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TRANSMODE SUSTAINABILITY REPORT 2011

OUR CONTRIBUTION TO THE SUSTAINABLE DIGITAL WORLD

SUSTAINABILITY REPORT 2011

CONTENTS

About Transmode 5

Sustainable Solutions in a Modern World 7

Our Contribution to the Sustainable Digital World 8

Employees Hold the Key to Innovation 10

Environmental Responsibility 13

Products & Technology 17

Customers & Suppliers 19

About Our First Sustainability Report 21

GRI & Global Compact Index 23

5

ABOUT TRANSmODE Transmode is a global provider of packet-optical networking solutions. The company focuses on providing solutions to customers in the metro networks segment, utilizing Wavelength Division Multiplexing (WDM) and packet optical technologies. Transmode’s solutions make it possible to send multiple data streams in parallel along different wavelengths using the same optical fiber. Transmode’s solutions enable the operators of fixed and mobile networks to cost-effectively manage the increasing demands for capacity driven by today’s explosive growth in video and data traffic. Transmode is headquartered in Stockholm, Sweden and is listed on the NASDAQ OMX Stockholm Exchange (TRMO). Since 2000 the company has installed more than 30,000 systems for over 400 fixed and mobile net-work operators, service providers, large enterprises and public institutions in over 40 countries across the globe. In 2011 the company became a Red Herring finalist in the “European Technology Awards”. Transmode was also awarded the “Frost & Sullivan Innovation Award” and was nominated for Sweden’s “Grand Export Prize” in 2011.

Organization’s structure and profile Transmode conducts its operating activities from the headquarters in Stockholm, Sweden, where product development, production, marketing, sales, aftermarket, logistics, administration and corporate management are located. Transmode also has local resources in the UK, Germany, Poland, the Netherlands, Italy, Spain, France, the US, Russia, Malaysia and Japan. The company sells directly to end-customers and via resellers. Transmode Holding AB is the parent company of Transmode group. The parent company is primarily a holding company, which owns and manages shares in subsidiaries and also sells certain intra-group services to subsidiaries. The parent company has one directly owned

Figure 1. Transmode Systems AB operational structure:

subsidiary, Transmode Systems AB. The indirectly owned subsidiaries are located in Sweden, UK, US, Germany, Singapore, Canada, and Italy.

* Quality and Environment is included in the business unit Operations & Customer Services.


CEO

ExecutiveAssistant

Human Resources

Product Mgmt

FinanceOperations & Customer

ServicesR&D

Marketing &Communications Sales

6

Scale of our organization At year-end 2011, Transmode had 228 employees in 6 different countries around the world. The company has more than 400 customers in more than 40 countries worldwide. Sales are carried out through its own sales force and through resellers and partners such as NEC in Japan and Cygate in Sweden. Sales amounted to SEK 916.9 m in 2011 (699.3 in 2010), corresponding to a growth of 31.1 percent (22.7 percent in 2010). Adjusted for ex-change-rate fluctuations, growth was 38.4 percent (33.1 percent in 2010). Total assets in 2011 amounted to SEK 754.9 m, whereby total equity amounted to SEK 531.8 m. Our stakeholders Transmode’s daily business influences, and is influenced by, the company’s stakeholders. Our priority is, through our business and sustainability strategy, to address the issues of interest within our different stakeholder groups, and we are striving for high employee and customer satisfaction as well as high loyalty among our business partners, and dedication to all of our stakeholders concerns. In the Figure 2 here we have outlined our closest stakeholders, representing the groups which we have regular direct contact with at least once a year.

Figure 2. Our stakeholders

Transmode

Customers

Shareholders

Investors

Employees

Suppliers

BusinessPartners

Competitors

Industry Associations

Trade Unions

Local Communities & Authorities

7

SUSTAINABLE SOLUTIONS IN A mODERN WORLD Transmode strives to be part of the new world – a world in which natural resources are consumed in a more sustainable way. In the new world we have to rethink our way and means of living.

This new way of living must be based on low energy consumption, in all parts of the society. We will spend less time traveling back and forth to our jobs and meetings. Our work patterns will be more flexible and working from home and other places will be more practical. Physical business meetings will also, to a significant extent, be substituted by high quality videoconferences.

This new low-energy and low-carbon society will require digital highways with the capability to transfer vast flows of information whilst using less power. Our intelligent WDM (iWDM™) technology and Low Power Design are critical in enabling our customers to expand the capacity of their own networks, while at the same time reduce energy consumption and contribute to a reduced environmental impact. Our equipment has also proven to be very cost effective, keeping prices at a competitive and low level.

Our ambition is to set a good example within our business sector and in order to succeed our employees’ dedication is critical. Employees are our most important assets and it is our goal to ensure that they are motivated and satisfied with their work and working conditions. I am therefore very proud of our continuously high employee satisfaction rate and we believe that this is the key to satisfied customers. Together we make strenuous efforts to ensure our customers are satisfied and loyal to us. This is also reflected in our customer satisfaction index that have remained consistently “very good” for the past years.

We are also committed to delivering a high level of business ethics, environmental care and social responsi-bility. Transmode has since 2010 participated in the Global Compact Leadership Initiative and will continue to support the ten Global Compact principles the forthcoming years. Over the course of 2011 we developed company-wide Supplier Conduct Principles based upon Global Compact’s ten principles. At the end of 2011 we started to define a Code of Conduct that also will be based on these criteria.

During 2011 we moved our headquarters to a new location. Prior to the move we looked for energy efficient facilities located within easy reach of current public transport links. This enables all of us to reduce the environmental impact. Furthermore, our electricity supply is from 100% renewable sources and together with district heating, this contributes to reduced CO2 emissions.

A foreseeable challenge for Transmode in the future is to continue our growth without compromising our environmental performance. During 2011 our sales grew by 38 percent in local currencies, which has led to a considerable increase in our business travel. In order to limit our carbon footprint we aim to install smart video conferencing and online meeting solutions during 2012.

As a responsible and caring company we will fortify our efforts to minimize our company’s impact on the environment. We will also continue to deliver sustainable solutions for a future sustainable digital world.

Karl Thedéen Stockholm 2012


8

OUR CONTRIBUTION TO THE SUSTAINABLE DIGITAL WORLD Today, people exchange information at an ever accelerating rate. The methods of communication are also becoming more and more sophisticated. The need to create, distribute, and access information anywhere and at any time is escalating. As an example the traffic in the mobile data network in Sweden has increased by 90 percent during 2011.1 In order to continue to improve the ways in which we communicate, we need to build data networks with higher traffic capacity – we need to build the digital highways of a modern information society.

The modern society In order to build a new, modern, low–carbon society we need to improve the capacity of data transfer and information retrieval. This is a prerequisite for building smarter communications solutions, intelligent cities and modern public services.

Today, we for instance, still usually communicate in largely physical meetings. This requires a lot of travel, which has a negative impact on our environment. With modern high-speed fiber optical networks a greater volume of data can be sent through fiber than through traditional copper-based nets, which opens up for videoconferences and other new communication services.

Transmode offers solutions that enable a substantial increase in transmission capacity through these fibers. This optical technology is a precondition for building modern communities and large-scale solutions that allow new ways to meet, learn and have fun.

Our sustainability strategy We need a profitable and sustainable business model to deliver sustainable solutions for the world. Transmode has a strong corporate culture built on our core values: Competence, Innovation, Openness, Dedication and Business Focus. Our goal is to maintain a profitable and sustainable growth. To achieve this goal we will need to continue to do following; expand our customer base and geographic footprint, develop innovative solutions and work in an efficient and environmentally sound way. These activities will be channeled through four focus areas, each critical to our success; satisfied customers, motivated employees, responsible citizenship and shareholder value.

New Code of Conduct To be able to deliver profitable and sustainable growth, our company is dedicated to delivering the high-est level of business ethics, environmental care and social responsibility. Since 2010 Transmode has participated in “Global Compact Leadership Initiative” founded on ten universally accepted principles in the areas of human rights, labor, environment and anti-corruption.

At the end of 2011 we started to define our Code of Conduct that will be based on Global Compact’s ten principles. It replaces our previous Sustainability Policy that also included Global Compact’s criteria. The new Code of Conduct will be implemented in 2012. The purpose of Code of Conduct is to define the ethical principles according to which we, as Transmode, should act. The implementation process involves training for all

Figure 3. Our stategic goals for sustainable business:

1 The Swedish Post and Telecom Authority (2012) Svensk Telemarknad 2011

PROFITABLE & SUSTAINABLE GROWTH

Customer & geographicexpansion

Innovativesolutions

Efficient &environmentally sound

operations

SatisfiedCustomers

Motivated Employees

ResponsibleCitizenship

ShareholderValue

9

employees regarding the principles in the Code of Conduct. Furthermore, together with the Code of Conduct a “whistle blower” function is launched, enabling employees to report any violations relating to principles in our Code of Conduct.

Our Code of Conduct is available at Transmode’s website.

The approach Transmode is implementing supports and respects the protection of internationally established proclaimed human rights, not only in our workplace but also with Transmode’s sphere of influence. In the labor field this means, amongst other things, respecting the rights of all employees and workers to freely and voluntarily establish and join any legitimate and lawful organizations of their own choice. Furthermore, we need to ensure that no person is employed who is below the minimum legal age of employment, and that Transmode will not treat employees differently or less favorably because of characteristics unrelated to their merits or the inherent requirements of the job.


Efficient &environmentally sound

operations

10

EMPLOyEES HOLD THE kEy TO INNOvATIONOur employees are the most important assets in our business – they are the key to innovation. The skills and knowledge they provide to our company are essential for success. Therefore we are focusing our efforts on developing a working environment in which all of our employees can fulfill their ambitions and hopefully also have fun. We believe that satisfied employees are a prerequisite for satisfied customers – something that our annual employee and customer satisfaction surveys underscore. Transmode is a rapidly growing global company: we are actually growing faster than our market. Our foremost goal is to continue growth without compromising our employees’ satisfaction.

Employee satisfaction and Openness Our core values are Competence, Innovation, Open-ness, Dedication, and Business Focus that form the basis of building and developing an organization in which employees are satisfied with their work and the working environment.

In order to continue to grow and develop in the right direction, we have, for a number of years, carried out a company-wide employee satisfaction survey. The survey is based on a global ESI index (Employee Satisfaction In-dex) method, which is a regular activity to help identify vital areas of improvement. The results demonstrate high employee satisfaction rate, (76 percent) for 2011, see Figure 4.

The employee satisfaction survey results indicate that ESI is high among both employees and managers. This is underlined by the high response rate (93 percent)

that also illustrates our approach to achieving an open and dedicated organization. There are mutual, open relationships between employees and managers and members of staff feel they can influence their work situation. This is also reflected in our low employee turnover, just 6 percent in 2011 (4 percent in 2010).

Additionally, we have set a goal in which all employees shall have a formal performance review dialogue with their manager at least once a year, introducing, among other things, follow-ups leading to development plans. The purpose of this is to develop respective roles for employees whilst building the organization as a whole. In 2011 83 percent of all employees (86 percent in 2010) took part in the performance review dialogue.

One improvement area indicated in the employee satis-

Figure 4. Employee Satisfaction Index (ESI) 2011*:

* As of 2011 we are applying a new methodology for measuring the ESI index. The outcome of earlier employee surveys is not comparable due to differing applied methodology.

** Average for companies similar to Transmode. Source: ZonderaCom.

76% ESI

76%

61%

80%

70%

60%

50%

40%

30%

20%

10%

ESI, Transmode ESI, average **

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faction survey results is that employees expect us to im-prove the existing online system for managing employees’ suggestions to the management (i.e. online suggestion box). During 2011 we started to promote awareness of the functions and purpose of the online suggestion box. Fur-thermore, during 2011 we undertook improvements to our handling of these suggestions. This is expected to contrib-ute to fewer unanswered suggestions and enable shorter response times.

Every year we award the employees who have exem-plified the company’s core values in a significant way. The winners are selected yearly through an open nomination process, in which anyone can suggest a nominee by sub-mitting an individual or group proposal, together with a short description supporting theirsuggestion.

Furthermore, we strive to create conditions for in-ternal mobility and increased opportunities for employee assignments in other countries. We believe that this ap-proach is especially important to maintain steady business development and satisfied customers abroad, as well as satisfied employees. With so many different nationalities represented among our employees this approach yields many benefits.

Competence and Innovation Learning is essential for innovation, motivation and business development. All our employees have a personal com-petence development plan based on their unique skills and potential. There-fore we have no companywide limits or goals regarding hours of training each employee receives per year. The compe-tence development plans are updated every year and the review of the plan is conducted twice a year. In addition to courses and certifi-cation training our employees actively seek alter-native ways of learning, such as attending workshops, seminars, conferences, exhibitions and participating in professional networks or forums on the Internet.

We believe that a key factor for our future success is tightly connected to our values and leadership skills. Inter-nal and external training, meetings and discussions about ethics and values are therefore an integrated part of our daily business. It is also an important part of the perfor-mance reviews.

A very important part of competence development and learning is also internal workshops and learning activ-ities initiated by employees and managers. The objective is to stimulate cross-functional learning from each other and strengthen the organization by sharing knowledge. This enables, in addition, employees to grow within their professional role. A part of our cross-functional compe-

tence development, for instance, could include encour-aging engineers to meet customers and participate in customer workshops. Depending on each employee’s indi-vidual skills and potential such activities would be detailed in their competence development plan.

Dedication and business focus Dedication for us means driving customer satisfac-tion but also delivering the highest standards of business ethics, environmental care and social responsibility. The latest ESI survey affirms our commitment to the needs of our dedicated employees. Our goal is to continue to grow without conceding the high employee dedication. In this process our main priority is maintaining sound systematics in our working methods and project management. Team-building and high clarity in work tasks are also part of sus-taining the high employee dedication.

Transmode is a global company, although the majority of the workforce is located at our headquarters in Sweden. Due to the logistical effects of differing time zones, it is

a challenge to give our colleagues in other regions around the world professional assistance with

short notice, but we strive continuously to improve this valuable support.

Employee diversity and equality In 2011 there were in average 217 employees working at Transmode, an increase of 36 on 2010’s figure (see Table 1). We consider em-ployee diversity and equality vitally

important in creating a workplace that supports imaginative thinking

and innovation. Both social diversity as well as professional diversity (experience)

is invaluable. People with contrasting back-grounds create a dynamic working environment,

which stimulates innovation. We are proud to have some 15 different languages spoken within our organization spanning a spectrum of employees with very diverse social and professional backgrounds within our organiza-tion.

We are committed to maintain equal opportunities for everyone in our organization. For instance, we regularly follow up employee financial equality. The latest follow-up was conducted in 2011 and indicates that in general we have good gender equality. However, based on the findings we decided to adjust the salaries for three employees. In addition, we have developed a companywide equality plan, which is updated regularly. Increasing gender diversity is a priority and challenge for us as well as for the entire industry.


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Health and wellbeing Health and safety at work is critical for building a sustainable business. Many of our employees undertake tasks that require low physical activity. Thus, fortunately accidents rarely occur, in 2010 and 2011 no accidents were reported and absentee rates were generally low (see Table 4). Nevertheless, in order to be proactive we have a safety committee including representatives amongst employees (5) and management (3). The committee meets regularly, once per three-month period, in order to discuss progress and status regarding health and safety issues at work.

Table 4. Absentee rate*

2010 2011

Men 2% 2%

Women 1% 3%

Total 2% 2%

* Percentage of absent days in total workdays over a given period. Includes only employees located in Sweden, due to incomparability of accounting absentee daysfor employees outside of Sweden. We measure and report the number of accidents and rate of absenteeism according to the Swedish

Work Environment Authority’s principles

Our challenge is also to motivate our em-ployees to partake in an active lifestyle to avoid injury stemming from largely seden-tary work. To support this, the majority of our employees have desks with adjustable

height, for better ergonomics and to reduce health risks caused by prolonged low physical

activity. Further, we offer a benefit package for all of our employees including private health insur-

ance, a wellness grant, disability coverage and parental leave. However the extent of the employee benefits package varies between countries of operation due to differing regulation.

2010 Men 2011* Men

Sweden 160 81% 190 79%

UK 8 100% 10 100%

Germany 6 100% 8 100%

USA 5 100% 8 100%

Canada 1 100% - -

Italy 1 100% 1 100%

Group Total 181 83% 217 82%

* All employees are permanent employees. Share of part-time employees is 2%. All employees outside Sweden are full-time employees in sales related positions.

Table 3. Number of employed consultants*

2010 2011

Sweden 15 21

Outside Sweden 10 15

Group Total 25 36

Table 1. Average Number of Employees

Table 2. Board Members and other Senior Managers

2010 Men 2011 Men

Board members apart from CEO

7 86% 8* 88%

CEO & other Senior Managers 8 88% 8** 88%

Group Total 15 87% 16 88%

* Age groups: 30-50 years -4; over 50 years -4; ** Age groups: 30-50 years -2; over 50 years -6.

0 accidents reported

* Members of the workforce employed as consultants by the end of the year.

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ENvIRONMENTAL RESPONSIBILITyEnvironmental responsibility is a vital part of our busi-ness. In order to provide products with minimal environ-mental impact, we need to ensure that our processes and methods of working are environmentally safe and sound. We are regularly evaluating our products, services and ways of working to identify possibilities for improvement.

Environmental goals Transmode is certified according to ISO 9001 and ISO 14001 as of 2005. In order to actively analyze our own environmental performance, we use environmental indi-cators. Our key environmental objectives for 2011 were to:

• Reduce total CO2 emissions by 9 percent relative to the revenue.

• Ensure that 90 percent of our components are compliant with six out of six RoHS1 require-ments.

Energy and Carbon footprint We measure our energy consumption and CO2 emis-sions arising from our operations annually. During 2011 our total energy consumption decreased by 22 percent compared to 2010, (see Table 5). This significant reduc-tion in energy is the result of measures we implemented during the course of 2011. We moved the headquarters to modern facilities where we are emphasizing energy-effi-ciency measures, such as optimized heating and ventila-tion. The new headquarters is easily accessible by public transport, which enables the company to reduce the envi-ronmental impact from employee commuting.

Table 5. Energy Consumption (MWh)

2010 2011

Direct energy consumption 5 8

Diesel 5 8

Indirect energy consumption 987 762

Electricity, hydropower 235

Electricity, mixed sources 544 108

Distric heating, mixed sources 350

Heating, oil 443 69

Total 992 770

2 The European Union’s Directive on the restriction of the use of certain hazardous substances in electrical and electronic equipment

We estimate the carbon footprint of our business in accordance with Greenhouse Gas Protocol principles. The total CO2 emissions during 2011 increased considerably compared to 2010, see Table 6. This result is directly related to the growth of our entire business of 38 percent in local currencies. Nevertheless, CO2 emissions per rev-enue decreased 5 percent and reached 2.11 g CO2 per SEK revenue in 2011, see Figure 5.

The rapid expansion of our business has led to an increase of business travel, sales activities and transpor-tation of goods. In 2011 business travel corresponded to 79 percent of our total CO2 emissions and transport of goods 18 percent. At the same time CO2 emissions from electricity and heating corresponded to 3 percent of our total CO2 emissions and have decreased when compared to the previous year (89 tons of CO2). As of February 2011 we purchase electricity only from renewable sources and rather than oil-based heating fuel we use district heating.

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Figure 5. CO2 emissions per revenue (gCO2 per SEK revenue)

Business travel is in many cases the only, and thus unavoidable, way in which we can meet our customers. In order to reduce our CO2 emissions from business travel, online meeting tools were introduced in 2010 including voice, video and audio functionality for internal collabo-ration within Transmode. In 2012 we will further enhance collaboration tools both internally and externally.

Table 6. CO2 emissions (tons of CO2)

2010 2011

Direct emission sources (scope 1) 1 2

Diesel 1 2

Indirect emission sources (scope 2) 147 57

Electricity, hydropower - 0

Electricity, mixed sources 27 5

Distric heating, mixed sources - 33

Heating, oil 120 19

Other indirect emission souces (scope 3) 1,398 1,875

Business travel (air, car) 1,118 1,524

Goods transport 279 350

Copy paper use 1 1

Total 1,546 1,934

Furthermore, in order to reduce the climate impact from business travel we have compensated for emis-sions arising from our business journeys throughout 2011 (1,524 tons of CO2) via Plan Vivo, a carbon offset project in Mexico. The project generates CO2 emission reductions through a range of land use activities such as afforesta-tion and reforestation, agroforestry, forest restoration and deforestation avoidance. In addition to carbon se-questration, the project delivers a host of environmental and social co-benefits, including biodiversity mainte-nance and poverty reduction.

To reduce CO2 emissions from distribution we prior-itize road transport rather than airfreight when possible. We are also looking at opportunities to consolidate transports in order to improve the efficiency and reduce emissions. We are committed to continue the journey to reduce our relative CO2 emissions (gCO2 per revenue and gCO2 per employee), however there is a lot yet to be done in order to achieve our goal to be among the best per-formers in our industry.

Risks and opportunities due to Climate change Climate change is a global challenge with direct financial implications within the telecom industry. In order to map our risks and opportunities we measure the amount of greenhouse gas emissions arising from our business an-nually. We strive to be at the forefront in minimizing our own carbon footprint and being proactive when manag-ing risks and opportunities driven by climate change.

Transmode is a growing, global company. The phys-ical changes linked to climate change, such as flooding, drought, hurricanes, extremes of temperature etc. con-stitute a potential financial risk as they influence both our company’s and our customers’ ability to grow and conduct business. Climate change mitigation is manifest-ly essential for sustainable business and development.

Furthermore, the regulatory risks2 associated with climate change pose a potential financial risk to Trans-mode’s business. Changes in fossil fuel taxation have for example lead to higher transport and delivery costs. In order to minimize those risks we strive to choose trans-portation alternatives with lowest emissions, depending on the local conditions and available options.

At the same time the challenges linked to climate change pose significant opportunities because of a po-tential increase in demand of Transmode’s products. Increasing fossil fuel taxes is, for instance, expected to contribute to an increase in the use of video and online technologies (rather than reliance on traveling), which leads to increased demand on network capacity, a core business for Transmode.

2 The cost of activities and systems to comply with new regulations

2.212.11

2.20

2.00

1.80

1.60

1.40

1.20

1.00

2010 2011

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We focus on low power design and functionality in order to create products that contribute to our custom-ers’ successes, today and in the future. Use of our low power design products has the potential to reduce im-pact on our climate and eases transitions needed when tackling the effects of climate change.

Producer responsibility Electronic waste is the fastest growing waste type and projections show that globally electronic waste will soon reach 50 million tons per year. In Sweden, each person uses around 160 kg of electronic equipment per year.3 Transmode is taking the electronic waste and producer responsibility issue seriously and is committed to meet-ing the requirements of the European Union’s Waste Electrical and Electronic Equipment Directive, (WEEE). This directive requires producers of electrical and elec-tronic equipment, when placing products on the EU-market after 13 August 2005, to finance the take-back for re-use or recycling of their products. Transmode’s products are labeled with a crossed-out wheelie-bin symbol as required by the directive. This indicates the product was placed on the market after 13 August 2005 and the end-user should segre-gate the product from other waste at end-of-life.

In order to collect the equip-ment for re-use or recycling we have established Transmode Recycle Pro-gram. Equipment, which is returned to us according to this program, will be handled in an environmentally safe manner, using processes that comply with all electronic waste regulations. During 2011, 57 kg was recycled of returned products (57 kg in 2010). Our goal is to ensure that all customers4 receive information about our Recycling Pro-gram and instructions for the returning of products.

Furthermore, we are also committed in meeting the requirements set out in European Union’s Directive on the restriction of the use of certain hazardous substanc-es in electrical and electronic equipment (RoHS). The directive regulates the use of six hazardous substances, including lead, mercury, and cadmium. Their usage is restricted and substances can occur only in very low concentrations. However, in a few cases exceptions are approved for certain specific products in the telecom in-dustry, due to lack of viable technical alternatives. In 2011 all our products complied with RoHS Directive, where 85 percent complies with all six RoHS criteria.

3 Swedish Environmental Protection Agency, 20114 WEEE Directive and Transmode Recycle Program applies to products sold within European Union.

In order to provide the customer information regarding our products we enclose the following product informa-tion with all delivered products:

• The sourcing of components of the product or service

• Content, including compliance with RoHS, WEEE, NEBS, IEC/EC, FDA, FCC, ELT etc.

• Safe usage of the product and service informa-tion

• Disposal of the product and environmental/safety impacts

materials and Waste

During 2011 a total of 88 tons of materials were used in our products and 41 tons of card-

board and plastic were used in packaging material, see Table 7. All of our hardware

products are manufactured by con-tracted global sub-suppliers and only the system configuration and quality control takes place at Transmode’s production facility in Stockholm be-fore delivery. Therefore the majority of waste generated in our produc-tion facility consists of combustible

material and cardboard from packag-ing materials, see Table 8. In order to

reduce transportation bulk we process waste such as paper and cardboard (cut

and compress) before it is transported for recycling.

Table 7. Material use (tons)

2010 2011

Packaging

Plastic 0 7

Cardboard 14 34

Products

Plastic 22 30

Metal 42 58

Total 78 129

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Table 8. Waste (kg)

2010 2011

Hazardous waste to recycle

Metals 343 1300

Electronic waste 755 530

Batteries 5 0

Flourescent lamps 1 22 0

Low energy lamps 2 4 0

Non-hazardous waste to recycle

Cardboard n/a 2,840

Paper 3 n/a 950

Mixed waste to energy recovery n/a 14,390

Plastic 4 n/a 0

1 2010 disposed 38 flourescent lamps, average weight 580g 2 2010 disposed 73 low energy lamps, average weight 60g 3 2011 in total 67 containers, 190 L, estimated average weight 14.39kg 4 One plastic bag in 2011

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PRODUCTS & TECHNOLOGy Increasing demand for our products and solutions is created by the continuously growing global data traffic over cable, data, mobile and telephone networks. Ser-vices such as video, television and music require much more bandwidth than, for example, voice transmission, hence, increasing the load on networks. The demand in traffic leads, in turn, to a need for the operators to ex-pand the capacity in their networks, while at the same time keeping prices competitive and at a low level. Our products offer a solution to this challenge.

We provide optical networking solutions designed to enable fixed and mobile network operators to cost-ef-fectively address capacity constraints caused by the rapid growth in video and data traffic.

The use of our products and solutions contributes to a reduction of greenhouse gas emissions in two ways. Firstly, we design our products for low power consump-tion. Secondly, our products enable the efficient use of services such as web conferencing and teleconferencing. By employing these services a contribution to the reduc-tion of global travel and the associated negative environ-mental impact can be achieved.

Technology Transmode’s solutions are based on Wavelength Divi-sion Multiplexing (WDM) and packet optical transport technologies, which are designed to increase capacity, flexibility and functionality of regional optical networks. Wavelength multiplexing is a technology whereby many wavelengths/colors are transmitted simultaneously in parallel to optimize and increase the capacity of optical fibers. We focus on creating flexibility and scalability in accommodating cost efficient network growth. We call it intelligent WDM (iWDM™). This technology offers three primary advantages:

• Transmission capacity of fiber is substantially increased, by up to 80 times in metro networks.

• Parallel use of multiple wavelengths makes it possible to transmit diverse types of traffic along the same fiber.

• The technology is used worldwide by both enterprises and operators.

Products Transmode’s product portfolio is focused on metro net-works in which customer demand for data capacity is rapidly increasing. A consistent feature of Transmode’s products is scalability. This allows customers to gradually expand capacity and functionality and helps to reduce the initial investments Transmode’s products are also modular, which offers high flexibility and the option to customize functionality to specific customer needs.

Another aspect of this is that the products are not more complex than they need to be. This simplicity con-tributes to lower costs, more reliable operation, lower power consumption and therefore reduced environmen-tal impact. Transmode’s product portfolio consists of three distinct platforms: TM-, TS- and TG-Series. It also offers Transmode Network Manager, a system, which enables efficient and easy operation and maintenance of Transmode products.

Energy-efficient products Low power consumption is an important factor in the de-velopment of Transmode’s products. With energy savings of up to 80 percent1 in comparison to similar solutions, Transmode’s “Low Power Design” offers not only reduced costs for operators, it also decreases environmental impact. Energy savings are achieved by focusing on low power consumption throughout the development pro-cess and through the choice of correctly sized low-energy components. Lower power consumption also generates less heat, reducing the need for energy intensive cooling techniques.

1 According to the Transmode’s own research

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Avoiding CO2 emissions Case story

Let’s look at an example of a triple play broadband back-haul for an operator who wanted a solution for Ethernet transport. The configuration is a Transmode TM-Series solution with a small chassis equipped with a Dual 10G Lite Transponder providing 2x 10 Gbit/s from the node. With a power consumption of less than 20 W for the node, it offers savings of 80 W compared to the previous genera-tion of solutions.

As this operator is accessing 200 exchanges, the sav-ings of 80 W become 16,000 W or 140 MWh over one year. With the average price of electricity in Europe at 112 €/MWh (average price for industrial users in 2011), the sav-ings for this operator are 15,700 € annually. At the same time, this solution will reduce the amount of produced CO2 by up to 136 tons a year – depending on the energy source used. The reduced need for in-building cooling, that can add a further 50 percent, subsequently increased the financial savings to 23,550 € annually and the possible CO2 emissions reduction to 204 tons a year. With a 10 year network lifespan, the savings could be 235,500 € (at 2011 energy prices) and a reduction of 2,037 tons of CO2 over the entire life of the network.

Product Development / R & D Transmode’s product development focuses on five areas: increased capacity and range, increased flexibility, inte-grated Ethernet functionality, WDM access, operation and maintenance.

In metro networks, the most common transmission speed of optical fiber is 1-10 Gbit/s (Gigabits per second) per wavelength, yet customer needs are constantly in-creasing. Transmode has launched the first products to enable 40 Gbit/s per wavelength. In addition, in 2011 we announced a plan to reach 100 Gbit/s per wavelength solution and will commence product delivery in 2012.

In its completed form, the 100 Gbit/s solutions will enable transfer rates of up to 8 Tbit/s (Terabits per sec-ond) in a single fiber pair. Thus, one can transport data from 80,000 households, each with a 100 Mbit/s broad-band connection, via glass, which is roughly one-tenth the thickness of a strand of human hair.

Flexibility is a critical element in controlling data traffic and enhancing the functionality of a network over time as needs change. In 2011, Transmode launched ROADM products that can provide the ability of remotely controlling wavelengths. Another development area is Ethernet products, which seek to further improve the management and control of Ethernet traffic and inte-grate this into optical networks in a simple and cost-ef-fective way. During the year, new products were deliv-ered that enable cost-effective Ethernet transport with

minimal latency. The latter characteristic is particularly useful, for example, when synchronizing base stations in mobile networks and when transmitting voice, TV and video.

In the access area, Transmode focuses on developing products tailored to the needs that can arise when fiber is used further out in the network. During the past year, Transmode also launched its strategy for iWDM-PON-based access networks.

Finally, development also focused on supporting our customers’ network operations using Transmode’s opera-tions and maintenance systems. The cost of research and development amounted to SEK 115.8 m in 2011, equivalent to 12.6 percent of revenue. Approximately fifty percent of the company’s developers are working with software developments.

Effective Development It is important that product development is performed in an efficient manner. Transmode ensures this through its own significant development skills and concentrates its efforts on ensuring that the R&D department is closely linked to the production and suppliers as well as being responsive to the needs of customers. Transmode’s prod-ucts are thus produced efficiently from the outset. Indi-cations of new needs and customer demands are quickly processed in the early stages of development and reflect-ed in the direction of our work.

This close contact is facilitated by the company’s operations, which are primarily concentrated at the headquarters in Stockholm. This is also the location of all product development, supply/logistics, marketing, technical and sales support, logistics, administration and company management. The net effect is that the “right” products can be quickly developed to provide precisely the features that our customers desire.

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Figure 6: Customer Satisfaction Index (CSI)*

* Scale for CSI: 0-49 Poor; 50-59 Approved, 60-69 Satisfied; 70-74 Good; 75-80 Very Good; 81< Best in Class. Source: CFI Group.

CUSTOMERS & SUPPLIERS Our business grows through customers and our custom-ers grow through the use of our products and solutions. Together we can build the digital highways for a modern information society. We have a broad customer base con-sisting of cable TV operators, mobile operators, tradition-al/large telecom operators and the enterprises belonging to them. At the end of 2011, Transmode had delivered almost 30,000 systems to more than 400 customers worldwide.

Building long-term relationships with customers Our goal is to help our customers grow their busi-nesses and to increase the capacity within their net-works, while at the same time keeping their, and our, costs at a low level. We help our customers to build data networks, which are scalable in order to manage the rap-idly increasing demand for data capacity.

We strive to build long-term relationships with our customers. Therefore our product range is complement-ed by a broad range of services, which are of great signif-icance to maintaining customer relations and customer satisfaction. The company’s Technical Assistance Center offers global service, support and supply of spare parts around the clock, seven days a week. Transmode also offers consultation services relating to the company’s products. This offer includes installation assistance and project management in connection with implementation projects. Furthermore, Transmode offers general and customized training in network design, implementation, operation and maintenance.

Customer satisfaction We believe that satisfied customers are the proof that we manage our business in the best way. According to our independent customer satisfaction survey we have very satisfied customers. The customer satisfac-tion index score in 2011 was 79, which is classified as ‘very good’ based on a scale of 0-100 according to CFI Group research firm, (see Figure 6). The customer satisfaction survey is conducted annually and uses a proven methodology used worldwide, for instance in the American Customer Satisfaction Index (ACSI). This sur-vey is conducted via an e-mail questionnaire where our customers rate their satisfaction of different areas within Transmode. They also have the opportunity to provide personal feedback.

79 customer

satisfaction index

79 79

2010 2011

20

According to the latest survey, our customers are both satisfied and loyal; the likelihood to recommend Transmode to others is very high. Overall, customers are consistently positive to a sustaining future relation with us. Our technical support score is exceptionally high according to the latest survey results. An area identified for improvement is the process concerning order and delivery, especially lead-time – time between the placement of an order and delivery. As a growing global company, one of the major challenges during the forthcoming years is to continue to grow while maintaining our high level of customer satisfaction.

Supplier relations Transmode has a close cooperation with key suppliers to ensure high product quality and delivery performance. The bulk of our suppliers are located in Asia, and our contract manufacturers predominantly in Europe. Contracted global suppliers manufacture all of our hardware products. This creates focus and efficiency, while allowing the company to grow without investing significant resources in manufacturing. The development and introduction of new products is done in close collaboration with contract manufacturers. To ensure the continued high quality of our products, final test and system configuration takes place at Transmode’s production facility in Stockholm.

Processes are established for qualifying suppliers as well as monitoring of existing suppliers and contract manufacturers. We apply technical, quality, environmen-tal, social and financial requirements to our suppliers. We also assess the compliance with these requirements. The evaluation scope depends on the type of products supplied. The assessments are based on a dialogue with the supplier or a physical audit. In the case a supplier does not meet any of the performance requirements, we develop improvement measures, together with the supplier, in order to encourage and assist suppliers in meeting our performance standards.

New Supplier Conduct Principles Throughout 2011 we further developed and expanded the requirements we put on critical suppliers and contract manufacturers. The new performance standard, Supplier Conduct Principles, includes performance requirements regarding suppliers’ behavior in relation to local legisla-tion, human rights, labor rights, discrimination, working conditions, health, safety, and the environment. These principles also highlight issues such as corruption, bribery, money laundering and restrictions on competition. Implementation of the Supplier Conduct Principles began in autumn 2011 and by the end of the year three suppliers had signed compliance with our standards. The goal is to have all significant suppliers’ signatures and compliance with our Supplier Conduct Principles. As the implementation process is an ongoing process no follow-ups concerning Supplier Conduct Principles were conducted in 2011. However, no cases of misconduct were reported during 2011.

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ABOUT OUR FIRST SUSTAINABILITy REPORTReporting principles This is our first Sustainability Report providing an over-view of our sustainability program activities and the actions, which have been taken under the United Nations Global Compact principles during the period January 1 – December 31, 2011. This report is based on the Global Re-porting Initiative guidelines (www.globalreporting.org) GRI G3.1 for C-level. Our ambition is to annually publish Sustainability Reports to demonstrate our dedication in delivering high level of business ethics, environmental care and social responsibility. This report covers Trans-mode Group’s activities including subsidiaries outside Sweden. However, the impact of Transmode’s employee commuting, supplier’s environmental, social, and finan-cial performance is not reported in this report.

The purpose of this report is to serve as a main ref-erence point of information regarding the status and progress of our sustainability work. The report content is based upon GRI G3.1 guidelines for reporting on C-level, actions taken on United Nations Global Compact, and achievements concerning employees, environmental responsibility, customers, suppliers, and products. This Sustainability Report is considered primarily to be a key reference point for our stakeholders and also for release to the general public.

This report is self-declared and follows GRI G3.1 prin-ciples on C-level (see Figure 7 below), thus this report has not been subjected to third-party assurance. A full list of disclosed GRI G3.1 information in this report can be found in the Index on page 23.

Data inventory and specifications Transmode measures and reports the employee statis-tics, number of accidents, and rate of absenteeism rate according to the Swedish Work Environment Authority’s principles. Transmode applies Greenhouse Gas Protocol principles for estimating the carbon footprint of business operations. Some limitations apply for the following re-ported indicators:

• Financial implications and other risks and oppor-tunities due to climate change (EC2) disclosed information includes: narrative description of the potential financial implications and other significant risks and opportunities due to climate change. Transmode has not conducted the quan-titative estimation of the potential implications.

• Employee diversity (LA13), disclosed information: (i) number of different languages represented in the organization, and (ii) gender. Number of em-ployees in different age groups is not reported due to limited access to data.

• Energy-efficient products (EN6), disclosed in-formation: (i) existing initiatives to the energy requirements of major products, (ii) estimated maximum energy savings, and (iii) calculation ex-ample (case story). The maximum energy saving is used instead of average savings since the actual energy efficiency depends on how the product is used.

• Initiatives to mitigate environmental impacts of products (EN26), disclosed information: (i) reclaiming of products and product packaging, (ii) materials use, (iii) emissions, and (iv) toxic materials/compounds.

Figure 7. GRI Guideline’s Application Levels (Source: GRI Guidelines G3.1)

Report Application Level C C+ B B+ A A+

ProfileDisclosure

Disclosureson Management

Approach

Performanceindicators & sector

supplementPerformance Indicators

Report on:1.12.1-2.103.1-3.8, 3.10-3.12 4.1-4.4, 4.14-4.15

Report on all criterialisted for Level C plus:1.23.9, 3.134.5-4.13, 4.16-4.17

Same as requirement for Level B

Not Required management Approach Disclosures for each Indicator Category

management Approach disclosed for each Indicator Category

Report fully on a minimum of any 10 Performance Indicators, inc at least one from each category of: social, economic & enviro-ment. **

Report fully on a minimum of any 20 Performance Indicators, inc at least one from each category of: economic, enviroment hu-man rights, labor, society, product responsibility. ***

Respond on each core & sector supplement* indica-tor with due regard to the materiality Principle by either a) reporting on the indicator or b) explaining the reason for its omission

Rep

ort E

xter

nally

Ass

ured

Rep

ort E

xter

nally

Ass

ured

Rep

ort E

xter

nally

Ass

ured

Stan

dard

Dis

clos

ures

* Sector Supplement in final version ** Performance indicators may be selected from any finalized Secor Supplement, but 7 of 10 must be from original GRI Guidelines *** Performance indicators may be selected from any finalized Secor Supplement, but 14 of 20 must be from original GRI Guidelines

22

• Significant environmental impacts of transports (EN29), disclosed information includes (i) energy use and CO2 emissions from the use of company’s vehicle, and (ii) CO2 emissions from transporting goods and products, and business travel. Environmental impact from employee commuting is not disclosed.

Questions concerning this report are answered by:

Lena Båvegård Quality and Environmental Manager

Email: [email protected]

Phone: +46 8 410 88 000 www.transmode.com

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GRI & GLOBAL COMPACT INDExGlobal Reporting initiative (GRI) and the United Nations Global Compact (UNGC) indicators

Profile IndicatorsUNGC

requirement Page

1.1Statement from CEO, about the relevance of sustainabil-ity to the organization and its strategy • 7

2.1 Name of the organization 5

2.2 Primary brands, products, and/or services 5, 17-18

2.3 Operational structure of the organization 5

2.4 Location of organization’s headquarters 5

2.5 Countries where the organization operates 5

2.6 Nature of ownership and legal formSustainability Report page 5 and Transmode 2011 Annual Report

www.transmode.com

2.7 Market 5, 17

2.8

Scale of the reporting organization (number of employ-ees, net sales or net revenues, quantity of products or services provided). 5-6, 12

2.9Significant changes during the reporting period regarding size, structure, or ownership

Transmode 2011 Annual Report www.transmode.com

2.10 Awards received in the reporting period 5

3.1 Reporting period 21

3.2 Date of most recent previous report None, this is Transmode’s first Sustainability Report

3.3 Reporting cycle 21

3.4Contact point for questions regarding the report or its contents 22

3.5 Process for defining report content 21

3.6 Boundary of the report 21

3.7State any specific limitations on the scope or boundary of the report 21

3.8 Basis for reporting on joint ventures, subsidiaries 21

3.10Explanation of any re-statements of information provid-ed in earlier reports. None, this is Transmode’s first Sustainability Report

3.11 Significant changes from previous reporting periods. None, this is Transmode’s first Sustainability Report

3.12Table identifying the location of the Standard Disclosures in the report 23-25

4.1 Governance structure of the organization.

Transmode 2011 Annual Report www.transmode.com

4.2Indicate whether the Chair of the highest governance body is also an executive officer

4.3 Number of members of the highest governance body.

4.4

Mechanisms for shareholders and employees to provide recommendations or direction to the highest governance body

Sustainability Report page 10-11 and Transmode 2011 Annual Report www.transmode.com

4.14 List of stakeholder groups engaged by the organization 6

4.15Basis for identification and selection of stakeholders with whom to engage 6

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Performance IndicatorsUNGC

Principle Page

EC1 Direct economic value generated and distributedTransmode 2011 Annual Report

www.transmode.com

EC2

Financial implications and other risks and opportu-nities for the organization’s activities due to climate change 7 14-15

EN1 Materials used by weight 8 15

EN3 Direct energy consumption by primary energy source 8 13

EN4 Indirect energy consumption by primary source 8 13

EN5Energy saved due to conservation and efficiency improvements 8, 9 13

EN6

Initiatives to provide energy-efficient or renewable energy-based products and services, and reductions in energy requirements as a result of these initiatives 8, 9 13-14,17-18

EN16Total direct and indirect greenhouse gas emissions by weight 8 14

EN17Other relevant indirect greenhouse gas emissions by weight 8 14

EN18Initiatives to reduce greenhouse gas emissions and reductions achieved 7, 8, 9 13-14

EN22 Total weight of waste by type and disposal method 8 16

EN26

Initiatives to mitigate environmental impacts of products and services, and extent of impact mitiga-tion 7, 8, 9 13-18

EN29

Significant environmental impacts of transporting products and other goods and materials used for the organization’s operations, and transporting members of the workforce 8 14

LA1 Total workforce 12

LA3Benefits provided to full-time employees that are not provided to temporary or part-time employees 12

LA6

Percentage of total workforce represented in formal joint management–worker health and safety com-mittees that help monitor and advise on occupation-al health and safety programs 1 12

LA7

Rates of injury, occupational diseases, lost days, and absenteeism, and total number of work-related fatalities by region 1 12

LA12Percentage of employees receiving regular perfor-mance and career development reviews. 6 10

LA13

Composition of governance bodies and breakdown of employees per category according to gender, age group, minority group membership, and other indica-tors of diversity. 1, 6 12

PR3

Type of product and service information required by procedures, and percentage of significant products and services subject to such information require-ments 8 15

PR5Practices related to customer satisfaction, including results of surveys measuring customer satisfaction. 8 19

HR2

Percentage of significant suppliers, contractors, and other business partners that have undergone human rights screening, and actions taken 1, 2, 3, 4, 5, 6 20

HR3

Total hours of employee training on policies and procedures concerning aspects of human rights that are relevant to operations, including the percentage of employees trained 1, 2, 3,4, 5, 6 8-9


HR4Total number of incidents of discrimination and corrective actions taken 1, 2, 6 No cases

SO3Percentage of employees trained in organization’s anti-corruption policies and procedures 10 8-9

SO4 Actions taken in response to incidents of corruption 10 No cases

SO6

Total value of financial and in-kind contributions to political parties, politicians, and related institutions by country 10 None

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 based on Wavelength Division Multiplexing (WDM) and packet optical transport technologies, which are designed to increase the capacity, flexibility and functionality of optical metro core and metro access networks. Transmode’s Intelligent WDM (iWDM™) approach gives key advantages to customers, such as ultra-low latency, low power consumption and innovative network design.

Transmode is headquartered in Stockholm, Sweden and is listed on the NASDAQ OMX Stockholm Exchange (TRMO). Since 2000 the company has installed more than 30,000 systems for over 400 fixed and mobile net-work operators, service providers, large enterprises and public institutions in over 40 countries across the globe.

For additional information about Transmode, please visit: www.transmode.com

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