Ericsson
Annual Report
2020
ericsson.com
Contents
Financial
report
CEO comment
Business in 2020
Letter from the Chair of the Board
Consolidated financial statements
and notes
Parent Company financial statements
and notes
Risk factors
Auditor’s report
Five-year summaries
Alternative performance measures
The Ericsson share
Remuneration
report
Statement from the Chair of the
Remuneration Committee
Introduction
Remuneration 2020 at a glance
Total remuneration to the President
and CEO and Executive Vice Presidents
Variable remuneration
Comparative information on the
change of remuneration and Company
performance
2
4
9
26
78
97
109
113
115
120
1
2
3
5
6
11
Corporate
Governance
report
Corporate Governance report
Auditor’s report on the Corporate
Governance report
1
27
Sustainability
and Corporate
Responsibility
report
Sustainability approach
Sustainability management
Stakeholder engagement
Significant topics 2020
Responsible business
Environmental sustainability
Digital inclusion
Consolidated sustainability notes
Global Reporting Initiative Index
Forward looking statements
2
4
6
7
8
20
26
28
32
36
Ericsson Annual Report 2020
Our legal annual report consists of four parts published as one pdf, which can also be
downloaded separately:
– The Financial report, including CEO comment, business strategy, the annual accounts and
consolidated accounts of the Company
– The Corporate Governance report
– The Remuneration report
– The Sustainability and Corporate Responsibility report, including the GRI index
The Company’s annual accounts and consolidated accounts are included on pages 10–108 in the
Financial report and are reported on by Deloitte in the auditor’s report. The Corporate Governance
report, the Remuneration report and the Sustainability and Corporate Responsibility report have also
been subject to assurance procedures by Deloitte. We also file an Annual Report on Form 20-F with
the U.S. Securities and Exchange Commission (SEC). All parts of the legal annual report are available
on Ericsson’s website. The report Ericsson 2020 in review, published on Ericsson’s website, describes
the Company, its strategy and organization.
Financial
report
Part of
Ericsson
Annual Report
2020
Annual Report 2020
Financial
report
Corporate
Governance
report
Remuneration
report
Sustainability
and Corporate
Responsibility
report
ericsson.com
Contents
Financial report 2020
This is Ericsson
CEO comment
Business strategy
Business model
Letter from the Chair of the Board
Board of Directors’ report
Board Assurance
Consolidated financial statements
Notes to the consolidated
financial statements
Parent Company financial statements
Notes to the Parent Company
financial statements
Risk factors
Auditor’s report
Forward-looking statements
Five-year summary – Financial information
Five-year summary – Non-financial
information
Alternative performance measures
The Ericsson share
Shareholder information
Financial terminology
Glossary
1
2
4
6
9
10
25
27
33
79
84
97
109
112
113
114
115
120
124
125
126
1
This is Ericsson
Ericsson provides high-performing solutions to enable
its customers to capture the full value of connectivity. The
Company supplies communication infrastructure, services
and software to the telecom industry and other sectors.
Ericsson has approximately 100,000 employees and serves
cus tomers in more than 180 countries. Ericsson is listed on
Nasdaq Stockholm and the Ericsson ADS trade on NASDAQ
New York. The Company’s headquarters are located in
Stockholm, Sweden.
It all started in a mechanical workshop in Stockholm in 1876
where Lars Magnus Ericsson designed telephones and his
wife Hilda manufactured them by winding copper wire coils.
With 5G now a commercial reality, we continue to invest to
strengthen our 5G leadership. Our portfolio is designed to
help our customers digitalize and to increase efficiency in
an intelligent and sustainable way, while finding new
revenue streams.
The business is divided into four segments with the telecom
operators as the main customer group. The segments are
Networks, Digital Services, Managed Services and Emerging
Business and Other. The market is divided into five geograph-
ical market areas: North America, Europe and Latin America,
Middle East and Africa, South East Asia, Oceania and India
and North East Asia.
Financial report 2020
2
CEO comment
Entering a new chapter of growth and profitability
Börje Ekholm
President and CEO
“We were able to com-
plete our turnaround,
increase market share
and accelerate our
expansion into the enter-
prise market. We are also
beginning a new chap-
ter of profitable growth
showing how critical our
technology really is.”
Despite a challenging environment in 2020, we completed
our turn around, delivered on our financial targets, and
established a leadership position in 5G. More importantly,
our people continued to deliver and to serve our customers
with no disruptions. The pandemic showed the criticality
of the digital infrastructure for society. Looking ahead, this
infrastructure will increasingly drive global sustainable
growth and Ericsson is well positioned to create value
from the ongoing digital transformation.
During 2020, we have seen good momentum
for our focused strategy. We were able to
complete the turnaround, underscored by
organic topline growth of 5%, a strong gross
margin of 40.3%, operating margin of 12.0%
and solid free cash flow before M&A amount-
ing to SEK 22.3 billion. This means we have
successfully exceeded our 2020 targets set
three years ago.
As we move into the next phase of our
journey, we do so from a strong position. We
continue to transform the Company through
maintained focus on R&D. Over the last
few years, we have added more than 5,000
engineers and R&D now accounts for 26% of
the total workforce. Technology leadership is
critical for providing competitive solutions to
our customers, but it is equally important for
our cost competitiveness.
In November 2020, we presented a long-
term profitability target of 15–18% EBITA
margin excluding restructuring charges for
the Group, and a long-term free cash flow
target (before M&A) of 9–12% of sales. These
targets will be achieved mainly by increasing
market share in our primary segments and
accelerating growth in the enterprise market.
We stand firmly by our 2022 targets as an
important stepping stone towards our long-
term targets.
We made critical inroads into the enterprise
market with the acquisition of Cradlepoint.
With solutions for wirelessly connecting fixed
and temporary sites such as field services and
IoT devices, Cradlepoint complements our
established enterprise offerings and creates
new revenue streams for our mobile operator
customers.
We continue to see that M&A will play an
important role in further strengthening our
Company and our focus going forward will
be on opportunities close to our portfolio. To
ensure that we do not repeat mistakes, we
have established a disciplined end-to-end
process built on thorough evaluation, careful
due diligence, integration planning as well as
accountability and close follow-up.
The global pandemic
The COVID-19 pandemic has put the world
under extreme stress. Our focus throughout
has been on the health and safety of our
employees, customers and other stakeholders.
At the start of the pandemic, we transitioned
nearly all of our staff to working from home
and by the end of 2020 about 90,000 of
our colleagues were working remotely, with
minimal disruption to our customers. I am
inspired by the level of commitment that my
colleagues have shown throughout the past
year. It has been a difficult one on many levels,
but our people – all around the Company –
have continued to deliver. All of them have my
deepest gratitude.
The COVID-19 pandemic has acceler-
ated the pace of digital transformation
and confirmed that wireless connectivity is
critical infrastructure that underpins society.
Eventually we will return to more normal
circumstances, but I don’t believe that we
will revert back to the status quo that existed
before. For example, we will most likely see
remote working as part of the new normal.
Capturing the 5G opportunity
5G is a transformational technology, more
so than previous generations of mobile con-
nectivity. With 4G, the world had a global
standard that empowered the emergence
of platform companies whose value was
Financial report 2020 CEO comment
3
to ensure that we keep improving and be
the company we want to be – and that
people expect us to be. We have taken many
important steps to engage the workforce in
a cross-functional fashion, including making
our processes more robust and increasing our
headcount in the compliance area. But this
important work continues, as we need to make
sure that compliance is an integral part of how
we conduct all our business.
In summary
I am proud of our results during 2020. Not only
were we able to complete our turnaround, we
also showed the world how critical our tech-
nology is to economic growth and sustainable
development. Vital parts of our society, such
as hospitals and schools, as well as families
and friends, depend on the infrastructure
we provide. These achievements would not
be possible without our incredible people.
The spirit of resourcefulness, and grit, is why
Ericsson employees truly rock!
We should, however, not be complacent.
2021 will be an investment year to further
strengthen our competitiveness. We also see
that earnings in the year could be negatively
impacted by lower patent licensing revenues
due to important contract renewals and that
the acquisition of Cradlepoint will have a
negative effect on our operating margin. Our
2022 targets remain in place and they are a
milestone on the journey towards reaching our
long-term target of 15–18% EBITA margin
excluding restructuring charges.
When we are finally able to look back upon
the pandemic, we will see that we accelerated
the digitalization of society which altered
many ways of working. These developments
present a great opportunity for us, as 5G will
be front and center in the post-pandemic
world. At the same time, we all look forward
to meeting our friends and colleagues face-
to face again, to interact, trade ideas and
innovate. This is a basic human need that will
remain. And as the physical and digital worlds
continue to merge, our technology and inno-
vations will play an essential role.
Börje Ekholm
President and CEO
multiplied by the underlying network. This
eco system allowed consumers to digitalize.
With 5G, enterprises will be able to choose
cellular connectivity as a primary access tech-
nology, likely speeding up their digitalization.
However, I caution against looking for
the killer 5G app. With 4G, we did not predict
in advance the emergence of the many new
business models such as streaming or ride
hailing. Countries that built out their 4G
infrastructure first, came to dominate the app
economy. We believe this development will be
similar for 5G, but for enterprise applications.
Despite the pandemic, the pace of intro-
ducing new 5G functionality increased during
2020. According to our estimates, there were
220 million global 5G subscriptions at the end
of 2020, with China accounting for 175 million
of those – or almost 80%. 5G is no longer an
eventuality, it is here and now.
Europe used to be a leader in wireless
technology but started to fall behind on 4G. It
now runs the risk of falling even further behind
North America and North East Asia. Europe
must find ways to speed up the roll-out of 5G
to avoid losing its competitiveness. Return on
capital for European operators is lower than
cost of capital. We believe that Europe needs
to review its regulation of operators, spectrum
policies, while also allowing for industry
consolidation.
Our Company’s position
We are now a leader in 5G technology. Since
2015, we have shipped 6 million 5G-ready
radios and during 2020, we announced 44
5G contracts and we closed the year with 122
commercial agreements and 79 live 5G net-
works globally. Through our focused strategy,
we continue to develop and deploy products,
solutions and services that push the industry
forward – like the introduction of software
enabling 5G to operate independently of
4G networks.
We firmly believe in openness and the
value of standardization. Open RAN continues
to be widely discussed in our industry and
we are actively participating in defining
Open RAN standards. We believe Open
RAN standards will continue to evolve in the
coming years, starting with less-demanding
applications. In October 2020, we introduced
a new Cloud RAN portfolio for increased
network flexibility, as a complement to high-
performing purpose-built networks. We will
continue to strengthen our position in Open
RAN, however 5G is happening now and our
focus must be on providing the wider ecosys-
tem of developers and enterprises fast access
to 5G so they can benefit from its full potential.
Our patent portfolio in cellular technology
is world leading and through our 5G leader-
ship we are confident in the strength of the
portfolio long term. Thanks to our investments
in R&D, we now have more than 57,000
granted patents and over 100 signed licensing
agreements. Return on R&D investments,
through licensing based on fair, reasonable,
and non-discriminatory terms and condi-
tions, is critical to ensure new investments in
innovation and the continued success of open,
collaborative standardization. However, when
these terms are breached, we will take swift
and firm action.
Sustainability and responsible business
Sustainability and corporate responsibility
are integral parts of our business strategy
and operations and our performance is
reflected in the Sustainability and Corporate
Responsibility 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.
During 2020, Ericsson remained a driving
force for global climate action. Our approach
can help break the energy curve for mobile
networks and how digitalization can reduce
carbon emissions 15% by 2030 in sectors
like transport and manufacturing. We have a
target to be carbon neutral in our operations
by 2030 and our 5G Smart Factory in the US,
which integrates sustainability into its building
design and operations, is an example of how
this impacts our ways of working.
In addition, as part of our digital inclusion
efforts we became the first private-sector
partner of UNICEF’s Giga initiative which aims
to connect every school on the planet to the
internet by 2030.
We continue to improve and strengthen
our Ethics and Compliance program. In June,
we welcomed the independent compliance
monitor who will oversee our progress in
enhancing this program. While this will surely
be a demanding process, I view it as a way to
make sure we reach our high ambitions.
Most importantly perhaps, we remain
steadfast in our efforts to foster a culture of
integrity where we speak up and resolutely
address any instance of incorrect behavior.
We spend a significant amount of time in the
Executive Team discussing these matters
Financial report 2020 4
Business Strategy
Business strategy
Creating long-term value
Our strategy is to create long-term value
through technology leadership. We aim
to address long-term opportunities that
present clear advantages of scale and new,
profitable revenue streams. Our ambition is to
grow faster than the market, with a focused
approach based on the following criteria:
– Selective: product-led growth aligned
with our streamlined portfolio and existing
customer base.
– Disciplined: commercial and financial
discipline, and excellence in contract
execution.
– Profitable: growth is managed for positive
returns and to support Group financial
targets. New contracts for increased mar-
ket footprint, may in some cases be associ-
ated with challenging near-term returns as
the cost for telecom operators to change
vendors can be high, however contracts are
expected to be profitable over time.
A customer centric strategy
Our mission is to enable the full value of con-
nectivity for our customers, the telecom opera-
tors. There are three key areas in which we can
support our customers’ success:
– Capture new revenue streams and new
opportunities made possible by 5G and
Internet of Things (IoT).
– Improved end-customer experience – the
main differentiator among telecom opera-
tors. Through Artificial Intelligence (AI)
and automation, the customer experience
can be considerably improved by ensuring
coverage, performance and reliability. We
can provide Key Performance Indicators
for telecom operators so that the telecom
operators can better analyze, understand,
and optimize their networks to deliver a
superior customer experience.
– Relentless efficiency improvements to
lower the cost of delivering the increasing
traffic in the networks. 5G will increase
spectrum efficiency and is also significantly
more power efficient, thereby reducing cost
and supporting climate targets.
Ericsson business strategy
Purpose and vision
Empowering an intelligent, sustainable and connected world.
Mission
Enabling the full value of connectivity for telecom operators.
Our customers’ needs
New revenue streams
End-customer experience
Relentless efficiency improvements
Our focus
Digital infrastructure…
Leadership in 5G, scalable, resilient and reliable networks and platforms, orchestration and business enablement.
Superior efficiency and customer experience with automated AI-based zero touch operations and services.
… for customer use
Supporting mobile broadband and application acceleration with
global, ubiquitous, high-speed and low-latency connectivity.
… for enterprise use
Solutions supporting digital transformation from IoT
to dedicated and cloud native enterprise networks.
Foundation
Technology leadership
Cost efficiency
Data-driven operations
Global scale and skill
Financial report 2020 Business Strategy
5
In Networks we provide hardware, soft-
ware and services for our customers to build
and evolve their mobile networks.
Digital Services is a software-led business
supporting our customers as they move to a
cloud-native environment, providing solutions
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 crea-
tion and optimize costs.
In Emerging Business and Other we
explore how our customers can leverage
connectivity in order to create new revenue
streams and new types of businesses within
the enterprise segment.
Our market is divided into five geographical
market areas. The market areas are respon-
sible for selling and delivering products and
solutions developed by our segments. 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 governance structures
to ensure, among other things, price discipline.
Sustainability and Corporate Responsibility
Our approach to sustainability and corpo-
rate responsibility is an integral part of the
Company’s strategy, business model, govern-
ance and culture and is embedded across its
operations to drive business transformation
and create value for stakeholders.
We are committed to creating positive
sustainability impacts and reducing risks to
the Company and its stakeholders through
its technology, solutions, operations and the
expertise of its employees.
The strategy stands on a foundation
of four pillars:
Technology leadership
Investments in research and development
(R&D) and technology leadership allow us
to bring innovative solutions to the market
ahead of competitors, giving our customers
an advantage.
Ericsson has a strong commitment to R&D
with substantial contributions to cutting-
edge standards and technologies. It is the
Company’s policy to protect and capitalize
on its R&D investments by creating, securing,
protecting and licensing a portfolio of patents
in support of the overall business goals. The
value of Ericsson’s IP portfolio by the end of
2020 extended to more than 57,000 granted
patents.
Ericsson supports licensing standard
essential patents on fair, reasonable, and non-
discriminatory terms, known as FRAND, ensur-
ing a healthy ecosystem for the future. These
licensing terms support deep standardization
and allow for scalable manufacturing, thereby
lowering prices for consumers. Through
FRAND licensing, innovative companies are
compensated via patent royalties and are thus
able to continue to reinvest in the next genera-
tion of technology, unlocking the latest digital
experiences for everyone to enjoy.
Cost efficiency
A cost-efficient 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.
Data-Driven Operations
Network complexity is rapidly increasing with
5G, Cloud, IoT and other new technologies,
and it is becoming challenging for humans
to keep up with this complexity. Running
a 5G network, including data points in IoT,
combined with demands of mission critical
use-cases, is only possible when applying
AI, automation and data analytics to drive
the “Data-Driven Operations” of telecom
networks.
Global scale and 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. The
expertise that our people have is a key asset
that enables us to work close to our customers
across the world.
5G – new revenue opportunities
With 5G our industry will move beyond con-
necting people; it will also connect machines
and things. 5G is a powerful platform for inno-
vation, opening up new revenue opportunities
for telecom operators in both the consumer
segment and the enterprise 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, globally, telecom
operators could see an additional revenue
opportunity of some USD 700 billion by 2030,
driven by industry sectors such as healthcare,
manufacturing and automotive.
We aim to address these enterprise
opportunities and continue to sell through
our existing telecom operator relationships
and go-to-market models. Our ambition is to
service our customers by developing competi-
tive industrial solutions that are easy to scale,
such as our global IoT platform and private
networks solutions. We have increased our
M&A capabilities, and we see portfolio-near
acquisitions as enablers for future growth.
Our aim is to grow and create value by invest-
ing in solutions that support our customers’
new revenue streams, drive traffic to mobile
networks and drive increased demand for
network quality.
Driving our business through four segments
and five market areas
Our business is divided into four segments. All
segments address the same customer group,
primarily the telecom operators. The segments
are Networks, Digital Services, Managed
Services and Emerging Business and Other.
Financial report 2020 6
Business model
Business model
Our business model is constructed to manage changing market requirements and to capture
new business opportunities. Customer focus and motivated employees are key to driving our
business, creating stakeholder value and building a stronger company long term.
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 and vision
Empowering an intelligent,
sustainable and connected
world
Segment responsibility
Develop competitive global
business solutions
Market area responsibility
Sell and deliver
customer solutions
Mission
Enabling the full value of
connectivity for telecom operators
Foundation and key assets
Technology
leadership
Cost efficiency
Data driven
operations
Global scale
and skill
Strategy
Built on our customers’ needs:
– New revenue streams
– End-customer experience
– Relentless efficiency
improvements
Sustainability and responsible
business practices embedded across
operations and the portfolio
Customers in more than 180 countries.
Established relationship with world
leading telecom operators
Core values
– Respect
– Professionalism
– Perseverance
Financial report 2020 Business model
7
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 2022
Group financial targets long-term
– EBIT margin 12–14% excl. restructuring charges
– Strong free cash flow (before M&A)
– Sales: outgrow the market
– EBITA margin 15–18% excl. restructuring charges
– Free cash flow (before M&A) 9–12% of sales
Group sustainability targets1)
Climate action
– Reduce 35% of CO2e emissions from Ericsson’s own activities
(baseline 2016), a Science Based Target, by 2022
– Ericsson is carbon neutral in its own operations by 2030
Ethics and compliance
Strengthen and enhance Ericsson’s Ethics and Compliance
program to ensure an effective and sustainable Anti-bribery
and corruption program by 2022
Product energy performance
Achieve 35% energy saving in Ericsson Radio System
com pared with the legacy portfolio (baseline 2016),
a Science Based Target, by 2022
Health, safety and well-being
Zero fatalities and lost workday incidents by 2025
1) The full list of Group sustainability targets can be found on page 3 in the Sustainability and Corporate Responsibility report 2020
Financial report 2020 8
Business model
The four segments
Networks
Digital Services
Managed Services
Offering
Networks offers a multi-technology capable Radio
Access Network (RAN) solution for all spectrum
network bands, including integrated high-
perform ing hardware and software. The offering
also includes a transport portfolio through own
solutions and partnering, an integrated antenna
solution and a complete service portfolio covering
network deployment and support.
Offering
Digital Services provides software-based solutions
for business support (BSS), operational support
(OSS), communication services, core networks,
and cloud infrastructure. The focus is on cloud
native and automation solutions supporting our
customers’ 4G and growing 5G consumer and
enterprise business.
Offering
Managed Services provides Networks and IT
Managed Services, Network Design and
Optimization, and Application Development and
Maintenance to telecom operators. These are
delivered through the AI-driven Ericsson
Operations Engine, a set of capabilities that trans-
form operations to enhance customer experience,
drive agile service creation and optimize costs in
multi-vendor environments.
Business Model
Networks business is primarily based on a trans-
actional model, where Ericsson develops, sells,
licenses and delivers hardware, software and
services. Networks business also includes recurring
revenue streams such as customer support and
certain software revenues.
Business Model
Ericsson develops, sells, licenses and delivers
solutions, based on software and services, for
specific functions or capabilities in the customers’
operations. The contracts are typically
software-based.
Business Model
Ericsson Operations Engine base pack and value
pack contracts are typically multi-year. Software
is sold either as a license or aaS (as-a-service).
Emerging Business
and Other
Offering
Ericsson supports enterprises by providing reliable
and secure cellular solutions that are easy to use,
adopt and scale for global and local needs.
Business Model
Emerging Business and Other is mainly a platform
business with aaS (as-a-service) as the business
model.
Financial report 2020 Board of Directors’ report
9
Letter from the Chair of the Board
Company takes a full value chain approach to
its climate action efforts, which include found-
ing the 1.5°C Supply Chain Leaders initiative
to help suppliers halve their emissions before
2030. We have set a target to be carbon
neutral in our own operations by 2030 and to
deliver a portfolio and solutions that help our
customers break the energy curve. We also
deliver digital solutions to transform industries
and help reduce global emissions by 15%.
The Board is confident that Ericsson is well
positioned to deliver long-term value through
a combination of R&D investments and
innovation, a continuous focus on responsible
business, talent management and leadership.
Furthermore, it is important for the Board that
Ericsson continues its high focus in creating
value for our customers. The Board monitors
Ericsson’s capital structure with the aim of
retaining a strong balance sheet and a posi-
tive free cash flow. The Board will propose a
dividend for 2020 of SEK 2.00 (1.50) per share
to the Annual General Meeting.
When we start to adjust to a life after the
pandemic, it will become even more evident
that mobile networks have become a large
part of a nation’s critical infrastructure, and
that high-quality connectivity is essential for
everyday life. The Board remains positive to
the long-term outlook for the industry and
is confident that Ericsson is well positioned
to execute its strategy of building a stronger
Company long term.
Finally, on behalf of all members of the
Board, I want to thank Börje Ekholm, and all
employees at Ericsson, for your efforts in 2020.
We are looking forward to working with you
all in 2021.
Ronnie Leten
Chair of the Board
One of the top priorities for the Board is to
oversee the Company’s continued strengthen-
ing of its Ethics and Compliance program
to ensure that the Company lives up to high
standards, with our Code of Business Ethics
providing an important framework. The Board
views the Company’s ongoing initiatives to
continuously foster a ‘speak-up’ culture as
critical to succeeding with this work and sup-
ports the Company’s ongoing cultural trans-
formation program, Ericsson on the Move,
aimed at fostering a culture based on integrity
and fact-based decision making. It is a key
priority for the Board that Ericsson can retain,
motivate and attract talented employees. For
this purpose, Ericsson also has a long-term
variable compensation program focused on
value creation.
During the year, a three-year independent
compliance monitorship started as part of the
Deferred Prosecution Agreement with the U.S.
Department of Justice (DOJ). The independ-
ent compliance monitor reviews Ericsson’s
compliance with the terms of the settlement,
evaluates Ericsson’s progress in implement-
ing and operating its enhanced compliance
program and will submit periodic reports. The
Board has met with the monitor on several
occasions and has been impressed by the level
of expertise and the constructive approach.
Ericsson’s strategy is based on the needs
of its customers, the telecom operators.
The Board concludes that innovation and
investments in technology and R&D have
been fundamental in reaching the Company’s
targets for 2020 and allowing Ericsson to
build a stronger company long term. The
Company’s continued investments have
strengthened Ericsson’s position as a leader in
5G and its ability to gain 5G footprint through
its customer-centric competitive offering.
There are still several growth opportunities for
Ericsson to address, including in the area of
new enterprise applications that will leverage
the speed, latency and security characteristics
of 5G. These applications are expected to
provide many new opportunities for Ericsson’s
customers to capture growth.
The key to our successful business per-
formance is linked to the achievement of our
ambitious sustainability targets and programs.
A strong focus on responsible business and
sustainability delivers value to both Ericsson,
our customers and society. For example, the
Ronnie Leten
Chair of the Board
Dear shareholders,
The Board’s highest priority during the global
pandemic has been the health, safety and
well-being of Ericsson’s employees, customers
and other stakeholders. The global challenges
brought by the pandemic have required a lot
from the organization. But, being a communi-
cation technology company, Ericsson was able
to transition rapidly to a new reality and to
adapt to new ways of working and collabora-
tion, and by the end of 2020 about 90,000
employees were working remotely. The Board
too has adjusted to the ‘new normal’, and has
shifted from meeting face-to-face to virtual
meetings, while remaining focused on its
assignments.
I am truly impressed by all the efforts and
accomplishments that Ericsson’s employees
have made during this challenging year. We
have increased our revenues organically by
5% and delivered a solid operating margin
of 12.0%, which is the strongest since 2007.
Free cash flow (before M&A) amounted to
an impressive SEK 22.3 billion. We have also
increased our market share in important
countries and regions like for example the
US, China, Japan and Europe. The organiza-
tion’s relentless focus on innovation and its
speed in execution is clearly reflected in our
performance during 2020. I therefore want
to take the opportunity, early on in this letter,
to say thank you to all our employees for a job
well done in 2020. Your efforts have not gone
unnoticed.
Financial report 2020 10
Board of Directors’ report
Contents
10 Business in 2020
11 Financial highlights
14 Business results – Segments
16 Business results – Market Areas
17 Corporate Governance
17 Material contracts
17 Risk management
17 Sourcing and supply
18 Sustainability and
Corporate Responsibility
18 Information security
18 US FCPA settlement
18 Legal proceedings
19 Parent Company
19 Share information
19 Proposed disposition of earnings
20 Guidelines for Remuneration
to Group Management
25 Board assurance
Net sales
SEK billion
250
200
150
100
50
0
227.2
232.4
210.8
2018
2019
2020
Net sales
Operating income and
operating margin
Operating income and operating margin
SEK billion
30
25
20
15
10
5
0
12.0%
27.8
4.6%
10.6
1.2
0.6%
2018
2019
2020
%
12
10
8
6
4
2
0
Operating income
Operating margin
Board of Directors’ report
2020 highlights
– Sales adjusted for comparable units and currency grew by 5%, with Networks growing by 10%.
Reported sales increased by 2% to SEK 232.4 billion.
– Reported gross margin was 40.3% (37.3%), with improvements in all segments.
– Reported operating income improved to SEK 27.8 (10.6) billion.
– Reported net income was SEK 17.6 (1.8) billion.
– Free cash flow before M&A amounted to SEK 22.3 (7.6) billion. 2019 included a payment of
SEK –10.1 billion related to the resolution of the US SEC and DOJ investigations.
– The Board of Directors will propose a dividend for 2020 of SEK 2.00 (1.50) per share to the AGM.
Business in 2020
In 2020, sales increased by 2% driven by sales
growth in Networks, where sales increased by
7%, primarily driven by increased hardware
deliveries following the increased market
footprint. From a geographical perspective
growth was primarily driven by increased sales
in North East Asia, North America and Europe.
Sales decreased in Digital Services by –6%
mainly due to a decline in sales in the legacy
portfolio, primarily in hardware. Managed
Services sales declined by –12%, mainly due
to reduced variable sales in a large contract in
North America, post the merger between two
large operators, and transfer of a contract to
an associated company. Exits of non-strategic
contracts also contributed to the sales decline.
A stronger Swedish krona (SEK) had a
negative impact on reported sales in all seg-
ments. Sales growth adjusted for comparable
units and currency was 5%.
IPR licensing revenues increased to
SEK 10.0 (9.6) billion as lower volumes with
one licensee were offset by new contracts.
Gross margin improved to 40.3% (37.3%)
with improved gross margins in all seg-
ments. A lower share of services sales had
a positive impact on the gross margin. The
improved Networks margin was supported
by operational leverage. Digital Services
margin improved due to increased share of
software as well as limited impact from the
critical contracts in 2020. Managed Services
gross margin improved mainly as an effect of
efficiency gains.
Operating expenses increased to
SEK –66.3 (–64.2) billion. Research and
development (R&D) expenses increased in
segment Networks through increased invest-
ments in a broader portfolio of antenna and
site solutions and in 5G. Selling and adminis-
trative (SG&A) expenses increased mainly due
to the acquired Cradlepoint business as well
as continued investments in compliance and
digital transformation. Provision release from
from impairment losses on trade receivables
was lower than previous year, impacing the
year negatively SEK 0.1 (0.7) billion.
Restructuring charges increased to
SEK –1.3 (–0.8) billion. The restructuring
charges were mainly related to restructuring
of the acquired antenna and filter business
in segment Networks and to organizational
changes as a consequence of the operator
merger in North America.
Operating income was SEK 27.8 (10.6) bil-
lion. Operating income in 2019 was impacted
by costs of SEK –10.7 billion related to a
resolution regarding the investigations by the
US SEC and DOJ.
The number of employees increased to
100,824 (99,417) mainly due to the acquisi-
tion of Cradlepoint.
Free cash flow before M&A amounted to
SEK 22.3 (7.6) billion. 2019 was impacted
by payments of SEK –10.1 billion related
to the resolution of the US SEC and DOJ
investigations.
The improvement in cash flow was
driven by improved profitability. Net cash at
December 31 was SEK 41.9 (34.5) billion.
Financial report 2020
IPR revenues (net)
SEK billion
12
10
8
6
4
2
0
9.6
10.0
8.0
2018
2019
2020
IPR revenues
Software, hardware and
services: share of total sales
%
100
80
60
40
20
0
21%
21%
22%
37%
38%
41%
42%
41%
37%
2018
2019
2020
Software
Hardware
Services
Gross margin and restructing
charges
SEK billion
15
12
9
6
3
0
37.5%
37.3%
40.6%
40.3%
35.2%
32.3%
5.9
2018
0.3
2019
0.7
2020
Restructing charges in cost of sales
Gross margin as reported
Gross margin excl. restructing charges
%
50
40
30
20
10
0
Financial highlights
Net sales
Reported sales increased by SEK 5.2 billion
or 2% to SEK 232.4 (227.2) billion. Networks
sales increased by SEK 11.0 billion or 7%,
Digital Services sales decreased by SEK –2.5
billion or –6%, Managed Services sales
decr eased by SEK –3.0 billion or –12% and
Emerging Business and Other sales decreased
by SEK –0.3 billion or –4%. Sales adjusted for
comparable units and currency increased by 5%.
IPR licensing revenues increased to
SEK 10.0 (9.6) billion as lower volumes with
one licensee were offset by new contracts.
Sales growth in Networks was primarily
driven by higher hardware deliveries follow-
ing increased footprint. In the geographical
dimension, sales growth was primarily driven
by North East Asia, North America and Europe.
Sales growth adjusted for comparable units
and currency increased by 10%.
Digital Services sales declined mainly due
to lower sales in the legacy portfolio, primarily
in hardware. Sales grew in South East Asia,
Oceania and India and in North East Asia.
Sales adjusted for comparable units and
currency declined by –3%.
Sales declined in Managed Services, mainly
due to lower variable sales in a managed
services contract in North America post the
merger between two large operators, and
transfer of a managed services contract to an
associated company. Sales adjusted for com-
parable units and currency decreased by –10%.
Sales in Emerging Business and Other
declined due to reduced sales in the media
businesses. Sales adjusted for comparable
units and currency decreased by –4%.
In the market area dimension, sales growth
in North East Asia, North America as well as
in South East Asia, Oceania and India offset
a decline in the two remaining market areas.
The sales mix by commodity was: software
22% (21%), hardware 41% (38%) and
services 37% (41%).
Gross margin
Reported gross margin was 40.3% (37.3%).
Gross margin excluding restructuring charges
improved to 40.6% (37.5%) with strong margin
improvements in all segments. A lower share
of services sales had a positive impact on
the gross margin. Networks margin was
supported by operational leverage. Digital
Services margin improved due to increased
share of software as well as limited impact
from the critical contracts in 2020. Managed
Board of Directors’ report
11
Services gross margin improved mainly as an
effect of efficiency gains. The gross margin in
Emerging Business and Other increased driven
by Emerging Business (IoT Platforms, Edge
Gravity exit and Cradlepoint).
Restructuring charges included in the gross
margin increased to SEK –0.7 (–0.3) billion.
Operating expenses
Operating expenses increased to SEK –66.3
(–64.2) billion with increases in research
and development expenses, selling and
administrative expenses and reduced provi-
sion release from impairment losses on trade
receivables.
Research and development (R&D) expenses
R&D expenses increased to SEK –39.7
(–38.8) billion. Higher R&D expenses in
segment Networks driven by investments in
a broader portfolio of antenna and site solu-
tions and in 5G, while R&D investments in
Digital Services decreased.
Restructuring charges impacted R&D
expenses by SEK –0.4 (–0.3) billion.
Selling and administrative (SG&A) expenses
SG&A expenses increased to SEK –26.7
(–26.1) billion mainly due to the acquired
Cradlepoint business as well as continued
investments in compliance and digital trans-
formation. Revaluation of customer financing
was SEK –0.3 (–0.7) billion. Restructuring
charges impacted SG&A expenses by
SEK –0.2 (–0.1) billion.
Impairment losses on trade receivables
Impairment losses on trade receivables were
SEK 0.1 (0.7) billion.
Other operating income and expenses
Other operating income and expenses was
SEK 0.7 (–9.7) billion. Costs of SEK –10.7 bil-
lion related to the resolution of the US SEC and
DOJ investigations impacted 2019 negatively.
Share in earnings of JVs and associated
companies was SEK –0.3 (–0.3) billion.
Restructuring charges
Restructuring charges increased to SEK –1.3
(–0.8) billion. The restructuring charges
were mainly related to restructuring of the
acquired antenna and filter business in seg-
ment Networks and to organizational changes
as a consequence of the operator merger in
North America.
Financial report 2020
12
Board of Directors’ report
Net income and EPS diluted
SEK billion
SEK
17.6
5.3
1.8
0.7
2019
2020
8
6
4
2
0
-2
-4
20
15
10
5
0
-5
–2.0
-10
–6.3
2018
Net income
EPS diluted
Free cash flow
SEK billion
25
20
15
10
5
0
-5
-10
22.3
7.6
4.3
–1.3
–1.5
2018
2019
2020
–9.6
Free cash flow before M&A
M&A
Adjusted working capital
Days
100
90
80
70
60
50
89
75
65
2018
2019
2020
Adjusted 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)
Operating income and margin
Reported operating income improved to
SEK 27.8 (10.6) billion. Operating margin in
2019 was impacted by costs of SEK –10.7
billion related to the resolution of the inves-
tigations by US SEC and DOJ. Operating
income, excluding restructuring charges and
the SEC and DOJ resolution regarding the
investigations costs in 2019, improved to
SEK 29.1 (22.1) billion, with an operating mar-
gin excluding restructuring charges of 12.5%
(9.7%). The improvement was primarily driven
by hardware sales in segment Networks.
Financial income and expenses, net
The financial net improved to SEK –0.6 (–1.8)
billion, mainly due to positive currency hedge
effects. The currency hedge effects, which
derive from the hedge loan balance in USD,
impacted financial net by SEK 1.0 (–0.3) billion.
The SEK strengthened against the USD between
December 31, 2019 (SEK/USD rate 9.32) and
December 31, 2020 (SEK/USD rate 8.19).
Taxes
Taxes were SEK –9.6 (–6.9) billion impacted
by the increased income. The tax rate in 2020
was 35%. Costs of SEK –10.7 billion related to
the resolution of the US SEC and DOJ investi-
gations were handled as non-tax-deductible
in 2019. Excluding these costs, the 2019 tax
rate was approximately 35%.
Net income and EPS
Net income improved to SEK 17.6 (1.8) billion
driven by stronger operating income. EPS
diluted was SEK 5.26 (0.67) and adjusted
EPS was SEK 5.83 (1.07).
Employees
The number of employees on December 31,
2020, was 100,824, an increase of 1,407
employees compared with December 31,
2019. The increase is mainly to be found in
the employee categories of R&D, product
management and sales. 709 employees joined
through the acquired Cradlepoint business.
Cash flow
Cash flow from operating activities
Reported cash flow from operating activities
improved to SEK 28.9 (16.9) billion, as a
result of improved income. The impact from
changes in net operating assets and liabilities
was SEK –3.6 (2.8) billion and SEK –0.5
billion when adjusted for a capital injection
of SEK –3.0 billion made into the Ericsson
Swedish Pension Trust, affecting cash flow
negatively, as described under “Financial
position”. Working capital efficiency has
improved as a result of a strong focus on
cash flow. Accounts receivables days of sales
outstanding improved to 69 (75) days and
adjusted working capital days improved to 65
(75) days. The increased business momentum
has led to an increasing demand for customer
financing solutions. Most of such financing has
been successfully transferred to banks and the
amount of customer finance credits on the bal-
ance sheet remains low. Provisions of SEK 4.0
(7.6) billion were utilized, of which SEK 0.8
(1.8) billion related to restructuring charges.
Free cash flow
The improved profitability, in combination
with continued focus on cash flow, resulted in
Free cash flow before M&A of SEK 22.3 (7.6)
billion.
Cash flow from investing activities
Reported cash flow from investing activities
was SEK –15.2 (–3.5) billion. Acquisitions/
divestments of subsidiaries was SEK –9.6
(–1.5) billion of which SEK –9.5 billion was
related to the acquisition of Cradlepoint.
Investments in interest-bearing securi-
ties amounted to SEK –1.3 (4.2) billion.
Investments in property, plant and equipment
were SEK –4.5 (–5.1) billion, including invest-
ments in the US production plant. In addition,
product development decreased to SEK –0.8
(–1.5) billion due to reduced capitalization of
development expenses.
Cash flow from financing activities
Reported cash flow from financing activities
was SEK –12.5 (–6.9) billion. Dividends were
SEK –6.0 (–4.5) billion of which SEK –5.0
billion was related to dividends to sharehold-
ers and SEK –1.0 billion to dividends to
minority shareholders in Ericsson’s subsidiar-
ies. Borrowings declined mainly due to repay-
ment of a bilateral loan with the European
Investment Bank (EIB). The impact of lease
liabilities was SEK –2.4 (–3.0) billion.
Financial position
Gross cash was SEK 72.0 (72.2) billion, while
net cash increased to SEK 41.9 (34.5) billion
as a result of the strong free cash flow despite
cash payments for Cradlepoint of SEK –9.5
billion and repayment of the bilateral loan
with the European Investment Bank (EIB)
of SEK –5.8 billion.
Liabilities for post-employment benefits
increased to SEK 37.4 (35.8) billion, due to
lower interest rates despite a capital injection
of SEK –3.0 billion into the Swedish Pension
Trust. The Swedish defined benefit obligation
(DBO) was 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-employment benefits would have
been approximately SEK 11.8 billion lower
(SEK 25.6 billion) as of December 31, 2020.
Financial report 2020
Return on capital employed
SEK billion
250
200
150
100
50
0
17.0%
165.3
162.0
149.6
6.7%
0.8%
2018
2019
2020
Capital employed
Return on capital employed
%
20
16
12
8
4
0
Cash position
SEK billion
80
60
40
20
0
-20
-40
69.0
72.2
72.0
35.9
34.5
41.9
–28.7
–35.8
–37.4
2018
2019
2020
Gross cash
Net cash
Liability for post employment benefits
Debt maturity, Parent Company
SEK billion
10
8
6
4
2
0
8.2
2.3
5.0
1.2
1.8
5.0
1.2
1.4
2021
2022
2023
2024
2025
2026
Notes & bonds
Nordic Investment Bank
European Investment Bank
Swedish Export Credit Corporation
During 2020 there was a funding need for
approximately SEK 4 billion for the Swedish
pension plan of which SEK 3 billion was
covered by payments in second and third
quarter into the Swedish Pension Trust and
SEK 1 billion by providing a pledged business
mortgage to PRI Pensionsgaranti. Details
regarding Ericsson’s pension plans can be
found in note G1 “Post-employment benefits”
of the Annual Report.
The average maturity of long-term borrow-
ings was 2.7 years as of December 31, 2020,
unchanged from 12 months earlier.
Ericsson has an unutilized revolving credit
facility of USD 2.0 billion.
Ericsson has an undrawn credit facility
agreement of EUR 250 million with the
European Investment Bank (EIB).
Ericsson refinanced a loan of USD 170
million with the Swedish Export Credit
Corporation (SEK) with a new bond loan of
USD 200 million, resulting in a net increase in
funding of USD 30 million. The new facility is
set to mature in December 2030.
The Company’s primary liquidity require-
ments are to fund research and development
activities to strengthen the product portfolio,
additional capital expenditures (e.g. investing
in production- and test facilities), investment
in working capital, regular dividends and debt
repayment schedules.
At December 31 2020, gross cash
amounted to SEK 72.0 billion, comprising
SEK 43.6 billion of cash and cash equivalents
and SEK 28.4 billion of interest-bearing securi-
ties. Ericsson expects that gross cash together
with cash flow generated by the operations,
will provide sufficient liquidity to fund the
requirements for the next twelve months
and thereafter for the foreseeable future. The
Company continues to review the short-term
and long-term cash needs on a regular basis,
factoring in any changes to the strategic plan,
the competitive landscape and overall market
terms, as and when required.
The capital turnover remained at 1.4 (1.4)
times, while Return on Capital Employed
(ROCE) improved to 17.0% (6.7%) driven by
improved operating income.
In June 2020, Moody’s upgraded Ericsson’s
rating to Ba1 (“investment grade”) with stable
outlook and in November Standard & Poor’s
upgraded Ericsson’s rating to BBB- (“invest-
ment grade”) with stable outlook. Both
Standard & Poor’s and Fitch have a long-term
BBB- (“investment grade”) rating on Ericsson
with stable outlook.
Research and development, patents and
licensing
In 2020, R&D expenses amounted to
SEK –39.7 (–38.8) billion. R&D expenses
increased by SEK 0.8 billion when excluding
Board of Directors’ report
13
restructuring charges of SEK –0.4 (–0.3)
billion and the net effect of capitalized
and amortized development expenses of
SEK 0.2 (0.3) billion. The number of R&D
resources increased to 26,169 (25,100) and
the number of patents continued to increase
and amounted to more than 57,000 (54,000)
granted patents by end of 2020.
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
–24%
13%
5%
19%
21%
24%
25%
30%
Off-balance sheet arrangements
There are currently no material off-balance
sheet arrangements that have, or would
be reasonably likely to have, a current or
anticipated material effect on the Company’s
financial condition, revenues, expenses, result
of operations, liquidity, capital expenditures or
capital resources.
Capital expenditures
For 2020, capital expenditure was SEK 4.5
(5.1) billion, representing 1.9% of sales.
Expenditures are largely related to test sites
and equipment for R&D, network opera-
tion centers and manufacturing and repair
operations.
Annual capital expenditures are normally
around 2% of sales. This corresponds to the
needs for keeping and maintaining the cur-
rent capacity level. The Board of Directors
reviews the Company’s investment plans and
proposals. As of December 31, 2020, no mate-
rial land, buildings, machinery or equipment
were pledged as collateral for outstanding
indebtedness.
Capital expenditures 2018–2020
SEK billion
2020
2019
2018
Capital expenditures
Of which in Sweden
4.5
1.9
5.1
2.0
4.0
1.3
Share of
annual sales
1.9%
2.3%
1.9%
Capitalized development expenses
Capitalized development expenses reduced
to SEK –0.8 (–1.5) billion due to 5G develop-
ment projects. The net effect on operating
income of capitalized and amortized develop-
ment expenses was SEK 0.2 (0.3) billion.
Financial report 2020
14
Board of Directors’ report
Sales split per segment
Business results – Segments
Networks
Networks represented 71% (68%) of Group
net sales in 2020. The segment offers a multi-
technology capable Radio Access Network
(RAN) solution for all spectrum network
bands, including integrated high-performing
hardware and software. The offering also
includes a transport portfolio through own
solutions and partnering, an integrated
antenna solution and a complete service
portfolio covering network deployment
and support.
Net sales
Reported sales increased by 7% in 2020
to SEK 166.0 (155.0) billion. Growth was
primarily due to increased hardware deliveries
following the increased market footprint. Sales
adjusted for comparable units and currency
increased by 10%. From a geographical
perspective growth was primarily driven by
increased sales in North East Asia, North
America and Europe. Sales declined in Latin
America and Africa, due to the macroeconomic
situation on the back of COVID–19.
The Networks share of IPR licensing
revenues was SEK 8.2 (7.9) billion.
Gross margin
Reported gross margin increased to 43.6%
(41.8%). Gross margin excluding restructur-
ing charges increased to 43.8% (41.8%) as
a result of the continued strengthening of
operational leverage.
Operating income and margin
Reported operating income increased to
SEK 30.9 (24.8) billion, with an increase
in operating margin to 18.6% (16.0%).
Operating margin excluding restructuring
charges increased to 19.0% (16.0%) driven
by sales growth and improved gross margin.
Operating expenses increased by SEK –1.7
billion to SEK –41.9 billion due to higher R&D
investments in 5G and in a broader portfolio
of antenna and site solutions as well as an
increase in restructuring charges.
Impairment losses on trade receivables
impacted operating expenses by SEK 0.2
(–0.1) billion. Net impact from amortization
and capitalization of development expenses
and from recognition and deferral of hardware
costs was SEK 0.3 (1.1) billion.
Digital Services
Digital Services represented 16% (18%) of
Group net sales in 2020. The segment pro-
vides software-based solutions for business
support (BSS), operational support (OSS),
communication services, core networks, and
cloud infrastructure. The focus is on cloud
native and automation solutions supporting
our customers’ 4G and growing 5G consumer
and enterprise business.
Net sales
Reported sales decreased by –6% in 2020
to SEK 37.3 (39.9) billion. Sales adjusted for
comparable units and currency decreased by
–3%, mainly impacted by a sales decline in
the legacy portfolio, primarily in hardware.
Sales grew in South East Asia, Oceania and
India and in North East Asia, while sales in the
remaining three market areas declined.
The growth portfolio had good business
momentum and sales grew by 6% in 2020.
Important 5G Core contracts have been
signed with several tier–1 operators and are
expected to generate revenues in 2021 and
beyond.
The Digital Services share of IPR licensing
revenues was SEK 1.8 (1.7) billion.
Gross margin
Reported gross margin increased to 41.9%
(37.2%) supported by an increased share of
software sales. The impact of critical contracts
was limited in 2020.
Operating income (loss)
Reported operating income (loss) was
SEK –2.2 (–4.0) billion. Operating income
(loss) excluding restructuring charges was
SEK –2.2 (–3.4) billion. The improvement was
driven by higher gross margin and lower oper-
ating expenses. Operating expenses declined
by SEK 1.1 billion of which SEK 0.4 billion was
related to lower restructuring charges. The net
impact of capitalized and amortized develop-
ment expenses was SEK –0.1 (–0.9) billion.
R&D expenses remained at the same level as
in 2019, with a shift of investments towards
the cloud-native 5G portfolio.
Networks
Digital Services
Managed Services
Emerging Business and Other
71%
16%
10%
3%
Networks
SEK billion
200
150
138.6
155.0
166.0
18.6%
100
50
0
16.0%
14.0%
19.4
24.8
30.9
2018
2019
2020
Net sales
Operating income
Operating margin
Digital Services
SEK billion
50
40
30
20
10
0
-10
-20
-30
38.1
39.9
–5.9%
37.3
–10.1%
–36.4%
–13.9
–4.0
–2.2
2018
2019
2020
Net sales
Operating income
Operating margin
%
32
24
16
8
0
%
0
-10
-20
-30
-40
-50
-60
-70
-80
Financial report 2020
Managed Services
SEK billion
30
25
20
15
10
5
0
25.8
25.6
9.0%
22.6
6.9%
4.2%
1.1
2.3
1.6
2018
2019
2020
Net sales
Operating income
Operating margin
Emerging Business and Other
SEK billion
%
12
10
8
6
4
2
0
%
50
0
15
10
5
0
-5
-10
-15
8.4
–64.5%
6.8
6.5
–37.0%
-50
–2.4
–5.4
–184.0%
–12.5
2018
2019
2020
-100
-150
-200
-250
Net sales
Operating income
Operating margin
Breakdown of operating income in segment
Emerging Business and Other
SEK billion
Segment operating
income
of which Emerging
Business, iconective,
media businesses,
Cradlepoint 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
2020
Full year
2019
–2.4
–12.5
–2.6
–2.4
0.3
–10.7
–0.1
–0.3
0.0
0.9
Business results – Segments, cont.
Managed Services
Managed Services represented 10% (11%)
of Group net sales in 2020. The segment
provides Networks and IT Managed Services,
Network Design and Optimization, and
Application Development and Maintenance to
telecom operators.
These are delivered through the AI-driven
Ericsson Operations Engine, a set of capabili-
ties that transform operations to enhance
customer experience, drive agile service
creation and optimize costs in multi-vendor
environments.
Net sales
Reported sales declined by –12% in 2020
to SEK 22.6 (25.6) billion. Sales adjusted for
comparable units and currency decreased by
–10%, mainly due to reduced variable sales
in a large contract in North America, post
the merger between two large operators,
and transfer of a contract to an associated
company. Exits of non-strategic contracts
also contributed to the sales decline. Sales in
Managed Services IT showed growth.
Gross margin
Reported gross margin increased to 17.8%
(15.6%). Gross margin excluding restructuring
charges increased to 18.9% (15.8%), mainly
as a result of efficiency gains and higher vari-
able sales, partly offset by lower sales.
Operating income
Reported operating income was SEK 1.6 (2.3)
billion. Operating income excluding restructur-
ing charges was SEK 1.8 (2.4) billion. In 2019
there was a positive effect of a reversal of a
provision for impairment of trade receivables
of SEK 0.7 billion. Despite the decline in sales,
operating income excluding restructuring
charges and the above mentioned provision
reversal, increased by SEK 0.2 billion com-
pared to previous year.
Restructuring charges amounted to
SEK –0.3 (0.0) billion.
Board of Directors’ report
15
Emerging Business and Other
Segment Emerging Business and Other rep-
resented 3% (3%) of Group net sales in 2020.
Ericsson supports enterprises by providing
reliable and secure cellular solutions that are
easy to use, adopt and scale for global and
local needs.
The segment includes:
– Emerging Business, including IoT, iconec-
tiv, Cradlepoint and New businesses
– Media businesses, including Red Bee and
a 49% ownership of MediaKind.
Net sales
Reported sales decreased by –4% in 2020
to SEK 6.5 (6.8) billion. Sales in Emerging
Business grew driven by the acquired
Cradlepoint business and by IoT platforms.
Sales adjusted for comparable units and
currency decreased by –4%.
Gross margin
Reported gross margin increased to 25.6%
(18.9%). Gross margin excluding restructuring
charges increased to 28.0% (19.6%). The
increase was driven by Emerging Business
(IoT Platforms, Edge Gravity exit and
Cradlepoint).
Operating income (loss)
In 2020 operating income was positively
impacted by SEK 0.3 billion related to a provi-
sion release related to costs for the compliance
monitor.
In 2019 operating income was impacted by
costs of SEK –10.7 billion related to the reso-
lution of the US SEC and DOJ investigations,
a refund of earlier paid social security costs
in Sweden of SEK 0.9 billion and by a cost of
SEK –0.3 billion related to the wind-down of
the ST-Ericsson legal structure.
Reported operating income (loss) was
SEK –2.4 (–12.5) billion. Operating income
(loss) excluding restructuring charges and
above mentioned one-off items of SEK 0.3
(–10.1) billion was SEK –2.1 (–2.3) billion.
Media Solutions operating income (loss)
excluding restructuring charges and the above
mentioned provision release related to the
compliance monitor was SEK –0.3 (–0.3) bil-
lion including Ericsson’s 49% share in earnings
of MediaKind.
Red Bee Media’s operating income impr-
oved, despite lower sales due to COVID–19.
The exit of the Edge Gravity business in
the second quarter positively contributed to
profitability.
Restructuring charges amounted to
SEK –0.3 (–0.1) billion.
Financial report 2020
16
Board of Directors’ report
Sales split per market area
Business results – Market areas
North America
32%
Europe and Latin America
24%
Middle East and Africa
10%
South East Asia, Oceania and India 13%
North East Asia
14%
Other
7%
North America
Sales increased driven by 5G network deploy-
ments across all major customers. Managed
Services sales decreased after the merger
between two operators. In Digital Services
the sales increase in the growth portfolio did
not fully compensate for the decline in legacy
products.
Europe and Latin America
Sales decreased due to earlier decisions on
Managed Services contract exits and reduced
sales in Latin America due to macro economic
conditions following COVID-19. Networks
sales increased in Europe as a result of market
share gains, partly offsetting the sales decline
in Latin America.
Middle East and Africa
Sales decreased primarily due to macroeco-
nomic conditions and delayed investments in
Networks and Digital Services. Continued 5G
deployments in the Middle East contributed
positively. Managed Services sales were stable.
South East Asia, Oceania and India
Network sales remained flat. Growth in
Managed Services was driven mainly by a
new contract. Digital Services sales increased
due to continued LTE investments and 5G
momentum.
North East Asia
Sales increased. Strong Networks sales
growth was driven by 5G deployment in
Mainland China and increased business vol-
umes in Japan, Taiwan and Hong Kong. Digital
Services sales grew through 5G core network
deployments.
Other
IPR licensing revenues increased to SEK 10.0
(9.6) billion, as lower volumes with one licen-
see were offset by new contracts.
Market area sales – 2020 compared with 2019
SEK
227.2
billion
–9%
–6%
+5%
–1%
+1%
+26%
SEK
232.4
billion
2019
Middle East
and Africa
Europe and
Latin America
Other
South
East Asia,
Oceania
and India
North
America
North
East Asia
2020
Financial report 2020
Corporate Governance
In accordance with the Annual Accounts Act
and the Swedish Corporate Governance Code
(the “Code”), a separate Corporate Govern-
ance 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 2020,
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
governing 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. The
Company reviews and updates the Code of
Business Ethics’ content on a regular basis and
periodically runs an acknowledgment process
to ensure that everyone performing work for
Ericsson has read and understood it.
Board of Directors
At the Annual General Meeting, held on
March 31, 2020, 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 31, 2020, 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, consist-
ing of the Executive Team.
Ericsson has a global management system
(EGMS) to ensure that Ericsson’s business is
well managed and has the ability to fulfil 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 are
reported in note G2, “Information regarding
members of the Board of Directors and the
Group management.” Further information
about remuneration to the President and CEO
and the Executive Vice Presidents is included
in the “Remuneration report” appended to this
Annual Report.
Guidelines for remuneration to Group
management
The Board of Directors does not propose any
changes to the Guidelines for remuneration to
Group management resolved by the Annual
General Meeting 2020, which are intended
to remain in place for four years until the
Annual General Meeting of shareholders
2024. The current Guidelines are included on
pages 20–24.
Long-Term Variable Compensation
Program 2020 (LTV 2020) for the
Executive Team
Ericsson has share-based Long-Term Variable
Compensation Programs in place for the Exec-
utive Team. LTV 2020 for the Executive Team
was approved by the Annual General Meeting
2020. Details of LTV 2020 are explained in
note G3, “Share-based compensation.”
Material contracts
Material contractual obligations are outlined
in note D4, “Contractual obligations.” These
are primarily related to leases of office and
production facilities, purchase con tracts for
outsourced manufacturing, R&D and IT opera-
tions 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 Com-
pany’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-
Board of Directors’ report
17
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
member. The Group Risk Management func-
tion 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.
The Company negotiates global supply
agreements with its primary suppliers. In
general, Ericsson endeavours to have alterna-
tive supply sources and seeks to avoid single
source supply situations.
The production of electronic modules
and sub-assemblies is mostly outsourced to
manufacturing services companies. Ericsson is
focusing internal manufacturing on new prod-
uct introductions and new technologies. The
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 has
been established in the USA.
The Company requires suppliers to comply
with The Ericsson Code of Conduct for Busi-
ness Partners. All partners and suppliers are
required to develop, implement and maintain
environmentally responsible business prac-
tices, considering their identified environmen-
tal aspects and risks.
Business Partners are required to have
an environmental management system and
Financial report 2020 18
Board of Directors’ report
to be aware of and comply with applicable
environmental legislation, permits and report-
ing requirement. Where the requirements in
the Ericsson Code of Conduct for Business
Partners are higher than local standards and
laws, the requirements of the Code should be
applied.
Ericsson works to reduce environmental
impacts and emissions in product portfolio
and supply chain. The circular economy
encapsulates Ericsson’s approach to environ-
mental sustainability, where the Company
continuously strives to minimize the negative
impacts of its operations, and to improve the
environmental and energy performance of
its products to reduce societal environmental
impact. Minimizing waste is key to a circular
economy and high reuse and recycling rates
form part of the standard requirements for the
Company´s smart product design.
Ericsson has set a target for high emitting
and strategic suppliers to set their own 1.5°C
aligned climate targets.
Sustainability and Corporate
Responsibility
Ericsson’s approach to sustainability and
corporate responsibility is an integral part
of the Company’s strategy and culture and
is embedded across its operations to drive
business transformation and create value for
stakeholders.
Ericsson is committed to creating positive
sustainability impacts and reducing risks to
the Company and its stakeholders through
its technology, solutions, operations, and the
expertise of its employees.
Ericsson has prepared a separate Sustain-
ability Report in accordance with the Swedish
Annual Accounts Act, the Sustainability
and Corporate Responsibility Report 2020,
appended to this Annual Report.
Information security
Information security, focused on preserving
the confidentiality, integrity and availability
of information, is a key element in Ericsson’s
operational resilience. Information security is a
highly prioritized area in Ericsson supporting a
changing regulatory environment, stakeholder
requirements and increased government over-
sight. As both the value of information and the
capabilities of threat actors increase, informa-
tion security has become a matter of national
importance globally and a key consideration in
the Information and Communication Technol-
ogy (ICT) sector.
Policies and directives establish the secu-
rity requirements across Ericsson. Ericsson’s
Product Security framework includes a man-
datory area specifically addressing regulatory
requirements for security, which is applicable
to all products while the Enterprise Security
Framework is the applicable internal regula-
tion for protecting the company and ensuring
that security is considered throughout the
entire product life cycle.
Ericsson’s Information Security Manage-
ment System is globally certified to ISO/
IEC 27001. Information security is governed
through Ericsson’s Group Enterprise Security
Board while the Product and Technology
Security Board oversees product and portfolio
security. The Audit and Compliance Commit-
tee of the Board of Directors receives regular
updates on cyber security.
The security frameworks address secure
development, business continuity, sales and
delivery of products and services, while ensur-
ing protection of the company’s and custom-
ers’ data.
Specific security training is mandatory
for all employees, with in depth training
developed to build Ericsson specific security
competence.
Ericsson has a Group Crisis Management
Council which is responsible for the handling
of major incidents or crises.
US FCPA settlement
In December 2019, Ericsson reached the
resolution of the investigations conducted by
the US Department of Justice (DOJ) and by the
Securities and Exchange Commission (SEC)
since 2015 and 2013 respectively, regard-
ing the Company’s compliance with the US
Foreign Corrupt Practices Act (FCPA).
As a result, Ericsson agreed to enter into
a Deferred Prosecution Agreement (DPA)
with the DOJ to resolve criminal charges and
agreed with the SEC to the entry of a judgment
to resolve civil claims related to allegations of
violations of the FCPA.
As part of this resolution, Ericsson agreed
to engage an independent compliance moni-
tor for a period of three years.
In June 2020, Ericsson announced that
Dr. Andreas Pohlmann of the firm Pohlmann
& Company – Compliance and Govern-
ance Advisory LLP had been appointed as
Ericsson’s monitor. The appointment marked
the start of the three-year term of the moni-
torship. The monitor’s main responsibilities
include reviewing Ericsson’s compliance with
the terms of the settlement and evaluating
the Company’s progress in implementing and
operating its enhanced compliance program
and accompanying controls as well as provid-
ing recommendations for improvements.
Legal proceedings
Ericsson and Samsung were not able to renew
the now expired patent license agreement
between the parties in a timely manner.
On December 11, 2020, Ericsson filed a
lawsuit in the US District Court for the Eastern
District of Texas, against Samsung, for violat-
ing contractual commitments to negotiate
in good faith and to license patents on Fair,
Reasonable and Non-Discriminatory (FRAND)
terms and conditions. In addition, Ericsson
also sought to obtain a ruling by the court that
it had complied with its own FRAND commit-
ments. The lawsuit was later amended to
include claims of patent infringement against
Samsung.
On December 17, 2020, Samsung informed
Ericsson that it had filed suit in Wuhan, China,
on December 7, 2020, seeking rate setting for
Ericsson’s 4G & 5G standard essential patents.
On January 1, 2021 Ericsson filed a patent
infringement case in the US District Court for
the Eastern District of Texas against Samsung.
On January 4, 2021, Ericsson filed a
complaint at the US International Trade
Commission (ITC) as well as in Dusseldorf,
Mannheim, and Munich Regional Courts in
Germany, the District Court of the Hague in
The Netherlands, and the Enterprise Court of
Brussels in Belgium asserting infringement of
patents by Samsung.
On January 7, 2021, Samsung asserted
patent infringement claims against Ericsson
in a complaint at the US ITC as well as in
counter claims the US District Court for the
Eastern District of Texas.
On January 15, 2021, Ericsson filed an
additional US ITC Action and a case in the US
District Court for the Eastern District of Texas
against Samsung for patent infringement.
On February 4, 2021, Samsung filed addi-
tional complaints at the ITC and in the U.S.
District Court for the Eastern District of Texas
against Ericsson for patent infringement.
On February 15, 2021, Ericsson filed
additional complaints asserting claims of
patent infringement against Samsung in
the Mannheim and Munich Regional Court
in Germany, the District Court of the Hague
in The Netherlands, the Enterprise Court of
Brussels in Belgium, and the Patents Court of
the United Kingdom.
On February 19, 2021, Samsung asserted
patent infringement claims against Ericsson
in complaints filed in the Paris First Instance
Court in France, the District Court of the Hague
in The Netherlands, and the Enterprise Court
of Brussels in Belgium.
In the context of the various court pro-
ceedings, the parties are involved in filing
and contesting various pre-trial motions and
related court awards, including as to venue.
Financial report 2020 The filing of multiple lawsuits, complaints
and other proceedings, when parties take
legal action over a patent license agreement
renewal, is standard and consequently addi-
tional lawsuits, complaints and other proceed-
ings, may follow.
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 similar
investigations against Ericsson based on
claims made by Intex Technologies (India)
Limited and, in 2015, based on a now settled
claim from iBall. Ericsson has challenged CCI’s
jurisdiction in these cases before the Delhi
High Court and is awaiting final appellate
decision by the Supreme Court of India.
In April 2019, Ericsson was informed
by China’s State Administration for Market
Regulation (SAMR) Anti-monopoly bureau
that SAMR has initiated an investigation into
Ericsson’s patent licensing practices in China.
Ericsson is cooperating with the investiga-
tion, which is still in a fact-finding phase. The
next steps include continued fact finding and
meetings with SAMR in order to facilitate the
authority’s assessments and conclusions.
In April 2018, Telefonaktiebolaget LM
Ericsson, the present President and CEO and
the Chief Financial Officer of Ericsson as
well as three former executives were named
defendants in a putative class action filed
in the United States District Court for the
Southern District of New York. The complaint
alleged violations of United States securities
laws, principally in connection with service
revenues and recognition of expenses on long-
term service projects. Ericsson filed motion to
dismiss the complaint. On January 11, 2020
the court granted Ericsson’s motion to dismiss.
The decision became final and binding on
April 15, 2020.
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.
As of 31 December 2020 (2019) the Parent
Company had 3 (3) branch offices. In total, the
Group has 77 (77) branch and representative
offices.
Financial information
Income after financial items was SEK 8.3
(–3.1) billion. The Parent Company had no
sales in 2020 or 2019 to subsidiaries, while
36% (35%) of total purchases of goods and
services were from such companies.
Major changes in the Parent Company’s
financial position for the year included:
– Increased current and non-current receiv-
ables from subsidiaries of SEK 8.9 billion.
– Increased current and non-current liabili-
ties to subsidiaries of SEK 12.5 billion.
– Increased dividend from subsidiaries of
SEK 3.9 billion.
– Increased impairment of investments in
subsidiaries of SEK 2.5 billion.
At the end of the year, gross cash: cash,
cash equivalents, short-term investments,
and interest-bearing securities non-current
amounted to SEK 57.0 (56.5) billion.
At the end of the year, non-restricted equity
amounted to SEK 33.9 (32.2) billion and total
equity amounted to SEK 82.1 (80.4) billion.
Share information
As of December 31, 2020, 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 earnings. The
largest shareholders of the Parent Company at
year-end were Investor AB with approximately
22.81% of the votes (7.68% of the shares),
AB Industrivärden with 15.14% of the votes
(2.61% of the shares), Svenska Handelbankens
Pensionsstiftelse with 4.12% of the votes (0.7%
of the shares) and Cevian Capital with 3.25% of
the votes (5.45% of the shares).
In accordance with the conditions of the
Long-Term Variable Compensation Program
(LTV) for Ericsson employees, 13,809,287
treasury shares were distributed to employees
or sold in 2020. The quotient value of these
shares was SEK 5.00 per share, totaling
SEK 69 million, representing less than 1% of
capital stock, and compensation received for
shares sold and distributed shares amounted
to SEK 163.5 million.
The holding of treasury stock at December
31, 2020 was 6,043,960 Class B shares. The
Board of Directors’ report
19
quotient value of these shares is SEK 5.00,
totaling SEK 30 million, representing 0.2% of
capital stock, and the purchase price amounts
to SEK 43.9 million.
Proposed disposition of earnings
The Board of Directors proposes a dividend
SEK 2.00 (1.50) 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 1.00 per share with the record date April 1,
2021, and SEK 1.00 per share with the record
date October 1, 2021.
The Class B treasury shares held by the
Parent Company are not entitled to receive
dividend. Assuming that no treasury shares
remain on the record date, the Board of
Directors proposes that earnings be distributed
as follows:
Amount to be paid to
the shareholders
Amount to be retained by the
Parent Company
Total non-restricted equity of
the Parent Company
SEK 6,668,303,470
SEK 27,246,946,648
SEK 33,915,250,118
As a basis for its dividend proposal, the
Board of Directors has made an assessment
in accordance 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 31.4% (29.6%) and a net cash
amount of SEK 41.9 (34.5) billion.
The Parent Company’s equity would have
been SEK 0.3 billion higher if assets and liabili-
ties had not been valued at fair value pursuant
to Chapter 4, Section 14a of the Swedish
Annual Accounts Act.
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-
balanced 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.
Financial report 2020 20
Board of Directors’ report
Guidelines for Remuneration
to Group Management approved
by the Annual General Meeting of
shareholders 2020
Guidelines for Remuneration
to Group Management
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, perform-
ing 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 2019.1)
Governance of remuneration
to Group Management
The Board has established a Remuneration
Committee (the “Committee”) to handle com-
pensation policies and principles and matters
concerning remuneration to Group Manage-
ment. 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 Commit-
tee 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 resolu-
tion by the Board proposals to the AGM on
Guidelines for Remuneration to Group Manage-
ment 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.
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 President
and CEO is not present at Board meetings when
issues relating to the President and CEO’s own
remuneration are being discussed. The Commit-
tee 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.
1) Information for 2020 can be found in the Remuneration
report and in note G2, “Information regarding members of
the Board of Directors and Group management” and note
G3, “Share-based compensation” in the Financial report.
Financial report 2020 Element and purpose
Operation
Opportunity
Performance measures
Board of Directors’ report
21
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
Management 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,
employees in relevant locations and
performance 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
measures 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
performance,
– 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
payout 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
incorrect financial reporting, non-
compliance with a financial reporting
requirement etc.
Financial report 2020 22
Board of Directors’ report
Element and purpose
Operation
Opportunity
Performance measures
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
individual’s home country and may
contain various supplementary plans
in addition 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
countries 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
individual’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
company phones, company cars,
medical and other insurance benefits,
tax support, travel, Company gifts and
any international relocation and/or
commuting benefits if the individual is
required to relocate and/or commute
internationally to execute the require-
ments of the role.
None
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
bargaining 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
participate in the local market competi-
tive 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
contributions 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
countries of employment, shall be
determined 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.
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.
Financial report 2020 Board of Directors’ report
23
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
Management 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 remunera-
tion components for the members of Group
Management and the Company’s employees
in the way that remuneration policy is applied
as well as the methods followed in determin-
ing 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.
the arbitrators and all of its own litigation costs
(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
relocation 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
– 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
honored for a maximum period of 36 months.
Financial report 2020 24
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.
Financial report 2020 Board of Directors’ report
25
Board assurance
The Board of Directors and the President
declare that the consolidated financial state-
ments have been prepared in accordance
with IFRS, as issued by the IASB and adopted
by the EU, and give a fair view of the Group’s
financial position and results of operations.
The financial statements of the Parent
Company have been prepared in accordance
with generally accepted accounting principles
in Sweden and give a fair view of the Parent
Company’s financial position and results of
operations. The Board of Directors’ Report for
the Ericsson Group and the Parent Company
provides a fair view of the development of the
Group’s and the Parent Company’s operations,
financial position and results of operations
and describes material risks and uncertainties
facing the Parent Company and the compa-
nies included in the Group.
Stockholm, March 3, 2021
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 3, 2021
Deloitte AB
Thomas Strömberg
Authorized Public Accountant
Financial report 2020 26
Consolidated financial statements with notes
Contents
Consolidated financial statements
27
27
28
29
30
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
33
33
40
43
43
46
46
46
A
A1
A2
B
B1
B2
B3
B4
Basis of presentation
Significant accounting policies
Critical accounting estimates
and judgments
Business and operations
Segment information
Net sales
Expenses by nature
Other operating income and
expenses
46
46
47
47
47
47
47
49
50
51
51
52
52
52
53
53
54
55
B5
B6
B7
B8
B9
C
C1
C2
C3
D
D1
D2
D3
D4
E
E1
E2
E3
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
56
56
61
61
62
63
63
67
69
74
75
75
76
76
77
77
F
F1
F2
F3
F4
G
G1
G2
G3
G4
H
H1
H2
H3
H4
H5
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
Earnings per share
Statement of cash flows
Related party transactions
Fees to auditors
Financial report 2020 Consolidated financial statement
Consolidated financial statements with notes
27
Consolidated income statement
January–December, SEK million
Net sales
Cost of sales
Gross income
Research and development expenses
Selling and administrative expenses
Impairment losses on trade receivables
Operating expenses
Other operating income
Other operating expenses
Share in earnings of joint ventures and associated companies
Operating income
Financial income and expenses, net
Income after financial items (loss)
Income tax
Net income (loss)
Net income (loss) attributable to:
Owners of the Parent Company
Non-controlling interests
Other information
Notes
B1, B2
F1
B4
B4
B1, E3
B1
F2
H1
Average number of shares, basic (million)
Earnings (loss) per share attributable to owners of the Parent Company, basic (SEK) 1)
Earnings (loss) per share attributable to owners of the Parent Company, diluted (SEK) 1)
H2
H2
H2
1) Based on Net income (loss) attributable to owners of the Parent Company.
Consolidated statement of comprehensive income (loss)
January–December, SEK million
Net income (loss)
Other comprehensive income (loss)
Items that will not be reclassified to profit or loss
Remeasurements of defined benefits pension plans including asset ceiling
Revaluation of borrowings due to change in credit risk
Tax on items that will not be reclassified to profit or loss
Items that have been or may be reclassified to profit or loss
Cash flow hedge reserve
Gains/losses arising during the period
Reclassification adjustments on gains/losses included in profit or loss
Translation reserves
Changes in translation reserves
Reclassification to profit and loss
Share of other comprehensive income of JV and associated companies
Tax on items that have been or may be reclassified to profit or loss
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
2020
232,390
–138,666
93,724
–39,714
–26,684
118
–66,280
1,161
–499
–298
27,808
–596
27,212
–9,589
17,623
17,483
140
3,323
5.26
5.26
2020
17,623
–4,618
99
880
136
281
–5,376
124
–81
–86
–8,641
8,982
8,787
195
2019
227,216
–142,392
84,824
–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
–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
2019
1,840
2018
–6,276
–6,182
–651
1,363
–290
–
1,925
54
131
60
–3,590
–1,750
–1,403
–347
–2,453
207
285
–
–
2,011
36
14
–
100
–6,176
–6,470
294
Financial report 2020
28
Consolidated financial statements with notes
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 interests
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
C1
C2
C3
E3
F3
B6, F1
F1, F3
F3
H1
B5
B6, F1
B6, F1
B6, F1
B7
F1
H3
E1
E1
E1
E1
E1
E1
G1
D1
H1
F4
C3
D1
F4
C3
B6
B8
B9
Dec 31
2020
Dec 31
2019
Dec 31
2018
3,857
34,945
4,805
13,383
7,980
1,274
1,519
1,221
21,613
4,842
26,296
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
121,735
122,469
107,594
28,097
11,273
42,063
1,916
16,014
6,820
43,612
149,795
271,530
16,672
24,731
–2,689
47,960
86,674
–1,497
85,177
37,353
2,886
1,089
22,218
7,104
1,383
72,033
7,580
7,942
2,196
26,440
31,988
38,174
114,320
271,530
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
Financial report 2020
Consolidated financial statements with notes
29
Notes
H3
C2
H3, E2
H3, E2
C1
F4
F4
F4
H3
2020
2019
2018
17,623
14,915
32,538
384
370
–3,185
4,303
–2,669
–560
–2,248
–3,605
28,933
–4,493
254
–9,657
59
–817
801
–1,348
–15,201
4,400
–8,643
163
–5,996
–2,417
1
–12,492
–2,707
–1,467
45,079
43,612
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
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
911
–1,748
107
–3,425
–
78
–4,077
1,372
2,505
35,884
38,389
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
Financing activities
Proceeds from issuance of borrowings
Repayment of borrowings
Sale 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
Financial report 2020
30
Consolidated financial statements with notes
Consolidated statement of changes in equity
Equity and Other comprehensive income (loss) 2020
SEK million
January 1, 2020
Net income (loss)
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
Reclassification to profit and loss
Translation reserves 1)
Changes in translation reserves
Reclassification to profit and loss
Share of other comprehensive income of JV
and associated companies
Tax on items that have been or may be reclassified
to profit or loss
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 2)
December 31, 2020
Capital
stock
16,672
–
Additional
paid in
capital
24,731
–
Other
reserves
2,292
–
Retained
earnings
Stockholders’
equity
Non-controlling
interests
38,864
17,483
82,559
17,483
–681
140
Total equity
81,878
17,623
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99
–20
–4,614
–
899
–4,614
99
879
–4
–
1
–4,618
99
880
136
281
–5,434
124
–81
–86
–4,981
–4,981
–
–
–
–
–
–
–
–
–
–3,715
13,768
163
150
–4,985
47,960
136
281
–5,434
124
–81
–86
–8,696
8,787
163
150
–4,985
86,674
–
–
58
–
–
–
55
195
–
–
–1,011
–1,497
136
281
–5,376
124
–81
–86
–8,641
8,982
163
150
–5,996
85,177
1) Changes in cumulative translation adjustments include changes regarding revaluation of goodwill in local currency of SEK –3,359 million (SEK 966 million in 2019 and SEK 1,584 million in 2018), and realized
gain/losses net from sold/liquidated companies, SEK 124 million (SEK 54 million in 2019 and SEK 36 million in 2018).
2) Dividends paid per share amounted to SEK 1.50 (SEK 1.00 in 2019 and SEK 1.00 in 2018).
16,672
24,731
–2,689
Financial report 2020 Consolidated financial statements with notes
31
Other
reserves
Retained
earnings
Stockholders’
equity
Non-controlling
interests
Total 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)
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
Translation reserves
Changes in translation reserves
Reclassification to profit and loss
Share of other comprehensive income of JV
and associated companies
Tax on items that have been or may be reclassified
to profit or loss
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 interests
December 31, 2019
Capital
stock
16,672
–
Additional
paid in
capital
24,731
–
16,672
24,731
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
965
–
965
–
–
–651
134
–290
1,889
54
131
60
1,327
1,327
–
–
–
–
16,672
24,731
2,292
44,610
–249
44,361
2,223
86,978
–249
86,729
2,223
792
–
792
–383
87,770
–249
87,521
1,840
–6,182
–
1,229
–6,182
–651
1,363
–
–
–
–6,182
–651
1,363
–
–
–
–
–
–4,953
–2,730
197
377
–3,301
–40
38,864
–290
1,889
54
131
60
–3,626
–1,403
197
377
–3,301
–40
82,559
–
–290
36
–
–
–
36
–347
–
–
–1,149
23
–681
1,925
54
131
60
–3,590
–1,750
197
377
–4,450
–17
81,878
Financial report 2020
32
Consolidated financial statements with notes
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)
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
Translation reserves
Changes in translation reserves
Reclassification to profit and loss
Share of other comprehensive income of JV
and associated companies
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 interests
December 31, 2018
Capital
stock
16,672
–
Additional
paid in
capital
24,731
–
Other
reserves
–334
–888
16,672
24,731
–1,222
–
–
–
Retained
earnings
Stockholders’
equity
Non-controlling
interests
Total equity
55,866
–95
55,771
–6,530
96,935
–983
95,952
–6,530
636
–
636
254
97,571
–983
96,588
–6,276
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
207
–44
–2,457
–
330
–2,457
207
286
4
–
–1
–2,453
207
285
1,974
36
14
2,187
2,187
–
–
–
–
–
–
–
–2,127
–8,657
107
677
–3,287
–1
44,610
1,974
36
14
60
–6,470
107
677
–3,287
–1
86,978
37
–
–
40
294
–
–
–138
–
792
2,011
36
14
100
–6,176
107
677
–3,425
–1
87,770
16,672
24,731
965
Financial report 2020
Notes to the consolidated financial statements
Notes to the consolidated financial statements
33
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, 2020 have been prepared in accordance with International Financial
Reporting Standards (IFRS) as endorsed by the EU and RFR 1 “Additional rules
for Group Accounting,” related interpretations issued by the Swedish Financial
Reporting Board (Rådet för Finansiell Rapportering), and the Swedish Annual
Accounts Act. For the financial reporting of 2020, the Company has applied
IFRS as issued by the IASB (IFRS effective as per December 31, 2020). There
is no difference between IFRS effective as per December 31, 2020, 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 3, 2021. 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, 2020, can be found in the end of the note.
The preparations for the adoption of new standards and interpretations not
adopted 2020 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 going concern and 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. Assets
acquired under business combinations are fair valued at initial recognition.
Financial information in the consolidated income statement, the consolidated
statement of comprehensive income, the consolidated statement of cash flows
and the consolidated statement of changes in equity with related notes are
presented with two comparison years. For the consolidated balance sheet,
financial information with related notes is presented with two comparison
years.
Basis of consolidation and composition of the Group
The consolidated financial statements are prepared in accordance with the
purchase method. Accordingly, consolidated stockholders’ equity includes
equity in subsidiaries, joint ventures and associated companies earned only
after their acquisition.
Subsidiaries are all companies for which Telefonaktiebolaget LM
Ericsson, directly or indirectly, is the parent. To be classified as a parent,
Telefonaktiebolaget LM Ericsson, directly or indirectly, must control another
company which requires that the Parent Company has power over that other
company, is exposed to variable returns from its involvement and has the
ability to use its power over that other company. The financial 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 mon-
etary 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.
Foreign exchange effect is presented as a net item within Financial income
and expenses, reported separately from other financial income and expenses
items as this reflects the way the Company manages its foreign exchange risks
on a net basis.
Group companies
The results and financial position of all the group entities that have a func-
tional currency different from the presentation currency are translated into the
presentation currency as follows:
Assets and liabilities for each balance sheet presented are translated at the
closing rate at the date of that balance sheet.
Period income and expenses for each income statement are translated at
period average exchange rates.
All resulting net exchange differences are recognized as a separate compo-
nent of Other comprehensive income (OCI).
On consolidation, exchange differences arising from the translation of the
net investment in foreign operations, and of borrowings and other currency
instruments designated as hedges of such investments, are accounted for in
OCI. When a foreign operation is 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
translated at the closing rate.
Financial report 2020 34
Notes to the consolidated financial statements
Note A1, cont.
The Company is continuously monitoring the economies with high infla-
tion, the risk of hyperinflation and potential impact on the Company. There is
no significant impact due to any currency translation of a hyper-inflationary
economy.
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 pur-
chase 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 equip-
ment 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 pro-
vided 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 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 deliver-
ing 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 accept-
ance 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 rev-
enue 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 cus-
tomer. Customer finance is a class of financial assets that is managed sepa-
rately 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.
Financial report 2020 Note A1, cont.
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.
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.
Contract liability relates to amounts that are paid by or due from custom-
ers for which performance obligations are unsatisfied or partially satisfied.
Advances from customers 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 generally has one subsidiary for each jurisdiction and within
each of the subsidiaries, each financial statement item is defined and allocated
to each of the different segments.
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 recover-
able amount is the higher of the value in use and the fair value less costs of
disposal. In assessing value in use, the estimated future cash flows after tax
are discounted to their present value using an after-tax discount rate that
reflects current market assessments of the time value of money and the risks
specific to the asset. Application of after-tax amounts in calculation, both in
relation to cash flows and discount rate is applied due to that available models
for calculating discount rate include a tax component. The effect of after-tax
discount rate applied by the Company is not materially different from a dis-
counting based on before-tax future cash flows and before-tax discount rates,
Notes to the consolidated financial statements
35
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.
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,
trademarks and software, as well as capitalized development expenses and
separately acquired intangible assets, mainly consisting of software. At initial
recognition, acquired intangible assets related to business combinations are
stated at fair value and capitalized development expenses and software are
stated at cost. Subsequent to initial recognition, these intangible assets are
stated at initially recognized amounts less accumulated amortization and any
impairment. Amortization and any impairment losses are included in Research
and development expenses, which mainly consists of capitalized development
expenses and technology; in Selling and administrative expenses, which
mainly consists of expenses relating to customer relations and brands; and in
Cost of sales.
Costs incurred for development of products to be sold, leased, or otherwise
marketed or intended for internal use are capitalized as from when 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 statement, on a straight-line basis, over
the estimated useful life of each component of an item of property, plant,
and equipment, including buildings. Estimated useful lives are, in general,
25–50 years for real estate and 3–10 years for machinery and equipment.
Depreciation and any impairment charges are included in Cost of sales,
Research and development or Selling and administrative expenses.
The Company recognizes in the carrying amount of an item of property,
plant, and equipment the cost of replacing a component and derecognizes the
residual value of the replaced component.
Impairment testing as well as recognition or reversal of impairment of
property, plant and equipment is performed in the same manner as for intan-
gible assets other than goodwill, see description under “Intangible assets other
than goodwill” above.
Gains and losses on disposals are determined by comparing the proceeds
less cost to sell with the carrying amount and are recognized within Other
operating income and expenses in the income statement.
Financial report 2020 36
Notes to the consolidated financial statements
Note A1, cont.
Leases
The main types of assets leased by the Company are, in the order of material-
ity, real estate, IT-equipment and vehicles. Vehicles are mainly used under
service contracts.
Leases 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 exception of low value assets and
short-term contracts. This model reflects that, at the start of a lease, the lessee
always obtains the right to control 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. The lease term is
defined based on the contract lease term and when reasonably certain esti-
mated extension or termination options are included.
At commencement date the lease liabilities are measured at the present
value of the lease payments not paid at the commencement date, discounted
using the Company’s incremental borrowing rate. The incremental borrowing
rate is calculated considering interest swap rates, the creditworthiness of the
entity that signs the lease and an adjustment for the asset being collateralized.
Lease payments included in the liability are fixed payments, variable payments
depending on an index or rate and penalties for termination of contracts.
After the commencement date, the amount of lease liabilities is measured
on an amortized cost basis using the effective interest method where the
lease liabilities increase related to the accrued interest and decrease due to
lease payments made. In addition, the lease liability is remeasured if there
is a modification, a change in the lease term or a change in the future lease
payments resulting from a change in an index or rate used to determine such
lease payments.
At commencement date the right-of-use assets are 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.
After commencement date the right-of-use assets are measured at cost
less accumulated depreciation and impairment losses and adjusted for any
remeasurements of the lease liabilities. The right-of-use asset is depreciated
over the lease term straight-line. Impairment of right-of-use assets follows
IAS 36. When there is impairment the asset value shall be written down to its
recoverable amount.
The Company applies the recognition exemption for short-term leases and
leases for which the underlying asset is of low value and recognizes the lease
payments for those leases as an expense on a straight-line basis over the
lease term. The interest expense on lease liabilities in the income statement
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
related to the amortization of the lease liabilities are reported within financing
activities. Interest payments, payments for short-term leases, low-value assets
and variable lease expenses not included in the measurement of the lease
liability are reported within operating activities. For more information regard-
ing leasing, see note C3 “Leases.”
Leases 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 oth-
erwise 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
revenue as well as depreciation is recognized on a straight-line basis over the
lease term. When the Company acts as a lessor it is mainly in relating to real
estate sublease, financing and operating.
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 recogni-
tion, 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 oner-
ous 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.
Financial report 2020 Note A1, cont.
Contingent liabilities
Certain present obligations are not recognized as provisions as it is not prob-
able 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-
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 interests
The Company treats transactions with non-controlling interests as transac-
tions with equity owners of the Company. For purchases from non-controlling
interests, the difference between any consideration paid and the relevant
share acquired of the carrying value of net assets of the subsidiary is recorded
in equity. Gains or losses on disposals to non-controlling interests are also
recorded in equity.
When the Company ceases to have control, any retained interest in the
entity is remeasured to its fair value, with the change in carrying amount
recognized in profit or loss. The fair value is the initial carrying amount for the
purposes of subsequently accounting for the retained interest in an associate
or financial asset. In addition, any amounts previously recognized in Other
comprehensive income in respect of that entity are accounted for as if the
Company had directly disposed of the related assets or liabilities. This may
mean that amounts previously recognized in Other comprehensive income are
reclassified to profit or loss.
At acquisition, there is a choice on an acquisition-by-acquisition basis to
measure the non-controlling interest in the acquiree either at fair value or at
the non-controlling interest’s proportionate share of the acquiree’s net assets.
Joint ventures and associated companies
Joint ventures and associated companies are accounted for in accordance with
the equity method. Under the equity method, the investment in joint venture or
associate is initially recognized at cost and the carrying amount is increased or
decreased to recognize the investor’s share of the profit or loss of the investee
after the date of acquisition. If the Company’s interest in an associated com-
pany is nil, the Company shall not, as prescribed in IFRS recognize its part of
any future losses. Provisions related to obligations for such an interest shall,
however, be recognized in relation to such an interest.
Investments in associated companies, i.e., when the Company has signifi-
cant influence and the power to participate in the financial and operating policy
decisions of the associated company but is not in control or joint control over
those policies. Normally, this is the case in voting stock interest, including effec-
tive potential voting rights, which stand at least at 20% but not more than 50%.
The Company’s share of income before taxes is reported in item “Share in
earnings of joint ventures and associated companies,” included in Operating
income. This reflects the fact that these interests are held for operating rather
than investing or financial purposes. Ericsson’s share of income taxes related
Notes to the consolidated financial statements
37
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 are included in
consolidated equity since they are undistributed. They are reported in retained
earnings in the balance sheet.
Impairment testing as well as recognition or reversal of impairment of
investments in each joint venture and associated company is performed in the
same manner as for intangible assets other than goodwill. The entire carrying
value of each investment, including goodwill, is tested as a single asset. See
also description under “Intangible assets other than goodwill” below.
If the ownership interest in an associate is reduced but significant influence
is retained, only a proportionate share of the amounts previously recognized
in Other comprehensive income are reclassified to profit or loss where
appropriate.
In note A2, “Critical Accounting Estimates and Judgments,” further disclo-
sure is presented in relation to (i) key sources of estimation uncertainty and (ii)
the decision made in relation to accounting policies applied.
Financial instruments and risk management
For further disclosure, see the notes under section F. Plan assets under
IAS 19 are excluded from the financial risk management policy and financial
instruments disclosures in 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 securities are recognized on the settlement date. Financial assets
are derecognized when the rights to receive cash flows from the assets have
expired or have been transferred and the Company has transferred substan-
tially all risks and rewards of ownership. Separate assets or liabilities are recog-
nized 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 cash flow 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 out-
standing and the financial asset is held in a business model whose objective is
Financial report 2020 38
Notes to the consolidated financial statements
Note A1, cont.
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 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 amor-
tized over the guarantee period, using the straight-line-method.
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 used to hedge foreign exchange risks are presented
within net FX. Gains and losses on interest rate derivatives used to hedge
financial assets and liabilities are presented in financial income and financial
expense, respectively. Gains and losses on revaluation of customer financing
are presented in the income statement as selling expenses.
Dividends on equity instruments are recognized in the income statement
as part of financial income when the Company’s right to receive payments
is established.
Impairment in relation to financial assets
At each balance sheet date, financial assets classified as either amortized cost
or FVOCI and contract assets are assessed for impairment based on Expected
Credit Losses (ECL). ECLs are the difference between all contractual cash
flows that are due in accordance with the contract and all the cash flows that
the Company expects to receive, discounted at the original effective interest
rate. Allowances for trade receivables and contract assets are always equal
to lifetime ECL. The Company has established a provision matrix based on
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
the obligation specified in the contract is discharged, cancelled or expired.
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 transac-
tion 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 meas-
ured at amortized cost using the effective interest 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 designates changes in forward rates as the hedged
risk. When applying hedge accounting, the effective portion 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 ineffective portion is recog-
nized 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.
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 actu-
arial 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-
quality corporate bonds that have maturity dates approximating the terms
of the Company’s obligations. In countries where there is no deep market in
such bonds, the market yields on government bonds are used. The calculations
are based upon actuarial assumptions that are updated 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 differ-
ences are reported as actuarial gains and losses. They are, for example, caused
by unexpectedly high or low rates of employee turnover, changed life expec-
tancy, salary changes and changes in the discount rate. Actuarial gains and
losses and gains and losses from remeasurement of plan assets are recognized
in OCI in the period in which they occur. The Company’s net liability for each
defined benefit plan consists of the present value of pension commitments
less the fair value of plan assets and is recognized net on the balance sheet.
When the result is a net benefit to the Company, the recognized asset is limited
to the present value of any future refunds from the plan or reductions in future
contributions to the plan, referred to as ‘asset ceiling’.
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. Current service cost relating to employee
service is recognised in the profit and loss in the period. Past service cost relat-
ing to plan amendments or curtailment is recognized immediately in the period
it occurs. Swedish special payroll tax is accounted for as a part of the pension
cost and the pension liability respectively.
Financial report 2020 Note A1, cont.
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 disclosure
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. For share-settled plans, a corresponding
increase in equity shall be recognized.
As from 2017 the newly granted share-based programs are cash-settled,
except for programs for the Executive Team. Those programs are share-settled.
Share-settled plans
Compensation costs are recognized during the vesting period, based on the
fair value of the Ericsson share at the grant date, as well as considering 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 in relation to a group of reference shares.
For share-settled plans, a corresponding increase in equity shall be rec-
ognized. 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
Since 2008, the annual general shareholders meeting of the Parent Company
has each year resolved that the Board members shall be able to choose to
receive part of the Board remuneration in the form of synthetic shares. The
program gives non-employee Directors elected by the General Meeting of
shareholders a right to receive part of their remuneration as a future payment
of an amount which corresponds to the market value of a share of class B in
the Parent Company at the time of payment, as further disclosed in note 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
Notes to the consolidated financial statements
39
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
recognized in the income statement, unless it relates to a temporary difference
earlier recognized directly in equity or OCI, in which case the adjustment is also
recognized in equity or OCI. 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 has not reported
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
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 fulfilment
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
There are no amendments of IFRS during 2020 that are estimated to have a
material impact on the result and financial position of the Company, however,
the IASB issued a COVID-19-Related Rent Concessions – Amendment to
IFRS 16, effective from January 1, 2020 that provides practical relief to
lessees in accounting for rent concessions occurring as a direct consequence
of COVID-19, by introducing a practical expedient to IFRS 16. The practical
expedient permits a lessee to elect not to assess whether a COVID-19 related
rent concession is a lease modification. This amendment is estimated to not
have a material impact on the Company’s financial statements.
A number of issued new standards, amendments to standards and interpre-
tations are not yet effective for the year ended December 31, 2020 and have
not been applied in preparing these consolidated financial statements.
Financial report 2020 40
Notes to the consolidated financial statements
The IASB has issued the following Amendment with effective date
January 1, 2021:
The IASB issued Interest Rate Benchmark Reform Phase 2, Amendments to
IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16 (the Phase 2 Amendments). The
Phase 2 Amendments are effective for annual periods beginning on or after
1 January 2021 although early application is permitted. The practical expedi-
ent and reliefs available regarding changes to effective interest rates and
hedge relationships do not apply to the Company.
To minimise the risk on transition date, the Company has assessed the
impact of IBOR changes to its derivatives and non-derivatives contracts with
plans to transition them to alternative reference rates or fixed rates where pos-
sible. Contractual modifications are ongoing and are expected to be concluded
during 2021. Where derivative contracts with reference to LIBOR are entered
into, the Company uses cleared instruments to minimise potential disruption
over the transition date.
“IAS 16 Property, Plant and Equipment” – Proceeds before Intended Use,
which prohibits entities deducting from the cost of an item of property, plant
and equipment, any proceeds from selling items produced while bringing that
asset to the location and condition necessary for it to be capable of operating
in the manner intended by management. Instead, an entity recognizes the
proceeds from selling such items, and the costs of producing those items, in
profit or loss.
Amendments to “IAS 37 Provisions, Contingent Liabilities and Contingent
Assets” to specify which costs an entity needs to include when assessing
whether a contract is onerous or loss-making. The amendments apply a
“directly related cost approach.” The costs that relate directly to a contract to
provide goods or services include both incremental costs and an allocation of
costs directly related to contract activities. General and administrative costs
do not relate directly to a contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
The Company is also currently assessing the need to implement operational
The Company has not yet finalized the evaluation of any impact on financial
and system changes to ensure that valuation and settlement of instruments
affected by new benchmark rates can be handled within the internal report-
ing process. This exercise is not expected to have a significant impact on the
financial reporting process.
result or position from these amendments.
The IASB has issued the following new standard with effective date
January 1, 2023:
“IFRS 17 Insurance contracts” establishes principles for the recognition,
The IASB has issued the following amendments with effective date
measurements, presentation and disclosure of insurance contracts.
January 1, 2022:
The Company has not yet finalized the evaluation of any impact on financial
Amendments to “IFRS 3 Business Combinations” – Reference to the
result or position from IFRS 17.
Conceptual Framework.
A2 Critical accounting estimates and judgments
The preparation of financial statements and application of accounting
standards often involve management’s judgment and the use of estimates and
assumptions deemed to be reasonable at the time they are made. However,
other results may be derived with different judgments or using different
assumptions or estimates, and events may occur that could require a material
adjustment to the carrying amount of the asset or 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
Company believes could have the most significant impact on the reported
results and financial position.
The information in this note is grouped as per:
– Key sources of estimation uncertainty
– Judgments management has made in the process of applying the
Company’s accounting policies.
Revenue recognition
Key sources of estimation uncertainty
The Company uses estimates and judgments in determining the amount and
timing of revenue under IFRS 15, “Revenue from Contracts with Customers,”
particularly when determining the transaction price and its allocation to
performance obligations identified under the contract.
Transaction price may consist of variable elements such as discounts,
performance related price and contract penalties. Transaction price, including
variable considerations, is estimated at the commencement of the contract
(and periodically thereafter). Judgment is used in the estimation process
based on historical experience with the type of business and customer. This
includes assessment of price concession based on latest available information
on contract negotiations that could have retrospective impact on prices for
products and services already ordered or delivered.
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 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.
Management also applies judgment in assessing criteria for contract combi-
nation. Master purchase agreement can cover a number of different businesses
with the same customer and judgment is applied to assess if prices relating to
the different businesses are highly dependent, in which case, contracts relating
to such businesses shall be combined and the total transaction price allocated
to each performance obligation based on estimated stand-alone selling prices.
New contracts or contract amendments that cover new business scope may
also be combined with existing business if there is a high dependency in prices.
Contract amendments may also relate to prior performance obligations, in
which case, judgment is also applied to assess if part of the transaction price
shall be applied retrospectively.
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 bill-
ing 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
Financial report 2020 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 determin-
ing the appropriate revenue milestones that best reflect the progress of com-
pletion 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 condi-
tions. Actual credit losses may be higher or lower than expected, therefore
are regularly monitored to ensure the provision matrix is updated if required.
Management review of current and future conditions is based on latest observ-
able economic updates and our internal assessment of the potential impact
on our customers. Total allowances for expected credit losses as of December
31, 2020 were SEK 2.5 (3.0) billion or 5% (5%) 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.
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, 2020, amounted to SEK 3.6 (3.4) billion
or 11% (10%) of gross inventory. For further detailed information, see note B5
“Inventories.”
Classification in relation to companies owned by less than 100%
Judgments made in relation to accounting policies applied
Judgment in relation to classification of ownership less than 100% requires
the Company to judge if the ownership shall be classified as subsidiary, joint
venture, associated company or financial asset. See “Basis of consolidation
and composition of the Group” as well as “Joint ventures and associated
companies” under note A1 “Significant accounting policies” for a background.
Financial assets refer to the ownerships that neither are subsidiaries nor JV/
associated companies.
Acquired intellectual property rights and other intangible assets,
including goodwill
Key sources of estimation uncertainty
At initial recognition, future cash flows are estimated, to ensure that the initial
carrying values do not exceed the expected discounted cash flows for the items
of this type of assets. After initial recognition, impairment testing is performed
whenever there is an indication of impairment, in addition goodwill impair-
ment testing is performed 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 –0.1 (0.0)
billion for 2020.
Notes to the consolidated financial statements
41
At December 31, 2020, the amount of acquired intellectual property rights
and other intangible assets amounted to SEK 39.8 (33.7) billion, including
goodwill of SEK 34.9 (31.2) 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 judg-
ments are made, both for key assumptions and regarding impairment indica-
tors. In the purchase price allocation made for each acquisition, the purchase
price 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 extend a contract.
Under such contracts management judgement of the lease term is required.
The Group estimates its incremental borrowing rate to measure lease liabilities
at the present value of lease payments as the interest rate implicit in the
lease is not readily determinable. An incremental borrowing rate is used in
discounting of the lease liabilities and requires judgement to reflect the rate
of interest that would have to be paid to borrow over a similar term, and with
a similar security, the funds necessary to obtain an asset of a similar value
to the right-of-use asset in a similar economic environment. This estimated
rate determines the discounting of lease liabilities and right-of use assets
recognized in the statement of financial position. As well as the split between
interest expense and depreciation recognized in the income statement over
the lease term.
Provisions
Key sources of estimation uncertainty
Provisions are mainly related to estimates for onerous contracts with custom-
ers and suppliers. Onerous customer contract provision includes estimate
of costs to be incurred based on the latest conditions and progress on the
contract. Assumptions on the probable outcomes of revenue and costs, which
may include costs of potential compensation or penalties on exit, are revised
regularly based on latest available information and the provision remeasured
accordingly. Other sources for estimation uncertainty are restructuring pro-
gram execution, patent and other litigations. As commented above in the initial
part of this note the amounts may come to differ due to future reassessments
and outcomes.
At December 31, 2020, provisions amounted to SEK 10.5 (10.9) billion. For
further detailed information, see note D1 “Provisions.”
Judgments made in relation to accounting policies applied
Whether a present obligation is probable or not requires judgment. The nature
and type of risks for these provisions differ and management’s judgment is
applied regarding the nature and extent of obligations in deciding if an outflow
of resources is probable or not.
Supplier payments program
Judgments made in relation to accounting policies applied
With the aim of increasing working capital efficiency, Ericsson continuously
renegotiates payment days with suppliers. The negotiations with suppliers
for payment days is an integral part of the procurement activities. Some
Financial report 2020 42
Notes to the consolidated financial statements
suppliers sell their Ericsson receivables to banks and Ericsson can if requested
introduce a bank interested in purchasing such receivables. Ericsson does not
pay or receive a fee, nor provide additional security under the program. This
arrangement does not lead to any significant change in the nature or function
of Ericsson’s liabilities because the supplier invoices are considered part of
working capital used in Ericsson’s normal operating cycle. The maximum credit
period agreed with any supplier does not exceed six months. Therefore, these
liabilities remain classified as trade payables with separate disclosure in the
notes, see note B8 “Trade payables.”
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. Given
that there are a number of potential obligations, for example relating to ongo-
ing litigation, a contingent liability may arise and/or expense may have to be
recognized at a later stage.
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, 2020, defined benefit obligations
for pensions and other post-employment benefits amounted to SEK 108.2
(102.4) billion and fair value of plan assets to SEK 73.6 (69.7) 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 allow-
ances. The valuation of temporary differences and tax loss carry-forwards is
based on management’s estimates of future taxable profits in different tax
jurisdictions against which the temporary differences and loss carry-forwards
may be utilized. 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 posi-
tions 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 with-
holding taxes that expire after five years. For further information, see note H1
“Taxes.”
At December 31, 2020, the value of deferred tax assets amounted to
SEK 26.3 (31.2) 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.
COVID-19 impacts on the financial statements
The COVID-19 pandemic has impacted certain lines within our financial
statements. Fiscal stimulus provided by governments and expansional central
banks policies worldwide have reduced government bond yields and reversed
the significant negative movement in the capital and equity markets in the first
quarter 2020. The economic conditions improved in subsequent quarters in
2020 although the Company continues to monitor the effect of the pandemic
on key items within the financial statements and provide additional disclosures
where necessary.
Comments on areas of financial statements affected are in the following
notes: C1 “Intangible assets”, E1 “Equity,” F1 “Financial Risk Management,” F4
“Interest-bearing liabilities,” G1 “Post-employment benefits” and H1 “Taxes.”
Financial report 2020 Notes to the consolidated financial statements
43
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 hardware,
software and related services for both radio access and transport. The product-
related services comprise design, tuning, network rollout and customer sup-
port. 82% (82% in 2019 and 82% in 2018) 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% in 2019
and 18% in 2018) 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, Cradlepoint 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 responsi-
bility to sell and deliver customer solutions.
The Company operates worldwide and reports its operations divided into
five geographical market areas:
– Europe and Latin America
– Middle East and Africa
– North America
– North East Asia
– South East Asia, Oceania and India.
In addition, IPR licensing revenues and the majority of segment Emerging
Business and Other are externally reported as market area Other.
Major customers
The Company 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
customers accounted for 50% (49% in 2019 and 48% in 2018) of net sales.
The largest customer accounted for approximately 13% (10% in 2019 and
9% in 2018) and the second largest customer accounted for 10% (8% in 2019
and 8% in 2018) of net sales in 2020. These customers were reported under
segment Networks, Digital Services and Managed Services.
Operating segments 2020
Segment sales
Net sales
Gross income
Gross margin (%)
Operating income (loss)
Operating margin (%)
Financial income and expenses, net
Income after financial items
Income tax
Net income
Networks
165,978
165,978
72,413
43.6%
30,851
18.6%
Digital
Services
37,324
37,324
15,637
41.9%
–2,206
–5.9%
Managed
Services
22,600
22,600
4,012
17.8%
1,563
6.9%
Emerging
Business
and Other
6,488
6,488
1,662
25.6%
–2,400
–37.0%
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
37
–775
–3,764
–494
–746
–129
28
–607
–1,252
–119
–19
12
5
–5
–386
–25
–258
5
–368
–602
–587
–58
–283
–29
Total
Segments
232,390
232,390
93,724
40.3%
27,808
12.0%
–298
–1,989
–5,989
–696
–1,306
–141
Group
232,390
232,390
93,724
40.3%
27,808
12.0%
–596
27,212
–9,589
17,623
–298
–1,989
–5,989
–696
–1,306
–141
Financial report 2020
Managed
Services
25,565
25,565
3,990
15.6%
2,309
9.0%
3
–5
–413
–24
–45
–12
Managed
Services
25,770
25,770
2,886
11.2%
1,093
4.2%
Emerging
Business
and Other
6,785
6,785
1,281
18.9%
–12,485
–184.0%
–405
–603
–566
–43
–71
936
Emerging
Business
and Other
8,409
8,409
1,843
21.9%
–5,420
–64.5%
44
Notes to the consolidated financial statements
Note B1, cont.
Operating segments 2019
Segment sales
Net sales
Gross income
Gross margin (%)
Operating income (loss)
Operating margin (%) 1)
Financial income and expenses, net
Income after financial items
Income tax
Net income
Networks
155,009
155,009
64,717
41.8%
24,767
16.0%
Digital
Services
39,857
39,857
14,836
37.2%
–4,027
–10.1%
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
26
–517
–3,604
–295
–68
–225
41
–1,413
–1,478
–128
–614
–2
1) Includes costs of SEK –10.7 billion in 2019 related to the resolution of the US SEC and DOJ investigations.
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
Income tax
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
Products and Services by Segments
2020
Products
Services
Total
2019
Products
Services
Total
2018
Products
Services
Total
Networks
138,570
138,570
55,153
39.8%
19,421
14.0%
Digital
Services
38,089
38,089
8,318
21.8%
–13,852
–36.4%
28
–830
–1,717
–308
–1,781
–132
27
–2,295
–933
–406
–5,366
–36
3
–14
–169
–29
–276
–57
–
–807
–456
–354
–592
–
Networks
Digital
Services
Managed
Services
Emerging
Business
and Other
122,229
43,749
165,978
109,122
45,887
155,009
96,931
41,639
138,570
20,447
16,877
37,324
21,480
18,377
39,857
20,458
17,631
38,089
81
22,519
22,600
11
25,554
25,565
–
25,770
25,770
3,429
3,059
6,488
3,553
3,232
6,785
4,036
4,373
8,409
Group
227,216
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
Group
210,838
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
Total
Segments
227,216
227,216
84,824
37.3%
10,564
4.6%
–335
–2,538
–6,061
–490
–798
697
Total
Segments
210,838
210,838
68,200
32.3%
1,242
0.6%
58
–3,946
–3,275
–1,097
–8,015
–225
Total
Segment
146,186
86,204
232,390
134,166
93,050
227,216
121,425
89,413
210,838
Financial report 2020
Notes to the consolidated financial statements
45
Note B1, cont.
Market area 2020
South East Asia, Oceania and India
North East Asia 3)
North America 2)
Europe and Latin America 1)
Middle East and Africa
Other 1) 2) 3) 5)
Total
1) Of which in EU 5)
Of which in Sweden 5)
2) Of which in the United States 5)
3) Of which in China 5)
Net sales
Digital
Services
Managed
Services
4,329
5,124
7,979
11,954
6,144
1,794
37,324
4,219
831
3,529
10,167
3,854
–
22,600
Emerging
Business
and Other
36
259
68
367
19
5,739
6,488
Networks
21,464
27,120
62,199
33,257
13,281
8,657
165,978
4) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
5) Including IPR licensing revenue reported under Other above.
Market area 2019
South East Asia, Oceania and India
North East Asia 3)
North America 2)
Europe and Latin America 1)
Middle East and Africa
Other 1) 2) 3) 5)
Total
1) Of which in EU 5)
Of which in Sweden 5)
2) Of which in the United States 5)
3) Of which in China 5)
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
4) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
5) Including IPR licensing revenue reported under Other above.
Market area 2018
South East Asia, Oceania and India
North East Asia 3)
North America 2)
Europe and Latin America 1) 6)
Middle East and Africa 6)
Other 1) 2) 3) 5)
Total
1) Of which in EU 5)
Of which in Sweden 5)
2) Of which in the United States 5)
3) Of which in China 5)
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
4) Total non-current assets excluding financial instruments, deferred tax assets, and post-employment benefit assets.
5) Including IPR licensing revenue reported under Other above.
6) 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).
Non-current
assets 4)
Total
812
2,648
12,749
49,895
140
–
66,244
48,133
43,627
11,533
2,136
Non-current
assets 4)
Total
1,199
2,881
11,570
45,832
151
–
61,633
44,306
38,313
10,176
2,402
Non-current
assets 4)
Total
445
1,833
9,397
39,481
50
–
51,206
38,423
34,434
8,349
1,525
Total
30,048
33,334
73,775
55,745
23,298
16,190
232,390
29,501
1,123
77,835
18,745
Total
29,776
26,400
70,223
59,006
25,525
16,286
227,216
35,729
589
73,279
15,860
Total
29,589
22,309
58,586
59,563
24,338
16,453
210,838
35,941
2,315
61,446
14,601
Financial report 2020
46
Notes to the consolidated financial statements
B2 Net sales
Net sales
Hardware
Software
Services
Net sales
Of which IPR licensing revenues
Of which 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
2020
96,294
49,892
86,204
232,390
9,975
132,269
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
2020
120,102
74,645
7,978
3,082
–44
–817
2019
123,488
72,663
8,599
4,106
–704
–1,545
2018
135,554
67,161
7,221
3,470
–2,995
–925
204,946
206,607
209,486
Total restructuring charges in 2020 were SEK 1.3 (0.8) billion.
Restructuring charges are included in the expenses presented above.
Restructuring charges by function
Cost of sales
R&D expenses
Selling and administrative expenses
Total restructuring charges
2020
2019
725
411
170
1,306
337
344
117
798
2018
5,938
1,293
784
8,015
B4 Other operating income and expenses
Other operating income and expenses
B5 Inventories
Inventories
Raw materials, components, consumables
and manufacturing work in progress
Finished products
Contract work in progress
Inventories, net
2020
2019
9,510
8,709
9,878
28,097
8,209
8,742
13,912
30,863
The amount of inventories recognized as expense and included in Cost of sales
was SEK 61,647 (58,249) 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 3,627 (3,386)
million.
Movements in obsolescence allowances
Opening balance
Additions, net
Utilization
Translation differences
Balances regarding acquired/divested
businesses
Closing balance
2020
3,386
2,266
–1,781
–244
–
3,627
2019
2,611
2,228
–1,459
22
–16
3,386
2018
2,425
1,079
–987
94
–
2,611
B6 Customer contract related balances
Trade receivables, customer finance, contract assets and contract liabilities
Customer finance credits
Trade receivables
Contract assets
Contract liabilities
2020
3,137
42,063
11,273
26,440
2019
3,756
43,069
12,171
29,041
Total trade receivables include SEK 0 (127) million balance relating to
associated companies and joint ventures.
2020
2019
2018
Of the total Customer finance credits balance SEK 1,916 (1,494) million
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
64
115
347
750
1,161
1,119
1,116
2,350
30
105
362
497
–
–
–17
–488
–
–11
–499
–422
–
–11,638
–12,060
–330
–275
–43
–665
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 cost of SEK –10.7 billion in 2019 related to the resolution of the US SEC and DOJ
investigations.
.
is current.
Revenue recognized in the period
Revenue recognized in the year relating to the opening
contract liability balance
Revenue recognized relating to performance obligations
satisfied, or partially satisfied, in prior reporting periods
2020
2019
20,563
23,461
458
31
Revenue recognized 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.
Financial report 2020
Note B6, cont.
Transaction price allocated to the remaining performance obligations
B8 Trade payables
Notes to the consolidated financial statements
47
Aggregate amount of transaction price allocated
to unsatisfied, or partially unsatisfied, performance
obligations
2020
2019
Trade payables
93,934
101,474
The company expects that the transaction price allocated to the remaining
performance obligations will be converted into revenue in accordance with
the following approximation: 80% in 2021, 15% in 2022 and remaining 5% in
2023 and beyond.
For information about credit risk and impairment of customer contract
related balances, see note F1 “Financial risk management.”
B7 Other current receivables
Trade payables to associated companies and
joint ventures
Trade payables, excluding associated companies
and joint ventures1)
Total
2020
81
31,907
31,988
2019
102
30,301
30,403
1) Of the trade payable amount SEK 8.6 billion relates to supplier invoices under Ericsson’s supplier
payments program.
B9 Other current liabilities
Other current receivables
Prepaid expenses
Advance payments to suppliers
Derivative assets1)
Taxes
Other
Total
1) See also note F1 “Financial risk management.”
2020
1,857
468
1,510
10,839
1,340
16,014
2019
1,418
412
142
9,778
2,729
14,479
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
2020
181
28,895
15,182
7,823
5,890
234
8,864
38,174
2019
238
31,159
13,303
10,084
7,772
996
5,012
37,405
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
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
Capitalized
development
expenses
18,681
817
–
–1,256
–193
18,049
–10,896
–906
1,256
99
–10,447
2020
Goodwill
37,847
–
7,104
–
–3,359
41,592
–
–
–
–
–
–
IPR1),
brands and other
intangible assets
Capitalized
development
expenses
52,912
396
3,500
–48
–2,847
53,913
–43,018
–1,083
35
48
2,297
23,719
1,545
–2,099
–4,551
67
18,681
–14,768
–1,519
843
4,551
–3
–41,721
–10,896
2019
Goodwill
43,294
–
–7,093
–
1,646
37,847
–
–
–
–
–
–
–3,745
–6,647
–
–
–
–
–
–
–3,745
3,857
–6,647
34,945
–7,403
–
–137
153
–7,387
4,805
–4,714
–13,259
1,005
–36
–
–3,745
4,040
7,292
–
–680
–6,647
31,200
IPR1),
brands and other
intangible assets
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
1) Intellectual property rights.
2) For more information on acquired/divested businesses, see note E2 “Business combinations.”
Financial report 2020
48
Notes to the consolidated financial statements
Note C1, cont.
The total goodwill for the Company is SEK 34.9 (31.2) billion and is allocated
to the operating segments Networks, with SEK 24.1 (26.5) billion, Digital
Services, with SEK 3.0 (3.3) billion and segment Emerging Business and
Other, with SEK 7.8 (1.4) billion, of which Cradlepoint SEK 6.5 billion. Segment
Managed Services does not carry goodwill. More information is disclosed in
note B1 “Segment information.”
Write-down during 2020
In Networks there was an impairment write-down of SEK 0.1 billion related to
the portfolio of the antenna and filter business, which is reported in line item
Research and development expenses.
Write-down during 2019 and 2018
In 2019 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.
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.
Goodwill allocation
The goodwill allocation has not changed since last year. Goodwill from acqui-
sitions during the year has been allocated to segments Digital Services and
Emerging Business and Other, of which Cradlepoint is the main part.
Impairment tests
Each operating segment is a CGU, except for segment Emerging Business and
Other which consists of five CGUs. The value in use method has been used for
goodwill impairment, 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 follow-
ing key financial parameters:
– Sales growth
– Development of operating income (based on operating margin or cost of
goods sold and operating expenses relative to sales)
– Related development of working capital and capital expenditure
requirements.
The assumptions regarding industry-specific market drivers and market
growth are based on industry sources as input to the projections made within
the Company for the development 2021–2025 for key industry parameters:
– By 2025, about 35 years after the introduction of digital mobile technology,
it is predicted that there will be 8.6 billion mobile subscriptions (excl. Cellular
IoT).
– The number of mobile subscriptions is estimated to grow from around
7.9 billion by the end of 2020 to around 8.6 billion by the end of 2025. Out
of all mobile subscriptions, 7.3 billion will be associated with a smartphone.
– The number of 5G subscriptions is forecasted to reach 2.8 billion (excl.
Cellular IoT) by the end of 2025.
– By 2025, about 36 billion connected devices are forecasted, of which over
25 billion will be related to Internet of Things, IoT. Connected IoT devices
including connected cars, machines, meters, sensors, point-of-sale
terminals, consumer electronics and wearables.
– Cellular IoT is predicted to grow from 1.7 billion devices in 2020 to 5.2 billion
devices in 2025.
– Mobile data traffic volume is estimated to increase by around four times in
the period 2020–2025. 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
2025 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 business plans are based on specific estimates for the forecast period,
2021–2025, using a nominal annual growth rate of 1% (1%) per year
thereafter. An after-tax discount rate of 8.0% (8.1%) 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, except
for one CGU. There are no reasonable indications arising from our sensitivity
analysis that would lead to an impairment.
The discount rate for CGU Emodo within segment Emerging Business and
Other has been set to 12% due to the lower maturity of the business and the
corresponding higher risk involved. If the discount factor in the impairment test
would have been increased by four percentage points to 16% no head room
would remain. This CGU has a carrying amount of SEK 0.4 billion.
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 2019 are
disclosed in note C1 “Intangible assets” in the Annual Report of 2019.
The Company has considered the effect of the COVID-19 pandemic in
the impairment test and currently expect no material changes to expected
future cash flows which could impact recoverability of intangible assets. Risk
assessment on the business plans is carried out on a regular basis and an
impairment review will be performed if conditions suggest that such assets
may be impaired.
Financial report 2020 Notes to the consolidated financial statements
49
C2 Property, plant and equipment
Property, plant and equipment 2020
Real estate
Machinery and other
technical assets
Other equipment, tools
and installations
Construction in progress
and advance payments
Cost
Opening balance
Additions
Balances regarding acquired/divested
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
Sales/disposals
Translation differences
Closing balance
Net carrying value
6,755
78
2
–567
720
–485
6,503
–3,745
–425
–
537
1
227
–3,405
–295
–11
9
22
–275
2,823
3,512
163
4
–475
92
–266
3,030
–2,843
–241
–
470
11
210
–2,393
–43
–65
28
5
–75
562
33,790
2,184
59
–2,534
1,009
–1,618
32,890
–23,291
–2,936
1
2,165
–12
1,210
–22,863
–1,005
–434
348
67
–1,024
9,003
1,015
2,068
–10
–173
–1,821
–84
995
–
–
–
–
–
–
–
–
–2
2
–
–
995
Total
45,072
4,493
55
–3,749
–
–2,453
43,418
–29,879
–3,602
1
3,172
–
1,647
–28,661
–1,343
–512
387
94
–1,374
13,383
Contractual commitments for the acquisition of property, plant and equipment as per December 31, 2020, amounted to SEK 499 (548) million.
In 2020 impairment losses have been made of SEK 0.5 (0.4) billion. The impairment losses by segment was Networks SEK 0.3 (0.2) billion, Digital Services
SEK 0.1 (0.1) billion.
Property, plant and equipment 2019
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
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
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
Financial report 2020
50
Notes to the consolidated financial statements
C3 Leases
Leases with the Company as lessee
Right-of-use assets
Cost
Opening balance
Additions
Balances regarding acquired/divested business
Terminations
Translation differences
Closing balance
Accumulated depreciations
Opening balance
Depreciations
Balances regarding divested business
Terminations
Translation differences
Closing balance
Accumulated impairment losses
Opening balance
Impairment losses
Terminations
Translation differences
Closing balance
Financial sublease
Opening balance
Derecognition
Translation differences
Closing balance
Real estate
Vehicles
Other
Total
Real estate
Vehicles
Other
Total
2020
2019
11,263
2,220
126
–926
–899
11,784
–2,126
–2,082
1
238
269
–3,700
–872
–47
553
26
–340
–314
–42
43
–313
698
339
–
–130
–84
823
–260
–277
–
109
38
–390
–
–
–
–
–
–
–
–
–
126
45
–
–
–
171
–28
–28
–
–
1
–55
–
–
–
–
–
–
–
–
–
12,087
2,604
126
–1,056
–983
12,778
–2,414
–2,387
1
347
308
–4,145
–872
–47
553
26
–340
–314
–42
43
–313
9,151
2,035
–21
–127
225
11,263
–
–2,162
1
14
21
–2,126
–767
–75
–
–30
–872
–311
2
–5
–314
452
265
–
–29
10
698
–
–284
–
22
2
–260
–
–
–
–
–
–
–
–
–
126
–
–
–
–
126
–
–28
–
–
–
–28
–
–
–
–
–
–
–
–
–
9,729
2,300
–21
–156
235
12,087
–
–2,474
1
36
23
–2,414
–767
–75
–
–30
–872
–311
2
–5
–314
Net carrying value
7,431
433
116
7,980
7,951
438
98
8,487
Lease liabilities
The lease liabilities amounted to SEK 9,300 (9,882) million by the end of 2020.
The remaining contractual maturities as of December 31, 2020 is shown in
note D4 “Contractual obligations.”
Future cash outflow
Future cash outflows from extension options beginning in 2021 amounts to
SEK 91 (48) million. Future cash outflows from leases not yet commenced in
2020 to which Ericsson as the lessee is committed is SEK 13 million.
Lease cost
The total lease cost amounted in 2020 to SEK 3,704 (3,576) million, of which
depreciation SEK 2,387 (2,474) million, impairment losses SEK 47 (75) million,
lease expense relating to low-value assets SEK 516 (194) million, interest
expense SEK 490 (551) million and variable lease expense SEK 264 (357)
million. Variable lease expense consists mainly of property tax.
Leases with the Company as lessor
Lessor leases relate mainly to subleasing of real estate. These lease contracts
vary in length from 1 to 12 years.
Sublease receivables in 2020 amounted for operating leases to SEK 75
(124) million and for financial leases to SEK 56 (56) million. Sublease interest
income from financial leases in 2020 was SEK 11 (18) million
Cash payments
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.
At December 31, 2020, future minimum payment receivables were
distributed as follows:
Future minimum payment receivables
2020
–2,417
–490
2019
–2,990
–551
–516
–194
–264
–3,687
–357
–4,092
2021
2022
2023
2024
2025
2026 and later
Total
Financial leases
Operating leases
58
59
61
63
11
–
252
64
29
18
8
2
2
123
Financial report 2020
Section D – Obligations
D1 Provisions
Provisions
2020
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income statement
Utilization/Cash out
Reclassifications
Translation differences
Closing balance
2019
Opening balance
Additions
Reversal of excess amounts
Negative effect on Income statement
Utilization/Cash out
Reclassifications
Translation differences
Closing balance
Notes to the consolidated financial statements
51
Restructuring
Customer
related
Suppliers
related
Warranty
Other
1,095
1,144
–149
–815
9
–84
1,200
3,309
436
–290
–1,788
–659
87
1,095
3,738
1,108
–83
–766
–4
–143
3,850
8,916
1,323
–86
–3,247
–3,217
49
3,738
1,309
535
–438
–595
–14
–6
791
1,559
1,641
–739
–1,052
–101
1
1,309
941
248
–99
–105
3
–1
987
363
906
–43
–288
–
3
941
3,840
2,212
–392
–1,694
–21
–307
3,638
1,861
2,866
–25
–1,201
358
–19
3,840
Total
10,923
5,247
–1,161
4,086
–3,975
–27
–541
10,466
16,008
7,172
–1,183
5,989
–7,576
–3,619
121
10,923
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 favourable 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 2020, new or additional provisions amounting to SEK 5.2 billion were
made, and SEK 1.2 billion of provisions were reversed. The actual cash outlays
for 2020 were SEK 4.0 billion compared with the estimated SEK 9.3 billion.
The expected total cash outlays in 2021 are approximately SEK 6.3 billion.
Of the total provisions, SEK 2.9 (2.7) 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 2020, SEK 1.1 billion in provisions were made and SEK 0.1 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 0.8 billion for the full-year, compared with
the expected SEK 1.1 billion. The cash outlays for the full-year also includes
provisions identified and paid out during 2020. The cash outlays for 2021 for
these provisions are estimated to total approximately SEK 1.2 billion. For more
information about the restructuring charges booked in the income statement,
see note B3 “Expenses by nature.”
Customer related
Customer related provision consists of mainly provision for onerous customer
contracts. During 2020, new provisions amounting to SEK 1.1 billion were
made for onerous customer contracts where it is probable that expected costs
will exceed revenue for the remaining duration of the contracts. The cash out-
lays were SEK 0.8 billion in 2020 compared to the estimated of SEK 3.7 billion.
The main reason for the difference is due to a provision that has a slower utili-
zation because of the COVID-19 travel restrictions. For 2021, the cash outlays
for these provisions are estimated to total approximately SEK 1.1 billion.
Supplier related
Supplier related provisions include provision for supplier claims/guarantees.
During 2020, new provisions amounting to SEK 0.5 billion were made and
SEK 0.4 billion were reversed due to more favorable outcome. The cash outlays
were SEK 0.6 billion in 2020 compared to the estimated of SEK 1.3 billion. For
2021, the cash outlays for this provision is estimated to total approximately
SEK 0.7 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. During 2020, new provisions amounting
to SEK 0.2 billion were made. The actual cash outlays for 2020 were SEK 0.1
billion, compared to the expected SEK 0.8 billion. The cash outlays of warranty
provisions during year 2021 are estimated to total approximately SEK 0.8
billion.
Other provisions
Other provisions include provisions for share-based payments, litigations and
other. During 2020, new provisions amounting to SEK 2.2 billion were made
(mainly provisions for share-based payments and litigations).
As of December 31, SEK 2.1 (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 1.7 billion in 2020 compared to the estimate of SEK 2.4 billion. For 2021,
the cash outlays for other provisions are estimated to total approximately
SEK 2.5 billion.
Financial report 2020
52
Notes to the consolidated financial statements
D2 Contingent liabilities
Contingent liabilities
Contingent liabilities
Total
2020
1,198
1,198
2019
1,527
1,527
Contingent liabilities mainly relate to pensions, customs guarantees and tax
litigations in subsidiaries. Contingent liabilities assumed by the Company
include guarantees of loans to other companies of SEK 15 (27) 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 6 (24) million as of
December 31, 2020. The maturity date for the majority of the issued guaran-
tees occurs in 2021 at the latest.
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 similar investigations against Ericsson based on claims made by Intex
Technologies (India) Limited and, in 2015, based on a now settled claims from
iBall. Ericsson has challenged CCI’s jurisdiction in these cases before the Delhi
High Court and is awaiting final appellate decision by the Supreme Court
of India.
In April 2019, Ericsson was informed by China’s State Administration for
Market Regulation (SAMR) Anti-monopoly bureau that SAMR has initiated
an investigation into Ericsson’s patent licensing practices in China. Ericsson is
cooperating with the investigation, which is still in a fact-finding phase. The
next steps include continued fact finding and meetings with SAMR in order to
facilitate the authority’s assessments and conclusions.
The amounts in the table above do not include any amounts related to
neither Micromax, nor SAMR.
D3 Assets pledged as collateral
Assets pledged as collateral
Chattel mortgages 1)
Bank deposits
Total
1) See also note G1 “Post-employment benefits.”
2020
6,332
476
6,808
2019
5,340
561
5,901
D4 Contractual obligations
Contractual obligations 2020
(SEK billion)
Current and non-current
debt 1)
Lease obligations 2)
Other non-current liabilities
Purchase obligations 3)
Trade payables
Commitments for customer
finance 4)
Derivatives liabilities 4)
Total
Contractual obligations 2019
(SEK billion)
Current and non-current
debt 1)
Lease obligations 2)
Other non-current liabilities
Purchase obligations 3)
Trade payables
Commitments for customer
finance 4)
Derivatives liabilities 4)
Total
Payment due by period
<1
year
1–3
years
3–5
years
>5
years
8.4
2.6
0.1
12.0
32.0
26.9
0.1
82.1
10.8
3.9
0.7
2.6
–
–
0.1
10.2
2.5
–
0.6
–
–
–
1.9
1.9
0.6
–
–
–
–
Total
31.3
10.9
1.4
15.2
32.0
26.9
0.2
18.1
13.3
4.4
117.9
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
0.3
79.9
15.6
4.1
0.7
0.6
–
–
0.1
10.5
2.6
0.1
0.1
–
–
0.4
21.1
13.7
2.9
2.3
1.2
–
–
–
0.1
6.5
Total
38.8
11.8
2.1
11.3
30.4
25.9
0.9
121.2
1) Current and non-current debt, including interest commitments.
2) Future lease obligations, nominal lease liability, see also note C3 “Leases.”
3) The amounts of purchase obligations are gross, before deduction of any related provisions.
4) See also note F1 “Financial risk management.”
As a measure to secure resilience in our supply chain, mainly as a result of
increased uncertainties due to COVID-19, we have increased the access to
critical components and by that also increasing our contractual obligations.
In particular, the Company has purchase obligations in relation to stock held
by providers amounting to SEK 1.6 billion. Any risks related to purchase oblig-
ations are assessed according to the principles for recognition of provisions
as prescribed under note A1 “Significant accounting policies” under heading
Provisions.
For information about financial guarantees, see note D2 “Contingent
liabilities.”
Financial report 2020 Notes to the consolidated financial statements
53
Section E – Group structure
E1 Equity
Capital stock 2020
Capital stock at December 31, 2020, consisted of the following:
Capital stock
Parent Company
Class A shares
Class B shares
Total
Number of shares
261,755,983
3,072,395,752
3,334,151,735
Capital stock
(SEK million)
1,309
15,363
16,672
The capital stock of the Parent Company is divided into two classes: Class A
shares (quota value SEK 5.00) and Class B shares (quota value SEK 5.00).
Both classes have the same rights of participation in the net assets and earn-
ings. Class A shares, however, are entitled to one vote per share while Class B
shares are entitled to one tenth of one vote per share.
At December 31, 2020, the total number of treasury shares was 6.043.960
(19,853,247 in 2019 and 37,057,039 in 2018) Class B shares. Ericsson did not
repurchase shares in 2020 in relation to the Stock Purchase Plan.
Number of shares
Number of shares Jan 1, 2020
Number of shares Dec 31, 2020
Number of shares
3,334,151,735
3,334,151,735
Capital stock
(SEK million)
16,672
16,672
Dividend proposal
The Board of Directors propose a dividend for 2020 of SEK 2.00 per share
(SEK 1.50 in 2019 and SEK 1.00 in 2018) to the Annual General Meeting.
Additional paid in capital
Additional paid in capital relates to payments made by owners and includes
share premiums paid.
Other reserves
Other reserves include translation reserves, cash flow hedges and revaluation
of borrowings.
Translation reserves (cumulative translation adjustments)
The cumulative translation adjustments comprise all foreign currency transla-
tion reserves 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.
Due to the COVID-19 pandemic effect on the financial markets, foreign
exchanges rates fluctuated significantly during the year. SEK has strengthened
against major currencies, especially USD, which resulted in negative currency
translation adjustment of SEK –5.4 billion on consolidation.
Cash flow hedge reserve
For further information, see note F1 “Financial risk management.”
Revaluation of borrowings
For further information, see note F4 “Interest-bearing liabilities.”
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.
For more information, see note G1 “Post-employment benefits.”
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
Gains/losses arising during the period
Reclassification to profit and loss
Translation reserves
Changes in translation reserves
Reclassification to profit and loss
Share of other comprehensive income of
JV and assoicated companies
Tax on items that have been or may be
reclassified to profit or loss
Other comprehensive income, net of tax
Total comprehensive income
Closing balance
2020
2019
Translation
reserves
Cash flow
hedge reserve
Revaluation
of borrowings
Total other
reserves
Translation
reserves
Cash flow
hedge reserve
Revaluation
of borrowings
Total other
reserves
2,967
–230
–445
2,292
893
–
72
965
–
–
–
–
–5,434
124
–81
–
–5,391
–5,391
–2,424
–
–
136
281
–
–
–
–86
331
331
101
99
99
–20
–20
–
–
–
–
–
–
79
79
–366
136
281
–5,434
124
–81
–86
–4,981
–4,981
–2,689
–
–
–
–
1,943
54
77
–
2,074
2,074
2,967
–
–
–651
–651
134
134
–290
–
–
–
–
60
–230
–230
–230
–
–
–
–
–
–
–517
–517
–445
–290
–
1,943
54
77
60
1,327
1,327
2,292
Financial report 2020
54
Notes to the consolidated financial statements
E2 Business combinations
Acquisitions and divestments
Acquisitions
Acquisitions 2018–2020
Total consideration, including cash
Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Right-of-use of assets
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)
2020
9,848
314
55
126
3,583
167
1,292
–16
–2,781
2,740
–
7,108
9,848
92
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
1) Acquisition-related costs are included in Selling and administrative expenses in the consolidated
income statement.
In 2020, Ericsson made acquisitions with a negative cash flow effect amount-
ing to SEK 9,534 (1,815) million. The acquisitions consist primarily of:
Cradlepoint: On November 1, 2020, the Company acquired all of the shares
in Cradlepoint Inc, a US-based market leader in Wireless Edge WAN 4G and
5G Enterprise solutions. The investment is key to Ericsson’s ongoing strategy
of capturing market share in the rapidly expanding 5G Enterprise space.
Cradlepoint complements Ericsson’s existing 5G Enterprise portfolio which
includes Dedicated Networks and a global IoT platform. Goodwill in this
transaction represents future customers, future technology and synergies
to the sales channels and commercial model applied by Cradlepoint and is
not expected to be deductible for tax purposes. The following table shows
the provisional fair values at the acquisition date of the assets acquired and
liabilities assumed.
Cradlepoint
Total consideration – cash
Net assets acquired
Cash and cash equivalents
Property, plant and equipment
Intangible assets
Other assets
Other liabilities 1)
Total identifiable net assets
Goodwill
Total
1) Includes deferred tax liabilities of SEK 1,205 million.
2020
9,498
297
185
3,330
1,420
–2,797
2,435
7,063
9,498
Genaker: On March 31, 2020 the Company acquired 100% of the shares in
Genaker, a provider of Mission Critical Push-to-talk (MC-PTT) solutions, based
in Barcelona, Spain. The acquisition strengthens Ericsson’s MC-PTT offering
as the mission critical communications and private network market is going
through a significant technology shift. Balances to facilitate the Purchase price
allocation are final.
Kathrein: The preliminary purchase price allocation of Kathrein made in 2019
was finalized during 2020 with the following effects: an increase in intangible
assets of SEK 188 million, a decrease of other assets of SEK 119 million and an
increase of assumed liabilities of SEK 69 million.
In order to finalize a Purchase price allocation all relevant information needs
to be in place. Examples of such information are final consideration and
final opening balances, 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 2018–2020
Proceeds 1)
Net assets disposed of
Property, plant and equipment
Right-of-use assets
Investments in associates
Intangible assets
Goodwill
Other assets
Provisions, incl. post-employment
benefits
Other liabilities
Total net assets
Net gains/losses from divestments
Shares in associated companies 1)
Cash flow effect
2020
4
2019
1,569
1
1
–
48
4
83
–1
6
142
–138
–
4
171
20
5
820
–
96
244
–774
582
987
–1,209
360
2018
226
55
–
114
30
–
809
–43
–571
394
–168
–
226
1) Proceeds for 2019 includes cash of SEK 320 million and shares in associated companies
of SEK 1,209 million.
In 2020, the Company made divestments with a cash flow effect amounting
to SEK 4 (360) million. Net gains/losses from the divestments are presented
on Other operating income in the Income statement, see note B4 “Other
operating income and expenses” for more information.
Financial report 2020
Notes to the consolidated financial statements
55
Transaction date
Nov 2020
Mar 2020
Dec 2019
Oct 2019
Aug 2019
Sep 2018
Mar 2018
Feb 2018
Transaction date
Feb 2019
Aug 2018
Jun 2018
Note E2, cont.
Acquisitions 2018–2020
Company
Cradlepoint
Genaker
ST-Ericsson
Kathrein
CSF
CENX
VidScale
Placecast
Description
A US company providing Wireless WAN Edge 4G and 5G solutions for the enterprise market.
A Spanish provider of Mission Critical Push-to-talk (MC-PTT) solutions.
The remaining shares were 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 2018–2020
Company
MediaKind
Description
A divestment of 51% of its MediaKind business.
Ericsson Local Services AB (LSS)
A divestment of the Local Services company in Sweden.
Excellence Field Factory
A divestment of the Spanish fiber service operations.
E3 Associated companies
Equity in associated companies
Opening balance
Investments
Share in earnings
Distribution of capital stock
Taxes
Dividends
Divested business
Translation differences
Closing balance
2020
1,565
167
–298
–3
–33
–43
–
–81
1,274
2019
611
1,310
–335
–
–5
–66
–5
55
1,565
The Company owns 49% of MediaKind with an investment of SEK 0.8 (1.2)
billion. The Company’s share in earnings of MediaKind was SEK –0.4 (–0.4)
billion and the remaining investment is SEK 0.4 (0.8) billion. The Company has
provided a loan to MediaKind of SEK 0.5 (0.2) billion.
Financial report 2020
56
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 free 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 1)
Positive net cash 1)
Credit rating
Fitch
Standard & Poor’s
Moody´s
2020
22.3
41.9
2019
7.6
34.5
BBB-, stable BBB-, stable
BBB-, stable BB+,positive
Ba1, stable Ba2,positive
1) For more information about the measures, see Alternative performance measures and Financial
terminology.
In June 2020, Moody’s announced that they had changed their Corporate
Credit Rating from Ba2 to Ba1 and outlook from positive to stable. In
November 2020, Standard & Poor’s (S&P) announced that they have changed
their Corporate Credit Rating from BB+ to BBB- and outlook from positive to
stable.
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 currencies impact
on sales and also net external transaction exposure of these currencies on
profitability. The internal transaction exposures will not impact group profit-
ability if all related transactions occur and are recognized in the profit and loss
in the same month. Any effect on profit and loss is a function of timing and FX
volatility, therefore impossible to predict.
Currency exposure, SEK billion
Exposure
currency
Sales
translation
exposure
Sales
transaction
exposure
Sales net
exposure
Net
external
trans-
action
exposure 1)
Net internal
transaction
exposure 2)
USD 3)
EUR
CNY
INR
AUD
JPY
BRL
SAR
GBP
76.7
26.0
15.3
7.0
9.0
11.8
2.9
7.0
6.1
36.4
9.5
–0.1
–0.2
–0.5
–
–
1.5
–0.7
113.1
35.5
15.2
6.8
8.5
11.8
2.9
8.5
5.4
–12.3
12.5
3.0
0.2
0.2
0.1
1.0
1.6
–1.0
39.6
–6.4
–8.8
–3.3
4.3
9.1
–0.5
2.0
2.2
1) Net external sales and purchases in foreign currency.
2) Internal sales and purchases in foreign currency.
3) Sales transaction exposure in 2020 includes volume in the cash flow hedge of USD 517 million. Based
on the outstanding cash flow hedge volume at year end, the hedged sales volume that will occur in
2021 is USD 200 million.
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 prob-
able 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
exposure as closely as possible and designates them as hedging instruments.
Hedge ineffectiveness is expected to be minimal but may arise due to differ-
ences in timing of the cash flows between the hedged items and the hedging
instruments.
Financial report 2020 Note F1, cont.
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.
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. 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 net FX
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. Outstanding loan at year-end was USD 610 million (USD 440 mil-
lion), with an average balance of USD 751 million over the year. Due to the
continued weakening of USD against SEK throughout 2020, this resulted in a
net gain on the hedge loan balances of SEK 1.0 billion, comprised of realiza-
tion and revaluation results on these loans contracts of SEK 811 million and
SEK 204 million respectively.
Interest rate risk
The Company is exposed to interest rate risk through market value fluctuations
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).
Notes to the consolidated financial statements
57
Outstanding derivatives
Outstanding derivatives
Gross
amount
recognized
Net
amount
presented
Related
amounts
not offset
– collaterals
Net
Offset
1,491
–141
–7
7
1,484
–134
–1,181
303
– –134
57
–131
–31
31
26
–100
26
–
– –100
2020
Currency
derivatives 1)
Assets
Liabilities
Interest rate
derivatives
Assets
Liabilities
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 1)
Assets
Liabilities
Interest rate
derivatives
Assets
Liabilities
1) In 2020, currency derivatives designated as cash flow hedge of SEK 127million are included in Other
current assets (SEK 290 million in Other current liabilities).
Cash collaterals under Credit Support Annex (CSA) to ISDA for cross-
currency derivatives are recognized as Interest-bearing securities, current or
Borrowings, current, respectively.
The Company holds the following currency derivatives designated as hedging
instruments:
The treasury function operates under two mandates. In the liquidity
Foreign exchange forward contracts
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 2020 was SEK 21.0 (20.6) million. No VaR limits
were exceeded during 2020.
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
2020 was SEK 0.5 (1.3) million per basis point shift.
Sensitivity to interest rate increase of 1 basis point, SEK million
< 3M 3–12M
1–3Y
3–5Y
>5Y
Total
Interest-bearing assets
Interest-bearing
liabilities 1)
Derivatives
Total
–
–
–
–
–
–4
–2
–
–6
–
–
–
2
–
–2
4
–
2
1
1
2
7
1
2
1) Borrowings are included as they are designated FVTPL.
2020
Notional Amount (USD millions)
Average forward rate (SEK/USD)
< 1 year
200
8.8238
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
hedge ineffectiveness was recognized in the income statement in 2020.
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.”
Financial report 2020
58
Notes to the consolidated financial statements
Note F1, cont.
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
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 50% (49%) of the total trade receivables
and contract assets in 2020.
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 custom-
ers operating in emerging markets, in particular in markets with unstable politi-
cal and/or economic environments. By having banks confirming the letters of
credit, the political and commercial credit risk exposures to the Company are
mitigated.
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.
Therefore, expected credit losses (ECLs) are calculated using a provision
matrix that specifies a fixed rate depending both on the number of days past
due and the country risk rating. The country risk ratings depend 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 manage-
ment expectations for changes to political risks and payment patterns in
the future. The provision rates are higher on high risk countries compared to
low risk countries and also higher on amounts that remain unpaid for longer
periods of time.
Due to the COVID-19 pandemic, the Company also assessed the wider eco-
nomic impact in the foreseeable future on the expected credit losses model for
trade receivables. This primarily focuses on countries that are more impacted
by macro-economic factors such as oil prices, tourism and access to hard
currencies, and how those factors may affect the ability of customers to pay in
future. Current conditions such as payment patterns and possible deterioration
in aging profiles are also considered in the assessment. The conclusion is that
there is no material change of risk to the Ericsson Group as a direct result of
COVID-19. The Company will continue to perform such analysis on a regular
basis to ensure provision matrix is updated accordingly.
Trade receivables and contract assets together amounted to SEK 53,336
(55,240) million as of December 31, 2020. Provisions for expected credit losses
on trade receivables and contract assets amounted to SEK 2,518 (2,983)
million as of December 31, 2020. The allowance decreased in 2020 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 136 (382) million were written off due to the Company having no
reasonable expectation of collection. Of these write-offs, SEK 0 (0) million are
still subject to enforcement.
Movements in allowances for impairment of trade receivables
and contract assets
Opening balance
Decrease in allowance
Write-offs
Translation difference
Closing balance 1)
1) Of which SEK 1 (0) million relates to contract assets.
2020
2,983
–118
–136
–211
2,518
2019
4,123
–737
–382
–21
2,983
Aging analysis of gross values of trade receivables and contracts assets by risk
category at December 31, 2020
Days past dues
Not due
1-90 91-180 181-360
>360
Total
Country risk: Low
33,620
Country risk: Medium 13,487
3,023
Country risk: High
517
1,243
394
Total past due
50,130
2,154
63
338
223
624
105
346
275
726
308 34,613
753 16,167
5,074
1,159
2,220 55,854
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 analysing 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, 2020, the total amount payable to the Company under
customer finance credits was SEK 5,262 (5,924) million. The carrying value of
these assets was SEK 3,137 (3,756) million as of December 31, 2020, 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, 2020, there were a total of 72 (80) customer finance
arrangements originated by or guaranteed by the Company. The five largest
facilities represented 75% (69%) of the customer finance exposure in 2020.
As of December 31, 2020, Middle East and Africa made up 44% (49%) of the
outstanding exposure while South East Asia, Oceania and India made up 25%
(29%). As of December 31, 2020, the Company also had unutilized customer
finance commitments of SEK 26,939 (25,854) million.
Security arrangements for customer finance facilities may include pledges
of equipment, pledges of certain assets belonging to the borrower and pledges
of shares in the operating company. If available, third-party risk coverage is, as
a rule, arranged. “Third-party risk coverage” means that a financial payment
guarantee covering the credit risk has been issued by a bank, an export credit
agency or an insurance company. All such institutions have been rated at least
investment grade. A credit risk transfer under a sub-participation arrangement
with a bank can also be arranged. In this case the entire credit risk and the
funding is taken care of by the bank for the part that they cover.
Information about financial guarantees related to customer finance is
included in note D2 “Contingent liabilities.”
The table below summarizes the Company’s outstanding customer finance
as of December 31, 2020 and 2019.
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
2020
3,137
5
8
3,150
–95
2019
3,756
24
14
3,794
–309
The Company’s risk exposure, less third-party risk
coverage
3,055
3,485
1) This table has been adjusted to show the maximum exposure to credit risk.
Financial report 2020
Note F1, cont.
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 external credit rating, political/country rating and bank pricing. Regular
monitoring of customer behavior is also a part of the internal assessment.
Revaluation of customer finance amounted to a net negative impact in the
income statement of SEK 66 (804) million in 2020, of which SEK 66 (804) mil-
lion is related to credits held as of December 31, 2020. This effect is presented
within selling and administrative expenses and was mainly related to the
Middle East and Africa.
Notes to the consolidated financial statements
59
Cash, cash equivalents, interest bearing securities and derivative assets
2020
valent
< 3 M
Rating
or equi-
3–12
M
1–5 Y
>5 Y
Total
Bank deposits
Other financial
institutions
Type of issuer:
Governments
Corporates
Mortgage institutes
Derivative assets
26,829
130
16
–
26,975
202
–
–
–
202
A2/P2
AAA
AAA 15,000
1,960
216
189
–
605 12,483
–
3,969 10,240
975
346
395
–
–
–
28,483
1,960
14,425
1,510
44,396
5,050 23,714
395
73,555
2019
2019
valent
< 3 M
Rating
or equi-
3–12
M
Customer finance fair value reconciliation
Opening balance
Additions
Disposals/repayments
Revaluation
Translation difference
Closing balance
Of which non-current
2020
3,756
24,765
–25,069
–66
–249
3,137
1,221
2,884
29,732
–28,032
–804
–24
3,756
2,262
Due to the continued 5G buildout, the demand for customer financing solutions
has remained high this year, albeit lower than 2019. Most of such financing has
been successfully transferred to banks, hence the balance of customer finance
receivables remains low.
Financial credit risk
Financial instruments carry an element of risk in that counterparts may
be unable to fulfill their payment obligations. This exposure arises in the
investments in cash, cash equivalents, interest-bearing securities and from
derivative positions with positive unrealized results against banks and other
counterparties.
The Company mitigates these risks by investing cash primarily in 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, 2020, 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 0.3 (0.1) billion.
Liquidity risk
The Company minimizes the liquidity risk by maintaining a sufficient cash
position, centralized cash management, investments in highly liquid interest-
bearing securities, and by having sufficient committed credit lines in place to
meet potential funding needs. For information about contractual obligations,
analyzed by contractual maturity, see note D4 “Contractual obligations.” The
current cash position is deemed to satisfy all short-term liquidity requirements.
Bank deposits
Other financial
institutions
Type of issuer:
Banks
Governments
Corporates
Mortgage institutes
Other financial
institutions
Derivative assets
35,006
309
294
–
1–5 Y
>5 Y
Total
1
–
–
35,316
–
294
AAA
A2/P2
AAA
A2
441
4,028
5,305
278
213
1,590
–
–
8,361
–
3,832 11,088
490
4
50
3
–
135
–
906
–
–
–
–
654
14,885
5,305
15,198
540
142
45,846
5,997 19,585
906
72,334
The instruments are classified as FVTPL or amortized cost. Cash, cash equiva-
lents and interest-bearing securities are mainly held in SEK.
Refinancing risk
Refinancing risk is the risk that the Company is unable to refinance outstanding
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 commit-
ted credit facilities.
Funding programs 1)
Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million) 2)
Amount
Utilized
Unutilized
5,000
1,577
1,000
3,423
1) There are no financial covenants related to these programs.
2) Program amount indeterminate.
In November 2020, the Company repaid a bilateral USD 684 million credit
facility to the European Investment Bank. In December 2020, the Company
refinanced Swedish Export Credit Corporation (SEK) of USD 170 million with
a new bond loan of USD 200 million, net increase in funding of USD 30 million.
The new facility is set to mature in 2030.
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
Financial report 2020
60
Notes to the consolidated financial statements
Note F1, cont.
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 as they are based on quoted prices
in active markets for identical assets. For some of the Company’s financial
assets and liabilities, especially derivatives, quoted prices are not readily avail-
able and fair values are calculated using market inputs such as interest rate
quotes and currency rates.
For financial liabilities designated at fair value to profit and loss, the carry-
ing amount reflects the effect in own credit spreads either in quoted prices or
quoted Credit Default Swap (CDS) for Investment Grade companies.
Valuation hierarchy
– Quoted market prices – level 1
Assets and liabilities are classified as level 1 if their value is observable in an
active market. Such instruments are valued by reference to unadjusted quoted
prices for identical assets or liabilities in active markets where the quoted price
is readily available, and the price represents actual and regularly occurring
market transactions.
FX derivatives are valued by using observable forward rates, discounted
using base interest rate curve. Valuation of foreign exchange options are made
using the Black-Scholes formula.
The value of credit risks in derivative contracts are monitored regularly.
Derivative credit and debit valuations adjustments are calculated based on
outstanding market values and default probabilities from the CDS market,
and if effect on valuation is material, shall be included in the fair value of the
derivatives.
– Valuation technique using significant unobservable inputs – level 3
Assets and liabilities are classified as level 3 if their valuation incorporates
significant inputs that are not based on observable market data (unobservable
inputs). This mainly applies to investment in equity interests whereby valuation
input is considered observable if it can be directly observed from transactions
in an active market, or if there is compelling external evidence demonstrating
an executable exit price. Unobservable input levels are generally determined
via reference to observable inputs, historical observations or using other
analytical techniques.
– Valuation technique using observable inputs – level 2
Assets and liabilities classified as level 2 have been valued using models
whose inputs are observable either directly or indirectly. Valuations based
on observable inputs include cash equivalents (e.g. discounted papers, term
deposits) and interest rate derivatives which are valued using interest rate yield
curves. Other market observable inputs include credit spreads and FX forward
rates.
Input for base interest rates are quoted fixing rates, interest rates swaps
and IBOR rates.
Financial instruments carried at amortized cost
Financial instruments, such as some cash equivalents, interest-bearing securi-
ties, 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 insignificant interest rate exposure and credit spreads affecting the value,
the carrying value is considered to represent a reasonable estimate of
fair value.
Financial instruments
SEK billion
Assets at fair value through profit
or loss
Customer finance
Interest bearing securities
Cash equivalents 3)
Other financial assets 1)
Other current assets 2)
Assets at fair value through OCI
Trade receivable
Assets at amortized cost
Interest bearing securities
Cash equivalents 3)
Other financial assets
Financial assets
Financial liabilities at
designated FVTPL
Parent Company borrowings
Financial liabilities at FVTPL
Other current liabilities
Liabilities at amortized cost
Trade payables
Borrowings
Financial liabilities
2020
2019
Amortized
cost
Fair
value
Fair value hierarchy level
Level 1
Level 2
Level 3
Amortized
cost
Fair
value
Fair value hierarchy level
Level 1
Level 2
Level 3
–
–
–
–
–
–
0.4
3.6
0.5
4.5
–
–
–32.0
–2.9
–34.9
3.1
28.1
23.6
1.5
1.5
42.1
–
–
–
99.9
–
28.1
–
–
–
–
–
–
–
–
–
23.6
–
1.5
–
–
–
–
–27.2
–18.9
–8.3
–0.2
–
–
–27.4
–
–
–
–0.2
–
–
3.1
–
–
1.5
–
42.1
–
–
–
–
–
–
–
–
–
–
–
–
–
0.5
3.8
0.2
4.5
–
–
–30.4
–1.8
–32.2
3.8
26.6
23.9
1.4
1.3
43.1
–
–
–
100.1
–
26.6
–
0.2
–
–
–
–
–
–
–
23.9
–
0.1
–
–
–
–
–35.9
–20.5
–15.4
–1.0
–
–
–36.9
–
–
–
–1.0
–
–
3.8
–
–
1.2
1.2
43.1
–
–
–
–
–
–
–
1) Other financial assets in Level 3 relate to investment in equity interests which are included in “Other investments in shares and participants” within note F3 “Financial assets, non-current.”
2) Oher current asset in Level 3 at the end of 2019 relates to a financial investment which was fully redeemed in 2020.
3) Total Cash and cash equivalent is SEK 43.6 (45.1) billion, of which SEK 27.2 (27.7) billion relating to Cash equivalents are presented in the table above.
Financial report 2020
Notes to the consolidated financial statements
61
Note F1, cont.
Market price risk in own shares and other listed equity investments
The Company is exposed to fluctuations in its own share price through 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”, note G2 “Information regarding members
of the Board of Directors and Group management” and note G3 “Share-based
compensation.”
Share-based plans for employees
The obligation to deliver shares under the 2018 and 2019 Long-Term Variable
compensation programs (LTV)for the Executive Team is covered by holding
Ericsson Class B shares as treasury stock. The cash flow exposure is hedged
through the holding of Ericsson Class B shares as treasury stock to be sold to
generate funds, which also cover social security payments. The obligation to
deliver shares under the 2020 LTV program 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 the program. 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 compensation expenses and social security charges. The obligations to pay
compensation 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 LTV, the cash- settled plans to employees
and the synthetic share-based compensations to the Board of Directors, see
note G2 “Information regarding members of the Board of Directors and Group
management” and note G3 “Share-based compensation.”
F2 Financial income and expenses
Financial income and expenses
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 1)
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 2)
Financial liabilities designated at fair value through profit or loss
Financial assets at fair value through OCI
2020
796
279
–103
693
–1,104
–383
9
–490
–531
–2,116
827
–596
–2,159
2,893
–
2019
1,395
591
–100
1,295
–1,392
–302
–69
–551
–690
–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
1) Includes gain of SEK 93 (258) million relating to partial settlement of pension plan liabilities.
2) Excludes net loss from revaluation of customer finance receivables of SEK 197 million (net loss of SEK 650 million in 2019 and net loss of SEK 1,059 million in 2018), reported as Selling and administrative expenses.
F3 Financial assets, non-current
Financial assets, non-current
Opening balance
Additions
Disposals/repayments/deductions
Change in value in funded pension plans 1)
Revaluation
Reclassification
Translation differences
Closing balance
Other
investments
in shares and
participations
1,432
123
–43
–
12
–
–5
1,519
2020
Interest-
bearing
securities,
non-curent
20,354
11,091
–5,021
–
–72
–4,739
–
21,613
Other
financial
assets,
non-current
Other
investments
in shares and
participations
5,614
893
–913
51
–53
–271
–479
4,842
1,515
62
–
–
–149
–
4
1,432
2019
Interest-
bearing
securities,
non-curent
23,982
18,484
–19,995
–
–33
–2,084
–
20,354
Other
financial
assets,
non-current
6,870
523
–703
–133
154
–1,155
58
5,614
1) This amount includes asset ceiling. For further information, see note G1 “Post-employment benefits.”
Financial report 2020
62
Notes to the consolidated financial statements
F4 Interest-bearing liabilities
As of December 31, 2020, the Company’s outstanding interest-bearing
liabilities were SEK 30.2 (37.7) 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
Reconciliation of liabilities arising from financing activities
Opening balance
Cash flows
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 1)
Other non-cash movements
Closing balance
2020
2019
5,269
2,673
7,942
22,008
210
22,218
30,160
7,946
1,493
9,439
21,898
6,359
28,257
37,696
2020
47,578
2019
33,125
4,400
–8,643
–2,417
–4,030
–99
136
2,604
–
–69
39,460
4,851
–4,476
–2,990
1,748
651
343
2,300
1,767
–139
47,578
1) Repayment of borrowings in 2019 includes repayment of a loan, not classified as borrowings,
to a minority shareholder in a subsidiary.
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 2.18% (3.26%).
Borrowings issued by the Parent Company are held at fair value with
changes in value due to changes in credit risk recognized in Other comprehen-
sive income (OCI). Due to the COVID-19 pandemic, capital market became
very volatile at the end of first quarter 2020, hence credit spreads on corporate
bonds widened significantly. Credit spreads have decreased substantially
in subsequent quarters, resulting in a net positive impact of SEK 0.1 billion
recognized in the OCI.
Foreign exchanges rates also fluctuated significantly over the period, not-
ably SEK has strengthened against USD and EUR. This resulted in a significant
reduction in the carrying values of loans and bonds at the end of the year (see
table below), and reduction in contractual interest paid (see note F2 “Financial
income and expenses”) and weighted average interest rate cost.
Notes, bonds and bilateral loans
Issued-maturing
Notes and bond loans
2020–2030 1)
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
200
170
1,000
500
500
150
3.02%
4.125%
0.875%
1.875%
2.741%
150
684
220
281
USD
USD
USD
EUR
EUR
USD
USD
USD
USD
USD
Dec 30, 2030
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
Carrying value
(SEK million)
2020
Changes in fair
value due to
changes in credit
risk 2020
Cumulative
changes in fair
value due to
changes in credit
risk 2020
Carrying value
(SEK million)
2019
1,698
–
8,537
5,034
5,290
1,278
21,837
1,237
–
1,826
2,320
5,383
68
–16
–165
–38
–63
22
–192
35
32
–5
31
93
68
–
144
3
145
50
410
9
–
27
15
51
–
1,601
9,695
5,267
5,512
1,424
23,499
1,371
6,345
2,078
2,606
12,400
1) Private Placement, Swedish Export Credit Corporation (SEK). In December 2020, the Company refinanced Swedish Export Credit Corporation (SEK) of USD 170 million with a new bond loan of USD 200 million,
net increase in funding of USD 30 million. The new facility is set to mature in 2030. The terms of the existing loan note (USD 150 million) maturing in December 2025 was modified from a floating interest to a fixed
coupon with the same maturity date.
2) Nordic Investment Bank (NIB), R&D project financing.
3) European Investment Bank (EIB), R&D project financing.
Financial report 2020
Section G – Employee related
G1 Post-employment benefits
Ericsson sponsors a number of post-employment benefit plans throughout
the Company, which are in line with market practice in each country. The main
change in 2020 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 9.2 billion. The development of plan assets
was higher than expected resulting in remeasurement gains of SEK 4.7 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 48% (45%) by the assets
of Ericsson Pensionsstiftelse (a Swedish Pension Foundation). Under Swedish
GAAP, these liabilities, valued using different methodology and assump-
tions, 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 Pensionsstiftelse is man-
aged on the basis of a capital preservation strategy and the risk profile is set
accordingly. Traditional asset-liability matching (ALM) studies are undertaken
on a regular basis to allocate within different asset classes.
The plans are exposed to various risks, e.g., a sudden decrease in the bond
yields, which would lead to an increase in the plan liability. A sudden instability
in the financial market might also lead to a decrease in fair value of plan assets
held by the Pensionsstiftelse, as the holdings of plan assets partly are exposed
to equity markets; however, this may be partly offset by higher values in fixed
income holdings. Swedish plans are linked to inflation and higher inflation
will most likely lead to a higher liability. For the time being, inflation is a low
risk factor to the Swedish plans as actual rate of inflation has not reached the
ceiling target set by the Central Bank of Sweden.
Multi-employer plans
As before, the Company has secured the disability and survivors’ pension part
of the ITP Plan through an insurance solution with the insurance company
Alecta. Although this part of the plan is classified as a multi-employer defined
benefit plan, it is not possible to get sufficient information to apply defined
benefit accounting, as for most of the accrued pension benefits in Alecta,
information is missing on the allocation of earnings process between employ-
ers. Full vesting is instead registered on the last employer. Alecta is not able to
calculate a breakdown of assets and provisions for each respective employer,
and therefore, the disability and survivors’ pension portion of the ITP Plan has
been accounted for as a defined contribution plan.
Alecta has a collective funding ratio which acts as a buffer for its insurance
commitments to protect against fluctuations in investment return and insur-
ance risks. Alecta’s collective funding ratio ranges from 125% to 175% and
reflects the market value of Alecta’s plan assets as a percentage of its commit-
ments to policy holders (both guaranteed and non-guaranteed), measured in
accordance with Alecta’s actuarial assumptions, which are different from those
in IAS 19. Alecta’s collective funding ratio was 148% (148%) as of December
31, 2020. The Company’s share of Alecta’s saving premiums is 0.2%, the total
Notes to the consolidated financial statements
63
share of active members in Alecta are 2.0%. The expected contribution to the
plan is SEK 171 million for 2021.
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 Pensionsgaranti 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 6.1
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 regula-
tions. The funded level in the US Pension Plan is above the point at which
minimum funding would be required for fiscal year 2020.
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 governance 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 pen-
sion 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.
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.
Financial report 2020 64
Notes to the consolidated financial statements
Note G1, cont.
Other plans
The Company also sponsors plans in other countries. The main plans are in
Brazil, India 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 direc-
tors 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.
An existing pension plan in India (Provident Fund) has been accounted for
as a defined benefit plan from 1 January 2020. The Provident Fund is self-
managed through a registered Exempted Trust, therefore according to local
legislation, investment returns shall be guaranteed at minimum rates of return
specified by the government. In previous years, actual investment returns
exceed the interest guarantee liability, therefore the general consensus was
that such plans shall be accounted for as defined contribution plans.
The change in accounting treatment was driven by clarification guidance
from the Actuarial Society of India and the Indian financial reporting body this
year which concluded that such plans shall be viewed as defined benefit plans
as the Company is liable for any shortfall in the fund assets based on the gov-
ernment specified minimum rates of return. The Company has an obligation to
fund any shortfall on the yield of the trust’s investments over the administered
interest rates on an annual basis. These administered rates are determined
annually predominantly considering the social and economic factors in the
past years. The actuary has provided a valuation for provident fund liabilities
on the basis of guidance issued by Actuarial Society of India.
The opening balances for obligation and plan assets have been included in
the balance sheet, although due to the plan asset value exceeding obligation,
no net liability was recognized at 1 January 2020 as asset ceiling applies. Prior
year numbers are not restated as there is no impact on the group net pension
liability.
Amount recognized in the Consolidated balance sheet
Amount recognized in the Consolidated balance sheet
2020
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)
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)
Sweden
US
UK
Other
Total
56,138
26,967
29,171
–
29,171
50,257
22,809
27,448
–
27,448
17,921
17,327
594
92
686
20,897
20,102
795
–
795
15,788
17,326
–1,538
2,090
552
15,352
16,919
–1,567
2,137
570
18,341
11,991
6,350
594
6,944
15,928
9,829
6,099
905
7,004
108,188
73,611
34,577
2,776
37,353
102,434
69,659
32,775
3,042
35,817
1) Plans with a net surplus, i.e., where plan assets exceed DBO, are reported as Other financial assets, non-current, see note F3 “Financial assets, non-current.” The asset ceiling decreased during the year to SEK 518
(833) million. Asset ceiling at 2019 is not restated for the Provident Fund plan in India.
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.
Pension costs for defined contribution plans and defined benefit plans
2020
Pension cost for defined contribution plans
Pension cost for defined benefit plans 1)
Total
Total pension cost expressed as a percentage of wages and salaries
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
Sweden
963
1,783
2,746
953
1,704
2,657
937
1,350
2,287
US
415
13
428
456
–110
346
473
175
648
UK
Other
136
–4
132
132
–47
85
145
75
220
664
993
1,657
1,193
889
2,082
1,170
557
1,727
Total
2,178
2,785
4,963
8.1%
2,734
2,436
5,170
8.8%
2,725
2,157
4,882
9.2%
1) The cost for the US plans included settlement gain of SEK 93 million. For the UK plans, negative cost was due to interest income of SEK 327 million exceeding interest cost of SEK 295 million during the year.
Financial report 2020
Note G1, cont.
Change in the net defined benefit obligation
Change in the net defined benefit obligation
Opening balance
Adjustment 1)
Opening balance adjusted
Included in the income statement 3)
Current service cost
Past service cost and gains and losses on settlements 4)
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 5)
Plan participants
Payments from plans:
Benefit payments
Settlements
Business combinations and divestments
Closing balance
Notes to the consolidated financial statements
65
Present value
of obligation
2020 2)
102,434
2,654
105,088
2,424
–76
1,759
–
51
4,158
–
10
9,247
320
9,577
Fair value
of plan
assets
2020
–69,659
–2,776
–72,435
–
–
–1,454
29
2
–1,423
Total
2020
32,775
–122
32,653
2,424
–76
305
29
53
2,735
Present value
of obligation
2019 2)
90,320
–
90,320
1,977
–266
2,577
–
–1
4,287
Fair value
of plan
assets
2019
–64,322
–
–62,322
–
–
–1,938
49
2
–1,887
Total
2019
25,998
–
25,998
1,977
–266
639
49
1
2,400
–4,734
–4,734
–
–5,758
–5,758
–
–
–
–4,734
10
9,247
320
4,843
–775
12,443
–126
11,542
–
–
–
–5,758
–775
12,443
–126
5,784
–5,373
5,249
–124
2,079
–2,076
3
–1,921
223
–1,834
–1,745
15
–3,612
–223
–5,533
–
1,834
1,733
–
–
–12
15
108,188
–73,611
34,577
–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
1) Adjustment relates to an existing defined benefit plan in India (Provident Fund) previously accounted for as a defined contribution pension plan.
2) The weighted average duration of DBO is 20.8 (21.1) years.
3) Excludes the impact of the asset ceiling of SEK 50 million in 2020 and SEK 36 million in 2019.
4) Settlement gain of SEK 93 (258) million is reported in Other financial expenses, see note F2 “Financial income and expenses.”
5) The expected contribution to the plans is SEK 1.8 billion during 2021.
Actuarial losses of SEK 9.2 billion from changes in financial assumption are attributable to the decrease in discount rates in the larger pension plans in Sweden,
US and UK.
Cash contribution made during the year to the Swedish pension trust of SEK 3.0 billion was mainly negotiated from 2019, prior to the COVID-19 pandemic.
The Company does not expect material changes to planned cash contribution to defined benefit pension plans in the foreseeable future due to COVID-19 impact.
Present value of the defined benefit obligation
2020
DBO, closing balance
Of which partially or fully funded
Of which unfunded
2019
DBO, closing balance
Of which partially or fully funded
Of which unfunded
Sweden
US
UK
Other
Total
56,138
56,138
–
50,257
50,257
–
17,921
17,235
686
20,897
20,138
759
15,788
15,788
–
15,352
15,352
–
18,341
14,811
3,530
15,928
12,211
3,717
108,188
103,972
4,216
102,434
97,958
4,476
Financial report 2020
66
Notes to the consolidated financial statements
Note G1, cont.
Asset allocation by asset type and geography 1)
2020
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
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
Sweden
US
UK
Other
Total
Of which
unquoted 2)
1,117
5,635
13,570
4,338
2,153
–
154
26,967
–
–
1,319
3,784
11,969
4,489
1,248
–
–
22,809
–
–
575
655
14,557
–
1,495
–
45
17,327
–
–
1,013
773
17,050
–
1,261
–
5
20,102
–
–
911
3,469
11,745
152
274
–
775
17,326
–
–
1,309
3,368
10,994
169
296
–
783
16,919
–
–
34
2,235
6,985
531
419
1,409
378
11,991
–
–
86
2,422
4,774
550
242
1,404
351
9,829
–
–
2,637
11,994
46,857
5,021
4,341
1,409
1,352
73,611
–
–
3,727
10,347
44,787
5,208
3,047
1,404
1,139
69,659
–
–
0%
18%
7%
100%
50%
100%
0%
0%
15%
7%
100%
65%
100%
6%
1) Asset class is presented based on the underlying exposure of the investment. This includes direct investment in securities or investment through pooled funds that invests in an asset class.
2) Unquoted refers to assets classified as fair value level 3.
Actuarial assumptions
Financial and demographic actuarial assumptions
Financial assumptions
Discount rate
Inflation rate
Salary increase rate
Demographic assumptions
Life expectancy after age 65 in years
2020
2019
Sweden
0.5%
1.8%
2.8%
23
US
2.3%
2.5%
3.5%
23
UK
1.5%
2.8%
–
23
Sweden
0.9%
1.8%
2.8%
22
US
3.2%
2.5%
3.5%
23
UK
2.1%
3.0%
–
23
Actuarial assumptions are assessed on a quarterly basis. See also note A1
“Significant accounting policies” and note A2 “Critical accounting estimates
and judgments.”
however, the effect was offset by a similar increase in the value of plan assets
due to relatively high exposure to debt securities in these plans.
Sweden
The defined benefit obligation (DBO) has been calculated using a discount
rate based on the yields of Swedish government bonds. IAS 19 Employee
Benefits prescribes that if there is not a deep market in high-quality corporate
bonds, the market yields on government bonds shall be applied for the pen-
sion liability calculation. As of December 31, 2020, the discount rate applied
in Sweden was 0.5% (0.9%). If the discount rate had been based on Swedish
covered bonds, the discount rate as of December 31, 2020 would have been
1.5% (1.8%). If these discount rates based on Swedish covered bonds had
been applied for the pension liability calculation, the DBO at December 31,
2020 would have been approximately SEK 11.8 (9.8) billion lower.
Due to financial stimulus introduced to mitigate the COVID-19 effect, gov-
ernment bond yields decreased significantly in the first quarter 2020 resulting
in a significant increase in the valuation of pensions liability. The market condi-
tions have since stabilized, although government bond yields are still lower
than that at the end of 2019.
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.
Volatility in the capital markets resulted in lower corporate bond discount
rates used to value pensions liabilities in the US and UK plans at year end,
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
2020
–3,946
226
–898
–4,618
2019
–5,049
–398
–735
–6,182
Sensitivity analysis of significant actuarial assumptions
Impact on the DBO of a change
in assumptions
Financial assumptions
Discount rate –0.5%
Discount rate +0.5%
Inflation rate –0.5%
Inflation rate +0.5%
Salary increase rate –0,5%
Salary increase rate +0,5%
Demographic assumptions
Longevity –1 year
Longevity +1 year
2020
Sweden
US
7.2
–6.3
–6.3
7.2
–2.6
2.7
–2.9
2.9
1.1
–1.0
–0.0
0.0
–0.0
0.0
–0.5
0.5
UK
2.0
–1.7
–1.4
1.5
–
–
–0.6
0.6
Financial report 2020
G2 Information regarding members of the Board of Directors and Group management
Notes to the consolidated financial statements
67
Remuneration to the Board of Directors
Remuneration to members of the Board of Directors
SEK
Board fees
Number of
synthetic
shares/portion
of Board fee
Value at grant
date of synthetic
shares allocated
in 2020
Number of
previously
allocated
synthetic shares
outstanding
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
1,020,000
19,500
19,500
19,500
19,500
19,500
19,500
24,625/50%
6,163/50%
9,245/75%
6,163/50%
9,245/75%
3,081/25%
—
3,081/25%
—
3,081/25%
—
—
—
—
—
—
A
2,404,385
601,755
902,682
601,755
902,682
300,829
—
300,829
—
300,829
—
—
—
—
—
—
Net change
in value of
synthetic
shares 1)
B
Committee
fees
Total fees
paid in cash 2)
Total
remuneration
2020
C
(A+B+C)
52,525
32,672
39,765
32,370
32,370
10,788
8,319
10,788
19,378
22,514
—
—
—
—
—
—
543,924
254,900
295,558
–6,009
39,913
65,016
326,399
13,298
65,602
111,003
—
—
—
—
—
—
375,000
175,000
175,000
200,000
425,000
175,000
—
400,000
600,000
200,000
10,500
10,500
10,500
—
—
—
2,412,500
685,000
430,000
710,000
680,000
940,000
—
1,165,000
1,620,000
965,000
30,000
30,000
30,000
19,500
19,500
19,500
5,360,809
1,541,655
1,628,240
1,305,746
1,622,595
1,305,845
326,399
1,479,127
1,685,602
1,376,832
30,000
30,000
30,000
19,500
19,500
19,500
Total
12,352,000
64,684
6,315,746
261,489
1,709,604
2,756,500
9,756,000
17,781,350 3)
1) The difference in value as of the time for payment, compared to December 31, 2019, for synthetic shares allocated in 2015 (for which payment was made in 2020). The difference in value as of December 31,
2020 compared to December 31, 2019, for synthetic shares allocated in 2016, 2017, 2018 and 2019. Calculated on a share price of SEK 97.64. The difference in value as of December 31, 2020, compared to grant
date for synthetic shares allocated in 2020. The value of synthetic shares allocated in 2016, 2017, 2018 and 2019 includes respectively SEK 1.00, SEK 1.00, SEK 1.00 and SEK 1.50 per share in compensation for
dividends resolved by the Annual General Meetings 2017, 2018, 2019 and 2020 and the value of the synthetic shares allocated in 2015 includes dividend compensation for dividends resolved in 2016, 2017, 2018
and 2019.
2) Committee fee and cash portion of the Board fee.
3) Excluding social security charges in the amount of SEK 3,740,020.
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
Compliance 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 2020 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 2020; SEK 82,74. 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 pub-
lication of the Company’s year-end financial statement during the fifth year
following the Annual General Meeting which resolved on the synthetic share
program, i.e., in 2025. 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 2015 occurred
in 2020. The amounts paid in 2020 under the synthetic share programs were
determined based on the volume-weighted 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 2019: SEK 77.96 and
totalled SEK 1,540,373 excluding social security charges. The payments made
do not constitute a cost for the Company in 2020. 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 2020, is disclosed in
the table above “Remuneration to members of the Board of Directors”. The
value of all outstanding synthetic shares fluctuates in line with the market
value of Ericsson’s Class B share and may differ from year to year compared
to the original value on their respective grant dates. The change in value of
the outstanding synthetic shares is established each year and affects the total
recognized costs that year. As of December 31, 2020, the total outstanding
number of synthetic shares under the programs is 326,173 and the total
accounted debt is SEK 32,635,067.
Financial report 2020 68
Notes to the consolidated financial statements
Note G2, cont.
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.
Remuneration costs
The total remuneration to the President and CEO and to other members of the
Group management, consisting of the Executive Team (ET), includes fixed sal-
ary, short- and long-term variable compensation, pension and other benefits.
These remuneration elements are based on the guidelines for remuneration
to Group management (the Guidelines) as approved by the Annual General
Meeting (AGM) of shareholders held in 2020.
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
Total
President
and CEO 2020
President
and CEO 2019
Other members
of ET 2020
Other members
of ET 2019
17,727,726
—
16,299,080
—
98,063,266
—
86,342,359
—
Total 2020
115,790,992
—
Total 2019
102,641,439
—
—
—
37,992,529
28,289,319
37,992,529
28,289,319
41,110,656
9,113,376
770,276
21,592,463
90,314,497
31,491,325
8,284,891
600,572
17,807,558
74,483,426
41,237,506
39,685,920
17,064,089
52,496,382
31,149,752
33,389,234
21,765,983
43,244,590
82,348,162
48,799,296
17,834,365
74,088,845
62,641,077
41,674,125
22,366,555
61,052,148
286,539,692
244,181,237
376,854,189
318,664,663
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.
Comments to the table
– Fredrik Jejdling was appointed 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 2020. Information
regarding Fredrik Jejdling is included in the group “Other members of ET.”
The details of Fredrik Jejdling’s remuneration in 2020 can be found in the
Remuneration report 2020.
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 2020 as well as other contracted
compensation expenses in 2020.
– Arun Bansal was appointed as Executive Vice President by the Board
– “Long-term variable compensation provision” refers to the compensation
of Directors effective June 10, 2020. He did not substitute the President
and CEO as the deputy to the President and CEO in 2020. Information
regarding Arun Bansal is included in the group “Other members of ET”. The
details of Arun Bansal’s remuneration in 2020 corresponding to the period
after he was appointed as Executive Vice President can be found in the
Remuneration report 2020.
– The group “Other members of ET 2020” comprises of the following
persons: MajBritt Arfert, Arun Bansal, Xavier Dedullen, Erik Ekudden,
Niklas Heuveldop, Chris Houghton, Fredrik Jejdling, Jan Karlsson,
Peter Laurin, Stella Medlicott, Carl Mellander, Nunzio Mirtillo,
Fadi Pharaon and Åsa Tamsons.
costs for all outstanding share-based plans for full year 2020.
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, 2020, for other members of ET under IAS 19 amounted to SEK 45.6
(44.6) million of which SEK 32.0 (32.6) million refers to the ITP and early
retirement, and the remaining SEK 13.6 (11.9) million to disability and sur-
vivors’ pensions. The President and CEO does not have a Swedish defined
benefit based pension plan, hence, Ericsson bears no commitment.
– The group “Other members of ET 2019” comprises of the following
– For previous Presidents and CEOs, the Company has made provisions for
persons: MajBritt Arfert, Arun Bansal, Xavier Dedullen, Erik Ekudden,
Niklas Heuveldop, Chris Houghton, Fredrik Jejdling, Jan Karlsson,
Peter Laurin, Carl Mellander, Nunzio Mirtillo, and Åsa Tamsons.
defined benefit pension plans in connection with their active service periods
within the Company.
Financial report 2020 G3 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:
– Share-settled programs, the total compensation expense is calculated
based on the fair value (FV) at grant date and recognized over the service
period of three years.
– 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 (service 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 shareholders approved 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
Contributor Plan (KC Plan) for key employees as integral parts of its remunera-
tion 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 as approved by the
shareholders, is designed to provide long-term incentives for members of the
ET and to incentivize the Company’s performance creating long-term value.
Awards under LTV (Performance Share Awards) are granted to the partici-
pants, provided that certain performance conditions are met, to receive a num-
ber of shares, free of charge, following expiration of a three-year vesting period
(vesting period). Allotment of shares pursuant to Performance Share Awards
LTV and EPP performance criteria
Notes to the consolidated financial statements
69
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 satis-
faction of the predetermined performance criteria for that year’s LTV program
(performance period). The performance criteria for the currently running
LTV and EPP are summarized 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 employ-
ment over a period of three years from the date of grant of awards 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 administra-
tive 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.
2020 Long-Term Variable Compensation Program for the Executive Team
(LTV 2020)
LTV 2020 was approved at the Annual General Meeting (AGM) of shareholders
held in 2020 and includes all members of the ET, a total of 15 ET members in
2020, including the President and CEO.
The participants were granted Performance Share Awards on April 1, 2020.
The value of the underlying shares in respect of the Performance Share Awards
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 Awards entitles was
calculated as the volume weighted average of the market price of Ericsson B
Program
Year
2020
2020
2020
2020 Total
2019
2019
2019
2019 Total
2018
2018
2018
2018 Total
2017
2017
2017 Total
Target
Criteria
Weight
Performance Period
Vesting Opportunity
(linear pro-rata)
2020 Group operating
income
Absolute TSR
Relative TSR
Range (SEK billion):
19.1–27.9
Range: 6%–14%
Ranking of Ericsson: 6–2
2019 Group operating
income
Absolute TSR
Relative TSR
Range (SEK billion):
10.0–20.0
Range: 6%–14%
Ranking of Ericsson: 7–2
50%
Jan 1, 2020–Dec 31, 2020
0%–200%
Jan 1, 2020–Dec 31, 2022
Jan 1, 2020–Dec 31, 2022
30%
20%
100%
0%–200%
0%–200% 1)
0%–200%
50%
Jan 1, 2019–Dec 31, 2019
0%–200%
Jan 1, 2019–Dec 31, 2021
Jan 1, 2019–Dec 31, 2021
30%
20%
100%
0%–200%
0%–200% 1)
0%–200%
Achievement
2)
SEK 29.1
billion
Achieved
Vesting Level
200%
3)
SEK 20.4
billion
200%
Range (SEK billion): 4.6–9.6
50%
Jan 1, 2018–Dec 31, 2018
2018 Group operating
income
Absolute TSR
Relative TSR
Range: 6%–14%
Ranking of Ericsson: 7–2
Absolute TSR
Relative TSR
Range: 6%–14%
Ranking of Ericsson: 12–5
30%
20%
100%
50%
50%
100%
Jan 1, 2018–Dec 31, 2020
Jan 1, 2018–Dec 31, 2020
Jan 1, 2017–Dec 31, 2019
Jan 1, 2017–Dec 31, 2019
4)
0%–200%
SEK 11.5
billion
0%–200%
26.92%
0%–200% 1) 1.94 out of 12
0%–200%
21.34%
0%–200%
0%–200% 1) 5.45 out of 18
0%–200%
200%
200%
200%
200%
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 fulfilment of the related performance criteria over the performance period
compared to Peer Groups consisting of 11 companies for the program year 2020, 12 companies for the program years 2019 and 2018, and 18 companies for the program year 2017. The vesting of the Perfor-
mance 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 restructuring charges.
3) Excludes fines and similar related to the United States Department of Justice (DOJ) / Securities and Exchange Commission (SEC) investigation.
4) Excludes restructuring charges and the provisions taken in Q4 2018 related to the revised BSS strategy.
Financial report 2020
70
Notes to the consolidated financial statements
Note G3, cont.
shares on Nasdaq Stockholm during the five trading days immediately follow-
ing the publication of the Company’s interim report for the fourth quarter of
2019.
Following evaluation of the previously introduced Long-term variable
compensation programs, the Board of Directors decided to use the same per-
formance criteria for LTV 2020 as the ones used for LTV 2019 and 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, 2020 to December 31, 2020 was
included as a performance condition for LTV 2020 in addition to the standard
three-year total shareholder return (TSR) performance conditions, which were
also used for LTV 2019, 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,
2020 to December 31, 2022 (the performance period).
The performance criteria for LTV 2020 along with the details on how the
performance criteria will be calculated and measured are explained in minutes
from the AGM 2020 under Item 17.
The Board of Directors resolved on the achieved vesting level for the 2020
Group operating income performance criteria as 200% for this portion of the
Performance Share Awards granted based on the 2020 Group operating
income outcome.
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 Awards
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 Awards 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 per-
formance 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 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 by 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
Awards 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 Awards 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.
The Board of Directors also resolved on the achieved vesting levels for both
the absolute and relative TSR development performance criteria as 200%
based on the achievement results of 26.92% absolute TSR and 1.94th ranking
for relative TSR, which resulted in an overall achieved vesting level of 200% for
LTV 2018 as illustrated in the table LTV and EPP Performance Criteria on the
prior page.
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
Awards 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 Awards 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 Performance Share Awards vested during 2020 and the participants
received the equivalent number of shares free of charge with the official
closure of LTV 2017.
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.
Financial report 2020 Note G3, cont.
There are two award levels, high and regular, which represent the potential
award levels as a percentage of the participant’s annual gross salary, which
are determined separately by the Board of Directors for each year’s plan before
the plan is launched. 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
period defined for the respective year and generally requires that the partici-
pant 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 vesting date, and this final amount is paid to the participant
in cash gross before tax.
Executive Performance Plan 2020 (EPP 2020)
155 senior managers were selected to participate in EPP 2020. The regular
award level is set at 15% and the high award level is set at 25% for all countries
except for the USA. The regular and high award levels are set at 25% and 35%
respectively in the USA.
Executive Performance Plan 2019 (EPP 2019)
161 senior managers were selected to participate in EPP 2019. The regular
award level is set at 15% and the high award level is set at 22,5%.
Executive Performance Plan 2018 (EPP 2018)
171 senior managers were selected to participate in EPP 2018. The regular
award level is set at 15% and the high award level is set at 22,5%.
Executive Performance Plan 2017 (EPP 2017)
452 senior managers were selected to participate in EPP 2017. The regular
award level was set at 15% and the high award level was set at 22,5%.
The awards under EPP 2017 were paid in 2020 at the end of the vesting
period and EPP 2017 was officially closed.
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. As of the KC 2019 plan 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:
Number of shares and synthetic shares
Notes to the consolidated financial statements
71
– 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.
Accounting wise, the plans with three staggered payments are seen as three
separate tranches. The tranches are accounted for as separate awards and
accrued in parallel with the same grant date but different vesting dates.
The consequence of the staggered payments is a front-end loaded cost.
The accounting model is referred to as staged vesting.
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 Nasdaq Stockholm at the
vesting date, and this final amount is paid to the participant in cash gross
before tax.
Key Contributor Plan 2020 (KC Plan 2020)
7,007 employees were selected to participate in KC Plan 2020. 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 as explained under Key
Contributor Plans (KC Plans).
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 as explained under Key
Contributor Plans (KC Plans).
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 and KC Plan 2017 was officially closed.
Number of shares and synthetic shares
The awards granted to the participants of the LTV programs and the develop-
ment of the granted shares over time, considering the fulfilment of perfor-
mance conditions, are displayed in the table Number of shares and synthetic
shares below, together with the number of synthetic shares for the EPP and
KC plans.
Executive team programs
Of which the President and CEO
Share-settled programs
(million)
Maximum shares required
Granted shares
Outstanding number of shares
beginning of 2020
Exercised during 2020
Forfeited during 2020
Increase due to performance
condition 2020
Outstanding number of shares
end of 2020
LTV 2020
LTV 2019
LTV 2018
LTV 2017
2.5
0.9
—
—
—
0.4
1.3
3.0
0.6
0.9
—
—
—
0.9
3.0
0.8
1.2
—
—
0.4
1.6
3.0
0.7
1.3
–1.3
—
—
—
Cash-settled plan
Synthetic shares
EPP 2020
EPP 2019
EPP 2018
EPP 2017
1.7
1.0
1.6
—
Executive performance program
Total
11.5
3.0
3.4
–1.3
—
0.8
3.8
Total
4.3
LTV 2020
LTV 2019
LTV 2018
LTV 2017
Total
—
0.4
—
—
—
0.2
0.6
—
0.3
0.4
—
—
—
0.4
—
0.4
0.6
—
—
—
0.6
—
0.4
0.9
–0.9
—
—
—
Key contributors plans
KC 2020
KC 2019
KC 2018
KC 2017
11.3
6.2
8.3
—
—
1.5
1.9
–0.9
—
0.2
1.6
Total
25.8
Financial report 2020
72
Notes to the consolidated financial statements
Note G3, cont.
Compensation expense
The compensation expense is based on the FV and the number of shares or
synthetic shares. The compensation expense for the share-settled long-term
variable compensation programs for the President and CEO and the ET during
2020 were SEK 83 million.
KC Plans during 2020 were SEK 185 million and SEK 1,298 million respectively
as shown in the table Compensation expense for LTV 2017–2020 below. The
total compensation expense during 2020 amounted to 1,566 million. The total
provision for the cash-settled plans amounted to SEK 2,107 million (including
social charges of 227 million) at the end of 2020.
The compensation expenses for cash-settled plans, the EPP and the
Compensation expense LTV 2017–2020
Share-settled programs
LTV 2020
LTV 2019
LTV 2018
LTV 2017
Total executive team programs
Of which the President and CEO
Cash-settled plans
EPP 2020
EPP 2019
EPP 2018
EPP 2017
Total executive performance plans
KC 2020
KC 2019
KC 2018
KC 2017
Total key contributor plans
Total cash-settled plans
Total compensation expense
2020
2019
2018
2017
Total
23
28
28
4
83
41
34
50
76
25
185
523
335
368
72
1,298
1,483
1,566
—
17
28
13
58
32
—
11
53
116
180
—
248
245
273
766
946
1,004
—
—
18
14
32
18
—
—
20
110
130
—
—
156
323
479
609
641
—
—
—
10
10
6
—
—
—
31
31
—
—
—
139
139
170
180
23
45
74
41
183
97
34
61
149
282
526
523
583
769
807
2,682
3,208
3,391
Fair value
The compensation expense for the share-settled plans is based on FV and the
number of shares. The FV for the 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 program are also based on the outcome of
the Group operating income as per fiscal years 2020, 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 is adjusted in relation to the achievement level of the performance
criteria at the end of the performance period.
The compensation expense for the cash-settled plans is based on the FV
and the number of synthetic shares allocated. The FV for the EPP includes the
same criteria as the share-settled plans and calculated in a similar way, how-
ever reassessed quarterly with updated criteria. The FV for the KC Plans are the
share price reduced by the net present value of the dividend expected during
the service period. The KC Plan 2020 and the KC Plan 2019 have three FV
based on the three different service periods. The FV per performance criteria
and program is shown in the table Fair values below.
Fair value
Fair values (SEK)
Executive team programs
Share price at grant
Fair value Absolute TSR
Fair value Relative TSR
Fair value Group operating income
Executive performance plans
Fair value Absolute TSR
Fair value Relative TSR
Fair value Group operating income
Key contributor plans
Fair value – Tranche 1
Fair value – Tranche 2
Fair value – Tranche 3
Fair value
LTV 2020
78.88
54.69
98.06
74.22
EPP 2020
98.37
125.35
96.54
KC 2020
99.68
98.10
96.54
—
LTV 2019
90.70
87.92
94.63
86.94
EPP 2019
113.49
130.59
97.71
KC 2019
84.12
99.29
97.71
—
LTV 2018
65.79
80.40
78.66
62.93
EPP 2018
198.56
198.56
99.29
KC 2018
—
—
—
99.29
LTV 2017
57.15
54.40
76.95
—
EPP 2017
84.12
84.12
—
KC 2017
—
—
—
84.12
Payout of Cash-settled Plan
During 2020 three plans vested; EPP 2017 and KC Plan 2017 and KC Plan
2019 tranche 1. The share price at vesting were SEK 84.12 and the payout to
the participants amounted to SEK 1,150 million.
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
Financial report 2020
Note G3, cont.
a corresponding number of Ericsson B shares or ADSs free of consideration.
Employees in 100 countries participated in the SPP.
of net sales, operating income and cash conversion and each accounted for
one third of the total performance matching shares
Notes to the consolidated financial statements
73
The table below shows the contribution period and participation details
for the only open SPP from 2016, which was settled and closed with the final
matching and delivery of the remaining contribution shares to the participants
on August 17, 2020.
Stock Purchase Plans
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-settled 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
Shares for LTV 2016
Plan (million shares)
Originally designated
Outstanding beginning of 2020 1)
Awarded during 2020
Exercised/matched during 2020
Forfeited/expired during 2020
Outstanding end of 2020
Compensation costs charged during 2020 (SEK million) 2) 3)
The table below shows the performance targets for the only open EPSP
from 2016 in 2020.
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%
≥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.
The 2016 EPSP was settled and closed with the final delivery of the remaining
performance matching shares to the participants on August 17, 2020. Hence,
no future outstanding matching rights remain for the members of the ET.
Since no SPP was proposed after 2016, the share-based LTV were intro-
duced for the members of the ET with the approval of relevant AGM replacing
EPSP. For the senior managers, the cash-settled 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 fulfilment of targets and savings. The costs are
calculated based on the FV of the shares as defined at grant date.
Stock Purchase Plan, Key Contributor Retention Plan
and Executive Performance Stock Plans
A
B
C
D
E
F=B+C–D–E
G
2016
21.6
10.9
—
10.8
0.1
—
65.6
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.
2) Fair value was 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 2019: SEK 256 million, 2018: SEK 645 million.
Shares for LTV 2016 and LTV 2017–2019
LTV 2016 and LTV 2017–2019 are funded with treasury stock and are equity
settled. Treasury stock for all plans has been issued in directed cash issues of
Class C shares at the quotient value and purchased under a public offering
at the subscription price plus a premium corresponding to the subscribers’
financing costs, and then converted to Class B shares.
For all these plans, additional shares have been allocated for financing
of social security expenses. Treasury stock is sold on the Nasdaq Stockholm
to cover social security payments when arising due to matching/vesting
of shares. During 2020, 1,820,800 shares were sold at an average price of
SEK 89.52. Sales of shares are recognized directly in equity.
If, as of December 31, 2020, all shares allocated for future matching/vesting
under the Long term variable compensation programs were transferred, and
shares designated to cover social security payments were disposed of as a
result of the exercise and the matching/vesting, approximately 2.7 million
Class B shares would be transferred, corresponding to 0.1% of the total
number of shares outstanding, 3,328 million shares not including treasury
stock. As of December 31, 2020, approximately 6.0 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 outstand-
ing 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
2020; (C) the number of shares awarded during 2020; (D) the number of
shares matched during 2020; (E) the number of shares forfeited by partici-
pants or expired under the plan rules during 2020; and (F) the balance left as
Financial report 2020
74
Notes to the consolidated financial statements
Note G3, cont.
outstanding at the end of 2020, 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 2020 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 share 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.
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)
Middle East and Africa
Total
1) Of which in EU
Of which in Sweden
Women
5,025
4,532
2,075
11,205
807
23,644
8,462
2,911
2020
Men
20,306
9,344
7,635
34,226
3,434
74,945
25,811
9,709
Total
25,331
13,876
9,710
45,431
4,241
98,589
34,273
12,620
Women
4,821
4,376
1,980
10,180
739
22,096
8,069
2,723
2019
Men
19,230
9,003
7,381
33,262
3,531
72,407
26,257
9,324
Total
24,051
13,379
9,361
43,442
4,270
94,503
34,326
12,047
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)
Middle East and Africa
Total
1) Of which in EU
Of which in Sweden
2020
25,869
13,944
10,175
46,580
4,256
100,824
35,552
13,173
Number of employees by gender and age at year-end 2020
Under 25 years old
25–35 years old
36–45 years old
46–55 years old
Over 55 years old
Percent of total
Employee movements
Headcount at year-end
Employees who have left the Company
Employees who have joined the Company
Temporary employees
Women
1,014
9,768
7,248
4,864
1,812
25%
Men
1,735
23,674
26,436
17,684
6,589
75%
2020
100,824
7,839
9,246
609
2019
24,559
13,783
9,643
47,135
4,297
99,417
37,989
12,730
Percent
of total
3%
33%
34%
22%
8%
100%
2019
99,417
11,078
15,136
582
(SEK million)
Wages and salaries
Social security expenses
Of which pension costs
2020
60,950
13,695
4,963
2019
58,620
14,043
5,170
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)
2020
458
58
32
2019
369
83
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
2020
2019
Women
Men
Women
Men
Parent Company
Board members and
President
Group Management
Subsidiaries
Board members and
Presidents
23%
20%
77%
80%
23%
20%
77%
80%
19%
81%
19%
81%
Financial report 2020
Section H – Other
H1 Taxes
The Company’s tax expense for 2020 was SEK –9,589 (–6,922) million or
35.2% (79.0%) of income after financial items. The tax rate may vary between
years depending on business and geographical mix. Items reported for income
taxes include the impact of the Swedish tax rate reduction which was signed
into law on June 14, 2018, on the deferred tax assets and liabilities. The law
reduces the corporate income tax from 22% to 21.4% from January 1, 2019,
and to 20.6% from January 1, 2021.
Income taxes recognized in the income statement
Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)
Share of taxes in joint ventures and
associated companies
2020
–5,470
–175
–3,911
2019
–2,564
–2,237
–2,116
2018
–5,513
–392
1,097
–33
–5
–5
Income tax expense/benefit
–9,589
–6,922
–4,813
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% (21.4%), on the consolidated income before taxes, is shown in the
table below.
The withholding tax expense 2020 and 2018 includes an impairment of
withholding tax.
Non-deductible expenses include write-down of investments and payments
to pension foundations in Sweden.
Reconciliation of Swedish income tax rate with effective tax rate
Calculated 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
Reversal of impaired withholding tax
Tax effect of non-deductible expenses
Tax effect of non-taxable income
Tax effect of changes in tax rates
Income tax expense/benefit
Effective tax rate
2020
2019
–5,823
–616
–1,875
–419
2018
322
–773
–258
52
113
369
–1,393
—
–2,079
372
14
–9,589
35.2%
84
–230
519
–3,555
803
–64
–6,922
79.0%
33
–3,000
—
–1,130
722
–708
–4,813
–329.1%
–175
–2,237
–392
Changes in deferred taxes, net
Notes to the consolidated financial statements
75
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
liabilities
Deferred
tax assets
Net
balance
2020
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
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
Opening balance, net
Recognized in net income (loss)
Recognized in other comprehensive income
Acquisitions/divestments of subsidiaries
Reclassification
Translation differences
Closing balance, net
771
2,235
7,062
3,739
8,285
1,794
4,417
28,303
–2,007
26,296
1,233
3,413
7,220
3,592
8,424
2,585
7,221
33,688
–2,514
31,174
1,579
862
378
—
—
277
—
3,096
–2,007
25,207
1,089
25,207
1,792
878
787
—
—
281
—
3,738
–2,514
29,950
1,224
29,950
2020
29,950
–3,911
794
–1,223
386
–789
25,207
2019
22,482
–2,116
1,423
145
7,843
173
29,950
Tax effects reported directly in Other comprehensive income (loss) amount to
SEK 794 (1,423) million, of which actuarial gains and losses related to pen-
sions constituted SEK 900 (1,229) million, revaluation of borrowings SEK –20
(134) million and cash flow hedges SEK –86 (60) 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 liabilities have been adjusted for the effect of the
reduction of the Swedish corporate income tax rate.
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, Germany and
the United States. These countries have long or indefinite periods of utilization.
Of the total SEK 4,417 (7,221) million recognized deferred tax assets related to
tax loss carry-forwards, SEK 3,513 (6,026) 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.
Financial report 2020
H3 Statement of cash flows
Interest paid in 2020 was SEK –1,434 million (SEK –1,060 million in 2019 and
SEK –829 million in 2018) and interest received in 2020 was SEK 763 million
(SEK 817 million in 2019 and SEK –283 million in 2018). Taxes paid, including
withholding tax, were SEK –4,313 million in 2020 (SEK –5,218 million in 2019
and SEK –5,874 million in 2018).
Cash and cash equivalents include cash of SEK 16,422 (17,336) million
and cash equivalents of SEK 27,190 (27,743) million. For more information
regarding the disposition of cash and cash equivalents and unutilized credit
commitments, see note F1 “Financial risk management.”
Cash and cash equivalents as of December 31, 2020, include SEK 2.4 (3.3)
billion in countries where there exist significant cross-border conversion restric-
tions 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
76
Notes to the consolidated financial statements
Note H1, cont.
As of December 31, 2020, the recognized tax loss carry-forwards amounted
to SEK 21,442 (33,744) 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
2021
2022
2023
2024
2025
2026 or later (also includes unlimited car-
ryforwards)
Total
Tax loss
carry-forwards
Tax value
209
142
58
174
156
43
29
12
36
32
20,703
21,442
4,265
4,417
In addition to the table above there are tax loss carry-forwards of SEK 3,570
(5,378) million at a tax value of SEK 735 (1,009) 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
The Company has considered the effect of COVID-19 pandemic on the
business and currently expect no material changes to forecast future profits
which could impact recoverability of deferred tax assets. Risk assessment
on the business plans is carried out on a regular basis, and deferred tax asset
recoverability analysis will be performed if conditions suggest that such assets
may be impaired.
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
2020
2019
2018
3,602
3,587
3,275
512
4,114
360
3,947
568
3,843
2,387
2,474
47
75
2,434
2,549
—
—
—
906
1,519
2,559
1,083
1,989
1,019
2,538
1,387
3,946
—
137
—
137
36
19
—
55
254
—
275
529
2,126
2,593
4,475
8,674
9,089
8,318
6,123
1,652
–1,897
43
66
331
340
77
–333
–812
1,891
30
–53
212
1,220
14,915
12,226
7,830
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)
2020
2019
2018
17,483
2,223
–6,530
Total impairments
Total
3,323
5.26
3,306
0.67
3,291
–1.98
Total depreciation, amortization and
impairment losses on property, plant and
equipment and intangible assets
17,483
2,223
–6,530
3,323
3
3,326
5.26
3,306
14
3,320
0.67
3,291
—
3,291
–1.98
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
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.
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.”
Financial report 2020
Note H3, cont.
Acquisitions/divestments of subsidiaries and other operations
Acquisitions Divestments
H5 Fees to auditors
Notes to the consolidated financial statements
77
2020
Cash flow from business combinations 1)
Acquisitions/divestments of other investments
Total
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
1) See also note E2 “Business combinations.”
–9,534
–123
–9,657
–1,815
62
–1,753
–1,220
–398
–1,618
4
55
59
360
–112
248
226
107
333
H4 Related party transactions
IAS 24, “Related Party Disclosures” requires disclosure of related party
relationships, transactions and outstanding balances.
During 2020, various minor related party transactions were executed
pursuant to contracts based on terms customary in the industry and negoti-
ated on an arm’s length basis. The main related party transactions relate to
Ericsson Nikola Tesla d.d located in Croatia, with sales from the Company to
the associate of SEK 0.4 billion (SEK 0.6 billion in 2019 and SEK 0.6 billion in
2018) and purchases from the associate to the Company of SEK 1.2 billion
(SEK 1.5 billion in 2019 and SEK 1.3 billion in 2018). Ericsson holds 49.07%
of the shares. 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
2020
Audit fees
Audit-related fees
Tax fees
Other fees
Total
2019
Audit fees
Audit-related fees
Tax fees
Other fees
Total
2018
Audit fees
Audit-related fees
Tax fees
Other fees
Total
Deloitte
Others
Total
97
8
4
5
114
9
—
6
2
17
106
8
10
7
131
PwC
Others
Total
96
12
10
6
124
9
—
11
6
26
105
12
21
12
150
PwC
Others
Total
98
11
9
9
127
4
2
2
6
14
102
13
11
15
141
At the 2020 Annual General Meeting Deloitte was appointed auditor for the
period until the 2021 Annual General Meeting. PricewaterhouseCoopers
(PwC) was appointed auditor for the period until the 2020 Annual General
Meeting.
The audit-related services include quarterly reviews and the limited
assurance report on Ericsson’s sustainability report. The tax services include
corporate tax compliance work. Other services include work related to
agreed-upon-procedures engagements.
Financial report 2020
78
Parent Company financial statements with notes
Parent Company
financial statements with notes
Contents
Parent Company financial statements
79 Parent Company income statement and
statement of comprehensive income (loss)
80 Parent Company balance sheet
82 Parent Company statement of cash flows
83 Parent Company statement of changes in
stockholders’ equity
Notes to the Parent Company
financial statements
84
84
85
85
85
86
87
88
89
89
P1
P2
P3
P4
P5
P6
P7
P8
P9
Significant accounting policies
Other operating income
and expenses
Financial income and expenses
Taxes
Intangible assets
Property, plant and equipment
Financial assets
Investments
Inventories
P10
Trade receivables and customer
finance
90
P11
Receivables and liabilities –
subsidiary companies
90
91
92
92
92
93
93
95
95
95
95
95
95
96
96
96
P12 Other current receivables
P13
P14
P15
Equity and other
comprehensive income
Contributions
Post-employment benefits
P16 Other provisions
P17
P18
Interest-bearing liabilities
Financial risk management
and financial instruments
P19 Other current liabilities
P20
P21
P22
P23
P24
P25
P26
P27
Trade payables
Assets pledged as collateral
Contingent liabilities
Statement of cash flows
Leasing
Information regarding employees
Related party transactions
Fees to auditors
Financial report 2020 Parent Company
financial statements
Parent Company income statement
January–December, SEK million
Net sales
Cost of sales
Gross income
Selling expenses
Administrative expenses
Operating expenses
Other operating income and expenses
Operating income
Financial income and expenses, net
Income after financial items (loss)
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
Total other comprehensive income, net of tax
Total comprehensive income (loss)
Parent Company financial statements
79
Notes
2020
2019
2018
P2
P3
P14
P4
–
–
–
–506
–872
–1,378
2,866
1,488
6,845
8,333
–1,540
6,793
–408
6,385
2020
6,385
99
–20
79
6,464
–
–
–
–664
–867
–1,531
–8,148
–9,679
6,610
–3,069
–1,961
–5,030
87
–4,943
2019
–4,943
–651
134
–517
–5,460
–
–
–
–1,047
–639
–1,686
2,111
425
5,340
5,765
–1,535
4,230
–36
4,194
2018
4,194
206
–44
162
4,356
Financial report 2020 80
Parent Company financial statements
Parent Company balance sheet
December 31, SEK million
Assets
Fixed assets
Intangible assets
Tangible assets
Financial assets
Investments
Subsidiaries
Joint ventures and associated companies
Other investments
Receivables from subsidiaries
Customer finance, non-current
Deferred tax assets
Other financial assets, non-current
Interest-bearing securities, non-current
Current assets
Inventories
Receivables
Trade receivables
Customer finance, current
Receivables from subsidiaries
Current income taxes
Other current receivables
Short-term investments
Cash and cash equivalents
Total assets
Notes
P5
P6
P7, P8
P7, P8
P7
P7, P11
P7, P10
P4
P7
P7
P9
P10
P10
P11
P12
P18
P18
2020
2019
26
460
68,798
1,184
1,382
10,631
395
544
458
21,597
58
303
71,172
1,184
1,272
10,133
909
678
454
20,354
105,475
106,517
–
–
7
525
28,367
14
1,317
6,621
28,775
65,626
21
724
20,011
–
2,410
6,328
29,800
59,294
171,101
165,811
Financial report 2020
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
Parent Company financial statements
81
Notes
P13
P15
P16
P17
P17
P11
P17
P20
P11
P19
2020
2019
16,672
20
31,472
48,164
27,896
6,385
–366
33,915
82,079
–
343
343
16,716
5,305
–
90
22,111
6,393
451
58,605
1,119
66,568
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
Total stockholders’ equity, provisions and liabilities
171,101
165,811
Financial report 2020
82
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
2020
2019
2018
6,385
4,950
11,335
–
712
–554
–229
–325
1,182
786
–4,943
1,135
–3,808
–
–161
329
204
576
–343
605
12,121
–3,203
–253
–
–
–1,552
511
–12,063
–
–3,435
–16,792
–4,671
12,975
2,829
–7,216
–
163
–4,985
–1,961
1,765
3,570
76
–1,025
29,800
28,775
–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
Financial report 2020 Parent Company financial statements
83
Parent Company statement of changes in stockholders’ equity
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
31,472
48,164
100
–445
Other
retained
earnings
32,567
Non-
restricted
equity
32,222
Total
80,386
SEK million
January 1, 2020
Total comprehensive income
Transactions with owners
Stock issue
Sale of own shares
Long-term variable compensation
Repurchase of own shares
Dividends paid
December 31, 2020
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
Capital stock
16,672
–
–
–
–
–
–
16,672
16,672
–
–
–
–
–
–
20
–
–
–
–
–
–
20
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
31,472
48,164
31,472
48,164
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
100
–
–
–
–
–
–
16,672
20
31,472
48,164
100
–445
79
6,385
6,464
6,464
–
–
–
–
–
–366
–
163
51
–
–4,985
34,181
–
163
51
–
–4,985
33,915
–
163
51
–
–4,985
82,079
72
40,580
40,752
88,916
–517
–4,943
–5,460
–5,460
–
–
–
–
–
–
197
34
–
–
197
34
–
–
197
34
–
–3,301
32,567
–3,301
32,222
–3,301
80,386
Financial report 2020 84
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 annual impairment test for the investments in each sub-
sidiary company is performed in the fourth quarter, or when there is an indica-
tion of impairment. An impairment loss is recognized if the carrying amount of
an investment exceeds the sum of the subsidiary’s equity and related goodwill,
intangible liabilities and deferred tax liabilities or its estimated future cash
flows after tax. Cash flows are discounted to 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.
Contributions to/from subsidiaries and shareholders’ contributions
are accounted for according to RFR 2. Contributions from/to Swedish subsidi-
aries are reported net in the income statement. Shareholders’ contributions
increase the Parent Company’s investments.
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.
Leases
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
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.
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 according to the simplification rule in RFR 2. The
pension obligation is secured with transferring of funds to a pension trust. A net
pension obligation is only accounted for to the extent that the fair value of the
trust is lower than the pension obligation. According to RFR 2, disclosures from
IAS 19 is adopted as 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 account-
ing estimates and judgments.” Major critical accounting estimates and judg-
ments 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
There are no amendments of IFRS during 2020 that are estimated to have a
material impact on the result and financial position of the Parent Company.
The IASB issued a “COVID-19 Related Rent Concessions (Amendment to IFRS
16)”, effective from January 1, 2020 that provides practical relief to lessees
in accounting for rent concessions. The practical expedient permits a lessee
to elect not to assess whether a COVID-19-related rent concession is a lease
modification. This has not had any impact on the Parent Company. A number
of issued new standards, amendments to standards and interpretations are
not yet effective for the year ended December 31, 2020 and have not been
applied in preparing the Parent Company financial statements. The IASB
has issued the following Amendment with effective date January 1, 2021:
“The Interest Rate Benchmark Reform Phase 2; Amendments to IFRS 9, IAS
39, IFRS 7, IFRS 4 and IFRS 16 (the Phase 2 Amendments).” The practical
expedient and reliefs available regarding changes to effective interest rates
and hedge relationships do not apply to the Parent Company. For the current
and coming changes in IFRS standards, there are no additions or exceptions
allowed in RFR 2 and more details can be found in the Consolidated Financial
Statements, note A1 ”Significant accounting policies.”
P2 Other operating income and expenses
Other operating income and expenses
License revenues and other
operating revenues
Subsidiary companies
Other operating income/expenses1)
Net gains/losses (–) on sales
of tangible assets
Total
2020
2019
2018
2,588
278
2,479
–10,627
–
–
2,866
–8,148
2,126
–15
–
2,111
1) Includes costs of SEK –10.7 billion in 2019 related to the resolution of the US SEC
and DOJ investigations.
Financial report 2020 P3 Financial income and expenses
Financial income and expenses
Deferred tax balances
Deferred tax assets are derived from the balance sheet items as shown in the
table below.
Notes to the Parent Company financial statements
85
Financial income
Result from participations
in subsidiary companies
Dividends
Net gains on sales
Result from participations in joint
ventures and associated companies
Dividends
Net gains on sales
Result from other securities and receivables
accounted for as fixed assets
Net gains on sales
Interest income from subsidiary companies
Interest income from others
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
Net loss from participations in other
companies
Interest expense to subsidiary companies
Interest expenses to others
Other financial expenses
Total
Net foreign exchange gain/(loss) on financial
liabilities/assets
Financial income and expenses, net
2020
2019
2018
Tax effects of temporary differences
9,423
–
5,539
1,996
5,852
1,019
67
30
Current assets
Post-employment benefits
Provisions
Other
Deferred tax assets
Changes in deferred taxes
78
1,484
485
9,649
26
1,569
–1,062
7,434
Opening balance
Recognized in net income (loss)
Recognized in other comprehensive income
Closing balance
43
38
103
1,038
260
10,905
2020
2019
266
38
57
183
544
2020
678
–114
–20
544
313
41
121
203
678
2019
249
295
134
678
–3
–105
–
–3,383
–922
–1,246
–
–418
–
–62
–64
–705
–63
–4,280
220
6,845
–10
–289
–1,152
–489
–3,385
346
6,610
–33
–128
–209
–1,108
–2,724
630
5,340
Deferred tax assets have been adjusted for the effect of the reduction of the
Swedish income tax rate.
P5 Intangible assets
Patents, licenses, trademarks and similar rights
Accumulated acquisition costs
Opening balance
Acquisitions
Sales/disposals
Closing balance
Accumulated amortization
Opening balance
Amortization
Sales/disposals
Closing balance
Accumulated impairment losses
Opening balance
Impairment losses
Closing balance
Net carrying value
The balances are mainly related to RF technology.
2020
2019
5,086
–
–
5,086
–4,083
–32
–
–4,115
–945
–
–945
26
5,108
–
–22
5,086
–4,024
–78
19
–4,083
–945
–
–945
58
Interest expenses on pension liabilities are included in the interest expenses
shown above.
P4 Taxes
Income taxes recognized in the income statement
Current income taxes for the year
Current income taxes related to prior years
Deferred tax income/expense (+/–)
Tax expense/benefit
2020
–100
–194
–114
–408
2019
–60
–148
295
87
2018
–41
–70
75
–36
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% (21.4% in 2019, 22.0% in 2018), on the income before taxes, is shown
in the table below.
Reconciliation of Swedish income tax rate with effective tax
Expected tax 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 invest-
ments in subsidiary companies
Tax effect of changes in tax rate
Tax expense/benefit
2020
–1,454
–194
–107
2,067
–724
4
–408
2019
1,076
–148
–2,474
1,700
–56
–11
87
2018
–931
–70
–235
1,492
–274
–18
–36
Financial report 2020 86
Notes to the Parent Company financial statements
P6 Property, plant and equipment
Property, plant and equipment
2020
Accumulated acquisition costs
Opening balance
Additions
Sales/disposals
Reclassifications
Closing balance
Accumulated depreciation
Opening balance
Depreciation
Sales/disposals
Closing balance
Net carrying value
2019
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
1,617
62
–42
85
1,722
–1,389
–97
42
–1,444
278
1,522
33
–12
74
1,617
–1,319
–81
11
–1,389
228
75
196
–4
–85
182
–
–
–
–
182
56
96
–3
–74
75
–
–
–
–
75
Total
1,692
258
–46
–
1,904
–1,389
–97
42
–1,444
460
1,578
129
–15
–
1,692
–1,319
–81
11
–1,389
303
Financial report 2020 P7 Financial assets
Investments in subsidiary companies, joint ventures and associated companies
Opening balance
Acquisitions and stock issues
Shareholders’ contribution
Repayment of shareholders’ contribution
Write-downs 1)
Disposals
Closing balance
Notes to the Parent Company financial statements
87
Subsidiary companies
Associated companies
2020
71,172
–
1,010
–
–3,383
–1
68,798
2019
71,201
225
1,142
–
–922
–474
71,172
2020
1,184
–
–
–
–
–
1,184
2019
394
1,208
–
–
–418
–
1,184
1) In 2020 write-downs of investments in subsidary companies were made by SEK 3.4 (0.9) billion. For impairment test in 2020 of investments in subsidiary companies a discount rate of 8.0% has been applied.
The write-downs are mainly a result of lowered expectation on future dividends, increased pension obligations and a one-time write-down of a tax asset. At the time of the write-downs the recognized amounts
in the balance sheet related to each impacted subsidiary company are equal to value in use.
Other financial assets
Accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/ deductions
Reclassifications
Fair value remeasurement
Translation difference
Closing balance
Accumulated acquisition costs
Opening balance
Additions
Disposals/repayments/ deductions
Reclassifications
Fair value remeasurement
Translation difference
Closing balance
Other investments in shares
and participations
Interest-bearing
securities, non-current
Customer finance,
non-current
Other financial assets,
non-current
2020
2019
2020
2019
2020
2019
2020
2019
1,272
123
–40
–
27
–
1,382
1,138
140
–60
–
54
–
1,272
20,354
11,076
–5,022
–4,739
–72
–
21,597
23,982
18,484
–19,995
–2,084
–33
–
20,354
909
298
–231
–522
–26
–33
395
584
1,501
–276
–624
–308
32
909
454
748
–465
–233
–46
–
458
1,214
430
–22
–1,168
–
–
454
Receivables from
subsidiaries, non-current
2020
2019
10,133
7,435
–248
–5,061
–
–1,628
10,631
10,415
2,162
–2,844
–
–
400
10,133
Financial report 2020 88
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, 2020.
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 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)
–
28
49
21
49
50
361
–
–
10
14
5
–
4
90
13
21
2
1
1,301
4
44
222
75
161
5
43
–
328
–
–
–
193
8
108
939
–
20
2
65
3,279
291
–
285
2
2
–
270
90
–
7
134
1
65
20,731
2,216
6
88
69
6
5
1,709
94
216
196
524
21
4,232
120
34
3,857
3,200
114
270
5
14
–
10
664
25,907
191
99
51
170
363
121
100
2
475
10
51
69
2,279
4
1
135
36
17
316
68,798
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.
Financial report 2020
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.
Notes to the Parent Company financial statements
89
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, 2020 and December 31, 2019.
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
Customer finance, net
2020
2019
21
–15
6
1
7
920
920
61
–41
20
1
21
1,633
1,633
Opening balance
Additions
Utilization
Reversal of excess amounts
Translation difference
Closing balance
Trade receivables
2020
2019
41
–
–26
–
–
15
26
15
–
–
–
41
Financial report 2020 Trade receivables excluding
associated companies
and joint ventures
Allowances for
impairment of
receivables
Trade receivables related
to associated companies
and joint ventures
Customer
finance
90
Notes to the Parent Company financial statements
Note P10, cont’d.
Aging analysis as per December 31
2020
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 1)
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 1)
5
–
1
–
–
15
21
19
–
1
–
–
41
61
–
–
–
–
–
–15
–15
–
–
–
–
–
–41
–41
1
–
–
–
–
–
1
1
–
–
–
–
–
1
1) Includes revaluation of customer finance of SEK –1,353 million in 2020 (–1,545 million 2019).
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 2020, there were no new financial assets transferred.
P12 Other current receivables
Other current receivables
Prepaid expenses
Accrued revenues
Derivatives with a positive value
Other
2020
2,273
6
8
2,287
–74
2,213
920
525
1,626
2019
3,178
24
14
3,216
–240
2,976
1,633
724
3,050
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.
P11 Receivables and liabilities –
subsidiary companies
Receivables and liabilities – subsidiary companies
Payment due by period
< 1
year
1–5
years
>5
years
Total
2020
Total
2019
Non-current receivables
Financial receivables
Current receivables
Trade receivables
Financial receivables
Total
Non-current liabilities
Financial liabilities
Current liabilities
Trade payables
Financial liabilities
Total
–
10,631
1,030
27,337
28,367
–
199
58,406
58,605
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
10,631
10,133
Total
1,030
27,337
28,367
597
19,414
20,011
–
–
199
58,406
58,605
415
45,690
46,105
203
590
4
123
–
–
920
473
1,148
1
–
1
10
1,633
2020
1,545
33
–116
–109
–
–
1,353
2019
1,097
470
–
–22
–
–
1,545
2020
323
139
736
119
1,317
2019
672
291
188
1,259
2,410
Financial report 2020 Notes to the Parent Company financial statements
91
P13 Equity and other comprehensive income
Capital stock 2020
Capital stock at December 31, 2020, 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 1, 2021, and SEK 1.00 per share with the
record date October 1, 2021. The Class B treasury shares held by the Parent
Company are not entitled to receive dividend. Assuming that no treasury
shares remain on the record date, the Board of Directors proposes that
earnings be distributed as follows:
Proposed disposition of earnings
Proposed disposition of earnings
The Board of Directors proposes a dividend of SEK 2.00 (1.50) 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 1.00
Amount to be paid to the shareholders
Amount to be retained by the Parent Company
Total non-restricted equity of the Parent Company
6,668,303,470
27,246,946,648
33,915,250,118
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
31,472
48,164
100
–445
Other
retained
earnings
32,567
Non-
restricted
equity
32,222
Total
80,386
–
6,385
6,385
6,385
Equity and other comprehensive income 2020
January 1, 2020
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, 2020
16,672
–
–
–
–
–
–
–
–
–
–
20
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
99
–20
79
79
–
–
–
–
–
16,672
20
31,472
48,164
100
–366
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
Capital
stock
Revaluation
reserve
Statutory
reserve
Total
restricted
equity
Disposition
reserve
Fair value
reserves
16,672
–
–
–
–
–
–
–
–
–
–
20
–
–
–
–
–
–
–
–
–
–
31,472
48,164
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
100
–
–
–
–
–
–
–
–
–
–
72
–
–651
134
–517
–517
–
–
–
–
–
16,672
20
31,472
48,164
100
–445
–
–
–
99
–20
79
99
–20
79
6,385
6,464
6,464
–
163
51
–
–4,985
34,181
–
163
51
–
–4,985
33,915
–
163
51
–
–4,985
82,079
Other
retained
earnings
40,580
Non-
restricted
equity
40,752
Total
88,916
–4,943
–4,943
–4,943
–
–
–
–651
134
–517
–651
134
–517
–4,943
–5,460
–5,460
–
197
34
–
–3,301
32,567
–
197
34
–
–3,301
32,222
–
197
34
–
–3,301
80,386
Financial report 2020 92
Notes to the Parent Company financial statements
P14 Contributions
Contributions to Swedish subsidiaries amount to SEK 1,540 (1,961) million. There were no contributions from Swedish subsidiaries in 2020 and 2019.
P15 Post-employment benefits
The Parent Company has two types of pension plans:
– Defined contribution plans: post-employment benefit plans where the
Parent Company pays fixed contributions into separate entities and has no
legal or constructive obligation to pay further contributions if the entities do
not hold sufficient assets to pay all employee benefits relating to employee
service. The expenses for defined contribution plans are recognized during
the period when the employee provides service.
– Defined benefit plans: post-employment benefit plans where the Parent
Company’s undertaking is to provide predetermined benefits that
the employee will receive on or after retirement.
Change in the defined benefit obligation
Opening balance
Pension costs, excluding taxes, related to defined benefit
obligations accounted for in the income statement
Pension payments
Return on plan assets
Return on plan assets not accounted for
Closing balance provision for pensions
2020
0
89
–72
–68
51
0
2019
5
93
–72
–50
24
0
Estimated pension payments for 2021 related to defined benefit obligations
are SEK 72 million.
Defined benefit obligation – amount recognized in the Balance sheet
Total pension cost and income recognized in the Income statement
Present value of wholly or partially funded pension plans1)
Fair value of plan assets
Net obligation/surplus(–) of funded pension plans
Excess from plan assets not accounted for
Closing balance provision for pensions
2020
1,266
–1,657
–391
391
0
2019
1,249
–1,278
–29
29
0
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 3.0 (3.1)%.
Weighted average life expectancy after the age of 65 is 24.8 (24) years
for women and 23 (21) years for men.
The Parent Company utilizes no assets held by the pension trust.
Return on plan assets was 4.9 (4.1)%.
2020
2019
78
346
834
267
132
1,657
–
74
212
671
251
70
1,278
–
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
2020
Opening balance
Additions
Reversal of excess amounts
Cash out/utilization
Reclassifications
Closing balance
2019
Opening balance
Additions2)
Reversal of excess amounts
Cash out/utilization2)
Reclassifications
Closing balance
Defined benefit obligations
Costs excluding interest and taxes1)
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
2020
2019
2018
361
39
2
402
60
60
–17
445
54
39
1
94
58
58
–26
126
52
37
1
90
58
58
–356
–208
1) The pension cost for 2020 includes a contribution to the pension trust with SEK 311 millions.
Of the total pension cost, SEK 423 (113 in 2019 and 111 in 2018) million is
included in operating expenses and SEK 22 (13 in 2019 and –319 in 2018)
million in the financial net.
Restruc turing
Customer
finance
–
–
–
–
–
–
14
–
–
–14
–
–
–
–
–
–
–
–
1
–
–
–
–1
–
Other
668
42
–271
–96
–
343
66
11,532
–1
–10,930
1
668
Total other
provisions1)
668
42
–271
–96
–
343
81
11,532
–1
–10,944
–
668
1) Of which SEK 139 (217) 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 2019. Includes payment of SEK –10.1 billion to SEC and DOJ in 2019.
Financial report 2020
Notes to the Parent Company financial statements
93
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 2.18% (3.26%).
In November 2020, the Company repaid a bilateral USD 684 million credit
facility to the European Investment Bank.
In December 2020, the Company refinanced Swedish Export Credit Corpo-
ration (SEK) of USD 170 million with a new bond loan of USD 200 million, net
increase in funding of USD 30 million. The new facility is set to mature in 2030.
For detailed information about Notes, bonds and bilateral loans, see notes
to the Consolidated Financial Statements, note F4 “Interest-bearing liabilities”.
P17 Interest-bearing liabilities
As of December 31, 2020, the Parent Company’s outstanding interest-bearing
liabilities, excluding liabilities to subsidiaries, stood at SEK 28.4 (35.9) 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
Cash flows
Proceeds from issuance of borrowings
Repayment of borrowings
Non-cash changes
Effect of foreign exchange movement
Revaluation due to changes in credit risk
Other changes in fair value
Reclassification
Other non-cash movements
Closing balance
2020
2019
5,212
1,181
6,393
16,716
5,305
22,021
28,414
7,946
–
7,946
21,898
6,097
27,995
35,941
2020
35,941
2019
30,724
2,829
–7,216
–3,171
–99
130
–
–
28,414
4,103
–648
854
651
257
–
–
35,941
P18 Financial risk management and financial instruments
Ericsson’s financial risk management is governed on a Group level. For further information see notes to the Consolidated Financial Statements,
note F1, ”Financial risk management”
Outstanding derivatives
Gross
amount
recognized
Offset
Net
amount
presented
Related
amounts
not offset
– collaterals
Net
2019
Gross
amount
recognized
Offset
Net
amount
presented
Related
amounts
not offset
– collaterals
Net
1,519
–958
79
–131
–13
13
–31
31
1,506
–945
–1,181
–
325
–945
48
–100
–
–
48
–100
Currency
derivatives
Assets
Liabilities
Interest rate
derivatives
Assets
Liabilities
1,376
–985
–142
142
1,234
–843
–
538
1,234
–305
110
–201
–36
36
74
–165
–
–
74
–165
2020
Currency
derivatives
Assets
Liabilities
Interest rate
derivatives
Assets
Liabilities
Cash, cash equivalents, interest bearing securities and derivative assets
2020
Bank deposits
Other financial
institutions
Type of issuer:
Governments
Corporates
Mortgage institutes
Derivative assets
Total
Rating or
equivalent
< 3 M 3–12 M 1–5 Y
> 5 Y
Total
2019
Rating or
equivalent
< 3 M 3–12 M 1–5 Y
> 5 Y
Total
11,974
202
15,000
1,960
216
–
–
–
–
– 11,974
–
202
605 12,483
–
3,918 10,240
–
395 28,483
–
1,960
– 14,374
211
346
996
–
1,553
29,563
4,869 23,719
395 58,546
AAA
A2/P2
AAA
Bank deposits
Other financial
institutions
Type of issuer:
Banks
Governments
Corporates
Mortgage institutes
Other financial
institutions
Derivative assets
Total
AAA
A2/P2
AAA
A2
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
–
4
–
970
–
–
490
1,308
31,040
5,427 20,417
906 57,790
Financial report 2020
94
Notes to the Parent Company financial statements
Note P18, cont’d.
The following table shows analysis of financial liabilities by contractual
maturity:
Funding programs 1)
2020
Trade payables
Borrowings and loans
Derivative liabilities
Total
2019
Trade payables
Borrowings and loans
Derivative liabilities
Total
< 1 Y
451
6,393
253
7,097
< 1 Y
659
7,946
368
8,973
1–3 Y
3–5 Y
> 5 Y
Total
–
10,198
792
–
10,125
–
–
451
1,698 28,414
1,045
–
10,990
10,125
1,698 29,910
1–3 Y
3–5 Y
> 5 Y
Total
–
15,004
548
–
10,196
35
–
659
2,795 35,941
1,008
57
15,552
10,231
2,852 37,608
The instruments are classified as FVTPL or amortized cost. Cash, cash equiva-
lents and interest-bearing securities are mainly held in SEK.
Debt financing is mainly carried out through borrowing in the Swedish and
international debt capital markets. Bank financing is used for certain subsidi-
ary funding and to obtain committed credit facilities, see note P17, “Interest-
bearing liabilities.”
Euro Medium-Term Note program
(USD million)
SEC Registered program (USD million) 2)
Amount
Utilized
Unutilized
5,000
1,577
1,000
3,423
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)
Amount
Utilized Unutilized
2,000
250
–
–
2,000
250
In June 2020, Moody’s announced that they had changed their Corporate
Credit Rating from Ba2 to Ba1 and outlook from positive to stable. In Novem-
ber 2020, Standard & Poor’s (S&P) announced that they have changed their
Corporate Credit Rating from BB+ to BBB- and outlook from positive to stable.
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.
Fair valuation of the Company’s financial instruments
For a description of the Company’s valuation techniques and valuation hierarchies, see note F1 “Financial risk management”.
Financial instruments
SEK billion
Assets at fair value through profit or loss
Customer finance
Interest bearing securities
Cash equivalents 2)
Other financial assets 1)
Other current receivables
Assets at fair value through OCI
Trade receivable
Assets at amortized cost
Interest bearing securities
Cash equivalents
Other financial assets
Receivables subsidiaries
Financial assets
Financial liabilities at designated FVTPL
Interest-bearing liabilities
Financial liabilities at FVTPL
Other current liabilities
Liabilities at amortized cost
Trade payables
Borrowings
Liabilities subsidiaries
Financial liabilities
2020
Fair value hierarchy level
2019
Fair value hierarchy level
Amortized
cost
Fair value
Level 1
Level 2
Level 3
Amortized
cost
Fair value
Level 1
Level 2
Level 3
–
–
–
–
–
–
0.2
–
0.5
39.0
39.7
–
–
–0.5
–1.2
–58.6
–60.3
0.9
28.1
23.6
1.4
0.7
0.0
–
–
–
–
54.7
–
28.1
–
–
–
–
–
–
–
–
–
–
–
23.6
–
0.7
–
–
–
–
–
–
–27.2
–18.9
–8.3
–0.2
–
–
–
–27.4
–
–
–
–
–
–0.2
–
–
–
–
0.9
–
–
1.4
–
0.0
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
0.2
30.1
30.3
–
–
–0.7
–
–46.1
–46.8
1.6
25.8
23.9
1.5
1.4
0.0
–
–
–
–
54.2
–
25.8
–
–
–
–
–
–
–
–
–
–
–
23.9
–
0.2
–
–
–
–
–
–
–35.9
–20.5
–15.4
–1.0
–
–
–
–36.9
–
–
–
–
–
–1.0
–
–
–
–
1.6
–
–
1.5
1.2
0.0
–
–
–
–
–
–
–
–
–
–
–
1) Other financial assets in Level 3 relate to investment in equity interests which are included in ‘Other investments in shares and participations’ within note P7.
2 ) Total Cash and cash equivalent is SEK 28.8 (29.8) billion, of which SEK 23.6 (23.9) billion relating to Cash equivalents are presented in the table above.
Financial report 2020
P19 Other current liabilities
P23 Statement of cash flows
Notes to the Parent Company financial statements
95
Other current liabilities
Accrued interest
Accrued expenses, of which
Employee related
Other
Derivatives with a negative value
Other current liabilities
Total
P20 Trade payables
Trade payables
2020
2019
162
729
466
263
228
–
217
562
259
303
996
–69
Interest paid in 2020 amounted to SEK 776 million (SEK 873 million in 2019
and SEK 584 million in 2018) and interest received was SEK 638 million
(SEK 571 million in 2019 and SEK 479 million in 2018). Taxes paid, includ-
ing withholding tax, were SEK 246 million in 2020 (SEK 125 million in 2019
and SEK 148 million in 2018).
Adjustments to reconcile net income to cash
2020
2019
2018
1,119
1,706
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
97
97
32
32
129
306
3,304
1,540
–
–329
82
82
79
79
161
–329
–619
1,961
–
–39
101
101
212
212
313
–93
243
1,535
–
–614
4,950
1,135
1,384
2020
709
709
2019
802
802
P24 Leasing
Leasing with the Parent Company as lessee
The Parent Company has the following types of leasing agreements: leasing
of real estate and vehicles. 2020 costs for real estate amounted to SEK 588.9
(701.2) million and vehicles to SEK 4.0 (4.0) milion. The Parent Company
had variable lease expenses related to property taxes to a value of SEK 37.0
million in 2020.
At December 31, 2020, future payment obligations for leases were
2020
20,495
2019
23,178
distributed as follows:
Future payment obligations for leases
Trade payables excluding associated companies and joint
ventures
Associated companies and joint ventures
Total
2020
2019
451
–
451
659
–
659
P21 Assets pledged as collateral
Assets pledged as collateral
Bank deposits
Total
The major item in bank deposits is the internal bank’s clearing and settlement
commitments of SEK 476 (561) million.
P22 Contingent liabilities
Contingent liabilities
Total contingent liabilities
Contingent liabilities include pension commitments of SEK 19,459
(18,885) million.
2021
2022
2023
2024
2025
2026 and later
Total
Operating leases
575
517
446
386
336
433
2,693
Leasing with the Parent Company as lessor
The operating lease income is mainly income from the subleasing of real
estate.
At December 31, 2020, future minimum payment receivables were
distributed as follows:
Future minimum payment receivables
2021
2022
2023
2024
2025
2026 and later
Total
Operating leases
13
11
7
2
–
–
33
Financial report 2020
96
Notes to the Parent Company financial statements
P25 Information regarding employees
Average number of employees
2020
2019
Men Women
Total
Men Women
Total
169
169
169
169
174
174
174
174
343
343
343
343
158
158
158
158
164
164
164
164
322
322
322
322
Europe &
Latin America 1)
Total
1) of which in EU
of which in Sweden
Remuneration
Wages and salaries and social security expenses
Wages and salaries
Social security expenses²)
of which pension costs²)
2020
2019
513
744
555
462
319
142
2) The pension cost for 2020 includes a contribution to the pension trust with SEK 311 million and
associated effect on special salary tax with SEK 76 million.
Wages and salaries per region
Europe & Latin America 1)
Total
1) of which in EU
of which in Sweden
2020
2019
513
513
513
513
462
462
462
462
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 5.6 (31.8) million and the cost for share-based plan
amounted to SEK 51.3 (33.6) 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 2020, 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
2020
2019
6
43
6
5
66
5
The Parent Company does not have any contingent liabilities, assets pledged
as collateral or guarantees toward Ericsson Nikola Tesla d.d.
Leone Media Inc.
MediaKind includes platforms for compression video processing and storage.
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 0.5 (0.2) billion.
Leone Media Inc.
Related party transactions
License revenues
Dividends
Related party balances
Receivables
2020
2019
–
–
–
–
451
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 and Group management.
P27 Fees to auditors
Fees to auditors
2020
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
2019
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
2018
Audit fees
Audit-related fees
Tax services fees
Other fees
Total
Deloitte
Others
Total
56
8
1
–
65
28
5
1
1
35
84
13
2
1
100
PwC
Other
Total
26
9
1
2
38
26
9
1
8
44
–
–
–
–
–
–
–
–
–
–
26
9
1
2
38
26
9
1
8
44
The allocation of fees to the auditors is based on the requirements in the
Swedish Annual Accounts Act.
At the 2020 Annual General Meeting, Deloitte was appointed auditor for
the period until the 2021 Annual General Meeting. PricewaterhouseCoopers
(PwC) was appointed auditor for the period until the 2020 Annual General
Meeting.
During the period 2018–2020, in addition to audit services, PwC and
Deloitte 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.
Financial report 2020 Risk factors
97
Risk factors
All the information in this Annual Report and in particular the risks
and uncertainties outlined below should be carefully considered.
Based on the information currently known to us, we believe that
the following section 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 predict-
ing future developments. See also “Forward-Looking Statements”.
Contents
97 Risks related to business activities and industry
103 Risks related to Ericsson’s financial situation
104 Legal and regulatory risk
106 Internal control risk
107 Environmental, social and governance risk
1
Risks related to business activities and industry
1.1 Ongoing geopolitical and trade uncertainty from a range of
factors may have a material adverse impact on our business, opera-
tions, business prospects and consequently on operating results,
financial conditions and our ability to meet our targets.
The geopolitical turbulence and trade uncertainty, including trade
restrictions and increased safeguards for national security purposes,
can impact global market conditions and continue to be challenging
for global supply chains in general and ICT supply chains in particular.
These uncertainties include the effects of trade disputes involving the
governments of the European Union, the US and China, and the uncer-
tainty on how the change in US administration may impact that trade
dispute.
There are also uncertainties for the future bilateral trading relation-
ship between China and several countries as a result of restrictions
towards Chinese vendors in 5G networks. Restrictions have been
adopted in several countries such as Australia, Canada, France, Japan,
UK, and the US. In Sweden, the Post and Telecommunication Authority
(PTS) has decided to exclude Huawei and ZTE products from the most
recent 5G auction. Of special relevance for Ericsson in this context is
the trade relationship between Sweden and China, since Ericsson, even
though it is a global company with a presence on all global markets, has
its headquarters in Sweden and therefore risks collateral damages from
a weakened Swedish-Chinese relationship as a result of this decision.
Whilst the decision is subject to judicial appeal, the 5G auction took
place on January 19, 2021. There is a risk that the above will lead to
measures taken by China that are targeted at the economic interests of
Sweden and Swedish industry, including those of Ericsson.
In China a new Chinese export control law applies from December 1,
2020 with additional export controls for a list of products and a Chinese
legislation with an unreliable entity list can target companies deemed
to causing harm to Chinese interests. In January 2021 China also issued
regulations setting up a mechanism to review foreign investments for
national security implications that would allow authorities to reject or
limit foreign investments in China. These and other measures might
impact the ability to operate in China or to use China in global value
chains.
Because our continued business operations in China are part of our
current and future user growth plans, further adverse changes in the
economic and political policies relating to China could have a material
adverse effect on our business. During the last years we have also seen
the global free trade system, that has allowed increased efficiency
and economic growth, being under sustained attack, including the
dismantlement of the WTO dispute settlement body. This increases the
chances that states may adopt policies and actions that violates WTO
agreements negatively impacting open markets and free trade.
The forced, or otherwise required, localization of manufacturing and
R&D – as well as their digital counterparts, that is the forced localization
of IT-infrastructure and restrictions on data flows - have been steadily
growing and have been motivated by either protectionism, indigenous
industrial policies or national security. There is a current political trend
and associated risk to move from relying on global value chains to
more regional alternatives. Governments may continue to impose
conditions that require the use of local suppliers and local production
or partnerships with local companies for R&D and IT-infrastructure,
require the license or other transfer of intellectual property, or engage in
other efforts to promote local businesses and local competitors, which
could have a significant adverse impact on Ericsson’s business. These
challenges are present in e.g. China, and India.
The geopolitical situation can have consequences on the entire
industry, with an increased likelihood of further industry split, separation
of global value chains and separation of global standards for mobile
telecommunications. This overall development has also led to several
countries evaluating how to ensure uninterrupted access to telecom-
munication network infrastructure, for example through promoting
disaggregation of the Radio Access Network and support of national
communication network infrastructure champions as alternative to the
established global vendors such as Ericsson although the timing and
extent of this remains unclear.
All of the above may have a material and potentially lasting adverse
impact on our business, including sales, market share, market access
and supply chain and R&D activities, our financial condition and results
of operations as they may lead to increased trade restrictions, tariffs and
increased costs that may not be recoverable and may impact our profit-
ability and/or disrupt our international product development, supply
Financial report 2020 98
Risk factors
chain and necessitates a flexible and adaptive organisational set up by
Ericsson with regard to production, services, sourcing, supply and R&D.
The potential material adverse impact can include:
– Loss of market share, e.g. in China, and weakened market position
– Reduced or lost market access
– Decreased ability for unrestricted use of our global supply chain for
all markets, e.g. as a result of import or export restrictions in the US
and China
– Separation of global standards for mobile telecommunication
– Sourcing restrictions and constraints for access to hardware and
software products and components
– Restrictions in use of R&D resources
– Deferrals of purchases, with lower revenues not fully compensated
through reduced costs
– Excess and obsolete inventories and excess manufacturing capacity
– Financial difficulties or failures among our suppliers
– 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
1.2 Challenging global economic conditions may adversely impact
the demand, cost and pricing for our products and services as well as
limit our ability to grow.
The challenging global economic conditions, e.g. due to the pandemic,
downturn in the global economy, political unrest and uncertainty or
geopolitical risks and trade frictions could have adverse, wide-ranging
effects on demand for our products and for the products of our custom-
ers. This could cause operators and other customers to postpone invest-
ments 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, including network infra-
structure, in which case our operating results would suffer. 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 condi-
tions 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 nega-
tively affect their investment plans and cause them to purchase less of
our products and services.
The potential adverse effects of an economic downturn include:
– Reduced demand for products and services, resulting in increased
price competition or deferrals of purchases, with lower revenues not
fully compensated through reduced costs
– Excess and obsolete inventories and excess manufacturing capacity
– Financial difficulties or failures among our suppliers
– Increased demand for customer finance, difficulties in collection of
accounts receivable and increased risk of counter party failures
– Impairment losses related to our intangible assets as a result of
lower forecasted sales of certain products
– Increased difficulties in forecasting sales and financial results as well
as increased volatility in our reported results
– Changes in the value in our pension plan assets resulting from, for
example, adverse equity and credit market developments and/
or increased pension liabilities resulting from, for example, lower
discount rates. Such development may trigger additional pension
trust capitalization needs negatively affecting the company’s cash
balance
– End user demand could also be adversely affected by reduced
consumer spending on technology, changed operator pricing,
security breaches and trust issues.
1.3 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 strategy 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.
1.4 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,
Financial report 2020 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.
1.5 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
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.
Finally, Ericsson or its suppliers may encounter unforeseen technical
challenges that can affect our ability to develop, supply or deploy
5G networks.
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. One recent example is the recent acquisition
of Cradlepoint. Acquisitions could result in the incurrence of contingent
liabilities and an increase in amortization expenses related to intangible
assets or impairment of goodwill, which could have a material adverse
effect upon our business, operating results, financial condition and
liquidity. Risks we could face with respect to acquisitions include:
– Insufficiencies of technologies and products acquired, such as
unexpected quality problems
– Difficulties in the integration of the operations, technologies,
products and personnel of the acquired company
– Risks of entering markets in which we have no or limited prior
experience
– Potential loss of key employees
– Diversion of management’s attention away from other business
concerns
– Expenses of any undisclosed or potential legal liabilities of the
acquired company, including failure to comply with laws or
regulations.
Risk factors
99
From time to time we also divest parts of our business to optimize our
product portfolio or operations. Any decision to dispose of or otherwise
exit businesses may result in the recording of special charges, such
as workforce reduction costs and industry- and technology-related
write-offs. We cannot assure that we will be successful in consummat-
ing 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.
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 contri-
bute additional capital or borrowings 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
regarding deployment of technology and their timing of purchases.
The telecommunications industry has experienced downturns in
which operators substantially reduced their capital spending on new
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 could 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.
Financial report 2020 100
Risk factors
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 affected by the overall mix of products and services as well as the
relative content of third-party products. In our Digital Services and
Emerging Business and Other segments, third-party products and
services represent a larger portion of our business than our traditional
sales, which impact our business models. Further, network expansions
and upgrades have much shorter lead times for delivery than initial net-
work 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 fore-
cast. As a result, changes in our product and service mix and the short
order time for certain of our products may affect our ability to accurately
forecast sales and margins or detect in advance whether actual results
will deviate from market consensus and expectations. Short-term vari-
ation could have a material adverse effect on our business, operating
results, financial condition and cash flow.
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. This includes also an disaggregation
of the Radio Access Network, although the timing and extent of this
remains unclear. 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 makes access to market easier
for new competitors including competitors new to our business which
have entered and may continue to enter the market and negatively
impact our market share in selected areas. If we fail to understand or
anticipate the market trends and development, or fail to acquire the
necessary competencies to develop and sell products, services and
solutions that are competitive in this changing business environment,
our business, operating results and financial condition will suffer.
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. Our operator customers,
which represent the main part of our business, are also large and highly
sophisticated and exercise significant buying power inter alia through
the common use of competitive bidding process. 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
areas 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.
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 ser-
vices suppliers could potentially result in stronger competitors that are
competing as end-to-end suppliers as well as competitors more special-
ized in particular areas, which could for example impact certain of our
segments such as Digital Services, and 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 cap-
acity could occur. In many cases, some of our competitors utilize the
same manufacturers and if they have purchased capacity ahead of us
we could be blocked from acquiring the needed products. This factor
could limit our ability to supply our customers and increase costs. At the
same time, we commit to certain capacity levels or component quanti-
ties, which, if unused, will result in charges for unused capacity, not fully
recoverable costs or scrapping costs. We are also exposed to financial
Financial report 2020 Risk factors
101
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 11% of our sales in 2020,
our ten largest customers accounted for 53% of our sales in 2020. 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
areas, networks may be shared and less network equipment and fewer
associated services may be required. Network investments could be
delayed by the consolidation process, which may include, among others,
actions relating to merger or acquisition agreements, securing neces-
sary regulatory approvals, or integration of businesses. Network opera-
tors also share parts of their network infrastructure through cooperation
agreements rather than legal consolidations, which may adversely
affect demand for network equipment. Accordingly, opera-tor consoli-
dation 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 for the customers,
those demands may increase. Upon the financial failure of a customer,
we may experience losses on credit extended and loans made to such
customer, losses relating to our commercial risk exposure, and the loss
of the customer’s ongoing business. If customers fail to meet their
obligations to us, we may experience reduced cash flows and losses in
excess of reserves, which could materially adversely impact our operat-
ing 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 prod-
ucts and often include provisions regarding penalties and/or termina-
tion rights in the event of a failure to deliver ordered products or services
on time or with required quality, possibly also for damages incurred on
customer businesses. Although we undertake a number of quality assur-
ance measures to reduce such risks, product quality or service perfor-
mance 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 solutions. If sig-
nificant warranty obligations arise due to reliability or quality issues, our
operating results and financial position could be negatively impacted by
costs associated with fixing software or hardware defects, high service
and warranty expenses, high inventory obsolescence expense, delays
in collecting accounts receivable or declining sales to existing and new
customers, and reputational damage.
1.18 The development of our managed services business is increas-
ingly relying on acceptance of value-based business models.
Ericsson has invested in increased use of automation and artificial
intelligence (AI) to deliver managed services and network optimization
to customers, as part of a service offering or packaged software capa-
bilities. Monetization of these investments rely on a value-based com-
mercial model that shows increased benefit for the customer and proper
returns to Ericsson development efforts. Failure to stay competitive in
this area and to get customer acceptance for new business models
could have an adverse effect on our business, operating results and
financial condition. Further, most managed services contracts span
more than one year, with long sales cycle for new contracts. Risk of
termination and reduced scope of existing contracts may have a
negative impact on sales and earnings.
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,
Financial report 2020 102
Risk factors
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 reaching the Digital Services
business objectives.
Ericsson may be unable to meet its set target of bringing Digital Services
to 4–7% operating margin by 2022, 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 con-
sequent adoption of our new products and automated delivery can be
slower than expected. 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
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 efficiency measures in end-to-end; inability in implementing
and successfully driving organizational-wide transformation programs
across the develop-sell-deliver dimension for operating model simplifica-
tion; as well as being unable to mitigate project risks in the current list of
remaining critical customer projects, and the risk of adding further opera-
tionally 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 when it comes 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 technol-
ogy are governed by industry-wide standards usable by all market
participants. As the number of market entrants and the complexity of
technology increases, that is currently apparent with the introduction of
5G, the possibility of functional overlap and inadvertent infringement
of intellectual property rights also increases. In addition to industry-
wide standards, other key industry-wide software solutions are today
developed by market participants as free and open source software.
Contributing to the development and distribution of software devel-
oped 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 property rights. Defending
such claims may be expensive, time-consuming and divert the efforts of
our management and/or technical personnel. As a result of litigation, we
could be required to pay damages and other compensation directly or
to indemnify our customers for such damages and other compensation,
develop non-infringing products/technology or enter into royalty or
licensing agreements. However, we cannot be certain that such licenses
will be available to us on commercially reasonable terms or at all, and
such judgments could have a material adverse effect on our business,
reputation, operating results and financial condition. Using free and
open source software may allow third-parties to further investigate our
software due to the accessibility of source code. This may in turn make
this software more prone to assertions from third-parties.
Investigations held by antitrust authorities, court judgments and
legislative change could potentially affect Ericsson’s ability to benefit
from its patent portfolio when licensing patents necessary to conduct
an open standard (e.g. 3G, 4G and 5G technology), which could have a
material adverse effect on our business, reputation, operating results
and financial condition. Ericsson holds a leading patent portfolio
in open standards and possible changes regarding such a portfolio
may materially affect our reputation, business, operating results and
financial condition.
Our ability to benefit from intellectual property rights (IPR), may be
limited by the loss of patent licenses to or from third-parties. Patent
licensing agreements are generally multi-year and term based and the
process for renewal of these licenses normally requires negotiations,
particularly in conjunction with technology shifts and the introduction
of new standards, such as 5G. Such renewals and negotiations may
take time to resolve, sometimes involve litigation and may have mate-
rial adverse impact on our business and financial position, including
on the timing for and level of revenues from the IPR licensing
contract portfolio.
Challenging global economic conditions and political unrest and
uncertainty, geopolitical risks and trade frictions could have adverse
effects on our IPR licensing revenues as well as on the ability to
acquire licenses.
Financial report 2020 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 opera-
tions, whether due to natural or man-made events, may be highly
damaging to the operation of our business.
Our business operations rely on complex operations and communica-
tions networks, which are vulnerable to damage or disturbance from
a variety of sources. Having outsourced significant portions of our
operations, such as parts of 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.
1.24 We may not achieve some or all of the expected benefits of
our restructuring activities and our restructuring may adversely
affect our business.
Restructuring activities may be costly and disruptive to our business,
and we may not be able to achieve and retain the cost savings and
benefits that were initially anticipated. Additionally, as a result of our
restructuring, we may experience a loss of continuity, loss of accu-
mulated knowledge and/or inefficiency during transitional periods.
Reorganization and restructuring can require a significant amount of
management and other employees’ time and focus, which may divert
attention from operating and growing our business. Restructuring
activities can create unanticipated consequences and negative impacts
on the business such as our ability to develop, sell and deliver, and we
cannot be sure that any ongoing or future restructuring efforts will be
successful or generate expected cost savings. Factors that may impede
a successful implementation include the retention of key employees,
the impact of regulatory matters, and adverse economic market
conditions. If we fail to achieve some or all of the expected benefits of
restructuring, it could have a material adverse effect on our competitive
position, business, financial condition, results of operations, cash flows,
reputation and share price.
Risk factors
103
2
Risks related to Ericsson’s financial situation
2.1 Our debt increases our vulnerability to general adverse
economic and industry conditions, limits our ability to borrow
additional funds, and may limit our flexibility in planning for, or
reacting to, changes in our business and industry.
As of December 31, 2020, our outstanding debt was SEK 30.2 billion
and while the Company is rated investment grade by Standard & Poor’s
(BBB-) and Fitch (BBB-) it is rated one step below investment grade
with Moody’s (Ba1). This degree of debt and the credit ratings could
have important consequences, including:
– 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 adjusted
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.
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 indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our
debt obligations depends on our financial condition and operating
performance, which is subject to prevailing economic and competitive
conditions and to certain financial, business and other factors beyond
our control. While we believe that we currently have adequate cash
flows to service our indebtedness, if our financial performance were
to deteriorate significantly, we might be unable to maintain a level of
cash flows from operating activities sufficient to permit us to pay the
principal, premium, if any, and interest on our indebtedness.
If, due to such a deterioration in our financial performance, our cash
flows and capital resources were to be insufficient to fund our debt 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.
Financial report 2020 104
Risk factors
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
which means that a stronger SEK exchange rate would generally have
a negative effect on our reported results. Our attempts to reduce the
effects of exchange rate fluctuations through a variety of natural and
financial hedging activities may not be sufficient or successful, 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 unreason-
able terms, our business, financial condition and cash flow may
materially suffer.
Our business requires a significant amount of cash. If we do not gener-
ate sufficient amounts of capital to support our operations, service our
debt and continue our research and development and customer finance
programs, or if we cannot raise sufficient amounts of capital at the
required times and on reasonable terms, our business, financial condi-
tion and cash flow are likely to be adversely affected. Access to funding
may decrease or become more expensive as a result of our operational
and financial condition, market conditions, including financial condi-
tions in the Eurozone, or due to deterioration in our credit rating. There
can be no assurance that additional sources of funds that we may need
from time to time will be available on reasonable terms or at all. If we
cannot access capital on a commercially viable basis, our business,
financial condition and cash flow could materially suffer.
2.4 Impairment of goodwill, other intangible assets, property and
equipment (PP&E) and right-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
assets 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, during 2020 a limited write-down of SEK 100 million was
made, whereas in 2017 the write-down of intangibles and goodwill
was SEK –17,2 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 oper-
ate 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.
3
Legal and regulatory risk
3.1 Ericsson may fail or be unable to comply with laws or regu-
lations and could experience penalties and adverse rulings in
enforcement or other proceedings. Compliance with changed laws
or regulations may subject Ericsson to increased costs or reduced
products and services demand. Compliance failure as well as
required operational changes could have a material adverse impact
on our business, financial condition and brand.
The industries in which we operate are subject to laws and regulations.
While Ericsson strives for compliance, we cannot assure that violations
do not occur. If we fail to or are unable to comply with applicable laws
and regulations, we could experience penalties and adverse rulings in
enforcement or other proceedings, which could have a material adverse
effect on our business, financial condition and reputation.
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.
Financial report 2020 Risk factors
105
3.2 Pandemics, such as for example the one caused by the
novel Coronavirus, COVID-19, could severely impact our local
and global operations
Pandemics, such as for example the one caused by the novel
Coronavirus, could severely impact our local and global operations
related to e.g. Service Delivery, Research & Development, Sales and
Supply, as well as our customers and suppliers, with significant financial
and other consequences. As an example, the COVID-19 pandemic has
caused challenges and risks relating to travel and lockdowns limiting
access to sites, transportation and logistics and impacting the flow of
goods , as well as having major parts of the workforce working remotely.
Although we further strengthen business continuity measures to be able
to continue to support our customers’ needs and mitigate any impact to
our business, disruptions to the global economy and to the operations
and business of our customers, suppliers, and partners could cause
disturbances in our operations and may have a material adverse effects
on our business and financial position.
3.3 Our substantial international operations are subject to
uncertainties which could affect our operating results.
We conduct business throughout the world and are subject to the
effects of general global economic conditions as well as conditions
unique to specific countries or regions. We have customers in more than
180 countries, with a significant proportion of our sales to emerging
markets in the Asia Pacific region, Latin America, Eastern Europe, the
Middle East and Africa.
Our extensive operations are subject to additional risks, including
civil disturbances, acts of terrorism, economic and geopolitical instabil-
ity and conflict, potential misuse of technology leading to human rights
violations, pandemics, the imposition of exchange controls, economies
which are subject to significant fluctuations, nationalization of private
assets or other governmental actions affecting the flow of goods and
currency, effects from changing climate and difficulty of enforcing
agreements and collecting receivables through local legal systems.
Further, in certain markets in which we operate, there is a risk 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. During the last years, the global
free trade system has been under sustained attack which has increased
the risk of states adopting policies and actions that violates WTO agree-
ments. 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 poli-
cies 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 additional 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 assur-
ance that we are or will be compliant with all relevant regulations at all
times. Such potential violations could have material adverse effects on
our business, operating results, reputation and brand.
The United Kingdom ceased to be a member state of the European
Union on January 31, 2020 commonly referred to as “Brexit,” and the
transition period provided for in the withdrawal agreement entered by
the United Kingdom and the European Union ended on December 31,
2020. December 24, 2020 an agreement was reached between the EU
and the UK for a Trade and Cooperation Agreement covering the gen-
eral objectives and framework of the relationship between the United
Kingdom and the European Union, including as it related to trade, trans-
port, visas, judicial, law enforcement and security matters, and provides
for continued participation in community programs and mechanisms for
dispute resolution. On December 31, 2020, the United Kingdom passed
legislation giving effect to the agreement, with the European Union
expected to formally adopt it in early 2021. In spite of this agreement
the long-term effects of Brexit are however still not fully known. Effects
on Ericsson could include increased supply costs, no long-term solution
for data flows and limitations to the free movement of professional staff.
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
competition. Should these trade barriers be removed or lowered,
competition may increase, which could have material adverse effects
on our business and operating results.
There has been a concern reported by some media and others, that
certain countries may use features of their telecommunications systems
in ways that could result in potential violation of human rights. This
may adversely affect the telecommunications business and may have a
negative impact for people, our reputation and brand.
3.4 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.
Financial report 2020 106
Risk factors
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 subsidi-
ary 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.
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
have 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 third party, such as for example competitors, custom-
ers or suppliers, 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 or in matters relating thereto could
impact the publics’ perception 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.
3.5 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 offic-
ers 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.
In April 2019, Ericsson was informed by China’s State Administration
for Market Regulation (SAMR) Anti-monopoly bureau that SAMR has
initiated an investigation into Ericsson’s patent licensing practices in
China. Ericsson is cooperating with the investigation, which is still in a
fact-finding phase. The next steps include continued fact-finding and
meetings with SAMR in order to facilitate the authority’s assessments
and conclusions. In case of adverse findings, SAMR has the power to
impose behavioral and financial remedies, which may have material
adverse effects on our business, financial condition and results of
operations.
3.6 Ericsson may be found non-compliant to privacy regulations
and may be subject to regulatory penalties.
The introduction of more stringent privacy regulations with heavy and
challenging requirements to implement when it comes to personal
data processing as well as stringent regulations on cross-border data
transfers by regulators in many countries and markets in which Ericsson
operates comes with 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
Financial report 2020 Risk factors
107
Ericsson. Due to the nature of Ericsson’s business and the amount of
personally identifiable information of which Ericsson is the controller or
processor, such an event could have far ranging consequences, even if it
was caused by a third party outside of the control of Ericsson. This could
include large fines, as well as significant damage claims and losing trust
from employees, customers and end-users.
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.
4
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, 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, cloud solutions, soft-
ware development, lawful interception, sales, product engineering, IT,
finance, operations acquired through M&A activities and HR operations.
Ericsson utilized third-parties to a large extent to whom we have
outsourced significant aspects of our IT infrastructure, product devel-
opment, 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 that 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 fulfil commitments to Ericsson.
Any cybersecurity incident including unintended use, involving our
operations, supply chain, product development, services, 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 2020, Ericsson has undergone company-wide upgrade of
its cybersecurity capability, which will continue in future years; this has
resulted in additional investments to enhance our cybersecurity capa-
bilities, governance and organization.
Our network systems and storage and other business applications,
and the systems, storage and other business applications maintained
by our third-party providers, have been in the past, and may be in the
future, subject to cyber intrusions, including attempts to gain unauthor-
ized 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 breaches
of security occurs in our network or any of our third-party providers’
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
material harm to Ericsson or Ericsson’s customers.
Products and infrastructure used by Ericsson may contain vulnerabilities
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
“zero day vulnerabilities”. By the very nature of these vulnerabilities it is
extremely 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-technological
means.
Recent trends have shown that there is a willingness to target end users
of technology, rather than enterprises. This has manifested itself in the
rise of threats such as ransomware, phishing and other extortion meth-
ods. With a diverse workforce of approximately 100,000 employees,
Ericsson is susceptible to risks of disruption or information loss resulting
from large scale attacks towards our employees, or society at large. This
could have a material adverse effect on our business, financial condi-
tion, reputation and brand.
5
Environmental, social and governance risk
5.1 Failure to comply with environmental, occupational health and
safety regulations in many jurisdictions may expose us to significant
penalties and other sanctions.
We are subject to certain environmental, occupational health and safety
laws and regulations that affect our operations, facilities, products
and services in each of the jurisdictions in which we operate. While we
work actively to ensure compliance with material laws, regulations and
customer requirements related to the environment, health, and safety
(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 requirements we
could be subject to significant penalties and other sanctions that could
Financial report 2020 108
Risk factors
have a material adverse effect on our business, operating results, finan-
cial condition, reputation and brand. Additionally, there is a risk that we
may have to incur expenditures to cover environmental, occupational
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 environmental, social and
governance standards, which could negatively affect our business,
operating results, financial condition, reputation and brand.
We are subject to environmental, social and governance laws and regu-
lations as well as sustainability and corporate responsibility require-
ments. 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.
Ericsson is committed to 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.
However, we cannot fully prevent unintended or unlawful violation of
our Code of Business Ethics, corruption, fraud, embezzlement, use of
our technology by democratic and non-democratic regimes 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 transpar-
ency about sustainability and corporate responsibility issues that might
be difficult to fulfil.
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.
5.3 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 individuals to health risks. At present, a sub-
stantial 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 equip-
ment could adversely affect us through a reduction in sales or through
liability claims. Although Ericsson’s products are designed to comply
with currently applicable safety standards and regulations regarding
radio frequency electromagnetic fields, we cannot guarantee that we
will not become the subject of product liability claims or be held liable
for such claims or be required to comply with future changed regulatory
requirements that may have an adverse effect on our business, operat-
ing 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”.
Financial report 2020 Auditor’s report
Auditor’s report
109
To the general meeting of the shareholders of Telefonaktiebolaget L M Ericsson (publ) corporate identity number 556016-0680
Report on the annual accounts and consolidated accounts
Opinions
We have audited the annual accounts and consolidated accounts of
Telefonaktiebolaget L M Ericsson (publ) for the financial year January 1, 2020
– December 31, 2020. The annual accounts and consolidated accounts of the
company are included on pages 10–108 in this document.
In our opinion, the annual accounts have been prepared in accordance
with the Annual Accounts Act and present fairly, in all material respects, the
financial position of the parent company as of December 31, 2020 and its
financial performance and cash flow 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 of December 31, 2020 and their
financial performance and cash flow 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 con-
sistent with the other parts of the annual accounts and consolidated accounts.
We therefore recommend that the general meeting of shareholders adopts
the income statement and balance sheet for the parent company and the group.
Our opinions in this report on the annual accounts and consolidated
accounts are consistent with the content of the additional report that has been
submitted to the parent company’s audit committee in accordance with the
Audit Regulation (537/2014) Article 11.
Basis for Opinions
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 responsibilities in accordance with these
requirements. This includes that, based on the best of our knowledge and
belief, no prohibited services referred to in the Audit Regulation (537/2014)
Article 5.1 have been provided to the audited company or, where applicable, its
parent 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 opinions.
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.
Revenue recognition of significant and complex contracts
Ericsson generates revenues from sales of hardware, software and services
to its customers. Total revenue for 2020 amounted to SEK 232.4 billion. The
majority of these revenues are related to multi-year framework agreements
with large customers which often include discounts and incentives arrange-
ments. The customers issue purchase orders under these framework agree-
ments that in combination constitute the firm agreement with the customer.
These arrangements may give rise to a risk of material misstatement due to
the incorrect identification of performance obligations and timing of revenue
recognition for each obligation, in particular for the significant contracts that
could have a material impact on the financial statements.
Ericsson conducts an assessment at contract inception to determine which
promised goods and services in a customer contract are distinct and accord-
ingly identified as performance obligations. The Group considers there to be a
distinct performance obligation if the customer can benefit from the good or
service either on its own or together with other resources readily available, and
if the Group’s obligation to transfer the good or service is separately identifi-
able from other obligations in the contract.
The amount and timing of revenue recognized is determined in relation to
the individual elements of the contract. Transaction prices including variable
considerations, discounts and incentive agreements, are estimated at the
commencement of the contract (and periodically thereafter). Judgment is used
in the estimation process based on historical experience with the type of busi-
ness and customer and in allocating revenue to each performance obligation
by reference to their standalone selling prices.
We identified revenue recognition of significant complex contracts as a key
audit matter due to that the application of revenue recognition accounting
standards is complex and it requires management to make judgements and
estimates in determining the amount and timing of revenue recognized in
relation to individual elements of the contracts. Accounting principles and
disclosures related to revenue recognition can be found in note B1 and B2.
Our audit procedures included, but were not limited to the following:
– We tested the effectiveness of the company’s controls over revenue recogni-
tion with particular focus on the controls related to the identification of
performance obligations within revenue contracts and determination of
the timing of recognition for each revenue obligation including the reviews
performed by the company’s central board for material and complex deals.
– We tested a sample of significant and complex contracts to assess manage-
ment’s judgements and estimates related to the identification of perfor-
mance obligations based on the contract terms and determination of the
timing of recognition for each revenue obligation.
– We tested a sample of revenue transactions recorded during the year
by tracing them to supporting evidence of delivery and acceptance and
assessed the judgements and estimates for revenue recorded in the period
by comparing it to contractual terms such as, delivery terms, transaction prices
including variable considerations, discounts and incentive agreements.
Valuation of Goodwill
Goodwill is a significant asset in the consolidated balance sheet and amounts
to SEK 34.9 billion as of December 31, 2020. The Company’s evaluation of the
carrying value of goodwill involves the comparison of the recoverable amount
of each cash generating unit to their carrying values. Ericsson’s assessment is
based on a discounted cash flow using a business plan covering 5 years, which
requires management to make significant estimates and assumptions regard-
ing forecasts of future sales growth, operating income, working capital and
capital expenditure requirements, as well as assumptions on discount rates.
Changes in these assumptions could have a significant impact on either the
recoverable amount, the amount of any impairment charge, or both.
We identified goodwill as a key audit matter because of the significant
judgments made by management to estimate the recoverable amount. The
assessment of management’s assumptions regarding recoverable amount
requires a high degree of auditor judgment, including an increased extent
of complexity and the need to involve our fair value specialists. Accounting
principles and disclosures related to goodwill and other intangible assets can
be found in note C1.
Financial report 2020 110
Auditor’s report
Our audit procedures included, but were not limited to the following:
– We tested the effectiveness of management’s controls over goodwill
impairment evaluation and determination of the recoverable amount with
particular focus on the controls over management’s preparation and review
of assumptions for future sales growth, operating income, working capital,
capital expenditure requirements and method for determining the discount
rate used.
– We evaluated management’s ability to accurately forecast future sales
growth and operating income by comparing actual results to management’s
historical forecasts, the company’s historical results, external analyst reports
and internal communications to management and the Board of Directors.
– With the assistance of our fair value specialists, we evaluated the dis-
count rates, including testing the underlying source information and the
mathematical accuracy of the calculations, and developing a range of
independent estimates and comparing those to the discount rates selected
by management.
Realization of Deferred Tax Assets
Deferred tax assets are significant to the consolidated accounts and amounts
to SEK 26.3 billion as of December 31, 2020. Ericsson recognizes deferred
income taxes for tax attributes and for differences between the financial
statement and tax basis of assets and liabilities at enacted or substantively
enacted statutory tax rates in effect for the years in which the deferred tax
liability or asset is expected to be settled or realized. The Company only recog-
nizes deferred tax assets in countries where they expect to be able to generate
corresponding taxable income in the future to benefit from tax reductions.
Future realization of deferred tax assets depends on the existence of sufficient
taxable income. Sources of taxable income include future reversals of deferred
tax assets and liabilities, expected future taxable income, taxable income in
prior carry back years if permitted under the tax law, and tax planning strate-
gies. Management has determined that it is more likely than not that sufficient
taxable income will be generated in the future to realize its recorded deferred
tax assets.
We identified management’s determination that it is more likely than not
that sufficient taxable income will be generated in the future to realize deferred
tax assets as a key audit matter because of the significant judgments and
estimates management makes related to taxable income. This requires a
high degree of auditor judgment, including an increased extent of complexity
and the need to involve our income tax specialists. Accounting principles and
disclosures related deferred tax assets can be found in note H1.
Our audit procedures included, but were not limited to:
– We tested the effectiveness of controls over deferred tax assets with par-
ticular focus on management’s preparation and review over the estimates of
taxable income and the determination of whether it is more likely than not
that the deferred tax assets will be realized.
– We evaluated management’s ability to accurately estimate taxable income
by comparing actual results to management’s historical estimates, historical
taxable income, external analyst reports and internal communications to
management and the Board of Directors.
– With the assistance of our income tax specialists, we evaluated whether the
sources of management’s estimated taxable income were of the appropri-
ate character and sufficient to utilize the deferred tax assets under the
relevant tax law in the different tax jurisdictions.
Other information than the annual accounts and consolidated accounts
This document also contains other information than the annual accounts
and consolidated accounts and is found on pages 1–9 and 112–126 in the
Financial report, 1–26 in the Corporate Governance report, 1–11 in the
Remuneration report, 1–33 and 36–38 in the Sustainability and Corporate
Responsibility report. 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 consolidated
accounts, our responsibility is to read the information identified above and
consider whether the information is materially inconsistent with the annual
accounts and consolidated accounts. In this procedure we also take into
account our knowledge otherwise obtained in the audit and assess whether
the information otherwise appears to be materially misstated.
If we, based on the work performed concerning this information, conclude
that there is a material misstatement of this other information, we are required
to report that fact. We have nothing to report in this regard.
Responsibilities of the Board of Directors and the Managing Director
The Board of Directors and the Managing Director are responsible for the
preparation of the annual accounts and consolidated accounts and that they
give a fair presentation in accordance with the Annual Accounts Act and,
concerning the consolidated accounts, in accordance with IFRS as adopted by
the EU. The Board of Directors and the Managing Director are also responsible
for such internal control as they determine is necessary to enable the prepara-
tion of annual accounts and consolidated accounts that are free from material
misstatement, whether due to fraud or error.
In preparing the annual accounts and consolidated accounts, The Board
of Directors and the Managing Director are responsible for the assessment of
the company’s and the group’s ability to continue as a going concern. They
disclose, as applicable, matters related to going concern and using the going
concern basis of accounting. The going concern basis of accounting is however
not applied if the Board of Directors and the Managing Director intends to
liquidate the company, to cease operations, or has no realistic alternative but
to do so.
The Audit Committee shall, without prejudice to the Board of Director’s
responsibilities and tasks in general, among other things oversee the com-
pany’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 mis-
statement, 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 reason-
ably 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 judg-
ment and maintain professional scepticism throughout the audit. We also:
– Identify and assess the risks of material misstatement of the annual accounts
and consolidated accounts, whether due to fraud or error, design and per-
form 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 misstatement resulting from fraud is higher than
for one resulting from error, as fraud may involve collusion, forgery, inten-
tional 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 circum-
stances, but not for the purpose of expressing an opinion on the effective-
ness of the company’s internal control.
– Evaluate the appropriateness of accounting policies used and the reason-
ableness 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 prepar-
ing the annual accounts and consolidated accounts. We also draw a conclu-
sion, 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 inad-
equate, 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 disclosures, and whether
the annual accounts and consolidated accounts represent the underlying
transactions and events in a manner that achieves fair presentation.
Financial report 2020 Auditor’s report
111
– 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 direc-
tion, supervision and performance of the group audit. We remain solely
responsible for our opinions.
We must inform the Board of Directors of, among other matters, the planned
scope and timing of the audit. We must also inform of significant audit findings
during our audit, including any significant deficiencies in internal control that
we identified.
We must also provide the Board of Directors with a statement that we have
complied with relevant ethical requirements regarding independence, and to
communicate with them all relationships and other matters that may reason-
ably 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 are therefore the key audit matters. We
describe these matters in the auditor’s report unless law or regulation pre-
cludes disclosure about the matter.
Report on other legal and regulatory requirements
Opinions
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 L M Ericsson (publ) for the financial
year January 1, 2020 – December 31, 2020 and the proposed appropriations
of the company’s profit or loss.
We recommend to the general meeting of shareholders that the profit to 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 Opinions
We conducted the audit in accordance with generally accepted auditing
standards in Sweden. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities section. We are independent of
the parent company and the group in accordance with professional ethics for
accountants in Sweden and have otherwise fulfilled our ethical responsibilities
in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and
appropriate to provide a basis for our opinions.
Responsibilities of the Board of Directors and the Managing Director
The Board of Directors is responsible for the proposal for appropriations of the
company’s profit or loss. At the proposal of a dividend, this includes an assess-
ment of whether the dividend is justifiable considering the requirements which
the company’s and the group’s type of operations, size and risks place on the
size of the parent company’s and the group’s equity, consolidation require-
ments, 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 account-
ing, management of assets and the company’s financial affairs otherwise are
controlled in a reassuring manner. The Managing Director shall manage the
ongoing administration according to the Board of Directors’ guidelines and
instructions and among other matters take measures that are necessary to
fulfill the company’s accounting in accordance with law and handle the man-
agement of assets in a reassuring manner.
Auditor’s responsibility
Our objective concerning the audit of the administration, and thereby our
opinion about discharge from liability, is to obtain audit evidence to assess
with a reasonable degree of assurance whether any member of the Board of
Directors or the Managing Director in any material respect:
– has undertaken any action or been guilty of any omission which can give rise
to liability to the company, or
– in any other way has acted in contravention of the Companies Act, the
Annual Accounts Act or the Articles of Association.
Our objective concerning the audit of the proposed appropriations of the
company’s profit or loss, and thereby our opinion about this, is to assess with
reasonable degree of assurance whether the proposal is in accordance with
the Companies Act.
Reasonable assurance is a high level of assurance, but is not a guarantee
that an audit conducted in accordance with generally accepted auditing stand-
ards in Sweden will always detect actions or omissions that can give rise to
liability to the company, or that the proposed appropriations of the company’s
profit or loss are not in accordance with the Companies Act.
As part of an audit in accordance with generally accepted auditing stand-
ards 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 circum-
stances that are relevant to our opinion concerning discharge from liability.
As a basis for our opinion on the Board of Directors’ proposed appropriations
of the company’s profit or loss we 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.
Deloitte AB, was appointed auditor of Telefonaktiebolaget L M Ericsson by
the general meeting of the shareholders on March 31, 2020 and has been the
company’s auditor since March 31, 2020
Stockholm March 3, 2021
Deloitte AB
Thomas Strömberg
Authorized Public Accountant
Financial report 2020 112
Forward-looking statements
Forward-looking statements
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,
including, 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 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.
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.
– The expected operational or financial performance of strategic
These forward-looking statements also represent our estimates and
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.
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.
Financial report 2020 Five-year summary – Financial information
For definitions of certain financial terms used, see Alternative performance measures and Financial terminology.
Five-year summary – Financial information
113
Five-year summary
Income statement and cash flow items, SEK million
Net sales 1)
Operating expenses 1)
Operating income (loss) 1)
Net income (loss) 1)
Cash flow from operating activities
Year-end position, SEK million
Total assets 1)
Property, plant and equipment
Stockholders’ equity 1)
Non-controlling interests
Per share indicators
Earnings (loss) per share, basic, SEK 1)
Earnings (loss) per share, diluted, SEK 1)
Dividends per share, SEK 2)
Dividends per share, USD 2)
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
Amortizations 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)
Sales growth adjusted for comparable units and currency
Gross margin 1)
Gross margin excluding restructuring 1)
Operating margin 1)
Operating margin excluding restructuring 1)
EBITA margin
Restructuring charges, SEK million
Free cash flow, SEK million
Free cash flow before M&A, SEK million
Capital employed, SEK million 1)
Return on equity 1)
Return on capital employed 1)
Equity ratio 1)
Capital turnover 1)
Adjusted working capital, SEK million 1)
Gross cash, SEK million
Net cash, SEK million
Adjusted earnings (loss) per share, SEK
Statistical data, year-end
Number of employees
of which in Sweden
Export sales from Sweden, SEK million 1)
2020
Change
2019
2018
2017
2016
232,390
–66,280
27,808
17,623
28,933
271,530
13,383
86,674
–1,497
5.26
5.26
2.00
0.16
3,328
3,323
3,326
2%
–
163%
858%
71%
–2%
–3%
5%
–
685%
685%
33%
0%
0%
1%
0%
4,493
–12%
4,114
11,817
2,126
39,714
17.1%
78
5%
40.3%
40.6%
12.0%
12.5%
12.5%
1,306
12,663
22,261
161,990
20.7%
17.0%
31.4%
1.4
45,613
72,045
41,885
5.83
100,824
13,173
132,269
4%
–
–18%
2%
–
1%
–
–
–
–
–
–
64%
107%
192%
–2%
–
–
–
–
–7%
0%
21%
445%
1%
3%
9%
227,216
–64,215
10,564
1,840
16,873
276,383
13,850
82,559
–681
0.67
0.67
1.50
0.16
3,314
3,306
3,320
5,118
3,947
–13,692
2,593
38,815
17.1%
77
4%
37.3%
37.5%
4.6%
5.0%
5.1%
798
6,128
7,633
165,273
2.6%
6.7%
29.6%
1.4
48,821
72,192
34,496
1.07
99,417
12,730
120,822
210,838
–66,848
1,242
–6,276
9,342
268,761
12,849
86,978
792
–1.98
–1.98
1.00
0.11
3,297
3,291
3,318
205,378
–70,563
–34,743
–32,433
9,601
259,882
12,857
96,935
636
–9.94
–9.94
1.00
0.12
3,284
3,277
3,317
220,316
–60,501
5,187
1,012
14,010
284,150
16,734
134,582
675
0.26
0.25
1.00
0.11
3,269
3,263
3,303
3,975
3,877
6,129
3,843
2,315
4,475
38,909
18.5%
70
1%
32.3%
35.2%
0.6%
4.4%
1.4%
8,015
2,968
4,253
149,615
–7.1%
0.8%
32.7%
1.4
52,508
68,996
35,871
0.27
95,359
12,502
109,969
6,314
1,759
21,578
37,887
18.4%
66
–
23.3%
25.9%
–16.9%
–2.8%
–8.8%
8,501
5,109
4,833
155,625
–28.1%
–20.4%
37.5%
1.2
56,439
67,702
34,657
–3.24
100,735
13,864
87,463
4,569
5,260
4,550
31,631
14.4%
71
–
29.6%
31.2%
2.4%
5.8%
3.6%
7,567
254
876
185,666
0.6%
2.8%
47.6%
1.2
82,327
57,877
31,191
2.39
111,464
15,303
105,552
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
2) For 2020, as proposed by the Board of Directors.
3) A reconciliation to the most directly reconcilable line items in the financial statements for 2020 and five comparison years is available on pages 115–119.
Financial report 2020 114
Five-year summary – Non-financial information
Five-year summary – Non-financial information
For additional information, see Consolidated non-financial statements and notes (Sustainability and Corporate Responsibility Report, pages 28–31).
Five-year summary
Employees
Employee headcount at year-end
Average number of 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
Female representation (%)
All employees
Line managers
Executive Team
Board of Directors
Compliance concerns, sensitive business and information security
Total number of reported compliance concerns
Total number of cases reviewed in the Sensitive business process
Total number of information security and privacy incidents reported
Occupational health and safety
Number of fatalities – Ericsson employees
Number of fatalities – Supply chain and public
Number of major incidents – Ericsson employees
Number of major incidents – Supply chain and public
Number of lost-time incidents - Ericsson employees
Number of lost-time incidents - Supply chain and public
Responsible management of suppliers
Tier one suppliers risk assessed (%) 3)
Audited suppliers compliant with the CoC, after follow-up (%) 4)
Energy consumption (facility energy usage) (GWh)
Electricity
of which renewable
District heating
Other energy
Energy intensity (GWh/SEK Billion)
Waste and water
Waste generated at facilities (tonnes)
of which recycled (%)
Product take-back (tonnes)
of which recycled or re-used (%)
Total water consumption (Mm3)
Green House Gas Emissions (CO2e) (Ktonne)
Direct emissions – Scope 1
Indirect emissions – Scope 2 (Market based)
Other indirect emissions – Scope 3
of which business travel
of which product transport
of which employee commuting
of which use of sold products
Emissions intensity (Ktonnes/Net sales billion SEK)
Scope 1
Scope 2 (Market based)
2020
Change
2019
2018
2017
2016
100,824
98,589
7,839
9,246
3
33
34
22
8
25
21
20
23
933
828
2,533
0
7
66
36
90
53
99
89
572
390
23
33
2.7
6,916
49
10,204
95
1.5
40
74
34,159
17
112
30
34,000
0.17
0.32
1%
4%
–29%
–39%
0%
–6%
6%
0%
0%
0%
5%
0%
0%
73%
27%
–34%
–
–36%
–46%
–37%
–50%
–39%
1%
7%
–3%
17%
–12%
–34%
–7%
–37%
11%
21%
2%
0%
–18%
–40%
3%
–85%
–19%
–50%
3%
–21%
–42%
99,417
94,503
11,078
15,136
95,359
97,843
16,630
11,254
100,735
107,369
21,791
11,062
111,464
114,302
18,998
15,048
3
35
32
22
8
25
20
20
231)
3
36
32
22
7
23
20
27
23
4
37
32
21
7
25
20
361)
431)
4
38
31
20
6
23
20
35
461)
538
651
3,840
445
587
3,312
412
846
3,235
145
604
2,525
0
11
122
57
180
87
98
83
588
333
26
50
2.9
11,013
44
8,403
93
1.5
49
124
33,313
114
139
60
33,000
0.22
0.55
0
14
831)
33
143
61
47
86
634
335
33
49
3.4
10,217
34
8,380
93
1.6
54
134
32,386
110
215
61
32,000
0.26
0.64
0
23
2)
2)
2)
2)
–
80
704
357
33
45
3.8
11,755
38
12,252
94
1.8
73
156
34,321
123
129
69
34,000
0.36
0.76
0
17
2)
2)
2)
2)
–
94
788
351
34
60
4.0
13,665
37
14,009
93
2.7
75
185
34,373
154
146
73
34,000
0.34
0.84
1) Nominal discrepancies with previous reporting.
2) Due to limitations in data availability, reporting on major incidents and lost-time incident broken down on employees and supply chain/public for 2017 and 2016 is not possible.
3) Risk assessment process described in the Sustainability and Corporate Responsibility report 2020, page 16. The process was formalized in 2018 wherefore comparative figures before that year are not available.
4) CoC: Ericsson Code of Conduct for Business Partners.
Financial report 2020 Alternative performance measures
Alternative performance measures
115
In this section, the Company presents its Alternative Performance
Measures (APMs), which are not recognized measures of financial
performance under IFRS. This section includes a reconciliation of the
APM’s to the most directly reconcilable line items in the financial state-
ments. The presentation of APMs has limitations as analytical tools
and should not be considered in isolation or as a substitute for related
financial measures prepared in accordance with IFRS.
APMs are presented to enhance an investor’s evaluation of ongoing
operating results, to aid in forecasting future periods and to facilitate
meaningful comparison of results between periods.
Management uses these APMs to, among other things, evaluate
ongoing operations in relation to historical results, for internal planning
and forecasting purposes and in the calculation of certain performance-
based compensation. APM’s should not be viewed as substitutes for
income statement or cash flow items computed in accordance with IFRS.
The APMs presented in this report may differ from similarly titled
measures used by other companies.
The Company decided to include Gross margin and Operating Mar-
gin excluding restructuring charges since the financial performance is
sometimes explained excluding restructuring charges.
Cash conversion has been removed as an APM since it is no longer
used by the Company. The Company is instead using Free cash flow
before M&A to reflect the cash flows generated by the Company.
Adjusted earnings (loss) per share 1)
SEK
Earnings (loss) per share, diluted
Restructuring charges
Amortizations and write-downs of acquired intangibles
Adjusted earnings (loss) per share
2020
5.26
0.30
0.27
5.83
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
0.25
1.59
0.55
2.39
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
Definition
Adjusted earnings (loss) per shahre (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.
Adjusted working capital 1)
SEK million
Current assets
Current non-interest-bearing provisions and liabilities
Provisions, current
Contract liabilities
Trade payables
Other current liabilities
Adjusted working capital
2020
149,795
–7,580
–26,440
–31,988
–38,174
45,613
2019
153,914
–8,244
–29,041
–30,403
–37,405
48,821
2018
161,167
–10,537
–29,348
–29,883
–38,891
52,508
2017
153,423
–6,283
–29,076
–26,320
–35,305
56,439
2016
175,097
–5,374
–24,930
–25,844
–36,622
82,327
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
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.
Financial report 2020 116
Alternative performance measures
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
2020
271,530
2,886
1,089
1,383
7,580
26,440
31,988
38,174
161,990
2019
276,383
2,679
1,224
2,114
8,244
29,041
30,403
37,405
165,273
2018
268,761
5,471
670
4,346
10,537
29,348
29,883
38,891
149,615
2017
259,882
3,596
901
2,776
6,283
29,076
26,320
35,305
155,625
2016
284,150
946
2,147
2,621
5,374
24,930
25,844
36,622
185,666
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
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 employed at end of period
Average capital employed
Capital turnover (times)
2020
232,390
165,273
161,990
163,632
1.4
2019
227,216
149,615
165,273
157,444
1.4
2018
210,838
155,625
149,615
152,620
1.4
2017
205,378
185,666
155,625
170,646
1.2
2016
220,316
190,797
185,666
188,232
1.2
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
Definition
Net sales divided by average capital employed.
Reason to use
Capital turnover indicates how effectively investment capital is used to generate revenues.
EBITA margin 1)
SEK million
Net income (loss)
Income tax
Financial income and expenses, net
Amortizations and write-downs of acquired intangibles
EBITA
Net sales
EBITA margin (%)
2020
17,623
9,589
596
1,220
29,028
232,390
12.5%
2019
1,840
6,922
1,802
1,038
11,602
227,216
5.1%
2018
–6,276
4,813
2,705
1,662
2,904
210,838
1.4%
2017
–32,433
–3,525
1,215
16,652
–18,091
205,378
–8.8%
2016
1,012
1,882
2,293
2,650
7,837
220,316
3.6%
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
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 (%)
2020
85,177
271,530
31.4%
2019
81,878
276,383
29.6%
2018
87,770
268,761
32.7%
2017
97,571
259,882
37.5%
2016
135,257
284,150
47.6%
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
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.
Financial report 2020 Alternative performance measures
117
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
(excluding M&A) and repayment of lease liabilities.
Gross cash
SEK million
Cash and cash equivalents
Interest-bearing securities, current
Interest-bearing securities, non-current
Gross cash
2020
28,933
–4,493
254
–817
801
–2,417
22,261
–9,657
59
12,663
2019
16,873
–5,118
744
–1,545
–331
–2,990
7,633
–1,753
248
6,128
2018
9,342
–3,975
334
–925
–523
–
4,253
–1,618
333
2,968
2017
9,601
–3,877
1,016
–1,444
–463
–
4,833
–289
565
5,109
2016
14,010
–6,129
482
–4,483
–3,004
–
876
–984
362
254
Reason to use
Free cash flow represents the cash that the Company generates after capital expenditures, other investments,
repayment of lease liabilities and acquisitions/divestments of subsidiaries. The Company believes that free cash flow
is a good way of reflecting the cash flows generated by the company that can be used to expand the business, pay
dividends and reduce debt.
Free cash flow before M&A represents the cash that the Company generates after capital expenditures, other
investments and repayment of lease liabilities. The Company believes that free cash flow before M&A is a good way
of reflecting the cash flows generated by the Company that can be used to expand the business, invest in subsidiaries,
pay dividends and reduce debt.
2020
43,612
6,820
21,613
72,045
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
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 and Gross margin excluding restructuring 1)
SEK million
Gross income
Net sales
Gross margin (%)
Restructuring charges included in cost of sales
Gross income excluding restructuring charges
Gross margin excluding restructuring charges (%)
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
2020
93,724
232,390
40.3%
725
94,449
40.6%
2019
84,824
227,216
37.3%
337
85,161
37.5%
2018
68,200
210,838
32.3%
5,938
74,138
35.2%
2017
47,927
205,378
23.3%
5,242
53,169
25.9%
2016
65,254
220,316
29.6%
3,475
68,729
31.2%
Definition
Reported gross income as a percentage of net sales.
Reported gross income excluding restructuring charges 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.
The Company’s view is that gross margin excluding restructuring charges gives a fair view of the profitability of the
ongoing business.
Financial report 2020 118
Alternative performance measures
Net cash
SEK million
Cash and cash equivalents
+ Interest-bearing securities, current
+ Interest-bearing securities, non-current
– Borrowings, current
– Borrowings, non-current
Net cash
2020
43,612
6,820
21,613
7,942
22,218
41,885
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
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
Operating expenses
Restructuring charges included in R&D expenses
Restructuring charges included in selling and administrative expenses
Operating expenses, excluding restructuring charges
2020
–66,280
411
170
–65,699
2019
–64,215
344
117
–63,754
2018
–66,848
1,293
784
–64,771
2017
–70,563
2,307
952
–67,304
2016
–60,501
2,739
1,353
–56,409
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 and Operating margin excluding restructuring 1)
SEK million
Operating income (loss)
Net sales
Operating margin (%)
Restructuring charges
Operating income (loss) excluding restructuring charges
Operating margin excluding restructuring charges (%)
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
2020
27,808
232,390
12.0%
1,306
29,114
12.5%
2019
10,564
227,216
4.6%
798
11,362
5.0%
2018
1,242
210,838
0.6%
8,015
9,257
4.4%
2017
–34,743
205,378
–16.9%
8,501
–26,242
–2.8%
2016
5,187
220,316
2.4%
7,567
12,754
5.8%
Definition
Reported operating income (loss) as a percentage of
net sales.
Reported operating income (loss) excluding restructuring
charges 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
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. The Company’s view is that operating margin excluding restructuring
charges gives a fair view of the profitability of the ongoing business.
Financial report 2020 Alternative performance measures
119
Return on capital employed 1)
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 (%)
2020
27,808
165,273
161,990
163,632
17.0%
2019
10,564
149,615
165,273
157,444
6.7%
2018
1,242
155,625
149,615
152,620
0.8%
2017
–34,743
185,667
155,625
170,646
–20.4%
2016
5,187
190,797
185,666
188,232
2.8%
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
Definition
The total of operating income (loss) as a percentage of
average capital employed.
Reason to use
Return on capital employed is a measure of the profitability after taking into account the amount of capital used. A higher
return on capital employed indicates a more efficient use of capital.
Return on equity 1)
SEK million
Net income (loss) attributable to 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 (%)
2020
2019
2018
2017
17,483
2,223
–6,530
–32,576
82,559
86,674
84,617
20.7%
86,729
82,559
84,644
2.6%
95,952
86,978
91,465
–7.1%
134,582
96,935
115,759
–28.1%
2016
833
142,172
134,582
138,377
0.6%
1) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers.”
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 acquired/divested business 1)
Sales growth adjusted for comparable units and currency (%)
2020
232,390
–1,362
7,796
238,824
227,132
5%
2019
227,216
–96
–10,675
216,445
208,130
4%
2018
210,838
–
–4,232
206,606
–
1%
1) Adjusted for divestment of MediaKind in 2019, acquisition of Kathrein in 2019 and acquisition of Cradlepoint in 2020.
Definition
Sales growth adjusted for the impact of acquisitions and
divestments as well as the effects of foreign currency
fluctuations. Also named as organic growth.
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.
Financial report 2020 120
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 2020, approximately 2.3 (1.9) billion Class B shares were traded on Nasdaq Stockholm
and approximately 2.2 (1.5) billion ADS were traded in the United States (incl. NASDAQ New
York). A total of 4.5 (3.5) 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
increased by approximately 20 percent on Nasdaq Stockholm and increased by approxi-
mately 44 percent in the United States when
compared to 2019.
Share trading on different
market places (class B shares)
Shares traded, millions
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
2016
2017
2018
2019
2020
Cboe APA/BXE/CXE
Stockholm
London
Turquoise
BOAT
Other
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
represented 52 percent of total trading in 2020.
Total trading in Ericsson B shares on all venues
combined has decreased over the past five years
from 7.9 billion shares in 2016 to 6.5 billion shares
in 2020. Over the same period, trading of Ericsson
ADS in the US has increased from 1.3 billion
shares in 2016 to 2.2 billion shares.
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, 2020
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
6,043,960
SEK 5.00
SEK 326 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
Changes in number of shares and capital stock 2016–2020
2016
2017
2017
2018
2019
2020
December 31
May 10, new issue (Class C shares, later converted to Class B-shares) 1)
December 31
December 31
December 31
December 31
Number of shares
Share capital (SEK)
3,331,151,735
3,000,000
3,334,151,735
3,334,151,735
3,334,151,735
3,334,151,735
16,655,758,678
15,000,000
16,670,758,678
16,670,758,678
16,670,758,678
16,670,758,678
1) The AGM 2017 resolved to issue 3,000,000 Class C shares for the Long-Term Variable Compensation Program 2017. In accordance with an authorization from the AGM, in the second quarter 2017, the Board of
Directors resolved to repurchase the new issued shares, which were subsequently converted into Class B shares. The quotient value of the repurchased shares was SEK 5, totaling MSEK 15, representing less than
0.1% of capital stock, and the acquisition cost was approximately SEK 15.1 million.
Share performance indicators
Earnings (loss) per share, diluted (SEK) 1)
Adjusted earnings (loss) per share (SEK) 2)
Dividend per share (SEK) 3)
Total shareholder return (%)
P/E ratio
2020
5.26
5.83
2.00
22
19
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
1) Calculated on average number of shares outstanding, diluted.
2) EPS, diluted, excluding amortizations and write-downs of acquired intangible assets, and excluding restructuring charges, SEK.
A reconcilation of Alternative performance measures is available on pages 115–119.
3) For 2020 as proposed by the Board of Directors.
4) 2017 and 2016 are restated due to implementation of IFRS 15 “Revenue from Contracts with Customers”.
For definitions of the financial terms used including a description of alternative performance measure, see Glossary and Financial Terminology.
Financial report 2020 The Ericsson share
121
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
(Oct 22, 2020)
Class A low
(Mar 16, 2020)
Class B at last day of trading
Class B high
(Oct 22, 2020)
Class B low
(Mar 16, 2020)
2020
105.40
2019
85.40
2018
77.40
2017
53.25
2016
53.00
119.00
96.80
85.20
64.80
80.80
64.10
99.98
74.70
81.56
49.05
77.92
44.17
53.85
45.20
53.50
110.15
96.74
85.66
64.95
83.60
59.54
74.02
49.04
43.75
43.19
Source: Nasdaq Stockholm
Share prices on NASDAQ New York
(USD)
ADS at last day of trading
ADS high (Nov 9, 2020)
ADS low (Mar 16, 2020)
2020
11.95
12.20
6.15
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
Source: NASDAQ New York
Share prices on Nasdaq Stockholm and NASDAQ New York
Period
Annual high and low
2016
2017
2018
2019
2020
Quarterly high and low
2019 First Quarter
2019 Second Quarter
2019 Third Quarter
2019 Fourth Quarter
2020 First Quarter
2020 Second Quarter
2020 Third Quarter
2020 Fourth Quarter
Monthly high and low
August 2020
September 2020
October 2020
November 2020
December 2020
January 2021
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
80.80
64.80
85.20
96.80
119.00
92.50
96.80
92.60
90.30
96.10
100.60
114.80
119.00
114.20
111.80
119.00
116.80
116.00
120.80
45.20
44.17
49.05
74.70
64.10
74.70
86.20
75.00
75.20
64.10
77.40
92.50
100.40
109.00
102.40
100.40
106.20
101.00
105.40
83.60
64.95
85.66
96.74
110.15
90.66
96.74
91.24
90.48
89.22
91.78
105.10
110.15
104.85
102.85
110.15
106.40
106.50
109.35
43.19
43.75
49.04
74.02
59.54
74.70
85.46
74.02
75.22
59.54
77.60
85.40
93.42
98.98
94.52
93.42
103.85
95.90
96.90
10.20
7.47
9.45
10.45
12.61
9.89
10.46
9.71
9.32
9.24
9.88
12.10
12.61
12.10
11.72
12.52
12.61
12.53
12.25
4.83
5.52
6.00
7.58
6.15
8.26
9.00
7.58
7.64
6.15
7.62
9.20
10.50
11.30
10.30
10.50
11.14
11.59
11.65
Source: Nasdaq Stockholm and NASDAQ New York.
Financial report 2020
122
The Ericsson share
Shareholders
As of December 31, 2020, the Parent Company had 424,696 shareholders
registered at Euroclear Sweden AB (the Central Securities Depository – CSD),
of which 723 holders had a US address. According to information provided
by the Company’s depositary bank, Deutsche Bank, there were 376,833,660
ADSs outstanding as of December 31, 2020, and 3,214 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 11, 2021,
the total number of bank, broker and/or nominee accounts holding Ericsson
ADSs was 196,494.
According to information known at year-end 2020, 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 corpora-
tion, by any foreign government or by any other natural or legal person(s)
separately or jointly.
The table below shows the total number of shares in the Parent Company
owned by the Executive Team and Board members (including Deputy
employee representatives) as a group as of December 31, 2020.
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)
1,508
2,681,602
0.08%
For individual holdings, see Corporate Governance Report.
Geographical ownership breakdown of share capital including
retail shareholders and treasury shares
Percent of capital
Sweden
United States
United Kingdom
Norway
France
2020
41.04%
26.14%
5.90%
3.90%
1.50%
2019
44.32%
25.83%
5.68%
4.71%
1.39%
Other countries
21.52%
18.07%
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
2020
59.81%
22.81%
19.26%
3.25%
27.63%
4.81%
7.75%
2019
60.56%
22.53%
19.26%
4.99%
26.18%
4.87%
8.39%
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, 2020 2)
No. of
shareholders
342,782
37,833
36,509
4,359
1,140
512
1,560
424,696
No. of
shares A
1,447,251
976,213
2,721,398
1,038,488
416,133
314,204
254,842,293
261,755,983
No. of
shares B
Percentage
of share capital
Percentage
of voting rights
Market value
(MSEK)
42,781,322
27,688,871
76,310,840
30,090,956
13,638,818
8,807,105
2,872,693,759
3,072,395,752
1.33%
0.86%
2.37%
0.93%
0.42%
0.27%
93.80%
1.01%
0.66%
1.82%
0.71%
0.31%
0.21%
95.28%
100.00%
100.00%
4,330
2,806
7,738
3,048
1,376
893
307,350
327,578
1) Source: Euroclear.
2) Includes a nominee reporting discrepancy of 384,081 shares.
The following table shows share information as of December 31 2020 with respect to the 15 largest shareholders ranked by voting rights as well as their
percentage of voting rights as of December 31 2020, 2019 and 2018.
Largest shareholders December 31, 2020 and percentage of voting rights December 31, 2020, 2019 and 2018
Identity of person or group 1)
Investor AB
AB Industrivärden
Svenska Handelsbankens Pensionsstiftelse
Cevian Capital
AMF Pensionsförsäkring AB
BlackRock Institutional Trust Company, N.A.
Swedbank Robur Fonder AB 2)
PRIMECAP Management Company
AFA Försäkring AB
The Vanguard Group, Inc.
Livförsäkringsbolaget Skandia, ömsesidigt
Norges Bank Investment Management (NBIM)
State Street Global Advisors (US)
Handelsbanken Asset Management
Fidelity Management & Research Company
Others
Total
Number of
Class A shares
115,762,803
86,052,615
23,430,790
339,228
8,560,000
0
4,214
0
10,723,000
0
4,400,675
65
0
7,370
0
12,475,223
261,755,983
Of total Class
A shares
percent
Number of
Class B shares
Of total Class
B shares
percent
Of total Class
A+B shares
percent
2020
Voting rights
percent
2019
Voting rights
percent
2018
Voting rights
percent
44.23
32.88
8.95
0.13
3.27
0.00
140,341,961
1,000,000
0
181,408,885
59,798,213
133,523,967
131,582,663
0.00
123,879,882
0.00
5,862,596
4.10
80,836,899
0.00
22,386,363
1.68
58,872,160
0.00
54,921,908
0.00
50,437,868
0.00
0.00
31,238,957
4.77 1,996,303,430
3,072,395,752
4.57
0.03
0.00
5.90
1.95
4.35
4.28
4.03
0.19
2.63
0.73
1.92
1.79
1.64
1.02
64.98
100
7.68
2.61
0.70
5.45
2.05
4.00
3.95
3.72
0.50
2.42
0.80
1.77
1.65
1.51
0.94
60.25
100
22.81
15.14
4.12
3.25
2.56
2.35
2.31
2.18
1.99
1.42
1.17
1.03
0.97
0.89
0.55
37.28
100
22.53
15.14
4.12
4.99
2.71
2.16
2.33
2.32
2.06
1.46
1.18
1.49
1.03
1.25
1.17
34.05
100
22.53
15.14
4.12
5.38
2.78
2.11
2.35
2.34
1.98
1.58
1.13
1.22
1.10
1.13
0.71
34.41
100
1) Source: Nasdaq
2) In 2019 Annual report, Folksam’s holdings were included in Swedbank Robur Fonder AB’s holdings for 2019, which is why Swedbank Robur Fonder AB’s holdings were then stated as 3.07% of the voting rights
and 5.24% of the number of shares for 2019.
Financial report 2020 The Ericsson share
123
Earnings (loss) per share, diluted
5.83
5.26
2.39
0.25
1.07
0.67
0.27
–1.98
–3.24
SEK
6
4
2
0
-2
-4
-6
-8
-10
–9.94
2)
2017
2)
2016
2018
2019
2020
Earnings (loss) per share, diluted
Adjusted earnings (loss) per share 1)
1) EPS, diluted, excl. restructuring charges,
amortizations and write-downs of acquired
intangible assets, SEK. A reconciliation
of Alternative performance measures is
available on pages 115–119.
2) 2017 and 2016 are restated due to
implementation of IFRS 15 “Revenue
from Contracts with Customers”.
Dividend per share
SEK
2.5
2.0
1.5
1.0
0.5
0.0
2.00
1.50
1.00
1.00
1.00
2016
2017
2018
2019
2020
1)
1) For 2020 as proposed by the Board of Directors.
Share trend
In 2020, Ericsson’s total market capitalization increased by 19.7% to SEK 326 billion, compared to an
increase by 4.7% reaching SEK 272 billion in 2019. In 2020, the index, OMX Stockholm, on Nasdaq
Stockholm increased by 5.8%, the Nasdaq composite index increased by 43.6 % and the S&P 500
Index increased by 16.3%.
Share turnover and price trend, Nasdaq Stockholm
Class A shares, SEK
150
125
100
75
50
25
0
2016
2017
2018
2019
2020
Class B shares, SEK
150
125
100
75
50
25
0
2016
2017
2018
2019
2020
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
24
20
16
12
8
4
0
2016
2017
2018
2019
2020
Volume traded, 000’s monthly
Ericsson ADS
S&P 500
000’s share traded
monthly
6,000
5,000
4,000
3,000
2,000
1,000
0
000’s share traded
monthly
600,000
500,000
400,000
300,000
200,000
100,000
0
000’s share traded
monthly
300,000
250,000
200,000
150,000
100,000
50,000
0
Financial report 2020
124
Shareholder information
Shareholder information
Telefonaktiebolaget LM Ericsson’s Annual
General Meeting of shareholders 2021 will
be held on Tuesday, March 30, 2021.
Due to the COVID-19 pandemic, the Board
of Directors has decided that the Annual
General Meeting of shareholders 2021 will
be conducted without the physical presence
of shareholders, representatives and third
parties and that the shareholders are able to
exercise their voting rights only by post before
the meeting. Information on the resolutions
passed at the meeting will be disclosed on
Tuesday, March 30, 2021, as soon as the
outcome of the postal voting has been finally
confirmed.
Registration and notice of attendance
A person who wishes to participate in the
Annual General Meeting by postal voting
must:
– be listed as a shareholder in the presenta-
tion of the share register prepared by
Euroclear Sweden AB concerning the
circumstances on Monday, March 22,
2021; and
– give notice of participation no later than
Monday, March 29, 2021, by casting its
postal vote in accordance with the instruc-
tions under the heading Postal voting
below so that the postal voting form is
received by Euroclear Sweden AB no later
than that day.
Shares registered in the name of a nominee
In order to be entitled to participate in the
meeting, a shareholder whose shares are
registered in the name of a nominee must, in
addition to giving notice of participation in
the Annual General Meeting by submitting
its postal vote, register its shares in its own
name so that the shareholder is listed in
the presentation of the share register as of
Monday, March 22, 2021. Such registration
may be temporary (so-called voting rights
registration), and request for such voting rights
registration shall be made to the nominee,
in accordance with the nominee’s routines,
at such a time in advance as decided by the
nominee. Voting rights registrations that have
been made by the nominee no later than
Wednesday, March 24, 2021 will be taken
into account in the presentation of the share
register.
Postal voting
The Board of Directors has decided that share-
holders should be able to exercise their voting
rights only by postal voting in accordance with
section 22 of the Act (2020:198) on temporary
exceptions to facilitate the execution of
general meetings in companies and other
associations.
A special form must be used for the postal
vote. The form for postal voting is available
on Ericsson’s website www.ericsson.com.
Completed and signed forms for postal voting
can be sent by mail to Telefonaktiebolaget LM
Ericsson, General Meeting of shareholders, c/o
Euroclear Sweden AB, Box 191, SE-101 23
Stockholm, Sweden, or by e-mail to General-
MeetingService@euroclear.com. Completed
forms must be received by Euroclear no later
than Monday, March 29, 2021. Shareholders
who are natural persons may also cast their
votes electronically through verification with
BankID via the Euroclear Sweden AB’s web-
site https://anmalan.vpc.se/EuroclearProxy.
Such electronic votes must be submitted no
later than Monday, March 29, 2021.
The shareholders may not provide special
instructions or conditions in the postal vote.
If so, the entire postal vote is invalid. Further
instructions and conditions may be found
in the form for postal voting and at https://
anmalan.vpc.se/euroclearproxy.
Proxy
If the shareholder submits its postal vote by
proxy, a written and dated power of attorney
signed by the shareholder must be attached
to the postal voting form. A power of attorney
issued by a legal entity must be accompanied
by a copy of the entity’s certificate of regis-
tration (should no such certificate exist; a
corresponding document of authority must
be submitted). Forms of power of attorney
in Swedish and English are available on
Ericsson’s website, www.ericsson.com.
Shareholders’ right to receive information
The Board of Directors and the President and
CEO shall, if any shareholder so requests and
the Board of Directors believes that it can be
done without material harm to the Company,
provide information regarding circumstances
that may affect the assessment of an item
on the agenda and circumstances that can
affect the assessment of the Company’s or
its subsidiaries’ financial situation and the
Company’s relation to other companies within
the Group.
A request for such information shall be
made in writing to the Company no later than
ten days prior to the Annual General Meeting,
i.e. no later than Saturday, March 20, 2021, at
the address Telefonaktiebolaget LM Ericsson,
The Board of Directors Secretariat, SE-164
83 Stockholm, Sweden or by e-mail to board-
secretariat@ericsson.com. The questions
and responses will be made available on the
Company’s website www.ericsson.com and
at the Company’s headquarters, Torshamns-
gatan 21, SE-164 83 Stockholm, Sweden no
later than Thursday, March 25, 2021. The
information is also sent to the shareholders
who requested it and stated their address.
Dividend
The Board of Directors will propose a dividend
for 2020 of SEK 2.00 (1.50) per share to the
Annual General Meeting. The dividend is
proposed to be paid in two equal installments,
SEK 1.00 per share with the record date
April 1, 2021, and SEK 1.00 per share with
the record date October 1, 2021.
Financial information from Ericsson
2020 Form 20-F for the US market
– March 25, 2021
Interim reports 2021
– Q1, April 21, 2021
– Q2, July 16, 2021
– Q3, October 22, 2021
– Q4, January 27, 2022
Annual Report 2021
– March, 2022
Financial report 2020 Financial terminology
125
Financial terminology
Adjusted earnings (loss) per share
Earnings (loss) per share (EPS), diluted, excluding
amortizations and write-down of acquired intangi-
ble assets and excluding restructuring charges.
EBITA margin
Earnings (loss) before interest, taxes, amortization
and write-downs of acquired intangible assets as a
percentage of net sales.
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.
Adjusted working capital
Current assets less current non-interest-bearing
provisions and liabilities (which include current
provisions, contract liabilities, trade payables and
other current liabilities).
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.
Compound annual growth rate (CAGR)
The year-over-year growth rate over a specified
period of time.
Days sales outstanding (DSO)
Trade receivables balance at quarter end divided
by net sales in the quarter and multiplied by
90 days. If the amount of trade receivables is
larger than last quarter’s sales, the excess amount
is divided by net sales in the previous quarter
and multiplied by 90 days, and total DSO are
the 90 days of the most current quarter plus the
additional days from the previous quarter.
Earnings (loss) per share (EPS)
Basic earnings (loss) per share: profit or loss
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 aver-
age number of shares outstanding adjusted for the
effects of dilutive potential ordinary shares
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.
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).
Gross cash
Cash and cash equivalents plus interest-bearing
securities (current and non-current).
Gross margin
Reported gross income as a percentage of net
sales.
Inventory turnover days (ITO days)
365 divided by inventory turnover, calculated as
total cost of sales divided by the average invento-
ries for the year (net of advances from customers).
Net cash
Cash and cash equivalents plus interest-bearing
securities (current and non-current) less borrow-
ings (current and non-current).
OCI
Other comprehensive income.
Operating margin
Reported operating income (loss) as a percentage
of net sales.
OPEX
Operational expenses.
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 (loss) as a percent-
age 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 acquisi-
tions and divestments as well as the effects of
foreign currency fluctuations. Also named as
organic growth.
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.
Exchange rates
Exchange rates in consolidation
SEK/EUR
Average rate 1)
Closing rate
SEK/USD
Average rate 1)
Closing rate
January–December
2020
2019
10.46
10.06
9.14
8.19
10.56
10.43
9.41
9.32
1) Average for the year for disclosure purpose only.
Period income and expenses for each income statement
are translated at period average exchange rates.
Financial report 2020 126
Financial terminology
Glossary
2G
Second generation of mobile systems (the first
digital generation). Includes GSM, TDMA, PDC
and cdmaOne.
CO2e
The amount of a particular greenhouse gas,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.
LTE
Long-Term Evolution. 4G; the evolutionary step
of mobile technology beyond 3G HSPA, allowing
data rate above 100 Mbps.
3G
Third generation mobile systems. Includes
WCDMA/HSPA, CDMA2000 and TD-SCDMA.
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.
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.
Cloud
When data and applications reside in accessible
data centers.
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.
COVID-19
The disease caused by the coronavirus
(SARS-CoV-2).
COVID-19 pandemic
The global spread of the disease caused by the
coronavirus (SARS-CoV-2).
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.
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.
The terms “Ericsson”, “the Company”, “the Group”, “us”, “we”, and “our” all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.
Financial report 2020 Corporate
Governance
report
Part of
Ericsson
Annual Report
2020
Annual Report 2020
Financial
report
Corporate
Governance
report
Remuneration
report
Sustainability
and Corporate
Responsibility
report
ericsson.com
ii
Board of Directors’ report
Contents
Corporate Governance report 2020
Regulation and compliance
Governance structure
General Meetings of shareholders
Nomination Committee
Board of Directors
Committees of the Board of Directors
Remuneration to Board members
Members of the Board of Directors
Management
Members of the Executive Team
Auditor
Internal control over financial reporting
Auditor’s report on the Corporate
governance report
2
4
5
6
6
9
11
12
16
20
24
24
27
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.
Corporate Governance report 2020 1
Corporate Governance report 2020
Corporate governance describes how rights and responsibilities are
distributed among corporate bodies according to applicable laws,
rules and internal processes. Corporate governance also defines
the decision-making systems and structures through which owners
directly or indirectly control a company.
“One of the top priorities for the Board is to oversee the
Company’s continued strengthening of its Ethics and
Compliance program to ensure that the Company lives
up to high standards, with our Code of Business Ethics
providing an important framework.
The Board views the Company’s ongoing initiatives
to continuously foster a ‘speak-up’ culture as critical to
succeeding with this work and supports the Company’s
ongoing cultural transformation program, Ericsson on
the Move, aimed at fostering a culture based on integrity
and fact-based decision making.”
Ronnie Leten
Chair of the Board
Corporate Governance report 2020
2
Corporate governance report
Ericsson’s core values
Regulation and compliance
Professionalism
Respect
Perseverance
Our core values are the foundation 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.
Ericsson on the Move
Ericsson on the Move is a cross-
organizational journey that involves all
employees and aims at strengthening
our culture in five focus areas:
– Cooperation and collaboration,
– Fact-based and courageous
decisions,
– Executing speedily,
– Empathy and humanness, and
– A speak-up environment;
enabling us to write our next chapter
of our Ericsson story together.
Strengthening our behaviors in these
focus areas will support our company
transformation in which change is a
constant state, enable the role model-
ling of our ethical and responsible
business practices, bring our People
Story to life and create a thriving
environment for our employees to
take Ericsson into the future. The
behaviors are closely connected to
Ericsson’s core values, which describe
the moral prin ciples that guide us
in how we demonstrate these five
focus areas.
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
– Nordic Main Market Rulebook for Issuers of
Shares, Nasdaq Nordic
– 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 internal rules that include:
– A Code of Business Ethics
– Group Steering Documents, including
Group policies and directives, instructions
and business processes for approval,
control and risk 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
corporate responsibility is an integral part
of the Company’s strategy and culture and
is embedded across its operations to drive
business transformation and create value
for stakeholders.
Ericsson’s approach to sustainability and
corporate responsibility is integrated into the
business operations and its environmental,
social and economic performance is regularly
measured, assessed and externally assured.
A dedicated Sustainability & Corporate
Responsibility unit belonging to Group
Function Marketing and Corporate Relations
is accountable for developing and implement-
ing strategies, policies, directives, targets,
processes and tools related to sustainability
and corporate responsibility.
The Board of Directors oversee the
Company’s sustainability and corporate
responsibility strategy and risk and perfor-
mance is reported annually to the Board, or
more often as needed.
Ericsson has prepared a separate
Sustainability Report in accordance with the
Swedish Annual Accounts Act, named the
Sustainability and Corporate Responsibility
Report 2020.
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 2020.
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 securi-
ties market reported by the disciplinary
committee of Nasdaq Stockholm or the
Swedish Securities Council in 2020.
Corporate Governance report 2020 FCPA Compliance Monitor
In 2019, Ericsson announced the resolution
of 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). 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 & Compliance program. In 2020, the
three-year period for the monitorship com-
menced by the appointment of Dr. Andreas
Pohlmann of the firm Pohlmann & Company
– Compliance and Governance Advisory LLP
as Ericsson’s monitor. The monitor’s main
responsibilities include reviewing Ericsson’s
compliance with the terms of the settlement
and evaluating the Company’s progress in
implementing and operating its enhanced
compliance program and accompanying
controls as well as providing recommenda-
tions for improvements.
Corporate governance report
3
Code of Business Ethics
Ericsson’s Code of Business Ethics sum-
marizes 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
all internationally recognized human rights,
including those outlined in the International
Bill of Human Rights, the International Labor
Organization´s Declaration on Fundamental
Principles and Rights at Work as well as the
United Nations Guiding Principles on Business
and Human Rights.
The Code of Business Ethics is applicable to
all individuals performing work for Ericsson
(including the Board of Directors and the
President and CEO) and has been translated
into several languages to ensure that it is
understood by Ericsson’s workforce. Everyone
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 acknowledg-
ment process to ensure that everyone per-
forming work for Ericsson has read and under-
stood it. Upon recruitment, new employees are
asked to acknowledge the code.
The Code of Business
Ethics and the Code of
Conduct for Business
Partners can be found
on Ericsson’s website.
Corporate Governance report 2020 4
Corporate governance report
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:
Swedish retail investors:
Others:
Source: Nasdaq
59.81%
22.81%
19.26%
3.25%
27.63%
4.81%
7.75%
Governance structure
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 accord-
ance with the Instruction for the Nomination
Committee adopted by the Annual General
Meeting of shareholders. The tasks of the
Nomination Committee include the proposal
of Board members and external auditor for
election by the Annual General Meeting of
shareholders and proposal of Board member
and auditor remuneration.
In addition to the Board members elected
by shareholders, the Board of Directors con-
sists of employee representatives and their
deputies who the unions have the right to
appoint under Swedish law. The Board of
Directors is ultimately responsible for the
strategy and the organization of Ericsson and
the management of its operations.
The President and CEO, appointed by the
Board of Directors, is responsible for handling
the day-to-day management of Ericsson in
accordance with guidelines issued by the
Board. The President and CEO is supported by
the Executive Team.
The external auditor of Ericsson is elected
by the shareholders at the General Meeting
of shareholders.
Ownership structure
As of December 31, 2020, the Parent
Company had 424,696 registered share-
holders, of which 412,285 were resident or
located in Sweden (according to the share
register kept by Euroclear Sweden AB).
Swedish institutions held approximately
59.81% of the votes. The largest sharehold-
ers as of December 31, 2020 were Investor
AB with approximately 22.81% of the votes
(7.68% of the shares) and AB Industrivärden
(together with Svenska Handelsbankens
Pensionsstiftelse and Pensionskassan SHB
Försäkringsförening), with approximately
19.26% of the votes (3.31% of the shares) and
Cevian Capital with 3.25% of the votes (5.45%
of the shares).
During 2020, Cevian Capital’s holding in
the Company has reduced to 3.25% of the
votes (5.45% of the shares) from the previous
4.99% of the votes (8.43% of the shares) by
the end of 2019.
A significant number of the shares held by
foreign investors are nominee-registered, i.e.
held of record by banks, brokers and/or nomi-
nees. This means that the actual shareholder
is not displayed in the share register or
included in the shareholding statistics.
More information on Ericsson’s sharehold-
ers can be found in the chapter “The Ericsson
share” in the Financial Report.
Shares and voting rights
The share capital of the Parent Company
consists of two classes of shares listed on
Nasdaq Stockholm: A and B shares. Each
Class A share carries one vote and each Class
B share carries one tenth of one vote. Class
A and B shares entitle the holder to the same
proportion of assets and earnings and carry
equal rights to dividends.
The Parent Company may also issue Class
C shares, which are converted into Class B
shares to create treasury stock to finance
and hedge long-term 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.
Governance structure
General Meeting of shareholders
Annual General Meeting/Extraordinary General Meeting
Nomination
Committee
Unions
Board of Directors
Directors elected by the General Meetings of shareholders
3 Directors & 3 Deputies appointed by the Unions
External
Auditors
Audit &
Compliance
Committee
Finance
Committee
Remuneration
Committee
Technology
& Science
Committee
President and CEO
Management
Head of Internal audit function
Corporate Governance report 2020
Corporate governance report
5
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.
the members of the Board of Directors and
the Executive Team is present to answer
such questions.
Decisions of the AGM 2020 included:
– Payment of a dividend of SEK 1.50 per
share in two instalments
The external auditor is present at the AGM.
– Re-election of Ronnie Leten as Chair
General Meetings of shareholders
Decision-making at General Meetings
The decision-making rights of Ericsson’s
shareholders are exercised at General
Meetings of shareholders. Most resolutions
at General Meetings are passed by a simple
majority. However, the Swedish Companies
Act requires qualified majorities in certain
cases, for example in case of:
– Amendment of the Articles of Association
– Resolution to transfer treasury stock to
employees participating in long-term
variable compensation programs.
The Annual General Meeting
of shareholders
The Annual General Meeting of shareholders
(AGM) is held in Stockholm. The date and
venue for the meeting are announced on the
Ericsson website no later than at the time of
release of the third-quarter interim financial
report in the preceding year.
Shareholders who cannot participate in
person may be represented by proxy. Only
shareholders registered in the share register
have voting rights. Nominee-registered share-
holders who wish to vote must request to be
entered into the share register by the record
date for the AGM.
The AGM is held in Swedish and is simulta-
neously translated into English.
Documentation provided by the Company is
available in both Swedish and English.
The AGM gives shareholders the opportu-
nity to raise questions relating to the opera-
tions of the Group. Normally, the majority of
Ericsson’s AGM 2020
Including shareholders represented by proxy,
1,652 shareholders were represented at the
AGM held on March 31 , 2020, representing
approximately 70% of the votes.
Due to the risks relating to the COVID-19
pandemic and local rules limiting the maxi-
mum number of attendees at public events to
no more than 50 persons, Ericsson took a
number of precautionary measures in relation
to its AGM 2020 to ensure the health and
safety of shareholders, employees and other
stakeholders. Due to the circumstances,
42 attendees attended the AGM in person, and
the President and CEO, the Chair of the Board
and the Chief Legal Officer and secretary of
the Board were available via link. One of the
Deputy Chairs of the Board, one Executive
Vice President, the Chief Financial Officer, the
auditor in charge and a representative from
the Nomination Committee were present at
the meeting in person. A quorate Board of
Directors was also ready to be convened via
link if needed. In order to make the AGM avail-
able to as many of the Company’s sharehold-
ers as possible, the AGM was made available
at the Ericsson website via live webcast, and
pre-recorded speeches by the President and
CEO, the Chair of the Board of Directors and
the Chief Compliance Officer were made
available at the Ericsson website before the
AGM. In addition, Euroclear Sweden AB
offered, at no cost, a possibility for sharehold-
ers (individuals) to appoint a proxy designated
by Euroclear Sweden to vote in accordance
with the shareholder’s instructions. At the
meeting, no refreshments were served and
the cloakrooms were closed.
of the Board of Directors
– Re-election of other members of the
Board of Directors: Jon Fredrik Baksaas,
Jan Carlson, Eric A. Elzvik, Nora Denzel,
Börje Ekholm, Kurt Jofs, Kristin S. Rinne,
Helena Stjernholm and Jacob Wallenberg
– Approval of Board of Directors’ fees,
in accordance with the Nomination
Committee’s revised proposal:
- Chair: SEK 4,075,000 (unchanged)
- Other non-employee Board members:
SEK 1,020,000 each (unchanged)
- Chair of the Audit and Compliance
Committee: SEK 400,000 (unchanged)
- Other non-employee members of the
Audit and Compliance Committee:
SEK 250,000 each (unchanged)
- Chairs of the Finance Committee, the
Remuneration Committee and the
Technology and Science Committee:
SEK 200,000 each (unchanged)
- Other non-employee members of the
Finance Committee, the Remuneration
Committee and the Technology and
Science Committee: SEK 175,000 each
(unchanged)
– Approval for part of the Directors’ fees to be
paid in the form of synthetic shares
– Election of Deloitte AB as new auditor for
the period up until the end of the AGM 2021
– Approval of Guidelines for remuneration to
Group management
– Implementation of a Long-Term Variable
Compensation Program 2020 (LTV 2020)
for the Executive Team.
The minutes from the AGM 2020 are available
on Ericsson’s website.
Contact the Board of Directors
Telefonaktiebolaget LM Ericsson
The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden
boardsecretariat@ericsson.com
Annual General Meeting 2021
Ericsson’s AGM 2021 will take place on March
30, 2021. Further information is available on
Ericsson’s website.
Corporate Governance report 2020 6
Corporate governance report
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)
The Nomination Committee also makes the
following proposals, for resolution by the AGM:
– remuneration to non-employee Directors
elected by the AGM and remuneration to
the auditor
– election of auditor, whereby candidates are
selected in cooperation with the Audit and
Compliance Committee of the Board
– election of Chair at the AGM
– changes to the Instruction for the
Nomination Committee (if any).
Work of the Nomination Committee
for the AGM 2021
The Nomination Committee started its work
by going through a checklist of its duties
under the Code and the Instruction for the
Nomination Committee and by setting a
time plan for its work ahead. The complete
proposals of the Nomination Committee
are presented in connection with the notice
convening the AGM 2021.
A good understanding of Ericsson’s busi-
ness and strategy is important for the
Nomination 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.
– Jonas Synnergren (Cevian Capital Partners
The Committee has analyzed the needs of
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 Directors
fulfills an important role to inform the
Committee of the Company’s strategy and
future challenges. Such insights are necessary
for the Committee to be able to assess the
competence and experience that is required
by the Board. In addition, the Committee must
consider independence rules applicable to the
Board of Directors and its committees.
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
Swedish Corporate Governance Code, section
4.1, as diversity policy. The Nomination
Committee aims to propose a composition of
Board members with complementing experi-
ences and competencies to make it possible
for the Board to contribute to a positive devel-
opment of Ericsson. The Nomination
Committee searches for potential Board mem-
ber candidates both with a long-term and a
short-term perspective and always focuses on
diversity to ensure that the Board is provided
with different perspectives into the Board
work and considerations. The Nomination
Committee also considers the need for
renewal and carefully assesses whether the
proposed Directors have the capability to
devote necessary time and care to the
Board work.
In 2020, 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
Compliance Committee also provided its
recommendations on external auditor and
audit fees.
As of February 23, 2021, the Nomination
Committee has held five 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 appoints the President and CEO who
is responsible for managing the day-to-day
operations in accordance 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 may not be elected
Chair of the Board under the Swedish
Companies Act.
Conflicts of interest
Ericsson maintains rules and regulations
regarding conflicts of interest. Directors are
disqualified from participating in any decision
regarding agreements between themselves
and Ericsson. The same applies to agreements
between Ericsson and any third-party or legal
entity in which the Board member has an
interest that may be contrary to the interests
of Ericsson.
Contact the Nomination Committee
Telefonaktiebolaget LM Ericsson
The Nomination Committee
c/o The Board of Directors Secretariat
SE-164 83 Stockholm
Sweden
nomination.committee@ericsson.com
Proposals to the Nomination Committee
Shareholders may submit proposals to the
Nomination Committee at any time but should
do so in due time before the AGM to ensure
that the proposals can be considered by the
Committee. Further information is available
on Ericsson’s website.
Corporate Governance report 2020 The Audit and Compliance Committee
oversees the procedures for related-party
transactions. The Committee has also imple-
mented a pre-approval process for non-audit
services carried out by the external auditor.
Composition of the Board of Directors
and diversity
The current Board of Directors consists of ten
Directors elected by the shareholders at the
AGM 2020 for the period until the close of the
AGM 2021. 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 2020 that the Nomination
Committee had applied the Swedish
Corporate Governance Code, section 4.1, as
diversity policy with the aim to propose a com-
position of Board members with complement-
ing experiences and competencies that is
diverse also in terms of age, gender and cul-
tural/geographical background. The current
Board composition is the result of the work of
the Nomination Committee prior to the AGM
2020. The Board consists of Board members
with experiences from different cultural/geo-
graphic areas, com peten cies from different
industry sectors and, excluding the President
and CEO, 33% of the shareholder elected Board
members are women.
Work procedure
In accordance with the Swedish Companies
Act, the Board of Directors has adopted a
work procedure and Committee charters
outlining rules for the distribution of tasks
among the Board, its Committees and the
President and CEO. This complements the
rules in the Swedish Companies 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 appropriate, 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
applicable 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 2020 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
members meet in person, a non-executive
session is normally held without Ericsson
management present.
Structure of the work of the Board
of Directors
The work of the Board follows a yearly cycle.
This enables the Board to appropriately
address each of its duties and to keep strategy,
risk assessment and value creation high on
the agenda.
Corporate governance report
7
As the Board is responsible for financial
oversight, financial information is presented
and evaluated at Board meetings.
Furthermore, 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 appropriate,
be held by way of telephone or video confer-
ence, and resolutions may be taken per capsu-
lam (unanimous written consent). Such reso-
lutions are accounted for as Board/Committee
meetings. During 2020, most of the Board
meetings have been held by way of video
conference due to the COVID-19 pandemic.
The 2020 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 2019 and
handled the fourth-quarter financial report.
– Board meeting (incl. statutory matters)
A Board meeting was held in connection
with the AGM 2020. Members of each of
the Board Committees were appointed and
the Board resolved on signatory powers.
– First interim report meeting
At the first interim report meeting, the
Board addressed the interim financial
report for the first quarter of the year.
The Board’s annual work cycle 2020
The annual cycle applied to
the Board’s work allows the
Board to appropriately address
its duties during the year. It
also facilitates the organiza-
tion in aligning its global
processes to allow appropriate
Board involvement.
Financial targets meeting
– Board work evaluation
Fourth-quarter and full-year
financial results meeting
– Financial result of the past year
Third interim report meeting
– Q3 Financial report
– Financial outlook
Q4
Dec
Jan
Q1
Nov
Feb
Oct
Sep
Strategy meeting
Mar
Apr
Board meeting
(incl. statutory matters)
First interim report meeting
– Q1 Financial report
Aug
May
Q3
Jul
Jun
Q2
Second interim report meeting
– Q2 Financial report
Strategy meeting
Corporate Governance report 2020 8
Corporate governance report
– Strategy meeting
A Board meeting was held to address par-
ticular strategic matters in further detail.
– Second interim report meeting
At the second interim report meeting, the
Board addressed the interim financial
report for the second quarter of the year.
– Strategy meeting
A Board meeting was held, in essence
dedicated to short-term and long-term
strategies of the Group, including deep-
dives into the business area strategies.
– Third interim report meeting
At the third interim report meeting, the
Board addressed the interim financial
report for the third quarter of the year and
the financial outlook.
– Financial targets meeting
A Board meeting was held, e.g. for the
Board to address the financial targets. At
this meeting, the results of the Board evalu-
ation were presented to and discussed by
the Board.
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’ knowledge in these fields is crucial
to allow well-founded Board resolutions, and
to ensure that the Company takes due advan-
tage of the different competencies of the
Directors.
Auditor involvement
At the AGM 2020, Deloitte AB was
elected new external auditor, replacing
PricewaterhouseCoopers AB. Extensive time
and effort has been spent to provide the
new auditor with a thorough introduction to
Ericsson.
The Board meets with Ericsson’s external
auditor in closed sessions at least once a year
to receive and consider the auditor’s observa-
tions. The auditor provides reports to manage-
ment 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 24 under Internal control
over financial reporting. Combined with other
steps taken internally, the Board’s and the
auditor’s review of the interim and annual
reports are deemed to give reasonable assur-
ance of the effectiveness of the internal
controls over financial reporting.
Work of the Board of Directors in 2020
In 2020, 13 Board meetings were held. For
attendance at Board meetings, see the table
on page 11. 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, Ethics and Compliance,
geopolitics and cyber security, are among the
matters that have been in focus within the
Board during the year. Compliance, strategy
and risk management are always high on the
Board’s agenda as well as sustainability and
corporate responsibility, which are integrated
into the business strategy. The Board continu-
ously 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 appropriate. The evaluation also serves
as guidance for the work of the Nomination
Committee.
Each year, the Chair of the Board initiates
and leads the evaluation of the Board and
Committee work and procedures. Evaluation
tools include detailed questionnaires and
discussions. The services of an external corpo-
rate advisory firm have been retained by the
Company to assist in developing question-
naires, carrying out surveys and summarizing
responses.
In 2020, 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 evalua-
tion 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.
Organization of the Board work
Number of Committee members as of December 31, 2020
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
Corporate Governance report 2020 Committees of the Board of Directors
The Board of Directors currently has
established four Committees: the Audit
and Compliance 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 main task of the Committees is to
prepare matters for resolution by the Board.
However, the Board has authorized each
Committee to determine and handle certain
issues in limited areas. It may also on occasion
provide extended authorization for the
Committees to determine specific matters. If
deemed appropriate, the Board of Directors
and each Committee have the right to engage
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
Compliance Committee monitors the
following:
– The scope and accuracy of the financial
statements
– Compliance with material legal and regula-
tory requirements
– Internal control over financial reporting
– Risk management
– The effectiveness and appropriateness of
the Group’s anti-bribery and corruption
program.
The Audit and Compliance Committee also
reviews the annual and interim financial
reports and oversees the external audit
process. In order to ensure the auditor’s inde-
pendence, there are pre-approval policies and
procedures in place for audit and non-audit
related services to be performed by the exter-
nal auditor. Pre-approval authority may not be
delegated to management.
The 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
shareholders at the AGM. The Committee is
involved in the preparatory work for the
Nomination Committee to propose external
auditor for election at the AGM. It also moni-
tors the ongoing performance and independ-
ence of the auditor with the aim to avoid
conflicts of interest.
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 of compliance
related matters, 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 reviewing
transactions with related parties and
Ericsson’s whistle-blower procedures.
On an annual basis, the Audit and
Compliance Committee receives training on
topics of special relevance to the Committee,
within areas such as finance, legal, and cyber
security.
Reporting Compliance Concerns
Ericsson provides employees and other exter-
nal stakeholders a dedicated communication
channel for reporting compliance concerns.
Corporate governance report
9
Ericsson Compliance Line is operated by
a third party and it is available 24/7, 365
days per year, enabling people to report from
multiple countries and in many languages.
Employees and external stakeholders are
encouraged to report conduct that could
violate the law, the Ericsson Code of Business
Ethics or the Ericsson Code of Conduct for
Business Partners. Such conduct may relate
to corruption, fraud, questionable accounting,
deficiencies in the internal controls, audit-
ing, environmental, occupational health
and safety, human right matters, workplace
respect and fairness or other matters that
could constitute a breach of law, or that could
harm the sustainability, or reputation of
Ericsson, its employees and shareholders.
Ericsson’s Allegation Management Office is
responsible for the intake and assessment of
an allegation or report of a potential compli-
ance violation. Corporate Investigations is
responsible for conducting the Group relevant
investigations, for oversight of investigations
that it delegates to other Ericsson units (e.g.,
Security, People) or to external third-party
investigators and for setting the standards and
principles that apply to all investigations at
Ericsson. Group relevant allegations reported
through the Ericsson Compliance Line and
other channels are reported to the Audit and
Compliance Committee.
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 2020: Eric
A. Elzvik (Chair), Jan Carlson, Kurt Jofs, and
Torbjörn Nyman (employee representative).
The Board has appointed shareholder elected
Board members with CFO or CEO experience
to the Committee.
Members of the Committees as of December 31, 2020
Members of the Committees of the Board of Directors
Audit and Compliance Committee
Finance Committee
Remuneration Committee
Eric A. Elzvik (Chair)
Jan Carlson
Kurt Jofs
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
Corporate Governance report 2020 10
Corporate governance report
The composition of the Audit and
Compliance Committee meets all applicable
independence requirements, including the
conditions for reliance on an exemption for
employee representatives. The Board of
Directors has determined that each of Eric A.
Elzvik, Jan Carlson and Kurt Jofs is an “audit
committee financial expert”, as defined under
the SEC rules and regulations, and that each of
them qualifies as financially sophisticated
under the applicable Nasdaq listing rules and
are familiar with the accounting practices of
an international company, such as Ericsson.
Work of the Audit and Compliance
Committee in 2020
The Audit and Compliance Committee held
seven meetings in 2020. Directors’ attendance
is reflected in the table on page 11. 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 moni-
tored the external audit fees and approved
non-audit-services performed by the external
auditor in accordance with such policies
and procedures.
The Committee approved the audit plan for
the internal audit function based on among
other things the annual risk assessment, and
reviewed the reports of the internal audit
function. The Committee also received and
reviewed updates and reports under Ericsson
Compliance Line, and from other internal
reporting channels including updates on
on-going investigations within the Group.
The Committee monitored the continued
compliance with the Sarbanes-Oxley Act as
well as the internal control and risk manage-
ment process and monitored and evaluated
the effectiveness and appropriateness of
Ericsson’s anti-bribery and corruption program.
Finance Committee
The Finance Committee is responsible for
preparing for resolution by the Board, matters
related to the finance strategy including treas-
ury 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 2020: 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.
with experiences from different markets of
relevance to the Group.
Work of the Finance Committee in 2020
The Finance Committee held three meetings
in 2020. Directors’ attendance is reflected
in the table on page 11. During 2020, the
Finance Committee assessed possible impacts
of COVID-19 on the Company’s financial
strength and balance-sheet as well as
reviewed the finance strategy including capital
structure, capital targets, rating strategy and
treasury operations.
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 Long-Term Variable Compensation
Program (LTV) and similar equity
arrangements
– 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
short-term 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.
Members of the Remuneration Committee
The Remuneration Committee appointed by
the Board in connection with the AGM 2020
consisted of four Board members: Jon Fredrik
Baksaas (Chair), Kurt Jofs, Ronnie Leten
and Kjell-Åke Soting (employee representa-
tive). The Board has appointed shareholder
elected Board members to the Committee
During the year 2020, Peter Boreham from
Mercer advised and assisted the
Remuneration Committee as an independent
expert.
Work of the Remuneration Committee
in 2020
The Remuneration Committee held seven
meetings in 2020. Director’s attendance is
reflected in the table on page 11.
The Remuneration Committee reviewed
and prepared a proposal for LTV 2020 for the
Executive Team, for resolution by the Board
and further approval by the AGM 2020. It
further resolved on salaries and STV 2020 for
the members of the Executive Team (other
than the President and CEO), reviewed the
vesting results for LTV 2017 and result of the
2019 Group Operating Income performance
condition for LTV 2019, and prepared propos-
als 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 subsequent referral to the AGM 2020 for
approval.
During the latter part of 2020, the
Remuneration Committee reviewed the cur-
rent LTV structure and executive remunera-
tion, including 2021 targets for STV for the
members of the Executive Team (other than
the President and CEO) and the Remuneration
Report required to be approved by the Board
under new rules. The resulting proposals on
LTV 2021 and the Remuneration Report will
be referred to the AGM 2021 for approval.
For further information on fixed and vari-
able remuneration, please see 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
Financial 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.
Corporate Governance report 2020 Corporate governance report
11
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
2020: 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 2020
The Technology and Science Committee held
four meetings in 2020. Directors’ attendance
is reflected in the table below. The Technology
and Science Committee has during the year
reviewed selected focus areas:
– Transport Networks
– Service exposure 5G RAN
– Open Source
– Technology outlook
– Research and development.
Directors’ attendance and fees 2020
Board member
Ronnie Leten
Helena Stjernholm
Jacob Wallenberg
Jon Fredrik Baksaas
Jan Carlson
Nora Denzel 4)
Börje Ekholm
Eric A. Elzvik
Kurt Jofs 5)
Kristin S. Rinne
Torbjörn Nyman
Kjell-Åke Soting
Roger Svensson
Per Holmberg
Anders Ripa
Loredana Roslund
Total number of meetings
Fees resolved by the AGM 2020
Number of Board/Committee meetings attended in 2020
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
19,500 3)
19,500 3)
19,500 3)
19,500 3)
19,500 3)
19,500 3)
375,000
175,000
175,000
200,000
425,000
175,000
–
400,000
600,000
200,000
10,500
10,500
10,500
–
–
–
13
13
13
12
13
13
13
13
13
13
13
13
13
13
13
13
13
7
2
7
5
7
7
3
3
3
3
3
7
7
7
7
7
4
4
4
4
4
4
1) Non-employee Directors can choose to receive part of their Board fee (exclusive of Committee fees) in the form of synthetic shares.
2) Board member remuneration resolved by the AGM is only for non-employee 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.
4) Resigned from the Audit and Compliance Committee as of March 31, 2020.
5) Appointed member of the Audit and Compliance Committee as of March 31, 2020.
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 2020 approved the Nomination
Committee’s proposal for fees to non-
employee Board members for Board and
Committee work. For further information on
Board of Directors’ fees 2020, please refer to
Notes to the consolidated financial statements
– note G2 “Information regarding members
of the Board of Directors and Group manage-
ment” in the Financial Report.
The shareholders at the AGM 2020 also
approved the Nomination Committee’s pro-
posal that Board members may be paid part of
their Board fee in the form of synthetic shares.
A synthetic share gives the right to receive
a future cash payment of an amount which
corresponds to the market value of a Class
B share in Ericsson at the time of payment.
The Directors’ right to receive payment with
regard to allocated synthetic shares occurs,
as a general rule, after the publication of the
Company’s year-end financial statement
during the fifth year following the General
Meeting that resolved on the allocation of the
synthetic shares. The purpose of paying part of
the Board of Directors’ fee in the form of syn-
thetic 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 2020 and to the minutes
from the AGM 2020, which are available at
Ericsson’s website
Corporate Governance report 2020 12
Corporate governance report
Members of the Board of Directors
Board members elected by the AGM 2020
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
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 77,150 synthetic sharess 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 38,835 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
Investment 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 and DNV
GL Group AS.
Board Member: Svenska
Handelsbanken AB.
Holdings in Ericsson: 38,533
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 49,010
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
Industrialists, Deputy Chair of
the Swedish-American Chamber
of Commerce US, member of the
International Advisory Board of
the Atlantic Council, Washington
DC, member of the International
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, 2020.
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 11 for further information.
Corporate Governance report 2020 Corporate governance report
13
Jan Carlson
(first elected 2017)
Nora Denzel
(first elected 2013)
Börje Ekholm
(first elected 2006)
Eric A. Elzvik
(first elected 2017)
Member of the Audit and
Compliance Committee and the
Technology and Science Committee
Born 1960. Master of Science degree
in Engineering Physics and Electrical
Engineering, the University of
Linköping, Sweden.
Nationality: Sweden
Board Chair: Autoliv Inc. and
Veoneer Inc.
Holdings in Ericsson: 7,900 Class
B shares 1) and 41,615 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.
Member of the Technology and
Science Committee
President, CEO and Member of the
Board
Chair of the Audit and Compliance
Committee
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
Nationality: Sweden and USA
Board Member: Advanced Micro
Devices Inc., NortonLifeLock Inc.
and Talend S.A.
Holdings in Ericsson:
3,850 ADS 1) and 13,869 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 Dell EMC) and various
engineering, marketing and
executive positions at IBM. Non-
Profit board member of the National
Association of Corporate Directors
(NACD) Northern California Chapter.
Member of the Advisory Board of
SUSE Linux.
Board Member: Alibaba Group and
Trimble Inc.
Holdings in Ericsson:
260,351 Class B shares and
1,009,000 ADS 1), 8,319 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. Member of the Board of
the Swedish-American Chamber of
Commerce New York.
Born 1960. Master of Business
Administration, Stockholm School
of Economics, Sweden.
Nationality: Sweden and
Switzerland
Board Chair: Global Connect Group.
Board Member: Landis+Gyr Group
AG, AB Volvo and VFS Global.
Holdings in Ericsson:
10,000 Class B shares 1)
and 13,869 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, 2020.
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 11 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 regarding members of the Board of Directors and Group management” in the Financial Report).
Corporate Governance report 2020
14
Corporate governance report
Board members elected by the AGM 2020, cont’d.
Kurt Jofs
(first elected 2018)
Kristin S. Rinne
(first elected 2016)
Member of the Remuneration
Committee, the Audit and
Compliance Committee and the
Technology and Science Committee
Born 1958. Master of Science in
Engineering, Royal Institute of
Technology, Stockholm, Sweden.
Nationality: Sweden
Board Chair: Höganäs AB and
Vesper Group.
Board member: AB Volvo and 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.
Chair of the Technology and Science
Committee
Born 1954. Bachelor of Arts,
Washburn University, USA.
Nationality: USA
Board member: Synchronoss.
Holdings in Ericsson:
25,595 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. Member of
the Advisory Board of Link Labs.
The Board memberships and holdings in Ericsson reported above are as of December 31, 2020.
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 11 for further information.
Corporate Governance report 2020
Corporate governance report
15
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
Employee representative, Member
of the Remuneration Committee
Employee representative, Member
of the Finance Committee and of the
Technology and Science Committee
Born 1961. Appointed by LO, the
Swedish Trade Union Confederation.
Nationality: Sweden
Holdings in Ericsson:
33,415 Class B shares 1).
Employed since 1996. Working
as ICT Strategic Product Manager
within Business Area Networks.
Born 1963. Appointed by PTK,
the council for negotiation
and cooperation.
Born 1971. Appointed by PTK,
the council for negotiation
and cooperation.
Nationality: Sweden
Holdings in Ericsson:
9,016 Class B shares 1).
Nationality: Sweden
Holdings in Ericsson:
14,891 Class B shares 1).
Employed since 1996. Working
as Global SQA Manager within
Business Area Networks.
Employed since 1999. Working as
Global Process Architect for Test
within Business Area Networks.
Anders Ripa
(first appointed 2017)
Loredana Roslund
(first appointed 2017)
Per Holmberg
(first appointed 2018)
Employee representative – Deputy
Employee representative – Deputy
Employee representative – Deputy
Born 1962. Appointed by PTK,
the council for negotiation
and cooperation.
Born 1967. Appointed by PTK,
the council for negotiation
and cooperation.
Nationality: Sweden
Nationality: Sweden
Holdings in Ericsson: 2,377 Class B
shares and 1,508 Class A shares 1).
Holdings in Ericsson:
2,238 Class B shares 1).
Employed since 1998. Working as
Security Advisor for Mission Critical
Networks within Business Area
Networks.
Employed since 1994. Working
as Project Manager within R&D,
Business Area Networks.
Born 1966. Appointed by LO, the
Swedish Trade Union Confederation.
Nationality: Sweden
Holdings in Ericsson: None 1).
Employed since 1996. Working
as Manager within Business Area
Networks.
Börje Ekholm was the only Director who held an operational management position at Ericsson in 2020.
1) The number of shares and ADS reflects ownership as of December 31, 2020 and includes holdings by related persons, if applicable.
Corporate Governance report 2020 16
Corporate governance report
Management
The President and CEO and the
Executive Team
The Board of Directors appoints the President
and CEO and the Executive Vice President(s).
The President and CEO is responsible for the
management of day-to-day operations and
is supported by the other members of the
Executive Team.
The role of the Executive Team is to:
– Define Group strategies and policies, drive
corporate agenda and establish a strong
corporate culture
– Determine targets for operational units,
allocate resources and monitor unit
performance
– Secure operational excellence and realize
global synergies through efficient organi-
zation of the Group.
The organizational structure includes four
business areas, five geographical market
areas and a number of supporting group
functions.
Business areas are responsible for
developing competitive product-led business
solutions, including both products and services
and for investing in research and development
for technology and cost leadership. Segments
have been defined for financial reporting
purposes based on the business areas. See
further information in Note B1, “Segment
Information” in the Financial Report.
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.
Ericsson Group Management System
Demands
and expectations
Strategy
& risk
Performance
improvement
Group functions are responsible for provid-
ing an effective support platform to the market
areas and business areas to drive synergies
and align ways of working across units and for
driving the corporate agenda.
The Executive Team members as of
December 31, 2020, are presented on pages
20–23.
Remuneration to the Executive Team
Guidelines for remuneration to the Executive
Team were approved by the AGM 2020. For
further information on fixed and variable
remuneration, see the Remuneration Report
and note G2, “Information regarding members
of the Board of Directors and the Group
management” in the Financial Report.
The Ericsson Group Management System
Ericsson has a global management system,
the Ericsson Group Management System
(EGMS). The EGMS aims to ensure a profes-
sional management of Ericsson´s operations,
ensure ISO certification as decided, 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 work-
ing, processes, organizational descriptions,
policies, directives and instructions. The man-
agement system is applied in Ericsson’s opera-
tions 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 manage-
ment systems) but is designed as a dynamic
governance system to enable Ericsson to
adapt the system to evolving demands and
expectations, including new legislation as
well as customers’ and other stakeholders’
requirements. Ericsson implements external
requirements only after thorough analysis and
after putting them into the Ericsson context.
The main elements of EGMS are:
– Management and control
– Ericsson business processes
– Organization and resources.
Management and control
Ericsson’s strategy process includes the whole
chain from business intelligence and strategic
forecasting to deployment of developed
strategies into targets and programs in coor-
dinated cycles; capturing the overall strategic
direction, market development and progress of
strategy execution.
Group-wide policies, directives and instruc-
tions govern how the organization works and
are core elements in managing and directing
Ericsson. The Group policies, directives and
instructions contain, among other things, a
Code of Business Ethics, a Code of Conduct
for Business Partners and accounting and
reporting directives to fulfill external reporting
requirements. Ericsson has a Group Steering
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
Corporate Governance report 2020 Corporate governance report
17
Documents Committee that works to align
policies and directives with Group strategies,
values and structures.
Ericsson business processes
Ericsson business processes is a set of defined
Group-wide processes integrated in EGMS.
They describe how Ericsson delivers value
to customers, proactively and on-demand.
Ericsson business processes offer capabili-
ties to translate customer requirements into
defined products, solutions and services
offered by Ericsson.
Organization and resources
Ericsson is operated in two dimensions: one
operational structure and one legal structure.
The operational structure aligns account-
ability and authority regardless of country
borders and supports the process flows with
cross-country operations. In the operational
structure, Ericsson is organized in group func-
tions, segments, business areas and market
areas. The legal structure is the basis for legal
requirements and responsibility as well as for
tax and statutory reporting purposes. There
are more than 200 legal entities within the
Ericsson Group with approximately 80 branch
offices with representation (via legal entities,
branch and representative offices) in more
than 150 countries. Company culture defines
the environment in which our employees work
and includes a variety of elements, for exam-
ple the core values, respect, professionalism
and perseverance.
Chief Compliance Officer
Ericsson’s Board of Directors and Executive
Team are committed to ensuring ethics and
compliance remain a priority for the Group.
The Audit and Compliance Committee moni-
tors the effectiveness and appropriateness
of Ericsson’s Ethics & Compliance Program.
The Chief Compliance Officer (CCO) oversees
the operation of the Ethics & Compliance
Program, with particular focus on anti-bribery
and corruption, antitrust, and anti-money
laundering. The CCO reports to the Chief
Legal Officer and has an additional reporting
line to the Audit and Compliance Committee.
Compliance officers located at Ericsson’s
headquarters in Stockholm, Sweden, as well
as in geographies consistent with Ericsson’s
Market Area operating model, report directly
to the CCO.
Insider Committee
Ericsson has established an Insider Committee
to make assessments relating to the disclosure
of inside information. The Insider Committee
comprises 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
performance, hence to ensure that the EGMS
is appropriate, effective and efficient in sup-
porting Ericsson´s business. Management
monitors compliance with policies, direc-
tives and processes through internal self-
assessment 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 third-party via an assess-
ment activity.
As the EGMS is a global system, group-
wide ISO certificates are issued by a
third-party certification body proving that
the system is efficient throughout the whole
organization as well as compliant to the
ISO standards in scope. Ericsson is currently
globally certified to ISO 9001 (Quality), ISO
14001 (Environment), OHSAS 18001 (Health
& Safety) and ISO 27001 (Information Secu-
rity). In 2020, Ericsson initiated the transition
from OHSAS 18001 to ISO 45001 (Health &
Safety). Selected Ericsson units are also certi-
fied to TL 9000 (telecom-specific standard).
EGMS is also assessed within the scope of the
audit plan of Ericsson’s internal audit function.
ISO/management system audits are per-
formed by BSI (British Standards Institution).
Internal audits are performed by the com-
pany’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.
Ericsson’s external financial audits are
performed by Deloitte AB.
ERM Process
Group Risk Management
Top down Risk Identification
Group Risk Consolidation
Prime Risk Selection
Group Function/Market area/Business area Risk Management
Risk Management
Planning
Bottom up
Risk
Identifi cation
Risk
Analysis
Risk
Treatment
Risk
Sign-off
Ericsson Strategy Development & Deployment Process
Corporate Governance report 2020 18
Corporate governance report
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 cross-process risks are
centrally coordinated, such as risks relating
to information security, IT security, corporate
responsibility, privacy and anti-bribery 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 man-
agement, please see Notes to the consolidated
financial statements – note F1 “Financial risk
management” in the Financial Report.
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.
Governance & Culture
Ericsson is executing on an ERM strategy
with the aim to drive transformation in certain
focus areas, such as risk culture, risk appetite
and usage of risk weighted return concepts in
strategic decisions, relation between risk and
internal control, and aligned assurance.
Governance
& Culture
Strategy
Monitoring
ERM
Framework
Assessment
& Treatment
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 inte-
grating risk management with the strategy-
setting and execution.
The ERM framework is designed to estab-
lish an adequate and effective management
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
Risk Governance
Each manager is responsible for handling the
risks that emerges from the respective area of
responsibility. The responsibility for the identi-
fied prime risks of the Company is always
allocated to an Executive Team member. The
Group Risk Management function is responsi-
ble for driving the ERM strategy execution and
the ERM operations on Group level. The head
of each group function, market area and busi-
ness area, is accountable for appointing one or
several risk manager(s) to drive risk manage-
ment 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 Compliance Committee are
responsible for reviewing the effectiveness
and appropriateness of the ERM.
Risk culture
Ericsson’s risk culture is reflected in the atti-
tudes, behaviors, and understanding about
risk, both positive and negative, that influence
decisions made by leaders and employees.
The implementation of Ericsson’s ERM Frame-
work is supporting the five focus areas of the
culture transformation initiative; Ericsson on
the Move. For further information on Ericsson
on the Move, please see page 2.
Strategy
Risk management is an important element of
strategic decision making and value creation,
since it captures the opportunities and threats
that are related to reaching the strategic
objectives. Ericsson’s risk management activi-
ties are interconnected with the development
and deployment of Ericsson’s business plans
and functional strategies.
Assessment & Treatment
Assessment and Treatment of risks are done in
accordance with the ERM process (illustrated
on page 17) that applies to the Group and
to all roles with responsibilities with regards
to risk management activities. 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 collabo-
ration between risk managers in the group
functions, market areas, business areas and
the Group Risk Management function.
Risk Identification and Risk Analysis
Current risks within the scope of accountability
for the group function, market area and busi-
ness area are identified in the bottom up risk
identification process step. The appropriate
risk manager engages the leadership teams
and stakeholders in a unit and the organiza-
tion to identify risks. In the top down risk
identification, the Group Risk Management
function conducts interviews with senior man-
agement, and external experts, to identify and
refine the risks Ericsson faces,
The Risk Universe (illustrated on page 19)
is used as inspiration to identify emerging risks
and secure that all applicable risk categories
are covered. Risk Descriptions cover event,
Risk Description
Treatment plan
Risk Descriptions are created by answering the following questions:
T
Treatment plans for the risk are defined by looking at different treatment
options to reduce the probability of the cause and impact of the event.
2
Cause
Cause
Cause
1
Event/
Condition
3
Impact
Impact
Impact
Why could it happen?
What could happen?
Why do we care?
Cause
Cause
Cause
T
T
T
Event/
Condition
T
T
T
Impact
Impact
Impact
Corporate Governance report 2020 Corporate governance report
19
Prime Risk Owners, the status of the 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.
Risk Heat Map
Risk Heat Map
y
t
i
l
i
b
a
b
o
r
P
i
i
h
h
g
g
h
h
y
y
r
r
e
e
V
V
h
h
g
g
H
H
i
i
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
The illustration shows an example of the heat map
used for presenting the key risks in a unit.
Monitoring
The Group Risk Management function moni-
tors the efficiency and effectiveness of the
ERM Framework. This is done through self-
assessments but also by providing assessment
requirements regarding risk management to
the ISO 9001 internal assessment process and
follow up on the internal assessment results.
The Group Risk Management function also
reviews internal and external audit results
to address identified weaknesses as part of
the continuous improvements of the ERM
framework.
cause and impact (illustrated on page 18).
For further information on risks related to
Ericsson’s business, see the chapter “Risk
factors” in the Financial Report.
In the Risk Analysis process step, the
impact of an identified risk is estimated
considering four dimensions – financial risk,
strategic risk, occupational health and safety
risk, and reputational risk. The key risks in a
unit are presented in a heat map (see example
to the right). 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, treatment
options are 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 and described in a treatment plan
(illustrated on page 18). Once the treatment
plan is implemented, its effectiveness shall be
assessed on an ongoing basis, and decisions
shall be made where corrective actions are
needed.
Risk sign-off
The risk sign-off entail a process step where
the risks, including the responsibility for
handling a risk and treatment plans, are
acknowledged by the unit’s leadership team
and aligned cross-Group 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.
Group Risk Consolidation & Prime Risk
Selection
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
Risk Universe
consolidated risks, to the suitable unit for
further analysis and treatment.
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
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.
Communication & Reporting
Risk Communication
Effective communication is important to
enable employees to share information, work
together, and support each other in managing
risks in the business. The risk management
community has the mission to create aware-
ness, improve knowledge and favorably influ-
ence behavior of both internal and external
stakeholders with respect to risk management
issues and requirements. Ericsson has
established a Group Risk Council to facilitate
cross-Group alignment and improvements of
the ERM framework as well as of the manage-
ment of actual risks. The Head of Group Risk
Management is the chair of the council in
which all risk managers participate.
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
selection. 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, in collaboration with the
Intellectual
Property Rights
Competition
M&A
Cyber and
information security
Security, safety
and continuity
People
Governance,
risk and control
Laws and regulations
Communication
and marketing
Geopolitical
Customer
Accounting
Treasury
Technology
Supply
and sourcing
Product and service
Project execution
Corporate Governance report 2020
20
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
Arun Bansal
Executive Vice President (since
June 10, 2020) and Head of Market
Area Europe & Latin America (since
2017)
MajBritt Arfert
Senior Vice President, Chief People
Officer and Head of Group Function
People (since 2017)
Born 1963. Master of Science in
Electrical Engineering, KTH Royal
Institute of Technology, Stockholm,
Sweden. Master of Business
Administration, INSEAD, France.
Nationality: Sweden and USA
Board Member: Telefonaktiebolaget
LM Ericsson, Alibaba Group and
Trimble Inc.
Holdings in Ericsson: 1)
260,351 Class B shares, 1,009,000
ADS, 8,319 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. Member of the Board of
the Swedish-American Chamber of
Commerce New York.
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)
14,752 Class B shares.
Background: Senior Vice President
and Head of Business Unit Network
Services (2016–2017). Has held a
variety of positions in commercial
operations and financials, including
Head of Region Sub-Saharan Africa,
Head of Region India, and Head of
Sales and Finance for Business Unit
Global Services. Previous positions
include senior positions with LUX
Asia Pacific and Tele2 Group.
Born 1968. Bachelor of Engineering
(Electronics), University of Jiwaji,
India, and Postgraduate Diploma in
Marketing, Indira Gandhi National
Open University, India.
Nationality: India
Board Member: OPCOM Cables
Sdn Bhd, Malaysia and Mycronic AB
Sweden.
Holdings in Ericsson: 1)
54,108 Class B shares and
17,860 ADS.
Background: Various senior
management positions, including
Senior Vice President (2016–2017),
Head of Business Unit-Radio (2014-
2016), Head of South East Asia
& Oceania and Country Manager
in Indonesia and Bangladesh.
Lived and worked across multiple
countries and markets, including
Malaysia, Sweden, Singapore, UK
and USA.
Born 1963. Bachelor of Human
Resources, University of
Gothenburg, Sweden.
Nationality: Sweden
Board Member: None.
Holdings in Ericsson: 1)
35,763 Class B shares.
Background: Acting Head of
Group Function Human Resources
(November 2016–March 2017).
Previously Head of Human
Resources Ericsson Sweden (2015–
2017) and Vice President and Head
of Human Resources Business Unit
Support Solutions (2007–2015).
Has held various senior positions in
Ericsson including Head of Human
Resources Business Unit Broadband
Networks, Head of Human
Resources Sony Ericsson Germany,
Head of Human Resources Business
Unit Transmission, Head of Human
Resources Microwave Systems.
Changes in the Executive Team
– Effective June 10, 2020, Arun Bansal was appointed Executive Vice President.
– The Board memberships and Ericsson holdings reported above are as of December 31, 2020.
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 Financial Report).
Corporate Governance report 2020
Corporate governance report
21
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. He started
his career in private practice in New
York in 1988 followed by various
in-house positions of increasing
seniority in the banking, power and
telecom industries, based in the UK,
Hong Kong and Switzerland. Prior
to joining Holcim Ltd, he worked at
Verizon (2004–2013) most recently
as Vice President International –
Legal and External Affairs.
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)
73,453 Class B shares.
Background: Head of Region
North East Asia (2015–2017). Has
also previously held management
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)
18,704 Class B shares
and 8,972 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). Since 2020, member of
the Broadband Commission for
Sustainable Development and
member of the board of IVA’s
Näringslivsråd.
Nationality: Sweden
Board Member: The Swedish-
American Chamber of Commerce
New York and CTIA – US wireless
industry trade association.
Holdings in Ericsson: 1)
15,611 Class B shares
and 13,741 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, 2020.
1) The number of shares and ADS includes holdings by related persons, if applicable.
Corporate Governance report 2020 22
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 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)
1,343 Class B-shares
and 6,853 ADS.
Background: Acting Head of
Business Area Digital Services
February–July 2018. Previous Head
of Solution Area BSS within Business
Area Digital Services. Before joining
Ericsson early 2017 Jan Karlsson
was the CEO of DigitalRoute, an ISV
focusing on data collection & pre-
processing across Telco and Non-
telco verticals.
Born 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)
18,021 Class B shares.
Background: 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)
7,455 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 media
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
and East- and South East Asia
Program, Lund University, Sweden.
Nationality: Sweden
Board Member: International
Chamber of Commerce (ICC)
Sweden.
Holdings in Ericsson: 1)
51,741 Class B shares.
Background: Acting Chief Financial
Officer and Head of Group Function
Finance and Common Functions
(July 2016–March 2017). Previous
positions within Ericsson include
Vice President and Group Treasurer,
and Head of Finance in Region
Western and Central Europe. Also
held Head of Finance/CFO positions
within the telecom operator space
and defence industry.
The Board memberships and Ericsson holdings reported above are as of December 31, 2020.
1) The number of shares and ADS includes holdings by related persons, if applicable.
Corporate Governance report 2020 Corporate governance report
23
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 2019)
Born 1961. Master in Electronic
Engineering, Sapienza University,
Italy.
Nationality: Italy
Board Member: None.
Holdings in Ericsson: 1)
58,245 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)
329 Class B shares
and 1,124 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)
6,533 Class B shares.
Background: Head of Business
Area Technology and Emerging
Business (April–September 2018)
and Group Strategy and M&A.
Previously Partner at McKinsey
& Company, serving high-
tech and telecommunications
companies worldwide on growth
strategies, digital and commercial
transformations. Before joining
Ericsson lived and work in the
US, Brazil, France, Sweden and
Singapore.
The Board memberships and Ericsson holdings reported above are as of December 31, 2020.
1) The number of shares and ADS includes holdings by related persons, if applicable.
Corporate Governance report 2020 24
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 one-year mandate
period. The auditor reports to the shareholders
at General Meetings.
The duties of the auditor include:
– Updating the Board of Directors regarding
the planning, scope and content of the
annual audit work
– Reviewing the interim reports to assess
that the financial statements are presented
fairly in all material respects and providing
review opinions over the interim reports for
the third and fourth quarters and the year-
end financial statements
– Providing an audit opinion over the Annual
Report
– Advising the Board of Directors of non-
audit services performed, the consideration
paid and other issues that determine the
auditor’s independence.
Auditing work is carried out by the auditor
continuously throughout the year. For further
information on the contacts between the
Board and the auditor, please see “Work of the
Board of Directors” earlier in this Corporate
Governance report.
Current auditor
In order to secure a timely auditor rotation,
Deloitte AB was elected new auditor at the
AGM 2020 for a period of one year, i.e. until
the close of the AGM 2021. Deloitte AB has
appointed Thomas Strömberg, Authorized
Public Accountant, to serve as auditor in
charge. Thomas Strömberg is also auditor in
charge in Epiroc AB.
Fees to the auditor
Ericsson paid the fees (including expenses)
for audit-related and other services listed in
the table in note H5, “Fees to auditors” in the
Financial Report.
Internal control over financial
reporting
This section has been prepared in accordance
with the Annual Accounts Act and the Swedish
Corporate Governance Code and is limited to
internal control over financial reporting.
Since Ericsson is listed in the US, the
requirements outlined in the Sarbanes-Oxley
Act (SOX) apply, subject to certain exceptions.
These regulate the establishment and mainte-
nance of internal control over financial report-
ing as well as management’s assessment of
the effectiveness of the controls.
In order to support high-quality reporting
and to meet the requirement of SOX, the Com-
pany has implemented detailed documented
controls and testing and reporting procedures
based on the internationally established 2013
COSO framework for internal control. The
COSO framework is issued by the Committee
of Sponsoring Organizations of the Treadway
Commission (COSO).
Management’s internal control report
according to SOX will be included in Ericsson’s
Annual Report on Form 20-F and filed with
the SEC in the 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 ad-hoc information, such
as press releases on important events,
performed in a timely manner
– Fair and equal – where all material infor-
mation is published via press releases to
ensure that the whole investor community
receives the information at the same time
– Complete – free from material errors and
a reflection of best practice – disclosures
compliant with applicable financial report-
ing standards and listing requirements and
in line with industry norms.
Ericsson’s website comprises comprehensive
information 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 accord-
ance 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
President and CEO and the CFO, so timely
decisions can be made regarding required
disclosure.
The Disclosure Committee assists manage-
ment in fulfilling their responsibility regarding
disclosures made to the shareholders 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 has investments in certain entities
that the Company does not control or manage.
With respect to such entities, disclosure con-
trols and procedures are substantially more
limited than those maintained with respect
to subsidiaries.
Corporate Governance report 2020 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, 2020. Any controls and proce-
dures, no matter how well designed and oper-
ated, can provide only reasonable assurance
of achieving the desired control objectives.
Internal control over financial reporting
Ericsson has integrated risk management and
internal control 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.
The control framework is updated regularly
to reflect relevant changes in processes, tools
usage, outcome of risk assessments, changes
in legislations, etc. During the period covered
by the Annual Report 2020, enhancements
were initiated to strengthen the design of
the controls and the efficiency of the internal
control over financial reporting. The scope
of the enhancements covers both business
process controls and IT controls.
Although the Company has modified
its workplace practices globally due to the
COVID-19 pandemic, resulting in most of its
employees working remotely, this has not
significantly affected the Company’s internal
controls 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
of operations, with well-defined roles and
responsibilities and delegations of authority
– Several well-defined Group-wide processes
for planning, operations and support.
The most essential parts of the control envi-
ronment relative to financial reporting are
included in steering documents and processes
for accounting and financial reporting. These
steering documents are updated regularly to
include, among other things:
– Changes to laws
– Financial reporting standards and listing
requirements, such as IFRS and SOX.
The processes include specific controls to be
performed to ensure high-quality financial
reports. The management of each reporting
legal entity, region and business unit is sup-
ported by a financial controller function with
execution of controls related to transactions
and reporting. The company controller func-
tions are organized in a number of Company
Control Hubs, each supporting a number of
legal entities within a geographical area. A
financial controller function is also established
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, revenue
and cost or insufficient disclosure. Other risks
related to financial reporting include fraud,
loss or embezzlement of assets and undue
favorable treatment of counterparties at the
expense of the Company.
Policies and directives regarding account-
ing and financial reporting cover areas of
particular significance to support correct,
complete and timely accounting, reporting
and disclosure.
Identified types of risks are mitigated
through well-defined business processes with
integrated risk management activities, segre-
gation of duties and appropriate delegation
of authority. This requires specific approval of
material transactions and ensures adequate
asset management.
Corporate governance report
25
controls regarding recognition, measurement
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 Disclosure Committee performs additional
control procedures to review whether the
disclosure requirements are fulfilled.
The Company has implemented controls
to ensure that financial reports are prepared
in accordance with its internal accounting
and reporting policies and IFRS as well as
with relevant listing regulations. It maintains
detailed documentation on internal controls
related to accounting and financial reporting.
It also keeps records on the monitoring of the
execution and results of such controls. This
allows the President and CEO and the CFO to
assess the effectiveness of the controls in a
way that is compliant with SOX.
Entity-wide controls, focusing on the
control environment and compliance with
financial reporting policies and directives,
are implemented in all subsidiaries. Detailed
process controls and documentation of
controls performed are also implemented in
almost all subsidiaries, covering the items with
significant materiality and risk.
In order to secure compliance, govern-
ance 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 respec-
tive geographical area.
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
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.
Corporate Governance report 2020 26
Corporate governance report
Information and communication
The Company’s information and communica-
tion channels support complete, correct and
timely financial reporting by making all rel-
evant internal process instructions and policies
accessible to all the employees concerned.
Regular updates and briefing documents
regarding changes in accounting policies,
reporting and disclosure requirements are also
supplied.
Subsidiaries and operating units prepare
regular financial and management reports
for internal steering groups and Company
management. These include analysis and
comments on financial performance and
risks. The Board of Directors receives financial
reports monthly. Ericsson has established a
whistleblower tool, Ericsson Compliance Line,
that can be used for the reporting of alleged
violations that:
– are conducted by Group or local manage-
ment, and
– relate to corruption, questionable account-
ing, deficiencies in the internal control of
accounting or auditing matters or other-
wise seriously affect vital interests of the
Group or personal health and safety.
Monitoring
The Company’s process for financial report-
ing is reviewed annually by management.
This forms a basis for evaluating the internal
management system and internal steering
documents to ensure that they cover all
significant areas related to financial reporting.
The Shared Service Center and Company
Control Hub Management continuously
monitor accounting quality through a set of
performance indicators. Compliance with
policies and directives is monitored through
annual self-assessments and representation
letters from heads and company controllers in
subsidiaries as well as in business areas and
market areas.
The Company’s financial performance is
also reviewed at each Board meeting. The
Committees of the Board fulfill important
monitoring functions regarding remuneration,
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
and Compliance Committee follows up on any
actions taken to improve or modify controls.
Board of Directors
Stockholm, March 3, 2021
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680
Corporate Governance report 2020 Auditor’s report on the
Corporate governance report
Corporate governance report
27
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 govern-
ance statement for the financial year January 1, 2020 – December 31,
2020 on pages 1–26 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 stand-
ard RevU 16 The auditor’s examination of the corporate governance
statement. This means that our examination of the corporate govern-
ance statement 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 statement has been prepared. Disclosures in
accordance with chapter 6 section 6 the second paragraph points 2–6
the Annual Accounts Act and chapter 7 section 31 the second paragraph
the same law are consistent with the annual accounts and the consoli-
dated accounts and are in accordance with the Annual Accounts Act.
Stockholm, March 3, 2021
Deloitte AB
Thomas Strömberg
Authorized public accountant
Corporate Governance report 2020 Remuneration
report
Part of
Ericsson
Annual Report
2020
Annual Report 2020
Financial
report
Corporate
Governance
report
Remuneration
report
Sustainability
and Corporate
Responsibility
report
ericsson.com
Contents
Remuneration report 2020
Statement from the Chair of the
Remuneration Committee
Introduction
Remuneration 2020 at a glance
Total remuneration to the President and CEO
and Executive Vice Presidents
Variable remuneration
Short term variable compensation (STV)
Long-term variable compensation (LTV)
Shareholding guidelines for the
Executive Team
Comparative information on the change of
remuneration and Company performance
1
2
3
5
6
6
7
11
11
The Report has been prepared in accordance with Chapter 8,
Sections 53 a and 53 b of the Swedish Companies Act (2005:551)
and the Remuneration Rules (December 1, 2020) issued by the
Swedish Corporate Governance Board.
Information required under Chapter 5, Sections 40–44 of the
Annual Accounts Act (1995:1554) is available in note G1–G4
in the Financial report.
Information on the work of the Remuneration Committee during
2020 is set out in the Corporate Governance report, which is avail-
able on page 10 in the Corporate governance report.
1
Remuneration report 2020
Statement from the Chair of
the Remuneration Committee
On behalf of the Board of Directors, I am
pleased to present Ericsson’s Remuneration
report for the financial year 2020. The Remu-
neration report describes how the Guidelines
for remuneration to Group Management were
implemented, as well as the long-term variable
compensation program during 2020.
In 2020, Ericsson continued to successfully
execute on the focused business strategy
introduced in 2017 and has restored profit-
ability and delivered organic growth, which
enabled the Company to achieve its financial
targets at Group level. Remaining committed
to the targets for 2022, the Company continues
to pursue selective, disciplined and profitable
growth in order to build a stronger Ericsson in
the long term.
It is only possible for Ericsson to accomplish
its long-term goals under a strong leadership
team with a mix of talent consisting of indi-
viduals with a range of backgrounds, skills and
capabilities. This requires that the Company
can attract, retain and motivate the right talent
and can offer them competitive remuneration
at a global level. Hence, Ericsson’s remunera-
tion philosophy and practices are based on
the principles of competitiveness, fairness,
transparency and performance, with long-term
value creation for shareholders as the overall
purpose in order to successfully implement the
Company’s strategy and sustainable long-term
interests.
In 2020, the Guidelines for remuneration
to Group Management, approved by the
shareholders in March 2020, were successfully
implemented and remuneration was paid in
accordance with the applicable guidelines. In
the annual total compensation review, each
compensation element (at target level) in the
total remuneration mix has been benchmarked
against external local and global market levels
where Ericsson competes for talent.
Furthermore, the use of the one-year Group
operating income performance criterion for the
long-term variable compensation programs
starting from 2018 proved effective in terms
of playing a key role in the achievement of
Ericsson’s 2020 Group financial targets. The
Remuneration Committee and the Board of
Directors therefore proposes a long-term vari-
able compensation program for 2021 with the
same structure and performance criteria as the
long-term variable compensation program for
2020 to the Annual General Meeting of share-
holders in 2021.
In closing, I want to recognize the level of
energy, determination and resilience dem-
onstrated by the Executive Team and by all
our people across the global organization in
implementation of the focused strategy and
achieving a successful turnaround especially
during these difficult times. Thank you all!
Jon Fredrik Baksaas
Chair of the Remuneration Committee
Remuneration report 2020
2
Introduction
This Remuneration report (the Report) provides an outline of how the
Guidelines for Remuneration to Group Management (the Guidelines) of
Telefonaktiebolaget LM Ericsson (Ericsson or the Company), adopted
by the Annual General Meeting of shareholders (AGM) 2020, have
been implemented in the financial year 2020. The Report also provides
details on total remuneration, including fixed and variable remunera-
tion, to Ericsson’s President and CEO and the two Executive Vice Presi-
dents. In addition, the Report contains a summary of the Company’s
current short-term and long-term variable compensation programs to
the Executive Team.
The remuneration to the President and CEO and the Executive Vice
Presidents presented in the Report constitute their total remuneration,
regardless of being paid through the Company or a Group company.
The Guidelines, adopted by the AGM 2020, can be found on page
20–24 in the Financial report. The auditor’s report regarding whether
the Company has complied with the Guidelines is available on
Ericsson’s website, www.ericsson.com.
Remuneration to the Board of Directors is not covered by this Report.
Such remuneration is resolved annually by the AGM and is disclosed in
note G2 on page 67–68 in the Financial report.
Executive outline
Information regarding Ericsson’s performance during the financial year
can be found in the Annual Report 2020.
A successful implementation of the Company’s strategy and sustain-
able long-term interests requires that the Company can attract, retain
and motivate the right talent and can offer them competitive remunera-
tion. For Ericsson, long-term value creation for shareholders and pay
for performance constitute a strong foundation for remuneration. The
Guidelines aim to ensure alignment with Ericsson’s current remunera-
tion philosophy and practices applicable for the Company’s employees
based on the principles of competitiveness, fairness, transparency and
performance. In particular to:
– Attract and retain highly competent, high performing, 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 ben-
efits 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 also aim to allow the Company to offer the members
of the Executive Team attractive and competitive total remuneration
globally.
Under the Guidelines, remuneration to the Executive Team shall be
on market terms and may consist of the following components: fixed
salary, variable remuneration, pension and other benefits. In addition to
remuneration covered by the Guidelines, the shareholders have decided
to implement long-term variable compensation programs (LTV). The
programs LTV 2018, LTV 2019 and LTV 2020 are still ongoing.
During 2020, no derogations or deviations have been made from
the applicable guidelines or from the decision procedures set out in the
applicable guidelines for determining the remuneration to the Executive
Team. No remuneration has been reclaimed during 2020.
The following key decisions with regards to remuneration were made
during 2020:
– Fixed salary review was conducted in January 2020, taking into
account the total remuneration.
– Outcomes of short-term variable remuneration determined by
reference to performance against applicable financial measures and
resulted in an outcome being at maximum, 100% and an outcome
being 81,2%, respectively, for the Executive Vice Presidents.
– Achieved vesting level of the LTV 2018 determined to be 200%,
based on the pre-agreed performance criteria; Group operating
income, relative and absolute total shareholder return (TSR).
– Achieved vesting level for the LTV 2020 Group operating income
performance criteria was determined to be 200%.
The Remuneration Committee supports the Board of Directors with
the review and evaluation of the Guidelines and Ericsson’s applica-
tion of the Guidelines. The Remuneration Committee and the Board
of Directors have concluded that the Guidelines should not be further
revised. The Guidelines approved by the AGM 2020 are valid until the
AGM 2024. No changes are proposed to the Guidelines, and therefore
no shareholder approval of remuneration guidelines will be required at
the AGM 2021.
The Remuneration Committee and the Board of Directors evaluate
the LTV programs to the Executive Team on an ongoing basis for effec-
tiveness in serving their purpose to support achieving the Company’s
strategic business objectives and sustainable long-term interests, as
well as their facility to increase the long-term focus of the members
of the Executive Team and align their interests with the long-term
expectations and the interests of the shareholders.
Upon evaluation of the ongoing LTV programs to the Executive
Team for 2018, 2019 and 2020, the Remuneration Committee and the
Board of Directors concluded that these ongoing LTV programs, which
are all the same in terms of plan structure, performance criteria and
performance periods, enabled the Company to achieve its long-term
objectives for 2020 set forth in 2017, especially with the inclusion of
the one-year Group operating income performance criterion. Although
the Group operating performance criterion has a one-year performance
period, it has a three-year vesting period that is the same as the vesting
periods for the absolute and relative TSR performance criteria, which
is in line with the objectives of the LTV programs. This means that the
participants cannot exercise any of the allocated Performance Share
Awards until the three-year vesting period is completed and that
the participants are fully exposed to share price movements for the
three-year period.
The LTV programs for 2018, 2019 and 2020 facilitated to secure
execution of the focused business strategy since its launch in 2017,
and as a result the Company has restored profitability, delivered
organic growth, achieved its long-term 2020 financial targets and in
turn created increased shareholder value. As a result, the Board of
Directors, upon recommendation from the Remuneration Committee,
has resolved to propose to the AGM 2021 an LTV program to the
Executive Team for 2021 with the same structure as LTV 2020. The
aim of LTV 2021 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 Executive Team and align
their interests with the long-term expectations and the interests of
the shareholders.
Remuneration report 2020
Remuneration 2020 at a glance
Total remuneration
The table below summarizes how the remuneration elements outlined in the Guidelines have been applied in relation to the President and CEO
and the Executive Vice Presidents. The table also summarizes information on LTV, as approved by the shareholders.
3
Purpose and link to strategy
Key features
Fixed salary
Support the attraction and retention of
executive talent required to implement
Ericsson’s strategy.
Deliver part of the annual compen sation in
a predictable format.
Salaries are normally reviewed annually in January
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 employees based in
locations considered to be relevant to the role.
When setting fixed salaries, the impact on total
remuneration is also taken into consideration.
Implementation during the financial year
that ended on December 31, 2020
President and CEO: fixed annual salary of
SEK 16,876,629 corresponding to an increase
of 10% since 2019.
EVP Head of Business Area Networks: fixed
annual salary of SEK 7,942,375, corresponding
to an increase of 29% since 2019.
EVP Head of Market Area Europe and Latin
America fixed salary of SEK 8,673,843
(appointed EVP in June 2020).
Other benefits
Provide market competitive benefits to sup-
port the attraction and retention of execu-
tive talent required to implement Ericsson’s
strategy.
Pension
Offer long term financial security and plan-
ning for retirement by way of providing com-
petitive retirement arrangements in line with
local market practices.
Short term
variable
compensation
(STV)
Set clear and relevant targets for the
Executive Team that are aligned with
Ericsson’s strategy and sustainable long-term
interests.
Provide individuals an earning opportunity for
performance at flexible cost to the Company.
Long term
variable
compensation
(LTV)
Align the long-term interests of the mem-
bers of the Executive Team with those of
shareholders.
Rewards consistent with long-term perfor-
mance in line with Ericsson’s business strategy.
Provide individuals with long-term com-
pensation for long-term commitment and
value creation in alignment with shareholder
interests.
Benefits are set in line with competitive market
practices in the individual’s country of employment.
President and CEO: other benefits to a value of
SEK 770,276.
The levels of benefits provided may vary year on
year depending on the cost of the provision of
benefits to the Company.
Benefits are capped at 10% of the annual fixed
salary for members of the Executive Team located
in Sweden.
Benefits for members of the Executive Team
who are on long-term international assignment
(LTA) in countries other than their home coun-
tries of employment, are determined in line with
the Company’s global international 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.
The pension plans follow competitive practice in
the individual’s home country.
Pension plans for the President and CEO and the
Executive Vice Presidents are defined contribu-
tion plans.
EVP Head of Business Area Networks: other
benefits to a value of SEK 22,110.
EVP Head of Market Area Europe and
Latin America: other benefits to a value of
SEK 840,273.
Company pension contribution:
– President and CEO: SEK 9,113,376
– EVP Head of Business Area Networks:
SEK 3,457,409,
– EVP Head of Market Area Europe and Latin
America: SEK 516,344.
The President and CEO is not entitled to any STV.
Outcome of STV 2020:
– EVP Head of Business Area Networks: 100%
of the maximum opportunity
– EVP Head of Market Area Europe and Latin
America: 81,2% of the maximum opportunity.
Achieved vesting of LTV 2018 at 200%
of target.
Target opportunity is at 30% of fixed salary and
maximum is 60% of fixed salary for the Executive
Vice Presidents.
Performance measures, weightings and target
levels are set annually.
Subject to malus and clawback.
Awards granted after AGM approval.
Award levels are determined as percentage of fixed
salary:
– For the President and CEO 180% of fixed salary.
– For the Executive Vice Presidents 50% of fixed
salary.
Performance measures, weightings and targets
levels are presented to the AGM for approval.
Three-year vesting period.
Subject to malus and clawback.
Remuneration report 2020
4
Remuneration earned in 2020
Börje Ekholm
President and CEO
MSEK
120
100
80
60
40
20
0
72.4
78.5
0.6
8.3
16.3
2019
9.1
17.7
0.8
2020
Fredrik Jejdling
EVP and Head of Business Area Networks
Remuneration earned – Fredrik Jejdling
Arun Bansal 1) EVP and Head of Market Area
Europe and Latin America
Remuneration earned – Arun Bansal
MSEK
MSEK
40
35
30
25
20
15
10
5
0
9.0
4.4
3.5
7.9
0.0
3.7
3.1
3.3
6.9
0.1
2019
2020
40
35
30
25
20
15
10
5
0
9.8
8.7
2.3
0.5
0.8
2019
2020
Fixed salary
Benefits
Pension
LTV
Fixed salary
Benefits
Pension
STV
LTV
Fixed salary
Benefits
Pension
STV
LTV
STV
The information presented for 2020 covers the financial year 2020, and
the information for 2019 covers the financial year 2019.
LTV
The information presented for 2020 include information on LTV 2018
that will vest during 2021, and the information presented for 2019
include information on LTV 2017 that vested during 2020.
1) Arun Bansal was appointed Executive Vice President
in June 2020. Information disclosed covers the time
period June 1– December 31, 2020.
Performance outcome in 2020
STV 2020 outcome
2020 Short Term Variable Compensation outcome
LTV 2018 outcome
2018 Long Term Variable Compensation outcome
LTV 2018 TSR development (2018–2020)
%
100
80
60
40
20
0
100
60
100
60
54
81
41
40
40
40
Opportunity
Outcome
Fredrik Jejdling
EVP and Head
of Business
Area Networks
Outcome
Arun Bansal
EVP and Head
of Market Area
Europe and
Latin America
Economic Profit: Business Area/Market Area as % of maximum
opportunity
Economic Profit: Group as % of maximum opportunity
Economic Profit means operating profit less cost of capital.
%
100
80
60
40
20
0
100
20
30
50
100
20
30
50
162.01
104.47
100.93
Relative TSR
ranking 1,94 out of
12, achieved vest-
ing level 200%
Absolute TSR
26,92% CAGR
achieved vesting
level 200%
%
QUALCOMM
Ericsson
Motorola Solutions
Harris
CGI Group
Cisco Systems
Corning
F5 Networks
Cap Gemini
42.73
38.28
30.28
26.86
25.99
24.03
Cognizant
11.66
IBM
-5.27
Juniper
-8.55
Nokia
-16.55
Opportunity
Outcome
-50
0
50
100 150 200
Relative TSR: As % of maximum opportunity
Absolute TSR: As % of maximum opportunity
Group Operating Income: As % of maximum opportunity
To support the execution of Ericsson’s business strategy and achievement of the financial targets of the Group, the Company’s variable
compensation programs focus on targets relating to economic profit, Group operating income and TSR. The variable remuneration is thereby
designed to create incentives for the contribution to Ericsson’s short- and long-term strategic plan and business objectives.
Remuneration report 2020
Total remuneration to the President
and CEO and Executive Vice Presidents
The table below sets out total remuneration to the President and CEO and the Executive Vice Presidents of Ericsson during 2019 and 2020.
Total remuneration to the President and CEO and Executive Vice Presidents
5
Name and position
Börje Ekholm
President and CEO
Fredrik Jejdling
Executive Vice President and
Head of Business Area Networks
Arun Bansal Executive
Vice President and Head of
Market Area Europe &
Latin America 9,10)
Financial
year
2020
2019
2020
2019
2020
Fixed remuneration
Variable remuneration
Fixed salary
(incl. vaca-
tion pay)
17,727,726
16,299,080
7,925,971
Other
benefits1)
One-year
variable2)
Multi-year
variable3)
770,276
600,572
22,110
– 78,475,833
– 72,397,175
9,025,678
4,415,425
8,673,843
840,273
2,253,084
9,844,590
201910)
–
–
–
–
Additional
arrange-
ments4)
Pension5)
Total
remuneration6)
Proportion
of fixed
remuneration7)
Proportion
of variable
remuneration8)
– 9,113,376
– 8,284,891
– 3,457,409
106,087,211
97,581,719
24,846,592
–
–
516,344
22,128,134
–
–
26%
26%
46%
60%
45%
–
74%
74%
54%
40%
55%
–
6,933,652
142,305
3,085,500
3,724,945
– 3,282,635
17,169,037
1) For further information about other benefits, see table regarding the Implementation of fixed remuneration and pension to the President and CEO and the Executive Vice Presidents.
2) Amounts represent STV that was earned during the financial year that is paid the following year, i.e. for 2020 amounts represent STV 2020 and for 2019 amount represents STV 2019.
3) Amounts represent the LTV for which all performance periods lapsed during the financial year and the EPSP share matching that took place during the financial year. For 2020 amounts represent LTV 2018 and
for 2019 amounts represent LTV 2017. Amounts are calculated based on the numbers of Performance Share Awards that will vest at the end of the vesting period multiplied by the volume weighted average of
the five last trading days of each financial year. The 2016 EPSP was settled and closed with the final delivery of the remaining performance matching shares to the participants on August 17, 2020. The 2016
EPSP performance period ended December 31, 2018, and since 2016 no EPSP has been introduced for members of the ET. The details of the EPSP are explained in the notes to the consolidated financial state-
ments – note G3 share-based compensation, page 69 in the Financial report.
4) Amounts represent discretionary additional arrangements approved by the Remuneration Committee or the Board of Directors that was made during the financial year
5) Amounts represent cash in lieu of pension (for the President and CEO) or pension contributions (for the Executive Vice Presidents) paid during the financial year.
6) Amounts represent the sum of Fixed remuneration, Variable remuneration, Additional arrangements and Pension.
7) Amounts represent the sum of Fixed remuneration and Pension divided by Total remuneration.
8) Amounts represent the sum of Variable remuneration and Additional arrangements divided by Total remuneration.
9) Any remuneration in foreign currency has been translated to SEK at average exchange rates for the year.
10) Arun Bansal was appointed Executive Vice President in June 2020. Fixed salary, Other benefits, One-year variable, Additional arrangements and Pension are calculated on a pro-rata basis for the time period
June 1 – December 31, 2020. With regards to Multi-year variable, it constitutes LTV 2018 and EPSP share matching for the time period June 1 – December 31, 2020.
Implementation of fixed remuneration and pension to the President and CEO and the Executive Vice Presidents
The table below sets out the implementation of fixed remuneration and pension to the President and CEO and the Executive Vice Presidents.
Fixed Salary
Other Benefits
Pension
Börje Ekholm
President and
CEO
Fredrik Jejdling
Executive Vice
President and
Head of Business
Area Networks
When Börje Ekholm was appointed President and CEO, he
had a fixed salary at par with the previous incumbent, which
reflects Ericsson’s relative size and importance in Sweden. The
Company has made a major turnaround since 2017 imple-
menting the focused strategy under Börje Ekholm’s leadership,
coupled with a shift in the Company’s culture. The new research
and development (R&D) strategy delivers significant progress
and the Company’s technology and pipeline have been
strengthened by targeted business development. As a result,
Ericsson delivers strong financial and operating performance
despite fines related to the settlement with the US Department
of Justice (DoJ) and Securities and Exchange Commission (SEC)
investigation during 2019. To reflect the performance of the
President and CEO up until the end of 2019, he was awarded a
salary increase of 10% from January 1, 2020. The fixed salary
level of 2020 is deemed appropriate in relation to the respon-
sibility of being the President and CEO of a leading global ICT
solutions provider compared to the compensation packages of
President and CEOs of similar international companies.
The salary level reflects Fredrik Jejdling’s responsibility as
head of Ericsson’s largest segment Networks. The salary level
is deemed competitive with regards to the external market of
both other Executive Vice Presidents of leading global ICT solu-
tions providers as well as smaller sized companies’ President
and CEOs. Except from the fixed salary increase on January 1,
2020, Fredrik also received an extra salary increase of 14,4%
for exceptional performance effective from August 1, 2020,
which is reflected above.
In accordance with the
Company’s Swedish benefits
policy, Börje Ekholm is entitled to
a company car or a cash allow-
ance and other ordinary benefits
as other employees in Sweden.
Due to Börje Ekholm being
resident in the USA he is also
entitled to a US medical insurance
as well as tax advisory services
with regards to his income
statement.
Börje Ekholm receives a cash payment in lieu
of a defined contribution pension, because
it is not possible to enroll him in the Swedish
defined contribution pension plan (ITP1)
due to his residency in the USA. The 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. Because
Börje Ekholm’s remuneration package does
not include an STV component, and because
incentive payments in cash are included as
part of the pensionable income under Swedish
rules, it was agreed in his employment contract
that his pension contribution would include an
additional premium over annual fixed salary to
take into account an assumed STV on-target
opportunity.
In accordance with the
Company’s Swedish benefits
policy, Fredrik Jejdling is entitled
to a company car or a cash allow-
ance and other ordinary benefits
as other employees in Sweden.
In accordance with Ericsson’s pension guide-
lines, Fredrik Jejdling participates in the defined
contribution plan ITP1. He is not entitled to any
other retirement benefit outside of the rules and
regulations in the ITP.
Arun Bansal
Executive Vice
President and
Head of Market
Area Europe &
Latin America
The fixed salary reflects Arun Bansal’s responsibility as head
of two major geographies, both Europe and Latin America. His
salary level is deemed competitive to reflect his responsibility.
Arun Bansal is currently on LTA in the United Kingdom from his
original employment in India. In accordance with best practice
for international assignments, his compensation is set with a
“home base approach”.
As Arun Bansal is on LTA, he is
entitled to benefits in line with
Ericsson’s international mobility
policy such as housing allowance,
transportation allowance, home
travel, tax and social security
equalization assistance and
medical insurance.
In accordance with Ericsson’s pension
guidelines and according to his employment
contract, Arun Bansal is eligible for Ericsson’s
LTA pension plan, International Pension Plan
(IPP) and annual pension contribution is paid
into Interben Trustees Limited in 2020.
Remuneration report 2020
6
Variable remuneration
Ericsson believes that, where possible, variable compensation 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.
All variable compensation plans have maximum award and vest-
ing limits. Short-term variable compensation is to a greater extent
dependent on the performance of Ericsson and the specific unit, while
long-term variable compensation is dependent on the achievements of
the Ericsson Group.
Short term variable compensation (STV)
Short-term annual variable compensation is delivered through cash-
based programs that are dependent only on financial business targets.
Specific financial 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 operational profitability after the deduction
of cost of capital.
For the Executive Team, economic profit targets are defined:
– At Group level for heads of Group functions,
– As a combination of Group level and business area level for heads of
business areas,
– As a combination of Group level and market area level for heads of
market areas.
The President and CEO does not uphold any short-term variable com-
pensation, with the main intention to encourage and ensure a long-term
engagement and performance. The Remuneration Committee decides
on and approves all targets which are set for other members of the
Executive Team. These targets are cascaded within the organization
and broken down to unit-related targets throughout the Company
where applicable. The Remuneration Committee monitors the appropri-
ateness and fairness of the Group, business area and market area target
levels throughout the performance year and has the authority to revise
them should they cease to be relevant or stretching or to enhance share-
holder value. The current weighting for the Executive Vice Presidents
as well as other business or market area heads is 40% Group Economic
Profit target and 60% business/market area Economic Profit target.
The tables below set out the outcome of STV 2020 for each Executive Vice President, determined by reference to performance against applicable
financial measures.
Executive Vice President and Head of Business Area Networks – Fredrik Jejdling (STV 2020)
Measure
Weighting
Group Economic Profit 1)
Business Area Networks Economic Profit 1)
Total
40%
60%
100%
1) Economic Profit means operating profit less cost of capital.
Threshold performance
level (as % of Target)
SEK outcome at
threshold performance
Target
performance level
Maximum performance
level (as % of target)
SEK outcome at
target performance
SEK outcome at
maximum performance
Actual Performance
(as % of target)
SEK outcome at
actual performance
61%
SEK 0
84%
SEK 0
SEK 0
100%
SEK 883,085
100%
SEK 1,324,627
SEK 2,207,712
139%
SEK 1,766,170
125%
SEK 2,649,255
SEK 4,415,425
157%
SEK 1,766,170
152%
SEK 2,649,255
SEK 4,415,425
Executive Vice President and Head of Market Area Europe and Latin America– Arun Bansal (STV 2020) 1)
Measure
Weighting
Group Economic Profit 2)
Market Area Europe and Latin America
Economic Profit 2)
Total
40%
60%
100%
Threshold performance
level (as % of Target)
Target
performance level
Maximum performance
level (as % of target)
Actual Performance
(as % of target)
SEK outcome at
threshold performance1)
SEK outcome at
target performance1)
SEK outcome at
maximum performance1)
SEK outcome at
actual performance1)
61%
SEK 0
71%
SEK 0
SEK 0
100%
SEK 554,954
100%
SEK 832,431
SEK 1,387,384
139%
SEK1,109,907
129%
SEK 1,664,861
SEK 2,774,769
157%
SEK 1,109,907
111%
SEK1,143,176
SEK 2,253,084
1) Arun Bansal was appointed Executive Vice President in June 2020. SEK outcome at threshold performance, SEK outcome at target performance, SEK outcome at maximum performance and SEK outcome at
actual performance, respectively, are calculated on a pro-rata basis for the time period June 1 – December 31, 2020.
2) Economic Profit means operating profit less cost of capital.
Remuneration report 2020
Long-term variable compensation (LTV)
The current LTV programs have been designed to encourage long-term
commitment and value creation in alignment with Ericsson’s long-term
strategic objectives and shareholder interests. They form part of a total
remuneration package and in general span over a minimum of three
years. As these are variable compensation programs, the outcomes
cannot be predicted when the programs are introduced and rewards
depend on long-term personal commitment, corporate performance
and share price development.
Since 2017, the introduced LTV programs within Ericsson consist
of share-based remuneration for members of the Executive Team. The
aim of the LTV programs is to attract, retain and motivate 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 Executive Team with those of shareholders.
Awards under LTV 2017, 2018, 2019 and 2020 (Performance Share
Awards) are granted free of charge entitling the participants, provided
that i.a. certain performance conditions are met, to receive a number
of shares, free of charge, following expiration of a three-year vesting
period (vesting period) under each program. Allotment of shares pursu-
ant 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 was 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,
ranging from one to three years (performance period). 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 to be eligible for receiv-
ing the performance 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
7
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.
The Board may, at any time prior to the Vesting Date of an award,
reduce (including to zero) the number of shares to which an award
relates, to the extent it considers appropriate, taking into account:
– the Company’s financial results and position;
– conditions on the stock market; and/or
– such other circumstances as the Board considers appropriate.
In addition, the Company has the right in its discretion to deny in whole
or in part the entitlement of a participant to the program related to the
year(s) in which the participant has acted in breach of Ericsson’s Code of
Business Ethics. The Company also has the right in its discretion to claim
repayment in whole or in part the awards vested in respect of year(s) in
which the participant has acted in breach of Ericsson’s code of Business
Ethics, and the Participant agrees to repay accordingly.
The details for each of the ongoing long-term variable compensation
programs within Ericsson, including the programs for other employees,
are explained in the notes to the consolidated financial statements –
note G3 share-based compensation, page 69 in the Financial report.
Long-Term Variable compensation program 2020 (LTV 2020)
LTV 2020 was approved at the AGM 2020 and includes all members
of the Executive Team, a total of 15 Executive Team members in 2020,
including the President and CEO. The participants were granted Perfor-
mance Share Awards on April 1, 2020. The Performance Share Awards
granted to the President and CEO and Executive Vice Presidents are
summarized in the table below.
Grant information Long-Term Variable compensation program 2020 (LTV 2020)
Participant
Börje Ekholm
Fredrik Jejdling
Arun Bansal 6)
Grant value1)
30,377,932
3,471,188
4,272,052
Grant value as
percentage of
annual base salary2)
Number of
Performance Share
Awards granted3)
Percentage of grant
subject to performance
condition4)
Maximum number of
possible performance
awards vesting5)
180%
50%
50%
389,660
44,525
54,797
100%
100%
100%
779,320
89,050
109,594
1) Amounts represent base entitlement amount in SEK.
2) Numbers represent base entitlement amount as percentage of the annual base salary at grant date.
3) Calculated as the respective grant value divided by 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 fourth quarter 2019.
4) All Performance Share Awards are subject to challenging performance criteria that are measured over pre-determined performance periods, ranging from one to three years. Performance criteria for LTV 2020 are:
(i) Group operating income target (weight 50%) that is measured over the period January 1, 2020 to December 31, 2020; (ii) Absolute TSR development (weight 30%) ranging from 6–14% compounded annual
growth rate; (iii) Relative TSR development (weight 20%) for the Ericsson B share, ranking 6–2 against 11 peer companies, measured over the period January 1, 2020 to December 31, 2022. The performance
criteria for LTV 2020 along with the details on how the performance criteria will be calculated and measured are explained in minutes from the AGM 2020 under Item 17.
5) The maximum number of shares that could vest will result in a dilution of less than 0.1% of the total number of outstanding shares. The effect on important key figures is only marginal.
6) The grant of LTV 2020 took place April 1, 2020, i.e. prior to Arun Bansal being appointed Executive Vice President in June 2020. The numbers presented represent his total grant under LTV 2020, since the program
is ongoing.
Remuneration report 2020
8
Performance outcome under LTV 2018 and Group operating income target for LTV 2020
LTV 2018 and LTV 2020 had targets with performance periods ending December 31, 2020, which are summarized in the tables below. LTV 2018 will vest during
2021 since all performance periods under the program have now ended. LTV 2020 will not vest until 2023, but the performance period for the one-year Group
operating income target of LTV 2020 ended on December 31, 2020.
LTV 2020 performance criteria
Program
LTV 2020
LTV 2020
LTV 2020
Total
Target
Criteria
Weight
Performance
Period
Vesting opportunity
(linear pro rata)
Achievement
Achieved
vesting level1)
2020 Group
Operating Income
Range (SEK billion)
19.1–27.9
Absolute TSR
Relative TSR
Range 6–14%
Ranking of
Ericsson 6–2
Jan 1, 2020–
Dec 31, 2020
Jan 1, 2022–
Dec 31, 2022
Jan 1, 2022–
Dec 31, 2022
50%
30%
20%
100%
0–200%
SEK 29.1 billion2)
200.00%
0–200%
0–200%
0–200%
–
–
–
–
1) The Board of Directors resolved on the achieved vesting level for the 2020 Group operating income performance criteria as 200% for this portion of the Performance Share Awards granted based on a 2020 Group
operating income outcome. For further information regarding the number or Performance Share Awards earned for each of the President and CEO and the Executive Vice Presidents, see table Long-Term Variable
compensation (LTV) to the President and CEO and the Executive Vice Presidents. Vesting of the Performance Share Awards will occur at the end of the vesting period in 2023.
2) Excludes restructuring charges.
LTV 2018 performance criteria
Program
LTV 2018
LTV 2018
LTV 2018
Total
Target1)
Criteria
Weight
Performance
Period
Vesting opportunity
(linear pro rata)
Achievement
Achieved
vesting level2)
2018 Group
Operating Income
Range (SEK billion)
4.6–9.6
Absolute TSR
Relative TSR
Range 6%–14%
Ranking of
Ericsson 7–2
Jan 1, 2018–
Dec 31, 2018
Jan 1, 2018–
Dec 31, 2020
Jan 1, 2018–
Dec 31, 2020
50%
30%
20%
100%
0–200%
SEK 11.5 billion
200.00%1)
0–200%
0–200%
0–200%
26.92%
200.00%2)
1.94 out of 12
200.00%2)
200.00%
1) As communicated in the Annual Report 2018, 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.
2) The Board of Directors resolved on the achieved vesting levels for the absolute TSR and relative TSR development performance criteria as 200% and 200% respectively based on the achievement results of
26.92% absolute TSR and 1.94 ranking for relative TSR, which resulted in an overall achieved vesting level of 200% for LTV 2018. Vesting of Performance Share Awards will occur at the end of the vesting period in
2021. For further information regarding the number or Performance Share Awards earned for each of the President and CEO and the Executive Vice Presidents, see table Long-Term Variable compensation (LTV)
to the President and CEO and the Executive Vice Presidents.
Remuneration report 2020
9
Long term variable compensation (LTV) to the President and CEO and the Executive Vice Presidents
The table below sets out relevant information of LTV 2017, 2018, 2019 and 2020 with regards to the President and CEO and the Executive Vice Presidents.
Long-Term Variable compensation (LTV) to the President and CEO and the Executive Vice Presidents
Main conditions of share award plans
Information regarding reported financial year
Name and
position
Program
LTV 2020
LTV 2019
Börje Ekholm
President
and CEO
LTV 2018
LTV 2017
Total
Target
(weight) 1)
Group
Operating
Income
TSR
performance
criteria
Group
Operating
Income
TSR
performance
criteria
Group
Operating
Income
TSR
performance
criteria
TSR
performance
criteria
Grant
date 2)
2020-
04-01
2020-
04-01
2019-
05-18
2019-
05-18
2018-
05-18
2018-
05-18
2017-
05-18
Perfor-
mance
period
end
date 4)
Perfor-
mance
period 3)
Performance
share awards
granted
(value in SEK) 6)
Vesting
Date 5)
Maximum
number of
possible
performance
awards vesting
(value in SEK) 7)
Opening
balance
(value in SEK) 8)
Performance
Share Awards
earned during
the year
(value in SEK) 9)
Performance
Share Awards
still subject to
performance
condition (value
in SEK) 10)
Performance
Share Awards
vested during
the year (value
in SEK) 11)
Year-end
balance, earned
performance
share awards
unvested (value
in SEK) 12)
1 year
2020-
12-31
2023-
04-01
194 830
(15,188,966)
389,660
(30,377,932)
389,660
( 38,245,129)
389,660
( 38,245,129)
3 years
2022-
12-31
2023-
04-01
194,830
(15,188,966)
389,660
(30,377,932)
1 year
2019-
12-31
2022-
05-18
146,087
(13,808,151)
291,174
(27,616,302)
291,174
(24,192,007)
3 years
2021-
12-31
2022-
05-18
146,087
(13,808,151)
291,174
(27,616,302)
1 year
2018-
12-31
2021-
05-18
199,888
(13,150,620
399,776
(26,301,240)
399,776
(33,101,453)
389,660
(38,245,129)
291,174
28,676,878)
3 years
2020-
12-31
2021-
05-18
199,887
(13,150,620)
399,774
(26,301,240)
399,774
(39,237,818)
291,174
(28,676,878)
399,776
(39,238,014)
399,774
(39,237,818)
3 years
2019-
12-31
2020-
05-18
447,244
(25,560,000)
894 488
(51,120,000)
874,362
(72,397,175)
874,362
(72,507,054)
1,528,853
(109,855,474)
3,057,706
(219,710,948)
1,566,312
(129,690,635)
789,434
(77,482,947)
681,834
(66,922,007)
874,362
(72,507,054)
1,481,384
(145,397,840)
Main conditions of share award plans
Information regarding reported financial year
Name and
position
Program
Fredrik Jejdling
Executive
Vice President
and Head of
Business Area
Networks
LTV 2020
LTV 2019
LTV 2018
LTV 2017
Total
Target
(weight) 1)
Group
Operating
Income
TSR
performance
criteria
Group
Operating
Income
TSR
performance
criteria
Group
Operating
Income
TSR
performance
criteria
TSR
performance
criteria
Grant
date 2)
2020-
04-01
2020-
04-01
2019-
05-18
2019-
05-18
2018-
05-18
2018-
05-18
2017-
05-18
Perfor-
mance
period
end
date 4)
Perfor-
mance
period 3)
Performance
share awards
granted
(value in SEK) 6)
Vesting
Date 5)
Maximum
number of
possible
performance
awards vesting
(value in SEK) 7)
Opening
balance
(value in SEK) 8)
Performance
Share Awards
earned during
the year
(value in SEK) 9)
Performance
Share Awards
still subject to
performance
condition (value
in SEK) 10)
Performance
Share Awards
vested during
the year (value
in SEK) 11)
Year-end
balance, earned
performance
share awards
unvested (value
in SEK) 12)
1 year
2020-
12-31
2023-
04-01
22,262
(1,735,594)
44,524
(3,471,188)
44,524
(4,370,031)
3 years
2022-
12-31
2023-
04-01
22,263
(1,735,594
44,526
(3,471,188)
1 year
2019-
12-31
2022-
05-18
16,321
(1,542,750)
32,642
(3,085,500)
32,642
(2,702,758)
3 years
2021-
12-31
2022-
05-18
16,322
(1,542,750)
32,644
(3,085,500)
1 year
2018-
12-31
2021-
05-18
22,991
(1,512,500)
45,982
(3,025,000)
45,982
(3,807,310)
44,526
(4,370,227)
32,644
(3,204,009)
3 years
2020-
12-31
2021-
05-18
22,988
(1,512,500)
45,976
(3,025,000)
45 976
(4,512,544)
44,524
(4,370,031)
32,642
(3,203,812)
45,982
(4,513,133)
45 976
(4,512,544)
3 years
2019-
12-31
2020-
05-18
21,653
(1,237,500)
43,302
(2,475,000)
42,332
(3,505,058)
42,332
(3,510,409)
144,800
(10,189,188)
289,600
(21,638,376)
120,956
(10,015,125)
90,500
(8,882,575)
77,170
(7,574,236)
42,322
(3,510,409)
169,124
(16,599,521)
1) The TSR performance criteria includes both the absolute and the relative performance criteria for each respective program.
2) Grant date represents the date at which the initial grant was made.
3) Performance period represents the period over which the performance criteria will be measured.
4) Performance period end date represents the date when the performance period ends.
5) Vesting date represents the date of which the Performance Share Awards, if any, will vest and entitle the participants to receive shares free of charge.
6) Numbers represent the number of initial Performance Share Awards that were granted at the grant date. SEK values represent the equivalent value at the grant date.
7) Numbers represent the maximum number of Performance Share Awards that could be earned for each performance criteria.
8) Numbers represent the balance at the beginning of the year, which includes earned Performance Share Awards for previous year(s) that are yet to vest. SEK values are calculated as the number of earned Performance
Share Awards multiplied by the volume weighted average share price of the five last trading days for the previous financial year.
9) Numbers represent the number of Performance Share Awards earned that had a performance period ending during the financial year. SEK values are calculated as the number of earned Performance Share Awards
multiplied by the volume weighted average share price of the five last trading days for the financial year.
10) Numbers represent the maximum number of outstanding Performance Share Awards that are still subject to an ongoing performance period.
11) Numbers represent the number of Performance Share Awards that had a vesting period ending during the financial year and which entitled the participant to receive shares free of charge. SEK values represent the
actual value of shares given to the participant at the vesting date.
12) Numbers represent the balance at the end of the year, which includes earned Performance Share Awards for the financial year and previously earned Performance Share Awards that are yet to vest. SEK values are
calculated as the number of earned Performance Share Awards multiplied by the volume weighted average share price of the five last trading days for the financial year.
Remuneration report 2020
10
Long term variable compensation (LTV) to the President and CEO and the Executive Vice Presidents, contd.
Main conditions of share award plans
Information regarding reported financial year
Target
(weight) 1)
Group
Operating
Income
TSR
performance
criteria
Group
Operating
Income
TSR
performance
criteria
Group
Operating
Income
TSR
performance
criteria
Grant
date 2)
2020-
04-01
2020-
04-01
2019-
05-18
2019-
05-18
2018-
05-18
2018-
05-18
Name and
position
Program
Arun Bansal
Executive Vice
President
and Head of
Market Area
Europe & Latin
America 13)
LTV 2020
LTV 2019
LTV 2018
Total
Perfor-
mance
period
end
date 4)
Perfor-
mance
period 3)
Performance
share awards
granted
(value in SEK) 6)
Vesting
Date 5)
Maximum
number of
possible
performance
awards vesting
(value in SEK) 7)
Opening
balance
(value in SEK) 8)
Performance
Share Awards
earned during
the year
(value in SEK) 9)
Performance
Share Awards
still subject to
performance
condition (value
in SEK) 10)
Performance
Share Awards
vested during
the year (value
in SEK) 11)
Year-end
balance, earned
performance
share awards
unvested (value
in SEK) 12)
1 year
2020-
12-31
2023-
04-01
27,399
(2,136,026)
54,798
(4,272,052)
54,798
(5,378,424)
3 years
2022-
12-31
2023-
04-01
27,398
(2,136,026)
54,796
(4,272,052)
1 year
2019-
12-31
2022-
05-18
18,909
(1,787,323)
37,818
(3,574,646)
37,818
(3,131,330)
3 years
2021-
12-31
2022-
05-18
18,909
(1,787,323)
37,818
(3,574,646)
1 year
2018-
12-31
2021-
05-18
24,745
(1,627,930)
49,490
(3,255,860)
49,490
(4,097,772)
54,796
(5,378,227)
37,818
(3,711,837)
3 years
2020-
12-31
2021-
05-18
24,743
(1,627,930)
49,486
(3,255,860)
49 486
(4,857,051)
54,798
(5,378,424)
37,818
(3,711,837)
49,490
(4,857,444)
49 486
(4,857,051)
142,103
(11,102,558)
284,206
(22,205,116)
87,308
(7,229,102)
104,284
(10,235,475)
92,614
(9,090,064)
191,592
(18,804,755)
1) The TSR performance criteria includes both the absolute and the relative performance criteria for each respective program.
2) Grant date represents the date at which the initial grant was made.
3) Performance period represents the period over which the performance criteria will be measured.
4) Performance period end date represents the date when the performance period ends.
5) Vesting date represents the date of which the Performance Share Awards, if any, will vest and entitle the participants to receive shares free of charge.
6) Numbers represent the number of initial Performance Share Awards that were granted at the grant date. SEK values represent the equivalent value at the grant date.
7) Numbers represent the maximum number of Performance Share Awards that could be earned for each performance criteria.
8) Numbers represent the balance at the beginning of the year, which includes earned Performance Share Awards for previous year(s) that are yet to vest. SEK values are calculated as the number of earned Performance
Share Awards multiplied by the volume weighted average share price of the five last trading days for the previous financial year.
9) Numbers represent the number of Performance Share Awards earned that had a performance period ending during the financial year. SEK values are calculated as the number of earned Performance Share Awards
multiplied by the volume weighted average share price of the five last trading days for the financial year.
10) Numbers represent the maximum number of outstanding Performance Share Awards that are still subject to an ongoing performance period.
11) Numbers represent the number of Performance Share Awards that had a vesting period ending during the financial year and which entitled the participant to receive shares free of charge. SEK values represent the
actual value of shares given to the participant at the vesting date.
12) Numbers represent the balance at the end of the year, which includes earned Performance Share Awards for the financial year and previously earned Performance Share Awards that are yet to vest. SEK values are
calculated as the number of earned Performance Share Awards multiplied by the volume weighted average share price of the five last trading days for the financial year.
13) Information disclosed for Arun Bansal covers ongoing LTV programs with vesting dates occurring after the date of his appointment as Executive Vice President in June 2020, i.e. LTV 2018, LTV 2019 and LTV 2020.
Remuneration report 2020
11
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 Executive
Team 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 Executive Team 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 Executive Team 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 Executive Team have five years to build up
the required share ownership starting from January 1, 2019. In case
of new appointments to the Executive Team, the new members will be
expected to fulfil the share ownership requirement at the fifth anni-
versary 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 applicable shareholding objective;
– any interests in Ericsson B shares held or acquired directly by
the member of the Executive Team,
– any vested but unexercised options (post-tax, post-exercise
cost value),
– any equity awards held by the member of the Executive Team 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 Executive Team of the extent to which the
shareholding guidelines have been met.
The holdings of the Executive Team are set out in the Corporate
Governance report, which is available on page 20–23 in the Corporate
Governance report.
Comparative information on the change
of remuneration and Company performance
Comparative table on the change of remuneration and company performance over the last two reported financial years
Remuneration for the President
and CEO and Executive Vice Presidents
Fixed
remuneration1)
Variable
remuneration2)
Fixed
remuneration1)
Variable
remuneration2)
Comments
2020 (% change)
2019
President and CEO Börje Ekholm
18,498,002 (13%)
72,507,054
16,299,080
0
Executive Vice President Fredrik Jejdling
7,948,081 (15%)
6,595,909 (103%)
6,933,652
3,244,887
Executive Vice President Arun Bansal3)
9,514,116
130,096
–
–
LTV 2017 vested and shares were
transferred in May 2020
LTV 2017 vested and shares were
transferred in May 2020
Only remuneration received after
his appointment as EVP in June
2020 are included
Ericsson performance
Group Operating Income
Group Net Sales
Share price as per December 31
of the financial year
Average remuneration to employees
on a full-time equivalent basis
27,808 (163%)
232,390 (2,28%)
97,64 (19,72%)
10,564
227,216
81,56
Employees of the Company4)
790,295 (–23%)
299,589 (25%)
1,030,185
238,913
Annual salary review for the
employees of the company was
postponed as a result of the union
negotiations. The number of
employees increased from 322 to
343, approximately 65% of empl-
oyees in the parent company does
not have variable remuneration
1) Fixed remuneration includes fixed salary and other benefits.
2) Variable remuneration for the President and CEO and the Executive Vice Presidents include STV and LTV, as applicable. For the employees of the Company, the variable remuneration includes short- and
long-term variable compensation. For comparability reasons, the variable remuneration represents numbers vested during the financial year, since performance evaluations and long-term variable compensation
programs for other employees that have performance periods ending during the financial year 2020 are yet to be finalized.
3) Arun Bansal was appointed Executive Vice President in June, 2020. Information disclosed covers the time period June 1 – December 31, 2020.
4) Employees of Telefonaktiebolaget LM Ericsson, excluding the President and CEO and the other members of the Executive Team employed within the Company.
Board of Directors
Stockholm, March 3, 2021
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680
Remuneration report 2020
Sustainability
and Corporate
Responsibility
report
Part of
Ericsson
Annual Report
2020
Annual Report 2020
Financial
report
Corporate
Governance
report
Remuneration
report
Sustainability
and Corporate
Responsibility
report
ericsson.com
Contents
Sustainability and Corporate
Responsibility report 2020
Executive summary
Sustainability approach
Sustainability strategy
Group sustainability targets
Sustainability management
Stakeholder engagement
Significant topics 2020
Responsible business
Environmental sustainability
Digital inclusion
Board of Director’s approval
Consolidated sustainability notes
Global Reporting Initiative Content Index
Auditor’s Assurance
Forward looking statements
Glossary
1
2
3
3
4
6
7
8
20
26
27
28
32
34
36
37
This Sustainability and Corporate Responsibility report is rendered
as a separate report added to Ericsson’s Annual Report in accord-
ance with the Annual Accounts Act (SFS 1995:1554) chapter 6,
section 10 and 11). A report from the auditor is appended hereto.
Cover: Girls from the Satya Bharti Adarsh Senior Secondary
School in Jhaneri, Ludhiana, India, participating in the Digital Lab
program that Ericsson launched at the school together with the
Bharti Foundation.
About this report
1
Sustainability and Corporate
Responsibility report 2020
“The key to our successful business per-
formance is linked to the achievement of
our ambitious sustainability targets and
programs. A strong focus on responsible
business and sustainability delivers value
to Ericsson, our customers and society.”
Ronnie Leten
Chair of the Board
Executive summary
Ericsson is committed to doing business in an
ethical way and providing value to its custom-
ers and society through the technology it deliv-
ers. The Company firmly believes part of that
value is derived from its focus on sustainability
in its operations, in its portfolio and in how its
technology is applied across sectors of society.
This Sustainability and Corporate Respon-
sibility report provides a comprehensive
review and analysis of Ericsson’s environmen-
tal, social and corporate governance activities
and impact. It is aimed at analysts and inves-
tors who need detailed information on topics
the Company has identified as significant. The
scope of this report as well as the reporting
principles are presented in the Notes, together
with assured data including a five-year track
of key performance indicators.
Purpose driven
Ericsson’s purpose is to empower an
intelligent, sustainable and connected world.
The Company focuses on embedding
sustainability programs and practices across
the company and aims to continuously
improve by setting and reaching ambitious
ESG targets. This creates value to Ericsson, its
customers, investors and society at large. The
technology the Company delivers is a driver
of positive change and key to meeting many
global challenges outlined in the Sustainable
Development Goals.
In this report, Ericsson illustrates how
sustainability and corporate responsibility are
embedded across the company. The report is
organized into three main areas: responsible
business, environmental sustainability and
digital inclusion.
Responsible business
Ericsson has zero tolerance for any form of
bribery, corruption, undue influence or col-
lusion. In 2020, the Company has enhanced
most of its anti-bribery and corruption (ABC)
policies and procedures as well as its ABC risk
assessment process.
In 2020, the Company’s response to the
COVID-19 pandemic was a primary focus for
management. Ericsson maintained a strong
focus through the year on reducing risks to
health, safety and well-being, so that every-
one working for Ericsson has an opportunity
to thrive. The Company also established a new
target of zero fatalities and lost workday inci-
dents by 2025 to reinforce this commitment.
The Company values a diverse and
inclusive workplace and has made continu-
ous efforts to strengthen this area. Ericsson
exceeded its female representation goal in
the executive population but not yet across
the entire company. In response, Ericsson
committed to adopting an evidence-based,
behavioral approach to diversity and inclusion
across the company.
Environmental sustainability
As the world grapples with building back a
more sustainable society post-pandemic, the
Company remains committed to supporting
the Paris Agreement and is also working
through partnerships to scale global climate
action to limit global warming to 1.5°C.
Ericsson solutions can create positive impact
at scale as new technologies such as 5G and
IoT applied across industrial sectors will be
critical to mitigate climate change.
Ericsson has set a carbon neutral target
for own operations by 2030 including fleet
vehicles and facility energy usage. The Com-
pany has also set a target for high emitting
and strategic suppliers to set their own 1.5°C
aligned climate targets. To further promote
climate action in global supply chains, in 2020
Ericsson was one of the initiators and founders
of the 1.5°C Supply Chain Leaders.
Energy use in network operations remains
a priority for Ericsson and its customers. In
2020 the Company presented its innovative
approach “Breaking the energy curve” to
address increasing energy consumption in
mobile networks.
Digital inclusion
During 2020, Ericsson developed a com-
prehensive approach to digital inclusion,
including a strategy to accelerate efforts on
accessibility, affordability and digital literacy
related to mobile broadband. The Company
also celebrated a 10-year milestone of its ICT
and education initiative, Connect to Learn.
As part of this focus on education Ericsson
established a global three-year partnership
with UNICEF to help map school connectivity
in 35 countries by the end of 2023. This joint
effort will support the Giga initiative, which
aims to connect every school to the internet
by 2030.
Ericsson also joined the UNESCO-led
Global Education Coalition for COVID-19
response. As its main contribution, the com-
pany launched Ericsson Educate, a digital
learning program for students disadvantaged
due to lockdowns and home quarantines.
Sustainability and Corporate Responsibility report 2020 2
Sustainability approach
Sustainability approach
Sustainability and responsible business prac-
tices are fundamental to Ericsson’s strategy
and culture and are embedded across its
operations in order to create positive impact
and lower risk to the Company and its stake-
holders. Ericsson is committed to contributing
to the sustainable development of society
through its technology and solutions, as well
as through its partnerships and the contribu-
tion and expertise of its employees.
Sustainability creates value
As more capital is being allocated to invest-
ment strategies incorporating Environmental,
Social, and Corporate Governance (ESG)
factors, and as investors are increasingly
engaging with companies on sustainability-
related topics, the importance of non-financial
disclosures is growing. Ericsson’s commitment
to sustainability and corporate responsibility
is reflected in its policies and practices and the
Company discloses data linked to its ambitious
sustainability targets published annually in its
Sustainability and Corporate Responsibility
report.
In three key ways, Ericsson demonstrates
how integrating sustainability and responsible
business practices drives business transforma-
tion and creates value for stakeholders.
First, integrating sustainability and cor-
porate responsibility through all operations
enables the Company to improve performance
and efficiency in both Ericsson’s own opera-
tions and its value chain.
Second, sustainability and responsible
business are fundamental to earning trust
and reducing risk to the Company and its
stakeholders.
Third, Ericsson’s focus on research and
development and on energy performance ena-
bles the Company to deliver more innovative
and energy efficient products and solutions for
its customers and other sectors.
The Company is transparent about its
sustainability and corporate responsibility
policies and practices and also strives for its
ESG disclosures to be on par with global best
practices.
In 2020, Ericsson continued to enjoy high
ESG evaluations from external rating organi-
zations. It has been included in the Dow Jones
Sustainability Indices and named one of the
100 most sustainably managed companies in
the world by the Wall Street Journal, to name
a few examples.
Conducting business responsibly
The Company supports the Ten Principles
of the UN Global Compact as well as the UN
Guiding Principles on Business and Human
Rights. Ericsson is committed to build a culture
of compliance and to demonstrates how a
commitment to doing the right thing and tak-
ing responsibility throughout its value chain is
fundamental to its success and a way to drive
real and lasting positive impact.
Ericsson drives a proactive agenda that
extends beyond legal compliance and works
continuously to improve and strengthen its
responsible business practices, with a focus on
building and maintaining trust, transparency
and integrity regardless of where in the world
it operates.
Technology as driver of positive change
The Company was founded on the premise
that access to communication is a basic
human need and should be available for all.
Ericsson continuously demonstrates that
technology developed and deployed responsi-
bly can improve people’s lives.
Energy use in network operations remains
a priority for Ericsson and its customers. The
5G standard is designed to enable high perfor-
mance and low network energy consumption.
As stated in the Exponential Roadmap, ICT
solutions can enable reduced carbon emis-
sions by up to 15% in other sectors by 2030.
The Company is also committed to devel-
oping offerings that enable mobile broadband
coverage to connect the unconnected by
advocating and engaging in efforts around
accessibility, affordability and digital literacy.
The effects of the COVID-19 pandemic
have accelerated the pace of digital transfor-
mation and increased demand for smart and
reliable communications solutions for con-
sumers and industries. This has highlighted
the critical role of the infrastructure Ericsson
provides to the sustainable development
of society.
Sustainability research
Science and research are a central component
of Ericsson’s sustainability strategy. The Com-
pany carries out peer-reviewed research, both
by itself and in collaboration with research
partners from academia and business.
Research topics cover the direct and indirect
sustainability impacts of the Information and
Communication Technology (ICT) sector.
Ericsson also considers it important to develop
methodologies for assessing the impact of ICT
as a sector. Throughout the years, Ericsson has
made many relevant contributions to interna-
tional assessment standards in this area.
Contributing to the achievement of the
Sustainable Development Goals
The technology Ericsson delivers has the
potential to contribute to the achievement of
all 17 United Nations Sustainable Develop-
ment Goals (SDGs). Ericsson’s core contribu-
tion to the SDGs is primarily through SDG 9
– Industry, innovation and infrastructure, and
SDG 17 – Partnerships for the goals. These
two SDGs are central to Ericsson’s business, as
a technology leader creating and orchestrating
ecosystems and also working across trusted
partnerships to create positive impact at scale
and address a number of global challenges.
Aligning Ericsson’s Group Sustainability
Targets with the SDGs helps the Company
validate that it is setting meaningful goals.
It also helps to illustrate how the Company’s
non-financial targets are making a positive
impact on society.
Technology
with purpose
Partnerships
for progress
Sustainability and Corporate Responsibility report 2020 Sustainability approach
3
Sustainability strategy
Ericsson’s approach to sustainability and corporate responsibility is an integral part of the Company’s strategy, business model, governance,
and culture and is embedded across its operations to drive business transformation and create value for stakeholders. This work is a continu-
ous journey, and the sustainability strategy covers three focus areas:
Corporate responsibility
Environmental sustainability
Digital inclusion
Corporate responsibility is the foundation of
everything the Company does. Ericsson
drives an agenda to deliver value to both the
Company and stakeholders across its value
chain. This agenda extends beyond legal
compliance by proactively addressing and
mitigating risks, including corruption risks in
the countries in which it operates.
Circular economy encapsulates Ericsson’s
approach to environmental sustainability.
From design, manufacturing and the use
phase through reuse, product take-back and
end of life. Ericsson strives to minimize the
negative impacts of its own operations, and to
improve the energy performance of its prod-
ucts to reduce environmental impacts.
Ericsson develops and drives a proactive
and business-focused agenda centered on
digital inclusion. This agenda encompasses
institutional capacity building and digital
literacy as well as universal and affordable
internet access powered by cellular
connectivity.
Group sustainability targets
Ericsson has set sustainability and corporate responsibility targets aligned with the Company strategy. The targets are reviewed and reported annu-
ally, and they reflect the Company’s ambition both to mitigate risks and increase positive impacts, as well as to create value. Ericsson’s climate targets
are in line with the UN climate agenda to reach a 1.5°C trajectory.
Risk mitigation targets
Zero fatalities and lost workday
incidents by 2025 1)
New target
Address risk assessment for 100%
of the top 90% of supplier spend by 2020
Achieved
Strengthen and enhance Ericsson’s Ethics and
Compliance program to ensure an effective
and sustainable Anti-bribery and corruption
program by 2022 2)
On track
Achieve 100% adherence to the
sensitive business process and
conditions by 2020 3)
Achieved
Positive impact targets
Achieve 35% energy saving in
Ericsson Radio System compared
with the legacy portfolio
by 2022 (baseline 2016) 4)
34%
Reduce 35% CO2e
emissions from Ericsson’s
own activities by 2022
(baseline 2016) 4) 5) 6)
–57%
Achieve a 5G product portfolio that
is ten times more energy efficient
(per transferred data) than 4G by
2022 (baseline 2017)
6.6x
Increase to 30% the female representation
of total workforce by 2020 7)
25%
Enable internet for all through roll out of
mobile broadband to connect additional
500 million people by 2024 (baseline 2018) 8)
188 million
Ericsson is carbon neutral by 2030 in its own operations 9)
On track
1) As the Company already delivered on its 2019 target to Reduce major incidents by a minimum of 30%
by 2022, a new target of Zero fatalities and lost workday incidents by 2025 was set in 2020.
2) Ericsson’s Anti-bribery and corruption program is part of the broader Ethics and Compliance program.
3) Approval adherence: 100% and conditions adherence: 100%.
4) Included in Ericsson’s Science Based Target (SBT) which is approved by the SBT Initiative.
5) CO2e: Carbon dioxide equivalent.
6) Own activities include: facility energy use, fleet vehicles, business travel and product transportation.
7) Total workforce includes: all employees.
8) Accumulated number of users added since 2019.
9) Emissions from Ericsson’s own operations include fleet vehicles (Scope 1) and facility energy usage
(Scope 1 and Scope 2). Scope definition according to the GHG Protocol Corporate Standard.
Sustainability and Corporate Responsibility report 2020 4
Sustainability management
Sustainability management
Governance
The Board of Directors oversee the Company’s
sustainability and corporate responsibil-
ity strategy, and risk and performance are
reported annually to the Board, or more often
as needed. In 2020, the Board of Directors was
regularly updated on the progress of the Ethics
and Compliance Program. Additional briefings
covered progress on respect for human rights,
health, safety and well-being, responsible
sourcing, climate action and social inclusion.
The Audit and Compliance Committee of
the Board of Directors has ultimate responsi-
bility for the Ethics and Compliance Program,
which currently has its focus on enhancing
the Company’s anticorruption framework.
Throughout 2020, Ericsson has continued to
strengthen its Ethics & Compliance Program
in order to ensure an effective and sustain-
able anti-corruption compliance program
by 2022. In addition, a dedicated Ethics and
Compliance Team has been established and
strengthened.
The Company’s sustainability and corpo-
rate responsibility performance is regularly
measured, assessed and externally assured.
Performance on group sustainability targets is
also regularly reported to the Executive Team.
A dedicated Sustainability and Corporate
Responsibility Team is accountable for devel-
oping and implementing strategies, policies,
directives, targets, processes and tools related
to sustainability and corporate responsibility.
Ericsson Group policies are approved
by the President and CEO. The Company’s
sustainability and corporate responsibility-
related Group policies and directives include
Ericsson’s Code of Business Ethics (CoBE) as
well as Group steering documents concerning
sustainability, information security, privacy,
health and safety, electromagnetic fields and
health, anti-corruption, environmental issues
and the Code of Conduct for Business Part-
ners. All of these reflect Ericsson’s commit-
ments to and requirements on its stakeholders,
and they are reinforced by awareness and
training programs.
The Code of Business Ethics
Ericsson’s CoBE sets the expectations for how
Ericsson conducts business. It includes clear
requirements for employees to follow in order
to ensure that business is conducted with a
strong sense of integrity. The CoBE is applica-
ble 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 consultants working under
the direction of Ericsson must comply with
it and periodically acknowledge that they
have read and understood it. The CoBE is
available in multiple languages to ensure
that the Code is understood across the entire
workforce. Everyone working for Ericsson has
an individual responsibility to ensure that they
adhere to the Code.
The Code of Conduct for Business Partners
As part of the Company’s responsible sourcing
practices, Ericsson strives to continuously
strengthen its requirements and expectations
on social, ethical, environmental, and human
rights-related topics applicable to its supply
chain. The Code of Conduct for Business Part-
ners (CoC) specifies requirements and expec-
tations that the Company’s business partners
must comply with when doing business with
Ericsson. It is included in suppliers’ contracts
and covers areas such as anti-corruption,
environmental requirements, labor and human
rights and occupational health and safety. The
CoC is based on the UN Global Compact´s Ten
Principles, the UN Guiding Principles on Busi-
ness and Human Rights, the OECD Guidelines
for Multinational Enterprises and the Respon-
sible Business Alliance Code of Conduct.
Management system
Ericsson’s global management system, the
Ericsson Group Management System (EGMS),
includes Group policies, directives and instruc-
tions as well as Group-wide processes. EGMS
is a dynamic governance system. It enables
Ericsson to adapt to evolving requirements
and expectations, including applicable legisla-
tion and customer and other stakeholder
requirements. EGMS brings a common
management approach and consistent global
implementation to how business is conducted,
and Ericsson’s sustainability and corporate
responsibility work is an integrated part of
it. As the EGMS is a global system, Group-
wide certificates are issued by a third-party
certification body proving that the system is
efficient throughout the whole organization
as well as compliant to the ISO standards
in scope. Ericsson is globally certified to ISO
9001 (Quality Management System), ISO
14001 (Environmental Management System),
OHSAS 18001 (Occupational Health and
Safety Assessment Series) and ISO 27001
(Information Security Management System)
covering Company operations. In 2020,
Ericsson initiated the transition from OHSAS
18001 to ISO 45001 (Occupational Health
and Safety Management System).
Through Ericsson’s Global Certification
Assessment Program, an external assurance
provider assesses how Ericsson manages
risks, achieves the Company’s objectives and
implements and adheres to Group policies and
directives, as well as how it works in accord-
ance with stipulated processes. Significant
topics within sustainability and corporate
responsibility are regularly assessed accord-
ing to our Materiality assessment process.
Related risks are identified and evaluated in
accordance with Ericsson’s Risk Management
framework.
Ericsson’s sustainability and corporate
responsibility targets are set and regularly
followed up by the accountable organization.
Further, they are reviewed annually as part
of the Company’s strategy process. Ericsson’s
environmental life-cycle assessment, research
studies and performance data inform the
process for setting targets. Ericsson provides
training to employees and suppliers to ensure
and improve awareness and competence
related to sustainability and corporate respon-
sibility topics and commitments.
Sustainability and Corporate Responsibility report 2020 Sustainability management
5
Risk management
Ericsson’s sustainability and corporate
responsibility-related risks are managed in
accordance with Ericsson’s Enterprise Risk
Management (ERM) framework, see Ericsson’s
Corporate Governance Report 2020, pages
18–19. The responsibility for the identified
risks is allocated to the respective Head of
Group function, market area, business area,
and units with Group responsibilities. In addi-
tion, dedicated Risk Management Frameworks
focusing on specific areas such as Anti-
corruption, Environmental, Health and Safety
and Information security are in place.
As part of Ericsson’s Sustainability and cor-
porate responsibility strategy work, risks and
treatment plans are identified, analyzed, and
prioritized. These are summarized in Ericsson’s
sustainability and corporate responsibility Risk
Heat Map, which is regularly reviewed. For
information on Ericsson’s Risk Factors, both
financial and non-financial, see Ericsson’s
Financial Report 2020, pages 97–108.
Finally, as part of the efforts to address
bribery and corruption risks, Ericsson has
established a risk assessment process. The
Company assess bribery and corruption risks
related to it’s business activities and opportu-
nities, business partners, countries and indus-
try sectors in which it operates. This includes
assessing its interaction with governments or
state-owned or controlled companies and the
extent of government regulation and oversight
in relation to its business activities. Ericsson’s
bribery and corruption risk assessment also
includes data analytics and transaction testing
in high-risk geographies. Based on the results
of the anti-bribery and corruption risk assess-
ments, Ericsson prescribes remedial actions to
improve identified areas of weakness.
Reporting compliance concerns
Ericsson encourages employees, suppliers
and other external parties report conduct that
could violate the law, Ericsson’s Code of Busi-
ness Ethics or Ericsson’s Code of Conduct for
Business Partners (collectively “Compliance
Concerns”). Compliance Concerns may relate
to corruption, fraud, auditing, questionable
accounting, deficiencies in the internal con-
trols, personal health and safety, environmen-
tal issues, human right matters, workplace
respect and fairness or other matters that
could constitute a breach of law, or that could
harm Ericsson, its workforce, its shareholders
or the Company’s reputation.
Employees are encouraged to report Com-
pliance Concerns directly to their manager,
and if due to circumstances, this is not an
option, Ericsson provides a variety of chan-
nels that an employee may use, including the
superior of a manager or Group Functions
People or Legal Affairs and Compliance.
Compliance Concerns can also be reported via
the Ericsson Compliance Line and can be done
anonymously if permitted under applicable
legislation. The Ericsson Compliance Line is
available via phone or secure website, 24/7,
365 days a year in over 185 countries and in
over 63 languages. Ericsson does not accept
any discrimination of, or retaliation against,
individuals who report Compliance Concerns
in good faith.
Ericsson’s Allegation Management Office
(AMO) is responsible for the intake and assess-
ment of an allegation or report of a potential
compliance violation. Corporate Investiga-
tions is responsible for conducting Group-
relevant investigations, for oversight of inves-
tigations that it delegates to other Ericsson
units or to external third-party investigators.
It is also responsible for setting the standards
and principles that apply to all investigations
at Ericsson. Findings and remediation plans
for Group-relevant cases are presented to
Ericsson’s Group Remediation Committee,
consisting of the Chief Legal Officer, the Chief
Financial Officer, the Chief People Officer and
the Chief Compliance Officer. Findings from
Group-relevant cases are presented every
quarter to the Audit and Compliance Commit-
tee of the Board of Directors.
Ericsson has made efforts in 2020 to
bolster its allegation management and
investigations teams. Corporate Investiga-
tions has been strengthened in the last year
with additional resources and local hubs have
been established to better ensure all Compli-
ance Concerns warranting investigations are
investigated using local expertise following a
General Data Protection Regulation (GDPR)-
compliant investigation process. In 2020,
AMO also added resources to continue to
build employee awareness of, and trust in, the
Allegation Management Process, including
providing regional support for allegation
management activities and coordinating
remediation actions and processes.
Ericsson has seen an increase in Compli-
ance Concerns reported from 566 in 2019 to
933 in 2020. Ericsson believes this reflects an
increase in employee awareness of compli-
ance-related risks and its continued efforts to
foster a stronger speak up culture.
The graph on this page (Reported compli-
ance concerns) shows the total number of
cases in 2020 by category. From the total,
281 cases were deemed to be substantiated
allegations. 419 cases were assessed to be
unsubstantiated, out of scope, or no further
response was received from the reporter
upon follow-up. 519 cases reported in 2019
and 2020 remain open. The Corrective and
Disciplinary actions graph shows the actions
taken in response to the substantiated cases
in 2020.
Reported compliance concerns by category 2020 1)
Corrective or disciplinary actions 2020 2)
933
Fraud, corruption and
regulatory breach
Operations
Conflicts of interest
Security
Human resources
Other
17%
15%
6%
5%
46%
11%
236
Terminations
Resignations
Demotions
Warning letters
Verbal warnings
87
28
2
87
32
1) Category is based on the most significant impact identified by Corporate
Investigation’s team and may be modified during an investigation as
additional information is obtained.
2) Corrective or disciplinary actions executed in 2019, and each action
represents a distinct employee. Numbers reflect the most severe
action per employee
Sustainability and Corporate Responsibility report 2020 6
Significant topics and stakeholder engagement
Stakeholder engagement
Ericsson’s approach to stakeholder engage-
ment enables it to learn about its stakeholders’
expectations, requirements and concerns.
This provides insights into risks as well as
opportunities. Ericsson engages with its
stakeholders on an ongoing basis on sustain-
ability related topics and emerging dilemmas.
Some of the topics addressed in 2020 include
human rights, anti-corruption, health, safety
and well-being, responsible sourcing, climate
action, energy performance, digital inclusion
and sustainable development. Stakeholder
engagement takes a variety of forms such as
joint projects, advocacy, meetings, surveys
and participation in industry associations.
Another important method for receiving
stakeholder insight is through joint research
with academia and industry peers. Ericsson
leverages its social media outreach to extend
the conversation and hear from the public.
Stakeholder engagements in 2020
Stakeholders
Sustainability-focused engagements
Topics raised
Employees
– Employee Sustainability and Responsible Business
annual survey
– Seminars
– Volunteering activities
– Company matching donations
– Continued emphasis on Speak-Up culture
Customers
– Individual customer meetings and engagements
– Customer ESG assessments
– Joint research and development on role of industry
and digitalization in society
Shareholders
– Investor meetings
– Capital Markets Day
– ESG surveys and rankings
Society
Suppliers
– Supplier assessments and audits
– Participation in the Responsible Business Alliance
– 1.5°C Supply Chain Leaders
Governments
– Policy advocacy such as consultations on digital inclusion,
environment, climate action, human rights
and responsible business governance
Academia and
sector peers
– Joint research
– New technology curriculum to support digital skills development
– Research funding
– Thesis collaborations
Civil society
and NGOs
– Broadband Commission for Sustainable Development
– Global Networking Initiative
– UNESCO/UNICEF
– UN World Food Programme
– Exponential Roadmap
– World Wide Fund for Nature
– World Economic Forum
– World Health Organization
Ericsson’s stakeholder engagement model
Stakeholders expectations,
requirements and concerns
– Employees
– Customers
– Shareholders
– Society
Engagement approach
Which issues
should we
engage with?
When should
the engage-
ment take
place?
How should
the engage-
ment take
place?
– Health, safety and well-being
– Respect for human rights
– Anti-corruption
– Climate action
– Digital literacy, mentoring
– COVID-19 pandemic response
– Portfolio energy performance
– Digitalization as fundamental to meet the SDGs
– Industry supplier requirements and climate targets
– Product safety and privacy
– Health, safety and well-being
Value created
Individual and professional
development, and job satis-
faction which contribute to
Ericsson’s purpose and success
as well as meaningful commu-
nity engagement
Enabling customers to achieve
their sustainability ambitions
through Ericsson’s portfolio
– Anti-corruption
– ESG reporting and Corporate governance
– Climate action and business opportunities of
digitalization
Contributing to sustainable
return on investments through
transparent disclosures on
risks and opportunities
– Health, safety and well-being
– Working hours and conditions
– Environmental requirements
– Requirements on climate action
– Conflict minerals
– Facts and input on climate
– Regulation on energy, substances, materials,
and circular economy
– Regulation on governance and non-financial
reporting
– Carbon impact of ICT sector
– Climate change mitigation through ICT solutions
– Radio waves and health
– Privacy and freedom of expression
– Digital inclusion and education
– Humanitarian relief
– Climate action
– Anti-corruption
– Radio waves and health
Long-term and stable supplier
relationships creating resilient
supply chains and leveraging
on sustainability initiatives
Contributing to industry
expertise to support formula-
tion of relevant regulation
Contributing to shared
knowledge-creation, and
fact-based information to
stakeholders
Driving sustainability and
responsibility in the ICT sector
and contributing to digital
literacy, connectivity and
expertise through partnerships
Analysis
Sustainability outcome
Situation analysis
and insights to
identify sustainability
related risks and
opportunities
– Strategy
– Targets
– Significants topics
– Reports
– Programs
Insights
Sustainability and Corporate Responsibility report 2020 Significant topics and stakeholder engagement
7
Significant topics 2020
Ericsson annually assesses environmental,
social and corporate governance topics
significant to the company, which is a central
part of the Company’s strategy, target setting,
risk management and reporting processes.
The assessment combines two perspectives,
impact and the relative importance of the
topics to stakeholders. The topics assessed
have been determined based on established
reporting frameworks such as the Global
Reporting Initiative’s (GRI) Standards and the
Sustainability Accounting Standards Board’s
(SASB) Standards. Definitions can be found
on the Company website. Ericsson begins
each assessment by reviewing the previous
year’s results as well as input from surveys and
dialogues with stakeholders. In 2020 Ericsson
conducted its annual employee survey on
sustainability and responsible business. It was
answered by more than 19,000 employees who
ranked sustainability-related topics in order of
importance. The results have been integrated
into the materiality assessment; the three top
topics as ranked by employees were, in order,
health, safety and well-being, respect for
human rights and anti-corruption.
Ericsson continues to evolve its materiality
assessment process and in 2020 conducted
workshops with all business areas as well as
Group Function Technology. The consolidated
outcome is reviewed by the Executive Team.
Significant topics from 2020 are shown in
the graph below. Compared to 2019, stake-
holder interest in Product energy performance,
Health, safety and well-being and Radio
waves and health has increased.
Ericsson’s approach to each topic is based
on the outcome of the materiality assessment.
Topics with high impact and high importance
to stakeholders are addressed through com-
prehensive management, including setting of
performance targets, paired with transparent
disclosures and stakeholder engagement.
Topics where the importance to stakeholders
is high but where the impact is assessed as
low, are continuously re-assessed through
engagement with stakeholders. Topics where
impact is high but importance to stakeholders
is low, are addressed and proactively managed,
and disclosures are made when relevant.
Finally, topics with low impact and low
import ance to stakeholders are monitored and
regul arly re-assessed to capture any changes
in their relevance to Ericsson.
l
s
r
e
d
o
h
e
k
a
t
s
o
t
e
c
n
a
t
r
o
p
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g
H
i
i
m
u
d
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Assess and engage
Address and engage
B
G
A
K
C
M
P
Q
E
L
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D
F
H
I
S
J
O
R
N
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o
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Assess
Low
Medium
Impact
Address
High
Topics covered in this Sustainability report and identified as significant
Topics not identified as significant for Ericsson and therefore not covered in this report
A Anti-corruption
B Radio waves and health
C Information security
D Privacy protection
E Responsible management of suppliers
F Diversity and inclusion
G Respect for human rights (incl. labor rights)
H Competitive behavior
N Waste and hazardous waste management
I Sustainability management, governance
O Air quality
and regulatory environment
J Selling practices, marketing and labeling
K Health, safety and well-being
L Ericsson’s own carbon emissions
M Network energy performance
P Physical impacts of climate change
Q Ecological impacts
R Water and wastewater management
S Digital inclusion
T Critical incident risk management
Sustainability and Corporate Responsibility report 2020
8
Corporate responsibility
Responsible business
Technician in safety gear installing Ericsson Radio System.
The Company works to continuously improve
and strengthen its responsible business prac-
tices, with a focus on building and maintaining
trust, transparency and integrity regardless of
where in the world it operates.
Respect for human rights, ethically and
environmentally sound business practices as
well as fair and safe working conditions and
employees’ well-being are fundamental parts
of Ericsson’s culture and identity. This com-
mitment to responsible and ethical behavior
starts at the Board of Directors level and is
implemented throughout Ericsson’s organiza-
tion through on-going due diligence as well
as specific frameworks and programs such
as Ethics and compliance, Sensitive business,
Responsible sourcing, and Health, safety and
well-being.
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 opera-
tions, products and business engagements.
We ended 2020 with a strong focus on
compliance leadership, communication, and
recruitment. The year was centered in enhan-
cing anti-bribery and corruption (ABC) core
policies and procedures, consolidating ABC
risk assessments, and providing enhanced
trainings on ABC topics. Other areas of par-
ticular attention included M&A and the allega-
tion management process to ensure a string
trust of the organization in the Company’s
reporting mechanisms.
The Company’s focus on responsible busi-
ness was also strengthened by initiating an
update of the Ericsson Code of Business Ethics
and by conducting targeted human rights
impact assessments.
Ericsson actively engages in awareness
raising on responsible business topics and
encourages employees and its stakeholders
to report compliance concerns through the
Ericsson Compliance Line, see page 5.
Sustainability and Corporate Responsibility report 2020 Corporate responsibility
9
Anti-corruption
Ericsson has zero tolerance for any form of
bribery, corruption, undue influence or collu-
sion. The Company strives to be a responsible
and relevant driver of positive change in the
communities where it operates. Ericsson
recognizes that reputation and trust are hard-
won and easily lost, and we strive to win busi-
ness based on our technology leadership.
In December 2019, Ericsson reached a
resolution of the investigations conducted
by the US Department of Justice (DOJ) and
by the Securities and Exchange Commission
(SEC) since 2015 and 2013 respectively,
regarding the Company’s compliance with the
US Foreign Corrupt Practices Act (FCPA). As a
result, Ericsson agreed to enter into a Deferred
Prosecution Agreement (DPA) with the DOJ to
resolve criminal charges and agreed with the
SEC to the entry of a judgment to resolve civil
claims related to allegations of violations of
the FCPA.
Throughout 2020, Ericsson has enhanced
most of its anti-bribery and corruption (ABC)
policies and procedures that allow it to ensure
adequate controls around ABC sensitive trans-
actions. Ericsson has also established an ABC
risk assessment process and reinvigorated
efforts to better communicate the importance
of ethics and compliance to each member
of the Ericsson organization. Employees
are required to read and acknowledge our
updated Code of Business Ethics, and also to
complete e-learning sessions on ethics and
compliance. Ericsson is helping its managers
to understand and emphasize the importance
of fostering a speak-up environment and its
importance to the success of Ericsson.
Anti-Bribery and Corruption program
Ericsson’s anti-bribery and corruption compli-
ance program is part of the broader Ethics and
Compliance (E&C) Program. In order to ensure
adequate implementation and adherence to
policies and controls, the program is structured
around ten core elements that collectively
enable the Company to prevent, detect, and
respond to potential violations of its Code of
Business Ethics and/or applicable laws and
regulations. These ten elements are based
on the expressed expectations of national
regulators as well as good practices endorsed
by public international organizations, see
Ericsson 2020 in review, page 17.
Compliance Monitorship
As part of this resolution with the DOJ and the
SEC, Ericsson agreed to engage an independ-
ent compliance monitor. In June 2020, Dr.
Andreas Pohlmann of the firm Pohlmann &
Company has been appointed as Ericsson’s
monitor. The appointment marks the start of
the three-year term of the monitorship. The
monitor’s main responsibilities include review-
ing Ericsson’s compliance with the terms of
the settlement and evaluating the Company’s
progress in implementing and operating its
enhanced compliance program and accom-
panying controls as well as providing recom-
mendations for improvements.
Governance, risk management and
activities in 2020
In 2020, Ericsson has expanded its compli-
ance and corporate investigation organiza-
tions with full-time compliance professionals
and investigators. Ericsson’s global compli-
ance organization consists of employees
located at Ericsson’s headquarters in Stock-
holm, Sweden, as well as employees located
in geographies consistent with its Market Area
and Business Area operating model.
Ericsson has also established an internal
governance structure to address compliance
topics. The Group Compliance Committee
(GCC), which includes senior executives of the
group, meets monthly. The GCC oversees the
Ericsson E&C program to ensure, with regard-
ing to ABC, the program is properly designed,
implemented and monitored. In addition, the
Chief Compliance Officer provides reports
directly to the Audit and Compliance Commit-
tee (ACC) of the Board on a quarterly basis.
The Company has revised most of its ABC
policies and procedures needed to ensure
adequate controls around ABC sensitive trans-
actions. This includes a revised directive and
instruction on Third Party Management, and
detailed instructions on gifts, entertainment
and hospitality.
Ericsson has established an ABC risk
assessment process (see page 5), which also
incorporates transaction testing in markets
where corruption exposure is higher. Based on
the results of the risk assessments, Ericsson
prescribes remedial actions to improve identi-
fied areas of weakness. Our risk assessment
has identified several high-risk areas in need
of further attention, such as heightened risk
of potential conflict of interest between our
employees and our external suppliers, the
necessity to better manage our relationship
with third parties, and the need for improved
rules and guidance around the use of gifts,
entertainment, and hospitality process .
Ericsson continues to provide online
mandatory training on E&C to its workforce.
The training program is undergoing a transfor-
mation aiming at reaching 100% completion
rate by the workforce in 2021. Training efforts
include a mandatory ABC in-person aware-
ness workshop for employees in exposed roles
from an ABC perspective globally. The in-
person workshop format enables employees
to not only identify ABC risks specific to their
job roles but also gives them an opportunity
to discuss various case studies and how to
mitigate such risks. Due to the COVID-19
pandemic, all in-person awareness trainings
originally scheduled have been replaced tem-
porarily by live virtual trainings and in 2020
have reached 100% of the targeted workforce.
Furthermore, additional virtual enhanced ABC
and ethical leadership training are ongoing
reaching senior executives and middle man-
agement and will continue during 2021.
Ericsson has also bolstered its Allega-
tion Management Office (AMO) to ensure
employees have adequate reporting channels
when it comes to raising compliance concerns
(see page 5). The AMO governs and oversees
remediation of investigated compliance
concerns. This may include employment con-
sequences as each employee and manager
has ownership and accountability for compli-
ance breaches. A risk-based approach is used
to allocate remediation of cases to a Group
Compliance Remediation Committee or local
remediation committees. Please refer to the
Reporting Compliance Concerns section for
further information on page 5.
Main risks include:
– Workforce or third-party failure to
comply with anti-corruption laws, regu-
lations and Ericsson’s related policies
and directives.
– Potential conflicts of interest situations
involving our workforce and Third-
parties.
Sustainability and Corporate Responsibility report 2020 10
Corporate responsibility
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 spe-
cifically of new technologies such 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 technol-
ogy is prevented.
Governance, policies and directives
Ericsson’s commitment to respect human
rights is part of its Code of Business Ethics
(CoBE) and its Code of Conduct for Business
Partners (CoC).
The Ericsson Business and Human Rights
Statement further clarifies Ericsson’s commit-
ment to respect human rights throughout its
value chain.
To continue implementation of the Com-
pany’s guidelines for trustworthy AI, Ericsson
has established product design rules for AI
development.
Ericsson has analyzed its supply chain, own
operations and the use of its products in terms
of respect for human rights. 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
primarily labor-related rights as the prevailing
set of rights for responsible management of
suppliers. These salient human rights issues
have been defined based on on-going due
diligence, expert guidance and internal and
external dialogue, as well as through analysis
of Ericsson’s current operations and business
engagements. During 2020 Ericsson con-
ducted a project to define salient human rights
risks in the Company’s supply chain. More
information on which labor rights are defined
as salient human rights issues for Ericsson on
Responsible management of suppliers is on
pages 16–17.
Human rights impact assessment
During 2020, a human rights assessment of
5G technology was conducted, identifying a
range of impact areas and necessary mitigat-
ing actions for Ericsson and the broader ICT
industry. The assessment cuts across the ICT
value chain and includes impact areas such
as automation and job transitions, IoT and
privacy concerns, government surveillance,
and digital inclusion. Ericsson conducted
the assessment to proactively identify and
address potential human rights impacts at an
early stage of the 5G roll out. Ericsson’s meth-
odology for conducting human rights impact
assessments is aligned with the UN Guiding
Principles on Business and Human Rights.
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 framework. This framework
aims to ensure that business opportunities
and engagements are conducted in accord-
ance with international human rights stand-
ards. Ericsson’s Sensitive Business Board,
a cross-functional forum that consists of
high-level representatives of Group functions
and business areas, oversees the Sensitive
Business operation and meets regularly.
Within the global sales process, all sales
opportunities are monitored through an
automated tool. When a Sensitive Business
risk within a sales opportunity is identified,
the opportunity is stopped until further due
diligence measures are taken in accordance
with the Sensitive Business risk methodology
(see graph on page 11). Based on the results
of the due diligence, Ericsson decides how
to proceed with the opportunity and how to
mitigate identified risks. The decision can be to
approve, with or without conditions, or reject
the sales engagement. Conditional approvals
include technical and contractual mitigations.
Ericsson’s Sensitive Business Digital
Transformation, aims at delegating Sensitive
Business evaluation and mitigations to the
concerned sales organizations through auto-
mation and tools support. The development of
the tools and automation is in its final phase.
Ericsson plans to have the transformation fully
operational during the first half of 2021.
Ericsson monitors the adherence to the
Sensitive Business framework through dedi-
cated Key Performance Indicators. In 2020,
the Company has reached its target to achieve
100% adherence to the Sensitive Business
process and conditions, see page 3. This
means that all relevant sales engagements
are correctly processed through the Sensitive
Business framework, as well as approved
conditions correctly implemented in customer
contracts. Ericsson will continue to monitor
this for another two years, using the current
Key Performance Indicators on process and
conditions, to ensure full adherence remains
after implementation of the digital transfor-
mation. Additionally, the transformation aims
to allow Ericsson to set a new baseline and
further develop targets to measure the impact
of the Sensitive Business framework.
Building leverage and engaging in dialogue
In 2020 Ericsson publicly supported manda-
tory human rights due diligence legislation
on an EU level , and actively engaged in the
consultation processes to ensure the proposed
legislation is aligned with international human
rights standards. As a member of the Global
Network Initiative (GNI), Ericsson conducted
a self-assessment in 2020 based on the GNI
Assessment Toolkit. The assessment results
were presented to, and discussed with the GNI
Board to share learnings with other members.
Throughout the year, Ericsson engaged in
a wide range of stakeholder dialogues as
part of its GNI membership on topics such as
COVID-19 tracing, government surveillance
and network shutdowns, emerging privacy
and freedom of expression regulations, and
challenges in specific jurisdictions. Ericsson
also engaged in dialogue with civil society
organizations, outside of the GNI dialogues,
in order to obtain input on relevant trends and
prioritization within responsible business and
human rights.
Further, in line with the CoBE, Ericsson
continues to take action in the fight against
child sexual abuse (CSA) through its group-
wide program. The Company uses a tool on
its laptops designed to detect and eliminate
CSA content from the Ericsson IT landscape.
Ericsson operates in 180 countries and follows
local rules and regulations in each country if
CSA content is detected.
As part of Ericsson’s responsibility to
respect human rights, the Company provides
its stakeholders access to grievance mecha-
nisms through the Ericsson Compliance Line,
see page 5.
Main risks include:
– Misuse of Ericsson’s technology could
adversely impact the right to privacy and
freedom of expression.
– Lack of adherence to human rights
standards in the supply chain could
adversely impact a wide range of labor
related rights.
Sustainability and Corporate Responsibility report 2020 Corporate responsibility
11
Sensitive business
The table below provides anonymized case examples of human rights due diligence measures conducted as a result of the Sensitive Business
framework. The examples demonstrate how human rights risks are considered and addressed in sales opportunities.
Ericsson’s customer
Description
Motivation
Example of cases 2020
Decision
Approved
Global telecom
operator
Approved with
conditions
Local telecom
operator
A telecom operator in a high-risk country
approached Ericsson to discuss how to
increase the yield from their radio access
network. Ericsson’s Energy Saver software
was requested as a solution.
A telecom operator in a high-risk country
requested functionality to locate individual
subscribers’ geographical location. This was
to be used both for commercial purposes
and by the authorities for emergency call
location.
Dismissed
Government
authority
A police authority in a high-risk country
requested a wireless transmission network
(Mini-Link) for internal communications
Dismissed
Local telecom
operator
A local telecom operator requested the
ability to control which users are able to
connect to their network using International
Mobile Equipment Identity (IMEI) as
trigger. IMEI is an identity number for each
mobile phone. The solution would share
personally identifiable information such
as call logs and positioning directly with
police authorities
The Energy Saver software does not process, store or transfer personally
identifiable information. No other human rights risks were identified in
connection to the engagement. Therefore, Ericsson approved the opportu-
nity without mitigations.
As part of the Sensitive Business evaluation, Ericsson concluded that the
requested use meets requirements on privacy and freedom of expression
since the commercial use is under user consent and the authorities can only
locate a person if that person calls the emergency number. However,
because of the high country risk, Ericsson decided to include contractual
mitigations limiting the use of the solution to the identified legitimate use
cases. Additionally, technical mitigations were imposed by restricting
delivery to only specified functionalities.
While the technology itself is only used for internal communication, the
Sensitive Business evaluation concluded that the relevant police authority,
through its own actions, has a history of human rights violations such as
cases of torture. Ericsson therefore decided to dismiss the opportunity in
order not to be linked to potential abuses perpetrated by the end customer.
There might be legitimate reasons, in certain circumstances, to deny access
to a network based on blocked IMEI numbers. However, sharing personally
identifiable information of every user connecting to the network with
government authorities is not deemed legitimate or proportionate, and
may result in severe impacts on the right to privacy. Ericsson dismissed
the engagement.
Cases reviewed in the sensitive
business process, by outcome
Sensitive business risk methodology
828
Sales opportunities are evaluated according to
the following criteria:
Country
Portfolio
1. Portfolio: Whether the sale includes technology that
stores or process personally identifiable information.
Risk
evaluation
2. Purpose: The purpose and context in which the customer
intends to use the product, service or solution.
Approved
Approved with conditions
Dismissed
39%
58%
3%
Customers
Purpose
3. Customer: The type and ownership structure.
4. Country: Ericsson uses a third-party risk analytics firm to
rank countries according to right to privacy and freedom
of opinion and expression risks. In addition, the Company
routinely follows international developments.
Sustainability and Corporate Responsibility report 2020 12
Corporate responsibility
Information security
Information is key to any business, including
Ericsson’s, and it is important to protect the
confidentiality, integrity and availability of
the Company’s information. This insight builds
the foundation for Ericsson’s Information
security work.
Information security threats and risks are
evolving rapidly due to a rise in cybercrime and
increased geopolitical tensions. Ericsson con-
tinues to highly prioritize Information security,
and the Company is committed to keeping its
customers and its own operations safe.
Ericsson has a wide variety of data and
assets, including proprietary information and
intellectual property which the Company must
always make sure is managed and protected
in an appropriate way.
The Company’s focus in information security
is 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 has become an
issue of national importance globally and key
considerations for operations in the Information
and Communication Technology (ICT) sector.
Ericsson has implemented frameworks
for the secure development, business con-
tinu ation, sale and delivery of products and
services, while constantly working to protect
its employee data.
Governance and policies
Information security is governed through
Ericsson’s Group Enterprise Security Board
while 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 Information security. Incidents can
be reported by both employees and business
partners through Ericsson’s Security Incident
Management System and routed to the appro-
priate function for handling. Ericsson has an
established Product Security Framework to
ensure that issues are considered throughout
the entire product life cycle.
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,
while the Enterprise Security Framework is the
applicable internal regulation for protecting
capabilities. Ericsson measures its security
posture based on both the ISO27001 standard
as well as the National Institute of Standards
and Technology (NIST) framework. Improve-
ments to the NIST capabilities are identified
based on measured capability maturity. The
major in-house efforts in 2020 included invest-
ments into Identity and Access Management
(IAM), Insider Prevention, Third Party Risk
Management and revised Security Governance.
Ericsson continuously invests in Artificial intel-
ligence and automation in all security areas.
Main risks include:
– Workforce or third-party failure to com-
ply with information security and privacy
laws, regulations and Ericsson’s related
policies and directives.
– Threat actors targeting Ericsson’s Intel-
lectual property, networks and financial,
customer and personal data.
– More stringent or new stakeholder or
regulatory information security and
privacy requirements may impact
Ericsson’s business.
– Failure of systems due to human
mistakes or insufficient quality control or
lack of resilience.
the company. The Crises Management Group
Directive regulates the handling of major inci-
dents or crises.
Ericsson’s Information Security Manage-
ment System is globally certified to ISO/IEC
27001. Specific security training is manda-
tory for all employees, with in depth training
developed to build Ericsson specific security
competence.
Risk management
The Ericsson Threat and Risk Landscape
drives the dimensioning of its cyber security
capabilities. The Company’s in-house Threat
Intelligence team utilizes external and internal
intelligence to identify the relevant threats.
Ericsson ensures having tools and capabilities
to detect and respond to cyber threats target-
ing the Company and its customers. Therefore,
Ericsson deploys a wide set of tools across its
entire IT infrastructure. For critical infrastruc-
ture the Company has increased key monitor-
ing and detection capabilities. The Ericsson
Cyber Defense Center continuously monitors
the Company’s infrastructure and can respond
to incidents at any time. Ericsson works with
partners that support with area specific com-
petence, intelligence and capabilities. Ericsson
tests the robustness of its system continuously
through activities such as simulated security
intrusions. Security awareness of employees is
also regularly tested through simulated phish-
ing attempts and other measures.
Given the evolving threat landscape and
Ericsson’s changing business and IT systems,
the Company continuously runs security
activities to improve and adjust its security
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
Sustainability and Corporate Responsibility report 2020 Corporate responsibility
13
Risk management
As a company, Ericsson faces several privacy
risks, most notably breach of customer
contracts, privacy breaches, and due to
the diverse nature of privacy regulations
worldwide, non-compliance with regulatory
requirements. There is a constant need for
improvement to mitigate the risks to which the
company is currently exposed. Customers and
end-users demand that companies handling
their personal data do so with care and expect
ethical behavior related to the processing of
their data.
Main risks include:
– Workforce or third-party failure to
comply with privacy laws, regulations,
stakeholder expectations and Ericsson’s
related policies.
– New or fast-changing stakeholder or
regulatory requirements.
– Diverse nature of privacy regulations
worldwide and implementing challeng-
ing and sometimes conflicting regulatory
requirements.
– Handling 24/7 global data flows with
more stringent cross border data transfer
requirements and/or localization.
Privacy protection
As a leading provider of information and
communication technology, privacy is an
important element in products and services
delivered by Ericsson. Ericsson’s product and
business processes aim to ensure that human
rights aspects of privacy and freedom of
expression are respected throughout business
operations (see chapter on Respect for human
rights on pages 10–11).
Regulators have responded to the
increased use of personal data with new and
more comprehensive data privacy regulations
such as General Data Protection Regulation
(GDPR) in Europe. Customers are also becom-
ing more aware of privacy consideration as
media attention on the subject is high. Numer-
ous countries have already adopted stricter
regulations and it is expected that even more
countries will adopt GDPR-like regulations
on data privacy and that requirements on
Ericsson will increase.
Ericsson is committed to protecting the
privacy of personal information, including
personal information relating to employees,
business partners including suppliers, external
workforce, customers and end users. As
opportunities to use personal data to improve
products, solutions and services are growing
fast so are the privacy considerations.
Privacy is part of the Ericsson Code of Busi-
ness Ethics (CoBE). To fulfil the commitment
set out in the CoBE and meet regulators’ and
customers’ requirements, Ericsson will move
toward a state of assured full compliance to
relevant privacy regulations, including ways to
showcase its compliance fulfilment.
In 2020 Ericsson adopted GDPR as a
global baseline even outside EU, with local
adaptations where necessary. The privacy
strategy is company-wide in scope, covering
all aspects of privacy, including all processing
of external and internal personal data across
the GDPR dimensions Product Privacy, Data
Processor and Data Controller.
Governance, risks and management
approach
The overarching Group Privacy strategy serves
three important roles i) promote strategic
decisions at a higher level ii) facilitate commu-
nication of Ericsson’s privacy approach, and
iii) increase organizational alignment around
privacy. This strategy is complementary to any
unit-specific security strategies such as within
Group Function Technology and Group Secu-
rity, and the overarching compliance activities,
other Strategies cannot deviate from the
Group privacy Strategy but need to be aligned.
The Chief Privacy Compliance Officer/
Group Data Protection Officer leads the strat-
egy formulation process and align strategy
revisions with relevant stakeholders across the
company. Any updates to this strategy will be
revised by the Group Enterprise Security Board
and Product and Technology Security Board
and then approved and owned by the Group
Compliance Committee. Ericsson also has a
local Data Protection Officers, as part of its
governance structure.
In order for Ericsson to achieve its Security
and Privacy ambition for products, the Com-
pany has worked on the systematic develop-
ment of a model to incorporate security and
privacy considerations into all phases of
product development. The Security Reliability
Model (SRM) is one example that provides a
governance framework specifically for security
and privacy by design for Ericsson’s products
and embedded in the Group Privacy strategy.
As of 2020 Privacy compliance is driven
by Group Privacy Compliance Office. Further,
Ericsson re-organized the management and
responsibilities of Privacy compliance within
the Company and defined its Privacy Strategy
and a Privacy Compliance framework. Setting
key performance indicators is part of imple-
menting the framework.
Sustainability and Corporate Responsibility report 2020 14
Corporate responsibility
Health, safety and well-being
Nothing is more important to Ericsson than its
people. The Company is committed to provid-
ing a safe and healthy work environment for
employees and the employees of suppliers
through its global strategy, focused programs
and ambitious targets. Ericsson maintains a
strong focus on reducing risks to health, safety
and well-being by adopting and strengthening
safe behaviors and reinforcing a positive safety
culture. The Company has a global program
called Ericsson Care, which features a proactive
agenda that reaches beyond legal compliance,
international standards and related customer
requirements.
In 2020, the Company’s response to the
COVID-19 pandemic was a primary focus for
Ericsson management. The response included
actions to monitor the impact on employee
well-being specifically focusing on mental
health including employee pulse surveys
and upskilling managers. Furthermore, the
Company broadened its well-being interven-
tions and assets to help employees maintain
good levels of health e.g. employee assistance
program, mental health training and awareness
resources.
Well-being in focus
Ericsson believes that well-being empowers
employees to perform better and deliver on the
Company’s business strategy. The well-being
program is part of the holistic Ericsson Care
framework, and it includes four areas: physical,
emotional, financial and social well-being.
In 2020, Ericsson has established a
systematic approach to well-being with tools
and assets that are easy for employees to
access through dedicated internal web portals
with over 67,000 site visits. Further, during
the year, Ericsson had two employee pulse
surveys designed to assess its response to the
pandemic. Results showed that the majority of
the employees believed their productivity had
not been significantly impacted by working
remotely, felt well supported and that a genuine
interest had been taken in their well-being.
However, more than half of the Company’s
employees commented that their stress levels
had increased. The top health needs recorded
were healthcare, child or family care and job
security.
Ericsson’s well-being activities in 2020 had
a key focus on stress and resilience to address
these concerns and a home furniture package
which was introduced to improve ergonomics
and home-office environment during this
period of remote working.
Governance, policies and directives
Ericsson’s approach and commitment to
health, safety and well-being is summarized in
the related Ericsson Group policy, available on
the Company website.
Within Ericsson, health, safety and well-
being issues are governed globally by two fora.
The first is the Global Health and Safety Board,
which drives the execution of the strategy and
programs within the business and includes
Ericsson’s Executive Team members. The sec-
ond is the Major Incident Review Board, which
reviews performance and major incidents 1) and
consists of senior leaders in the organization.
These fora are mirrored in market areas to sup-
port consistency, alignment and accountability.
The Company’s Environment, Health
and Safety organization is structured as an
overarching global unit with health and safety
organizations in each of the business areas and
market areas. The global unit sets the strategy,
policy, framework and requirements. The busi-
ness areas develop processes, tools and solu-
tions that aim to mitigate the risks in respective
areas and based on the nature of their business.
The market areas are responsible for deploying
requirements from the global unit as well as
managing local operational risks and driving
initiatives focused on health, safety and well-
being that encourage employee participation.
Ericsson’s health and safety management
system is certified to meet the OHSAS 18001
Occupational Health and Safety Assessments
Series and covers the Company’s entire busi-
ness scope. In 2020, Ericsson initiated the
transition from OHSAS to ISO 45001 (Occupa-
tional Health and Safety Management System).
Risk management
Ericsson’s Health and Safety (EHS) Leadership
Team conducts strategic risk and opportunity
assessments annually in order to identify
company-level risks and opportunities, pre-
vent undesired consequences from risks and
effectively evaluate control measures.
The input to the EHS strategic risk and
opportunity assessment consists of results
compiled and analyzed from market areas
and business areas. It further includes, but is
not limited to, potential hazards, legal matters,
customer and stakeholder requirements, as
well as concerns and learnings from incident
investigations.
Based on the assessments, targets, key
performance indicators and performance
metrics are set and followed up at relevant
levels across market areas, business areas and
Group functions. Outcomes from assessments
are also used in evaluating the effectiveness
and adequacy of existing control measures to
prevent incidents from happening.
The highest safety risks identified within the
Company are driving, climbing and working
at heights, as well as working with electricity.
These risks continued to account for the major-
ity of fatalities and major incidents in 2020 and
are most relevant to field operations.
The primary health and well-being-related
risks identified in 2020 are mental health, which
includes stress and work-life balance as well as
musculoskeletal and ergonomic risks. We see
that these risks have been exacerbated in 2020
due to the COVID-19 pandemic.
As part of the Company’s efforts to mitigate
safety risks, any person working on Ericsson’s
behalf, including contractors, must have
adequate health and safety competence,
training and experience for their respective
role. Ericsson identifies training needs and
ensures provision of training based on the roles
and risks to which each employee is exposed.
A health and safety introduction course is
mandatory for all employees. There are other
courses with specific focus, such as the Safe
Driving Awareness Course and the Zero
Tolerance Safety Rules Course, available to all
employees and suppliers.
Incident reporting
All health and safety incidents involving
Ericsson employees and suppliers reported in
the Global Incident Reporting Tool (GIRT) are
investigated, including root-cause analysis to
remedy damage and prevent reoccurrence.
Ericsson encourages employees and suppliers’
employees to report risks, hazards, opportuni-
ties, near misses and health, safety and well-
being-related incidents transparently.
Deployment of a new GIRT commenced
during 2020 designed to provide a better user
experience, intelligent data analytics, seamless
integration with other tools and modules and
offline reporting of incidents, real-time notifica-
tions and trends. Health and well-being con-
cerns related to working from home or remote
working considerations are also intended to be
captured in the new tool.
Sustainability and Corporate Responsibility report 2020 Corporate responsibility
15
Activities performed
Ericsson has continued its Consequence
Management Process, further enforcing the
consistency and implementation of Company
health and safety requirements with suppliers
(see Graph 1). There has been a total of 162
violations by suppliers in 2020 with 65 being
Red cards2) and 97 Yellow cards2) issued. The
majority of violations occurred due to the
incorrect use of Personal Protective Equipment
(PPE), not following the correct procedures
when working at heights, not performing the
necessary risk assessments and lack of the
correct certifications for supplier employees.
The primary consequences that resulted from
the issuing of Red and Yellow cards in order
of volume were increased volume of quality
inspections/audits, financial penalty, written
warning, termination of business and reduction
of business volume (see Graph 2).
In 2020, to further strengthen the Com-
pany’s approach to and awareness around
health, safety and well-being, Ericsson held a
virtual Ericsson Care Week in October. This is
an annual company-wide effort to reinforce
Ericsson’s commitment to this important topic.
Due to COVID-19 pandemic, Ericsson has
adapted its health and safety trainings and
seminars to be delivered virtually.
Performance 2020 and target follow-up
The Company has already delivered on its tar-
get to Reduce major incidents by a minimum
of 30% by 2022, from a 2019 baseline. During
2020, there was a 43% reduction in the num-
ber of major incidents, exceeding the target.
Further, Ericsson had a 36% reduction in
fatalities compared with 2019, which is a con-
tinuation of the downward trend seen in recent
years. The effectiveness of control measures
taken for suppliers and Ericsson employees
conducting field operations were contributing
factors to this reduction.
In 2020 Ericsson also recorded a 47%
reduction in incidents resulting in 45% reduc-
tion in lost workdays compared to 2019, which
is consistent with the pattern of employees
working from home due to the pandemic and
the initiatives implemented by the Company
throughout the year.
Ericsson wants to demonstrate its strong
commitment to a safe and healthy workplace.
Ericsson has established a new target set with
2020 as a baseline of Zero fatalities and lost
workday incidents by 2025, see Target and
focus areas 2021 below.
Target and focus areas 2021
The continued deployment of the Ericsson
Care Program will support achievement of the
new target of Zero fatalities and lost workday
incidents by 2025. Highlights of the Ericsson
Care program include:
– Enhancing safety leadership, knowledge
and awareness across the organization.
– Further enhancements of processes and
standardized ways of working.
– Engaging with employees and suppliers to
create and foster a health, safety and well-
being culture.
– Deploying a comprehensive and modular
health and safety tool suite to enable better
integration and digitization of processes.
– Further enhancements and standardiza-
tion of supplier selection, onboarding and
performance management process.
Ericsson will continue to expand on well-being
activities including:
– Improved access to support from profes-
sionals if needed, for example, increased
access to employee assistance programs.
– Ongoing training for employees and lead-
ers to raise awareness of the importance of
a mindset that prioritizes well-being.
– Digital solutions aimed at improving life-
style behavior and encouraging habits that
influence good mental and physical health.
– Implementation of a structure to drive
engagement in well-being-related topics
with employees.
Main risks include:
– Failure to meet legal and stakeholder
requirements.
– Failure to implement the Ericsson Care
Program in a consistent and standard-
ized manner across the globe.
– Lack of compliance to Ericsson’s health,
and safety requirements in the supply
chain.
– Incrased musculoskeletal and mental
health risks including stress and work-
life balance.
1) A major incident is defined as an incident that results in more
than 3 lost work days.
2) Red card and yellow card indicate the severity of the conse-
quence issued to a supplier after a violation of our Health and
Safety Standards. Red cards are used for serious breaches and
carry significant consequences.
Graph 1: Supplier consequence management in 2020
Graph 2: Consequences applied to suppliers
Total number of violations
65
97
Incorrect use of PPE (Pers. Protect. Equipm.)
21
43
Working at heights
22
14
Lack of Risk assesment/Safe work conditions
10 23
Lack of required and certified competence
137
Insufficient incident and resource management
23
Lack of adherence to driving/vehicle standards
2 2
100
80
60
40
20
69
15
0
50
100
150
200
0
Increase of quality
inspections and audit
9
29
18
4
10
1
7
Financial
penalty
Warning
notification issued
Supplier
terminated
Reduction of
business volume
Red cards
Yellow cards
Red cards
Yellow cards
Sustainability and Corporate Responsibility report 2020 16
Corporate responsibility
Responsible management of suppliers
Managing the social, ethical and environmen-
tal impacts of Ericsson’s supplier base is part
of the Company’s value chain approach. Regu-
lations and stakeholder expectations in this
area are increasing globally, which makes it an
important topic for the Company. Ericsson is
working with its suppliers to achieve continu-
ous improvement aligned with the Company’s
Sustainability and corporate responsibility
strategy described on page 3.
Code of Conduct for Business Partners
Ericsson’s Code of Conduct for Business
Partners (CoC) is the basis for Ericsson’s
Responsible Sourcing program and covers
four main areas: environmental management,
human and labor rights, occupational health
and safety and business ethics and anti-
corruption. Ericsson offers free online trainings
for business partners that cover the CoC in
general as well as specific focus trainings on
anti-corruption, conflict minerals and occupa-
tional health and safety. The CoC training was
updated in 2020 in line with the latest updates
to the CoC. Suppliers are required to complete
a self-assessment as part of the on-boarding
process in order to capture risk at an early stage.
Suppliers not adhering to the CoC may be
subject to termination of their contracts.
COVID-19 pandemic
During the COVID-19 pandemic, Ericsson
focused on protecting its workforce, including
its suppliers. The main risks from the pandemic
related to responsible sourcing are forced
labor and health and safety. Ericsson has
communicated to its suppliers the importance
of mitigating risks in these areas.
There has been limited effect on customer
demand and therefore no significant reduc-
Risk assessment and audit planning
tions of orders from Ericsson to suppliers. The
guidelines for both the internal and external
workforce have been to work from home when
possible. Ericsson has focused on stabilizing
IT environments to provide for this option.
Another impact of the COVID-19 pandemic
has been delays of supplier audits.
Risk assessments, audits and compliance
Ericsson engages a third-party auditing firm
to assess its suppliers’ compliance with the
CoC. In 2020, 83 audits were performed on
suppliers located in 36 countries. The program
mainly focuses on the largest suppliers that
together make up 90% of Ericsson’s purchas-
ing spend. This represents approximately
3,000 suppliers out of Ericsson’s close to
19,000 Tier One suppliers. Among the 3,000,
Ericsson determines which suppliers to audit
with a risk assessment based on four crite-
ria – country, business considerations, time
since last audit and type of service or product
provided.
In 2020, 99% of Ericsson’s suppliers were
assessed through this approach. Ericsson
views each audit as an opportunity for
improvement, and suppliers are expected to
address identified findings. For CoC audits
during 2020, most of the major deviations
concerned working hours and wages and
benefits while most of the minor deviations
were in hazards and health and safety.
Ericsson also performs supplier audits with
internal auditors for Contract Compliance (CC)
to verify adherence and compliance to supplier
requirements. These audits are broader than
the CoC audits and cover questions from the
CoC and other topics such as security, trade
compliance and business continuity manage-
ment. In 2020, 23 CC audits were performed
and most findings were around health and
safety, quality management, CoC and busi-
ness continuity management.
Audits and other assessments are included
in the supplier performance measurement
framework applicable to key suppliers. In
addition to the company’s own auditing
programs, Ericsson uses the audit program of
the Responsible Business Alliance (RBA). The
Company is working to increase the share of
suppliers participating in the RBA.
Due to the pandemic, audits have been
delayed or postponed, leading to fewer total
audits in the first half of 2020 and a slight
increase in the second half. Of this reason,
Ericsson performed remote audits, both for
initial and follow up-audits. The remote proce-
dure has been satisfactory and will continue.
However, they are not fully able to replace
on-site audits, which are more comprehensive.
Occupational health and safety
The Company believes that Occupational
Health and Safety (OHS) incidents are
preventable. Ericsson’s sourcing process
and ways of working are being reviewed as
part of the Ericsson Care program in order to
reduce OHS risks. The suppliers that are most
exposed to OHS risks are within the Site Ser-
vices category. The Company’s consequence
management program applies to Site Service
suppliers and aims at strengthening compli-
ance and improving safety standards, as well
as encouraging and facilitating reporting of
non-compliance. In 2020 the most frequent
findings and violations regarding Site Service
suppliers were related to climbing and incor-
rect use of personal protective equipment.
More information on pages 14–15.
Thousands
of suppliers
Identification of
critical ones
Risk assessment
• Top 90% spend
• Geographical risk
• Type of service or product
• Audited within past 2 years
• Business considerations
31
Planned yearly or according
to a rolling schedule
Supplier risk
assessment
Planning
Auditing
Follow-upp
and improvement
Performed by
Ericsson
Performed by
3rd party auditor
Performed by
3rd party
auditor and Ericsson
Sustainability and Corporate Responsibility report 2020 Corporate responsibility
17
Business ethics and anti-corruption
In 2020, Ericsson launched an enhanced
Third-Party Management Process in several
regions. The new process is designed to secure
effective identification and management of
potential bribery and corruption risks in the
supply chain and in sales. Ericsson plans to
roll-out the improved process to the remaining
regions in early 2021. The process is designed
to ensure that the Company’s suppliers and
partners are identified, assessed for risk, and
subjected to appropriate vetting. The global
roll-out will be supported by additional tools
to assist in automating and documenting
the process. Ericsson will also continue to
automatically screen its suppliers on a weekly
basis. The screening covers regulatory,
financial, environmental, social and labor
issues, along with adverse media coverage
and watchlists that include politically exposed
persons, sanction lists and state ownership.
Alerts are monitored and reviewed in the
screening process.
Performance of audited suppliers
2020
audits
Conformity
Critical
Warning
79%
13%
8%
Performance of audited
suppliers’ after follow-up
2020
follow-ups
2020
follow-ups
Conformity
Critical
Warning
89%
5%
6%
Human and labor rights
In 2020 Ericsson finalized a list of the supply
chain-related salient human rights issues
based on internal and external expertise
as well as stakeholder consultations, audit
results, and a comprehensive analysis of its
supplier categories. The most relevant risks
included forced labor, living wage, working
hours, non-discrimination, OHS, conflict-
related impacts such as sourcing of raw
materials, freedom of association and the right
to collective bargaining. Ericsson’s Modern
Slavery and Human Trafficking Statement is
available on Ericsson’s website.
Environmental management
Ericsson has environmental requirements for
its business partners that cover manufactur-
ing, transport, energy use, GHG emissions,
chemicals in manufacturing, product chemical
content and water and waste management.
The most significant environmental aspects
identified in the supply chain are associated
with suppliers’ carbon footprint and the gen-
eration of waste and are coordinated through
the Company´s Circular Economy and Port-
folio Sustainability Program (see page 20).
Ericsson has set a target for high emitting
and strategic suppliers to set their own 1.5°C
aligned climate targets. By the end of 2020, 35
out of the suppliers in scope, have committed
to setting such target, see page 21. To further
promote climate action in global supply
chains, Ericsson was one of the initiators and
founders of the 1.5°C Supply Chain Leaders.
Within this initiative, the Company supports
the newly launched SME Climate Hub, which
was formed to encourage climate action
across small and medium-sized enterprises.
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 Conflict-Affected and
High-Risk Areas (OECD Guidance). In addition
to tin, tantalum, tungsten and gold (3TGs),
cobalt was added to the list of minerals for
which Ericsson requests information from sup-
pliers. There are often several tiers of suppliers
between Ericsson and smelters or refiners of
minerals, and Ericsson does not normally have
a direct purchasing relationship with them. As
a member of the Responsible Mineral Initia-
tive, the Company has supported the system
for certification of smelters and refiners
(RMAP). To increase transparency, Ericsson
is now reporting reasonable country of origin
of conflict minerals in its Company’s Conflict
Minerals Report prepared under the US Dodd-
Frank Act available on Ericsson’s website.
Main risks include:
– Workforce or third-party failure to
comply with Ericsson Code of Conduct
for Business Partners.
– Failure to sufficiently trace, report on, or
verify the origins and sourcing of materi-
als use, including conflict minerals, in the
manufacturing of Ericsson’s products.
– Changed or new regulatory require-
ments could adversely affect availability
and pricing of materials used in the
manufacture of products.
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
0
20
40
60
80
100
Conformity
Critical
Warning
Sustainability and Corporate Responsibility report 2020 In addition to the focus on representation
and leadership development, Ericsson con-
tinued to expand its community of Employee
Resource Groups (ERG’s), significantly present
in Market Area North America. Local Ericsson
volunteers lead these groups created to
promote belonging among underrepresented
employee groups and to help progress the
company-wide diversity and inclusion agenda.
ERG members support, promote and drive a
diverse working environment, providing the
organization with their unique perspectives
and local insights.
Main risks include:
– The COVID-19 pandemic and its global
impact on schools and family life are
slated to disproportionately impact
women, potentially increasing female
attrition rates.
– Limited availability and fierce competi-
tion for female STEM (Science, Technol-
ogy, Engineering and Mathematics)
talent will challenge recruitment efforts.
– Many of Ericsson’s largest employee
populations are based in regions with
endemic gender inequality and social
norms that impede attraction and career
development for women.
1) Employees reporting to Executive Team members.
18
Corporate responsibility
Diversity and inclusion
Diversity and inclusion (D&I) are fundamental
to Ericsson’s company values, culture, and
future business success. In a year marked by a
global pandemic and large-scale social unrest,
Ericsson has strengthened its conviction that
having an inclusive and diverse workplace is a
business and ethical imperative.
2020 was a pivotal year for Ericsson’s D&I
journey, filled with reflection, data analysis
and new strategy development. The organiza-
tion embarked on a comprehensive review of
its approach to D&I with the intent to re-focus,
re-invest, and accelerate its efforts in a more
targeted and intentional manner to create a
more inclusive and representative workforce.
Building on initial investments in behavioural
science in 2019 and early 2020, Ericsson com-
mitted to adopting an evidence-based, behav-
ioural approach to D&I across the company.
We strive to have an inclusive and fair
workplace, creating space for our people to
bring their unique perspectives.
Ericsson has committed to a series of
investments including de-biasing of its people
processes, an analysis of employee compen-
sation from a pay equity perspective and the
formation of a dedicated Central D&I Team.
Governance and management
Group Function People is responsible for
D&I for the enterprise, including the strategy
and ongoing development of people policies
and initiatives which are executed locally. In
2020, a new D&I governance and manage-
ment structure was proposed and will be
adopted in 2021, shifting accountability out
to the business units so that D&I could be
more holistically integrated into the business
strategy. Ericsson will continue to focus on
increasing female representation across the
company, extending focus of representation to
other minority groups. During 2020, time was
spent designing a central D&I Team to sup-
port the units, and this work will continue into
mid-2021 with the hiring of locally dedicated
D&I resources.
2020 Performance
Ericsson had a 2020 target to increase female
representation to 30% across the organiza-
tion. While the Company has exceeded that
goal in the Executive population (~32%
women), the overall company representation
remained at ~25% in 2020, and Line Manag-
ers increased 1% (21%).
Ericsson’s aim to achieving gender balance
by 2020 was driven by ambitious, local recruit-
ment targets, increased awareness raising,
and activation through local and global initia-
tives. The year 2020 was spent investing in
expertise to develop a new approach to D&I as
well as launching several foundational initia-
tives that will deliver continued impact over
time. Some achievements this year included:
– Establishing ALTitude, a leadership
acceleration program for women. 52% of
initial participants have experienced a role
change or promotion since completing the
program. 94 new women candidates were
nominated to join ALTitude in 2021.
– Successfully completing a series of behav-
ioural science experiments designed to
reduce bias and barriers faced by women
in both the recruitment and performance
management processes. Additional inclu-
sion experiments are underway or in plan-
ning process for 2021
– Launching a comprehensive transforma-
tion of Ericsson’s recruitment process with
the objectives of improving the end-to-end
experience, increasing speed of hire and
reducing bias – all of which will help to
achieve Ericsson´s aspirations to accelerate
Diversity and Inclusion.
While ongoing recruitment efforts continue
to target women and other underrepresented
groups, the Company is also committed to
developing our existing underrepresented
talent. The following statistics demonstrate
progress Ericsson has made to increase gen-
der, generation, and nationality representation
on leadership teams across the company:
– Executive development programs included
25% female participants.
– Global leadership development programs
included 25% women, and representation
from over 118 nationalities.
– Ericsson’s 10th consecutive NextGen Advi-
sory Council, a diverse group that advises
the Executive Team on critical business
matters, included 57% women and repre-
sentation from 5 nationalities.
– The Ericsson line manager population
included 21% women, and representation
from over 75 nationalities.
Sustainability and Corporate Responsibility report 2020 Corporate responsibility
19
2020 performance
Ericsson develops products and solutions
for 5G mobile communication networks and
designs and tests 5G products for compliance
with EMF standards and regulations. The
Company is also involved in the development
of international technical standards for test-
ing and installation of 5G products to ensure
compliance with EMF limits for the general
public and workers.
In 2020, Ericsson has conducted research
together with customers to determine the
actual EMF exposure levels from 5G base
stations and user equipment. Scientific papers
describing the results were published in open
access journals. These studies help regulators
and researchers to accurately assess the radio
wave exposure levels from 5G equipment.
To address the concern that some people
have about the safety of 5G networks as
well as the spread of misinformation and
disinformation, the Company has made avail-
able additional information on its website,
including links to fact-based information from
governmental authorities and international
expert groups. In the beginning of the year,
conspiracy theories about a link between 5G
and COVID-19 were spread on social media
which led to vandalism against base station
sites in many countries. Actions to stop the
spreading of this disinformation were rapidly
taken by WHO, ITU and several governmental
agencies that strongly condemned the disin-
formation and made it clear that 5G mobile
networks are not linked to the spread of the
virus. Ericsson made available links to these
fact-based statements on its website.
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
communication devices and equipment
could impact Ericsson through a reduc-
tion in sales or through liability claims.
Radio waves and health
In all mobile networks, including 5G, con-
nected devices communicate 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 sta-
tions may cause adverse health effects. Expert
groups and public health authorities, including
the World Health Organization (WHO, fact
sheets 193 and 304), have reviewed the avail-
able science and concluded that no health
effects are associated with radio wave expo-
sure from either mobile phones or radio base
stations complying with international limits.
Most national authorities have adopted
international science-based 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 a high level of
protection for all people against substantiated
adverse effects on health. Based on a thor-
ough review of relevant scientific literature,
ICNIRP published in March 2020 a revision of
its guidelines. The limits are largely unchanged
and confirm the safety of the limits that mobile
communication equipment currently comply
with. As stated by ICNIRP, the guidelines cover
5G technologies as well as all currently used
radio technologies.
Governance, risks and management
approach
Ericsson Research, within Group Function
Technology, is accountable to manage and
drive research in this area. In accordance with
Ericsson’s Electromagnetic Fields and Health
Policy, Ericsson’s radio products are tested
in Ericsson Research’s EMF Laboratory for
compliance with relevant EMF regulations
and standards before they are delivered to the
market. The EMF Laboratory complies with
the international standard ISO/IEC 17025
that specifies general requirements for the
competence of testing 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 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. It is only in
the proximity of the antennas that EMF limits
may be reached, and based on the tests that
Ericsson Research is conducting, the Company
provides information to customers on how to
install base stations to secure that unauthor-
ized people do not have access to those areas.
The safety of Ericsson employees, custom-
ers and suppliers when testing, installing and
maintaining the radio products is important
to Ericsson. An available internal standard
describes the minimum requirements for work
on behalf of Ericsson in areas where exposure
to EMF may occur to ensure that the health
and safety aspects are properly managed.
Ericsson 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.
A summary of the EMF and health research
that has been co-funded by Ericsson since
1998 is available on the Company’s website.
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
WHO and other health agencies have con-
cluded that no health effects have been
established from exposure to radio waves
used for mobile communications
Sustainability and Corporate Responsibility report 2020 20
Environmental sustainability
Environmental sustainability
Climate change is the most urgent long-term
global challenge, and since environmental
topics are interrelated, companies need to
take a holistic approach. Expectations and
requirements on companies have increased
dramatically during the past years. Proactive
management of topics relating to climate
action and environment is a core component
of Ericsson’s Group strategy.
Ericsson focuses on a circular economy
approach where product design, sustainable
materials management and the energy effi-
ciency of its products – as well as reuse, refur-
bishment and recycling – are key areas of
importance. Ericsson’s work on environmental
sustainability is divided in the following areas:
– Implement a circular economy approach to
product design and material use.
– Reduce Ericsson’s own emissions.
– Increase the energy performance of
Ericsson products and solutions.
– Demonstrate how Ericsson’s business and
products can enable society and other
industries to reduce their emissions.
The Company remains committed to
supporting the Paris Agreement and is also
working through partnerships to scale global
climate action to limit global warming to
1.5°C, as described by Intergovernmental
Panel on Climate Change (IPCC), and has set
targets that have been approved by the Sci-
ence Based Target (SBT) Initiative.
Ericsson is an active contributor to consul-
tations on environmental sustainability strat-
egies presented by the EU Commission under
the European Green Deal umbrella. In 2020,
Ericsson has increased its efforts to moni-
tor and advocate for upcoming legislative
proposals affecting Ericsson through industry
organizations such as Digital Europe.
Ericsson has incorporated environmen-
tal sustainability into the business. This
work is driven through a company-wide
Circular economy and portfolio sustain-
ability program, governed by the Company’s
Executive Team. The scope of the program
is to accelerate and fully integrate circular-
ity and sustainability-related aspects of
the Company’s products and services. The
program is cross-functional and includes six
workstreams that have the highest impact on
Ericsson’s environmental sustainability strat-
egy and execution. The six workstreams are:
Climate action, Energy performance, Circular
economy, Material and substances, Responsi-
ble sourcing and Position and standards.
An Ericsson Interleaved AIR 3237, allowing 5G network deployment without the need to occupy
additional space on a site by the integration of a 5G Massive MIMO radio with a conventional antenna.
Sustainability and Corporate Responsibility report 2020 21
Exponential Roadmap
In 2020 the Company continued its engage-
ment in the Exponential Roadmap Initiative
for climate action. Ericsson also founded the
1.5°C Supply Chain Leaders group together
with Telia, BT Group, IKEA and Unilever. The
objective is to create exponential climate
action in global supply chains. The initiative
is also committed to supporting the Interna-
tional Chambers of Commerce´s SME Climate
Hub5). These initiatives were launched during
New York Climate Week. Also, Exponential
Roadmap Initiative became an official partner
to the UN Race to Zero campaign6) in 2020.
Together with Ericsson, Exponential Road-
map Initiative developed the 1.5°C Business
Playbook to establish an holistic approach to
climate action for all companies. The playbook
was released during World Economic Forum
2020 and 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. The
Exponential Roadmap Initiative is building an
ecosystem around the playbook and recruiting
companies that want to act, over 55 compa-
nies have joined.
Main risks include:
– Uncertainties in the long-term impacts of
climate change including extreme weather
events and new or changed requirements
and expectations from stakeholders or
regulators.
1) Own operations include: fleet vehicles (Scope 1) and facility
energy usage (Scope 1 and 2).
2) Own activities include: facility energy usage, fleet vehicles,
business travel and product transportation.
3) See: https://www.mdpi.com/2071-1050/10/9/3027/pdf
4) See: https://www.itu.int/rec/T-REC-L.1470-202001-I/en
5) See: https://smeclimatehub.org/
6) See: https://unfccc.int/climate-action/race-to-zero-
campaign#eq-1
7) Emissions upstream and downstream in the value chains are
estimated based on the LCA of the company’s carbon footprint.
8) Science Based Target (SBT) approved by SBT Initiative.
Ericsson’s approach to climate action
Ericsson’s climate action approach and target
setting for its own operations and industry
impact, is based on research. For over two
decades, Ericsson has conducted research
on how the Information and Communication
Technology (ICT) sector impacts the environ-
ment and society and on how its products
can be used to enable global greenhouse gas
emissions reductions. Ericsson collaborates
with universities and businesses and publishes
research in peer-reviewed articles in scientific
journals, reports and at conferences.
Ericsson’s carbon footprint and targets
The environmental impact and carbon foot-
print of Ericsson’s value chain are quantified
based on life-cycle assessments of products
and through extensive research on ICT indus-
try impact. In 2020 Ericsson Research showed
that the lifetime energy usage from Ericsson’s
delivered products corresponds to over 82% of
the Company´s total carbon footprint.
Ericsson takes a holistic approach to
climate action and uses its carbon footprint to
set targets within the whole value chain. The
Company has set targets on:
– Its supply chain: Ericsson will engage with
around 350 of its high emitting and strate-
gic suppliers to set their own 1.5°C aligned
climate targets by 2025. See pages 16–17.
– Its own operations1): Ericsson has set a
carbon neutral target for direct operations
by 2030 (scope 1 and 2). See pages 22–23.
– Its own activities2): The Company has a
1.5°C-aligned SBT for its activities (includ-
ing fleet vehicles, facility energy usage,
product transport and business travel) to
reduce emissions by 35% in 2022 against
a 2016 baseline. See pages 22–23.
– Ericsson has a 1.5°C aligned SBT for
its products with 35% energy saving in
Ericsson Radio System (ERS) by 2022
versus the legacy portfolio in 2016. See
page 24.
Climate advocacy for a 1.5°C future
All sectors need to decarbonize, and even
if the ICT sector footprint is relatively small
(1,4% of global3)), the sector´s carbon foot-
print could be reduced by over 80% if its con-
sumed electricity came from renewable energy
sources4). However, companies cannot only
work with their own carbon footprint. Hence,
Ericsson is working globally to advocate for
climate action within its own sector in order to
influence climate action in society.
In 2020, to support the transition for the
ICT sector, the International Telecommunica-
tion Union (ITU), Global System Mobile Asso-
ciation (GSMA) Global Enabling Sustainability
Initiative (GeSI) and SBT Initiative, released a
standard and guidance report to support ICT
companies to develop 1.5°C aligned targets.
Ericsson Research was a major contributor to
this standard.
Ericsson’s carbon footprint and climate targets 7)
Mtonnes CO2e
Activities in 2020
Future (lifetime) operation of products delivered in 2020
35
30
25
20
15
10
5
0
0
2
0
2
t
n
i
r
p
t
o
o
f
n
o
b
r
a
C
s
t
e
g
r
a
t
e
t
a
m
i
l
c
p
u
o
r
G
~34
~2.5
Baseline
~0.3
~5
~-0.4
Supply chain
Own activities
Operator activities
Products in operation
End-of-life treatment
1.5°C
Engage with around
350 high emitting and
strategic suppliers to set
their own 1.5°C aligned
climate targets
by 2025
35%
Reduction of C02e
emissions from
Ericsson’s own activities
by 2022 2) 8)
CO2 neutral
in Ericsson’s
own operations
by 2030 1)
35%
Improved energy saving
in Ericsson Radio System
compared with legacy
portfolio (baseline 2016)
by 2022 8)
10 times
More energy efficient
5G product portfolio
than 4G by 2022
Sustainability and Corporate Responsibility report 2020
22
Ericsson’s own carbon emissions
Within Ericsson’s own activities, the Company
reports on carbon emissions 1) from facility
energy usage, fleet vehicles, product trans-
portation and business travel. Although not
included in “Own activities”, Ericsson also
provides an estimation of emissions from
employee commuting. Emissions are reported
in line with the Greenhouse Gas Protocol,
and decarbonization of Company activities
remains a key priority.
Performance and activities
The Company’s Science Based Target (SBT)
of 35% emission reductions from its own
activities by 2022, from a 2016 baseline,
is in line with the 1.5°C trajectory. In 2019,
Ericsson further announced the intention to
become carbon neutral by 2030 in its own
operations including fleet vehicles (Scope 1)
and facility energy usage (Scope 1 and Scope
2), as defined by the GHG Protocol Corporate
Standard.
During 2020, Ericsson continued to work
to reduce absolute emissions within the
targeted areas. Where possible, Ericsson aims
to introduce 100% renewable energy supply
at its facilities. For fleet vehicles, the shift to
fossil fuel-free alternatives is the main way to
reduce the emissions, together with adopting
operational activities, such as minimizing trips
to sites when possible.
During 2020, in absolute terms, the Com-
pany achieved a reduction of approximately
317 Ktonnes of carbon emissions compared
to a 2016 baseline, which represents a 57%
reduction. The reduction is partly due to com-
pany emission reductions efforts and partly
due to COVID-19 pandemic restrictions during
the year.
Facility energy usage
In Ericsson’s real estate portfolio (offices,
production sites, datacenters and test labs),
there was an overall reduction of carbon
emissions, from 135 Ktonnes to 81 Ktonnes
in 2020, derived from facility energy usage.
This represents an approximately 40%
reduction compared to 2019. To reduce
emissions, Ericsson took targeted actions to
reduce energy consumption and prioritize the
procurement of renewable energy in countries
where this is available. Green electricity now
amounts to 68% of the total electricity con-
sumption. Ericsson’s new climate target has
been set to achieve 100% renewable energy
by 2030.
In 2020, Ericsson’s real estate portfolio
was reduced by over 5% in total square meters
compared to 2019. However, during the
COVID-19 pandemic, offices have still oper-
ated as usual, so the Company saw no large
reductions in emissions from facility energy
usage, see Commuting and teleworking.
Ericsson’s global facility management pro-
viders are now servicing the Global Portfolio
and have agreed on targets to further reduce
energy consumption for office related opera-
tions. Targets for each facility management
providers are now implemented globally.
During 2020, Ericsson opened its smart
factory in Lewisville, US, which is designed
to be up to 24% more energy efficient than a
comparable factory in the US. In the factory,
Ericsson implemented innovative energy
saving technologies such as friction-free
magnetic levitation refrigeration and thermal
energy storage banks, where 17% of the
power required is produced by onsite solar
panels. The smart factory will be the first
Ericsson facility globally to achieve both LEED
Gold and LEED Zero Carbon certifications.
Fleet vehicles
In 2020, Ericsson’s fleet vehicles for opera-
tional activities included around 6,000 cars.
The carbon emissions related to fleet vehicles
for 2020 was 33 Ktonnes, a 13% reduction
from 2019. In 2020, Business Area Managed
Services and Business Area Networks intro-
duced a program to decarbonize fleet vehicles
for operations in line with the Company´s
carbon neutral target. The activities include,
for example, transforming the operational
fleet to fossil fuel-free alternatives and global
roll out of a Fleet Management System to all
market areas including introducing telematics
to operational vehicles. This will improve fleet
management with more reliable and auto-
matic data collection as well as improving the
frequency and accuracy of carbon emissions
data collected from fleet vehicles. COVID-19
pandemic has increased the amount of in-
person service required for global networks.
Despite this, carbon emissions from the
Company´s fleet have still gone down, as other
factors have led to a reduction in the number
of cars needed. These factors differ between
market areas and include reworked contracts,
new and more efficient vehicles and a move
from long-terms leases to short-term rentals.
Product transportation
In 2020, the carbon emissions for product
transportation sourced by Ericsson was
112 Ktonnes, a 19% reduction from 2019.
During 2020, a resilient and regionalized
supply chain strategy execution was in focus
to shift from air to surface transport modes.
This has resulted in a positive reduction in
emissions even though the Company has been
using air-chartered solutions for deliveries
to factories due to supply chain challenges
caused by the COVID-19 pandemic. In 2020,
the Supply Sustainability Program was
launched and the Company started to further
define and execute supply emission reductions
activities including mitigation and measure-
ment activities.
Business travel
The carbon emissions from business travel in
2020 were 17 Ktonnes which corresponds to
a decrease of 85% since 2019. Over the past
several years, Ericsson has been actively work-
ing with its IT infrastructure to provide digital
solutions that improve accessibility to digital
meetings as a replacement for certain types of
business travel, for example, travel for internal
purposes. Thanks to this work, Ericsson man-
aged a fast transition to a work-from-home
Global policy during the COVID-19 pandemic.
and approximately 85,000 people from the
Ericsson’s workforce have been working from
home in 2020. For most of the year, there has
been a global travel ban, which had the big-
gest impact on the emissions reductions from
business travel. The Company will continue
its work to keep business travel to a minimum,
even after the easing of restrictions.
1) Carbon emissions refers to greenhouse gas emissions calculated as carbon dioxide equivalents (CO2e).
Sustainability and Corporate Responsibility report 2020
23
Ericsson 5G smart factory in Lewisville, US.
Main risks include:
– New or changed requirements from
stakeholders or the regulatory environment
related to Ericsson’s own activities.
– Absence of scalable sustainable climate
solutions in some regions could adversely
impact Ericsson’s own activities strategy
and target fulfilment.
Commuting and teleworking
The possibility for Ericsson employees to travel
between their homes and their worksites, has
been impacted due to COVID-19 pandemic
Company restrictions. This development
shifted the Company’s commuting estimates
in 2019 from 60 Ktonnes CO2e to 20 Ktonnes.
Further, having a majority of Ericsson’s
workforce working from home, there was
also a pandemic-related shift to teleworking-
related emissions from emissions related to
commuting. Emissions from teleworking are
calculated based on historical office energy
consumption, geographical distribution and
local emission factors. It is estimated that
teleworking-related emissions during 2020
were about 10 Ktonnes. Consequently, the net
effect of changes in commuting and telework
has been a reduction by 30 Ktonnes compared
with 2019.
Carbon footprint target in Ericsson’s own activities 1)
Ktonnes
600
500
400
300
200
100
0
560
481
513
427
243
364
Baseline
2016
2017
2018
2019
2020
2021
2022
Facility energy usage and fleet vehicles (S1)
Ericsson’s Science Based Target Initiative approved emissions reduction trajectory
Facility energy usage (S2)
Business travel and product transportation (S3)
1) Ericsson’s own activities including facility energy use (S1 and S2), fleet vehicles (S1), business travel (S3), and product transportation
(excluding commuting, S3).
Sustainability and Corporate Responsibility report 2020
24
Network energy performance
Energy use in network operations remains a
priority for Ericsson and its customers. There
are concerns in the industry that 5G will dra-
matically increase total mobile network energy
use if deployed in the same way as 3G and 4G,
in which Telecom operators often added new
equipment while keeping existing network
assets. This method is not sustainable from an
energy cost and environmental perspective.
Ericsson is consistently working to improve the
energy performance of its portfolio to help the
mobile industry meet current and future traffic
demands while simultaneously addressing
network energy consumption and related
carbon emissions.
Breaking the energy curve
In 2020 Ericsson released its “Breaking the
energy curve” report that presents an innova-
tive approach to addressing increasing energy
consumption in mobile networks.
Ericsson has for a long time driven energy
performance as one of the key requirements in
standardization. The 5G standard is designed
to enable high performance and low network
energy consumption. 5G is designed to allow
the mobile system to use smart sleep modes
more effectively and extend coverage by using
lower bands while increasing capacity and
speed with carrier aggregation. Fast and
effective data transmission enables the
system to return to a low-load state faster.
The “Breaking the energy curve” report
provides a holistic approach in how to intro-
duce 5G, with all its benefits, while managing
the mobile network energy use across core,
transport, radio access and site equipment. It
provides insights into ways to utilize energy
savings offered by the Ericsson portfolio. This
will be accomplished through modernization
of the installed base and right-sizing 5G
equipment for the new frequency bands,
combined with use of energy saving software
and intelligent remote site management of
passive site equipment such as batteries,
climate control units and diesel generators.
In 2020 Ericsson introduced Energy Infra-
structure Operations, a multivendor operation
solution that enables all base station site
elements to be visible, measurable and con-
trollable in order to enable remote and intel-
ligent site management. The offering is based
on data from Ericsson Smart Connected Site’s
smart enclosures or separately deployed site
controllers, connected to all relevant passive
infrastructure. Using AI and data analytics,
Energy Infrastructure Operations increases
operational and energy efficiencies of the
radio network and enables less site visits. This
results in OPEX and carbon emission reduc-
tions across multiple layers, while maximizing
site availability.
Improving energy performance
Increased energy performance of Ericsson’s
products and solutions offering is a key
enabler to lower customers’ total cost of own-
ership and network related carbon footprint.
From a lifecycle perspective, the main portion
of Ericsson’s carbon footprint comes from the
energy use of delivered products.
Ericsson’s work with network energy per-
formance, including energy efficiency and
absolute energy consumption, is one of the
workstreams within its Circular Economy
and Portfolio Sustainability program. The
Company has set the following targets for
improved energy performance:
– Ericsson 5G energy performance target:
By 2022, Ericsson’s 5G product portfolio will
be ten times more energy-efficient for the
same transferred data than its 4G portfolio
(baseline 2017) for an enhanced mobile
broadband (eMBB) use case. Results from
2020 show that the Company’s current 5G
radios are already approximately 6.6 times
more energy-efficient.
– Target on installed base modernization:
Ericsson believes energy savings can be
achieved by replacing less efficient equipment
in a legacy network. Thus, Ericsson has set a
target of 35% energy saving in Ericsson Radio
System (ERS) versus the legacy portfolio
by 2022 (baseline 2016). This target has
been approved by the Science Based Target
initiative. In 2020, the Company achieved a
34% energy saving from delivered ERS radios
versus the legacy portfolio.
Main risks include:
– New or changed environmental require-
ments from stakeholders or regulators
related to product energy consumption.
5G energy performance target
Improvement
10x
6.6x
5.5x
10
8
6
4
2
4x
1x
0
2017
Benchmark
2018
2019
2020
2021
2022
Baseline
Actual
Target
Ericsson’s holistic approach
Breaking the energy curve
Energy
comsumption
Breaking the energy curve
in mobile networks
Activate
energy-saving
software
Build 5G with
precision
Operate site
infrastructure
intelligently
Prepare the network
2G
4G
3G
5G
5G + Ericsson’s approach to brake the energy curve
5G
Time
Sustainability and Corporate Responsibility report 2020
25
Circular economy approach to design and material use
For Ericsson, efficient and sustainable use
of materials is part of the circular economy
approach, including responsible materials
selection and product design, effective reuse
and efficient recycling. This is a topic of grow-
ing importance for Ericsson’s stakeholders.
Potential impacts are associated with resource
exploitation such as mining of minerals
and risks of pollution, as well as increasing
requirements related to the presence of certain
substances in products.
Waste from electrical and electronic equip-
ment (e-waste) is one of the fastest growing
waste streams in the world. Minimizing waste
and increasing reuse, recycling and recovery is
key in a circular economy context. The Green
Deal for Europe, aiming to transform Europe to
the first climate neutral continent, was pub-
lished by the European Commission in Decem-
ber 2019, and during 2020 several legislative
proposals and strategies have been released
related to circular economy and product
design.
The Company’s work in this area is based
on more than 20 years of life-cycle assess-
ments covering data on raw material extrac-
tion, design, manufacturing, transport, use of
products and end-of-life management.
Ericsson’s sustainability strategy addresses
the development, manufacture and distribu-
tion of products, where circular business mod-
els and materials efficiency are key topics.
Efficient use of raw materials
The use of raw materials involves both risks,
such as unwanted substance content, as well
as opportunities, such as innovative materials
that can impact energy and product perfor-
mance positively. There is also an increased
focus from stakeholders related to materials
traceability in the supply chain and product
content knowledge.
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
secure compliance, enable substance phase-
out and fulfill the Company’s design require-
ments, Ericsson requires its suppliers to adhere
to the Ericsson List of Banned and Restricted
Substances and collects full material declara-
tions from its component suppliers. Principles
such as product durability, upgradability,
reparability, serviceability and recyclability are
an integrated part of the Ericsson product-
design and life-cycle management processes.
In 2020 the work within the Material and
Design workstream of the Company’s Circular
Economy and Sustainability Program contin-
ued to coordinate and drive design and mate-
rial related topics in hardware product devel-
opment. This includes topics such as material
content and selection in order to minimize
unwanted substances and promote the use of
recycled materials, product modularity and
packaging design.
During 2020 Ericsson also continued to
launch new multi-band radios, which allows
hardware weight to be reduced by approxi-
mately 40% compared with a single band
implementation.
Circular economy business transformation
During 2020, Ericsson has continued to
explore topics such as reuse and refurbish-
ment of products in areas where Company has
established a strategic direction in its portfolio
offering to do so.
Producer responsibility
The Ericsson Group Product take-back direc-
tive 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. During 2020,
Ericsson’s take-back directive was updated.
The update contains clarifications on the
Company’s obligations and requirements to
offer the product take-back program to all
customers globally.
In 2020 the total weight of retrieved equip-
ment was over 10,200 metric tons. As equip-
ment is the property of the customer, the take-
back depends on customer management of
used equipment. Ericsson believes that
improved standards and handling of used
equipment are important activities to reduce
the risk of privacy breaches due to poor data-
wiping and uncontrolled recycling operations
that cause environmental harm.
Ericsson circular economy approach
Materials
Supply
Design
Use
Reuse/
Recycle
Take back
Main risks include:
– Materials scarcity and regulatory require-
ments may impact supplier ability to deliver
components.
– Ericsson products at the end-of-life stage
that do not enter its Product take-back
program may end up in poorly managed
waste treatment activities.
– Regulatory and customer requirements
related to circularity may impact Ericsson’s
product design and product development
strategies.
Ericsson Refurbished Spares is 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 materi-
als in a circular approach.
Sustainability and Corporate Responsibility report 2020
26
Digital inclusion
Digital inclusion
Through research and on-the-ground efforts,
Ericsson understands the power of digitaliza-
tion to address intrinsic societal needs and
create positive impact at scale. At Ericsson,
Digital inclusion means empowering people
and societies through the digital infrastructure
that the Company provides. This includes
promoting established telecom standards and
technologies as the most efficient infrastruc-
ture, helping customers to deliver sustainable
and cost-efficient coverage as well as striving
to enable everyone to enjoy the benefits of
digital solutions and services.
Providing widespread access to mobile
broadband offers unprecedented opportuni-
ties to improve social inclusion, sustainable
innovation, economic growth and productivity.
The rapid development in society through
digitalization depends on mobile broadband
coverage in both urban as well as in sparsely
populated areas. During the COVID-19
pandemic, connectivity has proven to be the
backbone of society. This has resulted in a
strong awareness across societal stakeholders
of the need for universal internet access to
minimize the pandemic impact on businesses
and societies.
According to the International Telecom-
munication Union in the Measuring digital
development Facts and figures 2020 publica-
tion, at the end of 2019, just over half of the
world population was using the Internet.
Ericsson is committed to working with custom-
ers, governments and partners to help address
this digital divide. In most regions, the trend
is towards increased access to mobile broad-
band, see figure on page 27. Yet there remains
a widespread need to accelerate internet
access for underserved populations, not only
in emerging markets but also in developed
regions of the world. Further, factors that limit
the use of mobile broadband solutions – such
as affordability and digital literacy – are key
issues that need to be addressed.
The Company takes a proactive leader-
ship role in a number of high-level advocacy
forums and collaborates with a wide range of
stakeholders to scale the impact of its sustain-
ability efforts. During 2020, Ericsson began
working on a comprehensive approach to
digital inclusion, including the development of
a strategy to accelerate efforts on accessibility,
affordability and digital literacy related to
mobile broadband coverage and uptake.
Children use their tablet and work with each other at the UNICEF-supported Debate e-Learning Centre in a village
on the outskirts of Kassala, the capital of the state of Kassala in Eastern Sudan. ©UNICEF.UNI232328.Noorani
Sustainability and Corporate Responsibility report 2020 Digital inclusion
27
financial support. Giga will assess the data
and convene governments and the private
sector to design and deploy digital solutions
that will ultimately enable learning for children
and young people everywhere.
Public-private partnerships
Ericsson believes that public-private partner-
ships play a key role in its approach to sustain-
ability and digital inclusion and drives two
public-private partnership programs globally.
Connect to Learn is Ericsson’s flagship
education program. For ten years, its purpose
has been 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 program is a global
volunteer initiative founded in 2000, aimed at
responding to human suffering caused by dis-
asters. Together with partners, Ericsson uses
its core competencies to provide communica-
tion and support to help humanitarian workers
save lives and support communities affected
by natural disasters. During 2020, Ericsson has
not received requests on emergency response
from the humanitarian partners to the pro-
gram. Ericsson and partners are continuously
working to prepare the humanitarian response
for future emergencies.
Ericsson Volunteer Program
The Ericsson Volunteer Program continued
its global roll-out and in 2020 the Company
launched a volunteering option for all employ-
ees of one workday per year. Further, the
option to volunteer in pre-selected projects (up
to 80 hours annually) was rolled out in most
countries where Ericsson has operations. At
year-end, 3,790 employees had registered as
volunteers in 88 countries. As a result of the
pandemic, virtual volunteering opportunities
have been made available.
Main risks include:
– Without policy frameworks in place
supporting digital literacy, affordability
and accessibility, new digital divides
could emerge.
Access to mobile broadband
Ericsson’s long-term target is to provide
internet access through mobile broadband
to an additional 500 million subscribers by
2024 (baseline 2018), where Fixed Wireless
Access is an efficient tool to provide internet
access and close the digital divide. Since 2019,
the number of subscribers that get access to
internet through Ericsson’s mobile broadband
solutions has increased by approximately 188
million.
Technology for sustainable development
Evidence shows that mobile broadband pene-
tration contributes to Gross Domestic Product
(GDP) growth. Ericsson previously partici-
pated in a joint research project with Imperial
College in London. Results showed that, on
average, a 10% increase in the mobile broad-
band adoption ratio causes a 0.8% increase in
GDP. Moreover, the results also showed that
the effect from mobile broadband is consider-
ably larger and more significant in low income
and Non-OECD countries compared to high
income and OECD countries. A continuation
of the work with Imperial College found that
there is an economically and statistically sig-
nificant correlation between IoT connections
per inhabitant and productivity growth.
Advocacy
Ericsson advocates for accessibility and
affordability in forums such as the Broadband
Commission for Sustainable Development,
the World Economic Forum, the Alliance for
Affordable Internet and the Smart Africa
Alliance. In these forums, Ericsson focuses on
topics around spectrum policies and interna-
tional investments as well as efforts towards
connecting the unconnected and exploring
other multi-stakeholder business initiatives to
bridge the digital divide.
Ericsson is also engaged in capacity devel-
opment with partners like the Swedish Inter-
national Development Cooperation Agency
(SIDA) and SPIDER, focusing on telecom
authorities’ capacity building on spectrum
management and to provide accessibility and
secure telephony and broadband services.
Ericsson established a global three-year
partnership with UNICEF to help map school
connectivity in 35 countries by the end of
2023. This joint effort will support the Giga
initiative, launched by UNICEF in 2019 with
the International Telecommunication Union
(ITU), aiming to connect every school to the
internet by 2030. As one of the first strategic
partners, Ericsson will help collect, validate,
analyze, visualize and monitor school con-
nectivity data in real time, as well as provide
Mobile subscriptions by region and technology 1) 2)
%
100
80
60
40
20
0
2020 2026
2020 2026
2020 2026
2020 2026
2020 2026
2020 2026
2020 2026
2020 2026
2020 2026
Sub-Saharan
Africa
Middle East
and North Africa
Latin America
India
South East Asia
and Oceania
Central and
Eastern Europe
North
East Asia
Western
Europe
North
America
5G
LTE (4G)
WCDMA/HSPA (3G)
GSM/EDGE-only (2G)
CDMA-only (2G/3G)
1) Ericsson Mobility Report, November 2020.
2) Technologies with less than 1% of subscriptions are not shown in the graph.
Board of Directors
Stockholm, March 3, 2021
Telefonaktiebolaget LM Ericsson (publ)
Org. no. 556016-0680
Sustainability and Corporate Responsibility report 2020 28
Consolidated sustainability notes
Consolidated sustainability notes
S1 About the Sustainability report
S2 Compliance and anti-corruption
This Sustainability and Corporate Responsibility report includes information
about Ericsson’s environmental, social and corporate governance aspects and
impacts. Within this scope, the report presents information on targets, govern-
ance, policies, risks, opportunities, and performance on identified significant
topics. The scope of the statutory sustainability report are pages 1–33 in the
Sustainability and Corporate Responsibility report, and the description of
Ericsson's business model on pages 4–8 in Ericsson's Financial report 2020.
Unless otherwise stated, the information and data provided pertain to
activities undertaken from January 1, 2020, to December 31, 2020. The report
covers the Ericsson Group, that is, Telefonaktiebolaget LM Ericsson and its
subsidiaries. It excludes environmental information on the recent acquisition
of Cradlepoint (see page 54 in Ericsson's Financial report 2020), for which
sustainability related data has not yet been consolidated within the Group.
This report has been subject to assurance procedures by Deloitte AB as an
independent third-party using international assurance standards ISAE 3000
and AA1000AS, see pages 34–35.
Reporting principles
The scope, content and quality of the Company’s sustainability and corporate
responsibility reporting are based on the Global Reporting Initiative (GRI)
Sustainability Reporting Standards and AA1000AP. This report has been
prepared in accordance with GRI Standards: Core option. This includes
applying principles for defining report content such as stakeholder inclusive-
ness, materiality and completeness, and reporting quality principles such as
accuracy, balance, clarity, comparability, reliability and timeliness. By applying
the GRI Standards, Ericsson aims to report sustainability-related information
that is relevant to its stakeholders in a transparent and balanced way. The GRI
Content Index can be found on pages 32–33.
This report has also been prepared in accordance with the UN Guiding
Principles on Business and Human Rights Reporting Framework.
Ericsson is currently working to align its ESG disclosures to the Sustainability
Accounting Standards Board's (SASB) standards for sustainability report-
ing, and to the guidelines from the Task Force on Climate-related Financial
Disclosures (TCFD). The SASB reference index is published on the Company's
website.
Other Sustainability related-reporting
Ericsson is a UN Global Compact signatory and has been since 2000. The
Company Communication on Progress report is prepared according to UN
Global Compact Advanced Level criteria and is available on the UN Global
Compact website.
Additional reporting on Ericsson’s sustainability and corporate responsibility
efforts are available at www.ericsson.com including the UN Global Compact
Communication on Progress and UN Guiding Principles Reporting Framework
Index.
Ericsson also publishes other annual statements and reports such as
Ericsson's CDP response, a Modern Slavery and Human Trafficking Statement,
and a Conflict Minerals Report on its website.
Reported compliance concerns
Compliance concerns reported to Audit and Compliance Committee, received
via Ericsson Compliance Line and other channels. The category of reported
compliance concerns is determined based on the most significant impact as
identified by Corporate Investigation’s team. Categorization may be modified
during an investigation as additional information related to the initial
allegation is obtained.
Compliance concerns 1)
Number of cases reported
Cases by category (%)
Fraud, corruption and
regulatory breach
Security
Operations
Human Resources
Conflict of Interests
Sustainability
Other
2020
933
2019
538
2018
445
2017
412
2016
145
17
5
15
46
6
0
11
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
1) Figures are rounded to the nearest whole percentages wherefore totals for certain years do not add
up to 100 percent.
Corruption risk assessments
Following a company-wide corruption risk assessment, a process for more
in-depth assessments in different market areas and units within Ericsson, has
been established in 2019 and further developed in 2020. During this period,
a number of focused anti-bribery and corruption risk assessments have been
carried out, covering operations in a significant number of countries.
– 3 finalized and 2 ongoing assessments in Market Area Middle East
and Africa.
– 1 completed and 1 ongoing assessment in Market Area Europe
and Latin America.
– 2 finalized assessments in Market Area South East Asia, Oceania and India.
– 1 finalized assessment in Market Area North East Asia.
S3 Sensitive business
Number of cases reviewed in the sensitive business process, by outcome
Approved
Approved with conditions
Rejected
Total
2020
2019
2018
2017
2016
321
480
27
828
262
358
31
651
362
199
26
587
593
210
43
846
350
209
45
604
Sustainability and Corporate Responsibility report 2020 Consolidated sustainability notes
29
S5 Occupational health and safety
Number of fatalities, major incidents, lost time incidents reported via Ericsson
Global Incident Reporting Tool (GIRT). Ericsson's suppliers are to report occu-
pational health and safety (OHS) related incidents, via GIRT, that occur during
the operations on behalf of Ericsson according to binding OHS requirements.
Fatalities
Ericsson employees
Supply chain and public
Total
Major incidents 1)
Ericsson employees
Supply chain and public
Total
Lost-time incidents 3)
Ericsson employees
Supply chain and public
Total
2020
2019
2018
2017
2016
0
7
7
0
11
11
0
14
14
0
23
23
0
17
17
2020
2019
2018
2017
2016
66
36
102
122
57
179
83
33
116
–
–
–
–
213 2)
186 2)
2020
2019
2018
2017
2016
90
53
143
180
87
267
143
61
204
–
–
–
–
–
–
1) A major incident is defined as an incident that results in more than 3 lost work days.
2) Due to limitations in data availability, reporting on major incidents broken down on employees and
supply chain/public for 2017 and 2016 is not possible, as is also reporting on lost time injuries for
these years.
3) A lost-time incident is defined as an incident that results in one or more lost work days. Includes the
major incidents reported above.
S4 Workforce Data
Employee diversity – female representation
%
All employees
Line managers
Executve population 1)
Executive Team 2)
Board of Directors 3)
External workforce 4)
2020
2019
2018
2017
2016
25
21
32
20
23
25
20
32
20
23
23
20
31
27
23
25
20
27
36
43
23
20
24
35
46
Headcount
11,398
12,105
13,023
12,664
19,382
2020
2019
2018
2017
2016
Hire rate, turnover and positions filled by internal candidates
%
Hire rate 5)
Turnover 6)
Positions filled by internal
candidates 7)
2020
2019
2018
2017
2016
9
8
41
15
11
32
12
17
41
11
22
47
14
18
46
Training – Average training per employee
Hours/year
2020
24.0
2019
26.5
2018
21.3
2017
21.9
2016
29.0
Employees receiving performance evaluations 8)
%
Share of employees
2020
95
2019
85
2018
71
2017
63
2016
52
1) Employees reporting to Executive Team members.
2) Including Ericsson's President and CEO.
3) Including Ericsson's President and CEO, and employee representatives but excluding deputy
employee representatives.
4) People working for Ericsson without being directly employed, including consultants, interns and field
service operators.
5) Derived by dividing the number of employees who joined Ericsson during the year by the total
headcount at year-end.
6) Derived by dividing the number of employees who left Ericsson during the year by the total
headcount at year-end.
7) Derived by dividing the number of positions filled in a year by employees already employed by
Ericsson, by the total number of positions filled in the same year.
8) Performance evaluations recorded as of January 31st the following year. Field service personnel
are excluded from the calculations.
Ericsson’s Code of Business Ethics stipulates that all employees shall be free to form and to join, or
not to join, trade unions or similar organizations and to bargain collectively. The coverage varies from
country to country. In Sweden, all employees except for Group Management are covered by collective
agreements. The Company estimates that approximately 30% of employees are covered by collective
bargaining agreements.
Sustainability and Corporate Responsibility report 2020 30
Consolidated sustainability notes
S6 Responsible management of suppliers
S8 Waste, product take-back and water
Risk assessment and audits
Waste generated at facilities by disposal method (tonnes) 1) 2)
Tier One Suppliers risk
assessed (%) 1)
Number of CoC audits 2)
Number of CC audits 3)
2020
2019
2018
2017
2016
99
83
23
98
160
35
47
176
39
–
238
27
–
330
36
Recycling
Energy recovery
Landfill
Hazardous waste
Total
2020
3,370
1,465
2,065
16
6,916
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
11,013
10,217
11,755
13,665
Responsible Minerals Assurance Process (RMAP) 4)
Minerals in
scope
Identified
smelters in the
supply chain
Smelters
participating
in RMAP
Cobalt
Gold
Tantalum
Tin
Tungsten
Total
40
168
45
96
54
403
11
111
37
58
42
259
RMAP
conformant
smelters (no.)5)
11
107
37
54
42
RMAP
conformant
smelters (%) 5)
100
96
100
93
100
251
97
Product take-back (incl. batteries) by disposal method (%) 3)
Re-use
Recycling
Energy recovery
Landfill
Total take-back volumes
(tonnes)
2020
2019
2018
2017
2016
1
94
4
1
2
91
6
1
0
93
5
1
0
94
5
1
0
93
5
2
10,204
8,403
8,380
12,252
14,009
Water consumption (Mm3) 4)
Total
2020
1.5
2019
1.5
2018
1.6
2017
1.8
2016
2.7
1) Waste from production sites are based on reported figures. Waste from other facilities are estimates
based on waste generation at the company’s headquarter.
2) Facilities includes offices, production sites, warehouses, data centers and test labs.
3) Figures are rounded to the nearest whole percentages wherefore totals for certain years do not add
up to 100 percent.
4) Water consumption covering approximately 40% of employees is measured and the remainder is
based on an extrapolation of these figures.
1) Risk assessment process described on page 16. The process was formalized in 2018 wherefore com-
parative figures before that year are not available.
2) Audits performed to assess compliance with Ericsson's Code of Conduct for Business Partners.
3) Contract Compliance supplier audits performed by Ericsson internal auditors to verify adherence to
and compliance with supplier requirements.
4) Based on supplier responses as of 25 January 2021.
5) Out of smelters assessed.
S7 Information security and privacy
Information security and privacy incidents reported through Security Incidents
Management System (SIMS).
Number of incidents reported via SIMS 1)
Critical
Major
Medium
Minor
Total
2020
1
25
473
2,034
2,533
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
2016 2)
18
82
852
1,573
2,525
1) Excluding both cancelled and unrelated incidents reported.
2) Only information security incidents reported through SIMS.
Sustainability and Corporate Responsibility report 2020 Consolidated sustainability notes
31
S9 Energy, travel and transport
S10 GHG and other emissions
Energy usage at facilities (GWh) 1)
Direct GHG emissions (Scope 1) (Ktonnes) 1)
Electricity (including cooling)
Of which renewable
District heating
Other energy 2)
Total
2020
2019
2018
2017
2016
572
390
23
33
628
588
333
26
50
664
634
335
33
49
716
704
357
33
45
782
788
351
34
60
882
Energy intensity (GWh/net sales in billion SEK)
Total
2020
2.7
2019
2.9
2018
3.4
2017
3.8
2016
4.0
Facilities' energy usage
Fleet vehicles 2)
Total
2020
2019
2018
2017
2016
7
33
40
11
38
49
11
43
54
14
59
73
14
61
75
Indirect GHG emissions (Scope 2) (Ktonnes) 1) 3)
Facilities' energy usage
(market based)
74
124
134
156
185
2020
2019
2018
2017
2016
Distances travelled (Mpkm) 3) 4)
Business travel air
Business travel road
Fleet vehicles
Employee commuting
Total
2020
2019
2018
2017
111
25
170
119
425
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
Business travel
Product transport 4)
Employee commuting 5)
Use of sold products 6)
Total
2020
17
112
30
34,000
34,159
2019
114
139
60
33,000
33,313
2018
110
215
61
32,000
32,386
2017
123
129
69
34,000
34,321
2016
154
146
73
34,000
34,373
Other indirect GHG emissions (Scope 3) (Ktonnes)
Product transportation (Mtonnekm) 5)
Air transport
Road transport
Sea transport
Rail transport
Total
2020
2019
2018
2017
2016
117
163
261
7
548
175
245
370
10
800
295
235
296
1
827
161
288
212
1
662
178
304
370
5
857
1) Measured energy consumption is available for 80% of contracted floor area (85% for electricity). For
locations were measured consumption data is not available, extrapolation of consumption at similar
locations have been used to estimate the consumption.
2) Includes local heating and standby energy generation such as back-up generators .
3) Million passenger kilometres.
4) Travel distances are largely based on reported data from travel agencies. For a smaller share of the
distances travelled, primarily by car, estimations have been made based on travel spend figures.
Commuting distances are based on an estimate of employees commuting habits. The figures for fleet
vehicles are partly measured distances and partly estimated ones based on contracted distances in
leasing contracts.
5) Approximately 62% of transport distances are based on data reported by service logistics providers.
For a smaller share, primarily related to the first/last mile of the total distance transported by truck
and some additional air transport, estimations have been made based on transported weights and
distance to destinations.
GHG emissions intensity (Ktonnes/net sales in billion SEK)
Scope 1
Scope 2 (market based)
2020
0.17
0.32
Other emissions to air (Ktonnes) 7)
NOx
SOx
Particle Matters
2020
0.67
0.77
0.08
2019
0.22
0.55
2019
1.24
1.19
0.14
2018
0.26
0.64
2018
1.52
1.34
0.15
2017
0.36
0.76
2017
1.33
1.39
0.17
2016
0.34
0.84
2016
1.58
1.68
0.20
1) Energy consumption used to calculate scope 1 and 2 emissions is partly estimated. See note S9.
2) Emissions are calculated based on estimated distances driven.
3) Location based Scope 2 emissions for 2020 and 2019 were 156 and 168 Ktonnes respectively.
4) Scope covers all product transport sourced by Ericsson. The majority of reported emissions are based
on data reported by logistic service providers, with a smaller part being estimated.
5) Commuting is estimated based on a survey of employees’ commuting habits. Data for 2020 includes
estimated carbon emissions from employees teleworking (working from home ) of approximately
10 Ktonnes. Emissions from teleworking in previous years are considered to be insignificant.
6) Estimation based on the Company’s LCA carbon footprint from products in use. The estimated use-
ful life of products is ten years and the resulting emissions have been calculated based on the current
electricity mix in the grids of markets served.
7) Emissions are estimated based on calculated CO2e emissions from transport, travel and facility
energy consumption.
Greenhouse Gas (GHG) Emissions are calculated as carbon dioxide equivalents (CO2e). CO2e is defined
as the amount of a particular GHG, expressed as the amount of carbon dioxide that gives the same
greenhouse effect. CO2e figures includes the following GHG gases: CO2, CH4, N2O, HFCs and PFCs.
Ericsson reports GHG emissions according to the GHG protocol. Ericsson's CDP response is available
on the Company website. For practical and timing reasons energy and emission data for facilities and
product transport is collected and calculated for the period December–November.
Emission factors used in consolidation
Energy type
Emission factor
Source/Comments
Electricity
Source/country specific
IEA, US Energy Information Administration
(EIA), Association of Issuing Bodies (AIB),
supplier specific data where available
Green Electricity
0.001 kg/kWh
District heating, Sweden 0.071 kg/kWH
Supplier specific data
District heating, other
0.215 kg/kWh
Country average
Air travel
Car travel
0.115 kg/pkm
0.150 kg/pkm
Air transport
0.780 kg/tonnekm
Road transport
0.110 kg/tonnekm
Sea transport
Rail transport
0.016 kg/tonnekm
0.030 kg/tonnekm
GHG protocol and DEFRA
Country averages based on fleet composition
As provided by logistic service providers
Sustainability and Corporate Responsibility report 2020 32
Global Reporting Initiative Index
Global Reporting Initiative Content Index
Unless otherwise stated, the Global Reporting Initiative (GRI) Standards referenced are those published in 2016. Disclosures with omissions
are indicated in the index and described on page 33. Unless otherwise stated the pages referenced are those in the Sustainability & Corporate
Responsibility Report. References to other documents are indicated using the following abbreviations: (FR) Financial Report, (CGR) Corporate
Governance Report, (EIR) Ericsson 2020 in Review.
General Disclosures
Material topic and
GRI disclosure number
Disclosure
102-1
102-2
102-3
102-4
102-5
102-6
102-7
102-8
102-9
102-10
102-11
102-12
102-13
102-14
102-16
102-17 1)
102-18
102-19 1)
102-40
102-41
102-42
102-43
102-44
102-45
102-46
102-47
102-48
102-49
102-50
102-51
102-52
102-53
102-54
102-55
102-56
Name of the organization
Activities, brands, products and services
Location of headquarters
Location of operations
Ownership and legal form
Markets served
Scale of the organization
Information on employees and other workers
Supply chain
Significant changes to the organization and its supply chain
Precautionary principle or approach
External initiatives
Memberships of associations
Statement from senior decision-maker
Values, principles, standards, and norms of behavior
Mechanisms for advice and concerns about ethics
Governance Structure
Delegating authority
List of stakeholder groups
Collective bargaining agreements
Identifying and selecting stakeholders
Approach to stakeholder engagement
Key topics and concerns raised
Defining report content and topic boundaries
List of material topics
Restatements of information
Changes in reporting
Reporting period
Date of most recent report
Reporting cycle
Contact point
Claims of reporting in accordance with the GRI Standards
GRI content index
External assurance
1) Non-Core indicator.
Topic specific disclosures
Material topic and
GRI disclosure number
Disclosure
Sustainability management, governance and regulatory environment
103-1–3
Management approach
Digital inclusion
103-1–3
Information security
Management approach
103-1–3
Management approach
Non-GRI Disclosure
Number of information and security incidents reported
Privacy protection
103-1–3
Non-GRI Disclosure
Management approach
Number of information and security incidents reported
Omission
statement
Reference(s)
28
FR 4–8
FR 1
EIR 3, 26, 34, FR 88
FR 120–122
EIR 20–31
FR 11, 27–28, 74, 88
29, FR 74
EIR 34, FR 17–18
EIR 5, 34
Sustainability policy, available at ericsson.com
ericsson.com
ericsson.com
FR 2–3, 8
4, 8
5
CGR 2, 4–11
4, CGR 2
6
29
6
6
6
7, 28
7
33
No significant changes
28
March 2, 2020
Yearly
corporate.responsibility@ericsson.com
28
32–33
28, 34–35
Reference(s)
3–5
4, 26–27
4, 12
30
4, 13
30
Omission
statement
Entities included in the consolidated financial statements
28, FR 33 & 88
Sustainability and Corporate Responsibility report 2020
Topic specific disclosures, cont.
Material topic and
GRI disclosure number
Disclosure
Anti-corruption
103-1–3
205-1
205-2
205-3
Management approach
Operations assessed for risks related to corruption
Communication and training about anti-corruption policies and procedures
Confirmed incidents of corruption and actions taken
Ericsson's own carbon emissions
103-1–3
Management approach
302-1
302-3
305-1
305-2
305-3
305-4
Energy consumption within the organization
Energy intensity
Direct (Scope 1) GHG emissions
Indirect (Scope 2) GHG emissions
Other indirect (Scope 3) GHG emissions
Emissions intensity
Network energy performance
103-1–3
302-5
Management approach
Reductions in energy requirements of products and services
Other indirect (Scope 3) GHG emissions
305-3
Responsible management of suppliers
103-1–3
308-1, 414-1
Management approach
New suppliers that were screened using environmental/social criteria
Health, safety and well-being
103-1–3, 403-1–7 1)
403-9
Management approach
Work-related injuries
Diversity and inclusion
103-1–3
405-1
Management approach
Diversity of management bodies and employees
Respect for human rights (including labor practices)
Management approach
103-1–3
Significant investment agreements and contracts that include human rights
412-3
clauses or that underwent human rights screening.
Global Reporting Initiative Index
33
Omission
statement
Reference(s)
4, 9
28
9
FR 18
4, 20–23
31
31
31
31
31
31
4, 24
24
31
4, 16–17
30
4, 14–15
29
4, 18
29
4, 10
11, 28
Radio waves and health
103-1–3
416-1
1) Standards published in 2018.
Management approach
Assessment of the health and safety impacts of product and service categories
4, 19
19
Omissions from the GRI Standards
Disclosure
205-1, 205-2
308-1, 414-1
403-9
405-1
416-1
Omission and reason for omission
The corruption risk assessments are done per market area, segment, and group function and not per specific subsidiaries wherefore a percentage
figure is not relevant to disclose. Ericsson’s anti-corruption training program is currently undergoing a major transformation, which has hindered
the company’s effort to collect accurate training completion data for 2020. With the introduction of new online training in 2021, the company
anticipates that it will be able to disclose the training completion data in next year’s report.
Due to limitations in data availability Ericsson is not able to provide a percentage figure for new suppliers screened on social and environmental
criteria (defined as those who have submitted a self-assessment questionnaire). With the introduction of new tools, the Company aims to provide
this information in the coming years.
Due to limitations in data availability for hours worked by employees and suppliers, Ericsson is not able to disclose fatality- and lost-time injury
frequency rates. With the introduction of new tools, the Company aims at providing this data in coming years. Ericsson does not always collect
information on recovery time and is therefore not able to provide data on “high consequence injuries” as defined in the GRI Standards. The com-
pany discloses the number of major incidents as an alternative performance indicator.
Ericsson does not disclose a breakdown on employee categories by age due to confidentiality reasons. The Company discloses a breakdown on age
for all employees on a consolidated level.
The assessments of the potential health impacts of the Company’s products are not done per product but rather on the technologies which the
Company provides. A numerical breakdown is therefore not relevant to disclose.
Restatements of information
Reference
Restatement and reason for restatement
p. 29
p. 29
Comparative figures for gender diversity within the Board of Directors and the Executive Team have been restated to align with the definitions of
individuals included in these groups, as described together with the information disclosed.
Information of the number of major incidents occurring in 2018 has been restated from 130 to 116 cases as the former figure included cases
reported multiple times and incidents which were later assessed as not being within the Company’s control.
Sustainability and Corporate Responsibility report 2020
34
Auditor’s assurance report
Auditor’s Assurance
Auditor’s Assurance Report on Ericsson’s Sustainability and Corporate Responsibility Report and statement regarding
the Statutory Sustainability Report
To 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 (“Ericsson”) to
undertake an assurance engagement of the Ericsson Sustainability and
Corporate Responsibility Report (“the Sustainability Report”) for the
year 2020. The Company has defined the scope of the Sustainability
Report on page 28 in the Sustainability Report, which also constitutes
the Statutory Sustainability Report.
Responsibilities of the Board of Directors and the Executive
Management
The Board of Directors and the Executive Management are responsible
for the preparation of the Sustainability Report including the Statutory
Sustainability Report in accordance with the applicable criteria and the
Annual Accounts Act respectively. The criteria are defined on page 28 in
the Sustainability Report, and are part of the Sustainability Reporting
Guidelines published by GRI (Global Reporting Initiative), which are
applicable to the Sustainability Report, as well as the accounting and
calculation principles that the Company has developed. This responsi-
bility also includes the internal control relevant to the preparation of a
Sustainability Report that is free from material misstatements, whether
due to fraud or error.
Responsibilities of the auditor
Our responsibility is to express a conclusion on the Sustainability Report
based on the assurance procedures we have performed and to express
an opinion regarding the Statutory Sustainability Report. Our engage-
ment is limited to historical information presented and does therefore
not cover future-oriented information.
We conducted our engagement in accordance with ISAE 3000
Assurance Engagements Other than Audits or Reviews of Historical
Financial Information, as well as AA1000AS v3 issued by AccountAbility
(type 2 engagement). The engagement includes limited assurance on
the complete Sustainability Report, and an audit of selected information
consisting of GHG emission data regarding Ericsson’s own activities dis-
closed on page 31 in the Sustainability Report, covering GHG emission
from; facilities’ energy use, fleet vehicles, business travel, and product
transportation.
The objective of an audit is to obtain reasonable assurance that
the information is free of material misstatements. A reasonable
assurance engagement includes examining, on a test basis, evidence
supporting the selected information in the Sustainability Report. A
limited assurance engagement consists of making inquiries, primarily
of persons responsible for the preparation of the Sustainability Report,
and applying analytical and other limited assurance procedures. Our
examination regarding the Statutory Sustainability Report has been
conducted in accordance with FAR’s accounting standard RevR 12
The auditor’s opinion regarding the Statutory Sustainability Report. A
limited assurance engagement and an examination according to RevR
12 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.
The 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 of Ericsson in accord-
ance with professional ethics for accountants in Sweden and have
otherwise fulfilled our ethical responsibilities in accordance with these
requirements. Our assurance engagement has been performed by a
multidisciplinary team specialized in reviewing economic, environmen-
tal and social issues in Sustainability Reports, and with experience from
the Information and Communication Technology (ICT) sector.
The limited assurance procedures performed and the examination
according to RevR 12 do not enable us to obtain assurance that we
would become aware of all significant matters that might be identified
in an audit. The conclusion based on a limited assurance engagement
and an examination according to RevR 12 does not provide the same
level of assurance as a conclusion based on an audit. Since this engage-
ment is combined, our conclusions regarding the limited assurance, the
reasonable assurance and the examination according to RevR 12 will
be presented separately below.
Our procedures are based on the 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
Report.
We believe that the evidence we have obtained is sufficient and
appropriate to provide a basis for our conclusion below.
Conclusions
Based on the limited assurance procedures we have performed,
nothing has come to our attention that causes us to believe that the
Sustainability Report, is not prepared, in all material respects, in accord-
ance with the criteria defined by the Board of Directors and Executive
Management, including adherence to the AA1000AP (2018) principles
inclusivity, materiality, responsiveness, and impact.
In our opinion, the selected information in the Sustainability Report
which has been subject to our reasonable assurance procedures has,
in all material respects, been prepared in accordance with the criteria
defined by the Board of Directors and Executive Management.
A Statutory Sustainability Report has been prepared.
Sustainability and Corporate Responsibility report 2020 Auditor’s assurance report
35
Other information
The following is other information that has not affected our conclusion
above. According to AA1000AS v3, we have included observations and
recommendations for improvements in relation to adherence to the
AA1000AP (2018) principles:
Regarding inclusivity
Ericsson has a 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 sustainabil-
ity and corporate responsibility. We understand that Ericsson is evaluat-
ing opportunities to further strengthen the approach and process for
stakeholder engagement over the coming years. We encourage Ericsson
to continue this work, and we have no other specific recommendations
regarding inclusivity.
Regarding materiality
We recognize that Ericsson has a systematic approach and process for
assessment of material sustainability and corporate responsibility topics.
This process takes into account both external and internal perspectives,
including the perception of investors, customers, representatives of mar-
ket and business areas, and employees. We recommend and encourage
Ericsson to continue to develop the materiality assessment process to
ensure an appropriate balance between different stakeholder perspec-
tives, and to evaluate opportunities to further refine the methodology
used to determine the impacts and boundaries of the topics addressed in
the materiality assessment.
Regarding responsiveness
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 responsive-
ness, and these stakeholders confirm that Ericsson addresses their
key concerns and expectations in ongoing dialogues and through the
Sustainability and Corporate Responsibility Report. We have no specific
recommendations regarding responsiveness.
Regarding impact
We recognize that Ericsson is aware of the company’s material direct
and indirect economic, environmental, and social impacts, identified
through the materiality assessment, and actively manage, measure
and monitor said impacts. We understand that Ericsson is taking
measures to further strengthen the assessment of its broader economic,
environmental, and social impacts, beyond topics identified through
the materiality assessment. Furthermore, Ericsson is taking efforts to
continuously strengthen its reporting processes and procedures. We
encourage Ericsson to continue these efforts. We also recommend
the company to report on climate-related risks in line with established
frameworks going forward.
Stockholm, March 3, 2021
Deloitte AB
Thomas Strömberg
Authorized Public Accountant
Lennart Nordqvist
Expert member of FAR
Sustainability and Corporate Responsibility report 2020
36
Forward looking statements
Forward looking statements
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 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.
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.
– The expected operational or financial performance of strategic
These forward-looking statements also represent our estimates and
cooperation 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 stand-
ardization environment in which we operate, competition and our
customer structure.
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.
Sustainability and Corporate Responsibility report 2020 Glossary
37
Glossary
Segments have been defined for financial reporting purposes based on the business areas.
See further information in Note B1, “Segment Information” in the Financial report.
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.
3GPP
Third Generation Partnership Project. Unites
telecommunications standard development orga-
nizations and produce specifications that defines
a mobile technology (2G, 3G etc.).
4G
Forth generation mobile systems, also known
as LTE.
5G
The fifth generation of mobile systems. An evolu-
tion of 4G/LTE.
AI
Artificial intelligence. The ability of a machine to
perform a task commonly associated with intel-
ligent beings.
CO2e
The amount of a particular greenhouse gas,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.
COVID-19
The disease caused by the coronavirus (SARS-
CoV-2).
COVID-19 pandemic
The global spread of the disease caused by the
coronavirus (SARS-CoV-2).
ESG
Environmental, Social, and Corporate Governance.
Refers to the three central factors in measuring the
sustainability and societal impact of an investment
in a company or business.
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.
GHG
Greenhouse Gas (GHG) emissions are calculated
as carbon dioxide equivalents (CO2e). CO2e
is defined as the amount of a particular GHG,
expressed as the amount of carbon dioxide that
gives the same greenhouse effect.
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.
LTE
Long-Term Evolution. 4G; the evolutionary step
of mobile technology beyond 3G HSPA, allowing
data rate above 100 Mbps.
Mobile broadband
Wireless high-speed internet access using
the HSPA, LTE, CDMA2000EV-DO and 5G
technologies.
SDGs
Sustainable Development Goals. The 2030
Agenda for Sustainable Development, adopted by
all United Nations Member States in 2015, pro-
vides 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.
UNGC
United Nations Global Compact. Is a voluntary
initiative adopted in 2005 by the UN Secretary-
General, based on CEO commitments to imple-
ment universal sustainability principles and to take
steps to support the UN Sustainable Development
Goals.
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.
The terms “Ericsson”, “the Company”, “the Group”, “us”, “we”, and “our” all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries.
Sustainability and Corporate Responsibility report 2020 38
More 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
Every care has been taken in the translation of this annual report to English.
However, in the event of discrepancies, the Swedish original will supersede
the English translation.
Contact details
Ericsson headquarters
Torshamnsgatan 21, Kista
SE-164 83 Stockholm
Sweden
Registered office
Telefonaktiebolaget LM Ericsson
Torshamnsgatan 21, Kista
SE-164 83 Stockholm
Sweden
Investor relations
For questions on the Company, please contact
Investor Relations:
Phone: +46 10 719 0000
Email: investor.relations@ericsson.com
For printed publications
Order a hard copy of the Annual Report - online:
https://www.ericsson.com/en/investors/financial-reports
Order a hard copy of the Annual Report - phone:
Strömberg Distribution
Phone: +46 8 779 9600
Contact details for ADR program
Ericsson Annual Report 2020
For ADR institutional investors and brokers
Deutsche Bank ADR broker services desk
New York: Tel +1 212 250 9100
London: Tel +44 207 547 6500
For registered ADR Holders
Deutsche Bank Shareholder Services
American Stock Transfer & Trust Company
Email: DB@amstock.com
Toll-free number: +1 800 937 5449
Direct Dial: +1 718 921 8124
Project management
Ericsson Investor Relations
Design and production
Hallvarsson & Halvarsson
Photos of Board of Directors
and Executive Team
Per Myrehed
Printing
Göteborgstryckeriet 2021
Printed on Amber Graphic
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och anpassas i storlek till märket
• För tryckning på Svanen på andra nordiska språk studera Regelverket för
nordisk miljömärkning.
Sustainability and Corporate Responsibility report 2020
About Ericsson
Ericsson provides high-performing solutions to enable its customers to capture the full value
of connectivity. The Company supplies communication infrastructure, services and software
to the telecom industry and other sectors. Ericsson has approximately 100,000 employees
and serves customers in more than 180 countries. Ericsson is listed on Nasdaq Stockholm
and the Ericsson ADS trade on NASDAQ New York. The Company’s headquarters are
located in Stockholm, Sweden.
It all started in a mechanical workshop in Stockholm in 1876 where Lars Magnus Ericsson
designed telephones and his wife Hilda manufactured them by winding copper wire coils.
With 5G now a commercial reality, we continue to invest to strengthen our 5G leadership.
Our portfolio is designed to help our customers digitalize and to increase efficiency in an
intelligent and sustainable way, while finding new revenue streams.
Telefonaktiebolaget LM Ericsson
SE-164 83 Stockholm, Sweden
Telephone +46 10 719 00 00
www.ericsson.com
EN/LZT 138 2297/4
© Telefonaktiebolaget LM Ericsson 2021