22 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Jul 17, 2019
Slide 1: Ericsson Second quarter 2019
Ericsson Second quarter 2019 July 17, 2019 © Telefonaktiebolaget LM Ericsson 2019 | Second quarter report 2019 | July 17, 2019 | Page 1
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations © Telefonaktiebolaget LM Ericsson 2019 | Second quarter report 2019 | July 17, 2019 | Page 2
Slide 3: Second quarter 2019
Second quarter 2019 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
Slide 4: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2019 | Second quarter report 2019 | July 17, 2019 | Page 4
Slide 5: Key takeaways
Key takeaways — Strong momentum in 5G business – new contracts and live networks — All customer engagements focus on 5G, across all geographies — 5G will move from consumer to industry driven use cases — Organic sales growth 7% YoY — Cash flow before M&A SEK 2.2 b. — Continue to invest and leverage
Slide 6: Q2 2019 in numbers
Q2 2019 in numbers Financial Performance — Organic growth 7% – Reported growth 10% Excluding restructuring charges — Operating margin improved YoY – underlying margin SEK b. 19Q2 18Q2 19Q1 stable QoQ Net sales 54.8 49.8 48.9 — Networks – profitable growth including negative effect Gross margin 36.7%
Slide 7: Market area sales Q219, YoY
Market area sales Q219, YoY Net sales bridge — Middle East & Africa FX adjusted • Decline driven by timing of project milestones, and contract 13% exits in Managed Services — South East Asia, Oceania & India • Growth in Managed Services (new contract 2018) • Digital Services declined due to lower le
Slide 8: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer © Telefonaktiebolaget LM Ericsson 2019 | Second quarter report 2019 | July 17, 2019 | Page 8
Slide 9: Networks
Networks Segment Networks – Financial performance Excluding restructuring charges SEK b. 19Q2 18Q2 19Q1 — Sales adjusted for FX 11% YoY • Strong growth in North America and in North East Asia Net sales 37.8 32.4 33.5 – 4G and 5G investments Gross margin 41.4% 40.2% 43.2% • QoQ reported growth 13% –
Slide 10: Digital Services
Digital Services Segment Digital Services – Financial performance Excluding restructuring charges SEK b. 19Q2 18Q2 19Q1 — Sales adjusted for FX -3% • Decline in legacy business Net sales 9.0 8.8 7.8 • Momentum in new portfolio of 5G and cloud-native Gross margin 37.1% 42.6% 37.6% products Operating
Slide 11: Managed Services
Managed Services Segment Managed Services – Financial performance Excluding restructuring charges SEK b. 19Q2 18Q2 19Q1 — Sales adjusted for FX -6% YoY • Lower sales due to contract exits Net sales 6.3 6.5 5.9 • Growth in Network Design and Optimization (NDO) Gross margin 12.3% 14.0% 17.7% Operating
Slide 12: Emerging Business & Other
Emerging Business & Other Segment EB & Other – Financial performance — Emerging Business incl iconectiv Excluding restructuring charges • Sales growth driven by iconectiv - number portability SEK b. 19Q2 18Q2 19Q1 contract in the US, from May 2018 • Increased profits in iconectiv Net sales 1.7 2.1 1
Slide 13: Gross margin
Gross margin Excluding restructuring charges — Gross margin reduced QoQ – favorable business mix Underlying gross margin development and strong IPR in Q1 38.5% • Negative impact from strategic contracts and one-time 36.7% 36.9% 36.3%1 36.7% 35.9% license settlement agreement in Networks 33.2% 30.5%
Slide 14: Networks Gross margin development QoQ
Networks Gross margin development QoQ Gross margin to be compared QoQ 43.2% 41.4% Q119 Gross margin IPR revenues Adjusted Underlying QoQ* Adjusted License Q219 Gross margin delta Q1 to Q2 Q1 margin Q2 margin settlement *Includes impact of strategic contracts and operational leverage Excluding restru
Slide 15: Operating expenses
Operating expenses Excluding restructuring charges Impairment losses on trade R&D bridge Q219 YoY (SEK b.) SG&A Q219 YoY (SEK b.) receivables (SEK b.) Excluding restructuring charges 18Q2 19Q2 18Q2 19Q2 0.6 -8.6 0.4 -0.2 Managed 0.2 0.4 Services Emerging -9.3 0.3 business -0.4 -0.4 Digital -0.8 -9.5
Slide 16: Free cash flow
Free cash flow Financial Performance SEK b. 19Q2 18Q2 Debt maturity profile (SEK b.) Net income reconciled to cash 5.0 -0.3 Change operating net assets -1.3 1.7 Cash flow from operating activities 3.6 1.4 CAPEX -1.1 -1.0 Other -0.3 -0.7 Free cash flow before M&A 2.2 -0.2 M&A 0.0 -0.4 Free cash flow
Slide 17: Planning assumptions – summary
Planning assumptions – summary Please see the Q2 report for complete planning assumptions Market — RAN equipment market 3% FY 2019, 2% CAGR 2018-2023 (Dell’Oro) — Net sales • Normal seasonality Q2→Q3 3%. Current sales level in NA expected to remain throughout 2019 • Baseline for IPR ~SEK 9 b., on an
Slide 18: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2019 | Second quarter report 2019 | July 17, 2019 | Page 18
Slide 19: Closing remarks
Closing remarks — Strong 5G uptake - Ericsson’s 5G Radio and Core proving competitive — Will continue to invest in R&D and leverage our leading portfolio to capture market opportunities • 5G, cloud native portfolio, AI and automation — Continued focus on disciplined growth — Confident in reaching 20
Slide 20: © Telefonaktiebolaget LM Ericsson 2019 | Second quarter report 2019 | July 17, 2019
© Telefonaktiebolaget LM Ericsson 2019 | Second quarter report 2019 | July 17, 2019 | Page 20
Slide 21: W
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Slide 22: 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