Ericsson Annual Report 2019

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FY2019 Annual Report · Ericsson

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Ericsson
Annual Report
2019

ericsson.com

Building
a stronger
company
long term

Contents

The business

Financials

CEO comment
Business model
An industry driving change
Strategy and financial targets

2
4
6
8
14 Differentiating the 5G
user experience
Innovation
Segments

16
18
23 Market areas
30 Our people

32
33
49

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

57 Notes to the consolidated
financial statements
102 Parent Company financial

statements

108 Notes to the Parent Company

financial statements

121 Risk factors
132 Auditor’s report
137 Forward-looking statements

Corporate governance

138 Corporate governance report
164 Remuneration report

Sustainability

Share information

Other information

172 Sustainability and corporate
responsibility report 2019

174 Sustainability approach
176 Sustainability management
178 Significant topics, risks and opportunies
180 Responsible business
189 Environmental sustainability
194 Digital inclusion
196 Consolidated sustainability notes
198 Auditor’s assurance report

200 The Ericsson share

204 Ten-year summary – Financial

information

206 Ten-year summary – Non-financial

information

208 Alternative performance measures
213 Financial terminology

and exchange rates

214 Glossary
215 Shareholder information

The annual accounts and consolidated accounts of the Company are included on pages 33–131 in this document.

Ericsson in brief
We have connected people through the evo-
lution of communications technology. It
started with telegraphy on to fixed telephony
and mobile. As a 5G technology leader we are
now not only connecting every “one”, but also
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 wind-
ing copper wire coils.

We have been a technology leader in
every generation of mobile communications.

When mobile broadband was in its infancy,
Ericsson was already working on the next
generation technology, 3G. Ericsson was work-
ing on 4G long before the smartphone became
ubiquitous and our technology leadership has
been a key industry driver towards 5G.

Now, with 5G as a commercial reality, we

continue to invest to strengthen 5G leader-
ship and we support our customers to cap-
ture the full value of connectivity for them
and their customers.

Our portfolio spans Networks, Digital
Services, Managed Services, and Emerging
Business and Other. The portfolio is designed
to help our customers go digital and increase
efficiency in an intelligent and sustainable
way, while finding 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: Ericsson MINI-LINK 6366 antennas, installed in India

Highlights 2019

Earnings

Strategy execution

Key announcements

Q1 report: Ericsson reported underlying oper
ating margin improvement in all segments
YoY. Segment Managed Services’ gross mar
gin excluding restructuring charges improved
to 17.7% (9.1%) YoY, supported by efficiency
gains and customer contract reviews.

Q2 report: Ericsson grew by 7% YoY adjusted
for comparable units and currency. Segment
Networks’ operating margin excluding restruc
turing charges improved to 15.0% (13.3%)
as a result of higher sales and gross margin.

Q3 report: Ericsson delivered 11.4% (7.0%)
operating margin excluding restructuring
charges and items affecting comparability.1)
Segment Digital Services’ operating mar
gin significantly improved YoY with stronger
gross margin and growth in the new portfolio
of 19% rolling 12 months.

Q4 report: Ericsson reported growth for the
sixth consecutive quarter adjusted for compa
rable units and currency. Gross margin exclud
ing restructuring charges improved to 37.1%
(32.0%) YoY, mainly driven by improvements
in Digital Services. The board will propose
a dividend for 2019 of SEK 1.50 (1.00) per
share to the AGM.

Networks: By yearend 2019, Ericsson
announced 78 commercial 5G agreements
with individual operators and 24 live 5G
networks across the globe. Ericsson also
increased investments within R&D, and
reported organic growth and gross margin
improvement.

Digital Services: The business momentum
in the new portfolio of 5G and cloudnative
products is good. Sales of the new portfolio
grew by 7%, driven by customer investments
in 4G and 5G. By yearend 2019, 75% of the
critical and nonstrategic contracts identified
in 2017 had been addressed.

Managed Services: R&D investments in
Managed Services increased in 2019 and in
the first quarter a new AIbased offering for
operators, Ericsson Operations Engine, was
launched.

Emerging Business and Other: In 2019,
Ericsson increased its investments within IoT,
a fastgrowing business that addresses new
opportunities created with 5G.

– Ericsson and Swisscom launched the first
largescale commercial 5G network in
Europe, supporting commercially available
5G smartphones.

– Ericsson to build a new stateoftheart 5G
smart factory in Lewisville, Texas, to meet
the demand for rapid 5G deployments in
North America.

– Ericsson acquired Kathrein’s antenna and
filter business which will enabled us to
broaden our portfolio of antenna and fil
ter products. The acquisition will also add
essential competence regarding advanced
radio network products.

– Ericsson reaches resolutions on US FCPA
investigations. Ericsson announced the
resolution of the previously disclosed
investigations by the US Department
of Justice (DOJ) and the Securities and
Exchange Commission (SEC) regarding
the Company’s compliance with the US
Foreign Corrupt Practices Act (FCPA).

Net sales
SEK billion

227.2

(2018: 210.8)

(2017: 205.4)

Operating income
(loss)
SEK billion

10.6

(2018: 1.2)
(2017: –34.7)

Free cash flow before M&A
SEK billion

7.6

(2018: 4.3)
(2017: 4.8)

Gross margin
excl. restructuring
charges 2)

37.5%

(2018: 35.2%)
(2017: 25.9%)

Operating margin
excl. restructuring
charges 3)

5.0%

(2018: 4.4%)
(2017: –12.8%)

Number of
employees

99,417

(2018: 95,359)

(2017: 100,735)

1) Operating income excluding restructuring charges in all periods. Excluding cost provisions related to resolution of

the SEC and DOJ investigations of SEK –11.5 billion and refund of social security costs of SEK 0.9 billion in Q3 2019.

2) Excluding restructuring charges of SEK –0.3 billion (2019), SEK –5.9 billion (2018) and SEK –5.2 billion (2017).
3) Excluding restructuring charges of SEK –0.8 billion (2019), SEK –8.0 billion (2018) and SEK –8.5 billion (2017).

Ericsson Annual Report 20192

The business – CEO comment

Börje Ekholm
President and CEO

“We are a stronger
company today.
Our focused strategy
remains in place and we
are continuing our work
to bolster ethics and
compliance across the
Company.”

We are capturing
the 5G opportunity

In 2019 we have seen 5G grow faster than expected, there
is an unprecedented demand for consumer applications
and 5G will be the platform for connectivity in the enter
prise space. Our focused business strategy, built on
increased R&D for technology leadership, allowed us to
double down on our 5G investments and this has created
a solid foundation for growth. We closed out the year in
a clear leading position with 78 contracts and 24 live 5G
networks across 4 continents.

Over the last three years, we have executed
on our focused strategy. With the turnaround
phase behind us, we now see our topline
growing and margins improving. This, in com
bination with improved working capital effi
ciency, has generated a solid cash flow. In
short, we have a healthy business and can
now take the next steps to identify profitable
growth opportunities.

With increased R&D we now have a com

petitive portfolio which is driving improved
gross margin and in addition, we have recorded
several important commercial agreements
that strengthen our future business.

During 2019, we adjusted our sales
ambition for 2020 up by SEK 20 billion to
SEK 230–240 billion. Our operating margin
target for 2020 remains at more than 10%
and we have crystallized the 2022 operating
margin target as a range of 12–14%.

M&A activity will continue to be an impor

tant part of our growth strategy, where we
see potential value creating portfolionear
acquisitions as enablers for future growth.
In 2019, we acquired Kathrein’s antenna
and filter business to expand our portfolio
and bring vital competence into the Company.

Over the past several years, we have
worked to resolve many difficult issues,
including turning around our challenged con
tracts and resolving our settlement with the
US authorities. With the resolution with the
US Department of Justice (DOJ) and the US
Securities and Exchange Commission (SEC),
we have brought closure to the longstand
ing investigations into our past conduct. It is

important to stress that we have a zero toler
ance for corruption and the resolution high
lights a number of shortcomings. We work
hard every day to build a culture of compli
ance, anchored securely within the organiza
tion, to ensure that such an event will never
happen again. Rebuilding our trust is a top
priority. In the near term, the addition of sig
nificant resources to further strengthen our
Ethics & Compliance program will negatively
affect our earnings, but the longterm payoff
is indisputable.

Excluding the costs related to the resolu
tion of the investigations by the US authori
ties, our 2019 operating margin was 9.7%,
almost achieving the target for 2020 one
year ahead of plan. Proof of our strength
and confidence in our future was reflected
by the Board’s proposal to raise the dividend
to SEK 1.50 per share.

The 5G opportunity
With a solid business foundation and our
increased investments in 5G we are well
positioned to benefit from an accelerated
deployment of this technology. In 2019 lead
ing telecom operators from all over the world
have switched on their 5G networks and that
market is growing even faster than most ana
lysts expected. In total, we expect the global
number of 5G subscriptions to reach 2.6 billion
within the next six years, driven by sustained
momentum and a rapidly developing 5G eco
system. This will make it the fastest mobile
technology to have ever been rolled out.

Ericsson Annual Report 2019The business – CEO comment

Our research shows that consumers
have a high interest in the new 5Genabled
services and a willingness to pay for them.
We also expect data usage to increase
rapidly. In South Korea, where commercial
5G services were launched in early 2019, 5G
subscribers on unlimited data plans consume
on average 30 percent more data than that
of 4G subscribers on similar plans.

But 5G is much more than enhanced
mobility for consumers. This is an innovation
platform so powerful that it will be the driving
force behind the next big shift in society –
the fourth industrial revolution. By 2025,
we expect the number of cellular IoT connec
tions to reach 5 billion. This shift will impact
all sectors, potentially increasing the address
able opportunity for telecom operators by up
to 30% by 2030.

We are increasing our investments in IoT

and advanced connectivity solutions that
will allow us to capture this growing market.
We already see very strong demand for
these solutions.

Technology leadership
Over more than three decades, we have
invested tens of billions of dollars in all gen
erations of mobile technology, and with 5G
we are laying the foundation for a new era of
connectivity. Our 5G platform is commercially
live with 24 customers on four continents and
our focus continues to be on performance.

Thanks to our early and significant invest
ment in R&D, Ericsson has the world’s leading
patent portfolio in cellular technology, with
more than 54,000 granted patents and over
100 signed licensing agreements. When an
independent law firm reviewed the 5G pat
ents which are declared as potentially stan
dardessential, they found Ericsson to have
a leading share of relevant patents. Another
way to look at 5G leadership is that we have
the most devices certified to work on our
equipment. To put it simply, from technology
leadership to performance in the field, there
is no one ahead of us in 5G.

Doing business the right way
It is my strong belief that a culture of integrity,
responsibility, transparency and accountabil
ity is what ultimately counts in determining

a company’s longterm success. Unfortunately,
the commitment to our values and to uphold
ing our Code of Business Ethics has in the past
been inconsistent.

We must acknowledge that we have not
always met the high standards that we set
for ourselves for doing business the right
way. The settlement with the DOJ and SEC
is evidence of that.

The resolution allows us to bring an
end to the investigations conducted by the
US authorities since 2013 and 2015 into
Ericsson’s compliance with the US Foreign
Corrupt Practices Act (FCPA). We can do
nothing about yesterday, very little about
today, but we can fundamentally change
tomorrow. We are working hard to be a better
company, today and in the future, to ensure
that this doesn’t happen again.

Over the past several years we have
sign ificantly increased resources devoted
to compliance and investigations. We have
introduced vetting of Executive Team mem
bers and staff in over 150 key positions.
Importantly, the key individuals identified by
the DOJ and SEC are no longer with the com
pany. In total, 49 people with some form of
culpable involvement in the matters reported
to the DOJ and SEC have left Ericsson.

We have also strengthened the vetting
of third parties and have improved screen
ing for highrisk transaction. We take action
when we find third parties who fail to live
up to the standards we set to ensure ethical
business practices.

We are focused on reestablishing the
trust and confidence of all our stakeholders –
including employees, customers, regulators,
investors and the general public.

This work has made Ericsson a stronger

company, but we know that there is more
to be done. In fact, this work never stops.
This is not just about policies and internal
controls – it is about people and culture.
To be a trusted partner we must ensure that
everyone in the Company adheres to the
highest ethical stand ards and principles.
Ultimately, conducting business responsibly
and with integrity is the only way we can
drive real and positive change.

Sustainability and corporate responsibility
We have integrated sustainability and cor
porate responsibility into our business strat
egy, and our sustainability performance is
reflected in the Sustainability and Corporate
Responsibility report published together with
this Annual Report. We continue to support
the ten principles of the UN Global Compact
and the UN Guiding Principles on Business
and Human Rights as important elements of
our commitment to responsible business.

Ericsson has been a driving force in show
ing how digital technology can reduce carbon
emissions by 15% in sectors like manufac
turing and transport by 2030. We are one of
a handful of companies that has set Science
Based Targets committed to support limit
ing global temperature rise to 1.5°C, to further
demonstrate our leading position we have
made an additional commitment to become
carbon neutral by 2030.

In summary
We are empowering an intelligent, sustaina
ble and connected world by relentlessly inno
vating technologies that are easy to adopt,
use and scale. We have already connected
billions of people, and our solutions are help
ing to solve some of the planet’s biggest
challenges. Through our people, solutions
and technology leadership we will continue
to drive real, positive change in society.

We are stronger today. We have returned
to profitability, have a solid core business and
are growing. Our focused strategy remains
in place, with the prime focus on telecom
operators, and we are continuing our work
to bolster ethics and compliance across the
Company and build a culture defined by integ
rity, responsibility, transparency and account
ability. We know that conducting our business
the right way is the only way to be successful
for another 100 or more years.

A company’s performance is all about

people. Therefore, I want to especially
thank all my colleagues at Ericsson for turn
ing around the company. You have done
a tremendous job in 2019. You rock!

Börje Ekholm
President and CEO

Ericsson Annual Report 20194

The business – Business model

Business model

Our business model is built to manage changing market requirements and to capture
new business opportunities. Customer focus and motivated employees are key to drive
our business, create stakeholder value and to build a stronger company longterm.

Customer focus

Motivated employees

We develop innovative and cost
competitive solutions for our customers.

Motivated and talented employees drive our business.

Fundamentals

Our business and operations

Purpose
Empowering an intelligent,
sustainable and connected
world, by relentlessly innovating
technologies that are easy to
adopt, use and scale

Mission
Enabling our customers to
capture the full value of
connectivity

Strategy

Built on our customers’ needs:
– New revenue streams
– End-customer experience
– Relentless efficiency

Business area responsibility
Develop competitive global
business solutions

Market area responsibility
Sell and deliver
customer solutions

Key assets

Technology
leadership

Cost efficiency

Product-led
solutions

Global scale
& skill

Sustainability
Sustainability embedded across
operations and the portfolio

Customers
in 180 countries. Established relation-
ship with world leading operators

Core values

– Respect
– Professionalism
– Perseverance

Ericsson Annual Report 2019The business – Business model

With an agile and efficient business model, we create value for our stakeholders
by providing industryleading, high performing, sustainable and costefficient
solutions to our customers.

Stakeholder value

We create value for our stakeholders by building a stronger company long term.

Key stakeholders, our focus and value

Customers
Enable our customers to capture the full value of connect ivity
in an intelligent and sustainable way

Society
Be a responsible and relevant driver of positive change

Employees
Attract, develop, engage and retain talented employees

Shareholders
Creating shareholder value by growing profitability, cash flow
and dividend

Group financial targets 2020

Group financial targets 2022

– Operating margin >10% excl. restructuring charges
– Strong free cash flow before M&A

– Operating margin 12–14% excl. restructuring charges
– Strong free cash flow before M&A

Sales ambition of SEK 230–240 billion

Group sustainability targets 2022

Climate action
– Reduce 35% of CO2e emissions from Ericsson’s own activities

(baseline 2016), a Science Based Target

– Ericsson is carbon neutral by 2030 in its own operations

Ethics and compliance
Strengthen and enhance Ericsson’s Ethics and Compliance
program in order to develop a best in class Anti-Corruption
Compliance Program

Product energy performance
Achieve 35% energy saving in Ericsson Radio System
com pared with the legacy portfolio (baseline 2016),
a Science Based Target

Occupational health and safety
Reduce occupational health and safety major incidents
by a minimum of 30% (baseline 2019)

Ericsson Annual Report 2019An industry
driving
change

During 2019 initial deployments of 5G networks
continued at a rapid pace and an increasing number
of 5G devices became available.

The business – An industry driving change

connected to both 4G and 5G simultaneously.
Utilizing spectrum in combination with new
bands will enable operators to serve a wider
variety of use cases more efficiently and, in
many cases, more quickly.

Challenges in Europe
Compared with the introduction of 4G,
larger quantities of new radio spectrum
have been allocated for 5G. In the US the
Federal Communications Commission
has freed up vast amounts of bandwidth
for 5G in underused highband spectrum.
Although EU lawmakers have agreed to
open up the 3.6 and 26 GHz bands by
2020, about half of all European coun
tries have not yet licensed spectrum for
5G. European countries will thus lag
behind countries like the US, Japan,
Korea, Australia, and China. Several
European countries and their society,
industries and consumers will not be able
to use 5G to its full extent until several
years after the early 5G countries.

Spectrum for future networks

For every new generation of mobile technol
ogy, new radio frequency bands have been
allocated to enable the commercial launch of
the new technology, while maintaining previ
ous generations in operation. With the rapid
uptake of 5G expected to continue, operators
will need more spectrum, not least to achieve
the full benefits of 5G, such as ultrahigh peak
datarates and low latency in the millimeter
wavelengths. By 2025, Ericsson forecasts
2.6 billion 5G subscriptions globally, account
ing for 29 percent of all mobile subscriptions
at that time.

Different spectrum for different needs
Each spectrum band has different physical
properties, meaning that there are trade
offs between capacity, coverage and latency
as well as reliability and spectral efficiency.
When planning 5G deployments, operators
need to take these tradeoffs into considera
tion to match their own service focus, whether
this is enhanced mobile broadband, massive
IoT, critical IoT or Fixed Wireless Access.

Low-band
The lowband frequencies have histori
cally been used for 2G, 3G and 4G networks
for voice and mobile broadband services as
well as for TV broadcasting. For a typical 5G
mobile broadband use case, capacity and
latency are similar to 4G on the same band.

Mid-band
Midband frequencies are currently used for
2G, 3G and 4G services. In the new higher
midband spectrum, we are likely to see larger
bandwidths (50–100 MHz). This could enable
highcapacity, lowerlatency networks to be
used for new 5G use cases, with better wide
area and indoor coverage than what higher
band spectrum can offer.

High-band
Highband frequencies provide the quantum
leap in performance promised by 5G. These
new bands are typically in the 24–40 GHz
range, with bandwidths in 100 MHz (or higher)
blocks. Such large bandwidth enables ultra
high capacity networks with latency as low as
1 millisecond. However, these higher frequen
cies come with a coverage limitation com
pared with lower bands.

Spectrum strategy
Over time, existing spectrum used for 4G will
be smoothly migrated to 5G. Functions that
enable smooth spectrum migration and com
binations of both bands and technologies
will be crucial for the planned evolution of
the network.

There are likely to be several combinations

of bands and technologies for 5G over the
coming years, as traffic increases and mar
kets mature. This will enable devices to be

Spectrum tradeoff

High bands

(24 GHz–40 GHz)
New

Mid bands II

(3.5 GHz–6 GHz)
New

Mid bands I

(1 GHz–2.6 GHz)
Legacy

Low bands

(Sub–1 GHz)
New/Legacy

Limited

High

Ultra-
low

High capacity
hotspot/dense urban
areas

Moderate

Wide

Low

Coverage

Capacity

Latency

Moderate capacity
Wide area/outside-in
coverage

Ericsson Annual Report 2019A focused
business
strategy

In 2019 we continued to fully execute the focused strategy
introduced in 2017 and we are tracking towards the financial
targets set for 2020 and 2022. We continue to pursue selective,
disciplined and profitable growth in order to build an even
stronger company long term.

The business – Strategy and financial targets

Building a stronger Ericsson
long term

The execution of our focused strategy is visi
ble in our financial performance, which shows
organic growth, increased operating margin
and a positive free cash flow. While we are
committed to our targets for 2020 and 2022
and are tracking towards them, our focused
strategy aims at building a stronger Ericsson
long term, beyond 2022, with continued sales
growth and improved returns.

Our strategy to increase R&D investments
for technology and cost leadership has been
successful, giving us a competitive advan
tage as telecom operators accelerate their 5G
investments. We believe that our position and
the current market dynamics present a unique
opportunity for us to grow our market share.
We aim to address longterm opportunities
that present clear advantages of scale and
new, profitable revenue streams.

Our ambition is to grow faster than the
market, but our approach to sales growth is
focused, and based on the following criteria:
– Selective: Productled growth aligned with
our streamlined portfolio and existing cus
tomer base.

– Disciplined: Commercial and financial
discipline, and excellence in contract
execution.

A focused business strategy

– Profitable: Growth is managed for posi

tive returns and to support Group financial
targets. While contracts are expected to be
profitable over time, some expansions may
be associated with challenging nearterm
returns, as the cost for telecom operators
to change vendor can be high.

Strategy built on our
customers’ needs

Our mission is to enable the full value of
connectivity for our customers, the telecom
operators. There are three key areas in which
we can support their success:
– Customers need to capture new revenue
streams and new opportunities made
possible by 5G and IoT.

– Customers need to go truly digital to ena
ble faster service provisioning and faster
network configuration and to increase
service usability. This will be increasingly
important for them when attracting new
customers, but it will also help them to
lower their costs further.

– Customers need to continuously drive effi
ciency, relentlessly lowering the cost of
delivering traffic in the networks. 5G will
increase spectrum efficiency and is also
significantly more power efficient, reduc
ing cost and supporting climate targets.

The strategy stands on
a foundation of four pillars

Technology leadership
Investments in R&D and technology leader
ship allow us to bring innovative solutions to
the market ahead of competitors, giving our
customers an advantage.

Cost efficiency
A costefficient base is essential for our busi
ness. Investments in R&D enable not only
technology leadership but also cost leader
ship. Using the latest technology enables us to
bring down cost in our solutions. This benefits
both us and our customers.

Product-led solutions
Software and hardware are at the core of our
customer solutions. These are complemented
by offerings of services such as installation, roll
out, system integration, support and consulting.

Global scale & skill
Our global presence and our close interaction
with our customers bring opportunities for us
to grow with discipline, leading to increased
market footprint and advantages of scale.

At Ericsson, the expertise that our people

have is a key asset that enables us to work
close to our customers across the world.

Purpose
Empowering an intelligent, sustainable and connected world, by
relentlessly innovating technologies that are easy to adopt, use and scale

Mission
Enabling our customers to capture the full value of connectivity

Our customers’ needs

New revenue streams

End-customer experience

Relentless efficiency

Our segment structure and solutions

Networks
Highly scalable, costcom peti
tive, modular platforms offer
ing low total cost of ownership
(TCO), good user experience
and smooth net work trans
formation to 5G

Our foundation

Digital Services
TCOefficient solutions for pro
grammable 4G and 5G core
networks, automated opera
tions and digital engagements

Managed Services
Providing customer experi
ence and cost performance led
by automation and AI driven
operations and optimization

Emerging business
and Other
Pursuing new business
oppor tunities, fostering an
innovation culture and investing
in promising incubation oppor
tunities, while supporting the
core business

Technology leadership

Cost efficiency

Product-led solutions

Global scale & skill

Sustainability and corporate responsibility

Ericsson Annual Report 2019
10

The business – Strategy and financial targets

Addressing new revenue
opportunities

Driving our business through four
segments and five market areas

Sustainability and Corporate
Responsibility

With 5G our industry will move beyond con
necting people; it will also connect machines
and things. 5G is a powerful network plat
form for innovation, opening up new rev
enue opportunities for telecom operators in
both the consumer segment and the enter
prise segment. We are already seeing that
5G is supporting telecom operators to deliver
new, differentiating services to consumers
with upside revenue potential, and there is
also significant upside revenue potential for
telecom operators who invest in delivering
new 5G enterprise services. Our studies show
that telecom operators could see an addi
tional revenue opportunity of USD 700 billion
by 2030 driven by industry sectors such as
healthcare, manufacturing and automotive.

We aim to address these enterprise oppor
tunities and continue to sell through our exist
ing telecom operator relationships and goto
market models. Our ambition is to service our
customers by developing competitive indus
trial solutions that are easy to scale, such as
our global IoT platform and private networks
solutions. We increased our M&A capabilities
in 2019, and we see portfolionear acquisi
tions as an enabler for future growth.

Our aim is to grow and create value by
investing in solutions that support our cus
tomers’ new revenue streams, drive traffic to
mobile networks and drive increased demand
for network quality.

Our business is divided into four segments. All
of these segments address the same customer
group, the telecom operators. The segments
are 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 softwareled business

supporting our customers as they move to
a cloudnative environment, providing solu
tions for our customers to operate, control
and monetize their mobile networks.

With our Managed Services offering we

operate our customers’ networks. Our AI
and data driven Managed Services offering,
Ericsson Operations Engine, proactively man
ages telecom operator networks to enhance
customer experience, drive agile service
creation, and optimize costs.

In Emerging Business and Other we exp
lore how our customers can leverage connec
tivity in order to create new revenue streams.
Our market is divided into five geograph

ical market areas. The market areas are
responsible for selling and delivering prod
ucts and solutions developed by our business
areas. Staying close to our customers is key.
In line with the strategy, we have shifted more
responsibility to the market areas, to ensure
that we stay close to our customers while
maintaining central guidelines and govern
ance structures to ensure price discipline.

Sustainability is central to Ericsson’s purpose
– empowering an intelligent, sustainable and
connected world. We are committed to creat
ing positive impacts in society and reducing
risks to the Company, our customers and soci
ety through our technology, our solutions and
the expertise of our people.

We work continuously to improve and
strengthen our responsible business practices,
with focus on building and maintaining trust,
transparency and integrity wherever in the
world we operate. We have set targets that are
in line with the reduction required to keep the
temperaturerise trajectory to 1.5°C. In 2019,
we made a further commitment to climate
action by approving a target to be carbon
neutral in our own operations by 2030.

Sustainability and corporate responsibil
ity are integrated into the business with the
aim of understanding and proactively manag
ing environmental, social and economic risks,
opportunities and impacts within each seg
ment and market area. Integrating sustain
ability practices and programs throughout the
Company can help us to run operations more
efficiently and deliver value to our customers.

Ericsson’s Ethics & Compliance program

The Ethics & Compliance program at Ericsson focuses on business ethics risks e.g.
in the areas of corruption and money laundering, fair competition, data protection,
and sanctions and export control. In recent years, Ericsson has added significant
resources to further strengthen its Ethics & Compliance program, particularly with
respect to anti bribery and corruption. The antibribery and cor ruption program
consists of ten core elements designed to collectively enable the Company to raise
awareness, to prevent and detect mistakes and breaches of our Code of Business
Ethics, and to respond and remediate quickly when needed.

These ten elements are based on the expressed expectations of national regula
tors such as the US Securities and Exchange Commission (SEC), the US Department
of Justice (DOJ), the UK Serious Fraud Office (SFO) and others, as well as good
practices endorsed by public international organizations such as the OECD,
Trans parency International and the World Bank.

Ericsson will continue to invest in its Ethics & Compliance program in order to
achieve a stateoftheart program. Please refer to the section on anti corruption
on page 182 of the Sustainability Report for a more detailed update on this subject.

Leadership
and culture

M&A
due diligence
and integration

Policies and
procedures

Monitoring
and testing

Allegations and
investigations

Compliance
organization

Risk
assessment

Third-party
management

Training and
communications

Reward and
sanctioning

Ericsson Annual Report 2019Net sales

SEK billion

250

240

230

220

210

200

230–240

227.2

210.8

2018

2019

Ambition 2020

Gross margin excl.
restructuring charges

37.5%

37–39%

35.2%

2018

2019

Ambition 2020

Operating margin excl.
restructuring charges

>10%

4.4%

1)
5.0%

2018

2019

Ambition 2020

1) The 2019 operating margin was 9.7%

when excluding restructuring charges and
costs related to the SEC and DOJ settle
ment of SEK –10.7 billion.

The business – Strategy and financial targets

Tracking towards our financial targets

While we are tracking well towards our tar
gets for 2020 and 2022 and remain highly
committed to them, our focused strategy aims
at building a stronger Ericsson longterm.
The key financial target for 2022 is to

reach an operating margin of 12–14%
excluding restructuring charges, to be com
pared to the previous 2022 target of >12%.
The nearterm focus is to continue the finan
cial turnaround, in order to reach an operat
ing margin of at least 10% in 2020, excluding
restructuring charges.

2019 progress
During 2019 we continued to execute on
our strategy, which is visible in our financial
metrics:
– The operating margin excluding restruc

turing is tracking towards the 2020 target
and has improved from 4.4% in 2018 to
5.0% in 2019. The 2019 operating margin
was 9.7% when excluding restructuring
charges and costs related to the SEC and
DOJ settlement of SEK –10.7 billion.

– The organic and FX adjusted sales growth
in 2019 was 4%, compared to 1% in 2018.

– Free cash flow before M&A was SEK 7.6
billion including payments made of
SEK 10.1 billion related to the settlement
with SEC and DOJ.

Strategy execution activities performed
during 2019 included:
– Continued investments in R&D for technol
ogy and cost leadership, R&D accounted
for more than 25% of workforce in 2019.

– The turnaround of Digital Services con
tinued, and we addressed 12 additional
critical contracts in Digital Services and
at yearend 35 of the 45 identified critical
contracts have been addressed.

– Ericsson announced 78 commercial 5G

agreements and contracts with individual
telecom operators.

– The Company supplied equipment to

24 live 5G networks.

– The transition to the Ericsson Radio
System was completed with all radio
unit deliveries in 2019.

2020 increased net sales
ambition driven by Networks
In 2019 the Company increased the net sales
ambition for 2020 to SEK 230–240 billion
(based on a USD to SEK rate of 9.5), to be
compared to the previous 2020 sales ambi
tion of SEK 210–220 billion. The increase is
mainly expected in Networks, driven by a
growing radio access network (RAN) market,
favorable FX movements, the acquisition of
Kathrein’s antenna and filter business and
selective market share gains. Actual sales
in 2019 was SEK 227.2 billion.

Continued focus on gross margin
Gross margin in 2019 has improved, driven
by structural improvements. Cost reductions,
efficiency improvements and investments in
R&D in selected areas are important to keep
us competitive and generate further expan
sion of gross margin. When pursuing expan
sion of market footprint, initial margins may
be challenging, while expected to be profitable
over time and support our financial targets.

R&D to drive profitability
We expect our R&D investments to drive
profitability, and to secure technology and
cost leadership. Continued technology
invest ments are fundamental for longterm
competitiveness and a key part of our focused
strategy. In Networks we have increased
investments to generate more costefficient
networks for our customers, enable new
services and improve serviceability. As 5G is
being deployed in high, mid and lowband
spectrums, this requires us to develop diffe
rent variants to meet different customer
demands. In Digital Services we are investing
to develop a full 5G and cloudnative port
folio. In Managed Services we are investing
in automation, analytics and AI driven offer
ings, to support 5G, IoT and cloud as well
as to increase service delivery efficiency. In
Emerging Business we are increasing our
investments in IoT to leverage our position
and capture new revenue streams.

Technology leadership will also be a
contributor to market share generation and
to increase advantages of scale. There will
be a continued high focus on implementing
structural and continuous improvements in
SG&A expenses to safeguard target fulfilment
and longterm profitability.

Ericsson Annual Report 201912

The business – Strategy and financial targets

Working capital efficiency and
free cash flow in focus
The strong focus on cash flow is paying off.
Our ambition is to maintain a strong balance
sheet and we aim to secure financial resil
ience, improve performance visibility, increase
accountability and drive focus on profit and
cash. In 2019 the Company increased the
target for 2020 free cash flow before M&A,
from “positive” to “strong”. As illustrated in the
graph below, based on an operating income
of >12%, Ericsson has the ambition that free
cash flow before M&A should be >8% of net
sales. In 2019, the free cash flow was 3.4%
of net sales by the new definition from the Q4
2019 report, where free cash flow before M&A
has been adjusted to include amortization of
lease liabilities according with IFRS 16.

The target is to improve collection and
credit management as well as sourcing and
supply chain management, 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. Our planning assump
tion for CAPEX including capitalized develop
ment expenses is 2% of net sales, but this can
vary depending on the investments we make,
and for instance in 2020, we are building a
new 5Gfactory in Lewisville, Texas. M&A will
vary depending on strategic decisions but are
assumed to be around 1–2% of net sales, in
line with the last few years. During 2015–
2019 restructuring charges in percent of sales
was on average 2.8%. In 2020 the ratio is
estimated to be approximately 1% and our
ambition is to maintain restructuring charges
at that level going forward.

To support free cash flow generation, we
apply financial discipline with priority on profit
ability and return on capital over growth.

Target breakdown
In the process to improve financial perfor
mance, all segments are critical for success
and all have clear targets and focus areas

supporting the Group targets for 2020 and
2022. The sum of the segments’ operating
margin targets for 2020 is 10–13%, com
pared with >10% for the Group. For 2022
the sum of the segments’ operating margin
targets is 12–14%, the same as for the Group.
We see opportunities for growth above

the estimated market growth. Please see
pages 19–22 for specific growth CAGR for
each segment. Opportunities can be achieved
through winning market share with a compet
itive product portfolio and cost structure,
through growth in new businesses, and
through M&A.

While we are committed to, and are track
ing towards, our targets for 2020 and 2022, our
focused strategy aims at building a stronger
Ericsson long term, beyond 2022, with con
tinued sales growth and improved returns.

Free cash flow generation

Bridge from operating income to free cash flow (illustrative)

Operating margin

2018

4.4%

2019

5.0%

Ambition

>12%

financial net, tax and other

-3.8%

-2.5%

-4%

+ depreciation and amortization

+3.9%

+2.9%

+3 to 4%

+ depreciation of leased assets

–

+1.1%

+1%

± change in working capital

+3.7%

+1.0%

capex

leasing payment

restructuring costs1)

-2.4%

-2.8%

–

-1.3%

-3.8%

-0.4%

±0

-2%

-1%

= Free cash flow (before M&A)

2.0%

3.4%

>8%

M&A

-0.6%

-0.7%

~1 to -2%

Operating margin excluding restructuring charges. All numbers are in relation to net sales.
1) Restructuring charges as reported in the income statement for each year.

Comments
– Focus on delivering a high conversion
of operating income to free cash flow

– Ongoing activities to reduce costs

“below operating income”, including
restructuring, financial net and tax
– Striving to maintain working capital

efficiency but fluctuations may impact
cash flow

– Planning assumption for capex is about
2% of net sales, while expected to
remain above 2% in 2020 due to the
new factory in the US

– Ambition to over time maintain

restructuring charges to around 1%
of net sales

– M&A will vary depending on strategic
decisions but assumed to be around
1–2% of net sales

Ericsson Annual Report 2019The business – Strategy and financial targets

Group financial targets and ambitions

Targets for 2022

Targets for 20221)

Operating margin

12–14%

Free cash flow before M&A

Strong

2022 targets by segment1)

Networks

Digital Services

Managed Services

Emerging Business and Other

Operating margin target
15–17%

Operating margin target
10–12%

Operating margin target
8–10%

Operating margin target
N/A

1) Excluding restructuring charges.

Targets and ambitions for 2020

Targets for 20201)

Operating margin

>10%

Free cash flow before M&A

Strong

Group financial ambitions and enablers for 2020 target fulfillment1)

Sales ambition

Gross margin

R&D

SG&A

SEK 230–240 billion

37–39%

Continued investments but
growing slower than sales

Structural improvements

2020 targets and sales ambitions by segment1)

Networks

Net sales ambition
SEK 160–164 billion

Digital Services

Net sales ambition
SEK 41–43 billion

Managed Services

Emerging Business and Other

Net sales ambition
SEK 23–25 billion

Net sales ambition
SEK 6–8 billion

Operating margin target
15–17%

Operating margin target
Low single digit

Operating margin target
5–8%

Operating income target
SEK –1.5 to –2.0 billion

1) Excluding restructuring charges.

Ericsson Annual Report 2019Differentiating
the 5G user
experience

A cluster-based deployment strategy with focus
on the customer experience.

This article was written in cooperation with SK Telecom,
a communications service provider in South Korea creating
value in diverse ICT-related markets, including mobile services,
media, security and commerce. This is an excerpt from the
November 2019 edition of Ericsson Mobility Report.

Ericsson Annual Report 2019

The business – Differentiating the 5G user experience

Providing premium network experience
in selected cluster sites
SK Telecom completed the first phase of its
5G deployment in 2019. The operator
focused on an initial build-out of coverage
primarily in major metropolitan areas, along
major traffic and commuter routes and in
other densely populated areas. The second
phase is now continuing with a build-out of
5G coverage on mid-band. It will be comple-
mented by deployments in the millimeter
wave band to meet expected capacity needs
and increase network speeds in selected
densely populated areas.

A cluster-based 5G deployment strategy
To drive further uptake of 5G services,
SK Telecom has identified areas with large
numbers of potential consumers who could
be provided with a variety of high-quality
services supported by a dense 5G network.
Identifying and selecting such areas is a key
element in SK Telecom’s cluster-based 5G
deployment strategy, which aims to provide
various new services and benefits to custom-
ers in specific clusters, and thereby to create
new business growth opportunities. The
strategy is therefore centered around provid-
ing a premium 5G network experience and
innovative services to customers in selected
limited geographical locations. The goal is to
drive uptake of 5G subscriptions in the clus-
ters, as well as to stimulate the development
of new 5G services for consumers, enter-
prises and industries.

Enhancing customer value
In the clusters, 5G network capacity will be
built out to provide for high-volume data
traffic and include localized services and
benefits tailored to each area’s specific char-
acteristics. The objective of the 5G clusters is

1) Source: Ericsson Mobility Report.

to enhance customer value, showing the
features and benefits of 5G-enabled services,
and making it obvious that these services
bring new user experiences compared to 4G.
Because the 5G ecosystem is still under
development, consumers will be the initial
target group, while industry and enterprise
opportunities will be addressed on an ‘on-
demand’ basis to drive industrial innovation.

Selection criteria for cluster areas
The target areas for the 5G cluster-based
deployment are selected by using floating
population data, which identifies the loca-
tions of areas where many potential consum-
ers are expected to need 5G services. The
initial main targets are areas of high popula-
tion or office areas with people in the 20–40
age group, as well as areas with high sea-
sonal populations. One example of a cluster
area is eSport stadiums, which provide vari-
ous augmented and virtual reality services
linked to watching eSports while supporting
the gaming culture. Other examples include
popular urban areas where local shops, cafes
and restaurants are promoting digital offer-
ings such as customer-centric discount cou-
pons, discount promotions or events. Another
selection criteria is areas with expected
potential future demand for business-to-
business (B2B) services using 5G. Mobile
game development clusters, where 5G net-
works with low-latency capabilities can be
used by the gaming industry, is one example.
During 2019, more than 70 cluster areas
were selected to stimulate innovation and
the uptake of new 5G services mainly
addressed to consumers. Further cluster
expansion will follow, along with the devel-
opment of further 5G-based, B2B-specific
solutions.

SK Telecom’s go-to-market services
strategy for 5G
SK Telecom is initially targeting the enhanced
mobile broadband opportunity of immersive
consumer experiences based on virtual and
augmented reality (VR/AR) and highqual
ity streaming content in ultrahigh defini
tion (UHD) formats (2K, 4K and 8K). VR and
AR are both parts of rapidly evolving device
ecosystems which include smartphones,
headsets, glasses and displays.
The multimedia content produced includes
multi-view and pinch-zoom features to
enhance and differentiate the 5G media
experience compared to watching regular TV
or video content. For example, SK Telecom’s
Social VR service enables multiple users to
experience sports events and movies
together in a virtual environment as if they
were in the same physical location.
New business opportunities in the game
streaming market will emerge with the intro-
duction of ultra-low-latency capabilities in
the 5G networks.

5G drives an increase in average
mobile data consumption
In September 2019, a 5G subscriber’s aver-
age monthly data consumption in South
Korea was almost three times higher than
that of 4G subscribers. Under one possible
scenario, if SK Telecom were to reach 2.2
million 5G subscribers with an average
monthly data consumption of around 28 GB
by the end of 2019, about 25 percent of its
total mobile traffic would have been carried
over the 5G network.1) SK Telecom continues
to build out 5G coverage during 2020.

SK Telecom’s choice of 5G cluster areas

Service cluster
5G League of Legends Park
(eSports stadium),
Olympic Park etc.

Commercial area cluster
10 key commercial areas
nationwide

Summer cluster
Key beaches and water parks

B2B cluster
Manufacturing, smart city,
smart office and smart hospital

Innovation

We invest in R&D and in innovation to create
both technology and cost leadership.

The business – Innovation

Global R&D and supply chain

Our strategy is built on our customers’ needs, and our ambition is to be close
to our customers through the whole supply chain. Through our R&D efforts
we build long-term value.

Research and Development
Our investments in R&D generate technology
and cost leadership for us and our customers.
Ericsson has 25,100 employees within
Research & Development, which represent
about a quarter of Ericsson’s employees.

In Research the focus is long-term. We
have dedicated research teams located across
the world who stay on top of what the tech-
nology future will look like and why it matters.
In Development the focus is on making timely
product investment decisions and executing
them with the right capabilities and at the
right cost.

Our insight into the emerging technology

trends and potential disruptors is high,
supported by collaboration initiatives with
leading industry forums and universities

globally. Emerging technologies such as edge
compute, zero touch, artificial intelligence and
virtual and augmented reality are researched,
and 6G is already being explored.

Supply chain
Our supply chain aims to secure high-perform-
ing, sustainable and cost-effective deliveries
of hardware products, software and services
to our customers. This requires the global
supply chain management and resource man-
agement to be in constant close cooperation
with sales and product management.

Our 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 transportation by

road, train or ship. This also includes proactive
and reactive supply chain risk management
as well as ensuring adherence to our imple-
mented global standards. Our manufacturing
sites and logistics operations are there to
deliver business value and to ensure that 5G
meets industry requirements.

Through our Code of Conduct for business

partners we conduct audits to verify Code
of Conduct compliance. New suppliers that
meet certain criteria are required to complete
a self-assessment, while existing suppliers
must update their self-assessment on a regular
basis. Read more on responsible manage-
ment of suppliers in our Sustainability Report
on page 186.

Manufacturing sites

Service delivery centers

R&D

Brazil
China
Estonia
India
Mexico
Poland
USA

China
India
Mexico
Romania

Brazil
Canada
China
Finland
France
Germany
Hungary
India

Ireland
Italy
Poland
South Korea
Spain
Sweden
USA

Ericsson Annual Report 2019Segments

Our segment structure is based on our customers’ needs,
enabling us to efficiently provide products and services.

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 end-to-end.

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

Investments to improve network agility

will enable our customers to address new
revenue streams. The revenue opportunity
will open up 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.

In order to secure technology and market
leadership in 5G networks, we work with lead-
ing customers. The strategy is to continue to
gain market share and to seize new business
opportunities where it makes business sense,
through a competitive product portfolio and
a compe titive cost structure. The ambition
is also to expand and adopt the portfolio to
better serve adjacencies such as fixed wire less
access, public safety applications, industry
digitalisation and other verticals.

By the end of 2019, Ericsson had

announced 78 commercial 5G agreements
with individual operators, of which 24 were
live networks, by the end of the year.

Sustainability focus
The energy-efficiency of products, sustaina-
ble materials management as well as circular
economy such as reuse and recycling, are key
areas of importance for Networks. One of the
major cost items for operators is energy for
network operations. Networks is investing to
improve the energy performance of its offer-
ings, to lower customers’ total cost of owner-
ship and to reduce the carbon footprint from
its products. Circular Economy is a topic with
an increased focus, where Networks is focus-
ing on reuse, refurbishment and recycling of
products. During 2019, the segment launched
a refurbished spare parts offering.

Business model
Networks business is primarily based on a
transactional model, where Ericsson devel-
ops, sells, licenses and delivers hardware,
software and services. Networks business
also includes recurring revenue streams such
as customer support and certain software
revenues.

Market
In 2019, the market that Networks addresses,
the RAN market, grew by 5.5%, driven by
investments in North America and Asia.
2019 was the year when 5G took off.
Ericsson was first with commercial live net-
works in four continents – Americas, Europe,
Asia and Oceania. This included multiple
operators in the United States, South Korea,
Europe as well as in Australia and the
Middle East.

Strategic priorities
Networks’ three strategic priorities are to
invest in technology and cost leadership,
to expand market share selectively and to
accelerate 5G with leading customers.
Investments in R&D are focused on
gen erating more cost-efficient networks for
our customers, enabling new services and
improving serviceability. The constantly
increasing mobile data usage is estimated to
grow four times by the end of 2025, highlight-
ing the operators’ need to lower the cost per
gigabyte to remain profitable. Revenue and
profitab i lity can also be increased by new
advanced services.

In 2019, the Company acquired Kathrein’s
antenna and filter business with a strong R&D
organization and extensive experience in
antenna design and research. This enabled us
to broaden our portfolio of antenna and filter
products and brought essential competence
regarding the evolution of advanced radio
network products.

Fredrik Jejdling
Head of Segment Networks

“5G is taking off and our
investments in technol-
ogy leadership are show-
ing results as customers
on four continents have
launched 5G networks
with Ericsson.”

Net sales (growth YoY)
SEK 155.0 billion (12%)
Reported operating income
SEK 24.8 billion
Operating income excl.
restruct uring charges1)
SEK 24.8 billion

Ericsson’s market position2)
Top two in Radio Access Network
(RAN) equipment

Financial targets and sales ambitions

Sales ambition
(SEK billion)

Operating margin
target3) (%)

2020

2022

160–164

15–17

1) Reported operating income excluding SEK –0.1

billion related to restructuring charges.

2) Source: Dell’Oro.
3) Excl. restructuring charges.

Ericsson Annual Report 201920

The business – Segments

Jan Karlsson
Head of Segment Digital Services

“We work at the core of
5G, leading customers
towards cloud native
networks that serve
their consumer and
enterprise business.”

Net sales (growth YoY)
SEK 39.9 billion (5%)
Reported operating income (loss)
SEK –4.0 billion
Operating income excl.
restruct uring charges1) (loss)
SEK –3.4 billion

Ericsson’s market position2)
Varies depending on area: #1–2
in Core. #1–3 in Communication
Services. Among top 3 leaders in
OSS and BSS.

Financial targets and sales ambitions

2020

2022

Sales ambition
(SEK billion)

Operating margin
target3) (%)

41–43
Low
single digit

10–12

1) Reported operating income excluding SEK –0.6

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 (Orches-
tration)

3) Excl. restructuring charges.

Digital Services

Offering – main components
Digital Services provides solutions consisting
of software, services and hardware in the
areas of business support systems (BSS),
operational support systems (OSS), cloud
communication, cloud core, and cloud infra-
structure. The portfolio is focused on 5G, cloud
native, automated and industrialized solu-
tions to facilitate a smooth journey towards
5G for our customers’ consumer and enter-
prise business. Customers’ consumer business
is the main business driver of solutions that
Digital Services provides, but their enterprise
business is increasingly important. One exam-
ple is their private networks and IoT offerings,
in which the core network plays a vital role.

Business model
Ericsson develops, sells, licenses and delivers
solutions, based on software and services,
for specific functions or capabilities in our
customers’ operations. The contracts are
typically systems integration projects, com-
bining Ericsson software and high-value
services. Customer support and software
upgrades typically continue to generate
sales for Ericsson after delivery of the initial
solution. Ericsson has a selective approach
to large and complex customer transforma-
tion projects. We strive for a gradually higher
proportion of recurring revenues through
subscription-based software licensing that
includes soft ware upgrades and solution
support. Over time, we expect the sales-mix
to shift towards a higher portion of software
content driven by the adoption of cloud native
and automation technologies.

Market
Ongoing digitalization, together with virtu-
alization, cloud native and 5G, is driving new
opportunities for operators. Digitalization
gives possibilities to capitalize on the invest-
ments by programming and slicing 4G and 5G
networks for specific consumer and enterprise
needs. There are also possibilities to automate
operations and thus become more agile and
radically more efficient with digitalization.

Market growth varies between and within

areas. The average growth 2018–2023
CAGR is low single digit, with pockets of up
to mid-teens growth, e.g. in orchestration
(source Analysys Mason). The growth is
primarily driven by the ongoing technology
shift to 5G.

Strategic priorities
Top priority is to continue to increase sales
of the new 5G and cloud-native portfolio
while turning Digital Services into a profit-
able business.

During 2019 we proceeded with actions

to improve efficiency and reduce cost. To
date we have also addressed 35 of the 45
critical and non-strategic contracts identified
in 2017. The execution of the BSS strategy
outlined in the beginning of 2019 is progress-
ing according to plan. In 2019 losses were
significantly reduced and the segment is
tracking towards its financial targets.

For the long term, Ericsson works to
ensure that investments in the new portfolio
of 5G and cloud native products continue to
strengthen the market position and equip
Digital Services for profitable growth.

The new portfolio sales increased by 7%
in 2019 and corresponds to approximately
two thirds of total product sales.

The continued turnaround is executed
in four strategic areas: customers, portfolio,
commercial and operational. Key activities
include:
– Growing sales in line with market

development.

– Maintaining a disciplined portfolio

management and evolving the portfolio
together with leading customers.

– 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.

Another key activity for the turnaround is to
address (finalize, renegotiate, or both) the
remaining critical projects.

Sustainability focus
Digital Services focus is on utilizing the full
value of connectivity and enabling operators
to engage with modern digital ecosystems.
Critical aspects when engaging in these eco-
systems are network security, the protection
of sensitive data and right to privacy. Ericsson
is committed to developing software solutions
while meeting security and privacy require-
ments. By using the latest cloud and automa-
tion technologies, hardware resources can be
utilized more efficiently.

Ericsson Annual Report 2019The business – Segments

Managed Services

Strategic priorities
In order to achieve the 2020 and 2022
fin ancial targets, important priorities include:
– A higher share of business from the

Ericsson Operations Engine, while main-
taining strict financial governance on
new contracts.

– Industrialization and mass-deployed AI
and automation to drive continued effi-
ciency in the service delivery organization.

– Investments to continue in R&D for AI,

automation and data driven offerings to
support 5G, IoT and cloud.

Sustainability focus
The use of automation, machine learning
and artificial intelligence improves both net-
work optimization and management while
reducing negative environmental impact
and contributing to increased occupational
health and safety. The ambition to strengthen
energy management solutions and reduce
carbon footprint is planned to be driven
through a new Managed Services sustain-
ability program.

We take an inclusive, risk-based approach
to occupational health and safety that incl udes
employees and anyone working or managing
networks on our behalf. Consideration for
safety and wellbeing is of crucial importance
to Ericsson in all areas of our business.

Offering – main components
Managed Services provides Networks and IT
Managed Services, Network Design and Opti-
mization, and Application Development and
Maintenance to operators.

The AI and data driven Managed Services
offering, Ericsson Operations Engine, pro act-
ively manages operator networks to enhance
customer experience, drive agile service
creation, and optimize costs.

Business model
Managed Services operate customer net-
works and IT systems both in the field and
remotely from our network operations cent-
ers. The contracts are typically multi-year,
including transition, transformation and
optimization phases. 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, AI and automation tools
and delivery models are introduced. The
optimization phase focuses on increasing
efficiency using industrialized solutions for
AI, automation and analytics.

Managed Services has a high contract
renewal rate and a higher capital turnover
ratio than Group average.

Market
The introduction of 5G and IoT is driving new
opportunities for Managed Services, as the
growth in data traffic and number of devices
increases network complexity, generates a
high demand for better end-user experience,
and a continued need for cost efficiency.

All this can be addressed with industrial-
ized solutions in automation and analytics.
Managed Service’s market is expected to
grow by between 3% and 5% CAGR between
2018 and 2022.

Peter Laurin
Head of Segment Managed Services

“5G and IoT drive
new opportunities
for Managed Services
as we transform the
market with the
AI-driven Ericsson
Operations Engine.”

Net sales (growth YoY)
SEK 25.6 billion (–1%)
Reported operating income
SEK 2.3 billion
Operating income excl.
restructuring charges1)
SEK 2.4 billion

Ericsson’s market position2)
Top two

Financial targets and sales ambitions

Sales ambition
(SEK billion)

Operating margin
target3) (%)

2020

2022

23–25

5–8

8–10

1) Reported operating income excluding

SEK –45 million related to restructuring charges.

2) TBR – Telecom Infrastructure Services (TIS)

Benchmark Data, Jan 2020.
3) Excl. restructuring charges.

Ericsson Annual Report 2019Emerging Business and Other

Offering – main components
The Emerging Business and Other segment
consists of:
– Emerging Business, including IoT,
iconectiv and New businesses.

– Media businesses, including Red Bee

Media (formerly Broadcast Services) and
a 49% ownership in MediaKind (formerly
Media Solutions).

Emerging Business is the area for investments
building on Ericsson’s core business and
R&D. The objective is to identify new revenue
sources for operators and new types of busi-
nesses. Major initial investments areas are
IoT offerings, Industry 4.0 and automotive.

iconectiv offers software-based intercon-

nection solutions providing number porta-
bility between operators.

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

MediaKind includes platforms for compres-

sion, video processing and storage, content
publishing and delivery. Since February 1,
2019 Ericsson has 49% ownership in Media-
Kind after having divested 51%.

Strategic priorities
To fully leverage Ericsson’s market position,
capture new recurring revenue streams and
create long-term value, the segment needs to
do additional investment in IoT which means
that the segment is not expected to reach
a breakeven result in 2020.

The expected result for Emerging Business
and Other in 2020 is an operating income loss
of SEK –1.5 to –2.0 billion, excluding restruc-
turing charges, with a net sales ambition of
SEK 6–8 billion given the current portfolio
and scaling of opportunities.

Emerging Business applies a disciplined

and lean startup approach by conduct-
ing regular business performance reviews
compared to target milestones and leading
indi cators for funding approvals.

Sustainability focus
New digital technologies such as 5G and
IoT, can have a positive impact on climate
action and we believe that Ericsson is in a
unique position to drive sustainable develop-
ment and influence emissions reductions in
several industry sectors. As an example, the
transportation industry accounts for 21% of
the world’s carbon emissions. Solutions such
as vehicle navigation and assisted driving
systems, can reduce fuel consumption and
emissions by 12%.

In Ericsson’s factory in Estonia we have
implemented 5G, augmented reality, indus-
trial IoT and machine learning, thus increas-
ing our operational efficiency and workplace
health and safety. Average fault detection
time has been reduced by 15%, and factory
heating costs are potentially reduced by
up to 20%.

The business – Segments

Åsa Tamsons
Head of Segment Emerging Business
and Other

“5G, automation,
Augmented Reality/
Virtual Reality, big data
and AI are trends driving
growth in new value
pools with industrial
and IoT use cases.”

Net sales (growth YoY)
SEK 6.8 billion (–19%)
Reported operating income1) (loss)
SEK –12.5 billion
Operating income excl.
restructuring charges1,2) (loss)
SEK –12.4 billion

Financial targets and sales ambitions

2020

2022

Sales ambition
(SEK billion)
Operating income3)
(SEK billion)

6–8
–1.5 to
–2.0

N/A

1) Operating income includes cost of SEK –10.7 b.

related to the resolution of the SEC and DOJ inves-
tigations in 2019.

2) Reported operating income excluding

SEK –0.1 billion related to restructuring charges.

3) Excl. restructuring charges.

Ericsson Annual Report 2019Market
areas

Our global skill and presence enable us to develop close
relationships with our customers across the world.

The business – Market areas

Our geographical structure

Our geographical structure is comprised of five market areas, to provide clear customer
interfaces and fast time-to-market. Our geographical market areas are responsible for
selling and delivering the competitive solutions that our business segments develop.

North America

Net sales:
SEK 70.2 billion

Number of
employees:
9,643

Europe and
Latin America

Net sales:
SEK 59.0 billion

Number of
employees:
47,135

Middle East and
Africa

Net sales:
SEK 25.5 billion

Number of
employees:
4,297

South East Asia,
Oceania and India

Net sales:
SEK 29.8 billion

Number of
employees:
24,559

North East Asia

Net sales:
SEK 26.4 billion

Number of
employees:
13,783

Other

Net sales:
SEK 16.3 billion

Includes primarily
IPR licensing reve-
nues and the major
part of the segment
Emerging Business
and Other

Sustainability focus across our business

As an important input to Ericsson’s continu-
ous efforts to assess the environmental,
economic and social topics that are significant
to the Company, materiality assessments
were carried out with each market area. The

results show a common view around the most
important areas outlined to the right and are
listed on respective Market Area pages (pages
25–29). More information on Sustainability
topics can be found on pages 179–195.

2019 top commonly prioritized
Sustainability areas by all market areas1)
– Access and affordability
– Anti-corruption
– Information security and privacy
– Management of legal and regulatory

environment

– Occupational health and safety
– Product energy performance

1) Areas listed in alphabetical order.

Ericsson Annual Report 2019The business – Market areas

North America

Market trends
LTE penetration is currently 91% in North
America. The transition to 5G is moving
rapidly across the US. Ericsson led the way
in 2019, deploying 54 live 5G networks in
44 unique markets across all major opera-
tors in the US with an unparalleled series
of industry firsts. AT&T and Verizon each
deployed 5G mmWave services in over 30
markets. Sprint deployed 5G in the mid-band
across nine markets, while T-Mobile deployed
5G mmWave services in six markets and
launched nationwide in the low band. In
Canada, Rogers is planning a commercial 5G
launch in 2020. All operators are advertising
aggressive network expansion plans, with
many new devices planned for 2020. By the
end of 2025, we anticipate close to 320 mil-
lion 5G subscriptions in the region, accounting
for 74% of mobile subscriptions.

The US government continues to make 5G
leadership a strategic priority, targeting accel-
erated spectrum deployment, network build
regulation, and innovation in the broader
ecosystem.

In 2019 the US DOJ1) and FCC2) approved

a proposed merger between T-Mobile and
Sprint under conditions supporting DISH Net-
works becoming a new nationwide wireless
operator. In February, 2020, a federal judge
in New York found in favor of the merger. The
deal remains subject to certain closing condi-
tions, possible additional court proceedings,
and resolution of outstanding business issues
among the parties.

Binding commitments made by T-Mobile
and DISH Networks to the FCC and DOJ for
national/rural 5G and mobile broadband
coverage may intensify the US 5G buildout.

The RAN market in North America grew
by 9% in 2019 and is expected by Dell’Oro to
grow by 1% in 2020.

Key announcements 2019
– Ericsson announces USD 100 million
investment to build 5G smart factory
in Texas

– AT&T and Ericsson are making 5G a reality,
delivering ground-breaking innovations
– Ericsson leads Sprint’s initial commercial
mobile 5G launch across four US cities
– T-Mobile partners with Ericsson and others
to accomplish key technology achieve-
ments towards delivering nationwide 5G

– Ericsson leads Verizon’s first 5G ultra-
wideband commercial services launch

Sales development 2019
Sales increased in 2019. Networks sales
increased driven by investments in 4G and 5G
across all major customers. Digital Services
sales increased as operators digitalize in
preparation for 5G. Managed Services sales
grew, driven by strong add-on sales in large
customer contracts. Uncertainties regard-
ing the pending operator merger between
T-Mobile and Sprint impacted capital spend
during Q4 2019.

Sustainability focus
In North America in 2019, the identified signifi-
cant sustainability topics in priority order were:
information security and privacy, anti-corrup-
tion, access and affordability, product energy
performance and responsible management
of suppliers.

1) The US Department of Justice.
2) The US Federal Communications Commission.

Net sales

SEK billion

70.2

58.6

52.0

2017

2018

2019

Net sales

Mobile subscription per technology

100

2019

2025

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Niklas Heuveldop
Head of Market Area North America

“Ericsson led the
way, deploying 54
live 5G networks in
44 unique markets
across all major
operators in the US.”

Customers include
AT&T, Rogers, Sprint,
T-Mobile, Verizon

Employees
9,643

Ericsson Annual Report 2019
26

The business – Market areas

Arun Bansal
Head of market area Europe
and Latin America

“Eleven 5G networks in
eight European coun
tries launched using
Ericsson technology.
We also expanded our
footprint in selective
markets.”

Europe and Latin America

Market trends
The market area Europe and Latin America
had 1.8 billion mobile subscriptions in 2019,
representing more than 22% of the global
total. Ericsson forecasts 5G to account for
around 55% of all mobile subscriptions in
Western Europe and around 25% in Central
and Eastern Europe by the end of 2025.
In Latin America, LTE is the dominant tech
nology in 2019, accounting for 51% of all
subscriptions, which Ericsson expects to rise
to 69% in 2025. By then, Ericsson expects that
5G will account for 11% of all subscriptions.
On April 17, 2019, Swisscom switched on

the first European commercial 5G network,
which was 100% powered by Ericsson. Since
then Ericsson equipment has been part of ten
live 5G networks across eight European coun
tries. However, the overall pace of 5G deploy
ments in Europe is expected by Dell’Oro to lag
that of North East Asia and the US.

Market conditions such as uncoordinated
timing of spectrum release, prices and license
terms act as head winds to deployments in
the market area.

In Western Europe, Ericsson expects
the majority of 5G spectrum to be released
by the end of 2020 with an EU deadline for
spectrum release set for end 2022. The cur
rent approach to 5G spectrum assignment
in Europe is mixed. There is a high variance
in spectrum prices with a close correlation to
the amount of spectrum made available.
In Latin America, Ericsson expects 5G

spectrum to be auctioned in a number of
countries next year.

In Europe and Latin America, the RAN
equipment market is expected by Dell’Oro to
remain relatively flat over the next 4–5 years.

Key announcements 2019
– Orange opts for Ericsson Operations

Engine in managed services extension
– Telia Norway selects Ericsson as sole

5G RAN provider

– Vodafone goes live with Ericsson 5G

technology in London

– Ericsson and Swisscom in European

commercial 5G first

– TDC selects Ericsson for 5G and Ericsson
Operations Engine managed services

– Ericsson to transform Tele2 Russia

network towards 5G

– Telefónica Movistar México selects

Ericsson Expert Analytics to enhance
customer experience

Sales development 2019
Sales decreased slightly in 2019. Growth in
Europe was driven by previously announced
contract wins, partly offset by renegotiation
and exits of lowperforming and nonstrategic
businesses. Sales in Latin America declined
due to timing of large deployment projects.

Sustainability focus
In Europe and Latin America in 2019, the
identified significant sustaina bility topics
in priority order were: management of legal
and regulatory environment, information
security and privacy, anticorruption, occu
pational health and safety and product
energy performance.

Customers include
America Movil , Bouygues,
Deutsche Telecom, MTS, Orange,
Swisscom, Telecom Italia,
Telefonica, Vodafone, Wind Tre

Employees
47,135

Net sales

SEK billion

56.8

60.3

59.0

2017

2018

2019

Net sales

Mobile subscription per technology

100

2019

2025

5G
LTE/TDLTE
WCDMA_HSPA
TDSCDMA

GSM
CDMA
Other

Ericsson Annual Report 2019
The business – Market areas

Middle East and Africa

Market trends
The market area Middle East and Africa is
comprised by over 70 countries and is a highly
diverse region. While a majority of subscrip-
tions are still 2G and 3G, Ericsson believes 4G
to be the dominant technology by 2025 with
720 million subscriptions, comprising around
40% of the total. The race for 5G leadership in
the market area continues, with several front-
runner operators in the Middle East launching
commercial networks in 2019, putting the
market area among the early adopters of 5G.
Ericsson expects 5G network deployments to
take off on a larger scale in 2020 and 2021,
with total 5G subscriptions forecast to surpass
120 million in the market area by 2025.

The countries in the market area vary
from advanced markets having over 100%
penetration in mobile broadband subscrip-
tions to emerging markets with less than 10%
penetration. At the end of 2019, more than
25% of all mobile subscriptions in the Middle
East and North Africa were for LTE, while in
Sub-Saharan Africa LTE connections stood at
11% of the total. Mobile subscriptions in the
region are forecast by Ericsson to continue to
grow, with close to 75% of total subscriptions
expected to be on mobile broadband (3G, 4G
and 5G) networks by 2025. Driving factors
behind this shift include increased operator
investments, a young and growing population
with increasing digital skills, and the avail-
ability of more affordable smartphones and
mobile services in general.

Operators’ revenues are forecast by
Ericsson to grow slightly at 2% annually
between 2019 and 2025. However, regulatory
challenges (e.g. spectrum policy, SIM registra-
tion and local content requirements) still exist
in several countries, hence slowing market
growth.

Key announcements 2019
– STC and Ericsson launch 5G network

in Saudi Arabia

– Etisalat UAE selects Ericsson for 5G
– Mobily and Ericsson provided seamless

experiences for Hajj pilgrims

– Ooredoo Qatar selects Ericsson for 5G
– Batelco and Ericsson – 5G launch in

Bahrain

– Zain selects Ericsson for 5G in Bahrain
– MTN South Africa selects Ericsson for

commercial 5G Core and Radio

Sales development 2019
Sales increased in 2019 in Networks and
Digital Services, driven by 4G and 5G invest-
ments in the Middle East. Managed Services
sales declined due to exit of non-strategic
contracts.

Sustainability focus
In Middle East and Africa in 2019, the identi-
fied significant sustainability topics in priority
order were: anti-corruption, access and
afford ability, information security and privacy,
critical incident risk management and product
energy performance.

Fadi Pharaon
Head of market area Middle East
and Africa

“Focus is on differen-
tiation through cus-
tomer experience and
fintech. Multiple 5G
networks went live.”

Net sales

SEK billion

Mobile subscription per technology

% Mobile subscr. Middle East Africa

Customers include
Airtel, Etisalat, MTN, Ooredoo,
Orange, STC, Turkcell, Vodafone,
Zain

Employees
4,297

25.0

23.6

25.5

2017

2018

2019

Net sales

100

2019

2025

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Ericsson Annual Report 2019
28

The business – Market areas

Nunzio Mirtillo
Head of market area South East Asia,
Oceania and India

“Market fundamen-
tals are strong and
the demand for 5G
is growing.”

South East Asia, Oceania and India

Market trends
The market area South East Asia, Oceania
and India includes developed markets
with some of the most advanced networks
in the world, as well as emerging markets
where there is more opportunity for mobile
broadband capacity and coverage. In South
East Asia and Oceania (excluding India),
3G is still the dominant technology, at 44%
of all subscriptions in 2019. However, LTE
subscriptions grew by approximately 35%
during 2019, taking a 34% share of total
mobile subscriptions in the region. In India,
as a result of the strong growth in the number
of LTE subscriptions over the past couple
of years, LTE has emerged as the dominant
technology during 2019. By year end 2019,
LTE accounted for 48% of total mobile sub-
scriptions, and the share of 2G subscriptions
stood at 41%.

The overall telecom market in South
East Asia, Oceania and India has strong
fundamentals in terms of the growth in sub-
scriptions, smartphone penetration and data
consumption. At the same time, operators
are challenged by intense competition and
the cost of managing increased data traffic.
The demand for 5G is growing across most
markets as a means of increasing efficiency,
improving customer experience and creat-
ing new revenue opportunities. 5G has been
launched commercially in Australia and there
have been 5G trials during 2019 across India,
Indonesia, New Zealand, the Philippines,
Malaysia, Singapore, Thailand and Vietnam.

However, spectrum allocation constraints
mean that the majority of 5G deployments
across South East Asia and India are a few
years away.

Key announcements 2019
– Australia’s first 5G network goes live
– dtac and Ericsson sign partnership for

advanced network operations

– Telkomsel Indonesia to deploy Ericsson

core in preparation for 5G

– Airtel selects Ericsson for VoLTE expansion
– XL Axiata selects Ericsson to modernize

transport network in Indonesia
– Optus launches 5G in Australia
– Ericsson to deploy 5G-ready LTE equip-
ment for Vodafone Idea Ltd.’s network
in India

Sales development 2019
Sales remained stable in 2019. Growth in
Managed Services was driven by add-on sales
and by a contract that was signed in 2018.
Digital Services sales decreased, due to lower
legacy product sales in India.

Sustainability focus
In South East Asia, Oceania and India in
2019, the identified significant sustaina bility
topics in priority order were: information
security and privacy, anti-corruption, man-
agement of legal and regulatory environment,
product energy performance and occupa-
tional health and safety.

Net sales

Mobile subscription per technology

Net sales. SE Asia Oceania India

SEK billion

% Mobile subscr. SE Asia Oceania India

Customers include
Axiata Group, Bharti, NBN, Indosat
Ooredoo, Singtel, Smart, Telenor,
Telstra, True, Vodafone Idea

Employees
24,559

31.3

29.6

29.8

2017

2018

2019

Net sales

100

2019

2025

5G
LTE/TD-LTE
WCDMA_HSPA
TD-SCDMA

GSM
CDMA
Other

Ericsson Annual Report 2019
North East Asia

Market trends
In 2019, 5G took off in South Korea as all
three major operators started commercial 5G
services targeting mobile broadband sub
scribers. 69 days after network launch in April
2019, there were already more than 1 million
5G subscribers and by yearend the numbers
of subscribers had increased to more than
4.6 million. Network deployments for nation
wide 5G coverage will continue in 2020.
In Japan, 5G spectrum auctions were
concluded in the first half of 2019, and all
large operators are preparing for larger scale
deployments and commercial launches in
2020. The 2020 summer Olympic Games in
Tokyo is expected to be an important show
case for the 5G technology.

Initial 5G services were launched by all
three major operators in mainland China in
the second half of 2019. Investments in 4G
were reduced as the operators were planning
for the large scale 5G deployments in 2020.
The initial focus of the 5G investments in

North East Asia is on deploying enhanced
mobile broadband services and will later
move on to IoT connections and industrial
services such as healthcare, transportation
and smart manufacturing. Ericsson expects
the 5G subscription penetration to exceed
56% by 2025.

The business – Market areas

Key announcements 2019
– Ericsson and SK Telecom team up on cloud

native 5G core

– Ericsson wins 5G commercial deal with

KT and SKT

– Top three operators in China, namely

China Mobile, China Unicom and China
Telecom have signed 5G framework
agreements with Ericsson

– Ericsson and SoftBank Corp. to deploy

multiband 5G network

– Ericsson automated smart factory opera

tional in China

– Ericsson and KDDI to deploy 5G network
– Korea’s LG U+ selects Ericsson as a 5G

RAN and 5G Core vendor

Sales development 2019
Sales increased in 2019. The strong Networks
sales growth was driven mainly by 5G deploy
ment in South Korea, increased business
volumes in Japan and initial launch of 5G
in China. 4G in China continued to decline.
Digital Services sales were stable.

Sustainability focus
In North East Asia in 2019, the identified
significant sustainability topics in priority
order were: anticorruption, occupational
health and safety, information security and
privacy, critical incident risk management
and management of legal and regulatory
environment.

Chris Houghton
Head of market area North East Asia

“We are preparing
for an accelerated
rollout of 5G net
works in 2020.”

Customers include
China Mobile, China Telecom,
China Unicom, Chunghwa,
FarEasTone, KDDI, KT, LG U +, NTT
DoCoMo, SK Telecom, Softbank

Employees
13,783

Net sales

Net sales. NE Asia

SEK billion

Mobile subscription per technology

% Mobile subscr. NE Asia

23.6

22.3

26.4

2017

2018

2019

Net sales

100

2019

2025

5G
LTE/TDLTE
WCDMA_HSPA
TDSCDMA

GSM
CDMA
Other

Ericsson Annual Report 2019
Our people

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

Core values
Respect, professionalism and
perseverance

Purpose
Empowering and intelligent, sustain-
able and connected world, by relent-
lessly innovating technologies that
are easy to adopt, use and scale

To offer a great customer experience we must
create a great people experience. This is key
to the execution of our focused strategy. To
achieve this, we must be 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 when working at Ericsson.

Our philosophies
We have defined a set of people philosophies
to build greater transparency and alignment
about what informs some of our most critical
people related decisions, and to reinforce our
commitment to compliance and the impor-
tance of demonstrating ethical and responsi-
ble business practices in everything we do.
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 2019

During the past three years we set the foun-
dation and re-designed our ways of working
to create an even more positive employee
experience in support of our company trans-
formation. During 2019 we have focused on
the following areas.

Ethics and compliance
In the course of investigations by the US SEC
and DOJ, violations of Ericsson’s values and
Code of Business Ethics were identified. One
of the remedial actions in response to those
findings was to enhance our vetting system
for senior executives and introduce additional
integrity and background checks in other criti-
cal positions. We are also taking a rigorous
approach to remediation of breaches of the
Code of Business Ethics. Whereas there is
a dedicated Ethics & Compliance Function in
charge of driving the overall Ethics & Compli-
ance program throughout the organization,
compliance is the responsibility of all our
employees and management is expected to
demonstrate visible leadership in responsible
and ethical business. Read more on page 10.

Succession and people planning
We have continued to build a strong succes-
sion bench with our critical positions in focus.
We actively manage the pipeline for those
positions, in order to reduce risk of vacancy

and to ensure performance. This work, initi-
ated in 2018, was cascaded during 2019,
establishing a common way of working with
strategic succession planning across the
company.

Performance management
We have a flexible, future-focused, develop-
ment-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, has
given us increased speed to action in a more
transparent and inclusive way. Aligned with
our improved company performance and an
increased focus and investment in improv-
ing our employee experience, we see a clear
positive trend. Both the results and response
rate for our employee satisfaction survey
have improved between 2018 and 2019.
The Ericsson Care Framework was launched
as a new holistic approach to occupational
health, safety and wellbeing.

Building leadership capabilities
for the digital world
Ericsson on the Move is our leadership culture
transformation initiative to equip our people
to lead in a digital world. This initiative is also
deeply rooted in our commitment to develop
ethical and responsible leaders across the
organization.

The five focus areas for this initiative are

fundamental to strengthen our leadership
culture: foster a speak up environment; exe-
cute speedily; consistently make fact-based,
courageous decisions; cooperate and collabo-
rate to create One Ericsson; and increase our
focus on humanness and empathy.

Learning and development
In 2019 we activated a new, mobile-first,
learning ecosystem that amplifies our learn-
ing and teaching culture in a digital age of
continual skill set and mindset growth. The
ecosystem connects learners to both content
and community, including over 23,000 educa-
tional experiences, as well as intensive upskill-
ing and reskilling programs. 2.5 million hours
were invested by employees in active learning
and development, re-skilling/upskilling our
people for business growth and individual
career advancement.

Ericsson Annual Report 201932

Financials – Letter from the Chair of the Board

Ronnie Leten
Chair of the Board

Dear shareholders,

During 2019, important focus areas of the
Board include corporate governance and to
ensure that sufficient investments are being
made available to strengthen the Ethics and
Compliance program. Target areas include
leadership and culture, compliance resources,
third-party management and internal control.

In 2019, settlement discussions with
the United States Securities and Exchange
Commission (SEC) and the United States
Department of Justice (DOJ) resulted in a
resolution that allows us to bring an end to the
investigations conducted by the US authorities
since 2013 and 2015 into Ericsson’s compli-
ance with the US Foreign Corrupt Practices
Act (FCPA). The resolution identified historical
breaches of the United States Foreign Corrupt
Practices Act and highlighted shortcomings
in the way the Company has been doing busi-
ness in the past. Strengthening the Ethics and
Compliance program to ensure that Ericsson
lives up to the highest standards remains a top
priority for the Board. The Audit and Compli-
ance Committee regularly receives reporting

Letter from the Chair of the Board

on compliance related matters from the Chief
Legal Officer, the Chief Compliance Officer
and the Head of Corporate Investigations.
Conducting business responsibly also
includes a commitment to health and safety
and responsible sourcing, and to continuing
to build a robust speak-up culture. In addition,
the Board continues to focus on accountability
and talent management. Through employees,
we can build a stronger Ericsson long term.
It is a key priority for the Board that Ericsson
is able to attract, retain and motivate talented
people. The Company has implemented long
term variable compensation programs with
a focus on value creation and on retaining
senior managers and key contributors in
a competitive market.

We are convinced that digitalization and
mobile broadband networks will help tackle
some of the global challenges our world
faces today. We aim to be a trusted partner
com mitted to building a better future for all
stakeholders. In particular, the Company is
delivering solutions that help customers and
other industries be more efficient by reducing
their energy consumption and climate
impacts. We believe that combining business
and societal value is the best way to create
long term value for Ericsson.

Ericsson’s strategy is based on the needs
of our customers, the telecom operators, and
my aim as the Chair of the Board, is that each
one of Ericsson’s employees share my passion
for creating value for these customers. It is
very impressive to see the strong competence
and technology skills that the organization
possesses. The Board supports the Company’s
relentless focus on improving its product port-
folio and staying relevant, and we view it as
essential that the Company continues to build
competitive advantages through increased
R&D investments. This is crucial in order to
achieve both technology and cost leadership.
I am happy to see that the results of these
efforts were clearly reflected in a strong
business momentum during the year and

I believe that investing in R&D is fundamen-
tal for reaching our financial targets for 2020
and 2022 and for long-term value creation.

During 2019, Ericsson’s global 5G footprint

continued to grow. The competitive 5G
portfolio is reflected in the sales momentum
and the improved market footprint for future
business. At a global level, 5G will initially
provide an opportunity for telecom operators
to increase the offering to customers; however,
exciting new innovations for 5G will come with
new industrial and IoT applications that will
leverage the speed, latency and security char-
acteristics of 5G. This will provide many new
opportunities for our customers, the telecom
operators, to capture revenues.

The work of the Board also includes ana-
lyzing and monitoring the company’s capital
structure with the aim of retaining a strong
balance sheet and a positive free cash flow.
Business plans, and investments in R&D and
other assets, are carefully evaluated and
allocated in line with our focused strategy
and our ambition for overall capital efficiency.
In 2019 Ericsson continued to show a positive
free cash flow before M&A of SEK 7.6 billion,
including payments of SEK 10.1 billion related
to the resolution of the US SEC and DOJ inves-
tigations. The Board will propose a dividend
for 2019 of SEK 1.50 (1.00) per share to the
AGM. The increase underlines the Board’s
confidence in Ericsson delivering on its finan-
cial targets and building a stronger company
long term.

On behalf of all members of the Board,
we look forward to continuing working with
CEO Börje Ekholm and the full Ericsson team
in 2020. I also want to take the opportunity
to say thank you to all employees for a job
well done in 2019.

Ronnie Leten
Chair of the Board

Ericsson Annual Report 2019Financials – Board of Directors’ report

Board of Directors’ report

Full-year highlights

– Reported sales increased by 8%. Sales adjusted for comparable units and currency increased

by 4%, with Networks growing by 6%.

– Reported operating income improved to SEK 10.6 (1.2) billion. Operating income was SEK 22.1

billion (operating margin 9.7%) excluding restructuring charges of SEK –0.8 billion and
SEK –10.7 billion in costs related to a resolution of the US SEC and DOJ investigations1).

– Gross margin was 37.3% (32.3%) with improvements in Networks, Digital Services and

Managed Services.

– Free cash flow before M&A amounted to SEK 7.6 (4.3) billion including payments of SEK 10.1
billion related to the resolution of the US SEC and DOJ investigations. Net cash at year-end
was SEK 34.5 (35.9) billion.

– The Board of Directors will propose a dividend for 2019 of SEK 1.50 (1.00) per share to the AGM.

1) United States Securities and Exchange Commission (SEC) and United States Department of Justice (DOJ).

Business in 2019

In 2019, sales increased by 8% driven by
sales growth in Networks. Sales increased by
12% in Networks with an increased demand
for radio access network equipment mainly
in North America and in North East Asia.
Sales increased in Digital services by 5% with
growth in the new product portfolio. Managed
Services sales declined by –1%, mainly as
a result of contract exits. A weaker Swedish
krona (SEK) had a positive impact on reported
sales on all segments. Sales growth adjusted
for comparable units and currency was 4%.
IPR licensing revenues were SEK 9.6
(8.0) billion driven by new contracts and
a stronger USD to SEK.

Gross margin improved to 37.3% (32.3%)

with improved gross margins in Networks,
Digital Services and Managed Services.
A negative impact from strategic contracts
in Networks was more than offset by improved
hardware margins, operational leverage and
lower restructuring charges.

Operating expenses decreased to
SEK –64.2 (–66.8) billion with positive
impacts from lower restructuring charges
and lower negative impact from the net of
capitalized and amortized development
expenses. R&D expenses were stable with
increased investments in Networks and Man-
aged Services offset by reductions in Digital
Services and Emerging Business and Other.

After completing a major cost reduction

program in 2018, restructuring charges
decreased to SEK –0.8 (–8.0) billion in 2019.
With a continous focus on efficiency and struc-
tural improvements, the ambition is to main-
tain restructuring charges around 1% of sales
going forward. In 2019, SG&A expenses were
impacted by increased costs for digitalization
of the business processes which will increase
costs short term but is expected to improve
productivity in 2021 and beyond. SG&A
expenses were also impacted by increased
investments in compliance and security.

Operating income was SEK 10.6 (1.2)
billion. Operating income was SEK 22.1 billion
(9.7% operating margin) excluding restruc-
turing charges of SEK –0.8 billion and costs
of SEK –10.7 billion related to a resolution
with the US SEC and DOJ.

The number of employees increased to
99,417 (95,359) mainly due to the acqusition
of the Kathrein antenna and filter business,
and due to increased service delivery resources
driven by higher sales.

Free cash flow before M&A amounted to
SEK 7.6 (4.3) billion, including payments of
SEK 10.1 billion related to the resolution of
the US SEC and DOJ investigations. Cash flow
was supported by an improved income and
by improved working capital efficiency. Net
cash at year end was SEK 34.5 (35.9) billion.

Contents

33 Business in 2019

34 Financial highlights

37 Business results – Segments

39 Business results – Market Areas

40 Corporate Governance

40 Material contracts

40 Risk management

41 Sourcing and supply

41 Sustainability and

Corporate Responsibility

41 US FCPA investigations

41 Legal proceedings

42 Parent Company

43 Guidelines for Remuneration
to Group Management

47 Events after the reporting period

48 Board assurance

Net sales

SEK billion

250

200

150

100

205.4

210.8

227.2

2017

2018

2019

Net sales

Operating income (loss) and
operating margin

SEK billion

-10

-20

-30

-40

10.6

4.6%

0.6%

1.2

–34.7

–16.9%

2017

2018

2019

-5

-10

-15

-20

Operating income

Operating margin

Ericsson Annual Report 2019

Financials – Board of Directors’ report

IPR revenues (net)

SEK billion

8.3

8.0

9.6

2017

2018

2019

IPR revenues

Software, hardware and
services: share of total sales

100

21%

35%

37%

38%

44%

42%

41%

2017

2018

2019

Software
Hardware
Services

Gross margin as reported and
restructing charges

SEK billion

35.2%

32.3%

37.5%

37.3%

25.9%

23.3%

5.9

5.2

3.5

2017

2018

0.3

2019

Restructing charges in cost of sales

Gross margin as reported
Gross margin excl. restructing charges

Financial highlights

Net sales
Sales increased by SEK 16.4 billion or 8% to
SEK 227.2 (210.8) billion. Networks sales
increased by SEK 16.4 billion (12%), Digital
Services sales increased by SEK 1.8 billion
(5%), Managed Services sales decreased by
SEK –0.2 billion (–1%) and Emerging Busi-
ness and Other sales decreased by SEK –1.6
billion (–19%). Sales adjusted for comparable
units and currency increased by 4%.

The sales increase in Networks was driven

mainly by higher demand for radio access
network equipment. Networks sales growth
adjusted for comparable units and currency
was 6%.

In Digital Services, growth in the new port-
folio was offset by lower legacy product sales.
Sales growth adjusted for comparable units
and currency was –1%.

The sales decline in Managed Services

was mainly a result of contract exits.

The sales decrease in segment Emerging

Business and Other was due to the 51%
divestment of MediaKind in February 2019.
Sales growth adjusted for comparable units
and currency was 14%, driven by iconectiv
and IoT.

In the geographical dimension, sales-
growth was driven by North America and
North East Asia.

The sales mix by commodity was: software

21% (21%), hardware 38% (37%) and
services 41% (42%).

Gross margin
Gross margin increased to 37.3% (32.3%)
with improved margins in Networks, Digital
Services and Managed Services. In Networks
the negative impact from strategic contracts
was offset by improved hardware margins,
operational leverage and lower restructuring
charges. Digital Services gross margin
improved, since costs for a revised BSS strat-
egy had a negative impact in 2018. Managed
Services gross margin improved, driven by
customer contract exits and efficiency mea-
sures. A reduced share of services sales and
an increased share of IPR and licensing reve-
nues had a positive impact on gross margin.
Restructuring charges included in the gross
margin decreased to SEK –0.3 (–5.9) billion.

Operating expenses
Operating expenses decreased to SEK –64.2
(–66.8) billion, with SG&A expenses of
SEK –26.1 (–27.5) billion, R&D expenses of
SEK –38.8 (–38.9) billion and impairment
losses on trade receivables of SEK 0.7 (–0.4)
billion. Restructuring charges included in

operating expenses were SEK –0.5 (–2.1)
billion. Currency effects impacted operating
expenses negatively while the 51% divest-
ment of MediaKind had a positive impact.

R&D expenses were impacted by increased

investments in R&D for Networks and Man-
aged Services. This increase was partly offset
by lower R&D in Digital Services and Emerging
Business and Other. The net effect of capital-
ized and amortized development expenses
was SEK 0.3 (–1.7) billion. Restructuring
charges impacted R&D expenses by SEK –0.3
(–1.3) billion. R&D expenses increased by
SEK 2.9 billion when excluding restructuring
charges and the net effect from capitalized
and amortized development expenses.

SG&A expenses were positively impacted

by a refund of earlier paid social security
costs in Sweden of SEK 0.9 billion and by
lower restructuring charges of SEK –0.1
(–0.8) billion. Currency effects and increased
investments in corporate projects for digital
transformation, compliance and security had
a negative impact compared to last year. Costs
for customer financing revaluation declined
to SEK –0.7 (–1.1) billion.

Costs for the resolution of the US SEC and
DOJ investigations
In 2019, SEK 10.1 billion in payments were
made as Ericsson announced the resolution
of the previously disclosed investigations by
the US DOJ and SEC regarding the Company’s
compliance with the US Foreign Corrupt
Practices Act (FCPA). In addition a provision
of SEK 0.6 billion was made to cover future
monitoring costs. The combined impact of
SEK –10.7 billion was reported as Other
operating expenses in segment Emerging
Business and Other.

Other operating income and expenses
Other operating income and expenses was
SEK –9.7 (–0.2) billion and was negatively
impacted by SEK –10.7 billion in costs related
to the resolution of the US SEC and DOJ inves-
tigations. 51% of MediaKind was divested
with a capital gain of SEK 0.7 billion in the first
quarter. Share in earnings of JV and associ-
ated companies was SEK –0.3 (0.1) billion,
negatively impacted by the 49% ownership in
MediaKind. The Company´s share in earnings
of MediaKind was SEK –0.4 billion and the
remaining investment is SEK 0.8 billion.

Restructuring charges
Restructuring charges amounted to SEK –0.8
(–8.0) billion. The cost reduction program
announced in 2017 was completed in 2018.
Restructuring costs related to the revised BSS
strategy had a negative impact in 2018.

Ericsson Annual Report 2019

Net income and EPS diluted

SEK billion

SEK

-10

-20

-30

-40

-50

0.7

1.8

–6.3

–2.0

–32.4

–9.9

2017

2018

2019

-2

-4

-6

-8

-10

Net income

EPS diluted

Free cash flow

SEK billion

-1

-2

7.6

4.3

4.8

0.9

0.3

2017

–1.3

2018

–1.5

2019

Free cash flow before M&A
M&A

Working capital

Days

110

100

102

2017

2018

2019

Working Capital days
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)

Financials – Board of Directors’ report

Sale of trade receivables continued to trend
downwards and decreased compared to last
year. Due to the increase in 5G buildout this
year, demand for customer financing solutions
has increased. Most of such financing has
been successfully transferred to banks and
the balance of customer finance credits on
the balance sheet remains low. The ambition
is to maintain working capital efficiency and
thereby effectively convert income to cash.
Cash outlays related to provisions were
SEK –7.6 (–6.9) billion, of which SEK –1.8
(–4.1) billion was related to restructuring
charges. Cash flow from operating activities
had a positive impact of SEK 3.0 billion from
the implementation of IFRS 16 “Leases”.
Financing activities were negatively impacted
by amortization of the leasing liability of the
same amount.

Cash flow from investing activities was
SEK –3.5 (–4.1) billion, where interest-bear-
ing securities impacted by SEK 4.2 (2.2) billion.
Investments in property, plant and equipment
was SEK –5.1 (–4.0) billion. The increase was
mainly due to investments in 5G test equip-
ment. Capitalized development expenses
increased to SEK –1.5 (–0.9) billion due to
5G development projects. M&A was SEK –1.5
(–1.3) billion.

Cash flow from financing activities was
SEK –6.9 (–4.1) billion. Dividends of SEK 4.5
(3.4) billion were paid out. The repayment of
lease liabilities was SEK –3.0 (0.0) billion.

The improved result and focus on free cash

flow, in combination with limited investing
activities, resulted in free cash flow of SEK 6.1
(3.0) billion and in free cash flow before M&A
of SEK 7.6 (4.3) billion. The negative effect
of payments related to the resolution of the
US SEC and DOJ investigations was more
than offset by improved income and working
capital efficiency.

Financial position
Gross cash increased to SEK 72.2 (69.0) billion
while net cash decreased to SEK 34.5 (35.9)
billion.

Liabilities for post-employments benefits
increased to SEK 35.8 (28.7) billion mainly due
to lower discount rates. The Swedish defined
benefit obligation (DBO) has been calculated
using a discount rate based on the yields of
Swedish government bonds. If the discount
rate had been based on Swedish covered
mortgage bonds, the liability for post-employ-
ment benefits would have been approximately
SEK 9.8 billion lower as of December 31, 2019.
The average maturity of long-term borrow-

ings was 2.7 years as of December 31, 2019,
a decrease from 3.4 years 12 months earlier.

Operating income and margin
Operating income improved to SEK 10.6
(1.2) billion driven by higher gross margin
and higher sales. This improvement was
partly offset by SEK –10.7 billion in costs
related to the resolution of the US SEC and
DOJ investigations. Operating margin was
4.6% (0.6%). Operating margin excluding the
SEC and DOJ costs of SEK –10.7 billion and
excluding restructuring charges of SEK –0.8
billion was 9.7%. Operating margin excluding
restructuring charges of SEK –8.0 billion was
4.4% in 2018.

Financial income and expenses, net
The financial net improved to SEK –1.8 (–2.7)
billion, mainly due to lower negative effects of
foreign exchange revaluation, lower negative
currency hedge effects and improved interest
net. The currency hedge effects, which derive
from the hedge loan balance in USD, impacted
financial net by SEK –0.3 (–0.5) billion. The
SEK weakened against the USD between
December 31, 2018 (SEK/USD rate 8.94) and
December 31, 2019 (SEK/USD rate 9.32).

Taxes
Taxes were SEK –6.9 (–4.8) billion impacted
by the increased income. Costs of SEK –10.7
billion related to the resolution of the US SEC
and DOJ investigations are handled as non
tax-deductible. Excluding these costs, the
2019 tax rate was approximately 35%. The
Company has implemented IFRIC 23, which
requires quarterly assessments of uncertain
tax positions.

Net income and EPS
Net income improved to SEK 1.8 (–6.3)
billion, driven by higher operating income and
an improved financial net. EPS diluted was
SEK 0.67 (–1.98) and EPS (non-IFRS) was
SEK 1.07 (0.27).

Employees
The number of employees was 99,417 on
December 31, 2019, an increase of 4,058
employees compared with December 31,
2018. The increase derives mainly from the
acquired Kathrein antenna and filter business
and increased service delivery resources driven
by higher sales. The increase was partly offset
by the MediaKind divestment.

Cash flow
Cash flow from operating activities reached
SEK 16.9 (9.3) billion mainly supported by
improved income. Working capital efficiency
has improved as a result of an increased focus
on cash flow. Accounts receivables days of
sales outstanding improved to 75 (91) days.

Ericsson Annual Report 2019

Financials – Board of Directors’ report

Return on capital employed

SEK billion

250

200

150

100

6.7%

165.3

0.8%

155.6

149.6

–20.4%

2017

2018

2019

-4

-11

-18

-25

Capital employed

Return on capital employed

Cash position

SEK billion

80
70
60
50
40
30
20
10
0
-10
-20
-30
-40

67.7

69.0

72.2

34.7

35.9

34.5

–25.0

–28.7

–35.8

2017

2018

2019

Gross cash
Net cash
Liability for post employment benefits

Debt maturity, Parent Company

SEK billion

9.7

1.6

2.6

5.3

1.4

2.1

6.4

5.5

1.4

2020

2021

2022

2023

2024

2025

Notes & bonds
Nordic Investment Bank
European Investment Bank
Swedish Export Credit Corporation

Ericsson has an unutilized revolving credit

facility of USD 2.0 billion, which will expire
in 2022.

Ericsson drew on the credit facility of EUR

250 million, from the European Investment
Bank (EIB), which was granted in 2018 to
support R&D activities for 5G. The facility is
set to mature in 2024.

Ericsson signed a new credit facility agree-

ment of EUR 250 million with the European
Investment Bank (EIB) in Q4 2019. The credit
facility is undrawn.

Ericsson drew on the credit facility of
USD 150 million, from the Nordic Investment
Bank (NIB), which was signed in December
2019 to support investments in R&D for 5G
technology. Part of the new funds, USD 98
million, replaced a credit with NIB that was set
to mature in 2021, resulting in a net increase
in funding of USD 52 million. The new facility
is set to mature in 2025.

In July, Moody’s changed their outlook
on Ericsson’s long-term rating from stable to
positive. The rating of Ba2 was unchanged.
In September, Standard & Poor’s changed
their rating outlook on Ericsson from stable to
positive. The rating BB+ remained unchanged.
In 2019, Ericsson solicited Fitch for credit
rating services. Fitch’s long-term rating for
Ericsson is BBB- (“investment grade”) with
stable outlook.

The capital turnover remained at 1.4

(1.4) times.

Research and development,
patents and licensing
In 2019, R&D expenses amounted
to SEK –38.8 (–38.9) billion. R&D expenses
increased by SEK 2.9 billion when excluding
restructuring charges of SEK –0.3 (–1.3)
billion and the net effect of capitalized and
amortized development expenses of SEK 0.3
(–1.7) billion. The number of R&D resources
increased to 25,100 (24,800) and the
number of patents continued to increase and
amounted to more than 54,000 (49,000) by
end of 2019.

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 three-year average seasonality

Sequential
change, sales
Share of
annual sales

First
quarter

Second
quarter

Third
quarter

Fourth
quarter

–25%

11%

17%

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 2019, capital expenditure was SEK 5.1
(4.0) billion, representing 2.3% of sales. Exp-
enditures are largely related to test sites and
equipment for R&D, network operation centers
and manufacturing and repair operations.
The increase in 2019 was mainly due to

investments in 5G test equipment.

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, 2019, no material
land, buildings, machinery or equipment
were pledged as collateral for outstanding
indebted ness.

Capital expenditures 2017–2019

SEK billion

2019

2018

2017

Capital expenditures
Of which in Sweden

5.1
2.0

4.0
1.3

3.9
1.5

Share of
annual sales

2.3%

1.9%

Capitalized development expenses
Capitalized development expenses inreased
to SEK 1.5 (0.9) billion due to 5G development
projects. The net effect on operating income
of capitalized and amortized development
expenses was SEK 0.3 (–1.7) billion.

Ericsson Annual Report 2019

Sales split per segment

Business results – Segments

Financials – Board of Directors’ report

Networks
Networks represented 68% (66%) of Group
net sales in 2019. The segment solutions
support all radio-access technologies and
offer hardware, software and related services
for both radio access and transport.

Net sales
Reported sales increased by 12% in 2019 to
SEK 155.0 (138.6) billion. Sales adjusted for
comparable units and currency increased by
6%. The sales increase was primarily in the US,
South Korea, Italy, Germany and Saudi Arabia,
driven by operator investments in LTE and 5G
networks. The Networks share of IPR licensing
revenues was SEK 7.9 (6.5) billion.

Gross margin
Gross income increased to SEK 64.7 (55.2)
billion while gross margin increased to 41.8%
(39.8%). The impact of strategic contracts
was more than offset by improved hardware
margins and operational leverage. Lower
restructuring charges in 2019 contributed
positively.

Operating income and margin
Operating income increased to SEK 24.8
(19.4) billion. Higher sales and gross margin
as well as lower restructuring charges had
a positive impact that was partly offset by
increased operating expenses. Operating
expenses increased mainly due to higher invest-
ments in R&D in line with the ambition to con-
tinue to strengthen the technology leadership.
Net impact from amortization and capi-
talization of development expenses and from
recognition and deferral of hardware costs
was SEK 1.1 (–0.3) billion. Restructuring
charges were SEK –0.1 (–1.8) billion. Oper-
ating margin increased to 16.0% (14.0%).

Digital Services
Digital Services represented 18% (18%)
of Group net sales in 2019. The segment
solutions include products and services for
operators in the areas of BSS, OSS, Cloud Core,
Cloud Communication, NFV and Cloud infra-
structure. It also includes consulting, learning
and testing services.

Net sales
Reported sales increased by 5% in 2019
driven by growth in North America. Services
sales increased driven by customer support.
Sales in the new portfolio grew by 7% driven
by customer investments in 4G and 5G, while
sales in legacy products declined. Sales
adjusted for comparable units and currency
decreased by –1%.

Gross margin
Gross margin increased to 37.2% (21.8%).
Gross margin excluding restructuring charges
of SEK –0.2 (–4.0) billion improved to 37.8%
(32.4%). 2018 was negatively impacted by
costs related to the revised BSS strategy.

Operating income (loss)
Operating income improved to SEK –4.0
(–13.9) billion. Operating income excluding
restructuring charges of SEK –0.6 (–5.4)
billion improved to SEK –3.4 (–8.5) billion,
supported by higher gross margin and higher
sales. In addition, operating expenses exclud-
ing restructuring charges of SEK –0.4 (–1.4)
billion declined by SEK –2.2 billion despite a
currency headwind. The net impact of capi-
talized and amortized development expenses
was SEK –0.9 (–1.8) billion.

Networks
Digital services
Managed services
Emerging Business and Other

68%
18%
11%
3%

160

120

Networks

SEK billion

132.3

138.6

14.0%

155.0

16.0%

7.9%

10.5

19.4

24.8

2017

2018

2019

Net sales
Operating income

Operating margin

Digital Services

SEK billion

-10

-20

-30

38.8

38.1

39.9

–10.1%

–36.4%

–4.0

–13.9

–70.4%

–27.3

2017

2018

2019

Net sales
Operating income

Operating margin

-10

-20

-30

-40

-50

-60

-70

-80

Ericsson Annual Report 2019

Managed Services
Managed Services represented 11% (12%)
of Group net sales in 2019. The segment
provides Networks and IT Managed Services,
Network Design and Optimization, and
Application Development and Maintenance
to operators.

Net sales
Reported sales decreased by –1%. Sales
adjusted for comparable units and currency
decreased by –4%, mainly as a result of
customer contract exits.

Gross margin
Gross margin increased to 15.6% (11.2%).
mainly as a result of efficiency measures,
customer contract exits and lower restructuing
charges.

Operating income and margin
Operating income increased to SEK 2.3 (1.1)
billion. Operating income excluding restructur-
ing charges improved to SEK 2.4 (1.4) billion
due to a positive effect from reversal of a
provision for impairment of trade receivables
made in Q1 2019, of SEK 0.7 billion, and
higher gross margin.

Operating margin was 6.3%, excluding
restructuring charges and the positive effect
from reversal of a provision for impairment of
trade receivables of SEK 0.7 billion in Q1 2019.

Restructuring charges amounted to

SEK 0.0 (–0.3) billion.

Emerging Business and Other
Segment Emerging Business and Other rep-
resented 3% (4%) of Group net sales in 2019.
The segment includes:
– Emerging Business, including IoT, iconectiv

and New businesses

– Media businesses, including Red Bee

Media and a 49% ownership of MediaKind.

Net sales
Reported sales decreased by –19% in 2019
due to the 51% divestment of MediaKind in
February 2019. Sales adjusted for comparable
units and currency increased by 14% driven
by growth in the iconectiv business through
a multi-year number portability contract in
the US.

Gross margin
Gross margin declined mainly due to the 51%
divestment of MediaKind. The decline was
partly offset by lower restructuring charges.

Operating income (loss)
Operating income was impacted by costs of
SEK –10.7 billion related to the resolution of
the US SEC and DOJ investigations, a refund
of earlier paid social security costs in Sweden
of SEK 0.9 billion and by costs of SEK –0.3
billion related to the wind-down of the
ST-Ericsson legal structure.

Operating income in Emerging Business,
iconectiv and common costs improved, driven
by profitable growth in iconectiv. Red Bee
Media income improved supported by profit
improvement activities. Media Solutions
income improved driven by the 51% divest-
ment of Media Kind, including a capital gain
from the transaction.

Financials – Board of Directors’ report

Managed Services

SEK billion

-5

26.5

25.8

9.0%

25.6

4.2%

–15.4%

1.1

2.3

–4.1

2017

2018

2019

Net sales
Operating income

Operating margin

Emerging Business and Other

SEK billion

-5

-10

-15

7.9

8.4

6.8

–64.5%

–175.7%

–5.4

–184.0%

–13.8

2017

2018

–12.5

2019

Net sales
Operating income

Operating margin

-5

-10

-15

-20

-25

-50

-100

-150

-200

-250

Breakdown of operating income in segment
Emerging Business and Other

SEK billion

Segment operating
income
of which Emerging
Business, iconective,
media businesses and
common costs
of which SEC and DOJ
settlement costs
of which costs for
ST-Ericsson wind-down
of which a refund of social
security costs in Sweden

Full year
2019

Full year
2018

–12.5

–5.4

–2.4

–5.4

–10.7

–0.3

0.9

–

Ericsson Annual Report 2019

Sales split per market area

Business results – Market areas

Financials – Board of Directors’ report

North America
31%
Europe and Latin America
26%
Middle East and Africa
11%
South East Asia, Oceania and India 13%
North East Asia
12%
Other
7%

North America
Sales increased in 2019. Networks sales
increased driven by investments in 4G and 5G
across all major customers. Digital Services
sales increased as operators digitalize in
preparation for 5G. Managed Services sales
grew, driven by strong add-on sales in large
customer contracts.

Europe and Latin America
Sales decreased slightly in 2019. Growth in
Europe was driven by previously announced
contract wins, partly offset by renegotiation
and exits of low-performing and non-strategic
businesses. Sales in Latin America declined
due to timing of large deployment projects.

Middle East and Africa
Sales increased in 2019 in Networks and Digi-
tal Services, driven by 4G and 5G investments
in the Middle East. Managed Services sales
declined due to exit of non-strategic contracts.

South East Asia, Oceania and India
Sales remained stable in 2019. Growth in
Managed Services was driven by add-on sales
and by a contract that was signed in 2018.
Digital Services sales decreased, due to lower
legacy product sales in India.

North East Asia
Sales increased in 2019. The strong Networks
sales growth was driven mainly by 5G deploy-
ment in South Korea, increased business
volumes in Japan and initial launch of 5G
in China. 4G in China continued to decline.
Digital Services sales were stable.

Other1)
Sales declined as a result of the 51% divest-
ment of the media business, which was trans-
ferred to MediaKind. IPR licensing revenues
amounted to SEK 9.6 (8.0) billion.

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

the major part of segment Emerging Business and Other.

Market area sales – full-year 2019 compared with 2018 (illustrative)

SEK
227
billion

+20%

+18%

SEK
211
billion

–1%

+1%

+5%

FY18

Other

Europe and
Latin America

South
East Asia,
Oceania
and India

Middle East
and Africa

North
East Asia

North
America

FY19

Ericsson Annual Report 2019
40

Financials – Board of Directors’ report

Corporate Governance

In accordance with the Annual Accounts Act
and the Swedish Corporate Governance Code
(the “Code”), a separate Corporate Gover-
nance Report, including an internal control
section, has been prepared and appended
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 2019,
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. Upon recruitment, new employees
are asked to acknowledge the code. In 2019,
the acknowledgment was repeated through-
out the global Ericsson organization for
purposes of ensuring the employees’ under-
standing and commitment to the principles of
the Code of Business Ethics and securing that
business is conducted responsibly.

Board of Directors
At the Annual General Meeting, held on March
27, 2019, Ronnie Leten was re-elected Chair
of the Board, and Jon Fredrik Baksaas, Jan
Carlson, Nora Denzel, Börje Ekholm, Eric
A. Elzvik, Kurt Jofs, Kristin S. Rinne, Helena
Stjernholm and Jacob Wallenberg were
re-elected members of the Board. As of
March 27, 2019, Torbjörn Nyman, Kjell-Åke
Soting and Roger Svensson were appointed
employee representatives by the unions,
with Anders Ripa, Loredana Roslund and
Per Holmberg as deputies.

Management
Since 2017 Börje Ekholm is the President
and CEO of the Group. The President and
CEO is supported by the Group management,
consisting of the Executive Team. During 2019
two new appointments were made to the
Executive Team.

Ericsson has a global management system

(EGMS) to ensure that Ericsson’s business is
well managed and has the ability to fulfill the
objectives of major stakeholders within estab-
lished risk limits and with reliable internal
control. The management system also aims

to ensure 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 2019, 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
Annual General Meeting 2020 resolve on
updated guidelines for remuneration to Group
management, see pages 43–47. Compared
with the guidelines resolved by the Annual
General Meeting 2019, the guidelines have
been updated to comply with the requirements
under the European Union Shareholder Rights
Directive II as implemented into Swedish law.

Long-Term Variable Compensation Program
2019 (LTV 2019) 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-
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 all-employee Stock
Purchase Plan has been implemented.
Instead share-based Long-Term Variable
Compensation Programs for the Executive
Team have been introduced. LTV 2019 for
the Executive Team was approved by the
Annual General Meeting 2019. Details of LTV
2019 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 currently
in effect would in and of itself entail any mate-
rial consequence for Ericsson due to a change
in control of the Company.

Risk management

Ericsson’s Enterprise Risk Management
(ERM) framework is an integrated part of the
Ericsson Group Management System. The aim
of the ERM framework is to strengthen the
Group’s governance by integrating risk man-
agement with strategy-setting and execution.
The ERM framework is designed to establish
an adequate and effective management of
risk, i.e. the uncertainty in achieving the strate-
gic objectives of the Company. The framework
provides methods to identify, assess and treat
the risks, and to agree on the Company’s risk
appetite and risk tolerance.

Each manager is responsible for handling

the risks that emerges from the respective
area of responsibility. The responsibility
for identified prime risks of the Company is
always allocated to an Executive Team mem-
ber. The Group Risk Management function
is responsible for driving the ERM strategy
execution and the ERM operations on Group
level. The head of each group function, market
area and business area, is accountable for
appointing one or several risk manager(s) to
drive risk management within the unit’s area
of responsibility, and for overseeing the ERM in
the respective unit. The Chief Financial Officer
is accountable for performing oversight of
ERM, and the Board of Directors and the Audit
and Compliance Committee are responsible
for reviewing the effectiveness and appropri-
ateness of ERM.

For information on risks that could impact

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

Sourcing and supply

Ericsson’s hardware largely consists of
electronics. For manufacturing, the Company
purchases customized and standardized
components and services from both global,
regional and local suppliers.

Ericsson Annual Report 2019The production of electronic modules
and sub-assemblies is mostly outsourced to
manufacturing services companies. Ericsson
is focusing internal manufacturing on new
product introductions and new technologies.
Majority of the matured portfolio is outsourced
through production partners. Ericsson has
internal production sites in Estonia, China
and Brazil. During 2020 a new production
site will be established in the USA.

The Company negotiates global supply

agreements with its primary suppliers.
Ericsson’s suppliers are required to comply
with the requirements of Ericsson’s Code of
Conduct for Business Partners.

In general, Ericsson works to have alterna-
tive supply sources and seeks to avoid single
source supply situations.

Sustainability and Corporate
Responsibility

Ericsson’s ambition is to be a responsible and
relevant driver of positive change in society.
The Company is committed to creating posi-
tive sustainability impacts and reducing risks
to the Company and its stakeholders through
its technology, solutions, and the expertise
of its employees. Ericsson’s approach to
sustainability and corporate responsibility
is an integral part of the Company’s strategy,
business model and governance.

Ericsson has prepared a Sustainability

Report in accordance with the Swedish
Annual Accounts Act named the Sustainability
and Corporate Responsibility Report 2019,
appended to this Annual Report, pages
172–199.

US FCPA investigations

On December 7, 2019, Ericsson announced
the resolution of the previously disclosed
investigations by the US Department of
Justice (DOJ) and the Securities and Exchange
Commission (SEC) regarding the Company’s
compliance with the US Foreign Corrupt
Practices Act (FCPA). While the DOJ and SEC
conduct separate investigations, the same
facts have been shared by Ericsson with
both authorities.

The resolution relates to historical
FCPA breaches ending Q1 2017. While the
Company had a compliance program and a
supporting control framework, they were not
adequately implemented. Specifically, certain
employees in some markets, some of whom
were executives in those markets, acted in
bad faith and knowingly failed to implement
sufficient controls. They were able to enter

into transactions for illegitimate purposes and,
together with people under their influence,
used sophisticated schemes in order to hide
their wrong doing. The resolution allows us to
bring an end to the investigations conducted
by the US authorities since 2013 and 2015
into Ericsson’s compliance with the US Foreign
Corrupt Practices Act (FCPA).

The DOJ proceeding is a criminal enforce-
ment action and the SEC proceeding is a civil
enforcement action. The agencies resolve their
investigation independently of one another
using their own discretion and applying differ-
ent standards of proof. As a result, the DOJ and
SEC have come to different conclusions based
on the same facts.

DOJ resolution
Ericsson has agreed to enter into a Deferred
Prosecution Agreement (DPA) with the DOJ
to resolve criminal charges relating to violation
of bribery provision of the FCPA in Djibouti.
The DPA also resolves criminal charges relat-
ing to violations of the accounting provisions
of the FCPA in China, Djibouti, Indonesia,
Kuwait, and Vietnam. In connection with the
matter in Djibouti, Ericsson’s Egyptian subsidi-
ary pled guilty to bribery. As part of the resolu-
tion Ericsson paid a fine of USD 520,650,432.

SEC resolution
Ericsson has agreed with the SEC to the entry
of a judgment to resolve claims related to
allegations of violations of the accounting
provisions of the FCPA in China, Djibouti,
Indonesia, Kuwait, Saudi Arabia and Vietnam
and of the bribery provisions of the FCPA in
Djibouti, China and Saudi Arabia. As part of
the resolution, Ericsson paid financial sanction
of USD 458,380,000, plus pre-judgement
interest of USD 81,540,000.

As part of the settlement, Ericsson has
agreed to engage an independent compliance
monitor for a period of three years while the
Company continues to undertake significant
reforms to strengthen its Ethics and Compli-
ance program.

In parallel to the investigations, the Com-
pany has since 2016, together with external
expert advisors, conducted a comprehensive
review of the Company’s anti-corruption
program. Based on this review, Ericsson has
been taking significant steps to improve its
Ethics and Compliance program. Pursuant
to the resolutions, Ericsson has agreed to
continue enhancing its internal controls and
its compliance program.

Improvements to Ericsson’s Ethics and

Compliance program include:

Financials – Board of Directors’ report

– Additional resources for the Compliance

and Investigations functions.

– Reorganizing the allegation management
process to ensure a centralized, profes-
sional intake of allegations, conduct of
investigations and remediation.

– Refining the risk assessment process to

consist of a tiered approach and systematic
risk mitigation methodology.

– Enhancing the due diligence process of
third-parties, including the overall moni-
toring of third-party engagements.

– Introducing more sophisticated analytic
tools to better identify and prevent high-
risk transactions and engagements
– Enhancing the ethics and compliance
vetting process for senior leaders.

– Refreshing compliance training modules
for employees, including workshops and
face-to-face training for employees in
exposed roles.

– Enhancing the internal anti-corruption and
compliance related awareness campaigns
(including the Company’s zero tolerance for
corruption).

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 defen-
dants 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 October 2018 the plaintiffs
filed a first amended complaint. In December
2018 Ericsson filed a motion to dismiss the
complaint. In January 2019 the plaintiffs filed
a second amended complaint. Ericsson again
filed a motion to dismiss the complaint. On
January 11, 2020 the court granted Ericsson’s
motion to dismiss. At the same time the court
granted plaintiffs leave to file a third amended
complaint within thirty days. The plaintiffs
did not file an amended complaint by the
court-ordered deadline.

As part of its defense to a now settled
patent infringement lawsuit filed by Ericsson
in 2013 in the Delhi High Court against Indian
handset company Micromax, Micromax
filed a complaint against Ericsson with the
Competition Commission of India (CCI). The
CCI 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

Ericsson Annual Report 201942

Financials – Board of Directors’ report

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.

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
US customers of infringing 16 US Patents,
seeking an injunction and monetary damages.
IV subsequently filed additional lawsuits in
the District of Delaware accusing some of
Ericsson’s US customers of infringing 12 US
Patents, seeking monetary damages. In 2017,
IV filed additional lawsuits in the Eastern
District of Texas accusing Ericsson and some
of Ericsson’s U.S customers of infringing ten
US Patents. In February 2019, a jury awarded
IV damages of USD 43 million in one of those
lawsuits. In June 2019 Ericsson announced
that Ericsson and IV had signed a license
agreement ending all patent infringement
lawsuits between the companies.

In December 2018, Sol IP sued AT&T,
Verizon, and Sprint in East Texas, alleging
infringement of 20 patents declared to the LTE
standard. Sol IP is a non-practicing entity. The
patents originated from Electronics and Tele-
communications Research Institute (ETRI),
a Korean government-funded research institu-
tion. In March 2019, Ericsson intervened in the
litigation to defend its products against claims
of infringement. In December 2019, Ericsson
challenged the patentability of a number of
the patents with the Patent Trial and Appeal
Board. Ericsson has after the year-end 2019
resolved the litigation with Sol IP. The settle-
ment resolves the litigation with Sol IP and
involves a patent license agreement between
Ericsson, Sol IP and ETRI.

In April 2019, Ericsson was informed by
the Chinese SAMR (State Administration for
Market Regulation) Anti-Monopoly Bureau
that they have initiated an investigation into
Ericsson’s patent licensing practices in China.
Ericsson is cooperating with the investigation.
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. For information on risks
e.g. relating to lawsuits, claims and proceed-
ings, see the chapter Risk Factors.

Parent Company

Telefonaktiebolaget LM Ericsson (the Parent
Company) business consists mainly of corpo-
rate 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 3 (4) branch
offices. In total, the Group has 77 (80) branch
and representative offices.

Financial information
Income after financial items was SEK –3.1
(5.8) billion. The Parent Company had no sales
in 2019 or 2018 to subsidiaries, while 35%
(37%) of total purchases of goods and services
were from such companies.

Major changes in the Parent Company’s

financial position for the year included:
– Costs of SEK –10.7 billion related to
the resolution of the US SEC and DOJ
investigations.

– Decreased current and non-current
receivables from subsidiaries of
SEK –17.0 billion.

– Decreased current and non-current liabi-
lities to subsidiaries of SEK –13.9 billion.
– Decreased gross cash of SEK –1.6 billion.

At the end of the year, gross cash: cash,
cash equivalents, short-term investments,
and interest-bearing securities non-current
amounted to SEK 56.5 (58.1) billion.

At the end of the year, non-restricted equity
amounted to SEK 32.2 (40.8) billion and total
equity amounted to SEK 80.4 (88.9) billion.

Share information
As of December 31, 2019, the total number of
shares in issue was 3,334,151,735, of which
261,755,983 were Class A shares, each carry-
ing one vote, and 3,072,395,752 were Class
B shares, each carrying one tenth of one vote.
Both classes of shares have the same rights
of participation in the net assets and earn-
ings. The largest shareholders of the Parent
Company at year-end were Investor AB with
approximately 22.53% of the votes (7.2% of
the shares), AB Industrivärden with 15.14%
of the votes (2.61% of the shares) and Cevian
Capital with 4.99% of the votes (8.43% of
the shares).

In accordance with the conditions of the
Long- Term Variable Compensation Program
(LTV) for Ericsson employees, 17,203,792
treasury shares were distributed to employees
or sold in 2019. The quotient value of these
shares was SEK 5.00 per share, totaling
SEK 86 million, representing less than 1%

of capital stock, and compensation received
for shares sold and distributed shares
amounted to SEK 166.1 million.

The holding of treasury stock at December

31, 2019 was 19,853,247 Class B shares.
The quotient value of these shares is SEK 5.00,
totaling SEK 99 million, representing 0.6% of
capital stock, and the purchase price amounts
to SEK 144.2 million.

Proposed disposition of earnings
The Board of Directors proposes a dividend
SEK 1.50 (1.00) per share, and that the
Parent Company shall retain the remaining
part of non-restricted equity. The dividend is
proposed to be paid in two equal installments,
SEK 0.75 per share with the record date April
2, 2020, and SEK 0.75 per share with the
record date October 2, 2020.

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 5,001,227,602

SEK 27,220,758,874

SEK 32,221,986,476

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 29.6% (32.7%) and a net cash
amount of SEK 34.5 (35.9) 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.

Ericsson Annual Report 2019Guidelines for Remuneration
to Group Management

The Board of Directors proposes that the Annual
General Meeting of shareholders 2020 resolve
on the following guidelines for remuneration to
Group Management. Compared to the guide-
lines resolved by the Annual General Meeting
of shareholders 2019, the guidelines have been
updated to comply with the requirements of the
European Union Shareholder Rights Directive II
(“SRD II”) as transposed into Swedish law.

Guidelines for Remuneration
to Group Management

Group Introduction
These Guidelines for Remuneration to Group
Management (the “Guidelines”) apply to
the Executive Team of Telefonaktiebolaget
LM Ericsson (the “Company” or “Ericsson”),
including the President and Chief Executive
Officer (the “President and CEO”) (“Group
Management”). These Guidelines apply to
remuneration agreed and changes to previously
agreed remuneration after the date of approval
of the Guidelines and are intended to remain
in place for four years until the Annual General
Meeting of shareholders 2024. For employ-
ments outside of Sweden, due adaptations may
be made to comply with mandatory local rules
or established local practices. In such cases,
the overall purpose of these Guidelines shall be
accommodated to the largest extent possible.
These Guidelines do not cover remuneration
resolved by the general meeting of sharehold-
ers, such as long-term variable compensation
programs (“LTV”).

Objective
These Guidelines aim to ensure alignment with
the current remuneration philosophy and prac-
tices applicable for the Company’s employees
based on the principles of competitiveness,
fairness, transparency and performance. In
particular to:
– attract and retain highly competent, per-
forming and motivated people that have
the ability, experience and skill to deliver
on the Ericsson strategy,

– encourage behavior consistent with
Ericsson’s culture and core values,

– ensure fairness in reward by delivering total
remuneration that is appropriate but not
excessive, and clearly explained,

– have a total compensation mix of fixed pay,
variable pay and benefits that is competitive
where Ericsson competes for talent, and
– encourage variable remuneration which
aligns employees with clear and relevant
targets, reinforces their performance and
enables flexible remuneration costs.

The Guidelines and the Company’s strategy
and sustainable long-term interest
A successful implementation of the Company’s
strategy and sustainable long-term interests
requires that the Company can attract, retain
and motivate the right talent and can offer
them competitive remuneration. These Guide-
lines aim to allow the Company to offer the
members of the Group Management attractive
and competitive total remuneration. Variable
compensation covered by these guidelines shall
be awarded against specific pre-defined and
measurable business targets derived from the
long-term business plan approved by the Board
of Directors. Targets may include financial
targets at either Group, Business Area or Market
Area level, strategic targets, operational targets,
employee engagement targets, customer sat-
isfaction targets, sustainability and corporate
responsibility targets or other lead indicator
targets.

The Company operates long-term variable

compensation programs for the Group Man-
agement. These have been approved by the
Annual General Meeting (“AGM”) and as a
result are not covered by these Guidelines.
Details of Ericsson’s current remuneration policy
and how we deliver on our policy and guidelines
and information on previously decided long-
term variable compensation programs that
have not yet become due for payment, including
applicable performance criteria, can be found
in the Remuneration Report and in note G2,
“Information regarding members of the Board
of Directors, the Group management” and note
G3, “Share-based compensation” in the annual
report 2019.

Governance of remuneration
to Group Management
The Board has established a Remuneration
Committee (the “Committee”) to handle
compensation policies and principles and
matters concerning remuneration to Group
Management. The Board has authorized the
Committee to determine and handle certain
issues in specific areas. The Board may also
on occasion provide extended authorization for
the Committee to determine specific matters.
The Committee is authorized to review and

prepare for resolution by the Board salary
and other remuneration for the President and
CEO. Further, the Committee shall prepare for
resolution by the Board proposals to the AGM
on Guidelines for Remuneration to Group Man-
agement at least every fourth year and on LTV
and similar equity arrangements.

The Committee has the mandate to resolve

salary and other remuneration for the other
members of Group Management except for
the President and CEO, including targets for
short-term variable compensation (“STV”),
and payout of STV based on achievements
and performance.

Financials – Board of Directors’ report

In order to conduct its responsibilities, the
Committee considers trends in remuneration,
legislative changes, disclosure rules and the
general global executive remuneration environ-
ment. It reviews salary survey data, Company
results and individual performance 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 Group
Management. In order to avoid conflict of
interests, no employee is present at the Commit-
tee’s meetings when issues relating to their own
remuneration are being discussed. The Presi-
dent and CEO is not present at Board meetings
when issues relating to the President and CEO’s
own remuneration are being discussed. The
Committee may appoint independent expert
advisors to assist and advise in its work.

The Chair of the Remuneration Committee
along with the Chair of the Board work together
with Ericsson’s Investor Relations team, striving
to ensure that healthy contact is maintained as
necessary and appropriate with shareholders
regarding remuneration to Group Management.

Overview of remuneration package covered
by these Guidelines
For Group Management the remuneration
package may consist of fixed salary, short-term
and long-term variable compensation (STV and
LTV), pension and other benefits.

The table below sets out the key components
of remuneration of Group Management covered
by these Guidelines, including why they are
used, their operation, opportunity levels and the
related performance measures. In addition, the
AGM has resolved and may in the future decide
to implement LTV for Group Management. The
ongoing share-based LTV programs resolved
by the AGM have been designed to provide
long-term incentives for the members of Group
Management and to incentivize the Company’s
performance creating long-term value. The aim
is to attract, retain and motivate executives in
a competitive market through performance-
based share related incentives and to encour-
age the build-up of significant equity holdings
to align the interests of the members of Group
Management with those of shareholders. The
vesting period under the ongoing share-based
LTV programs resolved by the shareholders
is three years and vesting is subject to the
satisfaction of identified performance criteria.
Although LTV is an important component of
the remuneration of Group Management, it is
not covered by these Guidelines, because these
programs are separately resolved by the AGM.

Ericsson Annual Report 201944

Financials – Board of Directors’ report

Element and purpose

Operation

Opportunity

Performance measures

Fixed salary
Fixed compensation paid at set times.

Purpose:

– attract and retain the executive talent

required to implement Ericsson’s
strategy,

– deliver part of the annual compensa-

tion in a predictable format.

Short-term variable
compensation (STV)
STV is a variable compensation plan
that shall be measured and paid over
a single year.

Purpose:

– align members of Group Manage-

ment with clear and relevant targets
to Ericsson’s strategy and sustainable
long-term interests,

– provide individuals an earning oppor-
tunity for performance at flexible cost
to the Company.

There is no maximum salary level; how-
ever, salary increases (as a % of existing
salary) for most Group Management
members would normally be in line with
the external market practices, employ-
ees in relevant locations and perfor-
mance of the individual.

There are circumstances where higher
salary increases could be awarded. For
example, where:

– a new Group Management member
has been appointed at a below-
market salary, in which case larger
increases may be awarded in follow-
ing years, subject to strong individual
performance,

– the Group Management member
has been promoted or has had an
increase in responsibilities,

– an individual’s salary has fallen

significantly behind market practice.

Target pay-out opportunity for any
financial year may be up to 150% of
annual fixed salary of the individual.
This shall normally be determined in
line with the external market practices
of the country of employment.

Maximum pay-out shall be up to two
times the target pay-out opportunity
(i.e. 300% of annual fixed salary).1) 2)

This element of the package does not
require achievement of any specific
performance targets.

However, individual performance and
capability shall be taken into account
along with business performance when
determining fixed salary levels and any
salary increases.

The STV shall be based on measures
linked to the annual business plan
which in itself is linked to Ericsson’s
long-term strategy and sustainability.

Measures shall include financial targets
at Group, Business Area or Market Area
level (for relevant members of Group
Management). Other potential mea-
sures may include strategic targets,
operational targets, employee engage-
ment targets, customer satisfaction
targets, sustainability and corporate
responsibility targets or other lead
indicator targets.

A maximum of four STV targets shall
be assigned to an individual in total for
a financial year. Financial targets shall
comprise at least 75% of the target
bonus opportunity with a minimum of
40% being defined at Group level. The
minimum weighting for an STV target
shall be 20%.

Performance of all STV targets shall be
tested over a one-year performance
period (financial year).

The STV measures and targets shall be
determined by the Committee for the
members of Group Management other
than the President and CEO.

The Board has the mandate to define
STV measures and targets for the
President and CEO, should STV be
introduced for the President and CEO.

Salaries shall normally be reviewed
annually in January.
Salaries shall be set taking into
account:

– Ericsson’s overall business

performance,

– business performance of the Unit

that the individual leads,

– year-on-year performance

of the individual,

– external economic environment,

– size and complexity of the position,

– external market data,

– pay and conditions for other employ-
ees based in locations considered to
be relevant to the role.

When setting fixed salaries, the impact
on total remuneration, including
pensions and associated costs, shall
be taken into consideration.

The STV shall be paid in cash every year
after the Committee and, as applicable,
the Board have reviewed and approved
performance against targets which are
normally determined at the start of
each year for each member of Group
Management.

The Board and the Committee reserve
the right to:

– revise any or all of the STV targets at

any time,

– adjust the STV targets retroactively
under extraordinary circumstances,

– reduce or cancel STV if Ericsson faces

severe economic difficulties, for
instance in circumstances as serious
as no dividend being paid,

– adjust STV in the event that the

results of the STV targets are not a
true reflection of business perfor-
mance,

– reduce or cancel STV for individuals

either whose performance evaluation
or whose documented performance
feedback is below an acceptable
level or who are on performance
counselling.

Malus and Clawback
The Board and the Committee shall
have the right in their discretion to:

– deny, in whole or in part, the entitle-

ment of an individual to the STV pay-
out in case an individual has acted in
breach of Ericsson’s Code of Business
Ethics,

– claim repayment in whole or in part

the STV paid in case an individual has
acted in breach of Ericsson’s Code of
Business Ethics.

– to reclaim STV paid to an individual
on incorrect grounds such as restate-
ment of financial results due to incor-
rect financial reporting, non-compli-
ance with a financial reporting
requirement etc.

Ericsson Annual Report 2019Element and purpose

Operation

Opportunity

Performance measures

Financials – Board of Directors’ report

Pension
Contributions paid towards retirement
fund.

Purpose:

– attract and retain the executive talent

required to implement Ericsson’s
strategy,

– facilitate planning for retirement by
way of providing competitive retire-
ment arrangements in line with local
market practices.

The operation of the pension plan shall
follow competitive practice in the indi-
vidual’s home country and may contain
various supplementary plans in addi-
tion to any national system for social
security.

Pension plans should be defined con-
tribution plans unless the individual
concerned is subject to defined benefit
pension plan under mandatory collective
agreement provisions or mandatory
local regulations.

In some special circumstances where
individuals cannot participate in the
local pension plans of their home coun-
tries of employment:

– cash equivalent to pension may be
provided as a taxable benefit, or

– contributions may be made to an

international pension fund on behalf
of the individual on a cost-neutral
basis.

Other Benefits
Additional tangible or intangible
compensation paid annually which do
not fall under fixed salary, short-term
and long-term variable compensation
or pension.

Purpose:

– attract and retain the executive talent

required to implement Ericsson’s
strategy,

– deliver part of the annual compen-

sation in a predictable format.

Benefits offered shall take into account
the competitive practices in the individ-
ual’s country of employment and
should be in line with what is offered to
other senior employees in the same
country and may evolve year on year.

Benefits may for example include com-
pany phones, company cars, medical
and other insurance benefits, tax sup-
port, travel, Company gifts and any
international relocation and/or com-
muting benefits if the individual is
required to relocate and/or commute
internationally to execute the require-
ments of the role.

None

Since 2011, members of Group
Management in Sweden participate
in the defined contribution plan (ITP1)
which applies for the wider workforce in
Sweden. The pension contribution for
ITP1 is capped at 30% of pensionable
salary which includes fixed salary and
STV paid in cash.

According to the local collective bar-
gaining agreement in Sweden, the
members of Group Management are
also entitled to an additional pension
contribution for part-time retirement
for which the cap is determined during
the union negotiations for all the local
employees.

Members of Group Management
employed outside of Sweden may par-
ticipate in the local market competitive
pension arrangements that apply in
their home countries in line with what is
offered to other employees in the same
country.

In all cases the annual pension contri-
butions shall be capped at 70% of
annual fixed salary.3)

Benefit opportunities shall be set in line
with competitive market practices and
shall reflect what is offered to other
senior employees in the individual’s
country of employment.

The levels of benefits provided may
vary year on year depending on the
cost of the provision of benefits to the
Company.

Other benefits shall be capped at 10%
of annual fixed salary for members of
Group Management located in Sweden.

Additional benefits and allowances for
members of Group Management who
are commuters into Sweden or who are
on long-term assignment (“LTA”) in
countries other than their home coun-
tries of employment, shall be deter-
mined in line with the Company’s inter-
national mobility policy which may
include (but is not limited to) commut-
ing or relocation costs; cost of living
adjustment, housing, home travel or
education allowance; tax and social
security equalization assistance.

1) For most of the current members of Group Management, the current STV target opportunity is below 50% of the annual fixed salary.
2) At present the President & CEO does not participate in STV. The Board has the mandate to decide to include the President and CEO in STV in the future. In doing so the Board shall:
– determine the STV opportunity for the President and CEO within the ranges mentioned above and in line with the external market practices of the country of employment, keeping

the STV opportunity of the other members of Group Management under consideration,

– reduce the LTV opportunity in relation to the STV opportunity, keeping the total target cash compensation consisting of fixed salary, STV and LTV unchanged.

Should the Board decide to introduce STV for the President and CEO, the details will be disclosed in the Remuneration Report for the relevant year.

3) Since most of the current members of Group Management are currently under ITP1 coverage, their pension contributions are currently capped at 30% of pensionable salary and the

additional pension contribution for part-time retirement mandated by the local collective bargaining agreement in Sweden.

Ericsson Annual Report 201946

Financials – Board of Directors’ report

Alignment of short-term variable com-
pensation with the Company’s strategy
and criteria for payment
These Guidelines for Remuneration to Group
Management have been developed to support
alignment of Ericsson’s business strategy and
long-term interests of members of Group Man-
agement with that of shareholders, in particular:
– The targets for the STV shall be set each

year either by the Board or the Committee
as appropriate for the members of the Group
Management. In determining the targets,
the Board and the Committee shall take into
account Ericsson’s focused business strategy,
which is built on technology leadership,
product-led solutions and global scale, along
with internal annual and long-term business
plans. Therefore, all members of Group
Management shall have one or more Group
financial targets derived from the long-term
financial targets which amount to at least
40% of the target STV opportunity. At least
75% of the target STV opportunity shall
be linked to financial measures. The Board
and the Committee, as applicable, may also
choose to include other operational, strategic,
employee engagement, customer satisfac-
tion or sustainability and corporate respon-
sibility or other lead indicator measures to
support the delivery of the business plan. For
certain roles such targets may be supple-
mented by targets for the relevant Business
Area, Market Area or Group Function.

– Maximum pay-out shall be achievable for
truly outstanding performance and excep-
tional value creation.

– At the end of the performance period for each
STV cycle, the Board and the Committee shall
assess performance versus the measures
and determine the formula-based outcome
using the financial information made public
by the Company for the financial targets. The
Board has the discretion to adjust targets
and the subsequent outcome in the event
that they cease to be relevant or stretching or
to enhance shareholder value. Adjustments
shall normally only occur in the event of a
major change (e.g. an acquisition or divest-
ment) and shall be on the basis that the
new target shall be no more or less difficult
to achieve.

Consideration of remuneration offered
to the Company’s employees
When developing these Guidelines, the Board
and the Committee have considered the total
remuneration and employment conditions of
the Company’s employees by reviewing the
application of Ericsson’s remuneration policy
for the wider employee population to ensure
consistency.

There is clear alignment in the remuneration

components for the members of Group Man-
agement and the Company’s employees in the
way that remuneration policy is applied as well

as the methods followed in determining fixed
salaries, short-term and long-term variable
compensation, pension and benefits, which
are to be applied broadly and consistently
throughout the Company. The targets under
short-term variable compensation are similar
and the performance measures under long-
term variable compensation program are the
same for the members of Group Management
and other eligible employees of the Company.
However, the proportion of pay that is linked
to performance is typically higher for Group
Management in line with market practice.

Employment contracts and termination of
employment
The members of Group Management are
employed on permanent rolling contracts. The
maximum mutual notice period is no more
than 12 months. In case of termination by
the employee, the employee has no right to
severance pay.

(including attorney’s fees), except in the event
the arbitration proceedings were initiated by the
employee without reasonable cause.

Recruitment policy for new members of
Group Management
In determining the remuneration of a new
member of Group Management, the Board and
the Committee shall take into consideration all
relevant factors to ensure that arrangements
are in the best interests of the Company and its
shareholders. These factors include:
– The role being taken on.
– The level and type of remuneration opportu-

nity received at a previous employer.
– The geography in which the candidate is

being recruited from and whether any reloca-
tion allowance is required.

– The skills, experience and caliber of the

candidate.

– The circumstances of the candidate.
– The current external market and salary

In any case, the fixed salary paid during the

practice.

notice period plus any severance pay payable
will not together exceed an amount equivalent
to the individual’s 24 months fixed salary.

The employee may be entitled to severance

pay up until the agreed retirement age or, if a
retirement age has not been agreed, until the
month when the employee turns 65. In a case
where the employee is entitled to severance
pay from a date later than 12 months prior to
retirement, the severance pay shall be reduced
in proportion to the time remaining and cal-
culated only for the time as of the date when
the employee’s employment ceases (i.e. the
end of the period of notice) and until the time
of retirement.

Severance pay shall be reduced by 50% of
the remuneration or equivalent compensation
the employee receives, or has become entitled
to, from any other employer or from his/her own
or other activities during the period that sever-
ance is paid to the employee by the Company.
The Company shall have the right to ter-
minate the employment contract and dismiss
the employee with immediate effect, without
giving any advance notice and entitlement
to severance pay, if the employee commits a
serious breach of his/her obligations towards
the Company.

Normally disputes regarding employment
agreements or any other agreements concern-
ing the employment of the members of Group
Management, the way such agreements have
been arrived at, interpreted or applied, as well as
any other litigation proceedings from legal rela-
tions based on such agreements, shall be settled
by arbitration by three arbitrators in accordance
with the Rules of the Arbitration Institute of the
Stockholm Chamber of Commerce. Irrespective
of the outcome of any arbitral award, the
Company may, in the relation between the
parties, carry all fees and expenses charged by
the arbitrators and all of its own litigation costs

– Internal relativities.

Additional arrangements
By way of exception, additional arrangements
can be made when deemed appropriate and
necessary to recruit or retain an individual. Such
arrangement could be in the form of short-term
or long-term variable compensation or fixed
component and can be renewed, but each such
arrangement shall be limited in time and shall
not exceed a period of 36 months and twice the
annual fixed salary that the individual would
have received if no additional arrangements
were made. In addition, if appropriate, different
measures and targets may be applied to the
new appointment’s incentives in the first year.
In addition, it may on a case by case basis
be decided by the Board and the Committee
respectively to compensate an individual
for remuneration forfeited from a previous
employer during recruitment. The Board and the
Committee will consider on a case by case basis
if all or some of the remuneration including
incentives forfeited need to be ’bought-out’. If
there is a buy-out of forfeited incentives, this
will take into account relevant factors including
the form they were granted (cash vs. shares),
performance conditions attached to these
awards and the time they would have vested/
paid. Generally, buy-out awards will be made on
a comparable basis to those forfeited.

In the event of an internal candidate being
promoted to Group Management, legacy terms
and conditions may be honored, including
pension and benefit entitlements and any
outstanding incentive awards. If a Group
Management member is appointed following a
merger or acquisition with/of another company,
legacy terms and conditions may also be hon-
ored for a maximum period of 36 months.

Ericsson Annual Report 2019Financials – Board of Directors’ report

Board of Directors’ discretions
The Board upon recommendation from the
Committee may in a specific case decide to
temporarily deviate from these Guidelines in
whole or in part based on its full discretion in
unusual circumstances such as:
– upon change of the President and CEO in

accordance with recruitment policy for new
members of Group Management,

– upon material changes in the Company struc-
ture, organization, ownership and business
(for example takeover, acquisition, merger,
demerger etc.) which may require adjust-
ments in STV and LTV or other elements to
ensure continuity of Group Management, and

– in any other circumstances, provided that the
deviation is required to serve the long-term
interests and sustainability of the Company
or to assure its financial viability.

The Committee is responsible for preparing
matters for resolution by the Board, and this
includes matters relating to deviations from
these Guidelines. Any such deviation will be
disclosed in the Remuneration Report for the
relevant year.

Events after the reporting period

US Securities class action
On January 11, 2020, the United States
District Court for the Southern District of New
York granted Ericsson’s motion to dismiss the
putative class action filed in 2018 against
Telefonaktiebolaget LM Ericsson, the present
President and CEO and the Chief Financial
Officer of Ericsson as well as three former
executives. At the same time the court granted
plaintiffs leave to file a third amended com-
plaint within thirty days. The plaintiffs did
not file an amended complaint by the court-
ordered deadline.

operating income within Segment Networks
of which USD 10 million will be recorded in
Q1 2020 and the balance spread equally over
the remaining quarters. This quarterly license
fee amortization will continue in subsequent
periods. The exact terms of the agreement are
confidential.

Ericsson Annual Report 201948

Financials – Board of Directors’ report

Board assurance

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

Stockholm, March 2, 2020

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 March 2, 2020

PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorized Public Accountant
Lead Partner

Johan Engstam
Authorized Public Accountant

Ericsson Annual Report 2019Financials – Consolidated financial statements with notes

Consolidated financial statements with notes

Introduction to the financial statements

between quarters for stability and predictability.
Following improved profits and better capital
efficiency, 2019 free cash flow before M&A
improved four times over 2018 (SEK 17.8 bil-
lion, excluding the SEC/DOJ payments). This is
close to our long-term ambition, communicated
at the Investor Update in October 2019, to deliver
free cash flow before M&A of 8% of net sales.

The generated cash flow has resulted in a
solid net cash position (SEK 34 billion) at the
end of 2019. The gross cash level (SEK 72
billion) provides strong liquidity and resilience.
During the year we have completed debt-fund-
ing activities with the European Investment
Bank and the Nordic Investment Bank in sup-
port of the capital structure and debt profile.
Rating agencies have recognized the improved
financial performance, with Fitch rating
Ericsson as Investment Grade, and both S&P
and Moody’s changing their outlook from stable
to positive. The capital ambitions set by the
Board of Directors are to deliver strong free cash
flow before M&A, to maintain a positive net
cash position, and to be rated Investment
Grade.

Allocating capital to create long-term value
is a fundamental responsibility. During 2019 we
invested to safeguard the competitiveness of
our offerings, notably 5G, virtualization, IoT and
AI. We have continued to make value-creation
concepts more pronounced in steering and
decision-making. This includes providing

operating units with a better understanding of
true profitability and clearer visibility of costs
previously recorded at Group level, as well as
more complete distribution of invested capital.
To support the value-creation agenda, our
short-term incentive schemes are mainly based
on economic profit (operating profit less cost of
capital), cash collection and working capital, as
well as shareholder return.

Our finance digital transformation journey
continued with a focus on scaling automation to
enable full value realization of multiple tech-
niques such as robotic process automation and
machine learning.

We have continued to strengthen our

Anti-Bribery and Corruption controls. Examples
include risk-based controls, data analytics and
transaction monitoring for payments, travel &
expenses and third parties. We have strength-
ened our finance mandate, with an obligation
and authority for the finance function to put
high-risk transactions on hold until cleared.

Going forward, as we continue to enable our

customers’ transition to the next generation of
networks and services, we remain committed to
efficient cash flow generation and disciplined
capital allocation. 2019 was an important
milestone, once again demonstrating the dedi-
cation of our talented employees, and our ambi-
tion is to further improve financial performance
and resilience in line with our 2020 and 2022
targets.

Inventories

Customer contract related
balances

Other current receivables

Trade payables

Other current liabilities

Long-term assets
Intangible assets

Property, plant and equipment

Leases

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
Group management

Share-based compensation

Employee information

Other
Taxes

100 H2

Earnings per share

100 H3

Statement of cash flows

101 H4

Related party transactions

101 H5

Fees to auditors

101 H6

Events after the reporting period

Carl Mellander
CFO

Our financial management priorities are to
deliver strong free cash flow, maintain financial
stability with a resilient balance sheet and
ample liquidity, increase transparency, allocate
capital for long-term value creation, accelerate
transformation for competitiveness, and to
strengthen our ethics and compliance program.
Our focus on converting operating income to

free cash flow continued during 2019. Efforts
related to capital efficiency including working
capital have centered around reduced lead
times in delivery and enhanced processes for
credit management and collection. We contin-
ued to work to even out cash flows within and

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

Ericsson Annual Report 201950

Financials – Consolidated financial statements

Consolidated financial statements

Consolidated income statement

January–December, SEK million

Net sales
Cost of sales

Gross income
Gross margin (%)

Research and development expenses
Selling and administrative expenses
Impairment losses on trade receivables 1)

Operating expenses

Other operating income
Other operating expenses
Share in earnings of joint ventures and associated companies

Operating income (loss)

Financial income and expenses, net

Income after financial items (loss)

Taxes

Net income (loss)

Net income (loss) attributable to:
Owners of the Parent Company
Non-controlling interest

Other information

Notes

B1, B2

B4
B4
B1, E3

Average number of shares, basic (million)
Earnings (loss) per share attributable to owners of the Parent Company, basic (SEK) 2)
Earnings (loss) per share attributable to owners of the Parent Company, diluted (SEK) 2)

H2
H2
H2

2019

227,216
–142,392

84,824
37.3%

–38,815
–26,137
737

–64,215

2,350
–12,060
–335

10,564

–1,802

8,762

–6,922

1,840

2,223
–383

3,306
0.67
0.67

2018

210,838
–142,638

68,200
32.3%

–38,909
–27,519
–420

–66,848

497
–665
58

1,242

–2,705

–1,463

–4,813

–6,276

–6,530
254

3,291
–1.98
–1.98

2017

205,378
–157,451

47,927
23.3%

–37,887
–29,027
–3,649

–70,563

1,154
–13,285
24

–34,743

–1,215

–35,958

3,525

–32,433

–32,576
143

3,277
–9.94
–9.94

1) Impairment of trade receivables has been calculated according to IFRS 9 in 2019 and 2018, and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.
2) Based on Net income (loss) attributable to owners of the Parent Company.

Ericsson Annual Report 2019Consolidated 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 have been or may be reclassified to profit or loss
Cash flow hedge reserve

Gains/losses arising during the period

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 have been or 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:

Owners of the Parent Company
Non-controlling interests

Financials – Consolidated financial statements

2019

1,840

2018

–6,276

2017

–32,433

–6,182
–651
1,363

–290

–
–

–
1,979
131
60

–3,590

–1,750

–1,403
–347

–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

Ericsson Annual Report 201952

Financials – Consolidated financial statements

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

Right-of-use assets

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
Capital stock
Additional paid in capital
Other reserves
Retained earnings
Equity attributable to owners of the Parent Company

Non-controlling interest

Non-current liabilities
Post-employment benefits
Provisions, non-current
Deferred tax liabilities
Borrowings, non-current
Lease liabilities, non-current
Other non-current liabilities

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

Total equity and liabilities

Notes

E3
F3
B6, F1
F1, F3
F3
H1

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

E1
E1
E1
E1
E1

G1
D1
H1
F1, F4
C3, F1

D1
F1, F4
C3, F1
B6
B8
B9

Dec 31
2019

Dec 31
2018

Dec 31
2017

4,040
31,200
2,491

13,850

8,487

1,565
1,432
2,262
20,354
5,614
31,174

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

122,469

107,594

106,459

30,863
12,171
43,069
1,494
14,479
6,759
45,079

153,914

276,383

16,672
24,731
2,292
38,864
82,559

–681

81,878

35,817
2,679
1,224
28,257
7,595
2,114

77,686

8,244
9,439
2,287
29,041
30,403
37,405

116,819

276,383

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

161,167

268,761

16,672
24,731
965
44,610
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

16,672
24,731
–334
55,866
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

Ericsson Annual Report 2019
Financials – Consolidated financial statements

2019

2018

2017

1,840
12,226

14,066

261
–858
10,995
–372
–3,729
–1,579
–1,911

2,807

16,873

–5,118
744
–1,753
248
–1,545
–331
4,214

–3,541

13,332

4,851
–4,476
–
197
–
–4,450
–2,990
–32

–6,900

258

6,690

38,389

45,079

–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

Notes

H3, E2
H3, E2
C1

F4
F4

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
Repayment of lease liabilities
Other financing activities

Cash flow from financing activities

Effect of exchange rate changes on cash

Net change in cash and cash equivalents

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Ericsson Annual Report 201954

Financials – Consolidated financial statements

Consolidated statement of changes in equity

Equity and Other comprehensive income (loss) 2019

SEK million

January 1, 2019

Opening balance adjustment due to IFRS 16

January 1, 2019, 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 have been or may be reclassified
to profit or loss
Cash flow hedge reserve

Gains/losses arising during the period

Changes in cumulative translation adjustments

Group

Joint ventures and associated companies

Tax on items that have been or may
be reclassified to profit or loss

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, 2019

Addi tional
paid in capital

Other
reserves

Capital
stock

16,672

–

24,731

–

16,672

24,731

–
–

–
–
–

–

–
–
–
–

–
–

–
–
–

–

–
–
–
–

965

–

965

–
–

–
–651
134

–290

1,943

131

1,327

–
–
–
–

Retained
earnings

44,610

–249

44,361

2,563
–340

–6,182
–
1,229

–

–4,953

–2,730

197
377
–3,301
–40

38,864

Stock holders’
equity

Non-control ling
interest

86,978

–249

86,729

2,563
–340

–6,182
–651
1,363

–290

1,943

131

–3,626

–1,403

197
377
–3,301
–40

82,559

792

–

792

–383
–

–
–
–

–

–347

–
–
–1,149
23

–681

Total
equity

87,770

–249

87,521

2,180
–340

–6,182
–651
1,363

–290

1,979

131

–3,590

–1,750

197
377
–4,450
–17

81,878

1) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK 966 million (SEK 1,584 million in 2018 and SEK –2,484 million in 2017).

and realized gain/losses net from sold/liquidated companies, SEK 54 million (SEK 36 million in 2018 and SEK –24 million in 2017).

2) Dividends paid per share amounted to SEK 1.00 (SEK 1.00 in 2018 and SEK 1.00 in 2017).

16,672

24,731

2,292

Ericsson Annual Report 2019Financials – Consolidated financial statements

Equity and Other comprehensive income (loss) 2018

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 have been or 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
–

16,672

24,731
–

24,731

Other
reserves

–334
–888

–1,222

–
–

–
–
–

–

–
–
–
–

–
–

–
–
–

–

–
–
–
–

–
–

–
207
–44

2,010

2,187

–
–
–
–

16,672

24,731

965

Retained
earnings

Stock holders’
equity

Non-control ling
interest

Total equity

55,866
–95

55,771

–6,583
53

–2,457
–
330

–

–2,127

–8,657

107
677
–3,287
–1

44,610

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

Ericsson Annual Report 201956

Financials – Consolidated financial statements

Equity and Other comprehensive income (loss) 2017

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 have been or 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 have been or 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

Other
reserves

2,859

Retained
earnings

90,335

Stock holders’
equity

Non-control ling
interest

Total equity

134,582

675

135,257

–
–

–

–
–

–

15
–
–
–
–
–

–
–

–

–
–

–

–
–
–
–
–
–

–
–

99
–3,349

–16

–3,193

–
–
–
–
–
–

16,672

24,731

–334

–32,597
21

143
–

–32,454
21

956
–544

–

–
–

–

412

–32,164

–
98
–15
885
–3,273
–

55,866

99
–3,349

–16

–2,781

–35,357

15
98
–15
885
–3,273
–

96,935

14
–3

–

–
–29

–

–18

125

–
–
–88
–
–151
75

636

970
–547

99
–3,378

–16

–2,799

–35,232

15
98
–103
885
–3,424
75

97,571

Ericsson Annual Report 2019Notes to the consolidated financial statements

Financials – 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,
2019 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 2019, the Company has applied
IFRS as issued by the IASB (IFRS effective as per December 31, 2019). There
is no difference between IFRS effective as per December 31, 2019, 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

March 2, 2020. 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, 2019, see note A3, “Changes in accounting policies.”

The preparations for the adoption of new standards and interpretations not

adopted 2019 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
fair value through profit and loss (FVTPL), financial instruments classified
as fair value through other comprehensive income (FVOCI) and plan assets
related to defined benefit pension plans. Financial information in the con-
solidated 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 two comparison year.

Basis of consolidation and composition of the Group
The consolidated financial statements are prepared in accordance with the
purchase method. Accordingly, consolidated stockholders’ equity includes
equity in subsidiaries, joint ventures and associated companies earned only
after their acquisition.

Subsidiaries are all companies for which Telefonaktiebolaget LM Ericsson,

directly or indirectly, is the parent. To be classified as a parent, 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 transactions.
Foreign exchange gains and losses resulting from the settlement of such
transactions and from the translation at period-end exchange rates of mone-
tary assets and liabilities denominated in foreign currencies are recognized in
the income statement.

Changes in the fair value of monetary securities denominated in foreign
currency classified as fair value through other comprehensive income (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 Other Comprehensive Income (OCI).

Translation differences on monetary financial assets and liabilities are

reported as part of the fair value gain or loss.

From 2019, in order to reflect the way the Company manages its foreign
exchange risks on a net basis, foreign exchange effect is presented as a net
item within Financial Income and Expenses, reported separately from other
financial income and expenses items. Previously foreign exchange effects
were reported within both Financial Income and Financial Expense depending
on whether they were related to assets or liabilities. Note F2, “Financial income
and expenses” has been restated to reflect the change.

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 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 are trans-
lated at the closing rate.

The Company is continuously monitoring the economies with high inflation,

the risk of hyperinflation and potential impact on the Company. There is no
significant impact due to any currency translation of a hyper-inflationary
economy.

Ericsson Annual Report 201958

Financials – Notes to the consolidated financial statements

Note 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 is 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 licenses
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 recognized
when customer 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 licenses 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 is recognized 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
recognized as Inventories.

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

upon delivery of the hardware or software, or completion of installation ser-
vices. A proportion of the transaction price may be billed upon formal accep-
tance 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 performance and prior experience with the customer. Amounts billed are
normally 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. Contracts for standard products and services apply
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 one year. These products and services are viewed together as
a combined performance obligation. This type of contract is usually sold as

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 solution
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 completion
is estimated by reference to the output delivered such as achievement of con-
tract 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 integration 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
customized solutions are recognized as costs of sales when the related reve-
nue 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.

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 occur.

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 licensing

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 unconditional
right to, with only passage of time before the amounts can be billed in accord-
ance 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
customer 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 transaction.
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 expedient
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 2019Note 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 CEO is defined as the CODM
function in the Company.

The segment presentation, as per each segment, is based on the Company’s

accounting policies as disclosed in this note.

The 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 recognized
as Cost of sales.

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.

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 recov-
erable amount is the higher of the value in use and the fair value less costs of
disposal. In assessing value in use, the estimated future cash flows after tax
are discounted to their present value using an after-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. Application of after-tax amounts in calculation, both in
relation to cash flows and discount rate is applied due to that available models
for calculating discount rate include a tax component. The after-tax discount
rate applied by the Company is not materially different from a discounting
based on before-tax future cash flows and before-tax discount rates, as
required by IFRS. An impairment loss in respect of goodwill is not reversed.
Write-downs of goodwill are reported under other operating expenses.

As a result of the application of IFRS 16 the impairment test has been
modified to include also right-of-use assets in the carrying value but not
lease liabilities.

Financials – Notes to the consolidated financial statements

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 other than goodwill
Intangible assets other than goodwill comprise intangible assets acquired
through business combinations, such as patents, customer relations, trade-
marks and software, as well as capitalized development expenses and
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 technologi-
cal and economic feasibility has been established until the product is available
for sale or use. Research and development expenses directly related to orders
from customers are accounted for as a part of Cost of sales. Other research
and development expenses are charged to income as incurred. Amortization
of acquired intangible assets, such as patents, customer relations, trademarks,
and software, is made according to the straight-line method over their esti-
mated useful lives, not exceeding ten years.

The Company has not recognized any intangible assets with indefinite

useful life other than goodwill.

Impairment tests are performed whenever there is an indication of

impairment. Tests are performed in the same way as for goodwill, see above.
However, intangible 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.

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.

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. They are stated at cost less accumulated depreciation and any
impairment losses.

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

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

Impairment testing as well as recognition or reversal of impairment of

property, plant and equipment is performed in the same manner as for intangi-
ble assets other than goodwill, see description under “Intangible assets other
than goodwill” above.

Gains and losses on disposals are determined by comparing the proceeds

less cost to sell with the carrying amount and are recognized within Other
operating income and expenses in the income statement.

Leasing
The main types of assets leased by the Company are, in the order of materi-
ality, real estate, IT-equipment and vehicles. Vehicles are mainly used under
service contracts.

Ericsson Annual Report 201960

Financials – Notes to the consolidated financial statements

Note A1, cont’d.

Accounting policies applied as of January 2019 – IFRS 16 Leases
Leasing when the Company is the lessee
The Company recognizes right-of-use assets and lease liabilities arising from
all leases in the balance sheet, with some exceptions. 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.

In the assessment of a lease contract the lease components are separated

from non-lease components and the lease term is defined based on the
contract lease term and when reasonably certain estimated extension or
termination options are included.

The lease liability is initially measured at the present value of the lease
payments that are not paid at the commencement date, discounted normally
using the Company’s incremental borrowing rate. The incremental borrowing
rate is calculated considering interest swap rates, the credit spread on bonds
issued by real estate companies and the creditworthiness of the entity that
signs the lease. Lease payments included in the liability are fixed payments,
variable payments depending on an index or rate, residual values and penal-
ties for termination of contracts.

The right-of-use asset is initially measured at cost, which equals the amount

of the initial measurement of lease liability adjusted for any lease payments
made at or before the commencement date less any lease incentives received
plus any initial direct costs, and restoration costs.

The Company applies the recognition exemption for short-term leases and

leases for which the underlying asset is of low-value recognizing the lease
payments for those leases as an expense on a straight-line basis over the lease
term. The interest expense on lease liabilities is presented as a component of
finance costs separate from the depreciation charges for right-of-use assets.
In the statement of cash flows, cash payments for the principal portion of the
lease liability is reported within financing activities while payments for short-
term leases, low-value assets and variable lease expenses not included in the
measurement of the lease liability are classified within operating activities. For
more information regarding leasing, see note C3, “Leases.”

Leasing when the Company is the lessor
Leasing contracts with the Company as lessor are classified as finance leases
when the majority of risks and rewards are transferred to the lessee, and other-
wise as operating leases. Under a finance lease, a receivable is recognized at
an amount equal to the net investment in the lease and revenue is recognized
in accordance with the revenue recognition principles. Under operating leases
the equipment is recorded as property, plant and equipment and revenue as
well as depreciation is recognized on a straight-line basis over the lease term.

Accounting policies applied prior to 2019
Prior to 2019, IAS 17 was applied instead of IFRS 16. Comparative informa-
tion has not been restated. The following accounting policies apply to periods
prior to 2019.

Leasing when the company was the lessee
Leases on terms in which the Company assumed substantially all the risks and
rewards of ownership were classified as finance leases. Upon initial recog-
nition, the leased asset was 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 was accounted for in accordance with the
accounting policy applicable to that type of asset, although the depreciation
period did not exceed the lease term.

Other leases were operating leases, and the leased assets under such con-
tracts were not recognized on the balance sheet. Costs under operating leases
were recognized in the income statement on a straight-line basis over the term
of the lease. Lease incentives received were recognized as an integral part of
the total lease expense, over the term of the lease.

Leasing when the Company was the lessor
Leasing contracts with the Company as lessor were classified as finance
leases when the majority of risks and rewards were transferred to the lessee,
and otherwise as operating leases. Under a finance lease, a receivable was
recognized at an amount equal to the net investment in the lease and revenue
was recognized in accordance with the revenue recognition principles. Under
operating leases the equipment was recorded as property, plant and equip-
ment and revenue as well as depreciation was recognized on a straight-line
basis over the lease term.

Obligations
For further disclosure, see the notes under section D

Provisions
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, claims or
obligations as a result of patent infringement and other litigations and cus-
tomer 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 probable
and can be estimated reliably. These contract loss estimates may include
penalties under a loss contract.

Other provisions include provisions for obligations related to cash-settled
share-based programs, 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.

Contingent liabilities
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 account-
ing 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.

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

Business combinations
At the acquisition of a business, the cost of the acquisition, being the purchase
price, is measured as the fair value of the assets given, and liabilities incurred
or assumed at the date of exchange, including any cost related to contingent
consideration. Transaction costs attributable to the acquisition are expensed
as incurred. The acquisition cost is allocated to acquired assets, liabilities and
contingent liabilities based upon appraisals made, including assets and liabili-

Ericsson Annual Report 2019Note A1, cont’d.

ties that were not recognized on the acquired entity’s balance sheet, for exam-
ple intangible assets such as customer relations, brands, patents and financial
liabilities. Goodwill arises when the purchase price exceeds the fair value of
recognizable acquired net assets. In acquisitions with non-controlling interests
full or partial goodwill can be recognized. Final amounts are established within
one year after the transaction date at the latest.

In case there is a put option for non-controlling interest in a subsidiary a

corresponding financial liability is recognized.

Non-controlling interest
The Company treats transactions with non-controlling interests as transactions
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 com-
pany is nil, the Company shall not, as prescribed by IFRS recognize its part of
any future losses. Provisions related to obligations for such an interest shall,
however, be recognized in relation to such an interest.

Investments in associated companies, i.e., when the Company has signif-

icant 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
effective potential voting rights, which stand at least at 20% but not more
than 50%.

The Company’s share of income before taxes is reported in item “Share in
earnings of joint ventures and associated companies,” included in Operating
income. This reflects the fact that these interests are held for operating rather
than investing or financial purposes. Ericsson’s share of income taxes related
to associated companies is reported under the line item “Taxes,” in the income
statement.

Unrealized gains on transactions between the Company and its joint ven-
tures and associated companies are eliminated to the extent of the Company’s
interest in these entities. Unrealized losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred.

Shares in earnings of joint ventures and associated companies included in
consolidated equity which are undistributed are reported in Retained earnings
in the balance sheet.

Impairment testing as well as recognition or reversal of impairment of

investments in each joint venture and associated company is performed in the
same manner as for intangible assets other than goodwill. The entire carrying
value of each investment, including goodwill, is tested as a single asset. See
also description under “Intangible assets other than goodwill” below.

If the ownership interest in an associate is reduced but significant influence

is retained, only a proportionate share of the amounts previously recognized
in Other comprehensive income are reclassified to profit or loss where 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.

Financials – Notes to the consolidated financial statements

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

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 formula. 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 effective
interest, impairment gains and losses and foreign exchange gains and losses
which are recognized in the income statement. Upon derecognition, the cumu-
lative 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 classified
as non-current financial assets.

Gains or losses arising from changes in the fair values of the FVTPL category

(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 liabilities, financial
assets and financial liabilities are presented as cost of sales, financial income
and financial expense, respectively. Gains and losses on revaluation of cus-
tomer financing are presented in the income statement as selling expenses.

Ericsson Annual Report 201962

Financials – Notes to the consolidated financial statements

Note A1, cont’d.

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
historical 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

value through profit or loss, loans and receivables, and available-for-sale. The
main differences in the effect on Income Statement under IAS 39 compared
to IFRS 9 relate to the treatment of loans and receivables and available-for-
sale assets.

In 2017, borrowings were classified as amortized costs, however, parent
company borrowings were hedged on fair value basis. These fair value hedges
were discontinued by the end of 2017.

Loans and receivables
Receivables, including those that relate to customer financing, were sub-
sequently measured at amortized cost using the effective interest rate
method, less allowances for impairment charges.

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. Unrealized gains and losses were recog-
nized in OCI. When these securities were derecognized, the accumulated 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.

the obligation specified in the contract is discharged, cancelled or expired.

Changes in the fair value of monetary securities denominated in a foreign

Borrowings
Borrowings issued by the Parent Company 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 issued by the Parent Company are initially recognized at fair

value, net of transaction costs incurred. These borrowings are subsequently
stated at amortized cost; any difference between the proceeds (net of trans-
action costs) and the redemption value is recognized in the income statement
over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Company has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.

Trade payables
Trade payables are recognized initially at fair value and subsequently mea-
sured 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.

Cash flow hedge accounting
The company has identified certain customer contracts where a fluctuation
in the USD/SEK foreign exchange (FX) rate would significantly impact net
sales and operating income recorded from the contracts. These contracts are
multi-year contracts denominated in USD with highly probable payments at
fixed points in time. From first quarter 2019, the Company has entered into FX
forward contracts that match the terms of the foreign exchange exposure as
closely as possible and designated these as hedging instruments.

At inception, the Company documents the economic relationship between

the hedged item and hedging instrument. For FX hedges, the hedge ratio is
usually 1:1. The Company will designate either changes in forward or spot
rates as the hedged risk. When applying hedge accounting, the effective por-
tion of changes in the fair value of derivatives that are designated and qualify
as cash flow hedges is recognized in OCI. The gain or loss relating to an inef-
fective portion is recognized immediately in Financial income and expenses,
net. Upon recognition of the hedged net sales, the cumulative amount in cash
flow hedge reserve is released in the OCI as a reclassification adjustment and
recognized in net sales.

Accounting policies applied prior to 2018
Prior to 2018, IAS 39 was applied instead of IFRS 9. Under IAS 39 the
Company classified its financial assets in the following categories: at fair

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. Translation
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 avail-
able-for-sale were sold or impaired, the accumulated fair value adjustments
previously recognized in OCI were included in the income statement.

Impairment in relation to available-for-sale assets and loans
and receivables
At each balance sheet date, the Company assessed whether there was objec-
tive evidence that a financial asset or a group of financial assets was impaired.
If any such evidence existed for available-for-sale financial assets, the cumu-
lative 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. 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 within selling expenses.

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.

Fair value hedging and fair value hedge accounting
The Company only applied fair value hedge accounting for hedging fixed inter-
est risk on parent company borrowings. 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 floating rate 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.

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

Ericsson Annual Report 2019Note A1, cont’d.

for which the effective interest method was used was amortized to the income
statement over the remaining period to maturity.

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.

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 former
employees is calculated using the Projected Unit Credit Method. The discount
rate for each country is determined by reference to market yields on high-qual-
ity corporate bonds that have maturity dates approximating the terms of the
Company’s obligations. In countries where there is no deep market in such
bonds, the market yields on government bonds are used. The calculations are
based upon actuarial assumptions, assessed on a quarterly basis, and are as
a minimum prepared annually. Actuarial assumptions are the Company’s best
estimate of the variables that determine the cost of providing the benefits.
When using actuarial assumptions, it is possible that the actual results will
differ from the estimated results or that the actuarial assumptions will change
from one period to another. These differences are reported as actuarial gains
and losses. They are, for example, caused by unexpectedly high or low rates of
employee turnover, changed life expectancy, salary changes, remeasurement
of plan assets and changes in the discount rate. Actuarial gains and losses are
recognized in OCI in the period in which they occur. The Company’s net liability
for each defined benefit plan consists of the present value of pension commit-
ments less the fair value of plan assets and is recognized net on the balance
sheet. When the result is a net benefit to the Company, the recognized asset is
limited to the present value of any future refunds from the plan or reductions in
future contributions to the plan.

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

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

ing 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 company 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.

Financials – Notes to the consolidated financial statements

Share-settled plans
Compensation costs are recognized during the vesting period, based on the
fair value of the Ericsson share at the grant date, as well as considering perfor-
mance – and market conditions. Examples of performance conditions could be
revenue and profit targets while market conditions 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 liabil-
ity or asset is recognized for the estimated taxes payable or refundable for the
current year or prior years.

Deferred tax is recognized for temporary differences between the book val-
ues of assets and liabilities and their tax values and for tax loss carry-forwards.
A deferred tax asset is recognized only to the extent that it is probable that
future taxable profits will be available against which the deductible temporary
differences and tax loss carry-forwards can be 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 it is probable that the
temporary difference will not reverse in the foreseeable future.

Deferred tax is measured at the tax rate that is expected to be applied to
the temporary differences when they reverse, based on the tax laws that have
been enacted or substantively enacted by the reporting date. An adjustment
of deferred tax asset/liability balances due to a change in the tax rate is
recogn ized 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. As prescribed in IFRIC 23, uncertainty over income
tax treatment is considered if and when recognizing and measuring income
tax items in the financial statements.

As a result of applying IFRS 16 “Leases,” the Company will not report
deferred tax on initial recognition. The exemption in IAS 12 is applied i.e. no
deferred tax is reported for the initial recognition of a right-of-use asset and
a lease liability. Subsequently, analysis will be made of temporary differences

Ericsson Annual Report 201964

Financials – Notes to the consolidated financial statements

Note A1, cont’d.

to determine if changes are related to initial recognition or if new temporary
differences have arisen and if deferred tax should be reported.

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 disclosure

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 owners of the Parent Company by the weighted average number of shares
outstanding (total number of shares less treasury stock) during the year.

Diluted earnings per share are calculated by dividing net income attributable

to owners of the Parent Company, when appropriately adjusted by the sum
of the weighted average number of ordinary shares outstanding and dilutive
potential ordinary shares. Potential ordinary shares are treated as dilutive
when, and only when, their conversion to ordinary shares would decrease
earnings per share.

Rights to matching shares are considered dilutive when the actual fulfill-
ment of any performance conditions as of the reporting date would give a right
to ordinary shares.

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

Cash and cash equivalents consist of cash, bank, and interest-bearing
securities that are highly liquid monetary financial instruments with a remain-
ing maturity of three months or less at the date of acquisition.

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, 2019 and have not
been applied in preparing these 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

Company’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 per-
formance 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 collect-
ability criteria.

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. 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 license, 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 license. 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 customized 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
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, 2019 were SEK 3.0
(4.1) billion or 5% (6%) 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.

In 2017, as part of the impairment assessment on receivables, the Company

also monitored the financial stability of its customers and the environment in
which they operate to make estimates regarding the likelihood that the individ-
ual receivables will be paid. Allowances are recorded for estimated losses on
each individual receivable.

Ericsson Annual Report 2019Note A2, cont’d.

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, 2019, amounted to SEK 3.4 (2.6) billion
or 10% (8%) 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 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. Write-downs for intangible assets and goodwill amounted to SEK 0.0
(0.5) billion for 2019. For 2017 impairment charges of SEK 17.2 billion were
recognized.

At December 31, 2019, the amount of acquired intellectual property rights

and other intangible assets amounted to SEK 33.7 (33.5) billion, including
goodwill of SEK 31.2 (30.0) 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 indicators. In
the purchase price allocation made for each acquisition, the purchase price is
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.

Leases
Key sources of estimation uncertainty
At initial recognition and subsequent remeasurement, management estimates
are made for the term applied in a lease contract. The outcome of these
estimates may turn out not to match the actual outcome of the lease and may
have an adverse effect on the right-of-use assets. For more information, see
note C3, “Leases.”

Judgments made in relation to accounting policies applied
Lease contracts may give the lessee the right to shorten or prolong a contract.
Under such contracts management judgement of the lease term is required.

Provisions
Key sources of estimation uncertainty
Provisions are mainly related to estimates for onerous contracts with customers
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
regul arly based on latest available information and the provision remeasured
accordingly. Other sources for estimation uncertainty are restructuring program
execution, patent and other litigations. 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 from identification of onerous contracts.

At December 31, 2019, provisions amounted to SEK 10.9 (16.0) billion.

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

Financials – Notes to the consolidated financial statements

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.

Pensions 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, 2019, defined benefit
obligations for pensions and other post-employment benefits amounted to
SEK 102.4 (90.3) billion and fair value of plan assets to SEK 69.7 (64.3) 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. These estimates are primarily based on business plans for the
Company’s estimated outcome of deductibility in relation to larger provisions. As
prescribed in IFRIC 23 estimates are made in relation to uncertain tax positions
in a limited number of countries. Estimates are made for any expected changes
in tax legislation with a potential material impact.

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 expire after five years. For further information, see note
H1, “Taxes.”

At December 31, 2019, the value of deferred tax assets amounted to

SEK 31.2 (23.2) 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.

Ericsson Annual Report 201966

Financials – Notes to the consolidated financial statements

A3 Changes in accounting policies

One new IFRS standard is effective as from January 1, 2019, IFRS 16 “Leases”
and one new interpretation IFRIC 23 “Uncertainty over income tax treatments”
is effective as from January 1, 2019. IFRIC 23 has not had a material impact
on the Company’s financial statements.

IFRS 16 – Leases
Presentation in the financial statements
The Company has implemented this standard using the cumulative catch-up
method, which means that the prior periods financial statements and key
ratios presented in this annual report have not been restated to reflect adop-
tion of this new standard.

Based on the new requirements under IFRS 16, right-of-use assets and
lease liabilities have been added as new lines in the consolidated balance
sheet and repayment of lease liabilities as a new line in the statement of cash
flows. The right-of-use assets and liabilities were prior to 2019 reported as
off-balance and repayment to lessors was reported as a part of cash flow
from operating activities. Now the amortization of lease liabilities is reported
as cash flow from financing activities. Interest expense on the lease liability
is reported separately from the depreciation charge for the right-of-use asset.
Interest expense on the lease liability is reported as component of finance costs.

Transition
The standard is effective for annual periods beginning on or after January 1,
2019. The Company has applied the new standard as from January 1, 2019.
At transition, the Company has applied the practical expedient under IFRS 16
to not reassess whether a contract is, or contains, a lease. Therefore, the Com-
pany has applied the standard to contracts previously identified as leases, or as
containing a lease under IAS 17 and IFRIC 4. The Company has also applied
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 has been 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-of-use

asset at the date of initial recognition.

The Company has implemented the standard using the cumulative catch-up
method, with the cumulative effect being adjusted to the opening retained
earnings balance in equity at transition date. No restated information has been
presented for previous years.

The Company has, as a lessee, recognized lease liabilities for leases

previously classified as operating leases. The weighted average incremental
borrowing rate applied to lease liabilities recognized in the balance sheet at
the transition date was 5.4%. Right-of-use assets have for most contracts been
recognized based on the amount equal to the related lease liability. For some
larger real estate contracts right-of-use assets have been 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 SEK 0.2 billion lower than the related liabilities. This difference
caused a reduction of equity as per transition date.

Under IAS 17 operating leases were not recognized in the balance sheet
of a lessee. Future undiscounted minimum lease payments obligations were
however disclosed in a note, see note C3 “Leases” in the annual report of 2018,
amounting to SEK 13.4 billion. To arrive at the opening discounted lease liabil-
ity of SEK 10.4 billion the following adjustments were made:
– Discounting effect of the lease liability recognized in the statement of finan-
cial position at the date of initial application using the weighted average
incremental borrowing rate of 5.4% minus SEK 2.1 billion.

Opening balance sheet impact of IFRS 16

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

IFRS 16 adjustments

8,651
2,195
8,203
249

In the transition the following items have been considered reducing the value
of the lease liabilities:
– Advance payments with SEK 0.3 billion.

In the transition the following items have been considered reducing the value
of the right-of-use assets:
– Impairment of right-of-use assets with SEK 0.8 billion
– Straight-lining, periodization of lease costs, with SEK 0.7 billion
– Financial sublease 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 impact of right-of-use assets increased
the total asset value by approximately 3%.

IFRIC 23 – Uncertainty over income tax treatment
IFRIC 23 prescribes how an entity shall consider how it prepares its income
tax filings and supports tax treatments or how the entity expects the taxation
authority to make its examination and resolve issues. In summary, this
interpretation clarifies how key parameters under IAS 12 “Income taxes,” as
for example taxable profit and unused tax losses, shall be recognized and
measured.

Restatement – changes to the presentation of financial income
and expenses
Due to the significant variations in SEK exchange rates during the year, the
Company has considered the change in reporting of foreign exchange effect
to reflect how foreign exchange transaction risk is managed on a net basis in
the Company. Previously foreign exchange effects were reported within both
financial income and financial expenses depending on whether they relate to
assets or liabilities.

In note F2, “Financial income and expenses,” the foreign exchange effect
is now presented as a net amount, reported separately from other financial
income and expenses items. The comparative years 2018 and 2017 have been
restated to reflect the new presentation of Financial income and expenses, net.
The restatement does not impact the total net financial income and expenses
reported in prior years.

The following table shows the impact of the restatement:

Financial income and expenses

SEK million

Reported in prior years
Financial income
Financial expenses

Total

SEK million

Restated
Financial income
Financial expenses
Net foreign exchange gains and losses

2018

2017

–316
–2,389

–2,705

–372
–843

–1,215

2018

2017

151
–2,032
–824

–2,705

–50
–1,570
405

–1,215

– Low-value lease agreements which are expensed straight-line minus

Total

SEK 0.9 billion.

– Other adjustments mainly consisting of advance payments, lease term
extensions and lease payments corrections. The net impact is zero.

In line with this change the Company also elected to present all financial
income and expenses, including the foreign exchange effect, on the income
statement as a single line item Financial income and expenses, net. Previously,
financial income and financial expenses were presented as separate line items
on the income statement. The income statement for all comparative years
2018 and 2017 have been restated to reflect the new presentation of Financial
income and expenses, net.

Ericsson Annual Report 2019Financials – Notes to the consolidated financial statements

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 services
aim to attract has been considered, as well as the distribution channels they
are sold through. Commonality regarding technology, research and develop-
ment has also been taken into account. To best reflect the business focus and
to facilitate comparability with peers, four operating segments are reported;
– Networks
– Digital Services
– Managed Services
– Emerging Business and Other.

Segment Networks support all radio-access technologies and offer hard-
ware, software and related services for both radio access and transport.
The product-related services comprise design, tuning, network rollout and
customer support. 82% (82%) of the IPR licensing revenues are reported as
part of segment Networks.

Segment Digital Services includes products and services for operators in the
areas of BSS, OSS, Cloud Core, Cloud Communication and Cloud infrastructure.
It also includes consulting, learning and testing services. 18% (18%) of the IPR
licensing revenues are reported as part of segment Digital Services.

Segment Managed Services provides Networks and IT Managed Services,
Network design and Optimization, and Application Development and
Maintenance to operators.

Segment Emerging Business and Other includes:
– Emerging Business, including IoT, iconectiv and New businesses
– Media businesses, including Red Bee Media and a 49% ownership

of MediaKind.

Market areas
The market areas are the Company’s primary sales channel with the
responsibility 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 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 customers, mainly consisting of network operators, the ten largest cus-
tomers accounted for 49% (48%) of net sales. The largest customer accounted
for approximately 10% (9%) of net sales in 2019. The customer was reported
under segment Networks and Digital Services.

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

Business Risks.”

Operating segments 2019

Segment sales

Net sales

Gross income
Gross margin (%)

Operating income (loss)
Operating margin (%)
Financial income and expenses, net

Income after financial items
Taxes

Net income (loss)

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

Networks

155,009

64,717
41.8%

24,767
16.0%

26
–517
–3,604
–295
–68
–225

Digital
Services

39,857

14,836
37.2%

–4,027
–10.1%

41
–1,413
–1,478
–128
–614
–2

Managed
Services

25,565

3,990
15.6%

2,309
9.0%

Emerging
Business
and Other

6,785

1,281
18.9%

–12,485 1)
–184.0%

Total
Segments

227,216

84,824
37.3%

10,564
4.6%

3
–5
–413
–24
–45
–12

–405
–603
–566
–43
–71
936

–335
–2,538
–6,061
–490
–798
697

Group

227,216

84,824
37.3%

10,564
4.6%
–1,802

8,762
–6,922

1,840

–335
–2,538
–6,061
–490
–798
697

1) Includes costs of SEK –10.7 billion in 2019 related to the resolution of the US SEC and DOJ investigations.

Ericsson Annual Report 201968

Financials – Notes to the consolidated financial statements

Note B1, cont’d.

Operating segments 2018

Segment sales

Net sales

Gross income
Gross margin (%)

Operating income (loss)
Operating margin (%)
Financial income and expenses, net

Income after financial items
Taxes

Net income (loss)

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

Operating segments 2017

Segment sales

Net sales

Gross income
Gross margin (%)

Operating income (loss)
Operating margin (%)
Financial income and expenses, net

Income after financial items
Taxes

Net income (loss)

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

Networks

138,570

55,153
39.8%

19,421
14.0%

28
–830
–1,717
–308
–1,781
–132

Networks

132,285

43,428
32.8%

10,455
7.9%

22
–1,104
–1,883
–1,413
–4,828
316

Digital
Services

38,089

8,318
21.8%

–13,852
–36.4%

27
–2,295
–933
–406
–5,366
–36

Digital
Services

38,752

4,698
12.1%

–27,282
–70.4%

8
–2,465
–1,268
–9,349
–2,513
–56

Managed
Services

25,770

2,886
11.2%

1,093
4.2%

3
–14
–169
–29
–276
–57

Managed
Services

26,472

–1,574
–5.9%

–4,089
–15.4%

Emerging
Business
and Other

8,409

1,843
21.9%

–5,420
–64.5%

Total
Segments

210,838

68,200
32.3%

1,242
0.6%

–
–807
–456
–354
–592
–

58
–3,946
–3,275
–1,097
–8,015
–225

Emerging
Business
and Other

7,869

1,375
17.5%

–13,827
–175.7%

Total
Segments

205,378

47,927
23.3%

–34,743
–16.9%

–6
–14
–193
–108
–675
1

–
–765
–759
–8,571
–485
–67

24
–4,348
–4,103
–19,441
–8,501
194

Group

210,838

68,200
32.3%

1,242
0.6%
–2,705

–1,463
–4,813

–6,276

58
–3,946
–3,275
–1,097
–8,015
–225

Group

205,378

47,927
23.3%

–34,743
–16.9%
–1,215

–35,958
3,525

–32,433

24
–4,348
–4,103
–19,441
–8,501
194

Ericsson Annual Report 2019Financials – Notes to the consolidated financial statements

Note B1, cont’d.

Market area 2019

South East Asia, Oceania and India
North East Asia 4)
North America 3)
Europe and Latin America 1) 2)
Middle East and 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

4,033
4,857
9,646
12,571
7,015
1,735

39,857

3,836
1,026
4,673
12,149
3,881
–

25,565

Emerging
Business
and Other

57
178
96
402
25
6,027

6,785

Networks

21,850
20,339
55,808
33,884
14,604
8,524

155,009

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 2018

South East Asia, Oceania and India
North East Asia 4)
North America 3)
Europe and Latin America 1) 2) 7)
Middle East and Africa 7)
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
12,172
6,451
1,435

38,089

3,388
1,465
3,680
13,191
4,046
–

25,770

Emerging
Business
and Other

40
80
96
313
15
7,865

8,409

Networks

21,337
15,915
46,452
33,887
13,826
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.
7) 2018 is restated due to a change in 2019 where sales reported on Morocco is reported on market area Middle East and Africa (earlier Europe and Latin America).

Market area 2017

South East Asia, Oceania and India
North East Asia 4)
North America 3)
Europe and Latin America 1) 2) 7)
Middle East and Africa 7)
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

4,755
5,463
8,035
12,015
6,932
1,552

38,752

3,216
1,867
3,207
14,108
4,074
–

26,472

Emerging
Business
and Other

8
14
114
280
46
7,407

7,869

Networks

23,367
16,239
40,645
29,472
14,839
7,723

132,285

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.
7) 2017 is restated due to a change in 2019 where sales reported on Morocco is reported on market area Middle East and Africa (earlier Europe and Latin America).

Non-current
assets 5)

Total

1,199
2,881
11,570
45,832
151
–

61,633

38,313
44,306
10,176
2,402

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 5)

Total

512
1,516
8,387
39,559
63
–

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

Total

29,776
26,400
70,223
59,006
25,525
16,286

227,216

589
35,729
73,279
15,860

Total

29,589
22,309
58,586
59,563
24,338
16,453

210,838
2,315
35,941
61,446
14,601

Total

31,346
23,583
52,001
55,875
25,891
16,682

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

Ericsson Annual Report 201970

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

B3 Expenses by nature

Expenses by nature

Goods and services
Employee remuneration
Amortizations and depreciations
Impairments, obsolescence allowances and
revaluation
Inventory increase/decrease (–/+), net
Additions to capitalized development

Expenses charged to cost of sales
and operating expenses

2019

86,130
48,036
93,050

227,216
9,631
120,822

2018

76,792
44,633
89,413

210,838
7,954
109,969

2017

70,862
43,896
90,620

205,378
8,250
87,463

2019

2018

123,488
72,663
8,599

135,554
67,161
7,221

4,106
–704
–1,545

3,470
–2,995
–925

2017

128,180
76,502
8,451

11,531
4,794
–1,444

206,607

209,486

228,014

Total restructuring charges in 2019 were SEK 0.8 (8.0) billion. Restructuring
charges in 2018 included mainly severence cost and costs of SEK –3.1 billion
related to revised BSS strategy. Restructuring charges are included in the
expenses presented above.

B5 Inventories

Inventories

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

Inventories, net

2019

2018

8,209
8,742
13,912

30,863

7,484
9,667
12,104

29,255

The amount of inventories, excluding contract work in progress, recognized as
expense and included in Cost of sales was SEK 58,249 (55,632) 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 recognized as cost of sales when the related
revenue is recognized in the income statement.

Reported amounts are net of obsolescence allowances of SEK 3,386

(2,611) million.

Movements in obsolescence allowances

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

Closing balance

2019

2,611
2,228
–1,459
22
–16

3,386

2018

2,425
1,079
–987
94
–

2,611

2017

2,412
1,319
–1,210
–91
–5

2,425

B6 Customer contract related balances

Trade receivables, customer finance, contract assets and contract liabilities

Restructuring charges by function

Cost of sales
R&D expenses
Selling and administrative expenses

Total restructuring charges

2019

337
344
117

798

2018

5,938
1,293
784

8,015

2017

5,242
2,307
952

8,501

Customer finance credits
Trade receivables
Contract assets
Contract liabilities

2019

3,756
43,069
12,171
29,041

2018

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

B4 Other operating income and expenses

Other operating income and expenses

Total trade receivables include SEK 127 (140) million balance relating
to associated companies and joint ventures.

Of the total Customer finance credits balance, SEK 1,494 (1,704) million

is current.

2019

2018

2017

Revenue recognized in the period

Other operating income
Gains on sales of intangible assets and PP&E
Gains on sales of investments and operations 1)
Other operating income

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

115
1,119
1,116

2,350

–
–422
–
–11,638

–12,060

30
105
362

497

–17
–330
–275
–43

–665

47
324
783

1,154

–74
–130
–12,966
–115

–13,285

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 costs of SEK –10.7 billion in 2019 related to the resolution of the US SEC and DOJ

investigations.

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

2019

2018

23,461

22,447

–1,148

Revenue recognized in 2019 and 2018 relating to performance obligations
satisfied or partially satisfied in prior reporting 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.

Ericsson Annual Report 2019Financials – Notes to the consolidated financial statements

Note B6, cont’d.

Transaction price allocated to the remaining performance obligations

B8 Trade payables

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

101,474

104,519

Trade payables

2019

2018

The company expects to recognize approximately 80% of the transaction price
allocated to the remaining performance obligations as revenue in 2020 and
the remaining 20% as revenue in 2021. This is the same estimated percentage
distribution as in prior reporting period.

For information about credit risk and impairment of customer contract

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

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

Total

B9 Other current liabilities

B7 Other current receivables

Other current receivables

Prepaid expenses
Advance payments to suppliers
Derivative assets 1)
Taxes
Other

Total

Other current liabilities

Accrued interest
Accrued expenses

Of which employee-related
Of which supplier-related
Of which other 1)
Derivative liabilities 2)
Other 3)

Total

2019

1,418
412
142
9,778 2)
2,729

14,479

2018

2,101
269
403
16,862
1,209

20,844

2019

102

2018

293

30,301

30,403

29,590

29,883

2019

238
31,159
13,303
10,084
7,772
996
5,012

37,405

2018

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

38,891

1) See also note F1, “Financial risk management.”
2) Reclassification of withholding tax of SEK 7.8 billion to deferred tax asset, see note H1, “Taxes.”

1) Major balance relates to accrued expenses for customer projects.
2) See also note F1, “Financial risk management.”
3) Includes items such as VAT and withholding tax payables and other payroll deductions,
and liabilities for goods received where the related invoice has not yet been received.

Section C – Long-term assets

C1 Intangible assets

Intangible assets

Cost
Opening balance
Acquisitions/capitalization
Balances regarding acquired/divested business 2)
Sales/disposals
Reclassifications 3)
Translation differences

Closing balance

Accumulated amortizations
Opening balance
Amortizations
Balances regarding divested business 2)
Sales/disposals
Translation differences

Closing balance

Accumulated impairment losses
Opening balance
Balances regarding divested business 2)
Impairment losses
Translation differences

Closing balance

Net carrying value

2019

2018

Capitalized
development
expenses

23,719
1,545
–2,099
–4,551
–
67

18,681

–14,768
–1,519
843
4,551
–3

–10,896

–4,714
1,005
–36
–

–3,745

4,040

Goodwill

43,294
–
–7,093
–
–
1,646

37,847

–
–
–
–
–

–

–13,259
7,292
–
–680

–6,647

31,200

IPR1), brands
and other
intangible
assets

Capitalized
development
expenses

58,101
4
–6,049
–112
–
968

52,912

–47,277
–1,019
5,922
112
–756

–43,018

–7,350
55
–19
–89

–7,403

2,491

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

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

Ericsson Annual Report 201972

Financials – Notes to the consolidated financial statements

Note C1, cont’d.

The total goodwill for the Company is SEK 31.2 (30.0) billion and is allocated
to the operating segments Networks, with SEK 26.5 (25.7) billion, Digital
Services, with SEK 3.3 (3.1) billion and segment Emerging Business and Other,
with SEK 1.4 (1.2) billion. Segment Managed Services does not carry goodwill.

Write-down during 2019
In Digital Services and Networks there was an impairment write-down of
SEK 0.04 billion related to capitalized development expenses triggered by
a change in the GIC program, which is reported on line item Research and
development expenses. In segment Emerging Business and Other there was
a write-down of SEK 0.02 billion triggered by a change in business strategy,
which is reported on line item Selling and administrative expenses.

Write-down during 2018 and 2017
In 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.

In 2017 the following write-downs of goodwill was made: segment Digital
Services of SEK 6.9 billion and segment Emerging Business and Other SEK 6.1
billion (of which SEK 6.0 billion related to Media Solutions). These amounts
were reported on line item Other operating expenses. In addition to goodwill,
write-downs of intangibles and capitalized development expenses was made
by SEK 4.2 billion. These amounts were reported on line items Research
and development expenses SEK 2.6 billion and Selling and administrative
expenses SEK 1.6 billion.

Goodwill allocation
The goodwill allocation has not changed since last year. Goodwill from acqui-
sitions during the year has been allocated to segment Emerging business and
Other.

Impairment tests
Each operating segment is a CGU, except for segment Emerging Business and
Other which consists of four CGUs. The value in use method has been used for
goodwill impairment testing for all CGUs, 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.

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, 2020–2024,
made within the Company for the development for key industry parameters:
– By 2024, less than 35 years after the introduction of digital mobile tech-
nology, 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 2019 to around 8.8 billion by the end of 2024. Out of all
mobile subscriptions, 7.2 billion will be associated with a smartphone.
– The number of 5G subscriptions is forecasted to reach 1.9 billion by the

end of 2024.

– By 2024, over 30 billion connected devices are forecasted, of which over
20 billion will be related to Internet of Things, IoT. Connected IoT devices
including connected cars, machines, meters, sensors, point-of-sale termi-
nals, consumer electronics and wearables.

– Mobile data traffic volume is estimated to increase by around three times

in the period 2019–2024. The mobile traffic is driven by smartphone users
and video traffic. Smartphone traffic will grow by around four times, and
mobile video traffic is forecasted to grow by around 30% annually through
2024 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.

The value-in-use method is based on specific estimates for the first five
years, 2020–2024, and with a nominal annual growth rate of 1% (1%) per
year thereafter. An after-tax discount rate of 8.1% (8.8%) has been applied
for the discounting of projected after-tax cash flows. The same rate has been
applied for all CGUs, since there is a high degree of integration between them.
In addition, when a reasonably higher discount rate of 11.0% has been applied
in the impairment tests, headroom is still positive for all CGUs. For the CGU
Emodo in Segment Emerging Business and Other the planned uptake in sales
and margin in the business plans have not yet been realized. The carrying
amount is SEK 0.5 billion.

As a result of the application of IFRS 16 the impairment test has been

modified to include also right-of-use assets in the carrying value but not lease
liabilities.

The Company’s discounting is based on after-tax future cash flows and
after-tax discount rates. This discounting is not materially different from a
discounting based on before-tax future cash flows and before-tax discount
rates, as required by IFRS. In note A1, “Significant accounting policies,” and
note A2, “Critical accounting estimates and judgments,” further disclosures
are given regarding goodwill impairment testing. The assumptions for 2018
are disclosed in note C1, “Intangible assets” in the Annual Report of 2018.

Ericsson Annual Report 2019Financials – Notes to the consolidated financial statements

C2 Property, plant and equipment

Property, plant and equipment 2019

Cost
Opening balance
Additions
Balances regarding acquired/divested business
Sales/disposals
Reclassifications
Translation differences

Closing balance

Accumulated depreciations
Opening balance
Depreciations
Balances regarding divested business
Sales/disposals
Reclassifications
Translation differences

Closing balance

Accumulated impairment losses
Opening balance
Impairment losses
Balances regarding divested business
Sales/disposals
Translation differences

Closing balance

Net carrying value

Real estate

Machinery and other
technical assets

Other equipment,
tools and installations

Construction in progress
and advance payments

6,844
81
–167
–568
369
196

6,755

–3,703
–406
97
379
–
–112

–3,745

–292
–56
1
61
–9

–295

2,715

3,372
272
173
–346
–24
65

3,512

–2,948
–203
12
323
34
–61

–2,843

–66
6
–
19
–2

–43

626

32,469
2,650
–317
–2,941
1,178
751

33,790

–22,769
–2,978
355
2,692
–34
–557

–23,291

–929
–280
1
235
–32

–1,005

9,494

871
2,115
27
–514
–1,523
39

1,015

–
–
–
–
–
–

–

–
–30
–
30
–

–

1,015

Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2019, amounted to SEK 548 (366) million.
In 2019 impairment losses have been made of SEK 0.4 (0.6) billion. The impairment losses by segment was Networks SEK 0.2 (0.3) billion

and Digital Services SEK 0.1 (0.2) billion.

Property, plant and equipment 2018

Cost
Opening balance
Additions
Balances regarding acquired/divested business
Sales/disposals
Reclassifications
Translation differences

Closing balance

Accumulated depreciation
Opening balance
Depreciations
Balances regarding divested business
Sales/disposals
Reclassification
Translation differences

Closing balance

Accumulated impairment losses
Opening balance
Impairment losses
Sales/disposals
Translation differences

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

43,556
5,118
–284
–4,369
–
1,051

45,072

–29,420
–3,587
464
3,394
–
–730

–29,879

–1,287
–360
2
345
–43

–1,343

13,850

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

Ericsson Annual Report 201974

Financials – Notes to the consolidated financial statements

C3 Leases

Leases with the Company as lessee

Right-of-use assets 2019

Acquisition right value
Adjusted opening balance
due to IFRS 16
Additions
Balances regarding
acquired/divested business
Terminations
Translation differences

Closing balance

Accumulated depreciations
Opening balance
Depreciations
Balances regarding
acquired/divested business

Terminations
Translation differences

Closing balance

Real estate

Vehicles

Other

Total

9,151
2,035

–21
–127
225

11,263

–
–2,162

14
21

452
265

–
–29
10

698

–
–284

–

22
2

126
–

–
–
–

9,729
2,300

–21
–156
235

126

12,087

–
–28

–
–2,474

–

–
–

36
23

–2,126

–260

–28

–2,414

Accumulated impairment losses
Adjusted opening balance
due to IFRS 16
Impairment losses
Translation differences

Closing balance

Financial sublease
Adjusted opening balance
due to IFRS 16
Reversal of derecognition
Translation differences

Closing balance

–767
–75
–30

–872

–311
2
–5

–314

–
–
–

–

–
–
–

–

–
–
–

–

–
–
–

–

–767
–75
–30

–872

–311
2
–5

–314

Net carrying value

7,951

438

8,487

Lease liabilities
The lease liabilities amounted to SEK 9,882 million by the end of 2019. The
remaining contractual maturities as of December 31, 2019 is shown in note F1,
“Financial risk management” and note D4, “Contractual obligations.”

Lease cost
The total lease cost amounted in 2019 to SEK 3,576 million, of which depreci-
ation SEK 2,474 million, lease expense relating to low-value assets SEK 194
million, interest expense SEK 551 million and variable lease expense SEK 357
million. Recurring variable payments are mainly property tax. Main amounts in
2019 are penalties related to early terminations i.e. non-recurring items.

Cash payments

Amortization of the lease liabilities 1)
Interest expense of the lease liabilities
Low-value asset not included in the measurement of the liabilities
Variable lease payments not included in the measurement of the lease
liabilities

Total cash outflow

1) Including advance payments.

2019

–2,990
–551
–194

–357

–4,092

Leases with the Company as lessor
Lessor leasing relates mainly to subleasing of real estate. These leasing con-
tracts vary in length from 1 to 8 years.

Subleasing receivables in 2019 amounted for operating leases to SEK 124
million and for financial leases to SEK 56 million. Subleasing income in 2019
was SEK 18 million.

At December 31, 2019, future minimum payment receivables were distrib-

uted as follows:

Future minimum payment receivables

Financial leases

Operating leases

2020
2021
2022
2023
2024
2025 and later

Total

57
59
61
63
64
17

321

81
56
34
21
9
6

207

Leasing in 2018 (IAS 17)
Lease payments were in 2018 SEK 4,100 million, of which variable expenses
were SEK 125 million and leasing receivables were SEK 96 million.

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

leases and future minimum lease payment receivables were distributed as
follows:

Future minimum payment obligations and receivables

Future minimum lease
payment obligations

Future minimum lease
payment receivables

2019
2020
2021
2022
2023
2024 and later

Total

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

13,369

105
100
101
98
97
104

605

Ericsson Annual Report 2019Section D – Obligations

D1 Provisions

Provisions

2019
Opening balance
Additions
Reversal of excess amounts

Negative effect on Income statement

Utilization/Cash out
Reclassifications

Translation differences

Closing balance

2018
Opening balance
Additions
Reversal of excess amounts

Negative effect on Income statement

Utilization/Cash out
Reclassifications
Translation differences

Closing balance

Financials – Notes to the consolidated financial statements

Restruc turing

Customer
related

Suppliers
related

Warranty

3,309
436
–290

–1,788
–659

1,095

4,043
3,539
–408

–4.148
120
163

3,309

8,916
1,323
–86

–3,247
–3,217

3,738

2,642
8,532
–236

–1,979
–
–43

8,916

1,559
1,641
–739

–1,052
–101

1,309

1,613
214
–15

–264
10
1

1,559

363
906
–43

–288
–

941

158
401
–20

–257
72
9

363

Other

1,861
2,866
–25

–1,201
358

–19

3,840

1 ,423
1,024
–46

–287
–112
–141

1,861

Total

16,008
7,172
–1,183
5,989
–7,576
–3,619

121

10,923

9,879
13,710
–725
12,985
–6,935
90
–11

16,008

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 2019, new or additional provisions amounting to SEK 7.2 billion were
made, and SEK 1.2 billion of provisions were reversed. The actual cash outlays
for 2019 were SEK 7.6 billion compared with the estimated SEK 10.0 billion.
The expected total cash outlays in 2020 are approximately SEK 9.3 billion.
Of the total provisions, SEK 2.7 (5.5) 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 2019, SEK 0.4 billion in provisions were made and SEK 0.3 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 1.8 billion for the full-year, compared with
the expected SEK 2.1 billion. The cash outlays for the full-year also includes
provisions identified and paid out during 2019. The cash outlays for 2020 for
these provisions are estimated to total approximately SEK 1.1 billion.

Customer related
Customer related provision consists of provision for onerous customer con-
tracts. During 2019, new provisions amounting to SEK 1.3 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 3.2 billion has
been reclassified during the year to other current liabilities. The cash outlays
were SEK 3.2 billion in 2019 compared to the estimated of SEK 6.0 billion. The
main reason for the difference is due to the reclassification in 2019. For 2020,
the cash outlays for these provisions are estimated to total approximately
SEK 3.7 billion.

Supplier related
Supplier related provisions include provision for supplier claims/guarantees.
During 2019, new provisions amounting to SEK 1.6 billion were made and
SEK 0.7 billion were reversed due to more favorable outcome. The cash outlays
were SEK 1.1 billion in 2019 compared to the estimated of SEK 0.9 billion. For
2020, the cash outlays for this provision is estimated to total approximately
SEK 1.3 billion.

Warranty provisions
Warranty provisions are based on historic quality rates for established products
as well as estimates regarding quality rates for new products and costs to
remedy the various types of faults predicted. 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 0.9 billion
were made. The actual cash outlays for 2019 were SEK 0.3 billion, compared
to the expected SEK 0.3 billion. The cash outlays of warranty provisions during
year 2020 are estimated to total approximately SEK 0.8 billion.

Other provisions
Other provisions include provisions for share-based payments, litigations and
other. During 2019, new provisions amounting to SEK 2.9 billion were made
(mainly provisions for share-based payments and litigations). However, as
disclosed in note A3, “Changes in accounting policies” underlying assets under
operating lease contracts are as from 2019 recognized as right-of-use assets.
The impact of this transition was SEK 0.8 billion recorded as a reduction of
provisions, reclassified to an impairment of right-of-use assets with the same
amount for both items.

As of December 31, SEK 1.9 billion (including social charges) of the

closing balance relates to provisions for share-based payments, see note G3,
“Share-based compensation” for more information. The cash outlays were
SEK 1.2 billion in 2019 compared to the estimate of SEK 0.6 billion. For 2020,
the cash outlays for other provisions are estimated to total approximately
SEK 2.4 billion.

Ericsson Annual Report 2019
76

Financials – Notes to the consolidated financial statements

D2 Contingent liabilities

D3 Assets pledged as collateral

Contingent liabilities

Total

Assets pledged as collateral

2019

1,527

2018

1,638

Chattel mortgages 1)
Bank deposits

Total

2019

5,340
561

5,901

2018

5,328
353

5,681

Contingent liabilities mainly relates to pensions, customs guarantees and
tax litigations in subsidiaries. Contingent liabilities assumed by the Company
include guarantees of loans to other companies of SEK 27 (26) million.

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 24 (42) million
as of December 31, 2019. The maturity date for the majority of the issued
guarantees occurs in 2020 at the latest.

In April 2018, Telefonaktiebolaget LM Ericsson, the present President and
CEO and the Chief Financial Officer of Ericsson as well as three former exec-
utives 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 October 2018 the plaintiffs filed a first amended complaint.
In December 2018 Ericsson filed a motion to dismiss the complaint.

In January 2019 the plaintiffs filed a second amended complaint. Ericsson
again filed a motion to dismiss the complaint. On January 11, 2020 the court
granted Ericsson’s motion to dismiss. At the same time the court granted
plaintiffs leave to file a third amended complaint within thirty days. The
plaintiffs did not file an amended complaint by the court-ordered deadline.
In December 2018, Sol IP sued AT&T, Verizon, and Sprint in East Texas,
alleging infringement of 20 patents declared to the LTE standard. Sol IP is
a non-practicing entity. The patents originated from Electronics and Tele-
communications Research Institute (ETRI), a Korean government-funded
research institution. In March 2019, Ericsson intervened in the litigation
to defend its products against claims of infringement. In December 2019,
Ericsson challenged the patentability of a number of the patents with the
Patent Trial and Appeal Board. Ericsson has after the year-end 2019 resolved
the litigation with Sol IP. The settlement resolves the litigation with Sol IP
and involves a patent license agreement between Ericsson, Sol IP and ETRI.
For more information, see note H6, “Events after the reporting period.”

1) See also note G1, “Post-employment benefits.”

D4 Contractual obligations

Contractual obligations 2019

SEK billion

Current and non-current
debt 1) 2)
Lease obligations 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

9.8
2.8
0.1
10.6
30.4

25.9

79.6

15.6
4.1
0.7
0.6
–

–

21.0

10.5
2.6
0.1
0.1
–

–

13.3

2.9
2.3
1.2
–
–

–

6.4

1) Current and non-current debt, including interest payments.
2) See also note F4, “Interest-bearing liabilities.” Interest payments are not included.
3) Future lease obligations, nominal lease liability. See also note C3, “Leases.”
4) The amounts of purchase obligations are gross, before deduction of any related provisions.
5) See also note F1, “Financial risk management.”

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

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, “Leases.”
4) The amounts of purchase obligations are gross, before deduction of any related provisions.
5) See also note F1, “Financial risk management.”

Total

38.8
11.8
2.1
11.3
30.4

25.9

120.3

Total

34.1
13.4
4.3
7.7
29.9

30.3

119.7

The tables are not identical due to the implementation of IFRS 16 “Leases”
as from 2019.

For information about financial guarantees, see note D2, “Contingent

liabilities.”

Ericsson Annual Report 2019Financials – Notes to the consolidated financial statements

Other reserves
Other reserves includes translation reserves, cash flow hedges and revaluation
of borrowings.

Section E – Group structure

E1 Equity

Capital stock 2019
Capital stock at December 31, 2019, consisted of the following:

Capital stock

Parent Company

Class A shares
Class B shares

Total

Number of shares

261,755,983
3,072,395,752

3,334,151,735

Capital stock
(SEK million)

1,309
15,363

16,672

Translation reserves (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.

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, 2019, the total number of treasury shares was 19,853,247

(37,057,039 in 2018 and 50,265,499 in 2017) Class B shares.

Reconciliation of number of shares

Number of shares Jan 1, 2019
Number of shares Dec 31, 2019

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 a dividend for 2019 of SEK 1.50 per share
(SEK 1.00 in 2018 and SEK 1.00 in 2017) to the Annual General Meeting.

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

Cash flow hedge reserve
For further information, see note F1 “Financial risk management.”

Revaluation of borrowing
For further information, see note F4 “Interest-bearing liabilites.”

Retained earnings
Retained earnings, including net income for the year, comprise the earned
profits of the Parent Company and its share of net income in subsidiaries, joint
ventures and associated companies. Retained earnings also include:

Remeasurements related to post-employment benefits
Actuarial gains and losses resulting from experience-based events and
changes in actuarial assumptions, fluctuations in the effect of the asset ceiling,
and adjustments related to the Swedish special payroll taxes.

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

Other reserves

SEK million

Opening balance

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

Items that have been or may be reclassified
to profit or loss
Cash flow hedges
Translation reserves

Changes in translation reserves
Reclassification to the income statement

Tax on items that have been or may be reclassi-
fied to profit or loss

Total other comprehensive income, net of tax

Total comprehensive income

Closing balance

2019

2018

Translation
reserves

Cash flow
hedge reserve

Revaluation of
borrowings

Total other
reserves

Translation
reserves

Cash flow
hedge reserve

Revaluation of
borrowings

Total other
reserves

893

–

2,020
54

–

2,074

2,967

–

–290

–
–

–230

965

–1,131

–651

134

–

–
–

–

–517

–445

–651

134

–290

2,020
54

1,327

2,292

–

1,988
36

–

2,024

893

–

–
–

–

–91

–1,222

207

–44

–

–
–

–

163

207

–44

–

1,988
36

–

2,187

965

Ericsson Annual Report 201978

Financials – Notes to the consolidated financial statements

E2 Business combinations

Acquisitions and divestments
Acquisitions

Acquisitions 2017–2019

Total consideration, including cash

Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Investments in associates
Other assets
Provisions, incl. post-employment benefits
Other liabilities

Total identifiable net assets
Costs recognized in net income
Goodwill

Total
Acquisition-related costs 1)

2019

1,957

142
353
497
101
1,357
–102
–743

1,605
153
199

1,957
85

2018

1,314

94
4
481
64
254
–
–494

403
–
911

1,314
24

2017

–
12
101
–
1
–
25

139
–
–77

62
49

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

income statement.

In 2019, Ericsson made acquisitions with a negative cash flow effect
amounting to SEK 1,815 (1,220) 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:

Kathrein: On October 2, 2019, the Company acquired assets from Kathrein, a
world leading provider of antenna and filter technologies with approximately
4,000 employees. Kathrein’s antenna and filters business has a strong R&D
organization with extensive experience in antenna design and research, cou-
pled with a strong IPR portfolio. In addition to broadening Ericsson’s portfolio
of antenna and filter products, the acquisition will bring vital competence for
the evolution of advanced radio network products. The acquired Kathrein
business has had a negative impact of SEK –0.5 billion since the acquisition,
corresponding to –1 percentage point in Networks operating margin. Balances
to facilitate the Purchase price allocation are preliminary.

CSF: On August 20, 2019, the Company acquired 100% of the shares in
CSF Holdings Inc. a US-based technology company with approximately
25 employees. CSF strengthens iconectiv’s Business to Consumer (B2C)
product platforms to enable growth in messaging and Toll-Free Number (TFN)
management. Balances to facilitate the Purchase price allocation are final.

ST-Ericsson: Before ST-Ericsson was a joint venture where Ericsson and ST
Microelectronics had a 50/50 ownership. This joint venture consisted of a
number of legal entities where the two parties owned different stakes in the
different legal entities. In December 2019 the Company initiated transactions
to wind-down the legal structure of ST-Ericsson by acquiring the remaining
shares in two legal ST-Ericsson entities and costs of SEK –0.3 billion impacted
the result. The Company now owns 100% of the shares in those entities.

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.

Divestments

Divestments 2017–2019

Proceeds

Net assets disposed of
Property, plant and equipment
Right-of-use assets
Investments in associates
Intangible assets
Goodwill
Other assets
Provisions, incl. post-employement benefits
Other liabilities

Total net assets
Net gains/losses from divestments
Shares in associated companies

Cash flow effect

2019
1,569 1)

171
20
5
820
–
96
244
–774

582
987
–1,209 1)

360

2018

226

55
–
114
30
–
809
–43
–571

394
–168
–

226

2017

459

62
–
–
–
45
219
–
–180

146
313
–

459

1) Proceeds includes cash of SEK 360 million and shares in associated companies of SEK 1,209 million.

In 2019, the Company made divestments with a cash flow effect amounting to
SEK 360 (226) million. The divestments consist primarily of:

MediaKind: On February 1, 2019 the Company closed the divestment of its
MediaKind business to the private equity firm One Equity Partners. One Equity
Partners is the majority owner, while Ericsson retains 49% of the shares. After
the transaction, Ericsson carries 49% of the MediaKind results as “share in
earnings of JV and associated companies.” See also note E3, “Associated
companies.”

Acquisitions 2017–2019

Company

ST-Ericsson
Kathrein
CSF
CENX
VidScale
Placecast

Description

The remaining shares was acquired in ST-Ericsson (previously a joint venture).
A German provider of antenna and filter technologies.
A US based company related to the iconectiv business.
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.

Divestments 2017–2019

Company

Description

MediaKind
Ericsson Local Services AB (LSS)
Excellence Field Factory
Power Modules

A divestment of its MediaKind business.
A divestment of the Local Services company in Sweden.
A divestment of the Spanish fiber service operations.
A divestment of the power modules business.

Transaction date

Dec 2019
Oct 2019
Aug 2019
Sep 2018
Mar 2018
Feb 2018

Transaction date

Feb 2019
Aug 2018
Jun 2018
Sep 2017

Ericsson Annual Report 2019Financials – Notes to the consolidated financial statements

E3 Associated companies

Equity in associated companies

Opening balance

Investments
Share in earnings
Taxes
Dividends
Divested business
Translation differences

Closing balance

2019

611

1,310
–335
–5
–66
–5
55

1,565

2018

624

64
58
–5
–30
–114
14

611

51% of the MediaKind business was divested February 1, 2019. After the
transaction, the Company owns 49% of MediaKind with an investment of
SEK 1.2 billion. The Company’s share in earnings of MediaKind was SEK –0.4
billion and the remaining investment is SEK 0.8 billion. The Company has
provided a loan to MediaKind of SEK 0.2 billion.

Ericsson Annual Report 201980

Financials – Notes to the consolidated financial statements

Section 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 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, guaran-
tees and borrowing) and setting limits on the exposure to financial risks.

For the Company, a robust financial position with an 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 strong free cash flow.

The Company’s capital objectives are:
– Strong cash flow before mergers and acquisition (M&A)
– Positive net cash position
– Investment grade rating by Moody’s (Baa3), Standard & Poor’s (BBB-)

and Fitch (BBB-).

Capital objectives-related information, SEK billion

Free cash flow before M&A
Positive net cash

Credit rating
Fitch
Standard & Poor’s
Moody’s

2019

7.6
34.5

2018

4.3
35.9

BBB-, stable
BB+, positive
Ba2, positive

BBB-, stable
BB+, stable
Ba2, stable

In July 2019, Moody’s announced that they had changed their Corporate
Credit Rating outlook from stable to positive. In September 2019, Standard &
Poor’s (S&P) announced that they have changed their Corporate Credit Rating
outlook from stable to positive.

The Company has a treasury and customer finance 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. It also acquires 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 central function also monitors the exposure from outstand-
ing vendor credits and credit commitments.

The Company classifies financial risks as:
– Foreign exchange risk
– Interest rate risk
– Credit risk
– Liquidity
– Refinancing risk
– Market price risk in own and other equity instruments.

The Board of Directors has established risk limits for defined exposures to
foreign exchange and interest rate risks as well as to political risks in certain
countries.

For further information about accounting policies, see note 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 exposure
incurred when financial assets and liabilities, primarily trade receivables and
trade payables, are initially recognized and subsequently remeasured due to
change in foreign exchange rates.

The table below presents the net exposure for the largest cur rencies impact
on sales and also net transaction exposure of these currencies on profitability.

Currency exposure, SEK billion

Exposure
currency

Sales
translation
exposure

Sales
transaction
exposure

Sales net
exposure

Incurred cost
transaction

exposure 1)

Net
transaction
exposure

USD

EUR
CNY
INR
AUD
JPY
BRL
SAR
GBP

72.4

26.2
12.6
8.2
7.5
8.5
5.8
6.7
6.0

34.2 2)

106.6

–11.3

9.3
–0.1
–0.2
–0.3
–
–
0.8
–0.7

35.5
12.5
8.0
7.2
8.5
5.8
7.5
5.3

–5.4
–8.0
–1.8
3.0
4.6
0.8
3.2
0.8

22.9

3.9
–8.1
–2.0
2.7
4.6
0.8
4.0
0.1

1) Transactions in foreign currency – internal sales, internal purchases, external purchases.
2) Sales transaction exposure in 2019 does not include volume in the cash flow hedge. Based on the

outstanding cash flow hedge volume at year end, the hedged sales volume that will occur in 2020 and
2021 are USD 517 million and USD 176 million respectively.

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.

Transaction exposure
The Company considers three main aspects of transaction exposure.

a) Transaction risk impacting net sales and operating income
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, by
selling to foreign subsidiaries in either the functional currency of the customers,
EUR or USD. This transaction risk can be hedged, although it is only done for
material cash inflows or outflows that are highly certain.

The Company has identified certain customer contracts where a fluctuation

in the USD/SEK foreign exchange rate would significantly impact net sales
and operating income. These contracts are multi-year contracts with highly
probable payments at fixed points in time denominated in USD.

The Board of Directors has provided a mandate to the Company to hedge
between 0%–100% of this exposure up to three years in advance. This man-
date instructs the treasury function to hedge a greater percent of this exposure
at more favorable rates while hedging a lower percent of the exposure at less
favorable rates according to a defined scale.

Hedge accounting is applied, whereby the Company enters into foreign
exchange forward contracts that match the terms of the foreign exchange expo-
sure as closely as possible and designates them as hedging instruments. Hedge
ineffectiveness is expected to be minimal but may arise due to differences in
timing of the cash flows between the hedged items and the hedging instruments.

b) Transaction exposure in individual balance sheet
According to Company policy, transaction exposure in subsidiaries’ balance
sheets (e.g., trade receivables and trade payables that are remeasured due to
change in foreign exchange rates) should be fully hedged. Foreign exchange
exposures in balance sheet items are hedged through offsetting balances or
derivatives. Foreign exchange exposures are managed net, and its effects are
presented net within Financial income and expenses. This is not designated as
hedge accounting.

Ericsson | Annual Report 2019Note F1, cont’d.

c) FX execution risk in Ericsson AB (EAB)
As balance sheet hedging is done net on a monthly basis, significant volatility
in USD hedge volumes exposes EAB to FX execution risk. In order to spread the
FX execution risk over the year, 14% of each of the next six months forecasted
sales and purchases in EAB are hedged monthly. In previous year 7% of the
next 12 months forecast was hedged. The hedged volumes are funded by
internal loans from its parent company which are not hedged, therefore the
FX impact on revaluation of the loan is recognized in financial income and
expenses as incurred.

The sensitivity of the FX impact is dependent on changes in foreign
exchange rates, forecasts and seasonality. USD is the only currency being
hedged and at year-end a change by 0.25 SEK/USD would impact FX in
financial income and expenses by approximately SEK 110 million. Realization
and revaluation results of these loans contracts amounted to SEK –412 million
and SEK 160 million respectively in 2019.

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.

Sensitivity analysis
The Company uses the Value at Risk (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
one-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, it 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 one-day horizon. The
average VaR calculated for 2019 was SEK 20.6 (12.8) million. No VaR limits
were exceeded during 2019.

In the asset-liability management activity, the interest rate risk is managed
by matching fixed and floating interest rates in interest- bearing balance sheet
items. The policy is that the net sensitivity on a one 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 2019
was SEK 1.3 (1.8) 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

–
–
1

–3
3
–2

–2

–2
3
–1

–

–1
–
1

–

–6
6
–

–

1) Excluding changes in credit risk reported in OCI.
2) Borrowings are included as they are designated FVTPL.

Outstanding derivatives

Gross
amount
recognized

Offset

Net
amount
presented

Related
amounts
not offset –
collaterals

Net

155
–885

77
–201

–54
54

–36
36

101
–831 1)

–
539

101
–292

41
–165

–
–

41
–165

2019

Currency
derivatives
Assets
Liabilities

Interest rate
derivatives
Assets
Liabilities

1) In 2019, currency derivatives designated as cash flow hedge of SEK 290 million are included in

Other current liabilities.

Financials – Notes to the consolidated financial statements

Outstanding derivatives

Gross
amount
recognized

Offset

Net
amount
presented

Related
amounts
not offset –
Collaterals

319
–637

161
–327

–44
44

–33
33

275
–593

128
–294

–
–

Net

275
–593

128
–294

2018

Currency
derivatives
Assets
Liabilities

Interest rate
derivatives

Assets
Liabilities

In 2019, the Company entered into Credit Support Annex (CSA) to ISDA for
certain cross-currency derivatives. Cash collaterals under CSA are recognized
as Interest-bearing securities, current or Borrowings, current, respectively.

The Company is holding the following currency derivatives designated as
hedging instruments:

Foreign exchange forward contracts

2019

Notional Amount
(USD millions)
Average forward rate
(SEK/USD)

< 1 year

1–3 years

Total

517

9.13

176

8.92

693

–

Hedge ratio is 1:1 and changes in forward rate have been designated as the
hedged risk. The change in the fair value of the hedging instrument is com-
pared with the change in fair value of the hedged item, and the lower amount
is taken to OCI. If the change in fair value of the hedging instrument is higher,
then the excess change in fair value is considered ineffective hedging and
recorded in net foreign exchange gains and losses. Upon recognition of the
hedged net sales, the cumulative amount in hedging reserve is released in the
OCI as a reclassification adjustment and recognized in net sales.

See note E1, “Equity” for movement in the cash flow hedge reserve. No
hedged net sales were recognized in 2019, hence no amount was released
from hedging reserve in the OCI. No hedge ineffectiveness was recognized in
the income statement in 2019.

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.

Ericsson | Annual Report 201982

Financials – Notes to the consolidated financial statements

Note F1, cont’d.

Impairment of trade receivables and contract assets
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. There-
fore, 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 ratings 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 management expec-
tations 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 55,240
(64,350) million as of December 31, 2019. Provisions for expected credit losses
on trade receivables and contract assets amounted to SEK 2,983 (4,123)
million as of December 31, 2019. The allowance decreased in 2019 due to
improvement in cash collection resulting in significant reduction of total past
due invoices. The Company’s write-offs have historically been low. During the
year SEK 382 (890) million were written off due to the Company having no
reasonable expectation of collection. Of these write-offs, SEK 0 (61) million
are still subject to enforcement.

Movements in allowances for impairment of trade receivables and contract assets

Opening balance
Decrease (–)/increase (+) in allowance
Write-offs
Translation difference
Closing balance 1)

1) Of which SEK 0 (15) million relates to contract assets.

2019

4,123
–737
–382
–21

2,983

2018

4,575
420
–890
18

4,123

The distribution of trade receivables and contract assets closely follows the
distribution of the Company’s sales, see note B1, “Segment information.” The
ten largest customers represented 49% (53%) of the total trade receivables
and contract assets in 2019.

Aging analysis of gross values by risk category at December 31, 2019

Days past due

Country risk: Low
Country risk: Medium
Country risk: High

Total past due

1–90

1,347
891
583

2,821

91–180

181–360

125
725
365

1,215

127
600
217

944

>360

313
819
1,315

2,447

Total

1,912
3,035
2,480

7,427

Customer finance credit risk
All major commitments to finance customers are made only after approval in
accordance with the work procedure for the Board of Directors and 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, 2019, the total amount payable to the Company under
customer finance credits was SEK 5,924 (4,247) million. The carrying value of
these assets was SEK 3,756 (2,883) million as of December 31, 2019, 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, 2019, there were a total of 80 (94) customer finance
arrangements originated by or guaranteed by the Company. The five largest
facilities represented 69% (62%) of the customer finance exposure in 2019.
As of December 31, 2019, Middle East and Africa made up 49% (57%) of the
oustanding exposure while South East Asia, Oceania and India made up 29%
(15%). As of December 31, 2019, the Company also had unutilized customer
finance commitments of SEK 25,854 (30,270) 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 arrange-
ment 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.”

The table below summarizes the Company’s outstanding customer finance

as of December 31, 2019 and 2018.

Outstanding customer finance credit risk exposure 1)

Fair value of customer finance credits
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.

2019

3,756
24
14

3,794
–309

3,485

2018

2,883
42
21

2,946
–331

2,615

Fair value assessment of customer finance credits
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 exter-
nal 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 804 (1,073) million in 2019, of which SEK 804 (1,073) million is related
to credits held as of December 31, 2019. This effect is presented within selling
and administrative expenses and was mainly related to India and the Middle
East, especially Iran and Iraq.

Customer finance fair value reconciliation

Opening balance
Additions
Disposals/repayments
Revaluation
Translation difference

Closing balance

Of which non-current

2019

2,884
29,732
–28,032
–804
–24

3,756
2,262

2018

3,931
6,100
–6,200
–1,073
126

2,884
1,180

Due to the increase in 5G buildout this year, demand for customer financing
solutions has increased. Most of such financing has been successfully trans-
ferred to banks, hence the balance of customer finance receivables remains low.

Ericsson | Annual Report 2019

Note F1, cont’d.

Financial credit risk
Financial instruments carry an element of risk in that counterparts may be
unable to fulfill their payment obligations. This exposure arises in the invest-
ments in cash, cash equivalents, interest-bearing securities and from derivative
positions with positive unrealized results against banks and other counterparties.
The Company mitigates these risks by investing cash primarily in high rated

securities such as treasury bills, government bonds, commercial papers, and
mortgage-covered bonds (see Liquidity risk section below). 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. For cross-currency swaps a Credit Support Annex (CSA) to
ISDA is signed to further reduce the credit risk by exchanging collateral weekly
against market value. The Company has also moved some derivative expo-
sures to clearing counterparties with daily settlement of margins.

At December 31, 2019, 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 0.1 (0.4) billion.

Transfers of financial assets
Transfers where the Company has continuing involvement
During 2019, there were no new financial assets transferred where the
Company had retained continuing involvement. However, during 2016 the
Company derecognized financial assets where it had retained continuing
involvement. A repurchase of these assets would have amounted to SEK 207
million at the end of 2018. This contract was concluded in 2019.

Liquidity risk
The Company minimizes the liquidity risk by maintaining a sufficient cash posi-
tion, centralized cash management, investments in highly liquid interest-bear-
ing securities, and by having sufficient committed credit lines in place to meet
potential funding needs. For information about contractual obligations, see
note D4, “Contractual obligations.” The current cash position is deemed to
satisfy all short-term liquidity requirements.

Cash, cash equivalents, interest bearing securities and derivative assets

2019

Bank deposits
Other financial institu-
tions
Type of issuer:
Banks
Governments
Corporates
Mortgage institutes
Other financial institu-
tions
Derivative assets

2018

Bank deposits
Type of issuer:
Governments
Corporates
Mortgage institutes
Derivative assets

Rating or
equivalent

AAA
A2/P2
AAA

Rating or
equivalent

AAA
A2/P2
AAA

< 3 M 3–12 M 1–5 Y

> 5 Y

Total

35,006

309

294

–

– 35,316

–

294

441
4,028
5,305
278

490
4

213
1,590
–

–
8,361
–
3,832 11,088

–

654
906 14,885
–
5,305
– 15,198

50
3

–
135

–
–

540
142

45,846

5,997 19,585

906 72,334

< 3 M 3–12 M 1–5 Y

> 5 Y

Total

32,241

439

32,688

7,558
2,151
–
242

2,269
1
200
46

7,697
–
15,168
10

947
–
314
105

18,471
2,152
15,682
403

42,192

2,955

22,882

1,367

69,396

Financials – Notes to the consolidated financial statements

The following table shows analysis of financial liabilities, including lease
liabilties, by contractual maturity:

2019

Trade payables
Lease liabilities
Borrowings and loans
Derivative liabilities

2018

Trade payables
Borrowings and loans
Derivative liabilities

< 1 Y

1–3 Y

3–5 Y

30,403
2,766
9,439
355

–
4,122
15,197
549

–
2,591
10,245
35

> 5 Y

–
2,291
2,815
57

Total

30,403
11,770
37,696
996

42,963

19,868

12,871

5,163

80,865

< 1 Y

1–3 Y

3–5 Y

> 5 Y

Total

29,883
2,255
300

–
13,722
148

–
10,735
416

– 29,883
33,125
887

6,413
23

32,438

13,870

11,151

6,436

63,895

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

1,429

1,000

3,571

–

1) There are no financial covenants related to these programs.
2) Program amount indeterminate.

In October 2019, the Company signed a multicurrency credit facility agree-
ment equivalent to EUR 250 million with the European Investment Bank.
The maturity date of the credit facility will be determined at the time of dis-
bursement and can be up to seven 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 0.2 (0.5) billion in relation to
assets and gross SEK 1.1 (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 recog-
nized in these cases was SEK 2.6 (2.5) billion. Net revaluation gains or losses
is SEK 0 (0) billion in the year. 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

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.

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 201984

Financials – Notes to the consolidated financial statements

Note F1, cont’d.

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.

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
Long-Term Variable compensation program (LTV) 2017 for the Executive
team is covered by holding Ericsson Class B shares as trasury stock. The cash

Financial instruments, book value

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. The obligation to deliver shares under the 2018 and 2019 LTV pro-
grams for the Executive team shall be hedged by the Company entering into
an equity swap agreement with a third party, under which the third party shall,
in its own name, acquire and transfer Ericsson Class B shares to employees
covered by these programs. A change in the share price will result in a change
in social security charges, which represents a risk to the income statement.

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 2) 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 compensa-
tion amounts under the synthetic share-based compensations to the Board of
Directors and employees are covered by a provision in the balance sheet.

For further information about the stock purchase program, LTV, the cash-
settled plans to employees and the synthetic share-based compensations to
the Board of Directors, see note G3, “Share-based payments.”

Customer

finance 1)

Trade
receiv ables

3.8

43.1

Interest-
bearing
securities

26.6
0.5

Cash
equiva lents

Borrow ings 2)

Trade
payables

Other
financial
assets

Other
current
receiv ables

Other
current
l iabilities

23.9
3.8

F3/B7

1.4
0.2

1.3

–35.9

2019

2018

57.0
4.5

43.1

51.2
4.6

51.2

–35.9

–30.7

SEK billion

Note
Assets at fair value through
profit or loss
Assets at amortized cost
Assets at fair value
through OCI
Financial liabilities
designated at FVTPL
Financial liabilities at
FVTPL - held for trading
Financial liabilities
at amortized cost

–1.8

–37.7

–30.4

1.6

1.3

–1.0

–32.2

35.5

–32.3

43.1

–1.0

–0.9

Total

3.8

43.1

27.1

27.7

1) Of which non-current customer finance of SEK 2,262 million and current customer finance of SEK 1,494 million.
2) Of which non-current borrowings of SEK 28,257 million and current borrowings of SEK 9,439 million.

Ericsson | Annual Report 2019F2 Financial income and expenses

Financial income and expenses 1)

Contractual interest on financial assets

of which on financial assets at amortized cost
Net revaluation gains and losses on financial assets

Financial income

Contractual interest on financial liabilities

of which on financial liabilities at amortized cost

Net revaluation gains and losses on financial liabilities

Lease interest expense

Other financial expenses

Financial expenses

Net foreign exchange gains/losses

Financial income and expenses, net

Net gains and losses on financial instruments below includes foreign exchange gains and losses:
Financial instruments at fair value through profit or loss 3)
Financial liabilities designated at fair value through profit or loss
Financial assets at amortized cost
Financial assets at fair value through OCI / available for sale 4)
Financial liabilities at amortized cost

Financials – Notes to the consolidated financial statements

2019

1,395
591
–100

1,295

–1,392
–302

–69

–551

–690 2)

–2,702

–395

–1,802

758
–1,322
–
–
–

2018

580
422
–429

151

–1,430
–474

–27

–

–575

–2,032

–824

–2,705

887
–2,087
–
–81
–

2017

472
353
–522

–50

–1,144
–559

–

–426

–1,570

405

–1,215

–127
–
–103
40
72

1) New presentation of financial income and expenses resulted in restatement of 2018 and 2017 balances – for more information see note A3, “Changes in accounting policies.”
2) Including gain of SEK 258 million relating to partial settlement of pension plan liabilities.
3) Excluding net gain from derivatives hedging operating assets and liabilities, SEK 30 million (net loss of SEK 128 million in 2018 and net loss of SEK 451 million in 2017), reported as Cost of sales. Excluding net
loss from revaluation of customer finance receivables of SEK 650 million (net loss of SEK 1,059 million in 2018), reported as Selling and administrative expenses. Net gains and losses in 2017 include gains
and losses on liabilities with fair value hedge.

4) Available for sale assets in 2017 only, prior to implementation of IFRS 9.

F3 Financial assets, non-current

Financial assets, non-current, 2019

Opening balance
Adjustment due to IFRS 16 1)
Opening balance adjusted
Additions
Disposals/repayments/ deductions
Change in value in funded pension plans 2)
Revaluation
Reclassification to current assets
Translation difference

Closing balance

Other investments in
shares and participations

Interest-bearing
securities, non-current

Derivatives,
non-current

Other financial assets,
non-current

1,515
–

1,515
62
–
–
–149
–
4

1,432

23,982
–

23,982
18,484
–19,995
–
–33
–2,084
–

20,354

–
–

–
–
–
–
–
–

–

6,559
311

6,870
523
–703
–133
154
–1,155
58

5,614

1) Relates to financial sublease receivable - for more information see note A3, “Changes in accounting policies.”
2) This amount includes asset ceiling. For further information, see note G1, “Post-employment benefits.”

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

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

1) This amount includes asset ceiling. For further information, see note G1, “Post-employment benefits.”

Ericsson | Annual Report 201986

Financials – Notes to the consolidated financial statements

F4 Interest-bearing liabilities

As of December 31, 2019, the Company’s outstanding interest-bearing
liabilities were SEK 37.7 (33.1) billion.

Interest-bearing liabilities

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

Reconciliation of liabilities arising from financing activities

Opening balance
Adjustment due to IFRS 16 1)
Adjusted opening balance

Cash flows 2)
Proceeds from issuance of borrowings
Repayment of borrowings
Lease payments
Non-cash changes
Effect of foreign exchange movement
Revaluation due to changes in credit risk
Other changes in fair value
Acquisition of new lease contracts
Reclassification 3)
Other non-cash movements
Closing balance

2019

2018

7,946
1,493

9,439

21,898
6,359

28,257

37,696

2019

33,125
10,398

43,523

4,851
–4,476
–2,990

1,748
651
343
2,300
1,767
–139

47,578

72
2,183

2,255

21,875
8,995

30,870

33,125

2018

33,076
–

33,076

911
–1,748
–

2,813
–207
–28
–
–1,692
–

33,125

1) For more information see note A3, “Changes in accounting policies.”
2) In addition to the above numbers, SEK –14 (75) million is allocated to the Financing cash flow due to

hedging derivatives.

3) Repayment of borrowings includes repayment of a loan, not classified as borrowings, to a minority

shareholder in a subsidiary.

Notes, bonds and bilateral loans

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
2019–2025 2)
2013–2020 3)
2017–2023 2)
2019–2024 3)

Total bilateral loans

Nominal
amount

Coupon

Currency

Maturity date

4.125%
0.875%
1.875%

170
1,000
500
500
150

150
684
220
281

USD
USD
EUR
EUR
USD

USD
USD
USD
USD

Dec 23, 2020
May 15, 2022
Mar 1, 2021
Mar 1, 2024
Dec 22, 2025

Dec 18, 2025
Nov 6, 2020
Jun 15, 2023
July 31, 2024

1) Private Placement, Swedish Export Credit Corporation (SEK).
2) Nordic Investment Bank (NIB), R&D project financing.
3) European Investment Bank (EIB), R&D project financing.

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 US Securities and Exchange Commission
(SEC) Registered program. Bonds issued at a fixed interest rate are normally
swapped to a floating interest rate using interest rate swaps under the Asset
and liability management mandate described in note F1, “Financial risk man-
agement.” Total weighted average interest rate cost for the long-term funding
during the year was 3.26% (3.01%).

In July 2019, the Company made a drawdown of USD 281 million under
the European Investment Bank (EIB) loan facility signed in May 2018. The
loan supports research and development activities related to 5G. The loan will
mature in July 2024.

Ericsson drew on the credit facility of USD 150 million, from the Nordic
Investment Bank (NIB), which was signed in December 2019 to support
investments in R&D for 5G technology. Part of the new funds, USD 98 million,
replaced an existing credit with NIB that was set to mature in 2021, resulting
in a net increase in funding of USD 52 million. The new facility is set to mature
in 2025.

Changes in fair value due to changes in credit risk
Borrowings issued by the Parent Company 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. 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 Company’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.

Book value
(SEK million)
2019

Changes in fair
value due to
changes in credit
risk
2019

Cumulative
changes in fair
value due to
changes
in credit risk
2019

Book value
(SEK million)
2018

1,601
9,695
5,267
5,512
1,424

23,499

1,371
6,345
2,078
2,606

12,400

–8
290
28
251
41

602

–26
55
36
–16

16
309
41
208
28

602

–26
–32
33
–16

–41

1,545
8,776
5,141
5,087
1,326

21,875

860
6,030
1,959
–

8,849

Ericsson | Annual Report 2019Section 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 main
change in 2019 was driven by a decrease in discount rates in most pension
plans. In total, financial assumption changes resulted in actuarial losses on
defined benefit obligations of SEK 12.4 billion. The devel opment of plan assets
was higher than expected resulting in actuarial gains of SEK 5.8 billion.

Swedish plans
Sweden has both defined benefit and defined contribution plans based on
collective agreement between the parties in the Swedish labor market:
– A defined benefit plan, known as ITP 2 (occupational pension for salaried
employees in manufacturing industries and trade), complemented by
a defined contribution plan, known as ITPK (supplementary retirement
benefits). This is a final salary-based plan.

– A defined contribution plan, known as ITP 1, for employees born in 1979

or later.

– A defined contribution plan ITP 1 or alternative ITP, for employees earning
more than 10 income base amount and who have opted out of the defined
benefit plan ITP 2, where rules are set by the Company and approved by
each employee selected to participate.

The Company has by far most of its Swedish pension liabilities under defined
benefit plans which according to IAS 19 is funded to 45% (49%) by the assets
of Ericsson Pensionsstiftelse (a Swedish Pension Foundation). According to
Swedish GAAP these liabilities are considered funded to more than 100% by
the assets of Ericsson Pensionsstiftelse. There are no funding requirements for
the Swedish plans.

The disability and survivors’ pension part of the ITP-plan is secured through

an insurance solution with the company Alecta, see section about Multi-
employer plans.

The Company pays benefit directly to the pensioners as the obligations fall
due. The responsibility for governance of the plans and the plan assets lies with
the Company and the Pensionsstiftelse. The Swedish Pensions stiftelse is man-
aged on the basis of a capital preservation strategy and the risk profile is set
accordingly. Traditional asset-liability matching (ALM) studies are undertaken
on a regular basis to allocate within different asset classes.

The plans are exposed to various risks, e.g., a sudden decrease in the bond
yields, which would lead to an increase in the plan liability. A sudden instability
in the financial market might also lead to a decrease in fair value of plan assets
held by the Pensionsstiftelse, as the holdings of plan assets partly are exposed
to equity markets; however, this may be partly offset by higher values in fixed
income holdings. Swedish plans are linked to inflation and higher inflation
will most likely lead to a higher liability. For the time being, inflation is a low
risk factor to the Swedish plans as actual rate of inflation has not reached the
ceiling target set by the Central Bank of Sweden.

Multi-employer plans
As before, the Company has secured the disability and survivors’ pension part
of the ITP Plan through an insurance solution with the insurance company
Alecta. Although this part of the plan is classified as a multi-employer defined
benefit plan, it is not possible to get sufficient information to apply defined
benefit accounting, as for most of the accrued pension benefits in Alecta, infor-
mation is missing on the allocation of earnings process between employers.
Full vesting is instead registered on the last employer. Alecta is not able to
calculate a breakdown of assets and pro visions for each respective employer,
and therefore, the disability and survivors’ pension portion of the ITP Plan has
been accounted for as a defined contribution plan.

Alecta has a collective funding ratio which acts as a buffer for its insurance

commitments to protect against fluctuations in investment return and
insurance risks. Alecta’s target ratio is 140% and reflects the fair value of
Alecta’s plan assets as a percentage of plan commitments, then meas ured in

Financials – Notes to the consolidated financial statements

accordance with Alecta’s actuarial assumptions, which are different from those
in IAS 19. Alecta’s collective funding ratio was 148% (142%) as of December
31, 2019. The Company’s share of Alecta’s saving pre miums is 0.3%, the total
share of active members in Alecta are 1.9%. The expected contribution to the
plan is SEK 106 million for 2020.

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 2019.

Plan assets held in trusts are governed by local regulations and practice,
as is the nature of the relationship between the Company and the trustees (or
equivalent) and their composition. Responsibility for govern ance of the plans,
including investment decisions and contribution schedules, lies with the Plan
Administrative Committee (PAC). The PAC is composed of representatives
from the Company.

The Company’s plans are exposed to various risks associated with pension

plans, i.e., a sudden decrease in bond yields would lead to an increase in
the present value of the defined benefit obligation. A sudden instability in
the financial markets might also lead to a decrease in the fair value of plan
assets held by the trust. Pension benefits in the US are not linked to inflation;
however, higher inflation poses the risk of increased final salaries being used to
determine benefits for active employees. There is also a risk that the duration
of payments to retirees will exceed the life expectancy in mortality tables.

UK plans
The Company operates both defined benefit and defined contribution plans
in the UK. All 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.

Ericsson | Annual Report 201988

Financials – Notes to the consolidated financial statements

Note G1, cont’d.

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 main pension plans in Brazil are wholly funded with
a net surplus of assets. The plan in Ireland is a final salary pension plan and
is partly funded. The plans are managed by corporate trustees with directors
appointed partly by the local company and partly by the plan members. The
trustees are independent from the local company and subject to the specific
country’s pension laws.

Amount recognized in the Consolidated balance sheet

2019
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)

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)

Sweden

Other

Total

50,257
22,809

27,448
–

27,448

44,845
21,912

22,933
–

22,933

20,897
20,102

795
–

795

21,059
19,899

1,160
–

1,160

15,352
16,919

–1,567
2,137

570

12,374
14,385

–2,011
2,246

235

15,928
9,829

6,099
905

7,004

12,042
8,126

3,916
476

4,392

102,434
69,659

32,775
3,042

35,817

90,320
64,322

25,998
2,722

28,720

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 increased during the year by SEK 452 million from SEK 381 million in 2018 to SEK 833 million in 2019.

2) Plans with net liabilities are reported in the balance sheet as Post-employment benefits, non-current.

Total pension cost recognized in the Consolidated income statement
The costs for post-employment benefits within the Company are distributed between defined contribution plans and defined benefit plans, with a trend toward
defined contribution plans.

Pension costs for defined contribution plans and defined benefit plans

Sweden

Other

Total

2019
Pension cost for defined contribution plans
Pension cost for defined benefit plans

Total
Total pension cost expressed as a percentage of wages and salaries

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

953
1,704

2,657

937
1,350

2,287

1,096
1,824

2,920

456
–110 1)

346

473
175

648

473
168

641

132
–47 2)

145
75

220

173
38

211

1,193
889

2,082

1,170
557

1,727

1,228
592

1,820

2,734
2,436

5,170
8.8%

2,725
2,157

4,882
9.2%

2,970
2,622

5,592
9.5%

1) Negative cost due to settlement gain of SEK 258 million.
2) Negative cost due to net interest income of SEK 461 million exceeding interest cost of SEK 394 million during the year.

Ericsson | Annual Report 2019Note G1, cont’d.

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

Financials – Notes to the consolidated financial statements

Present value
of obligation

2019 2)

90,320

Fair value of
plan assets
2019

Total
2019

–64,322

25,998

Present value
of obligation

2018 2)

87,645

Fair value of
plan assets
2018

Total
2018

–64,939

22,706

1,977
–266
2,577
–
–1

4,287

–
–
–1,938
49
2

–1,887

1,977
–266 3)
639
49
1

2,400 4)

1,602
100
2,196
78
–6

3,970

–
–
–1,912
54
2

–1,856

1,602
100
284
132
–4

2,114 4)

–

–5,758

–

3,016

–775
12,443
–126

11,542

–
–
–

–5,758

–775
12,443
–126

5,784

–124
261
–613

–476

–
–
–

3,016

–124
261
–613

2,540

2,079

–2,076

2,659

–2,383

276

–1,183
28

–2,044
–2,722
127

102,434

–321
–26

2,044
2,687
–

–1,504
2

–
–35
127

–69,659

32,775

–984
28

–2,357
–145
–20

90,320

–513
–21

2,357
17
–

–1,497
7

–
–128
–20

–64,322

25,998

1) The expected contribution to the plans is SEK 1.7 billion during 2020. In addition, there is a funding need of SEK 1 to 2 billion for the Swedish plan which can be met either by contributing cash or providing addi-

tional business mortgages as guarantee.

2) The weighted average duration of DBO is 21.1 (20.3) years.
3) Settlement gain of SEK 258 million is reported in Other financial expenses, see note F2, “Financial income and expenses.”
4) Excluding the impact of the asset ceiling of SEK 36 million in 2019 and SEK 43 million in 2018.

Actuarial losses of SEK 12.4 billion from changes in financial assumption are attributable to the decrease in discount rates in the larger pension plans in Sweden,
US and UK. Settlement payments are higher in the year due to a one-off partial settlement of liabilities in the US pension plan.

Present value of the defined benefit obligation

2019
DBO, closing balance

Of which partially or fully funded
Of which unfunded

2018
DBO, closing balance

Of which partially or fully funded
Of which unfunded

Sweden

Other

Total

50,257
50,257
–

44,845
44,845
–

20,897
20,138
759

21,059
20,372
687

15,352
15,352
–

12,374
12,374
–

15,928
12,211
3,717

12,042
9,292
2,750

102,434
97,958
4,476

90,320
86,883
3,437

Ericsson | Annual Report 201990

Financials – Notes to the consolidated financial statements

Note G1, cont’d.

Asset allocation by asset type and geography

2019
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

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

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

Sweden

Other

Total

Of which
unquoted

1,319
3,784
11,969
4,489
1,248
–
–

22,809
–
–

935
4,434
10,642
4,228
1,673
–
–

21,912
–
–

1,013
773
17,050
–
1,261
–
5

20,102
–
–

585
729
17,329
–
1,151
–
105

19,899
–
–

1,309
3,368
10,994
169
296
–
783

16,919
–
–

1,416
2,293
9,410
154
415
–
697

14,385
–
–

86
2,422
4,774
550
242
1,404
351

9,829
–
–

88
2,439
3,485
229
230
1,289
366

8,126
–
–

3,727
10,347
44,787
5,208
3,047
1,404
1,139

69,659
–
–

3,024
9,895
40,866
4,611
3,469
1,289
1,168

64,322
–
–

0%
15%
7%
100%
65%
100%
6%

0%
18%
23%
100%
70%
100%
33%

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

Total

2019

–5,049
–398
–735

–6,182

2018

–1,887
87
–653

–2,453

2019

2018

0.9%
3.2%
2.1%
1.8%

1.5%
4.3%
3.0%
2.6%

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

2019

2018

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 a 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%

–5.8
–1.1
–1.7
–10.0

+6.6
+1.2
+1.9
+11.3

–5.0
–1.0
–1.3
–8.3

+5.4
+1.1
+1.5
+9.2

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 pension
liability calculation. As of December 31, 2019, the discount rate applied in
Sweden was 0.9% (1.5%). If the discount rate had been based on Swedish
covered bonds, the discount rate as of December 31, 2019 would have been
1.8% (2.5%). If these discount rates based on Swedish covered bonds had
been applied for the pension liability calculation, the DBO at December 31,
2019 would have been approximately SEK 9.8 (9.5) 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 2019Financials – 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

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
Per Holmberg (deputy)
Anders Ripa (deputy)
Loredana Roslund (deputy)

4,075,000

1,020,000
1,020,000
1,020,000
1,020,000
1,020,000
–
1,020,000

1,020,000

25,500
25,500
25,500
25,500
25,500
25,500

Number of
synthetic
shares/portion
of Board fee

Value at grant
date of synthetic
shares allocated
in 2019

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
2019

(A+B+C)

21,556/50%

2,037,473

5,395/50%
8,093/75%
8,093/75%
8,093/75%
2,697/25%
–
2,697/25%

8,093/75%

2,697/25%

–
–
–
–
–
–

509,935
764,950
764,950
764,950
254,920
–
254,920

764,950

254,920

–
–
–
–
–
–

30,969

27,277
36,699
24,277
24,277
10,604
15,860
8,091

11,285

19,817

–
–
–
–
–
–

–649,755

–100,441
–160,079
–261,161
–261,161
–61,051
133,212
–87,036

–239,854

–45,036

–
–
–
–
–
–

375,000

175,000
175,000
200,000
425,000
425,000
–
400,000

350,000

200,000

15,000
15,000
10,500
–
–
–

2,412,500

685,000
430,000
455,000
680,000
1,190,000
–
1,165,000

605,000

965,000

40,500
40,500
36,000
25,500
25,500
25,500

3,800,218

1,094,494
1,034,871
958,789
1,183,789
1,383,869
133,212
1,332,884

1,130,096

1,174,884

40,500
40,500
36,000
25,500
25,500
25,500

Total

12,388,000

67,414

6,371,968

209,156
209,156

–1,732,362
–1,595,205 4)

2,765,500

8,781,000

2,765,500

8,781,000

13,420,606 3)
13,557,763 3)

1) The difference in value as of the time for payment, compared to December 31, 2018, for synthetic shares allocated in 2014 (for which payment was made in 2019).
The difference in value as of December 31, 2019 compared to December 31, 2018, for synthetic shares allocated in 2015, 2016, 2017 and 2018. Calculated on a share price of SEK 81.56.
The difference in value as of December 31, 2019, compared to grant date for synthetic shares allocated in 2019.
The value of synthetic shares allocated in 2015, 2016, 2017 and 2018 includes respectively SEK 3.70, SEK 1.00, SEK 1.00 and SEK 1.00 per share in compensation for dividends resolved by the Annual General

Meetings 2016, 2017, 2018 and 2019 and the value of the synthetic shares allocated in 2014 includes dividend compensation for dividends resolved in 2015, 2016, 2017 and 2018.

2) Committee fee and cash portion of the Board fee.
3) Excluding social security charges in the amount of SEK 2,706,907.
4) Including synthetic shares previously allocated to the former Directors Kristin Skogen Lund and Sukhinder Singh Cassidy. For these synthetic shares, the net change in value corresponds to the difference in
value as of the time for payment compared to December 31, 2018.

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 1,020,000 each. In addition, the Chair of the Audit and Com-
pliance Committee was entitled to a fee of SEK 400,000 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 2019 resolved that non-employee Directors
may choose to receive the Board fee (i.e., exclusive of Committee fee) as
follows: i) 25% of the Board fee in cash and 75% in the form of synthetic
shares, with a value corresponding to 75% of the Board fee at the time of
allocation, ii) 50% in cash and 50% in the form of synthetic shares, or iii)
75% in cash and 25% in the form of synthetic shares. Directors may also
choose not to participate in the synthetic share program and receive 100%
of the Board fee in cash. Committee fees are always paid in cash.

The number of synthetic shares allocated is based on a volume-weighted
average of the market price of Ericsson Class B shares on Nasdaq Stockholm
during the five trading days immediately following the publication of Ericsson’s
interim report for the first quarter 2019; SEK 94.52. 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 2024. 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 2014 occurred
in 2019. The amounts paid in 2019 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 immediately following
the publication of the year-end financial statements for 2018: SEK 80.01 and
totalled SEK 1,591,237 excluding social security charges. The payments made
do not constitute a cost for the Company in 2019. 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 2019, is disclosed in the
table “Remuneration to members of the Board of Directors” on page 91.

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

Ericsson Annual Report 201992

Financials – Notes to the consolidated financial statements

Note G2, cont’d.

affects the total recognized costs that year. As of December 31, 2019, the total
outstanding number of synthetic shares under the programs is 276,570 and
the total accounted debt is SEK 22,985,528.

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.

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 2019
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
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 remuner-
ation elements are based on the guidelines for remuneration to Group man-
agement as approved at the Annual General Meeting (AGM) of shareholders
held in 2019; see the approved guidelines in the previous section Guidelines
for remuneration to Group management 2019.

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 2)

Pension costs 3)
Other benefits

Social charges and taxes 4)

Total

Pres ident
and CEO 2019

Pres ident
and CEO 2018

Other members
of ET 2019

Other members
of ET 2018

16,299,080
–

15,362,592
–

86,342,359
–

87,557,407
8,977,037

Total 2019

102,641,439
–

Total 2018

102,919,999
8,977,037

–

28,289,319

26,041,833

28,289,319

26,041,833

31,491,325

8,284,891
600,572

17,807,558

74,483,426

18,351,265

7,890,372
424,513

13,205,431

55,234,173

31,149,752

33,389,234
21,765,983

43,244,590

16,549,282

31,776,195
11,785,239

44,565,230

62,641,077

41,674,125
22,366,555

61,052,148

34,900,547

39,666,567
12,209,752

57,770,661

244,181,237

227,252,223

318,664,663

282,486,396

1) Includes compensation for unused vacation days.
2) Includes pro-rated long-term variable compensation provisions for other members of ET for the individuals who left ET during the year.
3) Includes cash payments to the President and CEO in lieu of defined contribution payment in a cost neutral way to Ericsson.
4) Social charges and taxes for other members of ET 2018 adjusted due to clerical error.

Comments to the table
– Fredrik Jejdling was appointed as Executive Vice President by the Board of
Directors effective November 7, 2017. He did not substitute the President
and CEO as the deputy to the President and CEO in 2019. 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, Xavier Dedullen, Erik Ekudden, Niklas Heu-
veldop, Chris Houghton, Fredrik Jejdling, Jan Karlsson, Peter Laurin, Carl
Mellander, Nunzio Mirtillo, and Åsa Tamsons. In addition, Stella Medlicott
joined ET on June 10, 2019 and Fadi Pharaon joined ET on September 1,
2019, Helena Norrman (left ET effective June 10, 2019 and Ericsson June
30, 2019 by resignation) and Rafiah Ibrahim (left ET effective August 31,
2019).

– The salary stated in the table for the President and CEO and other members
of the ET includes vacation pay paid during 2019 as well as other contracted
compensation expenses in 2019.

– “Long-term variable compensation provision” refers to the compensation
costs for all outstanding share-based plans for full year 2019 and includes
pro-rated long-term variable compensation provisions for other members of
ET for the individuals who left ET during the year.

Outstanding balances
The Company has recognized the following liabilities relating to unpaid remu-
nerations in the Balance sheet:
– Ericsson’s commitments for defined benefit based pensions as of December

31, 2019, for other members of ET under IAS 19 amounted to 2019:
SEK 44.6 million, 2018: SEK 56.0 million of which 2019: SEK 32.6 million,
2018: SEK 45.2 million refers to the ITP and early retirement, and the
remaining 2019: SEK 11.9 million, 2018 SEK 10.9 million to disability
and survivors’ pensions. The President and CEO does not have a Swedish
defined benefit based pension plan, hence, Ericsson bears no commitment.

– For previous Presidents and CEOs, the Company has made provisions for

defined benefit pension plans in connection with their active service periods
within the Company.

Ericsson Annual Report 2019G3 Share-based compensation

Accounting treatment of Long-Term Variable Compensation Programs
In note A1, “Significant accounting policies”, the overall accounting policies
for share-based payments within the Company are disclosed. In summary:
– For share-settled plans, the total compensation expense is calculated based
on the fair value (FV) at grant date and recognized over the service period
of three years.

– For the cash-settled plans the accounting principles are the same as for

any other accruals or provisions. Prior to payout an accrual or provision is
recognized every period based on the present period’s best estimate of the
total amount. Any difference between total payout and the sum of accruals
of provisions is recognized in the income statement in the period of final
payout.

Long-Term Variable Compensation
All long-term variable compensation programs have been designed to form
a part of a well-balanced total remuneration package and in general to span
over a minimum of three years (vesting period). As these are variable com-
pensation 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 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 (ET), the new
Executive Performance Plan (EPP) for senior managers and the Key Contrib-
utor Plan (KC Plan) for key employees as integral parts of its remuneration
strategy starting from 2017.

All new programs are share-based payment programs as defined by IFRS 2

“share-based payment,” either share- or cash-settled.

Share-Settled Programs
Long-Term Variable Compensation Program for the Executive Team
The Long-Term Variable Compensation Program 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. These are share-settled
plans as defined by IFRS 2.

Awards under LTV (Performance Share Awards) are granted to the par-
ticipants, 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 period). Allotment of shares pursuant to Performance
Share Awards are subject to the achievement of challenging performance
criteria which are defined specific to each year’s program when the program
is introduced.

Financials – Notes to the consolidated financial statements

Which portion, if any, of the Performance Share Awards for LTV will vest is
determined at the end of the relevant performance period based on the satis-
faction of the predetermined performance criteria for that year’s LTV program.
The performance criteria for the currently running LTV and EPP are summa-
rized in the below table along with the satisfaction and achieved vesting levels
for the ones which the performance period have lapsed. It is generally required
that the participant retains his or her employment over a period of three years
from the date of grant of awards (service period) to be eligible for receiving the
performance awards.

Provided that the performance criteria have been met during the perfor-
mance period and that the participant has retained his or her employment
(unless special circumstances are at hand) during the service 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 examines whether the vesting level is reasonable con-
sidering the Company’s financial results and position, conditions on the stock
market and other circumstances, and if not, reserves the right to reduce the
vesting level to a lower level deemed appropriate.

In the event delivery of shares to the participants cannot take place under

applicable law or at a reasonable cost and employing reasonable adminis-
trative measures, the Board of Directors is entitled to decide that participants
may, instead, be offered cash settlement.

All major decisions relating to outcome of LTV are taken by the Remunera-

tion Committee, with approval by the full Board of Directors as required.

2019 Long-Term Variable Compensation Program
for the Executive Team (LTV 2019)
LTV 2019 was approved at the AGM 2019 and includes a total of 14 ET mem-
bers in 2019, including the President and CEO, but excluding Helena Norrman
who was not granted LTV 2019 due to her resignation, and Stella Medlicott
and Fadi Pharaon who carried over their EPP entitlements for 2019 after their
appointments to the ET.

The participants were granted Performance Share Awards on May 18, 2019.
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’ respec-
tive annual base salaries at the time of grant. The share price used to calculate
the number of shares to which the Performance Share Award entitles was
calculated as the volume weighted average of the market price of Ericsson B
shares on Nasdaq Stockholm during the five trading days immediately follow-
ing the publication of the Company’s interim report for the first quarter of 2019.

Following evaluation of the previously introduced Long-Term Variable
Compensation Programs, the Board of Directors decided to use the same
performance criteria for LTV 2019 as the ones used for LTV 2018 in order to

2019 Group
operating income
Absolute TSR
Relative TSR 1)

2018 Group operating
income
Absolute TSR
Relative TSR 1)

2019

2019
2019

2019 Total

2018

2018
2018

2018 Total

2017
2017

2017 Total

LTV and EPP performance criteria

Program Year

Target

Criteria

Weight

Performance Period

Range (SEK billion): 10.0–20.0

50%

Jan 1, 2019–Dec 31, 2019

Vesting Opportunity
(linear pro-rata)

Achievement
0%–200% SEK 20.4 billion 2)

Achieved
Vesting Level

200%

Range: 6%–14%
Ranking of Ericsson: 7–2

Jan 1, 2019–Dec 31, 2021
Jan 1, 2019–Dec 31, 2021

30%
20%

100%

0%–200%
0%–200%

0%–200%

Range (SEK billion): 4.6–9.6

50%

Jan 1, 2018–Dec 31, 2018

0%–200% SEK 11.5 billion 3)

200%

Range: 6%–14%
Ranking of Ericsson: 7–2

Absolute TSR
Relative TSR 1)

Range: 6%–14%
Ranking of Ericsson: 12–5

Jan 1, 2018–Dec 31, 2020
Jan 1, 2018–Dec 31, 2020

Jan 1, 2017–Dec 31, 2019
Jan 1, 2017–Dec 31, 2019

30%
20%

100%

50%
50%

100%

0%–200%
0%–200%

0%–200%

0%–200%
0%–200%

0%–200%

21.34%
5.45 out of 18

200%
191.04%

195.52%

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 companies for the program years 2019 and 2018, and 18 companies for the program year 2017. The vesting of the performance share awards under this performance condi-
tion 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.

2) Excludes fines and similar related to the United States Department of Justice (DOJ) / Securities and Exchange Commission (SEC) investigation.
3) Excludes restructuring charges and the provisions taken in Q4 2018 related to the revised BSS strategy.

Ericsson Annual Report 201994

Financials – Notes to the consolidated financial statements

Note G3, cont’d.

secure continuity and consistency in supporting achievement of the Compa-
ny’s 2020 targets. Hence again a one-year Group operating income target
measured over the period January 1, 2019 to December 31, 2019 was included
as a performance condition for LTV 2019 in addition to the standard three-year
total shareholder return (TSR) performance conditions, which were also used
for LTV 2018 and LTV 2017.

The performance criteria relating to TSR are absolute TSR development and

relative TSR development for the Ericsson B share over the period January 1,
2019 to December 31, 2021 (the performance period).

The performance criteria for LTV 2019 along with the details on how the
performance criteria will be calculated and measured are explained in minutes
from the AGM 2019 under Item 17.

The Board of Directors resolved on the achieved vesting level for the 2019
Group operating income performance criteria as 200% for this portion of the
performance share awards granted based on a 2019 Group operating income
outcome excluding fines and similar related to the United States Department
of Justice (DOJ) / Securities and Exchange Commission (SEC) investigation.

2018 Long-Term Variable Compensation Program
for the Executive Team (LTV 2018)
LTV 2018 was approved at the AGM 2018 and includes all members of the ET,
a total of 14 employees in 2018, including the President and CEO, but exclud-
ing 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.
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 maximum value of
underlying shares in respect of the Performance Share Awards made to the
ET members other than the President and CEO were increased from 22.5% in
2017 to between 30% and 70% of participants’ respective base salaries at the
time of grant in 2018. The increases were approved at 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.

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 development 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 for LTV 2018 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.

The Board of Directors resolved on the achieved vesting level for the 2018
Group operating income performance criteria as 200% for this portion of the
performance share awards granted based on a 2018 Group operating income
outcome excluding restructuring charges and the provisions taken in Q4 2018
related to the revised BSS strategy.

2017 Long-Term Variable Compensation Program
for the Executive Team (LTV 2017)
LTV 2017 was approved at the AGM 2017 and includes all members of the ET,
a total of 16 employees in 2017, including the President and CEO.

The participants were granted Performance Share Awards on May 18,
2017. The value of the underlying shares in respect of the Performance Share
Award made to the President and CEO was 180% of the annual base salary,
and for other participants 22.5% of the participants’ respective annual base
salaries at the time of grant. The share price used to calculate the number of
shares to which the Performance Share Award entitles was calculated as the
volume-weighted average of the market price of 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 2017.

Absolute and relative TSR development for the Ericsson B share over the
period January 1, 2017 to December 31, 2019 (the performance period) were
the two performance criteria used for LTV 2017.

The performance criteria for LTV 2017 along with the details on how the
performance criteria will be calculated and measured are explained in minutes
from the AGM 2017 under Item 17.

The Board of Directors resolved on the achieved vesting levels for the
absolute and relative TSR development performance criteria as 200% and
191.04% respectively based on the achievement results of 21.34% absolute
TSR and 5.45th ranking for relative TSR, which resulted in an overall achieved
vesting level of 195.52% for LTV 2017 as illustrated in the table LTV and EPP
Performance Criteria on the prior page.

The total number of maximum shares required and the related total com-
pensation expenses for the currently running share-settled long-term variable
compensation programs for the President and CEO and the ET are summa-
rized in the table below.

Compensation expense of Long-Term Variable Compensation
Programs for the Executive Team
The total compensation expense for the share-settled long-term variable
compensation programs for the President and CEO and the ET during 2019
were SEK 58 million as shown in the table below. The compensation expense
is based on FV and the number of shares. The FV for the ET LTV programs
are including adjustments for absolute and relative TSR development
performance criteria at 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 performance criteria of the

LTV share-settled programs for the President and CEO and the Executive Team

Plan (million shares)

LTV 2019

LTV 2018

LTV 2017

Total

LTV 2019

LTV 2018

LTV 2017

Total

Long-term variable compensation programs

Of which the President and CEO

Maximum shares required
Granted shares
Outstanding number of shares beginning of 2019
Exercised during 2019
Forfeited during 2019
Increase due to performance condition 2019
Outstanding number of shares end of 2019
Compensation expense charged during 2019 (SEK million)

3.0
0.6
–
–
–
0.3
0.9
17.3 1)

3.0
0.8
1.2
–
–
–
1.2
27.4 1)

3.0
0.7
0.7
–
–
0.6
1.3
13.3

9.0
2.1
1.9
–
–
0.9
3.4
58.0 2)

–
0.3
–
–
–
0.1
0.4
8.0

–
0.4
0.6
–
–
–
0.6
13.7

–
0.4
0.4
–
–
0.5
0.9
9.8

–
1.1
1.0
–
–
0.6
1.9
31.5 3)

1) Compensation expense for LTV 2019 adjusted for Group operating income target with performance fulfillment of 200%.
2) Total compensation cost charged during 2018: SEK 32.6 million, 2017: SEK 9.9 million.
3) Compensation cost charged for the president and CEO during 2018: SEK 18.4 million, 2017: SEK 6.1 million.

Ericsson Annual Report 2019Note G3, cont’d.

LTV program is also based on the outcome of the Group operating income
as per fiscal years 2019 and 2018. The FV for the Group operating income
performance criteria is calculated as the share price at grant date, reduced by
the net present value of the dividend expected during the three-year vesting
period. For the performance criteria the number of shares are adjusted in
relation to the achievement level of the performance criteria at the end of the
performance period. The FV per performance criteria and program is shown in
the table below.

Fair value share-settled programs

Executive team programs

(SEK)

LTV 2019

LTV 2018

LTV 2017

Fair value Absolute TSR
Fair value Relative TSR
Fair value Group operating income

91.93
94.98
86.94

80.40
78.66
62.93

54.40
76.95
–

Cash-Settled Plans
Executive Performance Plans (EPP)
The Executive Performance Plan (EPP) is a cash-settled plan which uses the
same performance criteria as the ones under the respective year’s long-term
variable compensation program for the ET.

Senior managers, except for the members of the ET, are selected as partici-
pants to EPP annually through a nomination process that identifies individuals
according to performance, potential, critical skills, and business critical roles.
The number of senior managers selected as participants in EPP for 2019, 2018
and 2017 were 161, 171 and 452 respectively.

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. The three-year vesting period is the
same as for the LTV. The vesting level of the award is subject to the achieve-
ment of the same performance criteria over the same performance period
defined for the respective year 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.

Key Contributor Plans (KC Plans)
The KC Plan is a cash-settled retention plan. Employees, except for senior
managers and the members of the ET, are selected as participants to KC Plan
annually through a nomination process that identifies individuals according to
performance, potential, critical skills, and business critical roles.

Participants are assigned a potential award based on a percentage of their

annual gross salary, 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.

The KC Plan is a retention plan, therefore there are no performance criteria
for vesting of awards. In general, there is a three-year service period for receiv-
ing the award in full and the award is subject only to continued employment
during the service period. The value of each synthetic share is driven by the
absolute share price performance of Ericsson B shares during the service
period. At the end of the service period, the allotted synthetic shares are
converted into a cash amount, based on the market price of Ericsson B shares

Financials – Notes to the consolidated financial statements

Nasdaq Stockholm at the payout date, and this final amount is paid to the
participant in cash gross before tax.

Key Contributor Plan 2019 (KC Plan 2019)
6,941 employees were selected to participate in KC Plan 2019. There are three
award levels at 10%, 25% and 30% of the participants’ annual gross salary.
The total service period is three years, however the payout is distributed over
the entire service period with staggered payments according to the below
schedule:
– 25% of the award to be paid at the end of the first year,
– 25% of the award to be paid at the end of the second year, and
– the remaining 50% of the award to be paid at the end of the third year.

From an accounting perspective the plans with three staggered payments
are seen as three separate tranches. The tranches are accounted for as sep-
arate awards and accrued in parallel with the same grant date but different
vesting dates. Due to this the cost for the KC Plan 2019 is front-end loaded.
The accounting model is referred to as staged vesting.

Key Contributor Plan 2018 (KC Plan 2018)
5,886 employees were selected to participate in KC Plan 2018. There are two
award levels at 10% and 25% of the participants’ annual gross salary. The
total service period is three years and the awards are paid at the end of the full
service period.

Key Contributor Plan 2017 (KC Plan 2017)
6,876 employees were selected to participate in KC Plan 2017. There are two
award levels at 10% and 25% of the participants’ annual gross salary. The
total service period is three years and the awards are paid at the end of the full
service period.

Compensation expense of Cash-settled Plans
The total compensation expenses for the EPP and the KC Plans during 2019
were SEK 180.4 million and SEK 765.5 million respectively as shown in the
table Cash-settled plans below. The total provision for the cash-settled plans
amounted to SEK 1,941 million (including social charges of SEK 216 million)
at the end of 2019. The compensation expense is based on the FV and the
number of synthetic shares allocated. The FV for the cash-settled plans are
shown in the table Fair value cash-settled plans below.

Fair value cash-settled plans

Executive performance plans

(SEK)

EPP 2019

EPP 2018

EPP 2017

Fair value Absolute TSR
Fair value Relative TSR
Fair value Group operating income

69.86
86.50
83.14

147.77
130.14
85.28

173.59
161.80
–

Fair value – T1

Fair value – T2

Fair value – T3
Fair value

Key contributor plans

KC 2019

KC 2018

KC 2017

86.27

84.69

83.14
–

–

–
85.28

–

–
86.87

Cash-settled plans

Plan

Number of participants

Number of synthetic shares (million shares)
Compensation cost year 2019 (SEK million)

Executive performance plan

EPP 2019 EPP 2018

EPP 2017

161

0.7
11.6

171

1.2
52.8

452

1.7
116.0

Total

–

3.6
180.4 1)

Key contributor plan

KC 2019

KC 2018

KC 2017

6,941

8.7
248.0

5,886

8.7
245.2

6,876

9.7
272.3

Total

–

27.1
765.5 2)

Total cash-
settled plans

Total

–

30.7
945.9 3)

1) Total compensation cost charged during 2018: EPP SEK 130.5 million, 2017: EPP SEK 31.4 million.
2) Total compensation cost charged during 2018: KC SEK 478.8 million, 2017: KC SEK 138.6 million.
3) Total compensation cost charged during 2018: SEK 609.3 million, 2017: SEK 170 million.

Ericsson Annual Report 201996

Financials – Notes to the consolidated financial statements

Note G3, cont’d.

The FV for the EPP is including adjustments for absolute and relative TSR per-
formance criteria, 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 FV for the Group operating income performance criteria
is the share price reduced by the net present value of the dividend expected
during the vesting period. This performance condition is based on the outcome
of the Group operating income performance criteria as per fiscal year 2019 and
2018 and adjusts the number of synthetic shares.

The FV for the KC Plans are the share price reduced by the net present value

of the dividend expected during the vesting period. For KC Plan 2019 the FV
differ based on the three different vesting periods.

The Stock Purchase Plan (SPP)
The SPP was a share-settled plan designed to offer an incentive for all employ-
ees to participate in the Company’s long-term variable compensation program
where practicable. Under SPP 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 (con-
tribution period). If the contribution shares were retained by the employee for
three years after the investment and their employment with the Ericsson Group
continued during that time, then the employee’s shares are to be matched with
a corresponding number of Ericsson B shares or ADSs free of consideration.
Employees in 100 countries participated in the SPP.

The table below shows the performance targets for the only open EPSP

from 2016 as of December 31, 2019.

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%

With all three years of 2016 EPSP completed the Board of Directors resolved
the results of the performance targets as below:
– Growth (compound annual net sales growth rate) was –5.13% which was
below the threshold and resulted in no vesting for the portion of the award
subject to this target.

– Margin (compound annual operating income growth rate) was –28.00%

which was below the threshold and resulted in no vesting for the portion of
the award subject to this target.

– Cash flow (cash conversion) was met, which resulted in vesting of 66.67%

The table below shows the contribution period and participation details for

of the portion of the award subject to this target.

the only open SPP from 2016 as of December 31, 2019.

– Accordingly, the 2016 EPSP vested at 22.22% of maximum matching.

Stock Purchase Plan

Plan

Stock Purchase plan 2016

Contribution
period

August 2016 –
July 2017

Number of
participants at
launch

Take-up rate
– percent of eligible
employees

31,500

29%

The total cost of SPP for the three years of service is based on the number of
shares that vest, due to savings and calculated based on the FV of the shares
as defined at grant date.

The Key Contributor Retention Plan
The Key Contributor Retention Plan was part of Ericsson’s talent management
strategy and was designed to give recognition for performance, critical skills
and potential as well as to encourage retention of key employees. Under the
program, up to 10% of the employees were selected through a nomination
process that identified 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 additional shares for
each share invested.

The Executive Performance Stock Plan (EPSP)
The EPSP was a share-settled program. Senior managers, including the
members of the ET, were selected to obtain up to four or six extra shares (per-
formance 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 EPSP. The performance targets were linked to growth
of net sales, operating income and cash conversion and each accounted for
one third of the total performance matching shares.

Since no SPP was proposed after 2016, the share-based LTV were introduced
for the members of the ET with the approval of relevant AGM replacing EPSP.
For the senior managers, the cash-based EPP were introduced replacing EPSP.
The LTV and the EPP are described above.

EPSP was a share-settled stock purchase plan with performance conditions.
The total cost for EPSP 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 calcu-
lated based on the FV of the shares as defined at grant date.

Maximum Outstanding Matching Rights
The table below shows the maximum outstanding matching rights for the
President and CEO and the other members of the ET under the only currently
open SPP and EPSP from 2016 as of December 31, 2019.

Maximum outstanding matching rights

As of December 31, 2019
Number of Class B shares

Stock Purchase Plan 2016
Executive Performance Stock Plan 2016

The President
and CEO

Other members
of the ET

–

40,650

Comments to the table
– For the definition of matching rights, see the descriptions in sections

“The Stock Purchase Plan (SPP)”, “The Key Contributor Retention Plan”
and “The Executive Performance Stock Plan (EPSP)”.

– Vesting result of 22.22% of maximum matching is included for the 2016

EPSP.

– During 2019, no matching shares were received by President and CEO since

Börje Ekholm is not entitled for 2016 SPP and 2016 EPSP.

– During 2019, other members of the ET received 59,845 matching shares.

Ericsson Annual Report 2019Financials – Notes to the consolidated financial statements

Shares for LTV 2015–2016

Plan (million shares)

Originally designated
Outstanding beginning of 2019
Awarded during 2019
Exercised/matched during 2019
Forfeited/expired during 2019
Outstanding end of 2019 1)
Compensation costs charged during 2019 (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
18.7
–
5.5
2.3
10.9
256.0 2)

2015

23.5
9.5
–
9.4
0.1
–
61.4 2)

Total

45.1
28.2
–
14.9
2.4
10.9
317.4

1) Shares under the Executive Performance Stock Plans were based on the fact that the 2016 plan came out at 22%, in casu 78% lapsed and that the 2015 plan vested for 22% and lapsed for 78%. For the other

ongoing plans, cost is estimated.

2) Fair value is calculated as the share price on the investment date, reduced by the net present value of the dividend expectations during the three-year vesting period. Net present value calculations are based on

data from external party.

3) Total compensation costs charged during 2018: SEK 645 million, 2017: SEK 876 million.

Shares for LTV 2015–2016 and LTV 2017
LTV 2015–2016 and LTV 2017 are funded with treasury stock and are equity
settled. Treasury stock for all plans has been issued in directed cash issues of
Class C shares at the quotient value and purchased under a public offering at
the subscription price plus a premium corresponding to the subscribers’ financ-
ing costs, and then converted to Class B shares.

For all these plans, additional shares have been allocated for financing
of social security expenses. Treasury stock is sold on the Nasdaq Stockholm
to cover social security payments when arising due to matching/vesting
of shares. During 2019, 2,278,800 shares were sold at an average price of
SEK 86.59. Sales of shares are recognized directly in equity.

If, as of December 31, 2019, all shares allocated for future matching/vesting

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 13 million Class B shares would be
transferred, corresponding to 0.4% of the total number of shares outstanding,
3,314 million shares not including treasury stock. As of December 31, 2019,
approximately 20 million Class B shares were held as treasury stock.

The table above shows how shares (representing matching rights but
excluding shares for social security expenses) are being used for all out-
standing stock purchase plans, key contributor retention plans and executive
performance stock plans. From up to down the table includes (A) the number
of shares originally approved at the Annual General Meeting; (B) the number of
originally designated shares that were outstanding at the beginning of 2019;
(C) the number of shares awarded during 2019; (D) the number of shares
matched during 2019; (E) the number of shares forfeited by participants or
expired under the plan rules during 2019; and (F) the balance left as outstand-
ing at the end of 2019, having deducted the shares related to awards matched,
forfeited and expired, to the shares outstanding at the beginning of the year.
The final row (G) shows the compensation costs charged to the accounts
during 2019 for each plan.

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 (to be recalculated to neutral-
ize the effects of dividend payments during the option period) during one year
after a seven-year period. 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.

In 2019 Investor AB, shareholder of Ericsson, made an offer to the Board
Chairs of its listed core investment to purchase call options relating to shares
in the respective core investment. Following this offer, Ronnie Leten, Chair of
the Board of Directors, entered into such a call option agreement with Investor
AB with respect to Class B shares of Telefonaktiebolaget LM Ericsson. Under
the agreement, Investor AB has issued 128,452 call options to Ronnie Leten
on market terms (valuation conducted, using the Black & Scholes model, by an
independent third party) and Ronnie Leten has purchased these call options
for a purchase price of SEK 15.57 per call option. Each call option entitles
the purchase of one Ericsson B share from Investor AB at a strike price of
SEK 87.97 per share (to be recalculated to neutralize the effects of dividend
payments during the option period) during one year after a four-year period
starting February 5, 2019. 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 period.

Ericsson Annual Report 201998

Financials – Notes to the consolidated financial statements

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

Women

4,821
4,376
1,980
10,180
739

22,096
2,723
8,069

2019

Men

19,230
9,003
7,381
33,262
3,531

72,407
9,324
26,257

Total

24,051
13,379
9,361
43,442
4,270

94,503
12,047
34,326

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

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

2019

24,559
13,783
9,643
47,135
4,297

99,417
12,730
37,989

Number of employees by gender and age at year-end 2019

Under 25 years old
25–35 years old
36–45 years old
46–55 years old
Over 55 years old

Percent of total

Women

1,258
9,726
6,989
4,775
1,659

25%

Men

2,179
24,871
25,139
16,884
5,937

75%

2018

23,959
12,788
9,727
44,621
4,264

95,359
12,502
35,268

Percent
of total

3%
35%
32%
22%
8%

100%

Employee movements

Headcount at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees

2019

99,417
11,078
15,136
582

2018

95,359
16,630
11,254
560

(SEK million)

Wages and salaries
Social security expenses
Of which pension costs

2019

58,620
14,043
5,170

2018

53,298
13,863
4,882

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)

2019

369
83
25

2018

273
28
25

1) Pension costs are over and above any social security 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

2019

2018

Women

Men

Women

Men

23%
20%

77%
80%

23%
27%

77%
73%

19%

81%

19%

81%

Ericsson Annual Report 2019
Section H – Other

H1 Taxes

The Company’s tax expense for 2019 was SEK –6,922 (–4,813) million
or 79.0% (–329.1%) 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 corpo-
rate 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

2019

–2,564
–2,237
–2,116

2018

–5,513
–392
1,097

–5

–6,922

–4,813

2017

–4,168
83
7,613

–3

3,525

A reconciliation between reported tax expense for the year and the theoretical
tax expense that would arise when applying statutory tax rate in Sweden,
21.4%, on the consolidated income before taxes, is shown in the table below.

The Company has implemented IFRIC 23, which requires quarterly assess-
ments of uncertain tax positions. Prior year tax adjustment includes uncertain
tax position considerations.

Tax effects of non-deductible expenses includes the effect of the SEC and

DOJ payment.

Reconciliation of Swedish income tax rate with effective tax rate

Expected tax expense at Swedish tax
rate 21.4%
Effect of foreign tax rates
Current income taxes related to prior years
Remeasurement of tax loss carry- forwards
Remeasurement of deductible temporary
differences
Withholding tax expense 3)
Reversal of impaired 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

1) Swedish income tax rate was 22% in 2018 and 2017.
2) Includes uncertain tax positions of SEK 1.5 billion.
3) 2018 and 2017 included impairment of withholding tax.

2019

2018 1)

2017 1)

–1,875
–419
–2,237 2)

322
–773
–392
113

84
–230
519
–3,555
803
–64

–6,922
79.0%

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%

Financials – Notes to the consolidated financial statements

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

2019
Intangible assets and property, plant
and equipment
Current assets
Post-employment benefits
Provisions
Deferred tax credits
Other
Loss carry-forwards

Deferred tax assets/liabilities
Netting of assets/liabilities

Deferred tax balances, net

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

Changes in deferred taxes, net

Opening balance, net
Adjustment due to IFRS 9

Opening balance, adjusted
Recognized in net income (loss)
Recognized in other comprehensive income
Acquisitions/divestments of subsidiaries
Reclassification
Translation difference

Closing balance, net

1,233
3,413
7,220
3,592
8,424
2,585
7,221

33,688
–2,514

31,174

1,182
3,614
5,459
4,441
3,223
8,449

26,368
–3,216

23,152

1,792
878
787
–
–
281
–

3,738
–2,514

29,950

1,224

29,950

2,125
731
842
–
188
–

3,886
–3,216

22,482

670

22,482

2019

22,482
–

22,482
–2,116
1,423
145
7,843 1)
173

29,950

2018

21,062
288

21,350
1,097
285
–116
–289
155

22,482

1) Reclassification of withholding tax from current tax, see also note B7, “Other current receivables.”

Tax effects reported directly in Other comprehensive income (loss) amount
to SEK 1,423 (285) million, of which actuarial gains and losses related to
pensions constituted SEK 1,229 (329) 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 2019

100

Financials – Notes to the consolidated financial statements

Note H1, cont’d.

Tax loss carry-forwards
Significant 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.

The majority of tax loss carry-forwards pertains to Sweden, the US and
Germany. These countries have long or indefinite periods of utilization. Of the
total SEK 7,221 (8,449) million recognized deferred tax assets related to tax
loss carry-forwards, SEK 6,026 (7,006) million relates to Sweden.

Future income projections based on growth coming from a stronger market,

selective market share gains and expansion of the product portfolio, support
the conclusion that the deferred tax assets will be utilized in the foreseeable
future.

As of December 31, 2019, the recognized tax loss carry-forwards amounted

to SEK 33,744 (39,415) million. The reduction is primarily attributable 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

utilized are shown in the following table.

Tax loss carry-forwards

Year of expiration

2020
2021
2022
2023
2024
2025 or later

Total

Tax loss
carry-forwards

Tax value

94
177
320
32
155
32,966

33,744

29
44
95
7
45
7,001

7,221

In addition to the table above there are tax loss carry-forwards of SEK 5,378
(4,223) million at a tax value of SEK 1,009 (773) 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 owners 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 owners
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)

2019

2018

2017

2,223

–6,530

–32,576

3,306
0.67

3,291
–1.98

3,277
–9.94

2,223

–6,530

–32,576

3,306
14

3,320
0.67

3,291
–

3,291
–1.98

3,277
–

3,277
–9.94

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.

H3 Statement of cash flows

Interest paid in 2019 was SEK –1,060 million (SEK –829 million in 2018 and
SEK –794 million in 2017) and interest received in 2019 was SEK 817 million
(SEK –283 million in 2018 and SEK 1 million in 2017). Taxes paid, including
withholding tax, were SEK –5,218 million in 2019 (SEK –5,874 million in 2018
and SEK –4,724 million in 2017).

Cash and cash equivalents include cash of SEK 17,336 (18,998) million
and cash equivalents of SEK 27,743 (19,391) 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, 2019, include SEK 3.3 (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.

Adjustments to reconcile net income to cash

Property, plant and equipment
Depreciations
Impairment losses/reversals of impairments

Total

Right-of-use assets
Depreciations
Impairment losses/reversals of impairments

Total

Intangible assets
Amortizations
Capitalized development expenses
Intellectual Property Rights, brands and other
intangible assets

Total amortizations
Impairments
Capitalized development expenses
Intellectual Property Rights, brands
and other intangible assets
Goodwill

Total impairments

Total

Total depreciation, amortization and
impairment losses on property, plant
and equipment and intangible assets

Taxes
Dividends from joint ventures/associated
companies 1)
Undistributed earnings in joint ventures/
associated companies 1)
Gains/losses on sales of investments and
operations, intangible assets and PP&E, net 2)
Other non-cash items 3)

Total adjustments to reconcile
net income to cash

2019

2018

2017

3,587
360

3,947

2,474
75

2,549

3,275
568

3,843

4,103
2,211

6,314

–
–

–

–
–

–

1,519

2,559

2,681

1,019

2,538

1,387

3,946

19
–

254

–
275

529

2,593

4,475

1,667

4,348

2,245

2,019
12,966

17,230

21,578

9,089

8,318

27,892

1,652

–1,897

–9,064

340

–812
1,891

–53

212
1,220

–21

–167
607

12,226

7,830

19,324

1) See note E3, “Associated companies.”
2) See note B4, “Other operating income and expense.”
3) 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 2019Note H3, cont’d.

Acquisitions/divestments of subsidiaries and other operations

Acquisitions

Divestments

H5 Fees to auditors

Financials – Notes to the consolidated financial statements

101

2019
Cash flow from business combinations 1)
Acquisitions/divestments of other investments

Total

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

1) See also note E2, “Business combinations.”

–1,815
62

–1,753

–1,220
–398

–1,618

–62
–227

–289

360
–112

248

226
107

333

459
106

565

H4 Related party transactions

IAS 24, “Related Party Disclosures” requires disclosure of related party rela-
tionships, transactions and outstanding balances.

During 2019, various minor related party transactions were executed

pursuant to contracts based on terms customary in the industry and negotiated
on an arm’s length basis. For information regarding equity and Ericsson’s share
of assets, liabilities and income in joint ventures and associated companies,
see note 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

2019
Audit fees
Audit-related fees
Tax fees
Other fees

Total

2018
Audit fees
Audit-related fees
Tax fees
Other fees

Total

2017
Audit fees
Audit-related fees
Tax fees
Other fees

Total

PwC

Others

Total

96
12
10
6

124

98
11
9
9

127

89
11
13
9

122

9
–
11
6

4
2
2
6

2
–
4
7

105
12
21
12

150

102
13
11
15

141

91
11
17
16

135

The total fee to PwC and their networks of firms is SEK 124 (127 in 2018 and 122 in 2017) millions. For
2019 SEK 40 (39 in 2018 and 39 in 2017) million has been paid to the auditors for the audit engagement
to the audit firm PricewaterhouseCoopers AB, SEK 9 (9 in 2018 and 10 in 2017) million for other statu-
tory engagements, SEK 2 (1 in 2018 and 3 in 2017) million for tax advisory services and SEK 4 (8 in 2018
and 5 in 2017) million for other services. No valuation services has been performed.

During the period 2017–2019, 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

US Securities class action
On January 11, 2020, the United States District Court for the Southern District
of New York granted Ericsson’s motion to dismiss the putative class action filed
in 2018 against Telefonaktiebolaget LM Ericsson, the present President and
CEO and the Chief Financial Officer of Ericsson as well as three former execu-
tives. At the same time the court granted plaintiffs leave to file a third amended
complaint within thirty days. The plaintiffs did not file an amended complaint
by the court-ordered deadline.

Ericsson resolves litigation with Sol IP
Ericsson has after the year-end 2019 resolved the previously communicated
litigation with Sol IP, concerning alleged infringement of 20 patents declared
to the LTE standard. The patents originated from Electronics and Telecommu-
nications Research Institute (ETRI), a Korean government-funded research
institution. The settlement resolves the litigation with Sol IP and involves a
patent license agreement between Ericsson, Sol IP and ETRI. The settlement
will have a negative impact for 2020 of approximately USD 13 million on
operating income within Segment Networks of which USD 10 million will
be recorded in Q1 2020 and the balance spread equally over the remaining
quarters. This quarterly license fee amortization will continue in subsequent
periods. The exact terms of the agreement are confidential.
For more information, see note D2, “Contingent liabilities.”

Ericsson Annual Report 2019
102

Financials – Parent Company financial statements with notes

Parent Company
financial statements with notes

Contents

Parent Company financial statements

114 P12 Other current receivables

103

104

106

107

Parent Company income statement and
statement of comprehensive income (loss)

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

108 P1

Significant accounting policies

108 P2

Other operating income
and expenses

115 P13 Equity and other

comprehensive income

116 P14 Contributions

116 P15 Post-employment benefits

116 P16 Other provisions

117 P17 Interest-bearing liabilities

117 P18 Financial risk management

and financial instruments

119 P19 Other current liabilities

119 P20 Trade payables

119 P21 Assets pledged as collateral

119 P22 Contingent liabilities

108 P3

Financial income and expenses

119 P23 Statement of cash flows

109 P4

Taxes

109 P5

Intangible assets

119 P24 Leasing

120 P25 Information regarding employees

110 P6

Property, plant and equipment

120 P26 Related party transactions

120 P27 Fees to auditors

111 P7

Financial assets

112 P8

Investments

113 P9

Inventories

113 P10 Trade receivables and customer

finance

114 P11 Receivables and liabilities –

subsidiary companies

Ericsson Annual Report 2019Parent 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)

Financials – Parent Company financial statements

103

Notes

2019

2018

2017

P3
P3

P14

–
–

–

–664
–867

–1,531

–8,148

–9,679

9,995
–3,385

–3,069

–1,961

–5,030
87

–4,943

–
–

–

–1,047
–639

–1,686

2,111

425

8,064
–2,724

5,765

–1,535

4,230
–36

4,194

–
–

–

–256
–1,038

–1,294

1,616

322

7,968
–10,265

–1,975

–120

–2,095
–53

–2,148

2019

–4,943

2018

4,194

2017

–2,148

–651
134

206
–44

–

–
–

–

–
–

–517

–5,460

162

4,356

–
–

102
–14

161

–1,987

Ericsson Annual Report 2019104

Financials – Parent Company financial statements

Parent Company balance sheet

December 31, SEK million

Assets
Fixed assets
Intangible assets
Tangible assets
Financial assets
Investments

Subsidiaries
Joint ventures and associated companies

Other investments

Receivables from subsidiaries
Customer finance, non-current
Deferred tax assets
Other financial assets, non-current
Interest-bearing securities, non-current

Current assets
Inventories
Receivables

Trade receivables
Customer finance, current
Receivables from subsidiaries
Current income taxes
Other current receivables

Short-term investments
Cash and cash equivalents

Total assets

Notes

P5
P6

P7, P8
P7, P8

P7
P7, P11
P7, P10
P4
P7
P7

P10
P10
P11

P12
P18
P18

2019

2018

58
303

71,172
1,184

1,272
10,133
909
678
454
20,354

139
259

71,201
394

1,138
10,415
584
249
1,214
23,982

106,517

109,575

–

21
724
20,011
–
2,410
6,328
29,800

59,294

53
942
36,689
–
1,076
6,268
27,850

72,878

165,811

182,453

Ericsson Annual Report 2019

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

Financials – Parent Company financial statements

105

Notes

P13

P15
P16

P17
P17
P11

P17
P20
P11
P19

2019

2018

16,672
20
31,472

48,164
37,610
–4,943
–445

32,222

80,386

–
668

668

21,898
6,097
–
346

28,341

7,946
659
46,105
1,706

56,416

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

Total stockholders’ equity, provisions and liabilities

165,811

182,453

Ericsson Annual Report 2019

106

Financials – Parent Company financial statements

Parent Company statement of cash flows

January–December, SEK million

Operating activities
Net income (loss)
Adjustments to reconcile net income to cash

Changes in operating net assets
Inventories
Customer finance, current and non-current
Trade receivables
Trade payables
Provisions and post-employment benefits
Other operating assets and liabilities, net

Cash flow from operating activities

Investing activities
Investments in property, plant and equipment
Investments in intangible assets
Sales/disposals of property, plant and equipment
Investments in shares and other investments
Divestments of shares and other investments
Lending, net
Other investing activities
Short-term investments

Cash flow from investing activities

Cash flow before financing activities

Financing activities
Changes in current liabilities to subsidiaries
Proceeds from issuance of borrowings
Repayment of borrowings
Stock issue
Sale/repurchase of own shares
Dividends paid
Settled contributions from/to (–) subsidiaries
Other financing activities

Cash flow from financing activities

Effect from remeasurement in cash

Net change in cash

Cash and cash equivalents, beginning of period

Cash and cash equivalents, end of period

Notes

P23

P18

2019

2018

2017

–4,943
1,135

–3,808

–
–161
329
204
576
–343

605

–3,203

–127
–
–
–2,656
2,382
9,304
18
4,872

13,793

10,590

–9,303
4,103
–648
–
197
–3,301
–1,535
1,388

–9,099

459

1,950

27,850

29,800

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

–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

Ericsson Annual Report 2019Financials – Parent Company financial statements

107

Parent Company statement of changes in stockholders’ equity

SEK million

January 1, 2019

Total comprehensive income

Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation

Repurchase of own shares
Dividends paid

December 31, 2019

January 1, 2018

Opening balance adjustment due to IFRS 9

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

Capital stock

16,672

–

–
–
–

–
–

16,672

–

16,672

–

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

31,472

48,164

100

Other
retained
earnings

40,580

Non-
restricted
equity

40,752

Total

88,916

–

–
–
–

–
–

–

–
–
–

–
–

–

–
–
–

–
–

31,472

48,164

31,472

48,164

–

31,472

48,164

–

–
–
–

–
–

100

–

100

–

–517

–4,943

–5,460

–
–
–

–
–

–445

–
197
34

–
–3,301

32,567

–
197
34

–
–3,301

32,222

–
197
34

–
–3,301

80,386

721

38,757

39,578

87,742

–811

–90

162

–

784

–27

39,541

39,551

87,715

4,194

4,356

–

107

–

107

–

107

–

–3,287

40,580

–3,287

40,752

–3,287

88,916

16,672

31,472

48,164

100

Ericsson Annual Report 2019108

Financials – Notes to the Parent Company financial statements

Notes to the Parent Company
financial statements

P1 Significant accounting policies

The financial statements of the Parent Company, Telefonaktiebolaget LM
Ericsson, have been prepared in accordance with the Annual Accounts Act and
RFR 2 “Reporting in separate financial statements.” RFR 2 requires the Parent
Company to use the same accounting principles as for the Group, i.e., IFRS,
to the extent allowed by RFR 2.

The main deviations between accounting policies adopted for the Group

and accounting policies for the Parent Company are:

Subsidiaries, associated companies and joint ventures
The investments are accounted for according to the acquisition cost method.
Investments are carried at cost and only dividends are accounted for in the
income statement. An impairment test is performed annually and write-downs
are made when permanent decline in value is established.

the lease term. Expenses related to the leasing income are recognized when
incurred. Direct expenses incurred when a leasing agreement is entered are
added to the carrying amount of the leased asset and expensed over the lease
period on the same basis as the lease income.

One new interpretation IFRIC 23 “Uncertainty over income tax treatments”

is effective as from January 1, 2019. IFRIC 23 has not had a material impact
on the Parent Company’s financial statements.

P2 Other operating income and expenses

Other operating income and expenses

License revenues and other operating revenues

2019

2018

2017

Contributions to/from subsidiaries and shareholders’ contributions

Subsidiary companies

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.

Other operating income/expenses
Net gains/losses (–) on sales of tangible assets

Total

2,479
–10,6271)

–

–8,148

2,126
–15
–

2,111

1,486
133
–3

1,616

Classification and measurement of financial instruments
IFRS 9 “Financial instruments” is adopted, except regarding financial guaran-
tees where the exception allowed in RFR 2 is chosen. Financial guarantees are
included in Contingent liabilities.

Deferred taxes
The accounting of untaxed reserves in the balance sheet results in different
accounting of deferred taxes as compared to the principles applied in the con-
solidated statements. Swedish GAAP and tax regulations require a company to
report certain differences between the tax basis and book value as an untaxed
reserve in the balance sheet of the standalone 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
One new IFRS standard IFRS 16 “Leases” is effective as from January 1, 2019.
IFRS 16 has not had any impact on the Parent Company’s financial statements
as leases are reported according to the exception allowed in RFR 2. For leases
where the Parent Company is lessee this means that the right-of-use assets
and liabilities are not recognized on the balance sheet. Costs under the lease
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. For leases where the Parent
company is lessor, the equipment is recorded as property, plant and equipment
and revenue as well as depreciation is recognized on a straight-line basis over

1) Includes costs of SEK –10.7 billion in 2019 related to the resolution of the US SEC

and DOJ investigations.

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

2019

2018

2017

5,539
1,996

5,852
1,019

7,254
14

Dividends

Result from other securities and receivables
accounted for as fixed assets

Net gains on sales

Interest income from subsidiary companies
Interest income from others
Net foreign exchange gain on financial
liabilities/assets

Total

Financial expenses
Losses on sales of participations in subsidiary
companies
Write-down of investments in subsidiary
companies
Net loss from joint ventures and associated
companies
Write-down of participations in other companies
Interest expense to subsidiary companies
Interest expenses to others
Net foreign exchange loss on financial
liabilities/assets
Other financial expenses

Total

Financial net

78
1,484
485

346

9,995

26
1,569
–1,062

630

8,064

–
1,286
–664

–

7,968

–105

–

–922

–1,246

–9,000

–418
–10
–289
–1,152

–
–33
–128
–209

–
–489

–
–1,108

–
–126
70
–469

–315
–425

–3,385

–2,724

–10,265

6,610

5,340

–2,297

Interest expenses on pension liabilities are included in the interest expenses
shown above.

Ericsson Annual Report 2019P4 Taxes

P5 Intangible assets

Income taxes recognized in the income statement

Patents, licenses, trademarks and similar rights

Financials – Notes to the Parent Company financial statements

109

Accumulated acquisition costs
Opening balance
Acquisitions
Sales/disposals

Closing balance

Accumulated amortization
Opening balance
Amortization
Sales/disposals

Closing balance

Accumulated impairment losses
Opening balance
Impairment losses

Closing balance

Net carrying value

The balances are mainly related to RF technology.

2019

2018

5,108
–
–22

5,086

5,086
22
–

5,108

–4,024
–78
19

–4,083

–3,812
–212
–

–4,024

–945
–

–945

–945
–

–945

139

Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)

Tax expense/benefit

2019

–60
–148
295

2018

2017

–41
–70
75

–36

–55
–30
32

–53

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,
21.4%, on the income before taxes, is shown in the table below.

Tax effects of non-deductible expenses include the effect of the SEC/DOJ

payment.

Reconciliation of Swedish income tax rate with effective tax

Expected tax income/expense (+/–)
at Swedish tax rate 21.4%
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/benefit

1) Swedish income tax rate was 22% in 2018 and 2017.

2019

20181)

20171)

1,076
–148
–2,474
1,700

–56
–11

–931
–70
–235
1,492

–274
–18

–36

461
–30
–123
1,616

–1,977
–

–53

Deferred tax balances
Deferred tax assets are derived from the balance sheet items as shown in the
table below.

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
Recognized in other comprehensive income

Closing balance

2019

2018

313
41
121
203

678

225
11
11
2

249

2019

2018

249
–
–
295
134

678

210
8
218
75
–44

249

Deferred tax assets have been adjusted for the effect of the reduction of the
Swedish income tax rate.

Ericsson Annual Report 2019110

Financials – Notes to the Parent Company financial statements

P6 Property, plant and equipment

Property, plant and equipment

2019
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance

Depreciation
Sales/disposals

Closing balance

Net carrying value

2018
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications

Closing balance

Accumulated depreciation
Opening balance
Depreciation
Sales/disposals

Closing balance

Net carrying value

Other equipment
and instal lations

Construction
in process and
advance payments

1,522
33
–12
74

1,617

–1,319

–81
11

–1,389

228

1,557
33
–78
10

1,522

–1,295
–101
77

–1,319

203

56
96
–3
–74

–

–
–

–

84
40
–58
–10

–
–
–

–

Total

1,578
129
–15
–

1,692

–1,319

–81
11

–1,389

303

1,641
73
–136
–

1,578

–1,295
–101
77

–1,319

259

Ericsson Annual Report 2019P7 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

Financials – Notes to the Parent Company financial statements

111

Subsidiary companies

Associated companies

2019

71,201
225
1,142
–
–922
–474

71,172

2018

72,318
325
–
–156
–1,246
–40

71,201

2019

394
1,208
–
–
–418
–

1,184

2018

330
64
–
–
–
–

394

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

2019

2018

2019

2018

2019

2018

2019

2018

2019

2018

1,138
140
–60
–
54
–

1,272

–
–
–
–
–

–

1,272

1,076
135
–78
–
5
–

1,138

–
–
–
–
–

–

10,415
2,162
–2,844
–
–
400

10,133

17,847
–4,622
–
–
–
–2,810

10,415

23,982
18,484
–19,995
–2,084
–33
–

20,354

25,105
50,190
–51,353
–
40
–

23,982

–
–
–
–
–

–

–
–
–
–
–

–

–
–
–
–
–

–

–
–
–
–
–

–

1,138

10,133

10,415

20,354

23,982

–
–
–
–
–
–

–

–
–
–
–
–

–

86
–
–86
–
–
–

–

–
–
–
–
–

–

584
1,501
–276
–624
–308
32

909

–
–
–
–
–

–

909

1,782 1)
777
–710
–1,241
–221
191

584

–
–
–
–
–

–

584

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

2019

2018

1,214
430
–22
–1,168
–
–

454

1,142
87
–15
–
–
–

1,214

Ericsson Annual Report 2019112

Financials – Notes to the Parent Company financial statements

P8 Investments

The following listing shows certain shareholdings owned directly and indirectly by the Parent Company as of December 31, 2019.

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

Reg. No.

Domicile

Percentage of
ownership

Par value in local
currency, million

Carrying value,
SEK million

Subsidiary companies
Ericsson AB
Ericsson Shared Services AB
Ericsson Software Technology Holding 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 Antenna Technology Germany GmbH
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.
Ericsson Smart Factory 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.
P.T. Ericsson Indonesia
Ericsson India Global Services PVT. Ltd
Ericsson Kenya Limited
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
Leone Media Inc.
Rockstar Consortium Group
Ericsson Nikola Tesla d.d.

Total

556056-6258
556251-3266
559094-8963
556895-3748
556366-2302
556030-9899
556326-0552

Sweden
Sweden
Sweden
Sweden
Sweden
Sweden
Sweden

Austria
Denmark
Finland
France
Germany
Germany
Hungary
Ireland
Italy
The Netherlands
Norway
Norway
Russia
Spain
Switzerland
United Kingdom

United States
United States
Argentina

Canada
Canada
Mexico

Australia
China
China
Indonesia
India
Kenya
Korea
Malaysia
Singapore
South Africa
Taiwan
Thailand

USA
USA
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
–
100
100

95 1)

100
100
100
–
100
100
100
95
100
100
75
70
100
70
90
49 2)
–

29
49
21
49

50
361
–
–
10
14
5
–
4
90
13
26
–
1
1,301
4
44
222
75
161
5
43
–
328
–
2,897
–

41
8
2
939
–
20
2
65
3,279
291
–
285
2
2
–
270
90
–

7
–
1
65

20,731
2,216
6
88
69
6
5
1,459
94
216
196
524
21
4,232
120
34
3,857
3,200
114
270
5
14
–
1,994
664
25,907
191

99
51
170
1,050
214
100
2
475
10
51
88
2,279
4
1
135
36
17
157

71,172

64
790
–
330

1,184

1) Through subsidiary holdings, total holdings amount to 100% of Compania Ericsson S.A.C.I.
2) Through subsidiary holdings, total holdings amount to 74% of Ericsson (Thailand) Ltd.

Ericsson Annual Report 2019
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.

Financials – Notes to the Parent Company financial statements

113

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

The Parent Company did not report any inventory balances at December 31 2019 and December 31 2018.

P10 Trade receivables and customer finance

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

Movements in allowances for impairment

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

2019

2018

61
–41

21
1,633
–

1,633

78
–26 1)

53
1,526
–

1,526

Opening balance
IFRS 9 adjustment
Adjusted opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference

Closing balance

1) As result of IFRS 9, the allowance of impairment increased by SEK 4 million on January 1, 2018.

Trade receivables

2019

2018

26
–
–
15
–
–
–

26
4
30
–4
–
–
–

Ericsson Annual Report 2019Trade receivables excluding
associated companies
and joint ventures

Allowances for
impairment of
receivables

Trade receivables related
to associated companies
and joint ventures

Customer
finance

114

Financials – Notes to the Parent Company financial statements

Note P10, cont’d.

Aging analysis as per December 31

2019
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

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

19
–
1
–
–
41

38
–
–
–
–
40

–
–
–
–
–
–41

–41

–
–
–
–
–
–26

–26

1
–
–
–
–
–

1) Includes revaluation of customer finance of SEK –1,545 million in 2019 (–1,097 million 2018).

Outstanding customer finance credit risk exposure 1)

Fair Value Assessment Customer Finance

Opening balance
Additions
Utilizations
Reversal of excess amounts
Reclassifications
Translation difference

Closing balance

Transfers of financial assets
During 2019, there were no new financial assets transferred.

P12 Other current receivables

Other current receivables

Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other

2019

3,178
24
14

3,216
–240

2,976
1,633
724
3,050

2018

2,623
43
21

2,687
–128

2,559
1,526
942
2,863

Fair value of customer finance credits
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

1) This table has been adjusted to show the maximum exposure to credit risk.

In prior years, impairments were not considered.

P11 Receivables and liabilities –

subsidiary companies

Receivables and liabilities – subsidiary companies

Payment due by period

< 1
year

1–5
years

>5
years

Total
2019

Total
2018

Non-current receivables 1)
Financial receivables

–

10,133

Current receivables
Trade receivables
Financial receivables

Total

Non-current liabilities 1)
Financial liabilities

Current liabilities
Trade payables
Financial liabilities

Total

597
19,414

20,011

–

415
45,690

46,105

–
–

–

–
–

–

–
–

–

–
–

–

10,133

10,415

Total

597
19,414

20,011

1,453
35,236

36,689

–

31,518

415
45,690

46,105

253
28,276

28,529

1) Including non-interest-bearing receivables and liabilities, net, amounting to SEK 0 (–31,518) million.

473
1,148
1
–
1
10
1,633 1)

725
562
2
–
94
143
1,526 1)

2019

2018

1,097
470
–
–22
–
–

1,545

159
955
–
–21
–
4

1,097

2019

672
291
188
1,259

2,410

2018

215
76
399
386

1,076

Ericsson Annual Report 2019Financials – Notes to the Parent Company financial statements

115

P13 Equity and other comprehensive income

Capital stock 2019
Capital stock at December 31, 2019, consisted of the following:

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

1) Class A shares (quotient value SEK 5.00) and Class B shares (quotient value SEK 5.00).

per share with the record date April 2, 2020, and SEK 0.75 per share with the
record date October 2, 2020. 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 earn-
ings be distributed as follows:

Proposed disposition of earnings

The Board of Directors proposes a dividend of SEK 1.50 (1.00) per share and
that the Parent Company shall retain the remaining part of non-restricted
equity. The dividend is proposed to be paid in two equal installments, SEK 0.75

Amount to be paid to the shareholders
Amount to be retained by the Parent Company
Total non-restricted equity of the Parent Company

5,001,227,602
27,220,758,874
32,221,986,476

Equity and other comprehensive income 2019

January 1, 2019

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, 2019

Equity and other comprehensive income 2018

January 1, 2018

Opening balance adjustment due to IFRS 9

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

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

16,672

–

–
–

–

–
–
–
–

–

–
–

–

–
–
–
–

31,472

48,164

–

–
–

–

–
–
–
–

–

–
–

–

–
–
–
–

100

–

–
–

–

–
–
–
–

–

–651
134

–517

–

–
–
–
–

16,672

31,472

48,164

100

–445

Capital
stock

Revaluation
reserve

Statutory
reserve

Total
restricted
equity

Disposition
reserve

Fair value
reserves

Other
retained
earnings

40,580

Non-
restricted
equity

40,752

Total

88,916

–4,943

–
–

–

–651
134

–517

–651
134

–517

–4,943

–5,460

–

197
34
–
–3,301

32,567

–

197
34
–
–3,301

32,222

–

197
34
–
–3,301

80,386

Other
retained
earnings

38,757

Non-
restricted
equity

39,578

Total

87,742

784

–27

16,672

–

16,672

–

–
–

–

–
–
–
–
–

–

–
–

–

–
–
–
–
–

31,472

48,164

–

31,472

48,164

–

–
–

–

–
–
–
–
–

–

–
–

–

–
–
–
–
–

100

–

100

–

–
–

–

–
–
–
–
–

16,672

31,472

48,164

100

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

Ericsson Annual Report 2019116

Financials – Notes to the Parent Company financial statements

P14 Contributions

Contributions to Swedish subsidiaries amount to SEK 1,961 (1,535) million. There were no contributions from Swedish subsidiaries in 2019 and 2018.

P15 Post-employment benefits

Change in the defined benefit obligation

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.

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

2019

–

93
–72
–50
24

–

2018

395

–50

89
–73
–8
–

–348

Defined benefit obligation – amount recognized in the Balance sheet

branch, which is owned by Ericsson AB.

1) Telefonaktiebolaget LM Ericsson Technical office UAE was merged during 2018 to Ericsson AB Dubai

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

2019

1,249
–1,278

–29

–
29

2018

1,223
–1,228

–5

5
5

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 2020 related to defined benefit obligations
are SEK 72 million.

Total pension cost and income recognized in the Income statement

2019

2018

2017

1) The total defined benefit obligation is considered to be secured in the pension trust.

The defined benefit obligations are calculated based on the actual salary levels
at year-end and based on a discount rate of 3.1 (3.0)%.

Weighted average life expectancy after the age of 65 is 24 (25) years

for women and 21 (23) years for men.

The Parent Company utilizes no assets held by the pension trust.

Return on plan assets was 4.1 (0.6)%.

2019

2018

74
212
671
251
70

1,278
–

53
233
599
232
111

1,228
–

Plan assets allocation

Cash and cash equivalents
Equity securities
Debt securities
Real estate
Investment funds

Total

Of which Ericsson securities

P16 Other provisions

Other provisions

2019
Opening balance
Additions2)
Reversal of excess amounts
Cash out/utilization2)
Reclassifications

Closing balance

2018
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications

Closing balance

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

54
39
1

58
–26

126

52
37
1

58
–356

–208

65
36
3

104

65
–35

134

Of the total pension cost, SEK 113 (111 in 2018 and 133 in 2017) million is
included in operating expenses and SEK 13 (–319 in 2018 and 1 in 2017)
million in the financial net.

Restruc turing

Customer
finance

Other

Total other
provisions1)

–14

–

13
30
–1
–28
–

–1

–

4
–2
–
–
–1

11,532
–1
–10,930
1

668

190
24
–90
–58
–

11,532
–1
–10,944
–

668

207
52
–91
–86
–1

1) Of which SEK 217 (65) million is expected to be utilized within one year.
2) Includes additions of cost provisions related to the resolution of the SEC and DOJ investigations of SEK –11.5 billion in Q3 2019. Includes payment of SEK 10.1 billion to SEC and DOJ in Q4 2019.

Ericsson Annual Report 2019
Financials – Notes to the Parent Company financial statements

117

P17 Interest-bearing liabilities

As of December 31, 2019, the Parent Company’s outstanding interest-bearing
liabilities, excluding liabilities to subsidiaries, stood at SEK 35.9 (30.7) billion.

Interest-bearing liabilities

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

2019

2018

7,946
–

7,946

21,898
6,097

27,995

35,941

–
–

–

21,875
8,849

30,724

swapped to a floating interest rate using interest rate swaps under the Asset
and liability management mandate described in note F1, “Financial risk man-
agement.” Total weighted average interest rate cost for the long-term funding
during the year was 3.26% (3.01%).

Ericsson drew on the credit facility of USD 150 million, from the Nordic
Investment Bank (NIB), which was signed in December 2019 to support
investments in R&D for 5G technology. Part of the new funds, USD 98 million,
replaced an existing credit with NIB that was set to mature in 2021, resulting
in a net increase in funding of USD 52 million. The new facility is set to mature
in 2025.

Changes in fair value due to changes in credit risk
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 Company’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.

Notes, bonds and bilateral loans

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
2012–2025 2)
2013–2020 3)
2017–2023 2)
2019–2024 3)

Total bilateral loans

Nominal
amount

Coupon

Currency

Maturity date

4.125%
0.875%
1.875%

170
1,000
500
500
150

150
684
220
281

USD
USD
EUR
EUR
USD

USD
USD
USD
USD

Dec 23, 2020
May 15, 2022
Mar 1, 2021
Mar 1, 2024
Dec 22, 2025

Dec 18, 2025
Nov 6, 2020
Jun 15, 2023
Jul 31, 2024

1) Private Placement, Swedish Export Credit Corporation (SEK).
2) Nordic Investment Bank (NIB), R&D project financing.
3) European Investment Bank (EIB), R&D project financing.

P18 Financial risk management and financial instruments

Changes in fair
value due to
changes in
credit risk
2019

Cumulative
changes in fair
value due to
changes
in credit risk
2019

Book value
(SEK million)
2018

Book value
(SEK million)
2019

1,601
9,695
5,267
5,512
1,424

23,499

1,371
6,345
2,078
2,606

12,400

–8
290
28
251
41

602

–26
55
36
–16

16
309
41
208
28

602

–26
–32
33
–16

–41

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”

Outstanding derivatives

Gross
amount
recognized

Offset

Net
amount
presented

Related
amounts
not offset
– collaterals

Net

2018

Gross
amount
recognized

Offset

Net
amount
presented

Related
amounts
not offset
– collaterals

1,376
–985

–142
142

1,234
–843

–
538

1,234
–305

110
–201

–36
36

74
–165

–
–

74
–165

Currency
derivatives
Assets
Liabilities

Interest rate
derivatives
Assets
Liabilities

790
–800

–144
144

646
–656

190
–327

–33
33

157
–294

–
–

2019

Currency
derivatives
Assets
Liabilities

Interest rate
derivatives
Assets
Liabilities

1,545
8,776
5,141
5,087
1,326

21,875

860
6,030
1,959
–

8,849

Net

646
–656

157
–294

Ericsson Annual Report 2019118

Financials – Notes to the Parent Company financial statements

Note P18, cont’d.

Cash, cash equivalents, interest bearing securities and derivative assets

Funding programs 1)

2019

Bank deposits
Other financial
institutions
Type of issuer:
Banks
Governments
Corporates
Mortgage institutes
Other financial
institutions

Derivative assets

Total

2018

Bank deposits
Type of issuer:
Governments
Corporates
Mortgage institutes
Derivative assets

Total

Rating or
equivalent

< 3 M 3–12 M 1–5 Y

> 5 Y

Total

20,311

294

100
4,028
5,205
278

490

334

–

– 20,311

–

294

–
1,590
–

–
8,361
–
3,832 11,087

–

100
906 14,885
–
5,205
– 15,197

–

970

–

490

1,308

31,040

5,427 20,417

906 57,790

< 3 M 3–12 M 1–5 Y

> 5 Y

Total

16,747

–

– 16,747

7,653
2,151
–
301

2,270
–

7,672
86
200 15,169
383

–

947 18,542
2,237
314 15,683
803

26,852

2,531 23,310

1,319 54,012

AAA
A2/P2
AAA

Rating or
equivalent

AAA
A2/P2
AAA

The following table shows analysis of financial liabilities, including lease
liabilties, by contractual maturity:

2019

Trade payables
Lease liabilities
Borrowings and loans
Derivative liabilities

Total

2018

Trade payables
Borrowings and loans
Derivative liabilities

Total

< 1 Y

659
546
7,946
368

1–3 Y

3–5 Y

> 5 Y

Total

–
912
15,004
548

–
457
10,196
35

–
386

659
2,301
2,795 35,941
1,008

< 1 Y

1–3 Y

3–5 Y

> 5 Y

Total

616
–
364

910

–
13,575
148

–
10,736
416

–

616
6,413 30,724
951

13,723

11,152

6,436 32,291

The instruments are classified as FVTPL. Cash, cash equivalents and interest-
bearing securities are mainly held in SEK unless offset by EUR-funding.

Debt financing is mainly carried out through borrowing in the Swedish and

international debt capital markets. Bank financing is used for certain subsid-
iary funding and to obtain committed credit facilities, see note P17, “Interest-
bearing liabilities.”

Financial instruments, book value

Euro Medium-Term Note program
(USD million)

SEC Registered program (USD million)

Amount

Utilized

Unutilized

5,000

1,429

1,000

3,571

–

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

The Company has a treasury and customer finance 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. It also acquires 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.

Exceptions to this relates to:

assets and gross SEK –1.0 (–0.9) billion in relation to liabilities were valued
based on references to other market data as currency or interest rates.
These valuations fall under level 2 valuation as defined by IFRS.

– Ownership in other companies and other financial investments where
the Company neither has control nor significant influence. The amount
recognized in these cases was SEK 2.4 (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 pur-

poses and have been valued according to the model described in “Customer
finance credit risk” in note F1.

– 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.

9,519

16,464

10,688

3,238 39,909

– OTC derivatives with an amount of gross SEK 0.2 (0.4) billion in relation to

Customer
finance

Trade
recei v ables

Interest-
bearing
securities

Cash
equiva-
lent

Rec eiv ables
and liabilities
sub sidi aries

Interest
bearing
liabilities

Trade
payables

Other
financial
assets

Other
current
receivables

Other
current
liabilities

2019

2018

P10

1.6

P10

P7/P18

P11

P17

P20

25.8

23.9

0.0

30.1

1.5
0.2

P19

P12

1.4

–35.9

54.2
30.3
–

46.0
47.2
–

–35.9

–30.7

Total

1.6

0.0

25.8

23.9

–46.1

–16.0

–35.9

–0.7

–1.0

–0.9

–46.8

–60.4

1.7

1.4

–1.0

0.8

1.2

SEK billion

Note
Assets at fair value through
profit or loss
Assets at amortized cost
Assets at fair value through OCI
Financial liabilities designated
at FVTPL
Financial liabilities at FVTPL -
held for trading
Financial liabilities
at amortized cost

Ericsson Annual Report 2019
Financials – Notes to the Parent Company financial statements

119

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.

P21 Assets pledged as collateral

Assets pledged as collateral

Bank deposits

Total

2019

2018

217
562
259
303
–
996
–69

211
650
286
364
–
887
–23

1,706

1,725

2019

2018

659
–

659

430
186

616

Interest paid in 2019 amounted to SEK 873 million (SEK 584 million in 2018
and SEK 494 million in 2017) and interest received was SEK 571 million
(SEK 479 million in 2018 and SEK 419 million in 2017). Taxes paid, includ-
ing withholding tax, were SEK 125 million in 2019 (SEK 148 million in 2018
and SEK 311 million in 2017).

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

P24 Leasing

2019

2018

2017

161
–329

–619
1,961
–
–39

101

212

313
–93

243
1,535
–
–614

195

218

413
–270

9,126
120
–
121

1,135

1,384

9,510

2019

802

2018

582

Leasing with the Parent Company as lessee
At December 31, 2019, future payment obligations for leases were
distributed as follows:

The major item in bank deposits is the internal bank’s clearing and settlement
commitments of SEK 561 (353) million.

P22 Contingent liabilities

Contingent liabilities

Total contingent liabilities

2019

2018

Total

23,178

22,508

Future payment obligations for leases

2020
2021
2022
2023
2024
2025 and later

Operating leases

546
522
390
262
195
386

2,301

Contingent liabilities include pension commitments of SEK 18,885
(18,053) million.

Leasing with the Parent Company as lessor
At December 31, 2019, future minimum payment receivables were distributed
as follows:

Future minimum payment receivables

2020
2021
2022
2023
2024
2025 and later

Total

Operating leases

–
–
–
–
–
–

–

The operating lease income is mainly income from the subleasing of real
estate. See notes to the consolidated financial statements, note C3, “Leases.”

Ericsson Annual Report 2019

120

Financials – Notes to the Parent Company financial statements

P25 Information regarding employees

Average number of employees

2019

2018

Men Women

Total

Men Women

Total

158

158
158
158

164

164
164
164

322

322
322
322

197

197
197
197

188

188
188
188

385

385
385
385

Europe &
Latin America 1) 2)

Total
1) of which in Sweden
2) of which in EU

Remuneration

Wages and salaries and social security expenses

Wages and salaries
Social security expenses

of which pension costs 3)

2019

462
319
142

2018

456
–77
–259

3) The return on plan asset, not accounted for in prior years, was recognized during 2018 due to

increased value of the funded pension plans.

Wages and salaries per region

Europe & Latin America 1) 2)

Total
1) of which in Sweden
2) of which in the EU

2019

2018

462

462
462
462

456

456
456
456

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 31.8 (7.7) million and the cost for share-based plan
amounted to SEK 33.6 (23.3) million. See notes to the consolidated financial
statements, note G3, “Share-based compensation”.

P26 Related party transactions

IAS 24, “Related Party Disclosures” requires disclosure of related party
relationships, transactions and outstanding balances.

During 2019, 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

2019

2018

5
66

3
30

The Parent Company does not have any contingent liabilities, assets pledged
as collateral or guarantees toward Ericsson Nikola Tesla d.d.

Leone Media Inc.
51% of the MediaKind business was divested February 1 2019. After the trans-
action, the Parent Company holds 49% of the shares. The Parent Company has
provided a loan to MediaKind of SEK 0.2 billion.

Leone Media Inc.

Related party transactions
License revenues
Dividends
Related party balances
Receivables

2019

2018

–
–

205

–
–

–

The Parent Company does not have any contingent liabilities, assets pledged
as collateral or guarantees toward Leone Media Inc.

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

2019
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

2018
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

2017
Audit fees
Audit-related fees
Tax services fees
Other fees

Total

PwC

26
9
1
2

26
9
1
8

29
9
3
4

The allocation of fees to the auditors is based on the requirements in the
Swedish Annual Accounts Act.

During the period 2017–2019, 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.

Ericsson Annual Report 2019Risk factors

Financials – Risk factors

121

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 strategic objectives, business, operations, future
performance, revenues, operating and after-tax results, profit mar-
gins, 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”.

Contents

121 Risks related to business activities and industry

126 Risks related to Ericsson’s financial situation

127 Legal and regulatory risk

129 Internal control risk

130 Environmental, social and governance risk

131 Risks associated with owning Ericsson shares

1 Risks related to business activities and industry

1.1 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 subscriptions
and usage per subscriber, which in turn drives the continued deployment
and expansion of network systems by our customers. If operators fail to
increase the number of subscribers and/or usage does not increase, our
business and operating results could be materially adversely affected.
Also, if operators fail to monetize services, fail to adapt their business
models or experience a decline in operator revenues or profitability, their
willingness to further invest in their existing and new 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
leading to standards fragmentation and increased difficulties of creat-
ing economies of scale.

Fixed and mobile networks converge and new technologies, such
as IP and broadband, enable operators to deliver services in both fixed
and mobile networks. We are dependent on the uptake of such services
and the outcome of regulatory and standardization activities such as
spectrum allocation. If delays in uptake, standardization or regulation
occur, this could adversely affect our business, operating results, and
financial condition.

1.2 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
maintain or improve their financial position. This could also result in
significantly reduced expenditures for our products and services, includ-
ing network infrastructure, in which case our operating results would
suffer. Geopolitical risks and trade frictions, e.g. between China and the
US, could negatively impact our global operations, including research &
development and supply chain in those and other countries, as they may
lead to tariffs or increased costs that may not be recoverable and may
impact our profitability and/or disrupt our international product devel-
opment, 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

Ericsson Annual Report 2019122

Financials – Risk factors

– Excess and obsolete inventories and excess manufacturing capacity
– Financial difficulties or failures among our suppliers
– Increased demand for customer finance, difficulties in collection

of accounts receivable and increased risk of counter party failures

– 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

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 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, size and technology choices of market

opportunities beyond enhanced mobile broadband, such as fixed
wireline access, industrial IoT and private networks, may materialize
differently than estimated.

– End user demand could also be adversely affected by reduced con-
sumer spending on technology, changed operator pricing, security
breaches and trust issues.

Finally, Ericsson or its suppliers may encounter unforeseen technical

challenges that can affect our ability to develop, supply or deploy 5G
networks.

As of 31 January it is clear that the UK has left the EU (“Brexit”) with an
interim agreement in place which essentially preserves most of the pre-
Brexit conditions including the customs union and access to the Internal
market. However, the Interim agreement lapses on 31 December 2020
and what remain is the negotiation of a the agreement between the
UK and the EU which sets out the conditions of the relationship after
2020. It is not clear whether any comprehensive agreement can be
accomplished as planned during 2020, nor what such an agreement will
cover. Indeed, it is not clear there will be any agreement at all. Therefore
in essence the assessment of last year that at present, the conditions for
Brexit are not fully known, still stands. The long-term effects of Brexit
will depend on any agreements the UK makes to retain access to Euro-
pean markets either during a transitional period or permanently as well
as on the agreements the UK makes with other trading 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 conse-
quences for credit markets and adversely affect our business, results of
operations and financial performance.

1.3 We may not be successful in implementing our strategy or
in achieving improvements in our profitability or in estimating
addressable markets or market CAGR in the markets in which we
operate.
There can be no assurance that we will be able to successfully imple-
ment our strategy to achieve future profitability, growth or create share-
holder value. When deemed necessary, we 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 improvements in our earn-
ings. 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 Emerging Business 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.

1.4 We may not be successful in executing our strategy to capture
the 5G market opportunity in terms of e.g. 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 spectrum,
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

1.5 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, reputa-
tion and share price.

1.6 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. Acquisitions could result in the incurrence of
contingent liabilities and an increase in amortization expenses related
to goodwill and other intangible assets, which could have a material
adverse effect upon our business, operating results, financial condition
and liquidity. Risks we could face with respect to acquisitions include:
– Insufficiencies of technologies and products acquired, such as unex-

pected 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, including failure to comply with laws
or regulations.

Ericsson Annual Report 2019Financials – Risk factors

123

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 consummating
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.

affected by the overall mix of products and services as well as the rela-
tive content of third-party products. In our Digital Services and Emerg-
ing Business and Other segments, third-party products and services rep-
resent 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 and expectations. Short-term variation could
have a material adverse effect on our business, operating results, finan-
cial condition and cash flow.

1.7 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, e.g. as
part of our 5G portfolio, may become constrained, which could harm our
competitive position in the market.

Additionally, our share of any losses from or commitments to contrib-
ute additional capital to such JVs and partnerships may adversely affect
our business, operating results, financial condition and cash flow.

1.8 The telecommunications industry investment levels fluctuate
and are affected by many factors, including the economic environ-
ment, and decisions made by operators and other customers regard-
ing deployment of technology and their timing of purchases.
The telecommunications industry has experienced downturns in
which operators substantially reduced their capital spending on new
equipment. While we expect the network operator 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 conditions.
Moreover, market conditions are subject to substantial fluctuation,
and could vary geographically and across technologies. Even if global
conditions improve, conditions in the specific industry segments in
which we participate 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 cus-
tomers who buy our products and services can vary over short periods of
time, including from month to month. Due to the uncertainty and varia-
tions in the telecommunication industry, as well as in the ICT industry,
accurately forecasting revenues, results, and cash flow remains difficult.

1.9 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 cus-
tomers with solutions based on our own products as well as third-party
products which normally have lower margins than our own products.
As a consequence, our reported gross margin in a specific period will be

1.10 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, and could include disaggregation of
the Radio Access Network. 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 barri-
ers 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 under-
stand 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.

1.11 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 develop-
ment, and the introduction of new products and services. We face
intense competition from significant competitors, many of which are
very large, with substantial technological and financial resources and
established relationships with operators. We also encounter increased
competition from new market entrants and alternative technologies
are evolving industry standards. 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 end to end 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.

Ericsson Annual Report 2019124

Financials – Risk factors

1.12 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 Emerging Business
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.

1.13 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. This includes also
development and supply of key ASIC and FPGA components, for which
Ericsson has a dependency to very few suppliers. Accordingly, there is a
risk that we will be unable to obtain key supplies we need to produce our
products and provide our services on commercially reasonable terms,
or at all. Failure by any of our suppliers could interrupt our product or
services supply or operations and significantly limit sales or increase
our costs. To find an alternative supplier or redesign products to replace
components may take significant time which could cause significant
delays or interruptions in the delivery of our products and services. We
have from time to time experienced interruptions of supply and we may
experience such interruptions in the future.

Furthermore, our procurement of supplies requires us to predict
future customer demands. If we fail to anticipate customer demand
properly, an over or under supply of components and production capac-
ity could occur. In many cases, some of our competitors utilize the same
manufacturers and if they have purchased capacity ahead of us we
could be blocked from acquiring the needed products. This factor could
limit our ability to supply our customers and increase costs. At the same
time, we commit to certain capacity levels or component quantities,
which, if unused, will result in charges for unused capacity or scrapping
costs. We are also exposed to financial counterpart risks to suppliers
when we pay in advance for supplies. Such supply disruptions and cost
increases may negatively affect our business, operating results and
financial condition.

1.14 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. Our
largest customer represented approximately 10% of our sales in 2019,
our ten largest customers accounted for 49% of our sales in 2019. A loss
of or a reduced role with a key customer could have a significant adverse
impact on sales, profit and market share for an extended period. In addi-
tion, our dependence on the sales of certain of our products and services
may have a significant adverse impact on sales, profit and market share.
In recent years, service providers have undergone significant consoli-

dation, 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, opera-
tor consolidation may have a material adverse effect on our business,
operating results, market share and financial condition.

1.15 Certain long-term agreements with customers include commit-
ments 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.

1.16 If our customers’ financial conditions decline, we will be
exposed to increased credit and commercial risks.
After completing sales to customers, we may encounter difficulty col-
lecting accounts receivables and could be exposed to risks associated
with uncollectable accounts receivable. We regularly assess the credit
worthiness of our customers and based on that assessment we deter-
mine a credit limit for each one of them. Challenging economic condi-
tions have impacted some of our customers’ ability to pay their invoices.
We may be unable to avoid future losses on our trade receivables. We
have also experienced demands for customer financing, and in adverse
financial markets or more competitive environments, those demands
may increase. Upon the financial failure of a customer, we may experi-
ence losses on credit extended and loans made to such customer, losses
relating to our commercial risk exposure, and the loss of the customer’s
ongoing business. If customers fail to meet their obligations to us, we
may experience reduced cash flows and losses in excess of reserves,
which could materially adversely impact our operating results and
financial condition.

1.17 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, possibly also for damages
incurred on customer businesses. Although we undertake a number of
quality assurance measures to reduce such risks, product quality or ser-
vice performance issues may negatively affect our reputation, business,
operating results and financial condition. This could also include poor
quality of AI based solutions, or third-party products being part of solu-
tions. 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,

Ericsson Annual Report 2019high service and warranty expenses, high inventory obsolescence
expense, delays in collecting accounts receivable or declining sales to
existing and new customers, and reputational damage.

1.18 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 automa-
tion, artificial intelligence (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.

1.19 We depend upon the development of new products and
enhancements to our existing products, and the success of our sub-
stantial 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 sig-
nificantly in new technology, products and solutions, e.g. related to 5G.
In order for us to be successful, those technologies, products and solu-
tions 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 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
changing requirements and 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 competi-
tors, and can also include delays of communicated product availability
dates. This could have a material adverse effect upon our business,
customer relationships, operating results and financial condition.

1.20 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 restructuring
charges. Several risks related to market, technology and operations can
impact the turnaround plan.

5G market development and the uptake of virtualization and

consequent adoption of our new products can be slower than expected.
We may also fail to secure good share in key markets like China and
increased competition from both emergent and established competitors
may impact our market position.

We could be too slow to adapt and adopt new technologies like AI
and Machine Learning to drive more automation in products and solu-
tions. The product overhaul to cloud native solutions mandated by cus-
tomers could also take longer than expected. In addition, the increasing
influence of open source initiatives such as Open Network Automation

Financials – Risk factors

125

Platform (ONAP) could drive a best of breed approach in our customers,
driving prices down and adversely impact our full suite offerings.

We believe the biggest risks in the near term are in the operational
dimension. This includes being unable to successfully execute as per
plan on continued cost efficiency measures in service delivery, R&D and
Selling, General and Adminstrative expenses; inability in implementing
and successfully driving organizational-wide transformation programs
across the develop-sell-deliver dimension for operating model simplifi-
cation; as well as being unable to mitigate significant project risks in the
current list of critical customer projects, and the risk of adding further
operationally challenging and financially unsound customer projects.

1.21 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 assurance
that they will not be challenged, invalidated, or circumvented, or that
any rights granted in relation to our patents will in fact provide us with
competitive advantages.

We utilize a combination of trade secrets, confidentiality policies,
nondisclosure and other contractual arrangements in addition to 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 com-
mercially reasonable terms or at all, and such judgments could have a
material adverse effect on our business, reputation, operating results
and financial condition. Using free and open source software may allow

Ericsson Annual Report 2019126

Financials – Risk factors

third-parties to further investigate our software due to the accessibil-
ity 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. 3G, 4G and 5G technology), investigations held
by antitrust authorities, court judgments and legislative change could
potentially affect Ericsson’s ability to benefit from its patent portfolio in
the area of such open standards, which could have a material adverse
effect on our business, reputation, operating results and financial con-
dition. Ericsson holds a leading patent portfolio in open standards and
possible changes regarding such a portfolio may materially affect our
reputation, business, operating results and financial condition.

1.22 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 quali-
fied employees who develop successful new products/solutions, sup-
port our existing product range and provide services to our customers
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 other industries
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 and
to find “their great”. However, there are no guarantees 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.

1.23 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 damag-
ing to the operation of our business.
Our business operations rely on complex operations and communica-
tions networks, which are vulnerable to damage or disturbance 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.

2 Risks related to Ericsson’s financial situation

2.1 Our debt increases our vulnerability to general adverse eco-
nomic 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, 2019, our outstanding debt was SEK 37.7 billion.
In addition, throughout 2019, each of Standard & Poor’s and Moody’s
maintained Ericsson’s long-term below investment grade rating. This
degree of leverage and our long-term ratings could have important
consequences, including:

– Making it more difficult for us to make payments on our indebtedness
– Increasing our vulnerability to general economic and industry

conditions

– Requiring a substantial portion of cash flow from operations to be
dedicated to the payment of principal and interest on our indebted-
ness, thereby reducing our ability to use our cash flow to fund our
operations, capital expenditures and future business opportunities
– Restricting us from making strategic acquisitions or causing us to

make non-strategic divestitures

– Limiting our ability to obtain additional financing for working capital,
capital expenditures, debt service requirements, acquisitions and
general corporate or other purposes

– 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 choose to incur substantial additional indebtedness in the
future. If new indebtedness is added to our current debt levels, the
related risks that we now face could increase.

If our financial performance were to deteriorate, we may not be able
to generate sufficient cash to service all of our indebtedness and may be
forced to take other actions to satisfy our obligations under our indebt-
edness, which may not be successful.

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 princi-
pal, 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 ser-
vice obligations, we may be forced to reduce or delay investments and
capital expenditures, or to sell assets, seek additional capital or restruc-
ture 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 additional capital in
the current financial markets, the terms of such financing, if available,
could result in higher costs and greater restrictions on our business.
In addition, if we were 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.

2.2 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 operating results.
We incur a significant portion of our expenses in SEK, please refer to the
consolidated financial statement note F1, “Financial risk management”.
As a result of our international operations, we generate, and expect to
continue to generate, a significant portion of our revenue in currencies
other than SEK. To the extent we are unable to match revenue received
in foreign currencies with costs paid in the same currency, exchange rate
fluctuations could have a negative impact on our consolidated income
statement, balance sheet and cash flows when foreign currencies are
exchanged or translated to SEK, which increases volatility in reported
results.

As market prices are predominantly established in US dollars or
Euros, we presently have a net revenue exposure in foreign currencies

Ericsson Annual Report 2019which 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, resulting
in an adverse impact on our results and financial condition.

2.3 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 materi-
ally 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.

2.4 Impairment of goodwill, other intangible assets, property and
equipment (PP&E) and righ-of -use (RoU) leased by the Company
have impacted and may continue to negatively impact our financial
condition and results of operations. An impairment of goodwill,
other intangible assets, PP&E and RoU could adversely affect our
financial condition or results of operations.
We have a significant amount of these assets; for example, patents,
customer relations, trademarks, software, PP&E and RoU.

Goodwill is the only intangible asset the company has recognized
to have indefinite useful life. Other assets are mainly amortized on a
straight-line basis over their estimated useful lives and the assets are
reviewed for impairment whenever events such as product discontinu-
ances, product dispositions or other changes in circumstances indicate
that the carrying amount may not be fully recoverable. Those intangible
assests not yet in use are tested for impairment annually.

Historically, we have recognized impairment charges mainly due to
restructuring, which is usually limited, but occasionally significant. For
example, for the year ended December 31, 2018, the Company 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 and could be significant due to various reasons,
including strategy changes, restructuring 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.

In relation to 2019 it should be noted that all leases are recognized in
the balance sheet from this year due to the new lease standard, IFRS 16
Leases, effective from January 1st, 2019, and are subject to impairment
testing going forward.

Financials – Risk factors

127

3 Legal and regulatory risk

3.1 Ericsson may fail or be unable to comply with laws or regula-
tions and could experience penalties and adverse rulings in enforce-
ment or other proceedings. Compliance with changed laws or
regulations may subject Ericsson to increased costs or reduced prod-
ucts 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.

Further changes in laws or regulations could subject us to liability,
increased costs, or reduced products and services demand and have a
material adverse effect on our business, financial condition and brand.
Changes to regulations may adversely affect both our customers’
and our own operations. For example, regulations imposing more strin-
gent, time-consuming or costly planning and zoning requirements or
building approvals for radio base stations and other network infrastruc-
ture could adversely affect the timing and costs of network construction
or expansion, and ultimately the commercial launch and success of
these networks. Similarly, tariff and roaming regulations or rules on
network neutrality could also affect operators’ ability or willingness to
invest in network infrastructure, which in turn could affect the sales of
our systems and services. Additionally, delay in radio frequency spec-
trum allocation, and allocation between different types of usage may
adversely affect operator spending or force us to develop new products
to be able to compete.

Further, we develop many of our products and services based on

existing regulations and technical standards. Changes to existing
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 related to
e.g. license fees, environment, 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. 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.

3.2 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.

Ericsson Annual Report 2019128

Financials – Risk factors

Pandemics, such as for example the one caused by the Coronavirus,

could severely impact our local and global operations related to e.g.
Service Delivery, Research & Development and Supply, as well as our
customers and suppliers, with significant financial and other conse-
quences. As an example, the Coronavirus has caused disturbance to our
operations in China where Ericsson has offices and manufacturing sites.
Any disturbances relating thereto can grow to have a significant impact
for the Group, in China and globally.

Further, in certain markets in which we operate, there is a risk that

national governments actively favors or establishes local vendors in
their respective markets at the expense of foreign competitors. The
implementation of such measures could adversely affect our sales, our
market share and 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 perspec-
tive and this level could even increase, thus impacting the possibility to
operate in these markets. 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 com-
plete trade embargo towards a country. The global free trade system
that has allowed increased efficiency and economic growth is under
sustained attack, including the dismantlement of the WTO dispute
settlement body. This increases the chances that states may adopt poli-
cies and actions that violates WTO agreements. Further there is a risk
in many countries of unexpected changes in regulatory requirements,
tariffs and other trade barriers, price or exchange controls, restrictions of
imports, 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 commitment in those
countries. As an example, escalation of trade tensions between the
US and China has resulted in trade restrictions and increased tariffs,
which if further negatively developed could harm our ability to compete
effectively in Chinese markets or with Chinese companies. 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 regula-
tions at all times. Such potential violations could have material adverse
effects on our business, operating results, reputation and brand.

The business operations are complex involving the development,

production and delivery of telecom solutions to customers in a very
large number of jurisdictions. Each jurisdiction has its own tax 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 jurisdic-
tion (double taxation). This could have adverse effects on our operating
results, reputation and brand.

In certain regional markets, there are trade barriers that limit compe-

tition. Should these trade barriers be removed or lowered, competition
may increase, which could have material adverse effects on our busi-
ness and operating results.

There has been a concern reported by some media and others, that
certain countries may use features of their telecommunications systems
in ways that could result in potential violation of human rights. This

may adversely affect the telecommunications business and may have
a negative impact for people, our reputation and brand.

3.3 We may be subject to further adverse consequences following
our recent resolutions with the United States Department of Justice
(DOJ) and the Securities and Exchange Commission (SEC) of the
previously disclosed investigations under the FCPA.
We are required to comply with anti-corruption laws in the jurisdictions
in which we do business, including the US Foreign Corrupt Practices Act
(the “FCPA”). Actions by our employees, or by third party intermediaries
acting on our behalf, in violation with these laws, whether carried out
in the United States or elsewhere in connection with the conduct of our
business may expose us to significant liability for violations of the FCPA
or other anti-corruption laws and may have a material adverse effect on
our reputation, business, financial condition, results of operations, cash
flows, or prospects.

In December 2019, we announced the resolution of the previously
disclosed investigations by the DOJ and SEC regarding the Company’s
compliance with the FCPA. The resolution with the DOJ, which relates
to conduct in China, Djibouti, Indonesia, Kuwait, and Vietnam, provides
for: a three-year deferred prosecution agreement (“DPA”); a fine in the
amount of USD 520,650,432; and a guilty plea by our Egyptian subsid-
iary to criminal charges of violations of the anti-bribery provisions of the
FCPA. The resolution with the SEC, which relates to conduct in China,
Djibouti, Indonesia, Kuwait, Saudi Arabia, and Vietnam, provides for:
consent to the entry of a judgement to resolve civil claims related to alle-
gations of violations of the anti-bribery, books and records, and internal
controls provisions of the FCPA; and a financial sanction in the amount
of USD 458,380,000, plus prejudgement interest in the amount of USD
81,540,000. We also agreed to the retention of an independent compli-
ance monitor for the term of three years pursuant to the resolutions with
both the DOJ and SEC. The DOJ DPA, SEC civil consent, and guilty plea
by Ericsson’s Egyptian subsidiary have all received court approval.

Under our DPA with the DOJ, we admitted to the conduct described

in the statement of facts attached to the DPA, and the DOJ agreed to
defer prosecution of Ericsson for the three-year term of the DPA, after
which period the charges will be dismissed with prejudice if we do
not violate the terms of the DPA. If the DOJ determines that we have
violated the terms of the DPA, the DOJ may in its sole discretion com-
mence prosecution, including for the charged conspiracy to violate the
anti-bribery and books and records and internal controls provisions
of the FCPA that were included in the information filed in conjunction
with the DPA, or extend the term of the DPA for up to one year. In such
circumstances, the DOJ would be permitted to rely upon the admis-
sions we made in the DPA and would benefit from our waiver of certain
procedural and evidentiary defenses. Under our consent with the SEC,
Ericsson is permanently enjoined from violating the anti-bribery and
books and records and internal controls provisions of the FCPA. Failure
to comply with this injunction could result in the imposition of civil or
criminal penalties, a new enforcement action, or both. Any criminal
prosecution or civil or criminal penalties imposed as a result of non-
compliance with the DPA or consent could have a material adverse
effect on our reputation, business, financial condition, result of opera-
tions, cash flows, or prospects.

For additional information regarding this resolution, see the Board

of Directors’ Report.

We may also face other potentially negative consequences relating
to the investigations by, and settlements with, the DOJ and SEC. Neither
the DPA nor the consent prevents the DOJ, SEC or any other authorities
from carrying out certain additional investigations with respect to facts
not covered in the agreements or in other jurisdictions, or prevents
authorities from carrying out certain additional investigations related
to these or other matters. It has been reported that Swedish authorities

Ericsson Annual Report 2019have initiated an investigation into the conduct that was the subject of
the FCPA investigation and resulted in the above-mentioned resolution
with the DOJ and SEC. Similarly, the resolutions with the DOJ and SEC
do not foreclose potential third party or shareholder litigation related to
these matters. In addition, there can be no assurance that the remedial
measures we have taken and plan to take in the future will be effective
or that there will not be a finding of material weakness in our internal
controls. Any one or more of the foregoing could have a material
adverse effect on our reputation, business financial condition, results
of operations, cash flows, or prospects.

Additionally, any ongoing media or governmental interest in the

investigations and resolutions could impact the publics’ percep-
tion of Ericsson and result in reputational harm and other negative
consequences. For example, customers or suppliers may reconsider
their relationships with the Company, or governmental and regulatory
authorities in the relevant jurisdictions or elsewhere could seek to
penalize the Company or place restrictions on its operations or ability
to tender. Harm to reputation, or any resulting disruption in customer
or supplier relationships, could have a material adverse impact on
Ericsson’s business.

3.4 We are involved in lawsuits and investigations which, if deter-
mined 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 offi-
cers and the potential settlement or compensation to the plaintiffs could
have significant impact on our reported results and reputation.

For additional information regarding certain of the inquiries and
lawsuits in which we are involved, see “Legal proceedings” in the Board
of Directors’ Report.

In addition, we are from time to time and may in the future be subject

to additional inquiries, litigation or other proceedings or actions, regula-
tory or otherwise, arising 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.

3.5 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 is found to be non-compliant to privacy legislation, either
accidentally, through the actions of third parties, or otherwise, and
subject to penalties levied against Ericsson, with the associated dam-
age to Ericsson’s brand and reputation. Due to the diverse nature of
privacy legislation worldwide, any single incidence of 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

Financials – Risk factors

129

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.

Internal control risk

4.1 Cybersecurity incidents may have a material adverse effect
on our business, operations, financial performance, customer and
vendor relationships, reputation and brand, and may introduce the
possibility of litigations or regulatory investigations or actions.
Ericsson’s business operations involve areas that are particularly
vulnerable to cybersecurity incidents that may impact the confidential-
ity, availability or integrity of information assets, IT assets, products,
services, or solutions. These incidents may include data breaches, intru-
sions, espionage, know-how and data privacy infringements, leakage of
confidential or sensitive data, unauthorized or accidental modification
of data and general malfeasance. Examples of these areas include,
among others, research and development, managed services, usage of
cloud solutions, software development, lawful interception, sales, prod-
uct engineering, IT, finance, operations acquired through M&A activities
and HR operations.

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 operations
or products supplied to us could have a material adverse effect upon
Ericsson, our business, financial performance, reputation and brand,
potentially slowing operations, leaking valuable intellectual property,
personal data or other sensitive information or damaging our products
which have been installed in our customers’ networks.

It is possible that a cybersecurity incident in Ericsson’s operations or
supply chain could have an adverse impact on the integrity of solutions
or services provided by Ericsson as well as Ericsson’s ability to comply
with legal, regulatory or contractual requirements. 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.

Any cybersecurity 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
performance, customer and vendor relationships, reputation and brand,
and may introduce the possibility of litigation or regulatory investiga-
tions or actions.

During 2019, Ericsson has undergone an extensive evaluation of its
cybersecurity capability, resulting in additional investments to enhance
its cybersecurity capabilities, governance and organization.

Our network systems and storage and other business applications,

and the systems and storage and other business applications main-
tained by our third-party providers, have been in the past, and may
be in the future, subject to cyber intrusions, including attempts to gain
unauthorized access, breach, malfeasance or other system disruptions.
In some cases, it is difficult to anticipate or to detect immediately such
incidents and the damage caused thereby. If an actual or perceived
breach of security occurs in our network or any of our third-party provid-
ers’ networks, we could incur significant costs and our reputation could
be harmed. While we work to safeguard our internal network systems
and validate the security of our third party providers to mitigate these
potential risks, including through information security policies and
employee awareness and training, there is no assurance that such
actions will be sufficient to prevent cyber-attacks or security breaches.

Ericsson Annual Report 2019130

Financials – Risk factors

4.2 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 vulner-
abilities 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 ser-
vices provided by Ericsson are free from such vulnerabilities. Likewise,
the Infrastructure that Ericsson relies on may also contain undetected
or unmitigated vulnerabilities.

4.3 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.

4.4 Threat actors may target specific employees, or other members
of Ericsson’s workforce, through technological and non-technologi-
cal means.
Recent trends have shown that there is a willingness to target end users
of technology, rather than enterprises. This has manifested itself in the
rise of threats such as ransomware, phishing and other extortion meth-
ods. With a diverse workforce of approximately 100,000 employees,
Ericsson is susceptible to risks of disruption or information loss resulting
from large scale attacks towards our employees, or society at large. This
could have a material adverse effect on our business, financial condi-
tion, reputation and brand.

5 Environmental, social and governance risk

5.1 Failure to comply with occupational, environmental, health
and safety regulations in many jurisdictions may expose us to
significant penalties and other sanctions.
We are subject to certain occupational, environmental, health and
safety laws and regulations that affect our operations, facilities, prod-
ucts 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 (including without limitation occupational 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 require-
ments 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 occupational, envi-
ronmental 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.

5.2 We may fail to comply with our corporate governance stan-
dards, 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,
financial condition and brand, see “US FCPA investigations” 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 for Business Partners 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 Busi-
ness Ethics, corruption, fraud, embezzlement, or violations of anti-trust
legislation, trade restrictions and international sanctions or our Code of
Conduct for Business Partners 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 improve-
ments, 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.

Ericsson Annual Report 20195.3 Potential health risks related to radiofrequency electro-
magnetic fields may subject us to various product liability claims
and result in regulatory changes.
The mobile telecommunications industry is subject to claims that mobile
devices and other equipment that generate radiofrequency electromag-
netic fields may expose users to health risks. At present, a substantial
number of scientific reviews conducted by various independent research
bodies have concluded that radiofrequency electromagnetic fields,
at levels within the limits prescribed by public health authority safety
standards and recommendations, cause no adverse effects to human
health. However, any 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 require-
ments that may have an adverse effect on our business, operating
results, financial condition, reputation and brand.

5.4 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 products be certified
as “conflict-free”.

Financials – Risk factors

131

6 Risk associated with owning Ericsson shares

6.1 Our share price has been and may continue to be volatile,
especially as technology companies, securities and markets
as a whole remain volatile.
Our share price has been volatile due to various factors, including our
operating performance as well as the high volatility in the securities
markets generally and volatility in telecommunications and technology
companies’ securities in particular. Our share price is also likely to be
affected by future developments in our market, our financial results
and the expectations of financial analysts, as well as statements and
market speculation regarding our prospects or the timing or content of
any public communications, including reports of operating results, by us
or our competitors.

Factors other than our financial results that may affect our share

price include, but are not limited to:
– A weakening of our brand name or other circumstances with adverse

effects on our reputation

– Announcements by our customers, competitors or us regarding

capital spending plans of our customers

– Financial difficulties for our customers
– Awards of large supply or service contracts
– Speculation in the press or investment community about the 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 inves-

tigations – Announcements concerning bankruptcy or investigations
into the accounting procedures of ourselves or other telecommunica-
tions companies

– Our ability to forecast and communicate our future results in a man-

ner consistent with investor expectation

– Compliance concerns relating to governance and regulatory matters.

6.2 Currency fluctuations may adversely affect our share price or
value of dividends.
Because our shares are quoted in SEK on Nasdaq Stockholm (our
primary stock exchange), but in US dollars on Nasdaq New York (ADSs),
fluctuations in exchange rates between SEK and US dollars may affect
our share price. In addition, because we pay cash dividends in SEK,
fluctuations in exchange rates may affect the value of distributions
when converted into other currencies. An increasing part of the trade
in our shares is carried out on alternative exchanges or markets, which
may lead to less accurate share price information on Nasdaq Stockholm
or NASDAQ New York.

Ericsson Annual Report 2019132

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 2019. The company’s
annual accounts and consolidated accounts of the company are
included on pages 33–131 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 2019 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 2019 and their financial performance and

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,

Our audit approach
Overview

cash flows for the year then ended, in accordance with International
Financial Reporting Standards (IFRS), as adopted by the EU, and the
Annual Accounts Act. The statutory administration report is consistent
with the other parts of the annual accounts and consolidated accounts.
We, therefore, recommend that the annual meeting of shareholders
adopt the income statement and balance sheet for the Parent Company
and for the Group.

Our opinions in this report on the annual accounts and consolidated
accounts are consistent with the content of the additional report that has
been submitted to the parent company’s audit and compliance commit-
tee in accordance with the Audit Regulation (537/2014) Article 11.

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.

– Overall group materiality: SEK 900 million, which represents approximately 5% of income before

tax adjusted for the costs related to the SEC and DoJ investigations 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.

Key Audit Matters
– Compliance with antibribery laws and regulations
– Revenue recognition for major contracts
– Carrying value of goodwill, other intangible assets and deferred tax assets
– Provisions and allowances related to projects and inventory

Ericsson Annual Report 2019Financials – Auditor’s report

133

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

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

Overall group materiality

SEK 900 million

How we determined it

Approximately 5% of the income before tax
adjusted for the costs related to the SEC and DoJ
investigations which are covered by separate
audit procedures.

Rationale for the materiality
benchmark applied

We choose the adjusted 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 90 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 sig-
nificant 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 repre-
sented a risk of material misstatement due to fraud.

We tailored the scope of our audit in order to perform sufficient work

to enable us to provide an opinion on the consolidated financial state-
ments as a whole, taking into account the structure of the Group, the
accounting processes and controls, and the industry in which the group
operates.

The group conducts business in more than 180 countries and has
centralized systems, procedures and a centralized financing function.
We have organized the audit work by having our central team to carry
out the testing of all centralized systems and procedures whereby the
local auditors carry out additional testing based on our instructions. The
13 most important entities within the Group represent 71% of net sales
and 66% 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 Compliance
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 2019134

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

Compliance with antibribery laws and regulations

As disclosed on page 41 of the Boards and Director´s report Telefonaktie-
bolaget LM Ericsson settled an investigation with the U.S. Department of
Justice and the U.S. Securities and Exchange Commission in 2019 regarding the
compliance with the US Foreign Corrupt Practices Act (FCPA) in Djibouti, China,
Kuwait, Indonesia, Vietnam and Saudi Arabia. Under the related Deferred
Prosecution Agreement the Company will in 2020 implement an Independent
Monitor that oversees the Company’s compliance improvement program for
a period of three years. If the recommendations provided by the Independent
Monitor are deemed to be inadequately implemented, further fines could
amongst others be imposed. As such we believe that the Company’s progress
with respect to implementation of the procedures and recommendations
warrants attention from an audit perspective.

Revenue recognition of major contracts

The application of revenue recognition accounting standards is complex and
requires management judgement and estimates. Large and complex customer
contracts are a major part of the business and many of these include multiple
elements of products, software and services as well as complex contract terms.
The organization of the Ericsson Group also results in that a customer contract
often involves more than one legal entity within the group.

Refer to the Annual Report Note A1 – Significant accounting policies and

Note A2 – Critical accounting estimates and judgements.

Carrying value of goodwill, other intangible assets and deferred tax assets

Goodwill, other intangible assets and deferred tax assets are significant to the
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 dis-
count rates. All of these are subject to judgement and subjectivity and might be
affected by the current turbulence in the global economy. There were only minor
write offs of intangible assets during the year. 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 8.1% to 11.0% the head room is still positive in
all segments including Digital Services

Tax losses carry forward, SEK34 billion, mainly relates to Sweden. Ericsson
has recognized deferred tax assets of SEK 7 billion mainly related to Sweden
with indefinite periods of utilization. The value of the deferred taxes is based on
management’s estimation of future taxable profits in Sweden. If the assump-
tions are not fulfilled the tax assets may not be utilized and thus needs to be
written off.

Refer to the Annual Report Note A2 – Critical accounting estimates and

judgement Note C1 – Intangible assets and Note H1 – Taxes.

Provisions and allowances related to projects and inventory

The need for provisions is by nature based on judgement and management
estimates of future outflow of cash. Ericsson has made provisions and allow-
ances relating to customer projects, inventory, warranty, litigations, restructur-
ing and other contractual obligations.

Adjustments and allowances for customer and supplier related projects of
SEK 2.1 billion accounted for in 2019 mainly refers to provisions for supplier
claims and provisions for onerous contracts. The closing balance allowance for
inventory is SEK 3.4 billion at the end of the year.

Refer to the Annual Report Note A2 – Critical accounting estimates and

judgements, Note B5- Inventories and Note D1 – Provisions.

Our audit included, among other audit procedures, testing of controls for
proper documentation of due diligence for the retention of third party agents
and consultants as well as the process of informing agents and business
partners of commitment to anti-corruption and codes, follow-up on the sign-
ing and update of the Code of Business Ethics and performed fraud and error
inquiries of management and in certain markets.

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 included a combination of testing of controls over financial reporting,
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 esti-
mates made by management.

Our audit included a combination of testing of controls over financial reporting,
analytical procedures and detailed testing to ensure that provisions and allow-
ances made are sufficient for existing commitments and exposures.

Ericsson Annual Report 2019Other 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 1–32
and 137–216. 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 Directors’ responsibilities and tasks in general, among
other things oversee the company’s financial reporting process.

Auditor’s Responsibility
Our objectives are to obtain reasonable assurance about whether the
annual accounts and consolidated accounts as a whole are free from
material misstatement, whether due to fraud or error, and to issue an
auditor’s report that includes our opinions. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted
in accordance with ISAs and generally accepted auditing standards
in Sweden will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material
if, individually or in the aggregate, they could reasonably be expected
to influence the economic decisions of users taken on the basis of these
annual accounts and consolidated accounts.

As part of an audit in accordance with ISAs, we exercise professional

judgment and maintain professional scepticism throughout the audit.

Financials – Auditor’s report

135

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
conditions that may cast significant doubt on the company’s and the
group’s ability to continue as a going concern. If we conclude that
a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the annual accounts
and consolidated accounts or, if such disclosures are inadequate,
to modify our opinion about the annual accounts and consolidated
accounts. Our conclusions are based on the audit evidence obtained
up to the date of our auditor’s report. However, future events or
conditions may cause a company and a group to cease to continue
as a going concern.

– Evaluate the overall presentation, structure and content of the

annual accounts and consolidated accounts, including the disclo-
sures, and whether the annual accounts and consolidated accounts
represent the underlying transactions and events in a manner that
achieves fair presentation.

– Obtain sufficient and appropriate audit evidence regarding the

financial information of the entities or business activities within the
group to express an opinion on the consolidated accounts. We are
responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our opinions.

We must inform the Board of Directors of, among other matters, the
planned scope and timing of the audit. We must also inform of signifi-
cant audit findings during our audit, including any significant deficien-
cies in internal control that we identified.

We must also provide the Board of Directors with a statement that
we have complied with relevant ethical requirements regarding inde-
pendence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence,
and where applicable, related safeguards.

From the matters communicated with the Board of Directors, we
determine those matters that were of most significance in the audit of
the annual accounts and consolidated accounts, including the most
important assessed risks for material misstatement, and which there-
fore comprise the key audit matters. We describe these matters in the
auditors’ report unless laws or regulations preclude disclosure about
the matter.

Ericsson Annual Report 2019136

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 2019 and the proposed appropriations of the company’s
profit or loss.

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

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 auditing
standards in Sweden. Our responsibilities under those standards are
further described in the Auditor’s Responsibilities section. We are inde-
pendent of the parent company and the group in accordance with pro-
fessional ethics for accountants in Sweden and have otherwise fulfilled
our ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient

and appropriate to provide a basis for our opinions.

Responsibilities of the Board of Directors and the Managing Director
The Board of Directors is responsible for the proposal for appropria-
tions of the company’s profit or loss. At the proposal of a dividend, this
includes an assessment of whether the dividend is justifiable con-
sidering 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 administra-
tion according to the Board of Directors’ guidelines and instructions
and among other matters take measures that are necessary to fulfil the
company’s accounting in accordance with law and handle the manage-
ment of assets in a reassuring manner.

give rise to liability to the company,

– or in any other way have acted in contravention of the Companies

Act, the Annual Accounts Act or the Articles of Association.

Our objective concerning the audit of the proposed appropriations of
the company’s profit or loss, and thereby our opinion about this, is to
assess with reasonable degree of assurance whether the proposal is in
accordance with the Companies Act.

Reasonable assurance is a high level of assurance, but is not a guar-

antee that an audit conducted in accordance with generally accepted
auditing standards in Sweden will always detect actions or omissions
that can give rise to liability to the company, or that the proposed appro-
priations of the company’s profit or loss are not in accordance with the
Companies Act.

As part of an audit in accordance with generally accepted auditing
standards in Sweden, we exercise professional judgment and maintain
professional scepticism throughout the audit. The examination of the
administration and the proposed appropriations of the company’s
profit or loss is based primarily on the audit of the accounts. Additional
audit procedures performed are based on our professional judgment
with starting point in risk and materiality. This means that we focus the
examination on such actions, areas and relationships that are material
for the operations and where deviations and violations would have
particular importance for the company’s situation. We examine and test
decisions undertaken, support for decisions, actions taken and other cir-
cumstances 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 proposal 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 27 March 2019 and has
been the company’s auditor since at least 1993.

Stockholm, March 2, 2020

PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorised Public Accountant
Lead partner

Johan Engstam
Authorised Public Accountant

Ericsson Annual Report 2019

Forward-looking statements

Financials – Forward-looking statements

137

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 anticipated events,
whether as a result of new information, future events or otherwise,
except as required by applicable law or stock exchange regulation.

This Annual Report includes forward-looking statements, including
statements reflecting management’s current views relating to the
growth of the market, future market conditions, future events, financial
condition, and expected operational and financial performance, includ-
ing, in particular the following:
– Our goals, strategies, planning assumptions and operational

or financial performance expectations

– Industry trends, future characteristics and development

of the markets in which we operate

– Our future liquidity, capital resources, capital expenditures,

cost savings and profitability

– The expected demand for our existing and new products and
services as well as plans to launch new products and services
including research and development expenditures

– The ability to deliver on future plans and to realize potential

for future growth

– The expected operational or financial performance of strategic

coop eration activities and joint ventures

– The time until acquired entities and businesses will be integrated

and accretive to income

– Technology and industry trends including the regulatory and

standardization environment in which we operate, competition
and our customer structure.

The words “believe”, “expect”, “foresee”, “anticipate”, “assume”, “intend”,
“likely”, “projects”, “may”, “could”, “plan”, “estimate”, “forecast”, “will”,
“should”, “would”, “predict”, “aim”, “ambition”, “seek”, “potential”, “target”,
“might”, “continue”, or, in each case, their negative or variations, and
similar words or expressions are used to identify forward-looking
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 2019138

Corporate governance – Corporate governance report

Corporate governance report 2019

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 decisionmaking systems
and structure through which owners directly or indirectly
control a company.

“During 2019, important focus areas of the
Board include corporate governance and to
ensure that sufficient investments are being
made available to strengthen the Ethics
and Compliance program.”

Ronnie Leten
Chair of the Board

Contents

139 Regulation and compliance

139 Compliance with regulations

140 Governance structure

140 Shareholders

141 General Meetings of shareholders

141 Nomination Committee

142 Board of Directors

144 Committees of the Board of Directors

147 Remuneration to Board members

148 Members of the Board of Directors

152 Management

156 Members of the Executive Team

160 Auditor

160 Internal control over financial

reporting 2019

163 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.

Ericsson Annual Report 2019Ericsson’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 for Business
Partners can be found
on Ericsson’s website.

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.
Some relevant external rules applicable to
Ericsson’s governance include:
– The Swedish Companies Act
– Applicable EU regulations
– The Rule Book for Issuers, Nasdaq Stockholm
– The Swedish Corporate Governance Code

(the “Code”)

– NASDAQ Stock Market Rules, including

applicable NASDAQ New York corporate
governance requirements (subject to certain
exemptions principally reflecting mandatory
Swedish legal requirements)

– Applicable requirements of the US Securities

and Exchange Commission (SEC).

Internal rules
In addition, to ensure compliance with legal and
regulatory requirements and the high standards
that Ericsson has set, Ericsson has adopted inter
nal rules that include:
– A Code of Business Ethics
– Group Steering Documents, including Group
policies and directives, instructions and busi
ness processes for approval, control and risk
management

– A Code of Conduct for Business Partners.

The articles of association and the work pro
cedure for the Board of Directors also include
internal corporate governance rules.

Sustainability and corporate responsibility
governance
Ericsson’s approach to sustainability and corpo
rate responsibility is an integral part of the Com
pany’s strategy, business model and governance.
The work rests on Ericsson’s core values and the
Code of Business Ethics.

Ericsson’s approach to sustainability and
corporate responsibility is integrated into the

Corporate governance – Corporate governance report

139

business operations and performance is regularly
measured, assessed and externally assured.
Group Function Marketing and Corporate
Relations is accountable for developing and
deploying strategies, policies, directives, targets,
performance, processes and tools for sustaina
bility and corporate responsibility.

The Board of Directors is briefed annually,
or more often if needed, on sustainability and
corporate responsibility performance and risk.

Ericsson has prepared a Sustainability Report
in accordance with the Swedish Annual Accounts
Act named the Sustainability and Corporate
Responsibility Report 2019, appended to this
Annual Report, pages 172–197.

Code of Business Ethics
Ericsson’s Code of Business Ethics summarizes
fundamental policies and directives and contains
rules to ensure that the business is conducted
with a strong sense of integrity. It reflects the
Company’s commitment to the United Nations
Global Compact’s Ten Principles and the United
Nations Guiding Principles on Business and
Human Rights.

The Code of Business Ethics is applicable to
all individuals performing work for Ericsson under
the staff management of Ericsson and has been
translated into several languages to ensure that
it is understood by Ericsson’s workforce. Every
one working for the Company has an individual
responsibility to ensure that business practices
adhere to the Code of Business Ethics.

The Company reviews and updates the Code

of Business Ethics’ content on a regular basis
and periodically runs an acknowledgment pro
cess to ensure that everyone performing work for
Ericsson has read and understood it. Upon recruit
ment, new employees are asked to acknowledge
the code. In 2019, the acknow ledgment was
repeated throughout the global Ericsson organi
zation for purposes of ensuring the employees’
understanding and commitment to the principles
of the Code of Business Ethics and securing that
business is conducted responsibly.

Compliance with regulations

Compliance with the Swedish
Corporate Governance Code
The Code is based on the principle of “comply
or explain” and is published on the website
of the Swedish Corporate Governance Board,
which administers the Code:
www.corporategovernanceboard.se.
Ericsson does not report any deviations from
the rules of the Code in 2019.

Compliance with applic able
stock exchange rules
There has been no infringement by Ericsson
of applicable stock exchange rules and no
breach of good practice on the securities
market reported by the disciplinary com
mittee of Nasdaq Stockholm or the Swedish
Securities Council in 2019.

Ericsson Annual Report 2019140

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

60.56%

22.53%
19.26%

4.99%

26.18%

4.87%
8.39%

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 daytoday 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.

Ownership structure
As of December 31, 2019, the Parent Com
pany had 414,760 registered shareholders,
of which 402,999 were resident or located in
Sweden (according to the share register kept
by Euroclear Sweden AB). Swedish institutions
held approximately 60.56% of the votes.
The largest shareholders as of December 31,
2019 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 19.26% of the votes (3.31% of
the shares) and Cevian Capital with 4.99% of
the votes (8.43% of the shares).

A significant number of the shares held
by foreign investors are nomineeregistered,
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 con
sists of two classes of shares listed on Nasdaq
Stockholm: A and B shares. Each Class A share
carries one vote and each Class B share carries
one tenth of one vote. Class A and B shares
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 are converted into Class B
shares before they are used to create treasury
stock to finance and hedge longterm variable
compensation programs resolved by the
General Meeting of shareholders.

In the US, 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

Ericsson Annual Report 2019
Corporate governance – Corporate governance report

141

General Meetings of shareholders

Decision-making at General Meetings
The decisionmaking 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 longterm
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 thirdquarter 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. Nomineeregistered
shareholders 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 simul
taneously translated into English. Documen
tation provided by the Company is available
in both Swedish and English.

The AGM gives shareholders the oppor
tunity to raise questions relating to the oper
ations of the Group. Normally, the majority
of the members of the Board of Directors
and the Executive Team is present to answer
such questions.

The external auditor is always present

at the AGM.

Ericsson’s AGM 2019
Including shareholders represented by proxy,
1,673 shareholders were represented at the
AGM held on March 27, 2019, representing
approximately 69% of the votes.

The meeting was also attended by mem

bers of the Board of Directors, members of
the Executive Team, members of the Nomina
tion Committee and the external auditor.
Decisions of the AGM 2019 included:
– Payment of a dividend of SEK 1 per share
– Reelection of Ronnie Leten as Chair of the

Board of Directors

– Reelection of other members of the

Board of Directors: Jon Fredrik Baksaas,
Jan Carlson, Eric A. Elzvik, Nora Denzel,
Börje Ekholm, Kurt Jofs, Kristin S. Rinne,
Helena Stjernholm and Jacob Wallenberg

– Approval of Board of Directors’ fees:

Chair: SEK 4,075,000 (unchanged)
Other nonemployee Board members:

SEK 1,020,000 each (previously
SEK 990,000)

Chair of the Audit and Compliance

Committee: SEK 400,000 (previously
SEK 350,000)

Other nonemployee 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 nonemployee 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

– Reelection of PricewaterhouseCoopers AB
auditor for the period up until the end of the
AGM 2020

– Approval of Guidelines for remuneration

to Group management

– Implementation of a LongTerm Variable
Compensation Program 2019 for the
Executive Team.

The minutes om the AGM 2019 are available
on Ericsson’s website.

Contact the Board of Directors
Telefonaktiebolaget LM Ericsson
The Board of Directors Secretariat
SE164 83 Stockholm
Sweden
boardsecretariat@ericsson.com

Annual General Meeting 2020
Ericsson’s AGM 2020 will take place on
March 31, 2020, at 3 p.m. at Kistamässan
in Stockholm. Further information is available
on Ericsson’s website.

Nomination Committee

The AGM 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 shareholder.
The request must be justified by changes in
the shareholder’s ownership of shares and be
received by the Nomination Committee no
later than December 31 of each year. No fees
are paid to the members of the Nomination
Committee.

Members of the Nomination Committee
The current Nomination Committee members
are:
– Johan Forssell (Investor AB), Chair of the

Nomination Committee

– Karl Åberg (AB Industrivärden, Svenska
Handelsbankens Pensionsstiftelse)

– Jonas Synnergren (Cevian Capital Partners

Limited)

– Anders Oscarsson (AMF – Försäkring

och Fonder)

– Ronnie Leten, the Chair of the Board

of Directors.

The tasks of the Nomination Committee
The main task of the Nomination Committee
is to propose Board members for election
by the AGM. As member of the Nomination
Committee, the Chair of the Board of Direc
tors 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 2019142

Corporate governance – Corporate governance report

Work of the Nomination Committee
for the AGM 2020
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 2020.

A good understanding for 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 strategy and challenges. 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
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 Swed
ish Corporate Governance Code, section 4.1,
as diversity policy. The Nomination Committee
aims to propose a composition of Board
members with complementing experiences
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 candi
dates both with a longterm and a shortterm
perspective and always focuses on diversity to
ensure that the Board get different perspec
tives into the Board work and considerations.
The Nomination Committee also considers
the need for renewal and carefully assesses
whether the proposed Directors have the
capability to devote necessary time and care
to the Board work.

In 2019, 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.
In order to secure a timely auditor rotation,
Ericsson has during 2019 worked to be able to
recommend a new auditor for election at the
AGM 2020.

As of February 21, 2020, the Nomination

Committee has held four meetings.

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 daytoday
operations in accord ance with guidelines from
the Board. The President and CEO ensures
that the Board is updated regularly on issues
of importance to Ericsson. This includes
updates on business development, results,
financial position and liquidity.

Directors serve from the close of one AGM

to the close of the next, but can serve any
number of consecutive terms.

The President and CEO may be elected a
Director of the Board, but, under the Swedish
Companies Act, the President of a public com
pany may not be elected 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 agreements
between Ericsson and any thirdparty 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 relatedparty trans
actions and has implemented a preapproval
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

Contact the Nomination Committee
Telefonaktiebolaget LM Ericsson
The Nomination Committee
c/o The Board of Directors Secretariat
SE164 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 considered
by the Committee. Further information is
available on Ericsson’s website.

AGM 2019 for the period until the close of the
AGM 2020. The Board of Directors also con
sists of three employee representatives, each
with a deputy, appointed by the trade unions
for the same period of time.

The Nomination Committee advised before
the AGM 2019 that the Nomination Committee
had applied the Swedish Corporate Gover
nance Code, section 4.1, as diversity policy with
the aim to propose a composition of Board
members with complementing experiences
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 2019. 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 2019 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 meetings where the Board mem
bers meet in person, a nonexecutive session
is normally held without Ericsson manage
ment present.

Ericsson Annual Report 2019Corporate governance – Corporate governance report

143

Structure of the work
of the Board of Directors
The work of the Board follows a yearly cycle.
This enables the Board to appropriately
address each of its duties and to keep strategy,
risk assessment and value creation high on the
agenda.

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 Board meetings and
minutes from the Committee meetings are
made available to all Directors.

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 appropri
ate, be held by way of telephone or video
conference, and resolutions may be taken
per cap sulam (unanimous written consent).
Such resolutions are accounted for as Board/
Committee meetings.

The 2019 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 2018 and
handled the fourthquarter 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 2019. 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 longterm
strategies of the Group, including deepdives
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 deepdives 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 and the financial outlook. At this
meeting, the results of the Board evalua
tion 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 typi
cally 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 usu
ally 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 wellfounded 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
observations. The auditor provides reports to
management on the accounting and financial
reporting 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 Group are presented fairly in all material
respects.

In addition, the Board reviews and

assesses the process for financial reporting,
as described on page 160 under Internal con
trol over financial reporting 2019. 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 2019
In 2019, 17 Board meetings were held. For
attendance at Board meetings, see the table
on page 147. In addition to the Board meet
ings held as a part of the annual work cycle
of the Board the Board receives information
updates, in writing or in telephone meetings,
as deemed appropriate.

Business strategy, the Ethics and Com
pliance progam (including the investigation
by the US authorities) geopolitics and cyper
security, are among the matters that have
been in focus within the Board during the year.
Strategy and risk management are always
high on the Board’s agenda and sustainability
and corporate responsibility, which 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
corporate advisory firm have been retained by
the Company to assist in developing question
naires, carrying out surveys and summarizing
responses.

In 2019, Directors responded to a written

questionnaire covering the Board work in
general as well as the work of the Chair
of the Board, the Audit and Compliance
Committee, the Finance Committee, the
Remuneration Committee and the Technology
and Science Committee. In addition, each
Director responded to a questionnaire on the
Director’s individual performance. 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 thor
oughly discussed. The Nomination Committee
was informed of the results of the Board work
evaluation.

Ericsson Annual Report 2019144

Corporate governance – Corporate governance report

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
Technology 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 occa
sion provide extended authorization for the
Committees to determine specific matters. If
deemed appropriate, the Board of Directors
and each Committee have the right to engage
independent external expertise, either in
general or with respect to specific matters.

The minutes from the Committee meetings

are made available to all Directors and the
Chair of the Committee reports on the work of
the Committee at Board meetings.

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 anticorruption program.

The Audit and Compliance Committee also
reviews the annual and interim financial
reports and oversees the external audit pro
cess, 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 preapproval policies and
procedures in place for audit and nonaudit
related services to be performed by the exter
nal auditor. Preapproval authority may not
be delegated to management.

The Audit and Compliance Committee,
regularly receives reporting on compliance
related matters, from the Chief Legal Officer,
the Chief Compliance Officer and the Head
of Corporate Investigations. The Chief Legal
Officer has a direct reporting line to the Audit
and Compliance Committee, and the Chief
Compliance Officer and the Head of Corporate
Investigations have an extraordinary report
ing line to the Committee in the event they are
impeded or obstructed in fulfilling their duties.
The Audit and Compliance Committee
also oversees Ericsson’s process for review
ing transactions with related parties and
Ericsson’s whistle blower procedures.

Whistle-blower tool
Employees, suppliers and others may report
alleged violation of laws or the Code of
Business Ethics through Ericsson’s external
whistleblower tool, Ericsson Compliance
Line, managed by a third party, 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.

Significant alleged violations reported through
the Ericsson Compliance Line and certain
other channels are reported to the Audit and
Compliance Committee. Investigations relat
ing to severe alleged violations are handled by
Corporate Investigations. Other investigations
are handled in the market 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 2019: 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 Com

pliance Committee meets all applicable

The Board’s annual work cycle 2019

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

Dec

Jan

Nov

Feb

Oct

Sep

Mar

Apr

Aug

May

Jul

Jun

Fourth-quarter and full-year
financial results meeting
– Financial result of the past 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 2019Corporate governance – Corporate governance report

145

independence requirements, including the
conditions for reliance on an exemption for
employee representatives. The Board of Direc
tors 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 2019
The Audit and Compliance Committee held
ten meetings in 2019. Directors’ attendance is
reflected in the table on page 147. 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
nonauditservices performed by the external
auditor in accordance with such policies and
procedures. During 2019, the Audit and Com
pliance Committee has overseen 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 assessment, and
reviewed the reports of the internal audit
function. The Committee also received and
reviewed updates and reports under the
whistle blower tool, Ericsson Compliance Line,
and from other internal reporting channels
including updates on ongoing investigations
within the Group.

The Committee monitored the continued
compliance with the SarbanesOxley Act as
well as the internal control and risk manage
ment process and monitored and evaluated
the effectiveness and appropriateness of
Ericsson’s anticorruption program.

Finance Committee
The Finance Committee is responsible for
preparing for resolution by the Board, matters
related to the finance strategy including trea
sury operations with capital structure, capital
targets and rating strategy.

Members of the Finance Committee
The Finance Committee consists of four
Board members appointed by the Board
in connection with the AGM 2019: 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 2019
The Finance Committee held three meetings
in 2019. Directors’ attendance is reflected
in the table on page 147. During 2019, a
review of the Finance Committee work was
performed with the aim to make the decision
process more agile and allow the Finance
Committee to focus more on strategic items
while also increasing all Board members’
awareness of strategic financial matters of
relevance to the Group. Based on this analysis,
it was resolved to reduce the areas of respon
sibility and mandates of the Finance Com
mittee. Following the review, the Committee
focuses on the Company’s finance strategy
including treasury operations with capital
structure, capital targets and rating strategy.

Remuneration Committee
The Remuneration Committee’s responsibili
ties include:
– Reviewing and preparing, for resolution by
the Board, proposals on salary and other
remuneration, including retirement com
pensation, for the President and CEO
– Reviewing and preparing, for resolution
by the Board, proposals to the AGM
on guidelines for remuneration to the
Executive Team

– Reviewing and preparing, for resolution
by the Board, proposals to the AGM on
the LongTerm Variable Compensation
Program (LTV) and similar equity arrange
ments

– Approving proposals on salary and other
remuneration, including retirement
compensation, for the members of the
Executive Team (other than the President
and CEO)

– Approving proposals on targets for the

shortterm variable compensation (STV)
for the members of the Executive Team
(other than the President and CEO)
– Approving payout of the STV for the

members of the Executive Team members
(other than the President and CEO), based
on achievements and performance.

In its work, the Remuneration Committee
considers trends in remuneration, legislative
changes, disclosure rules and the general
global executive remuneration environment.
It reviews salary survey data before preparing
salary adjustment recommendations for the
President and CEO for resolution by the Board
and before approving any salary adjustments
for the other members of the Executive Team.

Organization of the Board work
Number of Committee members as of December 31, 2019

Board of Directors
13 Directors

Audit and Compliance Committee
(4 Directors)

Finance Committee
(4 Directors)

Oversight of financial reporting

Finance strategy

Oversight of internal control

Oversight of auditing

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 2019146

Corporate governance – Corporate governance report

Members of the Remuneration Committee
The Remuneration Committee appointed by
the Board in connection with the AGM 2019
consisted of four Board members: Jon Fredrik
Baksaas (Chair), Kurt Jofs, Ronnie Leten and
KjellÅke 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 2019, Peter Boreham from

Mercer advised and assisted the Remunera
tion Committee as an independent expert.

Work of the Remuneration
Committee in 2019
The Remuneration Committee held ten meet
ings in 2019. Director’s attendance is reflected
in the table on page 147.

The Remuneration Committee reviewed
and prepared a proposal for LTV 2019 for the
Executive Team, for resolution by the Board
and further approval by the AGM 2019. It fur
ther resolved on salaries and STV 2019 for the
members of the Executive Team (other than
the President and CEO), reviewed the vesting
results for the 2016 Executive Performance
Stock Plan and prepared proposals regarding
remuneration to the President and CEO for
resolution by the Board. It also prepared
guidelines for remuneration to the Executive
Team for resolution by the Board and subse
quent referral to the AGM 2019 for approval.
There were two changes in the Executive
Team during 2019 and the Remuneration

Committee has also resolved on salaries and
STV remuneration for these two new members
joining the Executive Team.

During the latter part of 2019, the Remu
neration Committee reviewed the current LTV
structure and executive remuneration, includ
ing 2020 targets for STV for the members of
the Executive Team (other than the President
and CEO). The resulting proposals on LTV
2020 and guidelines for remuneration to the
Executive Team will be referred to the AGM
2020 for resolution.

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 “Sharebased compensation”
in the Annual Report and the “Remuneration
Report” appended 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
2019: 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 2019
The Technology and Science Committee held
four meetings in 2019. Directors’ attendance
is reflected in the table on page 147. The
Technology and Science Committee has
during the year reviewed selected focus areas:
– AI and data management
– Connectivity for industries
– 5G RAN and Core
– Geopolitical and ecosystem
– Research and development.

Members of the Committees as of December 31, 2019

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 2019Directors’ attendance and fees 2019

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
Torbjörn Nyman
KjellÅke Soting
Roger Svensson
Per Holmberg
Anders Ripa
Loredana Roslund

Total number of meetings

Corporate governance – Corporate governance report

147

Fees resolved by the AGM 2019

Number of Board/Committee meetings attended in 2019

Board fees,
SEK 1)

Committee fees,
SEK

Audit and
Compliance-
Committee

Board

Finance
Committee

Remun.
Committee

Tech. and
Science
Committee

4,075,000
1,020,000
1,020,000
1,020,000
1,020,000
1,020,000

– 2)

1,020,000
1,020,000

1,020,000

25,500 3)
25,500 3)
25,500 3)
25,500 3)
25,500 3)
25,500 3)

375,000
175,000
175,000
200,000
425,000
425,000
–
400,000
350,000

200,000
15,000
15,000
10,500
–
–
–

17
17
17
13
16
16
17
17
16

15
17
17
17
17
17
17

10
9

3
3
3

4
4

1) Nonemployee Directors can choose to receive part of their Board fee (exclusive of Committee fees) in the form of synthetic shares.
2) Board member remuneration resolved by the AGM is only for nonemployee Directors elected by the shareholders.
3) 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 2019 approved the Nomination

Committee’s proposal for fees to nonem
ployee Board members for Board and Com
mittee work. For further information on Board
of Directors’ fees 2019, 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 2019 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 yearend
financial statement during the fifth year fol
lowing the General Meeting that resolved on
the allocation of the synthetic shares. The pur
pose 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 2019
and to the minutes from the AGM 2019, which
are available at Ericsson’s website.

Ericsson Annual Report 2019148

Corporate governance – Corporate governance report

Members of the Board of Directors

Board members elected by the AGM 2019

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

Nationality: Sweden

Board Chair: Epiroc AB and Piab.

Board Member: AB SKF.

Holdings in Ericsson: 100,000 Class
B shares 1), 128,452 call options 2).
and 52,525 synthetic shares 3).

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.

Board Member: AB Industrivärden,
AB Volvo and Sandvik AB.

Holdings in Ericsson:
20,060 Class B shares 1) and
32,672 synthetic shares 3).

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).

Born 1954. Master of Science in
Economics, NHH Norwegian School
of Economics & Business
Administration, Norway.

Nationality: Norway

Board Chair: Statnett SA.

Deputy Board Chair: DNV GL
Group AS.

Board Member: Svenska
Handelsbanken AB and Cloudberry
Partners AS.

Holdings in Ericsson: 32,370
synthetic shares 3).

Principal work experience and
other information: President and
CEO of Telenor (2002–2015).
Previous positions within the Telenor
Group since 1989, including deputy
CEO, CFO 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 44,792 synthetic
shares 3).

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 Indu
strialists, Deputy Chair of the
SwedishAmerican Chamber of
Commerce US, member of the
International Advisory Board of
the Atlantic Council, Washington DC,
member of the International
Business Council of the World
Economic Forum, Trilateral
Commission and the Advisory Board
of Tsinghua University.

The Board memberships and holdings in Ericsson reported above are as of December 31, 2019.
1) The number of shares and ADS includes holdings by related persons, if applicable.
2) Call options issued by Investor AB entitling to purchase Ericsson Class B shares.
3) 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 147 for further information.

Ericsson Annual Report 2019
Corporate governance – Corporate governance report

149

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 32,370 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., NortonLifeLock Inc.,
Talend Inc. and Talend S.A.

Holdings in Ericsson:
3,850 ADS 1) and 13,301 synthetic
shares 2).

Principal work experience and
other information: CEO (interim)
of Outerwall Inc. (January 2015–
August 2015). Senior Vice President
Big Data, Marketing and Social
Product Design and General
Manager QuickBooks Payroll
Division (2008–2012). Previous
positions include Senior Vice
President and General Manager of
HP’s Global Software, Storage and
Consulting Divisions (2000–2006),
Senior Vice President Product
Operations Legato Systems (bought
by EMC) and various engineering,
marketing and executive positions
at IBM. NonProfit board member
of the National Association of
Corporate Directors (NACD)
Northern California Chapter.
Member of the Advisory Board of
SUSE Linux.

Nationality: Sweden and USA

Board Member: Alibaba Group.

Holdings in Ericsson:
21,760 Class B shares and
1,009,000 ADS 1), 15,860 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 (2015–2017). 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. 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. Member
of the Board of Trustees of Choate
Rosemary Hall and member of the
Board of the SwedishAmerican
Chamber of Commerce New York.

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 Chair: IPOnly.

Board Member: Fenix Marine
Services, Landis+Gyr Group AG, AB
Volvo and VFS Global.

Holdings in Ericsson:
10,000 Class B shares 1) and 10,788
synthetic shares 2).

Principal work experience and
other information: CFO 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, senior
industrial advisor to EQT .

The Board memberships and holdings in Ericsson reported above are as of December 31, 2019.
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 147 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 2019150

Corporate governance – Corporate governance report

Board members elected by the AGM 2019, 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: Höganäs AB, Silver
Resorts AB and Vesper Group.

Board member: Feal AB.

Holdings in Ericsson: 50,000 Class
B shares 1) and 19,378 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:
22,514 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). Trustee of Washburn
University Foundation and member
of the Board of Wycliffe Associates.
Member of the Advisory Board of
Link Labs.

The Board memberships and holdings in Ericsson reported above are as of December 31, 2019.
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 147 for further information.

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151

Board members and deputies appointed by the trade unions

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

Born 1961. Appointed by LO, the
Swedish Trade Union Confederation.

Nationality: Sweden

Holdings in Ericsson:
31,591 Class B shares 1).

Employed since 1996. Working as
ICT Strategic Product Manager
within Business Area Networks.

Employee representative, Member
of the Remuneration Committee

Employee representative, Member
of the Finance Committee and of the
Technology and Science Committee

Born 1963. Appointed by PTK.

Born 1971. Appointed by the PTK.

Nationality: Sweden

Holdings in Ericsson:
7,942 Class B shares 1).

Nationality: Sweden

Holdings in Ericsson:
13,901 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

Born 1962. Appointed by PTK.

Born 1967. Appointed by PTK.

Nationality: Sweden

Holdings in Ericsson: 2,174 Class B
shares and 608 Class A shares 1).

Holdings in Ericsson:
1,954 Class B shares 1).

Born 1966. Appointed by LO, the
Swedish Trade Union Confederation.

Nationality: Sweden

Holdings in Ericsson: None 1).

Employed since 1998. Working as
Security Advisor 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 2019.

1) The number of shares and ADS reflects ownership as of December 31, 2019 and includes holdings by related persons, if applicable.

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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 daytoday 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 productled 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.
The Executive Team members as of
December 31, 2019, are presented on pages
156–159.

Remuneration to the Executive Team
Guidelines for remuneration to the Executive
Team were approved by the AGM 2019. 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” in the Annual Report.

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
descriptions, policies, directives and instruc
tions. 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, includ
ing 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
coordinated cycles.

Ericsson Group Management System

Demands
and expectations

Strategy
& risk

Performance
improvement

Customers
Key Stakeholders
Business Environment

Management and Control
Steering Documents
Roles & Responsibilities
Operating Model

Ericsson
Business Processes

Organization and Resources
Culture

Satisfaction through
Value Deliverables

Results

Performance
evaluation

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153

Groupwide policies, directives and
instructions govern how the organization
works and are core elements in managing and
directing Ericsson. The Group policies, direc
tives and instructions contain, among other
things, a Code of Business Ethics, a Code of
Conduct for Business Partners and account
ing 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
Groupwide processes integrated in EGMS.
They describe how Ericsson delivers value
to customers, proactively and ondemand.
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
crosscountry 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’s Chief Compliance Officer is heading
the Compliance Office and is responsible
for the Ethics and Compliance program at
Ericsson, with particular focus on anticor
ruption, antitrust and antimoney laundring
regulations. A team of full time compliance
officers report on a solid line to the Chief
Compliance Officer and drives the Ethics
and Compliance program from their various
global locations. In addition to a dedicated
compliance team, all employees play a role in
ensuring compliance throughout the Group.
The Chief Compliance Officer reports to the
Chief Legal Officer with an extraordinary
reporting line to the Audit and Compliance
Committee. Ericsson’s anticorruption

program is reviewed and evaluated by the
Audit and Compliance Committee regularly.
A high level of senior management and Board
commitment to compliance is important
to ensure that the Ethics and Compliance
program remains a priority for the Group.

Insider Committee
Ericsson has established an Insider Com
mittee to make assessments relating to the
disclosure of inside information. The Insider
Committee comprises of the Chief Legal
Officer, the Chief Financial Officer and the
Chief Marketing and Communications Officer.

Audits, assessments and certification
The purpose of audits and assessments is
to determine the level of compliance and to
provide valuable information for understand
ing, analyzing and continually improving
per formance. Management monitors compli
ance with policies, directives and processes
through internal selfassessment within the
respective 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 thirdparty via an assess
ment activity.

As the EGMS is a global system, group
wide certificates are issued by a thirdparty
certification body proving that the system is
efficient throughout the whole organization.
Ericsson is currently globally certified to ISO
9001 (Quality), ISO 14001 (Environment),
OHSAS 18001 (Health & Safety) and ISO
27001 (Information Security). Selected
Ericsson units are also certified to TL 9000
(telecomspecific 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 AB,
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.

With a risk based approach, Ericsson con
ducts audits of suppliers to secure compliance
with Ericsson’s Code of Conduct for Business
Partners, which includes rules that suppliers
to the Ericsson Group must comply with.

Risk management
The management of operational risks in
Ericsson is embedded in various business pro
cesses and controls, such as decision tollgates
and approvals. Certain crossprocess risks are
centrally coordinated, such as risks relating
to information security, IT security, corporate
responsibility and antibribery and corruption.
Financial risk management is governed by a
Group policy and carried out by the Treasury
and Customer Finance functions. For further
information on financial risk management,
please see Notes to the consolidated financial
statements – note F1 “Financial risk manage
ment” in the Annual Report.

Risk
& Governance
Culture

Risk &
Strategy

ERM
Framework

Monitoring
ERM
Performance

ERM
Process

Risk
Communication
& Reporting

Ericsson’s Enterprise Risk Management
(ERM) framework is an integrated part of
the EGMS. The aim of the ERM framework
is to strengthen the Group’s governance
by integrating risk management with the
strategysetting and execution.

The ERM framework is designed to

establish an adequate and effective manage
ment of risk, i.e. the uncertainty in achieving
the strategic objectives of the company. The
framework provides methods to identify,
assess and treat the risks, and to agree on the
Company’s risk appetite and risk tolerance.
The ERM framework is based on five ele
ments (illustrated above and described in the
following text). It is applied across Ericsson’s
operations and covers business areas, market
areas and group functions. The framework
comprises the minimum requirements that
the units must meet to have a common basis
for ERM to enable transparency and risk
oversight.

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Corporate governance – Corporate governance report

Risk Governance & Culture
Ericsson has defined an ERM strategy with
the aim to drive transformation in certain
focus areas, such as risk culture, risk as input
to strategy development, and aligned assur
ance.

Risk Governance
Each manager is responsible for handling
the risks that emerges from the respective
area of responsibility. The responsibility for
the identified prime risks of the Company is
always allocated to an Executive Team mem
ber. The Group Risk Management function
is responsible for driving the ERM strategy
execution and the ERM operations on Group
level. The head of each group function, market
area and business area, is accountable for
appointing one or several risk manager(s) to
drive risk management within the unit’s area
of responsibility, and for overseeing the ERM
in the respective unit. The CFO is accountable
for performing oversight of ERM and the
Board of Directors and the Audit and Compli
ance Committee are responsible for reviewing
the effectiveness and appropriateness of
the ERM.

Risk Culture
Ericsson’s risk culture is the attitude, behavior,
and understanding around risk that influence
decision making. For Ericsson to be able to
manage its risks centrally and autonomously,
a strong and risk aware culture at all levels in

the organization is needed and it is important
to have the appropriate level of resources
to ensure that requirements outlined in the
framework can be suitably enforced, moni
tored and supported.

Risk & Strategy
Ericsson’s risk management activities are
interconnected with the development and
deployment of Ericsson’s business plans and
functional strategies.

ERM Process
The ERM process (illustrated below) applies
to the Group and to all roles with responsibili
ties with regards to risk management activi
ties. It focuses on getting the group functions,
market areas and business areas to connect
their risks with strategic objectives and
accountabilities for decision making, in a clear
way. The process also covers the activities
that are managed centrally by the Group Risk
Management function.

Risk management planning
Risk management planning is done in colla
boration between risk managers in the group
functions, market areas, business areas and
the Group Risk Management function.

Risk Identification – bottom up
Current risks within the scope of account
ability for the group function, market area and
business area are identified in the bottom up

risk identification process. The appropriate
risk manager engages the unit’s leadership
team and applicable stakeholders in the
organization in the work to identify risks. The
Risk Universe (illustrated on page 155) is
used as inspiration to identify emerging risks
and secure that the unit’s risk register covers
all applicable risk areas. The bottom up risk
identification process is closely linked to the
top down risk identification process, described
below. For more information on risks related
to Ericsson’s business, see the chapter “Risk
factors” in the Annual Report.

Risk Analysis
The impact of an identified risk is estimated
considering four dimensions – financial,
strategic, occupational health and safety,
and reputational. The key risks in a unit are
presented in a heat map (see example on
page 155). The heat map shows the impact
and probability for each key risk and enables
comparison for all kinds of risks and support
prioritization.

Risk Treatment
For identified risks of relevance, a treatment
option is chosen, i.e. avoid or accept the risk,
mitigate the probability or impact of the
risk, or increase the risk in order to pursue an
opportunity. Once the treatment plan is imple
mented, its effectiveness shall be assessed on
an ongoing basis, and decisions shall be made
where corrective actions are needed.

ERM Process

Group Risk Manager

Top down Risk Identification

Group Risk Consolidation

Prime Risk Selection

Group Function/Market Area/Business Area Risk Manager

Risk Management
Planning

Bottom up
Risk
Identifi cation

Risk
Ananlysis

Risk
Treatment

Risk
Sign-off

Ericsson Strategy Development & Deployment Process

Ericsson Annual Report 2019Corporate governance – Corporate governance report

155

create awareness, improve knowledge and
favorably influence behavior of both internal
and external stakeholders with respect to
risk management issues and requirements.
Ericsson has established a Group Risk Council
to facilitate crossGroup alignment and
improvements of the ERM framework as
well as of the management of actual risks.
The Head of Group Risk Management is the
chair of the council in which all risk managers
participate.

Monitoring ERM Performance
The Group Risk Management function
provides assessment requirements regarding
risk management to the ISO 9001 internal
assessment process and follows up on the
internal assessment results. The Group Risk
Management function also reviews internal
and external audit results to address identi
fied weaknesses as part of the continuous
work with improving the ERM framework.

Risk sign-off
The risk signoff entail a process where
the risks, including the responsibility for
handling a risk and treatment plans, are
acknowledged by the unit’s leadership team
and aligned crossGroup in a workshop with
the applicable leadership team and the head
of the Group Risk Management function. Such
workshops are arranged by the appropriate
risk manager.

Risk identification – top down
In the top down risk identification, the Group
Risk Management function conducts inter
views with senior management, and external
experts, to identify and refine the risks Ericsson
faces, supported by the Risk Universe.

Group Risk Consolidation
The Group Risk Management function works
to identify opportunities to consolidate risks
based on commonalities: e.g. similar treat
ment plans or root causes. Further, the Group
Risk Management function works to identify
and hand over the responsibility of the Group
consolidated risks, to the suitable unit for
further analysis and treatment.

and reporting. The Group Risk Management
function identifies potential prime risks in the
Ericsson risk register in collaboration with the
responsible units and the Executive Team.

Risk Communication & Reporting
Risk Reporting
The risk managers coordinate the reporting of
key risk status to the leadership teams within
the respective unit on a regular basis. Each
unit’s risk register is also reported to the Group
Risk Management function as part of the
Group risk consolidation and prime risk selec
tion. Although the formal reporting to the
Group Risk Management function is only
required once a year, risks identified outside of
the reporting cycle, that could potentially be
significant at Group level, are required to be
escalated when identified to the Group Risk
Management function.

The Head of the Group Risk Management

function reports the status of the identified
prime risks to the Executive Team and the
Audit and Compliance Committee on a
regular basis. These reports include a heat
map overview and a more detailed reporting
of prime risks and relevant treatment.

Prime Risk Identification
Ericsson’s prime risks are defined as the
identified top risks in the Group. The respon
sibility for each such risk is allocated to an
Executive Team member and these risks are
given additional attention in terms of analysis

Risk Communication
Effective communication is important to
enable employees to share information, work
together, and support each other in managing
risks in all areas of the business. The risk
management community has the mission to

Risk Universe

Risk Heat Map
Risk Heat Map

Probability
Probability

Intellectual
Property Rights

Quality

Competition

People

Internal
compliance

External
compliance

Accounting

Treasury

Technology

Mergers &
Acquisitions

Cyber & Information
Security

Security,
safety & continuity

Communication
& marketing

Geopolitical

Customer

Supply &
sourcing

Product
& service

Project
execution

i
i

h
h
g
g
h
h
y
y
r
r
e
e
V
V

h
h
g
g
H
H

i
i

m
m
u
u
d
d
e
e
M
M

w
w
o
o
L
L

Low
Low

Medium
Medium

High
High

Very high
Very high

Impact
Impact

The illustration shows an example of the heat map
used for presenting the key risks in a unit.

Ericsson Annual Report 2019

156

Corporate governance – Corporate governance report

Members of the Executive Team

Börje Ekholm
President and CEO since 2017

Fredrik Jejdling
Executive Vice President and Head
of Business Area Networks
(since 2017) and Head of
Segment Networks

MajBritt Arfert
Senior Vice President, Chief People
Officer and Head of Group Function
People (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)
14,522 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 SubSaharan 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)
22,645 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.

Holdings in Ericsson: 1)
14,126 Class B shares
and 17,636 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.

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 Group.

Holdings in Ericsson: 1)
21,760 Class B shares, 1,009,000
ADS , 15,860 synthetic shares, and
2,000,000 call options 2).

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. 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. Member
of the Board of Trustees of Choate
Rosemary Hall and member of the
Board of the SwedishAmerican
Chamber of Commerce New York.

Changes in the Executive Team

– Effective September 1, 2019, Fadi Pharaon was appointed Head of Market Area Middle East & Africa, replacing Rafiah Ibrahim.
– Effective June 10, 2019, Stella Medlicott was appointed Head of Marketing and Corporate Relations, replacing Helena Norrman.

The Board memberships and Ericsson holdings reported above are as of December 31, 2019.
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 2019Corporate governance – Corporate governance report

157

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 2018)

Born 1964. Master of Laws (LL.M),
New York University School of Law,
USA, Master of Laws (Lic. Jur), KU
University of Leuven, Belgium, and
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 with
responsibility for EMEA and APAC.
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 and Head of
Group Function Technology
(since 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)
33,761 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)
18,195 Class B shares
and 6,686 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 – US wireless
industry trade association.

Holdings in Ericsson: 1)
4,732 Class B shares
and 13,585 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, 2019.
1) The number of shares and ADS includes holdings by related persons, if applicable.

Ericsson Annual Report 2019158

Corporate governance – Corporate governance report

Members of the Executive Team, cont’d.

Jan Karlsson
Senior Vice President, Head of
Business Area Digital Services
(since 2018) and Head of Segment
Digital Services

Peter Laurin
Senior Vice President and Head of
Business Area Managed Services
(since 2017) and Head of Segment
Managed Services

Stella Medlicott
Senior Vice President, Chief
Marketing and Communications
Officer and Head of Group Function
Marketing & Corporate Relations
(since June 10, 2019)

Carl Mellander
Senior Vice President, Chief
Financial Officer and Head of Group
Function Finance and Common
Functions (since 2017)

Born 1966. Bachelor in Business
Administration, ESSEC Business
School, France.

Nationality: Sweden

Board Member: None

Holdings in Ericsson: 1)
691 Class Bshares and 5,883 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 & preprocessing
across Telco and Nontelco verticals.

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)
2,091 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 1969. Bachelors of Arts (Hons)
degree in Social Science, University
of Lincoln (known at that time as
University of Humberside), United
Kingdom and Postgraduate Diploma
in Marketing, Chartered Institute of
Marketing, United Kingdom.

Nationality: United Kingdom

Board Member: None.

Holdings in Ericsson: 1)
6,479 Class B shares.

Background: Vice President of
Marketing, Communications and
Government Relations for Ericsson
Market Area Europe and Latin
America July 2017–June 2019. Prior
to joining Ericsson, Stella Medlicott
was Chief Marketing Officer at Red
Bee Media, which was acquired by
Ericsson in May 2014. She has over
25 years of marketing experience in
major IT, telecoms and mdia
companies including two years at
Technicolor as VP Marketing and ten
years at Siemens Communications
as Global VP Marketing.

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)
33,461 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, 2019.
1) The number of shares and ADS includes holdings by related persons, if applicable.

Ericsson Annual Report 2019Corporate governance – Corporate governance report

159

Nunzio Mirtillo
Senior Vice President and Head of
Market Area South East Asia,
Oceania & India (since 2017)

Fadi Pharaon
Senior Vice President and Head of
Market Area Middle East & Africa
(since September 1, 2019)

Born 1961. Master in Electronic
Engineering, Sapienza University,
Italy.

Nationality: Italy

Board Member: None.

Holdings in Ericsson: 1)
37,888 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.

Born 1972. Master of Science in
Computer Science, KTH Royal
Institute of Technology, Sweden and
a Master of Business Administration,
Heriot Watt University, Edinburgh
Business School, Scotland.

Nationality: Sweden and Lebanon

Board Member: None.

Holdings in Ericsson: 1)
153 Class B shares and 1,113 ADS.

Background: Vice President of
Networks & Managed Services
(presales and commercial
management) within Market Area
Europe & Latin America. Previous
management positions within
Ericsson include Head of Presales
and Strategy for Ericsson Region
South East Asia & Oceania, and
Country Manager for Ericsson
Singapore and Brunei.

Åsa Tamsons
Senior Vice President and Head of
Business Area Technologies & New
Businesses (since 2018) and Head
of Segment Emerging Business
and Other

Born 1981. Master of Business
Administration, Stockholm School of
Economics, Sweden.

Nationality: Sweden

Board Member: None.

Holdings in Ericsson: 1)
6,553 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, 2019.
1) The number of shares and ADS includes holdings by related persons, if applicable.

Ericsson Annual Report 2019160

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 for a oneyear 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
yearend financial statements

– Providing an audit opinion over the Annual

Report

– Advising the Board of Directors of non
audit services performed, the consider
ation 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 Corpo
rate Governance report.

Current auditor
PricewaterhouseCoopers AB was elected
auditor at the AGM 2019 for a period of
one year, i.e. until the close of the AGM
2020. PricewaterhouseCoopers AB has
appointed Bo Hjalmarsson, Authorized Public
Accountant, to serve as auditor in charge.
Bo Hjalmarsson is also auditor in charge in
SAAB AB. Under applicable rules for auditor
rotation, Ericsson must appoint a new audit
firm no later than in 2021. In order to secure
a timely auditor rotation, Ericsson has during
2019 worked to be able to recommend a new
auditor for election at the AGM 2020.

Fees to the auditor
Ericsson paid the fees (including expenses)
for auditrelated and other services listed in
the table in note H5, “Fees to auditors” in the
Annual Report.

Internal control over financial
reporting 2019

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 US, the

requirements outlined in the Sarbanes Oxley
Act (SOX) apply, subject to certain excep
tions. 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 highquality 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 20F and filed with
the SEC in the US.

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 cur
rent 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 adhoc 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 about 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 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. The Disclosure
Committee comprises members with various
expertise.

Ericsson Annual Report 2019Corporate governance – Corporate governance report

161

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, 2019. 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 2019, the control framework was
updated due to the implementation of the
new accounting standard IFRS 16 Leases.
There were otherwise 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:
– Steering documents, such as policies and
directives, and a Code of Business Ethics

– A strong corporate culture
– The Company’s organization and mode

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 highquality 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, rev
enue 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 welldefined 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.

of operations, with welldefined roles and
responsibilities and delegations of authority
– Several welldefined Groupwide processes

for planning, operations and support.

Control activities
The Company’s business processes include
financial controls regarding the approval
and accounting of business transactions.

The financial closing and reporting process
has controls regarding recognition, measure
ment and disclosure. These include the
application of critical accounting policies and
estimates, in individual subsidiaries as well
as in the consolidated accounts.

Regular analyses of the financial results

for each subsidiary, region and business
unit cover the significant elements of
assets, liabilities, revenues, costs and cash
flow. Together with further analysis of the
consolidated financial statements performed
at Group level, these procedures are designed
to produce financial reports without material
errors.

For external financial reporting purposes,
the Dis closure Committee performs additional
control procedures to review whether the
disclosure requirements are fulfilled.

The Company has implemented controls
to ensure that financial reports are prepared
in accordance with its internal accounting
and reporting policies and IFRS as well as
with relevant listing regulations. It maintains
detailed documentation on internal controls
related to accounting and financial reporting.
It also keeps records on the monitoring of the
execution and results of such controls. This
allows the President and CEO and the CFO
to assess the effectiveness of the controls in
a way that is compliant with SOX.

Entitywide 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.

In order to secure compliance, governance

and risk management in the areas of legal
entity accounting and taxation, as well
as securing funding and equity levels, the
Company operates through a Shared Service
Center structure and a Company Control
hub structure, covering subsidiaries in each
respective geographical area.

Ericsson Annual Report 2019162

Corporate governance – Corporate governance report

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.

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

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
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

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 selfassessments and representation
letters from heads and company controllers in
subsidiaries as well as in business areas and
market areas.

The Company’s financial performance is

also reviewed at each Board meeting. The
Committees of the Board fulfill important
monitoring functions regarding remune ration,
loans, 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 Company’s inter
nal 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.

Board of Directors

Stockholm, March 2, 2020

Telefonaktiebolaget LM Ericsson (publ)
Org. no. 5560160680

Ericsson Annual Report 2019Corporate governance – Corporate governance report

163

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
governance report for the year 2019 on pages 138–162 and that
it has been prepared in accordance with the Annual Accounts Act.

The scope of the audit
Our examination has been conducted in accordance with FAR’s audit
ing 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
Auditing and generally accepted auditing standards in Sweden.
We believe that the examination has provided us with sufficient basis
for our opinions.

Opinions
A Corporate governance report has been prepared. Disclosures in
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 consolidated accounts and are in accordance with the
Annual Accounts Act.

Stockholm, March 2, 2020

PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorized Public Accountant
Lead Partner

Johan Engstam
Authorized Public Accountant

Ericsson Annual Report 2019164

Corporate governance – Remuneration report

Remuneration report

Introduction

This report outlines how the remuneration policy is implemented
throughout Ericsson with specific references to Group management
which includes the President and CEO and the other members of the
Executive Team (ET).

The work of the Remuneration Committee in 2019 and the remuner-
ation 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 Group management and note G3 Share-based
compensation in the Annual Report.

Board member remuneration is resolved annually by the Annual

General Meeting of shareholders (AGM).

The Remuneration Committee

The Remuneration Committee (the Committee) is a Board Committee
appointed by the Board of Directors to handle the remuneration to the
Group management, consisting of the ET. This includes fixed salaries,
pensions, other benefits and short-and long-term variable compensa-
tion. The Committee 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 AGM on guidelines for remuneration to the ET.
– Proposals to the AGM on long-term variable compensation (LTV)

and equity arrangements.

The responsibility of the Committee is also to:
– Approve proposals on salary and other remuneration, including
retirement compensation, for the members of the ET other than
the President and CEO.

– Approve proposals on targets for the short-term variable

compensation (STV) for the members of the ET other than the
President and CEO.

– Approve payout of the STV for the members of the ET other than
the President and 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 Kurt Jofs, Ronnie Leten and Kjell-Åke
Soting (employee representative). 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.

The Company’s Chief Legal Officer acts as secretary to the Com-
mittee. The President and CEO, the Senior Vice President and Head
of People, the Vice President and Global 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 2019. The Commit-
tee resolved to continue with Peter Boreham as its independent advisor
for 2020. 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 the Company’s Long-Term Variable Compensation Programs
are reviewed and evaluated annually in light of matters such as changes
to corporate governance best practice or changes to accounting, legis-
lation, political opinion or business practices among peers and external
market conditions. This helps to ensure that the total rewards policy
continues to provide Ericsson with a competitive remuneration strategy.

The Guidelines for remuneration to Group management are, in

accordance with Swedish law, brought to shareholders annually
for approval.

The Committee held ten meetings including per capsulams during
2019. The meeting in February 2019 focused on following up on results
from the 2018 variable compensation programs and preparing propos-
als to shareholders for the AGM 2019. In this meeting, the Committee
approved target levels for the 2019 STV and reviewed and proposed the
2016 Executive Performance Stock Plan (EPSP) vesting result to the
Board of Directors for approval. The Committee proposed an unchanged
LTV 2019 from LTV 2018 for the Executive Team which includes 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 since 2017. Furthermore,
the weights of the absolute and relative TSR performance criteria were
kept the same as they were for LTV 2018 at 30% and 20% respectively.
The companies in the comparator group for the relative TSR perfor-
mance criteria were also kept the same as those for LTV 2018. LTV 2019
was approved at the AGM 2019. The details of LTV 2019 is explained

Total rewards policy

Total rewards policy at Ericsson is based on the principles of com-
petitiveness, fairness, transparency and impact. The total rewards
policy, together with the mix of remuneration elements, is designed
to reflect these principles by creating a balanced remuneration pack-
age. The Guidelines for Remuneration to Group Management 2019,

approved at the AGM, can be found in note G2. The auditor’s report
regarding whether the company has complied with the guide lines
for remuneration to Group management during 2019 is posted on
the Ericsson website.

Ericsson | Annual Report 2019under Long-term Variable Compensation on pages 167 and 168. The
Committee has also approved the 2018 STV pay-outs for the members
of the ET. During the summer of 2019 the Committee approved the
remuneration packages of the new ET members Stella Medlicott, Senior
Vice President and Head of Group Function Marketing and Corporate
Relations, and Fadi Pharaon, Senior Vice President and Head of Market
Area Middle East and Africa. During the fall, the independent advisor
presented the 2019 report on Executive Remuneration market issues
and trends and shared an update on the European Union Shareholder
Rights Directive (SRD II) as implemented into Swedish law. The
Committee also approved the 2020 STV targets for the ET members
other than the President and CEO and decided to recommend to the
Board that the structure and conditions for LTV for the members of the
ET for 2020 (LTV 2020) remain unchanged from LTV 2019. In the final
meeting of 2019 in December, the Committee also discussed the salary
review for the President and CEO and referred the matter to the Board
for resolution along with the proposals on the cash-based long-term
variable compensation programs Executive Performance Plan for 2020
(EPP 2020) for senior managers and Key Contributor Plan for 2020
(2020 KC Plan) for key employees. The Committee further reviewed
and resolved to submit the amended Guidelines for Remuneration to
Group Management according to SRD II requirements to the Board of
Directors for referral to the AGM 2020 for approval.

The Committee throughout the year approved adjustments
and changes to individual remuneration packages of some of the
members of the ET.

Evaluation of the Guidelines for Remuneration to Group
Management and of the LTV Program
The Committee supports the Board of Directors 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 of Directors have concluded that the guidelines should be
revised in line with the requirements of SRD II in 2020 keeping the
main essence unchanged.

In 2019, with approval from the AGM, LTV 2019 was introduced.

Following evaluation of LTV 2017, LTV 2018 and LTV 2019 by the
Remuneration Committee and the Board of Directors, the Board of
Directors, upon recommendation from the Remuneration Committee,
has resolved to propose to the AGM 2020 an LTV program with the
same structure as LTV 2019, with the same values of the underlying
shares in respect of the Performance Share Awards made to the ET in
2019 including the President and CEO. The aim of LTV 2020 remains
to support achieving the Company’s strategic business objectives,
sustainable long-term interests and to increase the long-term focus
of the members of the ET and align their interests with the long-term
expectations and the interests of the shareholders.

Corporate governance – Remuneration report

165

Total Remuneration in 2019

When considering the remuneration of an individual, it is the total
remuneration that matters. First, the annual total target cash compen-
sation is defined, consisting of the target level of short-term variable
com pensation plus fixed salary. Thereafter, target long-term variable
compensation is added to get to the total target compensation and,
finally, pension and other benefits are added to arrive at the total remu-
neration.

When determining the total remuneration for the members of the
ET, the Committee considers the total remuneration and employment
conditions of the Company’s employees by reviewing the application
of Ericsson’s remuneration policy for the wider employee population in
order to ensure consistency.

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 compen-
sation 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 remuneration 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 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 Ericsson’s overall business
performance, business performance of the Unit that the individual is
repsonsible for, the year-on-year performance of the individual, the
external economic environment, the size and complexity of the position,
external market data, and pay and conditions for other employees
based in locations considered to be relevant to the role. Together with
other elements of remuneration, ET salaries are subject to an annual
review by the Committee, which considers external pay data to ensure
that levels of pay remain competitive and appro priate to the remunera-
tion policy.

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 the employees’ interests with Ericsson’s strategic
business objectives, sustainable long-term interests and the relevant
Unit’s performance. In addition it enables more flexible payroll costs
and emphasizes the link between performance and pay.

Short-term variable compensation payouts as percentage
of maximum opportunity

Fixed salary, short-term and long-term variable compensation
as percentage of total target compensation for 2019

100

71.5

65.1

83.3

90.9

President
and CEO

35.7

64.3

7.3

0.0

2016

7.7

0.0

2017

2015

0.0

2018

0.0

2019

100

Average ET excl.
President and CEO

63.2

16.0

20.9

President and CEO
Average ET excl. CEO

Since 2017, the President and CEO does not have any short-term variable compensation.

Fixed salary 2019
Short-Term Variable Target 2019
Long-Term Variable (2017 Executive Performance Stock Plan) at half of maximum

Ericsson | Annual Report 2019166

Corporate governance – Remuneration report

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 version 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, excluding the
President and CEO
approximately 75,000 in 2019

Employees in Sales.
Approximately 2,000 in 2019

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

14 Executive Team members
in 2019

161 Senior managers in 2019

6,941 employees in 2019

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

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

Market appropriate levels set
according to position and evaluated
according to individual performance

Achievements against set targets.
Reward can increase to up to twice
the target opportunity and decrease to
zero, depending on performance

Similar to STV, but reward can increase
to up to three times the target
opportunity depending on
performance.
All plans have maximum award
and vesting limits

Ericsson B shares as Performance
Share Awards subject to achievement
of performance conditions

Cash award subject to achievement
of performance conditions

Cash award subject to continued
employment during a three-year
service period

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

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.

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

– As a combination of Group level and market area level for heads

of market areas.

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.

The chart on page 165 illustrates how payouts to the members of
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

Short-term variable compensation structure

President and CEO 2019 1)

President and CEO 2018 1)
Average ET 2019 2)
Average ET 2018 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%
25%

26%

0%
51%

52%

0%
46.2%

43.1%

Group financial
targets

Unit/functional
financial targets

Non-financial
targets

0%
61%

60%

0%
39%

40%

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.

Ericsson | Annual Report 2019Area 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 2019, approximately 77,000 employees participated in

short-term variable compensation plans.

Long-Term Variable Compensation
All long-term variable compensation programs have been designed to
form part of a well-balanced total remuneration package and in general
to span over a minimum of three years (vesting period). 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 long-term variable
compensation programs at the end of 2016, the Company introduced
a new share-settled Long-Term Variable Compensation Program (LTV)
for the Executive Team, a new cash-settled Executive Performance
Plan (EPP) for senior managers and a new-cash settled Key Contributor
Plan (KC Plan) for key employees as integral parts of its remuneration
strategy starting from 2017.

All new programs are share-based payment programs as defined

by IFRS 2 “share-based payment,” either share- or cash-settled.

Share-Settled Programs
Share-based long-term variable compensation programs have been
submitted each year for approval by shareholders at the AGM.

Long-Term Variable Compensation Program 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. These are
share-settled plans as defined by IFRS.

Corporate governance – Remuneration report

167

Awards under LTV (Performance Share Awards) are granted to the

participants, 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 period). Allotment of shares
pursuant to Performance Share Awards are subject to the achievement
of challenging performance criteria which are defined specific to each
year’s program when the program is introduced.

Which portion, if any, of the Performance Share Awards for LTV will
vest is determined at the end of the relevant performance period based
on the satisfaction of the predetermined performance criteria for that
year’s LTV program. The performance criteria for the currently running
LTV and EPP are summarized in the below table along with the satis-
faction and achieved vesting levels for the ones which the performance
period has lapsed. It is generally required that the participant retains
his or her employment over a period of three years from the date of
grant of awards (service period) to be eligible for receiving the perfor-
mance awards.

Provided that the performance criteria have been met during the
performance period and that the participant has retained his or her
employment (unless special circumstances are at hand) during the
service 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 examines 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,
reserves the right to reduce the vesting level to a lower level deemed
appropriate.

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 is entitled to decide
that participants may, instead, be offered cash settlement.

All major decisions relating to outcome of LTV are taken by the
Remuneration Committee, with approval by the full Board of Directors
as required.

LTV and EPP Performance Criteria

Program Year Target

Criteria

Weight

Performance Period

Range (SEK billion): 10.0–20.0

50%

Jan 1, 2019–Dec 31, 2019

Vesting Opportunity
(linear pro-rata)

Achievement
0%–200% SEK 20.4 billion 2)

Achieved
Vesting Level

200.00%

2019 Group
Operating Income
Absolute TSR
Relative TSR 1)

2018 Group
Operating Income
Absolute TSR
Relative TSR 1)

2019

2019
2019

2019 Total

2018

2018
2018

2018 Total

2017
2017

2017 Total

Range: 6%–14%
Ranking of Ericsson: 7–2

Jan 1, 2019–Dec. 31 2021
Jan 1, 2019–Dec 31, 2021

30%
20%

100%

0%–200%
0%–200%

0%–200%

Range (SEK billion): 4.6–9.6

50%

Jan 1, 2018–Dec 31, 2018

0%–200% SEK 11.5 billion 3)

200.00%

Range: 6%–14%
Ranking of Ericsson: 7–2

Absolute TSR
Relative TSR 1)

Range: 6%–14%
Ranking of Ericsson: 12–5

Jan 1, 2018–Dec 31, 2020
Jan 1, 2018–Dec 31, 2020

Jan 1, 2017–Dec 31, 2019
Jan 1, 2017–Dec 31, 2019

30%
20%

100%

50%
50%

100%

0%–200%
0%–200%

0%–200%

0%–200%
0%–200%

0%–200%

21.34%
5.45 out of 18

200.00%
191.04%

195.52%

compared to Peer Groups consisting of 12 companies for the program years 2019 and 2018, and 18 companies for the program year 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.

2) Excludes fines and similar related to the US Department of Justice (DOJ) / Securities and Exchange Commission (SEC) investigation.
3) Excludes restructuring charges and the provisions taken in Q4 2018 related to the revised BSS strategy.

Ericsson | Annual Report 2019168

Corporate governance – Remuneration report

LTV share-settled programs for the President and CEO and the Executive Team

Plan (million shares)

LTV 2019

LTV 2018

LTV 2017

Total

LTV 2019

LTV 2018 LTV 2017

Total

Long-term variable compensation programs

Of which the President and CEO

3.0
0.6
–
–
–
0.3
0.9
17.3 1)

3.0
0.8
1.2
–
–
–
1.2
27.4 1)

3.0
0.7
0.7
–
–
0.6
1.3
13.3

9.0
2.1
1.9
–
–
0.9
3.4
58.0 2)

–
0.3
–
–
–
0.1
0.4
8.0

–
0.4
0.6
–
–
–
0.6
13.7

–
0.4
0.4
–
–
0.5
0.9
9.8

–
1.1
1.0
–
–
0.6
1.9
31.5 3)

2019 Long-Term Variable Compensation Program
for the Executive Team (LTV 2019)
LTV 2019 was approved at the AGM 2019 and includes all members
of the ET, a total of 14 employees in 2019, including the President and
CEO, but excluding Helena Norrman who was not granted LTV 2019
due to her resignation, and Stella Medlicott and Fadi Pharaon who
carried over their EPP entitlements for 2019 after their appointments
to the ET.

The participants were granted Performance Share Awards on May

18, 2019. The value of the underlying shares in respect of the Perfor-
mance 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 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 pub-
lication of the Company’s interim report for the first quarter of 2019.
Following evaluation of the previously introduced Long-Term
Variable Compensation Programs, the Board of Directors decided to
use the same performance criteria for LTV 2019 as the ones used for
LTV 2018 in order to secure continuity and consistency in supporting
achievement of the Company’s 2020 targets. Hence again a one-year
Group operating income target measured over the period January 1,
2019 to December 31, 2019 was included as a performance condition
for LTV 2019 in addition to the standard three-year total shareholder
return (TSR) performance conditions, which were also used for LTV
2018 and 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, 2019 to December 31, 2021 (the performance period).
The performance criteria for LTV 2019 along with the details on how
the performance criteria will be calculated and measured are explained
in minutes from the AGM 2019 under Item 17.

The Board of Directors resolved on the achieved vesting level for
the 2019 Group operating income performance criteria as 200% for
this portion of the performance share awards granted based on a 2019
Group operating income outcome excluding fines and similar related to
the US Department of Justice (DoJ) / Securities and Exchange Commis-
sion (SEC) investigation,

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.

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 maximum value of underlying shares in respect
of the Per formance Share Awards made to the ET members other than
the President and CEO were increased from 22.5% in 2017 to between
30% and 70% of participants’ respective base salaries at the time of
grant in 2018. The increases were approved at 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.

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 devel-
opment 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 for LTV 2018 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.

The Board of Directors resolved on the achieved vesting level for
the 2018 Group operating income performance criteria as 200% for
this portion of the performance share awards granted based on a 2018
Group operating income outcome excluding restructuring charges and
the provisions taken in Q4 2018 related to the revised BSS strategy.

2017 Long-Term Variable Compensation Program
for the Executive Team (LTV 2017)
LTV 2017 was approved at the AGM 2017 and includes all members of
the ET, a total of 16 employees in 2017, including the President and CEO.
The participants were granted Performance Share Awards on May

18, 2017. The value of the underlying shares in respect of the Perfor-
mance Share Award made to the President and CEO was 180% of the

Ericsson | Annual Report 2019annual base salary, and for other participants 22.5% of the participants’
respective annual base salaries at the time of grant. The share price
used to calculate the number of shares to which the Performance Share
Award entitles was calculated as the volume-weighted average of the
market price of 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 2017.

Absolute and relative TSR development for the Ericsson B share over

the period January 1, 2017 to December 31, 2019 (the performance
period) were the two performance criteria used for LTV 2017.

The performance criteria for LTV 2017 along with the details on how
the performance criteria will be calculated and measured are explained
in minutes from the AGM 2017 under Item 17.

The Board of Directors resolved on the achieved vesting levels for
the absolute and relative TSR development performance criteria as
200.00% and 191.04% respectively based on the achievement results
of 21.34% absolute TSR and 5.45th ranking for relative TSR, which
resulted in an overall achieved vesting level of 195.52% for LTV 2017 as
illustrated in the table LTV and EPP Performance Criteria on page 167.
The total number of maximum shares required and the related
total compensation expenses for the currently running share-settled
long-term variable compensation programs for the President and
CEO and the ET are summarized in the table on the previous page. The
total compensation expense for the share-settled long-term variable
compensation programs for the President and CEO and the ET during
2019 were SEK 58 million. The compensation expense is based on the
fair value (FV) and the number of shares.

The FV per performance criteria and program is shown in the table

below.

Fair value share-settled programs

Executive team programs

(SEK)

LTV 2019

LTV 2018

LTV 2017

Fair value Absolute TSR
Fair value Relative TSR
Fair value Operating Income

91.93
94.98
86.94

80.40
78.66
62.93

54.40
76.95
–

The accounting treatment for LTV is prescribed in IFRS 2 share-based
payment as described in note A1 Significant accounting policies.

Shareholding Guidelines for the Executive Team
The Board of Directors have adopted the following shareholding guide-
lines to be applied to the current and future members of the ET effective
from January 1, 2019 in order to encourage acquiring and maintaining
a level of ownership of shares that more closely aligns the interests of
the members of the ET with those of the Company’s shareholders:
– The President and CEO is required to build up and maintain a share-
holding equivalent to at least 200% of his gross annual base salary
– The other members of the ET are required to build up and maintain

a shareholding equivalent to at least 75% of their gross annual base
salaries.

The current members of the ET have five years to build up the required
share ownership starting from January 1, 2019. In case of new appoint-
ments to the ET, the new members will be expected to fulfil the share
ownership requirement at the fifth anniversary of the receipt of their first
grant of Performance Share Awards under the LTV program.

The Board of Directors will consider as counting towards the applica-

ble shareholding objective;

Corporate governance – Remuneration report

169

– any interests in Ericsson B shares held or acquired directly by the

member of the ET,

– any vested but unexercised options (post-tax, post-exercise

cost value),

– any equity awards held by the member of the ET where performance
and/or employment conditions have been met, but which are subject
to a holding period (on a post-tax basis).

Any unvested share, synthetic share or share option awards subject
to performance conditions or continued employment shall not count
towards the shareholding guideline requirements.

The Remuneration Committee shall monitor adherence to the share-
holding guidelines and report periodically to the Board of Directors, and
inform the members of the ET of the extent to which the shareholding
guidelines have been met.

Cash-Settled Plans
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. These
plans are cash-settled with performance criteria being the same as
under the respective year’s long-term variable compensation program
for the ET.

Senior managers, except for the members of the ET, are selected as
participants to EPP annually through a nomination process that iden-
tifies individuals according to performance, potential, critical skills, and
business critical roles. The number of senior managers selected as paric-
ipants in EPP 2019, 2018 and 2017 are 161, 171 and 452 respectively.
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. The three-year vesting period is the same as for the LTV. 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, 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.

Key Contributor Plans (KC Plan)
The KC Plan is a cash-settled plan designed to recognize the best talent,
individual performance, potential and critical skills as well as to encour-
age the retention of key employees.

Employees, except for senior managers and the members of the ET,
are selected as participants to KC Plan annually through a nomination
process that identifies individuals according to performance, potential,
critical skills, and business critical roles.

Participants are assigned a potential award based on a percentage

of their annual gross salary, which is converted into a number of syn-
thetic shares based on the same market price of Ericsson B shares used
for the respective year’s LTV.

The KC Plan is a retention plan, therefore there are no performance

criteria for vesting of awards. In general, there is a three-year service
period for receiving the award in full and the award is subject only to
continued employment during the service period. The value of each

Ericsson | Annual Report 2019170

Corporate governance – Remuneration report

Cash-settled plans

Plan

EPP 2019 EPP 2018

EPP 2017

Total

KC 2019

KC 2018

KC 2017

Number of participants
Number of synthetic shares (million shares)

Compensation cost year 2019 (SEK million)

161
0.7

11.6

171
1.2

52.8

452
1.7

116.0

–
3.6

180.4 1)

6,941
8.7

248.0

5,886
8.7

245.2

6,876
9.7

272.3

Total

–
27.1

765.5 2)

Executive performance plan

Key contributor plan

Total cash-
settled plans

Total

–
30.7

945.9 3)

synthetic share is driven by the absolute share price performance of
Ericsson B shares during the service period. At the end of the service
period, the allotted 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.

Key Contributor Plan 2019 (KC Plan 2019)
6,941 employees were selected to participate in KC Plan 2019. There
are three award levels at 10%, 25% and 30% of the participants’ annual
gross salary. The total service period is three years, however the payout
is distributed over the entire service period with staggered payments
according to the below schedule:
– 25% of the award to be paid at the end of the first year,
– 25% of the award to be paid at the end of the second year, and
– the remaining 50% of the award to be paid at the end of the

The Stock Purchase Plan (SPP)
The SPP was a share-settled plan designed to offer an incentive for all
employees to participate in the Company’s long-term variable compen-
sation programs where practicable. Under SPP employees were able to
save up to 7.5% of their gross fixed salaries 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 were retained by the employee for three years after the invest-
ment and their employment with the Ericsson Group continued during
that time, then the employee’s shares are to be matched with a corre-
sponding number of Ericsson B shares or ADSs free of consideration.
Employees in 100 countries participated SPP.

The table below shows the contribution periods and participation

details for the only open SPP from 2016 as of December 31, 2019.

third year.

Stock Purchase Plan

Key Contributor Plan 2018 (KC Plan 2018)
5,886 employees were selected to participate in KC Plan 2018. There
are two award levels at 10% and 25% of the participants’ annual gross
salary. The total service period is three years and the awards are paid at
the end of the full service period.

Key Contributor Plan 2017 (KC Plan 2017)
6,876 employees were selected to participate in KC Plan 2017. There
are two award levels at 10% and 25% of the participants’ annual gross
salary. The total service period is three years and the awards are paid at
the end of the full service period.

The total compensation expenses for the EPP and KC Plans during

2019 were SEK 180.4 million and SEK 765.5 million respectively as
shown in the table above. The compensation expense is based on FV
and the number of synthetic shares allocated.

The FV of the cash-settled plans are shown in the table below.

Fair value cash-settled plans

Executive performance plans

(SEK)

EPP 2019

EPP 2018

EPP 2017

Fair value Absolute TSR
Fair value Relative TSR
Fair value Group operating income

69.86
86.50
83.14

147.77
130.14
85.28

173.59
161.80
–

Fair value – T1

Fair value – T2

Fair value – T3
Fair value

Key contributor plans

KC 2019

KC 2018

KC 2017

86.27

84.69

83.14
–

–

–
85.28

–

–
86.87

Plan

Stock Purchase plan 2016

Contribution
period

August 2016 –
July 2017

Number of
participants at
launch

Take-up rate
– percent of eligible
employees

31,500

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.

Since no SPP was proposed after 2016, the cash-based KC Plan

described above was introduced replacing the Key Contributor
Retention Plan.

The Executive Performance Stock Plan (EPSP)
The EPSP was a share-settled program designed to focus management
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, and each accounted for one
third of the total performance matching shares.

Ericsson | Annual Report 2019The table below shows the performance targets for the only open

EPSP from 2016 as of December 31, 2019.

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%

With all three years of 2016 EPSP completed, the Board of Directors
resolved the results of the performance targets as below:
– Growth (compound annual net sales growth rate) was –5.13%
which was below the threshold and resulted in no vesting for the
portion of the award subject to this target.

– Margin (compound annual operating income growth rate) was

–28.00% which was below the threshold and resulted in no vesting
for the portion of the award subject to this target.

– Cash flow (cash conversion) was met, which resulted in vesting of

66.67% of the portion of the award subject to this target.

– Accordingly, the 2016 EPSP vested at 22.22% of maximum matching.

Since no SPP was proposed after 2016, the share-based LTV were
introduced for the members of the ET with the approval of relevant AGM
replacing EPSP. For the senior managers, the cash-based EPP were
introduced replacing EPSP. The LTV and the EPP are described above.

The accounting treatment of all the long-term variable compensation

programs are explained in note G3 Share-based compensation.

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.

Corporate governance – Remuneration report

171

The members of the ET who are appointed after 2011 and are
employed under Swedish employment agreements 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.

While defining benefits the competitive practices in the individuals’

country of employment are taken into account and are set to be com-
petitive, but not excessive in the local market. Benefits may for example
include company phones, company cars, medical and other insurance
benefits, tax support, travel, Company gifts and any international relo-
cation and/or commuting benefits if the individual is required to relocate
and/or commute internationally to execute the requirements of the role.
The levels of benefits provided may vary year on year depending on the
cost of the provision of benefits to the Company.

Additional benefits and allowances for members of the ET who are
commuters into Sweden or who are on long-term assignment (LTA) in
countries other than their home countries of employment, are deter-
mined in line with the Company’s international mobility policy which
may include (but is not limited to) commuting or relocation costs; cost
of living adjustment, housing, home travel or education allowance; tax
and social security equalization assistance.

The members of the ET 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 fur-
ther progress towards globally consistent principles while allowing room
for adaptation to local legislation and pay markets.

Ericsson | Annual Report 2019Sustainability

Sustainability – About this report

173

Sustainability and Corporate
Responsibility report 2019

“We are convinced that digitalization
and mobile broadband networks will help
tackle some of the global challenges our
world faces today. We aim to be a trusted
partner committed to building a better
future for all stakeholders.”

Ronnie Leten
Chair of the Board

173 About this report

174

176

178

Sustainability approach

Sustainability management

Significant topics, risks and
opportunitues

180 Responsible business

189 Environmental sustainability

194 Digital inclusion

195 Board of Directors’ approval

196 Consolidated sustainability notes

198 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.

About this report

This Sustainability and Corporate Responsi
bility report includes information on Ericsson’s
environmental, social and economic aspects
and impact. The report presents Ericsson’s
identified significant topics, performance, risks
and opportunities related to those areas and
how the Company manages them. Ericsson’s
business model is described in the Annual
Report on pages 4–5.

Unless otherwise stated, the information
and data provided pertain to activities under
taken from January 1, 2019, to December 31,
2019. The report covers the Ericsson Group,
i.e. Telefonaktiebolaget LM Ericsson and its
subsidiaries, excluding environmental sustain
ability information related to the acquired
Kathrein business (see Acquisitions and
divestment, page 78 in the Annual Report).

This report has been assured by Pricewater

houseCoopers AB as an independent third

party in accordance with ISAE 3000 as well
as AA1000AP, see pages 198–199.

Reporting principles
The scope, content and quality of the Com
pany’s sustainability and corporate responsi
bility reporting is produced applying Global
Reporting Initiative (GRI) and AA1000APS,
including reporting principles such as stake
holder inclusiveness, materiality, complete
ness, responsiveness, impact and accuracy.
This report has been prepared in accor
dance with GRI Standards: Core option. By
applying the GRI’s international guidelines,
Ericsson aims at reporting for sustainability
related content that is relevant to its stake
holders in a transparent and balanced way.
Ericsson is a UN Global Compact signa
tory and has been since 2000. The Company
Communication on Progress report, according

to UN Global Compact Advanced Level cri
teria, is available on the UN Global Compact
website.

This Sustainability and Corporate

Responsibility report has also been prepared
in accordance with the UN Guiding Principles
on Business and Human Rights Reporting
Framework.

Additional reporting on Ericsson’s sustain
ability and corporate responsibility, including
the Global Reporting Initiative Index, UN
Global Compact Communication on Progress,
UN Guiding Principles Reporting Framework
Index, and Ericsson’s Technology for Good
Impact Report is available on the Company
website www.ericsson.com.

Ericsson also publishes other annual state
ments and reports related to responsible busi
ness such as a Modern Slavery Statement and
a Conflict Minerals Report on its website.

Ericsson Annual Report 2019174

Sustainability – Sustainability approach

Sustainability approach

Ericsson’s stated purpose is to empower an
intelligent, sustainable and connected world.
The Company focus on sustainability is
embedded across operations and is becoming
an ever more fundamental part of creating
business value. Sustainability and responsible
business in focus are helping the Company
build lasting value and has two main aims,
reducing risks and creating positive impacts.
Ericsson’s ambition is to be a responsible and
relevant driver of positive change in society.

Sustainability as value creator
Integrating sustainability and responsible
business practices and programs across
the Company helps run operations more
efficiently. Ericsson’s focus on product energy
performance, can help reduce total cost of
ownership for operators’ networks as well
as support positive social and environmental
impacts. This effort aims to improve per form
ance across the value chain and diffe rentiate
Ericsson from its competitors.

Conducting business responsibly
Conducting business responsibly is funda
mental to Ericsson’s strategy and culture.
The Company supports the Ten Principles of
the UN Global Compact and the UN Guiding
Principles on Business and Human Rights.
While there is always additional work to be
done, the Company believes that a com

mitment to doing the right thing and taking
responsibility for actions across the value
chain is fundamental to its success. In addition
to a dedicated compliance team to guide the
Company, every employee is responsible for
ensuring compliance.

Technology as driver of positive change
Ericsson believes that access to communi
cation is a basic human need and that tech
nology developed and deployed responsibly
can improve people’s lives. Ericsson is com
mitted to creating positive impacts to society
through its technology, solutions, expertise
of its employees and its partnerships.

Sustainability research
A fundamental aspect to Ericsson’s approach
is to base its decisions on research and science.
The Company carries out peerreviewed
research, alone and in collaboration with
research partners from academia and busi
ness, on the environmental, economic and
social impact of Information and Communi
cation Technology (ICT), providing facts and
insights for the Company, the industry and
stakeholders. Methodology development for
measuring the impact of ICT as a sector is
an important task and throughout the years,
Ericsson has made relevant contributions
to international assessment standards.

Contributing to the Sustainable
Development Goals
The Company’s purpose embodies the
breadth of what Ericsson aims to do and how
it contributes to the sustainable development
agenda outlined in the UN’s Sustainable
Development Goals (SDGs). While the ICT
sector has the potential to positively enable
the achievement of all 17 SDGs, Ericsson is
contributing to the Goals primarily through
SDG 9 – Industry, innovation and infra
structure, and SDG 17 – Partnerships for the
goals. Ericsson believes that the combination
of these two SDGs enables the Company to
create positive impact at scale and address
a number of global challenges.

Technology
with purpose

Partnerships
for progress

Sustainability strategy

Ericsson integrates sustainability and corporate responsibility into the Company strategy to drive business transformation and create value
for stakeholders. The Company measures and evaluates its environmental, social and economic performance. The work is a continuous
journey and the strategy deployment covers three focus areas:

Responsible business

Ericsson aims to develop its responsible
business practices to strengthen Ericsson’s
trusted partner position with relevant stake
holders. The Company drives a proactive
agenda that extends beyond legal comp
liance and has programs in areas such as
human rights, anticorruption, occupational
health and safety, radio waves and health as
well as responsible management of suppliers.

Environmental sustainability
The circular economy encapsulates
Ericsson’s approach to environmental sus
tainability. Ericsson continuously strives to
minimize the negative impacts of its own
operations, and to improve the environmen
tal and energy performance of its products
to reduce societal environmental impacts.
Ericsson’s climate targets are in line with the
UN climate agenda to reach a 1.5°C trajectory.

Digital inclusion

Ericsson is committed to supporting and
reaching underserved markets through its
products and services. The Company advo
cates for the accessibility and affordability
of communication infrastructure by offering
services that drive sustainable economic
growth and innovative solutions across
areas such as education, financial services,
health and humanitarian response.

Ericsson Annual Report 2019Sustainability – Sustainability approach

175

Group sustainability targets

Ericsson has set sustainability and corporate responsibility objectives aligned with the Company’s strategy. The objectives are reviewed
and reported annually and reflect the Company’s ambition both to reduce risks and to increase positive impacts.

Risk mitigation targets

Reduce occupational health and safety
major incidents by a minimum of 30%
by 2022 (baseline 2019)

Address risk assessment for 100% of the
top 90% of supplier spend by 2020

Reduce 35% CO2e 1) emissions from
Ericsson’s own activities
by 2022 (baseline 2016) 2)

New target

98%

24%

Strengthen and enhance Ericsson’s Ethics and Compliance
program in order to develop a best in class Anti-Corruption
Compliance Program by 2022

Achieve 100% adherence to the sensitive business
process and conditions 3) by 2020

New target

97% and 87%

Positive impact targets

Achieve 35% energy saving in Ericsson Radio
System compared with the legacy portfolio
by 2022 (baseline 2016) 2)

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)

32%

Achieved

On track

Increase to 30% the female representation
of total workforce by 2020

Enable internet for all through roll out of mobile broadband to connect
additional 500 million people by 2024 (baseline 2018)

25%

115 million

Ericsson is carbon neutral by 2030 in its own operations 4)
New target

1) CO2e: Carbon dioxide equivalent.
2) Science Based Targets (SBT) approved by SBT Initiative.
3) Approval adherence: 97% and conditions adherence: 87%.
4) Emissions from Ericcson’s own operations includes fleet vehicles (Scope 1) and facility energy usage

(Scope 1 and Scope 2). Scope definition according to the GHG Protocol Corporate Standard.

Ericsson Annual Report 2019176

Sustainability – Sustainability management

Sustainability management

Governance

Sustainability and corporate responsibility
performance and related risks are presented to
the Board of Directors annually, or more often
if needed. In 2019, briefings covered progress
on anticorruption, ethics and compliance,
respect for human rights, occupational health
and safety, responsible sourcing, climate
action and social inclusion. The Board of
Directors was also informed about the inqui
ries from the United States Securities and
Exchange Commission and the United States
Department of Justice regarding the Group’s
compliance with the US Foreign Corrupt
Practices Act.

Group Function Marketing and Corporate
Relations is accountable for developing and
deploying strategies, policies, directives,
targets, processes and tools for sustainability
and corporate responsibility. Ericsson has
sustainability and corporate responsibility
related Group policies and directives. These
include the Code of Business Ethics and Group
steering documents concerning sustainability,
information security, privacy, occupational
health and safety, electromagnetic fields
and health, anticorruption and the Code
of Conduct for Business Partners – all of
which reflect Ericsson’s commitments to and
requirements on its stakeholders, reinforced
by awareness and training programs. The
Company’s sustainability and corporate
responsibility performance is regularly
measured, assessed and externally assured.

Management system

Ericsson has a global management system,
the Ericsson Group Management System
(EGMS), which includes Group policies, direc
tives and instructions as well as Groupwide
processes. EGMS is a dynamic governance
system, enabling Ericsson to adapt to evolving
requirements and expectations, including
applicable legislation as well as customers’
and other stakeholders’ requirements.

EGMS brings a common management
approach and consistent global implement
ation to the way the Company conducts its
business and Ericsson’s sustainability and
corporate responsibility work is an integrated
part of it. As the EGMS is a global system,
Groupwide certificates are issued by a third
party certification body to ensure that EGMS

The Code of Business Ethics
Ericsson’s Code of Business Ethics (CoBE)
summarizes fundamental Group policies and
directives and includes requirements to ensure
that business is conducted with a strong
sense of integrity. The CoBE is applicable to
the Company´s workforce and it reflects its
commitment to the UN Global Compact’s
Ten Principles and the UN Guiding Principles
on Business and Human Rights.

The CoBE is reviewed on a regular basis,
employees and others performing work for
Ericsson must comply to it and acknowledge
that they have read and understood it. Every
one working for Ericsson has an individual
responsibility to ensure that business practices
adhere to the CoBE. The CoBE is available in
multiple languages to ensure that it is under
stood across the entire workforce.

During 2019, Ericsson added resources
and reinforced efforts to raise awareness of
ethical behavior to manage allegations of
breaches of the CoBE and to enforce adher
ence as well as consequence management,
see pages 177 and 182 of this report. In 2019,
following the Board of Directors’ endorsement
of the updated CoBE and all Board members’
confirmation of their commitment to uphold it,
the Company’s entire workforce was asked to
read the updated CoBE and to acknowledge
that it has been understood. 99% of Ericsson
employees have acknowledged the CoBE by
the end of 2019.

The Code of Conduct for Business Partners
As part of the Company’s responsible sourcing
practices, Ericsson strives to continuously
strengthen its requirements and expecta
tions on social, ethical, environmental, and
human rights related topics applicable to its
supply chain.

The Code of Conduct for Business Partners

(CoC) specifies requirements and expecta
tions that the Company’s business partners
must comply with when doing business
with Ericsson. The CoC covers areas such
as anticorruption, labor and human rights,
occupational health and safety and environ
mental requirements. The CoC is based on
the UN Global Compact´s Ten Principles, the
UNGPs on Business and Human Rights, the
OECD Guidelines for Multinational Enterprises
and the Responsible Business Alliance Code
of Conduct.

In 2019 Ericsson released an updated CoC,

available on the Company’s website. As part
of the 2019 update of the CoC, Ericsson
strengthened the requirements relating to
anticorruption and business ethics, and
included new requirements for environmental
management, privacy, responsible artificial
intelligence and land rights. The CoC further
clarified the definition of a business partner.

is applied throughout the whole organization.
Ericsson is globally certified to ISO 9001
(Quality), ISO 14001 (Environment), OHSAS
18001 (Occupational health and safety) and
ISO 27001 (Information Security). Through
Ericsson’s Global Certification Assessment
Program, the external assurance provider
assesses how Ericsson implements and
adheres to Group policies and directives,
works in accordance with stipulated pro
cesses, manages risks and achieves the
Company’s objectives.

Sustainability and corporate responsibility

significant topics are regularly assessed and
related risks are identified and evaluated in
accordance with Ericsson’s Risk Management
framework.

Ericsson’s objectives on sustainability

and corporate responsibility are set and
reviewed annually as part of the Company
strategy process. Performance, internal and
external audits and assessment results as well
as the Company’s environmental lifecycle
assessment and research studies are used as
input when setting objectives. Sustainability
and corporate responsibility objectives are
followedup on a regular basis by the account
able organization.

Ericsson provides training to employees
and suppliers to ensure and improve aware
ness and competence related to sustain
ability and corporate responsibility topics
and commitments.

Ericsson Annual Report 2019Sustainability – Sustainability management

177

Reported compliance
concerns 2019 1)

15%

35%

24%

538

12%

Fraud, corruption and regulatory
breach
Operations
Conflicts of interest
Security
Human resources
Sustainability (0%)
Other

1) The category of reported compliance concerns is
determined based on the most significant impact
identified by Corporate Investigation’s team.
Categorization may be modified during an inves
tigation as additional information related to the
initial allegations is obtained.

Corrective or disciplinary
actions 2019 2)

10 1

151

Terminations
Resignations
Warning letters
Verbal warnings
Other

2) Corrective or disciplinary actions executed in 2019,
and each action represents a distinct employee.
Numbers reflect the most severe action per employee.

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 for Business Partners (collectively
“compliance concerns”).

Compliance Concerns may relate to
corruption, fraud, questionable accounting,
deficiencies in the internal controls, auditing,
environmental, occupational health and
safety, human right matters, or other matters
that could constitute a breach of law, seri
ously affect vital interests of the Company
or personal health and safety. Employees are
encouraged to report compliance concerns
directly to their manager, manager’s manager
or Group Functions People or Legal Affairs
and Compliance. Compliance concerns,
however, can also be reported via the Ericsson
Compliance Line, and a reporter can report
anonymously if permitted under applicable
legislation. 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.

Reported compliance concerns are handled
in the allegation management process and are
monitored by Ericsson’s Group Remediation
Committee, which consists of the Chief Legal
Officer, the Chief Financial Officer, the Chief
People Officer and the Chief Compliance
Officer. The Allegation Management Office
(AMO) receives information about compli
ance concerns from the Ericsson Compliance
Line, directly from individual employees or
other sources and decides whether a reported
compliance concern merits investigation. The
Corporate Investigations team investigates
plausible group relevant compliance concerns
and presents findings to the Group Remedia
tion Committee and quarterly to the Audit
and Compliance Committee of the Board
of Directors.

The allegation management governance
and process were strengthened during 2019
to ensure inclusion of both centrally and locally
reported compliance concerns. It has similarly
expanded its remit to ensure adequate cap
ture of consequence management in relation
to substantiated group relevant investigations.
AMO saw an increase in compliance concerns
reported from 445 in 2018 to 538 in 2019.
Ericsson believes this reflects an increase in
employee awareness of compliancerelated
risks and the Company’s continued efforts
to foster a stronger speak up culture.

Ericsson has bolstered its investigations

team with experienced and professional
investigators. During 2019, Corporate Inves
tigations added additional resources and
established hubs globally to better ensure all
compliance concerns warranting investiga
tions are investigated using local expertise
following a robust General Data Protection
Regulation (GDPR) compliant investigation
process.

Corporate Investigations closed 566 cases
in 2019, including some related to compliance
concerns reported before 2019. As of Decem
ber 31, 2019, 167 cases remained open, all of
which relate to compliance concerns reported
in 2019. See Reported Compliance Concerns
graph reported by category.

In 2019, Ericsson issued 77 terminations,

50 warning letters, 10 verbal warnings and
received 13 resignations in relation to sub
stantiated Code of Business Ethics breaches.
The Company also made improvements to
its internal controls, made other compliance
program enhancements and addressed
knowledge gaps in the organization where
necessary. See Corrective or Disciplinary
actions graph.

Ericsson Annual Report 2019178

Sustainability – Significant topics, risks and opportunities

Significant topics, risks and opportunities

Ericsson regularly assesses its significant
economic, environmental and social topics to
provide a foundation for the Company’s sus
tainability and corporate responsibility stra
tegic priorities. This is a central component of
the situational analysis for the strategy, target
setting, risk management and reporting.

The assessment is done on an annual basis

and it combines two perspectives, the Com
pany’s business impact on economic, environ
mental and social topics, and their importance
to stakeholders. The definition of the topics
assessed is made in accordance to the Global
Reporting Initiative (GRI) and the Sustainabil
ity Accounting Standards Board (SASB).

Ericsson begins each year’s assessment by

reviewing the previous year’s results as well
as the inputs from surveys and dialogues with
its stakeholders, all of which help to inform the
process and is considered in the selection and
relevance of the topics to be assessed.

Ericsson conducted its annual employee
sustainability and responsible business survey
in 2019, which was answered by over 11,000

employees who assessed sustainability
related topics in order of importance. The
result has been integrated to the materiality
assessment, and the three top topics were:
respect for human rights, anticorruption,
occupational health and safety.

The Company continues to evolve its

materiality assessment process and in 2019 it
conducted materiality assessment workshops
with each Market Area. Sustainability focus in
Ericsson’s Business Areas and Market Areas
is described in pages 18–29 in the Annual
Report.

The consolidated Ericsson materiality
assessment result, including the Company’s
identified significant topics has been reviewed
by the Executive Team.

This year shows no substantial changes
of the identified significant topics and their
rating compared to 2018. Ericsson’s topics
are presented in a matrix on page 179 and are
also available on the Company’s website. The
identified significant topics are covered in this
report on pages 180–195.

Risk management

Ericsson’s sustainability and corporate resp
onsibility related risks are managed in accor
dance with Ericsson’s Enterprise Risk Manage
ment framework (ERM), see pages 153–155
in this Annual Report. The responsibility for
those risks is allocated to the respective Head
of Group Function, Market Area and Business
Area, who are also accountable for overseeing
the ERM in their unit.

As part of the sustainability and corporate

responsibility strategy work, risks and treat
ment plans (including mitigation and adapt
ation actions) related to longterm objectives
as well as shortterm targets are identified
and prioritized. These are summarized in
Ericsson’s sustainability and corporate resp
onsibility Risk Heat Map and are regularly
followedup in governance meetings and
presented to the Board of Directors annually.
For information on Ericsson’s Risk Factors,
see pages 121–131 in the Annual Report.

Stakeholder engagement

The approach to stakeholder engagement
enables Ericsson to learn about its stakehold
ers’ expectations, requirements and concerns,
thus providing insights into risks as well as
opportunities.

Ericsson engages with its stakeholders
on an ongoing basis in which sustainability
and corporate responsibility topics as well as
emerging dilemmas are discussed. Example
of topics include responsible business, human
rights, anticorruption, supply chain manage

Ericsson’s stakeholder engagement model

ment, climate action, energy performance,
digital inclusion and sustainable development.
The stakeholder engagement takes a variety

of forms such as joint projects and initiatives,
dialogues, meetings, surveys, participation
in industry groups and representation on
decisionmaking bodies. Another important
stakeholder insight is gained through joint
research with academia, institutions and
industry peers.

During 2019, among others, Ericsson
engaged in anticorruption briefings, climate
focused organizations to progress collective
action on climate change and conducted
an employee sustainability and responsible
business survey.

The Company leverages its social media
outreach to extend the conversation and hear
from the public.

Stakeholders expectations,
requirements and concerns

Customers
Employees
Society*
Shareholders

* Society includes suppliers, governments,
civil society, nongovernmental organi
zations, sector peers, media, academia
and the public.

Engagement approach

Which issues do
we need to get
engaged with?

When should
the engage-
ment take
place?

How should
the engage-
ment take
place?

Analysis

Sustainability outcome

Situation analysis
and insights to
identify sustainability
related risks and
opportunities

– Strategy
– Targets
– Significants topics
– Reports
– Programs

Ericsson Annual Report 2019Sustainability – Significant topics, risks and opportunities

179

Significant topics 2019

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

Assess

Address and engage when appropriate

Low

Impact

High

Topics covered in this Sustainability report and identified as significant
Topics not covered in this Sustainability report

A Anti-corruption (Business ethics)

H Competitive behavior

N Waste and hazardous waste

B Radio waves and health

I Management of the legal and

management

C Information security and privacy

D Respect for human rights
(including labor practices)

E Responsible management of suppliers
(material sourcing and efficiency, and
supply chain management)

F Diversity and inclusion

G Critical incident risk management

regulatory environment

O Air quality

J Selling practices and product labeling

P Physical impacts of climate change

K Occupational health and safety

Q Ecological impacts

L Own activities (GHG emissions)

R Water and wastewater management

M Product energy performance (Product
design and life-cycle management)

S Access and affordability (Digital

inclusion)

Ericsson Annual Report 2019

180

Sustainability – Responsible business

Responsible business

Ericsson aims to be a responsible and relevant
driver of positive change in society.

The Company works continuously to
improve and strengthen its responsible busi
ness 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 envi
ronmentally sound business practices are
fundamental parts of the Company’s culture
and identity. This commitment to responsible
and ethical behavior starts at the Board level
and is implemented throughout Ericsson’s
organization through ongoing due diligence

as well as specific programs such as Ethics and
Compliance, Sensitive Business, Responsible
Sourcing, and Occupational Health and Safety.
The Ericsson Code of Business Ethics and
the Code of Conduct for Business Partners set
out the Company’s commitments and require
ments which go beyond legal compliance.
Ericsson aims to prevent, mitigate and address
risks of adverse impacts throughout its oper
ations, products and business engagements.
During 2019, the Company focus on
responsible business was strengthened
to ensure that its commitment is clear and
consequences for breaches of the Code of
Business Ethics were enforced. Further, in

2019, Ericsson began initiatives designed to
strengthen the Ethics and Compliance pro
gram, such as enhancing compliance training
across markets, updating policies and proce
dures to meet international anticorruption
standards, requiring an integrity component
in its recruiting and promotion processes and
hiring additional compliance personnel.

The Company actively engages in aware

ness raising on responsible business topics
and encourages employees and its stakehold
ers to report compliance concerns through
the Ericsson Compliance Line, see page 177.

Ericsson Annual Report 2019Sustainability – Responsible business

181

Respect for human rights

Ericsson is committed to respecting human
rights as articulated by the UN Guiding
Principles on Business and Human Rights.
This responsibility is addressed throughout
the Company’s business operations, including
its supply chain and end use of products.

The increasing use of Information and

Communication Technology (ICT), and
specifically of new technologies as machine
learning and artificial intelligence (AI), bring
challenges to security, privacy and human
rights. This makes it crucial to remain vigilant
and ensure that misuse of Ericsson’s tech
nology is prevented.

Governance, policies and directives
Ericsson’s commitment to respect human
rights is part of its Code of Business Ethics
and its Code of Conduct for Business Partners.
In 2019 Ericsson developed a Business

and Human Rights Statement, clarifying
its responsibility to respect human rights
throughout its value chain. The Company
also adopted a new set of guidelines for
trustworthy AI based on the European Union
Ethics Guidelines for Trustworthy AI. Ericsson’s
guidelines provide a systematic approach to
ensuring human rights considerations are
factored into the development, use and sales
of AI solutions.

Ericsson identifies its salient human rights

issues as the right to freedom of expression
and right to privacy in relation to the use of its
technology, and labor rights as the prevailing
set of rights for responsible management of
suppliers. These salient human rights issues
have been defined based on internal and
external dialogue and expert guidance, on
going due diligence as well as Ericsson’s cur
rent operations and business engagements.

More information on which labor rights are
defined as salient human rights issues for
Ericsson, on pages 186–187.

Human rights due diligence
In order to assess, prevent and mitigate
potential misuse of Ericsson’s technology,
the Company has integrated human rights
due diligence into its sales process through
the Sensitive Business program. The program
aims to ensure that business opportunities
and engagements are conducted in accord
ance with international human rights stan
dards. Ericsson’s Sensitive Business Board,
a crossfunctional forum that consists of high
level representatives of Group Functions and
Business Areas, oversees the Sensitive Busi
ness program and meets regularly.

When risks are identified in a sales oppor
tunity by the Sensitive Business automated
tool, the Market Area must submit an approval
request. Submissions are evaluated according
to the sensitive business risk methodology
(see graph) and may be approved, approved
with conditions or rejected. Conditional
approvals include technical and/or contractual
mitigations, and its implementation is moni
tored to ensure adherence.

During 2019, country human rights risk
assessments were conducted for Uzbekistan,
Kirgizstan and Saudi Arabia. These risk
assessments include mitigating actions that
need to be implemented for further business
engagements. Such actions include ensuring
that certain functionalities or products are not
sold in specific countries, conducting occupa
tional health and safety screenings of poten
tial business partners, and providing training
to Ericsson personnel as well as customers and
suppliers on responsible business practices.

Sensitive business cases 2019

Parameters for evaluation of sensitive
business risk methodology

Ericsson also conducts specific human
rights impact assessments (HRIA) focusing
on a country, product or high risk context.

Ericsson has continuously evaluated the
effectiveness of the Sensitive Business process
and based on its analysis, developed an auto
mated method to calculate and propose tech
nical and contractual risk mitigations. In 2019
a transformation of the process was initiated.
The target to achieve 100% adherence to
the sensitive business process and conditions
will continue to be measured throughout 2020
and a new target for sensitive business will
be evaluated.

Building leverage and engaging in dialogue
In 2019 Ericsson joined the Global Network
Initiative as a full member, providing an impor
tant platform for collaboration to address
evolving challenges for the ICT sector. During
the year, Ericsson also engaged in dialogue
with civil society organizations in order to
obtain input on relevant trends and prioritize
within responsible business and human rights.
Further, the Company continued its Action
Against Child Sexual Abuse Program, and was
a contributor to the Broadband Commission
for Sustainable Developent Working Group
on Child Safety Online, and participated in
the launch of the report at the United Nations.

As part of Ericsson’s responsibility to respect

for human rights, the Company provides its
stakeholders access to grievance mechanisms
through the Ericsson Compliance Line,
see page 177.

Main risks include:
– Misuse of Ericsson’s technology could

adversely impact the right to privacy and
freedom of expression.

– Lack of adherence to labor standards in
the supply chain could adversely impact
on labor rights.

40%

651

55%

Cases approved
Cases approved with conditions
Cases rejected

Country

Portfolio

Risk
evaluation

Customers

Purpose

Ericsson Annual Report 2019182

Sustainability – Responsible business

Anticorruption

Corruption is a considerable obstacle to
economic and social development around the
world. It holds back sustainable development
and often affects fragile communities the
most. Ericsson strives to be a responsible and
relevant driver of positive change in the com
munities where it operates.

From a business perspective, corruption
undermines fair competition, impedes innova
tion, raises costs and poses serious legal and
reputational consequences. Ericsson is com
mitted to winning business on merit, ability
and fairness and, as part of this commitment,
fighting corruption is a high priority.

Anti-Bribery and Corruption (ABC) program
Ericsson’s antibribery and corruption pro
gram, described on page 10 of the Annual
Report, consists of ten core elements that
enable the Company to raise awareness and
prevent and detect potential breaches as well
as respond to and remediate actual breaches
of our Code of Business Ethics.

The program is reviewed at least quarterly

by the Audit and Compliance Committee
(ACC) of the Board of Directors. In recent
years, Ericsson has made significant invest
ments to strengthen its Ethics and Compliance
program, particularly its AntiBribery and
Corruption (ABC) Program, with enhanced
leadership programs, policies, trainings,
controls and tools.

2019 improvements
In 2019, a new Chief Compliance Officer was
appointed to drive global implementation of
Ericsson’s Ethics and Compliance Program.
With the appointment of the new Chief
Compliance Officer, Ericsson’s Executive
Team (ET) also approved the enhancement
of the compliance organization with addi
tional headcount and resources. Compliance

governance committees, including a Group
Compliance Committee comprised of ET
members, ensure high level operational over
sight of the program.

Ericsson continued to enhance policies and
procedures needed to ensure stateofthe art
principles applies to its employees when deal
ing with ABC sensitive topics and transactions.
In 2019, Ericsson revised its AntiBribery and
Corruption Directive, Third Party Management
Directive, Allegation Management Instruction
and Conflict of Interest Instruction. A compli
ance consultation desk was established.

ABC training efforts continued in 2019
with close to 89,000 employees completing
the mandatory online anticorruption training.
A new ABC face to face full day workshop has
been developed and deployed (and continues
to be deployed) globally. An ABC elearning
for suppliers was also launched.

The Company enhanced its risk assessment

strategy by adding an element of forensic
testing for higher risk parts of the business.
These exercises are aimed at clearly identifying
existing control gaps as well as potential or
future corruption risks. Group Function Finance
in conjunction with Group Compliance works
closely to strengthen Ericsson’s ABC and Anti
Money Laundering (AML) controls to address
gaps identified during risk assessments and
internal investigations.

Rounding out enhancements to the ABC
program is the reinforcement of the Allega
tion Management Office and Investigation
capabilities. Professionals to both teams have
been added to support the intake of Compli
ance Concerns as well as their assessment,
investigation, reporting and remediation,
where necessary. Please refer to the section
“Reporting Compliance Concerns” on page 177
for further information.

Ericsson reached a resolution
on US FCPA investigations
On December 7, 2019, Ericsson announced
the resolution of the previously disclosed
investigations by the US Department of
Justice (DOJ) and the Securities and Exchange
Commission (SEC) regarding the Company’s
compliance with the US Foreign Corrupt Prac
tices Act (FCPA). The resolution allows us to
bring an end to the investigations conducted
by the US authorities since 2013 and 2015
into Ericsson’s compliance with the US Foreign
Corrupt Practices Act (FCPA). More informa
tion in the Annual Report on page 41.

Main risks include:
– Workforce or thirdparty failure to

comply with anticorruption laws, regu
lations and Ericsson’s related Policies
and Directives.

Ericsson Annual Report 2019Sustainability – Responsible business

183

Secure networks require less downtime and
unplanned maintenance, which increases
trust in the infrastructure.

Ericsson’s security and privacy frameworks

are designed to ensure that its products and
services are more resilient to attacks and less
likely to be impacted by unforeseen conse
quences.

Information security and privacy present

opportunities for market differentiation.
Embedding security and privacy in Ericsson’s
ways of working, and progressively protecting
its own data and that of its customers, are
important to maintaining a strong brand and
continuing as a trusted partner in this space.

Main risks include:
– Workforce or thirdparty 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, networks, financial,
customer and personal data.

– More stringent or new stakeholder or
regulatory information security and
privacy requirements may impact
Ericsson’s business.

Ericsson also enforces a Crisis Management
Group directive, with a Group Crisis Manage
ment Council which is responsible for the
handling of major incidents or crises. Ericsson’s
Information Security Management System
is globally certified to ISO/IEC 27001.

Specific security and privacy training is

required for all employees, with in depth
training developed to build Ericsson specific
security competence.

Risk management and opportunities
Ericsson’s products, infrastructure and services
handle personal data for its workforce, cus
tomers and customers’ customers. The nature
of Ericsson’s business, and of the data that its
products transmit, requires the Company to be
at the forefront of data protection. Given that
Ericsson’s financial, customer and personal
data as well as its intellectual property are tar
geted by threat actors, the Company focuses
on providing endtoend secure services,
solutions and products and protecting critical
assets in a rapidly changing environment.
Ericsson has adopted a riskbased
approach for investments in cybersecurity
and privacy. The potential impact on human
rights and on Ericsson’s reputation, in terms of
customer trust and market access, is weighed
against the cost of implementing tools,
processes and technology to make sure that
Ericsson can protect its customers and data

Secure telecommunications networks and

services provide the foundation for Critical
National Infrastructure (CNI) for national
security and emergency coordination, finan
cial services, education and healthcare.

Focus areas for security and 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

Information security and privacy

Information Security and Privacy are impor
tant topics for technology companies. Chang
ing regulatory environments, and increased
government scrutiny require Ericsson to
con tinually prioritize these areas. Ericsson
has implemented frameworks for the secure
development, sale and delivery of products
and services, while constantly working to
pro tect its employee data. Ericsson’s Code of
Business Ethics includes consideration to the
human impact of information security and
data protection. Information security and the
protection of personal data focus primarily on
maintaining the confidentiality, integrity and
availability of information, while not hindering
operations. As both the value of information
and the capabilities of threat actors increase,
information security and privacy have become
issues of national importance globally and
key considerations for operations in the
Infor mation and Communication Technology
(ICT) sector.

As with other companies across the world,
cyberattacks target Ericsson’s infrastructure,
products, operations, and personnel, which
requires the Company to invest in defensive
countermeasures throughout the organization
and in its supply chain. As attacks continue to
increase, there is no guarantee that existing
protections will prevent potential adverse
impact on Ericsson’s business, operations,
finances, reputation, and brand.

Governance, policies and directives
Information security and privacy are governed
through Ericsson’s Group Information and
IT Security Board and Security Management
Board. The Product and Technology Security
Board addresses product and portfolio
security issues. The Audit and Compliance
Committee of the Board of Directors receives
periodical updates on cybersecurity.

Incidents are reported through Ericsson’s
Security Incident Management System, and
routed to the appropriate function for hand
ling. Ericsson has an established Security and
Privacy Framework to ensure that issues are
considered throughout the entire product
lifecycle.

Policies and directives establish the require

ments across Ericsson. Ericsson’s Product
Security framework includes a mandatory
area of regulation specifically for security and
privacy, which is applicable to all products.

Ericsson Annual Report 2019184

Sustainability – Responsible business

Diversity and inclusion

Ericsson believes that diverse and inclusive
teams drive performance and create busi
ness value, and are therefore strategic to the
business. A workforce with a broad range of
backgrounds, perspectives and experiences
drives innovation and makes the business
more resilient.

Policies and directives
Ericsson is committed to equal opportunity
of employment, development, compensa
tion and other people related processes and
practices without discrimination due to race,
color, gender, gender identity, sexual orienta
tion, marital status, pregnancy, parental
status, religion, political opinion, nationality,
ethnic background, social origin, social status,
indigenous status, disability, age or union
membership.

The Company strives to create an inclusive

work environment where diversity in all its
forms thrives. The focus is to establish a bal
ance in gender, generations and nationalities
by creating an inclusive culture.

Ericsson has a workforce consisting of
approximately 166 nationalities with a gender
distribution of 25% women and 75% men.

Governance and management
Group Function People is responsible for
creating and driving the global Diversity and
Inclusion strategy and the development of
People policies and initiatives relevant to the
Company’s global scope and specific markets,
while the local organizations drive the imple

1) Employed workforce reporting to Executive Team members.

mentation. The approach is systematic with
its base in analytics and awareness, followed
by activation of global and local initiatives.

The Company has a target to increase the
number of women to 30% across all levels in
the organization. In 2019 women accounted
for 25% of the total workforce and 32% in the
Executive population 1). While the Company
has met the goal for the Executive population
there is still work to do in order to meet its
target. To increase the availability of female
candidates, Ericsson continues to review
its job postings to ensure a genderneutral
language and engages in activities such as
Girls in ICT to support women to choose an
education in the STEM (Science, Technology,
Engineering and Mathematics) area. In the
age span of employees up to 35 years, which
is 38% of the Company’s workforce, over 28%
are women.

Below some diversity indicators for 2019:
– Early engagement of the Company’s

NextGen leaders is key to building a both
generational and gender balanced pipeline
for the future, the Early Career programs
for 2019 reflected 38% of women.
– Women consisted of 24% of the partici

pants in the Company’s Global Leadership
Development Programs.

– Approximately 110 out of the Company’s

166 nationalities were represented among
its managers and of those, 107 nationali
ties participated in the Company’s Global
Leadership Development Programs.

Beyond the focus on recruitment and lead
ership development the Company continued
to engage in its Employee Resource Groups
(ERG’s). Local Ericsson volunteers lead these
groups created around a common goal to help
further develop the diversity and inclusion
agenda. They support, promote and drive a
diverse working environment, providing the
organization with their unique perspectives
and local insights.

On a global level, during 2019 Ericsson
promoted initiatives with focus on the Interna
tional Women’s Day, Global Diversity Month,
International Men’s Day and Girls in Infor
mation and Communication Technology.

Main risks include:
– Limited availability of female STEM

(Science, Technology, Engineering and
Mathematics) profiles.

– Inequalities in certain countries may

impact gender diversity.

Ericsson Annual Report 2019Sustainability – Responsible business

185

mental and psychosocial health. The pro
gram is underpinned by a renewed focus on
leadership and OHS culture improvement.
The Ericsson Care Framework includes the
Company’s OHS vision, ’Safety – everyone,
everywhere, everyday’, as well as guiding
principles, and standardized ways of working
globally.

The Company had its second Ericsson
Safety Day, an annual event to reinforce
Ericsson’s commitment to do business in
a safe and responsible way. Activities were
hosted across geographies with the particip
ation of employees, customers and suppliers.

Main risks include:
– Failure to meet legal and stakeholder

requirements.

– Lack of compliance to Ericsson’s occu

pational health and safety requirements
in the supply chain.

Zero tolerance safety rules

Occupational health and safety

Ericsson takes an inclusive, riskbased
approach to Occupational health, safety
(OHS) and wellbeing that encompasses
employees, suppliers and the public who may
be impacted by company operations.

Ericsson recognizes that OHS requirements
are a fundamental aspect of its business deliv
ery around the globe and drives a proactive
agenda that goes beyond legal compliance,
international standards and related require
ments from customers.

Governance, policies and directives
The Company believes that incidents are
preventable and is committed to providing
a safe and healthy work environment for its
workforce to reach zero incidents. To achieve
this, Ericsson focuses on creating a positive
safety culture based on awareness, prevention
and care principles, as defined in the Ericsson
OHS policy which is publicly available on the
Company website.

Ericsson has two Group OHS Governance

fora in place. The Global OHS Board that
drives the execution of the OHS strategy and
programs within the business and is chaired
by a member of Ericsson’s Executive Team.
The second, is the Major Incident Review
Board that reviews OHS performance and
major incidents on a monthly basis. In 2019,
these two fora were restructured to strengthen
their focus and redistribute responsibilities
and priorities to improve effectiveness.

Risk management
Ericsson’s Enterprise Risks Management
(ERM) framework, see page 153–155,
includes OHS as one of the dimensions used
to analyze Company risk.

Driving, climbing and working at heights,

as well as working with electricity continue
to account for the majority of the fatalities
and major incidents in 2019.

Ericsson continued its efforts supporting
Zero Tolerance Safety Rules, the supplier’s
consequence management process and the
mandatory OHS induction course.

In addition, during 2019 the Company
introduced the use of innovative technology
to mitigate safety risks, such as Remote site
assurance (RSA). RSA provides a live interface
with field technicians and is designed to
ensure that safety, quality and environmental
aspects are managed prior to work commenc
ing and that compliance to requirements is
maintained, and harm is prevented.

Incident reporting
In 2019, the Company has seen an approxi
mately 21% decrease in the number of
reported fatalities compared with 2018,
reflecting the impact of OHS improvements
undertaken by Ericsson and its suppliers
during 2018 and 2019. While no Ericsson
employees were involved in fatal incidents
in 2019, there were 11 fatalities in its sup
ply chain. The number of major incidents
increased approximately by 33% compared
to 2018 due to an increased in awareness in
incident reporting. Major incident is defined
as incident that results in more than 3 days
lost work days. Ericsson has set a new target
to reduce major incidents by a minimum of
30% by 2022 which will be part of the relevant
units objectives.

The Company acknowledges the need to
continue strengthening its efforts in reducing
OHS incidents and fatalities. To achieve this,
Ericsson restructured the two Group OHS
governance fora – the Global OHS Board and
the Major Incident Review Board, to strengthen
their focus and redistribute responsibilities
and priorities to improve effectiveness.

Ericsson encourages employees and
suppliers’ employees to report OHS incidents
transparently through its Global Incident
Reporting Tool.

Strengthening efforts in 2019
To further strengthen the Company’s efforts,
the Ericsson Care framework was introduced
in 2019 setting out a new overarching
approach to OHS and employee wellbeing
within the organization including physical,

Ericsson Annual Report 2019(cid:113)(cid:139)(cid:194)(cid:181)(cid:1)(cid:87)(cid:181)(cid:168)(cid:139)(cid:194)(cid:117)(cid:175)(cid:130)(cid:139)(cid:1)(cid:81)(cid:117)(cid:148)(cid:139)(cid:204)(cid:225)(cid:1)(cid:77)(cid:209)(cid:168)(cid:139)(cid:198)(cid:92)(cid:198)(cid:139)(cid:1)(cid:130)(cid:181)(cid:194)(cid:194)(cid:139)(cid:130)(cid:204)(cid:1)(cid:168)(cid:155)(cid:148)(cid:139)(cid:198)(cid:117)(cid:218)(cid:155)(cid:175)(cid:149)(cid:1)(cid:74)(cid:74)(cid:24)(cid:1)(cid:219)(cid:153)(cid:139)(cid:175)(cid:139)(cid:218)(cid:139)(cid:194)(cid:1)(cid:194)(cid:139)(cid:193)(cid:209)(cid:155)(cid:194)(cid:139)(cid:135)(cid:2)(cid:168)(cid:219)(cid:117)(cid:225)(cid:198)(cid:1)(cid:219)(cid:139)(cid:117)(cid:194)(cid:1)(cid:198)(cid:139)(cid:117)(cid:204)(cid:1)(cid:129)(cid:139)(cid:168)(cid:204)(cid:102)(cid:153)(cid:155)(cid:168)(cid:139)(cid:1)(cid:135)(cid:194)(cid:155)(cid:218)(cid:155)(cid:175)(cid:149)(cid:455)(cid:1)(cid:135)(cid:181)(cid:1)(cid:175)(cid:181)(cid:204)(cid:1)(cid:209)(cid:198)(cid:139)(cid:1)(cid:225)(cid:181)(cid:209)(cid:194)(cid:1)(cid:191)(cid:153)(cid:181)(cid:175)(cid:139)(cid:1)(cid:117)(cid:175)(cid:135)(cid:1)(cid:135)(cid:181)(cid:1)(cid:175)(cid:181)(cid:204)(cid:1)(cid:139)(cid:224)(cid:130)(cid:139)(cid:139)(cid:135)(cid:1)(cid:198)(cid:191)(cid:139)(cid:139)(cid:135)(cid:1)(cid:168)(cid:155)(cid:174)(cid:155)(cid:204)(cid:198)(cid:58)(cid:181)(cid:1)(cid:117)(cid:168)(cid:130)(cid:181)(cid:153)(cid:181)(cid:168)(cid:1)(cid:181)(cid:194)(cid:1)(cid:135)(cid:194)(cid:209)(cid:149)(cid:198)(cid:219)(cid:153)(cid:155)(cid:168)(cid:139)(cid:1)(cid:219)(cid:181)(cid:194)(cid:166)(cid:155)(cid:175)(cid:149)(cid:1)(cid:181)(cid:194)(cid:1)(cid:135)(cid:194)(cid:155)(cid:218)(cid:155)(cid:175)(cid:149)(cid:74)(cid:194)(cid:181)(cid:204)(cid:139)(cid:130)(cid:204)(cid:1)(cid:225)(cid:181)(cid:209)(cid:194)(cid:198)(cid:139)(cid:168)(cid:148)(cid:1)(cid:117)(cid:149)(cid:117)(cid:155)(cid:175)(cid:198)(cid:204)(cid:1)(cid:148)(cid:117)(cid:168)(cid:168)(cid:155)(cid:175)(cid:149)(cid:1)(cid:148)(cid:194)(cid:181)(cid:174)(cid:1)(cid:153)(cid:139)(cid:155)(cid:149)(cid:153)(cid:204)(cid:20)(cid:181)(cid:1)(cid:175)(cid:181)(cid:204)(cid:1)(cid:219)(cid:117)(cid:168)(cid:166)(cid:1)(cid:219)(cid:155)(cid:204)(cid:153)(cid:155)(cid:175)(cid:1)(cid:1)(cid:117)(cid:1)(cid:135)(cid:194)(cid:181)(cid:191)(cid:1)(cid:230)(cid:181)(cid:175)(cid:139)(cid:101)(cid:139)(cid:194)(cid:155)(cid:148)(cid:225)(cid:1)(cid:139)(cid:175)(cid:139)(cid:194)(cid:149)(cid:225)(cid:1)(cid:155)(cid:198)(cid:181)(cid:168)(cid:117)(cid:204)(cid:155)(cid:181)(cid:175)(cid:1)(cid:129)(cid:139)(cid:148)(cid:181)(cid:194)(cid:139)(cid:1)(cid:219)(cid:181)(cid:194)(cid:166)186

Sustainability – Responsible business

Responsible management of suppliers

Managing the social, ethical, environmental
and human rights impacts in Ericsson’s
supplier base is part of its full value chain
approach. Further, responsible management
of the supply chain is an important topic for
Ericsson and its stakeholders as regulations
and societal expectations are increasing glob
ally. This results in an increased focus from
Ericsson to work with its suppliers to achieve
continuous improvement aligned with the
Company’s responsible business strategy
(page 174).

Code of Conduct for Business Partners
During 2019, Ericsson issued a revised Code
of Conduct for Business Partners (CoC) (see
page 176), targeting the Company’s business
partners, including suppliers. The CoC is the
basis for Ericsson’s Responsible sourcing
program, covering four main areas: business

Performance of audited suppliers

18%

2019
audits

74%

Conformity
Warning
Critical

Performance of audited suppliers’
after follow-up

11%

2019
follow-ups

83%

ethics and anticorruption, human and labor
rights, occupational health and safety and
environmental management. Suppliers not
adhering to Ericsson’s requirements stated
in the CoC may be subject to termination of
their contracts.

Ericsson offers free online training to
support Business Partners in complying with
Ericsson’s requirements, covering the Ericsson
CoC; anticorruption; occupational health
and safety; and conflict minerals.

Audits and compliance
Ericsson engages a thirdparty audit firm to
assess the Company’s suppliers’ compliance
with the requirements in the CoC. In 2019,
160 audits were performed on suppliers
located in over 50 countries.

The Responsible Sourcing audit program
focuses on the suppliers in Ericsson’s top 90%
purchasing spend. This represents approxi
mately 3,000 suppliers, and among these, the
Company selects a number of candidates to be
audited. The selection is aligned to Ericsson’s
supplier strategy and is based on the following
criteria; geography, type of service or product
provided and time since last audit performed.
During 2019, 98% of Ericsson’s suppliers were
assessed through this approach.

Ericsson views each audit as an opportunity

for improvement and suppliers are expected
to address all identified findings. At CoC audits

during 2019, most of the major deviations
were found in the working hours, wages
and benefits area, and most of the minor
deviations were in the health and safety
and hazards area. See graph per audit area
in this page.

In addition, Ericsson performs supplier

audits with internal auditors for contract
compliance, which are broader than the CoC
audits. They cover questions from our CoC as
well as other topics that are related to sup
plier agreements, such as Trade Compliance,
Business Continuity Management and Secu
rity. In 2019, 34 contract compliance audits
were performed.

Business ethics and anti-corruption
Ericsson is using an automated anticorrup
tion screening tool to support the Company
in identifying potential ethical risks related to
its suppliers, which are screened on a weekly
basis. The scope of the screening includes con
tent such as regulatory, financial, environmen
tal, social and labor issues, adverse media as
well as watchlists including politically exposed
persons, sanction lists and state ownership.
Alerts are monitored and reviewed in the
screening process and noncompliant suppli
ers are handled in accordance with the Group
Sourcing directive. For further information on
the Company’s approach to anticorruption,
see page 182.

Performance of audited suppliers after follow-up, per audit area, %

Anti-Corruption

Environmental management

Communicating requirements to sub-suppliers

Chemicals handling

System for incident follow-up, preventive and corrective action

Accident and incident prevention

Health and safety standards and hazards

Competence management

Under-aged labor, forced labor/modern slavery

Working hours, wages and beneﬁts

Management dialogue, discrimination

Employment contracts, freedom of association

Conformity
Warning
Critical

100

Conformity

Warning

Critical

Ericsson Annual Report 2019Sustainability – Responsible business

187

all the way back to the mines. As a result, the
Company does not normally have a direct
purchasing relationship with mines, smelters
or refiners. During 2019 Ericsson continued its
efforts to increase transparency and continued
its work with due diligence relating to the
sourcing of electronic, electric and mechanical
components containing 3TGs.

As a member of the Responsible Mineral
Initiative the Company has supported the sys
tem for certification of smelters and refiners,
which is known as the Responsible Minerals
Assurance Process (RMAP).

The Company’s Conflict Minerals Reports

prepared under the US DoddFrank Act are
available on Ericsson’s website.

Main risks include:
– Workforce or thirdparty failure to
comply with the Ericsson Code of
Conduct for Business Partners.

– Change or new regulatory requirements
could adversely affect the reporting
of the origin as well as sourcing, avail
ability 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 its due
diligence procedures.

Human and labor rights
Focus on human rights is increasing through
regulations as well as stakeholder expecta
tions and requirements. Ericsson’s salient
human rights issues in responsible sourcing
relate to labor rights. Main issues identified
are occupational health and safety, especially
in relation to installations and site mainten
ance, working hours, modern slavery, migrant
workers’ rights and risks related to sourcing
of raw materials.

One of the focus areas during 2019 was
modern slavery; mapping Ericsson suppliers
in highrisk countries, engaging with key sup
pliers to reach beyond first tier, and training of
Ericsson Sourcing personnel on identification
and prevention of modern slavery. For more
information on the Company’s work on mod
ern slavery see the Ericsson Modern Slavery
and Human Trafficking Statement published
on Ericsson’s website.

Occupational health and safety
The Company’s occupational health and
safety (OHS) consequence management
program aims at strengthening compli
ance, improving safety standards as well
as encouraging and facilitating reports of
noncompliance. The program applies to
site service suppliers, and in 2019 the most
frequently highlighted findings were related
to climbing, use of personal protective equip
ment and lack of safety competence. During
2019 the program was expanded to include
logistics service providers, as driving is seen as
a highrisk activity. For more information on
Ericsson’s approach to OHS, see page 185.

Environmental management
Significant environmental aspects in the
supply chain are associated to suppliers’ car
bon footprint and the generation of waste.
The reduction of Ericsson’s supply chain
carbon footprint is a prioritized environmental
area for the Company. Ericsson requires
its suppliers to plan for implementation of
programs and targets to reduce their climate
emissions to be in line with the Paris agree
ment to limit global warming to 1.5°C. By
2025, Ericsson’s suppliers responsible for
90% of the Company’s supply chain carbon
emissions shall have a 1.5°C target. See page
189–193 for more information on the Compa
ny’s approach to environmental sustainability.

Raw materials sourcing due diligence
Ericsson’s approach to sourcing of minerals
and metals is in line with the OECD Due
Diligence Guidance for Responsible Supply
Chains of Minerals from ConflictAffected and
HighRisk Areas (OECD Guidance). Conflict
minerals, tin, tantalum, tungsten and gold
(3TGs), is a topic of growing importance for
Ericsson and the industry.

In 2019, Ericsson informed its suppliers
that the Company is considering adding more
geographies into the scope of work with raw
materials, and thus require more information
from its suppliers. Ericsson is also investigat
ing solutions and technologies for increased
traceability of materials and minerals in the
supply chain.

There are often several tiers of suppliers
between Ericsson and any smelters or refiners
of minerals; even more when tracing a mineral

Responsible Minerals Assurance Process (RMAP) conformant smelters and refiners 1)

3TGs

Tin
Tantalum
Tungsten
Gold

Total no. of smelters

1) Based on suppliers response by 2020/01/26.

Smelters
assessed in
the supply chain

79
40
43
111

273

Smelters
conformant
to RMAP

77
40
43
106

266

Smelters
conformant
to RMAP (%)

97%
100%
100%
95%
97%

Ericsson Annual Report 2019188

Sustainability – Responsible business

Radio waves and health

In all mobile networks, including the fifth
generation (5G), connected devices communi
cate with base stations using radiofrequency
electromagnetic fields (EMF), also known as
radio waves. Since the adoption of mobile
telephony in the 1990s there has been 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 sciencebased radio wave
exposure limits. These limits have been set
by the International Commission on Non
Ionizing Radiation Protection (ICNIRP) and
include wide margins to provide protection
from established adverse effects on health.
Based on the latest available research, ICNIRP
concluded in 2019 a revision of its guidelines
which will be published in the beginning of
2020. The new limits presented by ICNIRP are
largely unchanged and confirm the safety of
the limits that mobile communication equip
ment currently comply with.

Governance, policies and directives
Ericsson Research, the Company research
organization within Group Function Tech
nology, is accountable for this topic. In accor
dance with Ericsson’s Electromagnetic Fields
and Health Policy, Ericsson’s radio products
are tested in Ericsson Research’s EMF Labor
atory 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 require
ments for the competence of testing and
calibration laboratories, and it is accredited by
the Swedish 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.

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
typically less than a percent of international
limits, since the intensity of radio waves drops
quickly with distance from the antenna. Base
station antennas are installed to secure that
unauthorized people do not have access to
areas where EMF limits may be reached.

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 cosponsored over
100 independent studies on electromagnetic
fields and health, primarily through the
Mobile and Wireless Forum (MWF). To ensure
scientific independence, firewalls were in
place between the industrial sponsors and the
researchers and all results were made avail
able by publication in open scientific literature.

A summary of the EMF and health research
that has been funded by the MWF since 1998
is available on the Company´s website.

Ericsson develops products and solutions
for the 5G mobile communication networks
and designs and tests the 5G products for
compliance with established radio wave expo
sure limits. In 2019, a unique software feature
was made available for 5G products, which
helps customers control the transmitted power
to within limits determined for compliance
with applicable EMF regulations. Ericsson is
involved in the development of international
technical standards for testing and installation
of 5G products to ensure compliance with
EMF limits for the general public and workers.
Ericsson Research has contributed to the
International Electrotechnical Commission
report IEC TR 62669 that was published in
2019 and which provides guidelines 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.

5G, electromagnetic fields and health

All 5G frequency bands are covered by
current EMF safety standards and limits

5G devices and base stations need to
meet the same EMF safety requirements
as current equipment

The total EMF exposure will remain low
compared to international EMF limits
also with 5G

World Health Organization and other
health agencies have concluded that no
health effects have been established from
exposure to radio waves used for mobile
communications

Ericsson Annual Report 2019Environmental sustainability

During the past years, external expectations
and requirements on companies to further
develop their work within sustainability has
increased, where climate change is the most
urgent challenge globally. However, environ-
mental topics are interrelated, meaning that
companies need to take a holistic approach
in this area.

Proactive management of topics relating to
climate action and environment is a core com-
ponent of Ericsson’s sustainability strategy.
The Company focuses on a circular approach
where the energy efficiency of its products,
sustainable materials management, reuse
and recycling are key areas of importance.

Ericsson supported the Paris Agreement in

2016 and in 2017 committed to the Science
Based Target (SBT) Initiative. As one of the

Ericsson circular economy approach

Materials

Supply

Design

Use

Reuse/
Recycle

Take back

first companies aligning to the 1,5°C trajectory,
the Company has set targets that have been
approved by SBT Initiative. Ericsson’s work
on environmental sustainability is divided in
four areas:
– Reduce Ericsson’s own emissions.
– Increase the energy performance of
Ericsson’s products and solutions.

– Implement a circular economy approach

to product design and material use.

– Demonstrate how Ericsson’s business and
products can enable society and other
industries to reduce their emissions.

In 2019, Ericsson established a company-
wide Circular Economy and Sustainability
Program, governed by the Company’s Execu-
tive Team. The scope of the program is to
accelerate and fully integrate circularity and
sustainability related aspects of the Com-
pany’s products and services. The program is
cross-functional, involving the Business Areas
and consists of six workstreams; product
energy performance, climate action, circular
business, materials and substances, respon-
sible sourcing and a cross- functional stream
focused on standardization and legislation.
The program is expected to substantially
contribute to Ericsson’s purpose of empower-
ing an intelligent, sustainable and connected
world, and to help fulfil its SBTs within its own
activities and product energy performance
(see pages 190 and 191).

Sustainability – Environmental sustainability

189

Ericsson’s carbon footprint

The environmental impact of Ericsson’s prod-
ucts and operations are quantified based on
life-cycle assessments. During 2019, Ericsson
research shows that the lifetime energy usage
from Ericsson’s delivered products, remains
a major contributor to the Company´s carbon
footprint. In total, this corresponds to over
81% of the total carbon footprint.

Ericsson life-cycle assessment
carbon footprint 2019

Mtonnes CO2e

˜33

˜5

˜ 3

0.49

-5

Activities in 2019
Supply chain
Ericsson’s
own activities

˜–0.4

Future (lifetime) operation
of products delivered in 2019

Operator activities
Products in operation
(entire lifetime)
End-of-life treatment

~ Approximately

Ericsson Annual Report 2019190

Sustainability – Environmental sustainability

Global climate action

Action to tackle climate change is needed
globally, and thus Ericsson is involved with
working through partnerships to scale ambi-
tion and action in line with the Intergovern-
mental Panel on Climate Change (IPCC)
1,5°C trajectory. For over two decades Ericsson
has conducted research on how the Informa-
tion and Communication Technology (ICT)
sector impacts the environment and society.
The Company collaborates with universities
and businesses and published research in
peer-reviewed articles in scientific journals,
reports and at conferences. Furthermore,
Ericsson Research has also focused on how
the Company´s products can be deployed in
society through partnerships to further enable
global greenhouse gas emissions reductions.
Climate action is one of the workstreams
under the Company’s Circular Economy and
Sustainability Program established in 2019.
This work is designed to create a systematic
connection on Ericsson’s internal work to
continue defining and executing on its long-
term climate targets as well as to improve
Ericsson’s reporting on own activities, see
page 191.

Climate advocacy for a 1,5°C future
The Paris Agreement, supported by Ericsson
in 2016, together with scientific reports from
IPCC, articulate the need for further actions
to limit the global warming to 1,5°C above
pre-industrial levels. Based on this, in 2017
Ericsson set emission reduction targets that
were recognized by the Science Based Targets
initiative (SBTi).

In 2019, to show further commitment,
Ericsson’s President and CEO signed the
Business Ambition for 1,5°C – pledge by UN
Global Compact and their campaign ’Business
Ambition for 1,5°C – Our Only Future’.

Furthermore, in 2019 Ericsson was an
active contributor to the SBT Initiative and
the development of a 1,5°C aligned trajec-
tory for the ICT sector, which would help ICT
companies to set 1,5°C targets and support a
fast decarbonization of the sector. This work is
performed in collaboration with the Interna-
tional Telecommunication Union (ITU), Global
System Mobile Association (GSMA) and Global
Enabling Sustainability Initiative (GeSI).
As shown by research conducted by
Ericsson and Telia Company, the ICT sector
is the world’s largest purchaser of renewable
energy. However, since the major part of the
sector´s life-cycle footprint is associated with
the use of energy, the switch to renewable
supply is key to further reduce the sector’s
carbon footprint.

The Exponential Roadmap
During 2019, the second report of the Expo-
nential Roadmap was launched in conjunction
to the UN Climate Action Summit and was
developed by leading organizations together
with Ericsson. The Roadmap shows that there
are 36 existing solutions across sectors that
can be scaled globally to help halve global
greenhouse gas emissions by 2030. To enable
this, the Exponential Roadmap identifies four
levers required to scale the transformation
as well as necessary actions and strategies

for each: policy, climate leadership and
movements, finance as well as exponential
tech nology. The report further states that ICT
solutions could directly reduce carbon emis-
sions by up to 15% in other industries by 2030
and indirectly support a further reduction of
35% through influence of consumer and busi-
ness decisions and systems transformation.

1.5 Business playbook
As a spin off from the Exponential Roadmap
initiative, Ericsson also supported the devel-
opment of the first 1,5°C Business playbook
for exponential climate action. The Playbook
provides a framework on how companies and
organizations of all sizes can fully integrate
climate action in their business strategies and
reach net-zero emissions.

Ericsson carbon neutral by 2030
In 2019, Ericsson made further commitment
to climate action by setting a target to be
carbon neutral by 2030 in its own operations
including fleet vehicles (Scope 1) and facility
energy usage (Scope 1 and Scope 2). Scope
definition according to the GHG Protocol
Corporate Standard.

Main risks include:
– Difficulty to estimate the future impact
of climate change and extreme weather
events.

Exponential climate action 1)

Ericsson own operations carbon neutral target 2)

Gtonnes

Energy

Industry

Buildings

Transport

Food

-10

-20

Nature-based sources

Nature-based sinks

2020

2030

2040

2050

Ktonnes

300

250

200

150

100

2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030

1) The Figure was developed and published by the Exponential Roadmap and 1.5°C
Business Playbook initiative. It shows the exponential trajectory of both, emission
reductions per sector and the carbon sequestration to limit global warming to 1.5°C.

Actual

Target

2) Ericsson’s own operations including fleet vehicles (S1) and facility energy usage (S1 and S2).

Ericsson Annual Report 2019Sustainability – Environmental sustainability

191

Ericsson’s own activities

Within Ericsson’s own activities, the Company
reports on carbon emissions1) from facility
energy usage, fleet vehicles, product trans-
portation and business travel. Emissions are
reported in line with the Greenhouse Gas
Protocol. Decarbonization of the Company
activities remain a key priority and actions to
reduce emissions are coordinated through the
Climate action workstream within Ericsson’s
Circular Economy and Sustainability Program.

Performance and activities
The Company’s Science Based Target (SBT) of
35% emission reduction from its own activities
by 2022 is consistent with reductions required
to limit warming to 1,5°C trajectory according
to SBT Initiative.

In absolute terms, during 2019, the Com-
pany achieved a reduction of approximately
133 ktonnes of carbon emissions compared
to baseline of 2016, which represents a 24%
reduction.

Facility energy
There was an overall reduction of carbon
emissions, from 145 ktonnes in 2018 to
135 ktonnes in 2019, derived from facility
energy usage in Ericsson’s real estate portfolio
(offices, production sites, data centers and
test labs), representing approximately 7%
reduction compared to 2018. We prioritize
the procurement of renew able energy in our
facilities in markets where available. Green
electricity amounts to 58% of the total
electr icity consumption.

Compared to 2018, the real estate portfolio
has, during 2019, been reduced to over 12% in
total square meters. Together with a reduction
in the average workforce, this had a direct
impact on the energy consumption which
supports emission reductions within the global
real estate portfolio.

The Company’s global facility manage-
ment providers are now servicing the Global
Portfolio and have agreed targets to further
reduce the energy consumption for office
related operations.

In 2019, Ericsson announced its plan to
open a smart factory in Lewisville, US in 2020.
The factory is designed to be up to 28% more
energy efficient than a comparable factory in
the US, implementing innovative energy sav-
ing technologies such as friction-free magnetic
levitation refrigeration and thermal energy
storage banks. Ericsson is pursuing LEED Gold
and LEED Zero Carbon certifications for the
facility, which will make it the first Ericsson
factory globally to achieve this distinction.

Fleet vehicles
In 2019, Ericsson’s fleet vehicle included
over 6,600 cars. The carbon emissions related
to fleet vehicles for 2019 was 38 ktonnes,
resulting in a 12% reduction from 2018.
Ericsson’s goal is to continue to reduce carbon
emissions per kilometer which can be achieved
by using its vehicles in a more efficient way,
for example, by implementing telematics and
trialing alternative fuels.

Product transportation
In 2019, the carbon emissions for product
transportation was 139 ktonnes, which was
76 ktonnes lower than in 2018. This con sid-
er able decrease in emissions resulted from
a reduction in using air freight transportation
for components, which was high in 2018 due
to component shortages. Further efforts have
been made to increase the use of surface
based transportations. Furthermore, Ericsson
has continued to implement its Transport-
ation Management System (TMS), which is
designed to enhance the consolidation, control
and planning of transports with the aim to
reduce costs and environmental impact.

Business travel
The carbon emissions from business travel in
2019, were 114 ktonnes which corresponds
to an increase of 4% from 2018.

Main risks include:
– New or changes in stakeholders or regula-
tory environment requirements related to
Ericsson´s own activities.

– Absence of scalable sustainable solutions
in some regions could adversely impact
Ericsson’s own activities strategy and
target fulfillment.

1) For the purpose of this report, carbon emissions is used instead of carbon dioxide equivalents. Carbon dioxide equivalents (CO2e) is used to convert

other emitted greenhouse gases’ global warming potential to a common metric, to understand their effect on the climate during a specific time period.

Ericsson’s own activities 2), Carbon footprint target

Ktonnes

600

500

400

300

200

100

560

481

513

427

364

Baseline

2016

2017

2018

2019

2020

2021

2022

Facility energy usage and fleet vehicles (S1)
Ericsson’s own activities’ carbon footprint reduction ambition

Facility energy usage (S2)

Business travel and product transportation (S3)

2) Ericsson’s own activities including facility energy use (S1 and S2), fleet vehicles (S1), business travel (S3), and product transportation

(excluding commuting, S3).

Ericsson Annual Report 2019192

Sustainability – Environmental sustainability

Network energy performance

Energy use in network operation remains a pri-
ority for Ericsson and its customers. Increased
energy performance of Ericsson’s products
and solutions offering is a key enabler to lower
customers’ total cost of ownership and net-
work related carbon footprint. The Company
is committed to develop innovative products
and solutions that enable the mobile industry
to meet current and future traffic demands
while simultaneously addressing the energy
consumption and climate challenge.

Ericsson’s work with network energy
performance (including energy efficiency
and absolute energy consumption) is one of
the workstreams within its Circular Economy
and Portfolio Sustainability program, which
includes representatives from Business Areas
and other relevant organizations.

5G – the most energy efficient standard yet
Ericsson has long been driving efficient energy
performance as one of the key requirements
in standardization and development. 5G is
designed to enable high performance and low
network energy consumption. Key technical
enablers for better energy performance are
ultra-lean design and Massive MIMO. Ultra-
lean design allows the mobile system to more
effectively use smart sleep modes during
periods of low load. Massive MIMO extends
the coverage area, provides higher capacity
and speed, and therefore allows the system
to faster return to a state of low load.

From vision to reality
There are concerns in the industry that 5G will
increase the total network energy use, based
on the fact that each new mobile network
generation historically has entailed a rise in
energy consumption. To address this concern,
Ericsson developed in 2016 a vision to break
the increasing energy curve, presenting a
structured approach to reduce the energy
consumption of mobile networks.

The shift to 5G brings an opportunity
for our customers to efficiently address the
overall energy cost of the existing network
by modernizing and replacing old equipment.
The latest radio equipment also opens up
for a more energy efficient way to aggregate
standards, and sleep modes can be utilized
more strategically. As telecom operators
expand their 5G networks, deploying the
right configurations are key to meet the traffic
demands with both the lowest investment
and energy consumption.

Among the efforts to make this vision
a reality, the Company has been driving
three product targets.

Ericsson 5G energy performance target
One of the Company targets is that by 2022,
Ericsson’s 5G product portfolio is ten times
more energy-efficient, for the same trans-
ferred data, than 4G portfolio (baseline 2017)
for an enhanced mobile broadband (eMBB)
use case. Results from 2019 show that the
Company’s current 5G radios are already
approximately five times more energy-efficient.

Targets on installed base modernization
Ericsson believes that energy savings can
be achieved by replacing less efficient equip-
ment in a legacy network. Thus, the Company
has set a target of 35% energy saving in
Ericsson Radio System (ERS) versus the leg-
acy port folio by 2022 (baseline: RBS 6000,
2016 portfolio). This target has been approved
by Science Based Target initiative. In 2019, the
Company achieved a 32% energy saving from
delivered ERS radios versus the legacy portfolio.
To help avoid the use of diesel generators on

sites, Ericsson supports its customers to find
economically viable renewable energy solu-
tions where electricity grids are unreliable.
To achieve this, a Company target was set in
2016 to innovate making renewable energy
sources economically feasible in 25% of a total
installed base by 2020. In 2019, Ericsson con-
cludes that this target has been achieved based
on the improvements made on both its radio
base stations and site management solutions.

Main risks include:
– New or changes in stakeholders or regula-
tory environment requirements related to
product energy consumption.

Breaking the energy curve

Energy
comsumption

5G
5G + Ericsson’s approach to brake the energy curve.

Time

Ericsson 5G energy performance
target

Improvement

10x

5,5x

2017

2018

2019

2020

2021

2022

Baseline

Actual

Target

Ericsson Annual Report 2019Sustainability – Environmental sustainability

193

Circular economy approach to design and material use

Efficient and sustainable use of materials is
a topic with growing importance on a global
level. Potential impacts are associated with
resource exploitation such as mining of
min erals and risks of pollution, as well as the
increasing awareness related to the scarcity
of raw materials used in Information and Com-
munications Technology (ICT) solutions, such
as rare earth metals. Additionally, require-
ments related to the content of substances
in products are increasing worldwide. 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.

in the supply chain and product content know-
ledge to support circular economy agendas.
Environmentally conscious design has
been an integrated part of the Ericsson prod-
uct development process for over twenty years
to ensure that requirements from regulators,
standards and customers are implemented.
To fulfill the Company’s design requirements,
secure compliance and enable substance
phase-out, Ericsson requires its suppliers to
adhere to the Ericsson List of Banned and
Restricted Substances List and collects full
material declarations from its component
suppliers. Principles such as product durabil-
ity, upgradability, reparability, serviceability
and recyclability are an integrated part of
the Ericsson product-design and life-cycle
management processes.

For Ericsson, efficient and sustainable use

Software installations can be done

of materials is based on a circular economy
approach, including responsible materials
selection and product design, effective reuse
and efficient recycling. The work is based on
more than 20 years of life-cycle assessments
covering data on raw material extraction,
design, manufacturing, transport, use of pro-
ducts and end-of-life management. Ericsson’s
sustainability strategy includes the develop-
ment, manufacture and distribution of pro-
ducts where circular business models and
materials efficiency are key.

Circular economy is one of the workstreams

under the Company’s Circular Economy and
Sustainability Program established in 2019.

Efficient use of raw materials
The use of materials involves both, risks, such
as unwanted substance content as well as
opportunities, such as innovative materials
that can impact energy performance positively.
Further on, there is an increased focus from
stakeholders related to materials traceability

remotely. During 2019 Ericsson continued to
launch new multi band radios. The hardware
weight can be reduced by approximately 40%
compared with a single band implementation.
In 2019 as part of the Company’s Circular
Economy and Sustainability Program, Ericsson
initiated a workstream to further coordinate
and drive design and material related topics
in product development. This includes topics
such as material content and selection to
minimize unwanted substances and materials,
material innovation aiming at new materials
that can contribute to increased product
energy performance and product modularity.

Circular economy business transformation
Minimizing waste and increasing materials
efficiency is a key factor in a circular economy
context. Ericsson’s strategy in this area
includes reuse, refurbishment and sales of
used equipment as well as exploration of new
business models within circular economy.

Producer responsibility
The Ericsson group take-back directive steers
the Company’s extended global producer
responsibility for products that have reached
their end-of-life stage. When end-of-life
equipment is collected through the Product
take-back program, Ericsson works to secure
data-wiping, compliance with relevant
legislation and the delivery of a certificate
of destruction to its customers with the
purpose to secure and fulfil any privacy and
data-protection requirements.

In 2019 the total weight of retrieved equip-

ment was over 8,400 metric tons. As equip-
ment is the property of the customer, the
take-back depends on customer management
of used equipment. Ericsson believes that
improving standards and handling of used
equipment are important activities to reduce
the risk of privacy breaches due to poor data-
wiping and the uncontrolled recycling opera-
tions that causes environmental harm. This
trend is further enhanced by the drive for a more
circular economy approach in the industry.

Main risks include:
– Materials scarcity and regulatory require-

ments may impact supplier ability to deliver
components.

– Ericsson products, at the end-of-life stage,
not entering its Product take-back program
may end up in poorly managed waste
treatment.

– Regulatory and customer requirements

related to circularity may impact Ericsson’s
product design and product development
strategies.

During the year, the Company launched Ericsson Refurbished Spares,
a commercial offering focusing on buy-back, refurbishment and re-use of
spare parts from used equipment, to create both customer and sustainability
value. Ericsson refurbished spares’ quality is comparable to new ones and
supports a more efficient way to utilize materials in a circular approach.

Ericsson Annual Report 2019194

Sustainability – Digital inclusion

Digital inclusion

For more than a century, Ericsson’s technol-
ogies have transformed sectors across society.
The Company remains committed to leading
this journey and believes that deployment of
mobile broadband networks can help tackle a
range of global challenges.

Ericsson continues to research and develop

products and services that support and reach
for the accessibility and affordability of com-

munication infrastructure by offering services
that drive sustainable economic growth
and innovative solutions across areas such
as education, financial services, health and
humanitarian response.

The Company believes that partnerships
are at the heart of the Sustainable Develop-
ment Goals, and public-private partnerships
play a key role in Ericsson’s approach to

sustainability and digital inclusion. Ericsson
drives two public-private partnership pro-
grams globally: Connect to Learn and Ericsson
Response.

The Company leverages employee and
customer engagement to demonstrate the
positive impacts of technology in society.

Ericsson Annual Report 2019Sustainability – Digital inclusion

195

Partnerships for progress
Partnerships are at the heart of the Sustain-
able Development Goals, and public-private
partnerships play a key role in Ericsson’s
approach to sustainability. The Company
takes a proactive leadership role in a number
of high-level forums and collaborates with a
wide range of stakeholders to scale the impact
of its sustainability efforts. Programmatically,
Ericsson drives two public-private partnership
programs: Connect to Learn and Ericsson
Response.

Connect to Learn is Ericsson’s flagship
education program. Its purpose is to empower
teachers, students and schools through ICT
solutions to deliver a quality 21st century
education, as well as providing young people
worldwide with digital skills and prepare them
for a 5G future.

Ericsson Response is the Company’s global

volunteer initiative, aimed at responding to
human suffering caused by disasters. Together
with partners, Ericsson uses its core compe-
tencies to provide communication and support
to help humanitarian workers save lives and
support communities affected by natural
disasters.

The Company’s Technology for Good
employee volunteer program is being rolled-
out step-wise globally and it has activated
employees in more than 80 countries, with
more than 2,600 registered employee volun-
teers on its platform. Employees engage in
Connect to Learn and Ericsson Response as
well as in different locally relevant initiatives.

Main risks include:
– Without policy frameworks in place sup-
porting affordability and accessibility,
new digital divides could emerge.

Digital inclusion

Access to mobile broadband
Access to mobile broadband for all offers
unprecedented opportunities to improve social
inclusion, sustainable innovation, economic
growth and productivity. The rapid develop-
ment in society through digitalization depends
both on mobile broadband coverage in
densely as well as on sparsely populated areas.

However, as stated in the UN Human

Development Report 2019, lack of broadband
coverage and technological advances such
as machine learning and artificial intelligence,
can leave behind entire groups of people or
even countries, creating the spectre of an
uncertain future under these shifts. Over 40%
of the world’s population lacks internet access.
Year on year, the number of subscribers
that get access to internet through Ericsson’s
mobile broadband solutions has increased
with approximately 115 million.

World population coverage by technology1,2)

3GPP

2018

2025

4G (LTE)

2018

2025

2018

<1%

~95%

~75%

>90%

2025

55–65%

1) Source: Ericsson Mobility Report November 2019.
2) The figures refer to coverage of each technology. The ability

to utilize the technology is subject to factors such as access to
devices and subscriptions.

Momentum continues in the build-out
of s4G (LTE) networks and global population
coverage is forecasted to reach over 90%
in 2025, see graph in this page.

Solutions for sustainable economic growth
There is evidence that mobile broadband
penetration contributes to Gross Domestic
Product (GDP) growth. Ericsson has in previ-
ous years done a joint research project with
Imperial College in London. Results show
that, on average, a 10% increase in the mobile
broadband adoption ratio causes a 0.8%
increase in GDP. In 2019, a continuation of
this cooperation focused on the correlation
between Internet of Things (IoT) deployment
and productivity as well as GDP.

One of the Company’s solutions, the
Ericsson Wallet Platform, allows users to
transfer and withdraw money, paying mer-
chants and utility providers. It also contributes
to digital inclusion by enabling the usage of
financial services like savings and loans in
a more open, easy and accessible way.

Advocacy
Through the Company’s work in fora such as
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 broadband, which underpin
achievement of the Sustainable Development
Goals, are affordable and accessible to all.
In these forums Ericsson advocates efforts
such as spectrum policies and international
investments as well as 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 Development
Cooperation Agency (SIDA) and SPIDER, one
of the programs focusing on capacity building
so that populations will have access to good
quality and secure telephony and broadband
services and communications.

Board of Directors

Stockholm, March 2, 2020

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

Ericsson Annual Report 2019196

Sustainability – Consolidated sustainability notes

Consolidated sustainability notes

S1 Reported compliance concerns

S4 Diversity

Compliance concerns reported to Audit and Compliance Committee, received
via Ericsson Compliance Line but also via certain other channels.

The category of reported compliance concerns is determined based on the
most significant impact identified by Corporate Investigation’s 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

2019

2018

2017

2016

2015

25
20
20
42

23
20
27
23

25
20
31
48

23
20
35
40

22
18
31
36

Reported compliance concerns (by category)

Fraud, corruption and
regulatory breach (%)
Security (%)
Operations (%)
Human resources (%)
Conflicts of interest (%)
Sustainability (%)
Other (%)

Total (No.)

2019

2018

2017

2016

2015

35
6
12
24
9
0
15

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

538

445

412

145

116

S2 Sensitive business

Number of cases reviewed in the sensitive business process

Cases approved
Cases approved with
conditions
Cases rejected

Total

2019

262

358
31

651

2018

362

199
26

587

2017

593

210
43

846

2016

350

209
45

604

2015

312

98
28

438

S3 Information security and privacy

Iinformation security and privacy incidents reported through Security Incidents
Management System (SIMS).

Number of incidents reported via SIMS1)

Critical
Major
Medium
Minor

Total

2019

3
30
1,233
2,574

3,840

2018

8
51
887
2,366

3,312

2017

5
54
963
2,213

3,235

20162)

20152)

18
82
852
1,573

2,525

1
91
1,120
1,612

2,824

1) Excluding both canceled and unrelated incidents reported.
2) Only information security incidents reported through SIMS.

S5 Occupational health and safety

Number of occupational health and safety fatalities and major incidents
reported via Ericsson Global Incident Reporting Tool (GIRT) by geography.
Ericsson suppliers are to report occupational health and safety incidents
that occur during the operations on behalf of Ericsson, according to binding
OHS requirements via GIRT.

Number of fatalities

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

2019

2018

2017

2016

2015

0
0
0
0
0

2019

2018

2017

2016

2015

2
0
1
7
1

2
1
0
3
8

6
1
0
6
10

6
2
0
6
3

4
0
0
4
19

Total

Number of major incidents 3)

Ericsson employees, supply chain and public

South East Asia Oceania
and India
North East Asia
North America
Europe and Latin America
Middle East and Africa

Total

2019

2018

2017

2016

2015

21
5
29
106
18

179

24
3
5
944)
94)
1354)

24
19
4
147
19

213

33
19
4
115
15

186

15
8
2
94
49

168

3) Major incidents is defined as incident that results in more than 3 days lost work days.
4) Nominal discrepancies with previous reporting.

Ericsson Annual Report 2019Sustainability – Consolidated sustainability notes

197

S6 Environmental aspects

S8 Green House Gas Emissions (CO2e)

Ericsson uses life-cycle assessment (LCA) as input to identify significant envi-
ronmental 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 usage (facilities’ energy use) (GWh) 5)

Ericsson own activities (direct and indirect) (Ktonne)

Electricity 6)

Of which renewable

District heating
Other energy

Total

2019

2018

2017

2016

2015

588
333
26
50

665

634
335
33
49

716

704
357
33
45

782

788
351
34
60

882

759
331
30
81

870

Energy intensity (GWh/SEK billion)

Total

Business travel (Mpkm)

Air travel
Road travel
Fleet vehicles
Commuting

Total

2019

2.9

2018

3.4

2017

3.9

2016

4.0

2015

3.5

2019

2018

2017

889
60
198
360

800
57
260
370

928
55
351
415

1,507

1,487

1,749

2016

1,134
71
377
440

2,022

2015

1,177
91
386
448

2,102

Product transportation (Mtonnekm)

Air transport
Road transport
Sea transport
Rail transport
Total

2019

2018

2017

2016

2015

175
245
370
10
800

295
235
296
1
827

161
288
212
1
662

178
304
370
5
857

231
232
296
9
768

S7 Environmental impacts

Total

2019

487

2018

575

2017

550

2016

633

2015

675

Direct (Ktonne)

Facilities’ energy use (S1)
Fleet vehicles (S1)
Facilities’ energy use (S2)

Total

Indirect (Ktonne)

Business travel (S3) 7)

Product transport (S3)
Commuting (S3)

Total

Other indirect (Mtonne)

Use of sold products.
Products in operation (S3)

Total

2019

2018

2017

2016

2015

11
38
124

174

11
43
134

188

14
59
156

229

14
61
185

260

18
64
183

266

2019

2018

2017

2016

2015

114

139
60

314

110

215
61

386

123

129
69

320

154

146
73

373

163

172
75

410

2019

2018

2017

2016

2015

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.

Emission factors used in the consolidation

Office and production sites waste management (Tonne)

Aspect

Electricity

Emission factor

Source/Comments

Recycling
Energy
Landfill
Hazardous

Total

2019

4,900
2,300
3,800
13

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

11,013

10,217

11,755

13,670

14,490

Product take-back (including batteries) and end-of-life treatment

Re-use (%)
Recycling (%)
Energy (%)
Landfill (%)

Total (Tonne)

2019

2018

2017

2016

2015

2
91
6
1

0
93
5
1

0
94
5
1

0
93
5
2

0
95
3
2

8,403

8,380

12,252

14,009

16,446

Water consumption (Mm3)

Total

2019

1.5

2018

1.6

2017

1.8

2016

2.7

2015

2.5

5) Numbers reflect measurements on real estate contracted floor area (80%), electricity consumption

(90%) and reported emission (85%) and extrapolation to cover 100% of Ericsson’s activities.

6) District cooling converted into electricity.

Country specific for sup-
ply mix (location based)
and residual mix
(market based)

Green electricity 0 kgCO2/kWh
District heating,
other regions
District heating,
Sweden

0.2 kgCO2/kWh

0.074 kg CO2/kWh

Air travel

0.11 kgCO2/pkm

Car travel

0.165 kgCO2/pkm

Air transport
Road transport

Sea transport
Rail transport

0.65 kgCO2/tonnekm
0.066–0.08 kgCO2/
tonnekm
0.012 kgCO2/tonnekm
0.029 kgCO2/tonnekm

7) Excluding fleet vehicles (Scope 1).

International Energy Agency (IEA), US
Energy Information Administration (EIA),
European Residual Mixes 2018
Association of Issuing Bodies (AIB)
Scope 2
Country-specific

Site-specific from district heating suppli-
ers

GHG protocol for long/medium air travel.
DEFRA GHG indicators for long air travel.
European Federation for Transport and
Environment AISBL

Emission factors are averages provided
by Ericsson’s Logistic Service Providers.

Ericsson Annual Report 2019198

Sustainability – Auditor’s assurance report

Auditor’s Assurance Report on the Sustainability and Corporate Responsibility Report
and statement on the statutory sustainability report

To the general meeting of the shareholders in Telefonaktiebolaget LM Ericsson, corporate identity number 556016-0680.

Introduction
We have been engaged by the Board of Directors and Executive Management of Telefonaktiebolaget LM Ericsson (publ)
(“Ericsson”) to undertake an assurance engagement of the Ericsson Sustainability and Corporate Responsibility Report 2019.
The company has defined the scope of its sustainability report on page 41, which also constitutes Ericsson’s statutory sustain-
ability 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 173, consist of the parts of the GRI Sustainability Reporting Standards, which
are applicable to the Sustainability Report, and the accounting and calculation principles that Ericsson 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. Our assignment is limited to the historical
information that is presented and thus does not include future-oriented information.

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). The assurance
engagement includes limited assurance on the complete Sustainability and Corporate Responsibility Report, and an audit of
CO2e emissions data regarding Ericsson’s own activities on page 197. The objective of an audit is to obtain reasonable assur-
ance 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. We conducted our
examination of the statutory sustainability report in accordance with RevR 12, Auditor´s report on the statutory sustainability
report. A limited assurance engagement and an examination according to RevR 12 have a different focus and a considerably
smaller scope compared to the focus and scope of an audit in accordance with International Standards on Auditing and other
generally accepted auditing standards in Sweden.

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. We are independent in relation to Ericsson according
to generally accepted auditing standards in Sweden and have fulfilled our professional ethics responsibility according to these
requirements. 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.

The procedures performed in a limited assurance engagement and examination according to RevR 12 do not allow us
to obtain such assurance that we become aware of all significant matters that could have been identified if an audit was
performed. The stated conclusion based on a limited assurance and review in accordance with RevR 12, therefore, does not
have the security that the conclusion of our reasonable assurance procedures. Since this assurance engagement is combined,
our conclusions regarding the reasonable assurance, the limited assurance and the review according to RevR12 will be
presented in separate sections.

Our procedures are based 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.

Ericsson Annual Report 2019Sustainability – Auditor’s assurance report

199

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.

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 recognize that Ericsson has a clear commitment from management to be accountable to stakeholders, actively seeking
engagement with and input from key stakeholders to further develop the company’s approach to sustainability and corporate
responsibility. We understand that Ericsson is evaluating improved metrics to better be able to measure the effectiveness,
outcomes and impact of stakeholder engagement, and we encourage Ericsson to continue this work. We have no other specific
recommendations regarding inclusivity.

Regarding materiality
We can confirm that Ericsson has a well-established process in place for making relevant and comprehensive assessments of
material sustainability and corporate responsibility topics. This process has also been applied at business area level, and in 2019
was extended to the market areas, focusing on the perceptions of customers and governments. As in previous years, Ericsson
has administered a group-wide survey to gather input on material topics from employees, also contributing to raising aware-
ness on sustainability and corporate responsibility in the company. We have no specific recommendations regarding materiality.

Regarding responsiveness
We appreciate that Ericsson is attentive to stakeholder concerns and works systematically in responding to stakeholder input.
We have interviewed selected Ericsson stakeholders to assess the perceived level of responsiveness, and these stakeholders
all confirm that Ericsson addresses their key concerns and expectations in ongoing dialogues and through the annual Sustain-
ability and Corporate Responsibility Report. We have no specific recommendations regarding responsiveness.

Regarding impact
We recognize that Ericsson is well aware of the nature of the company’s direct and indirect impacts on stakeholders and
society, and is continuously developing processes and procedures to assess, measure and manage these impacts. One area
that requires more attention from all global companies is climate change, Ericsson has set science based targets and actively
contributed to development of a 1.5°C trajectory for the ICT sector and in 2019 set a target to be carbon neutral by 2030.
We encourage Ericsson to continue its efforts to mitigate and adapt to climate change, and also report on climate-related
risks in line with established frameworks.

Stockholm, March 2, 2020

PricewaterhouseCoopers AB

Bo Hjalmarsson
Authorized Public Accountant

Fredrik Ljungdahl
Sustainability Assurance
Specialist Member of FAR

Ericsson Annual Report 2019

200

Share information – The Ericsson share

The Ericsson share

Share trading

The Telefonaktiebolaget LM Ericsson (the Parent Company) Class A and Class B shares
(Ericsson shares) are listed on Nasdaq Stockholm. In the United States, the Class B shares
are listed on NASDAQ New York in the form of American Depositary Shares (ADS) evidenced
by American Depositary Receipts (ADR) under the symbol ERIC. Each ADS represents one
Class B share.

In 2019, approximately 1.9 (2.3) billion Class B shares were traded on Nasdaq Stockholm
and approximately 1.5 (1.4) billion ADS were traded in the United States (incl. NASDAQ New
York). A total of 3.5 (3.7) billion Ericsson Class B shares were thus traded on the exchanges in
Stockholm and in the United States. According to Nasdaq, trading volume in Ericsson shares
decreased by approximately 16 percent on Nasdaq Stockholm and increased by approx

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

2015

2016

2017

2018

2019

Cboe BXE/CXE
Stockholm
London

Turquoise
BOAT
Other

imately 7 percent in the United States when
compared to 2018.

With the implementation of the Mifid directive
in the EU, share trading became heavily fragmen
ted across a large number of venues and trading
categories. Trading on MTFs (multilateral trading
facilities) and other venues gained market shares
from stock exchanges such as Nasdaq Stockholm.
In the last few years however, following a series of
merger and acquisitions among trading venues,
trading has become more concentrated.

According to Nasdaq, trading in Stockholm rep
resented 33 percent of total trading in 2019. Total
trading in Ericsson B on all venues combined has
decreased over the past five years from 6.2 billion
shares in 2015 to 5.9 billion shares in 2019. Over
the same period, trading of Ericsson ADS in the US
has increased from 0.9 billion shares in 2015 to
1.5 billion shares.

Changes in number of shares and capital stock 2015–2019

2015
2016
2016
2017
2017
2018
2019

December 31
May 11, new issue (Class C shares, later converted to Class Bshares) 1)
December 31
May 10, new issue (Class C shares, later converted to Class Bshares) 2)
December 31
December 31
December 31

The Ericsson share

Share/ADS listings

Nasdaq Stockholm
NASDAQ New York

Share data

Total number of shares in issue
of which Class A shares,
each carrying one vote 1)
of which Class B shares, each carrying
one tenth of one vote 1)

Ericsson treasury shares, Class B
Quotient value
Market capitalization, December 31, 2019
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
19,853,247
SEK 5.00
SEK 272 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
26,100,000
3,331,151,735
3,000,000
3,334,151,735
3,334,151,735
3,334,151,735

16,525,258,678
130,500,000
16,655,758,678
15,000,000
16,670,758,678
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 LongTerm 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 LongTerm 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, nonIFRS (SEK) 2)
Dividend per share (SEK) 3)
Total shareholder return (%)
P/E ratio

2019

0.67

1.07
1.50
6
122

2018

–1.98

0.27
1.00
47
n/a

20174)

20164)

–9.94

–3.24
1.00
3
n/a

0.25

2.39
1.00
–32
101

2015

4.13

6.06
3.70
–9
20

1) Calculated on average number of shares outstanding, diluted.
2) EPS, diluted, excluding amortizations and writedowns of acquired intangible assets, and excluding restructuring charges, SEK.

A reconcilation of Alternative performance measures is available on pages 208–212.

3) For 2019 as proposed by the Board of Directors.
4) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers”.

Year 2015 have not been restated.

For definitions of the financial terms used, see Glossary and Financial Terminology.

Ericsson Annual Report 2019Share information – The Ericsson share

201

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
markups, markdowns or commissions, and do not necessarily represent
actual transactions.

(SEK)

Class A at last day of trading
Class A high
(Apr 24, 2019)
Class A low
(Jan 3, 2019)
Class B at last day of trading
Class B high
(May 22, 2019)
Class B low
(Aug 28, 2019)

2019

85.40

2018

77.40

2017

53.25

2016

53.00

2015

79.35

96.80

85.20

64.80

80.80

111.30

74.70
81.56

49.05
77.92

44.17
53.85

45.20
53.50

72.00
82.30

96.74

85.66

64.95

83.60

120.00

74.02

49.04

43.75

43.19

75.30

Source: Nasdaq Stockholm

Share prices on NASDAQ New York

(USD)

ADS at last day of trading
ADS high (Apr 17, 2019)
ADS low (Aug 28, 2019)

2019

8.78
10.46
7.58

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

Source: NASDAQ New York

Share prices on Nasdaq Stockholm and NASDAQ New York

Period

Annual high and low
2015
2016
2017
2018
2019

Quarterly high and low
2018 First Quarter
2018 Second Quarter
2018 Third Quarter
2018 Fourth Quarter
2019 First Quarter
2019 Second Quarter
2019 Third Quarter
2019 Fourth Quarter

Monthly high and low

August 2019
September 2019
October 2019
November 2019
December 2019

January 2020

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

111.30
80.80
64.80
85.20
96.80

59.10
71.20
82.20
85.20
92.50
96.80
92.60
90.30

89.90
81.70
90.30
88.60
89.00

90.60

72.00
45.20
44.17
49.05
74.70

49.05
51.20
65.60
72.80
74.70
86.20
75.00
75.20

75.00
75.70
75.20
83.80
83.20

80.00

120.00
83.60
64.95
85.66
96.74

59.22
71.20
80.42
85.66
90.66
96.74
91.24
90.48

87.24
81.72
90.48
88.78
89.12

86.18

75.30
43.19
43.75
49.04
74.02

49.04
50.82
66.30
72.82
74.70
85.46
74.02
75.22

74.02
74.82
75.22
83.76
81.40

75.14

13.14
10.20
7.47
9.45
10.45

7.37
8.05
9.11
9.45
9.89
10.46
9.71
9.32

9.00
8.40
9.24
9.22
9.32

9.09

8.87
4.83
5.52
6.00
7.58

6.13
6.00
7.47
8.04
8.26
9.00
7.58
7.64

7.58
7.65
7.64
8.68
8.63

7.82

Source: Nasdaq Stockholm and NASDAQ New York.

Ericsson Annual Report 2019
202

Share information – The Ericsson share

Shareholders

As of December 31, 2019, the Parent Company had 414,760 shareholders
registered at Euroclear Sweden AB (the Central Securities Depository – CSD),
of which 764 holders had a US address. According to information provided
by the Company’s depositary bank, Deutsche Bank, there were 330,824,140
ADSs outstanding as of December 31, 2019, and 3,376 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 9, 2020,
the total number of bank, broker and/or nominee accounts holding Ericsson
ADSs was 118,312.

According to information known at yearend 2019, approximately 87% 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, 2019.

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

2,224,585

0.07%

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

Germany

2019

44.32%

25.83%

5.68%

4.71%

1.56%

2018

44.40%

25.09%

6.20%

4.12%

1.10%

Other countries

17.90%

19.09%

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

2019

60.56%

22.53%
19.26%
4.99%

26.18%

4.87%

8.39%

2018

60.23%

22.53%
19.26%
5.38%

27.49%

4.97%

7.31%

1) Together with SHB Pensionsstiftelse and Pensionskassan

SHB Försäkringsförening.

Source: Nasdaq

Number of shares 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, 2019 2)

No. of
shareholders

332,378
37,857
36,812

4,446
1,150
526
1,589

414,760

No. of
shares A

1,376,721
992,297
2,872,875

1,085,465
456,577
327,218
254,644,830

261,755,983

No. of
shares B

Percentage
of share capital

Percentage
of voting rights

Market value
(MSEK)

42,441,515
27,647,286
76,893,710

30,663,776
13,803,115
9,047,953
2,872,132,329

3,072,395,752

1.31%
0.86%
2.39%

0.95%
0.43%
0.28%
93.78%

0.99%
0.66%
1.86%

0.73%
0.32%
0.22%
95.23%

100.00%

3,579
2,340
6,517

2,594
1,165
766
256,049

272,991

1) Source: Euroclear.
2) Includes a nominee reporting discrepancy of 233,932 shares.

The following table shows share information as of December 31 2019 with respect to the 15 largest shareholders ranked by voting rights as well as their
percentage of voting rights as of December 31 2019, 2018 and 2017.

Largest shareholders December 31, 2019 and percentage of voting rights December 31 2019, 2018 and 2017

Identity of person or group 1)

Investor AB
AB Industrivärden
Cevian Capital
Svenska Handelsbankens Pensionsstiftelse
Swedbank Robur Fonder AB
AMF Pensionsförsäkring AB
PRIMECAP Management Company
BlackRock Institutional Trust Company, N.A.
AFA Försäkring AB
Norges Bank Investment Management (NBIM)
The Vanguard Group, Inc.
Handelsbanken Asset Management
Livförsäkringsbolaget Skandia, ömsesidigt
Fidelity Management & Research Company
State Street Global Advisors (US)
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

2019 Voting
rights percent

2018 Voting
rights percent

2017 Voting
rights percent

115,762,803
86,052,615
339,228
23,430,790
9,410
8,560,000
0
0
10,723,000
895
0
6,740
4,603,800
0
0
12,266,702

261,755,983

124,266,997
44.23
1,000,000
32.88
280,732,912
0.13
0
8.95
174,674,204
0.00
68,340,810
3.27
132,256,222
0.00
122,786,229
0.00
9,753,346
4.10
84,590,045
0.00
83,274,038
0.00
71,207,377
0.00
21,312,946
1.76
66,466,174
0.00
0.00
58,852,865
4.69 1,772,881,587

100 3,072,395,752

4.04
0.03
9.14
0.00
5.69
2.22
4.30
4.00
0.32
2.75
2.71
2.32
0.69
2.16
1.92
57.70

100

7.20
2.61
8.43
0.70
5.24
2.31
3.97
3.68
0.61
2.54
2.50
2.14
0.78
1.99
1.77
53.54

100

22.53
15.14
4.99
4.12
3.07
2.71
2.32
2.16
2.06
1.49
1.46
1.25
1.18
1.17
1.03
33.31

100

22.53
15.14
5.38
4.12
2.35
2.78
2.34
2.11
1.98
1.22
1.58
1.13
1.13
0.71
1.10
34.41

100

22.18
15.14
4.39
4.12
2.11
3.31
1.48
2.11
2.04
0.57
1.34
0.85
1.24
0.11
1.30
37.71

100

Ericsson Annual Report 2019Share trend

In 2019, Ericsson’s total market capitalization increased by 4.7% to SEK 272 billion, compared to an
increase by 44.7% reaching SEK 260 billion in 2018. In 2019, the index, OMX Stockholm, on Nasdaq
Stockholm increased by 25.8%, the Nasdaq composite index increased by 44.3% and the S&P 500
Index increased by 35.1%.

Share information – The Ericsson share

203

Share turnover and price trend, Nasdaq Stockholm
Class A shares, SEK

150

125

100

2015

2016

2017

2018

2019

Class B shares, SEK

150

125

100

2015

2016

2017

2018

2019

Volume traded, 000’s monthly

Ericsson share

Nasdaq Stockholm Index

Volumes reflect trading on Nasdaq Stockholm only.

Share turnover and price trend, NASDAQ New York
ADS, USD

2015

2016

2017

2018

2019

Volume traded, 000’s monthly

Ericsson ADS

S&P 500

Earnings per share, diluted

6.06

4.13

SEK
8

-2

-4

-6

-8

2.39

0.25

0.27

0.67

1.07

–1.98

–3.24

-10

2015

2016

–9.94
2)

2017

2018

2019

Earnings per share, diluted
Earnings per share, diluted
(nonIFRS) 1)

1) EPS, diluted, excl. restructuring charges,

amortizations and writedowns 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 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

1.50

1.00

2015

2016

2017

2018

2019

1) For 2019 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 2019

204

Other information – Ten-year summary – Financial information

Ten-year summary – Financial information

For definitions of certain financial terms used, see Alternative performance measures and 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/divestments 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 before 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)

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” Year 2009–2015 have not been restated.
2) For 2019, as proposed by the Board of Directors.
3) A reconciliation to the most directly reconcilable line items in the financial statements for 2019 and ten comparison years is available on pages 208–212.

2019

Change

2018

2017

2016

2015

2014

2013

2012

2011

2010

227,216
–64,215
10,564
1,840
798
16,873

276,383
13,850
82,559
–681

0.67
0.67
1.50

3,314

3,306
3,320

5,118
3,947
–13,692
2,593
38,815
17.1%
77

37.3%
4.6%
5.1%
120%
6,128
7,633
165,273
2.6%
6.7%
29.6%
1.4
48,821
72,192
34,496

99,417
12,730
120,822

8%
–4%
–
–
–
81%

3%
8%
–5%
–

–
–
50%

0%
0%

29%
3%
–
–42%
0%
–
10%

–
–
–
–
–
79%
10%
–
–
–
–
–7%
5%
–4%

4%
2%
10%

210,838

–66,848

1,242

–6,276

8,015

9,342

268,761

12,849

86,978

792

–1.98

1.00

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%

0.8%

32.7%

1.4

52,508

68,996

35,871

95,359

12,502

109,969

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%

–20.4%

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%

2.8%

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%

11.3%

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%

9.1%

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%

10.0%

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%

5.8%

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%

9.7%

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%

9.0%

52.1%

1.1

105,488

87,150

56,387

90,261

17,848

100,070

185,666

195,150

189,839

176,653

186,307

182,640

Ericsson Annual Report 2019For definitions of certain financial terms used, see Alternative performance measures and Financial terminology.

2019

Change

2018

2017

2016

2015

2014

2013

2012

2011

2010

Other information – Ten-year summary – Financial information

205

227,216

–64,215

10,564

1,840

798

16,873

276,383

13,850

82,559

–681

0.67

1.50

3,314

3,306

3,320

5,118

3,947

–13,692

2,593

38,815

17.1%

37.3%

4.6%

5.1%

120%

6,128

7,633

165,273

2.6%

6.7%

29.6%

1.4

48,821

72,192

34,496

99,417

12,730

120,822

–4%

81%

–5%

–

50%

–42%

29%

–

10%

–

79%

10%

–7%

–4%

10%

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

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%
0.8%
32.7%
1.4
52,508
68,996
35,871

95,359
12,502
109,969

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%
–20.4%
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%
2.8%
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%
11.3%
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%
9.1%
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%
10.0%
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%
5.8%
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%
9.7%
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%
9.0%
52.1%
1.1
105,488
87,150
56,387

90,261
17,848
100,070

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

Depreciations and write-downs/impairments of property, plant and equipment

Acquisitions/capitalization/divestments 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 before 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 2019, as proposed by the Board of Directors.

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” Year 2009–2015 have not been restated.

3) A reconciliation to the most directly reconcilable line items in the financial statements for 2019 and ten comparison years is available on pages 208–212.

Ericsson Annual Report 2019206

Other information – Ten-year summary – Non-financial information

Ten-year summary – Non-financial information

For additional information, see Consolidated non-financial statements and notes (pages 196–197).

Ten-year summary

Number of employees

Headcount at year-end
Average
Temporary employees
Employees who have left the Company
Employees who have joined the Company

Employee diversity by age at year-end (%)

Under 25 years old

25–35 years old
36–45 years old
46–55 years old

Over 55 years old

Employee diversity – female representation (%)

Overall workforce
Line manager

Executive team

Board of directors

Number of reported compliance concerns

Total reported compliance concerns

Number of cases reviewed in the Sensitive Business process

Cases approved

Cases approved with conditions

Cases rejected
Total cases reviewed in the sensitive business process

Number of information security and privacy incidents reported
Incidents reported

Occupational health and safety

Number of fatalities – Ericsson employees

Number of fatalities – Supply chain and public

Number of major incidents – Ericsson employees, supply chain and public

Environmental aspects

Energy consumption – Electricity (facilities’ energy use) (GWh)
of which renewable (facilities' energy use) (GWh)
Energy consumption – District heating (facilities' energy use) (GWh)
Energy consumption – Other energy (facilities' energy use) (GWh)
Total energy consumption – Electricity, district heating and other energy (facilities) (GWh)
Energy intensity (GWh/SEK Billion)
Business travel – Fleet vehicles (Mpkm)
Business travel – Air and road travel and commuting (Mpkm)
Product transportation – Air, road, sea and rail transport (Mtonnekm)
Total water consumption (Mm3)

Environmental impacts

Office and production sites waste management – Recycling (%)
Office and production sites waste management – Energy (%)
Office and production sites waste management – Landfill (%)
Office and production sites waste management – Hazardous (%)
Total office and production sites waste management (Tonne)
Total product take–back (including batteries) and end–of–life treatment (Tonne)

Green House Gas Emissions (CO2e)
Facilities’ energy use (S1) (Ktonne)
Fleet vehicles (S1) (Ktonne)
Facilities’ energy use (S2) (Ktonne)
Business travel (S3) (Ktonne)
Product transport (S3) (Ktonne)
Use of sold products. Products in operation (S3) (Mtonne)

1) Nominal discrepancies with previous reporting.

2019

Change

2018

2017

2016

2015

2014

2013

2012

2011

2010

99,417
94,503
582
11,078
15,136

35%
32%
22%

25%
20%

20%

42%

538

262

358

31
651

4%
–3%
4%
–33%
34%

–3%
0%
0%

14%

9%
0%

–26%

83%

21%

–28%

80%

19%
11%

3,840

16%

3,235

2,525

2,824

179

588
333
26
50
665
2.9
198
1,309
800
1.5

44.5%
21%
34.5%
0.2%
11,013
8,403

11
38
124
114
139
33

–21%

33%

–7%
–1%
–21%
2%
–7%
–15%
–24%
7%
–3%
–6%

29%
–25%
–8%
0%
8%
0%

0%
–12%
–7%
4%
–35%
3%

95,359

97,843

560

16,630

11,254

36%

32%

22%

23%

20%

27%

23%

445

362

199

587

3,312

1351)

634

335

716

3.4

260

1,227

827

1.6

34.4%

28.0%

37.5%

0.2%

10,217

8,380

134

110

215

100,735

107,369

676

21,791

11,062

111,464

114,302

1,142

18,998

15,048

116,281

119,718

1,413

16,610

14,836

118,055

117,156

776

15,536

19,251

114,340

116,630

493

13,025

17,110

110,255

112,758

766

12,280

18,010

104,525

103,130

901

10,571

24,835

37%

32%

21%

25%

20%

31%

48%

412

593

210

846

213

704

357

782

3.8

351

1,398

662

1.8

38.0%

25.0%

36.8%

0.1%

11,755

12,252

156

123

129

38%

31%

20%

23%

20%

35%

40%

145

350

209

604

186

788

351

882

4.0

377

1,645

857

2.7

37.0%

29.2%

33.6%

0.2%

13,670

14,009

185

154

146

40%

31%

19%

22%

18%

31%

36%

116

312

438

168

759

331

870

3.5

386

1,716

768

2.5

42.7%

24.9%

32.3%

0.2%

14,490

16,446

183

163

172

39%

32%

19%

22%

19%

29%

30%

214

319

–

761

288

886

3.9

411

1,943

836

2.3

45.2%

28.1%

25.3%

0.3%

18,100

16,440

210

193

204

39%

33%

18%

21%

18%

29%

25%

183

219

–

845

296

988

4.3

390

1,827

872

2.4

37.4%

32.4%

28.0%

0.9%

16,100

9,872

270

172

229

36%

33%

18%

22%

18%

29%

27%

–

808

275

121

985

4.3

339

1,689

1,215

1.8

45.7%

33.5%

18.3%

2.4%

29,512

7,748

263

159

326

36%

34%

17%

22%

18%

29%

20%

–

830

249

130

1,020

4.5

–

1,904

993

1.8

52.5%

27.1%

17.4%

3.0%

31,045

5,567

–

228

189

370

90,261

91,825

978

10,066

17,834

35%

37%

18%

22%

18%

14%

33%

–

650

100

843

4.1

–

1,640

661

1.6

46.5%

27.7%

21.4%

4.5%

23,863

5,672

–

174

164

229

Ericsson Annual Report 2019For additional information, see Consolidated non-financial statements and notes (pages 196–197).

2019

Change

2018

2017

2016

2015

2014

2013

2012

2011

2010

Other information – Ten-year summary – Non-financial information

207

3,840

16%

99,417

94,503

582

11,078

15,136

35%

32%

22%

25%

20%

42%

538

262

358

651

179

588

333

665

2.9

198

1,309

800

1.5

44.5%

21%

34.5%

0.2%

11,013

8,403

124

114

139

–3%

–33%

34%

–3%

14%

–26%

83%

21%

–28%

80%

19%

11%

–21%

33%

–7%

–1%

–21%

–7%

–15%

–24%

–3%

–6%

29%

–25%

–8%

–12%

–7%

–35%

95,359
97,843
560
16,630
11,254

36%
32%
22%

23%
20%

27%

23%

445

362

199

26
587

3,312

14
1351)

634
335
33
49
716
3.4
260
1,227
827
1.6

34.4%
28.0%
37.5%
0.2%
10,217
8,380

11
43
134
110
215
32

100,735
107,369
676
21,791
11,062

111,464
114,302
1,142
18,998
15,048

116,281
119,718
1,413
16,610
14,836

118,055
117,156
776
15,536
19,251

114,340
116,630
493
13,025
17,110

110,255
112,758
766
12,280
18,010

104,525
103,130
901
10,571
24,835

37%
32%
21%

25%
20%

31%

48%

412

593

210

43
846

38%
31%
20%

23%
20%

35%

40%

145

350

209

45
604

40%
31%
19%

22%
18%

31%

36%

116

312

28
438

3,235

2,525

2,824

213

704
357
33
45
782
3.8
351
1,398
662
1.8

38.0%
25.0%
36.8%
0.1%
11,755
12,252

14
59
156
123
129
34

186

788
351
34
60
882
4.0
377
1,645
857
2.7

37.0%
29.2%
33.6%
0.2%
13,670
14,009

14
61
185
154
146
34

168

759
331
30
81
870
3.5
386
1,716
768
2.5

42.7%
24.9%
32.3%
0.2%
14,490
16,446

18
64
183
163
172
30

39%
32%
19%

22%
19%

29%

30%

214

20
319

–

761
288
36
89
886
3.9
411
1,943
836
2.3

45.2%
28.1%
25.3%
0.3%
18,100
16,440

20
68
210
193
204
35

39%
33%
18%

21%
18%

29%

25%

183

12
219

–

845
296
47
96
988
4.3
390
1,827
872
2.4

37.4%
32.4%
28.0%
0.9%
16,100
9,872

20
66
270
172
229
28

36%
33%
18%

22%
18%

29%

27%

–

–
–

–

808
275
56
121
985
4.3
339
1,689
1,215
1.8

45.7%
33.5%
18.3%
2.4%
29,512
7,748

30
62
263
159
326
26

36%
34%
17%

22%
18%

29%

20%

–

–
–

–

830
249
60
130
1,020
4.5
–
1,904
993
1.8

52.5%
27.1%
17.4%
3.0%
31,045
5,567

32
–
228
189
370
24

90,261
91,825
978
10,066
17,834

35%
37%
18%

22%
18%

14%

33%

–

–
–

–

650
-
93
100
843
4.1
–
1,640
661
1.6

46.5%
27.7%
21.4%
4.5%
23,863
5,672

30
–
174
164
229
18

Ten-year summary

Number of employees

Headcount at year-end

Average

Temporary employees

Employees who have left the Company

Employees who have joined the Company

Employee diversity by age at year-end (%)

Under 25 years old

25–35 years old

36–45 years old

46–55 years old

Over 55 years old

Overall workforce

Line manager

Executive team

Board of directors

Employee diversity – female representation (%)

Total energy consumption – Electricity, district heating and other energy (facilities) (GWh)

Number of reported compliance concerns

Total reported compliance concerns

Number of cases reviewed in the Sensitive Business process

Cases approved

Cases approved with conditions

Cases rejected

Total cases reviewed in the sensitive business process

Number of information security and privacy incidents reported

Incidents reported

Occupational health and safety

Number of fatalities – Ericsson employees

Number of fatalities – Supply chain and public

Number of major incidents – Ericsson employees, supply chain and public

Environmental aspects

Energy consumption – Electricity (facilities’ energy use) (GWh)

of which renewable (facilities' energy use) (GWh)

Energy consumption – District heating (facilities' energy use) (GWh)

Energy consumption – Other energy (facilities' energy use) (GWh)

Energy intensity (GWh/SEK Billion)

Business travel – Fleet vehicles (Mpkm)

Business travel – Air and road travel and commuting (Mpkm)

Product transportation – Air, road, sea and rail transport (Mtonnekm)

Total water consumption (Mm3)

Environmental impacts

Office and production sites waste management – Recycling (%)

Office and production sites waste management – Energy (%)

Office and production sites waste management – Landfill (%)

Office and production sites waste management – Hazardous (%)

Total office and production sites waste management (Tonne)

Total product take–back (including batteries) and end–of–life treatment (Tonne)

Green House Gas Emissions (CO2e)

Facilities’ energy use (S1) (Ktonne)

Fleet vehicles (S1) (Ktonne)

Facilities’ energy use (S2) (Ktonne)

Business travel (S3) (Ktonne)

Product transport (S3) (Ktonne)

Use of sold products. Products in operation (S3) (Mtonne)

1) Nominal discrepancies with previous reporting.

Ericsson Annual Report 2019208

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.

APMs are presented to enhance an investor’s evaluation of ongoing

operating results, to aid in forecasting future periods and to facilitate
meaningful comparison of results between periods. Management uses
these APMs to, among other things, evaluate ongoing operations in
relation to historical results, for internal planning and forecasting purposes
and in the calculation of certain performance-based compensation.
The APMs presented in this report may differ from similarly titled

measures used by other companies.

The implementation of IFRS 16 “Leases” as of January 1, 2019, has
had an impact on many of the APMs for 2019. For more information, see
note A3, “Changes in accounting polices.” The APMs for 2010–2018 has
not changed. The definition of the APM Net cash has been clarified.

Beginning in the second quarter of 2019, the Company decided to
change the definition of Return on capital employed (ROCE) and no lon-
ger include Financial income in the calculation. The Company believes
the updated definition is a better way of reflecting the underlying results
of the operation of the Company. Prior periods have been restated to
reflect the change.

Beginning in the fourth quarter of 2019, the Company decided to
update the definitions of Free cash flow and Free cash flow before M&A
to include the repayment of lease liabilities. The Company believes
the updated definitions are a better way of reflecting the cash flows
generated by the company that can be used to expand the business, pay
dividends and reduce debt. This change also ensures Free cash flow and
Free cash flow before M&A are comparable to prior years when lease
payments were included in operating cash flow.

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

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

276,383

268,761

259,882

284,150

284,363

293,558

269,190

274,996

280,349

281,815

2,679
1,224
2,114
8,244
29,041
30,403
37,405
165,273

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

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

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

227,216

210,838

205,378

220,316

246,920

227,983

227,376

227,779

226,921

203,348

149,615
165,273
157,444
1.4

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

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

Ericsson Annual Report 2019Other information – Alternative performance measures

209

Cash conversion 1)

SEK million

Net income (loss)
Net income reconciled to cash

Cash flow from operating activities
Cash conversion (%)

2019

1,840
14,066

16,873
120%

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%

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

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)

2019

0.67
0.18
0.22
1.07

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.” Year 2009–2015 have not been restated.

Definition
Earnings (loss) per share (EPS), diluted, excluding
amortizations and write-downs 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, net
Amortizations and write-downs of acquired intangibles
EBITA
Net sales
EBITA margin (%)

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

1,840
6,922
1,802
1,038
11,602
227,216
5.1%

–6,276 –32,433
–3,525
4,813
1,215
2,705
16,652
1,662
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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” Year 2009–2015 have not been restated.

Definition
Earnings (loss) before interest, taxes, amortizations
and write- downs of acquired intangibles, as a
percentage of net sales.

Reason to use
Amortizations and write-downs of intangible assets are normally non-cash items in the annual income
statement, EBITA margin % gives an indication of the financial performance without the impact from acquired
companies.

Equity ratio 1)

SEK million

Total equity
Total assets
Equity ratio (%)

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

81,878
276,383
29.6%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” Year 2009–2015 have not been restated.

Definition
Equity, expressed as a percentage of total assets.

Reason to use
An equity ratio above 40% is one of the company’s capital targets. This supports financial flexibility and
independence to operate and manage variations in working capital needs as well as to capitalize on business
opportunities.

Ericsson Annual Report 2019210

Other information – Alternative performance measures

Free cash flow and Free cash flow before 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
Repayment of lease liabilities

Free cash flow before 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, other investments and
repayment of lease liabilities.
Free cash flow before M&A: Cash flow from
operating activities less net capital expenditures,
other investments and repayment of lease liabilities
(excluding M&A).

2019

16,873

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

26,583

744
–1,545
–331
–2,990
7,633

–5,118 –3,975
334
–925
–523
–
4,253
–1,753 –1,618
333
2,968

248
6,128

–3,877
1,016
–1,444
–463
–
4,833
–289
565
5,109

–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

–3,686
124
–1,644
–1,487
–
19,890
–3,286
454
17,058

Reason to use
Free cash flow represents the cash that the company generates after capital expenditures, other investments
and repayment of lease liabilities. The Company decided to include the repayment of lease liabilities. The
Company believes that including lease liabilities are a better way of reflecting the cash flows generated by the
company that can be used to expand the business, pay dividends and reduce debt.

Gross cash

SEK million

Cash and cash equivalents
Interest-bearing securities, current
Interest-bearing securities, non-current
Gross cash

2019

45,079
6,759
20,354
72,192

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

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 (%)

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

84,824
227,216
37.3%

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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” Year 2009–2015 have not been restated.

Definition
Reported gross income as a percentage of net sales.

Reason to use
Gross margin shows the difference between net sales and cost of sales, in percentage of net sales. Gross
margin is impacted by several factors such as business mix, service share, price development and cost
reductions. Gross margin is an important 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.

Ericsson Annual Report 2019Other information – Alternative performance measures

211

Net cash

SEK million

Cash and cash equivalents
+ Interest-bearing securities, current
+ Interest-bearing securities, non-current
– Borrowings, current
– Borrowings, non-current
Net cash

2019

45,079
6,759
20,354
9,439
28,257
34,496

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

Definition
Cash and cash equivalents plus interest-bearing securities
(current and non-current) less borrowings (current and
non-current).

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

2019

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

–64,215 –66,848 –70,563 –60,501 –64,129 –63,408 –58,509 –58,856
852

1,293

2,021

2,739

2,307

344

304

872

117

370
63,754 –64,771 –67,304 –56,409 –61,363 –62,981 –56,713 –57,634

1,353

924

123

784

745

952

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 (%)

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

10,564
227,216
4.6%

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%

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

Return on capital employed 1) 2)

SEK million

Operating income (loss)
Average capital empolyed

Capital employed at beginning of period
Capital employed at end of period
Average capital empolyed
Return on capital employed (%)

2019

10,564

2018

2017

1,242 –34,743

2016

5,187

2015

2014

2013

2012

2011

2010

21,805

16,807

17,845

10,458

17,900

16,455

149,615
165,273
157,444
6.7%

155,625
149,615
152,620

185,667
155,625
170,646
0.8% –20.4%

190,797
185,666
188,232
2.8%

189,839
195,150
192,495
11.3%

180,903
189,839
185,371
9.1%

176,653
180,903
178,778
10.0%

186,307
176,653
181,480
5.8%

182,640
186,307
184,474
9.7%

181,680
182,640
182,160
9.0%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” Year 2009–2015 have not been restated.
2) The definition was updated during 2019 and the years 2010–2018 have been restated according to the new defintion. More information is provided in the beginning of the APM section.

Definition
The total of operating income (loss) as a percentage of
average capital employed.

Reason to use
The Company has decided to change the definition of Return on capital employed (ROCE) and no longer include
Financial income in the calculation. The Company believes the updated definition is a better way of reflecting
the underlying results of the operation of the Company. Prior periods have been restated to reflect the change.

Ericsson Annual Report 2019212

Other information – Alternative performance measures

Return on equity 1)

SEK million

Net income (loss) attributable to owners
of the Parent Company
Average stockholders’ equity

Stockholders’ equity, beginning of period 2)
Stockholders’ equity, end of period
Average stockholders’ equity

Return on equity (%)

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

2,223

–6,530 –32,576

833

13,549

11,568

12,005

5,775

12,194

11,146

86,729
82,559
84,644
2.6%

95,952
134,582
86,978
96,935
115,759
91,465
–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%

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” Year 2009–2015 have not been restated.
2) For 2019, adjusted opening balance due to implementation of IFRS 16 “Leases,” for 2018, adjusted opening balance due to implementation of IFRS 9 “Financial instruments” and for 2016, adjusted opening bal-

ance due to implementation of IFRS 15 “Revenue from Contracts with Customers.”

Definition
Net income (loss) attributable to owners 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
Comparable net sales adjusted for divested business 1)
Sales growth adjusted for comparable units and currency (%)

1) Adjusted for MediaKind divestment.

Definition
Sales growth adjusted for the impact of acquisitions
and divestments as well as the effects of foreign
currency fluctuations.

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

2019

2018

227,216
–96
–10,675
216,445
208,130
4%

210,838
–
–4,232
206,606
–
1%

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.

2019

2018

2017

2016

2015

2014

2013

2012

2011

2010

153,914

161,167

153,423

175,097

189,525

201,789

190,896

193,254

198,816

198,443

–6,283

–8,244 –10,537

–9,391
–5,374
–29,041 –29,348 –29,076 –24,930
–
–30,403 –29,883 –26,320 –25,844 –22,389 –24,473 –20,502 –23,100 –25,309 –24,959
–37,405 –38,891 –35,305 –36,622 –58,663 –69,845 –58,314 –61,108 –57,970 –58,605
105,488

–8,427
–

–4,225
–

–5,985
–

–5,140
–

–3,662
–

104,811

106,940

103,246

100,619

109,552

82,327

56,439

48,821

52,508

1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.” 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 2019Other information – Financial terminology and exchange rates

213

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.

EBITA margin
Earnings (loss) before interest, taxes, amortization
and write-downs of acquired 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, other investments and repayment
of lease liabilities.

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.

Free cash flow before M&A
Cash flow from operating activities less net capital
expenditures, other investments and repayment
of lease liabilities (before M&A).

Cash dividends per share
Dividends paid divided by average number of
basic shares.

Gross cash
Cash and cash equivalents plus interest-bearing
securities (current and non-current).

Compound annual growth rate (CAGR)
The year-over-year growth rate over a specified
period of time.

Gross margin
Reported gross income as a percentage of net
sales.

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.

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 borrow-
ings (current and non-current).

Earnings (loss) per share (EPS)
Basic earnings (loss) per share: profit or loss
attributable to stockholders of the Parent Com-
pany divided by the weighted average number of
ordinary shares outstanding during the period.

Earnings (loss) per share diluted (EPS diluted)
Earnings (loss) 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.

OCI
Other comprehensive income.

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 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 owners of the
Parent Company as a percentage of average
stockholders’ equity (based on the amounts at
January 1 and December 31).

Sales growth adjusted for comparable units
and currency
Sales growth adjusted for the impact of acqui-
sitions and divestments as well as the effects of
foreign currency fluctuations.

SG&A
Selling, General & Adminstrative operating
expenses.

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

2019

2018

10.56
10.43

9.41
9.32

10.25
10.25

8.68
8.94

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 2019214

Other information – Glossary

Glossary

2G
Second generation of mobile systems (the first
digital generation). Includes GSM, TDMA, PDC
and cdmaOne.

3G
Third generation mobile systems. Includes
WCDMA/HSPA, CDMA2000 and TD-SCDMA.

Cloud
When data and applications reside in accessible
data centers.

CO2e
The amount of a particular greenhouse gas,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.

3GPP
Third Generation Partnership Project. Unites
telecommunications standard development orga-
nizations and produce specifications that defines
a mobile technology (2G, 3G etc.).

Core network
The mobile network’s core part, which offers
numerous services to the end users who are inter-
connected by the access network. Its key function
is to direct voice calls and route data traffic.

4G
Forth generation mobile systems, also known
as LTE.

4K video streaming
A horizontal display resolution of approximately
4,000 pixels used in television and consumer
media.

5G
The fifth generation of mobile systems. An evolu-
tion of 4G/LTE.

5G NR
New radio as defined by 3GPP Release 15, is the
new radio access technology developed by 3GPP
for the 5G. It has been designed to be the global
standard for the air interface of 5G networks.

ADM
Application Development and Modernization.
A service offering addressing maintenance,
development and evolution of software.

AR
Augmented reality. An interactive experience of
a real-world environment whereby the objects
that reside in the real world are augmented by
computer generated information.

BSS
Business Support Systems, the IT-systems that a
service provider uses to run its business operations
towards customers. Together with operations
support systems (OSS), they are used to support
various services for both business processes and
the network end-to-end.

CDMA
Code Division Multiple Access. A radio technology
on which the cdmaOne (2G) and CDMA2000 (3G)
mobile communication standards are both based.

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.

GSM
Global System for Mobile Communications.
Second generation mobile system.

ICT
Information and Communication Technology.

IoT
Internet of things, interconnection of computing
things enabling them to send and receive data.

IP
Internet Protocol. Defines how information travels
between network elements across the internet.

IPR
Intellectual Property Rights, or specifically patents.

LTE
Long-Term Evolution. 4G; the evolutionary step
of mobile technology beyond 3G HSPA, allowing
data rate above 100 Mbps.

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.

NFV
Network Functions Virtualization. Software
implementation of network functions that can
be deployed in virtualized infrastructure, offering
efficient orchestration, automation and scalability.

OSS
Operations Support Systems, IT-systems used
by service providers to manage their networks.
They support management functions such as
network inventory, service provisioning, network
configuration and fault management. Together
with Business Support Systems (BSS), they are
used to support various services for both business
processes and the network end-to-end.

RAN
Radio Access Network, consists of a large number
radio base stations that handsets and devices can
connect to.

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.

WCDMA
Wideband Code Division Multiple Access, third
generation mobile networks.

The terms “Ericsson”, “the Company”, “the Group”, “us”, “we”, and “our” all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.

Ericsson Annual Report 2019Other information – Shareholder information

215

Dividend
The Board of Directors will propose a dividend
for 2019 of SEK 1.50 (1.00) per share to the
Annual General Meeting. The dividend is
proposed to be paid in two equal installments,
SEK 0.75 per share with the record date
April 2, 2020, and SEK 0.75 per share with
the record date October 2, 2020.

Financial information from Ericsson
2019 Form 20-F for the US market
– March 19, 2020

Interim reports 2020
– Q1, April 22, 2020
– Q2, July 17, 2020
– Q3, October 21, 2020
– Q4, January 29, 2021

Annual Report 2020
– March, 2021

Shareholder information

Telefonaktiebolaget LM Ericsson’s Annual
General Meeting of shareholders 2020 will
be held on Tuesday, March 31, 2020, at 3 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 Wednesday, March
25, 2020; and

– give notice of attendance to the Company
at the latest on Wednesday March 25,
2020. Notice of attendance can be given
by telephone: +46 8 402 90 54 on week-
days 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 Wednesday,
March 25, 2020, in order to be entitled to
attend the meeting. The shareholder should
inform the nominee to that effect well before
that day.

Proxy
Shareholders represented by proxy shall
issue and submit to the Company a power
of attorney for the representative. A power
of attorney issued by a legal entity must be
accompanied by a copy of the entity’s certif-
icate of registration, or if no such certificate
exists, a corresponding document of authority.
Such documents must not be older than one
year unless the power of attorney explicitly
provides that it is valid for a longer period, up
to a maximum of five years. In order to facil-
itate the registration at the Annual General
Meeting, the original power of attorney, cer-
tificates of registration and other documents
of authority should be sent to the Company in
advance to the address above for receipt by
Monday, March 30, 2020. Forms of power of
attorney in Swedish and English are available
on Ericsson’s website: www.ericsson.com.

Ericsson Annual Report 2019216

Other information – Shareholder information

More information

Information about Ericsson and its development is available on the website:
www.ericsson.com. Annual and interim reports and other relevant shareholder
information can be found at: www.ericsson.com/investors

Contact details

Ericsson headquarters
Torshamnsgatan 21
Kista, Stockholm, Sweden

Registered office
Telefonaktiebolaget LM Ericsson
SE164 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 2019

Project management
Ericsson Investor Relations

Design and production
Hallvarsson & Halvarsson

Photos of Board of Directors
and Executive Team
Per Myrehed

Printing
Göteborgstryckeriet 2020
Printed on Amber Graphic

For printed publications

A printed copy of the Annual Report
is provided on request

Strömberg Distribution
SE120 88 Stockholm, Sweden
Phone: +46 8 449 89 57
Email: ericssonreports@strd.se

Shareholder Services North America
Ericsson’s Transfer Agent
Deutsche Bank,
Deutsche Bank Shareholder Services
American Stock Transfer & Trust Company

Registered holders
Tollfree number: +1 (800) 9375449

Interested investors
Direct dial: +1 (718) 9218124
Email: DB@amstock.com

Ordering a hard copy of the Annual Report
https://www.ericsson.com/en/investors/financialreports

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Ericsson Annual Report 2019
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 00 00
www.ericsson.com