27 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Jan 25, 2019
Slide 1: Ericsson Fourth quarter 2018
Ericsson Fourth quarter 2018 Jan 25, 2019 © Telefonaktiebolaget LM Ericsson 2019 | Fourth quarter report 2018 | Jan 25, 2019 | Page 1
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations © Telefonaktiebolaget LM Ericsson 2019 | Fourth quarter report 2018 | Jan 25, 2019 | Page 2
Slide 3: Fourth quarter 2018
Fourth quarter 2018 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 | Fourth quarter report 2018 | Jan 25, 2019 | Page 4
Slide 5: 2018 – a year of execution
2018 – a year of execution — Focused strategy has yielded results – a stronger and more profitable company — Investments in R&D paying off - highly competitive portfolio — Regained competitive cost structure — Exciting market with strong 5G momentum – we are very well positioned — On track to reach
Slide 6: Full-year 2018 in numbers
Full-year 2018 in numbers SEK b. 2017 2018 Target Target — Organic growth, first time since 2013 2020 2022, — The SEK >10 b. cost reduction program successfully latest implemented Net sales 205.4 210.8 210-220 — Solid earnings in Networks and Managed Services, Gross margin1 25.9% 35.2% 37%-39% Opera
Slide 7: Q4 2018 in numbers
Q4 2018 in numbers Financial Performance, Q418 — Organic growth 4% Excluding restructuring charges — High activity level in North America SEK b. 18Q4 17Q4 18Q3 — Stable Networks profitability Net sales 63.8 57.9 53.8 — Growth in Digital Services – revised BSS strategy Gross margin 32.0% 25.1% 36.9%
Slide 8: Market area sales FY 2018, YoY
Market area sales FY 2018, YoY Net sales bridge, FY 2018 YoY FX adjusted 10% — North East Asia • Reduced operator investments in LTE - planning for 5G -8% — South East Asia, Oceania & India -6% • Large LTE deployments in 2017 -7% 4% — Middle East & Africa • Monetary restrictions in certain markets i
Slide 9: Market area sales Q418, YoY
Market area sales Q418, YoY Net sales bridge, Q418 YoY FX adjusted 13% — Middle East & Africa • Monetary restrictions in certain markets in the Middle East 22% — South East Asia, Oceania & India -19% • Decline in India offset by growth in several markets 3% 0% — Europe & Latin America • Continued sa
Slide 10: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer © Telefonaktiebolaget LM Ericsson 2019 | Fourth quarter report 2018 | Jan 25, 2019 | Page 10
Slide 11: Networks
Networks Segment Networks – Financial performance Excluding restructuring charges SEK b. 18Q4 17Q4 18Q3 — Sales adjusted for FX: 6% YoY • Growth in North America and Europe and Latin Net sales 41.6 37.1 35.9 America as well as in North East Asia Gross margin 41.0% 34.8% 41.5% Operating income 7.3 3.
Slide 12: Digital Services
Digital Services Segment Digital Services – Financial performance Excluding restructuring charges SEK b. 18Q4 17Q4 18Q3 — Sales adjusted for FX: +5% YoY • Growth in our 5G-ready and virtualized portfolio with a Net sales 13.0 11.8 9.0 total of 195+customers Gross margin 16.4% 14.6% 36.9% • Strong Cl
Slide 13: Reshaping Business Support Systems (BSS) business
Reshaping Business Support Systems (BSS) business Revised BSS strategy (from CMD 2018) Additional measures to speed up BSS restructuring — Past strategy: Large transformation projects incl. a — Costs for revised BSS strategy, SEK -6.1 b. next gen platform – full-stack Revenue Manager • Expected chan
Slide 14: Managed Services
Managed Services Segment Managed Services – Financial performance Excluding restructuring charges SEK b. 18Q4 17Q4 18Q3 — Sales adjusted for FX: -5% YoY • Lower sales due to contract exits Net sales 6.9 6.9 6.5 Gross margin 12.4% -5.3% 12.9% — Gross margin improved significantly YoY Operating income
Slide 15: Emerging Business & Other
Emerging Business & Other Segment EB & Other – Financial performance — Emerging Business incl iconectiv Excluding restructuring charges • Sales growth Q4 +60% driven by iconectiv SEK b. 18Q4 17Q4 18Q3 • Edge Gravity reset costs SEK -0.3 b. excl restructuring • Initiatives managed based on positive N
Slide 16: Gross margin
Gross margin Excluding restructuring charges — Gross margin Q418 36.3% when excluding BSS costs Underlying gross margin development from 2016 in Digital Services 37% 37% 36%1 — Structural improvements YoY 36% • Cost reductions in all segments 34% 33% 31% 30% 30% 30% • ERS ramp up • Managed Services
Slide 17: Operating expenses
Operating expenses Excluding restructuring charges Impairment losses on trade R&D bridge Q418 YoY (SEK b.) SG&A bridge Q418 YoY (SEK b.) receivables (SEK b.) Excluding restructuring charges 17Q4 18Q4 17Q4 18Q4 0.4 -0.4 -10.1 0.9 -0.4 -0.5 -7.6 Reductions, mainly in -1.2 -10.4 -7.7 0.6 Field trials,
Slide 18: Taxes
Taxes SEK -2.1 b. impairment of withholding tax assets in Sweden • Triggered by Q4 costs for reshaping BSS strategy • SEK 8.4 b. in loss carry-forwards tax asset value, mainly in Sweden. No time limit. • Additional SEK 13.3 b. in withholding tax assets and income tax prepayments. Withholding taxes i
Slide 19: Free cash flow
Free cash flow Financial performance Change in Gross cash FX and Operating Cash Flow Investing1 Financing other2 +9.3 b. -6.4 b. -4.1 b. SEK b. 2018 2017 +2.4 b.b Net income reconciled to cash 1.6 -13.1 Change operating net assets 7.8 22.7 -4.2 -4.0 -1.3 Cash flow from operating activities 9.3 9.6 -
Slide 20: Planning assumptions – summary
Planning assumptions – summary Please see the Q4 report for the complete planning assumptions. Market — RAN equipment market 2% FY19, 2% CAGR (2018-2023) — Baseline for IPR ~SEK 8 b., on an annual basis — Strategic contracts in Networks will continue to have a negative impact on gross margin. The co
Slide 21: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2019 | Fourth quarter report 2018 | Jan 25, 2019 | Page 21
Slide 22: 2019 priorities
2019 priorities — Networks • Continued R&D investments in competitive portfolio • Strategic contracts , strengthening market position — Managed Services • Investing in artificial intelligence, automation and analytics — Digital Services • Execution of reshaped BSS strategy • Make portfolio ready for
Slide 23: Closing remarks
Closing remarks — Continued focus on strategy execution • Investments in technology leadership • Strong cost control to safeguard competitiveness — Next steps – disciplined growth • Build on momentum in 5G and IoT — Artificial Intelligence and automation key enablers for new business development — C
Slide 24: February 25-28
February 25-28 © Telefonaktiebolaget LM Ericsson 2019 | Fourth quarter report 2018 | Jan 25, 2019 | Page 24
Slide 25: © Telefonaktiebolaget LM Ericsson 2019 | Fourth quarter report 2018 | Jan 25, 2019
© Telefonaktiebolaget LM Ericsson 2019 | Fourth quarter report 2018 | Jan 25, 2019 | Page 25
Slide 26: W
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Slide 27: 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