24 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Apr 20, 2018
Slide 1: First quarter 2018
Ericsson First quarter 2018 April 20, 2018 Ericsson Internal | 2018-02-21
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations Ericsson Internal | 2018-02-21
Slide 3: First quarter 2018 forward-looking statements
First quarter 2018 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 a bette
Slide 4: Börje Ekholm, President and CEO
Börje Ekholm President and CEO Ericsson Internal | 2018-02-21
Slide 5: Business environment
Business environment Market Ericsson — Increasing traction for 5G – Radio, Core & IoT — Execution on focused business strategy • Efforts to reduce cost and improve efficiency pay off — Stabilizing mobile infrastructure market • Additional 8 Managed Services contracts addressed – — Positive momentum
Slide 6: Q1 2018
Q1 2018 Excluding restructuring charges. Significant negative impact from xo-items in 2017. SEK b. 18Q1 17Q1 17Q4 — Sales adj. for FX: -2% YoY (reported sales -9%) Net sales 43.4 47.8 57.9 • Growth in 3 market areas – with momentum in Gross margin 35.9% 18.7% 25.1% North America Operating income 0.9
Slide 7: SEK 10 b. cost-out target for mid-2018
SEK 10 b. cost-out target for mid-2018 Target and progress Achievements — Annual run-rate reduction end of quarter: Target SEK ~SEK 2.5 b. ~SEK 8.5 b. 10 b. G&A 30% — G&A expenses structurally down by SEK 0.6 b. in Q118 YoY 7.2 70% — Annual run-rate reduction end of 2.0 quarter: ~SEK 6 b. driven by
Slide 8: Employees and Total workforce development
Employees and Total workforce development 140 000 130,840 130 000 128,256 120 000 113,351 110 000 110,276 Total 111,464 Employees 109,127 100 000 100,735 97,581 90 000 80 000 Q4 2016 Q2 2017 Q4 2017 Q1 2018 Ericsson © Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | First quarter report
Slide 9: Market area sales Q118, YoY
Market area sales Q118, YoY FX adjusted — North East Asia -32% • Reduced LTE investments in Mainland China 9% • Operators in Mainland China and Japan awaiting spectrum -18% 19% allocations 6% — South East Asia, Oceania & India • Completed larger mobile broadband projects — North America • Network ex
Slide 10: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer Ericsson Internal | 2018-02-21
Slide 11: Networks
Networks Excluding restructuring charges. Significant negative impact from xo-items in 2017. SEK b. 18Q1 17Q1 17Q4 — Sales adjusted for FX: -2% YoY and -22% QoQ Net sales 28.6 31.6 37.1 • Lower LTE investments in Mainland China Gross margin 40.4% 35.3% 34.8% • Large projects in South East Asia compl
Slide 12: Digital Services
Digital Services Excluding restructuring charges. Significant negative impact from xo-items in 2017. SEK b. 18Q1 17Q1 17Q4 — Sales adjusted for FX: -3% YoY Net sales 7.7 8.4 12.5 • Decline in legacy products and related services Gross margin 41.4% -25.5% 14.1% • YoY growth in new product sales Opera
Slide 13: Managed Services
Managed Services Excluding restructuring charges. Significant negative impact from xo-items in 2017. SEK b. 18Q1 17Q1 17Q4 — Sales adjusted for FX: -4% YoY Net sales 5.5 6.0 6.2 • Contract reviews and reduced variable sales Gross margin 8.8% -7.5% -6.5% • Good growth in Managed Services IT Operating
Slide 14: Emerging Business & Other
Emerging Business & Other Excluding restructuring charges. Significant negative impact from xo-items in 2017. SEK b. 18Q1 17Q1 17Q4 — Sales adjusted for FX: -2% YoY Net sales 1.6 1.8 2.1 • Decline in Red Bee Media and legacy part of Media Gross margin 24.3% 20.4% 14.1% Solutions Operating income -1.
Slide 15: Gross margin Q118, YoY
Gross margin Q118, YoY Adjusted for restructuring charges 40% 30% 20% — Write-down of assets and provisions related to 35.9% certain customer projects had a significant 10% 18.7% impact in 2017 0% Q117 x/o items Networks Digital Managed EB + Other Q118 excl Services Services excl — Underlying improv
Slide 16: Operating income Q118, YoY
Operating income Q118, YoY Adjusted for restructuring charges SEK b. Q117 excl Q117 Gross margin Q118 excl — Lower sales and negative capitalization impact restr adjusted Capitalization Volume underlying R&D SG&A restr — Capitalization impact: SEK -0.9 b. YoY 0.9 — Gross margin excluding restructuri
Slide 17: R&D and SG&A Q118, YoY
R&D and SG&A Q118, YoY Adjusted for restructuring charges SEK b. R&D SEK b. SG&A 0.9 8.9 1.1 8.7 8.2 0.2 0.6 7.0 0.1 Investments in 6.7 Networks. 6.1 Reductions in Digital Services. 17Q1 17Q1 Capitalized Underlying 18Q1 17Q1 excl 17Q1 FX Cost Other 18Q1 excl excl restr adjusted* R&D excl restr restr
Slide 18: Free cash flow
Free cash flow SEK b. Q118 Q117 SEK b. Debt maturity profile Net income reconciled to cash -1.0 -8.2 Change operating Net Assets 2.6 6.6 Cash flow from Operations 1.6 -1.5 CAPEX -0.9 -1.0 M&A -0.4 0.0 Other 0.0 -0.7 Free cash flow 0.3 -3.2 Net cash end of period 35.6 28.3 Gross cash end of period 69
Slide 19: Planning assumptions
Planning assumptions From the Q1 report — Market — Ericsson, continued • RAN equipment market -2% FY18, 2% CAGR (2018-2022). • Cost savings of SEK >10 b. implemented by mid-2018 Chinese market expected to decline in 2018, positive momentum • Opex typically varies between quarters due to seasonality
Slide 20: Börje Ekholm, President and CEO
Börje Ekholm President and CEO Ericsson Internal | 2018-02-21
Slide 21: Closing remarks
Closing remarks — Execution on focused business strategy • Efforts to reduce cost and improve efficiency pay off • Gross margin 36% - tracking well towards target 37-39% — Continued solid performance in Networks • R&D investments generate higher gross margin — Reduced losses in Digital Services • Ac
Slide 22: Ericsson
Ericsson © Telefonaktiebolaget Internal | 2018-02-21 LM Ericsson 2018 | First quarter report 2018 | Apr 20, 2018 | Page 22
Slide 23: W
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Slide 24: First quarter 2018 forward-looking statements
First quarter 2018 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 a bette