OUR CONTRIBUTION TO A SUSTAINABLE GIGABIT SOCIETY

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1 SUSTAINABILITY REPORT 2014 OUR CONTRIBUTION TO A SUSTAINABLE GIGABIT SOCIETY Making light make sense

2 ABOUT TRANSMODE About Transmode Transmode is a global provider of packet-optical networking solutions that enable fixed line and mobile network operators to cost effectively address the capacity needs created by the rapid growth in video and data traffic. These solutions are important building blocks in next- generation high-speed optical networks that support services such as broadband backhaul, mobile data backhaul, video delivery services and cloud computing. Transmode s solutions are designed to increase the capacity, flexibility and functionality of metro and regional networks and are based on Wavelength Division Multiplexing (WDM) and transport technologies such as Ethernet. Transmode s Native Packet Optical 2.0 architecture gives customers key advantages such as cost efficient Ethernet services, ultra-low latency, low power consumption and future proof network design. Transmode is headquartered in Stockholm, Sweden and is listed on the NASDAQ Stockholm Exchange (TRMO). Since 2000 the company has installed more than 50,000 systems for over 650 fixed and mobile network operators, service providers, large enterprises and public institutions in over 50 countries across the globe. For additional information about Transmode, please visit Contents Introduction 1 CEO s Statement 2 VP Quality & Sustainability s Statement 3 Sustainability Context 4 Sustainability Strategy 6 Targets and Performance 8 Environment 9 Employees 12 Customers, Suppliers and Partners 16 Products and Technology 18 Sustainability Governance 22 About the Report 23 GRI & Global Compact Index 24

3 INTRODUCTION Reporting on Sustainability This is Transmode s fourth Sustainability Report, which provides an overview of our sustainability program and activities. In this Report, we communicate our work on those aspects of sustainability that are relevant and material to our business and stakeholders. This Sustainability Report supplements the information in our Annual Report. Report content is based on GRI G3.1 Guidelines for Application Level C, and describes actions taken and achievements concerning employees, environmental responsibility, customers, suppliers and products. This Report is also Transmode s annual communication on how our company complies with, and applies, the UN Global Compact s Ten Principles for Responsible Business. This Sustainability Report is primarily intended to serve as a reference for our stakeholders and the general public. A full list of GRI Indicators and UNGC require - ments disclosed in this Report are stated in the Index on page Transmode joined the UN Global Compact, an initiative promoting corporate work on human rights, labor standards, the environment and anti-corruption, in Highlights of the Year In 2014, Transmode conducted its first systematic sustainability-oriented dialogue with stakeholders to guide our sustainability work going forward. The outcome from our stakeholder dialogue provided valuable input for our Materiality Analysis, which identified three focus areas business ethics, environmental footprint and working conditions. Our work to ensure a high standard of business ethics continued in 2014, and we implemented an internal business risk evaluation process to monitor business risks. All employees signed the Code of Conduct, and took web-based training, in the year. Implementation of our Partner Code of Conduct Policy commenced and some 75% of our partners had signed the Code by year-end. We also sustained our efforts to have all critical suppliers sign up to our Supplier Code of Conduct. Transmode s most important contribution to a sustainable society is its energy-efficient products. Transmode launched a new generation of compact and energy-efficient 100G products in In 2014, our total CO 2 emissions decreased by 27% on Actions implemented to reduce inbound and outbound transports. New Health and Safety Policy implemented. TRANSMODE SUSTAINABILITY REPORT

4 CEO s Statement FOCUS ON OPENNESS AND ENERGY-EFFICIENCY Transmode is committed to continuing to contribute to a more sustainable society. We want to lead the way in our industry, and to ensure our suppliers and partners share our ambition. The overall target for Transmode is to grow profitably and contribute to a sustainable society, as we strive to increase network capacity in a cost-effective and sustainable manner. In 2014, many of our customers sharpened their focus on monitoring how we handle corporate social responsibility. We welcome this interest, and are now even more convinced of the long-term importance of an effective sustainability strategy. Energy-efficient Products Transmode s most important contribution to a sustainable gigabit society is energy-efficient products. We provide packet-optical solutions with power consumption at levels significantly below most of our competitors. In 2014, we received clear indications that low power consumption is of great and increasing importance to our customers, and energyefficiency continues to be a key priority of our product development. Many of our customers include power consumption as a key decision criterion when selecting vendors. Openness Builds Trust Openness is one of our core values, and increasingly important for building trust and good partnerships. One of our challenges is to promote good social conditions, environmental responsibility and ethical business, particularly in new markets. Our Code of Conduct defines our environmental, social and ethical principles, and we have control systems in place to ensure that we conduct business accordingly. We endeavor to pass this approach on to our suppliers and partners, and are implementing separate Codes of Conduct for these groups. We systematically evaluate potential business risks to ensure compliance with our Code of Conduct, and audit key suppliers for quality, technology and corporate responsibility. By year-end, most of our partners and suppliers had signed up to our principles. Employees Crucial to Innovation Our employees are crucial to our innovation and business success. That s why we focus on being an attractive employer and creating a working environment where all employees can develop and thrive. In 2014, we implemented a cost and efficiency program that did, unfortunately, affect about 15 employees. Coincident with this, we took several measures to implement the program respectfully, and to maintain the motivation of our employees. We Want to Lead the Way in Our Industry Transmode joined the UN Global Compact in 2011, supports its ten principles for sustainable business, and will continue to do so in forthcoming years. We are committed to continuing to contribute to a more sustainable society. We want to lead the way in our industry, and to ensure our suppliers and partners share our ambition. Karl Thedéen, CEO Stockholm, Sweden, TRANSMODE SUSTAINABILITY REPORT 2014

5 VP QUALITY & SUSTAINABILITY s Statement TRANSPARENCY BUILDS TRUST We strive for continuous sustainability improvements by focusing on our prioritized aspects of business ethics, environmental footprint and working conditions. This is Transmode s fourth Sustainability Report, intended to provide an overview of our sustainability activities. We strive for continuous sustainability improvements by focusing on the prioritized aspects of business ethics, environmental footprint and working conditions. Business Ethics In 2014, we implemented a formalized internal business risk evaluation process, enabling us to monitor activities in more detail. The need for a more formalized process has increased as we have expanded geographically. The implementation of our Partner Code of Conduct Policy commenced, and by year-end, we had signed up some 75% of our partners. Work to ensure that all our active partners have signed the Code of Conduct will continue in We also sustained our efforts to have all critical suppliers sign up to our Supplier Code of Conduct, and commenced an audit of our supply chain for the use of conflict minerals by subcontractors and suppliers. Reducing our Environmental Footprint Our low power design efforts are our foremost contribution to a low-carbon society. Transmode s direct climate impact comes primarily from business travel and transport. During 2014 Transmode environmental footprint reduced by 27%. One of our objectives going forward is to further improve our close cooperation with key suppliers. In 2015, we intend to monitor how suppliers work to reduce climate impact more closely. Working Conditions Our ability to hire and retain the right people is a critical success factor. We put a big emphasis on being an attractive employer with stimulating duties, a good working environment and competitive employment terms. We have improved our performance management process and are continuously working to maintain an open atmosphere enabling diversity. Establishing Stakeholder Dialogue In 2014, we approached a number of our key stakeholders to find out in more detail what sustainability aspects they regard as most important for Transmode. This process concluded in January 2015 and the results were in line with our existing strategy, indicating that we should retain our current prioritized aspects, which should continue to guide our work in the coming years. Transparency Builds Trust This report is based on Global Reporting Initiative GRI G3.1 guidelines, we are in the process of upgrading to GRI G4, on which next year s Report will be based. This will enable us to focus even more on our most material aspects and further improve transparency. For Transmode, openness has always been important, and we have made it one of our core values. Transmode believes transparency builds trust. Lena Båvegård, Vice President Quality and Sustainability Stockholm, Sweden, 2015 TRANSMODE SUSTAINABILITY REPORT

6 Customers Employees Resellers/Partners Suppliers SUSTAINABILITY CONTEXT OUR SUSTAINABILITY CONTEXT Business & Sustainability Context People are exchanging information at an everaccelerating rate, while communication methods are becoming more and more sophisticated. The key drivers are the robust increase in video transmission, greater demands for mobility and the expanding usage of data centers and cloud computing services. The overall effect of this is estimated growth in global IP traffic averaging some 21% yearly from , and traffic growth in metro networks growing by an expected 40%-plus yearly.* To keep improving the ways we communicate, we need to build the digital superhighways of a contemporary and sustainable gigabit society without increasing energy consumption. Transmode s energy-efficient products, which enable a substantial increase in transmission capacity through optical networks, are its most important contribution to sustainable development. This rapid progress creates opportunities and challenges. In a global marketplace, where business practices and conditions vary, transparency and compliance with high ethical standards are key for maintaining the trust of stakeholders. It is vital to identify and minimize risks and negative consequences along the value chain to build robust operations and business strategies. As Transmode s suppliers are globally distributed, responsible sourcing and managing the social, environmental and labor risks in the supply chain are crucial. From an environmental perspective, the energy efficiency of Transmode s products does have a major impact, but the environmental impact of business operations are also worthy of attention. Finally, for a technologically advanced industry like Transmode s, attracting and developing the right people, and being the employer of choice on its various markets is also vital. Increasing fossil fuel taxes, for instance, are expected to contribute to more widespread use of video and online technologies rather than relying on travel, which will boost demand for our core business. Our Value Chain Because our impact along the value chain (see illustration on page 7) varies, so does our potential to influence conditions and stakeholder behavior upstream and downstream from our operations. We can see the direct impact we have on our subcontractors and main suppliers through our sourcing practices, and on our partners and customers through our offering and sales practices. However, our own operations, as well as those of suppliers, partners and customers, are also influenced by local and global trends and conditions that we must try to adapt to. Our products are primarily based on materials like aluminum, steel, copper, silicon, gold, semiconductor compounds, ceramics, glass and plastics. Product packaging consists of cardboard and plastic. We currently collaborate with approximately 25 key component manufacturers. In terms of purchased amounts, our most important suppliers are located in China, the US and Sweden, and the bulk of our suppliers are located in Asia. All Transmode s hardware products are manufactured by global subcontractors at plants in Sweden, Poland and China. Figure 1. Transmode s Key Stakeholders End users Competitors Community Risks and Opportunities Due to Climate Change Climate change is a global challenge with direct financial implications for the telecom industry. The regulatory risks associated with climate change pose a potential financial risk to Transmode s business. Changes in fossil fuel taxation, for example, have led to higher transport and delivery costs. To minimize those risks, we endeavor to choose transportation alternatives with the lowest emissions, depending on local conditions and available options. At the same time, the challenges linked to climate change present opportunities due to the potential increase in demand for Transmode s products. Shareholders Future investors Industry associations Labor community * Source: Cisco VNI June TRANSMODE SUSTAINABILITY REPORT 2014

7 SUSTAINABILITY CONTEXT Our operations are concentrated in Stockholm, Sweden, and consist of R&D, Delivery & Logistics, Marketing, Sales Support, Technical Support, Finance, Administration and Management functions. We also have a support and service center in Dallas, US, and a smaller-scale support center in Hong Kong. In some markets, we collaborate with partners and resellers for sales and distribution. Our customers are tier 1 and incumbent operators, mobile operators, cable TV operators and other alternative operators and enterprises, in EMEA, the Americas and APAC. Stakeholder Engagement Transmode s daily business impacts, and is influenced by, many different stakeholders (see Figure 1). Our priority is to address the issues of interest of our key stakeholder groups through our business and sustainability strategy (see Table 1). Our key stakeholders are those with a high level of influence and interaction, and with whom we interact directly and actively in daily business-customers, employees, resellers/partners and suppliers. All are crucial to enabling us to achieve our overall targets Our customers have increased their focus and requirements related to sustainability. To date, Transmode has been able to meet the requirements and we will continuously improve our performance to exceed our customers expectations. Mark Burton, VP Europe. and sustainability objectives, and if we succeed, it will be mutually beneficial. Transmode continuously interacts with stakeholders through a number of forums and surveys to enhance relations and identify expectations and needs. In 2014, Transmode conducted its first systematic sustainability-oriented dialogue with stakeholders. We contacted our main stakeholder groups through a web-based questionnaire and interviews, asking them to state which areas Transmode should focus on. The results from the stakeholder dialogue provided valuable input for our materiality analysis. Table 1. Transmode s stakeholder engagement Stakeholder group Interaction Key topics Customers Employees Resellers/Partners Suppliers Shareholders/Investors and analysts Customer surveys Personal meetings Demos Seminars and conferences Questionnaires from customers Requests for quotation Innovation collaborations Employee CoC* Staff meetings Employee surveys Performance reviews Incident follow up Intranet and Partner program including web portal Partner CoC* Personal meetings Supplier CoC* Evaluations and procurement Annual report Interim reports Sustainability Report Web site Investor & Analysts meetings Investor Conferences Questionnaires from investors Product energy performance Environmental impact of products Business Practices Responsible sourcing Innovate to reduce environmental impact and inspire others Customer satisfaction Employee engagement Product quality & safety Health & safety Human rights Economic performance Product energy performance Customer satisfaction Innovation Supply chain management Transparency and open dialogue Business ethics Responsible sourcing Labor & Human rights Innovation and Product quality Economic performance Business Ethics Environmental legal compliance Responsible sourcing Risk Management Employee organizations Local collaborative meetings Health & Safety Labor & Human rights Professional development Transparency & Whistle-blower process Employee engagement Community, authorities, industry associations, universities and certification bodies Environmental reporting Collaborations Media communication and releases Certification audits Compliance with requirements Corporate governance & risk management Economic performance Innovation and contribution *CoC= Code of Conduct. TRANSMODE SUSTAINABILITY REPORT

8 Sustainability strategy TOWARDS A SUSTAINABLE GIGABIT SOCIETY Our Strategy for Sustainable Business Our strategic objective is to contribute to a sustainable society by maintaining profitable and sustainable growth. Our strategic priorities to achieve this are to keep growing our customer base and geographical footprint, develop innovative solutions and work efficiently and environmentally. These strategic priorities are supported by four stakeholder targets, each critical to our success: satisfied customers, motivated employees, responsible citizenship and shareholder value. To achieve profitable and sustainable growth, we also need to ensure we identify and manage all material risks and exploit the business opportunities in our value chain. We maintain focus and progress on our most important issues through our sustainability targets (see page 8). Sustainable business development is inherently long term and encompasses a wide range of issues some under our direct control and influence, others more indirect. By accepting that our resources need to be allocated to those areas that are material to Transmode and our most important stakeholders, we adopt a more focused approach to sustainability. Accordingly, we have conducted a materiality analysis. Our targets are evaluated and revised annually. Materiality Analysis The first step of the materiality analysis was an internal workshop that involved members of management, and other key functions at Transmode, such as legal affairs, purchasing, human resources, and sales. The group evaluated aspects starting from our value chain both risks and opportunities covered by the UN Global Compact, the GRI reporting framework, and those that have been emphasized in recent customer and employee surveys. Consideration was also given to the industry and competitors, legal requirements and benchmark of best practices. The workshop also included a closer consideration of who we interact with, to identify which stakeholders are most important in terms of their level of influence and interaction customers, employees, resellers/partners and suppliers. The next step involved engagement with stakeholders to identify their expectations and key topics to be addressed, see Table 1 page 5. The second step involved prioritizing the material aspects identified based on their level of actual impact and how they affect the views and decisions of our stakeholders. These key aspects are presented in Figure 3. The outcome of the materiality analysis was validated by management, including the CEO. The materiality analysis will be reviewed and revised on a regular basis to ensure our priorities are right at all times. This methodology is compliant with the fourth-generation Guidelines of the Global Reporting Initiative (GRI), G4, with materiality analysis applied to define the scope of Sustainability Reporting. Figure 2. Transmode s Operational Development Model PROFITABLE & SUSTAINABLE GROWTH Customer & geographic expansion Innovative solutions Efficient & environmentally sound operations Satisfied Customers Motivated Employees Responsible Citizenship Shareholder Value 6 TRANSMODE SUSTAINABILITY REPORT 2014

9 Sustainability strategy Key focus areas Our materiality analysis identified that our key aspects are grouped into three focus areas business ethics, environmental footprint and working conditions. Our aim is to minimize risks and seize opportunities in our value chain, as outlined in Figure 3 below. To drive performance in each area, we will focus on the following in 2015 and beyond: Promoting business ethics and anti-corruption through continued implementation of the Code of Conduct internally, and for partners and suppliers. Reducing the environmental footprint from our products, our operations and supply chain. Developing working conditions within Transmode, and supporting good employment conditions in our supply chain through continued implementation of our Supplier Conduct Principles. Vision Transmode s vision is to become the Global Optical Star through innovation and efficiency, with the most satisfied customers, the best employees and the most satisfied shareholders in a sustainable gigabit society. Overall Targets To grow faster than the market. To grow profitably. To have very satisfied customers. To be an attractive employer. To contribute to a sustainable society. Figure 3. Prioritized Aspects of Sustainability in Our Value Chain Transmode Raw materials Subcontractors & suppliers Design, test & configuration Sales & distribution Customers Product end of life Business ethics, transparency & whistle blower process Corporate governance & risk management Responsible sourcing Human rights Environmental legal compliance Emissions including carbon footprint Product energy performance Waste management Labor practices Business ethics Environmental footprint* Working conditions Health & safety Employee engagement & development *Transmode s direct environmental footprint is primarily derived from business travel and transport, and waste generated from our operations. Water use is not considered a material aspect, as Transmode s main operations are not located in water stressed areas, and the manufacturing does not require any significant input of water. TRANSMODE SUSTAINABILITY REPORT

10 TARGETS AND PERFORMANCE TARGETS AND PERFORMANCE Transmode s prioritized sustainability aspects guide us in defining our overall sustainability objectives. Each year, we set specific targets, or environmental indicators, linked to our overall sustainability objectives, and monitor performance regularly to ensure continuous improvement. Objectives 2014 Targets 2014 Results Minimize environmental impact of products Reduce overall carbon footprint relative to revenue Improve awareness and internal processes to secure ethical behavior and fair business practices Increased awareness and participation in CSR activities Improve the process for RoHS* and REACH** compliance Identify and communicate Low Power Design metrics Percentage increase of CO 2 emissions from business travel should not exceed percentage increase in revenue compared to 2013 Activity targets to increased efficiency of inbound and outbound logistics Activity targets energy consumption at our facilities Activity targets to improve environmental performance in supply chain Implement internal risk evaluation process Continued Code of Conduct implementation internally, for suppliers and partners Implement Health & Safety Policy Initiatives to create a more inclusive labor market New process established. Implementation projects are carried out and will continue throughout Metrics established. External communication developed and executed. Fulfilled. Emissions from business travel down 33% in 2014 on Sales down 10% in 2014 on Number of shipments to customers down 9%. Reduced number of air freights. Analysis conducted, but improvements neither identified nor implemented. New purchasing policy implemented. Actions implemented to reduce inbound flight transportation. New process implemented. All employees have signed the CoC and received training. 75% of partners have signed the Partner CoC. Critical suppliers have signed the Supplier CoC. New policy implemented. Target not completely fulfilled as no internships for foreign graduates were granted. However, there were 10 short-term interns. Achieved Still in progress/not achieved Sustainability Objectives 2015 Objectives 2015 Target areas 2015 Business ethics Continued Code of Conduct (CoC) implementation internally, for suppliers and partners Improved monitoring of Code of Conduct implementation Environmental footprint Environmental performance in our supply chain Efficient inbound and outbound logistics Improved monitoring of Code of Conduct implementation Working conditions Improved health & safety process Improved diversity and inclusion Improved employee commitment and development * EU Directive for Restriction of Hazardous Substances, which restricts certain dangerous substances commonly used in electrical and electronic equipment. Restricted substances are lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyls (PBB) and polybrominated diphenyl ethers (PBDE). ** EU Directive for the Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals. Came into force on 1st June 2007, streamlines and improves the EU s former legislative framework on chemicals. 8 TRANSMODE SUSTAINABILITY REPORT 2014

11 Environment OUR ENVIRONMENTAL RESPONSIBILITY Environmental responsibility is a vital part of our business. If we are to deliver products with minimal environmental impact, we need to ensure that our processes and working methods are environmentally safe and secure. We regularly evaluate our products, services and working methods to identify potential for improvement. Transmode has been certified according to ISO 9001 and ISO since Energy and Carbon Footprint To map our risks and opportunities, we measure the amount of greenhouse gas emissions arising from our business annually. We strive to be at the leading edge of minimizing our own carbon footprint and to be proactive when managing the risks and opportunities driven by climate change. Transmode measures energy consumption and CO 2 emissions from its operations every year. In 2014, our total energy consumption increased by 37% on 2013, see Table 2. The main reason for the increase is that district cooling has been included in the calculations (no figures available for 2013 or 2012). The increase is also mainly due to an expansion of office space at the Stockholm headquarters. We estimate the carbon footprint of our business in accordance with the Greenhouse Gas Protocol Corporate Standard. Our total CO 2 emissions in 2014 decreased 27% on 2013, see Table 3. The decrease is mainly thanks to reduced business travel (decreased by 33%) and transportation (decreased by 23%). Major improvements in the 2014 calculations are inclusion of the UK and Hong Kong offices, and an improved calculation method for business travel. Previous years general travel costs (not booked through a travel agency) have been assumed as air transport. This year, these costs were analyzed in greater depth, and a decision was taken to split them more accurately between ground and air transportation. This enhanced methodology has been applied retrospectively to 2013 and Table 2. Energy Consumption (MWh) Direct fuel consumption Diesel Indirect energy consumption 1,564 1, Electricity-hydropower Electricity- mixed sources 126** 104* 0 District heating-mixed sources District cooling-mixed sources*** 374 Total 1,568 1, * Include Sweden and US office. ** Include Sweden, US, UK and HK offices. *** No figures available for 2013 and Table 3. CO 2 emissions (tonnes of CO 2) Direct emission sources Company owned vehicle Indirect energy consumption (scope 2) Electricity-hydropower Electricity-mixed sources N/A District heating-mixed sources District cooling-mixed sources 0 Other indirect emission sources (Scope 3) 2,039 2,840 2,296 Business Travel (air, rail, car) 1,151 1,718 1,920 Transportation of goods (air, road) Office supply Commuting N/A Upstream emissions scope 1 & Total 2,159 2,938 2,338 Environmental responsibility is a vital part of Transmodes business. TRANSMODE SUSTAINABILITY REPORT

12 Environment CO 2 emissions per revenue decreased by 19% to 2.32 g CO 2 per SEK revenue, and we saw a 31% decrease in CO 2 emissions per employee in the year, see Figure 4. In 2014, business travel represented 53% of our total CO 2 emissions, and transport of goods 34%. CO 2 emissions from electricity and heating corresponded to 6% of total CO 2 emissions. We have been purchasing electricity from renewable sources exclusively since 2011 for our Swedish facilities and use district heating rather than oil-based heating fuel. Transmode utilizes online meeting tools to reduce CO 2 emissions from business travel, such as voice, video and audio conferencing. Videoconferencing is now being used regularly for management and Board meetings, for example. Our product development process focuses on Low Power Design and functionality to create products that help our customers succeed, now and in the future. Transmode s Low Power Design products offer the potential to alleviate environmental impact and ease the necessary transition to tackle the effects of climate change. Carbon Offset project To reduce the climate impact of business travel, Transmode has compensated for some 98% of emissions arising from its business in 2014 (corresponding to 2,112 tonnes of CO 2) via Plan Vivo, a carbon offset project in Mexico. This corresponds to almost 3,000 trees, or 19 soccer pitches. This project generates CO 2 emission reductions through a range of land-use activities such as afforestation and reforestation, agroforestry, forest restoration and deforestation Figure 4. CO 2 emissions per Revenue and per Employee CO 2 emissions per Revenue (g CO 2 per SEK revenue) CO 2 emissions per Fulltime Employee (tonnes of CO 2) avoidance. In addition to carbon sequestration, the project delivers a host of environmental and social co-benefits, including biodiversity maintenance and poverty reduction. To reduce CO 2 emissions from distribution, we prioritize road transport rather than air freight whenever possible. Our goal is for no more than 30% of our outbound shipments in Europe to be air freighted, and we achieved this goal in In 2014, around 5% of our transports in Europe were air freighted. We are also evaluating ways to consolidate transport to improve efficiency and reduce emissions. In 2014, we reduced the number of shipments to customers by some 9%. Our target for 2015 is to consolidate inbound freight on one supplier. Producer Responsibility Transmode has clear design rules to ensure that products have a low environmental impact and are as energy efficient as possible. See page 18 for more information. Electronic waste is the fastest-growing type of waste globally. Transmode is committed to meeting the requirements of the European Union s Waste Electrical and Electronic Equipment Directive (WEEE), which requires producers of electrical and electronic equipment to finance returns for product re-use or Image: Zeromission 10 TRANSMODE SUSTAINABILITY REPORT 2014

13 Environment recycling. Transmode s Recycling Program has been created to collect equipment for re-use or recycling. Equipment returned to us through this program will be disposed of in an environmentally safe manner, using processes that comply with all electronic waste regulations. In 2014, 704 kg of electronic waste was returned for recycling. Our goal is to ensure that all customers receive information about our Recycling Program and instructions for product returns. We are also committed to satisfying the requirements of the European Union s Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment (RoHS). This Directive regulates the use of six hazardous substances including lead, mercury and cadmium. Their usage is restricted and these substances are only permitted in very low concentrations. However, there are a few exceptions permitted for specific products in the telecom industry, due to a shortage of viable alternatives. All Transmode products fulfill the RoHS Directive. In recent years, there has been an increasing international focus on conflict minerals emanating from mining operations in the Democratic Republic of the Congo and adjoining countries. Transmode is committed to compliance with these requirements, read more under Supplier Conduct Principles on page 17. To provide customers with the right information, we enclose the following information with delivered products: The origin of components of the product or service. Content, including compliance with RoHS, REACH, WEEE, NEBS, IEC/EC, FDA, FCC, ELT, etc. Safe usage of the product and service information. Disposal of the product and environmental/safety considerations. Materials and Waste In 2014, a total of 80 tonnes of materials were used in our products and 32 tonnes of cardboard and plastic were used in packaging material, see Table 4. All our hardware products are manufactured by subcontractors, with only system configuration and quality control at Transmode s production facility in Stockholm before delivery. Accordingly, most waste generated in our production facility consists of combustible material and cardboard from packaging materials, see Table 5. To reduce transportation bulk, we process waste such as paper and cardboard (cutting and compressing), before it is transported for recycling. Table 4. Material Usage (tonnes) Packaging Plastic Cardboard Products Plastic Metal Total Table 5. Waste (kg) 2014** 2013* 2012 Hazardouz waste for recycling Metals (kg) 2, Electronic waste (kg 3,583 2, Batteries (no) Flourescent lamps (no) Non-hazardous waste for recycling Cardboard (kg) 5,800 6,800 8,000 Paper (kg) 2,022 2,053 1,880 Mixed waste to energy recovery (kg) 6,675 14,668 7,630 Plastic (kg) 861 1, * Include Sweden and US office. ** Include Sweden, US, UK and HK offices. TRANSMODE SUSTAINABILITY REPORT

14 Employees EMPLOYEES HOLD THE KEY TO INNOVATION Our employees are the key to our business success they are the key to innovation. Accordingly, our efforts are focused on fostering a working environment where all our employees can develop and fulfill their ambitions. Transmode is an expansive global company and we are determined to achieve this without compromising employee satisfaction. Core Values Our corporate culture can be summarized in five core values, defining the company and its people: Competence, Innovation, Openness, Dedication, and Business Focus. Every year we reward employees who embody the company s core values. The winners are selected annually in a nomination process that is open to everyone. Performance appraisals, our recruitment policy and compensation review are all aligned with, and follow, these principles and values. Cost and Efficiency Program To improve profitability and enable continued investments in developing products and markets, Transmode executed a cost and efficiency program in fall Unfortunately, this program resulted in some 15 employees leaving the company. In tandem, Transmode executed a wide range of measures to enable the program to be executed with the greatest possible respect for everyone involved, and to retain the motivation of people not directly affected. Employee Satisfaction and Openness To help maintain its growth and progress in the right direction, Transmode has been conducting a company-wide employee satisfaction survey for a number of years. The survey is based on a global ESI index (Employee Satisfaction Index) method, designed to help identify vital areas of improvement. Transmode achieved a high employee satisfaction index of 77% in A new survey was planned for 2014 but was postponed until the first quarter of 2015 due to the redundancy process during fall Employee turnover was 6.9% in 2014, excluding the people affected by the cost and efficiency program. This is an increase on the previous years (6% in 2013 and 2% in 2012). Exit interviews did not reveal any alarming tendencies, but did show that increased turnover is a side-effect of the redundancy process. Nevertheless, the interviewees would recommend Transmode as an employer and would consider rejoining the company. Another tendency from exit interviews and statistics is that most of the employees voluntarily resigning from Transmode had only worked for us for about 3 5 years. Accordingly, we will be putting an extra focus on this group in We will increase internal mobility, new career paths and hold even more frequent performance appraisals for this group. Three employees transferred to foreign positions in 2013, and another one did in Three people will return in Their new competence will be a useful new resource for the company. We regard this international approach as especially important for maintaining the steady progress of our business and satisfied customers in foreign countries, as well as cross-cultural understanding and satisfied employees. Competence and Innovation Learning is essential for innovation, motivation and business development. All employees have annual planning and performance appraisals with their managers. During 2014 we implemented a new performance management process with improved quality by adding additional follow-up sessions designed to further improve competence development and employee potential for professional advancement within the company. This will provide all our employees with a personal competence development plan based on their unique skills and potential. In addition to courses and certification training, we encourage our employees to seek alternative learning methods actively, such as attending workshops, seminars, conferences, exhibitions and participating in professional networks or forums on the Internet. Figure 5. Transmode s Core Values Openness Business Focus Competence Dedication Innovation 12 TRANSMODE SUSTAINABILITY REPORT 2014

15 Employees Internal workshops and learning activities initiated by employees and managers are another important part of our competence development and learning processes. Our objective is to stimulate a cross-functional exchange and strengthen our organization by sharing knowledge. This also enables employees to grow in their professional roles. Our Research & Development function uses agile working methods, based on iterative and incremental development. Teams are self-organized and crossfunctional, with all the competences necessary for delivery. Agile methods encourage and promote adaptive planning, evolutional development and delivery, a time-boxed iterative approach and rapid and flexible response to change. Dedication and Business Focus At Transmode, dedication means driving customer satisfaction, but also delivering the highest standards of business ethics, environmental care and social responsibility. We believe that dedication to your work is created through participation and empowerment. That s why we encourage our employees to take part in the whole process and create the potential for cooperation, both within and across departments. Our goal is to keep growing without compromising our employee commitment. In this process, our central priority is maintaining sound systematics in our working methods and project management. Our Code of Conduct To be able to deliver profitable and sustainable growth, our company is dedicated to satisfying the highest standards of business ethics, environmental care and social responsibility. Transmode has been a member of the Global Compact Leadership Initiative, founded on ten universally accepted principles in the segments of human rights, labor, the environment and anti-corruption, since Our Code of Conduct, based on the Global Compact s ten principles, was launched in The purpose of the Code is to define those ethical principles the company should comply with. We initiated a whistleblower function simultaneous with our Code of Conduct, enabling employees to report any breaches of its principles. The Code of Conduct is available from Transmode s website. The standpoint Transmode has adopted throughout its organization supports and respects the protection of internationally accepted human rights, not only in the workplace but also within Transmode s sphere of influence. Within labor, this includes respecting the rights of all employees and workers to freely and voluntarily establish and join any legitimate and lawful organizations of their choice. We also need to ensure that no person below the minimum legal age is employed, and that Transmode does not treat employees differently or less favorably because of characteristics unrelated to their merits or the inherent requirements for the job. Anti-corruption is another segment we focus on as we expand and enter new geographical regions. All employees sign the Code of Conduct every year. In 2014, all employees also took a 1 hour web-based training package on updates to the Code and internal actions in Ethics and values are an integral component of our daily business. This is also an important part of our performance appraisals. Employee Diversity and Equal Opportunities The average number of full-time employees in 2014 was 288, compared to 270 in We regard employee diversity and equal opportunities as crucial for creating a workplace that supports imaginative thinking and innovation. Social and professional diversity are invaluable. People with contrasting backgrounds create a dynamic working environment, which stimulates innovation. We are proud to have about 30 different native languages in our organization, spanning a spectrum of employees with very diverse social and professional backgrounds. 27% of the new employees hired in 2014 were women, which is an increase on the 20% in Overall, Transmode has 22% female employees. The management team consists of 18% women and a total of 15% of Trans- TRANSMODE SUSTAINABILITY REPORT

16 Employees mode s managers are female. The average age range of staff hired in 2014 revealed an even distribution, the largest representation being in the age group (35%). We are committed to maintaining equal opportunities for everyone in our organization, regularly monitoring employee financial equality, for example. A new follow-up started in December 2014 and will conclude in January Gender equality and increasing gender diversity are a priority and challenge for Transmode, as they are for the entire industry. Employer Branding Openness creates diversity, which we believe, is essential for creativity and innovation, which is our goal. We want to increase the potential for diversity, especially within management positions, which is one goal of our employer branding work. In 2014, Transmode founded a focus group with the purpose of utilizing our employees to target the most beneficial employer branding activities and thus communicate with our target audience. The aim of the group is to enhance communication and collect information on how we can improve external employer branding, but more importantly, internal employer branding. In 2014, Transmode participated at two job fairs at the Royal Institute of Technology, Stockholm (KTH) and the Institute of Technology at Linköping University, as well as other smaller internal and external student events. Graduate Trainee Program Seven recent MSc graduates entered Transmode s new trainee program in August This six-month program offered a broad introduction to the company and gave the participants a head start in programming and the technology Transmode applies. Although the primary focus was on R&D, the program included several internship periods with other functions to offer a broader business perspective and the opportunity to network at all levels of the company. Each trainee gained a personal mentor, who offered personal guidance and helped build trainee confidence. Transmode s intention is to offer a graduate trainee program with activities ranging from low-level hardware interaction to high-level customer perspectives. Health and Wellbeing Health and safety at work are crucial for building a sustainable business. Many of our employees duties require little physical activity, so motivating our employees to maintain active lifestyles to avoid injury from what, largely, is sedentary work, is a challenge. As an aid, most employees have adjustable height desks to improve ergonomics and reduce the health risks associated with prolonged low physical activity. The benefits package for all staff also includes private health insurance, a wellness grant, disability cover and parental leave, although the details of these packages does vary between countries due to differing regulations. 14 TRANSMODE SUSTAINABILITY REPORT 2014

17 Employees Table 6. Average Number of Employees* Total Men Total Men Total Men Sweden %*** %*** %*** UK % % % Germany 9 100% 7 100% 7 100% USA 18 89% 17 88% 15 87% Italy 1 100% 1 100% 1 100% Spain** 3 100% 3 100% 3 Japan** 2 50% 1 100% 0 Finland** 1 100% 2 50% 2 Netherlands** 2 100% 0 100% 1 Poland** 3 100% 2 100% 2 Switzerland** 1 100% 2 100% 2 Malaysia** 0 0% 3 100% 3 Hong Kong** 1 100% 1 100% Group total % % % In Mexico, Malaysia, Hong Kong, and Singapore Transmode hires consultants on terms and conditions resembling employment. * Share of part-time employees is 3%. ** Employed in the Swedish company. *** Percentage of men includes all employees employed in the Swedish company, i.e. Sweden and all countries indicated with**. We extended our accommodation within the headquarters building by 1,640 square meters in 2014 to improve our facilities and social spaces at the workplace. Our working environment commitments have been improved by an updated policy, new processes and stronger representation on Transmode s Health & Safety Committee. This Committee, consisting of trade union representatives and employer representatives, ensures a proactive approach to Health and Safety. 100% of the total workforce, including management, is represented on the Health & Safety Committee, and there are union representatives for 75% of employees. The Committee usually meets quarterly to discuss the progress and status of health and safety issues at work. The Committee will now meet more often with brief follow-up sessions. The process for reporting accidents and incidents has now been enhanced, including monthly follow-ups on reports to management. Two incidents were reported in 2014 but neither caused any absenteeism. Overall absenteeism is generally low (see Table 8). Engaging with Society In 2012, Transmode committed to the Korta Vägen ( Fast Track ) project run by the University of Stockholm, intended to create internships for academic graduates from countries other than Sweden. In 2013, we had a total of two internships, and hired one of these trainees. The goal was to offer two internships per semester to Korta Vägen participants, but due to the redundancy process in 2014 these internship positions were unavailable in Transmode maintains continuous communication with Korta Vägen and will be offering two internships per semester in 2015 if Stockholm University hosts a new program. Transmode usually offers a number of summer internships each year. There were ten in different functions in 2014, plus a few more during semesters. Transmode also takes on students engaged in graduation projects. Transmode does not give any Christmas gifts to customers or employees, but does support multinational aid organization Doctors without Borders. In 2014, Transmode donated SEK 75,000. Table 7. Board Members and Other Senior Managers Total Men Total Men Total Men Board members 7* 86% 7* 86% 7* 86% Chief Executive Officer and other Senior Managers 11** 82% 12** 83% 8** 88% * Age groups 2014; years: 1; over 50 years: ; years: 2; over 50 years: ; years: 1; over 50 years: 6 ** Age groups 2014; years: 5; over 50 years: : years: 7; over 50 years: ; years: 3; over 50 years: 5 Table 8. Absenteeism* Men 2.4% 2.7% 3,0% Women 2.5% 2,0% 3,0% Total 2.4%** 2.6%** 3,0% * Percentage of absent days of total workdays over a given period. Only includes employees located in Sweden, due to incomparability of accounting absentee days for employees outside Sweden. We measure and report the number of accidents and absenteeism according to Swedish Work Enviroment Authority principles. ** of which 0.82% long-term illness, longer than 3 months. TRANSMODE SUSTAINABILITY REPORT

18 CUSTOMERS, SUPPLIERS AND PARTNERS BUILDING BUSINESS ON LONG-TERM RELATIONSHIPS Our business grows through customers, and our customers grow by using our products and solutions. So together, we can build the digital superhighways of the Gigabit Society. Transmode has a broad customer base, mainly consisting of cable TV operators and alternative operators, as well as mobile operators, traditional/large/tier 1 and incumbent telecom operators and enterprises. The company has installed more than 50,000 systems for over 650 fixed and mobile network operators, service providers, large enterprises and public institutions in over 50 countries worldwide. Building Long-term Customer Relationships We strive to build long-term customer relationships, which is why our product range is backed by a broad portfolio of services that are crucial for maintaining customer relationships and satisfaction. Transmode s Technical Assistance Center offers software upgrades, global servicing and support 24/7. Transmode offers 24-hour spare parts delivery from a central warehouse or local spare parts depots that can cut delivery lead-times for spare parts to a few hours, anywhere worldwide. Transmode also provides pre-staging, which means equipment is assembled and preconfigured prior to delivery, enabling faster and simpler installation for the customer. Pre-staging can cut installation lead-times on site by up to 50% compared to traditional delivery. Transmode also offers general and customer-specific training packages including web training in network design, implementation, operation and maintenance. Customer Satisfaction We believe that satisfied customers are the proof that we manage our business optimally. According to our independent customer satisfaction survey, our customers are consistently very satisfied, as is reflected in their high repeat purchase frequency. More evidence is provided by the independent customer satisfaction survey conducted by consulting firm CFI Group (Claes Fornell International). The customer satisfaction survey applies a proven methodology used worldwide, in the American Customer Satisfaction Index (ACSI) and elsewhere, so results can be benchmarked. This survey is conducted via an questionnaire, with customers rating their satisfaction within different segments of Transmode. They can also provide personal feedback. We conducted a survey in 2013 that returned an index figure of 82 on a scale of 0 100, a world-class result according to CFI Group. One of our main focus segments and challenges will be to continue to maintain and secure a high level of customer satisfaction while continuing to grow. The next customer satisfaction survey is scheduled for the end of Supplier Relationships Transmode maintains close cooperation with key suppliers to ensure high product quality and delivery performance. Our component suppliers are in the electronics, optics, plating, processing and packaging industries. We currently collaborate with approximately 25 key component manufacturers. Based on purchased amounts, our most important suppliers are located in China, the USA and Sweden, and the bulk of our suppliers are located in Asia. All Transmode s hardware products are manufactured by global subcontractors at plants in Sweden, Poland and China. This creates focus and efficiency, while allowing the company to grow without investing significant resources in manufacturing. Transmode has established processes for qualifying suppliers, as well as monitoring existing suppliers and contract manufacturers that include technical, quality, environmental, social and financial standards. The assessments are based on a dialogue with the supplier or a physical audit. If a supplier does not satisfy our performance standards, we formulate improvement measures in consultation with the supplier. Figure 6: Transmode s Customer Base Tier 1 and incumbent operators Mobile operators Cable operators / MSO Alternative Operators Enterprise customers Transmode focuses on the Cable Operators and Alternative Operators but has customers in all segments above. 16 TRANSMODE SUSTAINABILITY REPORT 2014

19 CUSTOMERS, SUPPLIERS AND PARTNERS Supplier Conduct Principles Ensuring good social conditions, environmental responsibility and ethical business methods in our supply chain is one of our greatest challenges. Transmode s requirements on critical suppliers and contract manufacturers in this segment are described in our Supplier Conduct Principles. Transmode s Supplier Conduct Principles set standards for suppliers and contract manufacturers on compliance with local laws, human rights, labor law issues, discrimination, working conditions, health and safety, and the environment. The principles also cover issues such as corruption, gifts, money laundering and limitation of competition. Implementation of the Supplier Conduct Principles began in late-2011, and by the end of 2014, all of our significant suppliers and contract manufacturers had signed agreements to comply with our standards. In addition to Supplier Conduct Principles, Transmode continuously evaluates subcontractors and suppliers from quality, delivery, ethical and CSR perspectives involving questionnaires, face-to-face meetings and on-site audits. Transmode implemented a Purchasing Policy in 2014 that states guidelines for responsible sourcing, risk management and managing supplier relations. In recent years, there has been an increasing international focus on conflict minerals emanating from mining operations in the Democratic Republic of the Congo and adjoining countries. Transmode is committed to compliance with these requirements. Transmode has started to analyze its supply chain for the use of conflict minerals by subcontractors and suppliers. First tier suppliers have been requested to submit information regarding the potential use of conflict minerals. Transmode has put a lot of effort in recent years on signing up all critical suppliers to its Supplier Code of Conduct. Supplier monitoring will continue in 2015 to find shared areas of improvement for reducing our overall environmental impact. Dan Rydberg, VP Operations & Customer Service The next step of Transmode s progression towards sustainable and responsible sourcing will be to enhance its risk assessment process in 2015 to identify and assess risks in its supply chain. This will help prioritize resources and enable a focus on the areas of greatest importance. Partner Code of Conduct Transmode sells products and services through its own salespeople, resellers and partners; the company has a total of over 50 resellers. Developing collaborations with resellers and partners continued in The split between direct and reseller sales varies between regions, but for the company overall, reseller and partner sales were 19% of total in Implementation of our Partner Code of Conduct commenced in 2013 and continued in 2014 to further enhance good business practice in our sales operations. By year-end 2014, some 75% of all partners had signed the Code. Implementation will continue in TRANSMODE SUSTAINABILITY REPORT

20 PRODUCTS AND TECHNOLOGY SOLUTIONS FOR MORE EFFICIENT NETWORKS The rapid traffic expansion of mobile and fixed telephone and data networks worldwide is increasing the demand for our products and solutions. The strongest single explanation for this traffic expansion is the robust growth in the transmission of video, which is highly bandwidth intensive. Increasingly, users also want to access information anywhere, which means more traffic being delivered mobile. Another critical driver is the usage of local data centers, which are expanding traffic volumes in metro networks. Moreover, more numerous and more advanced terminals like tablets, smart phones, gaming consoles and laptops are also connecting. This increased traffic means that our customers need to expand the capacity of their networks while also keeping costs down. Additionally, fiber build-out is increasing generally, and optical fiber is proliferating further out in networks, reaching right out to enterprises, mobile base stations or access points in residential areas. Transmode is addressing these challenges by offering huge increases in transmission capacity and flexibility on existing and new optical fiber networks. The use of products and solutions is helping reduce greenhouse gas emissions in two ways. Firstly, we design our products for low power consumption. Secondly, our products enable the efficient use of services such as web conferencing and teleconferencing. By employing these services, Transmode can help achieve the reduction of global travel and its associated negative environmental impact. Products Transmode s products address metro and regional networks, where customer needs for data cap acity are increasing rapidly. Scalability is a consistent theme of Transmode s products, which enable customers to expand capacity and functionality progressively as their needs change. This also means that there is limited initial investment. These products have modular design, conferring high flexibility and the ability to tailor functionality to specific customer needs. Another consideration is that products are no more complex than they need to be. Simplicity helps to reduce costs and delivers more reliable operation, with reduced power consumption, resulting in a lower environmental impact. Transmode s product portfolio consists of the TM-Series, TS-Series and TG- Series, plus Enlighten. Technology Transmode delivers packet-optical networking solutions based on WDM (wavelength division multiplexing) and transport technologies, such as Ethernet, for transporting data, voice and video traffic. The fundamental benefits of these technologies are: WDM radically increases the transmission capacity of fiber, up to 80 times over in metro networks. By utilizing multiple wavelengths, different traffic types can be transmitted simultaneously in the same fiber. Ethernet is a protocol optimized to manage increasing data traffic. WDM and Ethernet technology are used worldwide by enterprises and operators. Energy-efficient Products through Low Power Design When developing products, Transmode puts great emphasis on low energy consumption, as in the following case study. Transmode started measuring energy consumption according to the ATIS standard in Transmode s Low Power Design offers lower cost and reduced environmental impact, and the company has clear design rules to ensure its products are as environmentally friendly and energy efficient as possible. R&D Transmode s product development focuses on five areas: increased capacity and reach, increased flexibility, integrated Ethernet functionality, WDM access, and operation and maintenance systems. In metro networks, the most common transmission speed of optical fiber is now 10 Gbit/s (Gigabit per second) per wavelength, but customer needs for capacity are increasing constantly. Transmode launched a new generation of 100G products optimized for metro networks in 2014, which cut the cost of applications of 100G in metro networks, conferred greater flexibility and simpler management of spare parts and operations. They also reduce power consumption, and enable users to get more units in a smaller space. 18 TRANSMODE SUSTAINABILITY REPORT 2014