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This chapter is covered by the Auditors' Report.

Board of Directors’ Report

Summary

Increased sales by 11 (4) percent despite financial turmoil

  • Operating margin was 11.4 (16.3) percent excluding restructuring charges and 7.8 (16.3) percent including restructuring charges.
  • Net income attributable to shareholders of the Parent Company was SEK 11.3 (21.8) billion, and earnings per share (diluted) were SEK 3.52 (6.84).
  • Cash flow from operating activities was SEK 24.0 (19.2) billion. Cash flow before financing activities was SEK 15.4 (–8.3) billion including acquisitions/divestments (net) of SEK 0.6 (–26.2) billion (cash flow effect).
  • A cash conversion rate of 92 (66) percent was achieved, well above the target of at least 70 percent.

 

sales AND OPERATING MARGIN 2004–2008 (SEK billion)

sales AND OPERATING MARGIN 2004–2008

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Strong performance in strategically important areas

A significant number of new or expanded agreements to supply network equipment and/or related services to operators globally were announced. The aggregate value of these agreements was the highest in five years.

  • Leveraged mobile systems scale advantages:
    The Company increased its mobile systems market share, especially in emerging markets.
  • Strengthened position in fixed broadband access and IP routing:
    The Company strengthened its position within the Networks segment with a newly formed product area headquartered in Silicon Valley.
  • Networks’ margins have started to improve:
    A more favorable balance between new networks relative to expansions and upgrades.
  • Higher proportion of software sales:
    Sales of software and Intellectual Property Rights (IPR) continues to gain importance.
  • Increased market share in Professional Services:
    New managed services contracts, in particular, contributed to the increased market share.
  • Maintained top tier in mobile phones:
    With challenging business conditions, Sony Ericsson achieved breakeven results for the full year, excluding restructuring charges.
  • Good progress in Multimedia:
    The Company continues to invest for a leading market position in networked media and IP-based applications and services.
  • Divestments and new joint venture:
    During the year, the PBX part of the Enterprise business was divested. Plans to form a joint venture for mobile platforms and semiconductors with STMicroelectronics were announced.

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Solid financial position

Although Ericsson is well positioned and remains strong among its peers, there are several challenges to overcome in the near future. It is difficult to predict how consumer spending will change and the effect this may have on operator activities. The macro-economic development is negatively impacting Sony Ericsson but so far, Ericsson’s infrastructure-related business has hardly been affected. However, it is likely that in due course this business will also be affected. Cost adjustment plans have been decided and actions are already underway in preparation for such a development.

This Board of Directors’ Report is based on Ericsson’s consolidated financial statements, prepared in accordance with IFRS. The application of reasonable but subjective judgments, estimates and assumptions to accounting policies and procedures affects the reported amounts of assets and liabilities and contingent assets and liabilities at the balance sheet date as well as the reported amounts of revenues and expenses during the reporting period. These amounts could differ materially under different judgments, assumptions and estimates. Please see Note C2 – “Critical Accounting Estimates and Judgments”.

Also non-IFRS measures are used to provide meaningful supplemental information to the IFRS results. Non-IFRS measures are meant to facilitate analysis by indicating Ericsson’s underlying performance, however, these measures should not be viewed in isolation or as substitutes to the IFRS measures. A reconciliation of non-IFRS measures with the IFRS results can be found here.

This report includes forward looking statements subject to risks and uncertainties. Actual developments could differ materially from those described or implied. Please see “Forward-looking Statements” and “Risk Factors”.

The external auditors review the quarterly interim reports, perform audits of the annual report and report their findings to the Board and its Audit Committee.

The terms “Ericsson”, “the Group”, “the Company”, and similar all refer to Telefonaktiebolaget LM Ericsson and its subsidiaries. Unless otherwise noted, numbers in parentheses refer to the previous year (i.e. 2007).