| ☐ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
2021
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☐ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
CO Controlling and External Reporting COMPANY Vice President,Controller716 53 20,719 0000, jonas.stringberg@ericsson.com B Shares *The NASDAQ Stock Market LLC
| * | Not for trading, but only in connection with the registration of the American Depositary Shares representing such B Shares pursuant to the requirements of the Securities and Exchange Commission. |
B shares (SEK 5.00 nominal value) | 3,072,395,752 | |||
A shares (SEK 5.00 nominal value) | 261,755,983 | |||
C shares (SEK 5.00 nominal value) | 0 |
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
| Non-accelerated filer | ☐ | Emerging growth company | ☐ | |||
☐ U.S. GAAP | ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ Other |
ITEM 1. ITEM 2. ITEM 3. ITEM G ITEM ITEM ITEM 15. ITEM 16. ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM ITEM Page 1 21 21 1 A 1 B 1 C 1 D 1 ITEM 4. 2 A.A 2 B.B 42 C.C 43 D.D 5 4. 5 ITEM 5. 5 A.A 5 B.B 6 C.C 6 D 6 E 6 F 6 ITEM 6. 7 A 7 B 7 C 7 D 7 E 8 ITEM 7. 8 A 8 B 8 C 8 ITEM 8. 8 A 8 B 8 ITEM 9. 9 A 9 B 9 C 9 D 9 E 9 F 9 ITEM 10. 9 A 9 B 9 C 9 D 9 E 10 D.F 12 ITEM 4A. 16ITEM 5.1612 A.H 16B.Liquidity and Capital Resources20C.Research and Development, Patents and Licenses23D.Trend Information23E.Off-Balance Sheet Arrangements24F.Tabular Disclosure of Contractual Obligations24ITEM 6. 24A.Directors and Senior Management24B.Compensation24C.Board Practices25D.Employees25E.Share Ownership26ITEM 7.27A.Major Shareholders27B.Related Party Transactions27C.Interests of Experts and Counsel27ITEM 8.27A.Consolidated Statements and Other Financial Information27B.Significant Changes2812 I 12 ITEM 11. Page12 ITEM 9.12. 2813 A.A 2813 B.B 2813 C.C 2913 D.D 2913 E. Dilution29 F.Expenses of the Issue2914 10. 29A.Share Capital29B.Memorandum and Articles of Association29C.Material Contracts32D.Exchange Controls33E.Taxation33F.Dividends and Paying Agents37G.Statement by Experts37H.Documents on Display37I.Subsidiary Information3714 11. 37ITEM 12.38A.Debt Securities38B.Warrants and Rights38C.Other Securities38D.American Depositary Shares38PART II39ITEM 13.39ITEM 14. 3914 3914 A.A 3914 B.B 3914 C.C 3914 D.D 3914 4014 16A. 4014 16B. 4014 16C. 4214 16D. 4314 iiITEM 16E PageITEM 16E. 4315 16F. 4315 16G. 4315 16H. 4515 ITEM 16I 4515 ITEM 17. 4515 18. 4515 19. 4516ITEM 19. 16 iii
The summary financial data should be read in conjunction with our consolidated financial statements and the notes thereto contained in this 2017 Form20-F, as well as the information set forth under the heading “Item 5. Operating and Financial Review and Prospects” and the information set forth under the following headingsUse of the 2017 Swedish Annual Report, which are incorporated herein by reference:
Net sales Operating expenses Operating income (loss) Net income (loss) Restructuring charges Cash flow from operating activities Year-end position, SEK million Total assets Property, plant and equipment Stockholders’ equity Non-controlling interest Per share indicators Earnings (loss) per share, basic, SEK Earnings (loss) per share, diluted, SEK Dividends per share, SEK Dividends per share, USD 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 writedowns/impairments of property, plant and equipment Acquisitions/capitalization of intangible assets Amortization and write-downs/impairments of intangible assets Research and development expenses as percentage of net sales Inventory turnover days Alternative Performance Measures (APMs) Gross margin Operating margin EBITA margin Cash conversion Free cash flow Capital employed, SEK million Return on equity Return on capital employed Equity ratio Capital turnover Working capital, SEK million Gross cash, SEK million Net cash, SEK million Statistical data, year-end Number of employees of which in Sweden Export sales from Sweden, SEK million 2017 Change 2016 2015 2014 2013 201,303 –10 % 222,608 246,92 227,983 227,376 –70,563 17 % –60,501 –64,129 –63,408 –58,509 –38,126 — 6,299 21,805 16,807 17,845 –35,063 — 1,895 13,673 11,143 12,174 8,501 12 % 7,567 5,04 1,456 4,453 9,601 –31 % 14,01 20,597 18,702 17,389 260,544 –8 % 283,347 284,363 293,558 269,19 12,857 –23 % 16,734 15,901 13,341 11,433 99,540 –29 % 139,817 146,525 144,306 140,204 636 –6 % 675 841 1,003 1,419 –10.74 — 0.53 4.17 3.57 3.72 –10.74 — 0.52 4.13 3.54 3.69 1.00 1 ) 0 % 1.00 3.70 3.40 3.00 0.13 2 ) 13 % 0.11 0.39 0.41 0.46 3,284 0 % 3,269 3,256 3,242 3,231 3,277 0 % 3,263 3,249 3,237 3,226 3,317 0 % 3,303 3,282 3,27 3,257 3,877 –37 % 6,129 8,338 5,322 4,503 6,314 38 % 4,569 4,689 4,316 4,209 1,759 — 5,26 5,228 6,184 4,759 21,578 — 4,55 5,538 5,629 5,928 37,887 20 % 31,635 34,844 36,308 32,236 18.8 % — 14.2 % 14.1 % 15.9 % 14.2 % 64 –7 % 69 64 64 62 22.1 % — 29.8 % 34.8 % 36.2 % 33.6 % –18.9 % — 2.8 % 8.8 % 7.4 % 7.8 % –10.7 % — 4.0 % 10.5 % 9.3 % 9.8 % –58 % — 175 % 85 % 84 % 79 % 5,109 — 254 7,515 4,593 8,337 158,230 –17 % 190,901 195,15 189,839 180,903 –29.4 % — 1.2 % 9.3 % 8.1 % 8.7 % –22.0 % — 3.2 % 11.6 % 9.8 % 10.7 % 38.4 % — 49.6 % 51.8 % 49.5 % 52.6 % 1.2 0 % 1.2 1.3 1.2 1.3 59,779 –33 % 89,039 104,811 103,246 106,94 67,702 17 % 57,877 66,27 72,159 77,089 34,657 11 % 31,191 41,15 48,014 47,634 100,735 –10 % 111,464 116,281 118,055 114,34 13,864 –9 % 15,303 17,041 17,58 17,858 86,812 –19 % 107,036 117,486 113,734 108,944
Exchange Rates
The following tables provide information with respect to the exchange rate for SEK per USD 1.00 based on the noon buying rate for cable transfers in SEK as certified for customs purposes by the Federal Reserve Bank of New York. The noon buying rate of 16 March 2018 was SEK 8.1960 per USD 1.00. The average exchange rate is computed using the noon buying rate on the last business day of each month during the period indicated.
Year ended December 31, | Average | |||
2013 | 6.5152 | |||
2014 | 6.9222 | |||
2015 | 8.4643 | |||
2016 | 8.5959 | |||
2017 | 8.4798 | |||
Month | High | Low | ||||||
October 2017 | 8.3803 | 8.0534 | ||||||
November 2017 | 8.4803 | 8.2769 | ||||||
December 2017 | 8.5053 | 8.1732 | ||||||
January 2018 | 8.2413 | 7.8549 | ||||||
February 2018 | 8.2694 | 7.8588 | ||||||
Effects of exchange rate fluctuations on our business is described in the Notes to the Consolidated Financial Statements—Note C20, “Financial
Noon buying rates are not used in the preparation of our financial statements. The exchange rates used in the preparation of our consolidated financial statements are presented below:
| 2017 | 2016 | |||||||
SEK/EUR | ||||||||
Average rate1) | 9.64 | 9.44 | ||||||
Closing rate | 9.83 | 9.56 | ||||||
SEK/USD | ||||||||
Average rate | 8.53 | 8.56 | ||||||
Closing rate | 8.20 | 9.06 | ||||||
Not applicable.
Not applicable.
Factors
For capital exenditures we usually use available cash from operations.
General facts on the company
Sustainability and corporate responsibility are integrated into Ericsson’s business processes and the Company’s commitment to the triple bottom line of responsible environmental performance and social and economic development is made clear to its stakeholders.
Ericsson’s ambition is to be a responsible and relevant driver of positive change in society. Ericsson is committed to creating business value while reducing risk related to environmental, social, employee, human rights, corruption and bribery matters. Ericsson’s sustainability and corporate responsibility performance is regularly measured, assessed and assured. Group policies and directives have been implemented to ensure consistency across global operations.
Ericsson’s principal risks relating to sustainability and corporate responsibility are identified in Ericsson’s risk management framework.
The Board of Directors is briefed on sustainability and corporate responsibility issues regularly, or as needed on an ad hoc basis.
In 2017, the Chief Sustainability & Public Affairs Officer was a member of Ericsson’s Executive Team and reported to the President and CEO, and was responsible for handling theday-to-day management of Ericsson’s sustainability and corporate responsibility agenda.
Responsible business practices are embedded in Ericsson’s operations to prevent, mitigate and adapt to risks. The Ericsson Group Management System (EGMS) includes policies, processes and directives encompassing responsible sourcing, occupational health and safety, environmental management, anti-corruption and human rights, for example. External assurance providers audit the EGMS.
Some of the Group Policies and Directives that are of particular relevance from a sustainability and corporate responsibility perspective are the Code of Business Ethics, the Code of Conduct, the Sustainability Policy, the Occu-pational Health and Safety Policy, the Electro-magnetic Fields and Health Policy, the Sales Compliance Policy and the Anti-corruption Group Directive, which reflect how Ericsson shall work to secure responsible business practices. These policies and practices are reinforced by employee awareness training and monitoring. Compliance to Group Policies are mandatory for all employees and operations unless a deviation is approved by the CEO.
The Code of Business Ethics
The Code of Business Ethics sets the tone for how Ericsson conducts business globally, and is a guiding framework to support everyone performing work for Ericsson. The Code of Business Ethics is periodically reviewed and acknowledged by employees and has been translated into more than 30 languages to ensure that it is accessible to all employees and stakeholders. During 2017, 99% of active employees acknowledged that they have read and understood the Code of Business Ethics.
Employees are encouraged to report any conduct that they believe, in good faith, to be a violation of laws or the Code of Business Ethics. Ericsson provides employees and external stakeholders with a dedicated communication channel, called the Ericsson Compliance Line, for the reporting of serious compliance concerns involving group or local management and which relates to;
a) corruption or fraud
b) questionable accounting or auditing matters
c) other matters that might seriously affect the vital interest of Ericsson or personal health and safety.
The process around reporting of violations has been strengthened and further developed to include both centrally and locally reported allegations of violations in 2017. For this reason there is a significantly higher number of reports in 2017 in comparison with 2016.
During 2017 the Company received 412 cases reported through Ericsson’s whistle-blower tool, the Ericsson Compliance Line. This tool is available via phone or secure website, 24/7, 365 days a year, and is available in
188 countries and in over 75 languages.
Reported violations are handled by Ericsson’s Group Compliance Forum, which consists of representatives from Ericsson’s internal audit function, Group Function Legal Affairs, Group Security, and Group Function Human Resources. The Forum briefs the Audit Committee about all reported violations, providing them with the incident category, a description of the alleged violation, and information about the decision and outcome.
The Code of Conduct
Ericsson’s Code of Conduct applies to employees and suppliers and is based on the UN Global Compact ten principles on human rights, labor conditions, environmental management and anti-corruption. Ericsson is also committed to implementing the UN Guiding Principles on Business and Human Rights across its business operations.
Suppliers must comply with Ericsson’s Code of Conduct requirements. The Company uses a risk-based approach to assess compliance with the Code of Conduct requirements as part of supplier agreements. The Company has a strong focus on risk mitigation, targeting high-risk portfolio areas and high-risk markets. For prioritized areas such as road and vehicle safety, working at heights, working hours and labor rights, Ericsson performs regular audits and works with suppliers to ensure measurable and continuous improvements, and has also introduced consequence management. Findings are followed up to ensure that improvements are made.
Since 2017, the Ethics and Compliance Board – comprised of several members of the Executive Team and chaired by the CEO – has been responsible to oversee the overall governance of compliance within the Group.
Sustainability risks are defined according to short-term and long-term perspectives. They are related to long-term objectives as per the strategic direction as well as short-term objectives for the coming year. According to Ericsson’s risk framework, sustainability risks are categorized into industry and market risks, commercial risks, operational risks and compliance risks. The Company follow its risk management principles, which apply across all business activities, to manage sustainability risks.
Materiality assessment is a central component of the Company’s sustainability and corporate responsibility strategy, target setting, risks and opportunities management, and reporting process related to its impact on society and environment. Ericsson considers a wide range of economic, environmental and social impacts significant to the business, or which substantively influence the views and decisions of our key stakeholders. Since 2012, the Company has used a materiality assessment to review significant issues on an annual basis, taking into account emerging trends, stakeholder feedback and other input. Adjustments are made as needed to incorporate critical issues as they arise.
The Group Function Sustainability and Public Affairs coordinates management of certain sustainability risks, such as occupational health and safety, human rights, and environmental related risks. Risks related to corruption are coordinated by Group Function Legal Affairs, and diversity issues are coordinated by Group Function Human Resources.
For information on risks that could impact the fulfillment of targets and form the basis for mitigating activities, see the Swedish Annual Report 2017, Note C20 “Financial risk management and financial instruments” and the Risk Factors section in the Board of Directors’ report in the Swedish Annual Report 2017.
Corruption carries serious legal and reputational risks; impedes business growth; damages relations with staff, customers, shareholders, suppliers and society as a whole; and is a considerable obstacle to economic and social development in countries around the world. With customers in 180 countries, many of which are considered to be exposed to a high risk of corruption, prevention and accountability are paramount for Ericsson.
Ericsson has azero-tolerance approach to corruption expressed in the Company’s Code of Business Ethics. The Company has embedded this guiding principle at its highest levels and implemented it throughout its global organization with a set of policies and processes. This includes an anti-corruption directive with more detailed guidelines, for example about appropriate levels of gifts and entertainment.
The Company’s anti-corruption program, focusing on prevention and accountability, is headed by a Chief Compliance Officer, who since October 2017 reports directly to the Audit Committee of the Board of Directors. The Audit Committee also reviews and evaluates the program at least annually. Further, since 2016, an Ethics and Compliance Board, comprised of several members of the Executive Team and chaired by the CEO, has been responsible for the overall governance of compliance within the Group.
During 2016–2017 we invited external experts to evaluate the robustness of our anti-corruption program. Following the review, we adjusted the anti-corruption program to closer align with the US Foreign Corrupt Practices Act (FCPA). In 2017, the program was strengthened with adding resources on group level and appointing Regional Compliance Officers in all Market Areas. Moreover, one of the elements of the Group targets for sustainability and corporate responsibility is anti-corruption.
In 2017 the Company continued to roll out an automated anti-corruption screening tool for supplier and third party due diligence, which was launched in 2016. By the end of 2017, close to 93% of active employees had completed the Company’santi-corruptione-learning course since the training was launched in 2013. A customized online anti-corruption training is also available for Ericsson’s suppliers on the Company website.
In 2017, Ericsson introduced a vetting process that focuses on ethics and compliance. So far we have used it for appointments to the Executive Team and for approximately 110 employees in exposed positions. All members of the current Executive Team have been vetted, and all future recruitments to these positions will also go through mandatory vetting. Business Partner Review Boards have been established in all Market Areas toover-see mitigation of the corruption risks in relation to onboarding of new business partners.
Ericsson is currently voluntarily cooperating with inquiries from the United States Securities and Exchange Commission and the United States Department of Justice regarding its compliance with the U.S. Foreign Corrupt Practices Act. As of today, these inquiries concern a period from January 1, 2007 and onwards, and the Company will make additional disclosures regarding these inquiries to the extent required.
Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA)
in compliance with applicable economic sanctions and export controls.
In addition, Ericsson supplied network critical software capacities to MTN Irancell for a current value of approximately SEK 304 million during the year, which was not recorded as revenue as per the applied accounting policies, and thus Ericsson has not yet recorded any net revenues or net profits for these activities. Ericsson does not normally allocate net profit (reported as net income) on awas approximately SEK-117 20 million during 2017. 2021.
deposits. In some instances, Ericsson has had to arrange performance bonds or similar financial guarantees to secure Ericsson’s performance of obligations under the commercial agreements Ericsson has entered into relating to the business in Iran. In such instances, Ericsson usually engages its banks outside Iran, who in turn engage local banks in the country. These local banks include Bank Mellat, Tejarat Bank, Melli Bank, Parsian Bank, Saman Bank and Saderat Bank. Although some bonds and guarantees are still in place, no new performance bonds or similar guarantees involving these fourfive banks with respect to Ericsson’s business activities in Iran were issued during 2017, nor were payments made to beneficiaries under any such2021. During 2021, existing bond or guarantee during 2017.
During 2017,bank guarantees issued by Maskan Bank, Parsian Bank, Post Bank of Iran, Bank Mellat and Tejarat Bank (local banks in Iran) issued bank guarantees to secure Iranian customer payment obligations to Ericsson.Ericsson were renewed. Further, some payments made to Ericsson’s local subsidiary and payments required to be made by the local subsidiary to suppliers involve banks that may be controlled by the government of Iran. Ericsson also received payments from customers to Ericsson’s accounts outside Iran.
Company | Reg. No. | Domicile | Percentage of ownership | Par value in local currency, million | Carrying value, SEK million | |||||||||||||||
Subsidiary companies | ||||||||||||||||||||
Ericsson AB | 556056-6258 | Sweden | 100 | 50 | 20,731 | |||||||||||||||
Ericsson Shared Services AB | 556251-3266 | Sweden | 100 | 361 | 2,216 | |||||||||||||||
Netwise AB | 556404-4286 | Sweden | 100 | 2 | 306 | |||||||||||||||
Datacenter i Rosersberg AB | 556895-3748 | Sweden | 100 | — | 88 | |||||||||||||||
Datacenter i Mjärdevi Aktiebolag | 556366-2302 | Sweden | 100 | 10 | 69 | |||||||||||||||
AB Aulis | 556030-9899 | Sweden | 100 | 14 | 6 | |||||||||||||||
Ericsson Credit AB | 556326-0552 | Sweden | 100 | 5 | 5 | |||||||||||||||
Other (Sweden) | — | — | 1,645 | |||||||||||||||||
Company Ericsson Austria GmbH Ericsson Danmark A/S Oy LM Ericsson Ab Ericsson Participations France SAS Ericsson Germany GmbH Ericsson Hungary Ltd. L M Ericsson Limited Ericsson Telecomunicazioni S.p.A. Ericsson Holding International B.V. Ericsson A/S Ericsson Television AS Ericsson Corporatia AO Ericsson España S.A. Ericsson AG Ericsson Holdings Ltd. Other (Europe, excluding Sweden) Ericsson Holding II Inc. Companía Ericsson S.A.C.I. Ericsson Canada Inc. Belair Networks Ericsson Telecom S.A. de C.V. Other (United States, Latin America) Teleric Pty Ltd. Ericsson Ltd. Ericsson (China) Company Ltd. Ericsson India Private Ltd. Ericsson India Global Services PVT. Ltd Ericsson Media Solutions Ltd Ericsson-LG CO Ltd. Ericsson (Malaysia) Sdn. Bhd. Ericsson Telecommunications Pte. Ltd. Ericsson South Africa PTY. Ltd Ericsson Taiwan Ltd. Ericsson (Thailand) Ltd. Other countries (the rest of the world) Total Joint ventures and associated companies ST-Ericsson SA Rockstar Consortium Group Ericsson Nikola Tesla d.d. Total Reg. No. Domicile Percentage
of
ownership Par value
in local
currency,
million Carrying
value,
SEK million Austria 100 4 94 Denmark 100 90 216 Finland 100 13 196 France 100 26 524 Germany 100 — 4,232 Hungary 100 1,301 120 Ireland 100 4 34 Italy 100 44 3,857 The Netherlands 100 222 3,200 Norway 100 75 114 Norway 100 161 270 Russia 100 5 5 Spain 100 43 170 Switzerland 100 — — United Kingdom 100 328 1,994 — — 684 United States 100 2,897 25,907 Argentina 95 1) 41 15 Canada 100 — 51 Canada 100 108 170 Mexico 100 939 1,050 — — 118 Australia 100 20 100 China 100 2 2 China 100 65 475 India 100 544 122 India 100 291 51 Israel 100 9 711 Korea 75 285 2,279 Malaysia 70 2 4 Singapore 100 2 1 South Africa 70 — 135 Taiwan 90 270 36 Thailand 49 2) 90 17 — — 295 72,316 Switzerland 50 137 — Canada 21 1 — Croatia 49 65 330 330
Company | Reg. No. | Domicile | Percentage of ownership | Par value in local currency, million | Carrying value, SEK million | |||||||||||||||
Subsidiary companies | ||||||||||||||||||||
Ericsson AB | 556056-6258 | Sweden | 100 | 50 | 20,731 | |||||||||||||||
Ericsson Shared Services AB | 556251-3266 | Sweden | 100 | 361 | 2,216 | |||||||||||||||
Ericsson Software Technology Holding AB | 559094-8963 | Sweden | 100 | — | 7 | |||||||||||||||
Datacenter i Rosersberg AB | 556895-3748 | Sweden | 100 | — | 88 | |||||||||||||||
Datacenter i Mjärdevi Aktiebolag | 556366-2302 | Sweden | 100 | 10 | 69 | |||||||||||||||
AB Aulis | 556030-9899 | Sweden | 100 | 14 | 6 | |||||||||||||||
Ericsson Credit AB | 556326-0552 | Sweden | 100 | 5 | 5 | |||||||||||||||
Other (Sweden) | — | — | 1,142 | |||||||||||||||||
Ericsson Austria GmbH | Austria | 100 | 4 | 94 | ||||||||||||||||
Ericsson Danmark A/S | Denmark | 100 | 90 | 216 | ||||||||||||||||
Oy LM Ericsson Ab | Finland | 100 | 13 | 196 | ||||||||||||||||
Ericsson France SAS | France | 100 | 21 | 524 | ||||||||||||||||
Ericsson Antenna Technology Germany GmbH | Germany | 100 | 2 | 21 | ||||||||||||||||
Ericsson Germany GmbH | Germany | 100 | 1 | 2,844 | ||||||||||||||||
Ericsson Hungary Ltd. | Hungary | 100 | 1,301 | 120 | ||||||||||||||||
L M Ericsson Limited | Ireland | 100 | 4 | 34 | ||||||||||||||||
Ericsson Telecomunicazioni S.p.A. | Italy | 100 | 44 | 3,173 | ||||||||||||||||
Ericsson Holding International B.V. | The Netherlands | 100 | 222 | 2,983 | ||||||||||||||||
Ericsson A/S | Norway | 100 | 75 | 114 | ||||||||||||||||
Ericsson Television AS | Norway | 100 | 161 | 160 | ||||||||||||||||
Ericsson Corporatia AO | Russia | 100 | 5 | 5 | ||||||||||||||||
Ericsson España S.A. | Spain | 100 | 28 | 14 | ||||||||||||||||
Ericsson AG | Switzerland | 100 | — | — | ||||||||||||||||
Ericsson Holdings Ltd. | United Kingdom | 100 | 328 | 10 | ||||||||||||||||
Other (Europe, excluding Sweden) | — | — | 972 | |||||||||||||||||
Ericsson Holding II Inc. | United States | 100 | — | 30,281 | ||||||||||||||||
Ericsson Smart Factory Inc. | United States | 100 | — | 191 | ||||||||||||||||
Companía Ericsson S.A.C.I. | Argentina | 95 1) | 193 | 99 | ||||||||||||||||
Ericsson Canada Inc. | Canada | 100 | — | 51 | ||||||||||||||||
Belair Networks | Canada | 100 | 108 | 170 | ||||||||||||||||
Ericsson Telecom S.A. de C.V. | Mexico | 100 | 939 | 576 | ||||||||||||||||
Other (United States, Latin America) | — | — | 486 | |||||||||||||||||
Teleric Pty Ltd. | Australia | 100 | 20 | 100 | ||||||||||||||||
Ericsson Ltd. | China | 100 | 2 | 2 | ||||||||||||||||
Ericsson (China) Company Ltd. | China | 100 | 65 | 475 | ||||||||||||||||
P.T. Ericsson Indonesia | Indonesia | 95 | 9,531 | 614 | ||||||||||||||||
Ericsson India Global Services PVT. Ltd | India | 100 | 291 | 51 | ||||||||||||||||
Ericsson Kenya Limited | Kenya | 100 | — | 69 | ||||||||||||||||
Ericsson-LG CO Ltd. | Korea | 75 | 285 | 2,279 | ||||||||||||||||
Ericsson (Malaysia) Sdn. Bhd. | Malaysia | 100 | 3 | 131 | ||||||||||||||||
Ericsson Telecommunications Pte. Ltd. | Singapore | 100 | 2 | 1 | ||||||||||||||||
Ericsson South Africa PTY. Ltd | South Africa | 70 | — | 135 | ||||||||||||||||
Ericsson Taiwan Ltd. | Taiwan | 90 | 270 | 36 | ||||||||||||||||
Ericsson (Thailand) Ltd. | Thailand | 49 2) | 90 | 17 | ||||||||||||||||
Other countries (the rest of the world) | — | — | 501 | |||||||||||||||||
Total | 72,009 | |||||||||||||||||||
Joint ventures and associated companies | ||||||||||||||||||||
Concealfab Co | USA | 28 | — | 64 | ||||||||||||||||
Leone Media Inc. | USA | 49 | 134 | 790 | ||||||||||||||||
Ericsson Nikola Tesla d.d. | Croatia | 49 | 65 | 330 | ||||||||||||||||
Total | 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 |
Company | Reg. No. | Domicile | Percentage of ownership | |||||||||||||
Subsidiary companies | ||||||||||||||||
Ericsson Cables Holding AB | 556044-9489 | Sweden | 100 | |||||||||||||
| Emodo Inc. | United States | 100 | |||||||||||||
Ericsson Telekommunikation GmbH | Germany | 100 | ||||||||||||||
Ericsson | GmbH | Germany | 100 | |||||||||||||
Ericsson Telecommunicatie B.V. | The Netherlands | 100 | ||||||||||||||
Ericsson Telekomunikasyon A.S. | Turkey | 100 | ||||||||||||||
Ericsson Ltd. | United Kingdom | 100 | ||||||||||||||
Creative Broadcast Services Holdings Ltd. | United Kingdom | 100 | ||||||||||||||
Ericsson Inc. | United States | 100 | ||||||||||||||
Ericsson | United States | 100 | ||||||||||||||
Cradlepoint Inc. | United States | 100 | ||||||||||||||
| Iconectiv, LLC. | |||||||||||||||
| United States | 83 | ||||||||||||||
Ericsson Telecomunicações S.A. | Brazil | 100 | ||||||||||||||
Ericsson Australia Pty. Ltd. | Australia | 100 | ||||||||||||||
Ericsson (China) Communications Co. Ltd. | China | 100 | ||||||||||||||
Nanjing Ericsson Panda Communication Co. Ltd. | China | 51 | ||||||||||||||
Ericsson Japan K.K. | Japan | 100 | ||||||||||||||
Ericsson Communication Solutions Pte Ltd. | Singapore | 100 | ||||||||||||||
Applying Section 264b HGB, Ericsson Holding GmbH
The information set forth under the following headings of the 2017 Swedish Annual Report is incorporated herein by reference:
Sustainability and corporate responsibility are integrated into Ericsson’s business processes and the Company’s commitment to the triple bottom line of responsible environmental performance and social and economic development is made clear to its stakeholders.
Ericsson’s ambition is to be a responsible and relevant driver of positive change in society. Ericsson is committed to creating business value while reducing risk related to environmental, social, employee, human rights, corruption and bribery matters. Ericsson’s sustainability and corporate responsibility performance is regularly measured, assessed and assured. Group policies and directives have been implemented to ensure consistency across global operations.
Ericsson’s principal risks relating to sustainability and corporate responsibility are identified in Ericsson’s risk management framework.
The Board of Directors is briefed on sustainability and corporate responsibility issues regularly, or as needed on an ad hoc basis.
In 2017, the Chief Sustainability & Public Affairs Officer was a member of Ericsson’s Executive Team and reported to the President and CEO, and was responsible for handling theday-to-day management of Ericsson’s sustainability and corporate responsibility agenda.
Responsible business practices are embedded in Ericsson’s operations to prevent, mitigate and adapt to risks. The Ericsson Group Management System (EGMS) includes policies, processes and directives encompassing responsible sourcing, occupational health and safety, environmental management, anti-corruption and human rights, for example. External assurance providers audit the EGMS.
Some of the Group Policies and Directives that are of particular relevance from a sustainability and corporate responsibility perspective are the Code of Business Ethics, the Code of Conduct, the Sustainability Policy, the Occupational Health and Safety Policy, the Electro-magnetic Fields and Health Policy, the Sales Compliance Policy and the Anti-corruption Group Directive, which reflect how Ericsson shall work to secure responsible business practices. These policies and practices are reinforced by employee awareness training and monitoring. Compliance to Group Policies are mandatory for all employees and operations unless a deviation is approved by the CEO.
The Code of Business Ethics
The Code of Business Ethics sets the tone for how Ericsson conducts business globally, and is a guiding framework to support everyone performing work for Ericsson. The Code of Business Ethics is periodically reviewed and acknowledged by employees and has been translated into more than 30 languages to ensure that it is accessible to all employees and stakeholders. During 2017, 99% of active employees acknowledged that they have read and understood the Code of Business Ethics.
Employees are encouraged to report any conduct that they believe, in good faith, to be a violation of laws or the Code of Business Ethics. Ericsson provides employees and external stakeholders with a dedicated communication channel, called the Ericsson Compliance Line, for the reporting of serious compliance concerns involving group or local management and which relates to;
a) corruption or fraud
b) questionable accounting or auditing matters
c) other matters that might seriously affect the vital interest of Ericsson or personal health and safety.
The process around reporting of violations has been strengthened and further developed to include both centrally and locally reported allegations of violations in 2017. For this reason there is a significantly higher number of reports in 2017 in comparison with 2016.
During 2017 the Company received 412 cases reported through Ericsson’s whistle-blower tool, the Ericsson Compliance Line. This tool is available via phone or secure website, 24/7, 365 days a year, and is available in
188 countries and in over 75 languages.
Reported violations are handled by Ericsson’s Group Compliance Forum, which consists of representatives from Ericsson’s internal audit function, Group Function Legal Affairs, Group Security, and Group Function Human Resources. The Forum briefs the Audit Committee about all reported violations, providing them with the incident category, a description of the alleged violation, and information about the decision and outcome.
The Code of Conduct
Ericsson’s Code of Conduct applies to employees and suppliers and is based on the UN Global Compact ten principles on human rights, labor conditions, environmental management and anti-corruption. Ericsson is also committed to implementing the UN Guiding Principles on Business and Human Rights across its business operations.
Suppliers must comply with Ericsson’s Code of Conduct requirements. The Company uses a risk-based approach to assess compliance with the Code of Conduct requirements as part of supplier agreements. The Company has a strong focus on risk mitigation, targeting high-risk portfolio areas and high-risk markets. For prioritized areas such as road and vehicle safety, working at heights, working hours and labor rights, Ericsson performs regular audits and works with suppliers to ensure measurable and continuous improvements, and has also introduced consequence management. Findings are followed up to ensure that improvements are made.
Since 2017, the Ethics and Compliance Board – comprised of several members of the Executive Team and chaired by the CEO – has been responsible to oversee the overall governance of compliance within the Group.
Sustainability risks are defined according to short-term and long-term perspectives. They are related to long-term objectives as per the strategic direction as well as short-term objectives for the coming year. According to Ericsson’s risk framework, sustainability risks are categorized into industry and market risks, commercial risks, operational risks and compliance risks. The Company follow its risk management principles, which apply across all business activities, to manage sustainability risks.
Materiality assessment is a central component of the Company’s sustainability and corporate responsibility strategy, target setting, risks and opportunities management, and reporting process related to its impact on society and environment. Ericsson considers a wide range of economic, environmental and social impacts significant to the business, or which substantively influence the views and decisions of our key stakeholders. Since 2012, the Company has used a materiality assessment to review significant issues on an annual basis, taking into account emerging trends, stakeholder feedback and other input. Adjustments are made as needed to incorporate critical issues as they arise.
The Group Function Sustainability and Public Affairs coordinates management of certain sustainability risks, such as occupational health and safety, human rights, and environmental related risks. Risks related to corruption are coordinated by Group Function Legal Affairs, and diversity issues are coordinated by Group Function Human Resources.
For information on risks that could impact the fulfillment of targets and form the basis for mitigating activities, see the Swedish Annual Report 2017, Note C20 “Financial risk management and financial instruments” and the Risk Factors section in the Board of Directors’ report in the Swedish Annual Report 2017.
Corruption carries serious legal and reputational risks; impedes business growth; damages relations with staff, customers, shareholders, suppliers and society as a whole; and is a considerable obstacle to economic and social development in countries around the world. With customers in 180 countries, many of which are considered to be exposed to a high risk of corruption, prevention and accountability are paramount for Ericsson.
Ericsson has azero-tolerance approach to corruption expressed in the Company’s Code of Business Ethics. The Company has embedded this guiding principle at its highest levels and implemented it throughout its global organization with a set of policies and processes. This includes an anti-corruption directive with more detailed guidelines, for example about appropriate levels of gifts and entertainment.
The Company’s anti-corruption program, focusing on prevention and accountability, is headed by a Chief Compliance Officer, who since October 2017 reports directly to the Audit Committee of the Board of Directors. The Audit Committee also reviews and evaluates the program at least annually. Further, since 2016, an Ethics and Compliance Board, comprised of several members of the Executive Team and chaired by the CEO, has been responsible for the overall governance of compliance within the Group.
During 2016–2017 we invited external experts to evaluate the robustness of our anti-corruption program. Following the review, we adjusted the anti-corruption program to closer align with the US Foreign Corrupt Practices Act (FCPA). In 2017, the program was strengthened with adding resources on group level and appointing Regional Compliance Officers in all Market Areas. Moreover, one of the elements of the Group targets for sustainability and corporate responsibility is anti-corruption.
In 2017 the Company continued to roll out an automated anti-corruption screening tool for supplier and third party due diligence, which was launched in 2016. By the end of 2017, close to 93% of active employees had completed the Company’s anti-corruptione-learning course since the training was launched in 2013. A customized online anti- corruption training is also available for Ericsson’s suppliers on the Company website.
In 2017, Ericsson introduced a vetting process that focuses on ethics and compliance. So far we have used it for appointments to the Executive Team and for approximately 110 employees in exposed positions. All members of the current Executive Team have been vetted, and all future recruitments to these positions will also go through mandatory vetting. Business Partner Review Boards have been established in all Market Areas toover-see mitigation of the corruption risks in relation to onboarding of new business partners.
Ericsson is currently voluntarily cooperating with inquiries from the United States Securities and Exchange Commission and the United States Department of Justice regarding its compliance with the U.S. Foreign Corrupt Practices Act. As of today, these inquiries concern a period from January 1, 2007 and onwards, and the Company will make additional disclosures regarding these inquiries to the extent required.
Primary manufacturing and assembly facilities
| 2017 | 2016 | 2015 | ||||||||||||||||||||||
| Sites* | Thousands of sq meters** | Sites | Thousands of sq meters** | Sites | Thousands of sq meters** | |||||||||||||||||||
Sweden | 1 | 5 | 4 | 21.3 | 4 | 21.3 | ||||||||||||||||||
China | 1 | 10 | 2 | 13 | 2 | 13 | ||||||||||||||||||
Estonia | 1 | 6 | 1 | 6 | 1 | 6 | ||||||||||||||||||
Brazil | 1 | 4.5 | 1 | 4.5 | 1 | 4.5 | ||||||||||||||||||
Mexico | 0 | 0 | 1 | 0.8 | 1 | 0.8 | ||||||||||||||||||
India | 0 | 0 | 1 | 10.8 | 1 | 10.8 | ||||||||||||||||||
Total | 4 | 25.5 | 10 | 56.4 | 10 | 56.4 | ||||||||||||||||||
2021 | 2020 | 2019 | ||||||||||||||||||||||
Sites | Thousands of sq meters* | Sites | Thousands of sq meters* | Sites | Thousands of sq meters* | |||||||||||||||||||
Sweden | 1 | 5 | 1 | 5 | 1 | 5 | ||||||||||||||||||
China | 1 | 13.9 | 1 | 13.9 | 1 | 13.9 | ||||||||||||||||||
Estonia | 1 | 9 | 1 | 9 | 1 | 9 | ||||||||||||||||||
Brazil | 1 | 6.5 | 1 | 6.5 | 1 | 6.7 | ||||||||||||||||||
USA | 1 | 6 | 1 | 6 | 0 | 0 | ||||||||||||||||||
Total | 5 | 40.4 | 5 | 40.4 | 4 | 34.6 | ||||||||||||||||||
| * |
Floor space in square meters does not include any warehouses or transportation areas. |
| ** | Test capacity utilization. |
Operating results for the years ended December 31, 2015 and 2016
Reporting structure in 2016
Starting July 1, 2016, Ericsson implemented an organizational change. The financial reporting during 2016 has been carried out according to the same segment structure as in 2015; Networks, Global Services and Support Solutions. The 2016 reporting structure is appliedbelow.
From January 1, 2017, financial reporting is done according to the new structure, i.e., by the new segments Networks, IT & Cloud and Media.
Full-year highlights
Reported sales decreased by –10% mainly due to weaker demand for mobile broadband, especially in markets with a weak macroeconomic environment. IPR licensing revenues declined to SEK 10.0 (14.4) billion.
Operating income declined to SEK 6.3 (21.8) billion due to lower sales and a changed business mix in mobile broadband, with a lower proportion of capacity business. This was partly offset by lower operating expenses.
Cash flow from operating activities was SEK 14.0 (20.6) billion. Net cash atyear-end was SEK 31.2 billion.
The Board of Directors proposes a dividend for 2016 of SEK 1.00 (3.70) per share to the AGM.
Business in 2016
In 2016, net sales decreased by –10% mainly due to lower demand for mobile broadband, especially in markets with a weak macroeconomic environment. Sales declined in all three segments. Both operating income and margin decreased compared to last year due to lower sales and lower gross margin, partly offset by lower operating expenses.
IPR licensing revenues were SEK 10.0 (14.4) billion. IPR licensing revenues in 2015 were positively impacted by a global patent license agreement signed with Apple, which included an initial payment.
Full-year sales for the targeted growth areas; IP network, Cloud, OSS and BSS, TV and Media as well as Industry and Society, were flat and accounted for 20% of group sales.
The global cost and efficiency program, first initiated in November 2014, and expanded in 2016, -progressed according to plan. The target of the program is to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 billion in the second half of 2017. Operating expenses in 2016 decreased to SEK 60.5 (64.1) billion which included restructuring charges of SEK –4.1 (–2.8) billion.
Ericsson delivered a full-year cash flow from operating activities of SEK 14.0 (20.6) billion, exceeding the 70% cash conversion target.
Financial highlights
Net sales
Reported sales decreased by –10% mainly due to lower demand for mobile broadband, especially in markets with a weak macroeconomic environment. Sales in Europe declined following completion of mobile broadband projects in 2015. Mobile broadband sales in North America remained stable while Professional Services sales declined, mainly due to lower managed services activities. A significant managed services contract in North America was renewed with reduced scope. Sales in South East Asia increased, driven by large deliveries in coverage projects.
IPR licensing revenues amounted to SEK 10.0 (14.4) billion. Sales in 2015 were positively impacted by a global patent license agreement signed with Apple, which included an initial payment. The baseline for current IPR licensing contract portfolio is approximately SEK 7 billion on an annual basis. Smartphone volume growth, agreements with currently unlicensed handset suppliers and IoT licensing will determine growth opportunities going forward.
Currency exchange rates had no material impact on full-year sales. Sales, adjusted for comparable units and currency, decreased by –10%.
Full-year sales for targeted growth areas were flat and accounted for 20% of group sales. The partnership with Cisco has to date generated more than 100 deals across all regions.
The sales mix by commodity was: software 22% (23%), hardware 33% (34%) and services 45% (43%).
Gross margin
Gross margin declined to 29.8% (34.8%) due to a sales mix with lower share of mobile capacity business, higher share of Global Services sales and lower IPR licensing revenues as well as lower Global Services margins. In addition, restructuring charges included in the gross -margin increased to SEK –3.5 (–2.3) billion.
Restructuring charges and efficiency program
Restructuring charges amounted to SEK –7.6 (–5.0) billion. The charges were mainly related to the cost and efficiency program initially announced in November 2014, and expanded in 2016. The cost and efficiency program is progressing according to plan and the target is to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 billion in the second half of 2017. Efforts continue in order to reduce cost of sales, targeting to improve gross margin in the second half of 2017 compared with full-year 2016. With current plans, total restructuring charges for 2017 are estimated to be SEK 3 billion.
Operating expenses
Total operating expenses decreased to SEK 60.5 (64.1) billion as a result of the cost and -efficiency program and lower amortizations of intangible assets. Operating expenses included restructuring charges of SEK –4.1 (–2.8) billion.
Other operating income and expenses
Other operating income and expenses were SEK 0.4 (0.2) billion. Currency hedge contract effects impacted the result with SEK –0.9 (–1.1) billion. They derive from the hedge contract -balance in USD. The SEK has weakened against the USD between December 31, 2015 (SEK/USD rate 8.40) and December 31, 2016 (SEK/USD rate 9.06). The negative currency hedge effects were more than offset by several minor positive items.
Operating income
Operating income decreased to SEK 6.3 (21.8) billion due to lower sales and lower gross margin, partly offset by lower operating expenses. Operating margin was 2.8% (8.8%).
Financial net
The financial net declined to SEK –2.3 (–1.9) -billion following decreased interest rates and depreciated local currencies in certain markets.
Taxes
Tax cost decreased to SEK –2.1 (–6.2) billion due to lower net income, offset by prior-year adjustments andnon-deductible expenses. These factors resulted in a tax rate of 53% in 2016 compared with the more normal tax rate of 31% in 2015. Average tax rate for the years 2011–2015 was 32%.
Net income and EPS
Net income decreased to SEK 1.9 (13.7) billion., for the same reasons as for the decrease in operating income. EPS diluted was SEK 0.52 (4.13) and EPS(Non-IFRS) was SEK 2.66 (6.06).
Business results – Segments
Networks
Background
Networks represented 48.7% of net sales in 2016 (50.1% in 2015), The segment delivers products and solutions that are needed for mobile and fixed communication, several generations of radio networks, IP and transmission networks, core networks and cloud.
Business in 2016
Sales as reported decreased by –12%. The decrease was mainly due to lower sales of mobile broadband, reduced sales of core networks and lower IPR licensing revenues. Core networks sales declined due to lower sales of legacy products, not offset by growth of the new portfolio.
Mobile broadband investments were negatively impacted by a weak macroeconomic environment in a number of markets such as Latin America, the Middle East and South Africa. In addition, sales declined in Europe following the completion of large coverage projects in 2015 and in India due to delayed spectrum auctions. The sales decline was partly offset by sales growth in South East Asia where large deliveries in mobile broadband coverage projects were made.
In North America and in North East Asia, investments in network equipment were stable. In Mainland China, large-scale LTE deployments continued for the third consecutive year.
Sales, adjusted for comparable units and -currency, decreased by –13%.
Operating income and margin decreased, mainly due to a lower share of mobile broadband capacity sales and lower IPR licensing revenues. The decrease was partly offset by reduced operating expenses, mainly as an effect of the ongoing cost and efficiency program. The work to improve profitability continued with significant headcount reductions and structural changes.
Restructuring charges amounted to SEK –4.0 (–2.8) billion and the negative effect from currency hedge contracts was SEK –0.7 (–0.9) billion.
Global Services
Background
Global Services represented 45.7% of net sales in 2016 (43.7% in 2015). The segment delivers network rollout services and professional services (i.e., managed services, consulting and systems integration (CSI), customer support as well as network design and optimization services).
Business in 2016
Sales as reported decreased by –6%. Professional Services sales declined due to lower managed services activities in North America where a contract has been renewed with reduced scope. CDMA sales declined YoY impacting -Professional Services sales negatively. Network Rollout sales declined due to lower mobile broadband demand, primarily in Europe and Latin America.
Sales, adjusted for comparable units and -currency, decreased by –5%.
Global Services operating income decreased to SEK 3.3 (8.2) billion. Activities were performed to adapt the service delivery organization to lower business volumes and to increase the -efficiency. Restructuring charges increased to SEK –3.0 (–1.7) billion.
Professional Services operating income declined to SEK 5.2 (9.6) billion due to increased restructuring charges of SEK –2.3 (–0.7) billion, lower sales and a negative impact from large projects in systems integration transformation, where operators are looking to transform their IT environments to increase efficiency and prepare for 5G. Ericsson has been successful and won several IT transformation contracts. However, the short-term margin impact from these contracts is challenging as a consequence of investments in competencebuild-up and market share.
Network Rollout operating income declined to SEK –1.9 (–1.4) billion due to lower sales in combination with increased cost and negative effects from a few contracts in emerging markets. The effort to improve Network Rollout -profitability continues through efficiency improvements including implementation of global methods and tools.
Support Solutions
Background
Support Solutions represented 5.6% of net sales in 2016 (6.1% in 2015). The portfolio of Support Solutions is designed around measurable performance improvements in an operator’s business processes, with software that is scalable, configurable and that providesend-to-end capabilities. The business segment develops and delivers software-based solutions for OSS and BSS as well as TV and media solutions.
Business in 2016
Sales as reported decreased by –17%, partly due to lower IPR licensing revenues. OSS and BSS sales declined due to lower sales of legacy products and lower software sales in digital transformation projects where sales are mainly project milestone based. In addition, sales declined in markets with a weak macroeconomic environment.
Sales in TV & Media declined due to lower sales of legacy products primarily in North America. Customer trials on the next-generation TV & Media platform are ongoing, but have not yet translated into sales.
Operating income declined to SEK –1.0 (1.5) billion mainly due to lower IPR licensing revenues and lower sales in both OSS and BSS as well as in TV & Media. Several activities in order to reduce cost and adjust the organization to lower business volumes are ongoing.
The overall transition of business models -continues, from traditional telecom software licenses to recurrent license revenue deals.
Business results – Regions
North America
Mobile broadband investments were stable. Professional Services sales were negatively impacted by reduced scope in a managed services contract. Support Solutions sales declined due to delayed investment decisions by customers. The focus on 5G strongly increased, with -trials ongoing with all major customers.
Latin America
Sales decreased following reduced mobile broadband investments due to a weak macroeconomic environment in the region and due to devaluation of local currencies. The strong momentum for digital transformation continued. Professional Services sales declined due to lower activities in managed services.
Northern Europe and Central Asia
Sales declined, primarily due to continued lower mobile broadband investments in Russia. Global Services sales were flat with a decline in Network Rollout, offset by increased Managed Services sales in Sweden. OSS and BSS sales were flat while TV & Media sales declined.
Western and Central Europe
Sales declined as the initial LTE deployments were finalized. Operators continue to focus on transforming their networks to meet the increasing demand for coverage and capacity, while at the same time improving efficiency.
Mediterranean
Sales declined due to lower investments in mobile broadband infrastructure, mainly related to capacity business. Operator investments in ICT transformation and demand for managed services continued.
Middle East
Sales declined, primarily in Networks due to lower broadband investments in Egypt, Pakistan, Ethiopia and Turkey. The decrease was partly offset by growth in Global Services sales, mainly in network rollout and optimization services in Saudi Arabia.
Sub-Saharan Africa
Investments declined, impacted by a weak -macroeconomic environment, local currency depreciation in key markets as well as low oil and commodity prices.
India
Mobile broadband sales declined mainly driven by delayed spectrum auctions which delayed operator investments. Professional Services sales remained stable with operators’ higher focus on network quality and cost optimization.
North East Asia
Sales declined slightly due to lower investments in Mainland China and Korea, partly offset by market share gains in Japan and Taiwan. In Mainland China 4G deployments continued. However, reduced investments in legacy technologies and significantly reduced investment by one customer, impacted sales negatively.
South East Asia and Oceania
Sales increased, primarily driven by mobile broadband deployments across several markets. Professional Services sales developed favorably as operators focus on efficiency and network optimization services.
Other
IPR licensing revenues amounted to SEK 10.0 (14.4) billion. Sales in 2015 were positively impacted by a global patent license agreement signed with Apple, which included an initial payment.
Balance sheet and other performance indicators for the years ended December 31, 2015 and 2016
Cash flow
Cash flow from operating activities was SEK 14.0 (20.6) billion. The decline was mainly due to lower income, larger tax payments and last year’s signed global patent license agreement with Apple, which included an initial payment. Operating net assets decreased by SEK 6.0 -billion, supported by reduced trade receivables and increased provisions. In addition, trade payables increased supported by implementation of supply chain financing. Inventory increased slightly.
Cash outlays related to restructuring charges were SEK –2.4 (–2.8) billion during the year.
Cash flow from investing activities was impacted by investments in property, plant and equipment of SEK –6.1 (–8.3) billion, with continued investments in the Global ICT centers. In addition, SEK –4.5 (–3.3) billion of development expenses were capitalized. The capitalized development expenses refer to development of new product platforms like the new IPTV platform, Ericsson MediaFirst, and the new BSS platform, Ericsson Revenue Manager. The company invested SEK 0.6 (2.2) billion in acquisitions of smaller companies, such as Ericpol and Node-Prime in 2016.
Cash flow from financing activities amounted to SEK –11.7 billion, impacted by SEK –12.3 billion of dividend payouts.
Financial position
Net cash decreased to SEK 31.2 (41.2) billion due to lower income and increased dividends. The decrease was partly offset by reduced -operating assets.
Pension liabilities increased by SEK 1.1 billion, due to decreased discount rates.
In 2016, Standard & Poor’s and Moody’s downgraded Ericsson’s long-term rating from BBB+/Baa1 with stable outlook to BBB/Baa3 with negative outlook.
The average maturity of long-term borrowings as of December 31, 2016, was 3.8 years, compared with 4.8 years 12 months earlier. Ericsson has an unutilized Revolving Credit Facility of USD 2.0 billion. The facility expires in 2021. In addition, the company signed a new EUR 0.5 billion term loan facility in 2016. The new facility has a tenure of two years with one extension option of one year. The facility serves for general corporate purposes and is unutilized.
Intangible assets
The amount of intellectual property rights and other intangible assets amounted to SEK 51.1 (50.4) billion, including goodwill of SEK 43.4 (41.1) billion. The goodwill impairment testing has been based on the new segments that became effective as per January 1, 2017. For the Media segment the headroom is SEK 5.6 billion when a discount of 8.0% is applied. The recoverable amount is equal to its carrying amount when the discount factor is increased to 10.0%. For more information, see Note 3 “Segment reporting” and Note 10 “Intangible assets.”
Employees
In 2016, the number of employees decreased by almost 5,000 driven by the ongoing cost and efficiency program. Atyear-end 2016, the total number of employees was 111,464 (116,281).
In line with the global cost and efficiency program, the Company has decreased its R&D expenses. In 2016, R&D expenses amounted to SEK 31.6 (34.8) billion. The number of R&D resources increased mainly due to an acquisition of Ericpol, a long-time supplier to Ericsson with software development in Poland and Ukraine. Approximately 2,000 employees joined Ericsson from Ericpol. The number of patents continued to increase and amounted to approximately 42,000 by end of 2016.
Research and development, patents and licensing
| 2016 | 2015 | 2014 | ||||||||||
Expenses (SEK billion) | 31.6 | 34.8 | 36.3 | |||||||||
As percent of Net sales | 14.2 | % | 14.1 | % | 15.9 | % | ||||||
Employees within R&D as of December 31 1) | 24,100 | 23,700 | 25,700 | |||||||||
Patents 1) | 42,000 | 39,000 | 37,000 | |||||||||
IPR revenues, net (SEK -billion) | 10.0 | 14.4 | 9.9 | |||||||||
Seasonality
The Company’s sales, income and cash flow from operations vary between quarters, and are generally lowest in the first quarter of the year and highest in the fourth quarter. This is mainly a result of the seasonal purchase patterns of network operators.
Most recent five-year average seasonality
| First quarter | Second quarter | Third quarter | Fourth quarter | |||||||||||||
Sequential change, sales | –24 | % | 9 | % | –2 | % | 24 | % | ||||||||
Share of annual sales | 22 | % | 24 | % | 24 | % | 30 | % | ||||||||
Off-balance sheet arrangements
There are currently no materialoff-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 2016, capital expenditure was SEK 6.1 (8.3) billion, representing 2.8% of sales. Expenditures are largely related to test sites and equipment for R&D, network operation centers and manufacturing and repair operations.
Investments have been made in three new global ICT centers. The centers will support R&D and services in developing and verifying solutions more efficiently and bringing innovation faster to the market. The first center, in Linköping, Sweden, was opened in 2014. The second center, in Rosersberg, Sweden, was opened in the beginning of 2016. The third -center, in Montreal, Canada, was opened in December 2016. The level of capital expenditure will continue to decline as the investments in the Global ICT centers peaked in 2015.
In addition, Ericsson has invested in several buildings in Santa Clara, California and in Manchester, U.K. The purpose with the investments in Santa Clara is to consolidate Ericsson’s Silicon Valley operations. In Manchester Ericsson is investing in a new dedicated customer technical facility for its broadcast media business. The new facility is expected to be ready in April 2017 and is part of a larger transformation and investment strategy.
Apart from these investments, Ericsson believes that the Company’s property, plant and equipment and the facilities the Company occupies are suitable for its present needs.
Annual capital expenditures are normally around 2% of sales. This corresponds to the needs for keeping and maintaining the current capacity level. The Board of Directors reviews the Company’s investment plans and proposals.
As of December 31, 2016, no material land, buildings, machinery or equipment were pledged as collateral for outstanding indebtedness.
Capital expenditures 2012–2016
SEK billion | 2016 | 2015 | 2014 | 2013 | 2012 | |||||||||||||||
Capital -expenditures | 6.1 | 8.3 | 5.3 | 4.5 | 5.4 | |||||||||||||||
Of which in -Sweden | 2.0 | 2.6 | 2.4 | 1.9 | 1.3 | |||||||||||||||
Share of annual sales | 2.8 | % | 3.4 | % | 2.3 | % | 2.0 | % | 2.4 | % | ||||||||||
Licenses
Board Diversity Matrix (as of 24 March, 2022) | ||||||||
| Country of Principal Executive Offices: | Sweden | |||||||
| Foreign Private Issuer | Yes | |||||||
| Disclosure Prohibited under Home Country Law | Yes | |||||||
| Total Number of Directors | 13 | |||||||
Female | Male | Non-Binary | Did Not Disclose Gender | |||||
Part I: Gender Identity | ||||||||
| Directors | 3 | 10 | 0 | 0 | ||||
Part II: Demographic Background | ||||||||
| Underrepresented Individual in Home Country Jurisdiction | - | |||||||
| LGBTQ+ | - | |||||||
| Did Not Disclose Demographic Background | - | |||||||
| 2017 | 2016 | |||||||
South East Asia, Oceania and India | 24,495 | 26,570 | ||||||
North East Asia | 12,456 | 13,042 | ||||||
North America | 10,009 | 11,547 | ||||||
Europe and Latin America1) 2) | 49,231 | 54,873 | ||||||
Middle East and Africa | 4,544 | 5,432 | ||||||
|
|
|
| |||||
Total | 100,735 | 111,464 | ||||||
|
|
|
| |||||
1) Of which in Sweden | 13,864 | 15,303 | ||||||
2) Of which in EU | 39,508 | 42,625 | ||||||
2021 | 2020 | 2019 | ||||||||||
South East Asia, Oceania and India | 26,369 | 25,869 | 24,559 | |||||||||
North East Asia | 13,091 | 13,944 | 13,783 | |||||||||
North America | 10,344 | 10,175 | 9,643 | |||||||||
Europe and Latin America 1) | 47,064 | 46,580 | 47,135 | |||||||||
Middle East and Africa | 4,454 | 4,256 | 4,297 | |||||||||
Total | 101,322 | 100,824 | 99,417 | |||||||||
1) Of which in Sweden | 14,183 | 13,173 | 12,730 | |||||||||
On January 31, 2018, Ericsson announced changes to the group structure and its Executive Team.
A Business Area Emerging Business was created to increase focus on innovation and new business development. Effective April 1, 2018, Åsa Tamsons is appointed as Senior Vice President, Chief Legal Officer and headHead of Business Area Emerging BusinessGroup Function Legal Affairs & Compliance. Scott has joined Ericsson on 21 March 2022 and member of Ericsson’s Executive Team. The new Business Area Emerging Business will be reported under Segment Other.
Business Area Digital Services is undergoing significant transformation to create a profitable and strong offeringbased in this strategically important area. Ulf Ewaldsson has decided to step downthe US. Scott Dresser replaces Xavier Dedullen, who resigned from leading the unit, following the completion of its build up phase. Jan Karlsson, currently head of Solution Area BSS, will step in as acting head of Business Area Digital Services. Ulf Ewaldsson will take on athis role as advisor to CEO BörjeEkholm.
The company is also simplifying its group function structure, from currently six functions to four. In light of the change in responsibilities Elaine Weidman-Grunewald has decided to leave the company to pursue other opportunities.
Ericsson concludes strategic review of Media Solutions and Red Bee Media
On January 31, 2018, Ericsson concluded the review of strategic opportunities for its Media business – Media Solutions and Red Bee Media – which was initiated in conjunction with the announcement of the company’s focused business strategy on March 28, 2017. Ericsson has implemented substantial performance improvement programs while continuing to invest in the respective businesses. Both units have made significant progress during 2017.
Outcome of the strategic review:
Ericsson restated financial information for IFRS 15
On March 16, 2018, Ericsson announced restated consolidated income statement information, in line with the new accounting standard IFRS 15, applied as of January 1, 2018.
Our Articles of Association do not stipulate anything regarding:
Applicable provisions are found in the Swedish Companies Act (2005:551) (the “Swedish Companies Act”).
In addition to being of legal age, there are no age limit restrictions for directors and they are not required to own any shares in the Company.
Share Capital, Increases of Share Capital and Preferential Rights of Shareholders
The Articles of Association of Ericsson provide that the share capital of the Company may not be less than SEK 6,000,000,000 nor more than SEK 24,000,000,000, and that the number of shares in the Company shall amount to no less than 3,000,000,000 and no more than 12,000,000,000. The registered share capital is SEK 16,670,758,678 and the Company has in total issued 3,334,151,735 shares.
The Company’s shares are divided into three series: Class A shares, Class B shares and Class C shares; however, no Class C shares are currently outstanding. Under the Swedish Companies Act, shareholders must approve each issue of additional shares eitherincorporated herein by deciding on the share issue at a shareholders’ meeting, or by a shareholders’ approval of a decision on a share issue by the Board, or by giving an authorization to the Board to decide about a share issue. If we decide to issue new Class A, Class B and Class C shares by means of a cash issue, or an issue against payment throughset-off of claims, Class A, Class B and Class C shareholders (except for Ericsson and its subsidiaries, in the event they hold shares in Ericsson) have a primary preferential right to subscribe for new shares of the same type in relation to the number of shares previously held by them. Shares not subscribed for through a preferential right shall be offered to all shareholders for subscription on a pro rata basis. If we decide to issue new shares of only one series by means of a cash issue or an issue against payment throughset-off of claims, all shareholders, regardless of whether their shares are Class A, Class B or Class C, are entitled to a preferential right to subscribe for new shares in proportion to the number of shares previously held by them. Shareholders may vote to waive shareholders’ preferential rights at a general meeting.
If we decide to issue warrants or convertibles through a cash issue or an issue against payment throughset-off of claims, the shareholders have preferential rights to subscribe to warrants as if the issue were of the shares that may be subscribed to pursuant to the warrant and, respectively, preferential rights to subscribe to convertibles as if the issue were of the shares that the convertibles may be converted to.
The above does not constitute any restriction to waive the shareholders’ preferential rights when deciding on either an issue of shares, warrants or convertibles by means of a cash issue or an issue against payment throughset-off of claims.
Dividends
Our Class A and Class B shareholders have the same right to dividends. Class C shareholders do not have any right to dividends, as described in article 6 of our Articles of Association. No Class C shares are currently outstanding.
Under Swedish law, only a general meeting of shareholders may decide on payment of dividends, which may not exceed the amount proposed by the Board of Directors (except in certain limited circumstances), and may only be paid from funds legally available for that purpose. Under Swedish law, no interim dividends may be paid in respect of any fiscal period for which audited financial statements of the company have not yet been adopted by the annual general meeting of shareholders. The market practice in Sweden is most often for dividends to be paid annually. Under the Swedish Companies Act, dividends to shareholders and other transfers of value from a company—such as purchases of own shares (see below)—may only be made in case the company’s restricted equity remains fully covered after the transfer of value has been made. The calculation shall be based upon the most recently adopted balance sheet, and any changes in the restricted equity that has occurred after the balance sheet date shall be taken into account. In addition, dividends to shareholders and other transfers of value from the company may only be made if this is justifiable taken into account the type of business activities of the company, their scope and risks related thereto and the company’s need for financial resources, its liquidity and financial position. In respect of parent companies, also the business activities of the group, their scope and risks related thereto and the group’s need for financial resources, its liquidity and financial position shall be taken into account.
The Company’s shares are registered in the computerized book-entry share registration system administered by Euroclear Sweden AB (“Euroclear”). The rights attached to shares eligible for dividends accrue to those persons whose names are recorded in the register of shareholders on the record day. The dividends are then sent to a specified account as directed by the person registered with Euroclear, or to the address of that person. The relevant record day must, in most circumstances, be specified in the resolution declaring a dividend or resolving upon a capital increase or any similar matter in which shareholders have preferential rights, or the Board of Directors must be authorized to determine the relevant record day.
Where the registered holder is a nominee, the nominee receives, for the account of the beneficial owner, dividends and, on issues of shares with preferential rights for the shareholders, shares, as well as rights. Dividends are remitted in a single payment to the nominee who is responsible for the distribution of such dividends to the beneficial owner. A similar procedure is adopted for share issues. Specific authority to act as a nominee must be obtained from Euroclear. At the request of Euroclear, the nominee must provide information about all beneficial holders of shares to Euroclear. Euroclear is required to keep a register with regard to any holding on behalf of a single beneficial owner in excess of 500 shares in any one company. This list is prepared every third month and must reveal the names of the beneficial owner and be open to public inspection.
Voting
In a general meeting of Ericsson, each Class A share shall carry one vote, each Class B share one tenth of one vote and each Class C shareone-thousandth of one vote.
We are required to publish notices to attend annual general meetings no earlier than six weeks and no later than four weeks prior to the annual general meeting and the same notice period requirements apply regarding extraordinary general meetings concerning changes in our articles of association. Notices to attend other types of extraordinary general meetings at Ericsson must be published no earlier than six weeks and no later than three weeks prior to the general meeting.
Directors are elected during the annual general meeting for a period of one year at a time and do not stand for reelection at staggered intervals.
A shareholder may attend and vote at the meeting in person or by proxy. For companies whose shares are registered in a central securities depositary register, proxies are valid for up to five years from the date of issuance. Any shareholder wishing to attend a general meeting must notify us no later than on the day specified in the notice. We are required to accept all notifications of attendance received at least five business days (Saturdays normally included) prior to the meeting. A person designated in the register as a nominee (including the depositary of the ADSs) is not entitled to vote at a general meeting, nor is a beneficial owner whose share is registered in the name of a nominee (including the depositary of the ADSs) unless the beneficial owner first arranges to have such owner’s own name entered in the register of shareholders maintained by Euroclear no later than the designated record day.
Under the Swedish Companies Act, elections are determined by a plurality vote. Resolutions, other than elections, are passed by a simple majority of votes cast at the meeting with the chairman of the meeting having a decisive vote, unless otherwise required by law or a company’s articles of association. Under the Swedish Companies Act, certain resolutions require special quorums and majorities, including, but not limited to, the following:
At a general meeting of shareholders, a shareholder or proxy for one or more shareholders may cast full number of votes represented by the holder’s shares.
Purchase of Own Shares
A Swedish public limited liability company whose shares are traded on a regulated market place within the European Economic Area (“EEA”) or a market place comparable to a regulated market place outside the EEA is entitled to purchase its own shares under certain conditions. A purchase by us of our own shares may take place only if (a) the purchase has been decided upon by a general meeting of shareholders or the Board has been authorized by a general meeting of shareholders, in both cases by a two thirds majority of votes cast at the meeting as well astwo-thirds of the shares represented at the meeting, (b) the purchase is effected on a regulated market place within the EEA or a market place comparable to a regulated market place outside the EEA (in the latter case with the approval of the Swedish Financial Supervisory Authority the “SFSA”) or pursuant to an offer to all shareholders or holders of a specific class of shares, (c) the Company’s restricted equity will still be fully covered and the purchase is justifiable taken into account the type of business activities of the Company and the group, their scope and risks related thereto and the Company’s and the group’s need for financial resources, their liquidity and financial position, and (d) we and our subsidiaries do not hold or, as a result of purchase, will not hold in excess of 10% of all our outstanding shares. As of December 31, 2017, the Company held an aggregate of 50,265,499 treasury stock of Class B shares.
Investment Restrictions
There are no limitations imposed by Swedish law or by our Articles of Association in respect of the rights ofnon-residents or foreign persons to purchase, own or sell securities issued by us.
There are, however, certain flagging and ownership examination rules that apply, irrespective of nationality.
Pursuant to the Swedish Financial Instruments Trading Act any change in a holding of shares, depository receipts with voting rights or financial instruments that entitle the holder to acquire shares in issue in a Swedish limited liability company whose shares are admitted for trading on a regulated market place within the EEA shall be reported by the holder to the company and the SFSA, where the change entails that the holder’s portion of all shares or votes in the company reaches, exceeds or falls below any of the limits of 5, 10, 15, 20, 25, 30, 50, 66 2/3 or 90 per cent. Such a change should, as a main rule, be reported not later than three trading days following the day on which the party with a duty to report has entered into an agreement for the acquisition or transfer of shares or any other change to the shareholding has occurred.
In addition, the EU Market Abuse Regulation requires, among other things, that the Company holds a register of all persons discharging managerial responsibilities and of persons closely associated with them. The Company and the SFSA must be notified of certain transactions conducted by the aforementioned persons. Such notifications shall be made no later than three business days after the date of the transaction.
reference.
receipt (or constructive receipt) by you, in the case of Class B shares, or by the depositary, in the case of ADSs, whether or not the payment is converted into USD at that time. Your tax basis in the SEK received will equal such USD amount. Gain or loss, if any, recognized on a subsequent sale or conversion of the SEK will be U.S. source ordinary income or loss.
As of October 2017, Ericsson implemented
date for payment of annual servicing fees. During 2021, an annual dividend fee of $0.01 was charged per ADS. The Depositary, Deutsche Bank, established April 1, 2021 and October 1, 2021 as the record dates for payments of the dividend fee.
Service | Rate | By whom paid | ||||
| 1) | Deposit of | |||||
Up to USD 5 per 100 American Depositary Shares or fraction thereof | Party to whom receipts are issued | |||||
| 2) | Delivery of deposited shares against surrender of receipts | Up to USD 5 per 100 American Depositary Shares or fraction thereof | Party surrendering receipts | |||
| 3) | Distribution of Cash Dividends and Cash Proceeds processing | Up to USD 3 per 100 American Depositary Shares | All holders of American Depositary Shares | |||
| 4) | Administration of the ADSs | Up to USD 3 per 100 American Depositary Shares per annum | All holders of American Depositary Shares |
Except as otherwise provided in
dollars.
73,500.
The information set forth under the section “Financials – Management’s report on internal control over financial reporting” of the 20172021 Swedish Annual Report (adjusted version) is incorporated herein by reference.
reference:
Sustainability and corporate responsibility are integrated into Ericsson’s business processes and the Company’s commitment to the triple bottom line of responsible environmental performance and social and economic development is made clear to its stakeholders.
Ericsson’s ambition is to be a responsible and relevant driver of positive change in society. Ericsson is committed to creating business value while reducing risk related to environmental, social, employee, human rights, corruption and bribery matters. Ericsson’s sustainability and corporate responsibility performance is regularly measured, assessed and assured. Group policies and directives have been implemented to ensure consistency across global operations.
Ericsson’s principal risks relating tosustain- ability and corporate responsibility are identified in Ericsson’s risk management framework.
The Board of Directors is briefed on sustainability and corporate responsibility issues regularly, or as needed on an ad hoc basis.
In 2017, the Chief Sustainability & Public Affairs Officer was a member of Ericsson’s Executive Team and reported to the President and CEO, and was responsible for handling theday-to-day management of Ericsson’s sustainability and corporate responsibility agenda.
Responsible business practices are embedded in Ericsson’s operations to prevent, mitigate and adapt to risks. The Ericsson Group Management System (EGMS) includes policies, processes and directives encompassing responsible sourcing, occupational health and safety, environmental management, anti-corruption and human rights, for example. External assurance providers audit the EGMS.
Some of the Group Policies and Directives that are of particular relevance from a sustain- ability and corporate responsibility perspective are the Code of Business Ethics, the Code of Conduct, the Sustainability Policy, the Occu-pational Health and Safety Policy, the Electromagnetic Fields and Health Policy, the Sales Compliance Policy and the
Anti-corruption Group Directive, which reflect how Ericsson shall work to secure responsible business practices. These policies and practices are reinforced by employee awareness training and monitoring. Compliance to Group Policies are mandatory for all employees and operations unless a deviation is approved by the CEO.
The Code of Business Ethics
The Code of Business Ethics sets the tone for how Ericsson conducts business globally, and is a guiding framework to support everyone performing work for Ericsson. The Code of Business Ethics is periodically reviewed and acknowledged by employees and has been translated into more than 30 languages to ensure that it is accessible to all employees and stakeholders. During 2017, 99% of active employees acknowledged that they have read and understood the Code of Business Ethics.
Employees are encouraged to report any conduct that they believe, in good faith, to be a violation of laws or the Code of Business Ethics. Ericsson provides employees and external stakeholders with a dedicated communication channel, called the Ericsson Compliance Line, for the reporting of serious compliance concerns involving group or local management and which relates to;
a) corruption or fraud
b) questionable accounting or auditing matters
c) other matters that might seriously affect the vital interest of Ericsson or personal health and safety.
The process around reporting of violations has been strengthened and further developed to include both centrally and locally reported allegations of violations in 2017. For this reason there is a significantly higher number of reports in 2017 in comparison with 2016.
During 2017 the Company received 412 cases reported through Ericsson’s whistle- blower tool, the Ericsson Compliance Line. This tool is available via phone or secure website, 24/7, 365 days a year, and is available in 188 countries and in over 75 languages.
Reported violations are handled by Ericsson’s Group Compliance Forum, which consists of representatives from Ericsson’s internal audit function, Group Function Legal Affairs, Group Security, and Group Function Human Resources. The Forum briefs the Audit Committee about all reported violations, providing them with the incident category, a description of the alleged violation, and information about the decision and outcome.
The Code of Conduct
Ericsson’s Code of Conduct applies to employees and suppliers and is based on the UN Global Compact ten principles on human rights, labor conditions, environmental management and anti-corruption. Ericsson is also committed to implementing the UN Guiding Principles on Business and Human Rights across its business operations.
Suppliers must comply with Ericsson’s Code of Conduct requirements. The Company uses a risk-based approach to assess compliance with the Code of Conduct requirements as part of supplier agreements. The Company has a strong focus on risk mitigation, targeting high-risk portfolio areas and high-risk markets. For prioritized areas such as road and vehicle safety, working at heights, working hours and labor rights, Ericsson performs regular audits and works with suppliers to ensure measurable and continuous improvements, and has also introduced consequence management. Findings are followed up to ensure that improvements are made.
Since 2017, the Ethics and Compliance Board – comprised of several members of the Executive Team and chaired by the CEO – has been responsible to oversee the overall governance of compliance within the Group.
Sustainability risks are defined according to short-term and long-term perspectives. They are related to long-term objectives as per the strategic direction as well as short-term objectives for the coming year. According to Ericsson’s risk framework, sustainability risks are categorized into industry and market risks, commercial risks, operational risks and compliance risks. The Company follow its risk management principles, which apply across all business activities, to manage sustainability risks.
Materiality assessment is a central component of the Company’s sustainability and corporate responsibility strategy, target setting, risks and opportunities management, and reporting process related to its impact on society and environment. Ericsson considers a wide range of economic, environmental and social impacts significant to the business, or which substantively influence the views and decisions of our key stakeholders. Since 2012, the Company has used a materiality assessment to review significant issues on an annual basis, taking into account emerging trends, stakeholder feedback and other input. Adjustments are made as needed to incorporate critical issues as they arise.
The Group Function Sustainability and Public Affairs coordinates management of certain sustainability risks, such as occupational health and safety, human rights, and environmental related risks. Risks related to corruption are coordinated by Group Function Legal Affairs, and diversity issues are coordinated by Group Function Human Resources.
For information on risks that could impact the fulfillment of targets and form the basis for mitigating activities, see the Swedish Annual Report 2017, Note C20 “Financial risk management and financial instruments” and the Risk Factors section in the Board of Directors’ report in the Swedish Annual Report 2017.
Corruption carries serious legal and reputational risks; impedes business growth;dam-ages relations with staff, customers, share- holders, suppliers and society as a whole; and is a considerable obstacle to economic and social development in countries around the world. With customers in 180 countries, many of which are considered to be exposed to a high risk of corruption, prevention and accountability are paramount for Ericsson.
Ericsson has azero-tolerance approach to corruption expressed in the Company’s Code of Business Ethics. The Company has embedded this guiding principle at its highest levels and implemented it throughout its global organization with a set of policies and processes. This includes an anti-corruption directive with more detailed guidelines, for example about appropriate levels of gifts and entertainment.
The Company’s anti-corruption program, focusing on prevention and accountability, is headed by a Chief Compliance Officer, who since October 2017 reports directly to the Audit Committee of the Board of Directors. The Audit Committee also reviews and evaluates the program at least annually. Further, since 2016, an Ethics and Compliance Board, comprised of several members of the Executive Team and chaired by the CEO, has been responsible for the overall governance of compliance within the Group.
During 2016–2017 we invited external experts to evaluate the robustness of our anti-corruption program. Following the review, we adjusted the anti-corruption program to closer align with the US Foreign Corrupt Practices Act (FCPA). In 2017, the program was strengthened with adding resources on group level and appointing Regional Compliance Officers in all Market Areas. Moreover, one of the elements of the Group targets for sustainability and corporate responsibility is anti-corruption.
In 2017 the Company continued to roll out an automated anti-corruption screening tool for supplier and third party due diligence, which was launched in 2016. By the end of 2017, close to 93% of active employees had completed the Company’s anti-corruptione-learning course since the training was launched in 2013. A customized online anti- corruption training is also available for Ericsson’s suppliers on the Company website.
In 2017, Ericsson introduced a vetting process that focuses on ethics and compliance. So far we have used it for appointments to the Executive Team and for approximately 110 employees in exposed positions. All members of the current Executive Team have been vetted, and all future recruitments to these positions will also go through mandatory vetting. Business Partner Review Boards have been established in all Market Areas toover-see mitigation of the corruption risks in relation to onboarding of new business partners.
Ericsson is currently voluntarily cooperating with inquiries from the United States Securities and Exchange Commission and the United States Department of Justice regarding its compliance with the U.S. Foreign Corrupt Practices Act. As of today, these inquiries concern a period from January 1, 2007 and onwards, and the Company will make additional disclosures regarding these inquiries to the extent required.
Our Code of Business Ethics is included on our web site atwww.ericsson.com/code-of-business-ethics. We intend to disclose any waivers to or amendments of our Code of Business Ethics for the benefit of our executive officers on our website to the extent public disclosure is required under applicable rules.
The information set forth under the Section “Financials –“Financial Report - Notes to the consolidated financial statements –- Note C30H5 – Fees to auditors” of the 20172021 Swedish Annual Report (adjusted version) is incorporated herein by reference.
Compliance Committee
accordance with the
All
audit committees.
Exhibit Number | Description | |
1 | ||
2.1 | ||
2.2 | ||
2.3 | ||
4.1 | ||
6 | See “Financials – Notes to the consolidated financial statements – Note | |
7 | For definitions of certain ratios used in this report, see the section of the | |
8 | See Item 4.C. Organizational Structure | |
11 | Code of Ethics (amended https://www.ericsson.com/en/about-us/corporate-governance/code-of-ethics) | |
12.1 | ||
12.2 | ||
13.1* | ||
13.2* | ||
15.1** | ||
15.2 | ||
15.3 | ||
101** | XBRL Instance Document and related items | |
Exhibit Number | Description | |
101.INS*** | Inline XBRL Instance Document. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH*** | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL*** | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF*** | Inline XBRL Taxonomy Definition Linkbase Document. | |
101.LAB*** | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE*** | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | Cover Page Interactive Data File (embedded within the inline XBRL document). | |
| * | This certification will not be deemed “filed” for purposes of Section 18 of the Exchange Act (15 U.S.C. §78r), or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the Registrant specifically incorporates it by reference. |
| ** | Certain of the information included in Exhibit 20-F, as specified elsewhere in this report, in accordance with Rule12b-23(a)(3) of the Securities Exchange Act of 1934, as amended. With the exception of the items so specified, the 20-F. |
| *** | In accordance with Rule 406T(b)(2) of Regulation S-T, such XBRL information will be furnished and not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, will be deemed not filed for purposes of Section 18 of the Exchange Act of 1934, as amended, and otherwise will not be subject to liability under those sections. |
TELEFONAKTIEBOLAGET LM ERICSSON | ||
| By: | /s/ JONAS STRINGBERG | |
| Name: | Jonas Stringberg | |
| Title: | ||
| By: | /s/ | |
| Name: | ||
| Title: | ||
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