Swedish annual report for 2022

in English (adjusted version)

 

 

 

    

Financial report
		CEO comment			2
		Business strategy			5
		Letter from the Chair of the Board			12
		Board of Director’s report			14
		Report of independent registered public accounting firm			34
		Report of independent registered public accounting firm			35
		Consolidated financial statements with notes			38
		Management’s report on internal control over financial reporting			93
		Risk factors			94
		Alternative performance measures			110
		The Ericsson share			115

Corporate Governance report
		Regulation and compliance			2
		Governance structure			4
		General Meetings of shareholders			5
		Nomination Committee			6
		Board of Directors			6
		Committees of the Board of Directors			9
		Remuneration to Board members			11
		Members of the Board of Directors			12
		Management			16
		Members of the Executive Team			20
		Auditor			26
		Internal control over financial reporting			26

Remuneration report
		Statement from the Chair of the Remuneration Committee			1
		Introduction			2
		Remuneration 2022 at a glance			3
		Total remuneration to the President and CEO and Executive Vice Presidents			5
		Variable remuneration			6
		Comparative information on changes in remuneration and the Company’s performance			13

Our legal Annual Report consists of three parts published as one pdf. The three parts can also be downloaded separately:

 

20-F

Financial report Part of Ericsson Annual Report 2022 Annual Report 2022 Financial Corporate Remuneration report Governance report report

 

This is Ericsson

Ericsson’s vision is a world where limitless connectivity improves lives,

redefines business and pioneers a sustainable future.

 

 

 

A platform for growth

and exponential innovation

2022 marked a significant year for Ericsson. We are a company on the move and have

solidified our leadership position in mobile networks, built an enterprise business, and

continued to drive transformation of our culture.

    

Building on our technology and leadership in mobile network solutions, we are expanding into the enterprise space with a approach.

 

    

    

 

 

    Net income was SEK 19.1 billion and net income as a percentage of net sales was 7%. EBITA excluding restructuring charges declined to SEK 29.5 billion with an EBITA margin of 10.9%. Excluding Vonage and previously announced charges of SEK during the year, EBIT margin excluding restructuring charges was 12.9%, reaching the target for 2022 set in 2018 of 12–14%.

    Russia’s war in Ukraine has heartbreaking consequences on individuals’ lives and a ripple effect on the global economy. Following the invasion, we wound down our engagement in Russia in a controlled way. By 2022, we exited our operations in Russia and now have a small presence to fulfil remaining legal and administrative requirements.

Robust digital infrastructure is a prerequisite for a digital society. Data traffic in the networks is expected to grow almost 4x until 2028. This growth will require more network infrastructure. We are still in the early days of 5G deployment with only about 20% of all radio base stations upgraded to 5G which is needed for performance and capacity.

    We expect the near term to be choppy. Some of our customers, primarily in frontrunner markets, are guiding for lower capex and a reduction of their inventory, impacting near-term demand. The rapid of 5G in India, however, can to some extent offset this. Given the macroeconomic headwinds, we are also planning for slower near-term growth in the Enterprise segment. We expect a better demand in the second half of 2023 as data traffic growth will require further investments.

On March 2, 2023, we reached a resolution with the DOJ regarding breaches of our 2019 deferred prosecution agreement (DPA) and agreed to plead guilty to the historical charges which concern conduct prior to 2017. The Ericsson Executive Team and I continue to work hard to clean up the past, strengthening our controls and processes, and transforming our culture to ensure that the historical misconduct that led to our 2019 DPA never happens again.

 

 

 

Strategy

Creating long-term value

Ericsson continues to strengthen its market and technology leadership position by investing in R&D for cost and performance benefits. We have taken important steps in establishing an enterprise presence and will further expand this business. Now we are shaping the industry landscape by transforming into a platform company, leveraging 5G as the innovation platform in close cooperation with our leading customers. By growing our core mobile networks business and capitalizing on the fast-growing enterprise market, we look to create value for all stakeholders. However, we know that to be an industry leader, market and technology leadership are not enough. We also need to be an ethical leader, operating the Company with the highest standards based on integrity. We have made significant investments in building a strong culture of ethics and integrity.

 

Ericsson has achieved a successful turnaround since 2017 by refocusing the portfolio, taking out significant cost, and increasing the investments in R&D to regain technology leadership. Today, Ericsson has established a leadership position in mobile networks with around 50% of the world’s 5G traffic, outside of Mainland China, carried over Ericsson’s networks. At 2022, Ericsson powered 141 out of the 228 live 5G networks.

and capabilities. These capabilities enable communications service providers to offer differentiated services, such as enhanced network performance for extended reality, video production or gaming. Another example is more secure and authentication for financial transactions and service access. These use cases will benefit communications service providers by creating additional revenue streams on top of their current subscription offerings and stimulate further investments in the network. The acquisition of Vonage provides us with access to powerful building blocks, underpinning a full range of cloud communication solutions, and creates the foundation for a global network platform. This will enable us to establish a new market for network application programming interface (APIs) and a new way to expose, consume and monetize the network capabilities.

    We will prudently manage our costs, investments and balance sheet and will invest responsibly to preserve and enhance our technology leadership, market share and profitability. M&A activities will be limited to acquisitions with attractive returns and a clear strategic fit. Near-term focus will be to ensure a strong financial position, prioritizing investments to support the strategy, and ensuring technology and market leadership.

    We are committed to provide a work environment that promotes and safeguards the health, safety and well-being of our people. During the year we have accelerated the implementation of the cultural transformation program Ericsson on the Move, with its five cornerstones: empathy and humanness, cooperation and collaboration, fact-based and courageous decisions, executing speedily, and fostering a environment.

 

 

 

Ericsson’s purpose, to create connections that make the unimaginable possible, is the foundation for the strategy to leverage technology leadership, to enhance our leadership in mobile networks to grow the mobile network business and to expand into enterprise. 5G technology is the platform for innovation, offering nearly limitless opportunity to develop superfast, highly reliable, and mission-critical services.

and create value for stakeholders. Ericsson’s efforts in pioneering a sustainable future are grounded in concrete targets set across the value chain. We are committed to supporting industries’ transition towards a economy. We do this by using our technology leadership and expertise in network operations and optimization, in the identification of new innovative opportunities to minimize energy consumption in mobile networks, while maintaining a consistently high quality of customer experience. We continue our efforts to create a positive safety culture and our Target Zero program aims for zero fatalities and lost workday incidents by 2025. This target covers health, safety and well-being efforts for everyone working for Ericsson.

 

Our business strategy is focused on creating long-term value through leadership in mobile networks and a focused expansion into enterprise.

 

Customer values

 

Businesses

 

Foundation

 

 

 

 

 

Leadership in mobile networks

 

    5G networks are playing a multiplier role in addressing climate change by reducing not only the ICT industry’s emissions, but also enabling other sectors to cut their emissions in the transition toward a economy. Ericsson is driving energy-efficient network modernization through hardware modernization, new software features, network energy optimization services and the use of automation and digital twin technologies.

 

 

Focused expansion into enterprise

 

With 5G, we are in the early stages of widespread enterprise digitalization – creating significant additional value for industrial applications such as mining, airports, and manufacturing. Ericsson provides cost-efficient high-resilience solutions for private 5G networks as well as wireless wide area networks (WWAN). There is significant revenue potential in delivering new 5G enterprise services. Our ambition is to support our

customers by developing competitive industrial solutions with leading reliability, security and operations. This area will provide a growing recurring revenue base with a different business model than our mobile network business. We continue to invest in developing a strong product portfolio and dedicated enterprise channels.

new network APIs, a deep understanding of the network and network functionality is required, and that is our core capability. With the acquisition of Vonage, Ericsson has a leading position in the high growth CPaaS (Communications Platform as a Service) market, as well as the Unified Communications as a Service (UCaaS) and Contact Center as a Service (CCaaS) markets. Building on CPaaS, Ericsson has the platform to expose APIs, and a community of more than one million developers. Network APIs put the capabilities of the network at the fingertips of the global developer community who in turn will create new innovative use cases, such as authentication without passwords or performance for superior extended reality experiences. These new use cases, which are based on differentiated performance, will offer additional revenue streams on top of the communications service providers’ current subscription revenues, and transform the way advanced 5G network capabilities are exposed, consumed, and paid for.

 

 

Be first in critical innovations and capture strategic business opportunities

 

 

Corporate responsibility and business integrity

 

    A cornerstone in Ericsson’s strategy is the ambition to be a relevant driver of positive change. Ethical, responsible and sustainable business practices are the foundation of our strategy and of everything we do. Corporate responsibility and business integrity are embedded in Ericsson’s business and fundamental to our culture, no matter where in the world we operate. With a policy regarding corruption and financial irregularity, the revised Code of Business Ethics (CoBE), individually signed off by all employees, forms

 

 

 

 

 

 

 

        

Letter from the Chair of the Board

    

 

2022 was marked by geopolitical upheavals, ushering in a context of rising inflation, high energy prices, and prolonged supply chain issues – factors that are impacting world economic recovery from the pandemic. The geopolitical focal point in 2022 was the war in Ukraine, which has led to great human suffering and destruction. Despite these circumstances, Ericsson has once again demonstrated its resilience and ability to adapt to challenges; taking the opportunity to transform by streamlining operations across the business and further optimizing efficiency and productivity. All whilst continuing to develop and deliver products and services to its customers.

 

 

 

    On March 2, 2023, importantly, we announced our agreement with the United States Department of Justice (DOJ) to resolve breaches of the deferred prosecution agreement (DPA). Under this agreement, we again accepted responsibility for, and the Company agreed to plead guilty to, the conduct that had led to the 2019 DPA. Ericsson will continue its cooperation and partnership with the appointed independent compliance monitor and is now in its third year of an extended four-year independent compliance monitorship. With respect to Iraq, I emphasize that this relates wholly to historical conduct. And, as we announced on March 2, 2023, the Company’s 2019 investigation did not conclude that Ericsson made or was responsible for any payments to any terrorist organization; and the Company’s significant further investigation over the course of 2022 has not altered this conclusion.

The Board oversees resource allocation and monitors Ericsson’s capital structure with the aim of safeguarding balance sheet strength, generating Free cash flow in line with the target of 9–12% Free cash flow before M&A over net sales, and deploying capital wisely for maximum value creation. Near-term focus will be ensuring a strong financial position, prioritizing investments to support the strategy, and enhancing technology and market leadership, supported by acquisitions with attractive returns and a clear strategic fit.

 

 

 

Free cash flow

 

Most recent three-year average seasonality
		First quarter				Second quarter				Third quarter				Fourth quarter
Share of annual Group sales			21%				24%				25%				31%
Sequential change, sales within Networks			-23%				12%				4%				22%
Sequential change, sales within Cloud Software and Services			-35%				12%				2%				35%

Capital expenditures 2020–2022
SEK billion		2022				2021				2020
Capital expenditures			4.5				3.7				4.5
Of which in Sweden			1.7				1.5				1.9
Share of annual sales			1.6%				1.6%				1.9%

 

 

 

 

 

Ericsson is committed to ensuring the highest standards of corporate governance: effective oversight across the organization (by the Board, the President and CEO and the Executive Team); effective decision making with clear accountabilities at all levels; a robust approach to risk management to effectively identify and control risks; compliance with law in everything we do; and an culture.

    The Company has adopted corporate governance practices and procedures that establish clear rules of governance, ranging from matters requiring approval of the Company’s shareholders and members of its Board to conflict of interest policies, and director and management duties and obligations. More information can be found on our website at corporate-governance.

At the Annual General Meeting, held on March 29, 2022, Ronnie Leten was as Chair of the Board, and Jon Fredrik Baksaas, Jan Carlson, Nora Denzel, Börje Ekholm, Eric A. Elzvik, Kurt Jofs, Kristin S. Rinne, Helena Stjernholm and Jacob Wallenberg were as members of the Board. Carolina Dybeck Happe was elected as a new Board member. As of March 29, 2022, Torbjörn Nyman, Anders Ripa and Kjell-Åke Soting were appointed as employee representatives

    At Ericsson’s AGM on March 29, 2022, Ericsson shareholders representing more than 70% of the Company’s share capital voted for discharging from liability each of the members of the Board and the Company’s CEO and President for the financial year 2021 and more than 10% voted against. At the same AGM, Ericsson’s shareholders voted in favor of the individuals nominated for Board (including the CEO and President). The Company’s external auditor, Deloitte, recommended that shareholders vote in favor of discharging liability.

 

    Each manager is responsible for handling the risks that emerge from their respective areas of responsibility. The responsibility for identified prime risks of the Company is always allocated to an Executive Team member. The Group Risk Management function is responsible for driving the ERM strategy execution and the ERM operations on Group level. The head of each group function, market area and business area is accountable for appointing one or several enterprise risk manager(s) to drive risk management within the unit’s area of responsibility, and for overseeing the ERM in the respective unit. The Chief Legal Officer (CLO) and the Chief Financial Officer (CFO) are accountable for performing oversight of ERM, and they the group Business Risk Committee. The Business Risk Committee permanently comprises of the CLO, CFO, and Head of Group Risk management. The Committee comprises of an additional 2–4 members of the Executive Management of the Company, to be agreed and appointed by the and approved by the CEO and the Audit and Compliance Committee (ACC). In 2022, these members consisted of the Chief Technology Officer, Chief Security Officer, Chief Marketing and Communications Officer and Head of Market Area North East Asia. The CEO, Chief Compliance Officer (CCO) and Head of Corporate and Government Investigations are invited to the Committee on an basis. The group Business Risk Committee is a group wide body intended to ensure there is proper oversight of risk management and to provide an appropriate forum for, and support to accountable executives in, discussing management of material risks. The Board of Directors and the Audit and Compliance Committee are responsible for reviewing the effectiveness and appropriateness of ERM.

    The production of electronic modules and is mostly outsourced to manufacturing services companies. Ericsson is focusing internal manufacturing on new product introductions and new technologies. The majority of the matured portfolio is outsourced through production partners. Ericsson has internal production sites in USA, Estonia, China and Brazil and for Ericsson Antenna Systems in Romania and Mexico.

 

    Policies, directives and frameworks establish the security requirements across Ericsson. The security and privacy frameworks cover product security, information security, privacy, risk management, sourcing and third parties, incident management, insider threat prevention, business continuity, physical security, security in high-risk areas, and travel and event security to secure all areas of Ericsson’s business processes and ensure the delivery of resilient products. Frameworks are based on with applicable regulations, international standards and best practices. For example, Ericsson’s Information Security Management System is certified to ISO/IEC 27001 and the Ericsson Security Reliability Model detailing the security requirements for Ericsson’s products is aligned with GSMA NESAS and NIST Cyber Security Framework.

    On March 2, 2023, the Company reached a resolution (DOJ Plea Agreement) with the DOJ regarding breaches under the DPA. Under the DOJ Plea Agreement, Ericsson will plead guilty to previously deferred charges relating to conduct prior to 2017. In addition, Ericsson has agreed to pay a fine of USD 206,728,848. The entry of the DOJ Plea Agreement will bring the DPA to an end. On January 12, 2023, the Company announced a provision in the fourth quarter of 2022 of SEK 2.3 billion (approx. USD 220 million) related to the DOJ Plea Agreement, which also included estimated expenses (SEK 0.1 billion) for the previously announced extended compliance monitorship.

 

    As part of its defense to a now settled patent infringement lawsuit filed by Ericsson in 2013 in the Delhi High Court against Indian handset company Micromax, Micromax filed a complaint against Ericsson with the Competition Commission of India (CCI). The CCI decided to refer the case to the Director General’s Office for an investigation. The CCI opened similar investigations against Ericsson in January 2014 based on claims made by Intex Technologies (India) Limited and, in 2015, based on a now settled claim from iBall. Ericsson has challenged CCI’s jurisdiction in these cases before the Delhi High Court and is awaiting a decision on the appeal of the first instance court’s decision.

At the end of the year, gross cash: cash and cash equivalents plus interest-bearing securities (current and amounted to SEK 41.4 (80.5) billion.

    At the end of the year, equity amounted to SEK 37.8 (35.0) billion, and total equity amounted to SEK 85.9 (83.1) billion.

As of December 31, 2022, the total number of shares issued was 3,334,151,735, of which 261,755,983 were Class A shares, each carrying one vote, and 3,072,395,752 were Class B shares, each carrying one tenth of one vote. Both classes of shares have the same rights of participation in the net assets and earnings. The largest shareholders of the Parent Company at were Investor AB with approximately 23.79% of the votes (8.00% of the shares), AB Industrivärden with approximately 15.14% of the votes (2.61% of the shares) and AMF Tjänstepension and AMF Fonder with approximately 4.87% of the votes (2.74% of the shares).

The Board of Directors proposes a dividend of SEK 2.70 (2.50) per share, and that the Parent Company shall retain the remaining part of equity. The dividend is proposed to be paid in two equal installments, SEK 1.35 (USD 0.13) per share with the record date March 31, 2023 (payment date April 5, 2023), and SEK 1.35 (USD 0.11) per share with the record date September 29, 2023 (payment date October 4, 2023).

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In addition, the Nomination Committee informed the Company that the current chairman, Ronnie Leten, and board members Kurt Jofs and Nora Denzel had informed the Nomination Committee that they will not stand for at the Annual General Meeting 2023.

    The Company’s internal investigation and its cooperation with authorities in relation to the matters discussed in a 2019 internal Iraq investigation report remain open and ongoing. With respect to the matters described in the 2019 internal Iraq investigation report, the Company continues to thoroughly investigate the matters in full cooperation with the DOJ and the SEC. As previously disclosed, the Company’s 2019 investigation did not conclude that Ericsson made or was responsible for any payments to any terrorist organization and significant further investigation over the course of 2022 has not altered this conclusion. Since 2019, Ericsson has taken significant remedial measures, overseen by the Board of Directors. These include enhancing its group-wide approach to risk management and strengthening its compliance program and internal controls. The Company agreed in December 2022 to extend its independent compliance monitorship with one year, until June 2024, to further our efforts to embed compliance, risk management and internal controls across the organization.

    On March 2, 2023, the Company reached a resolution (DOJ Plea Agreement) with the DOJ regarding breaches under its DPA . Under the DOJ Plea Agreement, Ericsson will plead guilty to previously deferred charges relating to conduct prior to 2017. In addition, Ericsson has agreed to pay a fine of USD 206,728,848. The entry of the DOJ Plea Agreement will bring the DPA to an end. In the fourth quarter of 2022, the Company made a provision of SEK 2.3 billion (approx. USD 220 million) in relation to the DOJ Plea Agreement, including estimated expenses (SEK 0.1 billion) for the extended compliance monitorship.

 

 

 

 

Report of independent registered

public accounting firm

To the shareholders of Telefonaktiebolaget LM Ericsson (publ):

 

We have audited the internal control over financial reporting of Telefonaktiebolaget LM Ericsson (publ) and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in  issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in  issued by COSO.

 

Report of independent registered

public accounting firm

To the shareholders Telefonaktiebolaget LM Ericsson (publ):

 

    We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in  issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 15, 2023, expressed an unqualified opinion on the Company’s internal control over financial reporting.

 

    In the fourth quarter of 2022, the Company recorded a provision of SEK 2.3 billion in relation to a potential resolution with the DOJ regarding previously announced, alleged breaches under its 2019 DPA. The provision also includes estimated expenses for

 

    We identified the provision for the alleged DPA breaches as a key audit matter due to the significant amount of judgement and assumptions required by management in determining whether, under IAS 37 Provisions, Contingent Liabilities and Contingent Assets (“IAS 37”), a reliable estimate can be made of the amount of the provision, and underlying significant estimation uncertainties are adequately disclosed relating to this matter. This also is due to the fact that no resolution had been reached regarding the alleged breaches and discussions were still ongoing at The assessment of management’s assumptions regarding the related disclosures to the provision are complex and requires a high degree of auditor judgment and an increased extent of audit effort.