Ericsson Annual Report 2018

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FY2018 Annual Report · Ericsson

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Ericsson
Annual Report
2018

Invest
and grow

Selective, disciplined, profitable

ericsson.com

Contents

The business

Financials

CEO comment
Business model
An industry in change
Strategy and financial targets
Frontrunner in 5G

2
4
6
8
14
16 Our people
18
Segments
23 Market areas
Supply chain
30

31
32
44

Letter from the Chair of the Board
Board of Directors’ report
Consolidated financial
statements
Introduction to the financial
statements

52 Notes to the consolidated
financial statements
Parent Company financial
statements

103 Notes to the Parent Company

financial statements

116 Risk factors
126 Auditor’s report
131 Forward-looking statements

Corporate governance

132 Corporate governance report
159 Remuneration report

Sustainability

Share information

Other information

165 Sustainability and corporate

192 The Ericsson share

responsibility report
167 Sustainability approach

172 Significant topics and risk

management

188 Consolidated sustainability
statements and notes
190 Auditor’s assurance report

196 Ten-year summary
198 Alternative Performance

Measures

202 Financial terminology

and exchange rates

203 Glossary
204 Shareholder information

The annual accounts and consolidated accounts of the Company are included on pages 32–125 in this document.

Ericsson in brief

We have made the world a smaller place by
connecting people through communications
technology: from telegraphy to fixed telephony
to mobile. As a 5G technology leader we are
making it even smaller as we move from con-
necting every ‘one’ to connecting every ‘thing’.
It all started in a mechanical workshop
in Stockholm in 1876 where Lars Magnus
Ericsson designed telephones and his wife
Hilda manufactured them by winding copper
wire coils.

Ericsson revolutionized fixed communica-
tions with new switching techniques. We did it
again with fixed telephone digital technology,
and then came mobility.

We have been a technology leader in every
generation of mobile communications. When
broadband was in its infancy, Ericsson was
already working on the technology that would
become 3G. Ericsson was working on 4G long
before the smartphone became ubiquitous.
Our technology leadership has been a key
industry driver towards 5G.

With 5G now a commercial reality, we
continue to invest to strengthen 5G leader-
ship and help our customers, and by associa-
tion their customers, capture the full value of
connectivity.

Our portfolio spans Networks, Digital
Services, Managed Services, and Emerging
Business and Other. It is designed to help our
customers go digital, increase efficiency and
find new revenue streams.

The Ericsson shares trade on Nasdaq
Stockholm and the Ericsson ADSs trade on
NASDAQ New York. www.ericsson.com.

Contact: investor.relations@ericsson.com

Cover photo: 4G and 5G in dense urban environments with Ericsson Radio System.

Highlights 2018

Execution of the focused strategy yielded gradual results during 2018.
The basis of the strategy is increasing investments in R&D for technology
and cost leadership in combination with cost efficiency efforts to drive better
gross margin. In 2018, Ericsson returned to growth and profitability. Full year
operating margin1) was 4.4% supported by a strengthening gross margin2).
Full year organic sales growth was 1% and the first commercial deployment
of 5G happened in the fourth quarter.

Earnings

Strategy execution

Key announcements

Q1 report: Digital Services’ gross margin
excluding restructuring charges improved
YoY, to 41.4% (–25.5%) driven by improved
services margins as a result of cost reductions.

Q2 report: Managed Services’ operating mar-
gin excluding restructuring charges improved
to 6.5% (–2.1%) as a result of cost reductions
and customer contract reviews.

Q3 report: Networks’ operating margin
excluding restructuring charges was 16.1%
(11.9%) driven by cost reductions and ERS
ramp-up, partly offset by increased invest-
ments in R&D.

Q4 report: Sales adjusted for compara-
ble units and currency increased by 4%
and Ericsson returned to growth for the
full year 2018.

Digital Services: Provisions were made in the
fourth quarter 2018 related to reshaping the
BSS business and is expected to set Segment
Digital Services on a strong path to achieving
the target of low single-digit operating margin
(excluding restructuring charges) in 2020.

Managed Services: At year-end 2018, the
42 contracts identified as unprofitable or non-
strategic had been addressed, resulting in an
annualized profit improvement of approxi-
mately SEK 0.9 billion.

Networks: The ERS is now fully transitioned
and it accounted for 93% of total radio
unit deliveries in the fourth quarter and 87%
for full-year 2018.

Emerging Business and Other: Ericsson has
partnered with One Equity Partners to further
develop Media Solutions. Ericsson will retain
49% of the shares in the company.

North East Asia: Ericsson to automate Cloud
Execution Environment (CEE) for NTT DOC-
OMO in Japan.

South East Asia, Oceania and India : Celcom
signs up with Ericsson to expand and upgrade
its LTE network in Malaysia.

North America: T-Mobile and Ericsson sign
a USD 3.5 billion 5G agreement in US.

Europe and Latin America: Wind Tre selects
Ericsson for RAN modernization in Italy.

Middle East and Africa: MTN, Ericsson and
Netstar record 5G first for South Africa.

Net sales
SEK billion

210.8

(2017: 205.4)
(2016: 220.3)

Reported operating
income (loss)
SEK billion

1.2

(2017: –34.7)
(2016: 5.2)

Free cash flow
excl. M&A
SEK billion

4.3

(2017: 4.8)
(2016: 0.9)

Operating margin excl.
restructuring charges 1)
SEK billion

4.4%

(2017: –12.8%)
(2016: 5.8%)

Number of
employees

95,359

(2017: 100,735)
(2016: 111,464)

Gross margin excl.
restructuring charges 2)

35.2%

(2017: 25.9%)
(2016: 31.2%)

1) Excluding restructuring charges of SEK –8.0 billion (2018), SEK –8.5 billion (2017) and SEK –7.6 billion (2016).
2) Excluding restructuring charges of SEK –5.9 billion (2018), SEK –5.2 billion (2017) and SEK –3.5 billion (2016).

Ericsson Annual Report 20182

The business – CEO comment

Börje Ekholm
President and CEO

“The focused strategy
delivered and 5G
became a commercial
reality.”

Our focused strategy delivers

2018 was an encouraging year. The focused strategy
delivered and 5G became a commercial reality.
Coming up next: pursuing growth – selective, disciplined
and profitable growth.

The Ericsson that closed 2018 was much
more focused and slimmer; more customer-
centric and efficient; faster and more agile;
and financially transformed compared with
the Ericsson of 12–18 months earlier.

By concentrating on our core business,
increasing R&D investments and aggressively
reducing costs, 2018 saw us progressing on
our turnaround with improved profitability
and growth. We achieved this, and increased
our market share in the process, despite con-
tinued challenging market conditions with an
overall market that contracted, as well as exits
of contracts and businesses. As we all know,
the kite lifts in headwind.

With the increased focus on our core busi-

ness, we partnered with One Equity Part-
ners to develop MediaKind, formerly Ericsson
Media Solutions. We retain 49 percent of
the shares in the company as we believe in
the upside of this area. We will continue to
develop RedBee Media as a focused media
services entity.

The year also saw 5G move from the labs

and trials to the market with the first com-
mercial deployments. In addition to being an
industry-changing technology, it will also be
the backbone to the digitalization of society.

Customers first
Our focused strategy, launched in March
2017, starts from our customers’ needs, with
relentless focus on what creates value. By
executing on our strategy, we enable our
customers to become more efficient, create
great end-customer experiences, and find
new revenue streams.

Growth
We are moving to the next stage of our focu-
sed strategy: pursuing selective, disciplined
and profitable growth.

We aim to grow in our core business and

in new businesses. Both are driven by our
5G and IoT capabilities and opportunities
arising from technology shifts in the market.
We will remain financially disciplined to safe-
guard our growth ambitions will not dilute
our margin targets.

5G – a commercial reality
5G became a commercial reality during 2018
with commercial launches in North America.
In 2019 we will see further launches enabled
by already made and coming spectrum allo-
cations.

5G will significantly reduce the cost-per-
delivered-gigabyte for mobile broadband.
This is the immediate compelling reason for
our customers to invest as network traffic
continues to grow.

As an enabler of use cases beyond mobility

and into IoT, 5G will also create new growth
opportunities for our customers, such as vir-
tual reality applications, fixed wireless access
or digitalization of industries and wider soci-
ety. Most telecom operators will leverage their
4G networks to set up 5G connections. We
can already support 5G in our installed base
of Ericsson Radio System, introduced into
networks in 2015, for cost-effective cover age
and capacity build-outs on multiple bands.
Moreover, our new Cloud Core solutions
are made to smoothly introduce dual-mode
5G Core. Service providers can leverage
Ericsson orchestration solutions to efficiently
and dynamically manage their networks. This
provides cost-effective and fast transition to 5G.
5G is anticipated to be rolled-out faster
than any previous technology generation.
Our Ericsson Mobility Report predicts that 5G
coverage will be available to 40 percent of the
world’s population by the end of 2024, with
about 1.5 billion 5G enhanced mobile broad-
band subscriptions, and 4.1 billion cellular
IoT connections.

Meanwhile, we continue to invest in R&D

to ensure we can help our customers with
those opportunities.

5G standardization
Technology leadership has always been
important to Ericsson. Through early and sig-
nificant investments in R&D we are recogn-
ized as a leader in 5G standardization.
Through the end of 2018 Ericsson has sub-
mitted the most 5G-related contributions
to the key 3GPP working groups, and we
have many industry firsts’ behind us.

Ericsson Annual Report 2018The business – CEO comment

Ethics and compliance
We are committed to conducting business
responsibly. How we do business is as impor-
tant as what kind of business we do. To con-
sistently meet this commitment and support
our employees and leaders in fulfilling their
duties and responsibilities, we continuously
develop our Ethics and Compliance program.
Our own investigations have detected improve-
ment areas and in 2018 we continued to focus
on our internal culture, third party manage-
ment, and our investigation capabilities.
As previously disclosed, since 2013
Ericsson has been voluntarily cooperating
with an investigation by the US Securities
and Exchange Commission and, since 2015,
with an investigation by the US Department
of Justice into Ericsson’s compliance with
the U.S. Foreign Corrupt Practices Act. We
continue to cooperate with them and are in
discussions to find a resolution.

In summary
2018 was a turnaround year. We saw
improvements across all business segments.
We strive to continue to execute diligently
on our focused strategy with the aim of build-
ing a stronger Ericsson long-term. Strategic
contracts and costs for field trials have already
negatively impacted our result in 2018, and
we expect to see an increased proportion in
2019 to further position us for 5G leadership.
While this will weigh on near-term perfor-
mance, it will strengthen our business long-
term, including our ability to reach both our
2020 and 2022 financial targets.

5G commercial reality is a significant land-
mark for Ericsson, the industry, and for society
globally. Market uncertainty remains a factor
as we move into 2019. However, as a 5G
leader as shown by our 5G patent contribu-
tions and our 5G commercial contracts, we
take the strong momentum behind the tech-
nology with us into the year with confidence
and motivation.

Börje Ekholm
President and CEO

Financial targets
At our Capital Markets Day in November we
announced an increase in our 2020 net sales
ambition by SEK 15 billion to SEK 210–220
billion, driven mainly by an improved market
outlook in Networks.

We set out our long term target of more
than 12 percent operating margin to 20221),
at the latest. At this level we generate eco-
nomic value as a company.

Sustainability and corporate responsibility
Sustainability is central to Ericsson’s purpose
– empowering an intelligent, sustainable and
connected world. We are committed to creat-
ing positive sustainability impacts and reduce
risks to the company, customers and society
through our technology, solutions, and the
expertise of our employees.

Ericsson is integrating sustainability and

corporate responsibility into our business
strategy, and as such, our sustainability per-
formance is now reflected in the Sustainability
and corporate responsibility report published
together with this Annual Report. We con-
tinue to support the ten principles of the UN
Global Compact and the UN Guiding Princi-
ples on Business and Human Rights as impor-
tant elements of our commitment to respons-
ible business.

We have concluded the second year of
our five-year carbon emission reduction tar-
get period. We are on track to reduce energy
consumption in our products by 35 percent
by 2022 versus the portfolio sold in 2016.
To date we have seen an 8 percent reduction
in relation to the 2016 baseline. This annual
reduction is lower than planned as we needed
to increase the share of air transport to meet
the challenges of getting components in time
as market demand increased rapidly during
2018. We remain committed to meeting the
five-year target as other sub targets have pro-
gressed better than planned and the exten-
sive use of air freight is not normal practice.
As part of our climate advocacy efforts,
together with partners, we have launched the
Exponential Climate Action Roadmap report.
It outlines the global transformation required
to reduce carbon emissions by half every ten
years. Our technology has a critical role, as
30 percent of identified savings depend on
digital ization, which will be accelerated by 5G.

Ericsson has been fundamental in stabi-
lizing specifications for both non-standalone
and standalone 5G so that we, together with
our device partners, can now implement
3GPP-compliant and interoperable products.
We continue to strongly promote open stand-
ards, by licensing our cutting-edge technology
as the 5G ecosystem develops.

Growth in core and new businesses
We anticipate that the majority of our growth
in the coming years will come from our core
business. We believe that even small growth
in this area will add significant value to
the company.

This includes capitalizing on the strength
of our Networks business, with the competi-
tive Ericsson Radio System offering, as the
radio access market comes back to growth.

It also includes building on our profitable
Managed Services business, in which we now
take the next steps through investments in
artificial intelligence and automation.

In Digital Services, our top priority remains

reaching profitability before growth, suppor-
ted by stabilizing the top-line, continued cost
reductions, efficiency improvements, critical
projects reviews, and disciplined investments
in a 5G-ready and cloud-native product
portfolio.

In Digital Services there has been solid
progress in most portfolio areas. However,
the Business Support Systems (BSS) area has
not shown satisfactory progress. We are now
progressing to reshape the business. To speed
up the restructuring, additional measures
were communicated in January 2019, includ-
ing provisions and restructuring charges in
Q4 2018 of SEK –6.1 billion.

Disciplined growth in new areas will be
built on a horizontal technology- and platforms-
led approach in Emerging Business and Other,
where we aim to capture new revenues through
rapid and disciplined innovation building on
5G and IoT. In cases of attractive new busi-
ness opportunities, we may decide to scale up
investments. This is also the reason why we
believe it is better to manage Emerging Busi-
ness and Other to maximize the net present
value of cash flows rather than setting firm
financial targets.

Our growth ambitions are being supported

by our own digital transformation, giving our
employees the digital tools and processes
to best drive customer centricity and value-
adding customer engagements.

1) Excluding restructuring charges.

Ericsson Annual Report 20184

The business – Business model

Business model

With an agile and efficient business model, we create value to our stakeholders by
providing industry-leading, high performing, sustainable and cost-effective solutions
to our customers. Our business model is built to manage changing requirements and
to capture new business opportunities. Customer focus and motivated employees
drive our business to create stakeholder value.

Customer focus

Motivated employees

Stakeholder value

By developing innovative and
costcompetitive solutions for our
customers.

By having motivated and
talented employees.

We create value for our
different stakeholders.

External factors

Our business and operations

– Technological development
– Market innovations
– End-user trends and behaviour
– Climate change
– Geopolitical conditions and macro

environment
– Standardization
– Cooperations and partnerships
– Regulations
– Sustainable Development Goals

Market needs and customer demands

Business area responsibility
Develop competitive global business solutions

Sell

Develop

Deliver

Supply chain

New product
introduction

Planning

Sourcing

Hardware manu-
facturing and
software delivery

Logistics

Local
supply

Business fundamentals

Number
of granted patents
49,000

Employees
worldwide
95,359

R&D
employees
24,821

Services
professionals
49,772

Company core values

Vision and purpose

– Respect
– Professionalism
– Perseverance

Empowering an
intelligent, sustaina-
ble and connected
world by relentlessly
innovating tech-
nologies that are
easy to adopt, use
and scale

Mission
Enabling the full
value of connec-
tivity for our cus-
tomers, telecom
operators

Strategy

– Technology
leadership

– Product-led
solutions

– Global scale

and skill

Ericsson Annual Report 2018The business – Business model

Our business and operations

Business fundamentals

Market area responsibility
Sell and deliver customer solutions

Local

supply

Service delivery

After sales

Key stakeholders and our focus

Customers
Enabling the full value of connectivity

Employees
Attract, develop and retain
talented employees

Society
Responsible and relevant
driver of positive change

Shareholders
Create shareholder value

Services

professionals

49,772

Strategy

– Technology

leadership

– Product-led

solutions

– Global scale

and skill

Customers
in 180 countries. Established
relationship with world lead-
ing telecom operators

Sustainability
Over 25 years of
leadership

Group financial
targets 2020

– Net Sales

SEK 210–220 billion

– Operating margin

>10% excl. restructuring
charges

– Positive free cash flow

Group long-term
(no later than 2022)
financial targets

– Operating margin >12%

excl. restructuring charges

– Strong free cash flow

Ericsson Annual Report 2018An industry in change

2019 is likely to be a landmark year for the industry.
Many technologies will ramp-up momentum and move
from being talked about to being acted on.

The business – An industry in change

Artificial intelligence (AI), augmented reality
(AR), and blockchain are all expected to gain
traction. We believe though that the main
technology 2019 trends will be 5G and the
Internet of Things (IoT). They are also cata-
lysts for, and interlinked with, the other
technology trends.

Data demand
Network data traffic will continue to increase
rapidly. The most recent Ericsson Mobil-
ity Report (November 2018) revealed that
global data traffic grew globally by almost
80% between the third quarter of 2017 and
the third quarter of 2018 alone. In the report,
Ericsson also predicted that 2018 global data
traffic will in turn increase five-fold by the end
of 2024. 5G will handle about 25% of that
total traffic.

5G goes beyond mobility, and beyond the
wider information and communications tech-
nology (ICT) industry, 5G has the potential
to facilitate new and sustainable use cases
across all sectors of business and society
towards enabling a connected digital society
and driving the fourth industrial revolution.

Smart cities, virtual reality, autonomous
cars, industrial IoT, fiber-over-the-air, digital
health. All very exciting prospects. But they
will not happen without 5G.

Needs and challenges
Such impact does not come without demands
and challenges, where we believe that the
largest challenge is to ensure that wide-rang-
ing and efficient 5G and IoT ecosystems –
spanning technology, regulatory, security,
and industry partners – are in place to deliver
on the potential.

Spectrum is a big topic area to be
addressed. Delivering the economic and
personal benefits of 5G will see huge data
increases in networks. Handling that in the
best way means more spectrum is required.
Additional spectrum is therefore a must for 5G
and IoT to truly drive global economic growth.
Network security is another big and impor-
tant topic. We believe that these topics must
be addressed, answered, agreed upon and
potential 5G engagers reassured.

Time to act
These discussions and decisions need to be
happening now. Barriers to the roll-out and
smooth implementation of 5G and IoT simply
need to be removed if all the potential bene-
fits are to be realized.

The telecom industry has an important
role in driving this ecosystem through thought
leadership and explaining the true potential
of the technology.

We believe that regulators, policy makers
and governments need to play their enabling
role, not least regarding 5G spectrum avail-
ability.

5G and IoT provide uniquely huge oppor-

tunities where operators for example can
benefit from additional 5G-enabled indus-
try digitalization market opportunities. This
requires global dialogue, collaboration and
agreement.

Ericsson Annual Report 2018A focused business strategy

The focused business strategy laid out in 2017 remains unchanged.
The results of our strategic execution are now visible and we
are tracking well toward financial targets for 2020 and beyond.
On a growing market driven by 5G, we are well positioned to
take the next step through disciplined growth.

The business – Strategy and financial targets

Value creation in three key areas

We have identified three key areas in which
we can support our customers, the telecom
operators, to leverage the full value of con-
nectivity and enable their success.

Firstly, customers need to continuously
drive efficiency, relentlessly lowering the cost
of delivering traffic in the networks. 5G will
also increase spectrum efficiency which
will lower cost.

Secondly, customers need to go truly digi-
tal to enable faster service provisioning and
faster network configuration and to make ser-
vices easier to use. This will be increasingly
important in attracting new customers, but it
will also help them to lower their costs further.
Finally, customers need to capture new
revenue streams and new opportunities made
possible by emerging technologies such as

5G and IoT. The 5G technology expands
the addressable market for telecom opera-
tors beyond mobile broadband business into
enterprise and industrial applications. The
uptake of this technology on a large scale will
lay the foundation for sustainable develop-
ment across all sectors of society.

A focused strategy – based on three pillars

Based on our customers’ priorities, we have developed a focused business strategy. It is built on three pillars: technology leadership,
product-led solutions and global scale and skill.

Technology leadership

Product-led solutions

Global scale and skill

Technology leadership brings innovative
solutions to market ahead of competi-
tion, giving our customers an advantage.
At the same time, technology leadership
is a key driver for cost leadership, since
we use the latest technology to bring the
cost down in our products. This benefits
both us and our customers.

We put software and hardware at the
core of our customer solutions. These
are complemented by services offer-
ings such as installation, roll-out, system
integration, support and consulting.

Our global presence and our close inter-
action with our customers brings oppor-
tunities for us to grow with discipline,
leading to further scale advantages for
our company.

Our peoples’ competence at Ericsson

is a key asset to work close to our
customers across the world.

Driving our business through four segments and five market areas

Based on our strategic pillars we have divided
our business into four segments: Networks,
Digital Services, Managed Services and,
Emerging Business and Other.

In Networks we provide hardware, soft-
ware and services for our customers to build
and evolve their mobile networks.

Digital Services is a software-led business
providing solutions for our customers to operate,
control and monetize their mobile networks.
With our Managed Services offering we
operate our customers’ networks, allowing
them to focus on the services they provide to
their customers.

In Emerging Business and Other we
explore ways to leverage connectivity to
create new revenue streams for our custom-
ers, such as IoT and the fourth industrial
revolution.

All segments address the same customer

group, the telecom operators, and they all
build their offerings and strategies on the
three strategic pillars described above.

We have organized the market into five
geographical market areas. The market areas
are responsible for selling and deliv ering the
competitive solutions that are developed
within our segments. Staying close to our

customers is key. Over time more responsi-
bility has been shifted to the market areas
to secure that we stay close to our customers
while maintaining central guidelines and gov-
ernance structures to ensure price discipline.
Ericsson integrates Sustainability and
corporate responsibility into the business
and works to understand and manage envi-
ronmental, social and economic impacts
and opportunities within each segment.

Ericsson Annual Report 201810

The business – Strategy and financial targets

Growth – taking the next step

During 2017 and 2018 our strategy execu-
tion plan has been focused on creating sta-
bility and improving profitability for Ericsson.
This turnaround plan is showing progress
and is also becoming increasingly visible in
our financial performance, with an increased
operating margin and a positive free cash
flow excluding M&A. We can see top-line and
gross margins benefiting from our decision
to increase R&D investments. With this foun-
dation etablished, we can take the next step
and look for growth opportunities. Growth
is important for a technology company, as it
creates business opportunities and increased
scale to invest in technology leadership.

Market trends supporting growth
Mobile data and cellular IoT connections are
estimated to continue to grow at a high pace.
Telecom operators need to invest in network
upgrades to make the networks cope with
this increased traffic volume. For a period our
customers have had limited revenue growth,
which has put a limit on capital expendi-

tures (CAPEX). Going forward, we see new
opportunities for our customers to grow reve-
nues driven by 5G in different use-cases:
– Enhanced mobile broadband. Using 5G
to cope with the exploding data traffic in
order to lower the cost per gigabit.

– Fixed wireless access. Used in areas where
fiber is too expensive to deploy, which will
generate revenue opportunities for our
customers.

– Massive and critical IoT connections. This
is part of realizing the fourth industrial rev-
olution, which will also generate revenue
opportunities for our customers.

Our approach to growth
We believe that investments in technology
leadership will support growth in our core
business – Networks, Digital Services and
Managed Services – and opportunities to
grow in emerging business.

In the core business, we estimate the
market to grow at a compound annual rate
(CAGR) between 2% and 3% between 2018

and 2022. With increased stability and prof-
itability in the company, we are in a position
to selectively increase our market share in our
core business.

We are also focusing on capturing growth
outside the core business since our technology
can be used in new businesses.

Growth through mergers and acquisitions
(M&A) will target bolt-on and portfolio-near
acquisitions.

We have a focused approach to sales
growth. This is built on our focused business
strategy and follows these criteria:

Selective – Product-led growth aligned
with our streamlined portfolio and existing
customer base.

Disciplined – Financial discipline, and
disciplined execution in contract-signing and
through contract delivery.

Profitable – The growth must be managed
for positive net present value (NPV) and must
support company group financial targets.

Opportunities for sales growth

M&A – portfolio-near acquisitions & technology focus

Growth in new business – 5G and IOT use cases

Growth in core business – market share gains

Baseline – grow the core business with the market
Total 2–3% CAGR 2018–2022

h
t
w
o
r
g
s
e
a
S

Networks
1–3%1)

Digital Services
1–4%1)

Managed Services
2–4%1)

1) Based on internal and external analysis. Please see business section for respective segment for more details.

Our approach: Selective – Disciplined - Profitable

Ericsson Annual Report 2018
Net sales

SEK billion

225

220

215

210

205

200

195

210–220

210.8

205.4

2017

2018

2020 ambition

Gross margin excl.
restructuring charges

37–39%

35.2%

25.9%

2017

2018

2020 ambition

Operating margin excl.
restructuring charges

-5

-10

-15

>10%

4.4%

–12.8%

2017

2018

2020 target

The business – Strategy and financial targets

Tracking towards 2020 financial targets

The focused business strategy that we pre-
sented in March 2017 states our ambition to
establish a fundamentally stronger company.
This will create improved long-term value for
our stakeholders, including our sharehold-
ers. The financial target is to reach an oper-
ating margin of more than 12%, excluding
restructuring charges, on a sustainable basis.
The target is to achieve this level no later
than 2022.

The near-term focus is to continue the
financial turnaround, and there are robust
plans in place to reach an operating margin
of at least 10% in 2020, excluding restructur-
ing charges.

2018 progress
During 2018 there has been significant pro-
gress in strategy execution, which has also
become increasingly visible in our finan-
cial metrics. The operating margin excluding
restructuring is tracking towards the 2020 tar-
get and has improved from –12.8% in 2017
to 4.4% in 2018. Strategy-execution activities
performed during the year include:
– The cost-reduction program announced
in Q2 2017 was completed and the work-
force at the end of 2018 was 13,768 lower
than when the program was announced;

– All of the 42 identified low-performing

contracts in Managed Services and 23 of
the 45 critical contracts in Digital Services
have been addressed.

– The transition to the Ericsson Radio System
continued, and 87% of all radio unit deliv-
eries in 2018 were on this new platform.

2020 net sales growth driven by Networks
In 2018 Ericsson reported an organic and FX
adjusted sales growth of 1%. The 2020 ambi-
tion for company net sales is SEK 210–220
billion (based on a USD to SEK rate of 8.70),
to be compared with SEK 210.8 billion in
2018. Growth is mainly expected in Networks,
driven by a growing radio access network
(RAN) market and selective gains in mar-
ket share. This will be partly offset by contin-
ued descoping of some businesses follow-
ing implementation of the focused business
strategy.

Continued gross-margin expansion
Gross margin in 2018 has improved signifi-
cantly, driven by structural improvements.
Cost reductions, efficiency improvements
and investments in R&D in selected areas will
continue to keep us competitive and to gener-
ate further expansion of gross margin. When
pursuing expansion of market footprint, the
NPV of the effort is evaluated. These expan-
sions can be associated with negative initial
returns since they consist mainly of hardware
and services, which can impact economics in
the near-term.

Continued R&D investments combined
with structural cost reductions in SG&A
We expect our R&D investments to drive prof-
itability, to secure technology and cost leader-
ship and to protect the long-term business.
Technology leadership will also contribute to
generate market share and to increase advan-
tages of scale. There will be a continued high
focus on implementing structural improve-
ments to reduce SG&A expenses while the
strong customer interest in 5G is also estimated
to generate a gradual increase in costs for
field trials.

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-
ment, with an ambition to remain below 100
working capital days. Sharp discipline in both
CAPEX and M&A activities are other major
elements to drive positive free cash flow. The
target is to generate positive free cash flow
excluding M&A-activities each year up until
2020, and to generate strong positive free
cash flow no later than 2022.

To support this, we are applying finan-
cial discipline with priority on profitability
and return on capital over growth. As one
of several measures to drive this change,
we have introduced a value-based steering
model in the 2018 short-term variable com-
pensation program, which also takes cost of
capital into account.

Ericsson Annual Report 201812

The business – Strategy and financial targets

Cost reductions
The cost-reduction program announced in
2017 was completed as planned. Continu-
ous cost improvements will continue, in order
to stay competitive and support margin
improvements. This includes increased acti-
vities on our own digital transformation and
end-to-end process simplifications.

Targets beyond 2020
The long-term target of having an operating
margin above 12% is now set to be achieved
no later than 2022. Key drivers are a 5G-driven
ramp-up of our Networks business; a more
efficient Digital Services business with a larger

share of software sales; growth and profita-
bility improvements in Managed Services via
artificial intelligence (AI) and automation;
and finally a scaling-up of Emerging Business
and Other such as IoT.

In the process to improve financial per-
formance, all segments are critical for suc-
cess and all have clear targets and focus
areas supporting the Group targets for 2020
and 2022. The sum of the segments’ oper-
ating margin targets for 2020 is 10–13%,
compared with >10% for the Group. For 2022
the sum of the segments’ operating margin
targets is 12–14% compared with >12% for
the Group.

We see opportunities for growth above the
estimated market growth of 2% to 3% CAGR.
Opportunities can be achieved through win-
ning market share with a competitive product
portfolio and cost structure, through growth
in new businesses, and through M&A.

For free cash flow, the target is to shift
from positive to strong free cash flows before
M&A no later than 2022. This will be suppor-
ted by continued discipline and efficiency
improvements in working capital and by being
strict on CAPEX.

Ericsson Annual Report 2018The business – Strategy and financial targets

Financial ambition

Long term target no later than 2022 – invest and grow1)

OPERATING MARGIN

>12%

FREE CASH FLOW

Strong

Group financial targets 20201)

SALES

210–220
SEK billion

GROSS
MARGIN

37–39%

Target breakdown by segment

2022 target breakdown by segment1)

R&D

SG&A

Continued invest-
ments but growing
slower than sales

Structural
improvements

OPERATING
MARGIN

FREE
CASH FLOW

>10%

Positive

NETWORKS

Operating margin
15–17%

DIGITAL
SERVICES

Operating margin
10–12%

MANAGED
SERVICES

EMERGING BUSINESS
AND OTHER

Operating margin
8–10%

Operating margin
N/A

2020 target breakdown by segment1)

NETWORKS

DIGITAL SERVICES

MANAGED SERVICES

Net sales
SEK 141–145 billion

Operating margin
15–17%

Net sales
SEK 41–43 billion

Operating margin
Low single digit

Net sales
SEK 23–25 billion

Operating margin
5–8%

EMERGING BUSINESS
AND OTHER

Net sales
SEK 5–7 billion

Operating margin
Break-even

1) Excluding restructuring charges.

Ericsson Annual Report 2018Frontrunner in 5G

With global mobile data traffic expected to
grow five times by the end of 2024, there is
a need for a more efficient technology.

Ericsson Annual Report 2018

The business – Frontrunner in 5G

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. New
applications such as 4K/8K video streaming,
virtual and augmented reality and emerging
industrial use-cases will also require higher
bandwidth, greater capacity, reliability, secu-
rity, and lower latency. Equipped with these
capabilities, 5G will bring new opportunities
for people, society, and businesses.

What is Ericsson’s vision for 5G?
5G is a platform for innovation. Previous gen-
erations were centered around consumer
and personal communications. 5G will serve
consumers, enterprises and take the Inter-
net of Things to the next level, where supe-
rior connectivity is a prerequisite. The transi-
tion to 5G also has a huge potential not only
to develop energy efficient solutions, but also
to help different sectors of society to reduce
their environmental impact.

Why will telecom operators invest in 5G?
The initial payback for 5G to telecom opera-
tors is lower cost to address traffic growth.
These cost efficiencies will be enough to
cover spectrum licenses and upgrades to
5G. The upgrade to 5G will typically start
by building it upon the existing 4G network,
with deployment of new 5G radios especially
in densely populated areas with high capac-
ity needs in the networks. According to our
economic study of enhanced mobile broad-
band, 5G will enable 10 times lower cost per
gigabyte than current 4G technology.

On top of the cost efficiency payback,
tele com operators have options to address
new incremental revenue opportunities
based on their market specifics. For some,
fixed wireless access will be a key growth
opportunity to address a new market or
underserved customers. Fixed wireless
access is starting in North America where 5G
services already were launched in 2018, but
we see it gaining momentum also in other
parts of the world.

Another opportunity is massive and
critical IoT. Digitalization and 5G open up
material revenue opportunities for telecom
operators, with manufacturing and energy-
and utilities sectors representing the biggest
opportunity for revenues created or
enhanced by 5G.

To what extent have telecom operators
made progress defining the business case
for massive and critical IoT?
We see many progressive telecom opera-
tors already starting to experiment and
address these opportunities, based on 4G,
with a mindset on the opportunities that 5G
will open up. To better understand new use-
cases, support our customers and build an
ecosystem, we are collaborating with lead-
ing telecom operators worldwide, more than
40 universities and technology institutes
and 20 industry partners.

When will 5G be a reality?
Already in 2018 there were a few 5G com-
mercial networks up and running and in
2019 there will be many more commercial
5G network launches. The first 5G phone
is expected to be introduced to the mar-

ket during 2019 and by 2020 there will be
broad availability of 5G devices.

How important is spectrum for Ericsson’s
customers when transission to 5G?
Spectrum is most essential for this industry
and is the telecom operators most critical
asset. Previous technologies were built on
low-frequency bands. Now with 5G also
mid-bands around 3–6 GHz and high bands,
above 24 GHz will be added. Telecom opera-
tors will have to combine low, mid and high
bands to give the performance that users
expect, whether it’s for video delivery or for
the more advanced enterprise cases.

Does operators have to invest in new
equipment to launch 5G services?
5G NR radios and corresponding antennas
must be deployed. However, operators can
leverage the existing 4G base station sites
and also the 4G core network. The 5G NR
equipment can be connected to 4G core
network, making it possible to launch 5G
services rapidly. Most operators will start to
deploy 5G NR using 4G core networks and as
new use cases, with higher requirements on
for example network slicing, are required
they will also upgrade to a 5G core network.
The 5G core network has been standardized
with a service-based architecture that facili-
tates new service introductions. It is also
defined to be the same core network
for mobile and fixed services. All 5G base
stations will support both network build
opportunities.

5G enables new revenue opportunities
for telecom operators

Massive IoT

Critical IoT

Addressing Industry 4.0

Enhanced mobile
broadband (eMBB)

Fired wireless
access (FWA)

Performance driven opportunities

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Our people story

We are on a journey, transforming our ways
of working to create a great people experience
that makes it even easier for us to focus on our
customers, and deliver positive business results.

The business – Our people

The foundation of our people story

Our values:
Respect, professionalism and
perseverance

Vision and purpose:
To empower an intelligent,
sustainable and connected world

To offer a great customer experience we must
create a great people experience. This is key
to the development and execution of our
focused strategy. To achieve this, we are clear
about what we provide as an organization
and what we expect from our people.

Leveraging our company purpose, our core
values and our people philosophies, we have
articulated an aspiration for the experience
people can expect working at Ericsson.

Our philosophies
To build greater transparency and alignment
about what informs some of our most critical
people related decisions, we defined a set of
people philosophies.

We believe that:
– Every individual is a talent.
– We perform at our best when we know

what work needs to get done and why it’s
important to Ericsson.

– We learn best when we are challenged and
receive continuous feedback as we actively
contribute to our team’s and Ericsson’s
overall success.

– Diverse, inclusive teams drive performance
and innovation, creating greater business
value.

– We are engaged when we feel our work

makes an impact, that we can work auto-
nomously, are given opportunities to grow
and that we are included and valued.
– Our leaders are the driving force behind
our business performance and overall
company culture.

– Our people should be paid in a fair way and
be recognized and rewarded for the impact
they create.

Focused activities 2018

In 2017 we set the foundation to re-design
our ways of working in support of our com-
pany transformation and, in turn, evolve our
culture. As part of this, we have implemented
the following in 2018.

Succession and people planning
We created a framework that focuses on the
value and impact that specific positions con-
tribute to our business results. We manage the
pipeline for those positions, in order to reduce
risk of vacancy and to ensure performance.
This work has started in 2018 with the top
layers of the organization. We will cascade
this way of working in 2019.

Performance management
We have a flexible, future-focused, devel-
opment-oriented and impact-based perfor-
mance management framework. It supports
individuals and teams to be clear on what
needs to get done, how their work contributes

to the company, and reinforces the impor-
tance of continuous feedback so that we can
change direction when necessary to stay
aligned with changing business demands.

Engagement
Our employee feedback tool, VOICE, is mobile,
flexible, and has given us increased speed to
action in a more transparent and inclusive
way. We performed a global employee sur-
vey twice in 2018. The first survey in the new
format was performed in May and the second
in November. During the year we saw a trend
of increased scores aligned with our improved
company performance and an increased
focus on employee experience. The response
rate increased by 4 percentage points to 85%
and the employee satisfaction score increased
by 5 percentage points to 73% putting us on
par with the industry benchmark.

Building leadership capabilities
for the digital world
We have designed and launched a set of
devel opment experiences that among other
things include a “Digital Leadership Boot-
camp”, a “Leadership on the Go” online digital
learning path, that enable different parts of
the organization to develop a baseline aware-
ness and competence to understand what is
needed to lead in a digital environment.

Learning and development
We have a comprehensive digital learning
portal, called Ericsson Academy, which is inte-
grated with our Performance Management
and Learning Management systems. It con-
nects employees to over 23,000 educational
experiences – some self-paced and others
instructor-led that drive upskilling and re-
skilling. The average learning hours in 2018
was 21.3 hours.

Ericsson Annual Report 2018Segments

Our segments enable the telecom industry
and other sectors to do better business, increase
efficiency, improve the user experience and
capture new opportunities.

The business – Segments

Networks

Offering – main components
Networks’ solutions support all radio-access
technologies and offer hardware, software
and related services for both radio access and
transport.

The product-related services comprise
design, tuning, network rollout and customer
support.

Business model
The contracts are primarily based on a
transactional model, where Ericsson devel-
ops, sells, licenses and delivers hardware,
software and services that are purchased
by customers because of their specific func-
tionality or capability. Networks’ business
also includes recurring revenue streams such
as customer-support and certain software
revenues.

Market
In 2018, the market that Networks addresses,
the RAN market, returned to growth after
three years of decline. Investments in LTE
in North America were the significant driver.
2018 was also an important year for
5G. Vital steps were taken to set the 5G
standard; significant 5G radio spectrum were
auctioned; and major telecom operators
world-wide set their plans for 5G network
deployments and services. In North America
the first commercial 5G telecom network was
launched, and in China and Taiwan large 5G
field-trials were initiated.

The RAN equipment market is estimated

by Dell’Oro to grow by 2% CAGR between
2018 and 2023, and by 3% in 2019.

In 2018, we strengthened our market
position as one of the largest global suppliers
of radio access equipment and increased our
market share to approximately 29%.

Sustainability focus
The energy-efficiency of products, and
sustainable materials management based
on reuse and recycling, are key areas of
importance for Networks and encapsulate
Ericsson’s approach to environmental
sustainability. One of the major cost items
for telecom operators is energy, and we
invest to improve the energy performance

of our offerings and to lower the total cost
of ownership for our customers. Ericsson
Radio System is 5G-ready with the option of
remote software installation which further
contributes to reducing carbon footprint and
use of materials.

Strategic priorities
The target for Networks in 2020 is to gener-
ate an operating margin of 15–17%, exclud-
ing restructuring charges, with a net sales
ambition of SEK 141–145 billion. Networks’
three strategic priorities are to invest in tech-
nology and cost leadership, to expand market
share selectively and to accelerate 5G with
leading customers.

Investments in R&D are focused on
generating more cost-efficient networks,
greater network agility and improved service-
ability. Our customers – the telecom opera-
tors – have limited freedom to adjust prices
upwards, and in order for them to remain
profitable or improve profitability thesnet-
works need to be even more efficient.

Investments are also being made to
improve network agility to enable our cus-
tomers to address new revenue streams. The
revenue opportunity will be enabled through
IoT and 4G as well as 5G technologies and
our ambition is to be the first on the market
to offer new features and functionalities in
these areas.

Through a competitive product portfolio
and a competitive cost structure the strategy
is to continue to gain market share and to
seize new business opportunities where it
makes business sense. Long-term, the ambi-
tion is to grow the business by expanding
the Networks portfolio into areas adjacent
to the RAN market, such as antennas, fixed
wireless access, public safety and, converged
transport and mobile backhaul.

In order to secure technology and market

leadership in 5G networks, we work with
leading customers. By the end of 2018
Ericsson had signed 10 5G commercial
contracts with large telecom operators on
several continents.

The 2022 target for Networks is an
operating margin of 15%–17% excluding
restructuring charges.

Fredrik Jejdling
Head of Segment Networks

“The focused strategy
journey that we
embarked on during
2017 is generating
results.”

Net sales
SEK 138.6 billion (5%)
Reported operating income
SEK 19.4 billion

Operating income excl.
restruct uring charges3)
SEK 21.2 billion

Ericsson’s market position1)
Top two in Radio Access Network
equipment

Market outlook2) RAN equipment
2% CAGR (2018–2023)

Competitors
Huawei, Nokia, Samsung and ZTE

1) Q4 2017–Q3 2018 revenues (USD), source:

Dell’Oro.

2) 2018–2023, source: Dell’Oro.
3) Reported operating income excluding SEK –1.8

billion related to restructuring charges.

Ericsson Annual Report 201820

The business – Segments

Jan Karlsson
Head of Segment Digital Services

“We invest in cloud-
native and automa-
tion to drive the ongo-
ing technology shift -
and to be efficient
and competitive.”

Net sales
SEK 38.1 billion (–2%)
Reported operating income (loss)
SEK –13.9 billion

Operating income excl.
restruct uring charges1) (loss)
SEK –8.5 billion

Ericsson’s market position2)
Varies depending area
#1–2 in Core, #1–3 in OSS, #1 in
Orchestration

Market outlook
(Ericsson estimate and external
sources3))
1–4% CAGR 2018–2022

Competitors
Amdocs, Huawei,
NEC-Netcracker, Nokia

1) Reported operating income excluding SEK –5.4

billion related to restructuring charges.

2) External Sources Dell’Oro (Core), Analysys Mason
(OSS), TBR Survey (Orchestration). Measured in
revenues (Core, OSS) and operator survey
(Orchestration)

3) External sources IHS, Dell’Oro, Analysys Mason,

Gartner, IDC.

Digital Services

Offering – main components
Digital Services provides solutions consist-
ing primarily of software and services in the
areas of Digital Business Support Systems
(BSS), Operational Support Systems (OSS),
Cloud Communication, Cloud Core, and
Cloud Infrastructure. The portfolio is focused
on 5G-ready, cloud-native, automated and
industrialized solutions to secure a smooth
digitalization and journey towards 5G for
each customer.

Business model
Ericsson develops, sells , licenses and delivers
solutions, based on software and services,
for specific functions or capabilities in our
customers’ operations. Customer contracts
are typically integration projects, combining
Ericsson software and high-value services.
Customer-support and software upgrades
typically continue to generate recurring sales
after delivery of the initial solution. Ericsson
has a selective approach to large and com-
plex customer transformation projects and
intends to move to a higher proportion of
recurring revenues with subscription-based
software licensing. This is over time expected
to change the sales-mix towards a higher
portion of software content.

Market
Ongoing digitalization, together with virtual-
ization and the introduction of 5G is driving
new opportunities for telecom operators. It
gives possibilities to capitalize on the invest-
ments better by programming and slicing 4G
and 5G networks for specific consumer and
industry needs. It also gives possibilities to
automate operations and become radically
more efficient, and to serve and engage with
customers digitally.

We estimate our addressable market to
grow by between 1% and 4% CAGR between
2018 and 2022. The growth is primarily
driven by the ongoing technology shift while
the market for legacy products is declining.

Sustainability focus
Ericsson focuses on utilizing the full value of
connectivity and enabling telecom operators
to engage with modern digital ecosystems.
Critical aspects of conducting business in these
ecosystems are the protection of sensitive data,
and respect for the right to privacy. Ericsson
aligns its business with legal requirements
for privacy and is committed to ensure that
privacy is designed into Ericsson’s solutions.

Strategic priorities
The top priority for Digital Services is to
turn the segment around into a profitable
business. Actions proceed with efficiency
improvements, cost reductions and 23 of
the identified 45 critical and non-strategic
projects addressed. Losses in 2018 were
significantly reduced and the segment is
tracking towards its financial targets.

The financial target for 2020 is a low
single digit positive operating margin, exclud-
ing restructuring charges, with a net sales
ambition of SEK 41–43 billion. The continued
turnaround is executed in four strategic areas:
customers, portfolio, commercial and
operational. Key activities are:
– Growing sales in line with market

development, supported by a virtualized
and 5G-ready portfolio and a focus on
installed base and on large customers
that are early 5G adopters.

– Maintaining a disciplined portfolio

management, creating a portfolio that
is optimized for business impact through
focused investments in cloud native and
automation technology.

– Providing strong commercial governance
and discipline to maximize software value
and avoid high-risk projects.

– Continuing to improve operational
efficiency across R&D, SG&A and
service delivery.

New product portfolio sales grew in 2018
and profit improved compared to 2017. Most
of the losses in 2018 are in BSS, for which
additional strategic measures has been
announced. These measures lead to provi-
sions and restructuring charges of SEK –6.1
billion in the fourth quarter of 2018. The new
strategy will set Digital Services on a stronger
path on achieving the 2020 financial targets.
Another key activity for the turnaround is to
address the remaining critical and non-stra-
tegic projects. The target is to address addi-
tional 25% of the projects in 2019. A strong
central governance and support around the
projects have been established to reduce
commercial risk and dilution of margins.

The 2022 target for Digital Services is an

operating margin of 10%–12% excluding
restructuring charges.

Ericsson Annual Report 2018The business – Segments

Managed Services

Offering – main components
Our offering to telecom operators includes
networks and IT managed services, Net-
work Design and Optimization (NDO), and
Application Development and Maintenance
(ADM). Our main competitive advantages
are a strong domain competence in telecom
networks and IT technology and operations;
the volume of data processed from opera-
tions and investments in automation and
artificial intelligence (AI).

Managed Services provides positive
customer experience and cost performance
based on operations and optimization driven
by automation and AI.

Business model
Networks and IT Managed Services
Managed Services operates customer
networks and IT systems both in the field
and remotely from our network operations
centers. The contracts are typically 3–7 years,
including transition, transformation and opti-
mization. The transition phase is associated
with lower profitability because it involves
up-front costs when employees and expertise
are transferred from the customer to Ericsson.
During the transformation phase, global
processes, tools and delivery models are
introduced. The optimization phase focuses
on increasing efficiency using industrialized
solutions for automation, AI and analytics.
Managed Services contracts are fre-
quently renewed. Furthermore, the nature
of this business gives a capital turnover ratio
higher than the Group average.

Market
The main drivers for Managed Services are
the increasing complexity of networks and IT
systems, a high demand for better end-user
experience, and a continued need for telecom
operators to become more efficient and
reduce costs. All this can be addressed with
industrialized solutions in automation and
analytics. The market is expected to grow by
between 2% and 4% CAGR between 2018
and 2022.

Sustainability focus
Increasing the use of automation, machine
learning and artificial intelligence improves
network management and contributes to
improve safety and reduce negative envi-
ronmental impact. Protecting customer and
other sensitive data and the right to privacy
are significant topics for Ericsson as for the
rest of the industry, and the importance will
continue to grow with the implementation
of 5G. We take an inclusive, risk-based
approach to occupational health and safety
that includes employees and anyone work-
ing or managing networks on our behalf.
Consideration for safety and wellbeing is
of paramount importance to Ericsson when
carrying out installation and service.

Strategic priorities
The target is to achieve a 5–8% operating
margin, excluding restructuring charges,
with a net sales ambition of SEK 23–25
billion in 2020.

One important initiative in the 2018

business turnaround was the contract review
process. This involved 42 contracts which
were unprofitable or non-strategic. These
contracts were either exited, renegotiated or
transformed. The review of the 42 contracts
were completed in 2017 and 2018, result-
ing in an annualized profit improvement of
approximately SEK 0.9 billion.

Industrialization and mass-deployed
automation will drive continued efficiency
in the service delivery organization. Invest-
ments will be made in automation and
analytics as well as in AI-driven offerings
to support 5G, IoT and cloud.

Moving forward, the focus is on disciplined

growth with strict financial governance.

The long-term target is to reach an oper-
ating margin of 8–10%, excluding restructur-
ing charges, no later than 2022.

Peter Laurin
Head of Segment Managed Services

“Investments will be
made in automation
and analytics as well
as AI driven offerings
to support 5G, IoT
and cloud.”

Net sales
SEK 25.8 billion (–3%)
Reported operating income
SEK 1.1 billion
Operating income excl.
restructuring charges1)
SEK 1.4 billion

Ericsson’s market position2)
Top two

Market outlook
(Ericsson estimate)
2–4% CAGR 2018–2022

Competitors
Huawei, Nokia, ZTE

1) Reported operating income excluding

SEK –0.3 billion related to restructuring charges.

2) IHS Service Provider Outsourcing to Vendors

Annual Market Report, 2018

Ericsson Annual Report 201822

The business – Segments

Åsa Tamsons
Head of Emerging Business and Other

“5G, virtual reality/
augmented reality, big
data and AI are trends
driving growth in new
value pools by smart
manufacturing, IoT
and edge computing.”

Net sales
SEK 8.4 billion (7%)
Reported operating income (loss)
SEK –5.4 billion
Operating income excl.
restructuring charges1) (loss)
SEK –4.8 billion

Competitors
Different competitors depending on
area. Examples are Akamai, Cisco,
Huawei, Nokia and Samsung

1) Reported operating income excluding

SEK –0.6 billion related to restructuring charges.

Emerging Business and Other

Offering – main components
The Emerging Business and Other segment
consists of four businesses:
– Emerging Business
– iconectiv
– MediaKind (formerly Media Solutions)
– Red Bee Media (formerly Broadcast

Sevices).

Emerging Business is the area for invest-
ments outside Ericsson’s core business. The
objective is to identify new revenue sources
for telecom operators and new types of
businesses. Major initial investments areas
are Internet of Things platform (IoT Accelera-
tor), Connected Vehicle Platform, and edge
computing through Ericsson Edge Gravity,
offering a Unified Delivery Network (UDN).

Iconectiv offers software-based intercon-

nection solutions providing number porta-
bility between operators.

MediaKind includes platforms for com-

pression, video processing and storage,
content publishing and delivery.

Red Bee Media consists of technology
enabled services, where Ericsson manages
the play-out platform for broadcasters and
content owners.

Sustainability focus
Strong, responsible business practices such
as management of sensitive data and fair
competitive behavior are considered by
Ericsson when building partnerships and
ecosystems for the future. Opportunities from
implementation of the Internet of Things and
new technology innovation have significant
potential for sustainability improvements in

2) Research study: Exploring the effect of ICT solutions

on GHG emissions in 2030.

society by reducing environmental impact,
and improving productivity and safety across
industries. According to Ericsson research,
ICT solutions could help to reduce green-
house gas emissions globally by up to 15%
by 2030.2)

Strategic priorities
The target for Emerging Business and Other
in 2020 is to reach a break-even operating
income, excluding restructuring charges,
with a net sales ambition of SEK 5–7 billion
given the current portfolio and scaling of
opportunities.

The key strategy is to operate the busi-
nesses in Emerging Business with a disci-
plined and lean startup approach, including
clear financial targets and regular reviews of
business performance compared to target
milestones for funding approvals.

Each strategic opportunity in Emerging
Business will be managed for positive Net
Present Value (NPV).

The 2020 target excludes MediaKind and
includes Red Bee Media. Ericsson announced
its focused business strategy in March 2017.
As a result, the company decided to explore
strategic opportunities for MediaKind and
Red Bee Media, and in January 2018 the
strategic review of the media business was
concluded. Ericsson is forming an independ-
ent company together with an external part-
ner, One Equity Partners and retains 49% of
the shares in MediaKind. Red Bee Media will
continue to be developed as an independent
and focused in-house media service business.

Ericsson Annual Report 2018Market areas

5G started to become a reality in 2018 – at different activity levels in
different regions of the world, but with a common view of a technology that
will benefit society, enterprises and individuals. North America was first out,
but frontrunner telecom operators in all market areas will soon launch 5G to
manage the costs of traffic growth as well as to address new opportunities
for incremental revenue based on fixed wireless access and IoT.

The business – Market areas

Our geographical structure

Our geographical structure comprises five market areas, to provide clear customer inter-
faces and give fast time-to-market. There is one additional market area called ‘Other’.
Our geographical market areas are responsible for selling and delivering the competitive
solutions that our business areas develop.

North America

Net sales:
SEK 58.6 billion

Number of
employees:
9,727

Europe and
Latin America

Net sales:
SEK 60.3 billion

Number of
employees:
44,621

Middle East and
Africa

Net sales:
SEK 23.6 billion

Number of
employees:
4,264

South East Asia,
Oceania and India

Net sales:
SEK 29.6 billion

Number of
employees:
23,959

North East Asia

Net sales:
SEK 22.3 billion

Number of
employees:
12,788

Other

Net sales:
SEK 16.5 billion

Includes primarily
IPR licensing
revenues and the
major part of the
segment Emerging
Business and Other

Manufacturing sites

Service delivery centers

Brazil
Estonia
China
Mexico
North America
India

India
China
Mexico
Romania

Ericsson Annual Report 2018The business – Market areas

Key announcements 2018
– Sprint and Ericsson expand 4G partner-
ship, including Massive-MIMO and 5G
upgrade

– Rogers and Ericsson work together on 5G

network evolution in Canada

– Verizon and Ericsson expand 4G partner-

ship, partner for 5G launch

– Ericsson increasing US investments to
support accelerated 5G deployments

– T-Mobile and Ericsson sign USD 3.5 billion

5G agreement

– AT&T and Ericsson collaborated on

2018 5G launch and signed a multiyear
agreement

– Dish selects Ericsson for NB-IoT radio

access and core network

Sales development 2018
Networks sales increased, primarily driven by
investments in 5G readiness across all major
customers. Digital Services sales increased as
operators digitalize operations and improve
customer experience to prepare for 5G. Man-
aged Services sales grew, driven by higher
variable sales in large customer contracts.

North America

Market trends
Long term evolution (LTE) penetration is
currently 86% in North America, which is the
highest share globally. In North America, 5G
commercialization is moving at a rapid pace,
and the region is the first to launch commer-
cial 5G services. On October 1, 2018 Verizon
launched a 5G fixed wireless internet service
in four cities and on December 21, 2018 AT&T
launched a mobile 5G service in 12 cities.
T-Mobile and Sprint have announced plans
to launch 5G during the first half of 2019.
In Canada, Rogers announced a multi-year
network plan on April 16 2018 that includes
working with Ericsson on its 5G network
evolution and will include 5G trials in 2019.

Telecom operators increased investments
in mobile equipment 2018 to meet increased
data traffic in the networks and to prepare for
5G. With continued pressure on the average
revenue per user (ARPU) and high mobile
data growth in the networks, operators are
focusing on cost efficiencies, customer expe-
rience and new revenue streams to improve
their competitive position in the market.

During 2019 a decision on the pending
merger of T-Mobile and Sprint is expected,
and at the same time Dish, Comcast, Charter
and other new entrants are expected to
continue to pilot and launch wireless service
offerings.

The RAN market in North America is
expected to grow at a compound annual
growth rate (CAGR) of approximately 3%
between 2018 and 2022 (source Dell’Oro).

Net sales

SEK billion

52.0

58.6

2016

2017

2018

Net sales

Mobile subscription per technology

100

2018

2024

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Niklas Heuveldop
Head of Market Area North America

“5G clearly repre-
sents new business
opportunities for our
customers.”

Major customers
AT&T, Rogers, Sprint,
T-Mobile, Verizon

Employees
9,727 employees

Ericsson Annual Report 2018
26

The business – Market areas

Arun Bansal
Head of Market Area Europe
and Latin America

“Because Ericsson
Radio System is soft-
ware-upgradeable to
5G, we have been
able to selectively
gain market share.”

Europe and Latin America

Market trends
The Market Area Europe and Latin America
had 1.8 billion mobile subscriptions in the
third quarter 2018, more than 22% of the
global total. In Western Europe, LTE is the
dominant access technology, accounting for
57% of all subscriptions. Western Europe is
preparing for 5G, with many operators plan-
ning commercial launches during 2019, and
by the end of 2024 5G is forecast to account
for around 30% of all mobile subscriptions.
In Latin America, LTE became the dominant
radio access tech nology in 2018, account-
ing for 42% of all subscriptions, which is
expected to rise to 74% in 2024.

The high level of 5G activity in the US
and China is creating momentum in Europe;
Ericsson has already achieved the first
commercial launch in Europe in 2018 with
Swisscom. Four of Ericsson’s first ten com-
mercial 5G contracts are in Europe where
industrial-use cases are expected to play
an increasingly important role from 2020.
Early deployments in the region will deliver
enhanced mobile broadband and fixed
wireless access.

investments in 5G more difficult to justify. In
Western Europe, new spectrum has started
to be released and all initial 5G bands are
projected to be available by 2022. In Latin
America, Brazil, Chile, Colombia and Mexico
are expected to be leaders in 5G but spectrum
availability will lag behind Europe.

In Europe and Latin America, the RAN
equipment market is expected to remain
relatively flat in the next 4–5 years.

Key announcements 2018
– Wind Tre selects Ericsson for RAN

modern ization in Italy

– Movistar Argentina selects Ericsson Radio

System to transform mobile network

– Play selects Ericsson to accelerate nation-
wide mobile network expansion in Poland

– TIGO selects Ericsson to upgrade its
network in Paraguay and Honduras
– Telenor selects Ericsson for 5G core

network transformation

– Deutsche Telekom and Ericsson partner
to provide industry solution for OSRAM
– Ericsson and Swisscom get 5G ready for

business

Other market conditions such as spectrum

– Estonia’s first 5G network to go live at

assignments, prices and license terms and
deployment barriers remain challenging.
Whereas North America, Japan and China
have markets of substantial scale, Market
area Europe and Latin America with 128
countries has unique characteristics, such
as the uncoordinated timing of spectrum
release, that makes larger synchronized

TalTech University

Sales development 2018
The strong growth in Networks sales in Latin
America and parts of Europe was partly
offset by lower sales in Managed Services
due to exit of non-strategic contracts.

Major customers
America Movil , Bouygues,
Deutsche Telecom, Entel, MTS,
Orange, Telecom Italia, Telefonica,
Telia, Vodafone, Wind Tre

Employees
44,621 employees

Net sales

SEK billion

62.5

56.8

60.3

2016

2017

2018

Net sales

Mobile subscription per technology

100

2018

2024

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Ericsson Annual Report 2018
The business – Market areas

Middle East and Africa

Key announcements 2018
– Ericsson wins contract to upgrade ZAIN

Iraq’s Radio Access Network

– Mobily signs agreement with Ericsson to

manage its IT services

– LTE Advanced and NB-IOT drive STC 4G

expansion in Saudi Arabia

– AirtelTigo partners Ericsson to consolidate

and upgrade its network in Ghana

– Etisalat and Ericsson trial Massive MIMO

technology in the UAE

– Ericsson wins Digital Company of the

Year and Innovation through Technology
Awards

– Ericsson and Turkcell receive award for

new Internet of Things solution

– MTN, Ericsson and Netstar record 5G first

for South Africa

Sales development 2018
Sales declined slightly. Networks sales
declined due to monetary restrictions in cer-
tain markets, Digital Services declined due to
timing of project milestones while Managed
Services sales were flat.

Market trends
The Market Area Middle East and Africa
comprises 70 countries and is a diverse
region. The countries of the market area
vary with advanced markets which have
over 100% penetration in mobile broadband
subscriptions and emerging markets where
around 40% of mobile subscriptions are for
mobile broadband. At the end of 2018, more
than 20% of all mobile subscriptions in the
Middle East and North Africa were for LTE,
while in Sub-Saharan Africa LTE accounted
just over 7% of subscriptions. The region is
anticipated to evolve, and 90% of subscrip-
tions are expected to be for mobile broad-
band by 2024. Driving factors behind this
shift include a young and growing population
with increasing digital skills, as well as more
affordable smartphones.

Operators’ revenue ratios are expected to
stay relatively flat or grow slightly. Regulatory
challenges (e.g. spectrum policy and tech-
nology-specific licenses) still exist in several
countries. Despite coverage and affordability
issues, mobile broadband subscriptions have
grown in recent years. A majority of subscrip-
tions are now on 3G while 4G is expected to
be the dominant technology by 2025. The
race for 5G leadership in the market area is
increasing, with several frontrunner operators
firming up their plans for 5G launches in 2018
or early 2019. 5G-network deployments are
expected to take off in larger scale in 2021.
Total 5G subscriptions in the market area are
expected to reach 18 million by 2024.

Rafiah Ibrahim
Head of Market Area Middle East
and Africa

“Several frontrunner
operators firming up
their plans for 5G
launches.”

Major customers
Airtel, Etisalat, Maroctel, MTN,
Ooredoo, Orange, STC, Turkcell, Zain

Net sales

SEK billion

Mobile subscription per technology

% Mobile subscr, Middle East Africa

Employees
4,264 employees

27.4

25.0

23.6

2016

2017

2018

Net sales

100

2018

2024

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Ericsson Annual Report 2018
28

The business – Market areas

Nunzio Mirtillo
Head of Market Area South East Asia,
Oceania and India

“The appetite for 5G
and virtualization
is growing across
most markets.”

South East Asia, Oceania and India

Market trends
South East Asia and Oceania includes
developed markets with some of the most
advanced networks in the world, as well
as developing economies that have only
recently launched LTE. 3G is still the domi-
nant technology, at 48% of all sub scriptions.
However, LTE subscriptions grew by 70%
during 2018, taking a share of 26%.

opportunities for these markets. Commercial
5G deployments in Australia have already
begun, whilst in Singapore, large-scale 5G
trials are expected to take place in 2019.

Key announcements 2018
– Celcom signs up with Ericsson to expand
and upgrade its LTE network in Malaysia
– Singtel and Ericsson to launch Singapore’s

In India, 2G has remained the dominant

first 5G pilot network

technology during 2018, accounting for
around 56% of total mobile subscriptions at
the end of the year. However, the country has
experienced strong growth in the number
of LTE subscriptions over the last couple of
years, and at the end of 2018 LTE accounted
for close to 30% of all mobile subscriptions.
The overall telecom market in South
East Asia, Oceania and India has strong
fundamentals in terms of the growth in
subscriptions, smartphone penetration and
data consumption. At the same time, telecom
operators are challenged by intense competi-
tion and the cost of managing increased data
traffic. The appetite for 5G and virtualization
is growing across most markets as a means
of increasing efficiency, improving customer
experience and creating new revenue oppor-
tunities. However, spectrum allocation con-
straints mean that the majority of 5G deploy-
ments across South East Asia and India are
still several years away. In addition, there
continue to be LTE capacity and coverage

– Ericsson and Telstra announce 5G

partnership

– Ericsson and Telstra complete ground-

breaking long-range NB-IoT connection
– Ericsson establishes Center of Excellence
and Innovation Lab for 5G in India at the
IIT, Delhi

– Ericsson and Dialog Axiata partner to

roll out the first commercial massive IoT
network in Sri Lanka

– Singtel and Ericsson roll out Singapore’s
first commercially available NB-IoT
network

Sales development 2018
In 2018 sales declined, mainly due to tim-
ing of major projects in Vietnam and India.
Managed Services sales grew slightly mainly
due to a new contract, while sales in Digital
Services remained flat.

Major customers
Axiata, Bharti, Birla telecom, NBN,
Ooredoo, Singtel, Smart, Telenor,
Telstra, Vodafone

Employees
23,959 employees

Net sales

Net sales, SE Asia Oceania India

SEK billion

31.5

31.3

29.6

2016

2017

2018

Net sales

Mobile subscription per technology

100

Mobile subscr, SE Asia Oceania India

2018

2024

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Ericsson Annual Report 2018
The business – Market areas

Key announcements 2018
– NBC Olympics selects Ericsson for its
production of 2018 Olympic Winter
Games in Pyeongchang

– Ericsson and China Mobile pursue
Industry 4.0 IoT opportunities

– Ericsson and Chunghwa Telecom bring

5G to Taiwan early 2019

– Ericsson to automate Cloud Execution
Environment (CEE) for NTT DOCOMO

– Ericsson pioneers machine learning

network design for SoftBank

– Ericsson, Intel and China Mobile achieve
3GPP-compliant, multi-vendor Stand-
alone 5G NR interoperability

Sales development 2018
In 2018, sales declined due to reduced opera-
tor investments in LTE whilst the telecom
operators plan for 5G.

North East Asia

Market trends
In Japan and Korea, LTE has long been the
dominant technology, and with the massive
investment in LTE in mainland China in recent
years, LTE subscriptions now account for
more than 80% of total subscriptions there.
China alone had more than 1.3 billion LTE
subscriptions at the end of 2018.

All the large telecom operators are pre-
paring for 5G, and network deployments are
expected to start in 2019.

Large field trials have started in mainland
China and will continue in 2019, and deploy-
ments of 5G networks are expected to accel-
erate in 2020. The focus of 5G investments is
expected to be on industrial applications such
as smart manufacturing. In Japan, the initial
focus of 5G investments will be on deploying
enhanced mobile broadband and will later
move to IoT connections. The main volume of
5G deployments is not expected to start until
the later part of 2020, constrained by spec-
trum allocation and construction resources.
In Korea, the government has set a vision of
smart manufacturing, health and transport
running on 5G networks, but the initial focus
will be on enhanced mobile broadband.
Larger investments by telecom operators
in 5G are expected in 2020 or 2021. The
5G subscription penetration is projected
to exceed 43% in 2024.

Chris Houghton
Head of Market Area North East Asia

“We are preparing
for the rollout of 5G
networks in 2019.”

Major customers
China Mobile, China Telecom,
China Unicom, Chunghwa,
FarEasTone, KDDI, KT, NTT DoCoMo,
SK Telecom, Softbank

Employees
12,788 employees

Net sales

Net sales, NE Asia

SEK billion

27.0

23.6

22.3

2016

2017

2018

Net sales

Mobile subscription per technology

100

Mobile subscr, NE Asia

2018

2024

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Ericsson Annual Report 2018
30

The business – Supply chain

Supply chain

During 2018 Ericsson began manufacturing in the US together with a production
partner. Customers in the US are early adopters of new technology, and bringing
R&D and production closer to the US customers is a logical step when the imple-
mentation of 5G begins. In parallel, we are designing our supply chain across the
globe to stay close to all our customers who are early adopters of 5G.

The Ericsson supply chain secures high-
performing, sustainable and cost-effective
deliveries of hardware products, software
and services to our customers. This requires
continuous global supply chain management
and resource management in close collabo-
ration with sales and product management.
Ericsson’s global hardware production
strategy is to be close to our customers

through all steps of the product life-cycle and
to meet customer requirements with short
lead-times and flexibility, targeting surface
transportation. This also includes proactive
and reactive supply chain risk management
as well as securing adherence to Ericsson’s
implemented global standards. As the fourth
industrial revolution is emerging and matur-
ing, our manufacturing sites and logistics

operations are there to prove business
value and to ensure that 5G meets industry
requirements.

We conduct supplier contract compliance

audits to verify compliance with the agree-
ments. All potential new suppliers must com-
plete mandatory supplier self-assessments,
and existing suppliers must update their
self-assessment on a regular basis.

The supply chain areas

New product
introduction

Planning

Sourcing

Hardware
manufacturing
and software
delivery

Logistics

Local supply

Service
delivery

After sales

New product introduction

Preparing the supply chain for new products
and solutions. Ensuring producibility and
serviceability, securing the supplier base for
hardware, software and service resources
and preparing the processes across the sup-
ply chain, in close collaboration with R&D.

Planning

Planning and dimensioning the supply chain
of hardware, software and service resources
to meet customer demands.

Sourcing

Sourcing involves the sourcing of hardware,
software and services. Purchase orders are
created and monitored to manage delivery
of products and resources from external
and internal sources. Ericsson responsible
sourcing works to ensure that business is
conducted responsibly at suppliers and part-
ners across the supply chain n accordance

with the Ericsson Code of Conduct. Cross-
functional collaboration with R&D and sales
teams from an early stage of each project is
required to define the right scope and terms
of the supplier agreements and to onboard
suppliers in a compliant manner.

Hardware manufacturing

and software delivery
Hardware manufacturing and creation of
software entitlement for customers. Balanc-
ing the hardware manufacturing between
Ericsson manufacturing sites and external
manufacturers to secure high delivery flex-
ibility. The software delivery flow is digitized.

Logistics (distribution, warehousing,

order management)
Logistics includes the replenishment of pro-
duction plants, supply hubs and warehouses;
the management of hubs and warehouses;
order and contract handling; global physical

distribution; and enabling, optimizing and
executing logistic services and the transpor-
tation of goods.

Local supply

Customer contract supply chain preparation
in close interaction with sales, as well as
coordinating delivery of hardware products
including software license activation to our
customers.

Service delivery

Provisioning of services for design, opera-
tions, optimization and after sales support
of our products and solutions balancing
Ericsson’s own resources and local, regional
and global external resources.

After sales

After sales includes both a warranty period
and after sales support.

Ericsson Annual Report 2018
Ronnie Leten
Chair of the Board

Financials – Letter from the Chair of the Board

Letter from the Chair of the Board

Dear shareholders

At Ericsson’s Annual General Meeting in
March 2018 I was elected Chair of the Board.
I am grateful for the trust that the shareholders
have given me. My ambition is to ensure that
each one of Ericsson’s employees shares my
passion for creating value for our customers.
We can do this best by running the company
as efficiently as possible and by continuing
to invest in Research & Development so as to
stay at the forefront of technology. My initial
priorities have been to meet with customers
and employees in order to better understand
the needs of customers and the culture of the
company. It has been very impressive to see
the strong competence and technology skills
that the organization possesses and highly
rewarding to be in direct dialogue with our
customers.

One reason why I accepted the position of

Chair was the opportunity to be involved in
a company that is leading the way in driving
superior technical innovation, supported
by Ericsson’s profound and long-standing
heritage in communications, technology and
infrastructure. I am deeply convinced that the
company’s unique position in 5G gives it great
potential for the future.

As a Board we have continued to invest sig-

nificant time in corporate governance during
2018, since this is a fundamental element in
building trust. The Board is totally committed
to complying with the best-practice corporate
standards at the global level and to supporting
a robust corporate culture founded on the
three core values of respect, professionalism
and perseverance. The Board will ensure that
Ericsson has a robust and fit-for-purpose
compliance and that the company is con-
tinuously looking for ways to strengthen and
improve ethics and compliance in different
areas. These include our own people and
culture as well as third-party engagements,
compliance and investigation capabilities
and internal control capabilities.

Ericsson’s leadership in sustainability
for the past 25 years is a core asset that will
continue to be in focus across the company
and is becoming an ever more fundamental

part of the business. The work of the Board
includes ensuring that business is conducted
in a responsible manner that focuses on
responsible sourcing, anti-corruption
measures and health and safety, but also
addresses environmental issues, energy
efficiency and climate change and creating
a positive socio-economic impact.

As part of a strong focus on accountability,
succession plans and talent management, the
Board encourages long-term value creation
and aims to retain, motivate and attract
talented collaborators with the aid of our
performance-based share-related incentives.
As a Board we review the company’s
strategy, financial targets and risks on a
regular basis. With 2018 behind us, I can
conclude that Ericsson has made great
progress in executing our strategy. We are well
on-course towards achieving our financial
targets, including our long-term target to
reach an operating margin above 12 percent 1)
on a sustainable basis no later than 2022.
The Board continuously analyzes and
monitors the company’s capital structure
– including a careful evaluation of business
plans and investments in R&D – with the
ambition of retaining a strong balance sheet
and a positive free cash flow. In 2018 Ericsson
continued to show a positive free cash flow
excluding M&A of SEK 4.3 billion. The Board
of Directors will propose a dividend for 2018
of SEK 1.00 per share to the AGM, with the
ambition to increase the dividend over time
as the financial performance continues to
improve.

In 2019 all members of the Board are
looking forward to working together with
Ericsson’s CEO Börje Ekholm and the full
Ericsson team to ensure that the company’s
focused business strategy is implemented
successfully.

Ronnie Leten
Chair of the Board

1) Excluding restructuring charges.

Ericsson Annual Report 201832

Financials – Board of Directors’ report

Board of Directors’ report

Contents

Full-year highlights

32 Business in 2018

33 Financial highlights

36 Business results – Segments

38 Business results – Market areas

39 Corporate Governance

39 Material contracts

40 Risk management

40 Sourcing and supply

40 Sustainability and

Corporate Responsibility

41 Inquiries from US authorities

41 Legal proceedings

42 Parent Company

42 Events after the reporting period

43 Board assurance

Net sales

SEK billion

250

200

150

100

220.3

205.4

210.8

2016

2017

2018

Net sales

Operating income (loss) and
operating margin

SEK billion

-10

-20

-30

-40

5.2

2.4%

6.0
1.2

0.6%

–34.7

2016

–16.9%

2017

2018

Operating income

Operating margin

-5

-10

-15

-20

– Reported sales increased by 3% to SEK 210.8 (205.4) billion with Networks growing by 5%.

Sales adjusted for comparable units and currency increased by 1%.

– Gross margin improved to 32.3% (23.3%) supported by cost reductions, the ramp-up of

Ericsson Radio System (ERS) and the review of managed services contracts.

– Operating income (loss) improved to SEK 1.2 (–34.7) billion, mainly due to higher gross margin

and sales as well as lower operating expenses.

– Cash flow from operating activities was SEK 9.3 (9.6) billion. Free cash flow excluding M&A

amounted to SEK 4.3 (4.8) billion. Net cash at year-end was SEK 35.9 (34.7) billion.

– The Board of Directors proposes a dividend for 2018 of SEK 1.00 (1.00) per share to the AGM.

Business in 2018

In 2018, sales increased by 3% driven by sales
growth in Networks. Sales increased by 5%
in Networks and was mainly due to increased
demand for radio access network (RAN)
equipment in North America and in Europe
and Latin America. Sales declined in Digital
services by –2% due to lower sales of legacy
products. Manages Services sales declined
by –3% as a result of exited non-strategic
contracts.

IPR licensing revenues were SEK 8.0

(8.3) billion.

The cost reduction program, launched

in Q2 2017, was completed as planned.
Number of employees decreased by 5,376 to
95,359 mainly because of the cost reduction
program. The effect from the program was
visible in improved gross margin and lower
SG&A expenses, mainly through lower service
delivery costs and common costs.

R&D expenses increased mainly due to
increased investments in Networks R&D to
improve competitiveness and profitability
of the product portfolio.

Gross margin improved to 32.3% (23.3%)

Operating income (loss) was SEK 1.2

supported by cost-reductions, ramp-up of
Ericsson Radio System product platform and
good progress in the review of low performing
managed services contracts.

(–34.7) billion including restructuring charges
of SEK –8.0 (–8.5) billion. Write-down of
assets, as well as provisions and adjustments
related to certain customers projects had

Market area sales – full-year 2018 compared with 2017

SEK
205.4
billion

–5.6 %

–5.4 %

–1.4 %

+6.1 %

+12.7 %

SEK
210.8
billion

FY17

South
East Asia,
Oceania
and India

North
East Asia

Middle East
and Africa

Other

Europe and
Latin America

North
America

FY18

Ericsson Annual Report 2018

IPR revenues (net)

SEK billion

10.3

8.3

8.0

2016

2017

2018

IPR revenues

Software, hardware and
services: share of total sales

100

22%

21%

33%

35%

37%

45%

44%

XX
42%

2016

2017

2018

Software
Hardware
Services

Gross margin as reported and
restructing charges

SEK billion

29.6%

3.5

32.3%

23.3%

5.2

5.9

2016

2017

2018

Restructing charges in cost of sales

Gross margin as reported

Financials – Board of Directors’ report

Due to technology and portfolio shifts,
the company has since 2017 reduced the
capitalization of development expenses and
the deferral of hardware costs, which had
a net impact on gross income of SEK –0.9
(–2.6) billion. Write-down of assets, as well as
provisions and adjustments related to certain
customer projects had a significant negative
impact on gross margin in 2017.

Operating expenses
Operating expenses decreased to SEK –66.8
(–70.6) billion with SG&A expenses of
SEK –27.5 (–29.0) billion, R&D expenses of
SEK –38.9 (–37.9) billion and impairment
losses on trade receivables of SEK –0.4 (–3.6)
billion.Restructuring charges included in oper-
ating expenses were SEK –2.1 (–3.3) billion.
R&D expenses increased due to increased
investments in R&D for Networks. The increase
was partly offset by R&D reductions in Digital
Services. Higher amortized than capitalized
development expenses had a negative effect
on R&D expenses of SEK –1.7 (–0.3) billion.
SG&A expenses were reduced as a result

of cost reduction activities. The reduction
was more than offset by higher provisions
for variable compensation, increased costs
related to revaluation of customer financing
and increased costs for 5G trials.

Other operating income and expenses
Other operating income and expenses was
SEK –0.2 (–12.1) billion. In 2017, write-down
of intangible assets had a significant negative
impact on other operating expenses.

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 of SEK –2.6
(–2.9) billion. The amounts related to capital-
ized software releases were fully amortized
in 2017.

a significant negative impact on operating
income in 2017.

Ericsson delivered a full-year cash flow

from operating activities of SEK 9.3 (9.6)
billion. Free cash flow excluding M&A
amounted to SEK 4.3 (4.8) billion. Net cash
at year end was SEK 35.9 (34.7) billion.

Financial highlights

Net sales
Sales increased by SEK 5.5 billion or 3% to
SEK 210.8 (205.4) billion. Networks sales
increased by SEK 6.3 billion (5%), Digital
Services sales decreased by SEK –0.7 billion
(–2%), Managed Services sales decreased
by SEK –0.7 billion (–3%) and Emerging
Business and Other sales increased by
SEK 0.5 billion (7%).

The sales increase in Networks was mainly

driven by higher demand for radio access
network equipment. Networks sales growth
adjusted for comparable units and currency
was 3%.

The sales decrease in segment Digital
Services was due to lower sales in legacy
products. The sales decline in Managed
Services was mainly a result of exit of low-
performing and non-strategic contracts. The
sales increase in segment Emerging Business
and Other was driven by growth in iconectiv
business due to the multi-year number porta-
bility contract in the United States.

In the geographical dimension, sales grew

in North America and in Europe and Latin
America.

Sales adjusted for comparable units and
currency increased by 1%. The sales mix by
commodity was: software 21% (21%), hard-
ware 37% (35%) and services 42% (44%).

Gross margin
Gross margin increased to 32.3% (23.3%) with
improved margins in hardware and services
mainly driven by cost reductions, ramp-up of
Ericsson Radio System product platform and
good progress in the review of low-performing
managed services contracts. A reduced share
of services sales had a positive impact on
gross margin. Restructuring charges included
in the gross margin increased to SEK –5.9
(–5.2) billion. Costs of SEK –5.9 billion, of
which SEK –3.1 billion were restructuring
charges, impacted gross margin in Digital
Services.

Ericsson Annual Report 2018

Financials – Board of Directors’ report

Free cash flow

SEK billion

-1

-2

4.8

4.3

0.9

0.3
–0.6

0.3

–1.3

2016

2017

2018

Free cash flow excluding M&A
M&A

Working capital

Days

100

2016

2017

2018

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)

Return on capital employed

SEK billion

250

2.7%

200

185.7

150

100

0.6%

155.6

149.6

-1

-7

-13

-19

-25

–20.6%

2016

2017

2018

Capital employed

Return on capital employed

Restructuring charges
Restructuring charges amounted to SEK –8.0
(–8.5) billion, which was higher than the
earlier estimate of SEK –5 to –7 billion. The
restructuring charges in 2018 mainly relate
to the cost-reduction program announced
in 2017 and costs related to revised BSS
strategy. Total restructuring charges for 2019
are estimated to be SEK –3 to –5 billion.

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

2018

–0.9
–1.7

2017

–2.6
–0.3

–2.6

–2.9

Operating income and margin
Operating income improved to SEK 1.2
(–34.7) billion. Higher gross margin and sales
and lower operating expenses had a positive
impact. Write-down of assets, as well as
provisions and adjustments related to certain
customer projects had a significant negative
impact on operating income in 2017. Oper-
ating margin was 0.6% (–16.9%). Operating
margin excluding restructuring charges of
SEK –8.0 (–8.5 ) billion was 4.4% (–12.8%).

Financial net
The financial net decreased to SEK –2.7
(–1.2) billion, mainly due to increased nega-
tive effects of foreign exchange revaluation,
negative currency hedge effects and reduced
interest rates. The currency hedge effects,
which derive from the hedge loan balance
in USD, impacted financial net by SEK –0.5
(0.5) billion. The SEK weakened against the
USD between December 31, 2017 (SEK/USD
rate 8.20) and December 31, 2018 (SEK/USD
rate 8.94).

Taxes
Taxes were SEK –4.8 (3.5) billion, negatively
impacted by impairment of withholding tax
assets in Sweden mainly as a result of pro-
visions related to revised BSS strategy. In
addition, non-deductible expenses, with-
holding tax expenses outside of Sweden
and revaluation of tax assets due to a change
in Swedish corporate tax rate impacted tax
costs negatively.

Net income and EPS
Net income improved to SEK –6.3 (–32.4)
billion driven by higher operating income
partly offset by a negative financial net
and increased tax costs. EPS diluted was
SEK –1.98 (–9.94) and EPS (non-IFRS) was
SEK 0.27 (–3.24).

Employees
The number of employees on December
31, 2018 was 95,359, a reduction of 5,376
employees compared with Dec 31, 2017.

The employee reduction was mainly in
services as a consequence of the cost-reduc-
tion program. The number of R&D employees
has increased by more than 1,100 in 2018.

Cash flow
Cash flow from operating activities reached
SEK 9.3 (9.6) billion. Working capital efficiency
has improved as a result of a strong focus on
cash flow. The business growth in 2018 and
high delivery and invoicing volumes towards
the end of the year led to some build-up of
trade receivables, to be collected in the coming
periods. Inventory and trade payables also
increased to meet customer demand in a
growing market. The combined working capi-
tal KPI (sales outstanding days plus inventory
days less payable days) improved to 89 (102)
days. The ambition is to maintain working
capital efficiency and thereby effectively
convert income to cash. Cash outlays related
to provisions were SEK –6.9 (–8.2) billion, of
which cash outlays related to restructuring
charges were SEK –4.1 (–5.3) billion.

Cash flow from investing activities was
SEK –4.1 (–16.1) billion, impacted by invest-
ments and sale of property, plant and equip-
ment with a net effect of SEK –3.6 (–2.9)
billion and investments in M&A of SEK –1.3
(0.3) billion. In addition, product development
decreased by SEK –0.9 (–1.4) billion due to
reduced capitalization of product platform
development following technology shifts.

Cash flow from financing activities was
SEK –4.1 (5.5) billion. Dividends of SEK 3.4
(3.4) billion were paid out.

The focus on free cash flow and release of
working capital, in combination with limited
investing activities, resulted in free cash flow
of SEK 3.0 (5.1) billion and in free cash flow
excluding M&A of SEK 4.3 (4.8) billion.

Ericsson Annual Report 2018

Cash position

SEK billion

-10

-20

-30

67.7

69.0

57.9

31.2

34.7

35.9

–23.7

–25.0

–28.7

2016

2017

2018

Gross cash
Net cash
Liability for post employment benefits

Debt maturity, Parent Company

SEK billion

8.9

1.5

6.1

0.9

5.1

2.0

1.3

2018

2019

2020

2021

2022

2023

2024

2025

Notes & bonds
Nordic Investment Bank
European Investment bank
Swedish Export Credit Corporation MTN Bond

Financials – Board of Directors’ report

Financial position
Gross cash increased to SEK 69.0 (67.7) billion
and net cash increased to SEK 35.9 (34.7)
billion.

Liability for post-employments benefits
increased by SEK 3.7 billion mainly due to
decreased discount rates and normal service
costs. The Swedish defined benefit obligation
(DBO) has been calculated using a discount
rate based on the yields of Swedish govern-
ment bonds. If the discount rate had been
based on Swedish covered mortgage bonds,
the liability for post-employment benefits
would have been approximately SEK 9.5
billion lower as of Dec 31, 2018.

The average maturity of long-term

borrowings as of Dec 31, 2018, was 3.4 years,
a decrease from 4.4 years 12 months earlier.

Ericsson has an unutilized Revolving Credit

Facility of USD 2.0 billion. The facility will
expire in 2022.

In 2018, Ericsson signed a credit facility

agreement of EUR 250 million with the
European Investment Bank (EIB). The credit
facility is undrawn and will mature five years
after disbursement.

Moody’s changed their outlook on
Ericsson’s long-term rating from negative
to stable. The rating of Ba2 was unchanged.
The capital efficiency improved during
the year and the capital turnover reached 1.4
(1.2) times.

Research and development,
patents and licensing
In 2018, R&D expenses amounted to SEK 38.9
(37.9) billion. The increase is mainly due to
investments in Networks R&D to increase
the competitiveness and profitability of the
radio product portfolio. The number of R&D
resources were 24,800. The number of patents
continued to increase and amounted to
approximately 49,000 by end of 2018.

Seasonality
The Company’s sales, income and cash flow
from operations vary between quarters, and
are generally lowest in the first quarter of the
year and highest in the fourth quarter. This
is mainly a result of the seasonal purchase
patterns of network operators.

Most recent two-year average seasonality

Sequential
change, sales
Share of
annual sales

First
quarter

Second
quarter

Third
quarter

Fourth
quarter

–26%

10%

18%

22%

24%

25%

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
anticipated material effect on the Company’s
financial condition, revenues, expenses, result
of operations, liquidity, capital expenditures
or capital resources.

Capital expenditures
For 2018, capital expenditure was SEK 4.0
(3.9) billion, representing 1.9% of sales. Expen-
ditures are largely related to test sites and
equipment for R&D, network operation centers
and manufacturing and repair operations.
Ericsson believes that the Company’s
property, plant and equipment and the fac-
ilities 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, 2018, no material
land, buildings, machinery or equipment
were pledged as collateral for outstanding
indebted ness.

Research and development, patents and licensing

Capital expenditures 2016–2018

Expenses (SEK billion)
As percent of net sales 1)
Employees within R&D
as of December 31 2)
Patents 2)
IPR revenues, net
(SEK billion) 1)

2018

38.9
18.5%

2017

37.9
18.4%

2016

31.6
14.4%

SEK billion

2018

2017

2016

Capital expenditures
Of which in Sweden

4.0
1.3

3.9
1.5

6.1
2.0

24,800
49,000

23,600
45,000

24,100
42,000

8.0

8.3

10.3

Share of
annual sales 1)

1.9%

2.8%

1) 2017 and 2016 are restated due to implementation of IFRS 15

“Revenue from Contracts with Customers,” for more information
see Note A3, “Changes in accounting policies.”

1) 2017 and 2016 are restated due to implementation of IFRS 15

“Revenue from Contracts with Customers,” for more information
see Note A3, “Changes in accounting policies.”

2) The number of employees and patents are approximate.

Ericsson Annual Report 2018

Financials – Board of Directors’ report

Sales split per segment

Networks
Digital services
Managed services
Emerging Business and Other

66%
18%
12%
4%

Networks

SEK billion

150

140.1

132.3

138.6

120

11.9%

16.7

7.9%

10.5

14.0%

19.4

2016

2017

2018

Net sales
Operating income

Operating margin

Digital Services

SEK billion

-10

-20

-30

42.8

–16.7%

38.8

38.1

–36.4%

–7.1

–70.4%

–27.3

–13.9

2016

2017

2018

Net sales
Operating income

Operating margin

-10

-20

-30

-40

-50

-60

-70

-80

Business results – Segments

Networks
Networks represented 66% (64%) of net sales
in 2018. 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 increased by 5% to SEK 138.6 (132.3)
billion. Sales adjusted for comparable units
and currency increased by 3%. The sales
increase was due to sales growth in North
America and in Europe and Latin America,
driven by telecom operator investments in 5G
readiness and LTE networks. The Networks
share of IPR licensing revenues was SEK 6.5
(6.8) billion.

Gross margin
Gross income increased to SEK 55.2 (43.4)
billion and gross margin increased to 39.8%
(32.8%). Gross margin increased across all
areas, mainly due to improved margins in
hardware and a higher share of hardware
sales at the expense of services sales. The
impact on gross margin of higher recognition
than deferral of hardware costs was SEK –0.7
(–1.5) billion. In 2017 the gross margin was
negatively impacted by provisions and
customer project adjustments.

Operating income
Operating income increased to SEK 19.4
(10.5) billion due to lower restructuring
charges as well as higher sales and gross
margin. The increase was partly offset by
increased operating expenses. Operating
expenses increased mainly due to higher
investments in R&D to strengthened tech-
nology leadership. Net impact from amor-
tization and capitalization of development
expenses and from recognition and deferral
of hardware costs was SEK –0.3 (–1.5)
billion. Restructuring charges were SEK –1.8
(–4.8) billlion. Operating margin increased
to 14.0% (7.9%).

Digital Services
Digital Services represented 18% (19%) of net
sales in 2018. The segment provides solutions
consisting primarily of software and services in
the areas of Digital Business Support Systems
(BSS), Operational Support Systems (OSS),
Cloud Communication, Cloud Core, and Cloud
Infrastructure.

Net sales
Sales decreased by –2%. Sales in BSS declined
by –11% while sales in OSS and Cloud Core
grew, driven by demand for the 5G-ready
portfolio. Sales adjusted for comparable units
and currency decreased by –4%.

Gross margin
Gross margin increased to 21.8% (12.1%)
as a result of cont inuous work on service
delivery efficiency. Gross margin was neg-
atively impacted by costs related to revised
BSS strategy, while cost reductions had a
significant positive impact. Gross margin was
negatively impacted by significant write-down
of assets as well as provisions and customer
project adjustments in 2017.

Operating income (loss)
Operating income improved to SEK –13.9
(–27.3) billion. Full-year operating income
was SEK –5.5 billion, excluding restructuring
charges of SEK –5.4 billion and excluding
SEK –3.0 billion for other costs related to
revised BSS strategy. This is a significant
improvement compared with 2017, with
profit improvements across all key portfolio
areas. Most of the losses in 2018 are in BSS,
and additional strategic actions to materially
reduce the losses already in 2019 were
announced in January 2019.

Write-down of assets as well as provisions

and customer project adjustments had a
significant negative impact on income in
2017. Cost reductions had a significant impact
on gross margin and operating expenses
compared with 2017.

Ericsson Annual Report 2018

Managed Services
Managed Services represented 12% (13%)
of net sales in 2018. 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 decreased by –3%. Sales adjusted for
comparable units and currency decreased by
–5% , as a result of contract exits, partly offset
by sales growth in Managed Services IT.

Gross margin
Gross margin increased to 11.2% (–5.9%)
mainly as a result of customer contract reviews
and efficiency measures.

Write-down of assets as well as provisions

and customer project adjustments had a
significant negative impact on gross margin
in 2017.

Operating income
Operating income improved to SEK 1.1 (–4.1)
billion due to higher gross margin.

Restructuring charges amounted to

SEK –0.3 (–0.7) billion.

Managed Services

SEK billion

28.8

-5

26.5

25.8

4.2%

–1.1%

–15.4%

1.1

–0.3

–4.1

2016

2017

2018

Net sales
Operating income

Operating margin

Emerging Business and Other

SEK billion

8.7

7.9

8.4

-5

-10

-15

-20

-25

-5

-10

-15

–46.2%

-50

–64.5%

-100

-150

-200

-250

–4.0

–175.7%

–5.4

–13.8

2016

2017

2018

Net sales
Operating income

Operating margin

Financials – Board of Directors’ report

Emerging Business and Other
Segment Emerging Business and Other
represented 4% (4%) of net sales in 2018.
The segment consists of four businesses;
Media Solutions, Red Bee Media, Emerging
Business and iconectiv.

Net sales
Sales increased by 7%. Sales adjusted for
comparable units and currency increased by
3%, driven by growth in the iconectiv business
through a multi-year number portability
contract in the United States. Sales in Emerg-
ing Business grew by more than 25%. Media
Solutions sales declined by –14% due to lower
sales in the legacy portfolio. Red Bee Media
sales declined by –4% due to renegotiations
and changes in scope of contracts.

Gross margin
Gross margin increased to 21.9% (17.5%).
Write-down of assets had a significant
negative impact on gross margin in 2017.

Operating income (loss)
Operating income (loss) improved to SEK –5.4
(–13.8) billion with significant improvements
in Media Solutions and Red Bee Media
business. Restructuring charges amounted
to SEK –0.6 (–0.5) billion.

Cost reductions had a positive impact on

Media Solutions operating income, partly
offset by reduced sales and costs of SEK –0.3
billion related to the transaction with One
Equity Partners. Write-down of assets had
a significant negative impact on Media
Solutions income in 2017.

Operational efficiencies and cost

reductions had a positive impact on Red Bee
Media income, while reduced sales impacted
negatively. Write-down of assets had a
significant negative impact on Red Bee Media
income in 2017.

Losses in Emerging Business were
negatively impacted by costs of SEK –0.4
billion, of which SEK –0.1 billion in restruc-
turing charges, for resetting the Edge Gravity
business and increased investments in new
areas such as IoT and Emodo. The growth in
iconectiv business had a positive impact on
operating income.

Ericsson Annual Report 2018

Financials – Board of Directors’ report

Sales split per market area

South East Asia, Oceania and India 14%
North East Asia
11%
North America
28%
Europe and Latin America
29%
Middle East and Africa
11%
Other
8%

Business results – Market areas

South East Asia, Oceania and India
Sales declined, mainly due to timing of major
projects in Vietnam and India. Managed
services sales grew slightly mainly due to a
new contract, while sales in Digital Services
remained flat.

North East Asia
Sales declined due to reduced operator invest-
ments in LTE whilst the operators plan for 5G.

North America
Networks sales increased, primarily driven by
investments in 5G readiness across all major
customers. Digital Services sales increased as
operators digitalize operations and improve
customer experience to prepare for 5G.
Managed Services sales grew, driven by higher
variable sales in large customer contracts.

Europe and Latin America
The strong growth in Networks sales in Latin
America and parts of Europe was partly offset
by lower sales in Managed Services due to exit
of non-strategic contracts.

Middle East and Africa
Sales declined slightly. Networks sales
declined due to monetary restrictions in
certain markets, Digital Services declined due
to timing of project milestones while Managed
Services sales were flat.

Other1)
Sales declined slightly. IPR licensing revenues
amounted to SEK 8.0 (8.3) billion.

1) Market Area “Other” includes primarily licensing revenues and

the major part of segment Emerging Business and Other.

Sales per market area and segment 2018 and percent change from 2017

Networks

Digital Services

Managed Services

Emerging Business
and Other

Total

SEK million

2018

Change

2018

Change

2018

Change

2018

Change

2018

Change

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

21,337
15,915
46,452
34,413
13,300
7,153

138,570
66%

–9%
–2%
14%
14%
–6%
–7%

4,824
4,849
8,358
12,339
6,284
1,435

38,089
18%

1%
–11%
4%
2%
–8%
–8%

–2%

3,388
1,465
3,680
13,207
4,030
–

25,770
12%

5%
–22%
15%
–7%
–
–

–3%

40
80
96
313
15
7,865

8,409
4%

400%
471%
–16%
12%
–67%
6%

29,589
22,309
58,586
60,272
23,629
16,453

210,838
100%

–6%
–5%
13%
6%
–5%
–1%

1) Market Area “Other” includes primarily licensing revenues and the major part of segment Emerging Business and Other.

Ericsson Annual Report 2018Corporate 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 2018,
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
28, 2018, Ronnie Leten was elected new
Chair of the Board, replacing Leif Johansson,
and Jon Fredrik Baksaas, Jan Carlson, Nora
Denzel, Börje Ekholm, Eric A. Elzvik, Kristin S.
Rinne, Helena Stjernholm and Jacob Wallen-
berg were re-elected members of the Board.
Kurt Jofs was elected new Board member
and Kristin Skogen Lund and Sukhinder
Singh Cassidy left the Board. As of March 28,
2018, Torbjörn Nyman, Kjell-Åke Soting and
Roger Svensson were appointed employee
representatives by the unions, with Anders
Ripa, Tomas Lundh and Loredana Roslund
as deputies. During the fall Per Holmberg
replaced Tomas Lundh as deputy.

Management
Since 2017 Börje Ekholm is the President and
CEO of the Group. The President and CEO is
supported by the Group management, con-
sisting of the Executive Team. During 2018
a number of new appointments were made
to the Executive Team.

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 2018, are reported in Note G2, “Infor-
mation regarding members of the Board of
Directors and the Group management.”

The Board of Directors’ proposal for
guide lines for remuneration to Group
management
The Board of Directors proposes that the
2019 Annual General Meeting of shareholders
resolve on unchanged guidelines for remu-
neration to Group Management for the period
up to the 2020 Annual General Meeting com-
pared to the guidelines resolved by the 2018
Annual General Meeting.

Long-Term Variable Compensation Program
2018 (LTV 2018) for the Executive Team
The Company 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 con-

Financials – Board of Directors’ report

sisted of three separate plans: one targeting
all employees, one targeting key contributors
and one targeting senior managers. The pro-
gram was designed to encourage long-term
value creation in alignment with shareholders’
interests. Since 2017, no Stock Purchase
Plan has been implemented. Instead share-
based Long-Term Variable Compensation
Programs for the Executive Team have been
introduced. LTV 2018 for the Executive Team
was approved by the Annual General Meeting
of shareholders (“AGM”) 2018. Details of LTV
2018 are explained in Note G3, “Share-based
compensation.”

Material contracts

Material contractual obligations are outlined
in Note D4, “Contractual obligations.” These
were primarily related to leases of office and
production facilities, purchase con tracts for
outsourced manufacturing, R&D and IT oper-
ations as well as the purchase of components
for the Company’s own manufacturing.

The Company is party to certain agree-
ments, 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 Compa-
ny’s strong financial position, the Company
believes that none of the agreements cur-
rently in effect would in and of itself entail
any material consequence for Ericsson due
to a change in control of the Company.

Ericsson Annual Report 201840

Financials – Board of Directors’ report

Risk management

Sourcing and supply

Risks are defined in both a short-term and
long-term perspective. They are related to
long-term objectives as per the strategic
direction as well as short-term objectives
for next coming year. Risks are categorized
into industry and market risks, commercial
risks, operational risks and compliance risks.
Ericsson’s risk management is 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. Finan-
cial risks are coordinated through Group
Function Finance and Common Functions.

– Risks are dealt with during the strategy
development and target setting, continu-
ous monitoring through monthly and quar-
terly steering group meetings and during
oper ational processes (customer projects,
customer bid/contract, acquisition, invest-
ment and product development projects).
They are subject to various controls such
as decision tollgates and approvals.

A central security unit coordinates manage-
ment of certain risks, such as business inter-
ruption, information security and physical
security. The Group Crisis Management
Council deals with events of a serious nature.
For information on risks that could impact

the fulfillment of targets and form the basis
for mitigating activities, see the other sections
of the Board of Directors’ report, Notes A2
“Critical accounting estimates and judg-
ments,” F4 “Interest-bearing liabilities,” F1
“Financial risk management” and the chapter
Risk factors.

Ericsson’s hardware largely consists of
electronics. 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
manufacturing 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
internal production sites in Estonia, China,
Brazil and special operations in Sweden.

The Company generally negotiates global
supply agreements with its primary suppliers.
Ericsson’s suppliers are required to comply
with the requirements of Ericsson’s Code of
Conduct.

In general, Ericsson has alternative supply

sources and seeks to avoid single source
supply situations.

Sustainability and Corporate
Responsibility

Sustainability and Corporate Responsibility
are central to Ericsson’s business and the
Company’s commitment to the triple bottom
line of responsible environmental perfor-
mance and socio-economic development.
Ericsson’s ambition is to be a responsible and
relevant driver of positive change in society.
The Company’s vision and purpose, “Empow-
ering an intelligent, sustainable and con-
nected world”, embodies the breadth of what
Ericsson aims to do and how the Company is
contributing to the sustainable development
agenda outlined in the UN’s Sustainable

Development Goals (SDGs). The Company
has always driven its technology develop-
ment with the intention to improve people’s
lives and contribute to the betterment of
society, as a means to provide shareholder
value. Ericsson is also committed to reducing
risk for the Company and its stakeholders,
and minimize economic, environmental and
social negative impact.

Ericsson’s approach to sustainability

and corporate responsibility is integrated into
its business operations and performance is
regularly measured, assessed and assured.
Ericsson has prepared a Sustainability

Report in accordance with the Swedish
Annual Accounts Act named the Sustain-
ability and Corporate Responsibility Report
2018, attached to this Annual Report. The
Sustainability and Corporate Responsibility
Report 2018 contains information regarding
the development, performance, position and
impact of the Ericsson Group sustainability
and corporate responsibility related activities
such as human rights, anti-corruption, occu-
pational health and safety, climate action and
energy performance. The report includes iden-
tified sustainability and corporate responsibil-
ity significant topics linked to the Company’s
operations, as well as a description on how
Ericsson manages them and mitigates related
risks. Sustainability and corporate responsi-
bility policies and the implementation results
of these policies is covered. Non-financial key
performance indicators are also presented.

Ericsson Annual Report 2018Inquiries from US authorities

As previously disclosed, Ericsson has been
voluntarily cooperating since 2013 with an
investigation by the United States Securities
and Exchange Commission (SEC) and, since
2015, with an investigation by the United
States Department of Justice (DOJ) into
Ericsson’s compliance with the U.S. Foreign
Corrupt Practices Act (FCPA). The Company
has identified facts that are relevant to
the investigations. These facts have been
shared with the authorities by the Company.
The Company continues to cooperate with
the SEC and the DOJ and is engaged in
discussions with them to find a resolution.
While the length of these discussions cannot
be determined, based on the facts that the
Company has shared with the authorities,
Ericsson believes that the resolution of these
matters will likely result in monetary and other
measures, the magnitude of which cannot be
estimated currently but may be material.

Legal proceedings

In April 2018, Telefonaktiebolaget LM
Ericsson, the present President and CEO
and the Chief Financial Officer of Ericsson as
well as three former executives were named
defendants in a putative class action filed
in the United States District Court for the
Southern District of New York. The complaint
alleges violations of United States securities
laws, principally in connection with service
revenues and recognition of expenses on
long-term service projects. In December

2018 Ericsson filed a motion to dismiss the
complaint. In January 2019, the plaintiff filed
an amended complaint which Ericsson is
currently evaluating.

In 2013, Ericsson filed a patent infringe-
ment lawsuit in the Delhi High Court against
Indian handset company Micromax, seeking
damages and an injunction. As part of its
defense, Micromax filed a complaint with
the Competition Commission of India (CCI)
and the CCI has decided to refer the case to
the Director General’s Office for an in-depth
investigation. In January 2014, the CCI
opened another 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 Micromax
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 some of Ericsson’s
U.S. customers of infringing 16 U.S. Patents,
seeking an injunction and monetary dam-
ages. Ericsson’s customers were successful in
a number of dispositive motions before trial.
This matter is currently on appeal before the
Federal Circuit.

Financials – Board of Directors’ report

IV subsequently filed additional lawsuits
in the District of Delaware accusing some 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 proceed-
ings. Ericsson and its customers also were
successful on a variety of dispositive motions
before trial. IV appealed a number of these
rulings to the Federal Circuit. One claim of one
patent survived these appeals and has been
remanded to the District of Delaware.

In 2017, IV filed additional lawsuits in the

Eastern District of Texas accusing Ericsson
and some of Ericsson’s U.S customers of
infringing 10 U.S. Patents. In February 2019,
a jury awarded IV damages of USD 43 million
in one of those lawsuits. Ericsson disagrees
with the jury’s verdict and intends to appeal.
Separately, the Patent Trial and Appeal Board
has instituted a review of the patents that
were the subject of the February 2019 trial,
following its finding that there is a reasonable
likelihood that those patents are unpatent-
able. The next case is currently set to go to
trial in May 2019.

As a result of the lawsuits filed by IV,
Ericsson may be required to indemnify its
customers and/or pay IV damages.

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.

Ericsson Annual Report 201842

Financials – Board of Directors’ report

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 4 (5) branch
offices. In total, the Group has 80 (80) branch
and representative offices.

Financial information
Income after financial items was SEK 5.8
(–2.0) billion. The Parent Company had no
sales in 2018 or 2017 to subsidiaries, while
37% (40%) of total purchases of goods and
services were from such companies.

Major changes in the Parent Company’s

financial position for the year included:
– Decreased current and non-current receiv-
ables from subsidiaries of SEK –8.7 billion.

– Increased gross cash of SEK 7.8 billion.
– Decreased current and non-current liabi-
lities to subsidiaries of SEK –6.9 billion.
– Decreased impairment of investments

in subsidiaries of SEK 7.8 billion.
Decreased dividend from subsidiaries
of SEK 1.3 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 58.1 (50.3) billion.

Share information
As of December 31, 2018, the total number
of shares in issue was 3,334,151,735, of
which 261,755,983 were Class A shares,
each carrying 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 of participation in the net assets
and earnings. The largest shareholders of the
Parent Company at year-end were Investor
AB with approximately 22.53% of the votes
(7.20% of the shares), AB Industrivärden with
15.14% of the votes (2.61% of the shares)
and Cevian Capital with 5.38% of the votes
(9.09% of the shares).

In accordance with the conditions of the
Long- Term Variable Compensation Program
(LTV) for Ericsson employees, 13,208,460
treasury shares were distributed to employees
or sold in 2018. The quotient value of these
shares was SEK 5.00, totaling SEK 66.0
million, representing less than 1% of capital
stock, and compensation received for shares
sold and distributed shares amounted to
SEK 131.7 million.

The holding of treasury stock at December
31, 2018 was 37,057,039 Class B shares. The
quotient value of these shares is SEK 5.00,
totaling SEK 185 million, representing 1.1% of
capital stock, and the purchase price amounts
to SEK 269.2 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 March 29, 2019, and that the Parent
Company shall retain the remaining part of
non-restricted equity.

The Class B treasury shares held by the
Parent Company are not entitled to receive
dividend. Assuming that no treasury shares
remain on the record date, the Board of
Directors proposes that earnings be distrib-
uted 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 37,417,784,478

SEK 40,751,936,213

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 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 commitments. The Group reports an
equity ratio of 32.7% (37.5%) and a net cash
amount of SEK 35.9 (34.7) 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 completes divestment of majority
stake in MediaKind
On February 1, 2019, Ericsson announced
it had closed the divestment of MediaKind
business to the private equity firm One Equity
Partners. One Equity Partners becomes major-
ity owner, while Ericsson has 49% of the shares
after the transaction on January 31, 2019.
The transaction will generate a positive
impact on operating income in Q1 2019 that

with current visibility is estimated to SEK 0.4
– 0.6 billion and will be reported in Segment
Emerging Business and Other.

As of February 1, 2019, Ericsson’s 49%
share of MediaKind results will be reported
as share in earnings of JV and associated
companies in segment Emerging Business
and Other. MediaKind was in 2018 reported
as part of segment Emerging Business and
Other, as part of Ericsson Media Solutions.

Ericsson Annual Report 2018Financials – Board of Directors’ report

Board assurance

The Board of Directors and the President
declare that the consolidated financial state-
ments have been prepared in accordance
with IFRS, as issued by the IASB and adopted
by the EU, and give a fair view of the Group’s
financial position and results of operations.
The financial statements of the Parent

Company have been prepared in accordance
with generally accepted accounting principles
in Sweden and give a fair view of the Parent
Company’s financial position and results of
operations. The Board of Directors’ Report for
the Ericsson Group and the Parent Company
provides a fair view of the development

of the Group’s and the Parent Company’s
operations, financial position and results of
operations and describes material risks and
uncertainties facing the Parent Company and
the companies included in the Group.

Stockholm, February 26, 2019

Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Ronnie Leten
Chair of the Board

Helena Stjernholm
Deputy Chair of the Board

Jacob Wallenberg
Deputy Chair of the Board

Jon Fredrik Baksaas
Member of the Board

Jan Carlson
Member of the Board

Nora Denzel
Member of the Board

Börje Ekholm
President, CEO and
Member of the Board

Eric A. Elzvik
Member of the Board

Kurt Jofs
Member of the Board

Kristin S. Rinne
Member of the Board

Torbjörn Nyman
Member of the Board

Kjell-Åke Soting
Member of the Board

Roger Svensson
Member of the Board

Our audit report has been submitted on February 26, 2019
PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorized Public Accountant
Lead Partner

Johan Engstam
Authorized Public Accountant

Ericsson Annual Report 201844

Financials – Consolidated financial statements with notes

Consolidated financial statements with notes

Introduction to the financial statements

To support execution of our focused business
strategy, our finance strategy in 2017 and
2018 has included measures to secure finan-
cial resilience, to enhance profit and cash
generation abilities and to improve transpar-
ency and accountability in reporting. Neces-
sary provisions and write-downs following

Carl Mellander
CFO

our strategic shift have substantially de-risked
the balance sheet. Management of the capi-
tal structure has been geared to securing suf-
ficient liquidity to execute the strategy. Cost
reductions increased competitiveness and
improved profit generation. This in combina-
tion with an increased focus on working cap-
ital efficiency including new incentive models
supported cash flow generation. To increase
transparency and improve understanding
of our performance and prospects, segment
reporting was aligned to business account-
ability, with added disclosures and expla-
nations in our financial reporting including
financial targets.

In 2018 the impact of our turnaround plan

became increasingly visible in our financial
performance and we achieved organic growth.
We also improved gross margins and operat-
ing margins. Supported by a positive free cash
flow before dividend, we ended 2018 with a
net cash position of SEK 35.9 billion and enter
2019 with increased financial resilience.

Two new accounting standards were imple-
mented during 2018: IFRS 15 “Revenue from

Customer Contracts” and IFRS 9 “Financial
Instruments.” Financial information for 2016
and 2017 has been restated according to IFRS
15 so that revenue presented for these periods
is directly comparable to revenue recognized
in 2018. For IFRS 9, opening balances for
2018 have been adjusted but previous periods
have not been restated. Note A3, “Changes in
accounting policies” summarizes all changes
resulting from the new standards.

In this annual report we have changed the

structure of the notes to the financial state-
ments to improve their clarity, dividing them
into eight sections. The significant accounting
policies and key estimates and judgments in
notes A1 and A2 follow the same structure.
In summary, 2018 was a year when our
financial foundation was further solidified.
This, in combination with continued strategy
execution enables us to advance towards
selective, disciplined and profitable growth.
Our ambition is to further improve financial
performance and resilience by continued
focus on profits and cash flows in line with
our 2020 and 2022 targets.

Contents

Consolidated financial statements

Consolidated income statement

Consolidated statement of comprehensive
income (loss)

Consolidated balance sheet

Consolidated statement of cash flows

Consolidated statement of changes in equity

Notes to the consolidated financial statements

Basis of presentation
Significant accounting policies

Critical accounting estimates
and judgments

Changes in accounting policies

Business and operations
Segment information

Net sales

Expenses by nature

Other operating income and
expenses

Inventories

Customer contract related
balances

Other current receivables

Trade payables

Other current liabilities

Long-term assets
Intangible assets

Property, plant and equipment

Leasing

Obligations
Provisions

Contingent liabilities

Assets pledged as collateral

Contractual obligations

Group structure
Equity

Business combinations

Associated companies

Financial instruments
Financial risk management

Financial income and expenses

Financial assets, non-current

Interest-bearing liabilities

Employee related
Post-employment benefits

Information regarding members
of the Board of Directors and the
Group management

Share-based compensation

Employee information

Other
Taxes

Earnings per share

Statement of cash flows

Related party transactions

Fees to auditors

Events after the reporting period

Ericsson Annual Report 2018Consolidated financial statements

Financials – Consolidated financial statements

Consolidated income statement

January–December, SEK million

Net sales
Cost of sales

Gross income
Gross margin (%)

Research and development expenses
Selling and administrative expenses
Impairment losses on trade receivables 2)

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 (loss)

Taxes

Net income (loss)

Net income (loss) attributable to:

Stockholders of the Parent Company
Non-controlling interest

Other information

Notes

B1, B2

B4
B4
B1, E3

F2
F2

Average number of shares, basic (million)
Earnings (loss) per share attributable to stockholders of the Parent Company, basic (SEK) 3)
Earnings (loss) per share attributable to stockholders of the Parent Company, diluted (SEK) 3)

H2
H2
H2

2018

210,838
–142,638

68,200
32.3%

–38,909
–27,519
–420

–66,848

497
–665
58

1,242

–316
–2,389

–1,463

–4,813

–6,276

–6,530
254

3,291
–1.98
–1.98

2017 1)

2016 1)

205,378
–157,451

47,927
23.3%

–37,887
–29,027
–3,649

–70,563

1,154
–13,285
24

–34,743

–372
–843

–35,958

3,525

–32,433

–32,576
143

3,277
–9.94
–9.94

220,316
–155,062

65,254
29.6%

–31,631
–28,317
–553

–60,501

1,987
–1,584
31

5,187

–135
–2,158

2,894

–1,882

1,012

833
179

3,263
0.26
0.25

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”
2) Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017 and 2016. Previously, these losses have been reported as selling and administrative expenses.
3) Based on Net income (loss) attributable to stockholders of the Parent Company.

Ericsson Annual Report 201846

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
Revaluation of borrowings due to change in credit risk
Tax on items that will not be reclassified to profit or loss

Items that may be reclassified to profit or loss
Available-for-sale financial assets

Gains/losses arising during the period
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

2018

–6,276

2017 1)

–32,433

2016 1)

1,012

–2,453
207
285

–
–

–
2,047
14
–

100

970
–
–547

68
5

99
–3,378
–
–16

–2,799

–6,176

–35,232

–6,470
294

–35,357
125

–1,766
–
520

–7
–

–2
4,236
–362
1

2,620

3,632

3,403
229

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Ericsson Annual Report 2018Financials – Consolidated financial statements

Dec 31
2018

Dec 31
2017 1)

Dec 31

2016 1)

4,237
30,035
3,474

12,849

611
1,515
1,180
23,982
6,559
23,152

4,593
27,815
4,148

12,857

624
1,279
2,178
25,105
5,897
21,963

8,076
43,387
7,747

16,734

775
1,179
2,128
7,586
4,443
16,998

107,594

106,459

109,053

29,255
13,178
51,172
1,704
20,844
6,625
38,389

161,167

268,761

86,978
792

87,770

28,720
5,471
670
30,870
4,346

70,077

10,537
2,255
29,348
29,883
38,891

110,914

268,761

25,547
13,120
48,105
1,753
22,301
6,713
35,884

153,423

259,882

96,935
636

97,571

25,009
3,596
901
30,500
2,776

62,782

6,283
2,545
29,076
26,320
35,305

99,529

259,882

31,618
17,773
48,358
2,625
24,432
13,325
36,966

175,097

284,150

134,582
675

135,257

23,723
946
2,147
18,653
2,621

48,090

5,374
8,033
24,930
25,844
36,622

100,803

284,150

Notes

C1, E2

C2, C3, E2

E3
F3
B6, F1
F1, F3
F3
H1

B5
B6, F1
B6, F1
B6, F1
B7
F1
H3

G1
D1
H1
F1, F4

D1
F1, F4
B6
B8
B9

Consolidated balance sheet

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
Contract assets
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
Contract liabilities
Trade payables
Other current liabilities

Total equity and liabilities 2)

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”
2) Of which interest-bearing liabilities SEK 33,125 (33,045) million.

Ericsson Annual Report 2018
48

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 and contract assets
Trade payables
Provisions and post-employment benefits
Contract liabilities
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 of own shares
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

H3, E2
H3, E2
C1

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

2018

2017 1)

2016 1)

–6,276
7,830

1,554

–4,807
1,085
–2,047
2,436
6,696
–808
5,233

7,788

9,342

–3,975
334
–1,618
333
–925
–523
2,242

–4,132

5,210

911
–1,748
–
107
–
–3,425
78

–4,077

1,372

2,505

35,884

38,389

–32,433
19,324

–13,109

4,719
798
1,379
1,886
4,755
5,024
4,149

22,710

9,601

–3,877
1,016
–289
565
–1,444
–463
–11,578

–16,070

–6,469

13,416
–4,830
15
98
–15
–3,424
218

5,478

–91

–1,082

36,966

35,884

1,012
5,863

6,875

–1,756
–950
6,226
3,301
3,069
4,578
–7,333

7,135

14,010

–6,129
482
–984
362
–4,483
–3,004
5,473

–8,283

5,727

1,527
–1,072
131
105
–131
–12,263
–39

–11,742

2,757

–3,258

40,224

36,966

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Ericsson Annual Report 2018Financials – Consolidated financial statements

Consolidated statement of changes in equity

Equity and Other comprehensive income (loss) 2018 1)

SEK million

January 1, 2018

Opening balance adjustment due to IFRS 9

January 1, 2018, adjusted

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
Revaluation of borrowings due to change in credit risk
Tax on items that will not be reclassified to profit or loss

Items that may be reclassified to profit or loss
Changes in cumulative translation adjustments

Group

Joint ventures and associated companies

Total other comprehensive income (loss), net of tax

Total comprehensive income (loss)

Transactions with owners
Sale of own shares
Long-term variable compensation plans
Dividends paid
Transactions with non-controlling interest

December 31, 2018

Capital stock

Addi tional
paid in capital

16,672

24,731

–

16,672

24,731

–
–

–
–
–

–

–
–
–
–

–
–

–
–
–

–

–
–
–
–

16,672

24,731

Retained
earnings

55,532

–983

54,549

–6,583
53

–2,457
207
286

2,010

–6,470

107
677
–3,287
–1

45,575

Stock holders’
equity

Non-control ling
interest

Total equity

96,935

–983

95,952

–6,583
53

–2,457
207
286

2,010

–6,470

107
677
–3,287
–1

86,978

636

–

636

254
–

4
–
–1

–

294

–
–
–138
–

792

97,571

–983

96,588

–6,329
53

–2,453
207
285

2,047

100

–6,176

107
677
–3,425
–1

87,770

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”
2) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK 1,584 million (SEK –2,484 million in 2017 and 2,355 million in 2016),

and realized gain/losses net from sold/liquidated companies, SEK 36 million (SEK –24 million in 2017 and SEK –90 million in 2016).

3) Dividends paid per share amounted to SEK 1.00 (SEK 1.00 in 2017 and SEK 3.70 in 2016).

Ericsson Annual Report 201850

Financials – Consolidated financial statements

Equity and Other comprehensive income (loss) 2017 1)

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

Capital stock

Addi tional
paid in capital

16,657

24,731

Retained
earnings

93,194

Stock holders’
equity

Non-control ling
interest

–
–

–

–
–
–

–

15
–
–
–
–
–

–
–

–

–
–
–

–

–
–
–
–
–
–

16,672

24,731

134,582

–32,597
21

956
–544

5
99
–3,349

–16

–2,781

–35,357

–
98
–15
885
–3,273
–

55,532

5
99
–3,349

–16

–2,781

–35,357

15
98
–15
885
–3,273
–

96,935

675

143
–

14
–3

–

–
–
–29

–

–18

125

–
–
–88
–
–151
75

636

Total equity

135,257

–32,454
21

970
–547

5
99
–3,378

–16

–2,799

–35,232

15
98
–103
885
–3,424
75

97,571

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Ericsson Annual Report 2018Financials – Consolidated financial statements

Equity and Other comprehensive income 2016 1)

SEK million

January 1, 2016

Capital stock

Addi tional
paid in capital

16,526

24,731

Retained
earnings

105,268

Opening balance adjustment due to IFRS 15

–

–4,353

January 1, 2016, adjusted

16,526

24,731

100,915

Stock holders’
equity

Non-control ling
interest

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

–
–

–

131
–
–
–
–
–

–
–

–

–
–
–
–
–
–

16,657

24,731

146,525

–4,353

142,172

807
26

–1,770
521

–7
–2

4,189
–362

2,570

3,403

–
105
–131
957
–12,058
3

93,194

–7
–2

4,189
–362

2,570

3,403

131
105
–131
957
–12,058
3

134,582

841

–

841

179
–

4
–1

–
–

47
–

–

229

–
–
–190
–
–205
–

675

Total equity

147,366

–4,353

143,013

986
26

–1,766
520

–7
–2

4,236
–362

2,620

3,632

131
105
–321
957
–12,263
3

135,257

1) 2016 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” see Note A3, “Changes in accounting policies” for more information.

Ericsson Annual Report 201852

Financials – Notes to the consolidated financial statements

Notes to the consolidated
financial statements

Section A – Basis of presentation

A1 Significant accounting policies
Basis of presentation

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,
2018 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 2018, the Company has applied
IFRS as issued by the IASB (IFRS effective as per December 31, 2018). There
is no difference between IFRS effective as per December 31, 2018, and IFRS
as endorsed by the EU, nor is RFR 1 related interpretations issued by the
Swedish Financial Reporting Board (Rådet för Finansiell Rapportering) or the
Swedish Annual Accounts Act in conflict with IFRS, for all periods presented.
The financial statements were approved by the Board of Directors on
February 26, 2019. The financial statements are subject to approval by the
Annual General Meeting of shareholders.

For disclosure about new standards and amendments applied as from
January 1, 2018, see Note A3, “Changes in accounting policies.” The compari-
son years have been restated in relation to the adoption of IFRS 15, “Revenue
from Contracts with Customers”. The accounting under the former standards
IAS 11/18 is therefore not disclosed in this annual report. Restate refers to
the retroactive adjustments made in relation to the adoption of IFRS 15,
measured and presented as required by IFRS.

The preparations for the adoption of new standards and interpretations not

adopted 2018 are disclosed at the end of this note, see subheading Other.

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: financial instruments classified
as FVTPL, financial instruments classified as FVOCI and plan assets related
to defined benefit pension plans. Financial information in the consolidated
income statement, the consolidated statement of comprehensive income,
the consolidated statement of cash flows and the consolidated statement
of changes in equity with related notes are presented with two comparison
years. For the consolidated balance sheet, financial information with related
notes is presented with one comparison year. In addition, a consolidated
balance sheet is presented as of the beginning of the comparison year due
to the retrospective restatement of IFRS 15, “Revenue from Contracts with
Customers”.

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, Telefonaktie-
bolaget 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.

Foreign currency remeasurement and translation
Items included in the financial statements of each entity of the Company are
measured using the currency of the primary economic environment in which
the entity operates (“the functional currency”). The consolidated financial
statements are presented in Swedish Krona (SEK), which is the Parent
Company’s functional and presentation currency.

Transactions and balances
Foreign currency transactions are translated into the functional currency
using the exchange rates prevailing at the dates of each respective trans-
actions. Foreign exchange gains and losses resulting from the settlement of
such transactions and from the translation at period-end exchange rates of
monetary assets and liabilities denominated in foreign currencies are recog-
nized in the income statement.

Changes in the fair value of monetary securities denominated in foreign
currency classified as FVOCI are allocated 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 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 com-

ponent of Other comprehensive income (OCI).

On consolidation, exchange differences arising from the translation of the

net investment in foreign operations, and of borrowings and other currency
instruments designated as hedges of such investments, are accounted for
in OCI. When a foreign operation is partially disposed of or sold, exchange
differences that were recorded in OCI are recognized in the income statement
as part of the gain or loss on sale.

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 infla-
tion, 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.

Ericsson Annual Report 2018Note A1, cont’d.

Business and operations
For further disclosure, see the notes under section B

Revenue recognition
IFRS 15, “Revenue from Contracts with Customers” is a principle-based
model of recognizing revenue from customer contracts. It has a five-step
model that requires revenue to be recognized when control over goods and
services are transferred to the customer.

The following paragraphs describes the types of contracts, when perfor-
mance obligations are satisfied, and the timing of revenue recognition. They
also describe the normal payment terms associated with such contracts and
the resulting impact on the balance sheet over the duration of the contracts.
The vast majority of Ericsson’s business is for the sale of standard products
and services.

Standard products and services
Products and services are classified as standard solutions if they do not
require significant installation and integration services to be delivered.
Installation and integration services are generally completed within a short
period of time, from the delivery of the related products. These products and
services are viewed as separate distinct performance obligations. This type of
customer contract is usually signed as a frame agreement and the customer
issues individual purchase orders to commit to purchases of products and
services over the duration of the agreement.

Revenue for standard products 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 sales, transfer of control is usually deemed to occur
when the equipment arrives at the customer site and for software sales, when
the licenses are made available to the customer. Software licences may be
provided to the customer at a point in time, activated or ready to be activated
by the customer at a later stage, therefore revenue is recognised when cus-
tomer obtains control of the software. Contractual terms may vary, therefore
judgment will be applied when assessing the indicators of transfer of control
for both hardware and software sales. Software licences are also sold on
a when-and-if available basis or delivered to the customer network over a
period of time. In such cases, the customer is billed on a subscription basis or
based on usage, and revenue recognised over time. Revenue for installation
and integration services is recognized upon completion of the service. Costs
incurred in delivering standard products and services are recognized as costs
of sales when the related revenue is recognized in the Income Statement.
Costs incurred relating to performance obligations not yet fully delivered are
recognised as Inventories.

Transaction prices under these contracts are usually fixed, and mostly billed

upon delivery of the hardware or software and completion of installation
services. A proportion of the transaction price may be billed upon formal
acceptance of the related installation services, which will result in a contract
asset for the proportion of the transaction price that is not yet billed. Amounts
billed are normally subject to payments terms within 60 days from invoice
date. Customer finance agreements may be agreed separately with some
customers where payment terms exceed 179 days.

Revenue for recurring services such as customer support and managed
services is recognized as the services are delivered, generally pro-rata over
time. Costs incurred in delivering recurring services are recognized as cost of
sales as they are incurred. Transaction prices under these contracts are billed
over time, often on a quarterly basis. Transaction price for managed services
contract may include variable consideration that is estimated based on per-
formance and prior experience with the customer. Amounts billed are nor-
mally subject to payments terms within 60 days from invoice date. Contract
liabilities or receivables may arise depending on whether the quarterly billing
is in advance or in arrears. Contract for standard products and services applies
to business in all segments.

Customized solution
Some products and services are sold together as part of a customized solution
to the customer. This type of contract requires significant installation and
integration services to be delivered within the solution, normally over a period
of more than 1 year. These products and services are viewed together as a
combined performance obligation. This type of contract is usually sold as

Financials – Notes to the consolidated financial statements

a firm contract in which the scope of the solution and obligations of both
parties are clearly defined for the duration of the contract. Customized solu-
tion does not have any alternative use to the Company as it cannot be sold to
or used by other customers.

Revenue for the combined performance obligation shall be recognized over
time if progress of completion can be reliably measured and enforceable right
to payment exists over the duration of the contract. The progress of comple-
tion is estimated by reference to the output delivered such as achievement
of contract milestones and customer acceptance. This method determines
revenue milestones over the duration of the contract, and it is considered
appropriate as it reflects the nature of the customized solution and how inte-
gration service is delivered in these projects. If the criteria above are not met,
then all revenue shall be recognized upon the completion of the customized
solution, when final acceptance is provided by the customer. Costs incurred
in delivering customised solutions are recognized as costs of sales when
the related revenue milestone is recognized in the Income statement. Costs
incurred relating to future revenue milestones are recognized as Inventories
and assessed for recoverability on a regular basis.

Transaction price under these contracts is usually a fixed fee, split into a
number of progress payments or billing milestones as defined in the contract.
In most cases, revenue recognized is limited to the progress payments or
unconditional billing milestones over the duration of the contract, therefore no
contract asset or contract liability arises on these contracts. In some contracts,
revenue may be recognized in advance of billing milestones if enforceable
payment rights exist at all times over the contract duration. This will result in
an unbilled receivable balance until billing milestones are reached. Amounts
billed are normally subject to payments terms within 60 days from invoice
date. Customer finance agreements may be agreed separately with some
customers where payment terms exceed 179 days.

Contract for customized solution applies to the Business Support Systems
(BSS) business within the segment Digital Services and the Media Solutions
business within the segment Emerging Business and Other.

Intellectual Property Rights (IPR)
This type of contract relates to the patent and licensing business. The
Company has assessed that the nature of its IPR contracts is such that they
provide customers a license with the right to access the Company intellectual
properties over time, therefore revenue shall be recognized over the duration
of the contract. Royalty revenue based on sales or usage is recognized when
the sales and usage occurs.

The transaction price on these contracts is usually structured as a royalty
fee based on sales or usage over the period, measured on a quarterly basis.
This results in a receivable balance if the billing is performed the following
quarter after measurement. Some contracts include lump sum amounts,
payable either up front at commencement or on an annual basis. This results
in a contract liability balance if payment is in advance of revenue, as revenue
is recognized over time. Amounts billed are normally subject to payments
terms within 60 days from invoice date.

As described in Note B1 “Segment Information”, revenue from IPR licens-

ing contracts are allocated to the segments Networks and Digital Services.

Customer contract related balances
Trade receivables include amounts that have been billed in accordance with
customer contract terms and amounts that the Company has an uncondi-
tional right to, with only passage of time before the amounts can be billed in
accordance with the customer contract terms.

Customer finance credits arise from credit terms exceeding 179 days in
the customer contract or a separate financing agreement signed with the
customer. Customer finance is a class of financial assets that is managed
separately from receivables. See Note F1, “Financial risk management,” for
further information on credit risk management of trade receivables and cus-
tomer finance credits.

In accordance with IFRS 15, where significant financing is provided to the

customer, revenue is adjusted to reflect the impact of the financing transac-
tion. These transactions could arise from the customer finance credits above
if the contracted interest rate is below the market rate or through implied
financing transactions due to payment terms of more than one year from the
date of transfer of control. The Company has elected to use the practical expe-
dient not to adjust revenue for transactions with payment terms, measured
from the date of transfer of control, of one year or less.

Ericsson Annual Report 201854

Financials – Notes to the consolidated financial statements

Note A1, cont’d.

Contract asset is unbilled sales amount relating to performance obligation

that has been satisfied under customer contract but is conditional on terms
other than only the passage of time before payment of the consideration
is due. Under previous standards these unbilled sales balances have been
included within trade receivables.

Contract liability relates to amounts that are paid by or due from customers
for which performance obligations are unsatisfied or partially satisfied. Under
previous standards these balances have been disclosed as deferred revenue
within other current liabilities, and the Company concluded that the balances
meet the definition of contract liability under IFRS 15. Advances from custom-
ers are also included in the contract liability balance.

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 Com-

pany’s accounting policies as disclosed in this note.

The Company’s segment disclosure about geographical areas is based

on the country in which transfer of risks and rewards occur.

For further information, see Note B1, “Segment information.”

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).
Recognition and derecognition of CWIP relates to the Company’s revenue
recognition principles meaning that costs incurred under a customer contract
are initially recognized as CWIP (see Revenue recognition policy). When the
related revenue is recognized, CWIP is derecognized and is instead recog-
nized as Cost of sales.

In Note A2, “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.

Trade payables
See accounting policies under the subheading for Financial instruments and
risk management.

Long-term assets
For further disclosure, see the notes under section C

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
allocated is performed in the fourth quarter, or when there is an indication
of impairment. An impairment loss is recognized if the carrying amount of
an asset or its cash-generating unit exceeds its recoverable amount. The
recoverable amount is the higher of the value in use and the fair value less
costs 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 dis-
counting 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 A2, “Critical accounting estimates and judgments” below and Note
C1, “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,
trademarks and software, as well as capitalized development expenses and
separately acquired intangible assets, mainly consisting of software. At initial
recognition, acquired intangible assets related to business 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 techno-
logical 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 estimated 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.

Corporate assets have been allocated to cash-generating units in relation
to 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.

Property, plant, and equipment
Property, plant, and equipment consist of real estate, machinery, servers
and other technical assets, other equipment, tools and installation and
construction in process and advance payment. They are stated at cost less
accumulated depreciation and any impairment losses.

Depreciation is charged to income, on a straight-line basis, over the
estimated useful life of each component of an item of property, plant, and
equipment, including buildings. Estimated useful lives are, in general, 25–50
years for real estate and 3–10 years for machinery and equipment. Deprecia-
tion and any impairment charges are included in Cost of sales, Research and
development or Selling and administrative expenses.

The Company recognizes in the carrying amount of an item of property,
plant, and equipment the cost of replacing a component and derecognizes
the residual value of the replaced component.

Impairment testing as well as recognition or reversal of impairment of
property, plant and equipment is performed in the same manner as for intan-
gible 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

Ericsson Annual Report 2018Financials – Notes to the consolidated financial statements

Note A1, cont’d.

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.

Group structure
For further disclosure, see the notes under section E

Leasing when the Company is the lessor
Leasing contracts with the Company as lessor are classified as finance
leases when the majority of risks and rewards are transferred to the lessee,
and otherwise as operating leases. Under a finance lease, a receivable is
recognized at an amount equal to the net investment in the lease and revenue
is recognized in accordance with the revenue recognition principles.

Under operating leases the equipment is recorded as property, plant and
equipment and revenue as well as depreciation is recognized on a straight-
line basis over the lease term.

Obligations
For further disclosure, see the notes under section D

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 unre-
solved 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.

Customer contract provisions mainly consist of estimated losses on onerous

contracts. For losses on customer contracts, a provision equal to the total
estimated loss is recorded immediately when a loss from a contract is proba-
ble and can be estimated reliably. These contract loss estimates may include
penalties under a loss contract.

Other provisions include provisions for unresolved tax issues, litigations
and other provisions. The Company provides for estimated future settlements
related to patent infringements based on the probable outcome 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 obligations
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 D2, “Contingent liabilities.” In Note A2, “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.

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
liabilities that were not recognized on the acquired entity’s balance sheet, for
example intangible assets such as customer relations, brands, patents and
financial liabilities. Goodwill arises when the purchase price exceeds the fair
value of recognizable acquired net assets. In acquisitions with non-controlling
interests full or partial goodwill can be recognized. Final amounts are estab-
lished 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
recognized in profit or loss. The fair value is the initial carrying amount for the
purposes of subsequently accounting for the retained interest in an associate
or financial asset. In addition, any amounts previously recognized in Other
comprehensive income in respect of that entity are accounted for as if the
Company had directly disposed of the related assets or liabilities. This may
mean that amounts previously recognized in Other comprehensive income
are reclassified to profit or loss.

At acquisition, there is a choice on an acquisition-by-acquisition basis to
measure the non-controlling interest in the acquiree either at fair value or at
the non-controlling interest’s proportionate share of the acquiree’s net assets.

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 company 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, is i.e., when the Company has sig-
nificant influence and the power to participate in the financial and operating
policy decisions of the associated company, but is not in control or joint control
over those policies. Normally, this is the case in voting stock interest, including
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 Compa-
ny’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

Ericsson Annual Report 201856

Financials – Notes to the consolidated financial statements

Note A1, cont’d.

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 appro-
priate.

In Note A2, “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.

Financial instruments and risk management
For further disclosure, see the notes under section F

Accounting policies applied 2018
As from 2018 the Company has applied IFRS 9 “Financial instruments.”
The following accounting polices apply to 2018.

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
amortized cost, at fair value through other comprehensive income (FVOCI),
and at fair value through profit or loss (FVTPL). The classification depends on
the characteristics of the asset and the business model in which it is held.

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 for-
mula. Inputs to the valuations are market prices for implied volatility, foreign
exchange and interest rates.

Financial assets at amortized cost
Financial assets are classified as amortized cost if the contractual terms give
rise to payments that are solely payments of principal and interest on the
principal amount outstanding and the financial asset is held in a business
model whose objective is to hold financial assets in order to collect contractual
cash flows. These assets are subsequently measured at amortized cost using
the effective interest method, minus impairment allowances. Interest income
and gains and losses from financial assets at amortized cost are recognized in
financial income.

Financial assets at fair value through other comprehensive income (FVOCI)
Assets are classified as FVOCI if the contractual terms give rise to payments
that are solely payments of principal and interest on the principal amount
outstanding and the financial asset is held in a business model whose objec-
tive is achieved by both collecting contractual cash flows and selling financial
assets. These assets are subsequently measured at fair value with changes in
fair value recognized in other comprehensive income (OCI), except for effec-
tive interest, impairment gains and losses and foreign exchange gains and
losses which are recognized in the income statement. Upon derecognition, the
cumulative gain or loss in OCI is reclassified to the income statement.

Financial assets at fair value through profit or loss (FVTPL)
All financial assets that are not classified as either amortized cost or FVOCI
are classified as FVTPL. 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. Debt instruments classified as FVTPL, but not held

for trading, are classified on the balance sheet based on their maturity date
(i.e., those with a maturity longer than one year are classified as non-current).
Investments in shares and participations are classified as FVTPL and classi-
fied as non-current financial assets.

Gains or losses arising from changes in the fair values of the FVTPL cat-
egory (excluding derivatives and customer financing) are presented in the
income statement within financial income in the period in which they arise.
Gains and losses on derivatives are presented in the income statement as
follows. Gains and losses on derivatives that hedge operating assets or lia-
bilities, financial assets and financial liabilities are presented as cost of sales,
financial income and financial expense, respectively. Gains and losses on cus-
tomer financing are presented in the income statement as selling expenses.
Dividends on equity instruments are recognized in the income statement
as part of financial income when the Company’s right to receive payments
is established.

Impairment in relation to financial assets
At each balance sheet date, financial assets classified as either amortized cost
or FVOCI and contract assets are assessed for impairment based on Expected
Credit Losses (ECL). ECLs are the difference between all contractual cash
flows that are due in accordance with the contract and all the cash flows that
the Company expects to receive, discounted at the original effective interest
rate. Allowances for trade receivables and contract assets are always equal to
lifetime ECL. The Company has established a provision matrix based on his-
torical credit loss experience, which has been adjusted for current conditions
and expectations of future economic conditions. The losses are recognized in
the income statement. When there is no reasonable expectation of collection,
the asset is written off.

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 managed by the Ericsson Internal Bank are designated FVTPL
because they are managed on a fair value basis. Changes in fair value are
recognized in the income statement, except for changes in fair value due to
changes in credit risk which are recognized in other comprehensive income.
Borrowings not managed by the Ericsson Internal Bank are initially rec-
ognized at fair value, net of transaction costs incurred. These 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 inter-
est 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.

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 expected credit losses.
– The recognized contractual fee less cumulative amortization when

amortized over the guarantee period, using the straight-line-method.

Accounting policies applied prior to 2018
Prior to 2018, IAS 39 was applied instead of IFRS 9. Comparative information
has not been restated. The following accounting policies apply to periods prior
to 2018.

Financial assets
Financial assets were recognized when the Company became a party to the
contractual provisions of the instrument. Regular purchases and sales of
financial assets were recognized on the settlement date.

Ericsson Annual Report 2018Note A1, cont’d.

Financial assets were derecognized when the rights to receive cash flows
from the investments had expired or had been transferred and the Company
had transferred substantially all risks and rewards of ownership. Separate
assets or liabilities were recognized if any rights and obligations were created
or retained in the transfer.

The Company classified its financial assets in the following categories: at
fair value through profit or loss, loans and receivables, and available-for-sale.
The classification depended on the purpose for which the financial assets
were acquired. Management determined the classification of its financial
assets at initial recognition.

Financial assets were 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 were initially recognized at
fair value, and transaction costs were expensed in the income statement.

The fair values of quoted financial investments and derivatives were based

on quoted market prices or rates. If official rates or market prices were not
available, fair values were calculated by discounting the expected future cash
flows at prevailing interest rates. Valuations of foreign exchange options and
Interest Rate Guarantees (IRG) were made by using the Black-Scholes for-
mula. Inputs to the valuations were 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 were designated as
such at initial recognition or were financial assets held for trading. A financial
asset was classified as held for trading if it was acquired principally for the
purpose of selling in the near term.

Derivatives were classified as held for trading, unless they were designated

as hedging instruments for the purpose of hedge accounting. Assets held for
trading were 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)
were presented in the income statement within Financial income in the period
in which they arise. Derivatives were 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, were subse-
quently measured at amortized cost using the effective interest rate method,
less allowances for impairment charges. Trade receivables included amounts
due from customers. The balance represented amounts billed to customers as
well as amounts where risk and rewards had been transferred to the customer,
but the invoice had not yet been issued.

Collectability of the receivables was assessed for purposes of initial revenue

recognition.

Available-for-sale financial assets
Investments in liquid bonds with low credit risk which were not held for
trading are classified as available-for-sale. If the maturity was longer than
one year the bonds were included in Interest-bearing securities, non-current.
Bonds held as available-for-sale with a maturity shorter than one year were
included in Interest-bearing securities, current. Unrealized gains and losses
were recognized in OCI. When these securities were derecognized, the accu-
mulated fair value adjustments were included in financial income.

Dividends on available-for-sale equity instruments were recognized in the

income statement as part of financial income when the Company’s right to
receive payments was established.

Changes in the fair value of monetary securities denominated in a for-
eign currency and classified as available-for-sale were analyzed between
translation differences resulting from changes in the amortized cost of the
security and other changes in the carrying amount of the security. Trans-
lation differences on monetary securities were recognized in profit or loss;
translation differences on non-monetary securities were recognized in OCI.
Changes in the fair value of monetary and non-monetary securities classified
as available-for-sale were recognized in OCI. When securities classified as
available-for-sale were sold or impaired, the accumulated fair value adjust-
ments previously recognized in OCI were included in the income statement.

Financials – Notes to the consolidated financial statements

Impairment in relation to financial assets
At each balance sheet date, the Company assessed whether there was
objective evidence that a financial asset or a group of financial assets was
impaired. In the case of equity securities classified as available-for-sale, a sig-
nificant or prolonged decline in the fair value of the security below its cost was
considered as evidence that the security was impaired. If any such evidence
existed 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 – was removed from OCI and recognized in the income statement.
Impairment losses recognized in the income statement on equity instruments
were not reversed through the income statement.

An assessment of impairment of receivables was performed when there

was objective evidence that the Company would not be able to collect all
amounts due according to the original terms of the receivable. Significant
financial difficulties of the debtor, probability that the debtor would enter
bankruptcy or financial reorganization, and default or delinquency in pay-
ments were considered indicators that the trade receivable was impaired.
The amount of the allowance was 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 was
reduced through the use of an allowance account, and the amount of the
loss was recognized in the income statement and presented as impairment
losses on trade receivables. In previous years, this was presented within
selling expenses. When a trade receivable was finally established as uncol-
lectible, it was written off against the allowance account for trade receivables.
Subsequent recoveries of amounts previously written off were credited to
impairment losses on trade receivables in the income statement.

Financial liabilities
Financial liabilities were recognized when the Company became bound to the
contractual obligations of the instrument.

Financial liabilities were derecognized when they were extinguished, i.e.,

when the obligation specified in the contract was discharged, cancelled or
expired.

Borrowings
Borrowings were initially recognized at fair value, net of transaction costs
incurred. Borrowings were subsequently stated at amortized cost; any dif-
ference between the proceeds (net of transaction costs) and the redemption
value was recognized in the income statement over the period of the borrow-
ings using the effective interest method.

Borrowings were classified as current liabilities unless the Company had an

unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.

Trade payables
Trade payables were recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method.

Fair value hedging and fair value hedge accounting
The purpose of fair value hedges was 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 float-
ing rate (e.g., STIBOR or LIBOR) by using interest rate swaps (IRS). The credit
risk/ spread was not hedged. The fixed leg of the IRS was matched against
the cash flows of the hedged bond. Hereby, the fixed-rate bond/debt was
converted into a floating-rate debt in accordance with the policy.

Changes in the fair value of derivatives that were designated and qualify
as fair value hedges were recorded in the income statement, together with any
changes in the fair value of the hedged asset or liability that were attributable
to the hedged risk, when hedge accounting was applied. The Company only
applied fair value hedge accounting for hedging fixed interest risk on borrow-
ings. Both gains and losses relating to the interest rate swaps hedging fixed
rate borrowings and the changes in the fair value of the hedged fixed rate
borrowings attributable to interest rate risk were recognized in the income
statement within Financial expenses. If the hedge no longer met the criteria
for hedge accounting, the adjustment to the carrying amount of a hedged
item for which the effective interest method was used was amortized to the
income statement over the remaining period to maturity.

Ericsson Annual Report 201858

Financials – Notes to the consolidated financial statements

Note A1, cont’d.

When applying fair value hedge accounting, derivatives were initially
recognized at fair value at trade date and subsequently re-measured at
fair value.

At the inception of the hedge, the Company documented 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 documented its assessment, both at hedge inception and
on an ongoing basis, of whether the derivatives that were used in hedging
transactions were highly effective in offsetting changes in fair values or cash
flows of the hedged items.

The fair value of a hedging derivative was classified as a non-current asset
or liability when the remaining maturity of the hedged item was more than 12
months, and as a current asset or liability when the remaining maturity of the
hedged item was less than 12 months. Trading derivatives were classified as
current assets or liabilities.

Financial guarantees
Financial guarantee contracts were initially recognized at fair value (i.e.,
usually the fee received). Subsequently, these contracts were measured at
the higher of:
– The expected credit losses.
– The recognized contractual fee less cumulative amortization when

amortized over the guarantee period, using the straight-line-method.
– The best estimate of the net expenditure comprising future fees and cash

flows from subrogation rights.

Employee related
For further disclosure, see the notes under section G

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 actuarial and investment risks fall on the employee. The expenditures
for defined contribution plans are recognized as expenses during the period
when the employee provides service.

Under a defined benefit plan, it is the Company’s obligation to provide
agreed benefits to current and former employees. The related actuarial and
investment risks fall on the Company.

The present value of the defined benefit obligations for current and for-
mer employees is calculated using the Projected Unit Credit Method. The
discount rate for each country is determined by reference to market yields
on high-quality corporate bonds that have maturity dates approximating
the terms of the Company’s obligations. In countries where there is no deep
market in such bonds, the market yields on government bonds are used. The
calculations are based upon actuarial assumptions, assessed on a quarterly
basis, and are as a minimum prepared annually. Actuarial assumptions are
the Company’s best estimate of the variables that 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 unex-
pectedly 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 commitments less the fair value of plan assets
and is recognized net on the balance sheet. When the result is a net benefit to
the Company, the recognized asset is limited to the present value of any future
refunds from the plan or reductions in future contributions to the plan.

Interest cost on the defined benefit obligation and interest income on plan
assets is calculated as a net interest amount by applying the discount rate to
the net defined benefit liability. All past service costs are recognized immedi-
ately. Swedish special payroll tax is accounted for as a part of the pension cost
and the pension liability respectively.

Payroll taxes related to actuarial gains and losses are included in deter-

mining actuarial gains and losses, reported under OCI.

In Note A2, “Critical accounting estimates and judgments” further dis-

closure is presented in relation to key sources of estimation uncertainty.

Share-based compensation to employees and the Board of Directors
Share-based compensation is related to remuneration to 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 com-
pany of services received under the plans. The conditions under a program
shall be considered as prescribed in IFRS 2, “Share-based payment.”

As from 2017 the newly granted share-based programs are cash settled,
except for programs for the Executive team. Those programs are share-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
performance – and market conditions. Examples of performance conditions
could be revenue and profit targets while market conditions relate 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 program 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 G3, “Share-based compensation.”

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 G3, “Share-based compensation.”

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 dis-
closed in Note G3, “Share-based compensation.” 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.

Other
For further disclosure, see the notes under section H

Income taxes
Income taxes in the consolidated financial statements include both current
and deferred taxes. Income taxes are reported in the income statement unless
the underlying item is reported directly in equity or OCI. For those items, the
related income tax is also reported directly in equity or OCI. A current tax
liability or asset is recognized for the estimated taxes payable or refundable
for the current year or prior years.

Deferred tax is recognized for temporary differences between the book

values of assets and liabilities and their tax values and for tax loss carry-
forwards. A deferred tax asset is recognized only to the extent that it is prob-
able that future taxable profits will be available against which the deductible
temporary differences and tax loss carry-forwards can be utilized. In the
recognition of income taxes, the Company offsets current tax receivables
against current tax liabilities and deferred tax assets against deferred tax
liabilities in the balance sheet, when the Company has a legal right to offset
these items and the intention to do so. Deferred tax is not recognized for the
following temporary differences: goodwill not 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

Ericsson Annual Report 2018Note A1, cont’d.

it is probable that the temporary difference will not reverse in the foresee-
able 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 rec-
ognized 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 A2, “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.

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 attribut-

able 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 ful-
fillment of any performance conditions as of the reporting date would give
a right to ordinary shares.

Statement of cash flows
The statement of cash flows is prepared in accordance with the indirect
method. Cash flows in foreign subsidiaries are translated at the average
exchange rate during the period. Payments for subsidiaries acquired or
divested are reported as cash flow from investing activities, net of cash and
cash equivalents acquired or disposed of respectively.

Cash and cash equivalents consist of cash, bank, and interest-bearing

securities that are highly liquid monetary financial instruments with a
remaining maturity of three months or less at the date of acquisition.

New accounting 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, 2018 and have not
been applied in preparing these consolidated financial statements. Below the
applicable standards/interpretations that have been issued are described.

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 definition of a lease is amended which impacts the accounting both from
a lessee and lessor perspective. The new standard includes more specific
guidance on if and when leasing is embedded in a service contract.

Accounting for lessees
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 main types of assets leased by the Company are, in the order of mate-
riality, real estate, IT-equipment and vehicles. Vehicles are mainly used under
service contracts.

Accounting for lessors
The accounting for lessors will be based on the same classification as of an
operating or finance lease under IAS 17. This means that if the Company, as a

Financials – Notes to the consolidated financial statements

lessor, substantially retains the ownership rights and obligations of the asset,
then the lease is classified as an operating lease. On the contrary, the lease
is classified as a finance lease if the ownership rights and obligations of the
asset are transferred to the lessee.

Impact at transition
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.
At transition, the Company will apply the practical expedient under IFRS
16 to not reassess whether a contract is, or contains, a lease. Therefore, the
Company will apply the standard to contracts previously identified as leases,
or as containing a lease under IAS 17 and IFRIC 4.

The Company will elect to implement the standard using the cumulative
catch-up method, with the cumulative effect being adjusted to the opening
retained earnings balance at transition date. There will be no restated infor-
mation presented for previous years.

At transition, the Company, as a lessee, will recognize lease liability for

leases previously classified as operating leases. The weighted average
incremental borrowing rate to be applied to lease liabilities recognized in
the balance sheet at the transition date is estimated to 5.4%. Right-of-use
assets will for most contracts be recognized based on the amount equal to the
related lease liability. For some larger real estate contracts right-of-use assets
are recognized as if IFRS 16 had been applied since the commencement date,
however, using the incremental borrowing rate as per the effective date. The
asset value for these contracts is estimated to be SEK 0.3 billion lower than
the related liabilities. It is this differences that causes the reduction of equity
as per transition date.

The Company will also apply the following practical expedients when

applying IFRS 16 at transition date:
– The IAS 37 onerous lease contract measurement for the operating leases
existing as per the transition date. This expedient will be applied as a
substitute for the measurement of impairment for the related right-of-use
assets. Impairment testing will be applied going-forward.

– Exclusion of initial direct costs from the measurement of the right-to-use

asset at the date of initial recognition.

A new classification in the income statement will be made. Under IFRS 16, as
a lessee, the finance cost is reported under finance costs while under operat-
ing leases they were embedded in the lease expenses, either as costs of sales
or operating expenses

The timing of the cash flows will not be impacted. The reported amorti-
zation of lease liabilities will, however, be reported as from effective date
as financing cash flows and not operating cash flows as prior to 2019. The
impact of this reclassification is in 2019 estimated to be SEK 2.0 billion.

The minimum lease payments for operating lease contracts at December
31, 2018, was SEK 13.4 billion. This amount was reduced by the impact of dis-
counting of SEK 2.1 billion, the low-value lease agreements of SEK 0.9 billion
and the net of advance payments and lease term extensions of SEK 0.3 billion,
resulting in an estimated lease liability of SEK 10.1 billion for January 1, 2019.

Estimated opening balance sheet impact of IFRS 16 (discounted)

SEK billion

Right-of-use assets
Lease liabilities, current
Lease liabilities, non-current
Equity

IFRS 16 adjustment

8.7
2.0
8.1
0.3

The following items has been considered: Onerous contracts with SEK 0.8
billion, straight-lining, periodization of lease costs, with SEK 0.6 and advance
payments with SEK 0.3 billion. The tax effect on the equity posting is deemed
to be immaterial. There is no impact on the income statement.

The estimated increase of right-of-use assets is SEK 8.7 billion. This will

increase the total asset value by 3%.

IFRIC 23 – Uncertainty over income tax treatments
IFRIC 23, “Uncertainty over income tax treatments,” effective date January 1,
2019, is estimated to not have a material impact on the Company’s financial
statements.

Ericsson Annual Report 2018

Financials – Notes to the consolidated financial statements

A2 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
The Company uses estimates and judgments in determining the amount and
timing of revenue under IFRS 15, “Revenue from Contracts with Customers”,
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 discounts,

performance related price and contract penalties. Transaction price, including
variable considerations, is 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. These estimates are comprised of prices set for
similar customer and circumstances, adjusted to reflect appropriate profit
margins for the market. Estimates are used to determine discounts that relate
specifically to each performance obligations, thus impacting their stand-alone
selling prices.

Judgments made in relation to accounting policies applied
Management applies judgment when assessing the customer’s ability and
intention to pay in a contract. The assessment is based on the latest customer
credit standing and the customer’s past payment history. This assessment
may change during the contract execution, and if there is evidence of
deterioration in the customer’s ability or intention to pay, then under IFRS 15
no further revenue shall be recognized until the collectability criteria is met.
Conversely, this assessment may also change favorably over time, upon which
revenue shall now be recognized on a contract that did not initially meet the
collectability criteria.

Revenue for standard products shall be recognised 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. Judgment may be applied in determining whether risk and
rewards have been transferred to the customer and whether the customer has
accepted the products. In a sale of software licence, judgment may also be
applied to determine when the software is made available to the customer by
considering when they can direct the use of, and obtain substantially all the
benefits of, the licence. Often all indicators of transfer of control are assessed
together and an overall judgment formed as to when transfer of control has
occurred in a customer contract.

Revenue for customised solutions shall be recognized over time if progress

of completion can be reliably measured and enforceable right to payment
exists over the duration of the contract. The progress of completion is esti-
mated by reference to the output delivered such as achievement of contract
milestones and customer acceptance. Judgment are applied when deter-

mining the appropriate revenue milestones that best reflect the progress of
completion and are aligned with key acceptance stages within the contract.

Customer contract related balances
Key sources of estimation uncertainty for 2018
The Company monitors the financial stability of its customers, the environ-
ments in which they operate and historical credit losses. This is combined with
expectations of future economic conditions to calculate expected credit losses
(ECLs). ECLs on trade receivables and contract assets are assessed using
a provision matrix based on days past due for groupings of customers that
have historically had similar loss patterns. The amount of ECLs is sensitive
to changes in the circumstances of our customers and the environments in
which they operate as well as management’s expectations of future economic
conditions. Actual credit losses may be higher or lower than expected. Total
allowances for expected credit losses as of December 31, 2018 were SEK 4.1
billion or 6.0% of gross trade receivables and contract assets. For further
detailed information see Note F1, “Financial risk management”.

Customer financing assets are valued at fair value on an individual basis.
When market pricing is not available, an internal valuation model is applied
considering external credit rating, political and commercial risks and bank
pricing. Regular monitoring of customer behavior is also a part of the internal
assessment.

Key sources of estimation uncertainty prior to 2018
The Company monitors the financial stability of its customers and the
environment in which they operate to make estimates regarding the likelihood
that the individual receivables will be paid. Total allowances for estimated
losses as of December 31, 2017, were SEK 3.6 billion or 5.3% of gross trade
and customer finance receivables. For further detailed information, see Note
F1, “Financial risk management.”

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, 2018, amounted to SEK 2.6 (2.4) billion
or 8% (9%) of gross inventory. For further detailed information, see Note B5,
“Inventories.”

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
impairment 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 C1, “Intangible assets” impairment has been
recognized due to changes during 2018 in the accounting estimates for future
cash flows. Write-downs for intangible assets and goodwill amounted to
SEK 0.5 (17.2) billion for 2018.

At December 31, 2018, the amount of acquired intellectual property rights

and other intangible assets amounted to SEK 33.5 (32.0) billion, including
goodwill of SEK 30.0 (27.8) billion.

For further discussion on goodwill, see Note A1, “Significant accounting
policies”. Estimates related to acquired intangible assets are based on similar
assumptions and risks as for goodwill. For more information, see Note C1,
“Intangible assets.”

Judgments made in relation to accounting policies applied
At initial recognition and subsequent remeasurement, management
judgments are made, both for key assumptions and regarding impairment

Ericsson Annual Report 2018Financials – Notes to the consolidated 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. Judgment is applied in determining the deepness of the high-quality
corporate bond market in each country. The impact of applying an alternative
discount rate based on Swedish covered bonds is disclosed in Note G1,
“Post-employment benefits.” At December 31, 2018, defined benefit obliga-
tions for pensions and other post-employment benefits amounted to SEK 90.3
(87.6) billion and fair value of plan assets to SEK 64.3 (64.9) billion. For more
information on estimates and assumptions, see Note G1, “Post-employment
benefits.”

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
allowances. The valuation of temporary differences and tax loss carry-for-
wards, 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.

The largest amounts of tax loss carry-forwards are reported in Sweden,
with an indefinite period of utilization (i.e. with no expiry date), except for
withholding taxes that expires after five years. For further information, see
Note H1, “Taxes.”

At December 31, 2018, the value of deferred tax assets amounted to

SEK 23.2 (22.0) 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.

Note A2, cont’d.

indicators. In the purchase price allocation made for each acquisition, the
purchase price shall be assigned to the identifiable assets, liabilities and
contingent liabilities based on fair values for these assets. Any remaining
excess value is reported as goodwill.

This allocation requires management judgment as well as the definition of
cash-generating units for impairment testing purposes. Other 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 onerous contracts with cus-
tomers and suppliers. Onerous customer contract provision includes estimate
of costs to be incurred based on the latest conditions and progress on the
contract. Assumptions on the probable outcomes of revenue and costs, which
may include costs of potential compensation or penalties on exit, are revised
regularly based on latest available information and the provision remeasured
accordingly. Other sources for estimation uncertainty are restructuring pro-
gram execution, 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 to future reassessments and out-
comes. As disclosed in Note D1, “Provisions” provisions have been recognized
due to significant changes during 2018 and 2017 in the accounting estimates
for customer contracts resulting in identification of onerous contracts.

At December 31, 2018, provisions amounted to SEK 16.0 (9.9) billion.

For further detailed information, see Note D1, “Provisions.”

Judgments made in relation to accounting policies applied
Whether a present obligation is probable or not requires judgment. The nature
and type of risks for these provisions differ and management’s judgment
is applied regarding the nature and extent of obligations in deciding if an
outflow of resources is probable or not.

Contingent liabilities
Key sources of estimation uncertainty
As disclosed under ‘Provisions’ there are uncertainties in the estimated
amounts. The same type of uncertainty exists for contingent liabilities.

Judgments made in relation to accounting policies applied
As disclosed under Note A1, “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.

Foreign exchange risks
Key sources of estimation uncertainty
Foreign exchange risk impacts the financial results of the Company, see
further disclosure in Note F1, “Financial risk management,” under Foreign
exchange risk.

Ericsson Annual Report 201862

Financials – Notes to the consolidated financial statements

A3 Changes in accounting policies

Two new IFRS standards are effective as from January 1, 2018, IFRS 9,
“Financial instruments” and IFRS 15, “Revenue from Customer Contracts.”

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. For IFRS 15 the Company has adopted the full retrospective
method for transition, which mean that prior year comparatives have been
restated and equity has been adjusted at the initial application date (January
1, 2016). The Company has applied IFRS 9 retrospectively on the required
effective date, January 1, 2018. The 2018 opening balances have been
adjusted, but the previous periods have not been restated.

Based on the new requirements under IFRS 15, contract assets and con-

tract liabilities have been added as new lines in the consolidated balance

Impact of IFRS 9 and IFRS 15 on balance sheet items

sheet and statement of cash flow. Previously, contract assets were reported
as trade receivables and contract liabilities were reported as deferred revenue
and as advances from customers within other current liabilities.

Due to IFRS 9, impairment losses on trade receivables are reported on a
separate line in the consolidated income statement. Previously, these losses
have been reported as Selling and administrative expenses. In the statement
of comprehensive income, a new line has been added for revaluation of bor-
rowings due to changes in credit risk. A new line has been added to the consoli-
dated statement of equity showing the adjustment to the opening balance.
The prior periods financial statements, notes and key ratios presented in
this annual report have been restated to reflect adoption of these new standards.

2017

ASSETS
Non-current assets
Deferred tax assets

Current assets
Inventories
Contract assets
Trade receivables

EQUITY AND LIABILITIES
Equity

Stockholder’s equity

Non-current liabilities
Borrowings, non-current

Current liabilities
Provisions, current
Contract liabilities
Trade payables
Other current liabilities

2015 and 2016

ASSETS
Non-current assets
Deferred tax assets

Current assets
Inventories
Contract assets
Trade receivables

EQUITY AND LIABILITIES
Equity

Stockholder’s equity

Non-current liabilities
Borrowings, non-current

Current liabilities
Provisions, current
Contract liabilities
Trade payables
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

735

21,963

288

22,251

24,960
–
63,210

587
13,120
–15,105

25,547
13,120
48,105

–
–
–1,240

25,547
13,120
46,865

99,540

–2,605

96,935

–983

95,952

30,500

6,350
–
26,321
62,370

As reported
31.12.2015

IFRS 15
restatement

–

30,500

6,283
29,076
26,320
35,305

–67
29,076
–1
–27,065

Restated
balance
1.1.2016

–
–
–
–

30,531

6,283
29,076
26,320
35,305

As reported
31.12. 2016

IFRS 15
restatement

Restated
balance
31.12. 2016

13,183

1,228

14,411

15,522

1,476

16,998

28,436
–
71,069

169
20,188
–21,880

28,605
20,188
49,189

30,307
–
68,117

1,311
17,773
–19,759

31,618
17,773
48,358

146,525

–4,353

142,172

139,817

–5,235

134,582

22,744

3,662
–
22,389
58,663

–

22,744

18,653

–

18,653

–
20,324
–
–16,267

3,662
20,324
22,389
42,396

5,411
–
25,318
56,003

–37
24,930
526
–19,381

5,374
24,930
25,844
36,622

Ericsson Annual Report 2018Note A3, cont’d.

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
has applied IFRS 9 retrospectively on the required effective date, January 1,
2018, and has not restated comparative information.

Classification and measurement
The following changes in classification of assets and liabilities were made
as of January 1, 2018.
– Investments in liquid bonds with low credit risk which are not held for

trading 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 was no change in the valuation of these assets at transition.
These bonds will continue to be reported as Interest-bearing securities,
non-current. At transition, there were SEK 51 million of accumulated gains
(after tax), which would have been recycled to the income statement upon
derecognition of the assets. Due to the adoption of IFRS 9, these gains will
remain permanently in retained earnings and will not be recycled to the
income statement in subsequent periods. Changes in fair value from the
date of transition are recognized immediately in the income statement.
– 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 are classified as fair value through
other comprehensive income (FVOCI). At transition, there was no change
in the carrying value of these assets due to the change in classification.
See below for the change in carrying value due to the changes in impair-
ment requirements.

– 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 are classified FVTPL. There was 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, are classified as FVTPL with no impact
on carrying value. At transition, there were SEK 744 million of accumulated
gains (after tax) which would have been recycled to the income statement
upon derecognition of the equity instruments. Due to the adoption of IFRS
9, these gains will remain permanently in retained earnings and will not be
recycled to the income statement in subsequent periods. Changes in fair
value from the date of transition are recognized immediately in the income
statement.

– Notes, bonds, and loans issued by the Parent Company are managed on a
fair value basis and are therefore designated as FVTPL with changes in fair
value due to changes in credit risk realized in OCI. As a result, the carrying
value of borrowings increased by SEK 31 million. Fair value hedge account-
ing will not be applied to any borrowings as from 2018.

Financials – Notes to the consolidated financial statements

Reclassification of financial instruments as of 1.1.2018

MSEK

Financial assets

Customer finance

Trade receivables
Interest-bearing securities
– held for trading
Interest-bearing securities
– managed on a fair value basis
Interest-bearing securities
– other
Cash equivalents
– held for trading

Cash equivalents – other
Other investments in shares
and participations
Other financial investments 2)
Derivatives 3)

Financial liabilities
Borrowings – managed
on a fair value basis

Borrowings – other

Trade payables
Derivatives 3)

Classifica-
tion under
IAS 39

Classifica-
tion under
IFRS 9

Carrying
amount
under
IAS 39

Carrying
amount
under
IFRS 9

Loans and
receivables
Loans and
receivables

FVTPL
Available-
for-sale
Loans and
receivables

FVTPL
Loans and
receivables
Available-
for-sale
FVTPL
FVTPL

Amortized
cost
Amortized
cost
Amortized
cost
FVTPL

FVTPL

3,931

FVOCI

48,105

46,865 1)

FVTPL

6,118

FVTPL
Amortized
cost

FVTPL
FVTPL
FVTPL

Designated
FVTPL
Amortized
cost
Amortized
cost
FVTPL

25,433

266

14,345

3,136

1,279
820
1,293

28,771

28,802 4)

4,274

26,320
926

1) Change in value due to additional impairment allowance.
2) Other financial investments are presented in other financial assets.
3) Derivatives are presented in other current receivables or other current liabilities

in the consolidated balance sheet

4) Change in value due to transition from amortized cost to fair value.

Impairment
Impairment losses for assets classified as amortized cost or FVOCI are now
calculated based on expected credit losses (ECL). Previously, financial assets
in the loans and receivables and available-for-sale categories were assessed
for impairment using objective evidence that the Company will not be able
to collect.

The allowance for impairment for trade receivables and contract assets
increased by SEK 1,240 million due to the change in models. The allowance
for impairment for customer finance credits was removed as these assets are
classified as FVTPL. The opening balance of the customer financing credits
valued at fair value is unchanged from the net balance of customer finance
credits after reducing for allowances at December 31, 2017. Cash equivalents
and interest-bearing securities classified as amortized cost are assessed for
impairment under IFRS 9. However, the impairment required for these bal-
ances was immaterial.

IFRS 15 – Revenue from Contracts with Customers
IFRS 15 replaced 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 has adopted the full retrospective method for transition
which required a restatement of prior year comparatives and adjustment
to equity in the earliest presented comparative period, i.e. January 1, 2016
(‘initial application date’). The Company has applied the practical expedient
in IFRS 15 C5(a) not to restate completed contracts at January 1, 2016.
The impact of IFRS 15 was a reduction to equity (before tax effect) at

transition date, January 1, 2018, of SEK 3.3 billion.
The main impacted areas are described below.

Ericsson Annual Report 201864

Financials – Notes to the consolidated financial statements

Note A3, cont’d.

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
recognized as a reduction in revenue earlier which resulted in a reduction of
equity (before tax effect) of SEK 1.1 billion at transition date (corresponding
impact at 1.1.2016 and 31.12.2016 is a reduction in equity (before tax effect)
of SEK 3.8 billion and SEK 4.2 billion respectively).

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 performance completed to date is restricted under IFRS 15 to enforce-
able billing rights under the contracts. This resulted in a reduction in equity
(before tax effect) of SEK 0.8 billion at transition date (corresponding impact
at 1.1.2016 and 31.12.2016 is a reduction in equity (before tax effect) of
SEK 0.7 billion and SEK 0.8 billion respectively).

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
judgment 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, thereby a reduction in equity (before tax effect) of SEK 0.4 billion
at transition date (corresponding impact at 1.1.2016 and 31.12.2016 is a
reduction in equity (before tax effect) of SEK 0.2 billion and SEK 0.5 billion
respectively). Under previous standards revenue was recognized on these
contracts when risk of the equipment was transferred at handover points, but
the definition of trans fer of control in IFRS 15 means that other factors such as
billing right and physical 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 resulted 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, was 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 transferred 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 before payment of the consideration is due.

At transition date, contract liability balance of SEK 29.1 billion, was
presented separately within current liabilities. Under previous standards
these balances have been disclosed as deferred revenue within other current
liabilities, whereas under IFRS 15 the Company concluded that they meet
the definition of contract liability.

The Company has considered the key areas impacted above and imple-
mented the significant changes to the accounting principles, internal pro-
cesses and internal controls framework to reflect the new revenue recognition
model from January 1, 2018.

Impact on Equity, Income statement and Cash flow
The impact of IFRS 15 on equity was SEK –2.6 billion for December 31,
2017, –5.2 billion for December 31, 2016 and SEK –4.4 billion for January 1,
2016. The impact on the income statement also resulted in restated numbers
reported by segment and market areas, for more information see Note B1,
“Segment information.” The impacts on equity and on the income statement
(for years 2016 and 2017) are presented in the tables below.

The impact on cash flow resulted in changes in net income, adjustments to
reconcile net income to cash and in various lines in operating net assets. There
was no impact on cash flow from operating activities, investing activities
or financing activities. The consolidated statement of cash flows has been
restated according to IFRS 15.

Impact of IFRS 15 on Equity

January 1, 2016
December 31, 2016
December 31, 2017

As reported

147,366
140,492
100,176

Impact of
IFRS 15

–4,353
–5,235
–2,605

Restated

143,013
135,257
97,571

Impact of IFRS 15 on Income statement items

2017
Net sales
Cost of sales
Gross income
Operating income (loss)
Taxes
Net income (loss)
Earnings per share, basic (SEK)
Earnings per share, diluted (SEK)

2016
Net sales
Cost of sales
Gross income
Operating income (loss)
Taxes
Net income (loss)
Earnings per share, basic (SEK)
Earnings per share, diluted (SEK)

As reported

Impact of
IFRS 15

Restated

201,303
–156,758
44,545
–38,126
4,267
–35,063
–10.74
–10.74

222,608
–156,243
66,365
6,299
–2,131
1,895
0.53
0.52

4,075
–693
3,382
3,383
–742
2,630
0.80
0.80

–2,292
1,181
–1,111
–1,112
249
–883
–0.27
–0.27

205,378
–157,451
47,927
–34,743
3,525
–32,433
–9.94
–9.94

220,316
–155,062
65,254
5,187
–1,882
1,012
0.26
0.25

Ericsson Annual Report 2018

Section B – Business and operations

B1 Segment information

Operating segments
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 ser-
vices aim to attract has been considered, as well as the distribution channels
they are sold through. Commonality regarding technology, research and
development 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
– Emerging Business and Other.

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 BSS, OSS, Cloud Core, Cloud Communication, NFV and Cloud
infrastructure. It also includes consulting, learning and testing services. 18%
of the IPR licensing revenues are reported as part of segment Digital Services.

Segment Managed Services covers vendor agnostic services to manage
service providers networks and includes networks managed services, IT
managed services and ADM, and network design and optimization.

Segment Emerging Business and Other includes Emerging Business, iconec-
tiv, Red Bee Media and Media Solutions. Emerging Business include invest-
ment areas to support service providers in finding new revenues streams,

Operating segments 2018

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)

Networks

138,570

55,153
39.8%

19,421
14.0%

Digital
Services

38,089

8,318
21.8%

–13,852
–36.4%

Other segment items
Share in earnings of JV and associated companies
Amortizations
Depreciations
Impairment losses
Restructuring expenses
Gains/losses on sale of investments and operations

28
–830
–1,717
–308
–1,781
–132

27
–2,295
–933
–406
–5,366
–36

Financials – Notes to the consolidated financial statements

examples being connectivity services and platforms for Internet of Things.
iconectiv is an interconnection solution for service providers and enterprises
coming from the former Telcordia business.

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, IPR licensing revenues and the majority of segment Emerging
Business and 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
2018, 2017 or 2016.

The company 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 48% (45%) of net sales. The largest customer
accounted for approximately 9% (8%) of net sales in 2018.

For more information, see Risk factors, “Market, Technology and

Business Risks.”

Managed
Services

Emerging
Business and
Other

Total
Segments

210,838

68,200
32.3%

1,242
0.6%

8,409

1,843
21.9%

–5,420
–64.5%

25,770

2,886
11.2%

1,093
4.2%

3
–14
–169
–29
–276
–57

–
–807
–456
–354
–592
–

58
–3,946
–3,275
–1,097
–8,015
–225

Unallocated

–

–
–

–
–
–
–
–
–

Group

210,838

68,200
32.3%

1,242
0.6%
–316
–2,389

–1,463
–4,813

–6,276

58
–3,946
–3,275
–1,097
–8,015
–225

Ericsson Annual Report 201866

Financials – Notes to the consolidated financial statements

Note B1, cont’d.

Operating segments 2017 1)

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)

Networks

132,285

43,428
32.8%

10,455
7.9%

Digital
Services

38,752

4,698
12.1%

–27,282
–70.4%

Managed
Services

Emerging
Business and
Other

26,472

–1,574
–5.9%

–4,089
–15.4%

7,869

1,375
17.5%

–13,827
–175.7%

Total
Segments

205,378

47,927
23.3%

–34,743
–16.9%

Other segment items
Share in earnings of JV and associated companies
Amortizations
Depreciations
Impairment losses
Restructuring expenses
Gains/losses on sale of investments and operations

22
–1,104
–1,883
–1,413
–4,828
316

8
–2,465
–1,268
–9,349
–2,513
–56

–6
–14
–193
–108
–675
1

–
–765
–759
–8,571
–485
–67

24
–4,348
–4,103
–19,441
–8,501
194

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,”, for more information see Note A3, “Changes in accounting policies.”

Operating segments 2016 1)

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
Amortizations
Depreciations
Impairment losses
Reversals of impairment losses
Restructuring expenses
Gains/losses on sale of investments and operations

Networks

140,076

46,193
33.2%

16,669
11.9%

11
–1,526
–2,532
–90
5
–3,413
72

Digital
Services

42,774

15,603
35.0%

–7,146
–15.3%

22
–1,923
–1,061
–38
2
–3,176
27

28,780

1,244
4.0%

–326
–1.7%

–
–18
–341
–12
1
–382
18

Managed
Services

Emerging
Business and
Other

Total
Segments

220,316

65,254
29.6%

5,187
2.4%

8,686

2,214
25.5%

–4,010
–46.2%

–2
–998
–487
–101
–
–596
6

31
–4,465
–4,421
–241
8
–7,567
123

1) 2016 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Unallocated

–

–
–

–
–
–
–
–
–

Unallocated

–

–
–

–
–
–
–
–
–
–

Group

205,378

47,927
23.3%

–34,743
–16.9%
–372
–843

–35,958
3,525

–32,433

24
–4,348
–4,103
–19,441
–8,501
194

Group

220,316

65,254
29.6%

5,187
2.4%
–135
–2,158

2,894
–1,882

1,012

31
–4,465
–4,421
–241
8
–7,567
123

Ericsson Annual Report 2018
Financials – Notes to the consolidated financial statements

Note B1, cont’d.

Market area 2018

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) 6)

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

Digital
Services

Managed
Services

4,824
4,849
8,358
12,339
6,284
1,435

38,089

3,388
1,465
3,680
13,207
4,030
–

25,770

Emerging
Business
and Other

40
80
96
313
15
7,865

8,409

Networks

21,337
15,915
46,452
34,413
13,300
7,153

138,570

5) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
6) Including IPR licensing revenue reported under Other above.

Market area 2017 5)

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) 7)

Total
1) Of which in Sweden 7)
2) Of which in EU 7)
3) Of which in the United States 7)
4) Of which in China 7)

Net sales

Digital
Services

Managed
Services

4,755
5,463
8,035
12,147
6,800
1,552

38,752

3,216
1,867
3,207
14,138
4,044
–

26,472

Emerging
Business
and Other

8
14
114
280
46
7,407

7,869

Networks

23,367
16,239
40,645
30,236
14,075
7,723

132,285

5) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”
6) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
7) Including IPR licensing revenue reported under Other above.

Market area 2016 5)

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) 7)

Total
1) Of which in Sweden 7)
2) Of which in EU 7)
3) Of which in the United States 7)
4) Of which in China 7)

Net sales

Digital
Services

Managed
Services

4,356
6,777
7,986
14,584
6,987
2,084

42,774

3,355
1,513
6,017
13,620
4,275
–

28,780

Emerging
Business
and Other

5
9
85
110
2
8,475

8,686

Networks

23,741
18,694
37,863
34,179
16,108
9,491

140,076

5) 2016 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”
6) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
7) Including IPR licensing revenue reported under Other above.

Non-current
assets 5)

Total

445
1,833
9,397
39,481
50
–

51,206
34,434
38,423
8,349
1,525

Non-current
assets 6)

Total

512
1,516
8,387
39,559
63
–

50,037
34,381
37,895
7,092
1,123

Non-current
assets 6)

Non-current
assets

690
1,556
14,650
59,737
86
–

76,719
53,111
57,759
11,053
530

Total

29,589
22,309
58,586
60,272
23,629
16,453

210,838
2 315
35 941
61 446
14 601

Total

31,346
23,583
52,001
56,801
24,965
16,682

205,378
3,334
36,472
54,694
14,983

Total

31,457
26,993
51,951
62,493
27,372
20,050

220,316
3,365
38,783
56,332
18,886

Ericsson Annual Report 201868

Financials – Notes to the consolidated financial statements

B2 Net sales

Net sales

Hardware
Software
Services

Net sales
Of which IPR licensing revenues
Export sales from Sweden

2018

76,792
44,633
89,413

210,838
7,954
109,969

2017 1)

2016 1)

70,862
43,896
90,620

205,378
8,250
87,463

72,675
49,096
98,545

220,316
10,256
105,552

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with

Customers,” for more information see Note A3, “Changes in accounting policies.”

B5 Inventories

Inventories

Raw materials, components, consumables
and manufacturing work in progress
Finished products and goods for resale
Contract work in progress

Inventories, net

2018

2017 1)

7,484
9,667
12,104

29,255

4,015
9,273
12,259

25,547

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for

more information see Note A3, “Changes in accounting policies.”

The amount of inventories, excluding contract work in progress, recognized as
expense and included in Cost of sales was SEK 55,632 (58,901) million.

Contract work in progress consists of costs incurred to date on standard
and customised solutions where the performance obligations are yet to be
fully delivered. These costs will be recognised as cost of sales when the related
revenue is recognised in the Income statement.

B3 Expenses by nature

Expenses by nature

Goods and services
Employee remuneration
Amortization and depreciation
Impairments, obsolescence allowances and
revaluation
Financial expenses
Taxes

Expenses incurred
Inventory increase/decrease (–/+) 2)
Additions to capitalized development

Expenses charged to the income statement

2018

135,554
67,161
7,221

3,470
2,389
4,813

220,608
–2,995
–925

216,688

2017 1)

2016 1)

Reported amounts are net of obsolescence allowances of SEK 2,611

128,180
76,502
8,451

11,531
843
–3,525

221,982
4,794
–1,444

225,332

133,809
77,774
8,886

1,325
2,158
1,882

225,834
–1,748
–4,483

219,603

(2,425) million.

Movements in obsolescence allowances

Opening balance
Additions, net
Utilization
Translation differences
Balances regarding acquired/divested businesses

Closing balance

2018

2,425
1,079
–987
94
–

2,611

2017

2,412
1,319
–1,210
–91
–5

2,425

2016

2,555
725
–981
113
–

2,412

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with

Customers,” for more information see Note A3, “Changes in accounting policies.”

2) The inventory changes are based on changes of net inventory values.

Total restructuring charges in 2018 were SEK 8.0 (8.5) billion and were
primarely related to the completed cost reduction program initiated in 2017
and costs of SEK –3.1 billion related to revised BSS strategy. Restructuring
charges in 2017 included 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.

B6 Customer contract related balances

Trade receivables, customer finance, contract assets and contract liabilities

Customer finance credits
Trade receivables
Contract assets
Contract liabilities

2018

2,884
51,172
13,178
29,348

2017 1)

3,931
48,105
13,120
29,076

Restructuring charges by function

Cost of sales
R&D expenses
Selling and administrative expenses

Total restructuring charges

2018

5,938
1,293
784

8,015

2017

5,242
2,307
952

8,501

2016

3,475
2,739
1,353

7,567

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for

more information see Note A3, “Changes in accounting policies.”

Total trade receivables include SEK 140 (58) million balance relating
to associated companies and joint ventures.

Of the total Customer finance credits balance, SEK 1,704 (1,753) million
is current.

B4 Other operating income and expenses

Revenue recognized in the period

Other operating income and expenses

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)

Total other operating expenses

2018

2017

2016

30
105
362

497

–17
–330
–275
–43

–665

47
324
783

1,154

–74
–130
–12,966
–115

423
219
1,345

1,987

–509
–96
–
–979

–13,285

–1,584

1) Includes divestments presented in Note E2, “Business combinations.”
2) For more information about the write-down of goodwill, see Note C1, “Intangible assets.”
3) Includes revaluation of cash flow hedges of SEK 0 billion (SEK 0 billion in 2017 and

SEK –0.9 billion in 2016) partly offset by result from trading activities.

Revenue recognized in the year relating to the opening
contract liability balance
Revenue recognized relating to performance obligations
satisfied in prior financial periods

2018

2017

22,447

17,509

–1,148

–1,035

Revenue recognised in 2018 and 2017 relating to performance obligations
satisfied or partially satisfied in prior financial periods is a net adjustment that
relates to contract modifications, retrospective price adjustments, settlement
and adjustments to variable consideration based on actual measurements
concluded in the year.

Transaction price allocated to the remaining performance obligations

Aggregate amount of transaction price allocated to unsatisfied
or partially satisfied performance obligations

2018

104,519

Ericsson Annual Report 2018Financials – Notes to the consolidated financial statements

Note B6, cont’d.

The company expects to recognize approximately 80% of the transaction
price allocated to the remaining performance obligations as revenue in 2019
and the remaining 20% as revenue in 2020.

For all reporting periods prior to the transition date, the Company has
elected the practical expedient not to disclose the amount of the transaction
price allocated to the remaining performance obligations and an explanation
of when the entity expects to recognise the amount as revenue.

B8 Trade payables

Trade payables

Trade payables to associated companies and joint ventures
Trade payables, excluding associated companies and joint
ventures

For information about credit risk and impairment of customer contract

Total

related balances, see Note F1, “Financial risk management.”

B7 Other current receivables

Other current receivables

Prepaid expenses
Advance payments to suppliers
Derivatives with a positive value 1)
Taxes
Other

Total

1) See also Note F1, “Financial risk management.”

B9 Other current liabilities

2018

2,101
269
403
16,862
1,209

20,844

2017

2,546
338
1,207
15,291
2,919

22,301

Other current liabilities

Accrued interest
Accrued expenses

Of which employee-related
Of which supplier-related
Of which other 2)

Derivatives with a negative value 3)
Other 4)

Total

2018

293

2017

286

29,590

29,883

26,034

26,320

2018

656
32,258
12,774
10,920
8,564
887
5,090

38,891

2017 1)

383
29,196
8,935
10,491
9,770
926
4,800

35,305

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,”

for more information see Note A3, “Changes in accounting policies.”

2) Major balance relates to accrued expenses for customer projects.
3) See Note F1, “Financial risk management.”
4) 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.

Section C – Long-term assets

C1 Intangible assets

Intangible assets 2018

Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested businesses 2)
Sales/disposals
Reclassification 3)
Translation difference

Closing balance

Accumulated amortizations
Opening balance
Amortizations
Sales/disposals
Translation difference

Closing balance

Accumulated impairment losses
Opening balance
Impairment losses

Closing balance

Net carrying value

1) Intellectual property rights.
2) For more information on acquired/divested businesses, see Note E2, “Business combinations.”
3) Reclassification from inventory.

Capitalized
development
expenses

22,731
925
–
–1,468
1,505
26

23,719

–13,677
–2,559
1,468
–

–14,768

–4,460
–254

–4,714

4,237

IPR1), brands
and other
intangible assets

55,932
28
451
–41
–
1,731

58,101

–44,434
–1,387
41
–1,497

–47,277

–7,350
–

–7,350

3,474

Goodwill

40,799
–
911
–
–
1,584

43,294

–
–
–
–

–

–12,984
–275

–13,259

30,035

Ericsson Annual Report 201870

Financials – Notes to the consolidated financial statements

Note C1, cont’d.

Intangible assets 2017

Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested businesses 2)
Sales/disposals
Translation difference

Closing balance

Accumulated amortizations
Opening balance
Amortizations
Sales/disposals
Translation difference

Closing balance

Accumulated impairment losses
Opening balance
Impairment losses

Closing balance

Net carrying value

Capitalized
development
expenses

22,306
1,444
–
–1,019
–

22,731

–12,015
–2,681
1,019
–

–13,677

–2,215
–2,245

–4,460

4,593

IPR1), brands
and other
intangible assets

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

Goodwill

43,405
–
–122
–
–2,484

40,799

–
–
–
–

–

–18
–12,966

–12,984

27,815

1) Intellectual property rights.
2) For more information on acquired/divested businesses, see Note E2, “Business combinations.”

The total goodwill for the Company is SEK 30.0 (27.8) billion and is allocated
to the operating segments Networks, with SEK 25.7 billion, Digital Services,
with SEK 3.1 billion and segment Emerging Business and Other, with SEK 1.2
billion. Segment Managed Services does not carry goodwill. More information
is disclosed in Note B1, “Segment information.”

Write-down during 2018
In Digital Services there was an impairment write-down of SEK 0.3 billion
related to capitalized development expenses triggered by a change in the
Business Support System (BSS) strategy, which is reported on line item
Research and development expenses. In segment Emerging Business and
Other for the Cash Generating Unit, CGU, Edge Gravity there was a goodwill
impairment write-down of SEK 0.3 billion triggered by a change in business
strategy, which is reported on line item Other operating expenses. There is no
remaining goodwill for this CGU.

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.

Goodwill allocation
The goodwill allocation has not changed since last year when a reallocation of
goodwill was made between the different Cash Generating Units, CGUs. The
goodwill increase during the year through acquisitions has been allocated to
CGU Digital Services and CGU EMODO, within segment Emerging Business
and Other.

Impairment tests
Each operating segment is a CGU, except for segment Emerging Business and
Other which consists of five CGUs. The value in use method has been used
for goodwill impairment testing, which means that the recoverable amounts
for CGUs are established as the present value of expected future cash flows

based on five-year business plans approved by management. Except for one
CGU within segment Emerging Business and Other, where fair value less cost
of disposal has been used.
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)

– Related development of working capital and capital expenditure

requirements.

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 2019–2023 for key industry parameters:
– By 2023, less than 35 years after the introduction of digital mobile technol-

ogy, it is predicted that there will be 8.8 billion mobile subscriptions.

– The number of mobile subscriptions is estimated to grow from around 8.0
billion by the end of 2018 to around 8.8 billion by the end of 2023. Out of
all mobile subscriptions, 6.9 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 Internet of Things, IoT. Connected IoT devices
include connected cars, machines, meters, sensors, point-of-sale terminals,
consumer electronics and wearables.

– Mobile data traffic volume is estimated to increase by around four times in
the period 2018–2023. The mobile traffic is driven by smartphone users
and video traffic. Smartphone traffic will grow by around four times, and
mobile video traffic is forecast to grow by around 40% 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 and data.

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 8.8% (8.5%) has been applied for the discounting
of projected after-tax cash flows. The same rate has been applied for all CGUs,

Ericsson Annual Report 2018Financials – Notes to the consolidated financial statements

discounting based on before-tax future cash flows and before-tax discount
rates, as required by IFRS. In Note A1, “Significant accounting policies,” and
Note A2, “Critical accounting estimates and judgments,” further disclosures
are given regarding goodwill impairment testing. The assumptions for 2017
are disclosed in Note C10, “Intangible assets” in the Annual Report of 2017.

Note C1, cont’d.

since there is a high degree of integration between them. In addition, when a
reasonably higher discount rate of 11.5% has been applied in the impairment
tests headroom is positive for all CGUs using this method.

For the CGU Media Solutions the fair value less cost of disposal method has

been used, which has been classified as level 3 in the fair value hierarchy.

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

C2 Property, plant and equipment

Property, plant and equipment 2018

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
Reclassification
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

6,510
11
–
–484
566
241

6,844

–3,529
–425
–
393
–
–142

–3,703

–241
–119
78
–10

–292

2,849

3,819
124
–11
–649
8
81

3,372

–3,288
–211
5
615
1
–70

–2,948

–64
–22
20
–

–66

358

30,614
1,976
–116
–2,430
1,707
718

32,469

–21,552
–2,639
71
1,911
–1
–559

–22,769

–1,020
–427
557
–39

–929

8,771

1,608
1,864
–
–332
–2,281
12

871

–
–
–
–
–
–

–

–
–
–
–

–

871

Total

42,551
3,975
–127
–3,895
–
1,052

43,556

–28,369
–3,275
76
2,919
–
–771

–29,420

–1,325
–568
655
–49

–1,287

12,849

Contractual commitments for the acquisition of property, plant and equip-
ment as per December 31, 2018, amounted to SEK 366 (350) million.

In 2018 impairment losses have been made of SEK 0.6 (2.2) billion, where
SEK 1.2 billion in 2017 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 0.6 (2.2) billion by segment was Networks SEK 0.3 (1.0) billion, Digital
Services SEK 0.2 (0.7) billion, Managed Services SEK 0.0 (0.1) billion and
Emerging Business and Other SEK 0.0 (0.4) billion.

Ericsson Annual Report 201872

Financials – Notes to the consolidated financial statements

Note C2, cont’d.

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 1)
Depreciations
Balances regarding divested businesses
Sales/disposals
Translation difference

Closing balance

Accumulated impairment losses
Opening balance 1)
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

–3,528
–458
9
349
99

–3,529

–144
–297
200
–

–241

2,740

4,286
183
–134
–457
56
–115

3,819

–3,629
–279
85
442
93

–3,288

–25
–42
4
–1

–64

467

33,134
1,317
–12
–5,387
2,226
–664

30,614

–22,951
–3,366
11
4,263
491

–21,552

–189
–1,872
1,050
–9

–1,020

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

–30,108
–4,103
105
5,054
683

–28,369

–358
–2,211
1,254
–10

–1,325

12,857

1) The opening balances have been reclassified compared to the Annual Report 2017 between accumulated depreciation and accumulated impairment losses with an amount of SEK 233 million. The total accumu-
lated depreciation changed from SEK –30,341 to –30,108 million and the total accumulated impairment losses changed from SEK –125 to –358 million. The amount is divided between the different categories
with SEK 101 million on Real estate, SEK 22 million on Machinery and other technical assets, and SEK 110 million on Other equipment, tools and installations. Based on IAS 1 this reclassification is considered not
to be material and have had no impact on the financial statements.

C3 Leasing

Due to replacement of former lease contract with operating lease contract the
Company has from 2016 no finance leases.

As of December 31, 2018, future minimum lease payment obligations were

distributed as follows:

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, 2018, future minimum payment receivables were

Future minimum lease payment obligations

distributed as follows:

2019
2020
2021
2022
2023
2024 and later

Total

Operating
leases

3,088
2,603
2,126
1,311
1,033
3,208

13,369

Expenses in 2018 for leasing of assets were SEK 4,100 (4,194) million,
of which variable expenses comprised SEK 125 (101) million. The leasing
contracts vary in length from 1 to 13 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
predefined period of time.

Future minimum payment receivables

2019
2020
2021
2022
2023
2024 and later

Total

Leasing income in 2018 was SEK 96 (44) million.

Operating
leases

105
100
101
98
97
104

605

Ericsson Annual Report 2018
Section D – Obligations

D1 Provisions

Provisions

2018
Opening balance
Additions
Reversal of excess amounts

Negative effect on Income statement

Utilization/Cash out
Reclassifications

Translation difference

Closing balance

2017 1)
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

Restruc turing

Customer
related

Suppliers
related

Warranty

Other

Total

4,043
3,539
–408

–4.148
120

163

3,309

4,163
5,448
–207

–5,327
1
–35

4,043

2,642
8,532
–236

–1,979
–

–43

8,916

74
4,105
–

–1,532
–10
5

2,642

1,613
214
–15

–264
10

1,559

134
1,885
–90

–262
–50
–4

1,613

158
401
–20

–257
72

363

211
242
–2

–267
–25
–1

158

1 ,423
1,024
–46

–287
–112

–141

1,861

1,738
799
–63

–833
–59
–159

1,423

9,879
13,710
–725
12,985
–6,935
90

–11

16,008

6,320
12,479
–362
12,117
–8,221
–143
–194

9,879

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Supplier related
Supplier related provisions include provision for supplier claims/guarantees.
During 2018, new provisions amounting to SEK 0.2 billion were made and
SEK 0.0 billion were reversed due to more favorable outcome. The cash
outlays were SEK 0.3 billion in 2018 compared to the estimated of SEK 0.2
billion. For 2019, the cash outlays for this provision is estimated to total
approximately SEK 0.9 billion.

Warranty provisions
Warranty provisions are based on historic quality rates for established prod-
ucts as well as estimates regarding quality rates for new products and costs to
remedy the various types of faults predicted. These provisions do not include
costs for service in additions within customer contracts that are accounted for
as separate performance obligations. Provisions amounting to SEK 0.4 billion
were made. The actual cash outlays for 2018 were SEK 0.3 billion, compared
to the expected SEK 0.2 billion. The cash outlays of warranty provisions during
year 2019 are estimated to total approximately SEK 0.3 billion.

Other provisions
Other provisions include provisions for tax issues, litigations, excess premises
and other. During 2018, new pro visions amounting to SEK 1.0 billion were
made and SEK 0.0 billion were reversed due to a more favorable outcome. The
cash outlays were SEK 0.3 billion in 2018 compared to the estimate of SEK 0.7
billion. For 2019, the cash outlays for other provisions are estimated to total
approximately SEK 0.6 billion.

Provisions will fluctuate over time depending on business mix, market
mix and technology shifts. Risk assessment in the ongoing business is
performed monthly to identify the need for new additions and reversals.
During certain years the Company undertakes restructuring activities that
may require recognition of provisions. Management uses its best 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 2018, new or additional provisions amounting to SEK 13.7 billion were
made, and SEK 0.7 billion of provisions were reversed. The actual cash outlays
for 2018 were SEK 6.9 billion compared with the estimated SEK 6.0 billion.
The expected total cash outlays in 2019 are approximately SEK 10.0 billion.
Of the total provisions, SEK 5.5 (3.6) billion is classified as non-current.
For more information, see Note A1, “Significant accounting policies” and
Note A2, “Critical accounting estimates and judgments.”

Restructuring provisions
In 2018, SEK 3.5 billion in provisions were made and SEK 0.4 billion were
reversed due to a more favorable outcome than expected. The scope of the
structural efficiency measures involves service delivery, supply and manu-
facturing, R&D and Selling and administrative expenses. The cash outlays for
restructuring provisions were SEK 4.1 billion for the full-year, compared with
the expected SEK 3.0 billion. The cash outlays for the full-year also includes
provisions identified and paid out during 2018. The cash outlays for 2019 for
these provisions are estimated to total approximately SEK 2.1 billion.

Customer related
Customer related provision consists of provision for onerous customer con-
tracts. During 2018, new provisions amounting to SEK 8.5 billion were made
for onerous customer contracts where it is probable that expected costs will
exceed revenue for the remaining duration of the contracts. SEK 5.9 billion of
this amount relates to the reshape of BSS business, where SEK 3.1 billion is
treated as restructuring charges in the income statement. The cash outlays
were SEK 2.0 billion in 2018 compared to the estimated of SEK 1.9 billion. For
2019, the cash outlays for these provisions are estimated to total approxi-
mately SEK 6.0 billion.

Ericsson Annual Report 201874

Financials – Notes to the consolidated financial statements

D2 Contingent liabilities

D3 Assets pledged as collateral

Contingent liabilities

Total

Assets pledged as collateral

2018

1,638

2017

1,561

Chattel mortgages 1)
Bank deposits

Total

2018

5,328
353

5,681

2017

4,740
475

5,215

1) See also Note G1, “Post-Employment benefits.”

D4 Contractual obligations

Contractual obligations 2018

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

2.3
3.1
0.4
5.7
29.9

30.3

71.7

14.0
4.8
2.5
1.9
–

–

23.2

11.2
2.3
0.1
0.1
–

–

13.7

6.6
3.2
1.3
–
–

–

11.1

Total

34.1
13.4
4.3
7.7
29.9

30.3

119.7

1) Including interest payments, see also Note F2, “Financial income and expenses.”
2) See also Note F4, “Interest-bearing liabilities.”
3) See also Note C3, “Leasing.”
4) The amounts of purchase obligations are gross, before deduction of any related provisions.
5) See also Note F1, “Financial risk management.”

For information about financial guarantees, see Note D2, “Contingent
liabilities.”

Contingent liabilities assumed by the Company include guarantees of loans to
other companies of SEK 26 (24) million. Ericsson has SEK 0 (0) 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 A2, “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 42 (80) million
as of December 31, 2018. The maturity date for the majority of the issued
guarantees occurs in 2020 at the latest.

The Company has been voluntarily cooperating since 2013 with an inves-

tigation by the United States Securitiesand Exchange Commission (SEC)
and, since 2015, with an investigation by the United States Department
of Justice (DOJ) into Ericsson’s compliance with the U.S. Foreign Corrupt
Practices Act (FCPA). The Company has identified facts that are relevant to
the investigations. These facts have been shared with the authorities by the
Company. The Company continues to cooperate with the SEC and the DOJ
and is engaged in discussions with them to find a resolution. While the length
of these discussions cannot be determined, based on the facts that the Com-
pany has shared with the authorities, it believes that the resolution of these
matters will likely result in monetary and other measures, the magnitude of
which cannot be estimated currently but may be material.

In April 2018, the Company, the present President and CEO and the Chief
Financial Officer of Ericsson as well as three former executives were named
defendants in a putative class action filed in the United States District Court
for the Southern District of New York. The complaint alleges violations of
United States securities laws, principally in connection with service revenues
and recognition of expenses on long-term service projects. In December
2018 Ericsson filed a motion to dismiss the complaint. In January 2019, the
plaintiff filed an amended complaint which Ericsson is currently evaluating.

2017, IV filed additional lawsuits in the Eastern District of Texas accusing
Ericsson and some of Ericsson’s U.S customers of infringing 10 U.S. Patents.
In February 2019, a jury awarded IV damages of USD 43 million in one
of those lawsuits. Ericsson disagrees with the jury’s verdict and intends to
appeal. Separately, the Patent Trial and Appeal Board has instituted review
of the patents that were the subject of the February 2019 trial, following
its findings that there is a reasonable likelihood that those patents are
unpatentable. The next case is currently set to go to trial in May 2019.

Ericsson Annual Report 2018Financials – Notes to the consolidated financial statements

Section E – Group structure

E1 Equity

E2 Business combinations

Capital stock 2018
Capital stock at December 31, 2018, consisted of the following:

Acquisitions and divestments
Acquisitions

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
earnings. Class A shares, however, are entitled to one vote per share while
Class B shares are entitled to one tenth of one vote per share.

At December 31, 2018, the total number of treasury shares was 37,057,039

(50,265,499 in 2017 and 62,192,390 in 2016) Class B shares.

Reconciliation of number of shares

Number of shares Jan 1, 2018
Number of shares Dec 31, 2018

Number of shares

3,334,151,735
3,334,151,735

Capital stock
(SEK million)

16,672
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 2019
a dividend of SEK 1.00 per share (SEK 1.00 in 2017 and SEK 1.00 in 2016).

Additional paid in capital
This relates to payments made by owners and includes share premiums paid.

Acquisitions 2016–2018

Total consideration, including cash

Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Investments in associates
Other assets
Other liabilities

Total identifiable net assets
Goodwill 1)

Total
Acquisition-related costs 2)

2018

1,314

94
4
481
64
254
–494

403
911

1,314
24

2017

–
12
101
–
1
25

139
–77

62
49

2016

920

139
19
817
–
290
–290

975
–55

920
4

1) Of which SEK 911 (0) million was acquired goodwill and SEK 0 (–77) million refers to a reclassi-

fication when the preliminary purchase price allocations were finalized between the years.

2) Acquisition-related costs are included in Selling and administrative expenses in the consolid ated

income statement.

In 2018, Ericsson made acquisitions with a negative cash flow effect
amounting to SEK 1.220 (62) million. The acquisitions presented below are
not material, but the Company gives the information to provide the reader a
summarized view of the content of the acquisitions made. The acquisitions
consist primarily of:

CENX: On September 14, 2018, the Company acquired 100% of the
shares in CENX, a US-based service assurance technology company with
approximately 185 employees. CENX’s cloud-native service assurance and
automation capability strengthens Ericsson’s position as a leading player in
the OSS and Managed Services markets. Balances to facilitate the Purchase
price allocation are preliminary.

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:

VidScale: On April 4, 2018, the company acquired 100% of the shares in
VidScale, a company providing cloud-based Content Delivery Network (CDN)
solutions. Balances to facilitate the Purchase price allocation are final.

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.

Non-controlling interests
Equity in a subsidiary not attributable, directly or indirectly, to a parent.

Placecast: On February 13, 2018, the Company acquired 100% of the shares
in Placecast. The company is a location intelligence platform that leverages
deterministic carrier data to deliver better audience, verification, and insight
solutions. It fits into the EMODO business which Ericsson is building up.
Balances to facilitate the Purchase price allocation are final.

In order to finalize a Purchase price allocation all relevant information needs
to be in place. Examples of such information are final consideration and final
opening balances, they may remain preliminary for a period of time due to
for example adjustments of working capital, tax items or decisions from local
authorities.

Ericsson Annual Report 201876

Financials – Notes to the consolidated financial statements

Note E2, cont’d.

Divestments

Divestments 2016–2018

Proceeds

Net assets disposed of
Property, plant and equipment
Investments in joint ventures and associated
companies
Intangible assets
Goodwill
Other assets
Provisions, incl. post-employement benefits
Other liabilities

Total net assets
Net gains/losses from divestments

Cash flow effect

2018

226

2017

459

2016

114
30
–
809
–43
–571

394
–168

226

–
–
45
219
–
–180

146
313

459

15
–
–
5
–
–114

–58
83

In 2018, the Company made divestments with a cash flow effect amounting
to SEK 226 (459) million. The divestments consist primarily of:

Ericsson Local Services AB (LSS): The divestment of LSS to Transtema
Group was concluded on August 31, 2018. Transtema Group AB acquired
all assets and continue the operation with the existing approximately 700
employees.

Excellence Field Factory: In June, a divestment of the Spanish fiber service
operations with approximately 600 service engineers, was completed.

Acquisitions 2016–2018

Company

CENX
VidScale
Placecast
Nodeprime
Ericpol
FYI Television

Description

A US based service assurance technology company.
A US company providing cloud-based Content Delivery Network (CDN) solutions.
A US company that leverages deterministic carrier data to deliver better audience, verification, and insight solutions.
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.

Divestments 2016–2018

Company

Description

Ericsson Local Services AB
(LSS)
Excellence Field Factory
Power Modules
Birla Ericsson Optical Ltd

A divestment of the Local Services company in Sweden.

A divestment of the Spanish fiber service operations.
A divestment of the power modules business.
A divestment of the shares in the associated company.

E3 Associated companies

Equity in associated companies

Opening balance
Investments
Share in earnings
Distribution of capital stock
Taxes
Dividends
Divested business
Translation difference

Closing balance

2018

624
64
58
–
–5
–30
–114
14

611

2017

775
–
24
–95
–3
–77
–
–

624

Transaction date

Sep 2018
Mar 2018
Feb 2018
Apr 2016
Apr 2016
Jan 2016

Transaction date

Aug 2018

Jun 2018
Sep 2017
Jul 2016

Ericsson Annual Report 2018Section F – Financial instruments

F1 Financial risk management

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, approving certain matters (such as investments, customer
finance commitments, guarantees and borrowing) and continuously monitor-
ing the exposure to financial risks.

The Company defines its managed capital as the total Company equity.

For the Company, a robust financial position with a strong equity ratio,
solid investment grade rating, low leverage and ample liquidity is deemed
important. This provides financial flexibility and independence to operate and
manage variations in working capital needs as well as to capitalize on business
opportunities.

The Company’s overall capital structure should support the financial

targets. 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 deliver positive free cash flow.

The Company’s capital objectives are:
– To maintain an equity ratio above 40%
– To maintain a positive net cash position larger than the pension liability
– To restore a solid investment grade rating by Moody’s (Baa2)

and Standard & Poor’s (BBB).

Capital objectives-related information, SEK billion

Capital
Equity ratio

Free cash flow
Positive net cash
Post-employment benefits

Credit rating
Moody’s
Standard & Poor’s

2018

88
32.7%

3.0
35.9
28.7

2017 1)

98
37.5%

5.1
34.7
25.0

Ba2, stable
BB+, stable

Ba2, negative
BB+, stable

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for

more information see Note A3, “Changes in accounting policies.”

In July 2018, Moody’s announced that they had changed their Corporate
Credit Rating outlook from negative to stable.

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 activ-
ities, 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.

Financials – Notes to the consolidated financial statements

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 A1, “Significant

accounting policies.”

Foreign exchange risk
The Company is a global company with sales mainly outside Sweden. Sales
and incurred costs are to a large extent denominated in currencies other
than SEK and therefore the financial results of the Company are impacted by
currency fluctuations.

The Company reports the financial statements in SEK. Movements
in exchange rates between currencies that affect these statements are
impacting the comparability between periods.

Line items, primarily sales, are impacted by translation exposure incurred
when converting foreign entities’ financial statements into SEK. Line items
and profitability, such as operating income are impacted by transaction expo-
sure 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
AUD
JPY
BRL
SAR
GBP

59.9
23.8
12.4
8.9
7.3
6.8
6.8
5.3
6.1

34.0
12.2
0.0
–0.1
–0.4
0.0
0.0
0.6
–1.0

93.9
36.0
12.4
8.8
6.9
6.8
6.8
5.9
5.1

–3.8
–4.2
–7.7
–1.0
3.7
4.4
0.8
2.1
1.3

30.2
8.0
–7.7
–1.1
3.3
4.4
0.8
2.7
0.3

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
currencies in individual group companies. Foreign exchange risk is as far as
possible concentrated in Swedish group companies, primarily Ericsson AB.
Sales to foreign subsidiaries are normally denominated in the 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 fluctu-
ations 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 internal loans since April
2017. Previously, derivative contracts were used.

Outstanding internal loans that are funding hedged net future sales and
costs incurred are revalued against “Financial expense.” Hedge accounting is
not applied and the gains and losses due to the hedge are recognized imme-
diately. 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 Company’s largest exposure and at year-end a
change by 0.25 SEK/USD would impact financial expense with approximately

Ericsson | Annual Report 201878

Financials – Notes to the consolidated financial statements

Note F1, cont’d.

SEK 175 million. Realization and revaluation results of these loans contracts
amounted to SEK –0.4 billion and SEK –0.2 billion respectively in 2018.

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 internal 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 35.9 (34.7) billion at
the end of 2018, consisting of cash, cash equivalents and interest- bearing
securities of SEK 69.0 (67.7) billion, offset by interest-bearing liabilities of
SEK 33.1 (33.0) billion.

Sensitivity analysis
The Company uses the VaR methodology to measure foreign exchange and
interest rate risks managed by the treasury function. This statistical method
expresses the maximum potential loss that can arise with a certain degree
of probability during a certain period of time. For the VaR measurement, the
Company has chosen a probability level of 99% and a 1-day time horizon.
The daily VaR measurement uses market volatilities and correlations based
on historical daily data (one year).

The treasury function operates under two mandates. In the liquidity
management activity, 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. The average VaR calculated for 2018 was SEK 12.8 (17.2)
million. No VaR-limits were exceeded during 2018.

In the asset-liability management activity, the treasury function 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 interest-bearing liabilities,
taking derivatives into consideration, is less than SEK 10 million. The average
exposure during 2018 was SEK 1.81 million per basis point shift.

Sensitivity to interest rate increase of 1 basis point, SEK million 1)

Interest-bearing assets
Interest-bearing liabilities 2)
Derivatives

Total

< 3M 3–12M

1–3Y

3–5Y

>5Y

Total

0
0
0

–3
2
2

0
0
–1

–1

–3
2
–2

–3

–1
3
2

–7
7
1

1) Excluding changes in credit risk reported in OCI.
2) Borrowings are included as they are designated FVTPL in 2018. In prior years, borrowings were

included due to fair value hedge accounting.

Outstanding derivatives

Outstanding derivatives 1)

Fair value

Asset

Liability

Asset

Liability

2018

2017

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

226

38
–
3

267

8
10
44
58
136 2)

–

207

46
145
194

592

15
3
222
23

295

–

130

215
25
754

1,125

1
34
83
39
168 2)

542

147
–
–

689

–
105
54
43

237

–

1) Prior to 2018, some of the derivatives hedging non-current liabilities are recognized in the balance

sheet as non-current derivatives due to hedge accounting.
2) Of which SEK 0 (86) million is reported as non-current assets.

When managing the interest rate exposure, the Company uses derivative
instruments, such as interest rate swaps. Prior to 2018, derivative instruments
used for converting fixed rate debt into floating rate debt were designated as
fair value hedges.

Credit risk
Credit risk is divided into three categories: credit risk in trade receivables and
contract assets, customer finance risk and financial credit risk, see Note A1
“Significant accounting policies.”

Credit risk in trade receivables and contract assets
Credit risk in trade receivables and contract assets 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

– 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 risk of all customers is regularly assessed. Through credit manage-
ment system functionality, credit checks are performed every time a sales
order or an invoice is generated in the source system. These are based on the
credit risk set on the customer. Credit blocks appear if past due receivables are
higher than permitted levels. Release of a credit block requires authorization.
Letters of credits are used as a method for securing payments from cus-
tomers 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.

Impairment of trade receivables and contract assets in 2018
Trade receivables and contract assets are assessed for impairment under a
unified model. The Company has determined that credit risk largely depends
on both the risk in the country where the customer resides (e.g. ability to
make cross border payments) as well as the payment pattern of the customer.
Therefore, expected credit losses (ECLs) are calculated using a provision
matrix that specifies a fixed rate depending both on the number of days past
due and the country risk rating. The country risk ratings depends on the rat-
ings used by all Export Credit Agencies within the OECD. The rates defined
in the provision matrix are based on historical loss patterns for that grouping
of customers. These rates are adjusted for current conditions as well as

Ericsson | Annual Report 2018Note F1, cont’d.

management expectations for changes to political risks and payment patterns
in the future. The provision rates are higher on high risk countries compared to
low risk countries and also higher on amounts that remain unpaid for longer
periods of time. There were no significant changes to the model during the year.
Trade receivables and contract assets together amounted to SEK 64,350

million as of December 31, 2018. Provisions for expected credit losses on
trade receivables and contract assets amounted to SEK 4,123 million as of
December 31, 2018. The Company’s write-offs have historically been low.
The allowance increased during 2018 due to additional invoices becoming
past due and worsening aging profile of outstanding receivables from certain
customers. This was offset by write-offs of SEK 890 million during the year
due to the Company having no reasonable expectation of collection. Of these
write-offs, SEK 61 million are still subject to enforcement.

Movements in allowances for impairment of trade receivables and contract assets

Opening balance
Adjustment due to IFRS 9 1)

Opening balance, adjusted
Losses recognized in profit or loss
Write-offs
Translation difference
Closing balance 2)

2018

3,335
1,240

4,575
420
–890
18

4,123

1) For more information see Note A3, “Changes in accounting policies.”
2) Of which SEK 15 million relates to contract assets.

The distribution of trade receivables and contract assets closely follows the
distribution of the Company’s sales (see Note B1, “Segment information”)
and does not include any major concentrations of credit risk by customer or
by geography. The 10 largest customers represented 53% (47%) of the total
trade receivables and contract assets in 2018.

Aging analysis of gross values by risk category at December 31, 2018

Days past due

Country risk: Low
Country risk: Medium
Country risk: High

Total past due

1–90

1,387
1,596
927

3,910

91–180

181–360

350
540
614

139
309
699

1,504

1,147

>360

498
1,724
1,630

3,852

Total

2,374
4,169
3,870

10,413

Impairment of trade receivables and contract assets in prior years
Trade receivables and contract assets amounted to SEK 61,225 million as
of December 31, 2017. In prior years, contract assets were presented within
trade receivables, for more information see Note A3, “Changes in accounting
policies.” Provisions for expected losses were regularly assessed according to
IAS 39 and amounted to SEK 3,335 million as of December 31, 2017. In 2017,
trade receivables were reassessed as part of the provision and adjustments
related to customer projects.

Movements in allowances for impairment of trade receivables and contract assets

Opening balance
Additions
Utilized
Reversal of excess amounts
Reclassification
Translation difference

Closing balance

2017

1,403
3,544
–1,485
–48
–66
–13

3,335

Financials – Notes to the consolidated financial statements

Aging analysis as per December 31, 2017 1)

Trade receivables
and contract assets,
excluding associated
companies and
joint ventures

Allowances
for impairment

54,474
15

2,924
3,769

220
3,100

64,502

–
–15

–
–

–220
–3,100

–3,335

Of which neither impaired nor past due
Of which impaired, not past due
Of which past due in the following
time intervals

less than 90 days
90 days or more

Of which past due and impaired in the
following time intervals
less than 90 days
90 days or more

Total

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for

more information see Note A3, “Changes in accounting policies.”

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 and bond markets for structured financed deals. The objective is
that the internally set risk margin shall reflect the assessed risk and that the
pricing is as close as possible to the current market pricing. A reassessment of
the credit rating for each customer finance facility is made on a regular basis.

As of December 31, 2018, the total amount payable to the Company under
customer finance credits was SEK 4,247 (4,223) million. The carrying value of
these assets was SEK 2,883 (3,931) million as of December 31, 2018, which
represents the maximum exposure to credit risk on these assets. Customer
finance is arranged for infrastructure projects in different geographic markets.
As of December 31, 2018, there were a total of 94 (79) customer finance
arrangements originated by or guaranteed by the Company. The five largest
facilities represented 62% (64%) of the customer finance exposure in 2018.
As of December 31, 2018, Middle East and Africa made up 57% (56%) of the
oustanding exposure while South East Asia, Oceania and India made up 15%
(24%). As of December 31, 2018, the Company also had unutilized customer
finance commitments of SEK 30,270 (9,706) million.

Security arrangements for customer finance facilities may include pledges
of equipment, pledges of certain assets belonging to the borrower and pledges
of shares in the operating company. If available, third-party risk coverage
is, as a rule, arranged. “Third-party risk coverage” means that a financial
payment guarantee covering the credit risk has been issued by a bank, an
export credit agency or an insurance company. All such institutions have been
rated at least investment grade. 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 financial guarantees related to customer finance is

included in Note D2, “Contingent liabilities.”

Ericsson | Annual Report 2018

Financials – Notes to the consolidated financial statements

Note F1, cont’d.

The table below summarizes the Company’s outstanding customer finance

as of December 31, 2018 and 2017.

Aging analysis as per December 31, 2017

Outstanding customer finance credit risk exposure 1)

Fair value of customer finance credits 2)
Financial guarantees for third-parties
Accrued interest

Maximum exposure to credit risk
Less third-party risk coverage

The Company’s risk exposure, less third-party risk coverage

1) This table has been adjusted to show the maximum exposure to credit risk.

In prior years, impairments were not considered.

2018

2,883
42
21

2,946
–331

2,615

2017

3,931
77
14

4,022
–505

3,517

Of which neither impaired nor past due
Of which impaired, not past due
Of which past due in the following
time intervals

less than 90 days
90 days or more

Of which past due and impaired in the
following time intervals
less than 90 days
90 days or more

2) At December 31, 2017, the fair value of the customer finance credits was the same as the carrying value.

Total

Customer
finance credits

Allowances
for impairment

1,841
2,029

4
99

29
221

4,223

–
–104

–
–

–20
–168

–292

Fair value assessment of customer finance credits in 2018
Customer finance risk exposures are held at fair value and are classified
as Level 3 on the fair value hierarchy. The Credit Asset Management Team
within Ericsson Credit AB, reporting to Head of Group Treasury and Customer
Finance, has established a process with respect to measurement of fair values.
The quarterly credit review uses an internal model to determine a commercial
rating for each credit and for calculation of the fair value. The model is based
on external credit rating, political/country rating and bank pricing. Regular
monitoring of customer behavior is also a part of the internal assessment.
Revaluation of customer finance amounted to a net negative impact in the
income statement of SEK 1,073 million in 2018, of which SEK 1,073 million is
related to credits held as of December 31, 2018. This effect is presented within
selling and administrative expenses and was mainly related to the Middle East,
including Iran.

Customer finance fair value reconciliation

Opening balance
Additions
Disposals/repayments
Revaluation
Translation difference

Closing balance

Of which non-current

2018

3,931
6,100
–6,200
–1,073
126

2,884
1,180

Impairment of customer finance credits in prior years
Risk provisions related to customer finance risk exposures are only made upon
events which occur after the financing arrangement has become effective and
which are expected to have a significant adverse impact on the borrower’s
ability and/or willingness to service the outstanding debt. These events can
be political (normally outside the control of the borrower) or commercial, e.g.
a borrower’s deteriorated creditworthiness.

Movements in allowances for impairment of customer finance

Opening balance
Additions
Utilized
Reversal of excess amounts
Translation difference

Closing balance

2017

250
85
–3
–27
–13

292

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. Credit losses amounted to SEK 24 million in 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
investments in cash, cash equivalents, interest-bearing securities and from
derivative positions with positive unrealized results against banks and other
counterparties.

The Company mitigates these risks by investing cash primarily in well-rated

securities such as treasury bills, government bonds, commercial papers,
and mortgage-covered bonds with short-term ratings of at least A-2/P-2 or
equivalents, and long-term ratings of AAA. Separate credit limits are assigned
to each counterpart in order to minimize risk concentration. All derivative
transactions are covered by ISDA netting agreements to reduce the credit risk.
At December 31, 2018, the credit risk in financial cash instruments was
equal to the instruments’ carrying value. The expected credit losses on cash
equivalents and interest-bearings securities classified as amortized cost
were immaterial. Credit exposure in derivative instruments was SEK 0.4
(1.3) billion.

Transfers of financial assets
Transfers where the Company has continuing involvement
During 2018, 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 207 (380) million. No assets or
liabilities were recognized in relation to the continuing involvement.

Liquidity risk
The Company minimizes the liquidity risk by maintaining a sufficient
cash position, centralized cash management, investments in highly liquid
interest-bearing securities, and by having sufficient committed credit lines
in place to meet potential funding needs. For information about contractual
obligations, see Note D4, “Contractual obligations.” The current cash position
is deemed to satisfy all short-term liquidity requirements as well as non-cur-
rent borrowings.

Cash, cash equivalents and interest-bearing securities

SEK billion

Banks

Type of issuer/counterpart
Governments
Corporates
Mortgage institutes

2018
2017

Remaining time to maturity

< 3
months

3–12
months

32.2

0.4

1–5
years

0.0

>5
years

0.0

7.6
2.2
0.0

42.0
36.4

2.3
0.0
0.2

2.9
1.2

7.7
0.0
15.2

22.9
28.4

0.9
0.0
0.3

1.2
1.7

Total

32.6

18.5
2.2
15.7

69.0
67.7

Ericsson | Annual Report 2018

Financials – Notes to the consolidated financial statements

Financial instruments carried at other than fair value
Financial instruments, such as some cash equivalents, interest-bearing
securities, borrowings and payables, are carried at amortized cost which is
deemed to be equal to fair value. 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.

Offsetting financial assets and liabilities
As required by IFRS, the Company has off set financial instruments. The
related assets amounted to SEK 0.5 (1.4) billion, prior to offsetting of SEK 0.1
(0.1) billion, with a net amount of SEK 0.4 (1.3) billion recognized in the
balance sheet. The related liabilities amounted to SEK 1.0 (1.0) billion, prior
to offsetting of SEK 0.1 (0.1) billion, with a net amount of SEK 0.9 (0.9) 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 A1, “Significant accounting
policies” and Note G3, “Share-based compensation.”

Share-based plans for employees
The obligation to deliver shares under the stock purchase plan and the
2017–2018 Long-term Variable Compensation Programs for the Executive
Team (LTV) 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 represents 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 compen-
sation expenses and social security charges. The obligations to pay compen-
sation 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, the cash settled

plans to employees and the synthetic share-based compensations to the
Board of Directors, see Note G3, “Share-based payments.”

Note F1, cont’d.

The instruments are classified as FVTPL or amortized cost. Cash, cash equiv-
alents 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 0.1 (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.

Funding programs 1)

Euro Medium-Term Note program
(USD million)

SEC Registered program (USD million)

Amount

Utilized

Unutilized

5,000

1,456

1,000

3,544

–

1) There are no financial covenants related to these programs.
2) Program amount indeterminate.

In May 2018, the Company signed a multicurrency credit facility agreement
equivalent to EUR 250 million with the European Investment Bank. The credit
facility will mature five years after disbursement. The agreement will support
research and development activities for 5G.

Committed credit facilities

Multi-currency revolving credit facility
(USD million)
European Investment Bank (EIB) credit
facility (EUR million)

Amount

Utilized

Unutilized

2,000

250

–

2,000

250

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 0.5 (1.4) billion in relation to
assets and gross SEK 1.0 (1.1) 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 2.5 (2.1) billion. These assets, classified
as level 3 assets for valuation purposes, have been valued based on value
in use technique.

– Customer finance credits are classified as level 3 assets for valuation

purposes and have been valued according to the model described above
in “Customer finance credit risk.”

– Trade receivables are classified as level 3 assets for valuation purposes.

By definition, they have a term of less than 180 days. Therefore, the gross
value less impairment allowances for expected credit losses is deemed to
be equal to the fair value.

Ericsson | Annual Report 201882

Financials – Notes to the consolidated financial statements

Note F1, cont’d.

Financial instruments, book value 2018

SEK billion

Note
Assets at fair value through profit or loss
Assets at amortized cost
Assets at fair value through OCI
Financial liabilities at fair value through
profit or loss 1)
Financial liabilities at amortized cost

Customer
finance

Trade
receiv ables

B6
2.9

51.2

Interest-
bearing
securities

F3
30.2
0.4

Cash

equiva lents Borrow ings

Trade
payables

H3
15.2
4.2

Other
financial
assets

Other
current
receiv ables

F3
2.5

B7
0.4

Other
current
l iabilities

Total

2.9

51.2

30.6

19.4

1) Borrowings have been designated FVTPL while derivatives are held for trading.

–30.7
–2.4

–33.1

–29.9

–0.9

2.5

0.4

–0.9

Financial instruments, book value 2017 1)

SEK billion

Note
Assets at fair value through profit or loss
Loans and receivables
Available-for-sale
Financial liabilities at amortized cost

Customer
finance

Trade
receiv ables

3.9

48.1

Total

3.9

48.1

Interest-
bearing
securities

F3
6.1
0.3
25.4

31.8

Cash

equiva lents Borrow ings

Trade
payables

Other
financial
assets

Other
current
receiv ables

Other
current
l iabilities

H3
14.3
3.2

17.5

–33.0

–26.3

F3
0.9
5.0
1.3

7.2

B7
1.2

B9
–0.9

1.2

–0.9

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

2018

51.2
4.6
51.2

–31.6
–32.3

43.1

2017

21.6
60.5
26.7
–59.3

49.5

F2 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
Of which on financial liabilities designated
fair value through profit or loss
Net gains/losses on:

Instruments at fair value through profit or loss 2)

Of which included in fair value hedge relationships
Of which designated fair value through profit or loss

Assets at fair value through OCI
Available for sale
Loans and receivables
Instruments at amortized cost

Other financial income and expenses

Total

2018

2017 1)

2016 1)

Financial
income

Financial
expenses

Financial
income

–461
–927
–

–

225
–
–
–80
–
–
–
1

–316

–
–
–997

–530

–817
–
–2,087
–
–
–
–
–575

–2,389

–86
–92
–

–

–231
–
–
–
40
–102
–
7

–372

Financial
expenses

–
–
–1,027

Financial
income

12
–316
–

Financial
expenses

–
–
–1,355

–

543
2
–
–
–
–
72
–431

–843

–

–68
–
–
–
–
–79
–
–

–

–729
71
–
–
–
–
218
–292

–135

–2,158

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”
2) Excluding net loss from derivatives hedging operating assets and liabilities, SEK 128 million (net loss of SEK 451 million in 2017 and net loss of SEK 234 million in 2016), reported as Cost of sales.

Ericsson | Annual Report 2018
F3 Financial assets, non-current

Financial assets, non-current, 2018

Opening balance
Additions
Disposals/repayments/ deductions
Change in value in funded pension plans 1)
Revaluation
Reclassification
Translation difference

Closing balance

Financial assets, non-current, 2017

Cost
Opening balance
Additions
Disposals/repayments/ deductions
Change in value in funded pension plans 1)
Revaluation
Translation difference

Closing balance

Accumulated impairment losses/allowances

Opening balance
Impairment losses/allowances
Disposals/repayments/ deductions
Translation difference

Closing balance

Net carrying value

Financials – Notes to the consolidated financial statements

Other investments in
shares and participations

Interest-bearing
securities, non-current

Derivatives,
non-current

Other financial assets,
non-current

1,279
398
–92
–
–72
–
2

1,515

25,105
50,190
–51,353
–
40
–
–

23,982

86
–
–86
–
–
–
–

–

5,811
632
–210
492
–3
–213
50

6,559

Other investments in
shares and participations

Interest-bearing
securities, non-current

Derivatives,
non-current

Other financial assets,
non-current

2,516
146
–43
–
99
–50

2,668

–1,337
–126
25
49

–1,389

1,279

7,586
54,687
–37,241
–
73
–

25,105

–
–
–
–

–

25,105

–
86
–
–
–
–

–
–
–
–

–

4,648
503
–375
1,300
27
–169

5,934

–206
–1
77
7

–123

5,811

1) This amount includes asset ceiling. For further information, see Note G1, “Post-employment benefits.”

F4 Interest-bearing liabilities

As of December 31, 2018, the Company’s outstanding interest-bearing
liabilities were SEK 33.1 (33.0) billion.

Interest-bearing liabilities

Reconciliation of liabilities arising from financing activities

Borrowings, current
Current part of non-current borrowings
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

2018

2017

72
2,183

2,255

21,875
8,995

30,870

33,125

89
2,456

2,545

20,560
9,940

30,500

33,045

Opening balance
Adjustment due to IFRS 9 1)
Adjusted opening balance
Cash flows
Proceeds from issuance of borrowings
Repayment of borrowings
Non-cash changes
Effect of foreign exchange movement
Revaluation due to changes in credit risk
Other changes in fair value
Reclassification 2)
Closing balance

2018

33,045
31

33,076

2017

26,686
–

26,686

911
–1,748

13,416
–4,830

2,813
–207
–28
–1,692

33,125

–2,155
–
–72
–

33,045

1) For more information see Note A3, “Changes in accounting policies.”
2) The borrowing was reclassified to other non-current liabilities due to a contractual change.

In addition to the above numbers SEK 75 (201) million is allocated to the
financing cash flow due to hedging derivatives.

Ericsson | Annual Report 2018
84

Financials – Notes to the consolidated financial statements

Note F4, cont’d.

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 Com-
mission (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 F1, “Financial
risk management.” Total weighted average interest rate cost for the long-term
funding during the year was 1.74% (1.68%).

Changes in fair value due to changes in credit risk in 2018
Borrowings managed by the Ericsson Internal Bank are designated FVTPL
because they are managed on a fair value basis. Changes in fair value are

Notes, bonds and bilateral loans

recognized in the income statement, except for changes in fair value due to
changes in credit risk which are recognized in other comprehensive income.
Ericsson’s credit risk is calculated from the market value of the instruments
traded on the credit market. For interest bearing securities not traded on the
credit market, an average of the five latest pricing updates from the compa-
ny’s core banks is used. The pricing updates are based on the credit markets
view of Ericsson’s credit and therefore reflects a market price of the credit risk.

Fair value hedge accounting in prior years
In prior years, the outstanding EUR bonds and USD bond were revalued
based on changes in benchmark interest rates according to the fair value
hedge methodology stipulated in IAS 39 “Financial Instruments: Recognition
and Measurement.”

Nominal
amount

Coupon

Currency

Maturity date

Changes in fair
value due to
changes in
credit risk
2018

Book value
(SEK million)
2018

Cumulative
changes in fair
value due to
changes
in credit risk
2018

Book value
(SEK million)
2017

Unrealized hedge
gain/loss (included
in book value) 2017

170
1,000
500
500
150

98
684
220

4.125%
0.875%
1.875%

USD
USD
EUR
EUR
USD

Dec 23, 2020
May 15, 2022
Mar 1, 2021
Mar 1, 2024
Dec 22, 2025

1,545
8,776
5,141
5,087
1,326

–37
–68
47
–35
–13

24
19
13
–43
–13

1,394
8,180 2)
4,897 2)
4,862 2)
1,227

21,875

–106

20,560

9
7
–7

USD
USD
USD

Sep 30, 2021
Nov 6, 2020
Jun 15, 2023

860
6,030
1,959

8,849

–32
–66
–3

–101

–1
–87
–3

–91

805
5,609
1,797

8,211

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)
2017–2023 3)

Total bilateral loans

1) Private Placement, Swedish Export Credit Corporation (SEK).
2) Interest rate swaps were designated as fair value hedges.

3) Nordic Investment Bank (NIB), R&D project financing.
4) European Investment Bank (EIB), R&D project financing.

Section G – Employee related

G1 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
2018 was characterized by an increase in discount rates in most plans outside
Sweden. In total, financial assumption changes resulted in actuarial losses on
defined benefit obligations of SEK 0.3 billion. The devel opment of plan assets
was lower than expected resulting in actuarial losses of SEK 3.0 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 disability and survivors’ pension part of the ITP-plan is secured
through an insurance solution with the company Alecta, see section about
Multi- employer plans.

The benefit payments are made by the Company since the liability is
growing and the necessary surplus therefore is not yet reached. For the
unfunded plans the Company meets the payment obligation when it falls
due. The responsibility for governance of the plans and the plan assets lies
with the Company and the Pensionsstiftelse. The Swedish Pensions stiftelse
is managed on the basis of a capital preservation strategy and the risk profile
is set accordingly. Traditional asset-liability matching (ALM) studies are
undertaken on a regular basis to allocate within different asset classes.

The plans are exposed to various risks, e.g., a sudden decrease in the bond
yields, which would lead to an increase in the plan liability. A sudden instabil-
ity 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.

The Company has by far most of its Swedish pension liabilities under defined
benefit plans which are funded to 49% (53%) through Ericsson Pensions-
stiftelse (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.

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

Ericsson | Annual Report 2018Note G1, cont’d.

defined benefit accounting, as for most of the accrued pension benefits in
Alecta, information is missing on the allocation of earnings process between
employers. Full vesting is instead registered on the last employer. Alecta is not
able to calculate a breakdown of assets and pro visions for each respective
employer, and therefore, the disability and survivors’ pension portion of the
ITP Plan has been accounted for as a defined contribution plan.

Alecta has a collective funding ratio which acts as a buffer for its insurance
commitments to protect against fluctuations in investment return and 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 142% (154%) as of December
31, 2018. The Company’s share of Alecta’s saving pre miums is 0.4%; the total
share of active members in Alecta are 1.9%. The expected contribution to the
plan is SEK 74 million for 2019.

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 5.1 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 regu-
lations. The funded level in the US Pension Plan is above the point at which
minimum funding would be required for fiscal year 2018.

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

Amount recognized in the Consolidated balance sheet

2018
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)

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)

Financials – Notes to the consolidated financial statements

(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 represen-
tatives 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.

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.

Sweden

Other

Total

44,845
21,912

22,933
–

22,933

41,166
21,938

19,228
–

19,228

21,059
19,899

1,160
–

1,160

21,005
20,402

603
83

686

12,374
14,385

–2,011
2,246

235

13,246
14,599

–1,353
1,685

332

12,042
8,126

3,916
476

4,392

12,228
8,000

4,228
535

4,763

90,320
64,322

25,998
2,722

28,720

87,645
64,939

22,706
2,303

25,009

1) Plans with a net surplus, i.e., where plan assets exceed DBO, are reported as Other financial assets, non-current: see Note F3, “Financial assets, non-current.”

The asset ceiling decreased during the year by SEK 73 million from SEK 454 million in 2017 to SEK 381 million in 2018.

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.

Ericsson | Annual Report 201886

Financials – Notes to the consolidated financial statements

Note G1, cont’d.

Pension costs for defined contribution plans and defined benefit plans

2018
Pension cost for defined contribution plans
Pension cost for defined benefit plans

Total
Total pension cost expressed as a percentage of wages and salaries

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

Change in the net defined benefit obligation

Opening balance

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

Sweden

937
1,350

2,287

1,096
1,824

2,920

1,061
1,314

2,375

473
175

648

473
168

641

687
167

854

145
75

220

173
38

211

185
38

223

Other

Total

1,170
557

1,727

1,228
592

1,820

1,287
595

1,882

2,725
2,157

4,882
9.2%

2,970
2,622

5,592
9.5%

3,220
2,114

5,334
8.9%

Present value
of obligation

2018 2)

87,645

Fair value of
plan assets
2018

Total
2018

–64,939

22,706

Present value
of obligation

2017 2)

87,175

Fair value of
plan assets
2017

Total
2017

–64,485

22,690

1,602
100
2,196
78
–6

3,970

–
–
–1,912
54
2

–1,856

1,602
100
284
132
–4

2,114 3)

1,793
296
2,198
143
–13

4,417

–
–
–1,892
45
2

–1,845

1,793
296
306
188
–11

2,572 3)

–

3,016

–

–2,438

–124
261
–613

–476

–
–
–

3,016

–124
261
–613

2,540

–396
2,110
–219

1,495

–
–
–

–2,438

–396
2,110
–219

–943

2,659

–2,383

276

–2,275

2,262

–12

–984
28

–2,357
–145
–20

90,320

–513
–21

2,357
17
–

–1,497
7

–
–128
–20

–64,322

25,998

–880
27

–2,173
–141
–

87,645

–583
–23

2,173
–
–

–1,463
4

–
–141
–

–64,939

22,706

1) The expected contribution to the plans is SEK 2.1 billion during 2019.
2) The weighted average duration of DBO is 20.3 (20.1) years.
3) Excluding the impact of the asset ceiling of SEK 43 million in 2018 and SEK 50 million in 2017.

Present value of the defined benefit obligation

2018
DBO, closing balance

Of which partially or fully funded
Of which unfunded

2017
DBO, closing balance

Of which partially or fully funded
Of which unfunded

Sweden

Other

Total

44,845
44,845
–

41,166
40,665
501

21,059
20,372
687

21,005
20,319
686

12,374
12,374
–

13,246
13,246
–

12,042
9,292
2,750

12,228
9,465
2,763

90,320
86,883
3,437

87,645
83,695
3,950

Ericsson | Annual Report 2018Note G1, cont’d.

Asset allocation by asset type and geography

2018
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

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

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

Financials – Notes to the consolidated financial statements

Sweden

Other

Total

Of which
unquoted

935
4,434
10,642
4,228
1,673
–
–

21,912
–
–

3,124
4,079
8,663
4,269
1,803
–
–

21,938
–
–

585
729
17,329
–
1,151
–
105

19,899
–
–

382
795
17,650
–
1,478
–
97

20,402
–
–

1,416
2,293
9,410
154
415
–
697

14,385
–
–

834
3,116
9,331
244
160
–
914

14,599
–
–

88
2,439
3,485
229
230
1,289
366

8,126
–
–

88
2,432
3,494
212
208
1,200
366

8,000
–
–

3,024
9,895
40,866
4,611
3,469
1,289
1,168

64,322
–
–

4,428
10,422
39,138
4,725
3,649
1,200
1,377

64,939
–
–

0%
18%
23%
100%
70%
100%
33%

0%
16%
68%
100%
66%
100%
41%

2018

2017

1.5%
4.3%
3.0%
2.6%

1.6%
3.7%
2.6%
2.5%

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

2018

–1,887
87
–653

–2,453

2017

1,210
27
–267

970

1) Swedish payroll taxes are included in recognized gain/loss during the year in OCI.

1) Weighted average for the Group for disclosure purposes only. Country-specific assumptions were

Sensitivity analysis of significant actuarial assumptions

used for each actuarial calculation.

SEK billion

2018

2017

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%

–5.0
–1.0
–1.3
–8.3

+5.4
+1.1
+1.5
+9.2

–4.5
–1.1
–1.5
–8.1

+5.2
+1.2
+1.8
+9.3

Actuarial assumptions are assessed on a quarterly basis. See also Note A1,
“Significant accounting policies” and Note A2, “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 pen-
sion liability calculation. As of December 31, 2018, the discount rate applied
in Sweden was 1.5% (1.6%). If the discount rate had been based on Swedish
covered bonds, the discount rate as of December 31, 2018 would have been
2.5% (2.8%). If these discount rates based on Swedish covered bonds had
been applied for the pension liability calculation, the DBO at December 31,
2018 would have been approximately SEK 9.5 (9.1) billion lower.

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.

Ericsson | Annual Report 201888

Financials – Notes to the consolidated financial statements

G2 Information regarding members of the Board of Directors and Group management

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 2018

Number of previously
allocated synthetic
shares outstanding

Net change
in value of
synthetic

shares 1)

Committee
fees

Total fees
paid in cash 2)

Total
remuner ation
2018

(A+B+C)

Board member

Ronnie Leten

Helena Stjernholm
Jacob Wallenberg

Jon Fredrik Baksaas
Jan Carlson
Nora Denzel
Börje Ekholm
Eric A. Elzvik

Kurt Jofs

Kristin S. Rinne

Employee Representatives
Torbjörn Nyman
Kjell-Åke Soting
Roger Svensson
Karin Åberg 3)
Per Holmberg (deputy) 4)
Tomas Lundh (deputy) 5)
Anders Ripa (deputy)
Loredana Roslund (deputy)

Total

4,075,000

30,969/50%

2,037,330

990,000
990,000

990,000
990,000
990,000
–
990,000

990,000

31,500
40,500
48,000
13,500
1,500
7,500
21,000
21,000

7,523/50%
11,285/75%

11,285/75%
11,285/75%
3,761/25%
–
3,761/25%

11,285/75%

3,761/25%

–
–
–
–
–
–
–
–

494,909
742,396

742,396
742,396
247,422
–
247,422

742,396

247,422

–
–
–
–
–
–
–
–

–

19,754
28,390

12,992
12,992
9,819
24,789
4,330

–

16,056

–
–
–
–
–
–
–
–

375,654

494,201
748,678

307,523
307,523
276,017
737,547
102,491

136,887

352,161

–
–
–
–
–
–
–
–

375,000

175,000
175,000

200,000
425,000
425,000
–
350,000

350,000

200,000

–
–
–
–
–
–
–
–

2,412,500

670,000
422,500

447,500
672,500
1,167,500
–
1,092,500

597,500

447,500

31,500
40,500
48,000
13,500
1,500
7,500
21,000
21,000

4,825,484

1,659,110
1,913,574

1,497,419
1,722,419
1,690,939
737,547
1,442,413

1,476,783

1,047,083

31,500
40,500
48,000
13,500
1,500
7,500
21,000
21,000

12,179,500

94,915

6,244,089

129,122

3,838,682

2,675,000

8,114,500

18,197,271

153,178 7)

4,393,522 7)

2,675,000

8,114,500

18,752,111 7)

1) The difference in value as of the time for payment, compared to December 31, 2017, for synthetic

shares allocated in 2013 (for which payment was made in 2018).

The difference in value as of December 31, 2018 compared to December 31, 2017, for synthetic

shares allocated in 2014, 2015, 2016 and 2017. Calculated on a share price of SEK 77.92.
The difference in value as of December 31, 2018, compared to grant date for synthetic shares

allocated in 2018.

The value of synthetic shares allocated in 2014, 2015, 2016 and 2017 includes respectively SEK 3.40,
SEK 3.70, SEK 1.00 and SEK 1.00 per share in compensation for dividends resolved by the Annual
General Meetings 2015, 2016, 2017 and 2018 and the value of the synthetic shares allocated in
2013 includes dividend compensation for dividends resolved in 2014, 2015, 2016 and 2017.

2) Committee fee and cash portion of the Board fee.
3) Left the Board in connection with the Annual General Meeting of shareholders 2018.
4) Joined the Board in November 2018.
5) Left the Board in September 2018.
6) Excluding social security charges in the amount of SEK 4,176,652.
7) Including synthetic shares previously allocated to the former Directors Kristin Skogen Lund

and Sukhinder Singh Cassidy.

Comments to the table
– The Chair of the Board was entitled to a Board fee of SEK 4,075,000 and
a fee of SEK 200,000 as Chair of the Finance Committee and a fee of
SEK 175,000 as member of the Remuneration Committee.

– The other Directors elected by the Annual General Meeting were entitled to
a fee of SEK 990,000 each. In addition, the Chair of the Audit and Compli-
ance Committee was entitled to a fee of SEK 350,000 and the other non-
employee members of the Audit and Compliance Committee were entitled
to a fee of SEK 250,000 each. The Chairs 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.

– The Annual General Meeting 2018 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 Stock-
holm during the five trading days immediately following the publication of
Ericsson’s interim report for the first quarter 2018; SEK 65,79. 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 2023. 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 financial statement.
Synthetic shares were allocated to members of the Board for the first
time in 2008 and have been allocated annually since then on equal terms
and conditions. Payment based on synthetic shares allocated in 2013
occurred in 2018. The amounts paid in 2018 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

Ericsson Annual Report 2018Note G3, cont’d.

immediately following the publication of the year-end financial statements
for 2017: SEK 51.71 and totalled SEK 880,722 excluding social security
charges. The payments made do not constitute a cost for the Company in
2018. The Company’s costs for the synthetic shares have been disclosed
each year and the net change in value of the synthetic shares for which
payment was made in 2018, is disclosed in the table “Remuneration to
members of the Board of Directors” on page 88.
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, 2018,
the total outstanding number of synthetic shares under the programs is
248,093 and the total accounted debt is SEK 19,765,326.

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.”

Guidelines for remuneration to Group management 2018
For Group management consisting of the Executive Team (ET), 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 Team:
– Variable compensation is in cash and stock-based programs awarded
against specific business targets derived from the long-term business

Financials – Notes to the consolidated financial statements

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 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 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.
– On a case to case basis, the mutual notice period can be increased to no

more than 12 months in which case there will be a corresponding 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.

Remuneration costs
The total remuneration to the President and CEO and to other members
of the Group management, consisting of the ET, includes fixed salary,
short- and long-term variable compensation, pension and other benefits.
These remuneration elements are based on the guidelines for remuneration
to Group management as approved by the Annual General Meeting (AGM)
of shareholders held in 2018: see the approved guidelines in the previous
section “Guidelines for remuneration to Group management 2018.”

Remuneration costs for the President and CEO and other members of Executive Team (ET)

SEK

Salary 1)
Termination benefits
Annual variable remuneration
provision earned for the year
Long-term variable
compensation provision

Pension costs 2)
Other benefits

Social charges and taxes

Total

Pres ident
and CEO 2018

15,362,592
–

Pres ident
and CEO 2017

Other members
of ET 2018

Other members
of ELT 2017

14,379,170
–

87,557,407
8,977,037

108,135,646
54,023,816

Total 2018

102,919,999
8,977,037

Total 2017

122,514,816
54,023,816

–

26,041,833

7,331,278

26,041,833

7,331,278

18,351,265

7,890,372
424,513

13,205,431

55,234,173

6,119,323

7,528,073
318,187

8,894,255

16,549,282

31,776,195
11,785,239

51,255,788

9,840,643

31,592,635
17,311,905

52,086,808

34,900,547

39,666,567
12,209,752

64,461,219

15,959,966

39,120,708
17,630,092

60,981,063

37,239,008

233,942,781

280,322,731

289,176,954

317,561,739

1) Includes compensation for unused vacation days.
2) Includes cash payments to the President and CEO in lieu of defined contribution payment in a cost neutral way to Ericsson.

Comments to the table
– Fredrik Jejdling appointed as Executive Vice President by the Board of

Directors effective November 7, 2017, did not act as deputy to the President
and CEO in 2018. Information regarding Fredrik Jejdling is included in the
group “Other members of ET.”

– The group “Other members of ET” comprises of the following persons:
MajBritt Arfert, Arun Bansal, Niklas Heuveldop, Chris Houghton, Rafiah
Ibrahim, Fredrik Jejdling, Peter Laurin, Carl Mellander, Nunzio Mirtillo, and
Helena Norrman. In addition, Jan Karlsson joined ET on February 1, 2018,
and Xavier Dedullen, Erik Ekudden and Åsa Tamsons joined ET on April
1, 2018. Elaine Weidman-Grunewald (left ET effective February 1, and
Ericsson July 31, 2018), Ulf Ewaldsson (left ET effective February 1, and
Ericsson December 31, 2018) and Nina Macpherson (left ET and Ericsson
effective March 31, 2018 due to retirement).

– The salary stated in the table for the President and CEO and other members

of the ET includes vacation pay paid during 2018 as well as other con-
tracted compensation expenses in 2018.

– “Long-term variable compensation provision” refers to the compensation

costs for all outstanding share-based plans for full year 2018.

– 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 employ-
ment at Ericsson.

Outstanding balances
The Company has recognized the following liabilities relating to unpaid
remunerations in the Balance sheet:
– Ericsson’s commitments for defined benefit based pensions as of December
31, 2018, for other members of ET under IAS 19 amounted to SEK 56.0
(45.7) million of which SEK 45.2 (37.0) million refers to the ITP and early
retirement, and the remaining SEK 10.9 (8.7) million to disability and sur-
vivors’ 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.

Ericsson Annual Report 201890

Financials – Notes to the consolidated financial statements

G3 Share-based compensation

The table below shows the maximum outstanding matching rights for the
President and CEO and the other members of the Executive team (ET) under
the currently open Stock Purchase Plans (SPP) and Executive Performance
Stock Plans (EPSP).

Maximum outstanding matching rights

As of December 31, 2018
Number of Class B shares

The President
and CEO

Other members
of the ET

Stock Purchase Plans 2015–2016
Executive Performance Stock Plans 2015–2016

–

125,568

Comments to the table
– For the definition of matching rights, see the description in section

“Long-term variable compensation”.

– Matching result of 22.22% is included for the 2015 EPSP.
– Cash conversion targets for the 2015 EPSP for the years 2016 and 2018

were reached, but it was not reached in 2017.

– During 2018, no matching shares were received by President and CEO
since Börje Ekholm is not entitled for the Stock Purchase and Executive
Performance Stock Plans.

– During 2018, other members of the ET received 67,987 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
seven-year period. Since the President and CEO has the power to influence
the dividend paid by the Company, a potential conflict of interest exists. The
option agreements therefore contain a strike price recalculation mechanism
which is intended to make the options payoff neutral regardless of what the
actual dividends are. Due to the fact that the call options were purchased
on market terms as described above, no compensation expense has been
recognized by the Company and will not be recognized during the remaining
part of the seven-year period.

Long-Term Variable compensation
Following discontinuation of the previous long-term variable compensation
programs at the end of 2016, the Company introduced the new Long-Term
Variable Compensation Program (LTV) for the Executive Team, the new
Executive Performance Plan (EPP) for senior managers and the new Key
Contributor Plan (KC Plan) for key employees as integral parts of its remuner-
ation strategy starting from 2017.

2017–2018 Long-Term Variable Compensation Programs
(LTV) for the Executive Team
The Long-Term Variable Compensation Program (LTV) for the ET is designed
to provide long-term incentives for members of the ET and to incentivize
the Company’s performance creating long-term value. The aim is to attract,
retain, and motivate the executives in a competitive market through per-
formance 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 2018 Long-Term Variable Compensation Program (LTV 2018) was

approved by the AGM 2018 and includes all members of the ET, a total of
14 (16) employees in 2018, including the President and CEO, but excluding
Ulf Ewaldsson, Elaine Weidman-Grunewald and Nina Macpherson who left
the ET prior to the award grant date of May 18, 2018, and Jan Karlsson who
carried over his EPP entitlement for 2018 after his appointment to the ET.
Awards under LTV are granted to the participant, provided that certain
performance conditions 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 criteria, as set out below, and
generally 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 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,
2018. The value of the underlying shares in respect of the Performance Share
Award made to the President and CEO was 180% of the annual base salary,
and for other participants ranged between 30% and 70% of the participants’
respective annual base salaries at the time of grant. The increase of the
maximum value of the underlying shares in respect of the Performance Share
Awards made to the ET members other than the President and CEO from
22.5% in 2017 to between 30% and 70% of the participants’ respective base
salaries at the time of grant in 2018 was approved by the AGM 2018 with the
intention to increase the long-term focus and alignment with the long-term
expectations of the shareholders. The share price used to calculate the num-
ber of shares to which the Performance Share Award entitles was calculated
as the volume- weighted average of the market price of Ericsson 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 2018.

The vesting of Performance Share Awards is subject to the satisfaction of
challenging performance criteria which will determine what portion, if any, of
the Performance Share Awards will vest at the end of the Performance Period.
Following continous evaluation of the Long-Term Variable Compensation
Programs a one-year Group operating income target was added to LTV 2018
measured over the period January 1, 2018 to December 31, 2018, to support
achieving the Company’s 2020 targets, in addition to the three-year targets
relating to total shareholder return (TSR), which were also used for LTV 2017.
The performance criteria relating to TSR are absolute TSR development
and relative TSR development for the Ericsson B share over the period Janu-
ary 1, 2018 to December 31, 2020 (the “Performance Period”).

The performance criteria for LTV 2018 and LTV 2017 along with the

details on how the performance criteria will be calculated and measured are
explained in minutes from the AGM 2018 under Item 17, and summarized in
the table below.

The Board resolved on the vesting level for the 2018 Group operating
income performance condition as 200% for this portion of the performance
share awards granted based on a 2018 Group operating income excluding
restructuring charges and the provisions taken in Q4 2018 related to the
revised BSS strategy.

Provided that the above performance criteria have been met during the
Per formance Period and that the participant has retained his or her employ-
ment (unless special circumstances are at hand) during the Vesting Period,
allotment of vested shares will take place as soon as practicably possible
following the expiration of the Vesting Period.

LTV and EPP Performance Criteria

Program Year

Target

Criteria

Weight

Performance Period

2018
2018
2018
2017
2017

2018 Group Operating Income
Absolute TSR
Relative TSR
Absolute TSR
Relative TSR

Range (SEK billion): 4.6–9.6
Range: 6%–14%
Ranking of Ericsson: 7–2
Range: 6%–14%
Ranking of Ericsson: 12–5

50%
30%
20%
50%
50%

January 1, 2018–December 31, 2018
January 1, 2018 - December 31, 2020
January 1, 2018 - December 31, 2020
January 1, 2017 - December 31, 2019
January 1, 2017 - December 31, 2019

Vesting

0%–200% (linear pro-rata)
0%–200% (linear pro-rata)
0%–200% (linear pro-rata) 1)
0%–200% (linear pro-rata)
0%–200% (linear pro-rata) 1)

1) The portion of the performance share awards granted to a participant based on the relative TSR performance condition is subject to fulfillment of the related performance criteria over the performance period com-
pared to Peer Groups consisting of 12 and 18 companies respectively for the program years 2018 and 2017. The vesting of the performance share awards under this performance condition will vary depending on
the Company’s TSR performance ranking versus the other companies in the Peer Group at the end of the performance period.

Ericsson Annual Report 2018Note G3, cont’d.

When determining the final vesting level of Performance Share Awards,
the Board of Directors shall examine whether the vesting level 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 a 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.

LTV share-settled plan for the President and CEO and Executive Team

Plan (million shares)

Maximum shares required
Granted shares
Increase due to performace condition
Outstanding number of shares end of 2018
Compensation cost charged during 2018
(SEK million) 1)

Of which the President and CEO:
Granted shares
Outstanding number of shares end of 2018
Compensation cost charged during 2018
(SEK million)

Long-term variable
compensation programs

LTV 2018

LTV 2017

Total

3.0
0.8
0.4
1.2

3.0
0.7
–
0.7

6.0
1.5
0.4
1.9

17.9

14.7

32.6 1)

0.4
0.6

8.6

0.4
0.4

9.8

0.8
1.0

18.4

1) Total compensation cost charged during 2017: SEK 9.9 million.

The maximum number of shares required for LTV 2018 is 3.0 (3.0) million.
0.8 (0.7) million shares were granted to the ET members in May 18, 2018.
The 2018 ET plan is a share-settled plan recognized over a three-year
service period that has two types of conditions, market conditions and perfor-
mance condition. The weighted fair value for LTV 2018 market conditions was
calculated as per the share price at grant date May 18, 2018 and amounted
to SEK 79.70. The share price at grant date was SEK 65.79. The fair value for
the market conditions calculated is the weighted average of the fair values
including adjustments for absolute and relative TSR performance criteria on
the grant date, 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 amount is fixed for the service period, except for any
persons leaving.

The performance condition for the ET plan is based on the outcome of the
Group operating income as per 2018 fiscal year. For the performance condi-
tion the number of shares are adjusted in relation to the achievement level of
the performance condition at the end of the performance period. The outcome
of the performance conditions was achieved at a vesting level of 200% and
the total number of shares has been increased by 0.4 million shares to 1.2
million shares. The share price for the performance condition was SEK 62.93
and is calculated based on the share price at grant, reduced by the net present
value of the dividend expectations during the three-year service period.
The 2017 LTV program is a share-settled plan with market conditions
accounted for as described for LTV 2018. The total compensation expense
is calculated based on the fair 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. The fair value for LTV 2017 at grant date was
calculated as per May 18, 2017 and amounted to SEK 65.68. The share price
at grant date May 18, 2017 was SEK 57.15.

The accounting treatment for LTV is prescribed in IFRS 2 Share-based

payment as described in Note A1, “Significant accounting policies.”

2017–2018 Executive Performance Plans (EPP)
The Executive Performance Plan (EPP) is designed to attract, retain, and
motivate senior managers in a competitive market through performance
based long-term cash incentive supporting the achievement of the Com-
pany’s long-term strategies and business objectives.

Under the 2018 Executive Performance Plan (EPP 2018), up to 182 (500)

senior managers were identified to be eligible for the plan, and 171 (452)
of these 182 (500) senior managers were selected as participants to the
plan through a nomination process that identifies individuals according to

Financials – Notes to the consolidated financial statements

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 Ericsson B shares used
for the respective year’s LTV program. The three-year vesting period is the
same as for the LTV program. The vesting level of the award is subject to the
achievement of the same performance criteria over the same Performance
Periods defined for the respective year’s LTV program, 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 Ericsson B shares at 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 is prescribed in IFRS 2 Share-based

payment as described in Note A1, “Significant accounting policies.” At the start
of the service period, compensation costs are calculated as for the respective
year’s LTV program. 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 respective year’s LTV
program. Total compensation expense for the Company is the same as the
total pay-out to the employee.

2017–2018 Key Contributor Plans (KC Plan)
The Key Contributor Plan (KC Plan) is designed to recognize the best talent,
individual performance, potential and critical skills as well as to encourage
the retention of key employees. Under the 2018 Key Contributo Plan (2018
KC Plan), up to 6,037 (7,000) employees were identified to be eligible for
the plan, and 5,886 (6,876) of these 6,037 (7,000) employees were 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 Ericsson B shares used
for the respective year’s LTV program. There is a mandatory three-year reten-
tion 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 Ericsson 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
Ericsson 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-settled plans (EPP and KC Plan) is shown in the

table below:

LTV cash-settled plans

(million)

Plan

Executive Performance Plan
Key Contributor Plan

Total

Number of synthetic shares

LTV 2018

LTV 2017

1.0
9.4

10.4

1.9
10.5

12.4

Total

2.9
19.9

22.8

Compensation cost under LTV cash-settled plans

(SEK million)

Plan
Executive Performance Plan 1)
Key Contributor Plan 2)

Total

Compensation cost year 2018

LTV 2018

LTV 2017

19.8

155.9

175.7

110.7

322.9

433.6

Total

130.5
478.8 3)

609.3

1) Fair value for EPP SEK 98.97 for LTV 2018 and 136.16 (65.68) for LTV 2017.
2) Fair value for KC Plan SEK 79.98 for LTV 2018 and 81.06 (56.55) for LTV 2017.
3) Total compensation cost charged during 2017: SEK 170 million.

The accounting treatment for KC Plan is prescribed in IFRS 2 Share-based
payment as described in Note A1, “Significant accounting policies.” At grant
date the share price was SEK 65.79 (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. Remaining
liability for LTV 2017 was SEK 511 million and for LTV 2018 SEK 668 million.

Ericsson Annual Report 201892

Financials – Notes to the consolidated financial statements

Note G3, cont’d.

2015–2016 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
Retention Plan, and the Executive Performance Stock Plan.

The Stock Purchase Plan (SPP)
The Stock Purchase Plan (SPP) 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 Ericsson 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 Ericsson B sshares 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, 2018.

Stock Purchase Plans

Plan

Stock Purchase plan 2015

Stock Purchase plan 2016

Contribution
period

August 2015 –
July 2016
August 2016 –
July 2017

Number of
participants at
launch

Take-up rate
– percent of eligible
employees

33,800

31,500

31%

29%

The accounting treatment for SPP is prescribed in IFRS 2 “Share-based
payment” as described in Note A1, “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 calculated 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 manage-
ment 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
potential. Participants selected obtained one extra matching share in addition
to the ordinary one matching share for each contribution share purchased
under SPP during a twelve-month period.

Since no SPP was proposed after 2016, the cash-based KC Plan described

above was introduced replacing the Key Contributor Retention Plan.

The accounting treatment for the Key Contributor Retention Plan is the
same as for SPP, however, these employees receive two shares for each share
invested.

Executive Performance Stock Plan targets

Base year
value
SEK billion

Year 1

Year 2

Year 3

2016

Growth (Net sales growth)
Margin
(Operating income growth) 1)
Cash flow (Cash conversion)

246.9

24.8
–

1) Excluding extraordinary restructuring charges.

Compound annual growth rate of
2%–6%
Compound annual growth rate of
5%–15%
≥70%

≥70%

The Executive Performance Stock Plan (EPSP)
The Executive Performance Stock Plan (EPSP) was designed to focus man-
agement on driving earnings and provide competitive remuneration. Senior
managers, including the members of the 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 SPP. 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, 2018.

Since no SPP was proposed after 2016, the share-based LTV was

introduced for the ET with the approval of shareholders in the AGM of share-
holders.

For the senior managers, the cash based EPP was introduced replacing the
Executive Per formance Stock Plan. The LTV and the EPP are described above.
The accounting treatment for the Executive Performance Stock Plan is
prescribed in IFRS 2 Share-based payment as described in Note A1 Signif-
icant 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 2014–2016

Plan (million shares)

Originally designated
Outstanding beginning of 2018
Awarded during 2018
Exercised/matched during 2018
Forfeited/expired during 2018
Outstanding end of 2018 1)
Compensation costs charged during 2018 (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
21.6
–
1.5
1.4
18.7
321.7 2)

2015

23.5
15.4
–
3.6
2.3
9.5
260.4 2)

2014

22.8
6.7
–
6.5
0.2
–
62.8 2)

Total

67.9
43.7
–
11.6
3.9
28.2
644.9

1) Shares under the Executive Performance Stock Plans were based on the fact that the 2014 plan came out at 33%, in casu 67% lapsed and that the 2015 plan vested for 22% and lapsed for 78%. For the other

ongoing plans, cost is estimated.

2) Share price 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 2014 and 2015 plans as
disclosed under 1) when calculating the compensation cost.

3) Total compensation costs charged during 2017: SEK 876 million, 2016: SEK 957 million.

Ericsson Annual Report 2018Note G3, cont’d.

Shares for LTV 2014–2016 and LTV 2017
LTV 2014–2016 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’
financing 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/vesting
of shares. During 2018, 1,594,920 shares were sold at an average price
of SEK 66.97. Sales of shares are recognized directly in equity.

If, as of December 31, 2017, all shares allocated for future matching/vest-
ing 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/vesting, approximately 33 million Class B shares would be
transferred, corresponding to 1.0% of the total number of shares outstanding,
or 3,297 million not including treasury stock. As of December 31, 2018,
37 million Class B shares were held as treasury stock.

G4 Employee information

Employee numbers, wages and salaries

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

Financials – Notes to the consolidated financial statements

The table on the previous page shows how shares (representing matching

rights but excluding shares for social security expenses) are being used for
all outstanding stock purchase plans, key contributor retention plans and
excecutive performance stock plans. From up to down the table includes (A)
the number of shares originally approved by the Annual General Meeting;
(B) the number of originally designated shares that were outstanding at the
beginning of 2018; (C) the number of shares awarded during 2018; (D) the
number of shares matched during 2018; (E) the number of shares forfeited
by participants or expired under the plan rules during 2018; and (F) the
balance left as outstanding at the end of 2018, 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 2018 for each plan,
calculated as fair value in SEK.

For a description of compensation cost, including accounting treatment,

see Note A1, “Significant accounting policies,” section Share-based com-
pensation to employees and the Board of Directors.

Women

4,740
4,024
2,057
11,627
700

23,148
3,059
8,918

2018

Men

18,957
8,375
7,520
36,290
3,553

74,695
9,976
27,590

Total

23,697
12,399
9,577
47,917
4,253

97,843
13,035
36,508

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

Number of employees by market area at year-end

Wages and salaries and social security expenses

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

Number of employees by gender and age at year-end 2018

Women

1,190
9,294
6,292
4,168
1,426

23%

Under 25 years old
25–35 years old
36–45 years old
46–55 years old
Over 55 years old

Percent of total

Employee movements

Headcount at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees

2018

23,959
12,788
9,727
44,621
4,264

95,359
12,502
35,268

Men

1,961
25,284
24,276
16,366
5,102

77%

2017

24,495
12,456
10,009
49,231
4,544

100,735
13,864
39,508

Percent
of total

3%
36%
32%
22%
7%

100%

2018

95,359
16,630
11,254
560

2017

100,735
21,791
11,062
676

(SEK million)

Wages and salaries
Social security expenses
Of which pension costs

2018

53,298
13,863
4,882

2017

58,966
17,536
5,592

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)

2018

273
28
25

2017

347
79
32

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

2018

2017

Women

Men

Women

Men

23%
27%

77%
73%

43%
36%

57%
64%

19%

81%

19%

81%

Ericsson Annual Report 2018
94

Financials – Notes to the consolidated financial statements

Section H – Other

H1 Taxes

The Company’s tax expense for 2018 was SEK –4,813 (3,525) million
or –329.1% (9.8%) 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 Swedish tax rate reduction which was signed into law on
June 14, 2018, on the deferred tax assets and liabilities. The law reduces the
corporate income tax from 22% to 21.4% from January 1, 2019, and to 20.6%
from January 1, 2021.

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

2018

–5,513
–392
1,097

–5

–4,813

2017 1)

2016 1)

–4,168
83
7,613

–3

3,525

–3,654
–489
2,266

–5

–1,882

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with

Customers,” for more information see Note A3, “Changes in accounting policies.”

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.
The tax effect of rate change mainly includes the effect of the remeasurement
of deferred tax assets following the reduction in the Swedish corporate
income tax rate. The impairment of withholding tax assets is related to the
revised BSS strategy that is estimated to negatively impact the possibility of
utilization of such taxes in Sweden.

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
Impairment of withholding tax
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

2018

2017 1)

2016 1)

322
–773
–392
113

33
–3,000
–1,130
722
–708

–4,813
–329.1%

7,910
205
83
–150

127
–1,273
–2,871
480
–986

3,525
9.8%

–637
–536
–489
143

119
–456
–901
935
–60

–1,882
65.0%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with

Customers,” for more information see Note A3, “Changes in accounting policies.”

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

2018
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

2017 1)
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

1,182
3,614
5,459
4,441
3,223
8,449

26,368
–3,216

23,152

894
3,402
4,886
1,846
3,556
10,712

25,296
–3,333

21,963

2,125
731
842
–
188
–

3,886
–3,216

22,482

670

22,482

2,374
866
704
15
275
–

4,234
–3,333

21,062

901

21,062

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,”

for more information see Note A3, “Changes in accounting policies.”

Changes in deferred taxes, net

Opening balance, net
Opening balance adjustment due to IFRS 9

Opening balance, adjusted
Recognized in net income (loss)
Recognized in other comprehensive income (loss)
Acquisitions/disposals of subsidiaries
Reclassification to current tax
Translation difference

Closing balance, net

2018

21,062
288

21,350
1,097
285
–116
–289
155

22,482

2017 1)

14,851
–

14,851
7,613
–563
–
–462
–377

21,062

1) 2017 is restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,”

for more information see Note A3, “Changes in accounting policies.”

Tax effects reported directly in Other comprehensive income (loss) amount
to SEK 285 (–563) million, of which actuarial gains and losses related to
pensions constituted SEK 329 (–547) 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 Swedish corporate income tax rate.

Ericsson Annual Report 2018

Note H1, cont’d.

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 8,449 (10,712) million recognized deferred tax assets related
to tax loss carry-forwards, SEK 7,006 (8,795) million relates to Sweden.
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. Future income projections support the rec-
ognition of deferred tax assets.

As of December 31, 2018, the recognized tax loss carry-forwards

amounted to SEK 39,415 (47,360) million. The reduction is primarily attrib-
utable to utilization of the loss carry-forward against current year’s taxable
income. The tax value of the tax loss carry-forward is reported as a tax asset
based on the indefinite utilization period and the expectation that the group
will realize a significant taxable income to offset these loss carry-forwards.
The final years in which the recognized tax loss carry-forwards can be

Financials – Notes to the consolidated financial statements

H3 Statement of cash flows

Interest paid in 2018 was SEK –829 million (SEK –794 million in 2017 and
SEK –1,269 million in 2016) and interest received in 2018 was SEK –283
million (SEK 1 million in 2017 and SEK 110 million in 2016). Taxes paid,
including withholding tax, were SEK –5,874 million in 2018 (SEK –4,724
million in 2017 and SEK –9,105 million in 2016).

Cash and cash equivalents include cash of SEK 18,998 (18,403) million and
temporary investments of SEK 19,391 (17,481) million. For more information
regarding the disposition of cash and cash equivalents and unutilized credit
commitments, see Note F4, “Interest-bearing liabilities.”

Cash and cash equivalents as of December 31, 2018, include SEK 3.1 (3.1)

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.

utilized are shown in the following table.

Adjustments to reconcile net income to cash

Tax loss carry-forwards

Year of expiration

2019
2020
2021
2022
2023
2024 or later

Total

Tax loss
carry-forwards

Tax value

1
1
168
414
121
38,710

39,415

–
–
25
122
23
8,279

8,449

In addition to the table above there are tax loss carry-forwards of SEK 4,223
(4,544) million at a tax value of SEK 773 (842) 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.

H2 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)

2018

2017 1)

2016 1)

–6,530

–32,576

833

3,291
–1.98

3,277
–9.94

3,263
0.26

–6,530

–32,576

833

3,291
–

3,291
–1.98

3,277
–

3,277
–9.94

3,263
40

3,303
0.25

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with

Customers,” for more information see Note A3, “Changes in accounting policies.”

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.

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 2)
Undistributed earnings in joint ventures/
associated companies 2)
Gains/losses on sales of investments and
operations, intangible assets and PP&E, net 3)
Other non-cash items 4)

Total adjustments to reconcile net income
to cash

2018

2017 1)

2016 1)

3,275
568

3,843

4,103
2,211

6,314

4,421
148

4,569

2,559

2,681

1,815

1,387

3,946

254

–
275

529

4,475

1,667

4,348

2,245

2,019
12,966

17,230

21,578

2,650

4,465

–
–

4,550

8,318

27,892

9,119

–1,897

–9,064 1)

–6,449 1)

–53

212
1,220

–21

–167
607

–26

–37
3,172

7,830

19,324

5,863

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with

Customers,” for more information see Note A3, “Changes in accounting policies.”

2) See Note E3, “Associated companies.”
3) See Note B4, “Other operating income and expense.”
4) Refers mainly to unrealized foreign exchange, gains/losses on financial instruments.

For information about reconciliation of liabilities arising from financing
activities, see Note F4, “Interest-bearing liabilities.”

Ericsson Annual Report 201896

Financials – Notes to the consolidated financial statements

Note H3, cont’d.

Acquisitions/divestments of subsidiaries and other operations

Acquisitions

Divestments

H5 Fees to auditors

2018
Cash flow from business combinations 1)
Acquisitions/divestments of other investments

Total

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

1) See also Note E2, “Business combinations.”

–1,220
–398

–1,618

–62
–227

–289

–781
–203

–984

226
107

333

459
106

565

25
337

362

H4 Related party transactions

During 2018, various minor related party transactions were executed
pursuant to contracts based on terms customary in the industry and negoti-
ated on an arm’s length basis. For information regarding equity and Ericsson’s
share of assets, liabilities and income in joint ventures and associated compa-
nies, see Note E3, “Associated companies.”

For information regarding transactions with the Board of Directors and
Group management, see Note G2, “Information regarding members of the
Board of Directors and Group management.”

For information about the Company’s pension trusts, see Note G1,

”Post-employment benefits.”

Fees to auditors

2018
Audit fees
Audit-related fees
Tax fees
Other fees

Total

2017
Audit fees
Audit-related fees
Tax fees
Other fees

Total

2016
Audit fees
Audit-related fees
Tax fees
Other fees

Total

PwC

Others

Total

98
11
9
9

127

89
11
13
9

122

90
10
10
16

126

4
2
2
6

2
–
4
7

3
–
8
11

102
13
11
15

141

91
11
17
16

135

93
10
18
27

148

The total fee to PwC and their networks of firms is SEK 127 (122) millions. For 2018 SEK 39 (39) million
has been paid to the auditors for the audit engagement to the audit firm PricewaterhouseCoopers AB,
SEK 9 (10) million for other statutory engagements, SEK 1 (3) million for tax advisory services and SEK 8
(5) million for other services. No valuation services has been performed.

During the period 2016–2018, 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.

H6 Events after the reporting period

Ericsson completes divestment of majority stake in MediaKind
On February 1 2019, Ericsson announced it had closed the divestment of
MediaKind business to the private equity firm One Equity Partners. One Equity
Partners becomes majority owner, while Ericsson has 49% of the shares
after the transaction on January 31, 2019. The transaction will generate a
positive impact on operating income in Q1 2019 that with current visibility is
estimated to SEK 0.4–0.6 billion and will be reported in segment Emerging
Business and Other.

As of February 1, 2019, Ericsson’s 49% share of MediaKind results will be

reported as share in earnings of JV and associated companies in segment
Emerging Business and Other. MediaKind was in 2018 reported as part of
segment Emerging Business and Other, as part Ericsson Media Solutions.

Ericsson Annual Report 2018
Financials – Parent Company financial statements with notes

Parent Company
financial statements with notes

Contents

Parent Company financial statements

109 P12 Other current receivables

101

102

Parent Company income statement and
statement of comprehensive income

Parent Company balance sheet

Parent Company statement of cash flows

Parent Company statement of changes in
stockholders’ equity

Notes to the Parent Company
financial statements

103 P1

Significant accounting policies

104 P2

Other operating income
and expenses

109 P13 Equity and other

comprehensive income

111 P14 Contributions

111 P15 Post-employment benefits

111 P16 Other provisions

112 P17 Interest-bearing liabilities

112 P18 Financial risk management

and financial instruments

114 P19 Other current liabilities

114 P20 Trade payables

114 P21 Assets pledged as collateral

114 P22 Contingent liabilities

104 P3

Financial income and expenses

114 P23 Statement of cash flows

104 P4

Taxes

114 P24 Leasing

105 P5

Intangible assets

115 P25 Information regarding employees

105 P6

Property, plant and equipment

115 P26 Related party transactions

106 P7

Financial assets

107 P8

Investments

108 P9

Inventories

108 P10 Trade receivables and customer

finance

109 P11 Receivables and liabilities –

subsidiary companies

115 P27 Fees to auditors

115 P28 Events after the reporting period

Ericsson Annual Report 201898

Financials – Parent Company financial statements

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 (loss)
Items that will not be reclassified to profit or loss
Revaluation of borrowings due to change in credit risk
Tax on items that will not be reclassified to profit or loss
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 or loss

Total other comprehensive income, net of tax

Total comprehensive income (loss)

Notes

2018

2017

2016

P3
P3

P14

–
–

–

–1,047
–639

–1,686

2,111

425

8,310
–2,970

5,765

–1,535

4,230
–36

4,194

–
–

–

–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

2018

4,194

2017

–2,148

2016

14,246

206
–44

–

–
–

162

4,356

–
–

102
–14

161

–
–

–7

–

–5
–

–12

–1,987

14,234

Ericsson Annual Report 2018Financials – Parent Company financial statements

Notes

P5
P6

P7, P8
P7, P8

P7
P7, P11
P7, P10
P4
P7
P7

P10
P10
P11

P12
P18
P18

2018

2017

139
259

71,201
394

1,138
10,415
584
249
1,214
23,982

329
346

72,318
330

1,076
17,847
1,782
210
1,228
25,105

109,575

120,571

–

53
942
36,689
–
1,076
6,268
27,850

72,878

112
942
37,927
160
2,032
6,446
18,715

66,335

182,453

186,906

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

Ericsson Annual Report 2018

100

Financials – Parent Company financial statements

Parent Company balance sheet, cont’d

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

Notes

P13

P15
P16

P17
P17
P11

P17
P20
P11
P19

2018

2017

16,672
20
31,472

48,164
36,486
4,194
72

40,752

88,916

5
81

21,875
8,849
31,518
339

62,581

–
616
28,529
1,725

30,870

16,672
20
31,472

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

Total stockholders’ equity, provisions and liabilities

182,453

186,906

Ericsson Annual Report 2018

Financials – Parent Company financial statements

101

Notes

P23

P18

2018

4,194
1,384

5,578

1
1,199
68
–770
–518
–273

–293

5,285

–73
–22
60
–317
1,272
9,285
100
3,517

13,822

19,107

–7,605
–
–
–
107
–3,287
–120
–194

–11,099

1,127

9,135

18,715

27,850

2017

2016

–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

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

Ericsson Annual Report 2018102

Financials – Parent Company financial statements

Parent Company statement of changes in stockholders’ equity

SEK million

January 1, 2018

Opening balance adjustment due to IFRS9

January 1, 2018, adjusted

Total comprehensive income

Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation

Repurchase of own shares
Dividends paid

December 31, 2018

January 1, 2017

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

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

–

–
–
–

–
–

–

–
–
–
–
–

31,472

48,164

–

31,472

48,164

–

–
–
–

–
–

–

–
–
–

–
–

31,472

48,164

31,472

48,149

–

–
–
–
–
–

–

15
–
–
–
–

100

–

100

–

–
–
–

–
–

100

–

–
–
–
–
–

721

–811

–90

162

–
–
–

–
–

560

161

–
–
–
–
–

Capital stock

16,672

–

16,672

–

–
–
–

–
–

16,672

16,657

–

15
–
–
–
–

16,672

31,472

48,164

100

721

Other
retained
earnings

38,757

Non-
restricted
equity

39,578

Total

87,742

784

–27

39,541

39,551

87,715

4,194

4,356

–
107
25

–
–3,287

40,580

–
107
25

–
–3,287

40,752

–
107
25

–
–3,287

88,916

44,092

44,752

92,901

–2,148

–1,987

–
98
3
–15
–3,273

38,757

–
98
3
–15
–3,273

39,578

15
98
3
–15
–3,273

87,742

Ericsson Annual Report 2018Financials – Notes to the Parent Company financial statements

103

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
As of January 1, 2018, IFRS 9 was adopted, except regarding financial
guarantees where the exception allowed in RFR 2 is chosen. Financial guar-
antees are included in Contingent liabilities. Prior to 2018 IAS 39 Financial
Instruments: Recognition and Measurement was adopted, except regarding
financial guarantees where the exception allowed in RFR 2 is chosen. Finan-
cial 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 A2, “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.”

Changes in accounting policies
A new IFRS standard is effective as from January 1, 2018, IFRS 9.

The following table illustrates the impact of the implementation of IFRS 9

on equity and other balance sheet items at the transition date of January 1,
2018. The Company has applied IFRS 9 retrospectively on the required effec-
tive date, January 1, 2018. The 2018 opening balances have been adjusted,
but the previous periods have not been restated.

In the statement of comprehensive income, a new line has been added for

revaluation of borrowings due to changes in credit risk. A new line has been
added to the consolidated statement of equity showing the adjustment to the
opening balance.

Impact of IFRS 9 on balance sheet items

As reported
at 31.12
2017

IFRS 9
adjustment

Adjusted
balance at
1.1.2018

Assets

Non-current assets
Deferred tax assets
Current assets
Trade receivables

Equity and liabilities
Equity
Stockholder’s equity
Non-current liabilities
Borrowings, non-current

210

112

–4

218

108

87,742

–27

87,715

28,771

28,802

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
has applied IFRS 9 retrospectively on the required effective date, January 1,
2018, and has not restated comparative information.

Classification and measurement
The classification and measurement requirements of IFRS 9 did not have
a significant impact on the value of the assets and liabilities of the Parent
Company. The following changes in classification of assets and liabilities were
made as of January 1, 2018.
– Investments in liquid bonds with low credit risk which are not held for

achieved through the collection of contractual cash flows. Therefore, trade
receivables are classified as amortized cost. At transition, there was no
change in the carrying value of these assets due to the classification. See
below for the change in carrying value due to the changes in impairment
requirements.

– Investments in equity instruments, which were classified as available-

for-sale under previous standards, are classified as FVTPL with no impact
on carrying value. At transition, there were SEK 721 million of accumulated
gains (after tax) which would have been recycled to the income statement
upon derecognition of the equity instruments. Due to the adoption of IFRS
9, these gains will remain permanently in retained earnings and will not be

Ericsson Annual Report 2018104

Financials – Notes to the Parent Company financial statements

Note P1, cont’d.

recycled to the income statement in subsequent periods. Changes in fair
value from the date of transition are recognized immediately in the income
statement.

– Internal loans are managed by Group Treasury and all internal credit facil-
ities 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
was no change in the carrying value of these assets at transition.

Reclassification of financial instruments as of 1.1.2018

MSEK

Financial assets

Customer finance

Trade receivables
Interest-bearing securities
– held for trading
Interest-bearing securities
– managed on a fair value basis
Cash equivalents
– held for trading
Other investments in shares
and participations
Other financial investments2)
Derivatives3)

Financial liabilities
Borrowings – managed
on a fair value basis

Trade payables
Derivatives3)

Classifica-
tion under
IAS 39

Classifica-
tion under
IFRS 9

Carrying
amount
under
IAS 39

Carrying
amount
under
IFRS 9

Loans and
receivables
Loans and
receivables

FVTPL
Available-
for-sale

FVTPL
Available-
for-sale
FVTPL
FVTPL

FVTPL
Amortized
cost

2,724

112

108 1)

FVTPL

6,118

FVTPL

25,433

FVTPL

14,345

FVTPL
FVTPL
FVTPL

1,076
820
1,299

Amortized
cost
Amortized
cost
FVTPL

Designated
FVTPL
Amortized
cost
FVTPL

28,771

28,802 4)

695
927

in the balance sheet.

4) Change in value due to adjustment in impairment allowance.

The allowance for impairment for trade receivables increased by SEK 4
million due to the change in models. The allowance for impairment for cus-
tomer finance credits was removed as these assets are classified as FVTPL.
The opening balance of the customer financing credits valued at fair value is
unchanged from the net balance of customer finance credits after reducing for
allowances at December 31, 2017.

P2 Other operating income and expenses

Other operating income and expenses

License revenues and other operating revenues

Subsidiary companies
Other

Net gains/losses (–) on sales of tangible assets

Total

2018

2017

2016

2,126
–15
–

2,111

1,486
133
–3

1,616

2,414
284
–

2,698

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

2018

2017

2016

5,852
1,019

7,254
14

14,111
37

–

1,569
–186

8,310

1,286
–1,107

1,101
–191

7,524

15,179

–

–7

–1,246

–9,000

–129

–
–33

–128
–455
–1,108

–2,970

5,340

–
–126

70
–340
–425

–9,821

–2,297

–
–24

–63
–826
–91

–1,140

14,039

Interest expenses on pension liabilities are included in the interest expenses
shown above.

P4 Taxes

Income taxes recognized in the income statement

Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)

Tax expense

2018

2017

–41
–70
75

–36

–55
–30
32

–53

2016

–54
–113
–39

–206

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 effect of changes in tax rate

Tax expense

2018

–931
–70
–235
1,492

–274
–18

–36

2017

461
–30
–123
1,616

–1,977
–

–53

2016

–3,176
–113
–14
3,125

–28
–

–206

Ericsson Annual Report 2018
Financials – Notes to the Parent Company financial statements

105

Note P4, cont’d.

Deferred tax balances
Deferred tax assets are derived from the balance sheet items as shown in the
table below.

P5 Intangible assets

Patents, licenses, trademarks and similar rights

Tax effects of temporary differences

Current assets
Post-employment benefits
Provisions
Other

Deferred tax assets

Changes in deferred taxes

Opening balance
Opening balance adjustment due to IFRS 9
Opening balance, adjusted
Recognized in net income (loss)
Recognized in other comprehensive income (gain)

Closing balance

2018

2017

225
11
11
2

249

35
85
41
49

210

Accumulated acquisition costs
Opening balance
Acquisitions
Sales/disposals

Closing balance

Accumulated amortization
Opening balance
Amortization
Sales/disposals

2018

2017

Closing balance

210
8
218
75
–44

249

178
–
178
32
–

210

Accumulated impairment losses
Opening balance
Impairment losses

Closing balance

Net carrying value

2018

2017

5,086
22
–

5,108

5,086
–
–

5,086

–3,812
–212
–

–4,024

–3,594
–218
–

–3,812

–945
–

–945

139

–945
–

–945

329

P6 Property, plant and equipment

Property, plant and equipment

The balances are mainly related to RF technology.

Other equipment
and instal lations

Construction
in process and
advance payments

2018
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance

Depreciation

Sales/disposals

Closing balance

Net carrying value

2017
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance
Depreciation
Sales/disposals

Closing balance

Net carrying value

1,557
33
–78
10

1,522

–1,295

–101

–1,319

203

1,619
88
–184
34

1,557

–1,280
–195
180

–1,295

262

84
40
–58
–10

–

57
61
–
–34

–
–
–

–

Total

1,641
73
–136
–

1,578

–1,295

–101

–1,319

259

1,676
149
–184
–

1,641

–1,280
–195
180

–1,295

346

Ericsson Annual Report 2018106

Financials – Notes to the Parent Company financial statements

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

Subsidiary companies

Associated companies

2018

72,318
325
–
–156
–1,246
–40

71,201

2017

81,564
57
–
–303
–9,000
–

72,318

2018

2017

330
64
–
–
–
–

394

330
–
–
–
–
–

330

Other financial assets

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

2018

2017

2018

2017

2018

2017

2018

2017

2018

2017

1,076
135
–78
–
5
–

1,138

–
–
–
–
–

–

1,138

1,009
145
–20
–
102
–

1,236

–54
–126
20
–
–

–160

1,076

17,847
–4,622
–
–
–
–2,810

10,415

18,667
643
–
–
–
–1,463

17,847

25,105
50,190
–51,353
–
40
–

23,982

7,586
54,687
–37,241
–
73
–

25,105

–
–
–
–
–

–

–
–
–
–
–

–

–
–
–
–
–

–

–
–
–
–
–

–

10,415

17,847

23,982

25,105

86
–
–86
–
–
–

–

–
–
–
–
–

–

–
86
–
–
–
–

–
–
–
–
–

–

1,782 1)
777
–710
–1,235
–221
191

584

–
–
–
–
–

–

1,476
2,036
–1,019
–570
–
–82

1,841

–9
–70
21
–
–1

–59

584

1,782

1) As result of IFRS 9, the opening balance on January 1, 2018 is adjusted to be the net carrying value from 2017.

Accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/ deductions
Reclassifications
Fair value remeasurement
Translation difference

Closing balance

Other financial assets,
non-current

2018

2017

1,142
87
–15
–
–
–

1,214

1,233
20
–111
–
–
–

1,142

Ericsson Annual Report 2018Financials – Notes to the Parent Company financial statements

107

P8 Investments

The following listing shows certain shareholdings owned directly and indirectly by the Parent Company as of December 31, 2018.

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

Company

Subsidiary companies
Ericsson AB
Ericsson Shared Services AB
Netwise AB
Datacenter i Rosersberg AB
Datacenter i Mjärdevi Aktiebolag
AB Aulis
Ericsson Credit AB
Other (Sweden)
Ericsson Austria GmbH
Ericsson Danmark A/S
Oy LM Ericsson Ab
Ericsson Participations France SAS
Ericsson Germany GmbH
Ericsson Hungary Ltd.
L M Ericsson Limited
Ericsson Telecomunicazioni S.p.A.
Ericsson Holding International B.V.
Ericsson A/S
Ericsson Television AS
Ericsson Corporatia AO
Ericsson España S.A.
Ericsson AG
Ericsson Holdings Ltd.
Other (Europe, excluding Sweden)
Ericsson Holding II Inc.
Companía Ericsson S.A.C.I.

Ericsson Canada Inc.
Belair Networks
Ericsson Telecom S.A. de C.V.
Other (United States, Latin America)
Teleric Pty Ltd.
Ericsson Ltd.
Ericsson (China) Company Ltd.
Ericsson India Private Ltd.
Ericsson India Global Services PVT. Ltd
Ericsson Media Solutions Ltd
Ericsson-LG CO Ltd.
Ericsson (Malaysia) Sdn. Bhd.
Ericsson Telecommunications Pte. Ltd.
Ericsson South Africa PTY. Ltd
Ericsson Taiwan Ltd.
Ericsson (Thailand) Ltd.
Other countries (the rest of the world)

Total

Joint ventures and associated companies
Concealfab Co
ST-Ericsson SA
Rockstar Consortium Group
Ericsson Nikola Tesla d.d.

Total

Reg. No.

Domicile

Percentage of
ownership

Par value in local
currency, million

Carrying value,
SEK million

556056-6258
556251-3266
556404-4286
556895-3748
556366-2302
556030-9899
556326-0552

Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden

Austria
Denmark
Finland
France
Germany
Hungary
Ireland
Italy
The Netherlands
Norway
Norway
Russia
Spain
Switzerland
United Kingdom

United States
Argentina

Canada
Canada
Mexico

Australia
China
China
India
India
Israel
Korea
Malaysia
Singapore
South Africa
Taiwan
Thailand

USA
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

67 3)

100
100
75
70
100
70
90
49 2)
–

29
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
8
108
939
–
20
2
65
364
291
9
285
2
2
–
270
90
–

7
137
1
65

20,731
2,216
306
88
69
6
5
1,494
94
216
196
524
4,232
120
34
3,857
3,200
114
270
5
14
–
1,994
681
25,907

15
51
170
1,050
88
100
2
475
82
51
51
2,279
4
1
135
36
17
221

71,201

64
–
–
330

394

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.
3) Through subsidiary holdings, total holdings amount to 100% of Ericsson India Private Ltd.

Ericsson Annual Report 2018
108

Financials – Notes to the Parent Company financial statements

Note P8, cont’d.

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.
Redback Networks Inc.
Telcordia Technologies Inc.
Ericsson Telecomunicações S.A.
Ericsson Australia Pty. Ltd.
Ericsson (China) Communications Co. Ltd.
Nanjing Ericsson Panda Communication Co. Ltd.
Ericsson Japan K.K.
Ericsson Communication Solutions Pte Ltd.

Reg. No.

Domicile

Percentage
of ownership

556044-9489

Sweden
France
Germany
The Netherlands
Turkey
United Kingdom
United Kingdom
United States
United States
United States
United States
Brazil
Australia
China
China
Japan
Singapore

100
100
100
100
100
100
100
100
100
100
83
100
100
100
51
100
100

1) Disclosures Pursuant to Section 264b of the German Commercial Code (Handelsgesetzbuch – HGB)

Applying Section 264b HGB, Ericsson Holding GmbH and Ericsson Telekommunikation GmbH, located in Frankfurt am Main/Germany, are exempted from the obligation to prepare,
have audited and disclose financial statements and a management report in accordance with the legal requirements being applicable for German corporations.

P9 Inventories

Inventories

Finished products and goods for resale

Inventories

P10 Trade receivables and customer finance

2018

2017

–

Credit risk management is governed on a Group level.

For further information, see Notes to the consolidated financial statements
– Note B6, “Customer contract related balances” and Note F1, “Financial risk
management.”

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

2018

2017

78
–26 2)

53
1,526
–

1,526

137
–26

111

1
112 1)

2,884
–159

2,725

1) As result of IFRS 9, the carrying value of trade receivables decreased by SEK 4 million

on January 1, 2018.

2) As result of IFRS 9, the allowance of impairment increased by SEK 4 million

on January 1, 2018.

Movements in allowances for impairment

Opening balance
IFRS9 Adjustment
Adjusted opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference

Closing balance

Trade receivables

2018

2017

Customer finance
2018 1)

2017

26
4
30
–4
–
–
–

22
–
–
–
–
–
4

–
–
–
–
–
–
–

–

105
–
–
82
–3
–17
–8

159

1) Revaluation of customer finance amounted to a net negative impact in the income statement

of SEK 1,097 million in 2018, of which SEK 1,097 million is related to credits held as of
December 31, 2018.

Ericsson Annual Report 2018Financials – Notes to the Parent Company financial statements

109

Note P10, cont’d.

Aging analysis as per December 31

2018
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

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

Trade receivables excluding
associated companies
and joint ventures

Allowances
for impairment
of receivables

Trade receivables related
to associated companies
and joint ventures

Customer
finance

Allowances for
impairment of
customer finance 1)

38
–
–
–
–
40

26
18
59
–
–
34

137

–
–
–
–
–
–26

–26

–
–
–
–
–
–26

–26

1
–
–
–
–
–

725
562
2
–
94
143
1,526 2)

970
1,751
4
1
29
129

2,884

–
–
–
–
–
–

–

–
–60
–
–
–20
–79

–159

1) Revaluation of customer finance amounted to a net negative impact in the income statement of SEK 1,097 million in 2018, of which SEK 1,097 million is related to credits held as of December 31, 2018.
2) Includes revaluation of customer finance of SEK –1,097 million in 2018.

Outstanding customer finance credit risk exposure 1)

Fair value of customer finance credits 2)
Financial guarantees for third-parties
Accrued interest

Maximum exposure to credit risk
Less third-party risk coverage

Parent Company’s risk exposure,
less third-party risk coverage
On-balance sheet credits, net carrying value

Of which current

Credit commitments for customer finance

2018

2,623
43
21

2,687
–128

2,559
1,526
942
2,863

2017

2,884
77
14

2,975
–505

2,470
2,725
942
2,784

P12 Other current receivables

Other current receivables

Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other

Total

2018

215
76
399
386

1,076

2017

295
49
1,213
475

2,032

1) This table has been adjusted to show the maximum exposure to credit risk. In prior years, impair-

ments were not considered.

2) At December 31, 2017, the fair value of the customer finance credits was the same as the carrying value.

P13 Equity and other comprehensive income

Transfers of financial assets
During 2018, there were no new financial assets transferred.

Capital stock 2018
Capital stock at December 31, 2018, consisted of the following:

P11 Receivables and liabilities –

subsidiary companies

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

Receivables and liabilities – subsidiary companies

1) Class A shares (quotient value SEK 5.00) and Class B shares (quotient value SEK 5.00).

Payment due by period

< 1
year

1–5
years

>5
years

Total
2018

Total
2017

Non-current receivables 1)
Financial receivables

1,642

8,773

Current receivables
Trade receivables
Financial receivables

Total

Non-current liabilities 1)
Financial liabilities

Current liabilities
Trade payables
Financial liabilities

Total

1,453
35,236

36,689

–

253
28,276

28,529

–
–

–

–
–

–

–
–

–

10,415

17,845

1,453
35,236

36,689

861
37,066

37,927

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 March 29, 2019,
and that the Parent Company shall retain the remaining part of non-restricted
equity. The Class B treasury shares held by the Parent Company are not
entitled to receive dividend. Assuming that no treasury shares remain on the
record date, the Board of Directors proposes that earnings be distributed as
follows:

Proposed disposition of earnings

31,518

31,511

Proposed disposition of earnings

–
–

–

253
28,276

28,529

934
34,510

35,444

Amount to be paid to the shareholders
Amount to be retained by the Parent Company
Total non-restricted equity of the Parent Company

3,334,151,735 SEK
37,417,784,478 SEK
40,751,936,213 SEK

1) Including non-interest-bearing receivables and liabilities, net, amounting to SEK –31,518

(–31,512) million.

The company has completed its assessment of the impact of IFRS 9 on trade
receivables – subsidiary companies. The conclusion was that no impairment
according to IFRS 9 was required.

Ericsson Annual Report 2018110

Financials – Notes to the Parent Company financial statements

Note P13, cont’d.

Equity and other comprehensive income 2018

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

January 1, 2018

Opening balance adjustment due to IFRS9

January 1 , 2018, adjusted

Net income

Other comprehensive income
Items that will not be reclassified to profit or loss
Revaluation of borrowings due to change in credit risk
Tax on items that will not 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
Long-term variable compensation
Repurchase of own shares
Dividends paid

December 31, 2018

Equity and other comprehensive income 2017

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 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)

Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation
Repurchase of own shares
Dividends paid

December 31, 2017

16,672

–

16,672

–

–
–

–

–
–
–
–

–

–
–

–

–
–
–
–

31,472

48,164

–

31,472

48,164

–

–
–

–

–
–
–
–

–

–
–

–

–
–
–
–

100

–

100

–

–
–

–

–
–
–
–

16,672

31,472

48,164

100

Other
retained
earnings

38,757

Non-
restricted
equity

39,578

Total

87,742

784

–27

721

–811

–90

39,541

39,551

87,715

–

4,194

206
–44

162

–

–
–
–
–

–
–

–

206
–44

162

206
–44

162

4,194

4,356

–

107
25
–
–3,287

40,580

–

107
25
–
–3,287

40,752

–

107
25
–
–3,287

88,916

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

16,657

–

–
–

–

15
–
–
–
–

–

–
–

–

–
–
–
–
–

31,472

48,149

–

–
–

–

–
–
–
–
–

–

–
–

–

15
–
–
–
–

100

–

–
–

–

–
–
–
–
–

560

–

102
–14

161

–
–
–
–
–

16,672

31,472

48,164

100

721

Other
retained
earnings

44,092

Non-
restricted
equity

44,752

Total

92,901

–2,148

–

–
–

–

102
–14

161

102
–14

161

–2,148

– 1,987

–
98
3
–15
–3,273

38,757

–
98
3
–15
–3,273

39,578

15
98
3
–15
–3,273

87,742

Ericsson Annual Report 2018Financials – Notes to the Parent Company financial statements

111

P14 Contributions

Contributions to Swedish subsidiaries amount to SEK 1,535 (120) million.
There were no contributions from Swedish subsidiaries in 2018 and 2017.

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.

Defined benefit obligation – amount recognized in the Balance sheet

Present value of wholly or partially funded pension plans1)
Fair value of plan assets

Unfunded/net surplus (–) of funded pension plans
Present value of unfunded pension plans1)
Excess from plan assets not accounted for

Closing balance provision for pensions

2018

1,223
–1,228

–5

5
5

2017

867
–1,220

–353

395
353

395

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
Organizational changes1)
Pension costs, excluding taxes, related to defined benefit
obligations accounted for in the income statement
Pension payments
Return on plan assets
Return on plan assets not accounted for
Return on plan assets, not accounted for from previous years,
is recognized2)

Closing balance provision for pensions

2018

2017

53
233
599
232
111

1,228
–

2018

395

–50

89
–73
–8
–

–348

175
220
485
239
101

1,220
–

2017

410

–

101
–81
–46
11

–

395

1) Telefonaktiebolaget LM Ericsson Technical office UAE was merged during 2018 to Ericsson AB Dubai

branch, which is owned by Ericsson AB.

2) The return on plan assets, not accounted for in prior years due to asset ceilings, is recognized during

2018 due to increased value of the funded pension plans.

Estimated pension payments for 2019 are SEK 72 million.

1) The total defined benefit obligation is considered to be secured in the pension trust but not wholly

funded.

Total pension cost and income recognized in the Income statement

The defined benefit obligations are calculated based on the actual salary
levels at year-end and based on a discount rate of 3.0 (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 0.6 (3.9)%.

P16 Other provisions

Other provisions

2018
Opening balance

Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications

Closing balance

2017
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications

Closing balance

1) Of which SEK 65 (204) million is expected to be utilized within one year.

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

2018

2017

2016

52
37
1

58
–356

–208

65
36
3

74
36
2

104

112

65
–35

134

85
–18

179

Of the total pension cost, SEK 111 (133 in 2017 and 162 in 2016) million is
included in operating expenses and SEK –319 (1 in 2017 and 17 in 2016)
million in the financial net.

Restruc turing

Customer
finance

Other

Total other
provisions1)

30
–1
–28
–

71
5
–
–63
–

–2
–
–
–1

4
–
–
–
–

190

24
–90
–58
–

400
199
–
–409
–

190

207

52
–91
–86
–1

475
204
–
–472
–

207

Ericsson Annual Report 2018
112

Financials – Notes to the Parent Company financial statements

P17 Interest-bearing liabilities

As of December 31, 2018, the Parent Company’s outstanding interest-bearing
liabilities, excluding liabilities to subsidiaries, stood at SEK 30.7 (28.8) 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

2018

2017

–
–

–

21,875
8,849

30,724

–
–

–

20,560
8,211

28,771
28,771 1)

1) As a result of IFRS 9, the carrying value of borrowings increased by SEK 31 million on January 1, 2018.

Notes, bonds and bilateral loans

Term Note (EMTN) program or under its U.S. Securities and Exchange Com-
mission (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 F1, “Financial
risk management and financial instruments.” Total weighted average interest
rate cost for the long-term funding during the year was 1.74% (1.68%).

Changes in fair value due to changes in credit risk in 2018
Ericsson’s credit risk is calculated from the market value of the instruments
traded on the credit market. For interest bearing securities not traded on the
credit market, an average of the five latest pricing updates from the compa-
ny’s core banks is used. The pricing updates are based on the credit markets
view of Ericsson’s credit and therefore reflects a market price of the credit risk.

Nominal
amount

Coupon

Currency

Maturity date

Changes in fair
value due to
changes in
credit risk
2018

Book value
(SEK million)
2018

Cumulative
changes in fair
value due to
changes
in credit risk
2018

Book value
(SEK million)
2017

Unrealized hedge
gain/loss (included
in book value) 2017

170
1,000
500
500
150

98
684
220

4.125%
0.875%
1.875%

USD
USD
EUR
EUR
USD

Dec 23, 2020
May 15, 2022
Mar 1, 2021
Mar 1, 2024
Dec 22, 2025

USD
USD
USD

Sep 30, 2021
Nov 6, 2020
Jun 15, 2023

1,545
8,776
5,141
5,087
1,326

–37
–68
47
–35
–13

21,875

–106

860
6,030
1,959

8,849

–32
–66
–3

–101

24
19
13
–43
–13

–

–1
–87
–3

–91

1,394
8,180 2)
4,897 2)
4,862 2)
1,227

20,560

805
5,609
1,797

8,211

9
7
–7

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)
2017–2023 3)

Total bilateral loans

1) Private Placement, Swedish Export Credit Corporation (SEK).
2) Interest rate swaps were designated as fair value hedges.

3) Nordic Investment Bank (NIB), R&D project financing.
4) European Investment Bank (EIB), R&D project financing.

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 F1, ”Financial Risk Management and Financial Instruments”.

Outstanding derivatives 1)

Fair value

Asset

Liability

Asset

Liability

Fair value

Asset

Liability

Asset

Liability

2018

2017

2018

2017

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

286

53
–
307

646
376

250

67
145
194

656
63

323

215
25
755

1,318
159

643

200
–
658

1,501
783

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

8
10
66
58

157

–

15
3
222
23

295

–

1
34
84
39

168

–
105
54
43

237

–

1) In 2017 some of the derivatives hedging non-current liabilities are recognized in the balance sheet

as non-current due to hedge accounting.

Ericsson Annual Report 2018Financials – Notes to the Parent Company financial statements

113

In July 2018, Moody’s announced that they had changed their Corporate
Credit Rating outlook from negative to stable.

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 0.4 (1.3) billion in relation to

assets and gross SEK –0.9 (–1.0) 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 2.1 (1.9) billion. These assets, classified
as level 3 assets for valuation purposes, have been valued based on value
in use technique.

– Customer finance credits are classified as level 3 assets for valuation

purposes and have been valued according to the model described above in
“Customer finance credit risk.”

Note P18, cont’d.

Cash, cash equivalents and short-term investments

SEK billion

Banks

Type of issuer/counterpart
Governments
Corporations
Mortgage institutes

2018
2017

Remaining time to maturity

< 3
months

3–12
months

1–5
years

>5
years

16.7

7.7
2.2

26.6
19.4

2.3

0.2

2.5
1.0

7.7

15.2

22.9
28.2

0.9

0.3

1.2
1.6

Total

16.7

18.6
2.2
15.7

53.2
50.2

The instruments are classified as fair value through profit or loss. 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 0.0 (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

1.456
1.000

3.544

1) There are no financial covenants related to these programs.
2) Program amount indeterminate.

Committed credit facilities

Multi-currency revolving credit facility
(USD million)
European Investment Bank (EIB) credit facility
(EUR million)

2,000

250

–

2,000

250

Amount

Utilized

Unutilized

Financial instruments, book value 2018

Trade
recei v ables

Customer
finance

Interest-
bearing
securities

Rec eiv ables
and liabilities
sub sidi aries

Interest
bearing
liabilities

Trade
payables

Cash
equivalent

Other
current
receivables

Other
current
liabilities

Other
financial
assets

SEK billion

Note
Assets at fair value through
profit or loss
Assets at amortized cost
Assets at fair value through OCI
Financial liabilities at fair
value through profit and loss 1)
Financial liabilities
at amortized cost

P10

P7/P18

P11

P17

P20

1.5

26.5

0.1

47.1

P12

0.4

15.2

2.4

P19

–0.9

15.2

0.4

–0.9

2.4

–30.7

–60.0

–12.9

–0.4

Total

0.1

1.5

26.5

1) Borrowings have been designated FVTPL while derivatives are held for trading.

Financial instruments, book value 2017

SEK billion

Note
Assets at fair value through profit or loss
Loans and receivables
Available-for-sale
Financial Liabilities at
amortized cost

Total

Trade
recei v ables

Interest-
bearing
securities

Rec eiv ables
and liabilities
sub sidi aries

Interest
bearing
liabilities

Trade
payables

Cash
equivalent

Other
current
receivables

Other
current
liabilities

Other
financial
assets

P10

2.7

P7/P18
6.1

25.1

P11

55.8

P17

P20

14.3

P12
1.2

P19
–0.9

P7
1.0
0.2
1.0

2.7

31.2

–70.0

–14.2

–28.8

–0.5

14.3

1.2

–0.9

2.2

2018

46.0
47.2
–

–31.6

–60.4

1.2

2017

21.7
58.7
26.1

–99.3

7.2

Ericsson Annual Report 2018114

Financials – Notes to the Parent Company financial statements

P19 Other current liabilities

P23 Statement of cash flows

Other current liabilities

Accrued interest
Accrued expenses, of which
Employee related
Other
Deferred revenues
Derivatives with a negative value
Other current liabilities

Total

P20 Trade payables

Trade payables

Trade payables excluding associated companies and joint
ventures
Associated companies and joint ventures

Total

All trade payables fall due within 90 days.

2018

2017

211
650
286
364
–
887
–23

187
620
275
345
5
927
61

1,725

1,800

2018

2017

430
186

616

509
186

695

Interest paid in 2018 amounted to SEK 584 million (SEK 494 million in 2017
and SEK 564 million in 2016) and interest received was SEK 479 million
(SEK 419 million in 2017 and SEK 304 million in 2016). Taxes paid, includ-
ing withholding tax, were SEK 148 million in 2018 (SEK 311 million in 2017
and SEK 121 million in 2016).

Adjustments to reconcile net income to cash

Property, plant and equipment
Depreciation

Total
Intangible assets
Amortization

Total

Total depreciation and amortization on
tangible and intangible assets
Taxes
Write-downs and capital gains (–)/losses on sale
of fixed assets, excluding customer finance, net
Unsettled group contributions
Unsettled dividends
Other non-cash items

Total adjustments to reconcile
net income to cash

2018

2017

2016

101

212

313
–93

243
1,535
–
–614

195

218

413
–270

9,126
120
–
121

187

268

455
84

78
1,100
–7
28

1,384

9,510

1,738

P21 Assets pledged as collateral

P24 Leasing

Assets pledged as collateral

Bank deposits

Total

2018

582

2017

715

Leasing with the Parent Company as lessee
At December 31, 2018, 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 353 (475) million.

P22 Contingent liabilities

Contingent liabilities

Total contingent liabilities

2018

2017

22,508

22,620

Contingent liabilities include pension commitments of SEK 18,053
(17,404) million.

2019
2020
2021
2022
2023
2024 and later

Total

Operating leases

478
517
446
355
229
548

2,573

Leasing with the Parent Company as lessor
At December 31, 2018, future minimum payment receivables were distributed
as follows:

Future minimum payment receivables

2019
2020
2021
2022
2023
2024 and later

Total

Operating leases

4
–
–
–
–
–

The operating lease income is mainly income from the subleasing of real
estate. See Notes to the consolidated financial statements, Note C3, “Leasing.”

Ericsson Annual Report 2018

P25 Information regarding employees

Average number of employees

2018

2017

Men Women

Total

Men Women

Total

Northern Europe & Cen-
tral Asia 1) 2)
Middle East 3)

Total
1) Of which in Sweden
2) Of which in EU

197
–

197
197
197

188
–

188
188
188

385
–

385
385
385

200
184

384
200
200

200
24

224
200
200

400
208

608
400
400

3) Telefonaktiebolaget LM Ericsson Technical office UAE was merged to Ericsson AB Dubai branch,

which is owned by Ericsson AB.

Remuneration

Wages and salaries and social security expenses

Wages and salaries
Social security expenses

Of which pension costs 4)

2018

456
–77
–259

2017

717
314
175

4) The return on plan asset, not accounted for in prior years, is recognized during 2018 due to increased

value of the funded pension plans.

Wages and salaries per region

Northern Europe & Central Asia 1) 2)
Middle East 3)

Total
1) Of which in Sweden
2) Of which in the EU

2018

2017

456
–

456
456
456

420
297

717
420
420

Remuneration in foreign currency has been translated to SEK at average
exchange rates for the year.

Remuneration to the Board of Directors and the President and CEO
See Notes to the consolidated financial statements, Note G2, “Information
regarding members of the Board of Directors and Group management.”

Long-term variable compensation
Compensation costs for employees of the Parent Company for the cash based
plan amounted to SEK 7.7 (5.2) million and the cost for share based plan
amounted to SEK 23.3 (5.7) million. See Notes to the consolidated financial
statements, Note G3, “Share-based payment”.

P26 Related party transactions

During 2018, 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

2018

2017

3
30

6
77

The Parent Company does not have any contingent liabilities, assets pledged
as collateral or guarantees toward Ericsson Nikola Tesla d.d.

Financials – Notes to the Parent Company financial statements

115

ST-Ericsson SA
The Parent Company owns 50% of the shares in ST-Ericsson SA.

The Parent Company does not have any contingent liabilities, assets

pledged as collateral or guarantees towards ST-Ericsson.

ST-Ericsson

Related party balances
Receivables
Payables

2018

2017

199
186

218
186

Other related parties
For information regarding the remuneration of management, see Notes to the
consolidated financial statements, Note G2, “Information regarding members
of the Board of Directors, the Group management and employees.”

P27 Fees to auditors

Fees to auditors

2018
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

2017
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

2016
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

PwC

26
9
1
8

29
9
3
4

23
8
1
–

The allocation of fees to the auditors is based on the requirements in the
Swedish Annual Accounts Act.

During the period 2016–2018, 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

As of February 1, 2019, Ericsson’s 49% share of MediaKind results will be

Ericsson Annual Report 2018116

Financials – Risk factors

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 risks affecting
our business. Any of the factors described below, or any other risk
factors discussed elsewhere in this report, could have a material
negative effect on our business, revenues, operating and after-tax
results, profit margins, financial condition, cash flow, liquidity, credit
rating, market share, reputation, brand and/or our share price.
Additional risks and uncertainties not presently known to us or that
we currently believe to be immaterial may also materially adversely
affect our business. Furthermore, our operating results may have
a greater variability than in the past and we may have difficulties
in accurately predicting future developments. See also “Forward-
Looking Statements.”

Market, Technology and Business Risks

Challenging global economic conditions and political unrest and
uncertainty, geopolitical risks and trade frictions may adversely
impact the demand, cost and pricing for our products and services
as well as limit our ability to grow.
Challenging global economic conditions and political unrest and
uncertainty, geopolitical risks and trade frictions could have adverse,
wide-ranging effects on demand for our products and for the products
of our customers. This could cause operators and other customers to
postpone investments or initiate other cost-cutting initiatives to main-
tain or improve their financial position. This could also result in signifi-
cantly reduced expenditures for our products and services, including
network infrastructure, in which case our operating results would
suffer. Geopolitical risks and trade frictions, e.g. between China and the
USA, could negatively impact our global operations and global supply
chain which may lead to tariffs or increased costs that may not be
recoverable and may impact our profitability and/or disrupt our inter-
national supply chain (including component supply, manufacturing,
sourcing and deliveries of products and services) as well as our export
and import activities. If demand for our products and services were
to fall, 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 customers. Some operators and other customers, in particular in
markets with weak currencies, may incur funding 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

– Excess and obsolete inventories and excess manufacturing capacity
– Financial difficulties or failures among our suppliers

Contents

116 Market, Technology and Business risks

123 Regulatory, Compliance and Corporate Governance risks

125 Risks associated with owning Ericsson shares

– Increased demand for customer finance, difficulties in collection
of accounts receivable and increased risk of counter party failures

– Impairment losses related to our intangible assets as a result of

lower forecasted sales of certain products

– Increased difficulties in forecasting sales and financial results as

well as increased volatility in our reported results

– Changes in the value in our pension plan assets resulting from, for
example, adverse equity and credit market developments and/
or increased pension liabilities resulting from, for example, lower
discount rates. Such development may trigger additional pension
trust capitalization needs negatively affecting the company’s
cash balance

– 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. At present,
the timing and conditions for Brexit are not fully known. 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 per-
manently as well as on the agreements the UK makes with other trad-
ing partners. Effects on Ericsson could include increased supply costs,
limitations to the free movement of professional staff or free movement
of cross-border data. Any of the potential effects of Brexit could have
unpredictable consequences for credit markets and adversely affect
our business, results of operations and financial performance.

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
implement our strategy to achieve future profitability, growth or create
shareholder value. When deemed necessary, we have undertaken and
expect to continue to undertake specific restructuring or cost-saving
initiatives; however, there are no guarantees that such initiatives will
be sufficient, successful or executed in time to deliver any improve-

Ericsson Annual Report 2018ments 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.

We may not achieve some or all of the expected benefits of our
restructuring activities and our restructuring may adversely
affect our business.
Restructuring activities may be costly and disruptive to our business,
and we may not be able to achieve and retain the cost savings and
benefits that were initially anticipated. Additionally, as a result of our
restructuring, we may experience a loss of continuity, loss of accu-
mulated knowledge and/or inefficiency during transitional periods.
Reorganization and restructuring can require a significant amount of
management and other employees’ 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 such as our ability to develop, sell and deliver, 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, it could have a material adverse effect on our competitive
position, business, financial condition, results of operations, cash flows,
reputation and share price.

The telecommunications industry investment levels fluctuate and
are affected by many factors, including the economic environment,
and decisions made by operators and other customers regarding
deployment of technology and their timing of purchases.
The telecommunications industry has experienced downturns in which
operators substantially reduced their capital spending on new equip-
ment. While we expect the network service provider equipment market,
telecommunications services market and ICT market to grow in the
coming years, the uncertainty surrounding global economic growth
and the geopolitical situation may materially harm actual market con-
ditions. Moreover, market conditions are subject to substantial fluctu-
ation, and could vary geographically and across technologies. Even if
global conditions improve, conditions in the specific industry segments
in which we participate will 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 vary over short
periods of time, including from month to month. Due to the uncertainty
and variations in the telecommunication industry, as well as in the
ICT industry, accurately forecasting revenues, results, and cash flow
remains difficult.

Sales volumes and gross margin levels can be reduced by an
unfavorable mix and order time of our products and services.
Our sales to operators and other customers represent a mix of equip-
ment, software and services, which normally generate different gross
margins. The operators 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

Financials – Risk factors

117

products. As a consequence, our reported gross margin in a specific
period will be affected by the overall mix of products and services as
well as the relative content of third-party products. In our Digital Ser-
vices 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 normally placed
at short notice by customers, often less than a month in advance, and
consequently variations in demand are difficult to forecast. As a result,
changes in our 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 virtualization
of network functions.
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
landscape as well as value chains and business models and affects our
objective-setting, risk assessment and strategies. The change lowers
entry barriers to the market for new competitors including competitors
new to our business which 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
communications and the success of our existing customer base,
the telecom operators. If growth slows or if our customers do not
manage to maintain or grow relevance in the digital value chain
or if our products and/or services are not successful, our customers’
investment in networks may slow or stop, harming our business
and operating results.
A substantial portion of our business depends on the continued growth
of mobile communications in terms of both the number of subscrip-
tions and usage per subscriber, which in turn drives the continued
deployment and expansion of network systems by our customers. If
operators fail to increase the number of subscribers and/or usage does
not increase, our business and operating results could be materially
adversely affected. Also, if operators fail to monetize services, fail to
adapt their business models or experience a decline in operator reve-
nues 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 value system depends on the development and success of global
standards. This could be affected adversely in the future by industry
forces more interested in defacto standards and or geo-political forces

Ericsson Annual Report 2018118

Financials – Risk factors

leading to standards fragmentation and increased difficulties of creat-
ing economies of scale.

of our products and services may have a significant adverse impact on
sales, profit and market share.

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,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 devel-
opment, 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. 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 development 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
changing technology and also the nature in which this technology is
being brought to market is rapidly changing. This results in continuous
price pressure on our products and services. If our counter measures,
including enhanced products and business models or cost reductions
cannot be achieved or do not occur in a timely manner, there could be
adverse impacts on our business, operating results, financial condition
and market share.

Vendor consolidation may lead to stronger competitors who are
able to benefit from integration, scale and greater resources.
Industry convergence and consolidation among equipment and
services suppliers could potentially result in stronger competitors that
are competing as end-to-end suppliers as well as competitors more
specialized 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. Both
of these events could have a materially adverse effect on our business,
operating results, financial condition and market share.

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 9% of our
sales in 2018, our ten largest customers accounted for 48% of our sales
in 2018. 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

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
necessary regulatory approvals, or integration of businesses. Network
operators also share parts of their network infrastructure through
cooperation agreements rather than legal consolidations, which may
adversely affect demand for network equipment. Accordingly, operator
consolidation may have a material adverse effect on our business,
operating results, market share and financial condition.

Certain long-term agreements with customers include commitments
to future price reductions, requiring us to constantly manage and
control our cost base.
Long-term agreements with our customers are typically awarded on a
competitive bidding basis. In some cases, such agreements also include
a commitment to future price reductions. In order to maintain our gross
margin with such price reductions, we 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
contracts, which may have a material adverse effect on our business,
operating results and financial condition.

The development of our managed services business is difficult
to predict, and requires taking significant contractual risks.
Operators outsource parts of their operations to reduce cost and
focus on new services. To address this opportunity, we offer operators
various services in which we manage their networks. The development
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 can be low and the mix of new and old contracts
may negatively affect reported results in a given period. Contracts
for such services normally cover several years and generate recurring
revenues. However, such contracts have been, and may in the future
be, terminated or reduced in scope, which has negative impacts on
sales and earnings. Competition in managed services is increasing,
which may have adverse effects on our future business, operating
results and profitability. Going forward, managed services is likely to
be increasingly dependent on automation, AI and other tools to deliver
the services the market requires and failure to stay competitive in this
area could have an adverse effect on our business, operating results
and financial condition.

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, 2018, our outstanding debt was SEK 33.1 billion.
In addition, throughout 2018, each of Standard & Poor’s and Moody’s
maintained Ericsson’s long-term below investment grade rating. This

Ericsson Annual Report 2018degree 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 plac-
ing us at a competitive disadvantage compared to our competitors
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
indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and operating
performance, which is subject to prevailing economic and competitive
conditions 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 deteriorate 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.

If, due to such a deterioration in our financial performance, our cash

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
dispose of material assets or operations to meet our debt service and
other obligations.

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, e.g. related to
5G. In order for us to be successful, those technologies, products and
solutions must often be accepted by relevant standardization bodies
and/or by the industries and markets as a whole. The failure of our
research and development efforts to be technically or commercially
successful could have adverse effects on our business, operating
results and financial condition. If we invest in the development of

Financials – Risk factors

119

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 materially
suffer. Additionally, it is common for research and development projects
to encounter delays due to unforeseen problems. Delays in production
and research and development may increase the cost of research and
development efforts and put us at a disadvantage against our com-
petition. This could have a material adverse effect upon our business,
operating results and financial condition.

We engage in acquisitions and divestments which may be disruptive
and require us to incur significant expenses, and we may not be
successful in protecting the value during integration.
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 incurrence of contingent liabilities and an increase in amortiza-
tion 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

unexpected quality problems

– 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 of the

acquired company

From time to time we also divest parts of our business to optimize our
product portfolio or operations. Any decision to dispose of or otherwise
exit businesses may result in the recording of special charges, such
as workforce reduction costs and industry- and technology-related
write-offs. We cannot assure you that we will be successful in consum-
mating 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

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, 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 difficulties in implementing our business plans, the lack of
capabilities or financial instability of our strategic partners. Our ability
to work with these partners or develop new products and solutions
may become constrained, which could harm our competitive position
in the market.

Ericsson Annual Report 2018120

Financials – Risk factors

Additionally, our share of any losses from or commitments to con-
tribute 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 reason-
able 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 cap-
acity 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 disrup-
tions and cost increases may negatively affect our business, operating
results and financial condition.

Product, solution or service quality issues could lead to reduced
revenue and gross margins and declining sales to existing and
new customers, as well as penalties, claims and liquidity damage.
Sales contracts normally include warranty undertakings for faulty
products and often include provisions regarding penalties and/or
termination rights in the event of a failure to deliver ordered 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 repu-
tation, business, operating results and financial condition. This could
also include poor quality of AI based solutions. 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,
and reputational damage.

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 our revenues and oper-
ating results.
We incur a significant portion of our expenses in SEK, please refer to
Foreign exchange risk in section F1 . As a result of our international
operations, we generate, and expect to continue to generate, a signifi-
cant portion of our revenue in currencies other than SEK. To the extent
we are unable to match revenue received in foreign currencies with

costs paid in the same 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 trans-
lated 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 currencies
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 natural and
financial hedging activities may not be sufficient or successful, result-
ing in an adverse impact on our results and financial condition.

Our ability to benefit from intellectual property rights (IPR), which
are critical to our business, may be limited by changes in regulation
relating to patents, inability to prevent infringement, the loss of
licenses to or from third-parties, infringement claims brought
against us by competitors and others and changes in the area of
open standards, especially in light of recent attention to licensing
of open standard essential patents.
Although we have a large number of patents, there can be no assur-
ance 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 rely-
ing on patent, copyright and trademark laws to protect our intellectual
property rights. However, these measures may not be adequate to
prevent or deter infringement or other misappropriation. In addition,
we rely on many software patents, and limitations on the patentability
of software may materially affect our business.

Moreover, we may not be able to detect unauthorized use or take
appropriate and timely steps to establish and enforce our proprietary
rights. In fact, existing legal systems of some countries in which we
conduct business offer only limited protection of 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 tech-
nology 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 inad-
vertent infringement of intellectual property rights also increases. In
addition to industry-wide standards, other key industry-wide software
solutions are today developed by market participants as free and open
source software. Contributing to the development and distribution of
software developed as free and open source software may limit our
ability to enforce applicable 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.
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. However, we cannot
be certain that such licenses will be available to us on commercially
reasonable terms or at all, and such judgments could have a material
adverse effect on our business, reputation, operating results and

Ericsson Annual Report 2018financial condition. Using free and open source software may allow
third-parties to further investigate our software due to the accessibility
of source code. This may in turn make this software more prone to
assertions from third-parties.

Recent attention on licensing of patents necessary to conduct an
open standard (e.g. 2G, 3G and 4G technology), investigations held
by antitrust authorities, court judgments and legislative change could
potentially affect Ericsson’s ability to benefit from its patent portfolio in
the area of such open standards, which could have a material adverse
effect on our business, reputation, operating results and financial
condition. 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
unfavorably, 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 proceedings include such matters as commercial disputes,
claims regarding intellectual property, antitrust, tax and labor disputes,
as well as government inquiries and investigations. Legal proceedings
can be expensive, lengthy and disruptive to normal business opera-
tions. Moreover, the results of complex legal proceedings are difficult
to predict. An unfavorable resolution of a particular matter 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
officers and the potential settlement or compensation to the plaintiffs
could have significant impact on our reported results and reputation.
In addition, Ericsson is voluntarily cooperating with investigations
by the United States Securities and Exchange Commission (the SEC)
and the United States Department of Justice (the DOJ) regarding its
compliance with the U.S. Foreign Corrupt Practices Act. The Company
continues to cooperate with the SEC and DOJ and is engaged in
discussions with them to find a resolution. While the length of these
discussions cannot be determined, based on the facts that the
Company has shared with the authorities, Ericsson believes that the
resolution of these matters will likely result in monetary and other
measures, the magnitude of which cannot me estimated currently but
may be material. Potential future cash flow outflows are currently not
capable of being reliably estimated. Accordingly, no provisions have
been recorded for such potential exposure.

For additional information regarding certain of the inquiries and

lawsuits in which we are involved, see “Legal Proceedings” and
“Inquiries from US authorities” in the Board of Directors’ Report.

In addition, we may in the future be subject to additional inquiries,
litigation or other proceedings or actions, regulatory or otherwise, aris-
ing in relation to the matters described above and related litigation and
investigative matters.An unfavorable outcome of any such litigation or
regulatory proceeding or action could have a material adverse effect on
our business, financial condition and results of operations.

Our operations are complex and several critical operations are
centralized in a single location. Any disruption of our operations,
whether due to natural or man-made events, may be highly
damaging to the operation of our business.
Our business operations rely on complex operations and communi-
cations networks, which are vulnerable to damage or disturbance

Financials – Risk factors

121

from a variety of sources. Having outsourced significant portions of
our operations, such as IT, finance and HR operations, we depend on
the performance of external companies, including their security and
reliability measures. Regardless of protection measures, systems and
communications networks are susceptible to disruption due to failure,
vandalism, computer viruses, security or privacy breaches, natural
disasters, power outages and other events. We also have a concentra-
tion 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 hampered 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, operations, financial condition, reputation and brand.
Ericsson’s business operations involve areas that are particularly
vulnerable to cyber security incidents that may impact confidentiality,
availability or integrity of products, services, or solutions. These
incidents may include data breaches, intrusions, espionage, know-how
and data privacy infringements, leakage, unauthorized or accidental
modification of data and general malfeasance. Examples of these
areas include, among others, research and development, managed
services, usage of cloud solutions, software development, lawful inter-
ception, product engineering, IT, finance and HR operations. Any cyber
security incident including unintended use, involving our operations,
supply chain, product development, services, our third-party providers
or installed product base, could cause severe harm to Ericsson and
could have a material adverse effect on our business, financial con-
dition, reputation and brand.

Ericsson relies heavily on third-parties to whom we have outsourced

significant aspects of our IT infrastructure, product development,
services, hardware, software, finance and HR operations. Events or
incidents that are caused as a result of vulnerabilities in their opera-
tions or products supplied to us could have a material adverse effect
upon Ericsson, our business, financial condition, reputation and brand,
potentially slowing operations, leaking valuable intellectual property
or sensitive information or damaging our products which have been
installed in our customers’ networks.

It is possible that a cybersecurity incident in Ericsson’s supply chain

could have an adverse impact on Ericsson’s ability to deliver products
or services to Ericsson’s customers. These incidents may include
tampering with components, the inclusion of backdoors or implants,
the unintentional inclusion of vulnerabilities in components or software
and cybersecurity incidents which prevent a supplier from being able
to fulfill commitments to Ericsson.

The presence of vulnerabilities in Ericsson’s products, services or
operations, may not be detected during product development and
operations, and may be leveraged by a threat actor to cause mate-
rial harm to Ericsson or Ericsson’s customers.
Products and Infrastructure used by Ericsson may contain vulnera-
bilities that can be leveraged by a threat actor. In some situations, it
may be impossible to detect these vulnerabilities due to their location,
or due to the fact that they are unknown vulnerabilities, often referred
to as “0-Day Vulnerability”. By the very nature of these vulnerabilities
it is incredibly difficult for Ericsson to guarantee that the products
and services provided by Ericsson are free from such vulnerabilities.
Likewise, the Infrastructure that Ericsson relies on may also contain
undetected or unmitigated vulnerabilities.

Ericsson Annual Report 2018122

Financials – Risk factors

Identities may be compromised, either from the misuse of Ericsson’s
identities or accounts, leading to material damage to Ericsson’s
products, services or brand.
Identities in Ericsson may be misused or compromised. Due to the
nature of Ericsson’s business, authorized parties undertaking normal
account activities can be difficult to differentiate from a threat actor’s
use of a compromised identity or credential. Ericsson’s identity and
access management routines are required to access our customer’s
networks, and any limitation of this capability would impact Ericsson’s
ability to offer services and products to our customers.

Threat actors may target specific employees, or other members
of Ericsson’s workforce, through technological and non-tech-
nological 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
methods. With a diverse workforce of approximately 100,000 employ-
ees, 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 condition, reputation and brand.

We may not be successful to continue attracting and retaining
highly qualified employees to remain competitive.
We believe that our future success largely depends on our continued
ability to hire, develop, motivate and retain engineers and other
qualified employees who develop successful new products/solutions,
support our existing product range and provide services to our custom-
ers and create great customer experience.

Competition for highly qualified people in the industries in which
we operate remains intense and we see also a trend that industries
outside our branch are looking for the same talent. We are continuously
developing our corporate culture, and our people philosophies with the
aim to create a positive people experience that makes it easy for us to
focus on our business and our customers as well as inspiring our people
to grow together with us and “their great”. However, there are no guar-
antees that we will be successful in attracting and retaining employees
with the right skills in the future, and failure in retention and recruiting
could have a material adverse effect on our business and brand.

If our customers’ financial conditions decline, we will be exposed
to increased credit and commercial risks.
After completing sales to customers, we may encounter difficulty
collecting accounts receivables and could be exposed to risks associ-
ated with uncollectable accounts receivable. We regularly assess the
credit worthiness of our customers and based on that assessment we
determine a credit limit for each one of them. Challenging economic
conditions have impacted some of our customers’ ability to pay their
invoices. We may be unable to avoid future losses on our trade receiv-
ables. 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 experience losses on credit extended and loans made to such
customer, losses relating to our commercial risk exposure, and the loss
of the customer’s ongoing business. If customers fail to meet their
obligations to us, we may experience reduced cash flows and losses
in excess of reserves, which could materially adversely impact our
operating results and financial condition.

We rely on various sources for short-term and long-term capital for
the funding of our business. Should such capital become unavailable
or available in insufficient amounts or unreasonable terms, our
business, financial condition and cash flow may materially suffer.
Our business requires a significant amount of cash. If we do not 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 condition, 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 adversely
affect our financial condition or results of operations. We have a sig-
nificant amount of goodwill and other intangible assets; for example,
patents, 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 and goodwill mainly due to restructuring, which is
usually limited, but occasionally very high. For example, for the year
ended December 31, 2018, we wrote down SEK –275 million of
goodwill, whereas the corresponding figure for 2017 was SEK 13.0
billion. 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-gen-
erating units for impairment testing purposes. Other judgments might
result in significantly different results and may differ from the actual
financial condition in the future.

We may not be successful in implementing our strategy to reach
the Digital Services business objectives.
Ericsson may be unable to meet its set target of bringing Digital
Services to low single digit operating margin by 2020, excluding
restructing charges. Several risks related to market, technology and
operations can impact the turnaround plan.
5G market development and the uptake of virtualization and conse-
quent adoption of our new products can be slower than be expected.

Ericsson Annual Report 2018We may also fail to secure good share in key markets like China and
increased competition from both emergent and established competi-
tors may impact our market position.

We could be too slow to adapt and adopt new technologies like
Artificial Intelligence and Machine Learning to drive more automation
in products and solutions. The product overhaul to cloud native solu-
tions mandated by customers could also takes longer than expected.
In addition, the increasing influence of open source initiatives such as
ONAP could drive a best of breed approach in our customers, driving
prices down and adversely impacts our full suite offerings.

We believe the single biggest risks in the near term are in the opera-
tional dimension. This includes being unable to successfully execute as
per plan on continued cost efficiency measures in service delivery, R&D
and SGA; inability in implementing and succesfully driving organiza-
tional-wide transformation programs across the develop-sell-deliver
dimension for operating model simplification; and finally, being unable
to mitigate sigificant project risks in the current list of critical customer
projects, and the risk of adding further operationally challenging and
finacially unsound customer projects.

We may not be successful in executing our strategy to capture
the 5G market opportunity in terms of scale, time and volume
of business.
The 5G market opportunity will depend on availability of attractive
spectrum for 5G, and time of spectrum allocations, amount of spec-
trum, type of frequency bands such as low bands (below 1 GHz),
mid-bands (3–6 GHz) and high bands (above 24 GHz), as well as
terms of spectrum licenses, such as cost and license period of time,
may not be according to needs and plans, which could delay or reduce
the 5G market.

Operator speed and scale to adopt to 5G could also be changed
due to market situations, including resolution of M&A transactions as
well as government incentives to deploy 5G. Operator 5G deployment
plans could be also be delayed by operational aspects such as site
access, permits and availability of installation crews. There is also a
risk that the scale and time of 5G deployments will change due to the
availability of 5G devices, not only for launch but also due to the speed
with which device prices will decline to drive mass market adoption.
In addition to this, the timing and size of market opportunities
beyond enhanced mobile broadband, such as fixed wireline access,
industrial IoT and private networks, may materialize differently than
estimated.

Finally, Ericsson or its suppliers may encounter unforeseen technical

challenges that can affect our ability to develop, supply or deploy 5G
networks.

Regulatory, Compliance and Corporate
Governance risk

Ericsson may fail or be unable to comply with laws or regulations
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 regulations.
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 penalties and adverse rulings in
enforcement or other proceedings, which could have a material adverse
effect on our business, financial condition and reputation.

Financials – Risk factors

123

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
stringent, time-consuming or costly planning and zoning requirements
or building approvals for radio base stations and other network
infrastructure could adversely affect the timing and costs of network
construction or expansion, and ultimately the commercial launch and
success of these networks. Similarly, tariff and roaming regulations
or rules on network neutrality could also affect operators’ ability or
willingness to invest in network infrastructure, which in turn could
affect the sales of our systems and services. Additionally, delay in radio
frequency spectrum 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
regulations and technical standards, or the implementation of new
regulations and technical standards relating to products and services
not previously regulated, could adversely affect our development
efforts by increasing compliance costs and causing delay. Demand for
those products and services could also decline. Regulatory changes in
license fees, environmental, health and safety, privacy (including the
cross-border transfer of personal data for example between the EU and
the US), and other regulatory areas may increase costs and restrict our
operations or the operations of network operators and service provid-
ers. 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.

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
purchase critical components.

We must always comply with applicable 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. Since the United States has withdrawn
from the Joint Comprehensive Plan of Action (“JCPOA”), it is generally

Ericsson Annual Report 2018124

Financials – Risk factors

more difficult to do business in Iran. Ericsson is exploring, including
with EU and US authorities, whether and how the disruptive impact on
our ability to maintain and support existing networks of our customers
can be minimized. The change in political leadership in the U.S. has also
led to an increased uncertainty about the country’s position in foreign
policy. 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, sanctions or other forms of trade restrictions targeting
countries in which we are active may result in a reduction of commit-
ment 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 regulations, 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, operat-
ing 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 legisla-
tion and regulations and we therefore face the challenge of complying
with the relevant rules in each of these countries. These rules involve
income taxes and indirect taxes such as VAT and sales taxes as well as
withholding taxes on domestic and cross border payments and social
security charges related to our employees. Constant changes of the
rules and the interpretation of the legislation also create exposures
regarding taxes. This results in complex tax issues and tax disputes
that may lead to additional tax payment obligations. Being a global
operation, we also face risk of being taxed for the same income in more
than one jurisdiction (double taxation). This could have adverse effects
on our operating results, reputation and brand.

In certain regional markets, there are trade barriers that limit
competition. Should these trade barriers be removed or lowered,
competition may increase, which could have material adverse effects
on our business and operating results.

There has been a concern reported by some media and others,
that certain countries may use features of their 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 sustainability and corporate responsibility requirements. In
some of the countries where we operate, corruption risks are high and
compliance failure could have a material impact on our business, finan-
cial condition and brand, see “Inquiries from US authorities” in Board
of Directors report. Therefore there is a high focus on anti-corruption.
To ensure that our operations are conducted in accordance with
applicable laws and requirements, our management system includes
a Code of Business Ethics, a Code of Conduct and a Sustainability
Policy, as well as other Group 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 technology 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-governmental organizations
and investors, on transparency about sustainability and corporate
responsibility issues that might be difficult to fulfill. While we attempt
to monitor and audit internally and externally our compliance with the
policies and directives as well as our suppliers’ adherence to our Code
of Conduct and strive for continuous improvements, we cannot provide
any assurances that violations will not occur which could have material
adverse effects on our business, operating results, financial condition,
reputation, and brand.

Failure to comply with environmental, health and safety regulations
in many jurisdictions may expose us to significant penalties and
other sanctions.
We are subject to certain environmental, health and safety laws and
regulations that affect our operations, facilities, products and services
in each of the jurisdictions in which we operate. While we work actively
to ensure compliance with material laws, regulations and customer
requirements related to the environment, health, and safety that apply
to us, we can provide no assurance that we have been, are, or will be
compliant with these laws, regulations and requirements. If we have
failed or fail to comply with these laws, regulations and requirements
we could be subject to significant penalties and other sanctions that
could have a material adverse effect on our business, operating results,
financial condition, 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 condition, reputation and brand.

Potential health risks related to radiofrequency electro magnetic
fields may subject us to various product liability claims and result
in regulatory changes.
The mobile telecommunications industry is subject to claims that
mobile devices and other equipment that generate radiofrequency
electromagnetic fields may expose users to health risks. At present,
a substantial number of scientific reviews conducted by various inde-
pendent research bodies have concluded that radiofrequency electro-
magnetic fields, at levels within the limits prescribed by public health
authority safety standards and recommendations, cause no adverse
effects to human health. However, any perceived 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 requirements that may have an adverse effect on our busi-
ness, operating results, financial condition, reputation and brand.

Ericsson Annual Report 2018Financials – Risk factors

125

– Awards of large supply or service contracts
– Speculation in the press or investment community about the com-

pany 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 5G 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

primary stock exchange), but in US dollars on Nasdaq New York
(ADSs), fluctuations in exchange rates between SEK and US dollars
may affect our share price. In addition, because we pay cash dividends
in SEK, fluctuations in exchange rates may affect the value of distribu-
tions 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.

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
manufactured or contracted to be manufactured by companies that
file periodic reports with the SEC, whether or not these products or their
components are manufactured by third-parties. While we believe that
we are able to fulfill these 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 requirements. These requirements could adversely affect the
sourcing, availability 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 prod-
ucts be certified as “conflict-free”.

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 legis-
lation, either accidentally, through the actions of third parties, or
otherwise, and subject to penalties levied against Ericsson, with the
associated damage to Ericsson’s brand and reputation. Due to the
diverse nature of privacy legislation worldwide, any single incidence
of non-compliance by Ericsson may lead to regulatory agencies in
various jurisdictions levelling separate penalties or judgments 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. This
could include large fines, as well as significant damage claims from
customers and end- users.

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

Ericsson Annual Report 2018126

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 2018. The company’s
annual accounts and consolidated accounts of the company are
included on pages 32–125 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 2018 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 2018 and their financial performance

and cash flows for the year then ended, in accordance with Interna-
tional 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 consoli-
dated accounts.

We, therefore, recommend that the annual meeting of sharehold-

ers 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 and compliance com-
mittee 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 approximately 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 2018Financials – Auditor’s report

127

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 individ-
ually 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 quan-
titative thresholds for materiality, including the overall group material-
ity 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

Approximately 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 and Compliance 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
customers primarily within the telecommunication industry. The solu-
tions 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 signif-
icant revenues from patent license agreements with other hardware
and software suppliers. As a global player, Ericsson is impacted by
the macro economic development and the customers response to this
such as investment levels and access to financing of investments. The
competition within the industry Ericsson operates is significant which
in many markets have resulted in price pressure. As a result, Ericsson
has initiated several activities to reduce the cost levels and to increase
the 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
represented a risk of material misstatement due to fraud.

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

The 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 13 most important entities within the Group represent 71% of net
sales and 69% 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 and Compli-
ance committee 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 2018128

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. A new accounting
standard for revenue has been adopted – IFRS 15 – and prior period figures
for 2016 and 2017 have been restated in the annual report. The new standard
has mainly impacted Ericsson’s revenue accounting in three areas: a stricter
definition of a contract, deferral of revenue for customized solution contracts
and delays of revenue due to stricter definitions in transfer of control. The net
impact on equity at January 1, 2018 was SEK 2.6 billion.

The company has also implemented new controls to ensure compliance

with IFRS 15.

Refer to the Annual Report Note A3 – Changes in accounting policies.

Carrying value of goodwill, other intangible assets and deferred tax assets

Our audit included a combination of testing of internal controls over financial
reporting including procedures relating to business case reviews performed
by the company’s 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 control had been transferred to the
customer as well as data analytics relating to revenue related manual journal
entries. Our audit also included the effects from the new revenue standard
(IFRS15) including the restatement of prior years figures in the annual report
for 2016 and 2017.

Based on our work, we noted no significant issues regarding the accuracy

of revenue reported for the year.

Goodwill, other intangible assets and deferred tax assets are significant to the
consolidated accounts and are sensitive to impairment. Under IFRS, these
assets require annual impairment tests which require management judgment
and estimates such as projected cash flows, future market conditions and
discount rates. All of these are subject to judgement and subjectivity and might
be affected by the current turbulence in the global economy.

Tax losses carry forward, SEK 39 billion, mainly relates to Sweden. Ericsson
has recognized deferred tax assets of SEK 8.5 billion mainly related to Sweden
with indefinite periods of utilization. Tax expenses were SEK –4.8 billion
during the year, negatively impacted by impairment of withholding tax assets
in Sweden.

Refer to the Annual Report Note A2 – Critical accounting estimates and

judgement Note C1 – Intangible assets and note H1 – Taxes.

Our audit included a combination of testing of controls over financial report-
ing, analytical procedures and detailed tests of management impairment
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.

There were only minor write offs during the year SEK –0.3 billion. A stress

test has been performed and presented in Note C1 –Intangible assets. The
future cash flow is based on five years business plans and includes several
key assumptions. Should the discount rate be increased from 8.8 % to 11.5%
the head room is still positive in all segments including Digital Services.
The value of the withholding taxes is based on management’s estimation
of future taxable profits in Sweden. If the assumptions are not fulfilled the
withholding tax assets may not be utilized and thus needs to be written off.

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 A1 – Critical accounting estimates and

judgements and Note D1 – Provisions.

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 restructuring costs SEK 8.0 billion mainly refers to the cost
reduction program initiated in 2017 completed in 2018 and costs of SEK 3.1
billion related to the revised BSS strategy. Adjustments and allowances for
customer projects of SEK –8.5 billion accounted for in 2018 mainly refers to
the reshape of the BSS business, provisions for supplier claims and provisions
for onerous contracts.

Ericsson Annual Report 2018Other 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 1–31, 131,
159–164 and 192–204. 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 informa-
tion, we are required to report that fact. We have nothing to report in
this regard.

Responsibilities of the Board of Directors
and the Managing Director
The Board of Directors and the Managing Director are responsible for
the preparation of the annual accounts and consolidated accounts
and that they give a fair presentation in accordance with the Annual
Accounts Act and, concerning the consolidated accounts, in accordance
with IFRS as adopted by the EU. The Board of Directors and the
Managing Director are also responsible for such internal control as they
determine is necessary to enable the preparation of annual accounts
and consolidated accounts that are free from material misstatement,
whether due to fraud or error.

In preparing the annual accounts and consolidated accounts, the
Board of Directors and the Managing Director are responsible for the
assessment of the company’s and the group’s ability to continue as a
going concern. They disclose, as applicable, matters related to going
concern and using the going concern basis of accounting. The going
concern basis of accounting is however not applied if the Board of
Directors and the Managing Director intends to liquidate the company,
to cease operations, or has no realistic alternative but to do so.

The Audit and Compliance Committee shall, without prejudice to
the Board of Director’s responsibilities and tasks in general, among
other things oversee the company’s financial reporting process.

Auditor’s Responsibility
Our objectives are to obtain reasonable assurance about whether the
annual accounts and consolidated accounts as a whole are free from
material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinions. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs and generally accepted auditing standards
in Sweden will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered
material if, individually or in the aggregate, they could reasonably be
expected to influence the economic decisions of users taken on the
basis of these annual accounts and consolidated accounts.

Financials – Auditor’s report

129

As part of an audit in accordance with ISAs, we exercise profes-
sional judgment and maintain professional scepticism throughout the
audit. We also:
– Identify and assess the risks of material misstatement of the annual
accounts and consolidated accounts, whether due to fraud or error,
design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide
a basis for our opinions. The risk of not detecting a material mis-
statement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.

– Obtain an understanding of the company’s internal control relevant
to our audit in order to design audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an 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 con-
ditions that may cast significant doubt on the company’s and the
group’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the annual accounts
and consolidated accounts or, if such disclosures are inadequate,
to modify our opinion about the annual accounts and consolidated
accounts. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or
conditions may cause a company and a group to cease to continue
as a going concern.

– Evaluate the overall presentation, structure and content of the

annual accounts and consolidated accounts, including the 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
significant audit findings during our audit, including any significant
deficiencies in internal control that we identified.

We must also provide the Board of Directors with a statement that
we have complied with relevant ethical requirements regarding 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
therefore comprise the key audit matters. We describe these matters
in the auditors’ report unless laws or regulations preclude disclosure
about the matter.

Ericsson Annual Report 2018130

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 the Managing Director of Telefonaktiebolaget LM
Ericsson for the year 2018 and the proposed appropriations of the
company’s profit or loss.

We recommend to the annual general meeting of shareholders
that the profit be appropriated in accordance with the proposal in the
statutory administration report and that the members of the Board of
Directors and the Managing Director be discharged from liability for the
financial year.

Basis for opinion
We conducted the audit in accordance with generally accepted audit-
ing 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 ful-
filled 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 consid-
ering the requirements which the company’s and the group’s type of
operations, size and risks place on the size of the parent company’s and
the group’s equity, consolidation requirements, liquidity and position in
general.

The Board of Directors is responsible for the company’s organization

and the administration of the company’s affairs. This includes among
other things continuous assessment of the company’s and the group’s
financial situation and ensuring that the company’s organization
is designed so that the accounting, management of assets and the
company’s financial affairs otherwise are controlled in a reassuring
manner. The Managing Director shall manage the ongoing adminis-
tration according to the Board of Directors’ guidelines and instructions
and among other matters take measures that are necessary to fulfil
the company’s accounting in accordance with law and handle the
management of assets in a reassuring manner.

Auditor’s Responsibility
Our objective concerning the audit of the administration, and thereby
our opinion about discharge from liability, is to obtain audit evidence to
assess with a reasonable degree of assurance whether any member of
the Board of Directors or the Managing Director in any material respect:
– 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
appropriations of the company’s profit or loss are not in accordance
with the Companies Act.

As part of an audit in accordance with generally accepted auditing
standards in Sweden, we exercise professional judgment and maintain
professional scepticism throughout the audit. The examination of the
administration and the proposed appropriations of the company’s
profit or loss is based primarily on the audit of the accounts. Additional
audit procedures performed are based on our professional judgment
with starting point in risk and materiality. This means that we focus
the examination on such actions, areas and relationships that are
material for the operations and where deviations and violations would
have particular importance for the company’s situation. We examine
and test decisions undertaken, support for decisions, actions taken
and other circumstances that are relevant to our opinion concerning
discharge from liability. As a basis for our opinion on the Board of
Directors’ proposed appropriations of the company’s profit or loss we
examined the Board of Directors’ reasoned statement and a selection
of supporting evidence in order to be able to assess whether the pro-
posal is in accordance 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 28 March 2018
and has been the company’s auditor since at least 1993.

Stockholm, February 26, 2019

PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorised Public Accountant
Lead partner

Johan Engstam
Authorised Public Accountant

Ericsson Annual Report 2018

Forward-looking statements

Financials – Forward-looking statements

131

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
limited 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 antic-
ipated 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,” “tar-
get,” “might,” “continue,” or, in each case, their negative or variations,
and similar words or expressions are used to identify forward-looking
statements. 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 2018132

Corporate governance – Corporate governance report

Corporate governance report 2018

Corporate governance describes how rights and responsi-
bilities 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.

“As a Board we have continued to invest significant time in
corporate governance during 2018, since this is a fundamen-
tal element in building trust. The Board is totally committed
to complying with the best-practice corporate standards
at global level and to supporting a robust corporate culture
founded on the three core values of respect, professionalism
and perseverance.”

Ronnie Leten
Chair of the Board

Contents

133 Regulation and compliance

134 Governance structure

134 Shareholders

135 General Meetings of shareholders

136 Nomination Committee

137 Board of Directors

139 Committees of the Board of Directors

143 Remuneration to Board members

144 Members of the Board of Directors

148 Management

152 Members of the Executive Team

156 Auditor

156 Internal control over financial

reporting 2018

158 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 2018

– Ronnie Leten and Kurt Jofs were elected new members of

the Board at the Annual General Meeting 2018

– Ronnie Leten was elected new Chair of the Board

Ericsson Annual Report 2018Corporate governance – Corporate governance report

133

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
customers, partners, employees, shareholders and
other stakeholders.

The Code of Business Ethics contains rules for
all individuals performing work for Ericsson under
the staff management of Ericsson. Everyone work-
ing 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.

Compliance with applic able
stock exchange rules
There has been no infringement by Ericsson of
applicable stock exchange rules and no breach of
good practice on the securities market reported by
the disciplinary committee of Nasdaq Stockholm
or the Swedish Securities Council in 2018.

Ericsson’s core values

Regulation and compliance

Professionalism

Respect

Perseverance

Our values are the found ation of our
culture. They guide us in our daily
work, in how we relate to each other
and the world around us and in the
way we do business.

The Code of Business
Ethics and the Code of
Conduct can be found
on Ericsson’s website

Code of
Business
Ethics

ERICSSON
Code of
Conduct

1 ERICSSON CODE OF CONDUCT

External rules
As a Swedish public limited liability company with
securities quoted on Nasdaq Stockholm as well
as on NASDAQ New York, Ericsson is 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 appli-

cable 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 man-
agement

– A Code of Conduct, which applies to product

development, production, supply and support
of Ericsson products and services worldwide.

The articles of association and the work procedure
for the Board of Directors also include internal
corporate governance rules.

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 Corpo-
rate 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 2018.

Ericsson Annual Report 2018134

Corporate governance – Corporate governance report

Governance structure

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

60.23%

22.53%
19.26%

5.38%

27.49%
4.97%
7.31%

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
consists of employee representatives and
their deputies that the unions have the right
to appoint under Swedish law. The Board
of Directors is ultimately responsible for the
strategy and the organization of Ericsson
and the management of its 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 and Compliance Committee of
the Board of Directors.

Ownership structure
As of December 31, 2018, the Parent Com-
pany had 414,867 registered shareholders,
of which 404,127 were resident or located in
Sweden (according to the share register kept
by Euroclear Sweden AB). Swedish institu-
tions held approximately 60.23% of the votes.
The largest shareholders as of December 31,
2018 were Investor AB with approximately
22.53% of the votes (7.2% of the shares) and
AB Industrivärden (together with Svenska
Handelsbankens Pensionsstiftelse and Pen-
sionskassan SHB Försäkringsförening), with
approximately 19.25% of the votes (3.31% of
the shares) and Cevian Capital with 5.38% of
the votes (9.09% 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
nominees. This means that the actual share-
holder 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 “The Ericsson
share” 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
Committee

Finance
Committee

Remuneration
Committee

Technology
& Science
Committee

President and CEO

Management

Head of
internal audit function

Chief Compliance
Officer

Ericsson Annual Report 2018
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

135

General Meetings of shareholders

Decision-making at General Meetings
The decision-making rights of Ericsson’s
shareholders are exercised at General
Meetings of shareholders. Most resolutions
at General Meetings are passed by a simple
majority. However, the Swedish Companies
Act requires qualified majorities in certain
cases, for example in case of:
– Amendment of the Articles of Association
– Resolution to transfer treasury stock to
employees participating in long-term
variable compensation programs.

The Annual General Meeting
of shareholders
The Annual General Meeting of shareholders
(AGM) is held in Stockholm. The date and
venue for the meeting are announced on the
Ericsson website no later than at the time of
release of the third-quarter interim financial
report in the preceding year.

Shareholders who cannot participate in
person may be represented by proxy. Only
shareholders registered in the share register
have voting rights. Nominee-registered share-
holders who wish to vote must request to be
entered into the share register by the record
date for the AGM.

The AGM is held in Swedish and is
simultaneously translated into English. All
documentation provided by the Company is
available in both Swedish and English.
The AGM gives shareholders the

opportunity to raise questions relating to the
operations of the Group. Normally, the major-
ity 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 2018
Including shareholders represented by proxy,
2,484 shareholders were represented at the
AGM held on March 28, 2018, representing
approximately 72% 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 2018 included:
– Payment of a dividend of SEK 1 per share
– Election of Ronnie Leten as new Chair of

the Board of Directors

– Re-election of other members of the Board
of Directors: Jon Fredrik Baksaas, Jan
Carlson, Eric A. Elzvik, Nora Denzel, Börje
Ekholm, Kristin S. Rinne, Helena Stjern-
holm and Jacob Wallenberg

– Election of new Board member: Kurt Jofs
– Approval of Board of Directors’ fees:
- Chair: SEK 4,075,000 (unchanged)
- Other non-employee Board members:

SEK 990,000 each (unchanged)
- Chair of the Audit and Compliance

Committee: SEK 350,000 (unchanged)

- Other non-employee members of the
Audit and Compliance Committee:
SEK 250,000 each (unchanged)

- Chairs of the Finance Committee, the
Remuneration Committee and the
Technology and Science Committee:
SEK 200,000 each (unchanged)

- Other non-employee members of the

Finance Committee, the Remuneration
Committee and the Technology and
Science Committee: SEK 175,000 each
(unchanged)

– Approval for part of the Directors’ fees to
be paid in the form of synthetic shares
– Approval of Guidelines for remuneration

to Group management

– Implementation of a Long-Term Variable
Compensation Program 2018 for the
Executive Team

The minutes from the AGM 2018 are available
on Ericsson’s website.

Annual General Meeting 2019

Ericsson’s AGM 2019 will take place on March 27, 2019, at 3 p.m. at Kistamässan in Stockholm.
Further information is available on Ericsson’s website.

Ericsson Annual Report 2018136

Corporate governance – Corporate governance report

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.

Work of the Nomination Committee
for the AGM 2019
The Nomination Committee started its work
by going through a checklist of its duties under
the Code and the Instruction for the Nomi-
nation Committee and by setting a time plan
for its work ahead. The complete proposals
of the Nomination Committee are presented
in connection with the notice convening the
AGM 2019.

A good understanding of Ericsson’s busi-
ness and strategy is important for the Nomi-
nation Committee. Therefore, the Chair of the
Board presented his views to the Committee
on the Company’s position and strategy. 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 been
carefully informed of the results of the Board
work evaluation led by the Chair of the Board.
On this basis the Nomination 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 background.
The Nomination Committee has applied the
Swedish Corporate Governance Code, section
4.1, as diversity policy. The Nomination
Committee aims to propose a composition of
Board members with complementing experi-
ences and competencies to make it possible
for the Board to contribute to a positive
development of Ericsson. The Nomination
Committee searches for potential Board
member 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 considerations. The Nomination Com-
mittee also considers the need for renewal
and carefully assesses whether the proposed
Directors have the capability to devote neces-
sary time and care to the Board work.

In 2018, the Committee met with the Chair

of the Audit and Compliance Committee to
acquaint itself with the assessments made by
the Company and the Audit and Compliance
Committee of the quality and efficiency of
external auditor work. The Audit and Compli-
ance Committee also provided its recommen-
dations on external auditor and audit fees.

As of February 20, 2019, the current Nomi-

nation Committee has held four meetings.

Nomination Committee

The Annual General Meeting of share-
holders has adopted an Instruction for the
Nomination Committee that includes the
tasks of the Nomination Committee and the
procedures for appointing its members. The
Instruction applies until the General Meeting
of shareholders resolves otherwise. Under
the Instruction, the Nomination Committee
shall consist of:
– Representatives of the four largest share-
holders by voting power by the end of the
month in which the AGM was held, and

– The Chair of the Board of Directors.

The Committee may also include additional
members following a request by a share-
holder. 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), Chair of the

Nomination Committee

– Bengt Kjell (AB Industrivärden, Svenska

Handelsbankens Pensionsstiftelse)

– Christer Gardell (Cevian Capital)
– Anders Oscarsson (AMF – Försäkring

och Fonder)

– Ronnie Leten, Chair 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 Chair of the Board of Directors fulfills an
important role to inform the Committee of the
Company’s strategy and future challenges.
Such insights are necessary for the Committee
to be able to assess the competence and
experience that is required by the Board.
In addition, the Committee must consider
independence rules applicable to the Board
of Directors and its committees.

The Nomination Committee also makes

the following proposals, for resolution by
the AGM:
– Proposal for remuneration to non-

employee Directors elected by the AGM
and remuneration to the auditor

– Proposal for election of auditor, whereby
candidates are selected in cooperation
with the Audit and Compliance Committee
of the Board

– Proposal for election of Chair at the AGM
– Proposal of changes to the Instruction
for the Nomination Committee (if any).

Ericsson Annual Report 2018Corporate governance – Corporate governance report

137

Board of Directors

The Board of Directors is ultimately respon-
sible 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
company may not be elected Chair 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 agree-
ments 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 and Compliance Committee
oversees the procedures for related-party trans-
actions 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 ten
Directors elected by the shareholders at the
AGM 2018 for the period until the close of
the AGM 2019. 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 2018 that the Nomination Com-
mittee had applied the Swedish Corporate
Governance Code, section 4.1, as diversity
policy with the aim to propose a composition
of Board members with complementing
experiences 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 Committee prior to the AGM
2018. The Board consists of Board members
with experiences from different cultural/
geographic areas, competencies from different
industry sectors and, excluding the President
and CEO, 33% of the shareholder elected
Board members are women.

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
Swedish practices in lieu of the NASDAQ
Stock Market independence rules.

The composition of the Board of Directors

meets all applicable independence criteria.
The Nomination Committee concluded
before the AGM 2018 that, for purposes of the
Code, at least six of the nominated Directors
were independent from Ericsson, its senior
manage ment and its major shareholders.
These were Jon Fredrik Baksaas, Jan Carlson,
Nora Denzel, Eric A. Elzvik, Kurt Jofs and
Kristin S. Rinne.

At Board meeting where the Board
members meet in person, a non-executive
session is normally 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 strat-
egy, risk assessment and value creation high
on the agenda.

As the Board is responsible for financial
oversight, financial information is presented
and evaluated at Board meetings. Further-
more, the Chair of each Committee, reports
on Committee work at each Board meeting
and minutes from Committee meetings are
distributed to all Directors prior to the Board
meetings.

At Board meetings, the President and CEO
reports on business and market developments
as well as on the financial performance of
the Group. Strategic issues and risks are also
addressed at most Board meetings. The
Board is regularly informed of developments
in legal and regulatory matters of importance.
Board and Committee meetings may, as
appropriate, be held by way of telephone

Ericsson Annual Report 2018138

Corporate governance – Corporate governance report

or video conference, and resolutions may
be taken per cap sulam (unanimous written
consent). Such resolutions are accounted for
as Board/ Committee meetings.

The 2018 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 2017
and handled the fourth-quarter financial
report.

– Board meeting

In March, an ordinary Board meeting
was held.

– Statutory Board meeting

The statutory Board meeting was held in
connection with the AGM 2018. 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.

– Strategy meeting

A strategy Board meeting was held, in
essence dedicated to short- and long-term
strategies of the Group, including deep-dives
into the business area strategies.
– Second interim report meeting

At the second interim report meeting, the
Board handled the interim financial report
for the second quarter of the year.

– Strategy meeting

A strategy Board meeting was held to
address particular strategy matters in
further detail, including deep-dives into the
market area strategies.

– Third interim report meeting

A Board meeting was held to handle the
interim financial report for the third quarter
of the year. At this meeting, the results of
the Board evaluation were presented to
and discussed by the Board.
– Financial targets meeting

A meeting was held for the Board to
address the financial tagets.

Training
New Directors receive 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 Stockholm
on listing issues and insider rules.

The Board’s strategy discussions are
combined with deep dives into issues of
importance for the Ericsson Group, including
business area and market area deep dives.
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.

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 obser-
vations. The auditor provides information to
management on the accounting and financial
reporting practices of the Group.

The Audit and Compliance Committee also
meets regularly with the auditor to receive and
consider observations 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 Board’s annual work cycle 2018

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.

Financial targets meeting

Third interim report meeting
– Q3 Financial report
– Board work evaluation
– Financial outlook

Strategy meeting

Second interim report meeting
– Q2 Financial report

Q4
Q4

Dec
Dec

Jan
Jan

Q1
Q1

Nov
Nov

Feb
Feb

Oct
Oct

Sep
Sep

Mar
Mar

Apr
Apr

Aug
Aug

May
May

Q3
Q3

Jul
Jul

Jun
Jun

Q2
Q2

Fourth-quarter and full-year
financial results meeting
– Financial result of the entire year

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

Strategy meeting

Ericsson Annual Report 2018Corporate governance – Corporate governance report

139

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 2018. Combined
with other steps taken internally, the Board’s
and the auditor’s review of the interim and
annual reports are deemed to give reasonable
assurance of the effectiveness of the internal
controls over financial reporting.

Work of the Board of Directors in 2018
In 2018, 14 Board meetings were held. For
attendance at Board meetings, see the table
on page 143. In addition to regular Board
meetings the Board receives information
updates, in writing or in telephone meetings,
as deemed appropriate.

Industry transformation, technology, com-
pliance, talent management, profitability, cost
reductions and efficiency gains are among
the matters that have continued to be in focus
within Ericsson during the year. Strategy and
risk management are always high on the
Board’s agenda and sustainability and cor-
porate responsibility, which are increasingly
important to Ericsson, are integrated into the
business strategy. The Board continuously
monitors the international developments and
their possible impact on Ericsson.

Board work evaluation
A key objective of the Board work 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 Chair of the Board initiates

and leads the evaluation of the Board and
Committee work and procedures. Evaluation
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 2018, Directors responded to a written

questionnaire covering the Board work in
general as well as the work of the Technology
and Science Committee, the Finance Commit-
tee and the Audit and Compliance Committee.
In addition, each Director responded to a
questionnaire on the Director’s individual per-
formance. As part of the evaluation process,
the Chair 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.
The Nomination Committee was informed of
the results of the Board work evaluation.

Committees of the
Board of Directors

The Board of Directors currently has estab-
lished four Committees: the Audit and Com-
pliance Committee, the Finance Committee,
the Remuneration Committee and the Tech-
nology and Science Committee. 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 Committees to determine specific matters.
If deemed appropriate, the Board of Directors
and each Committee have the right to engage

Organization of the Board work
Number of Committee members as of December 31, 2018

Board of Directors
13 Directors

Audit and Compliance Committee
(4 Directors)

Finance Committee
(4 Directors)

Oversight of financial reporting

Oversight of internal control

Financing

Investing

Oversight of auditing

Customer credits

Remuneration Committee
(4 Directors)

Guidelines for remuneration
to Group management

Long-Term Variable Remuner ation

Executive remuneration

Technology and Science
Committee
(5 Directors)

Technology strategy and planning

Technology ecosystem and
partnerships

Science direction

Ericsson Annual Report 2018140

Corporate governance – Corporate governance report

independent external expertise, either in
general or with respect to specific matters.
Prior to the Board meetings, each Com-
mittee submits the minutes of Committee
meetings to the Board and the Chair of the
Committee reports on the work of the Com-
mittee at each Board meeting.

Audit and Compliance Committee
On behalf of the Board, the Audit and Compli-
ance Committee monitors the following:
– The scope and accuracy of the financial

statements

– Compliance with material legal and

regulatory requirements

– Internal control over financial reporting
– Risk management
– The effectiveness and appropriateness
of the Group’s anti-corruption program.

The Audit and Compliance Committee also
reviews the annual and interim financial
reports and oversees the external audit
process, including audit fees.

The Audit and Compliance Committee

itself does not perform audit work. The
Head of Ericsson’s internal audit function
reports directly to the Audit and Compliance
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 the ongoing perfor-
mance 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.

The Chief Compliance Officer, reporting

to the Audit and Compliance Committee,
regularly keeps the Committee informed of
the compliance work, with a specific focus on
the area of anti-corruption.

The Audit and Compliance 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.

Significant alleged violations reported
through the Ericsson Compliance Line and
certain other channels are reported to the
Audit and Compliancce Committee. Investi-
gations relating to severe alleged violations
are handled by Corporate Investigations.
Other investigations are handled in the mar-
ket areas. Corporate Investigations oversees
these investigations as deemed appropriate.

Members of the Audit and Compliance
Committee
The Audit and Compliance Committee con-
sists of four Board members appointed by the
Board in connection with the AGM 2018: Eric
A. Elzvik (Chair), Jan Carlson, Nora Denzel,
and Torbjörn Nyman (employee representa-
tive). The Board has appointed shareholder
elected Board members with CFO or CEO
experience to the Committee.

The composition of the Audit and

Compliance Committee meets all applicable
independence requirements, including the
conditions for reliance on an exemption for

Members of the Committees as of December 31, 2018

Members of the Committees of the Board of Directors

Audit and Compliance Committee

Finance Committee

Remuneration Committee

Eric A. Elzvik (Chair)

Jan Carlson

Nora Denzel

Torbjörn Nyman

Ronnie Leten (Chair)

Helena Stjernholm

Roger Svensson

Jacob Wallenberg

Jon Fredrik Baksaas (Chair)

Kurt Jofs

Ronnie Leten

Kjell-Åke Soting

Technology and Science
Committee

Kristin S. Rinne (Chair)

Jan Carlson

Nora Denzel

Kurt Jofs

Roger Svensson

Ericsson Annual Report 2018Corporate governance – Corporate governance report

141

employee representatives. The Board of
Directors has determined that each of Eric
A. Elzvik, Jan Carlson and Nora Denzel is an
audit committee financial expert, as defined
under the SEC rule. Each of these three
members is considered independent under
applicable US securities laws, SEC rules and
NASDAQ Stock Market Rules and each of
them is financially literate and familiar with
the accounting practices of an international
company, such as Ericsson.

Work of the Audit and Compliance
Committee in 2018
The Audit and Compliance Committee held
10 meetings in 2018. Directors’ attendance is
reflected in the table on page 143. During the
year, the Audit and Compliance Committee
reviewed the scope and results of external
financial audits and the independence of
the external auditor. Prior to publishing, the
Committee also reviewed and discussed each
interim report and the annual report with the
external auditor. The Committee also mon-
itored the external audit fees and approved
non-audit-services performed by the external
auditor in accordance with such policies
and procedures. During 2018, the Audit and
Compliance Committee has been involved
in overseeing the selection procedures for
proposing a new auditor for election at the
AGM 2020.

The Committee approved the audit plan

for the internal audit function based on
among other things the annual risk assess-
ment, 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.

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.

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 connection with the AGM 2018: Ronnie
Leten (Chair), Helena Stjernholm, Roger
Svensson (employee representative) and
Jacob Wallenberg. The Board has appointed
shareholder elected Board members with
extensive industrial and financial experience
to the Committee.

Work of the Finance Committee in 2018
The Finance Committee held 13 meetings
in 2018. Directors’ attendance is reflected in
the table on page 143. 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. Inter-
national 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
compensation, 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
members of the Executive Team (other
than the President and CEO).
– Approve payout of the STV for the

members of the Executive Team members
(other than the President and CEO), based
on achievements and performance.

Ericsson Annual Report 2018142

Corporate governance – Corporate governance report

For further information on fixed and
variable remuneration, please see Notes to
the consolidated financial statements – Note
G2 “Information regarding members of the
Board of Directors, the Group management”
and Note G3 “Share-based compensation”
and the “Remuneration Report” attached to
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 five Board members appointed
by the Board in connection with the AGM
2018: Kristin S. Rinne (Chair), Jan Carlson,
Nora Denzel, Kurt Jofs and Roger Svensson
(employee representative). The Board has
appointed Board members to the Committee
with extensive experience within technology.

Work of the Technology and Science
Committee in 2018
The Technology and Science Committee held
4 meetings in 2018. Directors’ attendance
is reflected in the table on page 143. The
Technology and Science Committee has
during the year reviewed selected focus areas:
– 5G architecture
– Network Security
– IPR with an industry focus
– Research and development

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 2018
consisted of four Board members: Jon Fredrik
Baksaas (Chair), Kurt Jofs, Ronnie Leten and
Kjell-Åke Soting (employee representative).
The Board has appointed shareholder elected
Board members to the Committee with expe-
riences from different markets of relevance to
the Group.

During the year 2018, Peter Boreham from

Mercer advised and assisted the Remunera-
tion Committee as an independent expert.

Work of the Remuneration
Committee in 2018
The Remuneration Committee held 13 meet-
ings in 2018. Director’s attendance is reflected
in the table on page 143.

The Remuneration Committee reviewed

and prepared a proposal for a new revised
LTV 2018 for the Executive Team, for
resolution by the Board and further approval
by the AGM 2018. It further resolved on
salaries and STV 2018 for the members of
the Executive Team (other than the President
and CEO), reviewed the vesting results for the
2015 Executive Performance Stock Plan and
prepared proposals regarding remuneration
to the President and CEO for resolution by the
Board. It also prepared guidelines for remu-
neration to the Executive Team for resolution
by the Board and subsequent referral to the
AGM for approval. With several changes to
the Executive Team during 2018, the Remu-
neration Committee has also resolved on
salaries and STV remuneration for individuals
joining the Executive Team.

During the latter part of 2018, the Remu-
neration Committee reviewed the current LTV
structure and executive remuneration. includ-
ing 2019 targets for STV for the members of
the Executive Team (other than the President
and CEO). The resulting proposals on LTV and
guidelines for remuneration to the Executive
Team will be referred to the AGM 2019 for
resolution.

Ericsson Annual Report 2018Directors’ attendance and fees 2018

Board member

Ronnie Leten2)
Leif Johansson3)
Helena Stjernholm
Jacob Wallenberg
Jon Fredrik Baksaas4)
Jan Carlson 5)
Nora Denzel
Börje Ekholm6)
Eric A. Elzvik
Kurt Jofs
Kristin Skogen Lund7)

Kristin S. Rinne

Sukhinder Singh Cassidy8)
Torbjörn Nyman9)
Kjell-Åke Soting
Roger Svensson
Karin Åberg7)
Tomas Lundh10)
Per Holmberg11)
Anders Ripa
Loredana Roslund

Total number of meetings

Corporate governance – Corporate governance report

143

Fees resolved by the AGM 2018

Number of Board/Committee meetings attended in 2018

Board fees,

SEK 1)

Committee fees,
SEK

Audit and
Compliance-
Committee

Board

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

–
31,500 12)
40,500 12)
48,000 12)
13,500 12)
7,500 12)
1,500 12)
21,000 12)
21,000 12)

375,000
–
175,000
175,000
200,000
425,000
425,000
–
350,000
350,000
–

200,000

–
–
–
–
–
–
–
–
–

9
5
14
14
14
14
14
14
14
9
5

5
14
14
14
5
5
1
14
14

10
3
13
13

6
7

7
9

4
4

1) Non-employee Directors can choose to receive part of their Board fee (exclusive of Committee fees)

9) Appointed employee representative and member of the Audit and Compliance Committee as of March

in the form of synthetic shares.

28, 2018 (previously deputy).

2) Elected Chair of the Board at the AGM held on March 28, 2018, and appointed Chair of the Finance

Committee and member of the Remuneration Committee as of March 28, 2018.

3) Resigned from the Board and from the Remuneration and Finance Committee as of March 28, 2018.
4) Appointed Chair of the Remuneration Committee as of March 28, 2018.
5) Appointed member of the Audit and Compliance Committee as of March 28, 2018.
6) Board member remuneration resolved by the AGM is only for non-employee Directors elected by the

shareholders.

7) Resigned from the Board and Audit and Compliance Committee as of March 28, 2018.
8) Resigned from the Board and Remuneration Committee as of March 28, 2018.

10) Appointed deputy employee representative as of March 28, 2018 and resigned in September 2018.
11) Appointed deputy employee representative as of November 2018.
12) 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 2018 approved the Nomi-
nation Committee’s proposal for fees to
non-employee Board members for Board
and Committee work. For further information
on Board of Directors’ fees 2018, please
refer to Notes to the consolidated financial
statements – Note G2 “Information regarding
members of the Board of Directors and Group
management” in the Annual Report.

The AGM 2018 also approved the Nom-

ination Committee’s proposal that Board
members may be paid part of their Board fee
in the form of synthetic shares. A synthetic
share gives the right to receive a future cash

payment of an amount which 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
following the General Meeting that resolved
on the allocation of the synthetic shares.
The purpose of paying part of the Board of
Directors’ fee in the form of synthetic shares
is to further align the Directors’ interests with
shareholder interests. For more information
on the terms and conditions of the synthetic
shares, please refer to the notice convening
the AGM 2018 and to the minutes from the
AGM 2018, which are available at Ericsson’s
website.

Ericsson Annual Report 2018144

Corporate governance – Corporate governance report

Members of the Board of Directors

Board members elected by the AGM 2018

Ronnie Leten
(first elected 2018)

Helena Stjernholm
(first elected 2016)

Jacob Wallenberg
(first elected 2011)

Chair of the Board of Directors, Chair
of the Finance Committee, Member
of the Remuneration Committee

Deputy Chair of the Board of
Directors, Member of the Finance
Committee

Jon Fredrik Baksaas
(first elected 2017)

Chair of the Remuneration
Committee

Born 1956. Master of Science in
Applied Economics, University of
Hasselt, Belgium.

Born 1970. Master of Business
Administration, Stockholm School
of Economics, Sweden.

Nationality: Belgium

Board Chair: Epiroc AB

Board Member: AB SKF and
IPCO AB.

Holdings in Ericsson: 100,000 Class
B shares 1), and 30,969 synthetic
shares 2).

Principal work experience and
other information: President and
CEO of Atlas Copco AB 2009–2017
and various leadership positions
within the Atlas Copco Group 1997–
2009 and 1985–1995. Previous
positions include plant manager of
Tenneco Automotive Inc., Belgium,
1995–1997 and various positions
within General Biscuits 1979–1985.

Nationality: Sweden

Board Member: AB Industrivärden,
AB Volvo and Sandvik AB.

Holdings in Ericsson:
20,060 Class B shares 1), and 27,277
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 Invest-
ment Partners (1998–2008).
Previous experience as consultant
for Bain & Company (1997–1998).

The Board memberships and holdings in Ericsson reported above are as of December 31, 2018.
1) The number of shares and ADS includes holdings by related persons, 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 143 for further information.

Born 1954. Master of Science in
Economics, NHH Norwegian School
of Economics & Business
Administration, Norway.

Nationality: Norway

Board Chair: Statnett SA.

Board Member: Svenska
Handelsbanken AB and Cloudberry
Capital AS.

Holdings in Ericsson: 24,277
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
Chair of the GSMA Board (2014–
2016).

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 Chair: Investor AB.

Deputy Board Chair: ABB Ltd, FAM
and Patricia Industries.

Board Member: The Knut and Alice
Wallenberg Foundation and Nasdaq
Inc.

Holdings in Ericsson: 427,703 Class
B shares 1) and 39,675 synthetic
shares 2).

Principal work experience and
other information: Chair of the
Board of Investor AB since 2005.
President and CEO of SEB in 1997
and Chair of SEB’s Board of
Directors 1998–2005. Executive
Vice President and CFO of Investor
AB 1990–1993. Honorary Chair of
IBLAC (Mayor of Shanghai’s
International Business Leaders
Advisory Council) and member of
the steering committee of the
European Round Table of
Industrialists, Deputy Chair 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 2018
Corporate governance – Corporate governance report

145

Jan Carlson
(first elected 2017)

Nora Denzel
(first elected 2013)

Member of the Audit and
Compliance Committee and the
Technology and Science Committee

Börje Ekholm
(first elected 2006)

President, CEO and
Member of the Board

Born 1960. Master of Science degree
in Engineering Physics and Electrical
Engineering, the University of
Linköping, Sweden.

Nationality: Sweden

Board Chair: Autoliv Inc. and
Veoneer Inc.

Board Member: BorgWarner Inc.

Holdings in Ericsson: 7,900 Class B
shares 1) and 24,277 synthetic
shares 2).

Principal work experience and
other information: Chair and
President and CEO of Veoneer Inc.
since June 2018. President and CEO
of Autoliv Inc. 2007–2018 and Chair
of Autoliv Inc. since 2014. Previous
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: USA

Board Member: Advanced Micro
Devices, Inc., Talend, Inc. and
Talend S.A.

Holdings in Ericsson:
3,850 ADS 1), and 13,580 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.

Nationality: Sweden and USA

Board Member: Alibaba, Inc.

Holdings in Ericsson:
21,760 Class B shares and
1,009,000 ADS 1), 24,789 synthetic
shares 2), and 2,000,000 call
options 3)..

Principal work experience and
other information: President and
CEO of Telefonaktiebolaget LM
Ericsson since 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. Since 2017,
member of the Steering Committee
of the World Economic Forum
Digital Communication Governors
and a member of the Broadband
Commission for Sustainable
Development.

Eric A. Elzvik
(first elected 2017)

Chair of the Audit and Compliance
Committee

Born 1960. Master of Business
Administration, Stockholm School
of Economics, Sweden.

Nationality: Sweden and
Switzerland

Board Member: Fenix Marine
Services, Landis+Gyr Group AG, AB
Volvo and VFS Global.

Holdings in Ericsson:
10,000 Class B shares 1) and 8,091
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.
Currently, industrial advisor to
private equity.

corresponding to the value of the Class B share in Ericsson at the time of payment. Please see page 143 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 G2 “Information on the members of the Board of Directors and
Group management” in the Annual Report).

Ericsson Annual Report 2018146

Corporate governance – Corporate governance report

Board members elected by the AGM 2018, cont’d.

Kurt Jofs
(first elected 2018)

Member of the Remuneration
Committee and the Technology
and Science Committee

Kristin S. Rinne
(first elected 2016)

Chair of the Technology
and Science Committee

Born 1958. Master of Science in
Engineering, Royal Institute of
Technology, Stockholm, Sweden.

Nationality: Sweden.

Board Chair: Tieto Corporation and
Vesper Group.

Board member: FEAL AB, Höganäs
AB and Silver Resorts AB.

Holdings in Ericsson: 50,000 Class
B shares 1) and 11,285 synthetic
shares 2).

Principal work experience and
other information: Entrepreneur
and investor with extensive
experience in various industries.
Previous positions include Executive
Vice President and responsible for
Ericsson’s Networks business
2003–2008, CEO of Segerström &
Svensson 1999–2001. CEO of
Linjebuss 1996–1999, and various
positions within ABB and Ericsson.

Born 1954. Bachelor of Arts,
Washburn University, USA.

Nationality: USA

Board member: Synchronoss.

Holdings in Ericsson:
19,817 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 Washburn University
Foundation and Wycliffe Associates.
Member of the Advisory Board of
Link Labs.

The Board memberships and holdings in Ericsson reported above are as of December 31, 2018.
1) The number of shares and ADS includes holdings by related person, 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 143 for further information.

Ericsson Annual Report 2018Board members and deputies appointed by the trade unions

Corporate governance – Corporate governance report

147

Torbjörn Nyman
(first appointed 2017)

Kjell-Åke Soting
(first appointed 2016)

Roger Svensson
(first appointed 2011)

Employee representative, Member
of the Audit and Compliance
Committee

Employee representative, Member
of the Remuneration Committee

Employee representative, Member
of the Finance Committee and of the
Technology and Science Committee

Born 1961. Appointed by LO, the
Swedish Trade Union Confederation.

Nationality: Sweden

Holdings in Ericsson:
30,219 Class B shares1).

Employed since 1996. Working as
ICT Strategic Product Manager
within Business Area Networks.

Born 1963. Appointed by PTK.

Born 1971. Appointed by the PTK.

Nationality: Sweden

Holdings in Ericsson:
7,350 Class B shares 1).

Nationality: Sweden

Holdings in Ericsson:
12,857 Class B shares 1).

Employed since 1996. Working as
Global SQA Manager within Business
Area Networks.

Employed since 1999. Working as
Global Process Architect for Test
within Business Area Networks.

Anders Ripa
(first appointed 2017)

Loredana Roslund
(first appointed 2017)

Per Holmberg
(first appointed 2018)

Employee representative – Deputy

Employee representative - Deputy

Born 1962. Appointed by PTK.

Born 1967. Appointed by PTK.

Nationality: Sweden

Holdings in Ericsson: 1,954 Class B
shares and 608 Class A shares1).

Holdings in Ericsson:
1,637 Class B shares1).

Born 1966. Appointed by LO, the
Swedish Trade Union Confederation.

Nationality: Sweden

Holdings in Ericsson: None1).

Employed since 1998. Working as
Security Solution Manager for
Mission Critical and Private
Networks within Business Area
Networks.

Employed since 1994. Working
as Project Manager within R&D,
Business Area Networks.

Employed since 1996. Working as
Product Development Leader within
Business Area Networks.

Börje Ekholm was the only Director who held an
operational management position at Ericsson in 2018.
Leif Johansson, Kristin Skogen Lundh and Sukhinder
Singh Cassidy left the Board in connection with the AGM
2018, Ronnie Leten was elected new Chair and Kurt Jofs

was elected new member of the Board. The deputy
employee representative Tomas Lundh left the Board in
September 2018 and was in November 2018 replaced
by Per Holmberg.

1) The number of shares and ADS reflects ownership as of December 31, 2018 and includes holdings by related persons, if applicable.

Ericsson Annual Report 2018148

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
Executive 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
performance.

– Secure operational excellence and realize
global synergies through efficient organi-
zation of the Group.

The organizational structure includes four
business areas, five geographical 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.

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
providing 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.

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

The Executive Team members as of
December 31, 2018, are presented on pages
152–155.

Remuneration to the Executive Team
Guidelines for remuneration to the Executive
Team were approved by the AGM 2018. For
further information on fixed and variable
remuneration, see the Remuneration Report
and Note G2, “Information regarding mem-
bers of the Board of Directors and the Group
management”.

The Ericsson Group Management System
Ericsson has a global management system,
the Ericsson Group Management System
(EGMS). EGMS aims to ensure customer
satisfaction, 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 governance structures, ways of
working, processes, organizational 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 to enable
Ericsson to adapt the system to changing
demands and expectations, including
new legislation as well as customers’ and
other stakeholders’ requirements. Ericsson
implements external requirements only after
thorough analysis and after putting them
into the Ericsson context.

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
strategies into targets and programs in coor-
dinated cycles.

Group-wide policies, directives and
instructions govern how the organization
works and are core elements in managing

Ericsson Annual Report 2018Corporate governance – Corporate governance report

149

and directing Ericsson. The Group policies,
directives and instructions include, among
other things, a Code of Business Ethics,
a Code of Conduct and accounting and
reporting directives to fulfill external reporting
requirements. Ericsson has a Group Steering
Documents Committee that works to align
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 account-
ability 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 strengthen 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 perspective. Ericsson’s
anti-corruption program is reviewed and
evaluated by the Audit and Compliance Com-
mittee at least annually and the CCO reports
to the Audit and Compliance Committee.

Audits, assessments and certification
The purpose of audits and assessments is to
determine levels of compliance and to provide
valuable information for understanding,
analyzing and continually improving per-
formance. Management monitors compli-
ance with policies, directives and processes
through internal self-assessment within all

units. This is complemented by internal and
external audits and assessments.

Due to demands and requirements from
customers and other external stakeholders,
Ericsson sometimes needs to take decisions
on certification to stay competitive in the
market. Certification means that Ericsson’s
interpretation of standards or requirements
are confirmed by a third-party via an assess-
ment activity.

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) and
ISO 27001 (Information Security) (achieved
in certification cycle 2018). Selected
Ericsson units are also certified to TL 9000
(telecom-specific standard). EGMS is also
assessed 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
performed by EY CertifyPoint. Internal audits
are performed by the company’s internal
audit function which reports to the Audit and
Compliance Committee.

Ericsson conducts audits of suppliers to
secure compliance with Ericsson’s Code of
Conduct, which includes rules that suppliers
to the Ericsson Group must comply with.

Risk management
Ericsson’s risk management is integrated into
the operational processes of the business, and
is a part of the EGMS to ensure accountability,
effectiveness, efficiency, business continuity
and compliance with corporate governance,
legal and other requirements. The Board
of Directors also oversees the Company’s
risk management and certain transactional
risks require specific Board approval, e.g.
acquisitions, divestments management
remuneration, borrowing or customer finance
in excess of pre-defined limits.

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, corporate responsibility and business
continuity and insurable risks. Financial risk
management is governed by a Group policy
and carried out by the Treasury and Customer

Ericsson Annual Report 2018150

Corporate governance – Corporate governance report

Finance functions, both supervised by the
Finance Committee. The policy governs risk
exposures related to foreign exchange, liquid-
ity/financing, interest rates, credit risk and
market price risk in equity instruments. For
further information on financial risk manage-
ment, see Notes to the consolidated financial
statements – Note F1, “Financial risk”, Note
F4, “Interest-bearing liabilities” and Note B6,
“Customer contract related balances” 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
at various internal governance meetings

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 business 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 strategy work, main risks related to the
long-term (three-four years) objectives and
the strategies to reach these, as well as risks
and mitigating actions to reach short-term
(one-year) targets are identified. These risks
and actions are regularly followed-up in
governance meetings 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.

Ericsson Annual Report 2018Corporate governance – Corporate governance report

151

Process to identify and manage strategic and tactical risks for market areas, 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

)
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)

Management response

Reduce

Eliminate

Risk description

Mitigating action

Ericsson Annual Report 2018

152

Corporate governance – Corporate governance report

Members of the Executive Team

Börje Ekholm
President and CEO since 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)
21,760 Class B shares and
1,009,000 ADS , 24,789 synthetic
shares, and 2,000,000 call options2).

Background: CEO of Patricia
Industries, a division within Investor
AB (2015–2017). 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. Since 2017, member
of the Steering Committee of the
World Economic Forum Digital
Communication Governors and a
member of the Broadband
Commission for Sustainable
Development.

Changes in the Executive Team

Fredrik Jejdling
Executive Vice President and Head
of Business Area Networks (since
2017) and Head of Segment
Networks

MajBritt Arfert
Senior Vice President, Chief Human
Resources Officer and Head of
Group Function Human Resources
(since 2017)

Arun Bansal
Senior Vice President and Head of
Market Area Europe & Latin America
(since 2017)

Born 1969. Master of Science in
Economics and Business
Administration, Stockholm School of
Economics, Sweden.

Nationality: Sweden

Board Member: Teknikföretagen
and the Confederation of Swedish
Enterprise.

Holdings in Ericsson: 1)
13,107 Class B shares.

Background: Senior Vice President
and Head of Business Unit Network
Services (2016–2017). 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)
21,437 Class B shares.

Background: Acting Head of Group
Function Human Resources (2016–
2017), Head of Human Resources
Ericsson Sweden (2015–2017).
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 Member: OPCOM Cables
Sdn Bhd, Malaysia.

Holdings in Ericsson: 1)
12,047 Class B shares
and 17,486 ADS.

Background: Senior Vice President
and Head of Business Unit Network
Products (2016–2017). 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 has also worked
in Sweden, USA, Malaysia and
Singapore.

– Effective April 1, 2018, Xavier Dedullen was appointed Chief Legal Officer
and Head of Group Function Legal Affairs and Compliance, replacing Nina
Macpherson.

– Effective February 1, 2018, Jan Karlsson assumed the role as Head of

Business Area Digital Services, replacing Ulf Ewaldsson.

– Effective February 1, 2018, Elaine Weidman left the Executive Team.

– Effective April 1, 2018, Åsa Tamsons was appointed Head of Business Area
Technologies and Emerging Businesses (now Business Area Technologies
and New Businesses).

– Effective April 1, 2018, Erik Ekudden, Chief Technology Officer, was

appointed member of the Executive Team.

The Board memberships and Ericsson holdings reported above are as of December 31, 2018.
1) The number of shares and ADS includes holdings by related persons, 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 G2
“Information regarding members of the Board of Directors and the Group management” in the Annual Report).

Ericsson Annual Report 2018Corporate governance – Corporate governance report

153

Xavier Dedullen
Senior Vice President, Chief Legal
Officer, Head of Group Function
Legal Affairs and Compliance and
secretary of the Board of Directors of
Telefonaktiebolaget LM Ericsson
(since April 1, 2018)

Born 1964. Master of Laws (Lic. Jur)
from KU University of Leuven,
Belgium, and Master of Laws (LL.M)
from New York University School of
Law, USA. Bachelor in Law, Facultés
Notre Dame de la Paix, Belgium.

Nationality: Belgium

Board Member: None.

Holdings in Ericsson: 1)
None.

Background: Previously Group
General Counsel at Holcim Ltd
(now called LafargeHolcim) (2013–
2018) with responsibility for the
legal and compliance functions,
based in Switzerland. Various senior
legal management positions,
including most recently, Vice
President International – Legal and
External Affairs and other senior
management positions at Verizon
Business (2004–2013), based in
the UK and Hong Kong. Prior to that,
various senior legal positions in the
telecoms, banking and power
industries, based in the UK and
Switzerland. Started his career in
private practice in New York.

Erik Ekudden
Senior Vice President, Chief
Technology Officer (since April 1,
2018) and Head of Group Function
Technology (since October 1, 2018)

Niklas Heuveldop
Senior Vice President and Head of
Market Area North America (since
2017)

Chris Houghton
Senior Vice President and Head of
Market Area North East Asia (since
2017)

Born 1966. Bachelor of Law,
Huddersfield Polytechnic, United
Kingdom.

Nationality: United Kingdom

Board Member: None.

Holdings in Ericsson: 1)
29,970 Class B shares.

Background: Head of Region North
East Asia (2015–2017). 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 1968. Master of Science in
Electrical Engineering, KTH Royal
Institute of Technology, Stockholm,
Sweden.

Born 1968. Master of Science in
Industrial Engineering and
Management, the Linköping
Institute of Technology, Sweden.

Nationality: Sweden

Board Member: None.

Holdings in Ericsson: 1)
18,005 Class B shares
and 4,129 ADS.

Background: Group Chief
Technology Officer and Head of
Technology and Architecture within
Group Function Technology and
Emerging Business (July 2017–
March 2018). Joined Ericsson in
1993 and has held various
management positions in the
company, including Head of
Technology Strategy, Chief
Technology Officer Americas in
Santa Clara US, and Head of
Standardization and Industry.
Member of the Royal Swedish
Academy of Engineering Sciences
(IVA).

Nationality: Sweden

Board Member: The Swedish-
American Chamber of Commerce
New York and CTIA - U.S. wireless
industry trade association.

Holdings in Ericsson: 1)
3,568 Class B shares
and 11,974 ADS.

Background: Senior Vice President,
Chief Strategy Officer and Head of
Group Function Technology &
Emerging Business (April 2017–
March 2018). Previous positions
include Chief Customer Officer and
Head of Group Function Sales
(2016–2017) and senior leadership
positions across Europe and the
Americas, including Head of Global
Customer Unit AT&T and Head of
Market Unit Central America and
Caribbean. Previous positions
outside Ericsson include CEO
of ServiceFactory and COO of
WaterCove Networks.

The Board memberships and Ericsson holdings reported above are as of December 31, 2018.
1) The number of shares and ADS includes holdings by related persons, if applicable.

Ericsson Annual Report 2018154

Corporate governance – Corporate governance report

Members of the Executive Team, cont’d.

Peter Laurin
Senior Vice President and Head of
Business Area Managed Services
(since 2017) and Head of Segment
Managed Services

Jan Karlsson
Senior Vice President, Head of
Business Area Digital Services
(since August 1, 2018) and Head of
Segment Digital Services

Rafiah Ibrahim
Senior Vice President and Head of
Market Area Middle East & Africa
(since 2017)

Carl Mellander
Senior Vice President, Chief
Financial Officer and Head of Group
Function Finance and Common
Functions (since 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.

Holdings in Ericsson: 1)
5,206 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 executive positions in North
America, Asia and Europe. Previous
external roles include positions in
Arthur D. Little and Mediatude Ltd.

Born 1966. Bachelor in Business
Administration, ESSEC Business
School, France.

Nationality: Sweden.

Board Member: None

Holdings in Ericsson:1)
4,568 Class B-shares and 3,883 ADS

Background: Acting Head of
Business Area Digital Services
February–July 2018. Previous Head
of Solution Area BSS within
Business Area Digital Services.
Before joining Ericsson early 2017
Jan Karlsson was the CEO of
DigitalRoute, an ISV focusing on
data collection & pre-processing
across Telco and Non-telco verticals.

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)
2,636 Class B shares and
27,164 ADS.

Background: Previously Head of
Region Middle East (2014–2017).
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.

Born 1964. Bachelor of Business
Administration and Economics,
University of Stockholm, Sweden.

Nationality: Sweden

Board Member: International
Chamber of Commerce (ICC)
Sweden.

Holdings in Ericsson: 1)
29,772 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.

The Board memberships and Ericsson holdings reported above are as of December 31, 2018.
1) The number of shares and ADS includes holdings by related persons, if applicable.

Ericsson Annual Report 2018Corporate governance – Corporate governance report

155

Nunzio Mirtillo
Senior Vice President and Head of
Market Area South East Asia,
Oceania & India (since 2017)

Helena Norrman
Senior Vice President, Chief Market-
ing and Communications Officer
(since 2014) and Head of Group
Function Marketing and Corporate
Relations (since February 1, 2018)

Åsa Tamsons
Senior Vice President and Head of
Business Area Technologies & New
Businesses (since October 1, 2018)
and Head of Segment Emerging
Business and Other

Born 1961. Master in Electronic
Engineering, Sapienza University,
Italy.

Born 1970. Master of International
Business Administration, Linköping
University, Sweden.

Born 1981. Master of Business
Administration, Stockholm School of
Economics, Sweden

Nationality: Italy

Board Member: None.

Holdings in Ericsson: 1)
34,861 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.

Nationality: Sweden

Board Member: None.

Holdings in Ericsson: 1)
38,820 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.

Nationality: Sweden

Board Member: None.

Holdings in Ericsson: 1)
6,533 Class B shares.

Background: Head of Business Area
Technology and Emerging Business
(April-September 2018). Previous
position as partner in McKinsey &
Company, with focus on growth
strategy, marketing and sales, high-
tech, and telecommunications
across Europe, the USA, and Latin
America, based in the Stockholm,
San Francisco and Sao Paulo offices.

The Board memberships and Ericsson holdings reported above are as of December 31, 2018.
1) The number of shares and ADS includes holdings by related persons, if applicable.

Ericsson Annual Report 2018156

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 sharehold-
ers 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 2018 for a period of
one year, i.e. until the close of the AGM
2019. 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. Under applicable rules
for auditor rotation, Ericsson must appoint a
new audit firm no later than in 2021. During
2018, Ericsson initiated a tendering process
for appointment of new Group auditor for the
financial year 2020.

Fees to the auditor
Ericsson paid the fees (including expenses)
for audit-related and other services listed in
the table in Note H5, “Fees to auditors”.

Internal control over financial
reporting 2018

This section has been prepared in accordance
with the Annual Accounts Act and the Swed-
ish 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
understanding of how the Company works,
including 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,
including the US Securities Exchange Act of
1934, and under agreements with Nasdaq
Stockholm and NASDAQ New York. These
procedures also require that such information
is provided to management, including the
CEO and the CFO, so timely decisions can be
made regarding required disclosure.

The Disclosure Committee comprises
members with various expertise. It assists
management in fulfilling their responsibility
regarding disclosures made to the 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 man-
age. With respect to such entities, disclosure
controls and procedures are substantially more
limited than those maintained with respect to
subsidiaries.

Ericsson’s President and CEO and the
CFO evaluated the Company’s disclosure
controls and procedures and concluded that
they were effective at a reasonable assurance
level as of December 31, 2018. Any controls
and procedures, no matter how well designed
and operated, can provide only reasonable
assurance of achieving the desired control
objectives.

Internal control over financial reporting
Ericsson has integrated risk management and
internal control over financial reporting 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 communication and monitoring.

During the period covered by the Annual
Report 2018, 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
implemented a management system that is
based on:

Ericsson Annual Report 2018 – Steering documents, such as policies,

directives and a Code of Business Ethics.

– A strong corporate culture.
– The Company’s organization and mode
of operations, with well-defined roles
and responsibilities and delegations of
authority.

– Several well-defined Group-wide processes

for planning, operations and support.

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

Corporate governance – Corporate governance report

157

and accounting of business transactions.
The financial closing and reporting process
has controls regarding recognition, mea-
surement and disclosure. These include the
application of critical accounting policies and
estimates, in individual subsidiaries as well
as in the consolidated accounts.

Regular analyses of the financial results
for each subsidiary, region and business unit
cover the significant elements of assets, liabil-
ities, revenues, costs and cash flow. Together
with further analysis of the consolidated
financial statements performed at Group
level, these procedures are designed to pro-
duce 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
control environment and compliance with
financial reporting policies and directives,
are implemented in all subsidiaries. Detailed
process controls and documentation of
controls performed are also implemented in
almost all subsidiaries, covering the items
with significant materiality and risk.

and policies accessible to all the employees
concerned. Regular updates and briefing
documents regarding changes in accounting
policies, reporting and disclosure require-
ments are also supplied.

Subsidiaries and operating units prepare

regular financial and management reports
for internal steering groups and Company
management. These include analysis and
comments on financial performance and
risks. The Board of Directors receives financial
reports monthly. Ericsson has established a
whistleblower tool, Ericsson Compliance Line,
that can be used for the reporting of alleged
violations that:
– are conducted by Group or local 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
management system and internal steering
documents to ensure that they cover all
significant areas related to financial reporting.
The shared service center and Company
Control hub management continuously
monitor accounting quality through a set of
performance indicators. Compliance with
policies and directives is monitored through
annual self-assessments and representation
letters from heads and company controllers in
subsidiaries as well as in business areas and
market areas.

In order to secure compliance, governance

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 and Compliance
Committee and the Board of Directors review
all interim and annual financial reports before
they are released to the market. The Compa-
ny’s internal audit function reports directly
to the Audit and Compliance Committee.
The Audit and Compliance Committee also
receives regular reports from the external
auditor. The Audit Committee follows up
on any actions taken to improve or modify
controls.

and risk management in the areas of legal
entity accounting and taxation, as well
as securing funding and equity levels, the
Company operates through a Shared Service
Center structure and a Company Control
hub structure, covering subsidiaries in each
respective geographical area.

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 communi-
cation channels support complete, correct
and timely financial reporting by making
all relevant internal process instructions

Board of Directors

Stockholm, February 26, 2019

Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Ericsson Annual Report 2018158

Corporate governance – Corporate governance report

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 2018 on pages 132–157 and that it has been
prepared in accordance with the Annual Accounts Act.

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

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
governance report. This means that our examination of the Corporate
governance report is different and substantially less in scope than an
audit conducted in accordance with International Standards on Audit-

Opinions
A Corporate governance report has been prepared. Disclosures in
accordance 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 26, 2019
PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorized Public Accountant
Lead Partner

Johan Engstam
Authorized Public Accountant

Ericsson Annual Report 2018Remuneration report

Corporate governance – Remuneration report

159

Introduction

This report outlines how the remuneration policy is implemented
throughout Ericsson with specific references to Group management.
The work of the Remuneration Committee in 2018 and the remu-
neration policy are explained below, followed by descriptions of plans
and their outcomes.

More details on the remuneration to Group management and on
Board members’ fees can be found in the Notes to the Consolidated
financial statements – Note G2, “Information regarding members
of the Board of Directors and the Group management” and Note G3,
“Share based compensation” 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 of shareholders (AGM)

on guidelines for remuneration to the ET.

The Company’s Chief Legal Officer acts as secretary to the Com-
mittee. The President and CEO, the Senior Vice President and Head
of Group Function Human Resources, the Vice President and 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 Committee’s meeting
when issues relating to their remuneration are being discussed.

The Committee used an independent expert advisor, Peter Boreham

from Mercer, to assist and advise in its work during 2018. The Commit-
tee resolved to continue with Peter Boreham as its independent advisor
for 2019. The Committee is also furnished with national and interna-
tional pay data collected from external survey providers and can call on
other independent expertise, should it so require. The Chair 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 for the Executive
Team (LTV) is reviewed and evaluated annually in light of matters
such as changes to corporate governance best practice or changes
to accounting, legislation, political opinion or business practices among
peers. This helps to ensure that the total rewards policy continues to
provide Ericsson with a competitive remuneration strategy.

– Proposals to the Annual General Meeting on long-term variable

The Guidelines for remuneration to Group management are, in

compensation and equity arrangements.

The responsibility of the Committee is also to:
– Approve proposals on salary and other remuneration, including

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 Jon Fredrik
Baksaas and its other members are Ronnie Leten, Kurt Jofs and Kjell-
Åke Soting. All members are non- executive directors, inde pendent
(except for the employee representative) as required by the Swedish
Corporate Governance Code and have relevant knowledge and expe-
rience of remuneration matters.

accordance with Swedish law, brought to shareholders annually
for approval.

The Committee held thirteen meetings including per capsulams
during 2018. The meeting in January 2018 focused on following up on
results from the 2017 variable compensation programs and preparing
proposals to shareholders for the 2018 AGM. In this meeting, the
Committee approved target levels for the 2018 STV and reviewed
and proposed the LTV 2015 vesting result to the Board of Directors for
approval. The Committee approved the changes in the ET effective
from February 1, 2018 in this meeting as well. The Committee prepared
a revised LTV 2018 proposal for the Executive Team including a one-
year Group operating income performance criteria with 50% weight in
addition to the two total shareholder return (TSR) performance criteria
which were the performance criteria for LTV 2017. Furthermore, the
weights of the absolute and relative TSR performance criteria were
revised to 30% and 20% respectively, and the number of companies
in the comparator group for the relative TSR performance criteria
was reduced from 18 in 2017 to 12, and the vesting schedule for
this performance criteria was adjusted accordingly. LTV 2018 was

Total rewards policy

Total rewards policy at Ericsson is based on the principles of per-
formance, competitiveness and fairness. The total rewards policy,
together with the mix of remuneration elements, is designed to reflect
these principles by creating a balanced remuneration package. The
Guidelines for remuneration to Group management 2018, approved

by the AGM, can be found in Note G2. The auditor’s report regarding
whether the company has complied with the guide lines for remuner-
ation to Group management during 2018 is posted on the Ericsson
website.

Ericsson | Annual Report 2018160

Corporate governance – Remuneration report

approved at the AGM 2018. The details of LTV 2018 is explained under
Long-term variable compensation on pages 161–163. The Committee
has also approved the 2017 STV pay-outs for the ET. In May 2018,
the STV target levels for the ET were revised in order to obtain better
consistency with the target span defined for the 2018 Group operating
income performance criteria for LTV 2018, and to reflect the impact of
an update in the Group capital employed. During the fall 2018 meeting,
the independent advisor presented the 2018 report on Executive
Remuneration market issues and trends and the Committee resolved to
submit unchanged guidelines for remuneration to Group management
for 2019. The Committee also approved the 2019 STV targets for the
ET members other than the President and CEO. In the final meeting
of 2018 in December, the Committee recommend to the Board that
the structure and conditions for LTV for the ET members for 2019 (LTV
2019) remain unchanged from LTV 2018 and the proposal is referred
to 2019 AGM of shareholders for resolution. The 2019 salary review for
the President and CEO was discussed and it was referred to the Board
for resolution along with the proposals for the cash based long-term
variable compensation programs Executive Performance Plan for
senior managers for 2019 (EPP 2019) and Key Contributor Plan for
2019 (2019 KC Plan) for key employees. Also, the revision of individual
remuneration packages for the members of the ET were resolved.

The Committee throughout the year approved individual remunera-

tion packages for the new appointments to the ET.

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 no changes are required to the guidelines for 2019.

In 2018, with approval from AGM, LTV 2018 was introduced. Fol-
lowing an evaluation by the Remuneration Committee and the Board
of LTV 2017 and LTV 2018, the Board has resolved to propose to AGM
in 2019 to approve an unchanged LTV program from LTV 2018 with
the same values of the underlying shares in respect of the Performance
Share Awards made to the ET in 2018 including the President and
CEO. 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 2018

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 members of the ET other than the President and CEO,
total remuneration consists of fixed salary, short-term and long-term
variable compensation, pension and other benefits. The President and
CEO’s total remuneration does not contain any short-term variable
compensation element. 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 G2, “Information regarding members of the Board
of Directors and the Group management.”

Fixed salary
When setting fixed salaries, the Committee con siders the impact on
total remuneration, including pensions and associated costs. The
absolute levels are determined based on the size and complexity of the
position 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
remuneration policy.

Variable compensation
Ericsson believes that, where possible, variable comp ensation should
be encouraged as an integral part of total remuneration. First and
foremost, this aligns employees with the relevant unit’s and the
Group’s performance, but it also enables more flexible payroll costs
and emphasizes the link between performance and pay.

All variable compensation plans have maximum award and vesting

limits. Short-term variable compensation is to a greater extent depen-
dent on the performance of the Company and the specific unit, while
long-term variable compensation is dependent on the achievements
of the Ericsson Group.

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 2018

100

83.3

0.0

2018

President
and CEO

35.7

64.3

Average ET excl.
President and CEO

60.7

15.6

23.6

100

2014

2015

2016

2017

President and CEO
Average ET excl. CEO

Since 2017, the President and CEO does not have any short-term variable compensation.

Fixed salary 2018
Short-Term Variable Target 2018
Long-Term Variable (2017 Executive Performance Stock Plan) at half of maximum

Ericsson | Annual Report 2018Corporate governance – Remuneration report

161

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
73,000 in 2018

Employees in Sales.
Approximately 2,000 in 2018

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
(LTV )

Executive Performance
Plan
(EPP)

Key Contributor Plan
(KC Plan)

Stock Purchase Plan
(SPP)
Discontinued after 2016

Executive Performance
Stock Plan
(EPSP)
Discontinued after 2016

Share-based plan for
Executive Team members

Cash-based plan for
senior managers

Cash-based plan for
selected individuals

All employee
share-based plan

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

Ericsson B shares as Performance
Share Awards subject to achievement
of performance conditions

Up to 182 Senior managers in
2018

Cash award subject to achievement
of performance conditions

Up to 6,037 employees in 2018

Cash award at the end of mandatory
3 years retention

Where practicable, all
employees are eligible

Share-based plan for
senior managers

Compensation for long-term
commitment and value creation

Senior managers, including
Executive Leadership Team

Buy one Ericsson B share and it will be
matched by one Ericsson B share after
three years if still employed

Subject to performance, receive up to
four, six, or for the former President
and CEO, nine further Ericsson B
shares matched to each SPP share for
long-term performance

If selected, receive one more Ericsson
B matching share in addition to the
SPP one

Key Contributor Retention
Plan
(KC)
Discontinued after 2016

Share-based plan for
selected individuals

Recognize, retain and motivate key
contributors for performance, critical
skills and potential

Up to 10% of employees

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 return on investment along with strong cash conversion
and therefore the starting point is to have one core Economic Profit
target which is a measure of profitability after the deduction of cost
of capital employed.

For the ET, Economic Profit targets are defined:
– At Group level for Heads of Group Functions,
– As a combination of Group level and Businiess Area level for Heads

of Business Areas, and

– As a combination of Group level and Market Area level for Heads of

Market Areas.

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 compensation
programs, the outcomes cannot be predicted when the programs are
introduced and rewards depend on long-term personal commitment,
corporate performance and the share price performance.

Following discontinuation of the previous share-based long-term
variable compensation programs for all employees at the end of 2016,
the Company introduced the new Long-Term Variable Compensation
Program (LTV) for the Executive Team, the new Executive Performance
Plan (EPP) for senior managers and the new Key Contributor Plan
(KC Plan) for key employees as integral parts of its remuneration
strategy starting from 2017.

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. The Remuneration 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 where applicable. The Committee monitors
the appropriateness and fairness of Group, Business Area and Market
Area 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 2018, approximately 75,000 employees participated in

short-term variable compensation plans.

2017–2018 Long-Term Variable Compensation Program (LTV)
for the Executive Team
The Long-Term Variable Compensation Program (LTV) for the ET is
designed to provide long-term incentives for members of the ET and to
incentivize the Company’s performance creating 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
interests of the participants with those of the shareholders.

The 2018 Long-Term Variable Compensation Program (LTV 2018)
was approved by the AGM 2018 and includes all members of the ET, a
total of 14 (16) employees in 2018, including the President and CEO,
but excluding Ulf Ewaldsson, Elaine Weidman-Grunewald and Nina

Ericsson | Annual Report 2018162

Corporate governance – Remuneration report

Short-term variable compensation structure

President and CEO 2018 1)

President and CEO 2017 1)
Average ET 2018
Average ET 2017 2)

Short-term variable compensation
as percentage of fixed salary

Percentage of short-term variable compensation
maximal opportunity

Target level Maximum level

Actual paid

0%
26%

44%

0%
52%

88%

0%
43.1%

Group financial
targets

Unit/functional
financial targets

Non-financial
targets

0%
60%

43%

0%
40%

57%

0%
0%

1) Since 2017, the President and CEO does not have any short-term variable compensation.
2) Excludes the President and CEO, differences in target and maximum levels from year to year are typically due to changes in the composition of the ET.

Macpherson who left the ET prior to the award grant date of May 18,
2018, and Jan Karlsson who carried over his EPP entitlement for 2018
after his appointment to the ET.

Awards under LTV are granted to the participant, provided that

certain performance conditions 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 criteria, as set out below, and generally 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 relat-
ing to LTV 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, 2018. The value of the underlying shares in respect of the
Performance Share Award made to the President and CEO was 180%
of the annual base salary, and for other participants ranged between
30% and 70% of the participants’ respective annual base salaries at
the time of grant. The increase of the maximum value of the underlying
shares in respect of the Performance Share Awards made to the ET
members other than the President and CEO from 22.5% in 2017 to
between 30% and 70% of the participants’ respective base salaries
at the time of grant in 2018 was approved by the AGM 2018 with
the intention to increase the long-term focus and alignment with the
long-term expectations of the shareholders. 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 Ericsson 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 2018.

The vesting of Performance Share Awards is subject to the

satisfaction of challenging performance criteria which will determine
what portion, if any, of the Performance Share Awards will vest at the
end of the Performance Period. Following continuous evaluation of
the Long-Term Variable Compensation Programs, a one-year Group
operating income target was added to LTV 2018 measured over the
period January 1, 2018 to December 31, 2018, to support achieving the
Company’s 2020 targets, in addition to the three-year targets relating
to total shareholder return (TSR), which were also used for LTV 2017.

The performance criteria relating to TSR are absolute TSR develop-
ment and relative TSR development for the Ericsson B share over the
period January 1, 2018 to December 31, 2020 (the “Performance Period”).

The performance criteria relating to LTV 2018 and LTV 2017 along
with the details on how the performance criteria will be calculated and
measured are explained in minutes from the AGM 2018 under Item 17,
and summarized in the below table titled LTV and EPP Performance
Criteria.

The Board resolved on the vesting level for the 2018 Group oper-
ating income performance condition as 200% for this portion of the
performance share award granted based on a 2018 Group operating
income excluding restructuring charges and the provisions taken in Q4
2018 related to the revised BSS strategy.

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, allotment of vested shares will take place as soon as
practicably 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 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
a 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.

LTV share-settled plan for the President and CEO and Executive Team

Plan (million shares)

Maximum shares required
Granted shares
Increase due to performace condition
Outstanding number of shares end of 2018
Compensation cost charged during 2018
(SEK million) 1)

Of which the President and CEO:
Granted shares
Outstanding number of shares end of 2018
Compensation cost charged during 2018
(SEK million)

Long-term variable
compensation programs

LTV 2018

LTV 2017

Total

3.0
0.8
0.4
1.2

3.0
0.7
–
0.7

6.0
1.5
0.4
1.9

17.9

14.7

32.6 1)

0.4
0.6

8.6

0.4
0.4

9.8

0.8
1.0

18.4

1) Total compensation cost charged during 2017: SEK 9.9 million.

LTV and EPP Performance Criteria

Program Year

Target

Criteria

Weight

Performance Period

2018
2018
2018
2017
2017

2018 Group Operating Income
Absolute TSR
Relative TSR
Absolute TSR
Relative TSR

Range (SEK billion): 4.6–9.6
Range: 6%–14%
Ranking of Ericsson: 7–2
Range: 6%–14%
Ranking of Ericsson: 12–5

50%
30%
20%
50%
50%

January 1, 2018–December 31, 2018
January 1, 2018 - December 31, 2020
January 1, 2018 - December 31, 2020
January 1, 2017 - December 31, 2019
January 1, 2017 - December 31, 2019

Vesting

0%–200% (linear pro-rata)
0%–200% (linear pro-rata)
0%–200% (linear pro-rata) 1)
0%–200% (linear pro-rata)
0%–200% (linear pro-rata) 1)

compared to Peer Groups consisting of 12 and 18 companies respectively for the program years 2018 and 2017. The vesting of the performance share awards under this performance condition will vary
depending on the Company’s TSR performance ranking versus the other companies in the Peer Group at the end of the performance period.

Ericsson | Annual Report 2018As shown in the table on the previous page titled LTV share-settled
plan for the President and CEO and Executive Team, the maximum
number of shares required for LTV 2018 is 3.0 (3.0) million. 0.8 (0.7)
million shares were granted to the ET members in May 18, 2018.

The 2018 LTV plan is a share-settled plan recognized over a three-
year service period that has two types of conditions, market conditions
and performance condition. The weighted fair value for LTV 2018
market conditions was calculated as per the share price at grant date
May 18, 2018 and amounted to SEK 79.70. The share price at grant
date was SEK 65.79. The fair value for the market conditions calculated
is the weighted average of the fair values including adjustments for
absolute and relative TSR performance criteria on the grant date,
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 amount is fixed for the service period, except
for any persons leaving.

The performance condition for the LTV plan is based on the out-
come of the Group operating income as per 2018 fiscal year. For the
performance condition the number of shares are adjusted in relation to
the achievement level of the performance condition at the end of the
performance period. The outcome of the performance conditions was
achieved at a vesting level of 200% and the total number of shares has
been increased by 0.4 million shares to 1.2 million shares. The share
price for the performance condition was SEK 62.93 and is calculated
based on the share price at grant, reduced by the net present value of
the dividend expectations during the three-year service period.

The 2017 LTV program is a share-settled plan with market condi-
tions accounted for as described for LTV 2018. The total compensation
expense is calculated based on the fair value at grant date and recog-
nized over the service period of three years. The amount is fixed for the
service period, except for any persons leaving. The fair value for LTV
2017 at grant date was calculated as per May 18, 2017 and amounted
to SEK 65.68. The share price at grant date May 18, 2017 was SEK 57.15.
The accounting treatment for LTV is prescribed in IFRS 2 Share-

based payment as described in Note A1, “Significant accounting
policies.”

2017–2018 Executive Performance Plans (EPP)
The Executive Performance Plan (EPP) is designed to attract, retain,
and motivate senior managers in a competitive market through per-
formance based long-term cash incentive supporting the achievement
of the Company’s long-term strategies and business objectives.

Under the 2018 Executive Performance Plan (EPP 2018), up to
182 (500) senior managers were identified to be eligible for the plan,
and 171 (452) of these 182 (500) senior managers were selected as
participants to the plan 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 Ericsson B shares used for
the respective year’s LTV program. The three-year vesting period is
the same as for the LTV program. The vesting level of the award is
subject to the achievement of the same performance criteria over
the same Performance Periods defined for the respective year’s LTV
program, 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 Ericsson B shares at Nasdaq Stockholm at the
payout date, and this final amount is paid to the participant in cash
gross before tax.

Corporate governance – Remuneration report

163

2017–2018 Key Contributor Plans (KC Plan)
The Key Contributor Plan (KC Plan) is designed to recognize the best
talent, individual performance, potential and critical skills as well as
to encourage the retention of key employees. Under the 2018 Key
Contribution Plan (2018 KC Plan), up to 6,037 (7,000) employees were
identified to be eligible for the plan, and 5,886 (6,876) of these 6,037
(7,000) employees were 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 Ericsson B shares used for
the respective year’s LTV program. 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 Ericsson 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 Ericsson 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-settled plans (EPP and KC Plan) is shown in

the table below:

LTV cash-settled plans

(million)

Plan

Executive Performance Plan
Key Contributor Plan

Total

Number of synthetic shares

LTV 2018

LTV 2017

1.0
9.4

10.4

1.9
10.5

12.4

Total

2.9
19.9

22.8

Compensation cost under LTV cash-settled plans

(SEK million)

Plan
Executive Performance Plan 1)
Key Contributor Plan 2)

Total

Compensation cost year 2018

LTV 2018

LTV 2017

19.8

155.9

175.7

110.7

322.9

433.6

Total

130.5
478.8 3)

609.3

2015–2016 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 Con-
tributor Retention Plan and the Executive Performance Stock Plan.

The Stock Purchase Plan (SPP)
The Stock Purchase Plan (SPP) 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 Ericsson 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 Ericsson B shares or ADSs free of consideration. Employees in 100
countries participate in the plans.

Ericsson | Annual Report 2018164

Corporate governance – Remuneration report

The table below shows the contribution periods and participation

details for ongoing plans as of December 31, 2018:

Stock Purchase Plans

Plan

Stock Purchase plan 2015

Stock Purchase plan 2016

Contribution
period

August 2015 –
July 2016
August 2016 –
July 2017

Number of
participants at
launch

Take-up rate
– percent of eligible
employees

33,800

31,500

31%

29%

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
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 SPP
during a twelve-month period.

The Executive Performance Stock Plan (EPSP)
The Executive Performance Stock Plan (EPSP) was designed to focus
management on driving earnings and provide competitive remunera-
tion. Senior managers, including the members of the 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 SPP. 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 below table shows the targets for the Executive Performance

Stock Plans which are ongoing as of December 31, 2018:

Executive Performance Stock Plan targets

Base year
value
SEK billion

Year 1

Year 2

Year 3

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 addition 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.

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
payment 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 a 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.

Total rewards 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 continuous briefings of line
managers on pay principles and their practical execution enabled
further progress towards globally consistent principles while allowing
room for adaptation to local legislation and pay markets.

2016

Growth (Net sales growth)
Margin
(Operating income growth) 1)
Cash Flow (Cash conversion)

246.9

24.8
–

1) Excluding extraordinary restructuring charges.

Compound annual growth rate of
2%–6%
Compound annual growth rate of
5%–15%
≥70%

≥70%

The accounting treatment of all the long-term variable compensation
programs are explained in Note G3, “Share based compensation.”

Ericsson | Annual Report 2018Sustainability – Sustainability and Corporate Responsibility Report

165

Sustainability and Corporate
Responsibility Report 2018

“Ericsson’s leadership in sustainability
for the past 25 years is a core asset that will
continue to be in focus across the company
and is becoming an ever more fundamental
part of the business.”

Ronnie Leten
Chair of the Board

Contents

166 About this Report

167

169

172

174

183

Sustainability approach

Sustainability management

Significant topics and risk
management

– Responsible business

– Climate action, energy

and environment

187

– Internet for all

187 Board of Director's approval

188 Consolidated sustainability
statements and notes

190 Auditor’s assurance report

This Sustainability and corporate responsibility
report is rendered as a separate report added
to the Annual Report in accordance with the
Annual Accounts Act ((SFS 1995:1554) chapter
6, section 10 and 11). A report from the auditor
is appended hereto.

Teachers and staff members of the Department of Basic Education in Myanmar attending the Ericsson Virtual Reality (VR)
Training to use the tools developed for the Connect to Learn program in its efforts to bring internet for all. Myanmar is one
of the first countries in the world to use VR for teacher professional development.

Ericsson Annual Report 2018166

Sustainability – About this Report

About this Report

Ericsson has reported on sustainability
performance for over 25 years. The report
has evolved over time from environmental
disclosure to the broader ‘triple bottom line’
approach which covers environmental, social
and economic development aspects and
the responsible business practices that the
Company has today.

This Sustainability and Corporate

Responsibility Report 2018 is added to the
Company’s Annual Report in accordance
with the Swedish Annual Accounts Act, and
includes information previously disclosed
in the separately published Sustainability
and Corporate Responsibility Report. The
report comprises sustainability and corporate
responsibility information relating to Ericsson
in the areas of environment, social matters,
human resources and responsible business
conduct, including human rights, health and
safety and anti-corruption.

The Sustainability and corporate respon-
sibility report describes the Ericsson Group’s
policies relating to sustainability and corpo-
rate responsibility, their outcome, and the
significant risks and opportunities related to
those topics linked to the Group’s operations.
Further, it describes how the Company man-
ages related risks and opportunities. Selected
non-financial key performance indicators
relevant to Ericsson’s business are highlighted.
Ericsson’s business model is described in the
Annual Report 2018 on pages 4–5.

Unless otherwise stated, all information
and data pertain to activities undertaken from
January 1, 2018, to December 31, 2018. The
report covers the Ericsson Group, i.e. Telefon-
aktiebolaget LM Ericsson and its subsidiaries.
The report has been assured by Price-
waterhouseCoopers AB as an independent
third-party in accordance with ISAE 3000
"Assurance Engagements Other than Audits or
Reviews of Historical Financial Information"
issued by the International Auditing and
Assurance Standards Board (IAASB) as well
as AA1000AP (2018) issued by AccountAbility
(type 2 engagement).

Reporting principles
Sustainability and corporate responsibility
principles and requirements are implemented
in Ericsson’s business. The Company reports
on its sustainability and corporate responsibil-
ity performance in accordance with globally
recognized standards and principles to enable
stakeholders to make informed decisions
about Ericsson’s performance in this area.
This report has been prepared in accor-
dance with the Global Reporting Initiative
(GRI) Sustainability Reporting Standards,
Core option. Ericsson has reported in accor-
dance with GRI since 2006.

Ericsson has been a UN Global Compact

(UNGC) signatory since 2000 and has
reported its Communication on Progress
(COP) annually to inform its stakeholders on
progress concerning human rights, labor stan-

dards, the environment and anti-corruption,
and according to UN Global Compact
Advanced Level criteria since 2012. Ericsson’s
COP is available on www.ericsson.com and
on the UNGC website as part of Ericsson’s
Company Information.

In 2012 the Company formalized its com-
mitment to UN Guiding Principles (UNGPs) on
Business and Human Rights. This report has
been prepared in accordance with the UNGPs
on Business and Human Rights Reporting
Framework.

Ericsson also publishes other annual state-
ments and reports related to it's commitments
to responsible business such as a Modern
Slavery Statement in accordance with the UK
Modern Slavery Act, and a Conflict Minerals
Report under the US Dodd-Frank Act.

The principles of stakeholder inclusive-
ness, sustainability context, materiality and
completeness, as well as responsiveness
and impact, help the Company to define the
sustainability and corporate responsibility
reporting content. To ensure reporting quality,
Ericsson applies the reporting principles of
accuracy, balance, clarity and timeliness
among others.

Additional information on Ericsson’s
sustainability and corporate responsibility
work is available on Ericsson’s website
www.ericsson.com. A complete GRI compil-
ation and the UNGPs Reporting Framework
Index are also publicly available online.

Ericsson Annual Report 2018Sustainability approach

Sustainability – Sustainability approach

167

Sustainability and corporate responsibility are
integrated into Ericsson’s business and the
Company’s commitment to the triple bottom
line of responsible environmental performance
and social and economic development.
Conducting business responsibly is a corner-
stone of the Company’s strategy and culture.
Ericsson believes that access to communica-
tion is a basic human need and that technol-
ogy is a driver to improve people’s lives. The
Company’s ambition is to be a responsible and
relevant driver of positive change in society.
The Company’s declared vision and

purpose, “Empowering an intelligent, sustain-
able and connected world”, embodies the
breadth of what Ericsson aims to do and how
to contribute to the sustainable development
agenda outlined in the UN’s Sustainable
Development Goals (SDGs).

Ericsson believes that digitalization is
fundamental to achieving all 17 of the SDGs,

and that delivering internet access to the
unconnected through mobile broadband
solutions is both a business opportunity and
a powerful way to make a positive impact
on society.

Ericsson is also committed to reducing risk
in the company and for its stakeholders, and to
minimizing negative economic, environmental
and social impacts. Ericsson’s approach to
sustainability and corporate responsibility is
integrated into its business operations and
performance is regularly measured, assessed
and assured.

The Company believes that new technolo-
gies, such as 5G and IoT, will be fundamental
means for industries, cities and countries to
reduce their carbon footprints exponentially
so as to achieve the targets in the Paris Agree-
ment set to strengthen the global response to
the threat of climate change.

Strategic priorities
Ericsson’s sustainability and corporate
responsibility strategic priorities are part of
the Company’s business strategy and are
embedded across the Company. At Ericsson,
sustainability and corporate responsibility
are cornerstones of building a company for
the future which creates lasting value and
works with two main aims: creating positive
impacts and reducing risks. The sustainability
and corporate responsibility strategy focuses
on three areas: responsible business; climate
action, energy and environment; and internet
for all. Integrating sustainability and corporate
responsibility into the Company’s business
operations helps Ericsson to improve sustain-
ability performance and differentiate itself
from its competitors. Technology leadership
enables Ericsson to bring the most innovative
and best solutions to the market and to create
a growing, inclusive and sustainable economy.

Sustainability and corporate responsibility strategy

Responsible business
Ericsson drives a proactive agenda that extends beyond legal compliance, and has
strong programs in areas such as human rights, anti-corruption, occupational health
and safety and responsible sourcing. Ericsson continues to support the ten principles of
the UN Global Compact and the UN Guiding Principles on Business and Human Rights.

Climate action, energy and environment
The circular economy encapsulates Ericsson’s approach to environmental sustaina-
bility. Ericsson continuously strives to improve the environmental performance of its
products, to minimize the negative impacts of its own operations and to contribute to
societal environmental benefits resulting from the implementation of its technology.

Internet for all
Ericsson is committed to deploying solutions and advocates to improve mobile broad-
band affordability and accessibility. This foundation of internet access will enable the
delivery of digital services to meet a wide range of societal needs, including education,
health, entrepreneurship and humanitarian response.

Ericsson Annual Report 2018168

Sustainability – Sustainability approach

Stakeholder engagement
The approach to stakeholder engagement
enables Ericsson to learn about its stakehold-
ers’ expectations and concerns, thus providing
insights into risks as well as opportunities. The
Company’s stakeholders fall into four cat-
egories: customers, shareholders, employees
and society. In the society category Ericsson
includes suppliers, governments, civil society,
non-governmental organizations, industry
partners, media, academia and the public.

Ericsson engages with its stakeholders on
an ongoing basis on a diverse range of topics,
including supply-chain management, energy
performance, human rights, anti-corruption,
Technology for Good programs and other
significant topics. The engagement takes a
variety of forms such as joint projects and
initiatives, meetings, surveys, participation in
industry groups, representation on decision-
making bodies, research projects and NGO
dialogues. Other ways to gain stakeholder
insight are research collaborations with
academia, institutions and industry peers.
The Company leverages its social media
outreach to extend the conversation and
hear from the public.

In 2018, Ericsson engaged in dialogue
with investors on sustainability and corporate
responsibility topics. Among other meetings
the Company was invited as an industry rep-
resentative to the United Nations Global Com-
pact, Principles for Responsible Investment
and Global Reporting Initiative meeting on
Investor-Relevant Business Reporting on the
Sustainable Development Goals. Key topics
discussed included an increasing interest from
investors in reporting of data in line with the
Task Force on climate-related financial disclo-
sures and Sustainability Accounting Standards
Board frameworks. During stakeholder consul-
tations, identified dilemmas are discussed and
addressed. Ericsson supports discussions on
finding ways to manage emerging dilemmas
through greater transparency, collective action
and a clear regulatory framework. Ericsson
engages with customers through regular
customer interactions and meetings as well
as through dialogues focusing on specific
sustainability and corporate responsibility
topics; for example, upon customer request,
in 2018 the Company has renewed its com-
mitment to the Telefónica Stakeholder Panel
on Responsible Business.

In 2018, Ericsson conducted a focused
employee survey on sustainability and corpo-
rate responsibility. The Company’s employees
were requested to select and rank the top
sustainability and responsible business related
topics that they believed were of most sig-
nificance to them and to Ericsson’s business,
these results helped to inform our materiality
assessment.

Over 25 years of sustainability leadership
Twenty-six years have passed since Ericsson
published its first environmental report in
1993 in conjunction with the first Earth
Summit in Rio making the Company one of
the early adopters of sustainability commit-
ments and reporting. Over time, Ericsson’s
longstanding commitment to doing the right
thing and taking responsibility for its actions
has remained both proactive and progressive.
While there is still much work that remains to
be done in the area of sustainability and cor-
porate responsibility, the progress made by the
Company is reflected in the recognition and
awards received over the years. In early 2019,
Ericsson ranked #21 globally on the Global
100 Most Sustainable Companies.

Ericsson's approach to stakeholder
engagement

With whom
do we need
to engage?

Which issues do
we need to get
engaged with?

When should the
engagement
take place?

How should the
engagement
take place?

Interview with President and CEO Börje Ekholm and Bloomberg at Smart Economy luncheon
at the World Economic Forum 2019 in Davos.

Ericsson Annual Report 2018Sustainability management

Sustainability – Sustainability management

169

Ericsson has one common global manage-
ment system, the Ericsson Group Manage-
ment System (EGMS), which includes amongst
other elements Policies, Group Directives and
Group Instructions. EGMS is a dynamic gov-
ernance system, enabling Ericsson to adapt
it to changing demands and expectations,
including new legislation as well as customers’
and other stakeholders’ requirements. The
EGMS is designed to ensure the integration
of Ericsson’s sustainability and corporate
responsibility commitment into every aspect
of how the Company conducts its business.
Having one global management system
brings a common management approach and
consistent global implementation of how we
conduct our business. 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) and ISO 27001 (Information Security)
(achieved in certification cycle 2018).
The Company regularly assesses its significant
topics in the economic, environmental and
social areas and related sustainability and
corporate responsibility risks which are
identified in accordance with Ericsson’s Risk
Management framework. Responsible busi-
ness practices are embedded in Ericsson’s
operations to prevent and mitigate risks.

Ericsson’s objectives on sustainability and
corporate responsibility are set and reviewed
annually in line with the Company’s strategy.

Previous performance, internal and external
audits and assessment results as well as
the Company’s life-cycle assessment and
research studies are used as input when set-
ting objectives. Sustainability and corporate
responsibility objectives are followed-up on a
regular basis by the accountable organization.
Through Ericsson’s Global ISO certification
assessment program, the external assurance
provider assesses and audits how Ericsson
implements and adheres to Policies and Group
Directives, manages risks and achieves the
Company’s objectives.

Ericsson provides training to employees
and suppliers to ensure and improve aware-
ness and competence related to sustainability
and corporate responsibility topics and com-
mitments.

Governance, policies and directives

The Board of Directors is briefed annually, or
more often if needed, on sustainability and
corporate responsibility performance and risk.
In 2018, briefings covered progress on anti-
corruption, sensitive business, cybersecurity,
occupational health and safety, responsible
sourcing, climate action and social inclusion.
The Board of Directors was also briefed about
the ongoing inquiries from the United States
Securities and Exchange Commission and the
United States Department of Justice regarding
the Group’s compliance with the U.S. Foreign
Corrupt Practices Act.

Group functions support the President and

CEO in the governance and management of
Ericsson. Group Function Marketing and Cor-
porate Relations is accountable for developing
and deploying strategies, policies, directives,
processes and tools for sustainability and
corporate responsibility.

Policies and Group Directives of particular
relevance from a sustainability and corporate
responsibility perspective are the Code of
Business Ethics, the Code of Conduct, and
other Group steering documents concerning

sustainability, sensitive business, information
security, privacy, occupational health and
safety, electromagnetic fields and health and
anti-corruption – all of which reflect how
Ericsson works to ensure responsible business
practices. These Group steering documents
are reinforced by employee-awareness train-
ing and monitoring. Compliance with Policies
is mandatory for all employees and operations
unless a deviation is approved by the CEO.

The Code of Business Ethics
The Code of Business Ethics (CoBE) is an
overview of Ericsson’s fundamental Policies
and Group Directives guiding Ericsson’s
relationships among employees and when
interacting with external stakeholders. It sets
the tone for how Ericsson conducts business
globally and is a guiding framework to support
everyone performing work for Ericsson. It
reflects the Company’s commitment to the
UN Global Compact’s 10 principles and the
United Nations Guiding Principles (UNGPs)
on Business and Human Rights.

The CoBE emphasizes Ericsson’s zero-
tolerance for corruption. Employees read
and acknowledge the CoBE at the time of
employment and periodically re-acknowledge
it throughout their term of employment. The
CoBE is periodically updated and is translated
into more than 30 languages to ensure that it is
accessible to employees and stakeholders.

The Code of Conduct
Ericsson’s Code of Conduct (CoC) applies to
employees, contractors and suppliers. It is
based on the 10 principles of the UN Global
Compact, and includes the Company com-
mitments regarding human rights, labor stan-
dards, the environment and anti-corruption,
as well as Ericsson commitment to the UN
Guiding Principles on Business and Human
Rights. Employees and suppliers are required
to comply with Ericsson’s CoC requirements.
Ericsson uses a risk-based approach to
assess compliance with the CoC requirements
as part of supplier agreements.

Ericsson Annual Report 2018170

Sustainability – Sustainability management

Reported Compliance Concerns
(2018)1,2)

2% 0%

445

12%

23%

29%

24%

Fraud, corruption and regulatory
breach
Operations
Conflicts of interest
Miscellaneous
Security
Human resources
Sustainability

1) Compliance concerns reported to Audit and

Compliance Committee, most of them received
via The Ericsson compliance line but also via
certain other channels such as mail addressed
sto Group Functions or Market Areas excluding
unrelated spam e-mails).

2) The category of reported compliance concerns is
determined based on the most significant impact
identified by Corporate Investigations’ team.
Categorization may be modified during an inves-
tigation as additional information related to the
initial allegations is obtained.

Reporting compliance concerns

Ericsson’s employees, suppliers and other
external parties are encouraged to report
suspected violations of law, the Ericsson Code
of Business Ethics or the Ericsson Code of
Conduct through The Ericsson compliance
line, an externally managed anonymous
whistleblower tool, or can talk directly to
their manager, manager’s manager or Group
Function Legal Affairs and Compliance.
Compliance concerns may relate to corruption,
questionable accounting, deficiencies in the
internal control of accounting, auditing, envi-
ronmental, occupational health and safety,
or human right matters, or other matters that
could seriously affect vital interests of the
Group or personal health and safety.

Reported compliance concerns are
handled by Ericsson’s Group Compliance
Committee, which consists of representa-
tives from Ericsson’s Group Function Legal
Affairs and Compliance and Group Function
Human Resources and related operational
units depending on the compliance concern.
The Head of Corporate Investigations briefs
the Audit and Compliance Committee of the
Board of Directors (BoD) about significant
reported compliance concerns.

The Corporate Investigations team within
Group Function Legal Affairs and Compliance
receives alleged breaches from the Ericsson
compliance line or other sources and decides
whether the reported compliance concern
merits investigation. It presents each reported
compliance concern to the Group Compliance
Committee, which is chaired by the Chief
Compliance Officer (CCO). During 2018 the
process around reporting compliance concerns
has been strengthened and further developed
to include both centrally and locally reported
allegations of violations.

In 2018, Ericsson has worked to strengthen
its allegations management and investigation
processes and resources to help ensure more
methodical and robust investigations and
follow-up. During 2018 the Company received
445 cases reported through The Ericsson
compliance line or other means. The Ericsson
compliance line is available via phone or
secure website, 24/7, 365 days a year in 188
countries and in over 75 languages.

Ericsson Annual Report 2018Sustainability – Sustainability management

171

Sustainability ambition

Ericsson has set sustainability and corporate responsibility objectives
based on the Company’s strategy. The objectives reflect the Company’s
ambition both to increase positive impacts and to mitigate risks. In 2018

and in line with Ericsson’s focused business strategy, the Company has
simplified and reviewed the number of objectives disclosed in previous
sustainability and corporate responsibility reports.

Positive-impact objectives

Achieve 35% energy saving in Ericsson Radio
System compared with the legacy portfolio
by 2022 (baseline 2016) 1)

Innovate to allow for alternative energy sources
to be economically feasible in 25% of the
total installed base by 2020

Achieve a 5G product portfolio that is ten times
more energy efficient (per transferred data)
than 4G by 2022 (baseline 2017)

33%

On track

Increase to 30% the female representation of executives, line managers
and total workforce by 2020

Enable internet for all through roll out of mobile broadband to connect
additional 500 million people by 2024 (baseline 2018)

23%

On track

Risk-mitigation objectives

Reduce occupational health and safety
major incidents

Address risk assessment for 100% of the top
90% of supplier spend by 2020

Reduce 35% of CO2e emissions from Ericsson’s
own activities by 2022 (baseline 2016) 1)

On track

98%

Reinforce the Company ethics and compliance program with emphasis
on anti-bribery and corruption

Achieve 100% adherence to the sensitive business process and
conditions by 2020

On track

98%

1) Science Based Targets (SBT) approved by SBT Initiative.

Ericsson Annual Report 2018172

Sustainability – Significant sustainability topics

Significant topics and risk management

Ericsson regularly assesses its significant
economic, environmental and social topics to
provide a strong foundation for the Company’s
sustainability and corporate responsibility
priorities. This is a central component of the
situation analysis for strategy, target setting,
risk management and reporting.

The assessment is done on an annual
basis and has two purposes. It considers the
Company’s business impact on economic,
environmental and social topics, and it con-
templates stakeholder feedback to analyze
those topics that substantively influence the
views and decisions.

In 2018, Ericsson continued to evolve the
assessment process by sharpening the focus
while identifying significant topics that have
long-term significance for the business. Sus-
tainability focus and risks in each of Ericsson's
segments are described in pages 18–22.

The Company continued its alignment with

international standards such as the Sustain-
ability Accounting Standards Board (SASB)
in order to facilitate its understanding of the
meaning of each topic. The nomenclature of
the topics listed in the matrix on page 173,
are aligned with the SASB Materiality Map®.
Significant topics covered in this report are
listed by the name of the chapter and the
SASB terminology in brackets.

Ericsson begins each year's assessment by

reviewing the significant topics identified in
the previous year's assessments (baseline).
As part of integrating sustainability and

corporate responsibility into the business
segments, Ericsson has conducted topic-
assessment workshops with each Business
Area in 2018. A consolidated outcome from
the workshops was presented and approved
by Ericsson’s Executive Team. Progress during
the year and inputs resulting from surveys and

from dialogue with employees, customers,
investors and other stakeholders were consid-
ered in the assessment.

Each significant topic including where in
the value chain the impact occurs, is described
in this report. Significant topics identified in
2018 were anti-corruption; human rights;
information security and privacy; diversity;
occupational health and safety; radio waves
and health; responsible sourcing; efficient use
of material resources; energy performance
from products; and the carbon footprint from
the Company’s own operations.

Ericsson’s sustainability and corporate
responsibility “Significant topics matrix” is
publicly available on Ericsson’s website
www.ericsson.com, together with additional
information on other topics that are not
considered significant and the rationale
behind the prioritization.

Risk management

The Company’s sustainability and corporate
responsibility related risks described in
this report are managed in accordance to
Ericsson’s risk management framework, which
is integrated into the Company’s operational
processes. The Board of Directors also over-
sees the Company’s risk management.

Ericsson has Group Policies and Directives

to comply with applicable laws and regula-
tions, and controls are implemented to comply
with reporting standards. Group Policies
and Directives of particular relevance for

sustainability and corporate responsibility are
described in page 169 of this report.

As part of sustainability and corporate
responsibility strategy work, risks and mitigat-
ing actions related to the long-term objectives
as well as short-term targets are identified.
Key components in the evaluation of risks
related to Ericsson’s long-term objectives
include for example technology development,
information security related matters, health
and environmental aspects and laws and
regulations.

Identified and prioritized sustainability
and corporate responsibility related risks and
mitigating actions, are described in Ericsson’s
sustainability and corporate responsibility
Risk Heat Map and are regularly followed-up
in governance meetings and presented to the
Board of Directors annually or if needed. For
information on risks that could impact the
fulfillment of objectives and form the basis
for mitigating activities, see the Risk Factors
section, pages 116–125, and Risk Manage-
ment in the Corporate governance report,
pages 149–151.

Ericsson Annual Report 2018Sustainability – Risk management

173

Significant topics 2018

High

Assess and engage

Address and engage actively

s
r
e
d
o
h
e
k
a
t
s
o
t
e
c
n
a
t
r
o
p
m

P
G

Assess

Address and engage when appropriate

High

Significance of environmental, social and economic impacts

A Anti-corruption (Business ethics)

J Competitive behavior

B Radio waves and health

K Management of the legal and

R Product energy performance (Product
design and life-cycle management)

C Information security and privacy

regulatory environment

S Efficient use of raw material

(Customer privacy and data security)

L Customer welfare

D Respect for human rights

M Selling practices and product labeling

(Labor practices, human rights and
community relations)

E Responsible sourcing

(Material sourcing and efficiency)

F Responsible sourcing

(Supply chain management)

G Diversity and inclusion

H Critical incident risk management

I Systemic risk management

T Waste and hazardous
materials management

U Energy management

V Business model resilience

N Product quality and safety

O Occupational health and safety

(Accident and safety management)

W Air quality

P Occupational health and safety
(Employee health and safety)

Q Ericsson’s own activities

(GhG emissions)

X Physical impact of climate change

Y Ecological impacts

Z Water and wastewater

management

AA Internet for all

(Access and affordability)

Ericsson Annual Report 2018

174

Sustainability – Risk management

Responsible business

Ericsson works continuously to improve and
strengthen its responsible business practices,
with a focus on building and maintaining trust,
transparency and integrity regardless of where
in the world it operates. Respect for human
rights, fair and safe working conditions, and

ethically and environmentally sound business
practices shall be fundamental parts of the
Company’s culture and identity. This com-
mitment to responsible and ethical behavior
starts at the Board level and is implemented
throughout Ericsson’s organization via the

Company's ethics and compliance program
and by raising awareness and encourage
stakeholders to report compliance concerns
through the Ericsson compliance line.

Ericsson engineer performing hardware installation for a customer in Silicon Valley during spring 2018.

Ericsson Annual Report 2018Sustainability – Risk management

175

Respect for human rights

Human rights are fundamental to protect the
inherent dignity of human beings. Ericsson
is committed to respecting human rights by
mitigating and minimizing the risk of potential
misuse its technology throughout its opera-
tions, products and business engagements.

Ericsson believes that through its innova-
tion and leadership in developing technologies
it meaningfully contributes to positive social
and economic development in society, such
as improving people’s ability to earn a better
livelihood and contributing to facilitating
freedom of expression. Governments use
Ericsson’s technology to provide health, edu-
cation and other government services and to
assist in emergencies as well as to fight crime
and to protect citizens’ safety and security.
The increasing use of Information and

Communication Technology (ICT), and
specifically of new technologies such as
machine learning and Artificial Intelligence
(AI), also brings challenges to security, privacy
and risk management. This makes it crucial
to remain vigilant and balance the benefits
of ICT against respecting the human rights
of individuals.

Governance, policies and directives
Ericsson’s commitment to respect human
rights is part of its Code of Business Ethics
(CoBE) and Code of Conduct (CoC). The
Company’s commitment to the UN Guiding
Principles on Business and Human Rights
Framework is reflected in these documents.
Based on its current operations and busi-

ness relationships, Ericsson has defined its
salient human rights issues to include the right
to freedom of expression, right to privacy and
labor rights.

Human rights impact assessment
Based on the results of the Company Human
Rights Impact Assessment performed in previ-
ous years, Ericsson continued improvement
activities in the areas of emergency readiness,
work/life balance, occupational health and
safety, right to privacy, and freedom of expres-
sion awareness.

Human rights due diligence
In order to assess, prevent and mitigate
potential negative impacts on its salient
human rights issues, Ericsson has integrated
due diligence about human rights into its sales
process through its sensitive business process.
The Company’s Sensitive Business Policy
aims to emphasize Ericsson’s commitment
to respecting human rights in its business
engagements and operations. Ericsson’s
Sensitive Business Board, a cross-functional
forum that consists of high-level representa-
tives of Group Functions and Business Areas,
is responsible for ensuring that business
opportunities and engagements are con-
ducted according to the Policy.

When a high-risk sales opportunity is

identified by the sensitive business automated
tool, the Market Area submits an approval
request in accordance with the sensitive-
business process. Submissions are evaluated
according to the sensitive-business risk
methodology and may be rejected, approved
or approved with conditions. Conditional
approvals include technical and/or contractual
mitigations to prevent unintended use of
sensitive functionality. Ericsson follows up on
decisions in a separate dedicated process.

Risk methodology and criteria for evaluating
sales opportunities:
– Portfolio: whether the sales opportunity
includes sensitive products, services and
knowledge.

– Purpose: the purpose and context in which
the customer intends to use the product,
service or knowledge.

– Customer: the type of customer and owner-

ship structure.

– Country: countries are ranked by third-

party risk analytics according to selected
indices, such as the indices of right to
privacy and freedom of expression.

Building leverage and engaging in dialogue
As part of its continuous efforts to partner
leading companies and Non-Governmental
Organizations in building leverage for respect
for human rights, Ericsson signed the Paris call
for trust and security in cyberspace in 2018
and furthered its collaboration with the Global
Network Initiative (GNI).

The Company also carried out a cross-
functional collaboration to map the risks of
potential adverse impact on human rights
from AI. Ericsson believes that AI ethics cor-
respond well with internationally recognized
human rights risks, and it works to ensure that
human rights considerations are integrated
into the process of developing and using AI.

Main risks include:
– Misuse of Ericsson’s technology could
adversely impact right to privacy and
freedom of expression.

– Lack of adherence to labor standards in
the supply chain could adversely impact
on labor rights.

Sensitive business cases 2018

34%

587

62%

Cases approved
Cases approved with conditions
Cases rejected

Ericsson Annual Report 2018176

Sustainability – Risk management

Anti-corruption

Corruption is harmful for many reasons.
Primarily, it is a considerable obstacle to
economic and social development around the
world. It holds back sustainable development
and often affects poorer communities the
most. From a business perspective, corruption
undermines fair competition, impedes innova-
tion, raises costs and poses serious legal and
reputational consequences.

Ericsson is committed to winning business

on merit, ability and fairness and acting
vigorously to correct any irregularities the
Company encounters. Ericsson strives to be
a responsible and relevant driver of positive
change within the communities and societies
where the Company operates. As part of this
commitment, fighting and preventing corrup-
tion are a high priority.

Ericsson’s ethics and compliance program

is built on four cornerstones: preventing,
detecting, responding and testing/monitoring,
and Ericsson continually works to strengthen
and improve this framework. The Company
is committed to providing the leadership
and resources necessary to achieve its anti-
corruption objectives.

The ethics and compliance program and
the performance of Ericsson’s anti-corruption
program are reviewed at least annually by
the Audit and Compliance Committee of the
Board of Directors.

Ericsson has been a member of the World
Economic Forum Partnership Against Corrup-
tion Initiative (PACI) since 2012.

Inquiries from US authorities
As previously disclosed, Ericsson has been
voluntarily cooperating since 2013 with an
investigation by the United States Securities
and Exchange Commission (SEC) and, since

2015, with an investigation by the United
States Department of Justice (DOJ) into
Ericsson’s compliance with the U.S. Foreign
Corrupt Practices Act (FCPA). The Company
has identified facts that are relevant to the
investigations. These facts have been shared
with the authorities by the Company.
The Company continues to cooperate with the
SEC and the DOJ and is engaged in discus-
sions with them to find a resolution.

While the length of these discussions

cannot be determined, based on the facts that
the Company has shared with the authorities,
it believes that the resolution of these mat-
ters will likely result in monetary and other
measures, the magnitude of which cannot be
estimated currently but may be material.

People and culture
A strong tone from the top and a company cul-
ture committed to integrity are fundamental to
an effective ethics and compliance program.
An enhanced ethics and compliance vet-
ting process has been introduced for all current
and future Executive Team members and
employees in exposed positions such as sourc-
ing, financing and customer-facing roles. Since
its implementation in 2017, the executives in
the top 200 positions in the company have
been subject to this vetting process.

In 2018, Ericsson completed a comprehen-

sive anti-bribery and corruption risk assess-
ment in its Market Areas which led to some
adjustments to and further improvements of
the program.

A new mandatory online anti-corruption

training for all employees was launched
in 2018 and completed by over 88,150
employees. Specific face-to-face training was
provided by Legal and Compliance employees

to Group Functions and to Market Area/Cus-
tomer Unit leadership teams as well as to the
global compliance and investigations function.

In 2018 the Executive Team has held
meetings and discussions on ethics and com-
pliance matters with the top 200 company
leaders. The key messages have been relayed
through numerous communication activities
to all employees.

Third-party management
In 2018, Ericsson has continued to develop
and improve its process for the assessment
and monitoring of third-parties, including
suppliers. A specific global risk scan of third-
parties was undertaken in 2018 to ensure that
all compliance risks or potential issues are
appropriately addressed. Ericsson has cross-
functional review boards for business partners
in its Market Areas, whose responsibility is to
review and validate the business case and
control of certain third-parties’ engagements.
In 2018, Ericsson’s finance and compliance
functions deployed additional analytic tools to
better identify and prevent high-risk transac-
tions or engagements and to strengthen
payment controls.

Main risks include:
– Workforce or third-party failure to

comply with anti-corruption laws, regu-
lations and Ericsson’s related Policies
and Directives.

Ericsson Annual Report 2018Sustainability – Risk management

177

Information security and privacy

Information security and the protection of
personal data focus primarily on maintaining
the confidentiality, integrity and availability of
information, while not hindering an organiza-
tion’s operations. As both the value of infor-
mation and the capabilities of threat actors
increase, information security and privacy
have become issues of national importance
globally and a key consideration for operations
in Information and Communication Technol-
ogy (ICT).

Attacks on infrastructure, or crimes
focusing on the theft, misuse or tampering
of information, can have major impacts on
society and on the trust that society places in
organizations that handle information. At the
same time, the ability of threat actors, includ-
ing nation states, to launch cyberattacks has
outstripped the ability of most organizations
to defend against these events.

Governance, policies and directives
Information security and privacy are governed
through Ericsson’s Group Information Security
Board and ancillary Security Management
Boards. The Product and Technology Security
Board addresses product and portfolio
security issues. The Audit and Compliance
Committee of the Board of Directors receives
updates on cybersecurity at least twice a year,
and includes security as part of its annual
training.

Risk management
Ericsson’s products, infrastructure and services
handle personal data for its workforce,
customers and its customer’s customers the
nature of Ericsson’s business, and of the data
that its products transmit, requires the Com-
pany to be at the forefront of data protection
and information security. Given that Ericsson’s
financial, customer and personal data as well
as its intellectual property are targeted by
threat actors, the Company focuses on provid-
ing end-to-end secure services, solutions and
products and protecting critical assets in a
rapidly changing environment while respond-
ing proactively to existing and emerging
threats to business and human rights.
Ericsson has adopted a risk based

approach for investment in cybersecurity and
privacy. The potential impact on Ericsson’s
brand, in terms of customer trust and market
access, is weighed against the cost of imple-
menting tools, processes and technology
to make sure that Ericsson can protect its
customers and data.

Safe and secure telecommunications
networks and services provide the foundation
for Critical National Infrastructure such as
national security and emergency coordination,
healthcare, education and finance services.
More secure networks require less downtime
and unplanned maintenance, which increases
trust in the infrastructure.

Information security and privacy incidents

Ericsson’s information security and privacy

to attacks and less likely to be impacted by
unforeseen consequences.

In 2018, Ericsson launched a certification
program, Ericsson Certified Security Associate
and two training courses for all employees,
Data Privacy 2.0 and Be Security Aware which
were completed by over 83,640 and over
82,060 employees respectively. Ericsson’s
Information Security Management System
is certified to ISO/IEC 27001. For privacy,
Ericsson maintains Binding Corporate Rules
as both a data controller and a data processor.

Main risks include:
– Workforce or third-party failure to com-

ply with information security and privacy
laws, regulations and Ericsson's related
Policies and Directives.

– Threat actors targeting Ericsson’s Intel-
lectual Property and financial, customer
and personal data.

– Impact on society and on the trust that
society places in organizations that
handle information due to attacks on
infrastructure, or crimes focusing on
the theft or misuse of information or
tampering with it.

– More stringent or new stakeholder or
regulatory information security and
privacy requirements may impact
Ericsson’s business.

are reported through Ericsson’s Security
Incident Management System (SIMS), and
routed to the appropriate function for case
handling. Ericsson has an established Security
and Privacy Framework to ensure that issues
are considered throughout the entire product
lifecycle.

The Company has a set of Policies and

Directives to establish the requirements
for information security and privacy across
Ericsson. Ericsson’s Product Security frame-
work includes a mandatory area of regulation
specifically for security and privacy, which
is applicable to all products. Ericsson also
enforces a Crisis Management Directive,
and has a Group Crisis Management Council
which is responsible for the handling of major
incidents or crises that affect Ericsson.

frameworks are designed to ensure that
its products and services are more resilient

Focus areas for security & privacy

Ericsson’s capabilities

Secure products and services
Privacy and security by design

Incident management and
threat analytics

Secure
infrastructure
and processes

Responsible
handling of
personal data

Security and privacy governance
and management

– Product Security Incident Response Team

(PSIRT)

– Ericsson IT Incident Response Team

(ERICERT)

– Security operations and digital

forensics Lab

– Ericsson network security

– Global and national data protection officers

– Network of privacy advisors

Ericsson Annual Report 2018178

Sustainability – Risk management

Diversity and inclusion

Ericsson believes that diverse, inclusive teams
drive performance and innovation and create
business value.

The Company strives to be a gender-
intelligent organization that recognizes and
values the differences that everyone brings to
the workplace. In 2013 Ericsson set a global
long-term ambition to increase the number
of women in its organization. The gender
diversity ambition is to have a workforce that
is 30% female by 2020, including Executives
and leaders. Since 2013, Ericsson has worked
with annual gender-diversity plans and is
making progress but is not yet where it wants
to be. In 2018 women account for 23% of the
Company's total workforce. During the year
Ericsson saw an overall slowdown in progress
due partly to the efforts to improve profitabil-
ity, which led to a reduction of workforce and
had an impact on the number of new recruits.
Furthermore, the limited availability of female
STEM (Science, Technology, Engineering
and Mathematics) profiles continues to have
an impact. Ericsson continues to review the
Company’s job postings to ensure the use of
gender neutral language.

Governance, policies and directives
Ericsson believes that diversity goes beyond
race 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, dis-
ability, age, union membership or employee
representation, or any other characteristic
protected by local law.

A global diversity and inclusion council gov-

erned by Group Function Human Resources
is responsible for designing the Diversity and
Inclusion strategy for the Ericsson Group and
overseeing the development and implementa-
tion of people policies and initiatives.

During 2018 the Company focused on four

global awareness campaigns: International
women’s day, World day for cultural diversity,
Global diversity awareness month and Girls
in ICT day. For Girls in ICT day, Ericsson
organized the Girls who Innovate competition
on the theme of the future of education, which
attracted 300 girls with ages from 9 to 18
representing 38 countries.

Ericsson’s leadership development
programs reflect the current diversity in the
overall leadership population, with 78% men
and 22% women. The Company’s program
targeting leaders early in their career had a
diversity of 60% men and 40% women.

The Ericsson Innovation Awards 2018
targeted university students and generated
over 1,400 entries from over 100 countries
focusing on how ICT can support the future of
truth, and 30% of the mentors were female.

Main risks include:
– Ericsson’s Focused Strategy to continue
to improve profitability could impact
the number of new recruits therefore
influencing the overall diversity of
the workforce.

– Limited availability of female STEM

(Science, Technology, Engineering and
Mathematics) profiles.

– Inequalities in certain countries may

impact gender diversity.

Ericsson Annual Report 2018Sustainability – Risk management

179

aim of raising OHS awareness and engage-
ment among the Company’s employees and
suppliers.

Reporting on incidents
Ericsson encourages employees and sup-
pliers’ employees to report OHS incidents
transparently through its Global Incident
Reporting Tool (GIRT). The Company has seen
a decrease in the numbers of fatalities and
major incidents reported in 2018. Compared
with 2017, the number of fatalities reported
decreased by approximately 40% and the
number of major incidents reported decreased
by approximately 40%.

These results reflect the overall OHS
improvements undertaken by Ericsson and
its suppliers in 2018. Ericsson acknowledges
the need to continue and strengthen its efforts
in reducing OHS incidents. While no Ericsson
employees were involved in the fatal incidents
in 2018, there were 9 fatalities in our supply
chain and 5 fatalities involving members of
the public.

Main risks include:
– Failure to meet legal and customer

requirements.

– Lack of compliance to Ericsson’s occu-

pational health and safety requirements
in the supply chain.

Occupational health and safety

Ericsson is committed to providing a safe and
healthy work environment for all. The Com-
pany takes an inclusive, risk-based approach
to Occupational Health and Safety (OHS)
that covers employees, suppliers and public
affected by its operations.

Ericsson’s OHS vision is for zero major
incidents, and the Company works to adopt
industry best practices for high-risk tasks and
is confident that this will in turn promote a
sound OHS culture and prevent harm. Ericsson
is focused on creating an OHS culture based
on its core OHS values of awareness, preven-
tion and care, as defined in the Ericsson OHS
Policy which is publicly available on Ericsson’s
website www.ericsson.com.

The Company recognizes that OHS require-

ments are a fundamental aspect of its busi-
ness delivery around the globe and works to
meet legal as well as international standards
and requirements from customers.

Ericsson’s OHS Management System forms

part of the Ericsson Group Management Sys-
tem and is certified to OHSAS 18001. The OHS
Management System serves to ensure that
Ericsson’s products and services are produced
and delivered in a safe manner.

Ericsson has two Group OHS Governance
Fora in place: the Global OHS Board and the
OHS Incident Review Board. The purpose
of these Boards is to ensure and drive the
execution of OHS strategy within the busi-
ness by setting clear targets, by analyzing
incident trends to prevent reoccurrence, and
by building a strong OHS culture. Both Boards
are mirrored in Market Areas to support
implementation.

Risk management
Ericsson focuses its efforts on activities where
the Company has operations that could pres-
ent high risks to people’s health and safety.
In Ericsson’s business activities, OHS risks
are largely contained within site-services
areas and work-related driving. Road traffic

accidents, followed by working at heights and
working with electricity, accounted for most
of the fatalities and major incidents in 2018.
Consideration for the safety and wellbeing
of suppliers is of paramount importance to
Ericsson, since they are exposed to the great-
est occupational hazards carrying out installa-
tion and service work around the world.

Ericsson’s Global OHS Program focuses on
continuously improving the Company’s safety
culture by increasing OHS awareness through
consultation and training and by the imple-
mentation and enforcement of Ericsson’s Zero
Tolerance Safety Rules established in 2015.
These rules comprise seven key principles of
safety to prevent harm, and they require man-
datory compliance from anyone who works for
or on behalf of Ericsson.

A mandatory online OHS Induction course
was launched in 22 languages in 2018. Avail-
able to the workforce including suppliers, it
provides a basic knowledge of the importance
of OHS, citing typical examples of workplace
risks and the applicable risk control measures
to prevent harm.

Since driving-related hazards are deemed
to be Ericsson’s highest OHS related risk, the
Company launched an online Driver Safety
Awareness training course in 2017, and in
2018 continued with the roll-out of the Con-
nected Fleet solution which promotes driver
safety through telematic capabilities.

The Remote Site Assurance (RSA), a risk-
mitigation platform solution, was launched
in 2018. The RSA provides a live interface
with suppliers whilst they are present on site
and is designed to ensure that safety, quality
and environmental aspects are managed
appropriately prior to work commencing and
that compliance is maintained and harm is
prevented.

To reinforce a continued commitment to
OHS, Ericsson launched its first Annual Safety
day on October 10, 2018. Events and activities
were held globally during that day with the

Ericsson Annual Report 2018180

Sustainability – Risk management

Responsible sourcing

Managing the social, ethical, environmental
and human-rights impacts in Ericsson’s sup-
plier base is part of a full value chain approach
embedding corporate responsibility through-
out the supply chain. Supporting suppliers in
building their capacity to meet high standards
in all these areas is a fundamental part of the
Company’s work. In 2018 Ericsson became
member of the Responsible Business Alliance
(RBA) formerly known as Electronic Industry
Citizenship Coalition (EICC).

Sustainable management of supply chains

is of utmost importance to all the Company’s
stakeholders, including customers and
investors. In 2018 the Company focused on
deploying the Ericsson Code of Conduct (CoC)
and enhancing compliance in its supply chain
through its Responsible sourcing program.
The basis of the Responsible sourcing
program is the Ericsson CoC, which includes
a supplier supplement. Suppliers and sub-sup-
pliers are required to comply with the Ericsson
CoC. It covers four main areas: human rights,
labor standards (including occupational
health and safety), environmental manage-
ment and anti-corruption. The program
continues to support Ericsson’s responsible
business strategy by working to ensure that
suppliers comply with the Company’s require-

ments through an outsourced audit program.
The Ericsson CoC is available in 16 languages
on Ericsson’s website www.ericsson.com, and
it is a core component of supplier contracts.

In 2018, Ericsson updated the self-assess-

ment questionnaires to enhance the focus
on anti-corruption and ethical behavior (see
Supply Chain, page 30). Ericsson’s CoC audits
for suppliers are an important component
of Ericsson’s Responsible sourcing program.
These audits are carried out using a risk-based
approach to identify relevant suppliers.
Prioritized risk areas include occupational
health and safety, anti-corruption, labor rights
(including modern slavery, and specifically
working hours), environmental management,
and communication of requirements further
down the supply chain.

To perform these audits Ericsson engages

a third-party audit company. In 2018, 176
CoC audits were performed on identified
high-risk suppliers. The audited suppliers were
located in over 50 countries. The Company
addressed 98% of all suppliers in the top 90%
of supplier spend.

Ericsson views each audit as an improve-

ment opportunity and expects suppliers to
address all identified findings. Audit results
vary, but commonly identified areas of

improvement include working hours, fire
prevention, use of personal protective equip-
ment and environmental management.
Ericsson has reinforced its efforts to

strengthen its ethics and compliance
program with policies, processes and tools
for preventing, detecting and remediating
non-compliance among third-parties. The
focus of these efforts is to strengthen internal
controls and due diligence in supplier selection
and onboarding. In 2018, Ericsson’s sourcing
directive was enhanced to instruct employees
within Ericsson’s sourcing organization how
to handle suppliers that are non-compliant to
the Company’s CoC requirements.

Ericsson is using an automated anti-
corruption screening tool for suppliers and
other third-parties to help ensure that third-
parties meet Ericsson’s business integrity
requirements. All suppliers are screened on
a weekly basis globally. Alerts are monitored
and reviewed in the anti-corruption screening
process and non-compliant suppliers are
handled in accordance with the sourcing
directive.

In 2018, to ensure due diligence and
mitigate modern slavery risks within the
supply chain, Ericsson has piloted the concept
of supplier worker-voice surveys focusing on

Performance of audited suppliers 2018

Performance of audited suppliers after follow-up, per audit area, %

16%

2018
audits

75%

2018
follow-ups

86%

Conformity

Critical

Warning

Employment contracts

Discrimination and employee management

Working hours and wages

Forced and bounded labor and modern slavery

Competence management

Occupational health and safety

Accident and incident prevention

Systems for incident management

Handling of chemicals

Supply chain management

Environmental management

100

Conformity

Critical

Warning

Ericsson Annual Report 2018

Sustainability – Risk management

181

forced labor. The pilots in China and India
showed minimal risk of conditions that could
lead to forced labor. Internal awareness
sessions about modern slavery have been
conducted to increase the understanding of
how cases of modern slavery in its supply
chain could impact Ericsson’s business. The
Company aims for a safe and healthy working
environment for all. Governed by the Procure-
ment Board, the Ericsson’s Responsible sourc-
ing program emphasizes health and safety
requirements in supplier contracts to ensure
that they reflect its Global OHS requirements,
resulting in the termination of a supplier
contract if persistent violations occur.

Working together with suppliers to achieve
continuous improvement is an important part
of Ericsson’s approach. The Company offers
free online training to suppliers in four areas:
the Ericsson CoC; anti-corruption; occupa-
tional health and safety; and conflict minerals.
In 2018 the Company updated the Ericsson
CoC training to align with the updated Code
of Conduct that was published in 2017.

Raw materials sourcing due diligence
There are normally several tiers of suppliers
between Ericsson and any smelters or refiners
of minerals; even more when tracing a mineral
all the way back to the mines. As a result, the
Company does not normally have a direct
purchasing relationship with mines or smelters.
Ericsson has actively chosen not to ban any

minerals from the Democratic Republic of
the Congo (DRC) or other conflict-affected
regions. Such a ban could result in negative
consequences for responsible mining compa-
nies, their workers and the most vulnerable
groups in a society.

During 2018 Ericsson continued its efforts

to increase transparency and continued its
work with due diligence relating to the sourc-
ing of electronic and electromechanical com-
ponents, including tin, tantalum, tungsten or
gold, in accordance with the Organization for
Economic Co-operation and Development’s
Due Diligence Guidance (OECD DD Guidance)
for Responsible Mineral Supply Chains.

Ericsson acknowledges the potential risks,
including armed conflicts, human rights viola-
tions and negative environmental impacts, in
its supply chain associated with mining and
the trading of minerals.

In line with the OECD DD Guidance,
Ericsson works with suppliers to increase
transparency by identifying the origin of tin,
tantalum, tungsten and gold contained in
its products, i.e. the smelters and refiners in
its supply chain. In 2018, as a member of the
Responsible Mineral Initiative (previously
the Conflict-Free Sourcing Initiative), the
Company has supported the system for
cert ification of smelters and refiners, which is
known as the Responsible Minerals Assurance
Process (RMAP).

Ericsson recognizes that there are other
geographies and other raw materials that may
pose potential human rights violations and
environmental impact risks in addition to tin,
tantalum, tungsten and gold.

For example, Ericsson has investigated the

use of cobalt in the batteries that the Com-
pany purchases and has questioned suppliers
about their due diligence. The Company’s
Conflict Minerals Reports prepared under
the US Dodd-Frank Act are available on the
Company’s website, www.ericsson.com

Main risks include:
– Workforce or third-party failure to com-
ply with the Ericsson Code of Conduct.
– Change or new regulatory requirements
could adversely affect the sourcing,
availability and pricing of materials used
in the manufacture of products.
– Inability to sufficiently verify the

origins for conflict minerals contained
in Ericsson’s products through the due
diligence procedures, which may result
in harm of reputation.

– Potential armed conflicts, human rights
violations and negative environmental
impacts in Ericsson’s supply chain.

Responsible Minerals Assurance Process (RMAP) conformant smelters and refiners 1)

Gold
Tantalum
Tin
Tungsten

Total no. of smelters

1) Based on suppliers response by 2019/01/31

Smelters
identified in
the supply chain

Smelters
conformant
to RMAP

Smelters
conformant
to RMAP (%)

112
40
79
42

273

101
40
73
41

255

90%
100%
92%
98%

98%

Ericsson Annual Report 2018182

Sustainability – Risk management

Radio waves and health

In all mobile networks, connected devices
communicate with base stations using
radiofrequency electromagnetic fields (EMF),
also known as radio waves. The adoption of
mobile telephony since the 1990s has created
some public concern that the radio waves from
mobile phones and base stations may cause
adverse health effects. Expert groups and
public health authorities, including the World
Health Organization (WHO, fact sheets 193
and 304), have reviewed available scientific
studies and have concluded that the balance
of evidence does not demonstrate any health
effects associated with radio wave exposure
from either mobile phones or radio base sta-
tions complying with international limits.

Most national authorities have adopted
international science-based safety guidelines
specifying radio wave exposure limits. These
limits have been set by the International Com-
mission on Non-Ionizing Radiation Protection
(ICNIRP) and include wide margins to provide
protection from established adverse effects
on health.

Governance, policies and directives
Ericsson Research, the Company research
organization within Group Function Technol-
ogy, is accountable for the EMF and Health
area. All Ericsson’s radio products are tested
in Ericsson Research’s EMF Laboratory for
compliance with relevant EMF regulations
and standards before they are delivered to
the market. The EMF Laboratory complies
with the international standard ISO/IEC
17025 that specifies general requirements
for the competence of testing and calibration
laboratories, and it is accredited by the Swed-
ish accreditation authority SWEDAC.

In order to maintain confidence and integ-

rity in tests and results, the EMF Laboratory
is independent of other parts of the Company
and the Head of the EMF Laboratory reports

directly to the Head of Ericsson Research. This
complies with the requirements for impartial-
ity and independence in ISO/IEC 17025.
In accordance with Ericsson’s Electromagnetic
Fields and Health Policy, Ericsson tests radio
products with the goal of ensuring that radio
wave exposure levels from products and net-
work solutions are below established safety
limits. The Company also provides information
on radio waves and health to customers, the
public, and other stakeholders, and supports
research to further increase the knowledge in
this area.

Risk management
The EMF exposure levels from base stations in
places where people normally reside are typi-
cally less than a percent of international limits,
since the intensity of radio waves drops quickly
with distance from the antenna. Near a base
station antenna, the EMF exposure limits may
however be reached, therefore the antennas
are installed in such a way that unauthorized
people do not have access to this area.

The safety of Ericsson employees, custom-
ers and suppliers when testing, installing and
maintaining the radio products is important to
the Company. Ericsson provides information
about compliance distances, and other occu-
pational health and safety information related
to EMF, with its base station products.

An internal standard is also available
that describes the minimum requirements
for working in areas where exposure to EMF
may occur during work on behalf of Ericsson
to ensure that the health and safety aspects
are properly managed.

Annual performance and highlights
Since 1996, Ericsson has co-sponsored over
100 independent studies on electromagnetic
fields and health, primarily through the Mobile
& Wireless Forum (MWF). To ensure scientific

independence, firewalls were in place between
the industrial sponsors and the researchers
and all results were made available by publi-
cation in the open scientific literature. In 2018
the MWF published a summary of the EMF
and health research that has been funded
since 1998, available on www.ericsson.com.
Ericsson develops products and solutions
for the fifth generation (5G) mobile communi-
cation networks and designs and tests the 5G
products for compliance with established radio
wave exposure limits. Ericsson is involved
in the development of technical standards
for testing and installation of 5G products to
ensure that there are no EMF related health
effects for the general public and workers.
Ericsson Research has contributed to
the International Electrotechnical Commis-
sion (IEC TR 62669) and the International
Telecommunications Union (ITU-T K-series
Supplement 16) reports published in 2018
on how to assess compliance with EMF limits
for 5G base station products and sites.

Main risks include:
– Perceived health risks related to radio
frequency electromagnetic fields may
increase regulatory requirements and
cause infrastructure deployment delays.
– Perceived risk or new scientific findings of
adverse health effects from mobile com-
munication devices and equipment could
impact the Company through a reduction
in sales or through liability claims.

Ericsson Annual Report 2018i

a
y
h
s
e
d
a
B
y
a
n
V

Sustainability – Risk management

183

Two Ericsson MINI-LINK 6366, 0.6m antennas (two directions), PSI solution installed in India.

Climate action, energy and environment

Circular economy

Proactive management of topics relating to
climate action, energy and environment is a
core component of Ericsson’s strategy. Based
on Life-Cycle Assessments (LCA), the Com-
pany focuses on a circular economy approach
where the energy efficiency of its products,
sustainable materials management, reuse
and recycling are key areas of importance.
Ericsson continuously strives to improve the
environmental performance of its products,

to minimize the negative impacts of its own
operations and to contribute to societal
environmental benefits resulting from the
implementation of its technology.

Ericsson is committed to working together

with other companies, governments and
international organizations to combat climate
change. This includes the Company’s support
for the Paris Climate Agreement of 2016.

Materials

Supply

Design

Use

Reuse/
Recycle

Take back

Climate action

Ericsson’s environmental strategies are
science-based. With LCA as the foundation,
Ericsson performs research on the footprints
of products, operations and the overall
Information and Communication Technology
(ICT) sector, as well as on positive impacts
on society. To provide a basis for relevant and
impactful climate-actions priorities, Ericsson
is focusing its research mainly on greenhouse-
gas emissions. For over two decades the
Company has engaged with universities,
and its research results are published in
peer-reviewed articles in scientific journals
and at conferences. Ericsson is engaged in
standardization work around environmental
assessment methods for the ICT sector with
institutions such as the International Telecom-
munication Union (ITU), to ensure accurate
results and sound methodologies.

ICT sector carbon footprint
In 2018 Ericsson and Telia Company pub-
lished an extensive study1) performed on the

carbon and energy footprints of the global ICT
sector. The study included measured data from
network operations covering 40% of global
mobile subscriptions. The carbon footprint
of the sector, including end-user equipment,
data centers and network infrastructure,
corresponds to 1.4% of global emissions1).
According to Ericsson Research, the ICT sector
has great potential to enable greenhouse-gas
emission reductions of 15% in other sectors by
20302). New technologies, such as digitaliza-
tion and 5G, will be fundamental means for
industries, cities and countries to exponentially
reduce their carbon footprints to achieve the
targets in the Paris Agreement.

The Exponential Climate Action Roadmap
In 2018 Ericsson engaged in the development
of the Exponential Climate Action Roadmap.
The report was developed by researchers and
experts from several leading organizations
and was launched at the Global Climate
Action Summit. It shows that technology and

solutions are available to halve the world’s
overall carbon emissions by 2030 and that
ICT solutions can enable a third of this reduc-
tion. This trajectory is in line with the recent
Intergovernmental Panel on Climate Change
(IPCC) 1.5 degrees Report and the Global
Carbon Law, which shows that global emis-
sions must be halved every decade between
now and 2050.

The Step Up Declaration
In 2018 Ericsson joined the Step Up Declara-
tion to further emphasize its commitment
to climate action. The commitment includes
Ericsson’s Science Based targets for 2022, the
purchase of renewable energy when available,
to enable more ambitious trajectories through
research and standardization engagements,
and to contribute to climate action related
projects.

1) The Energy and Carbon Footprint of the Global ICT and E&M

Sectors 2010–2015.

2) Exploring the effect of ICT solutions on GHG emissions in 2030.

Ericsson Annual Report 2018
184

Sustainability – Risk management

Ericsson’s carbon footprint

Ericsson life-cycle assessment –
carbon footprint 2018

Mtonnes CO2e
35

˜32

Ericsson was one of the corporate pioneers
in implementing life-cycle assessment meth-
odology as an environmental strategy tool.
The Company assesses annually its carbon
footprint and has set targets for its reduction
that are approved by the Science Based Tar-
gets Initiative. Ericsson’s continued research
shows that energy consumption during the
use phase remains a major contributor to the
carbon footprint of ICT. The Ericsson life-cycle
assessment – carbon footprint 2018 shows
that products in operation account for two
thirds of the CO2e emissions.

Ericsson’s own activities

-5

˜ 3

0.58

˜5

˜ –0.4

Activities in 2018
Supply chain
Ericsson's
own activities

Future (lifetime) operation
of products delivered in 2018

Operator activities
Products in operation
End-of-life treatment

~ Approximately

Main risks include:
– Difficulty to estimate the future impact of

climate change and environmental matters.

– Adverse future events, such as extreme

weather conditions.

– New or changes in stakeholders or regula-

tory environmental requirements related to
Ericsson's own activities and to product energy
consumption.

Ericsson strives for continuous improvement
of energy used in its own activities to minimize
negative environmental and climate impact.
As an approved Science Based Target, the
Company is aiming for a 35% carbon footprint
reduction from its own activities from 2016
to 2022.

In absolute terms the Company achieved

in 2018 approximately 47 Ktonnes reduc-
tion compared to baseline representing 8%
reduction. The total CO2e emissions from
the Ericsson's own activities resulted in an
increase of 7% year on year due to the impact
of product transportation.

Ericsson manages direct and indirect environ-
mental impact from its own activities, focusing
on its carbon footprint in the areas below, to:
– Reduce energy usage in facilities (direct)
– Improve fleet vehicle management (direct)
– Shift transport of products from air to

surface (indirect)

– Manage business travel (indirect)

Facility energy
The overall reduction in CO2e emissions for
facility energy (offices, production sites, data
centers and test labs) within the Real Estate
portfolio in 2018 was 15%. Ericsson buys
renewable energy in countries where it is
available. The ratio of renewable energy of the
Real Estate portfolio has increased to 54%.

Ericsson’s own activities 1), Carbon footprint target

Ktonnes

600

500

400

300

200

100

560

481

513

364

Baseline

2016

2017

2018

2019

2020

2021

2022

Carbon footprint absolute emission, Ktonnes
Ericsson’s own activities’ carbon footprint reduction ambition

1) Ericsson’s own activities including facility energy use, fleet vehicles, business travel,

and product transportation (excluding commuting)

Smart Office concept has been expanded
to 11 locations representing 2% of Ericsson's
facilities. This concept, which is based on the
Internet of Things, aims to improve employee
experience in the workplace, for example, by
optimizing air quality and temperature.

Fleet vehicles
In 2018 the CO2e emissions related to fleet
vehicles decreased by approximately 16
Ktonnes. Ericsson’s goal is to continue to
reduce CO2e emissions per kilometer by using
vehicles more efficiently, for example, by
implementing telematics and trialing alter-
native fuels.

Product transportation
Ericsson faced a component shortage during
2018 which resulted in an increased share of
airfreight to meet delivery commitments. The
CO2e emissions for product transportation was
approximately 85 Ktonnes higher than 2017.
The Company continued to implement its
Transportation Management System (TMS),
which is designed to enhance the consolida-
tion, control and planning of transport with the
aim to reduce the environmental impact.

Business travel
Virtual meetings and restrictions on travel
have resulted in a 11% reduction in CO2e
emissions from business travel.

Ericsson Annual Report 2018Sustainability – Risk management

185

Product energy performance

Each new mobile network generation has
entailed a rise in energy consumption even if
the overall Information and Communication
Technology (ICT) and Entertainment and
Media (E&M) carbon footprint is shrinking. For
5G, the next mobile generation, energy-effi-
ciency enablers have a prominent focus in the
standard. The transition to 5G has a huge
potential not only to develop energy-efficient
solutions for mobile networks, but also to help
different sectors of society to reduce their envi-
ronmental impact. As mobile networks expand
and network traffic rises, growth is being mana-
ged so as to achieve better energy performance.
In mobile systems the radio access network

(RAN) consumes the most energy. Over the
years Ericsson has developed increasingly
energy-efficient solutions, shifting from single-
standard products to multi-standard solutions
contributing to significant energy savings,
including improved energy performance in
the 5G-ready Ericsson Radio System (ERS).
The Company works in a systematic way that
addresses the energy performance of the
whole network including hardware, software
and site dimensions.

Driving 5G energy performance
The Ericsson target is that by 2022 the 5G
pro duct portfolio shall be ten times more
energy-efficient (for the same transferred data)
than the current 4G portfolio (baseline 2017)
for an enhanced mobile broadband (eMBB)
use case. During 2018 Ericsson has developed

Breaking the energy curve

and released its first 5G products for mid-band
and millimeter-wave spectrum bands, where
further energy-performance im provements
and optimizations were identified.

By upgrading software it is possible to
increase network capability on the existing
hardware. In 2018, the Ericsson Spectrum
Sharing software was presented. The software
solution offers simultaneous and dynamic
support of 4G and 5G within the same
spect rum band. Through a remote software
installation on ERS radios the new functional-
ity enables operators to deliver nationwide 5G
coverage flexibly without adding new energy-
consuming hardware.

Making room for 5G
The Ericsson Radio System (ERS) portion of
the sales mix has continued to increase. As a
part of the Company's Science Based Target,
Ericsson commits to a 35% energy saving
in ERS versus the legacy portfolio by 2022
(baseline: RBS 6000, 2016 portfolio). In 2018,
Ericsson achieved a 33% energy saving
from delivered ERS radios versus the legacy
portfolio.

Through this change of sales mix, more
customers can benefit from the improvements
in energy efficiency. In one case study, old
equipment was replaced by 5G-ready ERS,
resulting in improved throughput of speed
and data as well as a reduction of up to 30%
in energy consumption.

Enabling use of renewable energy sources
Operators in countries with unreliable electric-
ity grids tend to rely on non-sustainable diesel
generators at many sites. Ericsson is commit-
ted to helping customers find economically
viable alternative energy solutions and has
set a target to make this achievable in 25% of
the total installed base by 2020. Ericsson has
a complete portfolio of solutions to address
these challenges.

In 2018 Ericsson has trialed and released
a triple-band site, using the ERS portfolio, that
consumes only 1 kW at site level. The solution
supports 2G, 3G, 4G, NB-IoT and, with a future
software upgrade, 5G. By using the Ericsson
Site Controller to align the solar power supply
with traffic patterns, site availability is maxi-
mized, battery lifetime is prolonged and the
number of solar panels is reduced. This helps
reduce the key cost-drivers for solar power,
making it an economically viable alternative to
diesel on more sites.

Ericsson has also joined forces with Vertiv
and NorthStar to form the Ericsson Energy Alli-
ance, a partnership to offer telecom operators
cost-effective and sustainable site solutions
towards 5G. The partnership includes equip-
ment within the Ericsson Radio Site System,
to reduce energy consumption, renewable and
hybrid energy solutions, and remote energy
management.

Business as usual
Re-think energy performance

Time

Ericsson Annual Report 2018186

Sustainability – Risk management

Efficient use of raw materials

For Ericsson, the efficient and sustainable use
of materials is based on a circular-economy
approach that includes responsible materi-
als selection, effective reuse and efficient
recycling. The work is based on more than 20
years of life-cycle assessments (LCA) cover-
ing data on raw material extraction, design,
manufacturing, transport, use of products
and end-of-life management.

The selection and use of materials is an
important aspect to consider. It involves both
risks (such as unwanted substance content)
and opportunities (such as innovative materi-
als that affect energy performance positively).
As a company that purchases electronic and
other components for the manufacturing of its
products, Ericsson acknowledges the potential
risks associated with resource exploitation
such as mining of minerals and risks of pol-
lution. Regulations related to the content of
substances in products are increasing world-
wide. Furthermore, waste from electrical and
electronic equipment (e-waste) 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
and design-requirements for recyclability,
reuse and recovery.

Materials footprint for ICT
Few attempts have been made in the past to
understand the overall materials footprint of
the Information and Communication Tech-
nology (ICT) sector. From a science-based
approach, Ericsson Research has made a
peer-reviewed study which was presented
at the 5th International Conference for ICT4S
in May 2018. The study estimated the mate-
rial footprints of the ICT and Entertainment
and Media (E&M) sectors, based on the full
life-cycle of products. Four different perspec-
tives were explored: the amount of materials
used, the carbon footprint of the materials
treatment, materials resource depletion, and
toxicity of materials.

The results show that, by weight, the sec-
tors represent only about 0.5% of the global
annual usage of sector-relevant materials.
However, for some materials such as indium,
gallium and germanium, the ICT and E&M
sectors represent as much as 80–90% of
the overall usage. While 0.5% of the usage
is a very small amount, toxicity and resource-
depletion results shows that the ICT and E&M
sectors have a more substantial impact than
their share of materials indicates.

Efficient use of raw materials
Environmentally conscious design has been an
integrated part of the Ericsson product devel-
opment process for twenty years to ensure
that requirements from regulators, standards
and customers are implemented. To secure
compliance and enable substance phase-out,
Ericsson collects material declarations from its
component suppliers. Aspects such as product
durability, upgradability, reparability, service-
ability and recyclability are an integrated part
of the Ericsson product-design and life-cycle
management processes. Software installa-
tions are done remotely. For example, Ericsson
Radio System radio units delivered since 2015
can be remotely upgraded to 5G functional-
ity without the addition of new hardware.
During 2018 Ericsson has changed to a new
cooling agent with more than 200 times
lower Global Warming Potential (GWP) for its
outdoor products. As part of Ericsson’s circular
approach, the company is working with reuse
of components and product parts.

Producer responsibility
Minimizing waste is a key factor in a circular
economy context. Ericsson is investigating
the possible impact on its operations resulting
from increased reuse, refurbishment and
remanufacture of equipment from different
sources.

Through the Product Take Back Program

offered since 2005, the Company takes an
extended global-producer responsibility for

products not possible to reuse. The program
collects, transports and treats electronic waste
(e waste) with strict requirements on the con-
tracted recyclers to handle the waste accord-
ing to high environmental standards. Ericsson
audits recycling partners yearly and they are
certified according to relevant standards.

When end-of-life equipment is collected
through our take-back program, we secure
data-wiping, compliance with relevant
legislation and the delivery of a certificate of
destruction to our customer in order to secure
and fulfil any privacy and data-protection
requirements.

For 2018 the total weight of retrieved

equipment was over 5,000 metric tons,
which was lower than for 2017 and below
the expected collection of 10,155 metric
tons for 2018. As equipment is the property
of the customer, the take-back depends on
customer management of used equipment.
By improving standards and handling of used
equipment, the risk of privacy breaches due to
poor data-wiping and the uncontrolled recy-
cling operations that causes environmental
harm can be minimized or avoided. This trend
is further enhanced by the drive for a more
circular approach in the industry.

Main risks include:
– Materials scarcity and regulatory require-
ments may impact supplier ability to
deliver components.

– Ericsson products not entering our

Product take-back Program may end
up in poorly managed waste treatment.

Ericsson Annual Report 2018Sustainability – Risk management

187

Venezuelan immigrants and refugees attending a Digital Inclusion Class at the Technology for Good Lab @ Roraima (Federal University of Roraima), Brazil in 2018.

Internet for all

Ericsson is committed to deploying solutions
and advocates to improve mobile broadband
affordability and accessibility to all. Deploy-
ment of mobile broadband networks supports
economic development and, with that founda-
tion of internet access, enables the delivery
of digital services to meet a wide range of
societal needs, including education, health,
entrepreneurship and humanitarian response.

The role of mobile broadband
in development
Globally, the total number of active mobile
broadband subscriptions is expected to
reach 4.4 billion by the end of 2018. Despite
the rapid proliferation of mobile coverage,
approximately 50% of the world’s population
does not have internet access and concerns
continue to emerge about new and growing
digital inequalities.

It is forecast that an additional 2.3 billion
subscribers will have mobile broadband inter-
net access by 2024 (Ericsson Mobility Report
from November 2018). However, to bring the
power of Information and Communications

Technology (ICT) to all nations, all people
and all segments of society, multi-stakeholder
efforts must be pursued.

There is now clear evidence that mobile
broadband penetration contributes to GDP
growth. As part of Ericsson’s efforts to better
understand the economic impact of mobile
communication, the company has been
running a joint research project with Imperial
College in London for the past two years. The
results show that, on average, a 10% increase
in the mobile broadband adoption ratio causes
a 0.8% increase in GDP. The researchers found
that there is both a positive association when
mobile broadband is first introduced and
a longer-run effect as it gradually diffuses
throughout different economies. The results
also show that the effect of mobile broadband
is considerably larger and more significant in
low-income and non-OECD countries than in
high-income and OECD countries.

Partnership for progress
Partnership are at the heart of the Sustainable
Development Goals, and public-private part-

nerships play a key role in Ericsson’s approach
to sustainability. The Company takes a proac-
tive leadership role in a number of high-level
forums and collaborates with a wide range of
stakeholders to scale the impact of its sustain-
ability efforts.

Through the company’s work in the
Broadband Commission for Sustainable
Development, the World Economic Forum, the
Alliance for Affordable Internet and the Smart
Africa Alliance, Ericsson aims to ensure that
the benefits of the internet, which underpin
achievement of the Sustainable Development
Goals, are affordable and accessible to all. In
these forums Ericsson advocates efforts and
progress towards connecting the unconnected
and exploring multi-stakeholder business
initiatives to bridge the digital divide. Ericsson
is also engaged in capacity development with
partners like the Swedish International Devel-
opment Cooperation Agency, the Swedish
Post and Telecom Authority, and Spider.

Board of Directors

Stockholm, February 26, 2019

Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680

Ericsson Annual Report 2018188

Sustainability – Consolidated sustainability statements and notes

Consolidated sustainability statements and notes

S1 Reported compliance concerns

S4 Diversity

Compliance concerns reported to Audit and Compliance Committee, most of
them received via Ericsson compliance line but also via certain other channels
(excluding unrelated spam e-mails).

The category of reported compliance concerns is determined based on the

most significant impact identified by Corporate investigation team. Catego-
rization may be modified during an investigation as additional information
related to the initial allegations is obtained.

Employee diversity – female representation

Overall workforce
Line manager
Executive Team
Board of Directors

2018

2017

2016

2015

2014

23
20
27
23

25
20
31
48

23
20
35
40

22
18
31
36

22
19
29
30

Reported compliance concerns (by category)

Fraud, corruption and
regulatory breach (%)
Security (%)
Operations (%)
Human resources (%)
Conflicts of interest (%)
Sustainability (%)
Miscellaneous (%)

Total (No.)

2018

2017

2016

2015

2014

29
2
8
24
12
0
23

26
3
11
35
11
0
14

29
1
11
49
10
0
0

16
10
9
54
9
1
1

445

412

145

116

18
16
14
41
11
0
0

S2 Sensitive business

Cases reviewed in the sensitive business process

Cases approved
Cases approved with
conditions
Cases rejected

Total

2018

362

199
26

587

2017

593

210
43

846

2016

350

209
45

604

2015

312

98
28

438

2014

214

85
20

319

S3 Information security and privacy

S5 Occupational health and safety

Number of occupational health and safety fatalities and major incidents
reported via Ericsson Global Incident Reporting Tool (GIRT).

Ericsson suppliers are to report occupational health and safety incidents
that occur during the operations on behalf Ericsson, according to binding OHS
requirements via GIRT.

Fatalities (by Market Area)

Ericsson employees

South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa

Total

Supply chain and public

South East Asia, Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa

2018

2017

2016

2015

2014

0
0
0
0
0

1
0
0
0
0

2018

2017

2016

2015

2014

2
1
0
3
8

6
1
0
6
10

6
2
0
6
3

4
0
0
4
19

7
0
2
6
6

Number of information security and privacy incidents reported through
Security Incidents Management System (SIMS).

Total

Cases reported via SIMS1)

Critical
Major
Medium
Minor

Total

2018

8
51
887
2,366

3,312

2017

5
54
963
2,213

3,235

1) Excluding both canceled and unrelated incidents reported.
2) Only information security incidents reported through SIMS.

20162)

20152)

2014

Ericsson employees, supply chain and public

Major incidents (by Market Area)

18
82
852
1,573

2,525

1
91
1,120
1,612

2,824

-
-
-
-

South East Asia Oceania and India
North East Asia
North America
Europe and Latin America
Middle East and Africa

Total

2018

2017

2016

2015

2014

24
3
5
91
6

129

24
19
4
147
19

213

33
19
4
115
15

186

15
8
2
94
49

168

17
0
4
37
11

Ericsson Annual Report 2018Sustainability – Consolidated sustainability statements and notes

189

S6 Environmental aspects

S8 Green House Gas Emissions (CO2e)

Ericsson uses Life-Cycle Assessment (LCA) as input to identify significant
environmental aspects and follows ISO 14040 and ISO 14044 standards for
LCA.

Ericsson measures CO2e in all Scope categories (1, 2 and 3). Additionally, the
Company submits its performance to CDP's signatory investors.

Energy consumption (facilities’ energy use) (GWh)

Ericsson own activities (direct and indirect) (Ktonne)

Electricity

Of which renewable

District heating
Other energy
Total

2018

2017

2016

2015

2014

634
335
33
49
716

704
357
33
45
782

788
351
34
60
882

759
331
30
81
870

761
288
36
89
886

Energy intensity (GWh/SEK Billion)

Total

2018

3.4

2017

3.9

2016

4.0

2015

3.5

2014

3.9

Business travel (Mpkm)

Air travel
Road travel
Fleet vehicles
Commuting
Total

2018

800
57
260
370
1,487

2017

928
55
351
415
1,749

2016

1,134
71
377
440
2,022

2015

1,177
91
386
448
2,102

2014

1,392
113
411
438
2,354

Product transportation (Mtonnekm)

Air transport
Road transport
Sea transport
Rail transport
Total

2018

2017

2016

2015

2014

295
235
296
1
827

161
288
212
1
662

178
304
370
5
857

231
232
296
9
768

274
280
276
6
836

Total

Direct (Ktonne)

Facilities’ energy use (S1)
Fleet vehicles (S1)
Facilities’ energy use (S2)

Total

Indirect (Ktonne)

Business travel (S3)

Product transport (S3)
Commuting (S3)

Total

Other indirect (Mtonne)

Use of sold products.
Products in operation (S3)

Total

2018

575

2017

550

2016

633

2015

675

2014

766

2018

2017

2016

2015

2014

11
43
134

188

14
59 3)

156

229

14
61
185

260

18
64
183

266

20
68
210

298

2018

2017

2016

2015

2014

110

215
61

386

123
129 3)
69

320

154

146
73

373

163

172
75

410

193

204
73

470

2018

2017

2016

2015

2014

S1, S2 and S3 stand for GHG Protocol Scope 1, Scope 2 and Scope 3.

CO2e is the amount of a particular greenhouse gas, expressed as the amount
of carbon dioxide that gives the same greenhouse effect.

S7 Environmental impacts

Emission factors used in the consolidation

Aspect

Emission factor

Source

Office and production sites waste management (Tonne)

Recycling
Energy
Landfill
Hazardous

Total

2018

3,510
2,861
3,830
16

2017

4,465
2,943
4,331
16

2016

5,060
3,990
4,590
25

2015

6,180
3,610
4,680
24

2014

8,180
5,080
4,580
49

10,217

11,755

13,670

14,490

18,100

Air travel

0.12 kgCO2/pkm

Product take-back (including batteries) and end-of-life treatment

Car travel

0.16 kgCO2/pkm

Re-use (%)
Recycling (%)
Energy (%)
Landfill (%)

Total (Tonne)

2018

2017

2016

2015

2014

0
93
5
1

0
94
5
1

0
93
5
2

0
95
3
2

0
96
2
2

8,380

12,252

14,009

16,446

16,440

Water consumption (Mm3)

Total

2018

1.6

2017

1.8

2016

2.7

2015

2.5

2014

2.3

Country specific
0.0007 kgCO2/kWh

Electricity
Electricity,
Sweden
Green electricity 0.0010 kgCO2/kWh
District heating,
other regions
District heating,
Sweden

0.10 kg CO2/kWh

0.22 kgCO2/kWh

Air transport
Road transport

0.65 kgCO2/tonnekm
0.08 kgCO2/tonnekm

International Energy Agency (IEA)
“Bra miljöval” (Good Environmental
Choice)

Chalmers Industrial Technology Average.

Chalmers Industrial Technology/
“Boverket” (Swedish Building Adm.)

GHG protocol for long/medium air travel.
DEFRA GHG indicators for long air travel.
“Vägverket” (average car in the EU)
(Vägverket = Swedish Road Adm.)

Ericsson Research investigation.
GHG protocol, average Swedish road
transport according to Swedish Road
and Transport Research Institute.

Sea transport

0.017 kgCO2/tonnekm Average of Maersk Line and Ericsson typi-

Rail transport

0.03 kgCO2/tonnekm

3) Nominal discrepancies with previous reporting.

cal TEU (Twenty foot container eq. unit).
Defra/DECC’s GHG Conversion Factors
for Company Reporting Guidelines.

Ericsson Annual Report 2018190

Sustainability – Auditors’ limited assurance report

Auditor’s Assurance Report on the Sustainability and Corporate Responsibility 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 (publ) (“Ericsson”) to undertake an assurance engagement of the
Sustainability and Corporate Responsibility Report 2018, which also constitutes Ericsson’s statutory sustainability report.

Responsibilities of the Board and Management
The Board of Directors and Executive Management are responsible for the preparation of the Sustainability and Corporate
Responsibility Report, including the statutory sustainability report, in accordance with the applicable criteria, and the Annual
Accounts Act. The criteria presented on page 165, consist of the GRI Sustainability Reporting Standards, and the accounting
and calculation principles that the Company has developed. This responsibility includes the internal control relevant to the
preparation of a sustainability report that is free from material misstatement, whether due to fraud or error.

Responsibilities of the auditor
Our responsibility is to express a conclusion on the Sustainability and Corporate Responsibility Report based on the procedures
we have performed, and to provide a statement on the statutory sustainability report.

We conducted our engagement in accordance with ISAE3000 Assurance Engagements Other than Audits or Reviews of
Historical Financial Information, as well as AA1000AS (2018) issued by AccountAbility (type 2 engagement). We conducted
our examination of the statutory sustainability report in accordance with RevR 12, Auditor’s report on the statutory sustain-
ability report, issued by FAR. The assurance engagement includes limited assurance on the complete Sustainability and Cor-
porate Responsibility Report, and an audit of CO2 emissions data regarding Ericsson’s own activities on pages 184 and 189.
The objective of an audit is to obtain reasonable assurance that the information is free of material misstatements. A
reasonable assurance engagement includes examining, on a test basis, evidence supporting the selected information in the
Sustainability and Corporate Responsibility Report. A limited assurance engagement consists of making inquiries, primarily of
persons responsible for the preparation of the Sustainability and Corporate Responsibility Report, and applying analytical and
other limited assurance procedures.

The procedures performed in a limited assurance engagement and an examination according to RevR 12 are different and
substantially less in scope than an audit in accordance with International Standards on Auditing and other generally accepted
auditing standards in Sweden. Consequently, the conclusion based on our limited assurance and RevR 12 examination
procedures does not comprise the same level of assurance as the conclusion of our reasonable assurance procedures. Since this
is a combined assurance engagement, we present our conclusions regarding the reasonable assurance, limited assurance and
examination procedures according to RevR12, separately below.

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. In accordance with AA1000AS (2018), we confirm
that we are independent of Ericsson. Our assurance engagement has been performed by a multidisciplinary team specialized
in reviewing economic, environmental and social issues in sustainability reports, and with experience from the Information and
Communication Technology (ICT) sector.

We based our procedures on the applicable criteria defined by the Board of Directors and the Executive Management, as

described above. We consider these criteria suitable for the preparation of the Sustainability and Corporate Responsibility
Report.

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 and Corporate Responsibility Report is not prepared, in all material respects, in accordance with the
applicable criteria, including adherence to the AA1000AP (2018) principles inclusivity, materiality, responsiveness, and impact.
In our opinion, the selected information in the Sustainability and Corporate Responsibility Report, which has been subject to

our reasonable assurance procedures, has in all material respects, been prepared in accordance with the applicable criteria.

A statutory sustainability report has been prepared.

Ericsson Annual Report 2018Sustainability – Auditors’ limited assurance report

191

Other information
The following is other information that has not affected our conclusion above. According to AA1000AS (2018), we have
included observations and recommendations for improvements in relation to adherence to the AA1000AP (2018) principles:

Regarding inclusivity
We consider Ericsson to be committed to an inclusive approach in relation to key stakeholders, with appropriate competencies
and processes in place for systematic group-level stakeholder engagement. We have seen that Ericsson seeks to understand
and respond to stakeholder expectations, initiating collaboration on significant sustainability and corporate responsibility
issues. We have no specific recommendations regarding inclusivity.

Regarding materiality
We recognize that Ericsson since several years has a systematic process in place for carrying out assessments of material sus-
tainability and corporate responsibility topics at group level. In 2018, Ericsson extended this approach to the business areas,
providing additional input to the assessment of material topics, and improving engagement on these topics in the company.
Going forward, we encourage Ericsson to strengthen the materiality process further by also including market area input.

Regarding responsiveness
We appreciate that Ericsson is attentive to stakeholder concerns, and works systematically in responding to stakeholder input.
Responsiveness to stakeholder concerns can be seen for instance in how Ericsson addresses the issue of radio waves and
health in the Sustainability and Corporate Responsibility Report, which is perceived as a health risk by certain stakeholders.
We have no specific recommendations regarding responsiveness.

Regarding impact
We recognize that Ericsson has a clear ambition to maximize positive impacts and minimize negative impacts of business
operations, products and services. We note that Ericsson performs various kinds of environmental and social impact assess-
ments when launching new products or entering new markets, and the 2018 Sustainability and Corporate Responsibility
Report highlights impacts in Ericsson’s own operations and the supply chain. We encourage Ericsson to keep developing
appropriate impact reporting metrics, and to document these reporting processes.

Stockholm, February 26, 2019

PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorized Public Accountant

Fredrik Ljungdahl
Sustainability Assurance
Specialist Member of FAR

Ericsson Annual Report 2018

192

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.

The Ericsson share

Share/ADS listings

Nasdaq Stockholm
NASDAQ New York

In 2018, approximately 2.3 (3.1) billion shares were traded on Nasdaq Stockholm
and approximately 1.4 (1.2) billion ADS were traded in the United States (incl. NASDAQ
New York). A total of 3.8 (4.3) billion Ericsson shares were thus traded on the exchanges
in Stockholm and in the United States. Trading volume in Ericsson shares decreased by
approximately 24% on Nasdaq Stockholm
and increased by approximately 18% in the
United States compared to 2017.

Share trading on different
market places (class B shares)

Shares traded, billions

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

2014

2015

2016

2017

2018

With the implementation of the Mifid

directive in the EU, share trading has become
increasingly fragmented across a number
of venues and trading categories. Trading
on MTFs (multilateral trading facilities) and
other venues has gained market shares from
stock exchanges like Nasdaq Stockholm.
Trading in Stockholm represented 36%
of total trading in 2018. Total trading in
Ericsson B on all venues combined has
increased over the past five years from
5.5 billion shares in 2014 to 6.4 billion shares
in 2018. Over the same period, trading of
Ericsson ADS in the US has increased from
1.0 billion shares in 2014 to 1.4 billion shares
in 2018.

Cboe BXE/CXE
Stockholm
London

Turquoise
BOAT
Other

Changes in number of shares and capital stock 2014–2018

2014
2015
2016
2016
2017
2017
2018

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
December 31

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, 2018
ICB (Industry Classification Benchmark)

1) Both classes of shares have the same rights of participation

in the net assets and earnings.

3,334,151,735

261,755,983

3,072,395,752
37,057,039
SEK 5.00
SEK 260 billion
9,500

Ticker codes

Nasdaq Stockholm
NASDAQ New York
Bloomberg Nasdaq Stockholm
Bloomberg Nasdaq
Reuters Nasdaq Stockholm
Reuters Nasdaq

ERIC A/ERIC B
ERIC
ERICA SS/ERICB SS
ERIC US
ERICa.ST/ERICb.ST
ERIC.O

Number of shares

Share capital (SEK)

3,305,051,735
3,305,051,735
26,100,000
3,331,151,735
3,000,000
3,334,151,735
3,334,151,735

16,525,258,678
16,525,258,678
130,500,000
16,655,758,678
15,000,000
16,670,758,678
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, 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

2018

–1.98

0.27
1.00
47
n/a

20174)

–9.94

–3.24
1.00
3
n/a

20164)

0.25

2.39
1.00
–32
101

2015

4.13

6.06
3.70
–9
20

2014

3.54

4.80
3.40
24
26

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 198–201.

3) For 2018 as proposed by the Board of Directors.
4) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers”, for more information see Note A3, “changes in accounting policies.”

Year 2015-2014 have not been restated.

For definitions of the financial terms used, see Glossary and Financial Terminology.

Ericsson Annual Report 2018Share information – The Ericsson share

193

Share and ADS prices

Share prices on Nasdaq Stockholm

Principal trading market – Nasdaq Stockholm – share prices
The tables state the high and low share prices for the Class A and Class
B shares as reported by Nasdaq Stockholm for the periods indicated.
Trading on the exchange generally continues until 5:30 p.m. (CET) each
business day. In addition to trading on the exchange, there is trading off
the exchange and on alternative venues during trading hours and also
after 5:30 p.m. (CET).

Nasdaq Stockholm publishes a daily Official Price List of Shares
which includes the volume of recorded transactions in each listed stock,
together with the prices of the highest and lowest recorded trades of the
day. The Official Price List of Shares reflects price and volume informa-
tion for trades completed by the members.

Host market – NASDAQ New York – ADS prices
The tables state 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 mark-
ups, markdowns or commissions, and do not necessarily represent
actual transactions.

(SEK)

Class A at last day of trading
Class A high
(Oct 19, 2018)
Class A low
(Feb 6, 2018)
Class B at last day of trading
Class B high
(Oct 19, 2018)
Class B low
(Feb 6, 2018)

2018

77.40

2017

53.25

2016

53.00

2015

79.35

2014

88.25

85.20

64.80

80.80

111.30

91.80

49.05
77.92

44.17
53.85

45.20
53.50

72.00
82.30

71.55
94.35

85.66

64.95

83.60

120.00

96.40

49.04

43.75

43.19

75.30

75.05

Source: Nasdaq Stockholm

Share prices on NASDAQ New York

(USD)

ADS at last day of trading
ADS high (Oct 19, 2018)
ADS low (April 4, 2018)

2018

2017

8.88
9.45
6.00

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

Source: NASDAQ New York

Share prices on Nasdaq Stockholm and NASDAQ New York

Period

Annual high and low
2014
2015
2016
2017
2018

Quarterly high and low
2017 First Quarter
2017 Second Quarter
2017 Third Quarter
2017 Fourth Quarter
2018 First Quarter
2018 Second Quarter
2018 Third Quarter
2018 Fourth Quarter

Monthly high and low
August 2018
September 2018
October 2018
November 2018
December 2018
January 2019

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

91.80
111.30
80.80
64.80
85.20

61.00
64.80
62.90
56.00
59.10
71.20
82.20
85.20

79.70
82.20
85.20
83.50
83.30
82.50

71.55
72.00
45.20
44.17
49.05

50.50
54.00
44.17
45.20
49.05
51.20
65.60
72.80

69.20
75.80
72.80
73.20
74.40
74.70

96.40
120.00
83.60
64.95
85.66

60.20
64.95
63.35
56.80
59.22
71.20
80.42
85.66

79.32
80.42
85.66
83.00
83.76
82.48

75.05
75.30
43.19
43.75
49.04

49.45
54.55
43.75
45.18
49.04
50.82
66.30
72.82

68.70
76.10
72.82
73.00
74.72
74.70

13.61
13.14
10.20
7.47
9.45

6.76
7.43
7.47
6.74
7.37
8.05
9.11
9.45

8.61
9.11
9.45
9.16
9.29
9.19

11.20
8.87
4.83
5.52
6.00

5.61
6.20
5.52
5.56
6.13
6.00
7.47
8.04

7.63
8.36
8.17
8.04
8.12
8.20

Source: Nasdaq Stockholm and NASDAQ New York.

Ericsson Annual Report 2018194

Share information – The Ericsson share

Shareholders

As of December 31, 2018, the Parent Company had 414,867 shareholders
registered at Euroclear Sweden AB (the Central Securities Depository – CSD),
of which 756 holders had a US address. According to information provided
by the Company’s depositary bank, Deutsche Bank, there were 312,563,362
ADSs outstanding as of December 31, 2018, and 3,419 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 16, 2019,
the total number of bank, broker and/or nominee accounts holding Ericsson
ADSs was 83,623.

According to information known at year-end 2018, approximately 88% 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 cor-
poration, 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 Team and Board members (including Deputy
employee representatives) as a group as of December 31, 2018.

The Executive Team and Board members, ownership

Number of
Class A shares

Number of
Class B shares

Voting rights,
percent

The Executive Team and
Board members as a group
(30 persons)

608

1,985,573

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

France

2018

44.40%

25.09%

6.20%

4.12%

1.53%

2017

42.60%

26.37%

10.91%

4.20%

1.23%

Other countries

18.66%

14.67%

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

2018

60.23%

2017

58.47%

22.53%
19.26%
5.38%

27.49%

4.97%

7.31%

22.18%
19.26%
4.38%

30.54%

5.36%

5.63%

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, 2018 2)

No. of
shareholders

331,835
38,264
37,064
4,468
1,131
525
1,579

414,867

No. of
shares A

1,321,932
1,003,143
2,907,094
1,104,404
489,310
337,411
254,592,689

261,755,983

No. of
shares B

Percentage
of share capital

Percentage
of voting rights

Market value
(MSEK)

43,035,482
27,872,009
77,227,942
30,653,301
13,519,768
9,028,199
2,870,944,724

3,072,395,752

1.33%
0.87%
2.40%
0.95%
0.42%
0.28%
93.74%

0.99%
0.67%
1.87%
0.73%
0.32%
0.22%
95.20%

100.00%

3,456
2,249
6,243
2,474
1,091
730
243,409

259,661

1) Source: Euroclear.
2) Includes a nominee reporting discrepancy of 114,327 shares.

The following table shows share information as of December 31 2018 with respect to the 15 largest shareholders ranked by voting rights as well as their
percentage of voting rights as of December 31 2018, 2017 and 2016.

Largest shareholders December 31, 2018 and percentage of voting rights December 31 2018, 2017 and 2016

Identity of person or group1)

Investor AB
AB Industrivärden
Cevian Capital
Svenska Handelsbankens Pensionsstiftelse
AMF Pensionsförsäkring AB
Swedbank Robur Fonder AB
PRIMECAP Management Company
BlackRock Institutional Trust Company, N.A.
AFA Försäkring AB
The Vanguard Group, Inc.
Norges Bank Investment Management (NBIM)
Handelsbanken Asset Management
Livförsäkringsbolaget Skandia, ömsesidigt
State Street Global Advisors (US)
Hotchkis and Wiley Capital Management, LLC
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

2018 Voting
rights percent

2017 Voting
rights percent

2016 Voting
rights percent

115,762,803
86,052,615
339,228
23,430,790
8,225,000
32,559
0
0
10,723,000
867,742
0
26,474
4,703,309
0
0
11,592,463

261,755,983

124,138,545
44.23
1,000,000
32.88
302,579,434
0.13
0
8.95
75,882,465
3.14
133,184,257
0.01
133,152,860
0.00
120,325,770
0.00
5,268,780
4.10
81,494,213
0.33
69,300,889
0.00
64,046,497
0.01
17,247,956
1.80
62,580,974
0.00
0.00
61,103,097
4.43 1,821,090,015

100 3,072,395,752

4.04
0.03
9.85
0.00
2.47
4.33
4.33
3.92
0.17
2.65
2.26
2.08
0.56
2.04
1.99
59.27

100

7.20
2.61
9.09
0.70
2.52
4.00
3.99
3.61
0.48
2.47
2.08
1.92
0.66
1.88
1.83
54.97

100

22.53
15.14
5.38
4.12
2.78
2.35
2.34
2.11
1.98
1.58
1.22
1.13
1.13
1.10
1.07
34.04

100

22.18
15.14
4.39
4.12
3.31
2.11
1.48
2.11
2.04
1.34
0.57
0.85
1.24
1.30
2.06
35.76

100

21.77
15.15
0.00
4.12
2.20
2.61
1.58
1.92
2.18
1.07
1.11
0.97
1.39
1.54
1.10
41.30

100

Ericsson Annual Report 2018Share trend

In 2018, Ericsson’s total market capitalization increased by 44.7% to SEK 260 billion, compared to an
increase by 0.7% reaching SEK 179 billion in 2017. In 2018, the index, OMX Stockholm, on Nasdaq
Stockholm decreased by –7.7%, the Nasdaq composite index decreased by –3.9% and the S&P 500
Index decreased by –6.2%.

Share information – The Ericsson share

195

Share turnover and price trend, Nasdaq Stockholm
Class A shares, SEK

120

100

2014

2015

2016

2017

2018

Class B shares, SEK

120

100

2014

2015

2016

2017

2018

Volume traded, 000’s monthly

Ericsson share

Nasdaq Stockholm Index

Volumes reflect trading on Nasdaq Stockholm only.

Share turnover and price trend, US market
ADS, USD

2014

2015

2016

2017

2018

Volume traded, 000’s monthly

Ericsson ADS

S&P 500

Earnings per share, diluted

SEK
8

-2

-4

-6

-8

-10

6.06

4.80

3.54

4.13

2.39

0.25

0.27

–1.98

–3.24

2014

2015

2016

–9.94
2)

2017

2018

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.

2) 2017 and 2016 are restated due to imple-
mentation of IFRS 15 “Revenue from Con-
tracts with Customers”, for more information
see Note A3, “changes in accounting policies.”
Year 2015–2014 have not been restated.

Dividend per share

SEK
4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

3.70

3.40

1.00

2014

2015

2016

2017

2018

1) For 2018 as proposed by
the Board of Directors.

000’s share traded
monthly
6,000

5,000

4,000

3,000

2,000

1,000

000’s share traded
monthly
600,000

500,000

400,000

300,000

200,000

100,000

000’s share traded
monthly
300,000

250,000

200,000

150,000

100,000

50,000

Ericsson Annual Report 2018

196

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 1)
Operating expenses 1)
Operating income (loss) 1)
Net income (loss) 1)
Restructuring charges
Cash flow from operating activities

Year-end position, SEK million
Total assets 1)
Property, plant and equipment
Stockholders’ equity 1)
Non-controlling interest

Per share indicators

Earnings (loss) per share, basic, SEK 1)
Earnings (loss) per share, diluted, SEK 1)
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 1)

as percentage of net sales

Inventory turnover days

Alternative Performance Measures (APMs) 3)
Gross margin 1)
Operating margin 1)
EBITA margin
Cash conversion 1)
Free cash flow
Free cash flow excluding M&A
Capital employed, SEK million 1)
Return on equity 1)
Return on capital employed 1)
Equity ratio 1)
Capital turnover 1)
Working capital, SEK million 1)
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)

2018

Change

2017

2016

2015

2014

2013

2012

2011

2010

2009

210,838
–66,848
1,242
–6,276
8,015
9,342

268,761
12,849
86,978
792

–1.98
–1.98

1.00 2)

3,297

3,291
3,318

3,975
3,843
2,315
4,475
38,909
18.5%
70

32.3%
0.6%
1.4%
601%
2,968
4,253
149,615
–7.1%
0.6%
32.7%
1.4
52,508
68,996
35,871

95,359
12,502
109,969

3%
–5%
–
–
–6%
–3%

3%
0%
–10%
25%

–
–
0%

0%
0%

3%
–39%
32%
–79%
3%
–
6%

–
–
–
–
–42%
–12%
–4%
–
–
–
17%
–7%
2%
4%

–5%
–10%
26%

205,378

–70,563

–34,743

–32,433

8,501

9,601

259,882

12,857

96,935

636

–9.94

1.00

3,284

3,277

3,317

3,877

6,314

1,759

21,578

37,887

18.4%

23.3%

–16.9%

–8.8%

–73%

5,109

4,833

155,625

–28.1%

–20.6%

37.5%

1.2

56,439

67,702

34,657

100,735

13,864

87,463

220,316

–60,501

5,187

1,012

7,567

14,010

284,150

16,734

134,582

675

0.26

0.25

1.00

3,269

3,263

3,303

6,129

4,569

5,260

4,550

31,631

14.4%

29.6%

2.4%

3.6%

204%

254

876

0.6%

2.7%

47.6%

1.2

82,327

57,877

31,191

111,464

15,303

105,552

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%

34.8%

8.8%

10.5%

85%

7,515

9,715

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%

36.2%

7.4%

9.3%

84%

4,593

8,987

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%

33.6%

7.8%

9.8%

79%

8,337

11,019

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%

31.6%

4.6%

6.6%

116%

14,992

17,069

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%

35.1%

7.9%

9.9%

40%

–169

2,959

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%

36.5%

8.1%

11.0%

112%

17,058

19,890

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%

34.0%

2.9%

6.7%

117%

4,085

22,167

181,680

2.6%

4.3%

52.3%

1.1

99,079

76,724

44,604

82,493

18,217

94,829

185,666

195,150

189,839

176,653

186,307

182,640

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.” Year 2009–2015 have not been restated.
2) For 2018, as proposed by the Board of Directors.
3) A reconciliation to the most directly reconcilable line items in the financial statements for 2018 and ten comparison years is available on the following pages.

Ericsson Annual Report 2018For definitions of certain financial terms used, see Financial terminology.

Income statement and cash flow items, SEK million

Ten-year summary

Net sales 1)

Operating expenses 1)

Operating income (loss) 1)

Net income (loss) 1)

Restructuring charges

Cash flow from operating activities

Year-end position, SEK million

Total assets 1)

Property, plant and equipment

Stockholders’ equity 1)

Non-controlling interest

Per share indicators

Earnings (loss) per share, basic, SEK 1)

Earnings (loss) per share, diluted, SEK 1)

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

Gross margin 1)

Operating margin 1)

EBITA margin

Cash conversion 1)

Free cash flow

Free cash flow excluding M&A

Capital employed, SEK million 1)

Return on equity 1)

Return on capital employed 1)

Equity ratio 1)

Capital turnover 1)

Working capital, SEK million 1)

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)

2) For 2018, as proposed by the Board of Directors.

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 1)

as percentage of net sales

Inventory turnover days

Alternative Performance Measures (APMs) 3)

3) A reconciliation to the most directly reconcilable line items in the financial statements for 2018 and ten comparison years is available on the following pages.

Other information – Ten-year summary

197

2018

Change

2017

2016

2015

2014

2013

2012

2011

2010

2009

210,838

–66,848

1,242

–6,276

8,015

9,342

268,761

12,849

86,978

792

–1.98

1.00 2)

3,297

3,291

3,318

3,975

3,843

2,315

4,475

38,909

18.5%

149,615

32.3%

0.6%

1.4%

601%

2,968

4,253

–7.1%

0.6%

32.7%

1.4

52,508

68,996

35,871

95,359

12,502

109,969

–5%

–

–6%

–3%

–10%

25%

–

–39%

32%

–79%

–

–42%

–12%

–4%

17%

–7%

–5%

–10%

26%

205,378
–70,563
–34,743
–32,433
8,501
9,601

259,882
12,857
96,935
636

–9.94
–9.94
1.00

3,284

3,277
3,317

3,877
6,314
1,759
21,578
37,887
18.4%
66

23.3%
–16.9%
–8.8%
–73%
5,109
4,833
155,625
–28.1%
–20.6%
37.5%
1.2
56,439
67,702
34,657

100,735
13,864
87,463

220,316
–60,501
5,187
1,012
7,567
14,010

284,150
16,734
134,582
675

0.26
0.25
1.00

3,269

3,263
3,303

6,129
4,569
5,260
4,550
31,631
14.4%
71

29.6%
2.4%
3.6%
204%
254
876
185,666
0.6%
2.7%
47.6%
1.2
82,327
57,877
31,191

111,464
15,303
105,552

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
9,715
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
8,987
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
11,019
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
17,069
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
2,959
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
19,890
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
22,167
181,680
2.6%
4.3%
52.3%
1.1
99,079
76,724
44,604

82,493
18,217
94,829

Ericsson Annual Report 2018198

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, excluding M&A, was added in 2018 as an APM.

Capital employed 1)

SEK million

Total assets
Non-interest-bearing provisions and liabilities

Provisions, non-current
Deferred tax liabilities
Other non-current liabilites
Provisions, current
Contract liabilities
Trade payables
Other current liabilities

Capital employed

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

268,761

259,882

284,150

284,363

293,558

269,190

274,996

280,349

281,815

269,809

5,471
670
4,346
10,537
29,348
29,883
38,891
149,615

3,596
901
2,776
6,283
29,076
26,320
35,305
155,625

946
2,147
2,621
5,374
24,930
25,844
36,622
185,666

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

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

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 1)

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)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

210,838

205,378

220,316

246,920

227,983

227,376

227,779

226,921

203,348

206,477

155,625
149,615
152,620
1.4

185,666
155,625
170,646
1.2

190,797
185,666
188,232
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

182,640
181,680
182,640
186,307
184,474 182,160
1.1

1.2

182,439
181,680
182,060
1.1

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

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 1)

SEK million

Net income (loss)
Net income reconciled to cash

Cash flow from operating activities
Cash conversion (%)

2018

2017

–6,276 –32,433
1,554 –13,109

9,342
601%

9,601
–73%

2016

1,012
6,875

14,010
204%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

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 2018Other information – Alternative performance measures

199

Earnings (loss) per share (non-IFRS) 1)

SEK

Earnings (loss) per share, diluted
Restructuring charges
Amortization and write-downs of acquired intangibles
Earnings (loss) per share (non-IFRS)

2018

–1.98
1.88
0.37
0.27

2017

–9.94
1.93
4.77
–3.24

2016

2015

2014

2013

2012

0.25
1.59
0.55
2.39

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

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

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 1)

SEK million

Net income (loss)
Taxes
Financial income and expenses
Amortization and write-downs of acquired intangibles
EBITA
Net sales
EBITA margin (%)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

–6,276 –32,433
–3,525
4,813
1,215
2,705
1,662
16,652
2,904 –18,091
205,378
–8.8%

210,838
1.4%

1,012
1,882
2,293
2,650
7,837
220,316
3.6%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

Definition
Earnings (loss) before interest, taxes, amortization and
write- downs of acquired intangibles, as a percentage of
net sales.

Equity ratio 1)

SEK million

Total equity
Total assets
Equity ratio (%)

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.

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

87,770
268,761
32.7%

97,571
259,882
37.5%

135,257
284,150
47.6%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

Definition
Equity, expressed as a percentage of total assets.

Free cash flow and Free cash flow excluding M&A

SEK million

Cash flow from operating activities
Net capital expenditures and other investments (excluding M&A)

Investments in property, plant and equipment
Sales of property, plant and equipment
Product development
Other investing activities
Free cash flow excluding M&A

Acquisitions of subsidiaries and other operations
Divestments of subsidiaries and other operations

Free cash flow

Definition
Free cash flow: Cash flow from operating activities less net
capital expenditures and other investments.
Free cash flow excluding M&A: Cash flow from operating
activities less net capital expenditures and other
investments (excluding M&A).

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.

2018

9,342

2017

9,601

2016

2015

2014

2013

2012

14,010

20,597

18,702

17,389

22,031

2011

9,982

2010

2009

26,583

24,476

334

–3,975 –3,877
1,016
–925 –1,444
–463
–523
4,833
4,253
–289
–1,618
333
565
5,109
2,968

–6,129
482
–4,483
–3,004
876
–984
362
254

–8,338
1,301
–3,302
–543
9,715
–2,201
1
7,515

–5,322
522
–1,523
–3,392
8,987
–4,442
48
4,593

–5,429
–4,503
568
378
–1,641
–915
1,540
–1,330
11,019
17,069
–3,147 –11,529
9,452
14,992

465
8,337

–4,994
386
–1,515
–900
2,959
–3,181
53
–169

–4,006
–3,686
534
124
–1,443
–1,644
2,606
–1,487
19,890
22,167
–3,286 –19,321
1,239
4,085

454
17,058

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 2018200

Other information – Alternative performance measures

Gross cash

SEK million

Cash and cash equivalents
Interest-bearing securities, current
Interest-bearing securities, non-current
Gross cash

2018

38,389
6,625
23,982
68,996

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

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 1)

SEK million

Gross income
Net sales
Gross margin (%)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

68,200
210,838
32.3%

47,927
205,378
23.3%

65,254
220,316
29.6%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

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

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.

2018

38,389
6,625
23,982
2,255
30,870
35,871

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

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

2018

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

–66,848 –70,563 –60,501 –64,129 –63,408 –58,509 –58,856
852

2,739

2,307

2,021

1,293

304

872

784

370
–64,771 –67,304 –56,409 –61,363 –62,981 –56,713 –57,634

1,353

952

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 1)

SEK million

Operating income (loss)
Net sales
Operating margin (%)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

210,838

1,242 –34,743
205,378
0.6% –16.9%

5,187
220,316
2.4%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

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 2018Other information – Alternative performance measures

201

Return on capital employed 1)

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 (%)

2018

2017

1,242 –34,743
–372
–316
926 –35,115

2016

5,187
–135
5,052

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

155,625
149,615
152,620

185,667
155,625
170,646
0.6% –20.6%

190,797
185,666
188,232
2.7%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

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 1)

SEK million

Net income (loss) attributable to stockholders
of the Parent Company
Average stockholders’ equity

Stockholders’ equity, beginning of period 2)
Stockholders’ equity, end of period
Average stockholders’ equity

Return on equity (%)

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

–6,530 –32,576

833

13,549

11,568

12,005

5,775

12,194

11,146

3,672

134,582
95,952
96,935
86,978
91,465
115,759
–7.1% –28.1%

142,172
134,582
138,377
0.6%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

2) For 2018, adjusted opening balance due to implementation of IFRS 9 “Financial instruments”. For 2016, adjusted opening balance due to implementation of IFRS 15 “Revenue from Contracts with Customers.”

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 (%)

2018

210,838
–
–4,232
206,606

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 1)

SEK million

Current assets
Current non-interest-bearing provisions and liabilities

Provisions, current
Contract liabilities
Trade payables
Other current liabilities

Working capital

2018

2017

2016

2015

2014

2013

2012

2011

2010

2009

161,167

153,423

175,097

189,525

201,789

190,896

193,254

198,816

198,443

182,442

–9,391 –11,970
–10,537
–5,374
–6,283
–
–29,348 –29,076 –24,930
–29,883 –26,320 –25,844 –22,389 –24,473 –20,502 –23,100 –25,309 –24,959 –18,864
–38,891 –35,305 –36,622 –58,663 –69,845 –58,314 –61,108 –57,970 –58,605 –52,529
99,079

–8,427
–

–3,662
–

–5,140
–

–4,225
–

–5,985
–

103,246

105,488

106,940

104,811

100,619

109,552

52,508

56,439

82,327

–

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers,” for more information see Note A3, “Changes in accounting policies.”

Year 2009–2015 have not been restated.

Definition
Current assets less current non-interest-bearing provisions
and liabilities (which include: current provisions, contract
liabilities, 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 2018202

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; contract 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 C1 “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.

Free cash flow excluding M&A
Cash flow from operating activities less net capital
expenditures and other investments (excluding
M&A).

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, contract liabilities, 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

2018

2017

10.25
10.25

8.68
8.94

9.64
9.83

8.53
8.20

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 2018Other information – Glossary

203

Global Reporting Initiative (GRI) Standards
The GRI Sustainability Reporting Standards are
the first and most widely adopted global standards
for sustainability reporting. GRI is an independent
international organization that has pioneered
sustainability reporting since 1997.

NFV
Network Functions Virtualization.
Software implementation of network functions
that can be deployed in virtualized infrastructure,
offering efficient orchestration, automation and
scalability.

GSM
Global System for Mobile Communications. A first
digital generation mobile system.

OSS
Operations Support Systems.

SBT
Science-based targets provide companies with a
clearly defined pathway to future-proof growth by
specifying how much and how quickly they need to
reduce their greenhouse gas emissions.

SDGs
The 2030 Agenda for Sustainable Development,
adopted by all United Nations Member States in
2015, provides a shared blueprint for peace and
prosperity for people and the planet, now and into
the future. At its heart are the 17 Sustainable
Development Goals (SDGs), which are an urgent
call for action by all countries - developed and
developing - in a global partnership.

UDN
Unified Delivery Network. A way to provide
a low-latency and high performing platform
to deliver compute-intensive applications.

UNGP
The UN Guiding Principles Reporting Framework
was launched in February 2015 and is the first
comprehensive guidance for companies to report
on human rights issues in line with their responsi-
bility to respect human rights. This responsibility
is set out in the UN Guiding Principles on Business
and Human Rights, which constitute the authorita-
tive global standard in this field.

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.

3GPP
Third Generation Partnership Project. Unites
telecommunications standard development orga-
nizations and produce specifications that defines
a mobile technology (2G, 3G etc.).

4G
See LTE.

5G
The fifth generation of mobile systems.
An evolution of 4G/LTE.

ICT
Information and Communication Technology.

IP
Internet Protocol.
Defines how information travels between network
elements across the internet.

IPR
Intellectual Property Rights.

ADM
Application Development and Modernization.
A service offering addressing maintenance, devel-
opment and evolution of software.

JV
Joint Venture.

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 globally
accessible data centers.

CO2e
The amount of a particular greenhouse gas,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.

LTE
Long-Term Evolution.
4G; the evolutionary step of mobile technology
beyond HSPA, allowing data rate above 100 Mbps.

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, CDMA2000EV-DO and 5G
technologies.

The terms “Ericsson”, “the Company”, “the Group”, “us”, “we”, and “our”
all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.

Ericsson Annual Report 2018204

Other information – Shareholder information

Shareholder information

Telefonaktiebolaget LM Ericsson’s Annual
General Meeting of shareholders 2019 will
be held on March 27, 2019, at 3.00 p.m.
at Kistamässan, Arne Beurlings Torg 5,
Kista/Stockholm, Sweden.

Registration and notice of attendance
Shareholders who wish to attend the Annual
General Meeting must:
– be recorded in the share register kept

by Euroclear Sweden AB (the Swedish
Securities Registry) on Thursday, March 21,
2019; and

– give notice of attendance to the Company
at the latest on Thursday March 21, 2019.
Notice of attendance can be given by tele-
phone: +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
21, 2019, 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 attor-
ney for the representative. A power of attorney
issued by a legal entity must be accompanied
by a copy of the entity’s certificate of registra-
tion, or if no such certificate exists, a corre-
sponding document of authority. Such docu-
ments must not be older than one year unless
the power of attorney explicitly provides that it
is valid for a longer period, up to a maximum of
five years. In order to facilitate the registration
at the Annual General Meeting, the original
power of attorney, certificates of registration
and other documents of authority should be
sent to the Company in advance to the
address above for receipt by Tuesday,
March 26, 2019. Forms of power of attorney
in v 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
2018 and that Friday, March 29, 2019 will be
the record date for dividend.

Financial information from Ericsson
2018 Form 20-F for the US market
– March 29, 2019

Interim reports 2019
– Q1, April 17, 2019
– Q2, July 17, 2019
– Q3, October 17, 2019
– Q4, January 24, 2020

Annual Report 2019
– March, 2020

Ericsson Annual Report 2018Other information – Shareholder information

205

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

Contact details

Ericsson headquarters
Torshamnsgatan 21
Kista, Stockholm, Sweden

Registered office
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden

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 2018

Project management
Ericsson Investor Relations

Design and production
Hallvarsson & Halvarsson

Photos of Board of Directors
and Executive Team
Per Myrehed

Printing
Göteborgstryckeriet 2019
Printed on Amber Graphic

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

Shareholder Services North America
Ericsson’s Transfer Agent
Deutsche Bank,
Deutsche Bank Shareholder Services
American Stock Transfer & Trust Company

Registered holders
Toll-free number: +1 (800) 937-5449

Interested investors
Direct dial: +1 (718) 921-8124
Email: DB@amstock.com

Ordering a hard copy of the Annual Report
Phone: +1 (888) 301 2504

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Ericsson Annual Report 2018
206

Other information – Shareholder information

Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 00 00
www.ericsson.com

Ericsson Annual Report 2018