
Definition
The total of operating income (loss) 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.
Return on equity
SEK million
Net income (loss) 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 (%)
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
–35,206
1,716
13,549
11,568
12,005
5,775
12,194
11,146
3,672
11,273
139,817
99,540
119,679
–29.4%
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%
145,106
143,105
144,106
8.5%
139,870
145,106
142,488
7.8%
140,823
139,870
140,347
2.6%
134,112
140,823
137,468
8.2%
Definition
Net income (loss) 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.
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 (%)
2017
2016
2015
20141)
201,303
–
–306
200,997
222,608
–313
227,983
246,920
–422
–2,590
254 –30,307 –10,409
214,984
216,191
222,549
–10%
–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 underlying 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
2017
2016
2015
2014
2013
2012
2011
2010
2009
2008
154,820
175,771
189,525
201,789
190,896
193,254
198,816
198,443
182,442
198,525
–5,411
–6,350
–3,662
–9,391 –11,970 –14,039
–26,321 –25,318 –22,389 –24,473 –20,502 –23,100 –25,309 –24,959 –18,864 –23,504
–62,370 –56,003 –58,663 –69,845 –58,314 –61,108 –57,970 –58,605 –52,529 –61,032
99,951
109,552
104,811
106,940
100,619
103,246
105,488
–8,427
–5,140
–5,985
–4,225
89,039
59,779
99,079
Definition
Current assets less current non-interest-bearing provisions
and liabilities (which include: current provisions; trade
payables and other current liabilities).
Reason to use
Due to the need to optimize cash generation to create value for Ericsson’s shareholders, management 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).
Ericsson | Annual Report 2017 170
Other information – Financial terminology and Exchange rates
Financial terminology
CAPEX
Capital expenditures.
Capital employed
Total assets less non-interest-bearing provisions
and liabilities (which includes non-current provi-
sions; 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 (loss) 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 multiplied by 90
days. If the amount of trade receivables 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 (loss) per share (EPS)
Basic earnings (loss) per share: profit or loss attrib-
utable to stockholders of the Parent Company
divided by the weighted average number of
ordinary shares outstanding during the period.
Earnings (loss) per share diluted (EPS diluted)
Earnings per share, using the weighted average
number of shares outstanding adjusted for the
effects of dilutive potential ordinary shares.
Earnings (loss) per share (non-IFRS)
Earnings (loss) per share (EPS), diluted, excluding
amortizations and write-down of acquired intangi-
ble assets and excluding restructuring charges.
EBITA margin
Earnings (loss) before interest, taxes, amortization
and write-downs of acquired intangibles (intellec-
tual property rights, trademarks and other intangi-
ble assets, see Note C10 “Intangible assets”) as a
percentage of net sales.
Equity ratio
Equity, expressed as a percentage of total assets.
Free cash flow
Cash flow from operating activities less net capital
expenditures and other investments.
G&A
General & Adminstrative operating expenses.
Gross cash
Cash and cash equivalents plus interest-bearing
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 invento-
ries for the year (net of advances from customers).
Net cash
Cash and cash equivalents plus interest-bearing
securities (current and non-current) less inter-
est-bearing liabilities (which include non-current
borrowings and current borrowings).
Operating margin
Reported operating income (loss) 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 (loss) attributable to stockholders of
the Parent Company as a percentage of average
stockholders’ equity (based on the amounts at
January 1 and December 31).
SG&A
Selling, General & Adminstrative operating
expenses.
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 for calculating the maximum
potential loss that may occur with a given confi-
dence level over a given time period.
Working capital
Current assets less current non-interest-bearing
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
2017
2016
9.64
9.83
8.53
8.20
9.44
9.56
8.56
9.06
1) Average for the year for disclosure purpose only.
Period income and expenses for each income statement
are translated at period average exchange rates.
Ericsson | Annual Report 2017 Other information – Glossary
171
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 prepared
‘in accordance’ with the Guidelines. The Core
option contains the essential elements of a sus-
tainability report. The Core option provides the
background against which an organization com-
municates the impacts of its economic, environ-
mental and social and governance performance.
GSM
Global System for Mobile Communications. A first
digital generation mobile system.
ICT
Information and Communication Technology.
IP
Internet Protocol.
Defines how information travels between network
elements across the internet.
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 every-
thing that can benefit from being connected is
connected, empowering people, business and
society.
NFV
Network Functions Virtualization.
Software implementation of network functions
that can be deployed in virtualized infrastructure,
offering efficient orchestration, automation and
scalability.
IPR
Intellectual Property Rights.
OSS
Operations Support Systems.
IPTV
IP Television.
A technology that delivers digital television via
fixed broadband access.
UDN
Unified Delivery Network. A means to provide
a low-latency and high performing platform
to deliver compute-intensive applications.
JV
Joint Venture.
LTE
Long-Term Evolution.
4G; the evolutionary step of mobile technology
beyond HSPA, allowing data rate above 100 Mbps.
M&A
Mergers and Acquisitions
Glossary
2G
The first digital generation of mobile systems.
Includes GSM, TDMA, PDC and cdmaOne.
3G
Third generation mobile systems. Includes
WCDMA/HSPA, CDMA2000 and TD-SCDMA.
4G
See LTE.
5G
The fifth generation of mobile systems.
An evolution of 4G/LTE.
ADM
Application Development and Modernization. A
service offering addressing maintenance, develop-
ment and evolution of software.
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.
CO2e
The amount of a particular greenhouse gas,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.
Global ICT Centers
Ericsson has two Global ICT Centers, facilities
that allow the connection of both Telco and ICT
(Information Communication Technology) equip-
ment and allow access by over 20,000 engineers
globally.
The terms “Ericsson”, “the Company”, “the Group”, “us”, “we”, and “our”
all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.
Ericsson | Annual Report 2017 172
Other information – Shareholder information
Shareholder information
Telefonaktiebolaget LM Ericsson’s Annual General
Meeting of shareholders 2018 will be held on March
28, 2018, 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 Euro-
clear Sweden AB (the Swedish Securities Regis-
try) on Thursday, March 22, 2018; and
– Give notice of attendance to the Company at the
latest on Thursday March 22, 2018. 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
c/o Euroclear Sweden AB
General Meeting of shareholders
Box 191, SE-101 23 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 nominee to
temporarily enter the shareholder into the share
register as per Thursday, March 22, 2018, 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 attor-
ney, 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 27, 2018. 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 2017 and that Tues-
day, April 3, 2018 will be the record date for dividend.
Financial information from Ericsson
2017 Form 20-F for the US market
– March 27, 2018
Interim reports 2018
– Q1, April 20, 2018
– Q2, July 18, 2018
– Q3, October 18, 2018
– Q4, January 29, 2019
Annual Report 2018
– March, 2019
Ericsson | Annual Report 2017 Other information – Shareholder information
173
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/sustainability
For printed publications
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
Contact details
Ericsson headquarters
Torshamnsgatan 21
Kista, Stockholm, Sweden
Registered office
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Shareholder Services North America
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
Ericsson Annual Report 2017
Project management
Ericsson Investor Relations
Design and production
Hallvarsson& Halvarsson
Photos of Board of Directors and
Executive Team
Per Myrehed
Printing
Göteborgstryckeriet 2018
Printed on Amber Graphic
Registered holders
Toll-free number: +1 (800) 937-5449
Interested investors
Direct dial: +1 (718) 921-8124
Email: DB@amstock.com
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Ericsson | Annual Report 2017
174
Other information – Shareholder information
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 00 00
www.ericsson.com
EN/LZT 138 1940 R1A
ISSN 1100-8962
© Telefonaktiebolaget LM Ericsson 2018
Ericsson | Annual Report 2017