26 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Jul 18, 2018
Slide 1: Ericsson Second quarter 2018
Ericsson Second quarter 2018 July 18, 2018 © Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018 | July 18, 2018 | Page 1
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations © Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018 | July 18, 2018 | Page 2
Slide 3: Second quarter 2018
Second 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 bett
Slide 4: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018 | July 18, 2018 | Page 4
Slide 5: Key takeaways
Key takeaways — Continued strong strategy execution • Continued investments in technology leadership • SEK 10 b. cost reductions program completed • Divested fiber assets and field service — Strong business momentum for 4G and virtualized portfolio • Operators need to efficiently manage growing user
Slide 6: Financial Performance, Q218
Q2 2018 Financial Performance, Q218 Excluding restructuring charges SEK b. 18Q2 17Q2 18Q1 — Sales adj. for FX: -1% YoY (reported sales -1%) • Organic growth in Networks – good momentum in North Net sales 49.8 50.3 43.4 America Gross margin 36.7% 30.9% 35.9% Operating income 2.0 1.0 0.9 — Gross margi
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: >SEK 10 b. ~SEK 2.7 b. Target SEK 10 b. G&A — G&A expenses structurally down by SEK 0.7 b. in 30% Q218 YoY 7.2 70% — Annual run-rate reduction end of quarter: 2.0 >SEK 8 b. driven by s
Slide 8: Employees and total workforce development
Employees and total workforce development Workforce development, Q416 – Q218 Total 130,840 128,256 Employees 113,351 ~20,500 reduction YoY 111,464 107,719 109,127 100,735 95,260 ~14,000 reduction YoY Q4 2016 Q2 2017 Q4 2017 Q2 2018 © Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018
Slide 9: Market area sales Q218, YoY
Market area sales Q218, YoY Net Sales bridge, Q218 YoY FX adjusted -22% — North East Asia 12% • Reduced LTE investments in Mainland China — Europe & Latin America -3% • Continued sales growth in Latin America and parts of Europe, offset by a decline in certain markets -2% -1% — Middle East & Africa
Slide 10: Reaching the 2020 target (CMD 2017)
Reaching the 2020 target (CMD 2017) Status Q2 2018 Networks Digital Services Managed Services Other 2020 target 2020 target 2020 target 2020 target Net sales Operating margin Net sales Operating margin Net sales Operating margin Net sales Operating margin SEK 128-134 b. 15-17% SEK 42-44 b. Low singl
Slide 11: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer © Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018 | July 18, 2018 | Page 11
Slide 12: Networks
Networks Segment Networks – Financial performance Excluding restructuring charges SEK b. 18Q2 17Q2 18Q1 — Sales adjusted for FX: 2% YoY • Strong growth in North America Net sales 32.4 31.7 28.6 Gross margin 40.2% 36.0% 40.4% — Solid gross margin increase YoY Operating income 4.3 4.2 3.9 • Increased
Slide 13: Digital Services
Digital Services Segment Digital Services – Financial performance Excluding restructuring charges SEK b. 18Q2 17Q2 18Q1 — Sales adjusted for FX: -12% YoY • Decline in legacy products Net sales 8.8 9.9 7.3 • Decline in new products, mainly due to delayed telecom Gross margin 42.6% 35.7% 42.9% core sa
Slide 14: Managed Services
Managed Services Segment Managed Services – Financial performance Excluding restructuring charges SEK b. 18Q2 17Q2 18Q1 — Sales adjusted for FX: -3% YoY • Lower sales due to contract exits Net sales 6.5 6.7 5.9 • Good growth in Managed Services IT Gross margin 14.0% 2.0% 9.1% Operating income 0.4 -0
Slide 15: Emerging Business & Other
Emerging Business & Other Segment Other – Financial performance Excluding restructuring charges SEK b. 18Q2 17Q2 18Q1 — Sales adjusted for FX: +1% YoY • Growth in iconectiv – Started sales on multi-year local Net sales 2.1 2.0 1.7 number portability contract in North America Gross margin 27.4% 24.3%
Slide 16: Gross margin Q218, YoY
Gross margin Q218, YoY Adjusted for restructuring charges Gross margin bridge Q218 YoY 40% — Structural improvements YoY • Cost reductions visible in all segments 30% 36.7% • Continued ERS ramp up in Networks 30.9% • Good progress in Managed Services contract review 20% — Positive market mix Q217 Ne
Slide 17: Operating income Q218, YoY
Operating income Q218, YoY Operating income bridge Q218 YoY (SEK b.) Excluding restructuring charges — Capitalization impact flattening out, SEK -0.2 b. YoY Cost savings — Continuous impairment testing of trade 4% receivables — Gross income increase driven by gross Ericsson Radio margin improvement
Slide 18: R&D and SG&A Q218, YoY
R&D and SG&A Q218, YoY R&D bridge Q218 YoY (SEK b.) SG&A bridge Q218 YoY (SEK b.) Excluding restructuring charges Excluding restructuring charges 0.9 0.5 9.3 6.6 6.6 0.4 0.2 — Investments in — Including 8.0 Networks provisions for — Reductions in 0.7 variable Digital Services compensation 17Q2 Capit
Slide 19: Free cash flow
Free cash flow Financial Performance Debt maturity profile (SEK b.) SEK b. Q218 Q217 Net income reconciled to cash -0.3 -0.1 Change operating net assets 1.7 0.1 Cash flow from operating activities 1.4 0.0 CAPEX -1.0 -1.0 Other1 -0.7 -0.3 Free cash flow before M&A -0.2 -1.3 M&A -0.4 0.0 Free cash flo
Slide 20: Other financial items
Other financial items — Impairment testing made continuously using a methodology where country and customer Impairment losses on trade risks are assessed receivables SEK -0.4 b. in the quarter — Will vary between quarters depending on payments received and aging of receivables Financial net decrease
Slide 21: Planning assumptions
Planning assumptions From the Q2 report Actual and estimated capitalization impact — RAN equipment market -2% FY18, 2% CAGR (17-22) SEK b. Q218 Q318 Q317 FY17 FY18 FY19 est. est. est. Market — Chinese market expected to decline in 2018, positive momentum in the U.S. CoS -0.2 -0.2 -0.9 -2.6 -1 - R&D
Slide 22: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018 | July 18, 2018 | Page 22
Slide 23: Closing remarks
Closing remarks — Strong momentum in strategy execution – tracking well towards 2020 Group targets • Significant improvements across operations – strict cost focus also going forward — Strategy cornerstone: Strengthening technology leadership and portfolio competitiveness • Investments will continue
Slide 24: © Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018 | July 18, 2018
© Telefonaktiebolaget LM Ericsson 2018 | Second quarter report 2018 | July 18, 2018 | Page 24
Slide 25: W
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Slide 26: Second quarter 2018
Second 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 bett