Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 20-F

 

REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2016

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

 

SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 000-12033

TELEFONAKTIEBOLAGET LM ERICSSON

(Exact Name of Registrant as Specified in its Charter)

LM ERICSSON TELEPHONE COMPANY

(Translation of Registrant’s name into English)

Kingdom of Sweden

(Jurisdiction of incorporation or organization)

SE-164 83 Stockholm, Sweden

(Address of principal executive offices)

Roland Hagman, Vice President Group Function Financial Control

Telephone: +46 10 719 53 80, Fax: +46 8 744 42 82

SE-164 83 Stockholm, Sweden

(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on which Registered

American Depositary Shares (each representing one B share)   The NASDAQ Stock Market LLC
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.

Securities registered pursuant to Section 12(g) of the Act:

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report:

 

B shares (SEK 5.00 nominal value)

     3,069,395,752  

A shares (SEK 5.00 nominal value)

     261,755,983  

C shares (SEK 1.00 nominal value)

     49,367,641  

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☒    No  ☐

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    Yes  ☐    No  ☒

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)    Yes  ☐    No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or an emerging growth company . See the definitions of “large accelerated filer” and “accelerated filer” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer      Emerging growth company  

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

 

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

☐  U.S. GAAP

 

                ☒     

  International Financial Reporting Standards as issued by the International Accounting Standards Board    ☐  Other

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17  ☐    Item 18  ☐

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

 

 


Table of Contents

TABLE OF CONTENTS

 

                 Page  

PART I INTRODUCTION

     1  

ITEM 1.

  

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     2  

ITEM 2.

  

OFFER STATISTICS AND EXPECTED TIMETABLE

     2  

ITEM 3.

  

KEY INFORMATION

     2  
  

A.

    

Selected Financial Data

     2  
  

B.

    

Capitalization and Indebtedness

     4  
  

C.

    

Reasons for the Offer and Use of Proceeds

     4  
  

D.

    

Risk Factors

     4  

ITEM 4.

  

INFORMATION ON THE COMPANY

     4  
  

A.

    

History and Development of the Company

     4  
  

B.

    

Business Overview

     5  
  

C.

    

Organizational Structure

     7  
  

D.

    

Property, Plant and Equipment

     9  

ITEM 4A.

  

UNRESOLVED STAFF COMMENTS

     10  

ITEM 5.

  

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     10  
  

A.

    

Operating Results

     10  
  

B.

    

Liquidity and Capital Resources

     15  
  

C.

    

Research and Development, Patents and Licenses

     17  
  

D.

    

Trend Information

     18  
  

E.

    

Off-Balance Sheet Arrangements

     18  
  

F.

    

Tabular Disclosure of Contractual Obligations

     18  

ITEM 6.

  

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

     18  
  

A.

    

Directors and Senior Management

     18  
  

B.

    

Compensation

     19  
  

C.

    

Board Practices

     19  
  

D.

    

Employees

     20  
  

E.

    

Share Ownership

     21  

ITEM 7.

  

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

     21  
  

A.

    

Major Shareholders

     21  
  

B.

    

Related Party Transactions

     21  
  

C.

    

Interests of Experts and Counsel

     22  

ITEM 8.

  

FINANCIAL INFORMATION

     22  
  

A.

    

Consolidated Statements and Other Financial Information

     22  
  

B.

    

Significant Changes

     22  

 

i


Table of Contents
                 Page  

ITEM 9.

  

THE OFFER AND LISTING

     26  
  

A.

    

Offer and Listing Details

     26  
  

B.

    

Plan of Distribution

     26  
  

C.

    

Markets

     26  
  

D.

    

Selling Shareholders

     26  
  

E.

    

Dilution

     26  
  

F.

    

Expenses of the Issue

     26  

ITEM 10.

  

ADDITIONAL INFORMATION

     26  
  

A.

    

Share Capital

     26  
  

B.

    

Memorandum and Articles of Association

     26  
  

C.

    

Material Contracts

     30  
  

D.

    

Exchange Controls

     30  
  

E.

    

Taxation

     30  
  

F.

    

Dividends and Paying Agents

     34  
  

G.

    

Statement by Experts

     34  
  

H.

    

Documents on Display

     34  
  

I.

    

Subsidiary Information

     34  

ITEM 11.

  

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     34  

ITEM 12.

  

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     35  
  

A.

    

Debt Securities

     35  
  

B.

    

Warrants and Rights

     35  
  

C.

    

Other Securities

     35  
  

D.

    

American Depositary Shares

     35  

PART II

          36  

ITEM 13.

  

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

     36  

ITEM 14.

  

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

     36  

ITEM 15.

  

CONTROLS AND PROCEDURES

     36  
  

A.

    

Disclosure Controls and Procedures

     36  
  

B.

    

Management’s Annual Report on Internal Control Over Financial Reporting

     36  
  

C.

    

Attestation Report of the Registered Public Accounting Firm

     37  
  

D.

    

Changes in Internal Control Over Financial Reporting

     37  

ITEM 16.

  

[RESERVED]

     37  

ITEM 16A.

  

AUDIT COMMITTEE FINANCIAL EXPERT

     37  

ITEM 16B.

  

CODE OF ETHICS

     37  

ITEM 16C.

  

PRINCIPAL ACCOUNTANT FEES AND SERVICES

     38  

ITEM 16D.

  

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     38  

 

ii


Table of Contents
                 Page  

ITEM 16E.

  

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

     38  

ITEM 16F.

  

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

     38  

ITEM 16G.

  

CORPORATE GOVERNANCE

     39  

ITEM 16H.

  

MINE SAFETY DISCLOSURE

     40  

PART III

          40  

ITEM 17.

  

FINANCIAL STATEMENTS

     40  

ITEM 18.

  

FINANCIAL STATEMENTS

     40  

ITEM 19.

  

EXHIBITS

     42  

 

iii


Table of Contents

PART I

INTRODUCTION

Unless otherwise indicated, all references herein to “Ericsson,” the “Company,” “the Group,” “we,” “us,” or “our” or “our company” are references to Telefonaktiebolaget LM Ericsson and its consolidated subsidiaries.

This document is our Annual Report on Form 20-F for the year ended December 31, 2016 (the “2016 Form 20-F”). Reference is made to the English version of our Swedish Annual Report for 2016, with certain adjustments made to comply with U.S. requirements, which is attached hereto as Exhibit 15.1 (the “2016 Swedish Annual Report”). Only (i) the information included in this 2016 Form 20-F, (ii) the information in the 2016 Swedish Annual Report that is incorporated by reference in this 2016 Form 20-F, and (iii) the exhibits to the 2016 Form 20-F that are required to be filed pursuant to the Form 20-F shall be deemed to be filed with the Securities and Exchange Commission for any purpose, including incorporation by reference into the Registration Statement on Form F-3 filed on May 8, 2015 (File No. 333-203977) and any other document filed by us pursuant to the Securities Act of 1933, as amended, which incorporates by reference the 2016 Form 20-F. Any information in the 2016 Swedish Annual Report that is not referenced in the 2016 Form 20-F or filed as an exhibit thereto shall not be deemed to be so incorporated by reference.

Certain industry, technical and financial terms used in this 2016 Form 20-F are defined in the subsections entitled “Glossary” and “Financial Terminology” of the 2016 Swedish Annual Report, which are incorporate herein by reference.

Market data and certain industry forecasts used herein were obtained from internal surveys, market research, publicly available information and industry publications. While we believe that market research, publicly available information and industry publications we use are reliable, we have not independently verified market and industry data from third-party sources. Moreover, while we believe our internal surveys are reliable, they have not been verified by any independent source.

The information included on www.ericsson.com and other websites that appear in this 2016 Form 20-F is not incorporated by reference herein. From time to time, we may use our website as a channel of distribution of material company information. Financial and other material information regarding our company is routinely posted on and accessible at www.ericsson.com .

Forward-Looking Statements

This 2016 Form 20-F includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events and expected operational and financial performance. The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,” “predict,” “aim,” “ambition,” “target,” “might,” or, in each case, their negative, and similar words are intended to help identify forward-looking statements.

Forward-looking statements may be found throughout this document, and include statements regarding:

 

    Our goals, strategies and operational or financial performance expectations

 

    Development of corporate governance standards, stock market regulations and related legislation

 

    The future characteristics of the markets in which we operate

 

    Projections and other characterizations of future events

 

    Our liquidity, capital resources, capital expenditures, our credit ratings and the development in the capital markets, affecting our industry or us

 

    The expected demand for our existing as well as new products and services

 

    The expected operational or financial performance of joint ventures and other strategic cooperation activities

 

    The time until acquired entities will be accretive to income

 

1


Table of Contents
    Technology and industry trends including regulatory and standardization environment, competition and our customer structure

 

    Our plans for new products and services including research and development expenditures.

Although we believe that the expectations reflected in these and other forward-looking statements are reasonable, we cannot assure you that these expectations will materialize. Because forward-looking statements are based on assumptions, judgments and estimates, and are subject to risks and uncertainties, actual results could differ materially from those described or implied herein

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 under “Item 3.D. Risk Factors” in this 2016 Form 20-F.

We undertake no obligation to publicly update or revise any forward-looking statements included in this 2016 Form 20-F, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.

 

ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

Not applicable.

 

ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE

Not applicable.

 

ITEM 3. KEY INFORMATION

 

A. Selected Financial Data

We present below certain selected financial data derived from our consolidated financial statements as of and for the years ended December 31, 2016, 2015, 2014, 2013 and 2012, included herein, prepared in accordance with the International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). IFRS differs in certain significant respects from the accounting principles generally accepted in the United States, or “U.S. GAAP.”

The summary financial data should be read in conjunction with our consolidated financial statements and the notes thereto contained in this 2016 Form 20-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 headings of the 2016 Swedish Annual Report, which are incorporated herein by reference:

 

    Other Information

 

    Alternative Performance Measures (APMs)

 

    Financial Terminology and Exchange rates

 

2


Table of Contents
     2016     Change     2015     2014     2013     2012  

Income statement and cash flow items, SEK million

            

Net sales

     222,608       –10     246,920       227,983       227,376       227,779  

Operating expenses

     –60,501       –6     –64,129       –63,408       –58,509       –58,856  

Operating income

     6,299       –71     21,805       16,807       17,845       10,458  

Net income

     1,895       –86     13,673       11,143       12,174       5,938  

Restructuring charges

     7,567       50     5,040       1,456       4,453       3,447  

Cash flow from operating activities

     14,010       –32     20,597       18,702       17,389       22,031  

Year-end position, SEK million

            

Total assets

     283,347       0     284,363       293,558       269,190       274,996  

Property, plant and equipment

     16,734       5     15,901       13,341       11,433       11,493  

Stockholders’ equity

     139,817       –5     146,525       144,306       140,204       136,883  

Non-controlling interest

     675       –20     841       1,003       1,419       1,600  

Per share indicators

            

Earnings per share, basic, SEK

     0.53       –87     4.17       3.57       3.72       1.80  

Earnings per share, diluted, SEK

     0.52       –87     4.13       3.54       3.69       1.78  

Dividends per share, SEK

     1.00       –73     3.70       3.40       3.00       2.75  

Dividend per share (USD)

     0.11       –71     0.39       0.41       0.46       0.42  

Number of shares outstanding (in millions)

            

end of period, basic

     3,269       —         3,256       3,242       3,231       3,220  

average, basic

     3,263       —         3,249       3,237       3,226       3,216  

average, diluted

     3,303       1     3,282       3,270       3,257       3,247  

Capital stock, SEK million

     16,657         16,526       16,526       16,526       16,526  

Other information, SEK million

            

Additions to property, plant and equipment

     6,129       –26     8,338       5,322       4,503       5,429  

Depreciations and write-downs/impairments of property, plant and equipment

     4,569       –3     4,689       4,316       4,209       4,012  

Acquisitions/capitalization of intangible assets

     5,260       1     5,228       6,184       4,759       13,247  

Amortization and write-downs/impairments of intangible assets

     4,550       –18     5,538       5,629       5,928       5,877  

Research and development expenses

     31,635       –9     34,844       36,308       32,236       32,833  

as percentage of net sales

     14.2     —         14.1     15.9     14.2     14.4

Inventory turnover days

     69       8     64       64       62       73  
Alternative Performance Measures (APMs) 1)             

Gross margin

     29.8     —         34.8     36.2     33.6     31.6

Operating margin

     2.8     —         8.8     7.4     7.8     4.6

EBITA margin

     4.0     —         10.5     9.3     9.8     6.6

Cash conversion

     175.0     —         85     84     79     116

Capital employed, SEK million

     190,901       –2     195,150       189,839       180,903       176,653  

Return on equity

     1.2     —         9.3     8.1     8.7     4.1

Return on capital employed

     3.2     —         11.6     9.8     10.7     6.7

Equity ratio

     49.6     —         51.8     49.5     52.6     50.4

Capital turnover

     1.2       —         1.3       1.2       1.3       1.3  

Working capital, SEK million

     89,039       –15     104,811       103,246       106,940       100,619  

Gross cash, SEK million

     57,877       –13     66,270       72,159       77,089       76,708  

Net cash, SEK million 2)

     31,191       –24     41,150       48,014       47,634       48,041  
Statistical data, year-end             

Number of employees

     111,464       –4     116,281       118,055       114,340       110,255  

of which in Sweden

     15,303       –10     17,041       17,580       17,858       17,712  

Export sales from Sweden, SEK million

     107,036       –9     117,486       113,734       108,944       106,997  

 

1) A reconciliation to the most directly reconcilable line items in the financial statements for 2016 and five comparison years is available under the heading “Alternative Performance Measures” of the 2016 Swedish Annual Report. Reconciliation of ten years is available in a separate document available on www.ericsson.com/thecompany/investors/financial-reports.
2) The definition of Net cash has been adjusted in 2016 (Post-employment benefits are no longer included and Interest-bearing securities, non-current are included). Net cash for prior periods has been recalculated using the new definition.

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 7 April was SEK 9.0503 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  

2012

     6.7247  

2013

     6.5152  

2014

     6.9222  

2015

     8.4643  

2016

     8.5959  

 

Month

   High      Low  

October 2016

     9.0646        8.5641  

November 2016

     9.2686        8.8938  

December 2016

     9.4207        9.0784  

January 2017

     9.1583        8.8254  

February 2017

     9.0134        8.7176  

March 2017

     9.0664        8.7701  

 

3


Table of Contents

Effects of exchange rate fluctuations on our business is described in the Notes to the Consolidated Financial Statements—Note C20, “Financial Risk Management and Financial Instruments.”

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:

 

     2016      2015  

SEK/EUR

     

Average rate

     9.44        9.34  

Closing rate

     9.56        9.17  

SEK/USD

     

Average rate

     8.56        8.39  

Closing rate

     9.06        8.40  

 

B. Capitalization and Indebtedness

Not applicable.

 

C. Reasons for the Offer and Use of Proceeds

Not applicable.

 

D. Risk Factors

The information set forth under the heading “Financials–Risk Factors” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

ITEM 4. INFORMATION ON THE COMPANY

 

A. History and Development of the Company

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    The Business

 

    Ericsson in Brief

 

    Change in Reporting Structure from 2017

 

    Financials – Board of Directors’ Report

 

    Business in 2016

 

    Financial Highlights – Capital expenditures

For capital expenditures we usually use available cash from operations

 

    Notes to the Consolidated financial statements

 

    Note C26 – Business combinations

 

    Note C32 – Events after the reporting period

 

4


Table of Contents

General facts on the company

Legal and commercial name of the Parent Company: Telefonaktiebolaget LM Ericsson (publ).

Organization number: 556016-0680

Legal form of the Parent Company: A Swedish limited liability company, organized under the Swedish Companies Act.

Country of incorporation: Sweden.

Date of incorporation: The Parent Company was incorporated on August 18, 1918, as a result of a merger between AB LM Ericsson & Co. and Stockholms Allmänna Telefon AB.

Domicile: Our registered office is Telefonaktiebolaget LM Ericsson, SE–164 83 Stockholm, Sweden. Our headquarters are located at Torshamnsgatan 21, Kista, Sweden.

Telephone number: +46 10 719 0000

Website: www.ericsson.com . The information included on our website is not incorporated herein by reference.

Agent in the US: Ericsson Inc., Vice President Legal Affairs, 6300 Legacy Drive, Plano, Texas 75024. Telephone number: +1 972 583 0000.

Shares: Ericsson’s Class A and Class B shares are traded on Nasdaq Stockholm. In the US, our American Depository Shares (ADS), each representing one underlying Class B share, are traded on NASDAQ New York.

Parent company operations: The business of the parent company, Telefonaktiebolaget LM Ericsson, consists mainly of corporate management, holding company functions and internal banking activities. Our parent company operations also include customer credit management activities performed by Ericsson Credit AB on a commission basis.

Subsidiaries and associated companies: For a list of our significant subsidiaries, please see “Item 4C. Investments”. In addition to our joint venture ST-Ericsson (up until August 2, 2013), we are engaged in a number of minor joint ventures and cooperative arrangements. For more information regarding risks associated with joint ventures, strategic alliances and third-party agreements, please see “Item 3D. Financials–Risk Factors - Market, Technology and Business Risks”.

Company history and development

Innovating to empower people, business and society

Our origins date back to 1876 when Alexander Graham Bell filed a patent application in the United States for the telephone. The same year, Lars Magnus Ericsson opened a small workshop in Stockholm to repair telegraph instruments and sell his own telephone equipment.

Today, Ericsson is a leading provider of communications equipment, telecom services and support solutions. Our customers, in over 180 countries, are mainly operators of communications networks worldwide. We manage networks, or parts of networks, for one billion subscribers.

 

B. Business Overview

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Ericsson in brief

 

5


Table of Contents
    The business

 

    This is Ericsson

 

    This is the market

 

    The customers

 

    Networks

 

    IT & Cloud

 

    Media

 

    Global presence 24/7

 

    Customer group Industry and Society

 

    Customer Group – IPR & Licensing

 

    Reporting Structure 2016

 

    Change in Reporting Structure from 2017

 

    Financials

 

    Board of Directors’ report

 

    Financial highlights – Research and development, patents and licensing

 

    Financial highlights – Seasonality

 

    Business results – Segments

 

    Business results – Regions

 

    Sourcing and supply

 

    Sustainability and corporate responsibility

 

    Notes to the consolidated financial statements

 

    Note C3 – Segment information

 

    Risk factors

 

    Market, technology and business risks

 

    Regulatory, compliance and corporate governance risks

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Regulation and compliance

 

6


Table of Contents

Disclosure pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA)

Ericsson has conducted business in Iran/Persia since the late nineteenth century, opened an office in Iran in 1973 and later established a local subsidiary in the country. Ericsson strongly believes in enabling communication for all and believes that access to communications can enable the right to health, education and freedom of expression. Ericsson’s business activities in Iran principally involve the sale of communications infrastructure related products and services, including support, installation and maintenance services. Ericsson’s exports from the European Union (the “EU”) to Iran are performed under export licenses from the Swedish Agency for Non-Proliferation and Export Controls.

Due to its operations in Iran, and having staff permanently in the country, Ericsson has contacts with its local customers and retains certain local suppliers, including banks, and service providers. In addition, Ericsson has other dealings incidental to its local activities, such as making payments for taxes, salaries, rents, utilities and office and similar supplies as well for local accommodation and transportation and customs related services. As a result, Ericsson has contact with companies that may be owned or controlled by the government of Iran. While Ericsson seeks to obtain information regarding the actual business names and ownership of customers and other counterparties in Iran through its policies and procedures designed to ensure that Ericsson “knows its customers”, it is difficult to determine ownership and control with certainty, particularly with respect to determining whether an entity engaged in commercial activities is owned or controlled by the government.

During 2016, Ericsson sold communications infrastructure related products and services in Iran to the following telecommunications companies operating in the country: MTNIrancell, Mobile Communication Company of Iran (“MCCI”) and Dadeh Gostare Asre Novin (“Hiweb”). Ericsson also contracted with Pars Online for such sales. During 2016, Ericsson’s gross revenue (reported as net sales) related to sales to Hiweb, MTNIrancell and MCCI in Iran was approximately SEK 2,801 million. Ericsson does not normally allocate net profit (reported as net income) on a country-by-country or activity-by-activity basis, other than as set forth in Ericsson’s consolidated financial statements prepared in accordance with IFRS as issued by the IASB. However, Ericsson has estimated that its operating income (income before taxes and financial net) from such sales, after internal cost allocation was approximately SEK - 332 million during 2016. Ericsson intends to continue to engage with existing customers and explore opportunities with new customers in Iran while continuously monitoring international developments as they relate to Iran and its government.

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 Tejarat Bank, Melli Bank and Saderat Bank. Although some bonds and guarantees are still in place, no new performance bonds or similar guarantees involving these three banks with respect to Ericsson’s business activities in Iran were issued during 2016, nor were payments made to beneficiaries under any such existing bond or guarantee.

During 2016, Bank Mellat, Post Bank of Iran and Tejarat Bank (local banks in Iran) issued bank guarantees to secure Iranian customer payment obligations to Ericsson and Eghtesad Novin Bank (a local bank in Iran) issued a letter of credit to one of Ericsson’s banks outside Iran, to secure an Iranian customer’s payment obligations to Ericsson. Further, some payments made to Ericsson’s local subsidiary and payments required to be made by the local subsidiary to suppliers involve banks controlled by the government of Iran, such as Bank Mellat, Tejarat Bank, Bank Melli, Saderat Bank, Keshavarzi Bank, Eghtesad Novin Bank, Refah Bank and Bank Sepah. Ericsson also received payments from customers to Ericsson’s accounts outside Iran.

 

C. Organizational Structure

The following list shows certain shareholdings owned directly and indirectly by our parent company as of December 31, 2016. A complete list 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.

 

7


Table of Contents

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

     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)

  

 

 

 

  

 

 

 

     —         —          1,642  

Ericsson Austria GmbH

  

 

 

 

     Austria        100       4        65  

Ericsson Danmark A/S

  

 

 

 

     Denmark        100       90        216  

Oy LM Ericsson Ab

  

 

 

 

     Finland        100       13        196  

Ericsson Participations France SAS

  

 

 

 

     France        100       26        524  

Ericsson Germany GmbH

  

 

 

 

     Germany        100       —          4,232  

Ericsson Hungary Ltd.

  

 

 

 

     Hungary        100       1,301        120  

L M Ericsson Limited

  

 

 

 

     Ireland        100       4        34  

Ericsson Telecomunicazioni S.p.A.

  

 

 

 

     Italy        100       44        5,357  

Ericsson Holding International B.V.

  

 

 

 

     The Netherlands        100       222        3,200  

Ericsson A/S

  

 

 

 

     Norway        100       75        114  

Ericsson Television AS

  

 

 

 

     Norway        100       161        1,670  

Ericsson Corporatia AO

  

 

 

 

     Russia        100       5        5  

Ericsson España S.A.

  

 

 

 

     Spain        100       43        170  

Ericsson AG

  

 

 

 

     Switzerland        100       —          —    

Ericsson Holdings Ltd.

  

 

 

 

     United Kingdom        100       328        4,094  

Other (Europe, excluding Sweden)

  

 

 

 

  

 

 

 

     —         —          680  

Ericsson Holding II Inc.

  

 

 

 

     United States        100       2,897        29,907  

Companía Ericsson S.A.C.I.

  

 

 

 

     Argentina        95 1)       41        15  

Ericsson Canada Inc.

  

 

 

 

     Canada        100       —          51  

Belair Networks

  

 

 

 

     Canada        100       —          170  

Ericsson Telecom S.A. de C.V.

  

 

 

 

     Mexico        100       939        1,050  

Other (United States, Latin America)

  

 

 

 

  

 

 

 

     —         —          96  

Teleric Pty Ltd.

  

 

 

 

     Australia        100       20        100  

Ericsson Ltd.

  

 

 

 

     China        100       2        2  

Ericsson (China) Company Ltd.

  

 

 

 

     China        100       65        475  

Ericsson India Private Ltd.

  

 

 

 

     India        100       725        147  

Ericsson India Global Services PVT. Ltd

  

 

 

 

     India        100       389        64  

Ericsson Media Solutions Ltd

  

 

 

 

     Israel        100       9        711  

Ericsson-LG CO Ltd.

  

 

 

 

     Korea        75       375        2,544  

Ericsson (Malaysia) Sdn. Bhd.

  

 

 

 

     Malaysia        70       2        4  

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)

  

 

 

 

  

 

 

 

     —         —          299  
          

 

 

    

 

 

 

Total

  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

     81,564  
          

 

 

    

 

 

 

Joint ventures and associated companies

  

 

 

 

  

 

 

 

  

 

 

 

 

 

 

 

  

 

 

 

ST-Ericsson SA

        Switzerland        50       137        —    

Rockstar Consortium Group

        Canada        21       1        —    

Ericsson Nikola Tesla d.d.

        Croatia        49       65        330  
          

 

 

    

 

 

 

Total

                330  
          

 

 

    

 

 

 

 

1) Through subsidiary holdings, total holdings amount to 100% of Compania Ericsson S.A.C.I.
2) Through subsidiary holdings, total holdings amount to 100% of Ericsson (Thailand) Ltd.

 

8


Table of Contents

Shares owned by subsidiary companies

 

Company

   Reg. No.      Domicile      Percentage
of
ownership
 

Subsidiary companies

        

Ericsson Cables Holding AB

     556044-9489        Sweden        100  

Ericsson France SAS

        France        100  

Ericsson Telekommunikation GmbH 1)

        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 Wifi Inc.

        United States        100  

Drutt Corporation Inc.

        United States        100  

Redback Networks Inc.

        United States        100  

Telcordia Technologies Inc.

        United States        100  

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  

 

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.

 

D. Property, Plant and Equipment

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    The business

 

    Sustainability and corporate responsibility

 

    Financials

 

    Board of Directors’ report

 

    Financial highlights – Capital expenditures

 

    Sustainability and corporate responsibility

 

9


Table of Contents
    Notes to the consolidated financial statements

 

    Note C11 – Property, plant and equipment

 

    Note C27 – Leasing

 

    Risk factors

 

    Regulatory, Compliance and Corporate Governance risks

Primary manufacturing and assembly facilities

We continuously adjust our production capacity to meet expected customer demand. During 2016, our overall capacity utilization was around 85%.

The table below summarizes where we have major sites and the total floor space at year-end. Facilities are leased. The majority of the floor space within our production facilities is used for assembly.

 

     2016      2015      2014  
     Sites      Thousands
of

sq
meters**
     Sites*      Thousands
of sq
meters**
     Sites      Thousands
of sq
meters**
 

Sweden

     4        21.3        4        21.3        4        20.7  

China

     2        13        2        13        3        19.8  

Estonia

     1        6        1        6        1        9.1  

Italy

     0        0        0        0        1        16  

Brazil

     1        4.5        1        4.5        1        25.3  

Mexico

     1        0.8        1        0.8        1        0.8  

India

     1        10.8        1        10.8        1        24.5  

Total

     10        56.4        10        56.4        12        116.2  

 

* In 2015, we closed our facility in Italy and one facility in China.
** Floor space in square meters does not include any warehouses and any transportation areas

 

ITEM 4A. Unresolved Staff Comments

None.

 

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

 

A. Operating Results

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Ericsson in brief

 

10


Table of Contents
    The business

 

    This is Ericsson

 

    Global presence 24/7

 

    Reporting Structure 2016

 

    Other information

 

    Five-year summary

 

    Alternative Performance Measures (APMs)

 

    Financials

 

    Board of Directors’ report

 

    Business in 2016

 

    Financial highlights

 

    Business results – Segments

 

    Business results – Regions

 

    Risk management

 

    Notes to the consolidated financial statements

 

    Note C1 – Significant accounting policies

 

    Note C20 – Financial risk management and financial instruments – Foreign exchange risk

 

    Risk Factors

 

    Market, technology and business risks

 

    Regulatory, Compliance and Corporate Governance risks

Operating results for the years ended December 31, 2014 and 2015

Business in 2015

In 2015, net sales increased by 8% mainly due to sales growth in India, North America and Mainland China as well as higher IPR licensing revenues. All three segments showed sales growth. Both operating income and margin increased compared to last year despite significantly higher restructuring charges. The increase is mainly related to higher IPR licensing revenues, lower negative currency hedge effects and lower operating expenses, excluding restructuring charges. In the year, the US dollar strengthened towards a number of currencies including SEK, impacting sales and operating income positively.

The IPR strategy, to generate value from investments in R&D, has been successful and over the last five years IPR licensing revenues have more than tripled. IPR revenues were SEK 14.4 (9.9) billion. Ericsson now has agreements with the majority of handset suppliers.

In 2015, there was good progress in the targeted growth areas; IP network, Cloud, OSS and BSS, TV and Media as well as Industry and Society. Ericsson continued to invest in order to establish leadership in these areas.

 

11


Table of Contents

The effort to restore Network Rollout to a sustainable profitable business progressed well, with a break-even operating income, excluding restructuring charges, for the second half of 2015.

The global cost and efficiency program progressed according to plan, with the target to achieve net annual savings of SEK 9 billion during 2017 compared with 2014. Operating expenses, excluding restructuring charges, declined to SEK 61.4 (63.0) billion. Ericsson will continue to address operating expenses and increase efforts to further reduce cost of sales in order to improve the gross margin.

Ericsson delivered a full-year cash flow from operating activities of SEK 20.6 (18.7) billion, exceeding the cash conversion target of more than 70%. The Board of Directors proposes a dividend of SEK 3.70 (3.40) per share for 2015, an increase of 9% compared with last year.

Financial highlights

Net Sales

Reported sales increased by 8%. Sales growth in India, North America and Mainland China as well as higher IPR licensing revenues were partly offset by lower sales in Japan, Russia and Brazil.

All three segments showed sales growth. Global Services sales grew by 11%, with 15% growth in Professional Services, while Network Rollout sales were almost flat. Networks sales grew by 5% and Support Solutions sales by 19%.

IPR licensing revenues amounted to SEK 14.4 (9.9) billion. In 2015, a global patent license agreement was signed with Apple.

In the year, the US dollar strengthened towards a number of currencies including SEK, impacting sales positively. At the same time the strong US dollar gradually impacted investments negatively in some emerging markets.

Sales, adjusted for comparable units and currency, decreased by –5%.

Gross margin

Gross margin declined to 34.8% (36.2%). Excluding restructuring charges, the gross margin declined to 35.7% (36.6%) due to a mix with a lower share of mobile capacity business and higher share of Global Services sales. This was partly offset by higher IPR licensing revenues and effects of implemented efficiency measures.

The mix of sales by commodity was; software 23% (24%), hardware 34% (34%) and services 43% (42%).

Restructuring charges and global cost and efficiency program

Restructuring charges amounted to SEK –5.0 (–1.5) billion, in line with previous estimates. The charges were mainly related to the global cost and efficiency program announced in November 2014. The global cost and efficiency program is progressing according to plan and is expected to generate net annual savings of SEK 9 billion during 2017 compared with 2014.

With current visibility, total restructuring charges for 2016 are estimated to be approximately SEK 3–4 billion. This includes both restructuring charges related to the global cost and efficiency program and normal restructuring charges for the ongoing business transformation.

Operating expenses

Total operating expenses increased to SEK 64.1 (63.4) billion. Operating expenses, excluding restructuring charges, decreased from SEK 63.0 to SEK 61.4 billion, due to lower R&D expenses amounting to SEK 32.8 (36.0) billion. This is partly a result of implementation of activities related to the global cost and efficiency program. Additions to capitalized development expenses amounted to SEK 3.5 (1.5) billion. The increase was due to higher activity in technology platform development than a year ago.

Other operating income and expenses

Other operating income and expenses improved to SEK 0.1 (–2.2) billion. The increase is mainly related to currency hedge effects of SEK –1.1 (–2.8) billion. They derive from the hedge contract balance in US dollar, which has further decreased in value. The SEK has weakened towards the US dollar between December 31, 2014 (SEK/USD rate 7.79) and December 31, 2015 (8.40). The negative currency hedge effects were more than offset by several minor positive items and a capital gain of SEK 0.3 billion related to a real estate divestment in the US.

Operating income

Operating income increased to SEK 21.8 (16.8) billion despite significantly higher restructuring charges. The increase is mainly related to higher IPR licensing revenues, lower negative currency hedge effects and lower operating expenses, excluding restructuring charges. The net currency effect had a positive impact on operating income. Operating margin was 8.8% (7.4%).

 

12


Table of Contents

Financial net

Financial net amounted to SEK –1.9 (–1.0) billion. The decrease is mainly due to a negative effect of foreign currency revaluation and lower interest rates.

Taxes

The tax rate for 2015 was 31% compared with 30% in 2014, negatively impacted by the geographical mix. Tax costs were SEK –6.2 (–4.7) billion.

Net income and EPS

Net income increased to SEK 13.7 (11.1) billion, for the same reasons as for the increase in operating income. EPS diluted was SEK 4.13 (3.54).

Business results – Segments

Networks

Reported sales increased by 5% compared to last year. The increase was mainly due to higher IPR licensing revenues. Operator investments in mobile broadband in India and South East Asia increased. The large-scale LTE deployments in Mainland China continued at a high pace in 2015. Sales in North America were flat compared to last year, supported by the strengthened US dollar. Mobile broadband investments in North America were negatively impacted by operator focus on cash flow optimization in order to finance major acquisitions and spectrum auctions.

In 2015, sales in targeted growth area IP networks grew, mainly driven by investments in packet core, VoLTE and user data management.

During the year, the US dollar strengthened towards a number of currencies, including SEK, impacting sales positively. At the same time, the strong US dollar gradually impacted investments negatively in some emerging markets. Sales, adjusted for comparable units and currency, decreased by –8% compared to last year.

Operating income and margin decreased due to a higher share of mobile broadband coverage business and higher restructuring charges. Increased IPR licensing revenues, lower operating expenses and lower negative effect of currency hedge contracts contributed positively to operating income and margin.

The year started with a high level of R&D expenses which gradually decreased as a result of the global cost and efficiency program. The ambition to improve Networks profitability remains.

Restructuring charges amounted to SEK –2.8 (–0.4) billion and the negative effect from hedge contracts was SEK –0.9 (–2.1) billion.

Global Services

Reported sales increased by 11% compared to last year. Professional Services reported sales grew 15% with strong development across the portfolio and with growth in all ten regions.

Consulting and Systems Integration sales grew, driven by OSS and BSS transformation projects and by solutions for Industry & Society customers. Sales in Managed Services grew by 17% and the number of signed contracts increased by more than 40% compared with 2014.

Network Rollout sales were flat. Lower coverage project activities in Japan, North America and Latin America impacted sales negatively.

Global Services sales, adjusted for comparable units and currency, declined –2%.

Global Services operating income increased by more than 30% compared with 2014, driven by increased sales in Professional Services and reduced losses in Network Rollout. Professional Services margin was stable compared to last year.

The effort to restore Network Rollout profitability progressed well with a break-even result, excluding restructuring, for the second half of the year. Network Rollout full-year operating income improved to SEK –1.4 (–2.5) billion.

Restructuring charges for Global Services increased to SEK –1.7 (–0.8) billion. The implementation of the Global Services delivery strategy accelerated during the year as part of the global cost and efficiency program, resulting in a remote delivery rate of 50% (44%). The ambition to optimize service delivery and improve profitability will continue.

The effect of currency hedge contracts on operating income was SEK –0.2 (–0.6) billion.

Support Solutions

Reported sales increased by 19% compared with 2014, with North America and India as main contributors. Sales, adjusted for comparable units and currency, were flat. The overall transition of business models, from traditional telecom software licenses to recurrent license revenue deals, continued.

Sales in OSS and BSS developed favorably. Growth of mobile broadband drives operators to transform their OSS and BSS solutions, in order to monetize the data growth while at the same time managing the increased complexity. Two important TV & Media agreements were announced in North America in the second half of the year, showing the strong position Ericsson has in this transforming market.

 

13


Table of Contents

IPR licensing revenues increased compared with 2014.

Operating Income and margin improved significantly compared with 2014, driven by higher sales. Focus going forward is to improve earnings leverage through increased recurring software sales and efficiencies.

Restructuring charges increased to SEK –0.5 (–0.1) billion due to the global cost and efficiency program. The effect of currency hedge contracts on operating income was SEK –0.1 (–0.2) billion.

Business results – Regions

North America

Mobile broadband investments were slow as operators focused on cash flow optimization in order to finance major acquisitions and spectrum auctions. Investments stabilized during the second half of the year, driven by data traffic growth. ICT transformation, TV & Media and Professional Services developed favorably.

Latin America

Sales decreased compared to last year mainly due to lower activities in Brazil. Operator investments increased in local currency, but not enough to compensate for the depreciation towards the US dollar and currency restrictions in many parts of the region. Professional Services sales grew, mainly in OSS and BSS.

Northern Europe and Central Asia

Sales declined, primarily due to lower mobile broadband investments in Russia with sales of SEK 4.7 (6.7) billion. However, sales stabilized in the second half of the year, but at a lower level compared to the same period last year. Professional Services sales increased, driven by Managed Services and ICT transformation projects in the Nordics. TV & Media and OSS and BSS developed favorably, driving sales growth in Support Solutions.

Western and Central Europe

Investments in mobile broadband were driven by the transition from 3G to 4G and capacity enhancements. At the same time, some important projects peaked. Sales were stable with a shift towards Professional Services and Support Solutions, as operators focus on network optimization, efficiency and new functionality.

Mediterranean

Sales increased somewhat, driven by Managed Services. Investments in mobile broadband were driven by the transition from 3G to 4G and improvements of the quality and capacity of the networks.

Middle East

Sales increased, primarily in Global Services. In the first half of the year, Network sales growth was mainly driven by some major mobile broadband projects, which were completed in the second half of the year.

Sub-Saharan Africa

Sales increased across all segments, driven by strong consumer demand for mobile broadband, despite a challenging regulatory environment and recent macro-economic development. Operators’ focus on network quality and efficiency drove Professional Services sales growth.

India

Sales growth was driven by increased operator investments in mobile broadband infrastructure and Professional Services. Increased focus on network quality and cost optimization continued to drive strong sales growth for Managed Services. Support Solutions sales showed significant growth, driven by OSS and BSS.

North East Asia

Sales growth was driven by 4G deployments in Mainland China, partly offset by lower operator investments in Japan. Professional Services showed growth, supported by the acquisition of Sunrise Technologies’ telecom business.

 

14


Table of Contents

South East Asia and Oceania

Sales increased, primarily driven by mobile broadband deployments across several markets. Professional Services sales developed favorably as operators focused on efficiency and network optimization. TV & Media showed a positive development during the year.

Other

Sales increased, driven by the Apple global patent license agreement and currency, as a majority of the IPR contracts are in US dollar. Broadcast services showed good growth. IPR licensing revenues amounted to SEK 14.4 (9.9) billion.

 

B. Liquidity and Capital Resources

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Financials

 

    Board of Directors’ report

 

    Financial highlights – Cash flow

 

    Financial highlights – Financial position

 

    Financial highlights – Seasonality

 

    Financial highlights – Capital expenditures

 

    Notes to the consolidated financial statements

 

    Note C19 – Interest-bearing liabilities

 

    Note C20 – Financial risk management and financial instruments

 

    Note C25 – Statement of cash flows

See “Item 8.B. Financial Information – Significant Changes” herein.

Balance sheet and other performance indicators for the years ended December 31, 2014 and 2015

Cash flow

Cash flow from operating activities was SEK 20.6 (18.7) billion. The positive earnings were somewhat offset by increased working capital, due to a business mix with a high share of coverage projects in Mainland China and emerging markets.

Days sales outstanding (DSO) decreased to 87 (105) days and Inventory turnover days remained stable at 64 days. Accounts payable days decreased to 53 (56) days. Provisions amounted to SEK 3.8 (4.4) billion at year end. Cash outlays of SEK 2.8 billion related to restructuring charges were made during the year.

Total investing activities amounted to SEK –8.0 billion. Investments in property, plant and equipment increased to SEK –8.3 (–5.3) billion driven by continued investments in new ICT centers in Sweden and Canada. Acquisitions amounted to SEK –2.2 (–4.4) billion.

Financing activities were impacted by dividend payouts of SEK –11.3 (–9.8) billion.

Financial position

Net cash decreased to SEK 18.5 (27.6) billion in 2015, despite stronger cash flow from operating activities, mainly due to increased investments in ICT centers and in new facilities in Santa Clara, California, as well as increased dividends.

 

15


Table of Contents

Pension liabilities increased by SEK 2.3 billion following actuarial adjustments. The net cash position, excluding post-employment benefits (in the amount of SEK 22.7 billion) was SEK 41.2 (48.0) billion. Reported net cash was SEK 18.5 billion.

The average maturity of long-term borrowings as of December 31, 2015 was 4.8 years, compared with 5.7 years 12 months earlier. Ericsson has an unutilized Revolving Credit Facility of USD 2.0 billion. The facility expires in 2020.

Employees

In 2015, the number of employees decreased by 1,774. At the end of 2015, the total number of employees was 116,281 (118,055). Almost 15,000 employees joined Ericsson during the year and close to 17,000 employees left Ericsson, reflecting the natural attrition rate and ongoing company transformation.

Research and development, patents and licensing

In line with the global cost and efficiency program, the Company has decreased its R&D activities. The largest contribution to savings is a result of discontinuation of the modems operations. Approximately half of the global cost and efficiency program annual net savings of SEK 9 billion is estimated to come from operating expenses. R&D expenses amounted to SEK 34.8 (36.3) billion.

Research and development, patents and licensing

 

     2015     2014     2013  

Expenses (SEK billion)

     34.8       36.3       32.2  

As percent of Net sales

     14.1     15.9     14.2

Employees within R&D as of December 31  1)

     23,700       25,700       25,300  

Patents  1)

     39,000       37,000       35,000  

IPR revenues, net (SEK billion)

     14.4       9.9       10.6  

 

1) The number of employees and patents are approximate.

Seasonality

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

Most recent five-year average seasonality

 

     First quarter     Second quarter     Third quarter     Fourth quarter  

Sequential change, sales

     –22     9     0     21

Share of annual sales

     22     24     24     29

Off-balance sheet arrangements

There are currently no material off-balance sheet arrangements that have, or would be reasonably likely to have, a current or anticipated material effect on the Company’s financial condition, revenues, expenses, result of operations, liquidity, capital expenditures or capital resources.

Capital expenditures

For 2015, capital expenditures were SEK 8.3 (5.3) billion, representing 3.4% 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, is planned to be opened during the second quarter of 2016. In addition, Ericsson has invested in two buildings in Santa Clara, California with the purpose to consolidate Ericsson’s Silicon Valley operations.

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 in most locations.

 

16


Table of Contents

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, 2015, no material land, buildings, machinery or equipment were pledged as collateral for outstanding indebtedness.

Capital expenditures 2011–2015

 

SEK billion

   2015     2014     2013     2012     2011  

Capital -expenditures

     8.3       5.3       4.5       5.4       5.0  

Of which in -Sweden

     2.6       2.4       1.9       1.3       1.7  

Share of annual sales

     3.4     2.3     2.0     2.4     2.2

 

C. Research and Development, Patents and Licenses

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Other information

 

    Five-year summary

 

    Alternative Performance Measures (APMs)

 

    The business

 

    This is Ericsson

 

    Business structure

 

    Networks

 

    IT & Cloud

 

    Media

 

    Global presence 24/7

 

    Customer group – Industry and Society

 

    Customer Group – IPR & Licensing

 

    Financials – Board of Directors’ report

 

    Financial highlights – Research and development, patents and licensing

 

    Consolidated financial statements

 

    Consolidated income statement

 

17


Table of Contents
D. Trend Information

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    The Business

 

    CEO dialogue

 

    This is Ericsson

 

    Profit improvement

 

    This is the market

See “Item 8.B. Financial Information – Significant Changes” herein.

 

E. Off-Balance Sheet Arrangements

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Financials

 

    Board of Directors’ report

 

    Financial highlights – Off-balance sheet arrangements

 

    Notes to the consolidated financial statements

 

    Note C14 – Trade receivables and customer finance, Transfers of financial assets

 

    Note C24 – Contingent liabilities

 

F. Tabular Disclosure of Contractual Obligations

The information set forth under the section “Financials – Notes to the consolidated financial statements – Note C31 – Contractual obligations” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

 

A. Directors and Senior Management

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Members of the Board of Directors

 

    Members of the Executive Leadership Team

See “Item 8.B. Financial Information – Significant Changes” herein.

 

18


Table of Contents
B. Compensation

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Financials

 

    Board of Directors’ report

 

    Corporate governance – Remuneration

 

    Notes to the consolidated financial statements

 

    Note C17 – Post-employment benefits

 

    Note C28 – Information regarding members of the Board of Directors, the Group management and employees

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Remuneration to Board members

 

    Remuneration report

See “Item 8.B. Financial Information – Significant Changes” herein.

 

C. Board Practices

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Financials

 

    Notes to the consolidated financial statements

 

    Note C28 – Information regarding members of the Board of Directors, the Group management and employees – Comments to the table

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Board of Directors – Composition of the Board of Directors

 

    Committees of the Board of Directors – Audit committee

 

    Committees of the Board of Directors – Remuneration committee

 

    Remuneration report

 

    The Remuneration Committee

 

19


Table of Contents

See “Item 8.B. Financial Information – Significant Changes” herein.

 

D. Employees

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    The Business

 

    The people

 

    Financials

 

    Board of Directors’ report

 

    Financial Highlights – Employees

 

    Notes to the Consolidated financial statements

 

    Note C28 – Information regarding members of the Board of Directors, the Group management and employees – Employee numbers, wages and salaries

 

    Other information

 

    Five-year summary – Statistical data, year-end

We consider that our relationship with the labor unions that represent our employees is good.

 

Number of employees by region at year-end

        
     2016      2015      2014  

North America

     11,547        14,548        15,516  

Latin America

     9,513        10,412        11,066  

Northern Europe & Central Asia 1) 2)

     19,136        20,700        21,633  

Western & Central Europe 2)

     13,646        12,220        12,617  

Mediterranean 2)

     12,578        12,702        13,387  

Middle East

     3,346        3,639        3,858  

Sub-Saharan Africa

     2,086        2,301        2,406  

India

     22,552        21,999        19,971  

North East Asia

     13,042        13,706        13,464  

South East Asia & Oceania

     4,018        4,054        4,137  
  

 

 

    

 

 

    

 

 

 

Total

     111,464        116,281        118,055  
  

 

 

    

 

 

    

 

 

 

1) Of which in Sweden

     15,303        17,041        17,580  

2) Of which in EU

     42,625        43,117        45,202  

 

20


Table of Contents
E. Share Ownership

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Shareholders

 

    Share information

 

    Shareholders

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Shareholders

 

    Members of the Board of Directors

 

    Members of the Executive Leadership Team

 

    Remuneration report

 

    Total remuneration in 2016

 

    Financials – Notes to the consolidated financial statements

 

    Note C28 – Information regarding members of the Board of Directors, the Group management and employees

 

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

 

A. Major Shareholders

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Shareholders

 

    Shareholders

 

    Share information

 

    Shareholders

 

B. Related Party Transactions

The information set forth under the section “Financials – Notes to the consolidated financial statements – Note C29 – Related party transactions” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

21


Table of Contents
C. Interests of Experts and Counsel.

Not applicable.

 

ITEM 8. FINANCIAL INFORMATION

 

A. Consolidated Statements and Other Financial Information.

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Financials

 

    Board of Directors’ report

 

    Legal proceedings

 

    Parent Company – Proposed disposition of earnings

 

    Consolidated financial statements

 

    Notes to the consolidated financial statements

 

    Report of independent registered public accounting firm

 

    Other information

 

    Five-year summary – Statistical data, year-end

See “Item 8.B. Financial Information – Significant Changes”, “Item 10.B. Memorandum and Articles of Association – Dividends” and “Item 17. Financial Statements”, herein.

Refer also to item 8.B herein

 

B. Significant Changes

New segment structure from January 1, 2017

From January 1, 2017, financial reporting is done according to the new structure, i.e., by the new segments Networks, IT & Cloud and Media.

Börje Ekholm took office as CEO and President on January 16, 2017

On January 16, 2017, Ericsson announced that in connection with Börje Ekholm assuming the position as President and CEO of Ericsson, Jan Frykhammar, who had temporarily held the position as President and CEO, remained a member of the Executive Leadership Team and was appointed Executive Vice President and advisor to the CEO. Jan Frykhammar has been supporting Börje Ekholm during the transition period and has focused on corporate governance and efficiency. Magnus Mandersson remains Executive Vice President, advisor to the CEO, focusing on customer relationships, and a member of the Executive Leadership Team. Magnus Mandersson also remains Chairperson of four out of Ericsson’s ten regions. Carl Mellander remains acting Chief Financial Officer and a member of the Executive Leadership Team.

 

22


Table of Contents

Ericsson issues two bonds of EUR 500 million each, maturing in 2021 and 2024, on February 24, 2017

Ericsson has successfully placed one Euro denominated 500 million four year bond with a fixed coupon rate of 0.875% and one Euro denominated 500 million seven year bond with a fixed coupon rate of 1.875% per year.

The bonds were issued under Ericsson’s Euro Medium Term Note Program (EMTN).

Joint bookrunners were Citi, Credit Agricole CIB and SEB and co-managers were Nordea, Standard Chartered and Swedbank.

The proceeds will be used to refinance debt maturing in 2017 and for general corporate purposes.

Ericsson presented focused business strategy

On March 28, 2017, Ericsson presented a focused business strategy to revitalize technology and market leadership, improve group profitability and enable customer success. The company announced that it will reallocate resources and increase investments in the following core portfolio areas: networks, digital services (OSS, BSS and telecom core) and Internet of Things (IoT).

In addition, the company will implement a refocused strategy for Managed Services to improve profitability and also explore strategic opportunities for the Media and Cloud infrastructure hardware businesses. When announced, the refocused strategy was estimated to have the following financial consequences in the short term: write down of assets to be made in Q1, 2017, with an estimated impact on operating income of SEK 3-4 b, restructuring charges estimated to approximately SEK 6-8 b. for 2017, of which approximately SEK 2 b. in Q1. The actual result reported in Q1 2017 was in line with the estimates: write down of assets were SEK 3.3 b., restructuring charges in Q1 2017 were SEK 1.7 b.

Separately, but in the same announcement, the company announced that it would make provisions of an estimated SEK 7-9 b. in Q1, triggered by recent negative developments related to certain large customer projects. The actual result recognized in Q1 2017 was SEK 8.4 b. and in line with the estimate.

In March, 2017, the Company made a restructuring provision of SEK 0.9 billion related to the reduction of operations in Borås and Kumla in Sweden. This was recognized in the first quarter of 2017.

Ericsson Simplifies Organization and Names Executive Team

In line with the business strategy announced on March 28, 2017, Ericsson has simplified its organizational structure by removing the two-tiered leadership structure, Executive Leadership Team and Global Leadership Team, and forming a single Executive Team. In addition, the geographical setup with ten regions has become five market areas, and the business areas were re-defined and reduced to three. The new Executive Team roles and the new organization took effect April 1, 2017.

The following Business Area and Market Area structure has been applied to Ericsson as of April 1, 2017:

 

    Business Area Networks; Business Area Digital Services; Business Area Managed Services

 

    Market Area North America; Market Area Europe & Latin America; Market Area Middle East & Africa; Market Area North East Asia; Market Area South East Asia, Oceania & India

Effective April 1, 2017, Ericsson’s Executive Team members are:

President and CEO – Börje Ekholm

Business Area Networks – Fredrik Jejdling, Senior Vice President, previously head of Business Unit Network Services

Business Area Managed Services – Peter Laurin, Senior Vice President, previously head of Region Northern Europe and Central Asia

Business Area Digital Services – Ulf Ewaldsson, Senior Vice President, previously head of Group Function Strategy & Technology

Market Area North America – Rima Qureshi, Senior Vice President, previously head of Region North America

Market Area Europe & Latin America – Arun Bansal, Senior Vice President, previously head of Business Unit Network Products

Market Area Middle East & Africa – Rafiah Ibrahim, Senior Vice President, previously head of Region Middle East

Market Area North East Asia – Chris Houghton, Senior Vice President, previously head of Region North East Asia

South East Asia, Oceania & India – Nunzio Mirtillo, Senior Vice President, previously head of Region Mediterranean

Technology & Emerging Business – Niklas Heuveldop, Senior Vice President, previously head of Group Function Sales

Finance & Common Functions – Carl Mellander, Senior Vice President, previously acting Head of Group Function Finance & Common Functions

Human Resources – MajBritt Arfert, Senior Vice President, previously acting Head of Group Function Human Resources

 

23


Table of Contents

Marketing & Communications – Helena Norrman, Senior Vice President, previously in the same role

Sustainability & Corporate Responsibility – Elaine Weidman Grunewald, Senior Vice President, previously in the same role

Legal Affairs – Nina Macpherson, Senior Vice President, previously in the same role

Advisor to the CEO – Jan Frykhammar, Executive Vice President¸ previously in the same role

Advisor to the CEO – Magnus Mandersson, Executive Vice President, previously in the same role

Per Borgklint, Anders Lindblad, Jean-Philippe Poirault and Charlotta Sund left the Executive Leadership Team effective April 1, 2017.

Changes resolved in connection with the Annual General Meeting of shareholders (AGM) held on March 29, 2017

Decisions at the AGM 2017 included:

 

  Payment of a dividend of SEK 1 per share

 

  Re-election of Leif Johansson as Chairman of the Board of Directors

 

  Re-election of other members of the Board of Directors: Nora Denzel, Börje Ekholm, Kristin Skogen Lund, Kristin S. Rinne, Sukhinder Singh Cassidy, Helena Sjernholm and Jacob Wallenberg

 

  Election of new Board members: Jon Fredrik Baksaas, Jan Carlson and Eric A. Elzvik

 

  Approval of Board of Directors’ fees:

 

    Chairman: SEK 4,075,000 (unchanged)

 

    Other non-employee Board members: SEK 990,000 each (unchanged)

 

    Chairman of the Audit Committee: SEK 350,000 (unchanged)

 

    Other non-employee members of the Audit Committee: SEK 250,000 each (unchanged)

 

    Chairmen of the Finance and Remuneration Committees: SEK 200,000 each (unchanged)

 

    Other non-employee members of the Finance and Remuneration Committees: SEK 175,000 each (unchanged)

 

    Chairman of the newly-established Technology and Science Committee: SEK 200,000

 

    Other non-employee members of the newly-established Technology and Science Committee: SEK 175,000 each

 

  Approval for part of the Directors’ fees to be paid in the form of synthetic shares

 

  Approval of Guidelines for remuneration to Group Management

 

  Implementation of a Long-Term Variable Compensation Program 2017 for the members of the Global Leadership Team, including a share issue of and authorization to the Board to buy back 3,000,000 shares for the program.

Information on new Board members

Jon Fredrik Baksaas

Born 1954. Master of Science in Economics, NHH Norwegian School of Economics & Business Administration, Norway.

Board member: Svenska Handelsbanken AB.

Holdings in Ericsson: None.*

Principal work experience and other information: President and CEO of Telenor (2002-2015). Previous positions within the Telenor Group since 1989, including deputy CEO, Chief Financial Officer and CEO of TBK AS. Previous positions include CFO of Aker AS, finance director of Stolt Nielsen Seaway AS and controller at Det Norske Veritas, Norway and Japan. Member of the GSMA Board (2008-2016) and Chairman of the GSMA Board (2014-2016).

 

24


Table of Contents

Jan Carlson

Born 1960. Master of Science degree in Engineering Physics and Electrical Engineering, the University of Linköping, Sweden.

Board Chairman: Autoliv Inc.

Board member: BorgWarner Inc., Teknikföretagen, The Confederation of Swedish Enterprise and Trelleborg AB.

Holdings in Ericsson: 7,900 Class B Shares.*

Principal work experience and other information: President and CEO of Autoliv Inc. since 2007 and Chairman 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.

Eric A. Elzvik

Born 1960. Master of Science in Business Administration, Stockholm School of Economics, Sweden.

Board member: IMD Foundation, Lausanne and the Swiss Swedish Chamber of Commerce, Zurich, Switzerland.

Holdings in Ericsson: 10,000 Class B shares*.

Principal work experience and other information: Chief Financial Officer and member of the Group Executive Committee of ABB Ltd (2013-2017). Division CFO ABB Discrete Automation & Motion (2010-2012) and division CFO Automation Products Division (2006-2010). Previous positions within the ABB Group since 1984, including senior management positions within finance, mergers & acquisitions and new ventures.

 

* The holdings in Ericsson are as of the date of the notice convening the Annual General Meeting and includes holdings by related persons as well as holdings of ADS, if applicable.

The minutes from the AGM 2017 are available on Ericsson’s website.

The employee representatives appointed as of March 29, 2017 are: Kjell-Åke Soting, Roger Svensson and Karin Åberg, with the deputies Torbjörn Nyman, Anders Ripa and Loredana Roslund.

The Nomination Committee’s independence assessment

Before the AGM 2017, the Nomination Committee considered that at least the following Board members were independent in respect of all applicable independence requirements:

a. Jon Fredrik Baksaas

b. Jan Carlson

c. Nora Denzel

d. Eric A. Elzvik

e. Leif Johansson

f. Kristin Skogen Lund

g. Kristin S. Rinne

h. Sukhinder Singh Cassidy

New Board Committee on Technology and Science and new Committee members

At the statutory Board meeting held in connection with the Annual General Meeting 2017, the Board resolved to establish a new Board Committee on Technology and Science and the following Board members were appointed members of the new Committee: Kristin S. Rinne (Chairman), Jan Carlson, Nora Denzel and Roger Svensson (employee representative).

The tasks of the Committee include monitoring and preparing for consideration and/or resolution of the Board various matters relating to technology strategy and direction, technical matters, technology ecosystem and science direction.

The Board members appointed to the other Board Committees as of March 29, 2017 are:

Audit Committee: Eric A. Elzvik (Chairman), Nora Denzel, Kristin Skogen Lund and Karin Åberg (employee representative) Finance Committee: Leif Johansson (Chairman), Helena Stjernholm, Jacob Wallenberg and Roger Svensson (employee representative) Remuneration Committee: Leif Johansson (Chairman), Jon Fredrik Baksaas, Sukhinder Singh Cassidy and Kjell Åke Soting (employee representative)”.

 

25


Table of Contents
  Results for the First Quarter of 2017

For information about our results for the first quarter of 2017, see the report on Form 6-K filed with the SEC on April 26 2017, which is incorporated herein by reference.

 

ITEM 9. THE OFFER AND LISTING

 

A. Offer and Listing Details

The information set forth under the section “Shareholders – Share information – Share and ADS prices” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

B. Plan of Distribution

Not applicable.

 

C. Markets

The information set forth the section “Shareholders – Share information – Share trading” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

D. Selling Shareholders

Not applicable.

 

E. Dilution

Not applicable.

 

F. Expenses of the Issue

Not applicable.

 

ITEM 10. ADDITIONAL INFORMATION

 

A. Share Capital

Not applicable.

 

B. Memorandum and Articles of Association

Telefonaktiebolaget LM Ericsson is registered under no. 556016–0680 in the Company Register kept by the Swedish Companies Registration Office. Our Company’s objective and purposes are described in article 2 of the Articles of Association, as follows: The objects of the Company are to, directly or indirectly, develop, construct, produce, sell and deliver and in other forms carry on trade and other commercial business related to goods, products and other equipment as well as maintenance and other services based on telecommunication and radio technology and other technologies for transference, transmission and other communications of speech, data, images, text, other kinds of information and means of payment and to carry on other activities consistent therewith.

Our Articles of Association do not stipulate anything regarding:

 

    a director’s power to vote on a proposal, arrangement, or contract in which the director is materially interested;

 

26


Table of Contents
    our directors’ power to vote for compensation to themselves;

 

    our directors’ borrowing powers;

 

    retirement rules for our directors; or

 

    the number of shares required for a director’s qualification.

Applicable provisions are found in the Swedish Companies Act (2005:551) (the “Swedish Companies Act”), as referred to in “Certain Powers of Directors and the President” below.

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 16,655,758,678 and the Company has in total issued 3,331,151,735 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 either 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 through set-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 through set-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 through set-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 through set-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

 

27


Table of Contents

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 share one-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:

 

  a) a resolution to amend the articles of association requires a majority of two-thirds of the votes cast as well as two-thirds of the shares represented at the meeting, except in those circumstances described in b—d below;

 

  b) a resolution to amend the articles of association which reduces any shareholder’s rights to profits or assets, restricts the transferability of shares or alters the legal relationship between shares, normally requires the unanimous approval of the shareholders present at the meeting and who hold nine-tenths of all outstanding shares;

 

28


Table of Contents
  c) a resolution to amend the articles of association for the purpose of limiting the number of shares with which a shareholder may vote at a general meeting or allocating part of the net profit for the fiscal year to a restricted fund or limiting the use of the company’s profits or assets in a liquidation or dissolution, normally requires the approval of shareholders representing two-thirds of the votes cast and nine-tenths of the shares represented at the meeting;

 

  d) a resolution of the kind referred to under B or C above may, however, be taken with a lower supermajority requirement if the amendments referred to therein will only adversely affect specific shares or classes of shares. In such cases, the requirement under a above will apply together with the following separate supermajority: (a) where only a class of shares is adversely affected, approval of the owners of one-half of all shares of such class and nine-tenths of the shares of such class represented at the meeting, or (b) where the shares adversely affected do not constitute a class of shares, the unanimous approval of all such affected outstanding shares present at the meeting and who hold nine-tenths of all outstanding shares adversely affected;

 

  e) a resolution to issue, approve or authorize the issuance for cash of new shares, warrants or convertibles with a deviation from the preferential right for existing shareholders requires a two-thirds majority of votes cast at the meeting as well as two-thirds of the shares represented at the meeting;

 

  f) a resolution to reduce the outstanding share capital requires a two-thirds majority of votes cast at the meeting as well as two-thirds of the shares represented at the meeting. In case there are several classes of shares in a company, the above described majority requirement shall apply also within each share class represented at the meeting and for which the rights of the shares are adversely affected; and

 

  g) a resolution to approve a merger requires a two-thirds majority of the votes cast at the meeting and two-thirds of the shares represented at the meeting (however, under certain circumstances a higher majority is required).

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 as two-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, 2016, the Company held an aggregate of 62,192,390 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 of non-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

 

29


Table of Contents

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.

 

C. Material Contracts

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Financials – Board of Directors’ report

 

    Material contracts

 

D. Exchange Controls

There is no Swedish legislation affecting the import or export of capital or the remittance of dividends, interest or other payments to non-resident holders of our securities, except that, subject to the provisions in any tax treaty, dividends are subject to withholding tax.

 

E. Taxation

General

The taxation discussion set forth below does not purport to be a complete analysis or listing of all potential tax effects relevant to the acquisition, ownership or disposition of Class B shares or ADSs. The statements of United States and Swedish tax laws set forth below are based on the laws in force as of the date of this report and may be subject to any changes in United States or Swedish law, and in any double taxation convention or treaty between the United States and Sweden, occurring after that date, which changes may then have retroactive effect.

Specific tax provisions may apply for certain categories of taxpayers. Your tax treatment if you are a holder of Class B shares or ADSs depends in part on your particular situation. If you are a holder of Class B shares or ADSs, you should therefore consult a tax advisor as to the tax consequences relating to your particular circumstances resulting from the ownership of Class B shares or ADSs.

The tax consequences to holders of ADSs, as discussed below, apply equally to holders of Class B shares.

Certain Swedish Tax Considerations

This section describes the material Swedish income and net wealth tax consequences for a holder of ADSs or Class B shares who is not considered to be a Swedish resident for Swedish tax purposes. This section applies to you only if you are a holder of portfolio investments representing less than 10% of capital and votes and is not applicable if the ADSs or Class B shares pertain to a permanent establishment or fixed place of business in Sweden.

Taxation on Capital Gains

Generally, non-residents of Sweden are not liable for Swedish capital gains taxation with respect to the sale of ADSs or Class B shares. However, under Swedish tax law, capital gains from the sale of shares in Swedish companies and certain other securities by an individual may be taxed in Sweden at a rate of 30% if the seller has been a resident of Sweden or has lived permanently in Sweden at any time during the year of the sale or the 10 calendar years preceding the year of the sale (absent treaty provisions to the contrary). The provision is applicable to ADSs or Class B shares. From January 1, 2008, the rule has been extended so that it also applies to shares in foreign companies, provided that the shares were acquired during the time that the person was liable to tax in Sweden.

 

30


Table of Contents

This provision may, however, be limited by tax treaties that Sweden has concluded with other countries. Under the tax treaty between Sweden and the United States (the “U.S. Tax Treaty”), this provision applies for ten years from the date the individual became a non-resident of Sweden.

Taxation on Dividends

A Swedish dividend withholding tax at a rate of 30% is imposed on dividends paid by a Swedish corporation, such as us, to non-residents of Sweden. The same withholding tax applies to certain other payments made by a Swedish corporation, including payments as a result of redemption of shares and repurchase of stock through an offer directed to its shareholders. Exemption from the withholding tax or a lower tax rate may apply by virtue of a tax treaty. Under the U.S. Tax Treaty, the withholding tax on dividends paid on portfolio investments to eligible U.S. holders is reduced to 15%.

Under all Swedish tax treaties, except the tax treaty with Switzerland, withholding tax at the applicable treaty rate should be withheld by the payer of the dividends. With regard to dividends paid from shares in corporations registered with the Euroclear Sweden (such as our shares), a reduced rate of dividend withholding tax under a tax treaty is generally applied at the source by the Euroclear Sweden or, if the shares are registered with a nominee, the nominee, as long as the person entitled to the dividend is registered as a non-resident and sufficient information regarding the tax residency of the beneficial owner is available to the Euroclear Sweden or the nominee.

In those cases where Swedish withholding tax is withheld at the rate of 30% and the person who received the dividends is entitled to a reduced rate of withholding tax under a tax treaty, a refund may be claimed from the Swedish tax authorities before the end of the fifth calendar year following the year that the distribution was made.

Taxation on Interest

No Swedish withholding tax is payable on interest paid to non-residents of Sweden.

Net Wealth Taxation

The Swedish net wealth tax has been abolished from January 1, 2007.

Certain United States Federal Income Tax Consequences

The following discussion is a summary of the material United States federal income tax consequences relevant to the ownership and disposition of ADSs or Class B shares. This discussion is based on the tax laws of the United States (including the Internal Revenue Code of 1986, as amended (the “Code”), its legislative history, existing and proposed regulations thereunder, published rulings and court decisions) as in effect on the date hereof, all of which are subject to change, possibly with retroactive effect. The discussion is not a full discussion of all tax considerations that may be relevant to the ownership and disposition of ADSs or Class B shares, and does not address the Medicare tax on net investment income or the effects of any state, local or foreign tax laws. The discussion applies only if you will hold the ADSs and/or the Class B shares as capital assets and you use the USD as your functional currency. It does not deal with the tax treatment of investors subject to special rules, such as grantor trusts, real estate investment trusts, regulated investment companies, banks, brokers or dealers in securities or currencies, traders in securities that elect to use a mark-to-market method of recording for their securities holdings, financial institutions, insurance companies, tax-exempt entities, investors liable for alternative minimum tax, holders (either actually or constructively) of 10% or more of the voting power of our shares, persons holding ADSs and/or Class B shares as part of a hedging, straddle, conversion or constructive sale transaction and persons who are resident or ordinarily resident in Sweden. In addition, investors holding ADSs and/or Class B shares indirectly through partnerships are subject to special rules not discussed below. You should consult your own tax advisors about the United States federal, state, local and foreign tax consequences to you of the ownership and disposition of the ADSs or Class B shares.

The discussion below applies to you only if you are a beneficial owner of ADSs and/or Class B shares not resident in Sweden for purposes of the U.S. Tax Treaty and you are, for United States federal income tax purposes, (1) a citizen or resident of the United States, (2) a corporation or any other entity treated as a corporation that is organized in or under the laws of the United States or its political subdivisions, including the District of Columbia, (3) a trust if

 

31


Table of Contents

all of the trust’s substantial decisions are subject to the control of one or more United States persons and the primary supervision of the trust is subject to a United States court, or if a valid election is in effect with respect to the trust to be taxed as a United States person, or (4) an estate the income of which is subject to United States federal income taxation regardless of its source.

The discussion below assumes that the representations contained in the deposit agreement governing the ADSs are true and that the obligations in the deposit agreement and any related agreement will be complied with in accordance with the terms. If you hold ADSs, you will be treated as the holder of the underlying Class B shares represented by those ADSs for United States federal income tax purposes.

Dividends

Subject to the passive foreign investment company rules discussed below, the gross amount of dividends paid (before reduction for any Swedish withholding taxes) with respect to the ADSs or Class B shares generally will be included in your gross income as ordinary income from foreign sources to the extent paid out of our current or accumulated earnings and profits (as determined for United States federal income tax purposes). Distributions in excess of earnings and profits will be treated as a non-taxable return of capital to the extent of your adjusted tax basis in the ADSs or Class B shares and thereafter as capital gain. The dividends will not be eligible for the dividends received deduction available to corporations in respect of dividends received from other U.S. corporations. The amount of any dividend paid in SEK will be the USD value of the dividend payment based on the exchange rate in effect on the date of 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.

If you are a non-corporate holder of ADSs or Class B shares, dividends you receive on the ADSs or Class B shares may be taxed at the lower applicable long-term capital gains rate provided that (1) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend was paid or the preceding taxable year, (2) certain holding period requirements are met, (3) you are not under any obligation to make related payments with respect to substantially similar or related property and (4) either (a) in the case of ADSs our ADSs continue to be listed on the Nasdaq Stock Market (or a national securities exchange that is registered under section 6 of the Securities Exchange Act of 1934, as amended) or (b) we are eligible for the benefits of the U.S. Tax Treaty. You should consult your own tax advisors regarding the availability of the lower rate for dividends paid with respect to ADSs or Class B shares.

Subject to certain limitations, you will generally be entitled to receive credit against your United States federal income tax liability (or a deduction against your United States federal taxable income) with respect to any Swedish tax withheld in accordance with the U.S. Tax Treaty and paid over to Sweden. If a refund of the tax withheld is available to you under the laws of Sweden or under the U.S. Tax Treaty, the amount of tax withheld that is refundable will not be eligible for such credit against your United States federal income tax liability (and will not be eligible for the deduction in computing your United States federal taxable income). For foreign tax credit limitation purposes, dividends will be income from sources without the United States, and will generally be treated as “passive category income” (or, in the case of certain holders, “general category income”).

Sale or Exchange of ADSs or Class B shares

Subject to the passive foreign investment company rules discussed below, you will generally recognize capital gain or loss on the sale or other disposition of the ADSs or Class B shares equal to the difference between the USD value of the amount realized and your adjusted tax basis (determined in USD) in the ADSs or Class B shares. Such gain or loss will generally be long-term capital gain or loss if you have held the ADSs or Class B shares for more than one year, and will generally be treated as arising from U.S. sources for foreign tax credit limitation purposes. If you are a non-corporate holder of ADSs or Class B Shares, long-term capital gains are eligible for reduced rates of taxation. The deductibility of capital losses is subject to limitations.

The amount realized on a disposition of ADSs or Class B shares for cash will generally be the amount of cash you receive for the ADSs or Class B shares (which, in the case of payment in a non-U.S. currency, will equal the USD value of the payment received determined on (a) the date of receipt of payment if you are a cash basis taxpayer and (b) the date of disposition if you are an accrual basis taxpayer). If the ADSs or Class B shares are treated as traded on an

 

32


Table of Contents

“established securities market,” if you are a cash basis taxpayer (or, if you are an accrual basis taxpayer, if you so elect) you will determine the USD value of the amount realized by translating the amount received at the spot rate of exchange on the settlement date of the sale.

You will have a tax basis in any foreign currency received equal to the USD value thereof on the date of receipt. Any gain or loss you realize on a subsequent sale or conversion of foreign currency will be U.S. source ordinary income or loss.

Passive Foreign Investment Company Status

A non-U.S. corporation is a passive foreign investment company (a “PFIC”) in any taxable year in which, after taking into account the income and assets of certain subsidiaries, either (a) at least 75% of its gross income is passive income or (b) at least 50% of the quarterly average value of its assets is attributable to assets that produce or are held to produce passive income. Based on the market value of our shares, the composition of our assets and income and our operations, we believe we were not a PFIC during the year 2016. However, whether or not we will be considered a PFIC will depend on the nature and source of our income and the composition and value of our assets, as determined from time to time. If we are treated as a PFIC, we will not provide information necessary for the “qualified electing fund” election as the term is defined in the relevant provisions of the Code. You should consult your own tax advisors about the consequences of our potential classification as a PFIC.

If we were classified as a PFIC with respect to your ADSs or Class B shares for any taxable year we would generally continue to be a PFIC (unless certain conditions are met) and you would be subject to special rules with respect to:

 

    any gain realized on the sale or other disposition of ADSs or Class B shares; or

 

    any other “excess distribution” made to you (generally, any distributions to you in respect of ADSs or Class B shares during a single taxable year that are, in the aggregate, greater than 125% of the average annual distributions received by you in respect of ADSs or Class B shares during the three preceding taxable years or, if shorter, your holding period for ADSs or Class B shares).

Under these rules:

 

    the gain or any other excess distribution would be allocated ratably over your holding period for ADSs or Class B shares;

 

    the amount allocated to the taxable year in which the gain or excess distribution was realized and any year before we became a PFIC would be taxable as ordinary income and

 

    the amount allocated to each prior year, other than the current year and any taxable year prior to the first taxable year in which we were a PFIC, would be subject to tax at the highest applicable marginal tax rate in effect for each such year; and an interest charge would be imposed.

If we are a PFIC for any taxable year, you will also be deemed to own shares in any of our subsidiaries that are also PFICs in such a year. As an alternative to the special rules described above, holders of “marketable stock” in a PFIC may elect mark-to-market treatment with respect to their ADSs or Class B shares. ADSs or Class B shares will not be considered marketable stock unless they are regularly traded on a qualified exchange or other market. If the mark-to-market election is available and you elect mark-to-market treatment you will, in general, include as ordinary income each year an amount equal to the increase in value of your ADSs or Class B shares for that year (measured at the close of your taxable year) and will generally be allowed a deduction for any decrease in the value of your ADSs or Class B shares for the year, but only to the extent of previously included mark-to-market income. In addition, any gain you recognize upon the sale or other disposition of the ADSs or Class B shares will be treated as ordinary income and any loss will be treated as ordinary loss, but only to the extent of previously included mark-to-market income. Any loss in excess of previously included mark-to-market income will be treated as a capital loss. However, a mark-to-market election would likely be unavailable with respect to your proportionate share in any of our subsidiaries that are PFICs.

 

33


Table of Contents

If you own ADSs or Class B shares during any year in which we are a PFIC, you will generally be required to make an annual return on IRS Form 8621.

Information Reporting and Backup Withholding

In general, information reporting requirements will apply to dividends paid in respect of ADSs or Class B shares and the proceeds received on the sale or exchange of the ADSs or Class B shares within the United States or by a broker with certain United States connections. Backup withholding may apply to payments to you of dividends paid in respect of ADSs or Class B shares or the proceeds of a sale or other disposition of ADSs or Class B shares if you fail to provide an accurate taxpayer identification number (certified on IRS Form W–9) or, upon request, to certify that you are not subject to backup withholding, or otherwise to comply with the applicable requirements of the backup withholding rules. The amount of any backup withholding from a payment to you will be allowed as a credit against your United States federal income tax liability and a refund of any excess amount withheld under the backup withholding rules may be obtained by filing the appropriate claim for refund with the Internal Revenue Service and furnishing any required information.

Additional Reporting Requirements

Certain holders who are individuals may be required to report information relating to an interest in ADSs or Class B shares, subject to certain exceptions (including an exception for ADSs or Class B shares held in accounts maintained by certain financial institutions). Holders should consult their tax advisors regarding the effects, if any, of these requirements on their ownership and disposition of ADSs or Class B shares.

 

F. Dividends and Paying Agents

Not applicable.

 

G. Statement by Experts

Not applicable.

 

H. Documents on Display

Annual reports and other information are filed with, or furnished to, the SEC in the United States, pursuant to the rules and regulations that apply to foreign private issuers. Electronic access to these documents may be obtained from the SEC’s website, www.sec.gov, where they are stored in the EDGAR database.

 

I. Subsidiary Information

See “Item 4.C. Information on the Company – Organizational Structure.”

 

ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

A. Quantitative information about market risk

The information set forth under the section “Financials – Notes to the consolidated financial statements – Note C20 – Financial risk management and financial instruments” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

34


Table of Contents
B. Qualitative information about market risk

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Financials – Board of Directors’ report

 

    Risk management

 

    Notes to the consolidated financial statements

 

    Note C20 – Financial risk management and financial instruments

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Management – Risk management

 

C. Interim periods

Not applicable.

 

D. Safe harbor

Not applicable.

 

E. Small business issuers

Not applicable.

 

ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

 

A. Debt Securities

Not applicable.

 

B. Warrants and Rights

Not applicable.

 

C. Other Securities

Not applicable.

 

D. American Depositary Shares

Depositary fees, charges and payments

On October 24, 2016, Ericsson and the depositary of our ADSs, Deutsche Bank Trust Company America (“Deutsche Bank”) agreed to an amendment to the Deposit Agreement with Deutsche Bank and holders of our ADRs. The Deposit Agreement, as amendment, is filed as an exhibit to this Annual Report on form 20-F. The disclosure below reflects the amendment.

 

35


Table of Contents

Fees and charges payable by ADS holders

 

    

Service

  

Rate

  

By whom paid

1)

   Receipt of deposits and issuance of receipts    Up to USD 5 per 100 American Depositary Shares of 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    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 the Deposit Agreement, any and all other expenses of the depositary, including without limitation, expenses or charges for printing, stationery, postage, insurances, cables, etc, are to be borne by the depositary, or by the Company in accordance with agreements entered into from time to time with the Company.

Fees payable by the Depositary to the Issuer

Deutsche Bank has agreed to pay Ericsson a yearly fixed amount for revenues collected by Deutsche Bank as a result of charging issuance and cancellations fees and dividend or administrative fees from our ADS holders. In 2016, such amount received by Ericsson totalled approximately USD 8 million.

Deutsche Bank has further agreed to waive the costs associated with the administration of the ADS Program and reporting services. In 2016, the total amount of such expenses was approximately USD 78,000.

PART II

 

ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

None.

 

ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

None.

 

ITEM 15. CONTROLS AND PROCEDURES

 

A. Disclosure Controls and Procedures

The information set forth under the section “Corporate Governance – Corporate Governance report 2016 – Internal control over financial reporting 2016 – Disclosure controls and procedures” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

B. Management’s Annual Report on Internal Control Over Financial Reporting

The information set forth under the section “Financials – Management’s report on internal control over financial reporting” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

36


Table of Contents
C. Attestation Report of the Registered Public Accounting Firm

The information set forth under the section “Financials – Report of independent registered public accounting firm” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

D. Changes in Internal Control Over Financial Reporting

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    Corporate Governance

 

    Corporate Governance report 2016

 

    Internal control over financial reporting 2016 – Internal control over financial reporting

 

    Financials

 

    Management’s report on internal control over financial reporting

 

ITEM 16. [RESERVED]

 

ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The information set forth under the section “Corporate Governance – Corporate Governance report 2016 – Committees of the Board of Directors – Audit Committee – Members of the Audit Committee” of the 2016 Swedish Annual Report is incorporated herein by reference.

 

ITEM 16B. CODE OF ETHICS

The information set forth under the following headings of the 2016 Swedish Annual Report is incorporated herein by reference:

 

    The business

 

    Sustainability and corporate responsibility

 

    Financials – Board of Directors’ report

 

    Corporate Governance – Business integrity

 

    Corporate Governance

 

    Corporate governance report 2016

 

    Regulation and Compliance – Code of business ethics

Our Code of Business Ethics is included on our web site at www.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.

 

37


Table of Contents
ITEM 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information set forth under the Section “Financials – Notes to the consolidated financial statements – Note C30 – Fees to auditors” of the 2016 Swedish Annual Report is incorporated herein by reference.

Audit committee pre-approval policies and procedures

The Audit Committee reviews and approves the scope of audits to be performed by external and internal auditors and analyzes their results and costs. The Committee keeps the Board of Directors informed about the external and internal auditors’ performance. It also makes recommendations to the Nomination Committee regarding the external auditor’s election and fees. In order to ensure the external auditor’s independence, the Audit Committee has established pre-approval policies and procedures for non-audit services to be performed by the external auditor. Pre-approval authority may not be delegated to management. The policies and procedures include a list of prohibited services and services that require pre-approval by the Committee. Such services fall into two broad categories:

 

    General pre-approval – certain services regarding taxes, transactions, risk management, business improvement, attestation and accounting services and the so called general services (other than prohibitted services) have received general pre-approval by the Audit Committee, provided that the estimated fee for each project does not exceed SEK 1 million. The external auditor must advise the Audit Committee with a quarterly summary of ongoing projects related to non-audit services and year-to-date report of fees and expenses for all audit and non-audit services.

 

    Specific pre-approval – all other non-audit services and services subject to general pre-approval exceeding SEK 1 million must receive specific pre-approval. The external auditor submits an application in writing to the Parent Company for final approval by the Audit Committee, including a statement as to whether, in the view of the external auditor, the contemplated services are consistent with applicable rules on their independence. The Audit Committee Chairman has the delegated authority for specific pre-approval in between Committee meetings, provided that the estimated fee in each case does not exceed SEK 2.5 million. The Chairman reports any pre-approval to the Audit Committee at its next meeting.

All services provided by the independent auditors were pre-approved in 2016.

 

ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

All members of the Audit Committee of a NASDAQ New York-listed company must be independent in accordance with NASDAQ New York and SEC rules. SEC Rule 10A-3(b)(1)(iv)(C) under the Exchange Act includes a specific exemption from these independence requirements for Audit Committee members of foreign private issuers who are non-executive employee representatives appointed to the Audit Committee pursuant to local law. The Company relies on this exemption, and does not consider that such reliance materially adversely affects the ability of the Audit Committee to act independently or to satisfy other SEC requirements applicable to Audit Committees.

 

ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

None.

 

ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

None.

 

38


Table of Contents
ITEM 16G. CORPORATE GOVERNANCE

Ericsson, as a company whose shares are listed on NASDAQ New York, is subject to the listing requirements and certain of the corporate governance requirements of NASDAQ New York and to certain rules of the SEC.

All members of the Audit Committee of a NASDAQ New York- listed company must be independent in accordance with NASDAQ New York and SEC rules. SEC rules include a specific exemption from these independence requirements for Audit Committee members of foreign private issuers who are non-executive employee representatives appointed to the Audit Committee pursuant to local law. The Company relies on this exemption, and does not consider that such reliance materially adversely affects the ability of the Audit Committee to act independently or to satisfy other SEC requirements applicable to Audit Committees.

Under NASDAQ New York rules, Ericsson is permitted to follow home country practices in lieu of certain NASDAQ corporate governance requirements that would apply to US companies listed on NASDAQ New York. The rules require disclosures regarding the ways in which Ericsson’s corporate governance practices differ from those required of US companies under the rules of NASDAQ New York.

These differences include the following:

 

    Employee representatives are appointed to Ericsson’s Board of Directors and serve on Committees (including the Audit and the Remuneration Committees) in accordance with Swedish law.

 

    Employee representatives on the Ericsson Board and Committees may attend all meetings of the Board and committees on which they serve (including those of the Audit and the Remuneration Committees) in accordance with Swedish law.

 

    In accordance with Swedish market practices, the Nomination Committee is not fully comprised of Board members. In addition to the Chairman of the Board, representatives of the four largest shareholders are appointed as members of the Nomination Committee of Ericsson.

 

    The determination regarding independence of Board members is made by the Nomination Committee prior to the Annual General Meeting (“AGM”) instead of the Board. Before the AGM 2016, the Nomination Committee determined that the following Board members were independent under all applicable independence requirements, including the NASDAQ New York rules: Nora Denzel, Leif Johansson, Ulf J. Johansson, Kristin Skogen Lund, Kristin S. Rinne, and Sukhinder Singh Cassidy. When appointing members to the Committees of the Board, the Board of Directors makes determinations regarding Committee member independence.

 

    The Board of Directors holds non-executive Directors sessions but does not have regularly scheduled meetings with only independent directors present.

 

    Under applicable Swedish rules, we are not required to publicly disclose the material terms of all agreements and arrangements between any of our directors or nominees for directors and any person or entity (other than us) relating to compensation or other payment in connection with such person’s candidacy or service as a director of our company.

 

    The external auditor is elected by the shareholders and is proposed by the Nomination Committee upon recommendation from the Audit Committee.

 

    NASDAQ New York rules applicable to US companies require the consideration of six factors relating to the independence of compensation consultants, legal counsel or other advisers retained by compensation or remuneration committees. Consistent with Swedish practices, the Remuneration Committee’s procedures addressing independence of advisers do not expressly require the consideration of those six factors.

 

    Ericsson does not solicit proxies for shareholder meetings, which is in accordance with Swedish practices and rules.

 

39


Table of Contents
    There are no minimum quorum requirements for shareholder meetings under Swedish law, except under certain limited circumstances. Certain resolutions requiring special quorums and majorities are described under Memorandum and Articles of Association.

 

    Some of the requirements addressed by NASDAQ New York rules are included in the Swedish Corporate Governance Code or the work procedure for the Board of Directors instead of Committee charters. The work procedure establishes the attribution of various responsibilities among the Board, its Commit tees and the President and CEO. The work procedure for the Board is reviewed, evaluated and amended as required or appropriate, and adopted by the Board at least once a year.

See “Item 8.B. Financial Information – Significant Changes” herein.

 

ITEM 16H. MINE SAFETY DISCLOSURE

Not applicable.

PART III

 

ITEM 17. FINANCIAL STATEMENTS

See our consolidated financial statements and accompanying notes of the 2016 Swedish Annual Report.

 

    Consolidated income statement and Consolidated statement of comprehensive income

 

    Consolidated balance sheet

 

    Consolidated statement of cash flows

 

    Consolidated statement of changes in equity

 

    Notes to the consolidated financial statements

 

    Report of independent registered public accounting firm

 

ITEM 18. FINANCIAL STATEMENTS

Not applicable.

 

ITEM 19. EXHIBITS

The exhibit index attached hereto is incorporate herein by reference.

 

40


Table of Contents

SIGNATURES

The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on Form 20-F on its behalf.

 

TELEFONAKTIEBOLAGET LM ERICSSON
By:  

/s/ R OLAND H AGMAN

Name:   Roland Hagman
Title:   Vice President, Group Controller
By:  

/s/ N INA M ACPHERSON

Name:   Nina Macpherson
Title:   Senior Vice President, Chief Legal Officer

Date: April 26, 2017

 

41


Table of Contents

EXHIBIT INDEX

The agreements and other documents filed as exhibits to this 2016 Form 20-F are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by the registrant in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.

 

Exhibit
Number

  

Description

1    Articles of Association of Telefonaktiebolaget LM Ericsson (amended April 2016)
2.1    Second Amended and Restated Deposit Agreement Among Telefonaktiebolaget LM Ericsson (publ) and Deutsche Bank Trust Company Americas, as depositary, and holders of American Depositary Receipts, dated as of January 7, 2014 (incorporated herein by reference to Exhibit 2 to the Annual Report on Form 20-F for the year ended December 31, 2014 filed by the registrant on March 31, 2015 (File No. 000-12033 )
2.2    Amendment No. 1, dated as of October 24, 2016, to the Second Amended and Restated Deposit Agreement Among Telefonaktiebolaget LM Ericsson (publ) and Deutsche Bank Trust Company Americas, as depositary, and holders of American Depositary Receipts, dated as of January 7, 2014
6    See “Financials – Notes to the consolidated financial statements – Note C1 - Significant accounting policies” of the 2016 Swedish Annual Report
7    For definitions of certain ratios used in this report, see the section of the 2016 Swedish Annual Report entitled “Financial Terminology”
8    See Item 4.C. Organizational Structure
12.1    Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
12.2    Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
13.1*    Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
13.2*    Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
15.1**    Swedish Annual Report for 2016 in English (adjusted version)
15.2    Consent of PriceWaterhouseCoopers AB

 

* 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 15.1is incorporated by reference into this 2016 Form 20-F, as specified elsewhere in this report, in accordance with Rule 12b-23(a)(3) of the Securities Exchange Act of 1934, as amended. With the exception of the items so specified, the 2016 Swedish Annual Report is not deemed to be filed as part of this 2016 Form 20-F.

 

42

Exhibit 1

TRANSLATION

ARTICLES OF ASSOCIATION

OF

TELEFONAKTIEBOLAGET LM ERICSSON

STOCKHOLM

Org. No 556016-0680

§ 1

The name of the Company is Telefonaktiebolaget LM Ericsson. The company is a public company (publ).

§ 2

The objects of the Company are to, directly or indirectly, develop, construct, produce, sell and deliver and in other forms carry on trade and other commercial business related to goods, products and other equipment as well as maintenance and other services based on telecommunication and radio technology and other technologies for transference, transmission and other communications of speech, data, images, text, other kinds of information and means of payment and to carry on other activities consistent therewith.

§ 3

The Registered Office of the Board of Directors of the Company is in Stockholm.

§ 4

The Share Capital shall amount to no less than six thousand million (6,000,000,000) kronor and no more than twentyfour thousand million (24,000,000,000) kronor.

§ 5

The number of Shares shall amount to no less than 3,000,000,000 and no more than 12,000,000,000.

§ 6

Shares may be issued in three classes, series A, series B and series C. Shares of series A may be issued to a maximum amount of 12,000,000,000, Shares of series B to a maximum amount of 12,000,000,000, and Shares of series C to a maximum amount of 40,000,000. In voting at a General Meeting each Share of series A confers one vote, each Share of series B one tenth part of one vote and each Share of series C one thousandth part of one vote. Shares of series C do not entitle to dividend.

 

1


§ 7

If the Company decides to issue new series A, B and series C shares through a cash issue or an issue against payment through set-off of claims, each owner of series A, B and C shares has a pre-emptive right to subscribe to new shares of the same type in proportion to the number of old shares that the shareholder owns (primary pre-emptive rights). Shares not subscribed through primary pre-emptive rights shall be offered for subscription to all shareholders (subsidiary pre-emptive rights). If the number of shares so offered is less than the number subscribed through subsidiary pre-emptive rights, the shares shall be distributed among the subscribers in proportion to the number of old shares they own or, to the extent that is not possible, by lot.

If the Company decides to issue through a cash issue or an issue against payment through set-off of claims new shares either of series A, B or series C only, all shareholders, regardless of whether their shares are series A, B or series C, are entitled to pre-emptive rights to subscribe to the new shares in proportion to the number of old shares they own.

If the Company decides to issue warrants or convertibles through a cash issue or an issue against payment through set-off of claims, the shareholders have pre-emptive rights to subscribe to warrants as if the issue were of the shares that may be subscribed to pursuant to the warrant and, respectively, pre-emptive rights to subscribe to convertibles as if the issue were of the shares that the convertibles may be converted to.

The above conditions shall not restrict in any way the possibility of deciding on a cash issue or an issue against payment through set-off of claims entailing exceptions to the shareholders’ pre-emptive rights.

In the case of an increase in share capital through a bonus issue, new shares of each series shall be issued in proportion to the number of shares of the same type previously on issue. In such a case, old shares of each type entitle the holder to new shares of the same type. The aforesaid shall not restrict in any way the possibility of issuing shares of a new type through a bonus issue after the requisite changes have been made in the Articles of Association.

§ 8

The Company’s shares shall be registered in a central securities depository register pursuant to the Financial Instruments Accounts Act (Sw: lagen (1998:1479) om kontoföring av finansiella instrument).

§ 9

The Board of Directors shall consist of no fewer than five and no more than twelve Directors with no more than six Deputy Directors.

§ 10

The Company shall as Auditor have no fewer than one and no more than three registered public accounting firms.

The Board of Directors is authorized to appoint one or several special auditors to audit such statements or plans prepared by the Board of Directors in accordance with the

 

2


Companies Act (2005:551) in relation to such an issue of shares, warrants or convertibles with provisions on non-cash consideration or that subscription shall be made against payment through set-off of claims or other provisions, transfer of own shares against non-cash consideration, reduction of the share capital or the statutory reserve, merger or division of limited companies.

§ 11

The financial year of the Company shall be the calendar year.

§ 12

The following matters shall be dealt with at the Annual General Meeting:

 

  1. election of a Chairman at the General Meeting;

 

  2. preparation and approval of a voting list;

 

  3. approval of the agenda;

 

  4. examination whether the Meeting has been properly convened;

 

  5. election of two persons to check the minutes;

 

  6. presentation of the Annual Report and the Auditors’ report and of the Consolidated Accounts and the Auditors’ report on the Group;

 

  7. resolutions in respect to

 

  a. adoption of the Profit and Loss Statement and the Balance Sheet and of the Consolidated Profit and Loss Statement and the Consolidated Balance Sheet,

 

  b. the Directors’ and the Managing Directors’ discharge from liability,

 

  c. appropriation of the Company’s profit or loss according to the adopted Balance Sheet;

 

  8. determining the number of Directors, Deputy Directors and Auditors;

 

  9. determining the remuneration payable to the Board of Directors and to Auditor;

 

  10. elections of Directors and of Deputy Directors;

 

  11. elections of Auditor;

 

  12. other matters which shall be dealt with at the Meeting.

§ 13

Notice convening a General Meeting shall be issued through announcement in Post- och Inrikes Tidningar as well as at the Company’s website. Announcement to the effect that notice convening a General Meeting has been issued shall be made in Dagens Nyheter and Svenska Dagbladet.

§ 14

In order to be admitted to a General Meeting, a Shareholder shall have given notice of his attendance to the company not later than the day mentioned in the notice convening the Meeting, at which time also the number of advisors shall be stated. This day may not be a Sunday, another public holiday, Saturday, Midsummer Eve, Christmas Eve or New Year’s Eve and may not fall earlier than five weekdays before the General Meeting.

§ 15

The Company’s Board of Directors is authorized to decide on a reduction of the share capital through redemption of all series C shares.

 

3


In conjunction with the adoption of a resolution regarding redemption, holders of series C shares shall be obliged to surrender their shares for an amount equal to the ratio value of the shares. Payment of the redemption amount shall take place immediately.

§ 16

The Company’s Board of Directors is authorized to convert all series C shares to shares of series B when the Company holds the shares. Conversion shall be notified for registration without delay and be effected upon registration.

 

 

April 2016

 

4

Exhibit 2.2

AMENDMENT NO. 1 TO DEPOSIT AGREEMENT

AMENDMENT No.  1 dated as of October 24, 2016 (the “Amendment”) to the Second Amended and Restated Deposit Agreement dated as of January 7, 2014 (the “Deposit Agreement”) among (i) Telefonaktiebolaget LM Ericsson, a public company incorporated under the laws of Sweden, and its successors (the “Company”), (ii) Deutsche Bank Trust Company Americas, an indirect wholly owned subsidiary of Deutsche Bank A.G., acting in its capacity as depositary, and any successor depositary hereunder (the “Depositary”), and (iii) all Holders from time to time of American Depositary Receipts issued thereunder.

W I T N E S S E T H :

WHEREAS, the Company and the Depositary executed the Deposit Agreement for the purposes set forth therein; and

WHEREAS, pursuant to Section 6.01 of the Deposit Agreement, the Company and the Depositary desire to amend certain terms of the Deposit Agreement and American Depositary Receipts.

NOW, THEREFORE , for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and the Depositary hereby agree to amend the Deposit Agreement and the American Depositary Receipts, effective as of the dates set forth in Section 4.01 hereof, as follows:

ARTICLE I

DEFINITIONS

SECTION 1.01. Definitions . Unless otherwise defined in this Amendment, all capitalized terms used, but not otherwise defined, herein shall have the meaning given to such terms in the Deposit Agreement.

 

1


ARTICLE II

AMENDMENTS TO DEPOSIT AGREEMENT AND AMERICAN DEPOSITARY RECEIPTS

SECTION 2.01. All references in the Deposit Agreement and the American Depositary Receipts to the term “Deposit Agreement” shall, as of the dates set forth in Section 4.01 hereof with respect to particular sections below, refer to the Deposit Agreement, as amended by this Amendment.

SECTION 2.02 . The second sentence of the third paragraph of each of Section 4.07 of the Deposit Agreement and Paragraph (17) of the form of American Depositary Receipt and each outstanding American Depositary Receipt, are each amended to read as follows:

If the Depositary timely receives blocking and voting instructions from a Holder that fails to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs on one or more matters presented at the relevant meeting, the Depositary will deem such Holder to have instructed the Depositary to abstain on those items for which the Holder failed to specify the manner in which the Depositary is to vote.

SECTION 2.03. The two references to “U.S.$ 2.00 per 100 ADSs” contained in Paragraph (6) of the form of American Depositary Receipt and each outstanding American Depositary Receipt are each amended to read “U.S. $ 3.00 per 100 ADSs.”

SECTION 2.04. The introductory paragraph of the form of American Depositary Receipt and each outstanding American Depositary Receipt is amended by replacing “Skandinaviska Enskilda Banken AB” with “the Custodian under the Deposit Agreement”.

SECTION 2.05. The references to “Up to $2 per 100 American Depositary Shares” and “ Up to $2 per 100 American Depositary Shares per annum” contained in Exhibit B of the Deposit Agreement are amended to read “Up to $3 per 100 American Depositary Shares” and “ Up to $3 per 100 American Depositary Shares per annum”, respectively.

 

2


SECTION 2.06. The form of American Depositary Receipt and each outstanding American Depositary Receipt, and the form of Exhibit B to the Deposit Agreement, each after giving effect to the amendments contained herein and other clarifying changes, are attached hereto as Exhibit A (for the form of American Depositary Receipt) and Exhibit B (for Exhibit B to the Deposit Agreement), respectively.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

SECTION 3.01. Representations and Warranties of the Company .

Representations and Warranties . The Company represents and warrants to, and agrees with, the Depositary and the Holders, that:

(a) This Amendment, when executed and delivered by the Company, and the Deposit Agreement, as amended by this Amendment, will be, and the Deposit Agreement previously entered into has been, respectively, duly and validly authorized, executed and delivered by the Company, and each constitutes the legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its respective terms, subject to applicable bankruptcy, insolvency, fraudulent transfer, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles; and

(b) In order to ensure the legality, validity, enforceability or admissibility into evidence of this Amendment or the Deposit Agreement as amended hereby, and any other document furnished hereunder or thereunder in the Kingdom of Sweden, neither of such agreements need to be filed or recorded with any court or other authority in the Kingdom of Sweden.

 

3


Section  3.02 Representations and Warranties of the Depositary . The Depositary represents and warrants to the Company that this Amendment, when executed and delivered by Depositary, and the Deposit Agreement, as amended by this Amendment, will be duly and validly authorized, executed and delivered by the Depositary, and each constitutes the legal, valid and binding obligation of the Depositary, enforceable against the Depositary in accordance with its respective terms, subject to bankruptcy, insolvency, fraudulent transfer, moratorium and similar laws of general applicability relating to or affecting creditors’ rights and to general equity principles.

ARTICLE IV

MISCELLANEOUS

Section  4.01 Effective Date . This Amendment is dated as of the date set forth above and shall be effective as of the date hereof, provided, however, that the amendments set forth in Sections 2.02, 2.03 and 2.05 hereof shall not become effective until the open of business (NY time) thirty days from the date the Depositary first notifies Holders of the same.

Section  4.02 Outstanding American Depositary Receipts . American Depositary Receipts issued prior to the date hereof, which do not reflect the changes to the form of American Depositary Receipt effected hereby, do not need to be called in for exchange and may remain outstanding until such time as the Holders thereof choose to surrender them for any reason under the Deposit Agreement, as amended by this Amendment. The Depositary is authorized and directed to take any and all actions deemed necessary to effect the foregoing.

 

4


Holders and holders of American Depositary Shares issued prior to the date hereof and outstanding as of the date hereof, shall, from and after the date hereof, be deemed Holders and holders of American Depositary Shares issued pursuant and be subject to all of the terms and conditions of the Deposit Agreement, as amended by this Amendment, in all respects.

Section  4.03 Indemnification . The parties hereto accept and shall be entitled to the benefits of the indemnification provisions of Section 5.08 of the Deposit Agreement in connection with any and all liability it or they may incur as a result of the terms of this Amendment and the transactions contemplated herein.

Section  4.04 Governing Law . THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY NEW YORK LAW.

Section  4.05 Counterparts . This Amendment may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument.

 

5


IN WITNESS WHEREOF, the Company and the Depositary have caused this Amendment to be executed by representatives hereunto duly authorized as of the date set forth above.

 

TELEFONAKTIEBOLAGET LM ERICSSON
(publ)  
By:   LOGO
 

 

Name:   Jan Frykhammar
Title:   President and CEO
By:   LOGO
 

 

Name:   Carl Mellander
Title:   Senior Vice President and CFO
DEUTSCHE BANK TRUST COMPANY AMERICAS, as the Depositary
By:   LOGO
 

 

Name:  

Christopher Konopelko

Title:  

Director

By:   LOGO
 

 

Name:  

Michael Fitzpatrick

Title:  

Vice President

 

6


Exhibit A

AMERICAN DEPOSITARY RECEIPT

AMERICAN DEPOSITARY SHARES

representing

DEPOSITED B SHARES OF

TELEFONAKTIEBOLAGET LM ERICSSON

(A Public Company Incorporated Under The Laws Of Sweden)

No.

DEUTSCHE BANK TRUST COMPANY AMERICAS , as Depositary (herein called the Depositary), hereby certifies that                      is the owner of                      American Depositary Shares, representing deposited B shares (such B shares are hereinafter referred to as Shares), without nominal value, of TELEFONAKTIEBOLAGET LM ERICSSON, a public company incorporated under the laws of Sweden (herein called the Company). At the date hereof, each American Depositary Share represents one (1) Share (or evidence of rights to receive one Share) deposited under the Deposit Agreement at the principal Stockholm office of the Custodian under the Deposit Agreement (herein called the Custodian). The address of the Depositary’s principal executive office is 60 Wall Street, New York, New York 10005, U.S.A.

(1) The Deposit Agreement . This American Depositary Receipt is one of an issue of American Depositary Receipts (“Receipts” or “ADRs”), all issued and to be issued upon the terms and conditions set forth in the Second Amended and Restated Deposit Agreement dated as of January 7, 2014 (as so amended and as amended or supplemented from time to time, the “Deposit Agreement”), by and among the Company, the Depositary and all Holders from time to time of ADSs issued thereunder, each of whom by accepting an ADS becomes bound by all the terms and provisions thereof. The Deposit Agreement sets forth the rights of Holders of the Receipts and the rights and duties of the Depositary in respect of the Shares deposited thereunder and any and all other securities, property and cash from time to time received in respect of such Shares and held thereunder (such Shares, securities, property and cash are hereinafter referred to as Deposited Securities). Copies of the Deposit Agreement are on file at the principal offices of the Depositary and the Custodians. The statements made on the face and the reverse of this Receipt are summaries of certain provisions of the Deposit Agreement and are qualified by and subject to the detailed provisions of the’ Deposit Agreement, to which reference is hereby made. The terms “deposit”, “surrender”, “deliver”, “transfer” or “withdraw” when used with respect to Shares, shall refer, where the context requires, to an entry or entries or an electronic transfer or transfers in an account or accounts maintained by institutions authorized under applicable law to effect transfers of securities (which may but need not be Euroclear (as defined in paragraph (3) below)), and not to the physical transfer of certificates representing the Shares.

(2) Surrender of Receipts and Withdrawal of Shares . Upon surrender at the Principal Office of the Depositary of this Receipt, and upon payment of the fee of the Depositary provided in paragraph (6) of this Receipt, and subject to the terms and conditions of the Deposit Agreement, the Holder hereof is entitled to delivery, to him or upon his order, of the Deposited Securities at the time represented by the American Depositary Shares for which this Receipt is issued. Delivery of such Deposited Securities may be made by the delivery of certificates in the name of the Holder hereof or as ordered by him or by the delivery of certificates endorsed or accompanied by proper instruments of transfer. Such delivery will be made without unreasonable delay and, at the option of the Holder hereof, either at the office of any Custodian or at the Principal Office of the Depositary, provided that the forwarding of certificates for Shares or other Deposited Securities for such delivery at the Principal office of the Depositary in the Borough of Manhattan, The City of New York shall be at the risk and expense of the Holder hereof.

 

7


(3) Transfers, Split-ups and Combinations . This Receipt is transferable on the books of the Depositary by the Holder hereof in person or by duly authorized attorney, upon surrender of this Receipt properly endorsed or accompanied by proper instruments of transfer and duly stamped as may be required by law; provided, however, that the Depositary may close the transfer books, at any time or from time to time, when deemed expedient by it in connection with the performance of its duties under the Deposit Agreement. This Receipt may be split into other Receipts or may be combined with other Receipts into one Receipt, representing the same aggregate number of American Depositary Shares as the Receipt or Receipts surrendered. As a condition precedent to the execution and delivery, registration of transfer, split-up, combination or surrender of any Receipt or withdrawal of any Deposited Securities, the Depositary or the Custodian may require payment of a sum sufficient to reimburse it for any tax or other governmental charge and any stock transfer or registration fee with respect thereto and payment of any applicable fees as provided in paragraph (6) of this Receipt, may require the production of proof satisfactory to it as to the identity and genuineness of any signature and may also require compliance with such regulations, if any, as the Depositary may establish consistent with the provisions of the Deposit Agreement.

The Depositary may refuse to execute and deliver Receipts, register the transfer of any Receipt, make any distribution of, or related to, Deposited Securities until it has received such proof of citizenship, residence, exchange control approval or other information as it may deem necessary or proper. The delivery of Receipts against deposits of Shares generally may be suspended, or the delivery of Receipts against the deposit of particular Shares may be withheld, or the registration of transfer of Receipts in particular instances may be refused, or the registration of transfers or surrenders of Outstanding Receipts generally may be suspended, during any period when the transfer books of the Depositary or the Company (or the appointed agent of the Company for transfer and registration of Shares, which may but need not be Euroclear Sweden AB (“Euroclear”) or its successor as agent of the Company for the transfer and registration for Shares) are closed, or if any such action is deemed necessary or advisable by the Depositary or the Company at any time or from time to time due to compliance with any requirement of applicable law or governmental regulation relating to Receipts or to the withdrawal of any Deposited Securities. Without limitation of the foregoing, the Depositary will not knowingly accept for deposit under the Deposit Agreement any Shares which, if sold by the holder thereof in the United States or its territories, would be subject to the registration provisions of the Securities Act of 1933, unless a registration statement is in effect as to such Shares.

(4) Liability of Holder for Taxes . If any tax or other governmental charge shall become payable with respect to any Deposited Securities represented hereby, such tax or other governmental charge shall be payable by the Holder hereof to the Depositary. The Depositary may refuse to effect any registration of transfer of this Receipt or any withdrawal of Deposited Securities represented hereby until such payment is made, and may withhold any dividends or other distributions, or may sell for the account of the Holder hereof any part or all of the Deposited Securities represented hereby, and may apply such dividends or other distributions or the proceeds of any such sale in payment of such tax or other governmental charge, the Holder hereof remaining liable for any deficiency. Every Holder and Beneficial Owner agrees to, and shall, indemnify the Depositary, the Company, the Custodian and each and every of their respective officers, directors, employees, agents and Affiliates against, and hold each of them harmless from, any claims with respect to taxes, additions to tax (including applicable interest and penalties thereon) arising out of any refund of taxes or reduced rate of withholding at source or other tax benefit obtained for or by such Holder and/or Beneficial Owner.

The Depositary, the Custodian or the Company and its agents may, but shall not be obligated to, file such reports as are necessary to reduce or eliminate applicable taxes on dividends and on other distributions

 

8


in respect of Deposited Securities under applicable tax treaties or laws for the Holders and Beneficial Owners. Holders and Beneficial Owners of American Depositary Shares may be required from time to time, and in a timely manner, to file such proof of taxpayer status, residence and beneficial ownership (as applicable), to execute such certificates and to make such representations and warranties, or to provide any other information or documents, as the Depositary or the Custodian may deem necessary or proper to fulfill the Depositary’s or the Custodian’s obligations under applicable law.

(5) Warranties by Depositor . Every person depositing Shares under the Deposit Agreement shall be deemed thereby to represent and warrant that (i) such Shares and each certificate therefore are validly issued, fully paid, non-assessable and free of any pre-emption rights of the holders of outstanding Shares, (ii) the person making such deposit is duly authorized so to do, (iii) the Shares presented for deposit are free and clear of any lien, encumbrance, security interest, charge, mortgage or adverse claim, and are not, and the American Depositary Shares issuable upon such deposit will not be, Restricted Securities and (iv) the Shares presented for deposit have not been stripped of any rights or entitlements. If any such representations or warranties are false in any way, the Company and the Depositary shall be authorized, at the cost and expense of the person depositing Shares, to take any and all actions necessary to correct the consequences thereof. Such representations and warranties shall survive the deposit of Shares and issuance of Receipts.

(6) Charges of Depositary . The Depositary will charge the following fees for the services performed under the terms of the Deposit Agreement : (i) to any party to whom Receipts are delivered against deposits, and any party surrendering Receipts for delivery of Deposited Securities, a fee not in excess of $5.00 for each 100 American Depositary Shares (or portion thereof) represented by the Receipts issued or surrendered; (ii) to any holder of ADSs (including, without limitation, Holders), a fee not in excess of U.S. $ 3.00 per 100 ADSs held for the distribution of cash proceeds, including cash dividends or sale of rights and other entitlements, not made pursuant to a cancellation or withdrawal; and (iii) for the operation and maintenance costs in administering the ADSs, an annual fee not in excess of U.S. $ 3.00 per 100 ADSs. Any and all expenses of the Depositary, including, without limitation, the charges and expenses of the Custodians under or in connection with the Deposit Agreement, other than those fees expressed to be paid by the Holders in the preceding sentence, or as may be agreed from time to time between the Company and the Depositary, will be borne by the Depositary, except (i) taxes and other governmental charges, (ii) share transfer registration fees on deposits of Shares, (iii) such cable and facsimile transmission and delivery charges as are expressly provided in the Deposit Agreement to be at the expense of persons depositing Shares or Holders of Receipts, and (iv) such expenses as are incurred by the Depositary in the conversion of foreign currency into dollars.

(7) Title to Receipts . It is a condition of this Receipt, and every successive Holder of this Receipt by accepting or holding the same consents and agrees, that title to this Receipt (and to each Certificated ADSs evidenced hereby) shall be transferable upon the same terms as a certificated security under the laws of the State of New York, provided that, in the case of Certificated ADSs, the Receipt has been properly endorsed or is accompanied by properly executed instruments of transfer. Notwithstanding any notice to the contrary, the Depositary and the Company may deem and treat the Holder of an ADS (that is, the person in whose name an ADS is registered on the books of the Depositary) as the absolute owner thereof for all purposes. Neither the Depositary nor the Company shall have any obligation or be subject to any liability under the Deposit Agreement to any holder of a Receipt or any beneficial owners unless such holder is registered as the Holder of such Receipt on the books of the Depositary or in the case of a Beneficial Owner, such Beneficial Owner or Beneficial Owner’s representative is registered as the Holder on the books of the Depositary.

(8) Validity of Receipt . This Receipt shall not be entitled to any benefits under the Deposit Agreement or be valid or obligatory for any purpose, unless this Receipt shall have been executed by the Depositary by the manual signature of a duly authorized officer or, if a Registrar for the Receipts shall have been appointed, by the manual signature of a duly authorized officer of such Registrar.

 

9


(9) Pre-release . Pursuant to the Deposit Agreement, the Depositary may issue Receipts for evidence of rights to receive Shares from the Company, or any Custodian, Registrar, transfer agent, clearing agency or other entity involved in ownership records or transaction records in respect of the Shares. Such evidence of rights is required to consist of written blanket or specific guarantees of ownership of Shares furnished on behalf of the holder thereof. The Depositary is not permitted to lend Shares or Receipts; except that the Depositary may (i) issue Receipts prior to the receipt of Shares pursuant to Section 2.02 of the Deposit Agreement and (ii) deliver Shares prior to the receipt and cancellation of Receipts pursuant to Section 2.05 of the Deposit Agreement, including Receipts which were issued under (i) above but for which Shares may not have been received. The Depositary may receive Receipts in lieu of Shares under (i) above and receive Shares in lieu of Receipts under (ii) above. The Depositary is required to cause each such transaction to be (a) accompanied by a written agreement whereby the Person to whom Receipts or Shares are to be delivered, or its customer, (1) represents that it owns the Shares or Receipts to be remitted, as the case may be (or in lieu of such representation such Person or its customer may provide such evidence of ownership of Shares or Receipts, as the case may be, as the Depositary deems appropriate), (2) agrees to indicate the Depositary as owner of such Shares or Receipts in its records and to hold such Shares or Receipts in trust for the Depositary until such Shares or Receipts are delivered to the Depositary or the Custodian, (3) unconditionally guarantees to deliver to the Depositary or the Custodian, as applicable, such Shares or Receipts and (4) agrees to any additional restrictions or requirements that the Depositary deems appropriate , (b) at all times fully collateralized (marked to market daily) with cash, United States Government securities or other collateral as the Depositary deems appropriate, (c) terminable by the Depositary on not more than five (5) business days’ notice, and (d) subject to such further indemnities and credit regulations as the Depositary deems appropriate. Pursuant to the Deposit Agreement, the Depositary has agreed to limit the number of Receipts and Shares involved in such transactions at any one time to thirty percent (30%) of the face amount of Receipts outstanding (without giving effect to Receipts outstanding under (i) above), and thirty percent (30%) of the principal amount of Shares actually deposited under the Deposit Agreement, respectively. Pursuant to the Deposit Agreement, the Depositary is required to set limits with respect to the number of Receipts and Shares involved in such transactions with any one person on a case-by-case basis as it deems appropriate. Pursuant to the Deposit Agreement collateral (but not any earnings thereon) is required to be held for the benefit of the Holder only. The Depositary may retain for its own account any compensation received by it in connection with the foregoing.

(10) Power of Attorney . The Holder hereby agrees that, upon acceptance of this Receipt issued in accordance with the terms of the Deposit Agreement, the Holder appoints the Depositary its attorney-in-fact, with full power to delegate, to act on its behalf and to take any and all steps or action provided for or contemplated herein and in the Deposit Agreement with respect to the Deposited Securities, including but not limited to those set forth in Article IV of the Deposit Agreement, and to take such further steps or action as the Depositary in its sole discretion may deem necessary or appropriate to carry out the purposes hereof and of the Deposit Agreement.

(11) Disclosure of Interest . The Holder of this Receipt agrees to comply with the Company’s Articles of Association, as they may be amended from time to time, and the laws of Sweden, with respect to disclosure requirements, if any, regarding ownership of Deposited Securities and shares in and other securities and debt obligations of the Company, all as if this Receipt was to the extent practicable the Shares represented hereby.

The Depositary shall, at the Company’s request, send to any Holder specified by the Company a notice requiring such Holder to notify the Depositary as to whether any of such Holder’s American Depositary Shares represented by any of the Receipts held by or registered in the name of such Holder are

 

10


being held, directly or indirectly, for some person other than such Holder and, if so, the name, address and citizenship of such other person or persons. Each Holder will provide to the Depositary at the Depositary’s principal office the information requested in the Depositary’s notice within five (5) business days after the date of the notice and the Depositary shall forthwith furnish the Company with the information provided. Should any Holder fail to provide the information sought within such five (5) business days, the Depositary shall notify the Company accordingly and, upon receipt of written instructions from the Company to that effect, the Depositary shall (i) discontinue the registration of transfers of all Receipts registered in the name of such Holder; (ii) suspend the distribution of payments of dividends to such Holder; and (iii) not give any further notices to such Holder; until such information is provided pursuant to Section 3.04 of the Deposit Agreement.

(12) Ownership Limitations . Holders and Beneficial Owners shall comply with any limitations on ownership of Shares under the constituent documents of the Company or applicable Swedish law as if they held the number of Shares their ADSs represent. The Company shall inform the Holders, Beneficial Owners and the Depositary of any such ownership restrictions in place from time to time, which may be through public disclosure, including via the Company’s website.

(13) Compliance with U.S. Securities Laws . Pursuant to the Deposit Agreement, the Company and the Depositary are required to exercise any rights they have under the Deposit Agreement to prevent the withdrawal or delivery of Deposited Securities in a manner which would not violate the United States securities laws, including, without being limited to, General Instruction I.A(1) to Form F-6 Registration Statement, as amended from time to time, under the Securities Act of 1933.

Dated:

 

Countersigned     DEUTSCHE BANK TRUST COMPANY AMERICAS,
      as Depositary
By  

 

    By  

 

Authorized Officer     Vice President

The address of the principal office of the Depositary is 60 Wall Street, New York, New York 10005, U.S.A..

 

11


[FORM OF REVERSE OF RECEIPT]

SUMMARY OF CERTAIN ADDITIONAL PROVISIONS

OF THE DEPOSIT AGREEMENT

(14) Dividends and Distributions; Rights . Whenever the Depositary shall receive any cash dividend or other cash distribution on the Deposited Securities, the Depositary will, if at the time of receipt thereof any amounts received in a foreign currency can in the judgment of the Depositary be converted on a reasonable basis into United States dollars transferable to the United States, and subject to the provisions of the Deposit Agreement, convert such dividend or distribution into United States dollars and will distribute the amount thus received to the Holders of Receipts entitled thereto, in proportion to the number of American Depositary Shares representing such Deposited Securities held by them respectively; provided, however, that the amount distributed will be reduced by any amounts required to be withheld by the Company or the Depositary on account of taxes. If in the judgment of the Depositary amounts received in foreign currency may not be converted on a reasonable basis into United States dollars transferable to the United States, or may not be so convertible for all of the Holders of Receipts entitled thereto, the Depositary may in its discretion make such conversion, if any, and distribution in United States dollars to the extent permissible to the Holders of Receipts entitled thereto and may distribute the balance of the foreign currency received and not so convertible by the Depositary to, or hold such balance for the account of, the Holders of Receipts entitled thereto. If in the opinion of the Depositary any distribution other than cash or Shares upon any Deposited Securities cannot be made proportionately among the Holders of Receipts entitled thereto, or if for any other reason the Depositary deems such distribution not to be feasible, the Depositary may adopt such method as it may deem equitable and practicable for the purpose of effecting such distribution, including the sale (at public or private sale) of the securities or property thus received, or any part thereof, and the net proceeds of any such sale will be distributed by the Depositary to the Holders of Receipts entitled thereto as in the case of a distribution received in cash. If any distribution upon any Deposited Securities consists of a dividend in, or free distribution of, Shares, the Depositary may with the Company’s approval, and shall if the Company shall so request, distribute to the Holders of outstanding Receipts entitled thereto, in proportion to the number of American Depositary Shares representing such Deposited Securities held by them respectively, additional Receipts for an aggregate number of American Depositary Shares representing the number of Shares received as such dividend or free distribution. In lieu of delivering Receipts for fractional American Depositary Shares in any such case, the Depositary may sell the number of Shares represented by the aggregate of such fractions and distribute the net proceeds, converted into United States dollars if not in such dollars (if such conversion may in the judgment of the Depositary be achieved on a reasonable basis), to the Holders of Receipts entitled thereto. If additional Receipts are not so distributed (except as pursuant to the preceding sentence), each American Depositary Share shall thenceforth also represent the additional Shares distributed upon the Deposited securities represented thereby. In the event that the Company shall offer or cause to be offered to the holders of any Deposited Securities any rights to subscribe for additional Shares or any rights of any nature, the Depositary shall have discretion as to whether such rights are to be made available to the Holders of Receipts; provided, however, that the Depositary will, if requested by the Company, either (a) make such rights available to Holders of Receipts by means of warrants or otherwise, if lawful and feasible, or (b) if making such rights available is not lawful or not feasible, or if the rights represented by such warrants or other instruments are not exercised and appear to be about to lapse, sell such warrants or other instruments at public or private sale, at such place or places and upon such terms as the Depositary may deem proper, and allocate the proceeds of such sales for account of the Holders of Receipts otherwise entitled thereto upon an averaged or other practicable basis without regard to any distinctions among such Holders because of exchange restrictions, or the date of delivery of any Receipt or Receipts, or otherwise.

If the Depositary is unable to make any rights available to Holders upon the terms described in clause (a) of this paragraph (14) or to arrange for the sale of the rights upon the terms described in clause (b)

 

12


of this paragraph (14), the Depositary shall allow such rights to lapse. The Depositary shall not be responsible for (i) any failure to determine that it may be lawful or practicable to make such rights available to Holders in general or any Holders in particular, (ii) any foreign exchange exposure or loss incurred in connection with such sale, or exercise, or (iii) the content of any materials forwarded to the Holders on behalf of the Company in connection with the rights distribution.

Notwithstanding anything to the contrary in this Receipt or the Deposit Agreement, if registration under the Securities Act of 1933 of the securities to which any rights relate is required in order for the Company to offer such rights to Holders of Receipts and sell the securities represented by such rights, the Depositary will not offer such rights to the Holders of Receipts unless and until such a registration statement is in effect, or unless the offering and sale of such securities to the Holders of such Receipts are exempt from registration under the provisions of such Act.

There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to exercise rights on the same terms and conditions as the holders of Shares or be able to exercise such rights. Nothing herein shall obligate the Company to file any registration statement in respect of any rights or Shares or other securities to be acquired upon the exercise of such rights.

(15) Elective Distributions in Cash or Shares . Whenever the Company intends to distribute a dividend payable at the election of the holders of Shares in cash or in additional Shares, the Company shall give notice thereof to the Depositary at least 30 days prior to the proposed distribution stating whether or not it wishes such elective distribution to be made available to Holders. Upon receipt of notice indicating that the Company wishes such elective distribution to be made available to Holders, the Depositary shall consult with the Company to determine, and the Company shall assist the Depositary in its determination, whether it is lawful and reasonably practicable to make such elective distribution available to the Holders. The Depositary shall make such elective distribution available to Holders only if (i) the Company shall have timely requested that the elective distribution is available to Holders of ADRs, (ii) the Depositary shall have determined that such distribution is reasonably practicable and (iii) the Depositary shall have received satisfactory documentation within the terms of the Deposit Agreement including, without limitation, any legal opinions of counsel in any applicable jurisdiction that the Depositary in its reasonable discretion may request, at the expense of the Company. If the above conditions are not satisfied, the Depositary shall, to the extent permitted by law, distribute to the Holders, on the basis of the same determination as is made in the local market in respect of the Shares for which no election is made, either cash or additional ADSs representing such additional Shares upon the terms described in the Deposit Agreement. If the above conditions are satisfied, the Depositary shall establish an ADS Record Date and establish procedures to enable Holders to elect the receipt of the proposed dividend in cash or in additional ADSs. The Company shall assist the Depositary in establishing such procedures to the extent necessary. Subject to paragraph (6) of this Receipt and Exhibit B to the Deposit Agreement, if a Holder elects to receive the proposed dividend (x) in cash, the dividend shall be distributed upon the terms described in Section 4.01 of the Deposit Agreement, or (y) in ADSs, the dividend shall be distributed upon the terms described in Section 4.03 of the Deposit Agreement. Nothing herein shall obligate the Depositary to make available to Holders a method to receive the elective dividend in Shares (rather than ADSs). There can be no assurance that Holders generally, or any Holder in particular, will be given the opportunity to receive elective distributions on the same terms and conditions as the holders of Shares.

(16) Record Dates . Whenever any cash dividend or other cash distribution shall become payable or any distribution other than cash shall be made, or whenever rights shall be issued, with respect to the Deposited Securities, or whenever the Depositary shall receive notice of any meeting of holders of Shares or other Deposited Securities, the Depositary will fix a record date for the determination of the Holders of Receipts who shall be entitled to receive such dividend, distribution or rights, or the net proceeds of the sale thereof, or to give instructions for the exercise of voting rights at any such meeting, subject to the provisions of the Deposit Agreement.

 

13


(17) Voting of Deposited Securities . Upon receipt of notice from the Company of any meeting, or solicitation of consent or proxy, of holders of Shares or other Deposited Securities, the Depositary shall, as soon as practicable thereafter, establish a record date applicable to Holders of American Depositary Shares entitled to instruct the Depositary to vote the Shares or other Deposited Securities represented by such Holder’s ADSs and distribute to the Holders of American Depositary Shares a notice which shall contain (a) such information as is contained in such notice of meeting, solicitation of consent or proxy, and (b) a statement that the Holders of American Depositary Shares at the close of business in New York on the specified record date will be entitled, subject to any applicable provisions of Swedish law, the Articles of Association of the Company and the Deposit Agreement, to instruct the Depositary as to the exercise of the voting rights, if any, pertaining to the amount of Shares or other Deposited Securities represented by their respective American Depositary Shares. Upon the instruction of a Holder of American Depositary Shares as of such record date, received on or before the date established by the Depositary for such purpose, to block the Holder’s American Depositary Shares in the name of the Holder (for the period specified for such purpose by the Depositary in the applicable notice to Holders) and to vote the Shares or other Deposited Securities represented thereby, the Depositary shall endeavor in so far as practicable and as permitted under Swedish law, the Company’s Articles of Association, and the terms of the Deposit Agreement, to vote or cause to be voted the amount of Shares or other Deposited Securities represented by such Holder’s American Depositary Shares in accordance with the instructions from the applicable Holder. The Depositary agrees not to exercise any voting rights or powers under any Shares or other Deposited Securities represented by the American Depositary Shares unless it has received such blocking and voting instructions from the Holder of the American Depositary Shares, and then only in accordance with such instructions.

Notwithstanding anything contained in the Deposit Agreement or any ADR, the Depositary may, to the extent not prohibited by law or regulations, or by the requirements of the stock exchange on which the ADSs are listed, in lieu of distribution of the materials provided to the Depositary in connection with any meeting of, or solicitation of consents or proxies from, holders of Deposited Securities, distribute to the Holders a notice that provides Holders with, or otherwise publicize to Holders, instructions on how to retrieve such materials or receive such materials upon request (i.e., by reference to a website containing the materials for retrieval or a contact for requesting copies of the materials).

Neither the Depositary nor the Custodian shall under any circumstances exercise any discretion as to voting and neither the Depositary nor the Custodian shall vote, attempt to exercise the right to vote, or in any way make use of for purposes of establishing a quorum or otherwise, the Deposited Securities represented by ADSs, except pursuant to and in accordance with the blocking and voting instructions timely received from Holders or as otherwise contemplated herein. If the Depositary timely receives blocking and voting instructions from a Holder that fails to specify the manner in which the Depositary is to vote the Deposited Securities represented by such Holder’s ADSs on one or more matters presented at the relevant meeting, the Depositary will deem such Holder to have instructed the Depositary to abstain on those items for which the Holder failed to specify the manner in which the Depositary is to vote. Deposited Securities represented by ADSs for which no timely blocking and voting instructions are received by the Depositary from the Holder shall not be voted.

Notwithstanding anything else contained in the Deposit Agreement or any ADR, the Depositary shall not have any obligation to take any action with respect to any meeting, or solicitation of consents or proxies, of holders of Deposited Securities if the taking of such action would violate U.S. laws. The Company agrees to take any and all actions reasonably necessary to enable Holders and Beneficial Owners to exercise the voting rights accruing to the Deposited Securities and to deliver to the Depositary an opinion of U.S. counsel addressing any actions requested to be taken if so requested by the Depositary.

 

14


There can be no assurance that Holders generally or any Holder in particular will receive the notice described above with sufficient time to enable the Holder to return blocking and voting instructions to the Depositary in a timely manner.

(18) Changes Affecting Deposited Securities . Upon any change in nominal value or par value, split-up, consolidation or any other reclassification of Deposited Securities, or upon any recapitalization, reorganization, merger or consolidation or sale of assets affecting the Company or to which it is a party, any securities which shall be received by the Depositary in exchange for or in conversion of or in respect of Deposited Securities shall be treated as new Deposited Securities under the Deposit Agreement, and the American Depositary Shares shall thenceforth represent the new Deposited Securities so received in exchange or conversion, unless additional Receipts are delivered pursuant to the following sentence. In any such case the Depositary may with the Company’s approval, and shall if the Company shall so request, execute and deliver additional Receipts as in the case of a stock dividend, or call for the surrender of outstanding Receipts to be exchanged for new Receipts. Notwithstanding the foregoing, in the event that any security so received may not be lawfully distributed to some or all Holders, the Depositary may, with the Company’s approval, and shall, if the Company requests, subject to receipt of an opinion of counsel to the Company, furnished at the expense of the Company, satisfactory to the Depositary that such action is not in violation of any applicable laws or regulations, sell such securities at public or private sale, at such place or places and upon such terms as it may deem proper and may allocate the net proceeds of such sales (net of (a) fees and charges of, and expenses incurred by, the Depositary and (b) taxes and/or governmental charges) for the account of the Holders otherwise entitled to such securities upon an averaged or other practicable basis without regard to any distinctions among such Holders and distribute the net proceeds so allocated to the extent practicable as in the case of a distribution received in cash.

(19) Reports; Inspection of Transfer Books . The Depositary will make available for inspection by Holders of Receipts at its Principal office any reports and communications received from the Company, including any proxy soliciting material, which are both (a) received by the Depositary as the holder of the Deposited Securities, and (b) made generally available to the holders of such Deposited Securities by the Company. The Depositary will also send to Holders of Receipts copies of such reports when furnished by the Company as provided in the Deposit Agreement. The Depositary will keep books for the registration of Receipts and their transfer which at all reasonable times will be open for inspection by the Holders of Receipts, provided that such inspection shall not be for the purpose of communicating with Holders of Receipts in the interest of a business or object other than the business of the Company or a matter related to the Deposit Agreement or the Receipts.

(20) Liability of the Company and the Depositary . Neither the Depositary nor the Company shall incur any liability to any Holder of this Receipt, if by reason of any provision of any present or future law of any country or of any governmental authority, or by reason of any provision, present or future, of the Articles of Association of the Company, or by reason of any act of God or war or other circumstance beyond its control, the Depositary or the Company shall be prevented or forbidden from doing or performing any act or thing which by the terms of the Deposit Agreement it is provided shall be done or performed. Neither the Company nor the Depositary assumes any obligation or shall be subject to any liability under the Deposit Agreement to Holders of Receipts, except that they agree to perform their obligations specifically set forth in the Deposit Agreement without gross negligence or willful misconduct. Neither the Depositary nor the Company shall be under any obligation to appear in, prosecute or defend any action, suit or other proceeding in respect of any Deposited Securities or in respect of the Receipts, which in its opinion may involve it in expense and liability, unless indemnity satisfactory to it against all expense and liability be furnished as often as may be required, and no Custodian shall be under any obligation whatsoever with respect to such proceedings, the responsibility of the Custodians being solely to the Depositary. Neither the Depositary nor the Company shall be liable for any (i) action or non-action by it in reliance upon the advice of or information from legal counsel, accountants, any person presenting Shares for

 

15


deposit, any Holder of a Receipt, or any other person believed by it in good faith to be competent to give such advice or information, (ii) the inability by a Holder or Beneficial Owner to benefit from any distribution, offering, right or other benefit which is made available to holders of Deposited Securities but is not, under the terms of the Deposit Agreement, made available to Holders of American Depositary Shares or (ii) any special, consequential, indirect or punitive damages for any breach of the terms of the Deposit Agreement or otherwise. The Depositary will not be responsible for any failure to carry out any instructions to vote any of the Deposited Securities, or for the manner in which any such vote is cast or effect of any such vote, provided that any such action or non-action is in good faith. The Depositary may own and deal in any class of securities of the Company and its affiliates and in Receipts. The Company agrees to indemnify the Depositary and each Custodian against, and hold each of them harmless from, any inability or expense which may arise out of acts performed in accordance with the provisions of the Deposit Agreement and of the Receipts, as the same may be amended, modified or supplemented from time to time, (i) by either the Depositary or any Custodian, except for any liability arising out of the negligence or bad faith of either of them, or (ii) by the Company or any of its agents.

(21) Resignation and Removal of Depositary; Substitution of Custodian . The Depositary may at any time resign as Depositary under the Deposit Agreement by written notice of its election so to do delivered to the Company, such resignation to take effect upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement. The Depositary may at any time be removed by the Company by written notice of such removal, effective upon the appointment of a successor depositary and its acceptance of such appointment as provided in the Deposit Agreement. The Depositary may at any time appoint a substitute or additional custodian and the term “Custodian” shall also refer to such substitute or additional custodian.

(22) Amendment of Deposit Agreement and Receipts . The Receipts and the Deposit Agreement may at any time and from time to time be amended by agreement between the Company and the Depositary. Any amendment which shall impose or increase any fees or charges (other than the fees of the Depositary for the issuance and delivery of ADSs and taxes and other governmental charges), or which shall otherwise prejudice any substantial existing right of Holders of ADSs, shall, however, not become effective as to outstanding ADSs until the expiration of one (1) month after notice of such amendment shall have been given to the Holders of outstanding ADSs. Every Holder of a Receipt at the time any amendment so becomes effective shall be deemed, by continuing to hold such Receipt, to consent and agree to such amendment and to be bound by the Deposit Agreement as amended thereby. In no event shall any amendment impair the right of the Holder hereof to surrender this Receipt and receive therefor the Deposited Securities represented hereby. Any amendments which (i) are reasonably necessary (as agreed by the Company and the Depositary) in order for (a) the American Depositary Shares to be registered on Form F-6 under the Securities Act or (b) the American Depositary Shares or the Shares to be traded solely in electronic book-entry form and (ii) do not in either such case impose or increase any fees or charges to be borne by Holders, shall be deemed not to materially prejudice any substantial rights of Holders or Beneficial Owners. Notwithstanding the foregoing, if any governmental body should adopt new laws, rules or regulations which would require amendment or supplement of the Deposit Agreement to ensure compliance therewith, the Company and the Depositary may amend or supplement the Deposit Agreement and the Receipts at any time in accordance with such changed laws, rules or regulations. Such amendment or supplement to the Deposit Agreement in such circumstances may become effective before a notice of such amendment or supplement is given to Holders or within any other period of time as required for compliance with such laws, rules or regulations.

(23) Termination of Deposit Agreement . The Depositary will at any time at the direction of the Company terminate the Deposit Agreement by mailing notice of such termination to the Holders of all Receipts then outstanding at least 30 days prior to the date fixed in such notice for such termination, The Depositary may likewise terminate the Deposit Agreement at any time 90 days after the Depositary shall

 

16


have resigned, if a successor depositary shall not have been appointed and accepted its appointment. If any Receipts shall remain outstanding after the date of termination, the Depositary thereafter will discontinue the registration of transfers of Receipts, will suspend the distribution of dividends to the holders thereof, and will not give any further notices or perform any further acts under the Deposit Agreement, except the collection of dividends and other distributions pertaining to Deposited Securities, the sale of rights and the delivery of Deposited Securities, together with any dividends or other distributions received with respect thereto and the net proceeds of the sale of any rights or other property, in exchange for Receipts surrendered to the Depositary. At any time after the expiration of six (6) months from the date of termination, the Depositary may sell the Deposited Securities then held under the Deposit Agreement and may thereafter hold the net proceeds of any such sale, together with any other cash then held by it under the Deposit Agreement, without liability for interest, for the pro rata benefit of the Holders of ADSs not theretofore surrendered. After making such sale, the Depositary shall be discharged from all obligations under the Deposit Agreement, except for its obligations under Section 5.08 thereof and except to account for the claims of Holders, as creditors of the Depositary, for such net proceeds and other cash, after deducting, or charging, as the case may be, the fees of the Depositary for the surrender of a Receipt, any expenses for the account of the Holder in accordance with the terms and conditions of this Deposit Agreement and any applicable taxes or governmental charges or assessments. Upon the termination of the Deposit Agreement, the Company shall be discharged from all obligations under the Deposit Agreement, except for the Company’s obligations under Section 5.08 thereof. The obligations under the terms of the Deposit Agreement and the Receipts of Holders and Beneficial Owners of ADSs outstanding as of the effective date of any termination shall survive such effective date of termination and shall be discharged only when the applicable ADSs are presented by their Holders to the Depositary for cancellation under the terms of the Deposit Agreement and the Holders have each satisfied any and all of their obligations thereunder (including, but not limited to, any payment and/or reimbursement obligations which relate to prior to the effective date of termination but which payment and/or reimbursement is claimed after such effective date of termination).

(24) Available Information . The Company currently is subject to the periodic reporting requirements of the Securities Exchange Act of 1934 and accordingly files certain reports with the Securities and Exchange Commission (hereinafter the Commission). Such reports and other information may be inspected and copied at public reference facilities maintained by the Commission in Washington, D.C.

 

17


EXHIBIT B

CHARGES OF THE DEPOSITARY

 

Service

  

Rate

  

By Whom Paid

(1) Receipt of deposits and issuance of Receipts    Up to $ 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 $ 5 per 100 American Depositary Shares or fraction thereof    Party surrendering Receipts
(3) Distribution of Cash Dividends and Cash Proceeds    Up to $ 3 per 100 American Depositary Shares    All holders of American Depositary Shares
(4) Administration of the ADSs    Up to $ 3 per 100 American Depositary Shares per annum    All holders of American Depositary Shares

Except as otherwise provided in the Deposit Agreement, any and all other expenses of the Depositary, including, without limitation, expenses or charges for printing, stationery, postage, insurance, cables, etc., are to be borne by the Depositary, or by the Company in accordance with agreements entered into from time to time with the Company.

 

18

Exhibit 12.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Börje Ekholm, certify that:

 

1. I have reviewed this annual report on Form 20-F of Telefonaktiebolaget LM Ericsson (publ) (the “Company”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated April 26, 2017

 

/s/ Börje Ekholm

Börje Ekholm

President and Chief Executive Officer

Exhibit 12.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Carl Mellander, certify that:

 

1. I have reviewed this annual report on Form 20-F of Telefonaktiebolaget LM Ericsson (publ) (the “Company”);

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;

 

4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:

 

  (a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  (b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  (c) evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  (d) disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and

 

5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):

 

  (a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and

 

  (b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting.

Dated April 26, 2017

 

/s/ Carl Mellander

Carl Mellander

Executive Vice President and

Chief Financial Officer

Exhibit 13.1

Certification of Chief Executive Officer

Pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Telefonaktiebolaget LM Ericsson (publ) (the “Company”) hereby certifies, to such officer’s knowledge, that:

 

  (i) the Annual Report on Form 20-F of the Company for the period ended December 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

  (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated April 26, 2017

 

/s/ Börje Ekholm

Börje Ekholm

President and Chief Executive Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 13.2

Certification of Chief Financial Officer

Pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Telefonaktiebolaget LM Ericsson (publ) (the “Company”) hereby certifies, to such officer’s knowledge, that:

 

  (i) the Annual Report on Form 20-F of the Company for the period ended December 31, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

 

  (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated April 26, 2017

 

/s/ Carl Mellander

Carl Mellander

Executive Vice President and

Chief Financial Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. § 1350, and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Exhibit 15.1

 

LOGO

SWEDISH ANNUAL REPORT

FOR 2016 IN ENGLISH

(ADJUSTED VERSION)


CONTENTS

 

The business

  

Ericsson in brief

     1  

CEO dialogue

     2  

This is Ericsson

     4  

Profit improvement

     5  

This is the market

     7  

The customers

     10  

Networks

     11  

IT & Cloud

     13  

Media

     16  

Global presence 24/7

     18  

Customer Group Industry and Society

     19  

Customer Group IPR & Licensing

     20  

The People

     21  

Sustainability and corporate responsibility

     23  

Reporting structure 2016

     25  

Letter from the Chairman

     27  

Financials

  

Board of Directors’ report

     28  

Report of independent registered public accounting firm

     43  

Consolidated financial statements

     44  

Notes to the consolidated financial statements

     51  

Management’s report on internal control over financial reporting

     92  

Risk factors

     93  

Forward-looking statements

     102  

Corporate Governance

  

Corporate Governance report, 2016

     103  

Remuneration report

     131  

Shareholders

  

Ericsson and the Capital market

     135  

Share information

     138  

Other information

  

Five-year summary

     142  

Alternative Performance Measures (APM)

     143  

Financial terminology and Exchange rates

     148  

Glossary

     149  

Shareholder information

     150  


Ericsson Annual Report on Form 20-F 2016

 

THE BUSINESS – Ericsson in Brief

ERICSSON IN BRIEF

Ericsson’s vision is a Networked Society where every person and every industry is empowered to reach their full potential. The potential of the Networked Society lies in transformation through mobility. Transformation in the way people organize their individual lives and carry out vital tasks. Transformation in the way we work, the way we share information, and the way we do business. Transformation in the way we consume and the way we create. To realize the vision of a Networked Society, Ericsson provides industry-leading high performing solutions for Networks, IT & Cloud and Media. The aim is to develop, produce and offer products and services with excellent and sustainable performance, at the right cost. In the fast developing ICT (Information and Communications Technology) landscape, the ambition is to be a preferred transformation partner for existing and new customers.

Ericsson has its headquarters in Stockholm, and the Ericsson share trades on Nasdaq Stockholm and on NASDAQ, New York.

 

LOGO

Changes in Ericsson’s organization and in the Company’s reporting structure

Starting July 1, 2016, Ericsson has implemented a series of organizational and structural changes. The new organizational structure focuses on meeting changing customer requirements and on capturing market opportunities to strengthen strategy execution and drive growth and profitability.

The financial reporting during 2016 has been based on the same segment structure as 2015 with the three reporting segments Networks, Global Services and Support Solutions.

From January 1, 2017, financial reporting is done according to a new structure, with three new financial reporting segments, Networks, IT & Cloud and Media. The new segments contain both products and services and the structure aligns company reporting with strategy execution in a simpler and more transparent way.

In this Annual Report, Ericsson’s operations are described according to the new organizational structure, while all financial data except for impairment testing of intangible assets and goodwill are made according to the prior financial reporting structure Networks, Global Services and Support Solutions.

 

LOGO

 

1


Ericsson Annual Report on Form 20-F 2016

 

THE BUSINESS – CEO dialogue

SHIFTING FOCUS FROM GROWTH TO PROFITABILITY

Ericsson’s CEO Börje Ekholm and Jan Frykhammar, who served as CEO July 2016 – mid January 2017, discuss a number of issues concerning 2016 and important topics for the Company going forward.

What’s your reflection on the year 2016?

Jan | The negative trend with low mobile broad band investments accelerated through 2016, especially in markets with a weak macro-economic environment. As a result, the leadership team and I have been fully committed to the work to reduce cost and improve efficiency, in order to secure resilience and competitiveness for the company. The cost and efficiency program, which was intensified in the second half of 2016, is expected to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 billion in the second half of 2017. This is to be compared with SEK 63 billion for full-year 2014.

Börje | Operators continued to be cautious with investments in equipment as their revenues overall have come under pressure. This was reflected in our results in 2016 which did not reach our expectations. The short-term reality is that growth is limited and we have to adjust to that and prioritize what to focus on. The first task is to establish profitability and adjust the size of our operations to the demand level.

What do you consider to be the most important event during 2016?

Jan | This has been a very special year for me. I took on the role as a CEO mid-year with the ambition to stay until the search for a new CEO was completed.

During 2016 our ambition was to unite the company around the shift in focus from growth to profitability. The successful execution of the intensified activities during the second half of the year is a clear sign that the mindset of the organization has changed, enabling us to continue our work to improve profitability.

Börje | After 10 years as member of the board I got the question if I wanted to assume the day-to-day leadership of Ericsson. One of the major reasons to why I accepted was that I believe that Ericsson is a great company and that there is great business potential to exploit. This company has connected billions of people and soon we will connect many machines. Another reason to accepting the job is that I do not have anything against challenges – on the contrary. They trigger me. Thus, I look forward to refining the strategy to focus investments into areas where Ericsson both can and must win. Even if I have a decade of experience working for Ericsson as a board member, I am assuming this new responsibility with humility, understanding there is much left for me to learn.

How will Ericsson restore profitability?

Jan | As reported in 2016, the cost and efficiency program is progressing towards the target. During the year, we have pushed for strong accountability and focus on performance throughout the company. The program has been expanded to adjust the organization to lower sales volumes, and the priority has been to execute on the cost-out activities and to reduce working capital.

During 2016, operating expenses were significantly reduced through headcount reductions around the world. As the sales decline impacted the gross margin negatively, we also intensified the focus on reducing cost of sales, and thereby improving the gross margin.

Börje | Only consistent profitability and strong cash flow will provide us the freedom to continue investing in our research & development and into our future growth. In the near term, this means we prioritize profitability over growth. We aim at establishing competitive cost structures across all parts of our operations and our portfolio and continue to execute on our ongoing cost and efficiency program. We are also reviewing our overall priorities to focus on the most attractive areas. This effort involves key teams in the company, to secure quality of decisions and speed in implementation once decisions are made. All these activities are done to ensure that we remain at the forefront of technological development – building on the combined strength across products, services and solutions.

How will Ericsson work to further improve customer relations?

Jan | After I assumed the CEO position at the end of June the leadership team and I spent three months visiting a majority of Ericsson’s largest customers. In fact, the whole organization has been very active in 2016 in addressing the demands of our customers with the aim to support them in expanding their businesses, monetize on their business ideas and help them keep pace with the latest industry developments. The new organization, effective from July 1, has been developed to mirror our customers’ way of working and to better meet the needs of different customer segments.

Börje | Our task is to make our customers successful, which in turn will make us successful. It may sound like a management cliché, but we need to make decisions foremost with the customer in mind, thereafter Ericsson and finally the individual business unit. We want to be a partner to our customers as it is through partnership we can add true value. It should be easy to do business with us, and we need to reduce the complexity and simplify our processes in order to be more agile in our responses to customers.

 

2


Ericsson Annual Report on Form 20-F 2016

 

What are Ericsson’s competitive strengths?

Jan | Our strength is in the combination of our technology and services leadership, combined with our global presence and scale. There is actually a natural competitive advantage in our unique combination of products and services, as the network depends on the services we deliver, and the other way around. Our 111,464 employees are seriously committed and have done a great job during 2016 despite the challenging environment.

Börje | Ericsson has shaped an entire industry and led global technology developments in mobility. We are only at the beginning of the mobility journey and as the networks and applications become even more important in a 5G connected world, our customers and the industry look for continuous innovation. Ericsson is built on amazing innovations and great people and our technology leadership is reflected in the 42,000 patents we have in our IPR portfolio. It is easy to quantify our technological strength. However, our competitive advantage arises when we can combine our products, with services and solutions.

Börje, could you comment on the strategic direction going forward?

Börje | As CEO of Ericsson one of my main tasks is to create a long-term strategic plan and execute on that. Emphasis will be on refining the strategy to focus investments into areas where we both can and must win. We need to ensure that Ericsson remains at the forefront of technological development – across our portfolio and markets.

Meeting changing customer requirements and capturing market opportunities is key to being successful and to achieve this we need to continue to build from our core strengths, in both products and services. The job is to ensure that Ericsson emerges as an even stronger leader, providing the industry and our customers with superior products, services and solutions.

In the near term, stability will be key to establishing a strong base for future growth. This means prioritizing profitability over growth, but also to diligently continue to work on efficiency and effectiveness across all operations.

Stockholm, February 24, 2017

 

LOGO

 

LOGO

 

3


Ericsson Annual Report on Form 20-F 2016

 

THIS IS ERICSSON

Ericsson provides high performing solutions for Networks, IT & Cloud, and Media. The company provides infrastructure, services and software to the telecom industry and other sectors. Ericsson has approximately 110,000 employees with customers in more than 180 countries.

During 140 years, Ericsson has delivered customer value by continuously evolving its business portfolio through its core assets – technology and services, global scale and skills. This, in combination with its business expertise, has resulted in a profound technology and services leadership. Ericsson believes that the Company’s technological and financial capability to adapt and the will to change are major competitive strengths.

Ericsson’s ability to transform its core business and its ambition to enter into new and adjacent markets are key to generating customer and shareholder value.

In 2016, approximately 67% of Ericsson’s business was related to services and software sales, compared with less than 50% ten years ago.

This change reflects the ongoing transformation from a hardware-centric business to one where the share of the software and services business continues to increase. However, competitive hardware also remains an important performance differentiator. The number of product platforms has been significantly reduced over time, while the scope has extended from mainly mobile infrastructure and related services to include IT, Cloud, support systems, media and new industry verticals. The workforce is also going through a transformation, reflecting the Company’s business and competence shift. In 2016, approximately 15,000 employees joined Ericsson and about 20,000 employees left the Company, resulting in a net reduction of 4,800 employees.

 

LOGO

 

4


Ericsson Annual Report on Form 20-F 2016

 

PROFIT IMPROVEMENT

In order to restore profitability, Ericsson is focusing on three areas: efficiency improvements, monetize Networks and build success in IT & Cloud, Media and Industry and Society. The cost and efficiency program is progressing towards the target and has been expanded to adjust the organization to lower sales volumes.

Efficiency improvements

In November 2014, Ericsson launched a global cost and efficiency program with the aim to generate savings of SEK 9 billion during 2017, with half of the savings in operating expenses and the other half within cost of sales. On July 19, 2016, the Company announced additional activities, targeting a new lower annual run rate of operating expenses, excluding restructuring charges, of SEK 53 billion in the second half of 2017. This can be compared with SEK 63 billion for full-year 2014 and equates to double the previously targeted savings in operating expenses. All efficiency measures are progressing according to plan. Operating expenses were SEK 60.5 (64.1) billion in 2016 and operating expenses excluding restructuring charges amounted to SEK 56.4 (61.4) billion. Total restructuring charges in 2016 were SEK 7.6 (5.0) billion.

During 2016, the negative industry trends intensified and thus impacted demand for mobile broadband, especially in markets with a weak macro-economic environment. Ericsson’s sales in Europe also declined, as a result of lower capacity sales and the completion of large mobile broadband projects. The sales decline has impacted the gross margin negatively, and implemented cost reductions have not been sufficient to offset the effect. To adapt operations to a lower mobile broadband market, the Company has intensified actions to reduce cost of sales further. The Company’s ambition is to make cost of sales reductions visible in an improved gross margin in the second half of 2017 compared to full year 2016.

The scope of the global cost and efficiency program involves cost of sales reductions in service delivery and supply, as well as operating expense reductions in R&D and SG&A (Selling, General and Administrative expenses) including common support functions. Major elements of the cost of sales improvement plan include activities related to service delivery such as centralization, automation and standardization, and production related activities such as increased outsourcing and production site consolidation. The target is to increase production outsourcing to above 50% in 2017 from less than 40% in 2015. Major elements in the operating expense improvement plan involve headcount reductions and outsourcing. The shift in workforce and competence is also an important long-term, value driving priority.

 

LOGO

 

5


Ericsson Annual Report on Form 20-F 2016

 

Monetize Networks

Ericsson’s strong position in both mobile infrastructure and telecom services has resulted in a large installed global base to build on, which Ericsson aims to monetize to increase sales and improve profitability. In telecom services, the Company monetizes its strong global footprint in managed services, with more than 300 ongoing contracts. In mobile infrastructure, the ambition is to increase capacity and software sales into the installed base. While market conditions are challenging in certain parts of the world, the Company continues its work to capture business opportunities as more markets shift from 3G to 4G. At the same time, the Company intends to capture growth on the strong 4G footprint with the ambition to extend its technology leadership in the emerging 5G market. The ambition is to lead in 5G transformation and thereby also strengthen profitability within the Networks business. Improving the Network Rollout business from negative to break-even or positive result is included in the monetize Network’s area.

Build success in IT & Cloud, Media and Industry and Society

Some of the attractive characteristics in the adjacent areas IT & Cloud, Media and Industry and Society are recurring revenues and a higher share of software and professional services. Over time, growth is primarily expected to be organic, complemented by selective acquisitions and a broad range of partnerships and collaborations. The overall ambitions of the partnerships, collaborations and selective M&A activities are to expand market footprint, strengthen competitive assets, fill portfolio gaps, and, above all, strengthen Ericsson’s ability to create value and to accelerate profitable growth. The strategic partnership with Cisco is an example of an important collaboration initiative.

The plan also includes expansion and capturing growth through the customer group Industry and Society in the industry verticals of utilities, transport and public safety by reusing Ericsson’s core offerings.

 

LOGO

 

6


Ericsson Annual Report on Form 20-F 2016

 

THIS IS THE MARKET

Over the next few years, telecom networks will transform into open, horizontal and programmable platforms that can connect all clouds to all devices. The increasing amount of industry use cases, including autonomous cars, massive and critical machine-to-machine communications and the vast usage of sensors will require more spectrum – as well as new spectrum. This will add a new set of requirements to existing telecom networks, creating new business opportunities for Ericsson.

A market in transformation

The market is transforming, creating new needs for Ericsson’s customers. By applying network slicing and virtualization, the network can be segmented in a smart and efficient way. This enables operators to expand their business and address new enterprise segments and industry verticals. Ericsson has taken a broad approach with the ambition to lead and drive the digitalization and transformation of the telecom industry as well as of other industries including utility, transport, and public safety.

Global market trends

The overall macro environment in 2016 has been challenging, especially in emerging markets, with a negative impact on investment willingness in certain regions and markets. In developed markets, investments in Europe have been slow, while investments in the US have remained stable. Investments in China have continued on a high level driven by 4G deployments. Only about 40 percent of the world’s population was covered by 4G/LTE at the end of 2015, which means that there is a great need for additional mobile broadband coverage before the next technology, 5G, becomes available. The demand and interest in digital transformation enabled by 5G, IoT (Internet of Things) and Cloud has accelerated, while at the same time, the industry convergence continues across IT, telecom and media.

In 2022, Ericsson estimates that there will be around 10 billion mobile subscriptions (including cellular M2M) and over 6.8 billion connected smartphones. While the earlier generations of mobile technology offered connectivity to mobile phones and smartphones, the transition to the next generation, 5G, will involve devices beyond smartphones. Ericsson estimates that there will be 29 billion connected devices in 2022, of which 18 billion will be related to Internet of Things. Video is expected to represent 75% of all mobile traffic in 2022.

 

LOGO

 

7


Ericsson Annual Report on Form 20-F 2016

 

New services and IoT communications have a wide variety of requirements on connectivity performance, coverage, security and reliability. Earlier generations of mobile technologies such as GSM and LTE operate on licensed spectrum. In 5G, licensed and unlicensed spectrum will be needed and both traditional (e.g. Wi-Fi, LTE) and new radio access technologies will be used. In the existing spectrum, 5G technology is an evolution of LTE networks and therefore backwards compatible with earlier generations of mobile communications, while the new spectrum will be addressed by new technologies. The technologies will interwork and offer strengthened capabilities to support a broad range of services.

Enriched mobile communications via smart-phones have different requirements than machine type of communications.

IoT communications also have different requirements depending on if it is critical or massive. Critical IoT might require high quality of service (QoS) or telecom grade connectivity, while the requirements of massive IoT applications such as smart sensors that connect to the cloud once in a while, are related to low cost, low energy consumption and low bandwidth.

In an environment with high data volumes, low latencies and a large number of devices, the architecture needs to be horizontalized. The benefits of a horizontal platform include the possibility to slice the network to allocate resources in the most optimal way and to connect a device to applications relevant to that device in the cloud.

Building network infrastructure in a cloud environment also requires a decoupling of network functions (software) from hardware, which is achieved through technology virtualization.

 

LOGO

 

8


Ericsson Annual Report on Form 20-F 2016

 

5G

Ericsson is at the forefront of the 5G market, having signed 28 MoUs (Memorandum of Understanding) with operators, and with 20 different industry partners and some 45 universities and research institutes involved in the development of 5G. In addition, Ericsson is taking a leading and active role in 5G standardization globally. The Company expects 5G in large commercial deployments by 2020.

The 5G network will spur both business and technical innovation across many industries. Ericsson has several testbeds and is performing field trials of 5G radio technology, with larger pre-commercial operator trials planned for 2017.

5G forms a network where fixed and mobile services converge and will therefore also require a transformation of both the core network and the transport network. The network will consist of different access and connectivity solutions, driven by software, addressing the demands on mobile communications beyond 2020. The network will be sustainable, flexible and operationally scalable, addressing multiple industries and use cases. In fact, it will change the way the telecom industry has worked so far.

During the lifetime of traditional mobile communications, the development and adoption of new technology generations has been done through standardization processes and bodies. 5G is different as it will include devices beyond smartphones and therefore have more extensive adaption. Hence, the broad variety of use cases requires cross industry collaboration and a combination of conventional standardization and the use of Open source solutions. Thus, 5G will form a new global ecosystem with multiple use cases where Ericsson’s offering includes telecom transformation as well as digital transformation of other industries.

The increased traffic capacity and the very high data rates of 5G technology will require the development of a new flexible air interface, NX, and the introduction of new spectrum within the existing spectrum below 6 GHz, as well as new spectrum in higher frequency bands up to 100 GHz. As capacity needs have continued to grow, the use of spectrum has shifted towards higher frequencies where larger channel bandwidths are more easily found. Compared to 4G-licensed spectrum, the efficiency of 5G-licensed spectrum is significantly enhanced. Backhaul capacity also needs to evolve further to support future extreme capacity needs.

With data rates up to 100 times faster, network latency lowered by a factor of five, mobile data volumes 1,000 times greater than today’s, and battery life of remote cellular devices stretched to 10 years or more, 5G will enable new capabilities, of which greater efficiency, agile networks and seamless connectivity are a few examples. The 5G network will also, supported by its inherent sustainability characteristics, consume much less energy than earlier generations and be more cost efficient through automation and hardware optimization.

 

LOGO

 

9


Ericsson Annual Report on Form 20-F 2016

 

THE CUSTOMERS

Ericsson’s main customers are telecom operators around the world, representing approximately 90% of revenues in 2016. In addition, the Company has customers in the selected industries of utility, transport and public safety. The IPR licensing business customer base is mainly handset suppliers.

Operators

For operators to be competitive, the telecom networks need to remain a relevant part of providing high quality user experience, and they need to deliver added value in new and unique ways. Operators focus on differentiating their offerings, investing in agile and efficient networks, managing the user experience and complexity and securing good coverage and performance for all services. During 2016, there has also been an increased operator focus on 5G and IoT, digital transformation and core network transformation.

As mobile data traffic and the number of devices continue to increase, operators need to invest in infrastructure that supports throughput, performance and the large volumes of devices. While quality of service is the foundation of success, some operators differentiate by investing in high performing networks, some by swiftly adapting to market conditions and others by being first in the market with uniquely designed service offerings.

Utility, transport and public safety

The industries of utility, transport and public safety use ICT technologies in the ongoing market transformation, which is driven by mobility and new evolving technologies including smart grids, intelligent transport systems and services. Customers in these industries use ICT as an enabler to enhance the customer experience through innovation as they develop new business models and form new ecosystems.

Handset suppliers

Ericsson’s revenues from IPR (Intellectual Property Rights) has a customer base mainly consisting of handset suppliers. Smartphones are based on mobile technology, and Ericsson’s essential patents cover 2G, 3G, and 4G technologies. Over the next few years the IPR and licensing customer base is expected by Ericsson to expand to suppliers of IoT-connected devices.

 

LOGO

 

10


Ericsson Annual Report on Form 20-F 2016

 

THE BUSINESS – Business structure

NETWORKS

From 2017, the Networks segment consists of two business units, Network Products and Network Services. The overall focus is on evolving and managing access networks, including the development of hardware and software for next generation radio access and transport networks. Networks will be reported separately within the new reporting structure from 2017.

 

LOGO

Introduction

In Networks, Ericsson supports its operator customers by leveraging the advantages of technology and services leadership. The portfolio of radio networks and backhaul solutions are based on industry standards and can also be industrialized and adjusted to meet the demands of other industry verticals. In addition, Ericsson’s services capabilities address operator demand in an increasingly complex network environment.

The new organizational structure enables a close set-up between products and services, and allows technology and services expertise to stay close to customers, which also supports simplicity and speed in the delivery process.

Market trends and addressable market

The addressable market for Networks is estimated by Ericsson to be USD 100 billion in 2016, including both products and services.

The competitive portfolio of radio networks and backhaul solutions are based on the technology platforms that the Company develops for telecom operators. Telecom operator revenues in developed markets have been flat during recent years, and investments in many emerging markets have been impacted by a weak macro-economic environment. These circumstances have impacted the overall RAN (Radio Access Network) equipment market, which is estimated by Ericsson to have declined by 10–15% in 2016. This trend is expected to prevail and the Company is estimating that the RAN equipment market will decline by 2–6% in 2017.

Offering – main components

Networks includes several generations of radio networks as well as small cells and microwave products. Ericsson offers hardware and software both for radio access and transport. The Company also has a broad and global range of product-related services comprising design, optimization, network rollout and customer support. In addition, Ericsson provides managed services, which is a vendor agnostic service business that manages operator networks regardless of the equipment supplier. The Company operates and manages any network, or integrates any network technology, regardless of the equipment that is currently installed.

Business model

Mobile broadband

Ericsson’s most traditional business model is mobile broadband, where the Company delivers and rolls out telecom networks including all

 

LOGO

 

11


Ericsson Annual Report on Form 20-F 2016

 

necessary hardware and software. Key aspects for an operator to roll out a new technology – such as 4G/LTE – include satisfying end user demand in an efficient way, while maintaining a high-quality user experience and maximizing the revenue potential. When building network coverage across one or more geographic areas, the coverage phase, there is a large share of hardware, and the project often includes network rollout services. For Ericsson, the initial build-out or rollout phase is capital-intensive and has a lower-than-average gross margin. Currently LTE coverage is growing quickly in urban, suburban and rural areas in many countries, and Ericsson estimates that world population coverage by LTE technology will be above 80% in 2022.

When the network is up and running and demands for capacity expansions and quality improvements arise, profitability increases, driven by an increased share of software sales, network densification and less complex hardware installations, network optimization and customer support. This phase is called the capacity phase. The coverage phases are normally 1–2 years while the capacity phase lasts until the equipment is phased out, normally after 7–10 years in operation. One of the key drivers for increased capacity in the mobile networks is increased mobile data usage. Ericsson estimates that traffic generated by smart-phones alone will increase tenfold between 2016 and 2022.

Managed Services

In Managed Services, Ericsson takes over aspects of a customer’s business operation as a commitment over several years. The Managed Services business model includes three phases. The initial phase, the transition, is coupled with lower profitability, as it involves up-front costs when staff and expertise are transferred from the customer to Ericsson. In the second phase, the transformation phase, Ericsson introduces its global processes, methods and tools and implements a global delivery model. In the third phase, Ericsson focuses on optimization and industrialization by simplifying, implementing and consolidating resources, processes, methods and tools to allow for improved profitability. Managed services contracts are normally 5–7 years long. The first two phases last for 1–1.5 years while the optimization phase represents the remainder of the contract period.

The Company believes that it has reached a good balance of contracts in the transition, transformation and optimization phases.

Priorities

Ericsson is a leading and trusted network partner. Networks’ mid-term priorities are to leverage the installed base, improve profitability and increase the competiveness of its portfolio with the best total cost of ownership for its customers, as well as secure leadership in the evolution to 5G. To leverage the installed base Ericsson plans to grow its managed services and customer support business by addressing end user experience and network evolution, grow capacity sales and leverage new spectrum. In addition, the Company focuses on increasing the availability of its new radio platform Ericsson Radio System. To improve profitability and increase competitiveness, Ericsson is taking actions within Networks to improve R&D efficiency, change the supply strategy to fewer sites and a higher share of outsourced production, scale Ericsson Radio System deliveries, leverage its service delivery efficiency and promote industrialization and automation of tools and process in services delivery. In order to secure leadership in the evolution to 5G, Networks is offering capabilities for consultation and integration of solutions for 5G and IoT, is leveraging 5G software “plug-ins” (5G software features that can be applied to 4G networks) and is introducing the world’s first commercial 5G radio. In addition, the Company is driving the 5G ecosystem through collaboration with customers, universities and other industries and partnerships.

 

LOGO

 

12


Ericsson Annual Report on Form 20-F 2016

 

IT & CLOUD

The IT & Cloud business includes two business units: IT & Cloud Products and IT & Cloud Services. The focus in IT & Cloud is to help telecom operators and selected enterprises through the digital transformations ahead. This is handled mainly in three domains: Support Systems (OSS and BSS), Telecom core and IT Cloud. IT & Cloud will be reported separately within the new reporting structure from 2017.

 

LOGO

Introduction

The technology evolution driven by mobility, broadband, analytics, Internet of Things (IoT) and cloud is triggering a new wave of digital transformation. It is not only a technology shift but also a strong enabler for business transformation across many industries. For operators, three main business drivers for transformation can be defined:

 

   

Digital operations – using cloud, virtualization and automation to build a more agile and efficient network and operations

 

   

Digital engagement – as operators move from just selling connectivity to providing a full customer and application centric business, they need new tools and ways to constantly be able to engage with customers and partners

 

   

Digital services – the ability to innovate and introduce services in days, not months, using insights derived from data analytics to identify and capture new business

Digital transformation for operators is not only a way to stay competitive, it is also a necessary shift to prepare for the growing IoT business.

IT & Cloud address these emerging demands, and with its extensive product portfolio and comprehensive service offering, IT & Cloud is equipped to handle transformations.

The desired position for Ericsson is to become a leading digital business transformation partner in and across the support systems, Telecom core and IT Cloud domains.

Market trends and addressable market

IT & Cloud’s focus is on creating opportunities for operators to unlock the full potential of mobility, mobile broadband, analytics, IoT and cloud.

Digital transformation for operators is closely related to the support systems domain and is driven by the fact that today’s customers, both consumers and enterprises, exhibit different expectations and behavior compared to what

 

LOGO

 

13


Ericsson Annual Report on Form 20-F 2016

 

many incumbent businesses are used to. This has resulted in many operators realizing that they need to embrace digital transformation to change the way they interact with their customers and to be able to provide a convenient and context-aware experience across all customer touch points. In addition, operators increasingly work with partners to participate in or drive ecosystems that accelerate innovation and increase value for consumers and industries. Lastly, to reach agility, automation and resource efficiency from software-defined infrastructure, virtualization of network functions and software-defined networking, operators are looking to transform their back-office operations and IT environments to take advantage of advanced analytics and machine learning technology.

The market for Telecom core transformation is driven by operators wanting the ability to address new enterprise segments cost efficiently, with new offerings, business models and use cases based on 5G or IoT, or both. This need is satisfied by using new Telecom core technologies like software-defined infrastructure and networking, virtualization, open systems and analytics, which allow the operator to slice its network to serve a particular industry or business segment, for example. Slicing provides dedicated yet dynamic resource utilization and quality assurance for each business, independent of others, at a much lower total cost for operators.

IT operations are under pressure to deliver speed, scalability and flexibility that meet business demands, while at the same time reducing CAPEX and OPEX. The virtualization of network functions and the related horizontal network architecture creates a market for cloud transformation and convergence of IT and networks. In addition, new cloud technology allows any enterprise to build cloud infrastructures to support their digital transformation, including architecture and economics equivalent to that of the traditional cloud service providers. The market also shows an increasing interest in making more use of public clouds for enterprise applications and in creating a hybrid cloud that shares resources from private and public clouds to run their workloads.

Offering – main components

Transformation implies journeys from the current state to a future state in many dimensions of the business. Ericsson’s IT & Cloud product and service portfolio provides customer solutions for all of the above mentioned transformation journeys. The Company believes that the ability to offer a combination of products, technology and expertise in networks, software, cloud and business processes is a significant competitive advantage. This ability is highly relevant to other industries as well as it enables expansion of the business beyond telecom operators even further.

IT & Cloud Services

With over 17,000 consultants and systems integrators building and using common best practices, service automation and asset tools, Ericsson is in a strong position to guide customers through the challenging, complex and in many cases multi-year transformation journeys. Ericsson’s services capabilities enable customer engagements ranging from consulting, setting the business direction and transformation plan, systems integration and building the new environment to establishing business processes and IT operations on behalf of the customer. The systems integrators implement the new solutions and migrate operations to the new environment, and the lifespan of the customers’ legacy applications can be extended with the Application Development and Modernization services.

 

LOGO

 

14


Ericsson Annual Report on Form 20-F 2016

 

Support Systems products

Ericsson has a market leading comprehensive, pre-integrated and modular support systems (OSS and BSS) software offering for Revenue & Customer Management, Analytics, Service Orchestration, Assurance and Network Management. Improved end-user experience with personalized offerings, consistent and effortless omnichannel experiences, simplification of network complexity, 5G and IoT are all examples of drivers for a transformed support systems environment to become a digital operator or enterprise.

Telecom core products

Ericsson provides a complete end-to-end offering for communications services including IP Multimedia Subsystem (IMS) core, application servers, subscriber databases, mobile soft switch, VoLTE and evolved packet core. These network functions are offered as physical or virtual instances to suit a wide range of operator requirements. Ericsson has a leading portfolio of virtualized network functions and an end-to-end portfolio including Service Provider SDN to support orchestration of virtualized applications in an automated way. In addition, Ericsson also provides what is known as NFV infrastructure which is a common platform for network functions that are virtualized during transformation of the core network.

IT Cloud products

A cloud system contains a range of compute, storage and networking modules that work together to build a wide range of virtual systems. Ericsson’s Cloud Infrastructure offering entails software-defined data centers and hardware platforms, software-defined networks, open platform technologies and cloud management. One of the major products is the Hyperscale Datacenter System 8000 – a new generation of datacenter system that uses a disaggregated hardware architecture for better resource utilization.

Ericsson’s cloud infrastructure solutions are based on open source and OpenStack, making the solution relevant for any industry. It can be used for different businesses in different industries, ranging from telecom cloud to hyperscale software-defined infrastructure.

Business model

The traditional business model has been to offer products and services. This has over time developed towards project business with larger and more complex undertakings. The undertakings are becoming larger, turning into full transformation projects with business benefit goals, and they include hardware and software from multiple vendors. A transformation project can turn into an IT managed services contract where Ericsson operates the transformed environment on behalf of the customer. Over time there will also be as-a-Service models in the IT & Cloud market.

Priorities

The business and operational priorities for IT & Cloud are as follows:

 

   

Monetize the leading position – address the large installed customer base in Support Systems and Telecom core to extend the existing engagements and to grow the recurring revenues

 

   

Re-focus the go-to-market approach – leverage the relationship with operator Chief Technology Officers to address operator Chief Information Officers. Also investigate opportunities in the enterprise markets

 

   

Shift the portfolio – re-allocate product investments to support the growth areas, which are driven by digital transformations. This also includes the strategic partnership with Cisco to broaden the IP portfolio

 

   

Develop service delivery – modernize tools and methods for service automation, increase use of partners and open source and establish digital transformation centers for knowledge build-up and sharing

 

   

Shift people and competence – continue the shift towards IT, business process transformation and cloud competence

 

15


Ericsson Annual Report on Form 20-F 2016

 

MEDIA

Ericsson’s Media business offering includes products and services, and focuses on new market entry and expanding the Company’s footprint globally. The segment Media will be reported separately within the new reporting structure from 2017.

 

LOGO

Introduction

Consumer behavior is a key driver in the transformation of the media market. As an increasing share of TV and video is accessed over a smart-phone, delivering seamless TV experiences on smartphones will be a basic requirement as well. Mobile video consumption is vastly outgrowing traditional linear consumption. Ericsson offers innovative solutions that enable content owners, broadcasters, TV service providers and network operators to efficiently deliver, manage and monetize new TV experiences. Ericsson’s ambition is to be a transformation partner – which shapes the future of TV. To show its commitment to the media business the segment Media brings together media products and services competence for Content owners, Broadcasters, TV service providers and Network operators to support Ericsson’s customers in the ongoing industry transformation.

Market trends and addressable market

The fragmented TV market includes IP technology, networks and the vast amount of video-enabled connected devices that are driving the transformation of the market. Ericsson estimates that the share of video traffic will increase to 75% of total mobile traffic in 2022, compared to 50% today. The industry convergence and competitive landscape require a new set of skills and there is an increased demand for outsourcing of media operations.

While the cable operator market is moving in the direction of all IP delivery, broadcasters are seeing increased competitive pressure from the telecom operators, which are moving into broadcasting by packaging and distributing content over broadband. They are expanding their business from controlling the bit pipe to also include production and control of content. This is reflected for example in AT&T’s move towards content and its proposed takeover of Time Warner, and in Verizon’s acquisition of AOL and Yahoo.

The over-the-top players (OTT) that create global offerings at lower price points constitute another group of competitors to broadcasters. Compared to the global over-the-top players, broadcasters have a strong advantage in their localized content. They know the culture and the local consumption habits, something that Ericsson in its offering is also trying to leverage. The aim is to be global but with a localized managed services model.

Offering – main components

Ericsson develops and delivers software-based solutions for TV and media and combines a product portfolio that spans the TV value chain, with systems integration and managed services. The portfolio includes compression, software and hardware-based video processing and storage, content publishing via set-top box or pure OTT, content delivery and analytics. Services include broadcast playout, media management, captioning, content discovery and Systems Integration. The end to end offering allows Ericsson to advise, guide, support, implement and manage its customers’ transformation in the evolution of TV.

 

LOGO

 

16


Ericsson Annual Report on Form 20-F 2016

 

MediaFirst

At the core of Ericsson’s MediaFirst offering is the MediaFirst TV platform, which enables personalization, interactivity and multiscreen viewing capabilities. The platform is a software and cloud-based platform, which was developed to cater for the creation, management and delivery of next generation pay TV. Hence the MediaFirst portfolio includes the cloud TV platform, media delivery solutions and media processing.

Broadcast managed services

Every year, Ericsson Broadcast Services distributes more than 4 million hours of programming in more than 60 languages for more than 500 TV channels worldwide.

When Ericsson manages broadcast services, the Company handles the technical platforms and operational services including content logistics, library management, quality control, playout services, WebTV and mobile services. The Media service offering enables broadcasters to reduce time to market, minimize business continuity risk and achieve significant OPEX and CAPEX savings.

Package and Deliver managed services

Ericsson’s end-to-end Package and Deliver managed services offering includes the cloud media processing platform. The service platform utilizes cloud-based tools to deliver highly resilient, secure and flexible non-linear contribution, archiving and media processing. These services can deliver scalability, flexibility and elasticity to broadcasters, TV platforms and content owners.

Business model

Ericsson is moving towards a business model with a high degree of recurring software and service sales. In the new organization, Ericsson’s Media business centrally manages broadcast and cable customers. The go-to-market strategy is to move from a fragmented model to a more focused model to drive sales in selected top accounts. This will include geographical prioritization and involve both direct sales and partnering.

Priorities

Ericsson’s ambition is to be its customers’ video transformation partner. Focus is on capturing growth in media through increased software sales and expanding recurring revenues. Providing technology that brings cloud capabilities into the TV network, with the flexibility and elasticity needed to deploy software applications, continues to be a top priority. Ericsson’s ambition is to increase sales to non-operator customers and work with channel and portfolio partners, while capturing synergies from the new organization. The Company is transferring investments from legacy hardware based products to next-generation software and cloud based solutions, while focusing on a go-to-market model that drives profitable growth.

 

17


Ericsson Annual Report on Form 20-F 2016

 

GLOBAL PRESENCE 24/7

Ericsson is a global company, with customers in more than 180 countries. The Company has been present in many countries, such as China, Brazil and India, for more than 100 years. The go-to-market organization is based in 10 geographical regions and one region Other.

NORTH AMERICA -6%

Mobile broadband investments were stable. Professional Services sales were negatively impacted by a 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.

SHARE OF GROUP REVENUES: 25%

LATIN AMERICA -16%

Sales decreased following reduced mobile broadband investments due to a weak macroeconomic environment 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.

SHARE OF GROUP REVENUES: 8%

WESTERN AND CENTRAL EUROPE -18%

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.

SHARE OF GROUP REVENUES: 7%

MEDITERRANEAN -10%

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.

SHARE OF GROUP REVENUES: 9%

NORTHERN EUROPE AND CENTRAL ASIA -15%

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 and Media sales declined.

SHARE OF GROUP REVENUES: 4%

MIDDLE EAST -16%

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.

SHARE OF GROUP REVENUES: 9%

NORTH EAST ASIA -3%

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.

SHARE OF GROUP REVENUES: 12%

INDIA -20%

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.

SHARE OF GROUP REVENUES: 5%

SUB-SAHARAN AFRICA -11%

Investments declined, impacted by a weak macroeconomic environment, local currency depreciation in key markets as well as low oil and commodity prices.

SHARE OF GROUP REVENUES: 4%

SOUTH EAST ASIA AND OCEANIA 15%

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.

SHARE OF GROUP REVENUES: 10%

OTHER -23%

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.

SHARE OF GROUP REVENUES: 7%

Legend: ± XX%

The percentage figure shows sales change 2016 compared to 2015, %

 

18


Ericsson Annual Report on Form 20-F 2016

 

CUSTOMER GROUP INDUSTRY AND SOCIETY

Customer Group Industry and Society addresses industries beyond telecommunications with existing Ericsson capabilities, IoT solutions and industry-adapted offerings in order to ensure scale and efficient operations across the Company. Industry and Society plays an important role in Ericsson’s strategy to expand the business beyond telecom operators by reusing and extending the current portfolio of both services and products.

Introduction

The digital transformation offers huge potential in terms of new innovations, improved efficiency, sustainability and safety in any industry. The industries benefit from Ericsson’s mobility expertise and services innovation, including, for example, solutions for smart grids in utilities and for connected vehicles in the automotive industry.

Market trends and addressable market

Ericsson’s selected industries within Industry and Society – utilities, transport and public safety – have geographically dispersed networks, regulatory frameworks and business models. This is particularly true for utilities and transport, which in many ways face conditions that are similar to those of telecom operators. Like telecom operators, they need to transform, increase their operational efficiency, improve customer experience and deliver a higher degree of innovation.

Offering – main components

For the selected industries in Industry and Society, Ericsson reuses its existing products and services offerings developed for operator customers. Ericsson has also developed a number of industry-specific cloud solutions, such as Connected Vehicle Cloud. These industry-specific solutions combine industry applications, service enablement, connectivity management and consulting as well as systems integration and managed operations services.

Business model

The new organizational structure enables Ericsson’s technology and service expertise to be close to the selected industries. Industry and Society operates with direct sales channels and work closely with partners to optimize the solutions. Ericsson supports companies not only through innovative offerings but also through its analytical capabilities, local and global presence and ability to support the customers as they develop and deploy new business models.

Priorities

Industry and Society focuses to profitably extend the business globally in the utilities, public safety and transport industries. Ericsson also evaluates the potential of entering into other industries.

 

LOGO

 

19


Ericsson Annual Report on Form 20-F 2016

 

CUSTOMER GROUP IPR & LICENSING

Ericsson has more than 42,000 granted patents. The Company is a net receiver of licensing royalties and has agreements with the largest handset suppliers in the world. Ericsson continues to expand its IPR licensing business into new technologies and industries.

Introduction

Ericsson’s technology leadership in mobile communications is demonstrated by a further strengthened IPR portfolio of more than 42,000 granted patents compared to 39,000 granted patents in 2015. Through its IPR licensing, the Company is able to encourage innovation and re-invest in further development of the communications eco-system. At the same time, IPR licensing strengthens Ericsson’s position as one of the technology leaders in the ICT industry and ensures a fair return on the Company’s R&D investment through fair, reasonable and non-discriminatory (FRAND) licensing.

IPR licensing revenues were SEK 10.0 (14.4) billion in 2016 with margins above the Company average. The Company is currently expanding its licensing business beyond handset suppliers to include other industries such as media and IoT device manufacturers. Internet of Things represents an opportunity for connected device manufacturers to expand their product offerings to new areas, and for Ericsson to expand its IPR business and become a preferred technology partner in new industries.

Market trends and addressable market

Ericsson’s licensing business promotes open standards, which enable decreased costs of technology for consumers through economies of scale and fair pricing. The open standards also lower barriers to market entry and, through interoperability and high performance, enable large markets for digital products and services. The majority of today’s IPR licensing revenues are generated from handset suppliers. The Company has agreements with the largest handset suppliers in the world. However, over the last couple of years an increasing share of the handset market is represented by the Chinese suppliers. Ericsson does not yet have agreements with some of these suppliers, which affects the IPR licensing revenue negatively in the short-term. The company is addressing new handset suppliers with the ambition to sign license agreements with them.

Ericsson is expanding the licensing business to cover products beyond handsets as connectivity is introduced in industries other than telecommunications. By 2022, the number of connected devices is expected by Ericsson to grow to 29 billion from today’s 16 billion devices.

These other industries need efficient ways to allow for all connected devices to be adequately licensed. As standard-essential patents are licensed, licensing terms are adapted for each use case to reflect the value of the patented standardized technology for the device in question and its user. The value of wireless connectivity differs greatly depending on the use case, and FRAND licensing practices are flexible enough to handle this.

The Avanci platform

In 2016, Ericsson led the formation of Avanci, a one stop shop for licensing of standard essential patents for certain IoT applications. Avanci is a third party entity through which holders of standard essential patents can license their wireless technologies to companies and manufacturers who develop and create connected devices for the IoT. For device manufacturers, the open marketplace simplifies access to wireless technologies. Avanci connects the patent holders with the companies developing the IoT devices in an uncomplicated manner and simplifies the process of identifying what essential patents are required in each device. Avanci’s initial focus will be on licenses for connected vehicles and smart meters.

Offering – main components

Ericsson’s IPR portfolio includes both patents and technology know-how. Patent licensing includes giving access to patents for different technology standards, while in technology licensing Ericsson provides specifications for proprietary technologies such as different interfaces.

Business model

For Ericsson, there is great value in the IPR portfolio in terms of securing cross-licensing agreements. These agreements are signed with other IPR patent holders in order to avoid litigation or disputes, and they give both signing companies the freedom to market products and solutions that utilize each other’s technology. As Ericsson has a strong patent portfolio, the Company believes that this approach also enables the Company to commercialize and obtain a fair return on the IPR portfolio when others use the Company’s technology.

Over the past five years, annual R&D investments have been SEK 32–36 billion, and in 2016 revenues from the IPR licensing business were SEK 10.0 (14.4) billion. As IPR licensing margins are above the Company average, they have an accretive impact on profitability.

Priorities

Ericsson’s ambition is to capture growth in the IPR licensing business by leveraging its technology leadership, ensuring license agreements with handset suppliers and expanding its business to industries other than telecommunications.

 

20


Ericsson Annual Report on Form 20-F 2016

 

THE PEOPLE

The People strategy is essential for Ericsson during its journey of transformation. Being a people business, Ericsson’s future success depends on the Company’s ability to attract, develop, motivate and retain talent.

By attracting and developing the best talent and establishing a high-performance organization, Ericsson can maintain a leading position in the industry. The core values of Professionalism, Respect and Perseverance are part of the Ericsson culture of creativity and innovation. The enabling culture empowers individuals and teams, which continue to transform the business and fulfill their own potential.

 

LOGO

Attracting the best talent

Competition for talent in the ICT industry is intense and Ericsson works continuously to attract the best talent.

The work of Ericsson employees can positively impact the lives of people around the world. Employees can also volunteer their time in many of the Company’s Technology For Good programs to bring the benefits of the Networked Society to all. In that sense, Ericsson is for people who want to make a real difference.

Ericsson strives to be a global employer of choice with consistent values. At the same time it is important to meet local needs. Ericsson wants to be recognized as a company that can fulfill both personal and career ambitions of current and potential employees.

Through an employee referral program, Ericsson involves top talent to attract other top talent from the market. The “You + Ericsson Concept” communicates people stories in social media that demonstrate Ericsson’s culture and global opportunities. Ericsson also works with universities all over the world to attract talent early. Furthermore, the Company works to promote computer science and STEM (science, technology, engineering and mathematics) education together with tech-oriented groups and community associations.

Skills as a core asset

In a rapidly evolving market, Ericsson’s employees work hard to develop and evolve the necessary skills needed to maintain a leading position in the ICT industry and to successfully support Ericsson’s customers’ transformation journey. The Company’s approach to learning is two-pronged: the first prong is a bottom-up approach with a strong focus on skills and career development at the individual level; the second

 

LOGO

 

21


Ericsson Annual Report on Form 20-F 2016

 

prong is a top-down approach that aims to close key competence gaps to enable proper execution of the Company’s business strategies and operating objectives.

Ericsson Academy prides itself on giving its employees in around 150 countries easy and equal access to innovative digital learning. Ericsson’s new Virtual Faculties, which consist of the Company’s experts in different areas such as cloud, 5G, small cell and service delivery, offer live virtual recordings in interactive sessions with employees. Through virtual sandboxes, employees get the possibility to learn about Ericsson’s portfolio to supplement their work experience.

Engagement and leadership

Ericsson’s ambition is for employees to stay motivated and engaged. To measure overall employee motivation and commitment to the company’s success, Ericsson conducts an employee survey – the Employee Engagement Index.

In 2016, due to organizational changes that took place from July 1 and a new organizational structure that was not yet complete, Ericsson conducted a poll of a representative sample of 25% of the global employee population instead of the Group wide survey normally conducted annually. Complex industry and organizational changes were reflected in overall engagement levels; the engagement index was 68% in 2016 compared to 76% in 2015. However, for Ericsson as an organization, the employees continue to report a very high sense of pride, with 82% stating that they are “proud to work for Ericsson”, compared to 88% in 2015.

Developing the right leadership capabilities and skills is essential for Ericsson’s Networked society strategy. Strong leadership is critical to taking the business forward as the Company continues to evolve.

Diversity at an inclusive workplace

Ericsson is a global company with over 170 nationalities within the organization and customers in more than 180 countries. With diversity and inclusion as one of the prime drivers of culture, Ericsson aspires to be as diverse as the world in which the Company operates. Diversity is supported by an inclusive workplace where people are valued for the different perspectives, ideas and experiences that they bring to the Company.

Attracting more women to the technology sector remains a challenge. One of Ericsson’s goals for 2020 is for 30 percent of all executives, line managers and the overall workforce at the Company to be women. To achieve this goal, the gender perspective is included in strategic processes, including talent acquisition and development programs. Ericsson also works with universities and through employer branding to attract more women. Additionally, the Global Leadership Team members all have diversity and inclusion objectives related to gender in their performance management goals.

 

LOGO

 

22


Ericsson Annual Report on Form 20-F 2016

 

SUSTAINABILITY AND CORPORATE RESPONSIBILITY

As a responsible and relevant driver of positive change in society, Ericsson is committed to creating business value while reducing risk.

Key focus areas

Ericsson’s Sustainability and Corporate Responsibility (CR) focus areas are conducting business responsibly, the environment, energy and climate action, and internet for all. Since launch in 2015, the UN Sustainable Development Goals (SDGs) to end poverty, fight inequality and injustice and halt climate change provide a framework for describing and measuring Ericsson’s impacts on society.

Conducting business responsibly

Responsible business practices are embedded in Ericsson’s operations to manage risks. The Ericsson Group Management System includes Group policies, processes and directives encompassing responsible sourcing, occupational health and safety, environmental management, anti-corruption and human rights. External assurance providers audit the system and the Ericsson Sustainability and CR report.

Governance

The Code of Business Ethics (CoBE) sets the tone for how Ericsson conducts business globally. All employees periodically acknowledge the CoBE with the next such acknowledgement planned for 2017. The Code of Conduct applies to employees and suppliers and is based on the UN Global Compact (UNGC) ten principles on human rights, labor conditions, environmental management and anti-corruption. Ericsson is committed to implementing the UN Guiding Principles on Business and Human Rights (UNGP) across its business operations and addresses and reports on its most salient human rights issues (the right to privacy, freedom of expression and labor standards) according to the UNGP Reporting Framework annually in its Sustainability and CR report.

Anti-corruption

Ericsson has a zero-tolerance approach to corruption and has invested continuously and systematically over the past decade in order to strengthen anti-corruption processes. The Company’s anti-corruption program, headed by a Chief Compliance Officer, focuses on prevention and accountability. In 2016 it was strengthened through introducing an automated anti-corruption screening tool for supplier and third-party due diligence. The tool was piloted in one region during 2016 and is planned to be further rolled out in 2017. By the end of 2016, over 95,900 employees have completed the anti-corruption e-learning launched in 2013.

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. 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.

It is important to underline that Ericsson has a zero-tolerance approach to corruption and the Company continuously strengthen its compliance processes and how they are implemented. Over the last year Ericsson intensified its efforts, adding both internal resources as well as engaging outside counsel to support the overall process and give an outside view of the robustness of its programs.

Human rights

To fulfil its responsibility to respect human rights in accordance with the UNGP, Ericsson has developed and strengthened its human rights framework. The Ericsson Sales Compliance Process includes a forum that regularly reviews potential human rights impacts, with mitigation actions determined by the Sales Compliance Board where necessary.

Since 2013, Ericsson has performed UNGP-aligned Human Rights Impact Assessments in Myanmar, Iran and Ethiopia. In 2016, work was also initiated to evaluate Cuba from a human rights perspective.

Health and safety

As part of its zero major incidents vision within Occupational Health and Safety (OHS), Ericsson applies a risk-based approach to control and prevent work-related hazards. Selected operations undergo internal audits to ensure compliance with the OHSAS 18001 standard. To support a safe work environment for anyone working on

 

23


Ericsson Annual Report on Form 20-F 2016

 

the Company’s behalf, Ericsson takes a comprehensive and inclusive approach. The Company reports in the Sustainability and Corporate Responsibility Report on both its own incidents and fatalities and those of suppliers building and servicing networks on behalf of Ericsson.

Environment, energy and climate change

Ericsson is committed to develop and deliver solutions to support climate action. At the UN Climate Change Conference of the Parties (COP 22) in Morocco in 2016, Ericsson and other leading companies joined world leaders in supporting the goals set out in the Paris Agreement. In 2016, Ericsson’s Connected Mangroves project was one of the five winners of the United Nations Framework Convention on Climate Change “Momentum for Change” award at COP22, which honored ICT initiatives contributing to climate resilience.

Energy performance and water management

Ericsson products are designed with the aim of minimizing the components, packaging and climate impacts. In 2016, continued improvements were made in energy performance across the entire product portfolio, including Ericsson Radio System (ERS), which provides a 50% improvement in energy efficiency on previous generation. ICT also has significant transformative potential to help other sectors such as Energy and Transport to reduce their environmental impact. As a signatory to the UN Global Compact’s CEO Water Mandate, Ericsson signals its commitment to adopting and implementing a comprehensive approach to water management.

Global Product Take-Back

The Ericsson Global Product Take-back Program oversees responsible treatment of products at the end of their lifecycle. The program is offered to customers globally free of charge, not only in markets where this is required by law. In 2016, 9,600 tons of used products were taken back for controlled materials recycling. During take-back, over 98% of the materials are recycled.

Smart, sustainable cities

Deployment of broadband infrastructure is an enabler of many future services such as smart grids and intelligent transport. The Stockholm Royal Seaport project, in which Ericsson has participated for more than five years, offers a blueprint for how Swedish innovation can be applied to the sustainable city design. In 2016, Ericsson began research into enhanced consumer awareness and control of energy consumption through use of connected appliances.

Internet for all

In 2016, Ericsson launched a suite of business solutions to increase viability of mobile internet investments in developing markets. Network innovations help operators create viable and inclusive business in rural or off-grid settings by improving mobile network performance and efficiency and reducing associated network costs, and by enabling affordable 2G to 3G upgrades. These solutions build on Ericsson Radio System to cut total cost of ownership by up to 40% for operators involved in expanding mobile broadband. The Company’s Pure Solar solution launched in Myanmar for off-grid service with no diesel backup.

Technology for Good™

In the Networked Society, Ericsson is a leading advocate for Technology for Good™ using core competence and technology to address sustainable development challenges. Examples include:

 

   

Education – Ericsson is the lead technology partner in Connect to Learn, a global education initiative, now in 23 countries, engaging 16 mobile operators and benefitting about 80,000 students.

 

   

Refugees – Under a global partnership with the International Rescue Committee (IRC), Connect to Learn is working in Domiz refugee camps in Northern Iraq with operator AsiaCell to provide educational support to Internally Displaced People (IDPs) and refugees in their host communities.

 

   

Humanitarian Response – Ericsson Response, deployed under the ICT Humanitarian Response Working Group for Haiti, established 16 sites to support humanitarian users. There were six Ericsson Response volunteers deployed in 2016 to Haiti, with two additional volunteers supporting the deployment through the end of January 2017.

Read more about Ericsson’s approach, performance and initiatives in the Sustainability and Corporate Responsibility Report: www.ericsson.com/sustainability.

 

24


Ericsson Annual Report on Form 20-F 2016

 

REPORTING STRUCTURE 2016

For 2016, Ericsson reported three segments, namely Networks, Global Services and Support Solutions.

Networks

The segment delivered hardware and software that are needed for mobile and fixed communications, several generations of radio networks, IP and transmission networks, core networks and cloud. The major business models were based on network coverage build followed by network capacity expansions and upgrades with a revenue mix consisting of hardware and software. Gross margins were affected by the business mix between sales of network coverage build-outs, upgrades and network expansions. A majority of the Company’s Research and Development (R&D) investments were made within Networks in 2016. Major competitors included Huawei, Nokia and ZTE.

 

LOGO

Global Services

The segment delivered network rollout services and professional services such as managed services, consulting and systems integration (CSI) and customer support as well as network design and optimization services. Through Ericsson’s service delivery organization and it’s four Global Service Centers, Ericsson deployed, operated and evolved networks and related support systems. Ericsson provided managed services to networks that were typically multi-vendor, multi-technology environments. In broadcast services Ericsson expanded its service portfolio offering automation and standardization of processes, methods and tools.

The business mix in Global Services was divided between network rollout services and professional services, and approximately 2/3 of professional services sales were recurring. Major competitors included Accenture, Huawei, IBM and Nokia.

 

LOGO

Support Solutions

The segment developed and delivered software-based solutions for OSS and BSS as well as TV and media solutions. Sales were dominated by software, while the services part of the business was reported in Global Services. Ericsson is transforming the business model from one based on a revenue from traditional telecom software licenses to one that emphasizes recurring software licensing built on subscription-based software offerings. Due to its high software content, gross margin was typically higher than Company average, and at the same time R&D intensive. Major competitors included Amdocs, Huawei, IBM and Oracle.

 

LOGO

 

25


Ericsson Annual Report on Form 20-F 2016

 

CHANGE IN REPORTING STRUCTURE FROM 2017

Ericsson implemented a new organizational structure in 2016. The new structure builds on the Company’s technology leadership, services leadership and global scale and skills, and it supports cost reductions and efficiency improvements. It also removes duplication across portfolios and capabilities. Ericsson has adapted its organization to mirror its customers’ ways of working, with the aim to create a more efficient and purpose-built organization to meet the needs of different customer segments and more quickly seize business opportunities.

From January 1, 2017, financial reporting is done according to a new structure, with three new financial reporting segments, Networks, IT & Cloud and Media. The new segments contain both products and services and the structure aligns company reporting with strategy execution in a simpler and more transparent way.

 

LOGO

 

26


Ericsson Annual Report on Form 20-F 2016

 

LETTER FROM THE CHAIRMAN

Dear shareholders,

During 2016, the market situation became increasingly challenging, mainly driven by a weak macro-economic environment. As a result, the Company increased its focus on improving profitability and on addressing the needs of customers, partly through the implementation of a series of organizational and structural changes. At the same time the Board decided that the time was right for a new leader to drive the next phase of Ericsson’s transformation.

The ambition was to find a CEO with the right background, attitude and leadership ability to take on the challenging situation, and this resulted in the appointment of Börje Ekholm as the new CEO. Börje Ekholm will lead the Company into the next phase, implement and develop the strategy, while executing on the cost and efficiency program. The Board believes that he has deep insight and understanding both of the commercial consequences and the technical aspects of the digital transformation enabled by 5G, IoT and Cloud. The Board would also at this point like to take the opportunity to thank Hans Vestberg for his energetic and inspiring leadership as CEO for almost seven years. We would also like to thank Jan Frykhammar, who shifted from CFO to interim CEO, for steering Ericsson through the second half of 2016 in a very successful way.

The Board believes that good talent management and succession planning are important tools not only on the executive level but also in technology and commercial management. By attracting and developing the best talent and establishing a high-performance organization, Ericsson can maintain a leading position in the highly competitive and ever transforming market. Also, as Ericsson speeds up strategy implementation, the Company needs to remain true to its core values of professionalism, respect and perseverance, which is reflected in a culture of endeavor and innovation.

In order to deliver value and to retain the trust of its stakeholders, Ericsson needs to continuously focus on corporate governance and to conduct business responsibly to meet demanding financial, social and environmental standards. The Board invests a significant amount of time in corporate governance and in 2016 we paid special attention to the Company’s anti-corruption program which in 2016 was strengthened through the introduction of an automated anti-corruption screening tool for supplier and third-party due diligence. Currently Ericsson is 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. These inquiries concern the last ten years and we will make additional disclosures regarding these inquiries to the extent required. It is important to underline that Ericsson has a zero-tolerance approach to corruption and has over the years continuously and systematically focused on strengthening the anti-corruption processes.

For stakeholders in the capital market, including our shareholders, Ericsson’s capital structure is an area of high interest which the Board invests significant time in analyzing and monitoring. Business plans and investments in R&D and other assets are carefully evaluated. The Board’s proposal for the AGM is a dividend of SEK 1.00 for 2016 as we believe that it is prudent to align the dividend level with 2016 earnings and the current market outlook. However, the Board expresses confidence in the ongoing actions to improve Ericsson’s financial performance, and has the ambition to increase the dividend over time as our performance improves.

Ericsson’s ambition is to be a leading transformation partner for existing and new customers. We as the Board believe the Company’s assets in combination with close customer relations and its will to transform, provide a solid foundation for long term profitable growth and value creation.

Leif Johansson

Chairman of the Board of Directors

 

27


Ericsson Annual Report on Form 20-F 2016

 

FINANCIALS – Board of Directors’ report

BOARD OF DIRECTORS’ REPORT

Reporting structure in 2016

Starting July 1, 2016, Ericsson has 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 applied in this Board of Directors’ report.

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 at year-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.

 

28


Ericsson Annual Report on Form 20-F 2016

 

 

LOGO   LOGO

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.

 

LOGO

 

29


Ericsson Annual Report on Form 20-F 2016

 

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.

 

 

 

LOGO   LOGO

 

30


Ericsson Annual Report on Form 20-F 2016

 

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 and non-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).

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. At year-end 2016, the total number of employees was 111,464 (116,281).

 

 

LOGO   LOGO   LOGO

 

31


Ericsson Annual Report on Form 20-F 2016

 

Research and development, patents and licensing

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  

 

1) The number of employees and patents are approximate.

Seasonality

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

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 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 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

 

32


Ericsson Annual Report on Form 20-F 2016

 

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.

 

LOGO

 

33


Ericsson Annual Report on Form 20-F 2016

 

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 competence build-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.

 

LOGO

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 provides end-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.

 

LOGO

 

34


Ericsson Annual Report on Form 20-F 2016

 

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