30 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Jan 31, 2018
Slide 1: Fourth Quarter 2017
fourth QUARTER 2017 Jan 31, 2018
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations
Slide 3: Forward-looking statements
fourth QUARTER 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 annual report for Jan 31
Slide 4: Börje Ekholm, President and CEO
Börje Ekholm President and CEO
Slide 5: Business environment
Business environment Market Ericsson › Increasing traction for 5G – Radio and Core › Good traction for 4G portfolio and 5G › Operator digitalization accelerating momentum – Supports operator 4G to 5G transition › RAN equipment market outlook reconfirmed – Deutsche Telecom, Verizon – 2018: -2% – Mark
Slide 6: Full Year 2017
Full Year 2017 › Challenging year – executing on our focused SEK b. 2017 2016 strategy Net sales 201.3 222.6 › Strengthening R&D while reducing cost Operating income -38.1 6.3 Free cash flow 5.1 0.3 › Reduced risk – commercial and balance sheet Number of employees 100,735 111,464 › Sales declined -1
Slide 7: Strategy execution progress
Strategy execution progress Group Targets 2020 › Increased stability in product roadmaps Net sales SEK 190-200 b. and challenging projects in Digital Services Gross margin 37-39% › Strategic review of Media completed STABILIZE Operating margin >10% & SIMPLIFY › Continued review of Managed Services F
Slide 8: Changes to executive team and organization
Changes to executive team and organization › Business Area Emerging Business created to strengthen focus on innovation and new business development – Åsa Tamsons appointed head of unit and member of the Ericsson Executive Team › Simplified Group Function structure – Current GF Technology and Emergin
Slide 9: Q4 2017
Q4 2017 Adjusted for restructuring charges and certain other items affecting comparability. › Sales adjusted for FX -7% YoY SEK b. 17Q4 16Q4 17Q3 Net sales 57.3 65.2 47.7 › Adjusted gross margin improved YoY Gross margin 29.9% 29.4% 30.0% – Strong performance in Networks Operating income 0.4 4.4 0.0
Slide 10: Market area sales Q4, YoY
Market area sales Q4, YoY › North East Asia FX adjusted1 -25% – Reduced LTE investments in Mainland China -15% – Market share gain in Mainland China -5% -10% 10% – Operators awaiting spectrum allocations › South East Asia & India – Lower Networks sales in Vietnam, India and Indonesia – Exit from Man
Slide 11: Networks
networks Adjusted for restructuring charges and certain other items affecting comparability. › Sales adjusted for FX -9% YoY SEK b. 17Q4 16Q4 17Q3 – Lower LTE investments in Mainland China Net sales 36.3 42.1 30.4 Gross margin 35.9% 31.6% 35.9% – Strong Q4 2016 – large projects completed Operating i
Slide 12: Digital Services
Digital services Adjusted for restructuring charges and certain other items affecting comparability. › Sales adjusted for FX -3% YoY SEK b. 17Q4 16Q4 17Q3 – Decline in legacy products and services Net sales 12.9 14.1 9.3 Gross margin 24.8% 37.6% 29.6% – Strong sequential growth, +35% FX adj. Operati
Slide 13: Managed Services
Managed services Adjusted for restructuring charges and certain other items affecting comparability. › Sales adjusted for FX -3% YoY SEK b. 17Q4 16Q4 17Q3 – Contract reviews and reduced variable sales Net sales 6.2 6.7 5.9 Gross margin 3.7% 2.0% 3.3% – Good growth in Managed Services IT Operating in
Slide 14: Other
other Adjusted for restructuring charges and certain other items affecting comparability. › Sales adjusted for FX -14% YoY SEK b. 17Q4 16Q4 17Q3 – Legacy product sales declined in Media Solutions Net sales 2.0 2.4 2.0 Gross margin 35.9% 18.8% 20.2% – Growth in Emerging Business Operating income -0.8
Slide 15: Media Solutions and Red Bee Media
Media solutions and red bee media › One Equity Partners - new majority owner in Media Solutions. Ericsson will retain 49% of the shares › Media Solutions assets and staff to transfer to independent company upon closing, expected Q3 2018 › Continued in-house development of Red Bee Media (former Broad
Slide 16: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer
Slide 17: Q4 Reported vs adjusted
Q4 Reported vs adjusted SEK b. Q417 Restruct. Asset Provisions Q417 Q4 2017 impacted by reported charges write- and adj. adjusted downs › SEK 2.4 b. of restructuring charges Net sales 57.2 -- -- 0.1 57.3 – Positively impacted by GIC divestment SEK 0.3 b. Gross inc 12.0 2.0 0.7 2.4 17.1 › SEK 14.5 b.
Slide 18: Gross margin Q4, YoY
Gross margin Q4, YoY Adjusted for restructuring charges and certain other items affecting comparability. › GM improved YoY – Improvements in Networks offset by decline in 29.4% 29.9% Digital Services › GM stable QoQ Q416 Networks Digital Managed Other Q417 adjusted Services Services adjusted – Impro
Slide 19: Operating income Q4, YoY
Operating income Q4, YoY Adjusted for restructuring charges and certain other items affecting comparability. SEK b. 7% › Lower sales and capitalization impact – main 4.4 reasons for OI decline YoY 1% › Capitalization impact 0.4 Q416 Non Volume Gross R&D SG&A Other Q417 – SEK -2.2 b. YoY adjusted ope
Slide 20: R&D and SG&A Q4, YoY
R&D and SG&A Q4, YoY Adjusted for restructuring charges and certain other items affecting comparability. SEK b. R&D SEK b. SG&A 0.1 0.1 0.0 7.8 0.1 0.7 9.3 1.7 0.3 0.4 8.9 0.2 7.4 0.2 7.4 16Q4 Intangible Capitalized Ref. Digital Networks Emerging Managed 17Q4 16Q4 FX Intangible Realized Various 17Q4
Slide 21: SEK 10 b. Cost-out target for mid-2018
SEK 10 b. Cost-out target for MID-2018 Target and progress Achievements Target SEK › G&A employees net: -0.6k 2H 2017 (-7%) 10 b. G&A › Annual run rate reduction end of quarter: ~SEK 1.5 b. 30% › Adj. SG&A exp. structurally down by SEK 0.4 b. in Q417 YoY ~SEK 6 b. 7.2 › Service employees net: -6.5k
Slide 22: Change in Gross cash, Q4
Change in Gross cash, Q4 Operating Cash Flow Investing1 Financing FX and other2 +11.2 b. -1.0 b. +2.1 b. +0.4 b. -0.0 +0.4 -1.2 -1.1 +0.1 +2.1 -4.5 +16.8 67.7 55.1 Change in gross cash SEK +12.6 b. Gross cash Net Income Change Net Restructuring CAPEX CAPEXnet Acquisitions, Other financing Dividend F
Slide 23: Free cash flow
Free cash flow SEK b. Debt maturity profile SEK b. Q417 Q416 2017 2016 Net Income reconciled to cash -4.5 1.6 -16.5 8.0 Change operating Net Assets 15.6 17.9 26.1 6.0 Cash flow from Operations 11.2 19.4 9.6 14.0 CAPEX -1.1 -1.7 -3.9 -6.1 M&A -0.1 -0.1 0.3 -0.6 Other 0.2 -3.4 -0.9 -7.0 Free cash flow
Slide 24: Sales and income exposed to USD
sales and income exposed to USD Sales exposure 2017 Currency risks Other › ~45% sales exposure to USD on net sales › USD to SEK movements has a direct impact on reported sales and income JPY 45% USD › For historical FX rates, see ericsson.com INR CNY EUR -10% weaker USD to SEK results in ~ -5% impac
Slide 25: Planning assumptions
Planning assumptions From the Q4 report Q1 2018 Market outlook RAN equipment market -2% FY18 (in line with external sources). The Chinese market continues to decline, positive momentum in the U.S. Net sales USD/SEK 10% weaker ~ -5% sales and Focusing the business - reduced FY19 sales by up to SE
Slide 26: Börje Ekholm, President and CEO
Börje Ekholm President and CEO
Slide 27: Closing remarks
CLOSING REMARKS › Balance sheet and commercial risk review completed – No need for additional adjustments and write-downs › Strong free cash flow – Covering dividend first time in 5 years – Improved resilience and financial flexibility › Continued solid performance in Networks – Gross margin improve
Slide 28: © Telefonaktiebolaget LM Ericsson 2018 | FOURTH QUARTER REPORT 2017 | JAN 31, 2018
© Telefonaktiebolaget LM Ericsson 2018 | FOURTH QUARTER REPORT 2017 | JAN 31, 2018 | Page 28
Slide 29: Ericsson
ERICSSON
Slide 30: Forward-looking statements
fourth QUARTER 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 annual report for Jan 31