22 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Jul 18, 2017
Slide 1: Second Quarter 2017
SECOND QUARTER 2017 July 18, 2017
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations
Slide 3: Forward-looking statements
SECOND 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 July 1
Slide 4: Börje Ekholm, President and CEO
Börje Ekholm President and CEO
Slide 5: Focused business strategy
Focused business strategy › Focused and technology led approach › Significant cost reductions to restore – Invest in R&D for competitiveness in Networks profitability – Stabilize IT & Cloud roadmaps and focus on new – At least SEK 10 b. run rate improvement over 12 portfolio months – Invest in autom
Slide 6: Second quarter 2017
Second quarter 2017 › Challenging underlying performance › Initial signs of traction in strategy – Sales adjusted for FX -13% YoY execution – Networks margin decline due to lower – Break-through contract with Vodafone UK software sales – Positive customer feedback on ERS – Continued significant loss
Slide 7: Q2 Market Area sales
Q2 Market Area sales › Europe and Latin America (-11% YoY) YoY SEK 54.1 b. -11% – Continued reduced mobile broadband investments – Slowdown in Mexico; growth in Brazil 12.5% -17% › Middle East and Africa (-17% YoY) 18.5% – Some, still limited, signs of recovery in -7% macroeconomic environment -3% 0
Slide 8: Segment summary
Segment summary Numbers exclude provisions, write-downs and restructuring charges in 17Q1. 16Q2 and 17Q2 exclude restructuring. Networks IT & Cloud Other SEK b. 17Q2 16Q2 17Q1 SEK b. 17Q2 16Q2 17Q1 SEK b. 17Q2 16Q2 17Q1 Sales 36.8 40.2 36.2 Sales 10.9 11.5 9.6 Sales 2.2 2.4 2.0 GM 30% 32% 31% GM 28%
Slide 9: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer
Slide 10: Gross margin
Gross margin 17Q1 excludes provisions, write-downs and restructuring charges. Other quarters exclude restructuring. › As anticipated, gross margin declined QoQ following 40% seasonally stronger software sales in Q1 › YoY gross margin negatively impacted by lower 35% 34% 33% Networks software sales a
Slide 11: Operating income
Operating income Q2 YoY SEK b. OM 7% Hedge loss of SEK -0.5 b. in Q216 Net impact Q216 +0.7 Hedge gain Q217 Gross margin Q217 -0.4 SEK 0.5 b. from 33% to 30% 3,8 reported as financial net Sales -8% YoY OM 1% 0,3 Q216 excl Hedge Capitalized R&D Volume Gross R&D SG&A Q217 excl restructuring impact mar
Slide 12: Operating expenses
Operating expenses › YoY negatively impacted by FX, appr -2% Operating expenses excl. restr., SEK b. 14.8 › Significant impact from less capitalization of R&D 14.0 13.7 0,4 – Driven by focused strategy, technology and portfolio shifts – No cash impact › SG&A 7,7 7,1 7,9 – YoY reduced, despite negati
Slide 13: SEK 10 b cost reductions
SEK 10 b cost reductions › At least SEK 10 b. net reduction of annual run rate by mid 2018 – 50% common costs, 50% service delivery – Baseline: Current run rate, i.e. annualized Q2 2017 › Reductions in addition to – Supply, i.e. closing manufacturing sites – Rightsizing due to lower business volumes
Slide 14: Change in Gross cash Q2
Change in Gross cash Q2 Operating cash flow Investing1 Financing FX on cash 0.0 b -1.8 b -8.9 b -0.6 bb -0.8 +1.9 -1.1 -1.0 -0.8 -5.6 -3.3 -0.6 65,6 54,3 Change in gross cash SEK -11.3 b. Gross cash Net Income Change Net Restructuring CAPEX Acquisitions, Other Dividend FX on cash Gross cash 1703A re
Slide 15: Additional project risks reducing capitalization
Additional project risks reducing capitalization › Increased risk of market and customer project adjustments – Focused strategy, current market and company position continued risk assessment – Estimated negative impact on operating income of SEK 3-5 b. in the coming 12 months • 30% estimated to im
Slide 16: Reducing capitalization – background
Reducing capitalization – background 1. Product platform R&D capitalization – Example: The new OSS and BSS platforms – Product platform R&D is capitalized and depreciated over 24-36 months as R&D expenses – Capitalization is reduced as a consequence of; cyclical product platform development and the
Slide 17: Planning assumptions
Planning assumptions From the Q2 report Market related › RAN equipment market outlook for 2017 estimated at high single-digit percent. Previous estimate: -2% to -6%. Ericsson focused strategy related › Addressing low-performing operations in MS and optimizing NRO offering expected to reduce FY19 sal
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 2017 restructuring charges 6-8 6-8 50% 2017 50% 2018 Q1 2017 provisions and customer project 8.4 5.8 Over several adjustments years Customer and market risks identified in Q
Slide 19: Börje Ekholm, President and CEO
Börje Ekholm President and CEO
Slide 20: Focused strategy
Focused strategy › Plan in place – execution started › Strong commitment across organization › Positive response from customers At least double the 2016 operating margin, excluding restructuring charges, beyond 2018 © Telefonaktiebolaget LM Ericsson 2017 | SECOND QUARTER REPORT 2017 | July 18, 2017
Slide 21: © Telefonaktiebolaget LM Ericsson 2017 | SECOND QUARTER REPORT 2017 | July 18, 2017
© Telefonaktiebolaget LM Ericsson 2017 | SECOND QUARTER REPORT 2017 | July 18, 2017 | Page 21
Slide 22: Ericsson
ERICSSON