25 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Oct 20, 2017
Slide 1: Capital Markets Day, New York, November 7-8
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Slide 2: Peter Nyquist, Vice President Investor Relations
s 4 ERICSSON PETER NYQUIST Vice President Investor Relations
Slide 3: Third Quarter 2017
THIRD ERICSSON QUARTER 2017 October 20, 2017 This presentation contains forward-looking statements. Such statements are based on our current expectations and are subject to certain risks and uncertainties that could negatively affect our business. Please read our earnings reports and our most recent
Slide 4: Börje Ekholm, President and CEO
ERICSSON BORJE EKHOLM President and CEO
Slide 5: Third Quarter 2017
THIRD QUARTER 2017 >» Continued focus on strategy execution — initial signs of traction in a challenging market — Slight growth in Networks, adj. for one MS contract and FX — Increased stability in roadmaps and projects in IT & Cloud » Sales adjusted for FX -3% YoY supported by growth in Networks >»
Slide 6: Strategy Execution Progress
W STRATEGY EXECUTION PROGRESS » Ericsson Radio System at 55% of total radio volumes YTD, competitive performance contributing to stronger market position and improved earnings » Increased LTE market shares in Mainland China to position for 5G » Continued review of Managed Services contracts — 13 of
Slide 7: Market Area Sales
MARKET AREA SALES Q3 YOY W 6% FX adjusted* = 16Q3 North America Europe & Latin North East SE Asia Middle East & 17Q3 America Asia Oceania & Africa India Reported: -10% 6% -9% -3% -1% *Calculated FX impact. Market Area Other excluded © Telefonaktiebolaget LM Ericsson 2017 | THIRD QUARTER REPORT 2017
Slide 8: Segment Summary
SEGMENT SUMMARY Adjusted for restructuring charges and certain other items affecting comparability. Networks IT & Cloud SEKb. | 1793 | 1603 | 17¢ 1703 | 1603 | 1702 Sales 35.4 370 368 Sales 103 11.7 109 GM 31% 28% 30% GM 26% 34% 28% Op.income 3.8 3.4 33) Op.income -3.1 -1.1 -2.4 OM 1% 9% 10% OM -30%
Slide 9: Carl Mellander, Chief Financial Officer
ERICSSON CARL MELLANDER Chief Financial Officer
Slide 10: Gross Margin
GROSS MARGIN Adjusted for restructuring charges and certain other items affecting comparability. » Networks margins improved QoQ — Higher software sales — Negative impact from reduced capitalization of SEK 0.4 b., -1.3% in Networks » Reduced margins in IT & Cloud QoQ — Reduced services margin in lar
Slide 11: Operating Income
OPERATING INCOMe Q3 YoY SEK B W SEK b Q316 SEK +0.5b. Mainly FX and one Q317 SEK -1.5b Managed Services contract Driven by ; Reduction in SG&A partly by FX 0.0 T 1 T Q316 Volume Underlying Underlying Other Capitalized Q317 excl restr gross margin operating expenses R&D and cost adjusted of sales, ne
Slide 12: Operating Expenses YoY, SEK b.
OPERATING EXPENSES YOY,SEKB. #2 * Underlying R&D expenses stable * Slight reduction in SG&A expenses * Significant impact from capitalization * G&A cost reductions ongoing 8.6 i 6.7 7.3 Bron aD =. impart 4 items impact tore related to SEK 3-5b Q3 16 Q316 Q3 17 Q3 1 Q317 excl restr inderlying e excl
Slide 13: SEK 10 b. Cost Reductions
SEK 10 B COST REDUCTIONS » Atleast SEK 10 b. net reduction of annual run rate by mid 2018 - 30% G&A, 70% CoS » Accelerated cost and efficiency measures in the quarter » Workforce — Reduction activities initiated in many markets — Net reduction of 3,000 employees in the quarter » Global ICT Center co
Slide 14: Change in Gross Cash Q3
W CHANGE IN GROSS CASH Q3 0.0b. +1.4b -0.0 b. oe ee Cn -1.9 4+3.4 -0.7 +0.1 41.5 Change in gross cash SEK +0. Gross cash NetIncome Change Net Restructuring CAPEX Acquisitions, Other Dividend FXoncash Gross cash 1706A reconciled to operating divestments & financing 1709A cash assets Other activities
Slide 15: Cash Flow and Debt Maturity Profile
mn A m m ©) I> wn os mn Ef hal = W SEK b. Debt maturity profile ; SEK b. 2017 2016 2017 2016 Net Income reconciled to cash 19 1.5 -12.0 65 Change operating Net Assets 1.9 -3.8 10.4 -11.9 6 Cash flowfrom Operations 0.0 -2.3 16 5.4 CAPEX -0.7 -1.4 -2.8 -4.4 M&A 0.4 0.0 0.4 -0.6 3 Other -0.1 1.3 -1.1 -
Slide 16: Impact from Lower Capitalization
IMPACT FROM LOWER CAPITALIZATION » Due to technology and portfolio shifts - Highlighted in the Q2 2017 earnings report » Product platform R&D, software release R&D and hardware costs » Negative impact on operating income of SEK -1.5 (0.5) b. in Q317 » Estimate for Q417 SEK -1.4 b. —In line with guid
Slide 17: Capitalization Impact - Details
CAPITALIZATION IMPACT - DETAILS SEK b. no Q3 Q2 Q3 Product platform R&D Software release R&D Hardware cost Total impact operating income Breakdown in Income statement -of which Cost of Sales -of which R&D expenses Breakdown by segment -of which Networks -of which IT & Cloud -of which Other © Telefon
Slide 18: Cash Flow Impact
CASH FLOW IMPACT Activity Total cost | Cash impact Timing SEK b. SEK b. 2016 restructuring charges, balance Dec 31 2016 3) 3) 2017-2018 2017 restructuring charges 9-10 ~7-8') ~50% 2017 ~50% 2018 Q1 2017 provisions and customer project adjustments 8.4 5.8 Over several years Q3 2017 identified custome
Slide 19: Planning Assumptions from the Q3 Report
Ce a4 Pr PLANNING ASSUMPTIONS Zz FROM THE Q3 REPORT Market related >» RAN equipment market est. to decline -8% FY17 >» Increased R&D expenses, primarily in Networks Ericsson related > Net capitalization effect on op. income expected at » Focusing MS, I&S and NRO business expected to — SEK -1.4 b. in
Slide 20: Börje Ekholm, President and CEO
s 4 ERICSSON BORJE EKHOLM President and CEO
Slide 21: Executing on Focused Strategy
EXECUTING ON FOCUSED Signs of improvement in our performance - Still a long way from where we need to be — Strong focus on accountability and follow up -Increased customer confidence » On track for SEK 10 b. cost reductions mid 2018 - Accelerating activities in Q417 More details on strategy executio
Slide 22: Quarter Report 2017
© Telefonaktiebolaget LM Ericsson 2017 | THIRD QUARTER REPORT 2017 | OCT 20. 2017 | Page 22 W
Slide 23: Slide 23
Slide 24: Ericsson
ERICSSON
Slide 25: Third Quarter 2017
THIRD ERICSSON QUARTER 2017 October 20, 2017 This presentation contains forward-looking statements. Such statements are based on our current expectations and are subject to certain risks and uncertainties that could negatively affect our business. Please read our earnings reports and our most recent