UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 20-F
¨ | Registration statement pursuant to Section 12(b) or 12(g) of the Securities Exchange Act of 1934 |
or
x | Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the Fiscal Year Ended December 31, 2012
or
¨ | Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from/to
or
¨ | Shell company report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
Date of event requiring this shell company report:
Commission file number 00012033
TELEFONAKTIEBOLAGET LM ERICSSON
(Exact Name of Registrant as Specified in Its Charter)
LM ERICSSON TELEPHONE COMPANY
(Translation of Registrants 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 8 719 53 80, Facsimile: +46 8 719 42 22
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 issuers 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) |
3,043,295,752 | |||
A shares (SEK 5.00 nominal value) |
261,755,983 | |||
C shares (SEK 1.00 nominal value) |
0 |
Indicate by check mark if the registrant is a well-seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x 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 x
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 x 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, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in Rule 12b-2 of the Exchange Act.
x Large accelerated filer ¨ Accelerated filer ¨ Non-accelerated filer
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
US GAAP ¨ International Financial Reporting Standards as issued by the International Accounting Standards Board x 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 x
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
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69 | ||||
70 | ||||
75 | ||||
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING |
163 | |||
164 | ||||
177 | ||||
179 | ||||
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274 |
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
FORM 20-F 2012 CROSS REFERENCE TABLE
This document comprises the English version of our Swedish Annual Report for 2012 and our Annual Report on Form 20-F for the year ended December 31, 2012. Reference is made to the Form 20-F 2012 cross reference table on pages i to viii hereof and the Supplemental Information beginning on page 137, which contains certain other information required by Form 20-F. Only (i) the information in this document that is referenced in the Form 20-F 2012 cross reference table, (ii) the Supplemental Information, and (iii) the Exhibits 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 April 23, 2012 (File No. 333-180880) and any other documents filed by us pursuant to the Securities Act of 1933, as amended, which incorporates by reference the 2012 Form 20-F. Any information herein which is not referenced in the Form 20-F 2012 cross reference table or filed as an exhibit thereto shall not be deemed to be so incorporated by reference.
This annual report includes financial measures that were not calculated or presented in accordance with IFRS, and we refer to these measures as non-IFRS financial measures. Reconciliations of these non-IFRS financial measures to the most directly comparable IFRS financial measures can be found on page 234 and pages 261-265 of this annual report.
The information included on the websites that appear in the Annual Report on Form 20-F is not incorporated by reference in the report.
The following cross reference table indicates where information required by Form 20-F may be found in this document.
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
PART I |
||||||||||
1 |
Identity of Directors, Senior management and advisers | N/A | ||||||||
2 |
Offer statistics and expected timetable | N/A | ||||||||
3 |
Key information | |||||||||
A | Selected financial data | Five-year summary | 29 | |||||||
Reconciliations to IFRS | 261-265 | |||||||||
Financial terminology | 269-270 | |||||||||
Supplemental information | ||||||||||
Exchange rates |
232 | |||||||||
B | Capitalization and indebtedness | N/A | - | |||||||
C | Reason for the offer and use of proceeds | N/A | - | |||||||
D | Risk factors | Risk factors | 164-176 | |||||||
4 |
Info on the Company | |||||||||
A | History and development of the Company | Our Business | ||||||||
This is Ericsson2012 in review |
3-4 | |||||||||
Board of Directors Report | ||||||||||
Business in 2012 |
32-34 | |||||||||
Cash flowCapital expenditures |
48 | |||||||||
Notes to the Consolidated financial statements |
||||||||||
Note C26 Business combinations |
143-146 | |||||||||
Note C33 Events after the reporting period |
161-162 |
i
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
Supplemental information | ||||||||||
General facts on the Company |
231 | |||||||||
Company history and development |
232 | |||||||||
B | Business overview | Our business | ||||||||
This is Ericsson |
1-2 | |||||||||
Group overview |
5-6 | |||||||||
Our competitive assets |
13 | |||||||||
Strategy and customers |
15-17 | |||||||||
Our portfolio |
18-22 | |||||||||
Regional development |
23-24 | |||||||||
Board of Directors report | ||||||||||
Business in 2012 |
32-34 | |||||||||
Financial results of operationsSeasonality |
39-40 | |||||||||
Business resultsRegions |
50 | |||||||||
Business resultsSegments |
50-57 | |||||||||
Material contracts |
59 | |||||||||
Sourcing and supply |
60 | |||||||||
Sustainability and corporate responsibility |
60-64 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C3Segment information |
95-101 | |||||||||
Risk factors | ||||||||||
Market, technology and business risks |
164-172 | |||||||||
Regulatory, compliance and corporate governance risks |
172-175 | |||||||||
Corporate governance regulation and compliance |
180-181 | |||||||||
C | Organizational structure | Supplemental information |
||||||||
General facts on the company |
231 | |||||||||
Investments |
260-261 | |||||||||
D | Property, plants and equipment | Our business | ||||||||
Sustainability and corporate responsibility |
27-28 | |||||||||
Supplemental information | ||||||||||
Primary manufacturing and assembly facilities |
233 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C11Property, plant and equipment |
109-110 | |||||||||
Note C27Leasing |
147-148 | |||||||||
Board of Directors report | ||||||||||
Cash FlowCapital expenditures |
48 | |||||||||
4A |
Unresolved staff comments | |
ii
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
5 |
Operating and financial review and prospects | |||||||||
A | Operating results | Our business | ||||||||
Group overview |
5-6 | |||||||||
Our performance |
25-26 | |||||||||
Regional development |
23-24 | |||||||||
Five-year summary |
29 | |||||||||
Board of Directors report | ||||||||||
Business in 2012 |
32-34 | |||||||||
Financial results of operation |
38-41 | |||||||||
Business resultsRegions |
50 | |||||||||
Business resultsSegments |
50-57 | |||||||||
Board of Directors report | ||||||||||
Risk management |
59 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C1Significant accounting policies |
75-91 | |||||||||
Note C20Financial risk management and financial instrumentsForeign exchange risk |
134-136 | |||||||||
Risk Factors | ||||||||||
Market, technology and business risks |
164-172 | |||||||||
Supplemental information | ||||||||||
Operating results |
233-248 | |||||||||
B | Liquidity and capital resources | Board of Directors report | ||||||||
Financial results of operationsSeasonality |
39-40 | |||||||||
Financial position |
42-46 | |||||||||
Cash flow |
47-49 | |||||||||
Risk Management |
59 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C19Interest-bearing liabilities |
131-132 | |||||||||
Note C20Financial risk management and financial instruments |
133-140 | |||||||||
Note C25Statement of cash flows |
142-143 | |||||||||
Supplemental information | ||||||||||
Operating results |
234-248 | |||||||||
C | R&D, Patents and licenses, etc. | Five-year summary | 29 | |||||||
Our business | ||||||||||
This is Ericsson |
1-2 | |||||||||
Our competitive assets-technology leadership |
13 | |||||||||
Board of Directors report | ||||||||||
Fair return on R&D investment |
33-34 | |||||||||
Business in 2012 |
32-34 | |||||||||
Financial results of operationsOperating expenses |
40 |
iii
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
Consolidated financial statements | ||||||||||
Consolidated income statement |
70 | |||||||||
D | Trend information | Our business | ||||||||
Market trends |
10-12 | |||||||||
Strategy and customers |
15-17 | |||||||||
Board of Directors report | ||||||||||
Trends and drivers |
31-32 | |||||||||
Business resultsRegions |
50 | |||||||||
Business resultsSegments |
50-57 | |||||||||
E | Off-balance sheet arrangements | Board of Directors report | ||||||||
Financial positionOff-balance sheet arrangements |
46 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C24Contingent liabilities |
141-142 | |||||||||
Note C32Transfers of financial assets |
161 | |||||||||
F | Tabular disclosure of contractual obligations | Notes to the consolidated financial statements |
||||||||
Note C31Contractual obligations |
161 | |||||||||
6 | Directors, senior management and employees | |||||||||
A | Directors and senior management | Corporate governance report 2012 | ||||||||
Members of the Board of Directors |
196-201 | |||||||||
Members of the Executive Leadership Team |
206-211 | |||||||||
B | Compensation | Board of Directors report |
||||||||
Corporate governance |
58 | |||||||||
Corporate Governance Report 2012 |
||||||||||
Remuneration to Board members |
195 | |||||||||
Remuneration report | 216-222 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C17Post-employment benefits |
121-129 | |||||||||
Note C28Information regarding members of the Board of Directors, the Group management and employees |
149-158 | |||||||||
C | Board practices | Notes to the consolidated financial statements |
||||||||
Note C28Information regarding members of the Board of Directors, the Group management and employees |
149-158 | |||||||||
Corporate governance report 2012 | ||||||||||
Board of Directors |
186-190 | |||||||||
Committees of the Board of DirectorsAudit committee |
191-193 |
iv
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
Committees of the Board of DirectorsRemuneration committee |
193-195 | |||||||||
D | Employees | Our business | ||||||||
Our people |
14 | |||||||||
Five-year summary |
29 | |||||||||
Notes to the Consolidated financial statements |
||||||||||
Note C28Information Regarding Members of the Board of Directors, the Group Management and Employees |
149-158 | |||||||||
E | Share ownership | Share Information | ||||||||
Shareholders |
228-230 | |||||||||
Corporate governance report 2012 |
||||||||||
Shareholders |
182-183 | |||||||||
Members of the Board of Directors |
196-201 | |||||||||
Members of the Executive Leadership Team |
206-211 | |||||||||
Remuneration report | ||||||||||
Total remuneration |
219-222 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C28Information regarding members of the Board of Directors, the Group management and employees |
149-158 | |||||||||
7 |
Major shareholders and related party transactions |
|||||||||
A | Major shareholders | Corporate governance report 2012 |
||||||||
Shareholders |
182-183 | |||||||||
Share information | ||||||||||
Shareholders |
228-230 | |||||||||
B | Related party transactions | Notes to the consolidated financial statements |
||||||||
Note C29Related party transactions |
158-160 | |||||||||
C | Interests of experts and counsel | N/A | ||||||||
8 |
Financial information | |||||||||
A | Consolidated statements and other financial information |
Board of Directors report |
||||||||
Legal proceedings |
64-65 | |||||||||
Consolidated financial statements |
70-74 | |||||||||
Please see also Item 17 cross references |
||||||||||
Report of independent registered public accounting firm |
69 | |||||||||
Notes to the consolidated financial statements |
75-162 |
v
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
Supplemental information | ||||||||||
Memorandum and articles of associationDividends |
249-250 | |||||||||
B |
Significant changes |
Board of Directors report | ||||||||
Post-closing events |
67-68 | |||||||||
Notes to the consolidated financial Statements |
||||||||||
Note C33Events after the reporting period |
161-162 | |||||||||
9 |
The offer and listing | |||||||||
A | Offer and listing details | Share Information | ||||||||
Offer and listing details |
226-228 | |||||||||
B | Plan of distribution | N/A | ||||||||
C | Markets | Share Information |
||||||||
Stock exchange trading |
223-224 | |||||||||
D | Selling shareholders | N/A | ||||||||
E |
Dilution | N/A | ||||||||
F |
Expenses of the issue | N/A | ||||||||
10 |
Additional information | |||||||||
A | Share capital | N/A | ||||||||
B | Articles of association | Supplemental information | ||||||||
Memorandum and articles of association |
248-252 | |||||||||
C | Material contracts | Board of Directors report | ||||||||
Material contracts |
59 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C31 Contractual obligations |
161 | |||||||||
D | Exchange controls | Supplemental information | ||||||||
Exchange controls |
252 | |||||||||
E | Taxation | Supplemental information | ||||||||
Taxation |
252-257 | |||||||||
F | Dividends and paying agents | N/A | ||||||||
G | Statement by experts | N/A | ||||||||
H | Documents on display | Supplemental information | ||||||||
General facts on the Company |
232 | |||||||||
I | Subsidiary information | | ||||||||
11 |
Quantitative and qualitative disclosures |
|||||||||
A | Quantitative information about market risk |
Notes to the consolidated financial statements |
||||||||
Note C20Financial risk management and financial instruments |
133-140 | |||||||||
B | Qualitative information about market risk |
Board of Directors Report | ||||||||
Risk management |
59 |
vi
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
Notes to the consolidated financial statements |
||||||||||
Note C20Financial risk management and financial instruments |
133-140 | |||||||||
Corporate governance report 2012 | ||||||||||
Risk management |
203-206 | |||||||||
C | Interim periods | N/A | ||||||||
D | Safe harbor | N/A | ||||||||
E | Small business issuers | N/A | ||||||||
12 |
Description of securities other than equity securities |
|||||||||
A | Debt securities | N/A | ||||||||
B | Warrants and rights | N/A | ||||||||
C | Other securities | N/A | ||||||||
D | American Depositary Shares | Supplemental information | ||||||||
Depositary fees and charges |
257 | |||||||||
PART II |
||||||||||
13 |
Defaults, Dividends, Arrearages and Delinquencies |
N/A | ||||||||
14 |
Material modifications to the rights of security holders and use of proceeds |
N/A | ||||||||
15 |
Controls and Procedures | |||||||||
A | Disclosure controls and procedures | Corporate governance report 2012 | ||||||||
Disclosure controls and procedures |
212-213 | |||||||||
B | Managements annual report on internal control over financial reporting |
Managements report on internal control over financial reporting |
163 | |||||||
C | Attestation report of the registered public accounting firm |
Report of Independent Registered Public Accounting Firm |
69 | |||||||
D | Changes in internal control over financial reporting |
Managements report on internal control over financial reporting |
163 | |||||||
16 |
Reserved | |||||||||
A | Audit Committee financial expert | Corporate governance report 2012 | ||||||||
Audit CommitteeMembers of the Audit committee |
192 | |||||||||
B | Code of Ethics | Corporate governance report 2012 | ||||||||
Code of business ethics |
180-181 | |||||||||
Form 20-F 2012 cross reference table |
||||||||||
Part II19Exhibit 11 |
viii | |||||||||
Board of Directors report |
||||||||||
Corporate governanceHigh ethical standards |
57 | |||||||||
C | Principal accountant fees and services | Supplemental information |
||||||||
Audit committee pre-approval policies and procedures |
258 | |||||||||
Notes to the consolidated financial statements |
||||||||||
Note C30 Fees to auditors |
160 |
vii
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Form 20-F Item Heading |
Location in Document |
Page Number |
||||||||
D | Exemptions from the listing standards for Audit Committees |
Corporate governance report 2012 |
||||||||
Board of DirectorsIndependence |
187 | |||||||||
Supplemental information |
||||||||||
Corporate governance requirements |
257-258 | |||||||||
E | Purchase of equity securities by the issuer and affiliated purchasers |
N/A |
||||||||
F | Change in registrants certifying accountant |
N/A | ||||||||
G | Corporate governance | Corporate governance report 2012 |
||||||||
Board of DirectorsIndependence |
187 | |||||||||
Supplemental information |
||||||||||
Corporate governance requirements |
257-258 | |||||||||
PART III |
||||||||||
17 |
Financial statements | |||||||||
Consolidated income statement and Statement of comprehensive income |
70-71 | |||||||||
Consolidated balance sheet |
72 | |||||||||
Consolidated statement of cash flows |
73 | |||||||||
Consolidated statement of changes in equity |
74 | |||||||||
Notes to the consolidated financial statements |
75-162 | |||||||||
Report of independent registered public accounting firm |
69 | |||||||||
18 |
Financial statements | N/A | ||||||||
19 | Exhibits | |||||||||
Exhibit 1 |
Articles of Association (incorporated herein by reference to Exhibit 1 to the Annual Report on Form 20-F for the year ended December 31, 2011 filed by the registrant on April 4, 2012 (File No. 000-12033)) |
|||||||||
Exhibit 6 |
Please see Notes to the consolidated financial statements, Note C1 Significant accounting policies |
75-91 | ||||||||
Exhibit 7 |
For definitions of certain ratios used in this report, please see Financial terminology |
269-270 | ||||||||
Exhibit 8 |
Please see Supplemental InformationInvestments |
260-261 | ||||||||
Exhibit 11 |
Our Code of business ethics is included on our web site at www.ericsson.com/code-of-business-ethics |
|||||||||
Exhibit 12 |
302 Certifications |
|||||||||
Exhibit 13 |
906 Certifications |
|||||||||
Exhibit 15.1 |
Consent of independent registered public accounting firm |
Note: The Companys holding in ST-Ericsson SA meets the requirements of Rule 3-09 under Regulation S-X for the provision of separate financial statements of ST-Ericsson SA, a non-listed Swiss company that has a December 31 fiscal year end.
The Company intends to file the financial statements of ST-Ericsson SA as of and for the year ended December 31, 2012 as an amendment to this Annual Report on Form 20-F as soon as practicable after they become available.
viii
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
We are a world-leading provider of communications networks, telecom services and support solutions.
Communication is changing the way we live and work. When one person connects, his or her world changes. With everything connected, our world changes. Ericsson plays a key role in this evolution, using innovation to empower people, business and society. We are enabling the networked society with efficient real-time solutions that allow us all to study, work and live our lives more freely, in sustainable societies.
Since the establishment of the Company in 1876, we are a leader in telecommunication and are now expanding our role into an ICT (Information and Communications Technology) solutions provider.
Our research and solutions development has made mobile communications and broadband possible. When you make a call or browse the internet on your handset, tablet or mobile PC, you will likely use one of our solutions.
Our offering comprises services, software and infrastructure, mainly for telecom operators.
| 40% of the worlds mobile traffic runs through networks that are supplied by us |
| We provide solutions and services to all major telecom operators in the world |
| The networks we manage for operators serve about 950 million subscribers |
| We have more than 33,000 granted patents, comprising one of the industrys strongest patent portfolios. |
OUR SEGMENTS
Today, we are more than 110,000 people serving customers in more than 180 countries. To best reflect our business, we report four business segments:
Networks
Networks provides the infrastructure that is the basis for all mobile communication. We deliver superior-performance and cost-efficient networks to ensure the best user experience.
Global Services
With 60,000 services professionals globally, we deliver managed services, consulting and systems integration, customer support, network design and optimization and network rollout.
Support Solutions
Support Solutions is the new name for former segment Multimedia and it signposts a change of direction. The segment focuses on software for operations support systems and business support systems (OSS and BSS), TV and media management, and m-commerce.
Joint venture ST-Ericsson
ST-Ericsson offers modems and ModAps (integrated modem and application processor platforms) for handset and tablet manufacturers.
OUR REGIONS
We secure an efficient go-to-market setup through ten regions. We strive for profitable growth through solid regional competence and strong customer relationships, backed by our global knowledge.
1
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
In our ten regions, we work together with our customers to develop innovative and scalable solutions that help operators grow their revenues and reduce their costs.
Once a successful case is proven, we can roll out the same practice all over the world, sharing common processes, methods and tools. This ensures quality and efficiency.
Solutions and services often go hand-in-hand as networks become more complex and often include products from several suppliers. Operators look for long-term services partnerships with companies such as Ericsson for support in every aspect of their business.
We serve our customers through regional competence organized into six engagement practices: Mobile Broadband; Communication Services; Fixed Broadband and Convergence; Managed Services; Operations and Business Support Systems; and Television and Media Management.
2
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
2012 IN REVIEW
JANUARY
Ericsson strengthens its focus on IPR licensing, to get a fair return on R&D investments in patents development.
Any company that provides wireless connectivity will likely need a license from us.
JANUARY
Ericsson signs a deal to connect the entire vessel fleet of the worlds largest shipping company, Maersk Line, using our capabilities to enable machine-to-machine communication.
FEBRUARY
Ericsson complements the heterogeneous network offering with telecom grade Wi-Fi through acquisition of Wi-Fi company BelAir Networks, enabling operators to further improve the mobile broadband user experience.
MARCH
Ericsson widens the scope of managed services to include such services for broadcasters by announcing the acquisition of the Broadcast Services Division of Technicolor.
APRIL
SOFTBANK MOBILE signs 4G/LTE contract with Ericsson in Japan. The network will cover three major cities in the country, together accounting for 70% of the data and voice traffic. Ericsson has deployed LTE networks on five continents.
MAY
Ericssons efficient AIR radio base station is selected by T-Mobile as the first operator in the USA to launch this technology, which enables improvement of existing coverage and quick launch of LTE in 2013. The contract also includes consulting and systems integration and rollout services.
JUNE
At a briefing for journalists in San Francisco, Ericssons President and CEO Hans Vestberg discusses how the rapid increases in subscribers and data usage impact the entire ICT industry. Network quality, user experience, billing and charging models and services offerings all need to be adapted.
JULY
MTN Nigeria boosts its ability to serve subscribers and their growing data needs by becoming the first African operator to deploy Ericssons scalable SSR 8020 platform for wireless IP core networks. This is one of 39 SSR contracts that Ericsson won in 2012.
AUGUST
Italian operator FASTWEB signs a seven-year IT managed services contract with Ericsson. It includes data center consolidation and transformation, as well as managed operations for its IT infrastructure. Ericsson extends the scope of managed services from telecoms to data centers.
3
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
SEPTEMBER
Ericsson partners in the Social Good Summit 2012 in New York, discussing how mobile broadband can be used to help tackle global challenges such as poverty and climate change.
OCTOBER
Ericsson is selected to implement a new LTE network for Vivo, a subsidiary of Telefônica, helping meet user demand for connectivity and mobile broadband services in Brazil. Ericsson has an LTE market share of more than 50% in Latin America.
NOVEMBER
Ericsson holds its annual Investor Day, focusing on profitable growth and how the company is transforming into a leading ICT solutions provider in telecoms.
NOVEMBER
The new Ericsson Mobility Report is launched, stating that Traffic in mobile networks continues to grow at an impressive rate worldwide, driven by uptake of smart devices and apps. This is a recurrent report on network traffic and market trends, based on data traffic measurements in live networks globally and on internal forecasts.
DECEMBER
Ericsson announces that Volvo Car Group will use Ericssons Connected Vehicle Cloud to allow drivers, passengers and their cars to connect to services available in the cloud. Drivers and passengers can access applications for information, navigation and entertainment from a screen in the car.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Our four business segments provide solutions and services which in combination create an industry-leading telecommunications portfolio.
Segment |
NETWORKS |
GLOBAL SERVICES |
SUPPORT SOLUTIONS | |||
Headed by Johan Wibergh | Headed by Magnus Mandersson | Headed by Per Borgklint | ||||
We develop and deliver superior-performance network infrastructure for 2G/GSM, 3G/WCDMA/HSPA & CDMA, and 4G/LTE with solutions for:
Radio access, based on multi-standard radio base station RBS 6000
IP and transport; IP Edge routing based on SSR 8000 and transport solutions based on fiber and microwave
Core network; switching and IMS solutions based on the Ericsson Blade System platform. |
Globally, 60,000 service professionals deploy and operate networks, and integrate solutions to allow operators to monetize increasing data traffic and ensure high user experience in networks. We use global processes, methods and tools to ensure quality and efficiency in the networks. Global Services include:
Professional Services; consulting and systems integration, managed services, network design and optimization as well as customer support
Network Rollout. |
We develop and deliver software solutions for:
Operations and Business Support Systems (OSS and BSS); enabling management of networks and services, customer interaction and revenue management
TV and Media management; enabling operators, broadcasters and content owners to create multiscreen TV experience on all devices
M-Commerce; software solutions and hosted services to enable mobile financial services and global interoperability. |
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
ST-ERICSSON*
Headed by Didier Lamouche
A 50/50 joint venture with STMicroelectronics, ST-Ericsson offers modems and ModAps (integrated modem and application processor platforms) for leading handset and tablet manufacturers.
STMicroelectronics announced in October its intention to exit as a shareholder in ST-Ericsson. Ericsson is presently exploring various strategic options for the future of ST-Ericsson assets.
Ericsson continues to believe that the modem technology, which it originally contributed to the JV, has a strategic value for the wireless industry.
* | The Ericsson share of ST Ericssons results is accounted for according to the equity method. |
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
2012 was a year of growth in Global Services and Support Solutions, but more challenging for Networks. We have extended our leadership in several key growth areas and taken important steps in executing our strategy.
Our mission is Innovating to empower people, business and society.
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DEAR SHAREHOLDERS
We can look back at 2012 in which the strong growth of mobile data continued across the world and 4G/LTE launches started across all regions. Broadband is a transformative technology that is already improving quality of life, productivity and sustainability globally. During the year we have clearly seen how the world is moving towards our vision of a networked society, and over time, this will create new business opportunities for Ericsson and our customers.
Executing our strategy
The work to leverage our strength in the growth areas mobile broadband, managed services and operations and business support solutions (OSS and BSS) has continued with both selective acquisitions and divestments to enhance and streamline the portfolio.
Key acquisitions in the year that have contributed to strengthening our leadership include BelAir in the area of mobile broadband, ConceptWave and Telcordia in the area of OSS and BSS as well as Technicolors broadcast services division in the area of managed services.
In addition we completed the divestment of our share in Sony Ericsson and launched a new strategy for Support Solutions.
Our R&D and services investments form the foundation for the long-term strength of the company. Despite a challenging year for Networks, we remain almost the size of number two and three combined in the market when it comes to installed base of radio base stations and we have maintained a strong market share also in mobile network equipment. Global Services outperformed the market and solidified its leadership. In the fragmented telecom services market, Ericsson held a 13% market share for 2012, well ahead of its closest competitor.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Our joint venture ST-Ericsson had a tough year. Following the announcement of STMicroelectronics intention to exit as a shareholder, Ericsson will, together with STMicroelectronics, continue to explore various strategic options for ST-Ericsson assets. We continue to believe that the modem technology which we originally contributed to the JV has a strategic value to the wireless industry.
Performance in 2012
Sales in 2012 were flat compared to 2011, despite a challenging year for Networks.
Global Services contributed with both sales growth and stable operating profitability, and Support Solutions went from making losses in 2011 to achieving profitability.
Global Services and Support Solutions together represented close to 50% of Group sales, compared to 42% in 2011, highlighting the ongoing transformation into an ICT company combining services, software and hardware, into industry-leading solutions.
Profitability has been under pressure during the year due to operating losses in ST-Ericsson, the ongoing network modernization projects in Europe as well as the underlying business mix, with a higher share of coverage projects than capacity projects. Improving profitability has been a key priority throughout the year and we have taken actions globally to reduce costs and improve efficiency.
Throughout 2012 North America was our strongest region, driven by continued mobile broadband investments and a high demand for services. Our second largest region was North East Asia where sales grew in Japan, though not fully offsetting the lower sales of GSM in China and 3G in Korea.
Financial strength
We continue to have high focus on capital efficiency. We ended the year with strong cash flow, full-year cash conversion well above target and maintained our strong net cash position.
Financial strength allows us to make selective acquisitions to capture opportunities to consolidate the market, gain market share and fill portfolio gaps when relevant, and provide a good return to shareholders. It is also a competitive advantage in our customer relationships.
The Board of Directors proposes a dividend for 2012 of SEK 2.75 (2.50) per share.
Sustainability and Corporate Responsibility
Ericsson is strongly committed to sustainability and corporate responsibility.
Focus remains on reducing our carbon footprint and in 2012 we exceeded our target. We see an increasing interest from customers in driving energy efficiency in their networks, and using broadband to shape the low-carbon economy of the future.
We continue to advocate the use of broadband to enable access to education, better health and livelihood through our partnerships and programs such as Connect To Learn and Ericsson Response.
Responsibility and high governance standards guide all Ericsson employees in all parts of the world. Our aim is to be the trusted partner to all of our stakeholders and as such we put strong focus on evolving our governance framework with further integration of sustainability and corporate responsibility principles.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Our Code of Business Ethics was updated during the year to reflect our ongoing commitment to respect human rights and the new UN Guiding Principles on Business and Human Rights.
During 2012 we also signed the World Economic Forums Partnering Against Corruption Initiative, enhanced our anti-corruption program and broadened our whistle blower procedure.
Strong long-term drivers
We build our strength on the combination of our core assets: technology leadership, services leadership and global scale. We have strong and long-standing customer relationships and highly skilled and engaged employees. I have worked in this company for 24 years and the dedication and professionalism that Ericsson employees demonstrate never cease to impress me.
Our focus on profitable growth remains. While the macroeconomic and political uncertainty continues in certain regions, the industry fundamentals remain attractive. We have a strong portfolio, position and capabilities to continue to support our customers in a transforming ICT market and look forward to a year of leveraging our leadership position and continuing our journey into the networked society.
Hans Vestberg
President and CEO
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Everything is going mobile. The uptake of mobile broadband, driven by increasing use of smartphones, tablets and apps is driving change for people, business and society.
Market trends 2012
USERS
Higher demand for data capacity due to:
| Smartphone uptake acceleration |
| Increasing use of mobile broadband |
| Changing lifestyle with mobility and cloud-based services. |
OPERATORS
Focus on:
| Superior-performance broadband networks |
| Increasing efficiency through transformation and outsourcing |
| Creating new value streams from networks. |
THE NETWORKED SOCIETY
In the networked society, connectivity will be the starting point for new ways of innovating, collaborating and socializing. Its about creating freedom, empowerment and opportunity that will transform industries and society while helping find solutions to some of the greatest challenges facing our planet.
When one person connects, his or her world changes. With everything connected, our world changes. We believe ICT will be a fundamental driver of this transformation. For our customers the networked society will offer opportunities to expand their existing businesses, and to engage in new business areas, such as cloud services and industry-specific services.
Operators revenue growth and potential for efficiencies will steer their investments going forward. As a result, although the total addressable telecom market is growing at a modest pace, our portfolio momentum areasmobile broadband, managed services as well as OSS and BSSare set for higher growth.
Fundamentally, we believe the market is strong, fueled by higher smartphone penetration and growing mobile data usage. As a market leader, we understand the possibilitiesand have the ability to drive rethinking, reinvention and innovation of our industry.
In 2012, mobile data traffic doubled. We expect it will continue to grow at a high rate in the coming years. The main driver is the change in user behavior, leading to increasing user expectations on network and application performance. Demand for greater mobile data capacity will also affect how operators choose to develop and operate networks and services.
CHANGING USER BEHAVIOR
The rapid increase in mobile data traffic will, in the coming years, be fuelled by three trends: increased smartphone uptake, the increasing use of mobile broadband, and the breakthrough of cloud-based services.
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Smartphone uptake is accelerating
While voice traffic is increasing at a steady rate, mobile data traffic is increasing exponentially. This increase is driven largely by smartphone use. Clearly phones are no longer simply for talking and textingmost of the time spent on a smartphone is dedicated to activities such as watching videos, playing games, shopping and engaging in social media.
Today 1520% of the worldwide installed base of mobile phone subscriptions use smartphonesthe number of smartphone subscriptions was 1.1 billion at the end of 2012 and we estimate that it will reach 3.3 billion by the end of 2018.
Mobile broadband use is increasing
People and businesses increasingly demand good network coverage, high-speed and high-quality broadband access at all times.
The number of mobile broadband subscriptions is increasing rapidly, from approximately 1.5 billion in 2012, to an estimated 6.5 billion in 2018. As the number of subscriptions increases, so does the data volume per subscription. By the end of 2018, we estimate that both mobile PCs and smartphones will generate four times as much data per device per month as today. Global mobile data traffic is estimated to grow twelve-fold between 2012 and 2018.
The largest contributor to increased data traffic is video, which is also watched on smartphones and tablets. Online video now constitutes on average 2540% of traffic in mobile networks.
With the increasing use of apps, coverage is expected everywhere. But, when a user runs an app that requires higher performance (e.g. throughput) than needed for voice, the actual coverage area for the app will be smaller than that for voice.
In a network, every app has its own coverage area; a video application has a smaller coverage area than a music-streaming app which in turn has a smaller coverage area than voice.
Understanding of app coverage is therefore essential in order for operators to make the right investments in a network.
Cloud for availability everywhere
For many businesses and individuals, content is delivered as a cloud servicethat is, as a service over the internet. Users see the benefits of accessing applications and data from any computer, phone or tablet anywhere, and at any time. Often they choose not to own the content but to stream it, gaining access to movies, TV, music and much more. Cloud-based services add to the demand for mobile capacity.
CHANGING OPERATOR NEEDS
The changes in how people, businesses and society at large operate, use the internet and interact will demand greater speed, capacity, quality of service and operational efficiency. To meet these demands, operators are upgrading their networks, revising how they can increase their operational efficiency and how they should best monetize the increased data traffic.
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Focus on superior-performance broadband networks
As user demand for coverage, speed and quality increases, superior-performance networks have become a key differentiator for operators. 3G/HSPA coverage is expected to increase from over 50% of the worlds population today, to 85% by the end of 2017. We anticipate that by 2017, half the worlds population will be covered by 4G/LTE networks. Operators come to Ericsson to expand network coverage and to upgrade networks for higher speed and capacity. To maintain superior performance there is also a continuous need for network tuning and optimization as traffic increases.
Focus on operational efficiency
To improve efficiency and reduce cost, operators increasingly choose to outsource the network and field operations, allowing them to focus on strategy, marketing and customer care. In a managed services project, Ericsson transforms the customers operations and implements our processes, methods and tools.
Monetizing data traffic
The demands created by mobile connectivity present new opportunities for operators. They are developing business models to monetize the increasing data use, with tiered pricing plans aligned to user needs, based for example on volume, time or speed. Increasingly, quality of service is becoming a differentiator for operators, as some focus on pure network development and others choose to be providers of premium services such as media, m-commerce and mobile finance.
Ericsson Operations Support Systems (OSS) enable the monitoring and optimization of the performance of operators increasingly complex networks and services, while our Business Support Systems (BSS) enable monetization of services and enhance their customer interaction capabilities.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
The unique combination of core assets drives our performance throughout the business.
TECHNOLOGY LEADERSHIP
Combining superior performance and thought leadership
Innovation is an important element of our corporate culture and a foundation for our competitiveness. Our long-time pioneering in telecommunications technologies is reflected in one of the industrys largest patent portfolios. Through research into new technologies and a strong contribution to the creation of open standards, we strive to be first-to-market with new solutions. Our networks are designed and optimized for superior end-user experience. They are built to accommodate future traffic increase and the increasing number of connected devices.
SERVICES LEADERSHIP
Meeting operator objectives of business efficiency & revenue growth
Service delivery is industrialized in four Global Services Centers and local resources in our ten regions, where we use the same processes, methods and tools. This ensures standardized services packages of high quality. Our services professionals have advanced multi-vendor and multi-technology competence. They create value for customers by improving network efficiency and user experience as well as by supporting them in business innovation and revenue growth.
GLOBAL SCALE
Combining global scale advantages with local presence
We have a geographically diversified business, with customers in more than 180 countries. We have established relationships with all major telecom operators in the world, supporting networks with over 2.5 billion subscriptions. Focus on global standards means that we can provide global products. Economies of scale in R&D and production ensure that the products are efficient and of high quality.
Ericssons core values
Our values are the foundation of our culture. They guide us in our daily work, in how we relate to each other and the world around us and in the way we do business.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
At the end of the day it is our people that make the real difference. Our people strategy centers on building the best talent in the industry.
Our people are at the heart of everything we do, and they made us the industry leader we are today.
But what brought us here will not keep us here. Our industry is changing, and we work every day to secure high performance in everything we do.
In order to maintain our technology and services leadership, and to leverage our global scale, we have developed a business-aligned people strategy.
Grounded on our core valuesprofessionalism, respect and perseveranceour people strategy focuses on building the best talent in the industry. To achieve this we have four objectives:
Attract exceptional talent
We leverage a strategic and aligned approach to attracting the best talent at all levels in all the markets where we have employees.
Rigorous talent planning and development
Our objective is to have the right talent at the right time in the right place.
We have a rigorous process for identifying, calibrating and developing our talent. We have a comprehensive career and competence model that allows our employees to build career paths, and clearly understand how to keep developing capabilities for the continued success of the company.
Our approach emphasizes best-in-class learning solutions through our Ericsson Academy and on-the-job development through stretch assignments and internal mobility.
Leadership
We believe that strong leadership is a key factor in creating and maintaining a high performance work environment with a highly engaged workforce.
We expect our leaders to maintain an environment that fosters creativity, innovation and the constant flow of ideas. Our employees should have clear goals and receive continuous feedback and coaching. These are the drivers of high performance and employee engagement.
Diversity
We have a focused strategy aimed at ensuring that our employee base and our leadership teams are as diverse as the world in which we operate. We believe a diverse and inclusive workforce drives innovation and leads to high performing teams and superior business results.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
We aim to become a leading information and communication technology (ICT) solutions provider by combining our core assets: technology leadership, services leadership and global scale.
VISION
The Companys vision is to be the prime driver in an all-communicating world. Ericsson envisions a continued evolution, from having connected 6 billion people to connecting 50 billion things. The Company envisions that anything that can benefit from being connected will be connected, mainly via mobile broadband in the networked society that is beginning to come to life.
OUR STRATEGY
The Companys strategy builds on a long-term vision and mission which is translated into a business strategy that should generate value for the Companys key stakeholders; customers, employees and shareholders.
Four pillars form the foundation for our business strategy: Excel in Networks, Expand in Services, Extend in Support Solutions and Establish leading position in enablers of the networked society.
Excel in Networks
Networks strategic focus is on evolving networks from 2G to 3G to 4G with superior quality and performance. We secure a strong footprint in LTE and continue to assist operators in expanding their business by providing support for new business models and revenue streams.
We will expand our portfolio with heterogeneous networks in which Wi-Fi access will be part of our offering.
We will also utilize our large installed base of systems for mobile telephony to lead the transition to voice over LTE (VoLTE), where next-generation video and presence capabilities will be added to the traditional voice services.
We anticipate an array of things communicating, in addition to billions of people being connected. Mobile networks will thus increasingly carry more data and video, and we will evolve networks for the networked society through 4th-generation IP networks that are smart, scalable, simple and offer superior performance.
Expand in Global Services
In Global Services, we will leverage our momentum in sales and growth, and keep our focus on innovation, competence and cost control.
The focus area of innovation involves developing new business by capturing opportunities in new areas such as IT and broadcasting, as well as in new business models.
Competence is critical when expanding into an ICT market with a higher degree of complexity, with new competitors such as IT and professional services companies.
Cost control is supported by industrializing delivery, standardized services packaging and automated tools.
Our service delivery model enables us to provide services in the same way and with the same quality across the world. It also ensures that innovation and knowledge sharing are spread globally in an efficient way.
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Extend in Support Solutions
Segment Support Solutions focuses on building business in OSS and BSS, TV and Media management, as well as M-Commerce.
After the acquisitions of Telcordia and ConceptWave in 2012, we now have a full spectrum of OSS solutions from planning and engineering tools, through fulfillment and inventory tools and service assurance products. We now provide customers with the solutions to be best in class in plan-to-provision, lead-to-service and trouble-to-resolution.
We will continue to invest in our market-leading charging, billing and converged charging and billing solutions.
Our m-commerce business, focused on international remittance, builds on the strength in charging systems and our customers prepaid customer base.
Our TV and Media management offering comprises of compression, for both operators and media companies, and multiscreen TV & video, including IPTV, service enablement and service delivery platforms.
Establish leading position in enablers of a networked society
In the networked society anything that benefits from being connected will be connected. This development will be made possible through enablers such as solutions for machine-to-machine communications, modems from ST-Ericsson and IPRs.
We are shifting the focus from connected devices to enablers of a networked society. This is an area that will be developed over the coming years as we start investigating different opportunities both together with operator customers and with customers from other industries.
COMPANY TRANSFORMATION
We are going through a period of transformation and change both in the industry and within the company. Two important areas of company-wide transformation are:
Go-to-market model
A new go-to-market model with ten regions and six global engagement practices was introduced in 2010, enabling us to expand engagements with customers into new areas, develop skills across our portfolio, and build momentum around global knowledge sharing.
This makes it possible for us to work even closer together with our customers, to understand their needs, while leveraging our global scale.
Lean and agile ways of working in R&D
One major undertaking to improve performance and efficiency in our R&D is to implement a lean and agile methodology. This is a way of working that includes shortened feedback loops, improved communication and rationalized processes.
Some product development projects have just begun the transition to lean and agile ways of working, while others are well advanced.
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OUR CUSTOMERS
Our business is defined by long-term relationships mainly with large telecom operators around the world. We serve approximately 400 customers. Globally, telecom operators represent the majority of net sales.
We also engage directly with customers in certain other industries such as utilities and media.
We have customers in more than 180 countries and have been present in many markets for more than 100 years. Our ten largest customers, of which half are multinational, account for 46% of net sales.
Our customers operate in a wide range of local economies and are at various technology stages. They have different business focuses depending on the maturity of their respective markets.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
We have the competence, the skills and the solutions our customers need to tackle the challenges of today and tomorrow. Here we feature our offering to telecom operators.
MOBILE BROADBAND
In summary
| Evolving networks from 2G/GSM to 3G/WCDMA/HSPA and 4G/LTE |
| Helping operators meet demand for higher speed and capacity |
| Building heterogeneous networks where capacity demand is high, such as in cities. |
Mobile broadband is playing an increasingly important role in our daily lives. It is changing the way we are entertained and educated, and helps us work, keep in touch, and share information and ideas, regardless of where we are. It has the power to lessen the divide between geographic regions and socioeconomic groups, and improve the quality of life in all parts of the world. Mobile data traffic almost doubled in 2012, driven particularly by video, new smartphone and tablet launches, and mobile PC users generating even more data traffic. Mobile data traffic is expected to grow at a high rate, presenting a significant opportunity for operators, both in mature and emerging markets. Operators need to enhance network quality by increasing coverage, speed and capacity, and by providing service differentiation to ensure they can monetize the ever-increasing consumer demands for mobile broadband, and the accompanying lifestyle expectations. We provide the network infrastructure, upgrades and LTE expansions and support solutions to meet these operators needs.
Network evolution
We were a key force behind the development of mobile technologies. Now our strategic focus is on evolving networks. With the evolution of the major mobile broadband technologies WCDMA/HSPA and LTE, true broadband performance and capacity is used to connect smartphones, PCs, tablets, sensors and machines to the internet and broadband services. With the high-speed, high-capacity mobile broadband possible through our WCDMA/HSPA and LTE offerings, operators can cost-effectively meet user demand for advanced internet services anywhere, anytime. We expect WCDMA/HSPA to be the predominant mobile broadband technology for many years to come. With the transition toward LTE, we take further steps towards greater capacity and higher throughput. LTE covers only 510% of global population today, but by 2017, we expect it will cover roughly half the people in the world. The ramp up of LTE is quicker than for earlier generations.
In addition, by 2017, densely populated urban areas, are expected to generate around 60% of total mobile traffic. To increase network capacity in these areas, we will build heterogeneous networks. Here, we complement powerful radio base stations with smaller radio base stations including Wi-Fi, which provide extra capacity in areas of high traffic loads, such as malls, transport hubs, hotels and offices.
Platform strength
Our network infrastructure is built on three main platforms:
| The RBS 6000 multi-standard platform for radio base stations. The platform supports GSM/EDGE, WCDMA/HSPA, LTE and CDMA in a single unit. The RBS 6000 family ensures a smooth transition to new technology such as LTE. Upgrades and expansions involve mostly software and services, often delivered remotely. RBS 6000 now accounts for almost all of radio base station shipments. |
| The Ericsson Blade System platform for handling of network control functionality in fixed and mobile core networks. |
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
| The SSR 8000 family of smart services routers for network gateways which provides two powerful differentiators for operators. It is a high-capacity router platform with multi-application capabilities, thus enabling better network performance; it also supports services across fixed and mobile networks. |
All platforms offer cost-effective deployment and a future-secured evolution for capacity and functionality.
MANAGED SERVICES
In summary
| Networks and business models becoming increasingly complex |
| Market pressures leading operators to enhance offerings while increasing efficiency |
| We build and manage networks, allowing operators to focus on strategy and customer attraction and retention. |
Greater consumer expectations, and the upsurge in data traffic, demand greater network capacity and capability, which in turn lead to increased complexity, both in networks and their supporting business models. Maturing markets, intensified competition and stronger financial pressure lead to a need among telecom operators for greater service differentiation, enhanced offerings, and faster time to market, all at the same time as trying to reduce costs and increase efficiency.
This is where a managed services model comes into play. We take responsibility for activities telecom operators once handled in-house, from designing, planning and building a network, to managing its day-to-day operation. Operators can look to reduce costs and manage complexity through a partner such as Ericsson, who can take on a broader responsibility, and apply global best practices.
The worlds largest managed services provider
We handle complex issues such as convergence, quality and capacity management, while freeing up operator resources to focus on strategy, marketing and customer care. We can also help operators scale quickly and cost-effectively, and address new opportunities in cloud solutions and media offerings.
We manage networks with approximately 950 million subscribers in more than 100 countries.
The networks we manage are typically complex multi-vendor, multi-technology environments. More than 50% of the equipment we manage is non-Ericsson. Our four global service centers (GSCs) all house global network operation centers (GNOCs) for efficient remote network management.
Expanding the scope
We are expanding the managed services model to adjacent, growing industries such as TV/media and IT systems.
The television industry is clearly migrating towards the internet. Traditional broadcasting is being complemented or replaced by a multitude of communications technologies. Here we see the opportunity to extend the managed services model to be a true ICT service provider, covering the full broadcast chain.
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Operators also look for providers that can run and operate their entire IT systems and data centers. Consequently our managed services offering has expanded from network operations into IT Managed Services. This means Ericsson can run day-to-day operations IT systems and offer complete application life-cycle management, application development, and maintenance of both applications and infrastructure.
OPERATIONS AND BUSINESS SUPPORT SYSTEMS (OSS AND BSS)
In summary
| We provide systems used for managing services, revenues and subscriber relationships |
| We help operators manage and monetize the increasing amount of data traffic |
| We help operators manage increasingly complex networks. |
In the telecom industry, customers need change fast, driven by swiftly-evolving technology. Business models that once promised commercial success are being challenged. These are the reasons operations and business support systems (OSS and BSS) have become key areas of investment for operators.
OSS and BSS are the systems and services used for managing services, revenues and subscriber relationships. With the growth in mobile broadband, operators need to evolve their OSS and BSS solutions to monetize the increasing amount of data, and to manage increasing network complexity. Our solutions help operators optimize their services based on:
| Customer experience, where understanding, acting and responding to changes in the way customers experience and use services helps meet their expectations |
| Business innovation, being able to adapt to and adopt different approaches |
| Business efficiency, consolidating systems and simplifying processes to manage the total cost of ownership. |
Our OSS and BSS solutions have led change and created value through four generations of telecoms evolution. They are based on deep and broad experience in the business, and are now significantly strengthened by our acquisition of Telcordia. Solutions include:
| Service differentiationWe provide the means for operators to improve customer loyalty and revenues as they are adopting new business models with tiered pricing plans for different speeds, data use or quality guarantees as well as personalized and improved customer experiences |
| TransformationWe support the transformation of operations through consulting, systems integration and software solutions, to help operators adapt to rapidly changing and competitive markets |
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| AssuranceWe offer solutions for monitoring network performance, and for planning, building and optimizing networks, so operators can improve customer experience and secure revenue |
| Billing and revenue managementBSS solutions include those for revenue management and customer care. Our mobile money solution is pre-integrated with charging systems to help operators to lower churn, increase customer loyalty and reduce operating expenses. |
This is OSS and BSS
Business Support Systems facilitate the relationship of the operator with their customers.
Operations Support Systems facilitate the operations of the operators network.
COMMUNICATION SERVICES
| Operator-based services, based on industry standards, to ensure interoperability |
| IMS, HD voice and Voice over LTE (VoLTE) drive development. |
Communication services are the services people use to interact with each other, such as voice and video calls as well as text and multimedia messaging. These operator-based services are provided globally and are based on industry standards, ensuring interoperability.
Users expect their communication services to provide a seamless, instantaneous experience across all devices and all subscriptions. This shift requires operators to provide new functionality and richer offerings.
Operators now exploit opportunities to enhance user experience while reducing costs for voice communication. Our IP Multimedia Subsystem (IMS) enables this. Services controlled by IMS include voice (including HD voice), messaging and video calls.
HD voice significantly improves quality of voice communication. It helps ensure that voice continues to provide revenue streams for operators of both fixed and mobile networks.
Voice over LTE (VoLTE) enables operators to offer voice services over all-IP LTE networks. It also brings with it new services such as HD video and richer multimedia services.
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FIXED BROADBAND AND CONVERGENCE
| Our IP-based converged networks provide low-cost and high-performance services. |
Strong growth in data traffic drives a need for higher capacity solutions, based on IP and Ethernet technologies. Operators compete by evolving their networks to provide fast internet speeds, reliable high-definition IPTV and video on demand. To reduce cost and enable service bundling, fixed traffic can be provided over a multiservice network converging telephony, internet and TV. Our 4th generation IP network portfolio supports IP-based services and applications at low cost and high performance.
TV AND MEDIA MANAGEMENT
| A broad suite of standard-based products for digital TV, HDTV, video on demand, IPTV, mobile TV and content management. |
TV is going digital and interactive. In the converging media landscape, broadcast and broadband are coming together. The worldwide digital TV market is growing rapidly.
With a broad suite of open standards-based products, we offer high-quality solutions for digital TV, HDTV, video on demand, IPTV, mobile TV and content management.
High-performance video means large amounts of traffic in the networks. This can be handled with our media distribution solution for video delivery over IP, combining a content distribution network with our TV portfolio.
Our IPTV network infrastructure offers a verified end-to-end solution from video head-end to broadband access, optimized for multi-stream HD-IPTV and on-demand video services. The solution also offers support for video to mobile handsets over HSPA and LTE networks.
Ericssons multiscreen TV solution combines the full features of IPTV, mobile TV and web TV with a common user interface. It fully integrates fixed line and wireless media for the first time.
Business consulting, systems integration and implementation ensure a smooth launch of new TV infrastructure and services.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Ericsson is a truly global player, with customers in more than 180 countries. We have been present in many countries, such as China, Brazil and India, for more than 100 years.
LATIN AMERICA
Net sales: SEK 22.0 billion (+0%)
In 2012, all major operators chose their 4G/LTE suppliers resulting in an estimated market share for Ericsson of more than 50% in 4G/LTE.
NORTH AMERICA
Net sales: SEK 56.7 billion (+16%)
Development in North America has been strong across all segments, driven by operators demand for rollout of 4G networks as well as 3G capacity upgrades. A wide range of 4G devices are available to North American consumers and this fueled traffic growth and operators demand for network capacity. All Ericsson CDMA customers have transitioned to 4G/LTE.
NORTHERN EUROPE AND CENTRAL ASIA
Net sales: SEK 11.3 billion (25%)
Lower operator investments during the year, primarily in Russia, impacted sales negatively.
WESTERN AND CENTRAL EUROPE
Net sales: SEK 17.5 billion (8%)
Sales for Networks and Support Solutions declined due to cautious operator spending. Global Services sales increased slightly, driven by network modernization.
MEDITERRANEAN
Net sales: SEK 23.3 billion (2%)
Sales for Networks and Support Solutions were negatively impacted by the macroeconomic environment in many countries, making operators more cautious with their investments. Global Services sales increased driven by network modernization projects.
MIDDLE EAST
Net sales: SEK 15.6 billion (+1%)
2012 was characterized by political unrest in some countries which made operators more cautious. Operators focused on network performance and efficiency which drove sales for Global Services.
SUB-SAHARAN AFRICA
Net sales: SEK 11.3 billion (+12%)
Sales increased in all segments mainly driven by rollout of 2G/GSM voice services. Mobile broadband penetration slowly increased with low-cost smartphone availability.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
INDIA
Net sales: SEK 6.5 billion (34%)
India had a weak year, due to low activity levels with operator investments only in certain areas.
NORTH EAST ASIA
Net sales: SEK 36.2 billion (5%)
Both Japan and South Korea are building country-wide 4G/ LTE networks. In Japan sales grew during 2012, while sales in Korea were negatively impacted by lower 3G revenues. China had focus on the coming 4G/LTE rollouts and GSM sales declined.
SOUTH EAST ASIA AND OCEANIA
Net sales: SEK 15.1 billion (+9%)
Sales growth was driven by 3G deployments in Indonesia, Thailand and the Philippines. Global Services developed well in Australia during the year.
OTHER
Net sales: SEK 12.3 billion (+15%)
Includes revenues generated across all regions, through licensing, sales of cables, broadcast services, power modules and other businesses.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Our overall goal is to create shareholder value. We use a range of financial and non-financial targets to drive business performance.
What we aim for | GROWING SALES FASTER THAN THE MARKET |
BEST-IN-CLASS OPERATING MARGIN | STRONG CASH CONVERSION | |||
Why we measure it | Outperforming our market confirms the validity of our strategic direction. | A clear focus on operating margins demonstrates our commitment to profitable growth. | A strong cash position supports new business activity, enables appropriate acquisition opportunities and provides resilience to external economic volatility. | |||
Our performance |
|
|
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
What we aim for | GROWTH IN JV EARNINGS | CUSTOMER SATISFACTION | EMPLOYEE ENGAGEMENT | |||
Why we measure it | The modem technology has a strategic value to the wireless industry. | Customer satisfaction is a prerequisite for customer loyalty. We strive to ensure that our customers perceive us as a thought leader and their preferred business partner. | Engaged employees are motivated to contribute to the success of Ericsson and are willing to go the extra mile to meet the organizations goals. | |||
Our performance |
Our score is 8 percentage points higher than external benchmark average, as measured across over 250 companies. We started to measure the engagement index in 2011. |
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
SUSTAINABILITY AND CORPORATE RESPONSIBILITY
Our approach to sustainability and corporate responsibility is integrated into our core business operations and in our relationship with stakeholders.
SUSTAINABILITY
Sustainability is about the triple bottom line:
| Social equity; communication is a basic human need and should be available to everyone |
| Environmental performance; minimizing environmental impact and creating a low-carbon society |
| Economic prosperity; contributions to social and economic development. |
We have implemented strong social, ethical and environmental standards. This commitment generates positive business impacts, which in turn benefit society.
Reducing environmental impact
The energy use of products in operation remains our most significant environmental impact. We also work to reduce our own environmental impact. Focus is on product energy efficiency and materials management as well as business travel, facilities and transport of our products. We have set a five-year target to reduce Ericsson carbon footprint intensity by 40% for products in operation and for our own operations and we have achieved it one year ahead of time.
We work proactively with our customers to encourage network and site energy optimization.
One aspect of our sustainability strategy is the role broadband can play in helping to offset global CO2 emissions.
70% of these are attributed to cities. We work on sustainable city solutions and are engaged in global climate policy.
Technology for Good
Our Technology for Good program is focused on applying Ericssons expertise, global presence and scale to find market-based solutions that empower people, business and society to help shape a more sustainable world. We have used our technology and competence to help achieve the Millennium Development Goals for more than a decade.
Through our volunteer program Ericsson Response, we have played an active role in humanitarian disaster relief efforts.
CORPORATE RESPONSIBILITY
Corporate Responsibility is about managing risks to secure that Ericsson remains a trusted partner among our stakeholders.
Conducting business responsibly
We actively support the UN Global Compact, and endorse its principles regarding human and labor rights, anti-corruption and environmental protection.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
We have a Code of Business Ethics and a Code of Conduct which reflect responsible business practices. Promotion of these practices is reinforced by employee awareness training, workshops and monitoring.
Suppliers must comply with our Code of Conduct.
We continued to develop our anti-corruption program and broadened Ericssons whistleblower procedure.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
For definitions of the financial terms used, see Glossary, Financial Terminology and Exchange Rates.
Five-year summary
SEK million |
2012 | Change | 2011 | 2010 | 2009 | 2008 | ||||||||||||||||||
Income statement items |
||||||||||||||||||||||||
Net sales |
227,779 | 0 | % | 226,921 | 203,348 | 206,477 | 208,930 | |||||||||||||||||
Operating income |
10,458 | 42 | % | 17,900 | 16,455 | 5,918 | 16,252 | |||||||||||||||||
Financial net |
276 | | 221 | 672 | 325 | 974 | ||||||||||||||||||
Net income |
5,938 | 53 | % | 12,569 | 11,235 | 4,127 | 11,667 | |||||||||||||||||
Year-end position |
||||||||||||||||||||||||
Total assets |
274,996 | 2 | % | 280,349 | 281,815 | 269,809 | 285,684 | |||||||||||||||||
Working capital as defined1) |
100,619 | 8 | % | 109,552 | 105,488 | 99,079 | 99,951 | |||||||||||||||||
Capital employed as defined1) |
176,653 | 5 | % | 186,307 | 182,640 | 181,680 | 182,439 | |||||||||||||||||
Gross cash as defined1) |
76,708 | 5 | % | 80,542 | 87,150 | 76,724 | 75,005 | |||||||||||||||||
Net cash as defined1) |
38,538 | 2 | % | 39,505 | 51,295 | 36,071 | 34,651 | |||||||||||||||||
Property, plant and equipment |
11,493 | 7 | % | 10,788 | 9,434 | 9,606 | 9,995 | |||||||||||||||||
Stockholders equity |
136,883 | 4 | % | 143,105 | 145,106 | 139,870 | 140,823 | |||||||||||||||||
Non-controlling interest |
1,600 | 26 | % | 2,165 | 1,679 | 1,157 | 1,261 | |||||||||||||||||
Interest-bearing liabilities and post-employment benefits |
38,170 | 7 | % | 41,037 | 35,855 | 40,653 | 40,354 | |||||||||||||||||
Per share indicators |
||||||||||||||||||||||||
Earnings per share, basic, SEK |
1.80 | 53 | % | 3.80 | 3.49 | 1.15 | 3.54 | |||||||||||||||||
Earnings per share, diluted, SEK |
1.78 | 53 | % | 3.77 | 3.46 | 1.14 | 3.52 | |||||||||||||||||
Cash dividends per share, SEK |
2.75 | 2) | 10 | % | 2.50 | 2.25 | 2.00 | 1.85 | ||||||||||||||||
Stockholders equity per share, SEK |
42.51 | 5 | % | 44.57 | 45.34 | 43.79 | 44.21 | |||||||||||||||||
Number of shares outstanding (in millions) |
||||||||||||||||||||||||
end of period, basic |
3,220 | | 3,211 | 3,200 | 3,194 | 3,185 | ||||||||||||||||||
average, basic |
3,216 | | 3,206 | 3,197 | 3,190 | 3,183 | ||||||||||||||||||
average, diluted |
3,247 | | 3,233 | 3,226 | 3,212 | 3,202 | ||||||||||||||||||
Other information |
||||||||||||||||||||||||
Additions to property, plant and equipment |
5,429 | 9 | % | 4,994 | 3,686 | 4,006 | 4,133 | |||||||||||||||||
Depreciation and write-downs/impairments of property, plant and equipment |
4,012 | 13 | % | 3,546 | 3,296 | 3,502 | 3,105 | |||||||||||||||||
Acquisitions/capitalization of intangible assets |
13,247 | | 2,748 | 7,246 | 11,413 | 1,287 | ||||||||||||||||||
Amortization and write-downs/impairments of intangible assets |
5,877 | 7 | % | 5,490 | 6,657 | 8,621 | 5,568 | |||||||||||||||||
Research and development expenses |
32,833 | 1 | % | 32,638 | 31,558 | 33,055 | 33,584 | |||||||||||||||||
as percentage of net sales |
14.4 | % | | 14.4 | % | 15.5 | % | 16.0 | % | 16.1 | % | |||||||||||||
Ratios |
||||||||||||||||||||||||
Operating margin excluding joint ventures and associated companies |
9.7 | % | | 9.6 | % | 8.7 | % | 6.5 | % | 8.0 | % | |||||||||||||
Operating margin |
4.6 | % | | 7.9 | % | 8.1 | % | 2.9 | % | 7.8 | % | |||||||||||||
EBITA margin as defined1) |
6.6 | % | | 9.9 | % | 11.0 | % | 6.7 | % | 9.4 | % | |||||||||||||
Cash conversion |
116 | % | | 40 | % | 112 | % | 117 | % | 92 | % | |||||||||||||
Return on equity as defined1) |
4.1 | % | | 8.5 | % | 7.8 | % | 2.6 | % | 8.2 | % | |||||||||||||
Return on capital employed as defined1) |
6.7 | % | | 11.3 | % | 9.6 | % | 4.3 | % | 11.3 | % | |||||||||||||
Equity ratio |
50.4 | % | | 51.8 | % | 52.1 | % | 52.3 | % | 49.7 | % | |||||||||||||
Capital turnover |
1.3 | | 1.2 | 1.1 | 1.1 | 1.2 | ||||||||||||||||||
Inventory turnover days |
73 | | 78 | 74 | 68 | 68 | ||||||||||||||||||
Trade receivables turnover |
3.6 | | 3.6 | 3.2 | 2.9 | 3.1 | ||||||||||||||||||
Payment readiness, SEK million |
84,951 | 2 | % | 86,570 | 96,951 | 88,960 | 84,917 | |||||||||||||||||
as percentage of net sales |
37.3 | % | | 38.1 | % | 47.7 | % | 43.1 | % | 40.6 | % | |||||||||||||
Statistical data, year-end |
||||||||||||||||||||||||
Number of employees |
110,255 | 5 | % | 104,525 | 90,261 | 82,493 | 78,740 | |||||||||||||||||
of which in Sweden |
17,712 | 1 | % | 17,500 | 17,848 | 18,217 | 20,155 | |||||||||||||||||
Export sales from Sweden, SEK million |
106,997 | 8 | % | 116,507 | 100,070 | 94,829 | 109,254 |
1) | These financial measures as defined by us may constitute non-IFRS measures. For a reconciliation to the most directly comparable IFRS measures, see pages 262266. |
2) | For 2012, as proposed by the Board of Directors. |
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
DEAR SHAREHOLDERS
It is now almost two years since I assumed the role as Chairman of the Board of Ericsson, and looking back they have certainly been interesting years. The rapid pace of change of the industry and the transformative power of the technology are two reasons why I find this role so interesting and inspiring.
A year of strategy execution
During 2012, the Company continued to strengthen its core assets; technology and services leadership as well as global scale. A key event during the year was the completion of the divestment of Sony Ericsson. In addition, the Company has strengthened and streamlined its portfolio through a few strategic acquisitions and divestments.
Board discussions
During the year, the Board has closely monitored the overall market conditions for Ericsson such as macroeconomic development, customers financial performance and strategy as well as the competitive landscape among ICT vendors. It is important for us to understand how potential moves by competitors, both commercial and technological, might change the landscape and the relative strength of the company.
A main focus area for the Board of Directors during the year has been Ericssons financial performance and working capital development. Commercial management and the balance between market share gains and profitable growth have been key topics.
The Board has also closely monitored the work during the year to find the best solution for ST-Ericsson assets given the strategic options at hand.
Strong financial position
One of the Boards key areas of responsibility is to manage the Companys financial position. The Company has a strong balance sheet and we believe it is appropriate to remain fairly conservative considering the continued macroeconomic uncertainty in parts of the world. We will, as before, consider selective acquisitions but prefer to invest in further strengthening the Companys technology and services leadership and its offering to the market.
The Companys dividend policy takes into account last years earnings and balance sheet structure, as well as coming years business plans and expected economic development. Based on this, the Board proposes a dividend increase of 10%.
Importance of corporate governance
Good corporate governance is the basis for building a robust corporate culture. However, corporate governance is not only about efficient and reliable controls and procedures. It is also about adherence to strong principles of responsible business practice by all employees. Over time this strengthens the business, which in turn generates shareholder value. Ericsson has a strong portfolio for value creation at large, and strong social, environmental and governance standards supporting risk management.
I am proud to be Chairman of the Board of this Company with so many dedicated and competent people working hard every day, to stay the leader in this rapidly changing market.
Leif Johansson
Chairman of the Board of Directors
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
TRENDS AND DRIVERS
Major industry trends in 2012 were operators focus on high-performance mobile broadband networks and their focus on increasing the operational efficiency. Tiered pricing and new business models continued to be high on our customers agendas. In Europe, the network modernization projects continued the rapid implementation. In North America, Japan and Korea, major LTE rollouts took place.
Across the globe, operators continued to focus on increasing their operational efficiency and reducing their operating expenses. Their focus on operational efficiencies together with transformation activities in the voice, IP and OSS and BSS domains drove demand for consulting and systems integration as well as managed services.
When developing its internal plans, Ericsson looks at a number of parameters that have an impact on data traffic. These include:
| Smartphone subscriptions, as a percentage of total subscriptions |
| Mobile broadband subscriptions, as a percentage of total mobile subscriptions |
| Average data traffic and peaks in traffic. |
Mobile subscriptions and smartphones
Today, 1520% of the worldwide installed base of mobile phone subscriptions use smartphones. About 40% of all mobile phones sold during 2012 were smartphones, compared to around 30% for 2011. With less expensive smartphones being introduced, there is considerable room for further uptake.
Subscriptions |
||||||||
billion |
2012 | 2018 Forecast |
||||||
Mobile subscriptions |
~6.3 | ~9 | ||||||
Mobile broadband subscriptions |
~1.5 | ~6.5 |
Ericsson estimate
Mobile broadband subscriptions and population coverage
Mobile network coverage is constantly increasing. GSM/EDGE technology has the widest reach and covers more than 85% of the world population.
WCDMA/HSPA covers more than 50% of the world population. Further build out of WCDMA/HSPA coverage will be driven by factors such as demand for internet access and affordability of smartphones. By 2017, Ericsson estimates that 85% of the worlds population will have access to WCDMA/HSPA.
All WCDMA networks deployed by Ericsson have been upgraded to HSPA of various speeds.
Despite being in the early days, LTE networks can already provide downlink peak rates of around 100 Mbps. There are around 60 LTE networks in commercial operation. By 2017, Ericsson estimates that 50% of the worlds population will have LTE coverage.
Regions have different radio technology mixes dependent on maturity level. Less mature regions are dominated by 2G technologies while more mature regions are dominated by HSPA. LTE is growing strongly, particularly in North America, where LTE is forecasted to be the leading radio technology before 2018. The fast growth in LTE subscriptions is driven by strong competition and consumer demand, following CDMA operators decisions to migrate to LTE.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Operators who have 2G or 3G-specific radio base stations will have to invest in new radio base stations in order to introduce 4G/LTE. The Ericsson multi-standard radio base station is an efficient way of doing so, being capable of all technologies; 2G, 3G and 4G/LTE.
Data traffic
Access to the internet from mobile devices continues to drive mobile traffic development. In 2012, mobile data traffic continued the trend of doubling each year. Ericsson estimates that mobile data traffic will grow 12 times between 2012 and 2018. The increasing data traffic will drive the need for more capacity in mobile broadband networks.
Data traffic per subscriber is partly dependent on the screen size of the users device. Resolution is also a factor. On average, a mobile PC generates about seven times more data traffic than a smartphone.
Average mobile data traffic |
||||||||
2012 | 2018 Forecast |
|||||||
Monthly data traffic per PC |
3 GB | 11 GB | ||||||
Monthly data traffic per tablet |
0.6 GB | 2.7 GB | ||||||
Monthly data traffic per smartphone |
0.45 GB | 1.9 GB |
Ericsson estimate
BUSINESS IN 2012
Strong year for services
With strong growth in Global Services and Support Solutions in 2012, Ericsson took further steps in establishing itself as a leading ICT player. Networks sales declined 2012 following a strong 2011.
In the coming years, Ericsson expects software sales to gradually increase as radio expansions and upgrades, IP and OSS and BSS materialize. This development will result in more recurring revenues from software and services business as well as less capital utilization.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
High share of coverage projects
Ericssons gross margin and the amount of required capital employed vary with project type. When building network coverage, projects are often of a turnkey character. Generally there are more hardware and network rollout services in coverage projects, resulting in lower gross margin and a larger capital utilization.
During 2012, Ericsson was in a phase with a high share of coverage projects. Sales for 2012 showed a higher share of services and a lower share of hardware. This reflects the good momentum in services throughout the year, reduced CDMA infrastructure business and impact from network modernization projects in Europe.
Network modernization in Europe
The modernization of networks in Europe became an opportunity for the Company in mid-2010 when operators in Europe started to consider replacing old 2G and 3G equipment with multi-standard radio equipment.
Ericsson that had lost out on market share in 3G compared to its strong 2G position, identified this as an opportunity to regain footprint. Competition for new footprint is always tough and a strategic decision was taken to accept short-term profitability pressure to increase technology and services leadership. As a result, market share has increased and the Company has further strengthened its leading market position in Europe. Average project duration for these modernization projects is 1824 months and the first projects were completed in late 2012. The negative impact from network modernization projects in Europe will continue to gradually decline during 2013 as projects are finalized.
Acquisitions, partnerships and divestments
The Companys strategy is to focus on organic growth and be selective with acquisitions. Acquisitions might be considered for three purposes: if there is a crucial opportunity to consolidate the Companys market position, to fill portfolio gaps, or to enter new growth areas. In 2012, the following activities were announced:
| Completion of the acquisition of Telcordia |
| Completion of the divestment of the 50% stake in Sony Ericsson Mobile Communication AB to Sony in February. The divestment was effective on January 1, 2012 |
| Increased ownership in Ericsson-LG, now holding 75% |
| Acquisition of Canadian telecom-grade Wi-Fi company BelAir Networks |
| Acquisition of Technicolors broadcast services division |
| Divestment of EDA 1500 GPON portfolio to Calix, Inc. |
| Acquisition of Canadian ConcepStWave in the OSS and BSS domain |
| Divestment of the multimedia brokering platform (IPX) to Gemalto. |
Fair return on R&D investment
In the networked society, Ericsson envisions that anything that benefits from being connected will be connected.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
In this scenario, Ericsson foresees new entrants to the connectivity markets, from device and equipment manufacturers as well as from other industries. Any company that provides wireless connectivity today is likely to require a license to Ericssons patents. The Company believes it is the strongest holder of essential patents in the wireless industry. Ericsson has more than 100 patent license agreements and is a net receiver of royalties. The Companys product portfolio is well licensed, which is beneficial to its customers.
* | Ericssons key network equipment market includes Radio, i.e. 2G, 3G, 4G RAN including CDMA, public WLAN access and OSS for mobile. IP and Transport includes IP Edge, packet core, microwave, opto metro and OSS for fixed. Core includes circuit-switched core, IMS, user data management and machine-to-machine. |
Cash generation
A tight focus is kept on the cash generation of the Company and its working capital. Working capital decreased by 8% mainly due to lower inventories at year-end. The balance sheet is strong and the cash position sufficiently large to ensure the financial flexibility to invest in future growth and to capture business opportunities. The earnings and balance sheet structure makes it possible for the Board of Directors to propose to increase the dividend. This proposal reflects earnings and balance sheet structure in 2012, as well as coming years business plans and expected economic development, according to Ericssons dividend policy.
Cost and efficiency
The Board of Directors has paid extra attention to commercial management and the balance of market share gains with profitable growth. In addition, the Company has also taken a number of initiatives to reduce cost and increase capital efficiency. Among these is the multi-year program to reduce cost by industrializing service delivery, implementing more lean and agile ways of working in software development as well as improving the order-to-cash process. The Company will also continue to optimize capital expenditures and debt management.
TARGETS AND PERFORMANCE
Ericssons overall goal is to create shareholder value. Management uses four financial metrics to evaluate the Companys long-term ambitions:
| Sales growth faster than the market |
| Best-in-class operating margin |
| Growth in joint ventures earnings |
| Strong cash conversion. |
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
The Board of Directors has translated these metrics into three performance criteria in the Executive Performance Stock Plan, included in the Companys Long-Term Variable (LTV) remuneration program. These performance criteria have been approved by the Annual General Meeting.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Long-term ambitions
Grow faster than the market
Ericsson maintained its share of global installed base of radio base stations at close to 40%.
In 2012, Ericsson widened the definition* of the equipment market to also reflect the R&D investments during the past years. For the equipment market, which includes the key segment of Radio, IP and Transport as well as Core, preliminary market data indicates that the market share was 24%, down from 27% in 2011. The decline is due to a lower market share in the mobile network equipment market, at 35%, down from 38% in 2011, negatively impacted by the technology shift in China where investments are moving from GSM to other technology areas where Ericsson has limited presence.
Ericssons global market share for LTE is twice as big as the largest competitor, measured in shipments for the full year 2012. This makes Ericsson the worlds largest supplier of LTE. The LTE technology is still in an early build-out phase.
As expected, Ericssons sales of CDMA equipment decreased by 40% in 2012, following operators transition to LTE. All Ericsson CDMA customers are now Ericsson LTE customers.
In telecom services, internal market data indicates that the Company increased its market share to 13% and is larger than any of its competitors in this fragmented market. After the acquisition of Telcordia, consolidated as from January 2012, Ericsson has a leading position in OSS and BSS.
Best-in-class operating margin
The Companys operating margin before share in JV earnings and gain from the sale of its share in Sony Ericsson was 6.4% (9.6%). Based on reported results for 2012, the operating margin remains the highest among the Companys traditional publicly listed telecom competitors.
Growth in JV earnings
The Ericsson share in earnings of joint ventures and associated companies was SEK 11.7 (3.8) billion. The Company took a non-cash charge of SEK 8.0 billion, related to its 50% stake of ST-Ericsson. The charge included write-down of investments of SEK 4.7 billion to reflect the current best estimate of Ericssons share of the fair market value of the JV. A provision of SEK 3.3 billion was also included, related to the available strategic options at hand for the future of the ST-Ericsson assets. Ericssons share of the JV Sony Ericsson was divested in early 2012 resulting in a gain of SEK 7.7 billion, reported as Other operating income. The Company did not consolidate Sony Ericsson in 2012.
Cash conversion
The cash conversion rate was 116% (40%), driven by reduced working capital. The Company reached its target of a cash conversion rate above 70%. Cash conversion is defined as cash flow from operating activities divided by the sum of net income and adjustments to reconcile net income to cash.
Other performance indicators
Ericsson believes that satisfied customers and motivated employees are key to success.
Customer satisfaction
Every year, an independent customer satisfaction survey is performed. In 2012 about 15,000 representatives of Ericsson customers, in different positions around the world, were polled to assess their satisfaction with
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Ericsson, compared to its main competitors. Over the past five years, Ericsson has maintained a high level of excellence; a customer satisfaction index above 70. The goal is to further increase the customer satisfaction.
Employee engagement
In order to measure employee engagement, an annual survey is conducted by an independent company. In 2012, 94% (90%) of employees across the world responded to the survey.
The 2012 survey results show a continued strong employee engagement. The Employee Engagement index is 77%, which is unchanged from 2011 and 8%points higher than the external benchmark average.
Executive Performance Stock Plan
The Company has a Long-Term Variable (LTV) remuneration program. It builds on a common platform, but consists of three separate plans; one targeting all employees, one targeting key contributors and one targeting senior management. The program is designed to encourage long-term value creation in alignment with shareholders interests.
The aim of the plan for senior managers is to attract, retain and motivate executives in a competitive market through performance-based share-related incentives and to encourage the build-up of significant equity stakes. The performance criteria for senior management, i.e. the Executive Performance Stock Plan, are revised yearly and approved by the Annual General Meeting. Performance criteria for the 2013 Executive Performance Stock Plan will be communicated in the notice to the Annual General Meeting.
The targets for the 2011 and 2012 Executive Performance Stock Plans are shown in the illustration below. The performance criteria are:
| Up to one-third of the award will vest if the target for compound annual growth rate of consolidated net sales is achieved |
| Up to one-third of the award will vest if the target for compound annual growth rate of consolidated operating income, including earnings in joint ventures and restructuring, is achieved. For the 2011 plan, base year 2010 is excluding restructuring of SEK 6.8 billion. |
| Up to one-third of the award will vest if cash conversion is at or above 70% during each of the years and vesting one-ninth of the award for each year the target is achieved. The target was reached in 2012 but not reached in 2011. |
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Before the number of performance shares to be matched are finally determined, the Board of Directors shall examine whether the performance matching is reasonable considering the Companys financial results and position, conditions on the stock market and other circumstances, and if not, reduce the number of performance shares.
Working capital targets
Ericssons working capital targets are described on page 43. The targets remain for 2013.
FINANCIAL RESULTS OF OPERATIONS
ABBREVIATED INCOME STATEMENT
IFRS | Restructuring charges | |||||||||||||||||||||||
SEK billion |
2012 | 2011 | 2010 | 2012 | 2011 | 2010 | ||||||||||||||||||
Net sales |
227.8 | 226.9 | 203.3 | |||||||||||||||||||||
Cost of sales |
155.7 | 147.2 | 129.1 | 2.2 | 1.2 | 3.4 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Gross income |
72.1 | 79.7 | 74.3 | 1.2 | 3.4 | |||||||||||||||||||
Gross margin % |
31.6 | % | 35.1 | % | 36.5 | % | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Operating expenses |
58.9 | 59.3 | 58.6 | 1.2 | 2.0 | 3.5 | ||||||||||||||||||
Operating expenses as % of sales |
25.8 | % | 26.1 | % | 28.8 | % | ||||||||||||||||||
Other operating income and expenses |
9.0 | 1.3 | 2.0 | | | | ||||||||||||||||||
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Operating income before share in earnings of JVs and associated companies |
22.2 | 21.7 | 17.6 | 3.4 | 3.2 | 6.8 | ||||||||||||||||||
Operating margin % before share in earnings of JVs and associated companies |
9.7 | % | 9.6 | % | 8.7 | % | ||||||||||||||||||
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Share in earnings of JVs and associated companies |
11.7 | 3.8 | 1.2 | 0.3 | 0.6 | 0.5 | ||||||||||||||||||
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Operating income |
10.5 | 17.9 | 16.5 | 3.8 | 3.7 | 7.3 | ||||||||||||||||||
Operating margin % |
4.6 | % | 7.9 | % | 8.1 | % | ||||||||||||||||||
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Financial income and expenses, net |
0.3 | 0.2 | 0.7 | |||||||||||||||||||||
Taxes |
4.2 | 5.6 | 4.5 | |||||||||||||||||||||
Net income |
5.9 | 12.6 | 11.2 | |||||||||||||||||||||
EPS diluted (SEK) |
1.78 | 3.77 | 3.46 | |||||||||||||||||||||
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38
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Sales
2012 was a year with strong growth in Global Services and Support Solutions while Networks had a more challenging year. Sales for comparable units, adjusted for foreign currency exchange rates and hedging, decreased 2%. The acquired Telcordia operation added sales of SEK 4.2 billion, split 50/50 between the segments Global Services and Support Solutions.
In 2012, the Company continued to execute its strategy to leverage its strengths in the growth areas of mobile broadband, managed services as well as OSS and BSS. Due to the current technology cycle in which mobile broadband is being rolled out, the business mix in 2012 continued to include a higher share of coverage business than capacity business. Ericsson was also to a large extent engaged in network modernization projects in Europe with its lower margins.
Sales of CDMA equipment declined 40% to SEK 8.4 (14.0) billion. The decline in CDMA was expected and planned for, following operators migration to LTE. The growth in Global Services is primarily related to continued good momentum in managed services and consulting and systems integration as well as network rollout sales following a high share of coverage projects. The sales growth in Support Solutions is mainly driven by TV and media management, business support solutions (charging solutions) and the acquisition of Telcordia. The segments Global Services and Support Solutions together represented close to 50% of Group sales.
In 2012, five of our ten regions showed growth. The share of software sales was unchanged in 2012, at 23% (23%) of sales while the portion of hardware decreased to 35% (40%) and services increased to 42% (37%) of Group sales. Longer term, the software part is expected to increase following more expansions and upgrades of networks.
IPR (intellectual property rights) revenues showed a favorable development and amounted to SEK 6.6 (6.2) billion.
Seasonality
The Companys quarterly sales, income and cash flow from operations are seasonal in nature, 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.
39
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Most recent five-year average seasonality
First quarter |
Second quarter |
Third quarter |
Fourth quarter |
|||||||||||||
Sequential change |
21 | % | 7 | % | 2 | % | 26 | % | ||||||||
Share of annual sales |
23 | % | 24 | % | 24 | % | 30 | % |
Gross margin
Gross margin declined to 31.6% (35.1%). The decrease is due to increased share of Global Services sales, higher proportion of coverage than capacity projects and network modernization projects in Europe. Close to 50% of the gross margin decline is related to the increased services share.
With current visibility, the underlying business mix, with a higher share of coverage projects than capacity projects, is expected to gradually shift towards more capacity projects during the second half of 2013. The negative impact from the network modernization projects in Europe will continue to gradually decline during 2013.
Operating expenses
Total operating expenses declined slightly. Excluding acquisitions and restructuring charges, Group operating expenses amounted to SEK 55.1 billion, down 4% from 2011.
To secure continued technology leadership, focus is on innovation and R&D. R&D expenses (see table below) increased slightly due to higher restructuring charges and acquisitions. Based on current portfolio and efficiencies in ways of working, R&D expenses for 2013 are expected to decrease somewhat.
Selling and administrative expenses represented 11.4% of sales compared to 11.8% in 2011.
Research and development
2012 | 2011 | 2010 | ||||||||||
Expenses (SEK billion) |
32.8 | 32.6 | 31.6 | |||||||||
As percent of Net sales |
14.4 | % | 14.4 | % | 15.5 | % | ||||||
Employees within R&D as of December 311) |
24,100 | 22,400 | 20,800 | |||||||||
Patents1) |
33,000 | 30,000 | 27,000 |
1) | The number of employees and patents are approximate. |
Operating margin before JVs
Operating margin before share in JV earnings was 9.7% (9.6%). Excluding the gain related to the divestment of the share of Sony Ericsson, operating margin was 6.4%. The negative impact was due to the business mix having more coverage business than capacity business as well as network modernization projects in Europe.
Share in earnings of JVs
ST-Ericsson reported a loss in 2012. Ericssons share in ST-Ericssons income before tax, adjusted to IFRS, was SEK 3.7 (2.7) billion. The reported loss of SEK 11.7 billion includes a write-down of investments of SEK 4.7 billion and a provision of SEK 3.3 billion.
40
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Other Operating income and expenses
Other operating income and expenses includes a gain of SEK 7.7 billion related to the divestment of Sony Ericsson. It also includes a gain of SEK 0.2 billion from the divestment of the Multimedia brokering (IPX) operation.
Financial net
The financial net decreased mainly due to negative currency exchange revaluation effects on financial investments and liabilities.
Taxes
The tax rate for the year was 42% (31%) of income after financial items. The high tax rate is due to product and market mix as well as a reduction in corporate tax rate for 2013, decided by the Swedish Parliament. The lower corporate tax rate in Sweden reduced the deferred tax assets with approximately SEK 0.5 billion. Over time, the lower tax rate in Sweden will have a positive impact on taxes.
Net income
Net income decreased primarily due to the negative impact from ST-Ericsson and lower contribution from Networks.
Earnings per share, diluted
Earnings per share decreased 53% to SEK 1.78 (3.77). Earnings per share, non-IFRS, decreased 42% to SEK 2.74 (4.72). The Board of Directors proposes a dividend of SEK 2.75 (2.50). This represents an increase of 10% over 2011.
Restructuring charges
Restructuring charges were SEK 3.4 (3.2) billion, excluding joint ventures. Restructuring charges mainly relate to continued execution of the service delivery strategy as well as other ongoing cost reduction measures. Cash outlays that have been provided for were SEK 1.2 (3.2) billion. At the end of the year, cash outlays of SEK 1.2 (1.3) billion remain to be made. Ericssons share in ST-Ericssons restructuring charges was SEK 0.3 (0.1) billion.
41
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
FINANCIAL POSITION
CONSOLIDATED BALANCE SHEET (ABBREVIATED)
December 31, SEK billion |
2012 | 2011 | 2010 | |||||||||
Assets |
||||||||||||
Non-current assets, total |
81.7 | 81.5 | 83.4 | |||||||||
of which intangible assets |
49.4 | 44.0 | 46.8 | |||||||||
of which property, plant and equipment |
11.5 | 10.8 | 9.4 | |||||||||
of which financial assets |
8.5 | 13.7 | 14.5 | |||||||||
of which deferred tax assets |
12.3 | 13.0 | 12.7 | |||||||||
Current assets, total |
193.3 | 198.8 | 198.4 | |||||||||
of which inventory |
28.8 | 33.1 | 29.9 | |||||||||
of which trade receivables |
63.7 | 64.5 | 61.1 | |||||||||
of which other receivables/financing |
24.1 | 20.7 | 20.2 | |||||||||
of which short-term investments, cash and cash equivalents |
76.7 | 80.5 | 87.2 | |||||||||
Total assets |
275.0 | 1) | 280.3 | 281.8 | ||||||||
Equity and liabilities |
||||||||||||
Equity |
138.5 | 145.3 | 146.8 | |||||||||
Non-current liabilities |
39.1 | 38.1 | 38.3 | |||||||||
of which post-employment benefits |
9.5 | 10.0 | 5.1 | |||||||||
of which borrowings |
23.9 | 23.3 | 27.0 | |||||||||
of which other non-current liabilities |
5.7 | 4.8 | 6.2 | |||||||||
Current liabilities |
97.4 | 97.0 | 96.8 | |||||||||
of which provisions |
8.4 | 6.0 | 9.4 | |||||||||
of which current borrowings |
4.8 | 7.8 | 3.8 | |||||||||
of which trade payables |
23.1 | 25.3 | 25.0 | |||||||||
of which other current liabilities |
61.1 | 58.0 | 58.6 | |||||||||
Total equity and liabilities1) |
275.0 | 280.3 | 281.8 |
1) | Of which interest-bearing liabilities and post-employment benefits SEK 38.2 (41.0) billion. |
Ericssons strategy is to maintain a strong balance sheet, including a sufficiently large cash position to ensure the financial flexibility to invest in future growth and to capture business opportunities. This has been particularly important during the past years difficult macroeconomic and financial market situation. By maintaining a strong cash position, the Company gains competitive advantages and can maintain an active strategy for selective acquisitions.
The Companys capital targets are to have an equity ratio above 40%, to generate a cash conversion rate above 70%, to have a positive net cash position and to achieve solid investment grade ratings.
An important focus area is the monitoring of working capital. Major efforts have been made during the year in order to reduce days sales outstanding and inventory turnover days as well as to increase payable days. The target for days sales outstanding was met, while the other two targets were not achieved. Efforts to further reduce working capital will continue in 2013 and the working capital targets are the same as previous years.
For 2011, the dividend was SEK 2.50 per share. The Board of Directors will propose to the Annual General Meeting 2013 a dividend of SEK 2.75 per share for 2012. This represents a total dividend of approximately SEK 9.1 (8.2) billion. The proposal reflects year 2012s earnings and balance sheet structure, as well as coming years business plans and economic development, according to Ericssons dividend policy.
42
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
43
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Non-current assets
Intangible assets increased to SEK 49.4 (44.0) billion due to acquisitions during the year. Customer financing, current and non-current, increased to SEK 5.3 (4.2) billion.
44
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Current assets
Inventory levels decreased at the end of the year. At year end, inventory was SEK 28.8 (33.1) billion. The target of inventory turnover days less than 65 days was not reached and improvement efforts will continue in 2013.
Trade receivables: Days sales outstanding reached 86 (91) days at year end due to strong sales and good collections. The Companys credit losses have historically been low and continued to be so in 2012.
Net cash decreased by SEK 1.0 billion. For a more detailed discussion on changes in cash, see pages 4750.
Equity
Equity decreased by SEK 6.8 billion primarily due to the non-cash charge of SEK 8.0 billion related to ST-Ericsson. The equity ratio was maintained at a healthy level of 50.4% (51.8%). Return on equity decreased to 4.1% (8.5%) due to lower profitability. Return on capital employed (ROCE) was 6.7% (11.3%).
Non-current liabilities
Post-employment benefits related to defined benefit plans declined to SEK 9.5 (10.0) billion. In 2012 there was a decrease in discount rates, which was offset as plan assets yielded higher than expected.
Non-current borrowings was almost unchanged at SEK 23.9 (23.3) billion. In 2012, Ericsson performed refinancing activities to extend its average debt maturity profile and to further diversify funding sources:
| Issue of a USD-denominated 1 billion ten-year bond in order to refinance debt maturing in 2012 to 2014 |
| Repurchase of EUR 441 million related to the 2013 and 2014 EMTN bonds in order to reduce gross debt and optimize net interest |
| Repayment of two SEK-denominated bonds with a total of SEK 3.5 billion at maturity |
| Taken up a loan with the Nordic Investment Bank of EUR 0.15 billion (or the equivalent in USD). The loan is divided into two equal tranches with seven-year and nine-year maturities respectively. |
| Signed loan agreement with the European Investment Bank of EUR 0.5 billion (or the equivalent in USD) with an option for disbursement until April 2014. The loan will mature seven years after disbursement |
| The Company also has unutilized committed credit facilities of USD 2.0 billion available, maturing in 2014. |
45
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Current liabilities
Provisions increased to SEK 8.4 (6.0) billion. SEK 1.2 (1.3) billion were related to restructuring. The cash outlays of provisions were SEK 3.5 (6.0) billion. The higher amount of provisions is due to a provision of SEK 3.3 billion related to ST-Ericsson. Provisions will fluctuate over time, depending on business mix, market mix and technology shifts.
Payable days decreased to 57 (62) days, reflecting the high level of network rollout where suppliers normally have shorter payment days. The target of payable days of more than 60 days was not met.
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 effect on the Companys financial condition, revenues, expenses, result of operations, liquidity, capital expenditures or capital resources.
46
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
CASH FLOW
Cash flow (abbreviated) January 1December 31
SEK billion |
2012 | 2011 | 2010 | |||||||||
Net income |
5.9 | 12.6 | 11.2 | |||||||||
Income reconciled to cash |
19.0 | 25.2 | 23.7 | |||||||||
Changes in operating net assets |
3.0 | 15.2 | 2.9 | |||||||||
Cash flow from operating activities |
22.0 | 10.0 | 26.6 | |||||||||
Cash flow from investing activities |
4.9 | 4.5 | 12.5 | |||||||||
of which capital expenditures, sales of PP&E, product development |
6.5 | 6.1 | 5.2 | |||||||||
of which acquisitions/divestments, net |
2.1 | 3.1 | 2.8 | |||||||||
of which short-term investments for cash management purposes and other investing activities |
3.7 | 13.8 | 4.5 | |||||||||
Cash flow before financing activities |
17.1 | 14.5 | 14.0 | |||||||||
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Cash flow from financing activities |
9.4 | 6.5 | 5.7 | |||||||||
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Cash conversion (Cash flow from operating activities divided by income reconciled to cash) |
116 | % | 40 | % | 112 | % | ||||||
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Gross cash (Cash, cash equivalents and short-term investments) |
76.7 | 80.5 | 1) | 87.2 | ||||||||
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Net cash (Gross cash less interest-bearing liabilities and post-employment benefits) |
38.5 | 39.5 | 51.3 | |||||||||
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1) | Including loan to ST-Ericsson of SEK 2.8 billion. |
Cash conversion
Cash conversion was 116% (40%), above the target of 70%. Cash conversion in 2012 was positively impacted by lower working capital.
47
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Cash flow from operating activities
The operating cash flow was positively impacted by reduced working capital.
Cash flow from investing activities
Cash outlays for regular investing activities increased to SEK 6.5 (6.1) billion. Acquisitions and divestments during the year were net SEK 2.1 (3.1) billion, with the major item being the USD 1.15 billion acquisition of Telcordia and the divestment of Sony Ericsson.
Cash flow from short-term investments for cash management purposes and other investing activities was net SEK 3.7 (13.8) billion, mainly attributable to changes between short-term investments and cash and cash equivalents.
Capital expenditures
Annual capital expenditures are normally around 2% of sales. This corresponds to the needs for keeping and maintaining the current capacity level, including the introduction of new technology and methods. Expenditures are largely related to test equipment in R&D units and network operations centers as well as manufacturing and repair operations.
The Board of Directors reviews the Companys investment plans and proposals. The Company believes it has sufficient cash and cash generation capacity to fund expected capital expenditures without external borrowings in 2013.
We believe that the Companys property, plant and equipment and the facilities the Company occupies are suitable for its present needs in most locations. As of December 31, 2012, no material land, buildings, machinery or equipment were pledged as collateral for outstanding indebtedness.
Capital expenditures 20082012
SEK billion |
2012 | 2011 | 2010 | 2009 | 2008 | |||||||||||||||
Capital expenditures |
5.4 | 5.0 | 3.7 | 4.0 | 4.1 | |||||||||||||||
of which in Sweden |
1.3 | 1.7 | 1.4 | 1.3 | 1.6 | |||||||||||||||
Share of annual sales |
2.4 | % | 2.2 | % | 1.8 | % | 1.9 | % | 2.0 | % |
48
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Cash flow from financing activities
Cash flow from financing activities was SEK 9.4 (6.5) billion, mainly impacted by dividend paid of SEK 8.6 (7.5) billion. Other financing activities net amounted to SEK 0.8 (1.0) billion. However, substantial refinancing activities were performed during 2012 to extend the average debt maturity profile and to further diversify funding sources. For more information see section Non-Current Liabilities, on previous page.
Cash held in countries with exchange controls
The Company holds cash or cash equivalents in countries where exchange controls or legal restrictions apply. These restrictions normally refer to approval procedures prior to cross-border cash transfers. The amount of cash and cash equivalents in such countries is SEK 10.6 (13.9) billion, of which SEK 9.2 (12.8) billion can be used for repayment of external and internal liabilities as well as other operating needs. Therefore, net cash and cash equivalents that are not readily available for use by the Group is SEK 1.4 (1.1) billion.
Gross cash and net cash
The change in gross cash of SEK 3.8 billion is related to ST-Ericsson where loans of SEK 5.0 billion were converted into investments. The net income reconciled to cash was SEK 19.0 (25.2) billion. Net operating assets was SEK 3.0 (15.2) billion and investing activities SEK 14.7 (9.9) billion. Dividends to shareholders amounted to SEK 8.6 (7.5) billion. This resulted in a decrease in net cash of SEK 1.0 billion.
49
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
BUSINESS RESULTSREGIONS
Sales per region and segment 2012 and percent change from 2011
Networks | Global Services | Support Solutions | ||||||||||||||||||||||||||||||
SEK billion |
2012 | Percent change |
2012 | Percent change |
2012 | Percent change |
Total 2012 |
Percent change |
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North America |
30.5 | 6 | % | 23.5 | 27 | % | 2.7 | 103 | % | 56.8 | 16 | % | ||||||||||||||||||||
Latin America |
9.8 | 15 | % | 10.6 | 12 | % | 1.6 | 65 | % | 22.0 | 0 | % | ||||||||||||||||||||
Northern Europe and Central Asia |
6.3 | 35 | % | 4.5 | 10 | % | 0.5 | 6 | % | 11.3 | 25 | % | ||||||||||||||||||||
Western and Central Europe |
6.2 | 21 | % | 10.6 | 3 | % | 0.7 | 27 | % | 17.5 | 8 | % | ||||||||||||||||||||
Mediterranean |
9.5 | 11 | % | 13.0 | 10 | % | 0.8 | 42 | % | 23.3 | 2 | % | ||||||||||||||||||||
Middle East |
6.8 | 9 | % | 7.3 | 7 | % | 1.5 | 24 | % | 15.6 | 1 | % | ||||||||||||||||||||
Sub-Saharan Africa |
6.4 | 10 | % | 3.9 | 14 | % | 1.0 | 16 | % | 11.3 | 12 | % | ||||||||||||||||||||
India |
3.5 | 42 | % | 2.5 | 22 | % | 0.5 | 14 | % | 6.5 | 34 | % | ||||||||||||||||||||
North East Asia |
22.4 | 19 | % | 13.3 | 34 | % | 0.5 | 0 | % | 36.2 | 5 | % | ||||||||||||||||||||
South East Asia and Oceania |
8.0 | 6 | % | 6.6 | 18 | % | 0.5 | 29 | % | 15.1 | 9 | % | ||||||||||||||||||||
Other1) |
7.9 | 14 | % | 1.2 | 844 | % | 3.1 | 90 | % | 12.3 | 15 | % | ||||||||||||||||||||
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Total |
117.3 | 11 | % | 97.0 | 16 | % | 13.5 | 26 | % | 227.8 | 0 | % | ||||||||||||||||||||
Share of total |
51 | % | 43 | % | 6 | % | 100 | % | ||||||||||||||||||||||||
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1) | Region Other includes licensing revenues, sales of cables, broadcast services, power modules and other businesses. In the regional dimension, all of the Telcordia sales are reported in the Support Solutions segment except for North America where it is split 50/50 between Global Services and Support Solutions. The acquired Technicolor Broadcast Service Division is reported in region Other. Multimedia brokering (IPX) was previously reported in each region in segment Support Solutions. For the first three quarters 2012 it was part of region Other. Multimedia brokering (IPX) was divested end of Sept. 2012. |
BUSINESS RESULTSSEGMENTS
Networks
Sales
Sales were SEK 117.3 (132.4) billion following a strong 2011. The decline is primarily related to lower sales in China, Russia, India and South Korea. North America grew despite the 40% decline in CDMA equipment sales. The IP portfolio developed favorably, especially packet core products.
The decline in sales of CDMA equipment was expected. Sales of CDMA equipment amounted to SEK 8.4 (14.0) billion.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
In CDMA, the priority has been to support customers migration to Ericssons LTE solution and excel in life-cycle management. Ericsson is today a key supplier to all four major operators in North America.
Profitability
Operating margin decreased due to lower sales as well as negative impact from a business mix with more coverage than capacity projects. In addition, modernization projects in Europe impacted profitability negatively.
Business in 2012
In 2012, Ericsson maintained its share of global installed base of radio base stations of close to 40%, which is almost the size of number two and three combined.
For the key market areas the Company addresses: Radio, IP and Transport as well as Core, preliminary market data indicates that the combined market share was 24%, down from 27% in 2011. The decline is due to a lower market share in the mobile network equipment market; from 38% in 2011 to 35% in 2012, negatively impacted by the technology shift in China, where investments are moving from GSM to other technology areas where Ericsson has limited presence.
Operators focus on improving network performance and on service differentiation has been a main driver for mobile broadband investments throughout the year.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
In 2012, AIR, the worlds first commercially deployed antenna-integrated radio and part of the RBS 6000 family, met accelerating demand. AIR provides enhanced radio performance and ease of deployment.
After the initial large-scale LTE rollouts in the US, Korea and Japan, Ericsson is now starting to see other countries following. Late 2012, Latin America started LTE rollouts and after executing awarded contracts Ericsson will have a strong LTE footprint in Latin America, substantially higher than its 3G market share in the region.
Up until the end of 2011, Ericsson had won a total of 38 contracts for LTE on five continents.
At the end of 2012, Ericsson had won more than 120 contracts for LTE on six continents. More than 60 LTE networks were in commercial use.
Ericssons global market share for LTE was twice as big as the largest competitor, measured in shipments for full year 2012
In 2012, Ericsson put the worlds first converged multi-standard radio base station for LTE FDD/TDD into commercial operation.
The demand for IMS is increasing as operators are preparing to launch Voice over LTE (VoLTE). Ericsson has a number of contracts for VoLTE.
The demand for circuit-switched core will continue to decline.
During the year, the Smart Services Router (SSR) gained good traction and 39 contracts were signed.
Competitors
In the Networks segment, Ericsson competes mainly with telecommunication equipment suppliers such as Alcatel-Lucent, Cisco, Huawei, Juniper, Nokia Siemens Networks, Samsung and ZTE. The Company also competes with local and regional manufacturers and providers of telecommunications equipment.
Global Services
Two subareas are reported in Global Services: Professional Services and Network Rollout. Professional Services includes Managed services, Customer Support as well as Consulting and Systems Integration.
Sales
Sales were SEK 97.0 (83.9) billion.
52
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
The growth in Professional Services is mainly related to continued good momentum in Managed Services as well as in Consulting and Systems Integration. Operators continue to focus on increasing operational efficiency and reducing operating expenses through transformation activities in the voice, IP and OSS and BSS domains which drive demand for managed services and consulting and systems integration. More than 60% of Professional Services sales were recurrent.
The increase in Network Rollout is related to major activities in North East Asia, North America and Europe reflecting the high coverage project activity.
Profitability
Global Services operating margin development was stable, despite the continued loss in Network Rollout, due to continued efficiency gains and higher sales in Professional Services. Professional Services has over the past years shown an operating margin of 1114%. Network Rollout is a low-margin business due to its high level of third-party suppliers for services such as civil works. The losses in 2012 are mainly a consequence of network modernization projects in Europe.
53
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Restructuring charges from continuous transformation of the service delivery organization is a natural part of the services business.
Business in 2012
Market demand for services continued to grow in both subareas. Ericsson also strengthened its capabilities to address new markets and customers in areas such as IT Managed Services and Broadcast Services. The Companys capability to deliver services remotely from the four global services centers expanded with the establishment of two new global network operation centers in Asia and Latin America.
The telecom services market is highly fragmented with a few global, but many local suppliers. In telecoms services, internal market data indicates that the Company reached a market share of 13% and is larger than any of its competitors in this fragmented market.
During 2012, 52 (70) managed services contracts were signed of which 19 (32) were expansions or extensions. In 2012, 24 (34) significant consulting and systems integration contracts were signed. At year end, there were approximately 950 (900) million subscribers in networks managed by Ericsson. Approximately 550 (500) million subscribers were in network operations contracts.
The number of services professionals also increased during the year from 56,000 end of 2011 to 60,000 end of 2012. The strategy to industrialize the service delivery continues and the capability of remote delivery has now reached a level of 23% in 2012 compared with 17% in 2011. This increases capacity and provides economies of scale.
Competitors
Competition in services includes the traditional telecommunication equipment suppliers. The Company also competes with companies such as Accenture, HP, IBM, Oracle, Tata Consultancy Services and Tech Mahindra. Among the competition is also a large number of smaller but specialized companies operating on a local or regional basis.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
Support Solutions
Sales
Sales were SEK 13.5 (10.6) billion. Sales development was good in all four strategic focus areas, i.e. OSS, BSS, TV and Media Management and M-Commerce.
The acquired Telcordia operation added sales of SEK 2.1 billion, representing 50% of Telcordias total sales. The divested Multimedia brokering business (IPX) contributed with sales of SEK 1.2 billion for the first nine months of the year.
Profitability
Increased sales and execution on the new strategy, as well as portfolio streamlining and efficiency improvement, generated a higher operating margin. The divestment of IPX generated a capital gain of SEK 0.2 billion.
Business in 2012
The segment changed name in 2012 from Multimedia to Support Solutions following a change of strategy. Focus is now on OSS and BSS solutions, TV and Media management and M-Commerce.
Ericsson has a leading position in both OSS and BSS.
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In BSS, Ericsson has 280 charging and billing installations which at year end served two billion subscriptions. Ericssons market share in prepaid is 31%.
In the media market, Ericsson is number one in broadcast video contribution, distribution and satellite direct-to-home. Customers include BSkyB, Chunghwa Telecom, Telekom A1, DirecTV, EBU and ESPN.
In M-Commerce, Ericsson is offering a mobile wallet platform and hosted services for interoperability between mobile and financial services. In 2012, the Company signed agreements for wallet payments with Western Union and MTN.
Competitors
The markets for BSS, OSS, TV and Media management and M-Commerce are fragmented with many local players. Competitors vary depending on the solution being offered. In the OSS and BSS market, they include many of the traditional telecommunication equipment suppliers as well as IT suppliers, such as Amdocs, Comverse and Oracle. Competition in the TV business includes Harmonic and Harris. Competition in M-Commerce includes Comviva, Sybase, Infosys and Gemalto.
The JV ST-Ericsson
ST-Ericsson is a 50/50 joint venture between STMicroelectronics and Ericsson, established in 2009. The Ericsson share of ST-Ericssons results is accounted for according to the equity method. ST-Ericssons main competitor is Qualcomm.
In December 2012, STMicroelectronics announced its intention to exit as a shareholder in ST-Ericsson. On the same day, Ericsson announced that it will continue to work together with STMicroelectronics to find a suitable strategic solution for ST-Ericsson. In December, Ericsson also stated that it will not acquire the full majority of ST-Ericsson and that the Company intends to write down investments and make a provision related to its 50% stake in ST-Ericsson.
This resulted in a non-cash charge of SEK 8.0 billion in 2012. The charge includes write-down of SEK 4.7 billion of investments to reflect the current best estimate of Ericssons share of the fair market value of the joint venture. The charge also includes a provision of SEK 3.3 billion related to the available strategic options at hand for the future of the ST-Ericsson assets. As of year-end 2012, there are no more investments related to ST-Ericsson on Ericssons balance sheet.
Ericsson continues to believe that the modem technology, which it originally contributed to the JV, has a strategic value to the wireless industry.
Business and financial performance in 2012
Early 2012, ST-Ericsson set a new strategic direction aiming at lowering its break-even point and introducing new technologies as well as developing competitive system solutions either directly or with partners.
During 2012, ST-Ericsson reached key maturity milestones with its advanced LTE modem. That is tested with customers and is anticipated to be commercialized in 2013. The NovaThor ModAp is the worlds fastest integrated LTE modem and application processor platform. The ModAp delivers industry-leading performance while improving battery life.
ST-Ericsson sales in 2012 decreased 18% to USD 1.4 (1.7) billion. The operating loss for the year, adjusted for restructuring charges, was USD 0.8 (0.7) billion. Adjustments for IFRS compliance mainly consist of capitalization of R&D expenses for hardware development.
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ERICSSON ANNUAL REPORT ON FORM 20-F 2012
ST-Ericssons net financial position was USD 37 (798) million at year-end, reflecting the cancellation of the parents loan facility. Ericssons share in ST-Ericssons income before taxes, adjusted to IFRS, was SEK 11.7 (2.7) billion including the non-cash charge of SEK 8.0 billion.
The JV Sony Ericsson
In February 2012, Ericsson announced the completion of the divestment of its 50% stake in Sony Ericsson Mobile Communications to Sony. The agreed cash consideration for the transaction was EUR 1.05 billion. The deal includes a broad IPR cross-licensing agreement. Sony Ericsson was consolidated until December 31, 2011, according to the equity method.
The divestment resulted in a gain of SEK 7.7 billion and a positive cash flow effect of SEK 9.1 billion.
CORPORATE GOVERNANCE
In accordance with the Annual Accounts Act ((SFS 1995:1554), Chapter 6, Sections 6 and 8) and the Swedish Corporate Governance Code (the Code), a separate Corporate Governance Report, including an Internal Control section, has been prepared. It is attached to this Annual Report.
Continued compliance with the Swedish Corporate Governance Code
Ericsson applies the Code and is committed to complying with best-practice corporate governance standards on a global level wherever possible. In 2012, Ericsson did not report any deviations from the Code.
High ethical standards
Ericssons Code of Business Ethics summarizes the Groups basic policies and directives governing its relationships internally, with its stakeholders and with others. It also sets out how the Group works to achieve and maintain its high ethical standards. There have been no amendments or waivers to Ericssons Code of Business Ethics for any Director, member of management or other employee.
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Board of Directors 2012/2013
The Annual General Meeting held on May 3, 2012, re-elected Leif Johansson Chairman of the Board. Roxanne S. Austin, Sir Peter L. Bonfield, Börje Ekholm, Ulf J. Johansson, Sverker Martin-Löf, Nancy McKinstry, Anders Nyrén, Hans Vestberg, Michelangelo Volpi and Jacob Wallenberg were re-elected and Alexander Izosimov was elected new member of the Board. Pehr Claesson, Kristina Davidsson and Karin Åberg were appointed employee representatives by the unions, with Rickard Fredriksson, Karin Lennartsson and Roger Svensson as deputies.
Management
Hans Vestberg has been President and CEO of the Group since January 1, 2010. The President and CEO is supported by the Group management, consisting of the Executive Leadership Team (ELT). During 2012, the ELT consisted of the President and CEO, the heads of Group functions, the heads of business units and two of the heads of Ericssons regions.
A management system is in place to ensure that the business is well controlled and has the ability to fulfill the objectives of major stakeholders within established risk limits. The system also monitors internal control and compliance with applicable laws, listing requirements and governance codes.
Remuneration
Fees to the members of the Board of Directors and the remuneration to Group management, as well as the 2012 Guidelines for remuneration to Group Management, are reported in Notes to the consolidated financial statementsNote C28, Information regarding members of the Board of Directors, the Group management and employees.
As of December 31, 2012, there were no loans outstanding from and no guarantees issued to or assumed by Ericsson for the benefit of any member of the Board of Directors or senior management.
The Board of Directors proposal for guidelines for remuneration to Group management
The Board of Directors proposes the following guidelines for remuneration to Group management, consisting of the Executive Leadership Team, for the period up to the Annual General Meeting (AGM) 2014. Compared to the guidelines resolved by the AGM 2012, these guidelines have been amended to enable consecutive time-limited arrangements according to the third item in the list below. Information on estimated costs for variable remuneration has been removed from the guidelines and is instead appended to the AGM 2013 proposal.
Guidelines for remuneration to Group Management:
For Group Management consisting of the Executive Leadership Team, including the President and CEO, total remuneration consists of fixed salary, short- and long-term variable remuneration, pension and other benefits. The following guidelines apply for the remuneration to the Executive Leadership Team:
| Variable remuneration is through cash and stock-based programs awarded against specific business targets derived from the long-term business plan approved by the Board of Directors. Targets may include financial targets at either Group or unit level, operational targets, employee engagement targets and customer satisfaction targets |
| All benefits, including pension benefits, follow the competitive practice in the home country taking total compensation into account. The retirement age is normally 60 to 65 years of age |
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| By way of exception, additional arrangements can be made when deemed necessary. An additional arrangement can be renewed but each such arrangement shall be limited in time and shall not exceed a period of 36 months and twice the remuneration that the individual concerned would have received had no additional arrangement been made |
| The mutual notice period may be no more than six months. Upon termination of employment by the Company, severance pay amounting to a maximum of 18 months fixed salary is paid. Notice of termination given by the employee due to significant structural changes, or other events that in a determining manner affect the content of work or the condition for the position, is equated with notice of termination served by the Company. |
MATERIAL CONTRACTS
Material contractual obligations are outlined in Note C31, Contractual obligations. These were entered into in the ordinary course of business and were primarily related to operating leases for office and production facilities, purchase contracts for outsourced manufacturing, R&D and IT operations, and the purchase of components for the Companys own manufacturing.
Ericsson is party to certain agreements, which include provisions that may take effect or be altered or invalidated by a change in control of the Company as a result of a public takeover offer. However, none of the agreements currently in effect would entail any material consequence to Ericsson due to a change in control of the Company.
RISK MANAGEMENT
Risks are defined in both short-term and long-term perspective. They are categorized into industry and market risks, commercial risks, operational risks and compliance risks.
Ericssons risk management is based on the following principles, which apply universally across all business activities and risk types:
| Risk management is an integrated part of the Ericsson Group Management System |
| Each operational unit is accountable for owning and managing its risks according to policies, directives and process tools. Decisions are made or escalated according to defined delegation of authority. Financial risks are coordinated through Group Function Finance |
| Risks are dealt with during the strategy process, annual planning and target setting, continuous monitoring through monthly and quarterly steering group meetings and during operational processes (customer projects, customer bid/contract, acquisition, investment and product development projects). They are subject to various controls such as decision tollgates and approvals. |
At least twice a year, in connection with the approval of strategy and targets, risks are reviewed by the Board of Directors.
A central security unit coordinates management of certain risks, such as business interruption, information security and physical security. The Crisis Management Council deals with events of a serious nature.
For information on risks that could impact the fulfillment of targets and form the basis for mitigating activities, see the other sections of the Board of Directors report, Notes C2, Critical accounting estimates and judgments, C14, Trade receivables and customer finance, C19, Interest-bearing liabilities, C20, Financial risk management and financial instruments and the chapter Risk factors.
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SOURCING AND SUPPLY
Ericssons hardware largely consists of electronics. For manufacturing, the Company purchases customized and standardized components and services from several global providers as well as from local and regional suppliers. Certain types of components, such as power modules and cables, are produced in-house.
The production of electronic modules and sub-assemblies is mostly outsourced to manufacturing services companies, of which the vast majority are in low-cost countries. Production of radio base stations is largely done in-house and on-demand. This consists of assembling and testing modules and integrating them into complete units. Final assembly and testing are concentrated to a few sites. Ericsson has 16 manufacturing sites in Brazil, China, Estonia, India, Italy, Mexico and Sweden.
A number of suppliers design and manufacture highly specialized and customized components. The Company generally attempts to negotiate global supply agreements with its primary suppliers. Ericssons suppliers are required to comply with the Code of Conduct.
Where possible, Ericsson relies on alternative supply sources and seeks to avoid single source supply situations. A need to switch to an alternative supplier may require allocation of additional resources. This process could take some time to complete.
Variations in market prices for raw materials generally have a limited effect on total cost of goods sold. For more information, see chapter Risk Factors.
SUSTAINABILITY AND CORPORATE RESPONSIBILITY
The Company has implemented strong social, environmental and ethical standards supporting value creation and risk management. This commitment generates positive business impacts, which in turn benefit society.
Ericssons approach to Sustainability and Corporate Responsibility (CR) is integrated into its core business operations throughout its value chain. The Board of Directors considers these aspects in governance decision-making. Group policies and directives ensure consistency across global operations.
Ericsson publishes an annual Sustainability and Corporate Responsibility Report, which provides additional information.
Responsible business practices
Since 2000, Ericsson has actively supported the UN Global Compact, and endorses its ten principles regarding human and labor rights, anti-corruption and environmental protection. The Ericsson Group Management System (EGMS) includes a Code of Business Ethics and a Code of Conduct (CoC), among other policies which reflect responsible business practices. Promotion of these practices is reinforced by employee awareness training, workshops and monitoring, including a global assessment plan run by an external assurance provider.
In 2012, Ericsson has continued to develop its anti-corruption program and expanded its whistleblower procedure.
Human rights
In 2012, the Company updated its Code of Business Ethics to reflect the ongoing commitment to respect human rights, and the UN Guiding Principles on Business and Human Rights. Ericsson has worked actively to
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strengthen its internal governance processes including the Sales Compliance Board, which also considers potential negative human rights impacts in its decisions. The Company joined the Shift Business Learning Program to support human rights risk analysis capabilities.
Ericsson is part of the Burma (Myanmar) Human Rights and Business Framework, led by the Institute for Human Rights and Business and the Danish Human Rights Institute. Together with Deloitte, the Company launched a report, The Potential Economic Impact of Mobile Communications in Myanmar, which shows the importance of mobile communications from both GDP and job-creation perspectives.
Supply chain
Suppliers must comply with Ericssons CoC. Approximately 170 employees, covering all regions, are trained as supplier CoC auditors. The Company uses a risk-based approach to ensure that the high risk portfolio areas, and highest risk markets, are targeted first. For prioritized areas, Ericsson performs regular audits and works with suppliers to ensure measurable and continuous improvements. Findings are followed up to ensure that improvements are made. Training for suppliers is available in 13 languages.
To effectively address the issue of conflict minerals, including compliance with the US Dodd-Frank Act and the disclosure rule adopted by the U.S. Securities and Exchange Commission (SEC), Ericsson takes active measures in its sourcing and product management processes. Ericsson also participates in industry initiatives such as The Extractives Workgroup on conflict minerals, driven by the Global e-Sustainability Initiative (GeSI).
Reducing environmental impact
Energy use of products in operation remains the Companys most significant environmental impact. Ericsson works proactively with its customers to encourage network and site energy optimization, through innovative products, software, solutions and advisory services. Processes and controls are in place to ensure compliance with relevant product-related environmental, customer and regulatory requirements. The Company works actively to reduce its own environmental impact, with a focus on Design for Environment, which includes product energy efficiency and materials management.
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A five-year target which aims to reduce the Ericsson carbon footprint intensity by 40% was set in 2009 (with a 2008 baseline). The target comprises two focus areas: Ericssons own activities and the life-cycle impacts of products in operation. In 2012, Ericsson exceeded the annual 10% reduction target and, as a result, the target has been achieved in four years instead of five, with the following results:
| A 22% reduction in direct emission intensity from own activities was achieved during 2012, including facilities energy use, product transportation and business travel. This was achieved by |
| reducing absolute emissions from business travel by 16% |
| reducing absolute emissions from product transportation by 12% |
| decreasing facility energy consumption by approximately 3%. while related emissions increased by 13% |
| A 16% reduction in indirect emission intensity from life-cycle impacts of products in operation was achieved in 2012. |
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Product take-back and recycling
Ericsson Ecology Management is a program to take responsibility for products at the end of their life and to treat them in an environmentally preferable way. The program also ensures that Ericsson fulfills its extended producer responsibility and is offered to all customers globally free of charge, not only in markets where it is mandatory.
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Radio waves and health
Ericsson employs rigid product testing and installation procedures with the goal of ensuring that radio wave exposure levels from Ericsson products and network solutions are below established safety limits. The Company provides public information on radio waves and health, and supports independent research to further increase knowledge in this area. Since 1996, Ericsson has cosponsored over 90 studies related to electromagnetic fields and health. Independent expert groups and public health authorities, including the World Health Organization, have reviewed the total amount of research and have consistently concluded that the balance of evidence does not demonstrate any health effects associated with radio wave exposure from either mobile phones or radio base stations.
Ericsson has been cosponsoring the Swedish part of the international COSMOS study, which aims to carry out long-term health monitoring of more than 200,000 people to identify if there are any health issues linked to long-term mobile phone use. To assure scientific independence there is a firewall in place between the industrial sponsors and the researchers.
Climate change
Information and Communication Technology (ICT) represents about 2% of global CO2 emissions, but can potentially offset 16% of the remaining 98% from other industries, according to GeSIs SMARTer2020 report. The report also shows that the abatement potential of ICT is over seven times its own emissions. Ericsson takes measures to ensure that its own carbon footprint intensity is continuously reduced.
Ericssons sustainability strategy includes focus on the role broadband can play in helping to offset global CO2 emissions, 70% of which are attributed to cities, according to UN-Habitat. Ericsson works on sustainable city solutions and is engaged in global climate policy. Ericssons President and CEO Hans Vestberg leads the Climate Change Working Group of the Broadband Commission for Digital Development which launched the report The Broadband Bridge: Linking ICT with climate action for a low-carbon economy.
Technology for Good
In 2011, Ericsson launched the Technology for Good program, focused on applying the Companys expertise, global presence and scale to find market-based solutions that empower people, business and society to help shape a more sustainable world. Mobile connectivity fuels economic growth, which is vital for billions of people living at the base of the economic pyramid. Ericsson has used its technology and competence to help achieve the Millennium Development Goals (MDGs) for more than a decade. Ericssons President and CEO also joined the Leadership Council of the Sustainable Development Solutions Network, an initiative of the UN Secretary General, to contribute to the post-2015 development agenda and the Sustainable Development Goals. The Company engages in many Technology for Good projects globally, including Connect to Learn and Ericsson Response.
Reporting according to GRI 3.0
Full key performance data is available on the Ericsson website and has achieved an A+ rating according to the Global Reporting Initiative (GRI). The performance data has been assured, and the application level has been checked by a third party.
LEGAL PROCEEDINGS
On November 27, 2012, Ericsson filed two patent infringement lawsuits in the US District Court for the Eastern District of Texas against Samsung. Ericsson seeks damages and an injunction. Ericsson also asked the
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Court to adjudge that Samsung breached its commitment to license any standard-essential patents it owns on fair, reasonable, and non-discriminatory terms and to declare Samsungs allegedly standard essential patents to be unenforceable.
On November 30, 2012, Ericsson filed a complaint with the US International Trade Commission, ITC, seeking an exclusion order blocking Samsung from importing certain products into the USA. The ITC instituted an investigation of Ericssons complaint on January 3, 2013.
On December 21, 2012, Samsung filed a complaint with the US International Trade Commission seeking an exclusion order blocking Ericsson from importing certain products into the USA. The ITC instituted an investigation of Samsungs complaint on January 25, 2013.
On October 1, 2012, Wi-LAN Inc. filed a complaint against Ericsson in the US District Court of Southern Florida alleging that Ericssons LTE products infringe three of Wi-LANs US patents. The parties are presently engaged in discovery. Ericsson was, on October 4, 2010, sued by Wi-LAN in another patent infringement law suit in the US District Court for the Eastern District of Texas. Wi-LAN alleged that Ericsson products, compliant with the 3GPP standard. Infringe three US patents assigned to Wi-LAN. A trial is scheduled for April 2013.
In February 2012, Airvana Networks Solutions Inc. sued Ericsson in the Supreme Court of the State of New York, alleging that Ericsson has violated key contract terms and misappropriated Airvana trade secrets and proprietary information. Airvana is seeking damages of USD 330 million and to enjoin Ericsson from developing, deploying or commercializing Ericsson products allegedly based on Airvanas proprietary technology. In April 2012, the Court heard Airvanas request for preliminary injunction. The motion for preliminary injunction remains under consideration by the Court. The parties are presently engaged in further discovery.
In 2011, TruePosition sued Ericsson, Qualcomm, Alcatel-Lucent, the European Telecommunications Standards Institute (ETSI) and the Third Generation Partnership Project (3GPP) in the US District Court for the Eastern District of Pennsylvania for purported federal antitrust violations. The complaint alleged that Ericsson , Qualcomm and Alcatel-Lucent illegally conspired to block the adoption of TruePositions proprietary technology into the new mobile positioning standards for LTE, while at the same time ensuring that their own technology was included into the new standards. In January 2012, the Court dismissed the complaint on a without prejudice basis. Following the dismissal, TruePosition filed an amended complaint in February 2012. The case is proceeding to discovery.
In 2007, H3G S.p.A. (H3G) filed arbitral proceedings in Italy against Ericsson. H3G claims compensation from Ericsson for alleged breach of contract. H3G claims approximately EUR 475 million plus default interest. In addition to denying the claim in substance, Ericsson made a number of formal objections to the claim and filed a motion for the case to be dismissed. Ericssons formal objections were however dismissed by the Arbitral Tribunal in a partial award rendered in February 2012. The Tribunal has appointed experts to render an opinion on various substantive technical and financial issues. The final report was rendered in February 2013. The final arbitral award is expected to be rendered at the end of 2013.
In addition to the proceedings discussed above, the Company is, and in the future may be, involved in various other lawsuits, claims and proceedings incidental to the ordinary course of business.
PARENT COMPANY
The Parent Company business consists mainly of corporate management, holding company functions and internal banking activities. It also handles customer credit management, performed on a commission basis by Ericsson Credit AB.
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The Parent Company has 6 (6) branch offices. In total, the Group has 71 (70) branch and representative offices.
Financial information
Income after financial items was SEK 4.9 (4.4) billion. The Parent Company had no sales in 2012 or 2011 to subsidiaries, while 34% (31%) of total purchases of goods and services were from such companies.
Major changes in the Parent Companys financial position for the year included:
| Write-down of original investment in ST-Ericsson of SEK 8.6 billion. This write-down does not have any impact on Group level. Another write-down was made including the short-term credit facility to ST-Ericsson of SEK 5.0 billion. and a provision of SEK 3.3 billion relating to the strategic options at hand for ST-Ericsson assets. The total write-downs and provision related to ST-Ericsson amount to SEK 17.0 billion. |
| Increased current and non-current receivables from subsidiaries of SEK 7.2 billion. |
| Increased other current receivables of SEK 1.7 billion |
| Increased cash, cash equivalents and short-term investments of SEK 1.3 billion |
| Increased current and non-current liabilities to subsidiaries of SEK 8.7 billion |
| Decreased other current liabilities of SEK 1.1 billion. |
At year-end, cash, cash equivalents and short-term investments amounted to SEK 57.4 (56.1) billion.
Share information
As per December 31, 2012, the total number of shares in issue was 3,305,051,735, of which 261,755,983 were Class A shares, each carrying one vote, and 3,043,295,752 were Class B shares, each carrying one tenth of one vote. Both classes of shares have the same rights of participation in the net assets and earnings.
The Annual General Meeting (AGM) 2012 resolved to issue 31.7 million Class C shares for the Long-Term Variable Remuneration Program (LTV). In accordance with an authorization from the AGM, in the second quarter 2012, the Board of Directors resolved to repurchase the new issued shares, which were subsequently converted into Class B shares. The quotient value of the repurchased shares was SEK 5.00, totaling SEK 158.5 million, representing less than one percent of capital stock, and the acquisition cost was approximately SEK 158.7 million.
The two largest shareholders at year-end were Investor and Industrivärden holding 21.37% and 14.96% respectively of the voting rights in the Parent Company.
In accordance with the conditions of the Long-Term Variable Remuneration Program (LTV) for Ericsson employees, 9,748,408 treasury shares were sold or distributed to employees in 2012. The quotient value of these shares was SEK 5.00, totaling SEK 48.7 million, representing less than 1% of capital stock, and compensation received for shares sold and distributed shares amounted to SEK 91.2 million.
The holding of treasury stock at December 31, 2012 was 84,798,095 Class B shares. The quotient value of these shares is SEK 5.00, totaling SEK 424.0 million, representing 2.6% of capital stock, and the related acquisition cost amounts to SEK 655.3 million.
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Proposed disposition of earnings
The Board of Directors proposes that a dividend of SEK 2.75 (2.50) per share be paid to shareholders duly registered on the record date April 12, 2013, and that the Parent Company shall retain the remaining part of non-restricted equity.
The Class B treasury shares held by the Parent Company are not entitled to receive dividend. Assuming that no treasury shares remain on the record date, the Board of Directors proposes that earnings be distributed as follows:
Amount to be paid to the shareholders |
SEK 9,088,892,271 | |||
Amount to be retained by the Parent Company |
SEK 16,535,096,753 | |||
|
|
|||
Total non-restricted equity of the Parent Company |
SEK 25,623,989,024 |
As a basis for its dividend proposal, the Board of Directors has made an assessment in accordance with Chapter 18, Section 4 of the Swedish Companies Act of the Parent Companys and the Groups need for financial resources as well as the Parent Companys and the Groups liquidity, financial position in other respects and long-term ability to meet their commitments. The Group reports an equity ratio of 50% (52%) and a net cash amount of SEK 38.5 (39.5) billion
The Board of Directors has also considered the Parent Companys result and financial position and the Groups position in general. In this respect, the Board of Directors has taken into account known commitments that may have an impact on the financial positions of the Parent Company and its subsidiaries.
The proposed dividend does not limit the Groups ability to make investments or raise funds, and it is the Board of Directors assessment that the proposed dividend is well-balanced considering the nature, scope and risks of the business activities as well as the capital requirements for the Parent Company and the Group in addition to coming years business plans and economic development.
POST-CLOSING EVENTS
On January 10, 2013, Ericsson entered into an agreement with Unwired Planet whereby Ericsson will transfer 2,185 issued patents and patent applications to Unwired Planet. Ericsson will also contribute 100 additional patent assets annually to Unwired Planet commencing in 2014 through 2018. Unwired Planet will compensate Ericsson with certain ongoing rights in future revenues generated from the enlarged patent portfolio. Unwired Planet will also grant Ericsson a license to its patent portfolio.
On January 21, 2013, Ericsson announced its intention to acquire Devoteam Telecom & Media operations in France. Devoteam has employees in Europe, Middle East and Africa. The acquisition is in line with Ericssons services strategy to broaden its IT capabilities.
In January, 2013, ST-Ericsson was granted a loan facility by their owners of USD 260 million. Ericssons share of this credit facility is USD 130 million.
On January 10, 2013 Adaptix Inc. filed two lawsuits against Ericsson, AT&T, AT&T Mobility and MetroPCS Communications in the US District Court for Eastern District of Texas alleging that certain Ericsson products infringe five US patents assigned to Adaptix. Adaptix seeks damages and an injunction.
On January 25 Adaptix filed a complaint with the US International Trade Commission (ITC) against Ericsson, AT&T, AT&T Mobility and MetroPCS Communications requesting that the commission open a patent
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infringement investigation of certain Ericsson products and further on January 29 Adaptix filed a complaint with the Tokyo District Court alleging certain Ericsson products infringe two Japanese patents assigned to Adaptix. Adaptix seeks damages and an injunction.
On March 18, 2013, Ericsson and STMicroelectronics announced an agreement on the way forward for the joint venture (JV) ST-Ericsson.
The main steps agreed upon to split up the JV are the following: Ericsson will take on the design, development and sales of the LTE multimode thin modem products, including 2G, 3G and 4G multimode; ST will take on the existing ST-Ericsson products, other than LTE multimode thin modems, and related business as well as certain assembly and test facilities; starting the close down of the remaining parts of ST-Ericsson.
The formal transfer of the relevant parts of ST-Ericsson to the parent companies is expected to be completed during the third quarter of 2013, subject to regulatory approvals.
After the split up it is proposed that Ericsson will assume approximately 1,800 employees and contractors.
BOARD ASSURANCE
The Board of Directors and the President declare that the consolidated financial statements have been prepared in accordance with IFRS, as adopted by the EU, and give a fair view of the Groups financial position and results of operations. The financial statements of the Parent Company have been prepared in accordance with generally accepted accounting principles in Sweden and give a fair view of the Parent Companys financial position and results of operations.
The Board of Directors Report for the Ericsson Group and the Parent Company provides a fair view of the development of the Groups and the Parent Companys operations, financial position and results of operations and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders of Telefonaktiebolaget LM Ericsson (publ)
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, comprehensive income, shareholders equity and cash flows present fairly, in all material respects, the financial position of Telefonaktiebolaget LM Ericsson and its subsidiaries at December 31, 2012 and December 31, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2012, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board and in conformity with International Financial Reporting Standards as adopted by the European Union. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2012, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for these financial statements, for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, which can be found herein, under Managements Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on these financial statements and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and International Standards on Auditing. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed 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. A companys internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Stockholm, April 8, 2013
By: | /s/ PricewaterhouseCoopers | |
Name: | PricewaterhouseCoopers AB |
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CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED INCOME STATEMENT
JanuaryDecember, SEK million |
Notes | 2012 | 2011 | 2010 | ||||||||||||
Net sales |
C3, C4 | 227,779 | 226,921 | 203,348 | ||||||||||||
Cost of sales |
155,699 | 147,200 | 129,094 | |||||||||||||
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Gross income |
72,080 | 79,721 | 74,254 | |||||||||||||
Gross margin (%) |
31.6 | % | 35.1 | % | 36.5 | % | ||||||||||
Research and development expenses |
32,833 | 32,638 | 31,558 | |||||||||||||
Selling and administrative expenses |
26,023 | 26,683 | 27,072 | |||||||||||||
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Operating expenses |
58,856 | 59,321 | 58,630 | |||||||||||||
Other operating income and expenses |
C6 | 8,965 | 1,278 | 2,003 | ||||||||||||
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Operating income before shares in earnings of joint ventures and associated companies |
22,189 | 21,678 | 17,627 | |||||||||||||
Operating margin before shares in earnings of joint ventures and associated companies (%) |
9.7 | % | 9.6 | % | 8.7 | % | ||||||||||
Share in earnings of joint ventures and associated companies |
C3, C12 | 11,731 | 3,778 | 1,172 | ||||||||||||
Operating income |
10,458 | 17,900 | 16,455 | |||||||||||||
Financial income |
C7 | 1,708 | 2,882 | 1,047 | ||||||||||||
Financial expenses |
C7 | 1,984 | 2,661 | 1,719 | ||||||||||||
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Income after financial items |
10,182 | 18,121 | 15,783 | |||||||||||||
Taxes |
C8 | 4,244 | 5,552 | 4,548 | ||||||||||||
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Net income |
5,938 | 12,569 | 11,235 | |||||||||||||
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Net income attributable to: |
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Stockholders of the Parent Company |
5,775 | 12,194 | 11,146 | |||||||||||||
Non-controlling interest |
163 | 375 | 89 | |||||||||||||
Other information |
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Average number of shares, basic (million) |
C9 | 3,216 | 3,206 | 3,197 | ||||||||||||
Earnings per share attributable to stockholders of the Parent Company, basic (SEK)1) |
C9 | 1.80 | 3.80 | 3.49 | ||||||||||||
Earnings per share attributable to stockholders of the Parent Company, diluted (SEK)1) |
C9 | 1.78 | 3.77 | 3.46 | ||||||||||||
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1) | Based on Net income attributable to stockholders of the Parent Company. |
70
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
JanuaryDecember, SEK million |
Notes | 2012 | 2011 | 2010 | ||||||||||||
Net income |
5,938 | 12,569 | 11,235 | |||||||||||||
Other comprehensive income |
||||||||||||||||
Actuarial gains and losses, and the effect of the asset ceiling, related to pensions |
C16 | 451 | 6,963 | 3,892 | ||||||||||||
Revaluation of other investments in shares and participations |
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Fair value remeasurement |
C16 | 6 | | 7 | ||||||||||||
Cash Flow hedges |
||||||||||||||||
Gains/losses arising during the period |
C16 | 1,668 | 996 | 966 | ||||||||||||
Reclassification adjustments for gains/losses included in profit or loss |
C16 | 568 | 2,028 | 238 | ||||||||||||
Adjustments for amounts transferred to initial carrying amount of hedged items |
C16 | 92 | | 136 | ||||||||||||
Changes in cumulative translation adjustments |
C16 | 3,947 | 964 | 3,259 | ||||||||||||
Share of other comprehensive income of joint ventures and associated companies |
C16 | 486 | 262 | 434 | ||||||||||||
Tax on items relating to components of Other comprehensive income |
C16 | 422 | 2,158 | 1,120 | ||||||||||||
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Total other comprehensive income |
4,108 | 7,063 | 322 | |||||||||||||
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Total comprehensive income |
1,830 | 5,506 | 10,913 | |||||||||||||
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Total Comprehensive Income attributable to: |
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Stockholders of the Parent Company |
1,716 | 5,081 | 10,814 | |||||||||||||
Non-controlling interest |
114 | 425 | 99 | |||||||||||||
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71
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
CONSOLIDATED BALANCE SHEET
December 31, SEK million |
Notes | 2012 | 2011 | |||||||||
Assets |
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Non-current assets |
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Intangible assets |
C10 | |||||||||||
Capitalized development expenses |
3,840 | 3,523 | ||||||||||
Goodwill |
30,404 | 27,438 | ||||||||||
Intellectual property rights, brands and other intangible assets |
15,202 | 13,083 | ||||||||||
Property, plant and equipment |
C11, C26, C27 | 11,493 | 10,788 | |||||||||
Financial assets |
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Equity in joint ventures and associated companies |
C12 | 2,842 | 5,965 | |||||||||
Other investments in shares and participations |
C12 | 386 | 2,199 | |||||||||
Customer finance, non-current |
C12 | 1,290 | 1,400 | |||||||||
Other financial assets, non-current |
C12 | 3,964 | 4,117 | |||||||||
Deferred tax assets |
C8 | 12,321 | 13,020 | |||||||||
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81,742 | 81,533 | |||||||||||
Current assets |
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Inventories |
C13 | 28,802 | 33,070 | |||||||||
Trade receivables |
C14 | 63,660 | 64,522 | |||||||||
Customer finance, current |
C14 | 4,019 | 2,845 | |||||||||
Other current receivables |
C15 | 20,065 | 17,837 | |||||||||
Short-term investments |
C20 | 32,026 | 41,866 | |||||||||
Cash and cash equivalents |
C25 | 44,682 | 38,676 | |||||||||
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193,254 | 198,816 | |||||||||||
Total assets |
274,996 | 280,349 | ||||||||||
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Equity and liabilities |
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Equity |
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Stockholders equity |
C16 | 136,883 | 143,105 | |||||||||
Non-controlling interest in equity of subsidiaries |
C16 | 1,600 | 2,165 | |||||||||
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138,483 | 145,270 | |||||||||||
Non-current liabilities |
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Post-employment benefits |
C17 | 9,503 | 10,016 | |||||||||
Provisions, non-current |
C18 | 211 | 280 | |||||||||
Deferred tax liabilities |
C8 | 3,120 | 2,250 | |||||||||
Borrowings, non-current |
C19, C20 | 23,898 | 23,256 | |||||||||
Other non-current liabilities |
2,377 | 2,248 | ||||||||||
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39,109 | 38,050 | |||||||||||
Current liabilities |
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Provisions, current |
C18 | 8,427 | 5,985 | |||||||||
Borrowings, current |
C19, C20 | 4,769 | 7,765 | |||||||||
Trade payables |
C22 | 23,100 | 25,309 | |||||||||
Other current liabilities |
C21 | 61,108 | 57,970 | |||||||||
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97,404 | 97,029 | |||||||||||
Total equity and liabilities1) |
274,996 | 280,349 | ||||||||||
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1) | Of which interest-bearing liabilities and post-employment benefits SEK 38,170 (41,037) million. |
72
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
CONSOLIDATED STATEMENT OF CASH FLOWS
JanuaryDecember, SEK million |
Notes | 2012 | 2011 | 2010 | ||||||||||||
Operating activities |
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Net income |
5,938 | 12,569 | 11,235 | |||||||||||||
Adjustments to reconcile net income to cash |
C25 | 13,077 | 12,613 | 12,490 | ||||||||||||
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19,015 | 25,182 | 23,725 | ||||||||||||||
Changes in operating net assets |
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Inventories |
2,752 | 3,243 | 7,917 | |||||||||||||
Customer finance, current and non-current |
1,259 | 74 | 2,125 | |||||||||||||
Trade receivables |
1,103 | 1,700 | 4,406 | |||||||||||||
Trade payables |
1,311 | 1,648 | 5,964 | |||||||||||||
Provisions and post-employment benefits |
1,920 | 5,695 | 2,739 | |||||||||||||
Other operating assets and liabilities, net |
5,857 | 2,988 | 5,269 | |||||||||||||
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3,016 | 15,200 | 2,858 | ||||||||||||||
Cash flow from operating activities |
22,031 | 9,982 | 26,583 | |||||||||||||
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Investing activities |
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Investments in property, plant and equipment |
C11 | 5,429 | 4,994 | 3,686 | ||||||||||||
Sales of property, plant and equipment |
568 | 386 | 124 | |||||||||||||
Acquisitions of subsidiaries and other operations |
C25, C26 | 11,529 | 1) | 3,181 | 3,286 | |||||||||||
Divestments of subsidiaries and other operations |
C25, C26 | 9,452 | 53 | 454 | ||||||||||||
Product development |
C10 | 1,641 | 1,515 | 1,644 | ||||||||||||
Other investing activities |
1,540 | 900 | 1,487 | |||||||||||||
Short-term investments |
2,151 | 14,692 | 3,016 | |||||||||||||
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Cash flow from investing activities |
4,888 | 4,541 | 12,541 | |||||||||||||
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Cash flow before financing activities |
17,143 | 14,523 | 14,042 | |||||||||||||
Financing activities |
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Proceeds from issuance of borrowings |
8,969 | 2,076 | 2,580 | |||||||||||||
Repayment of borrowings |
9,670 | 1,259 | 1,449 | |||||||||||||
Proceeds from stock issue |
159 | | | |||||||||||||
Sale/repurchase of own shares |
93 | 92 | 51 | |||||||||||||
Dividends paid |
8,632 | 7,455 | 6,677 | |||||||||||||
Other financing activities |
118 | 52 | 175 | |||||||||||||
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Cash flow from financing activities |
9,385 | 6,494 | 5,670 | |||||||||||||
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Effect of exchange rate changes on cash |
1,752 | 217 | 306 | |||||||||||||
Net change in cash |
6,006 | 7,812 | 8,066 | |||||||||||||
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Cash and cash equivalents, beginning of period |
38,676 | 30,864 | 22,798 | |||||||||||||
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Cash and cash equivalents, end of period |
C25 | 44,682 | 38,676 | 30,864 | ||||||||||||
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1) | Includes payment of external loan of SEK -6.2 billion attributable to the acquisition of Telcordia. |
73
ERICSSON ANNUAL REPORT ON FORM 20-F 2012
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Notes | Capital stock |
Additional paid in capital |
Retained earnings |
Stockholders equity |
Non-controlling interest (NCI) |
Total equity |
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January 1, 2012 |
16,367 | 24,731 | 102,007 | 143,105 | 2,165 | 145,270 | ||||||||||||||||||||||
Total comprehensive income |
C16 | | | 1,716 | 1,716 | 114 | 1,830 | |||||||||||||||||||||
Transactions with owners |
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Stock issue |
159 | | | 159 | | 159 | ||||||||||||||||||||||
Sale/Repurchase of own shares |
| | 93 | 93 | | 93 | ||||||||||||||||||||||
Stock Purchase Plans |
| | 405 | 405 |