26 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Oct 18, 2018
Slide 1: Ericsson Third quarter 2018
Ericsson Third quarter 2018 Oct 18, 2018 © Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018 | Page 1
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations © Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018 | Page 2
Slide 3: Third quarter 2018
Third quarter 2018 This presentation contains forward-looking statements. Such statements are based on our current expectations and are subject to risks and uncertainties that could materially affect our business and results. Please read our earnings reports and our most recent annual report for a b
Slide 4: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018 | Page 4
Slide 5: Key takeaways
Key takeaways — 5G a commercial reality — Organic sales growth 1% YoY • First quarter since Q3 2014 — Profitability at Group level restored – partly driven by cost-out • Net income positive, first quarter since Q2 2016 • Despite substantial provisions — Digital Services improving – but challenges in
Slide 6: Q3 2018 financial performance and targets
Q3 2018 Financial Performance, Q318 Excluding restructuring charges SEK b. 18Q3 17Q3 18Q2 — Networks – Operating margin 16% • Organic growth – continued strong sales growth in North Net sales 53.8 49.4 49.8 America Gross margin 36.9% 28.5% 36.7% Operating income 3.8 -0.8 2.0 — Digital Services – red
Slide 7: Market area sales Q318, YoY
Market area sales Q318, YoY Net Sales bridge, Q318 YoY FX adjusted -16% 10% — Middle East & Africa • Challenging economic situation in certain markets in the Middle East — North East Asia -8% 4% • Continued deployment of NB IoT in Mainland China -3% • Digital Services sales declined — South East Asi
Slide 8: Update on SEC & DOJ investigations
Update on SEC & DOJ investigations — Voluntarily cooperating since 2013 with an investigation by the SEC and, since 2015, an investigation by the DOJ into Ericsson’s compliance with the U.S. FCPA — Continued cooperation with the SEC and DOJ, discussions to find a resolution — Facts that are relevant
Slide 9: Ethics & compliance timeline
Ethics & compliance timeline External assessment of ethics & compliance leading to increased efforts Allegation Code of Business Chief Compliance Ericsson Compliance Line Personnel management Ethics formalized officer appointed & Supplier/partner remediation office being Screening Tool established I
Slide 10: Strategy execution on track
Strategy execution on track Status Q3 2018 Networks Digital Services Managed Services Other 2020 target 2020 target 2020 target 2020 target Net sales Operating margin Net sales Operating margin Net sales Operating margin Net sales Operating margin SEK 128-134 b. 15-17% SEK 42-44 b. Low single digit
Slide 11: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer © Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018 | Page 11
Slide 12: Networks
Networks Segment Networks – Financial performance Excluding restructuring charges SEK b. 18Q3 17Q3 18Q2 — Sales adjusted for FX: 5% YoY • Strong growth in North America, growth in Europe and Net sales 35.9 31.9 32.4 Latin America Gross margin 41.5% 34.8% 40.2% Operating income 5.8 3.8 4.3 — Solid gr
Slide 13: Digital Services
Digital Services Segment Digital Services – Financial performance Excluding restructuring charges SEK b. 18Q3 17Q3 18Q2 — Sales adjusted for FX: -6% YoY • Major contract in North East Asia further delayed Net sales 9.0 8.9 8.8 • Good progress due to 5G and Virtualization acceleration Gross margin 36
Slide 14: Managed Services
Managed Services Segment Managed Services – Financial performance Excluding restructuring charges SEK b. 18Q3 17Q3 18Q2 — Sales adjusted for FX: -8% YoY • Lower sales due to contract exits Net sales 6.5 6.6 6.5 • Growth in Managed Services IT and Network Design & Gross margin 12.9% -4.0% 14.0% Optim
Slide 15: Emerging Business & Other
Emerging Business & Other Segment Other – Financial performance Excluding restructuring charges SEK b. 18Q3 17Q3 18Q2 — Sales adjusted for FX: 11% YoY • Driven by iconectiv – number portability contract in US Net sales 2.4 2.0 2.1 Gross margin 32.3% 21.1% 27.4% — Gross margin improved YoY and QoQ Op
Slide 16: Q3 2018 income statement
Q3 2018 Excluding restructuring charges SEK b. 18Q3 17Q3 Change — YoY sales growth driven by Networks and FX Net sales 53.8 49.4 +9% — Gross margin improved YoY and QoQ Gross income 19.8 14.1 5.7 — Continued R&D investments in Networks Gross margin 36.9% 28.5% +8.4 pp — SG&A expenses impacted by rev
Slide 17: SG&A and R&D Q318, YoY
SG&A and R&D Q318, YoY SG&A bridge Q318 YoY (SEK b.) R&D bridge Q318 YoY (SEK b.) Excluding restructuring charges Excluding restructuring charges 0.7 1.4 0.7 0.9 6.5 9.2 • Provisions for 5.6 0.1 variable 0.7 compensation 8.6 • Field trials • FX Mainly in Digital Services 17Q3 Cost Revaluation of Oth
Slide 18: Gross margin Q318, YoY
Gross margin Q318, YoY Adjusted for restructuring charges Gross margin bridge Q318 YoY 40% — Structural improvements YoY • Cost reductions visible in all segments 30% 36.9% • ERS ramp up 28.5% • Managed Services contract review 20% — Positive capitalization impact YoY, SEK 0.7 b. Q317 Networks Digit
Slide 19: Free cash flow
Free cash flow Financial Performance Debt maturity profile (SEK b.) SEK b. Q318 Q317 Net income reconciled to cash 2.9 -0.8 Change operating net assets -0.9 0.8 Cash flow from operating activities 2.0 0.0 CAPEX -1.1 -0.7 Other -0.2 -0.1 Free cash flow excluding M&A 0.7 -0.8 M&A -0.4 0.4 Free cash fl
Slide 20: Planning assumptions from the Q3 report
Planning assumptions from the Q3 report 2018 Net Sales, SEK b. Gross margin % Operating expenses, SEK b. Excluding restructuring charges Excluding restructuring charges Q4 Q4 Q4 +17% • Cost reductions • Lower than normal • Regional sales mix • Seasonality -2% 57.9 seasonality in Networks • Business
Slide 21: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018 | Page 21
Slide 22: Closing remarks
Closing remarks — Continued strong strategy execution • Investments in technology leadership • Strong cost control to safeguard competitiveness — 5G now a commercial reality • Continue to invest to secure 5G leadership — Enhanced mobile broadband and fixed wireless access first 5G use cases — Artifi
Slide 23: Capital Markets Day New York, November 8
Capital Markets Day New York, November 8 https://www.ericsson.com/en/investors/events-and-presentations/CMD2018 © Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018 | Page 23
Slide 24: © Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018
© Telefonaktiebolaget LM Ericsson 2018 | Third quarter report 2018 | Oct 18, 2018 | Page 24
Slide 25: W
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Slide 26: Forward-looking statements
Forward-looking statements This presentation includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events, financial condition, and expected operational and financial performance, includi