61 slides from Telefonaktiebolaget Lm Ericsson Class A's investor day presentation, Oct 17, 2019
Slide 1: Ericsson Investor Update 2019
Ericsson Investor Update 2019 October 17, 2019 2019-10-17 | Ericsson Investor Update 2019 | | Page 1
Slide 2: Welcome and introduction
Welcome and introduction Peter Nyquist VP Investor Relations 2019-10-17 | Ericsson Investor Update 2019 | | Page 2
Slide 3: Safe harbor statement
Safe harbor statement 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
Slide 4: Welcome and introduction
Welcome and introduction Peter Nyquist VP Investor Relations 2019-10-17 | Ericsson Investor Update 2019 | | Page 4
Slide 5: Agenda
Agenda Target and financial update – CFO Carl Mellander 1 Welcome – Peter Nyquist, VP Investor Relations Introduction 3 Financial strategy execution Target summary and segment breakdown Free cash flow and capital structure Strategic outlook – CEO Börje Ekholm Q&A 2 Strategy execution 4 CEO Börje Ekh
Slide 6: Strategic outlook
Strategic outlook Börje Ekholm President and CEO 2019-10-17 | Ericsson Investor Update 2019 | | Page 6
Slide 7: Stronger company – financially and technologically
Stronger company – financially and technologically Continued R&D investments resulting in a significantly stronger technology position Technology Highly competitive 5G platform 19 5G live Network across 4 continents Confident in Returned to organic growth –technology leadership and cost 2020 and 202
Slide 8: Strengthening Ethics & Compliance program
Strengthening Ethics & Compliance program Ericsson Ethics & Compliance program — Voluntarily cooperating since 2013 with US authorities (SEC and DOJ) — In the course of our own investigations shortcomings have been identified in terms of breaches of our own Code of Business Ethics and FCPA — Ongoing
Slide 9: Strategy execution
Strategy execution Market environment and 5G opportunities Segment priorities and financial targets 2019-10-17 | Ericsson Investor Update 2019 | | Page 9
Slide 10: Strategy execution
Strategy execution Market environment and 5G opportunities Segment priorities and financial targets 2019-10-17 | Ericsson Investor Update 2019 | | Page 10
Slide 11: Strategy remains – clearly delivering results
Strategy remains – clearly delivering results Purpose and vision Mission Empowering an intelligent, sustainable Enabling the full value of connectivity and connected world. for service providers. Our customers’ needs New revenue streams End-customer experience Relentless efficiency Networks Digital
Slide 12: Turnaround tracking according to plan
Turnaround tracking according to plan 2017 2018 2019 2020 Simplified structure Accelerated cost out – SEK 10 b. Workforce reduction of 18K Stabilize Portfolio review R&D now accounts for 24% of workforce (19% in 2017) & simplify Contract review Digital Services turnaround Invest in R&D for technolog
Slide 13: Executing on our margin commitments
Executing on our margin commitments Gross margin1 Operating margin1 Excludes SEC/DoJ BSS provision provision and refund SEK 6.1b SEK 10.6b RCOM 11.4% 38.5% 10.9% SEK 749m 36.9% 9.8% 8.9% 37.8% 8.0% 36.6% 36.7% 36.7% 7.0% 7.0% 34.8% 35.5% 6.2% 35.7% 5.8% 3.9% 30.5% 30.0% 32.6% 32.0% 4.2% 4.1% 4.0% 31
Slide 14: Market environment and 5G opportunities
Strategy execution Market environment and 5G opportunities Segment priorities and financial targets 2019-10-17 | Ericsson Investor Update 2019 | | Page 14
Slide 15: Shift to 5G accelerates
Shift to 5G accelerates 5G value share of world RAN market Dell’Oro Dell O'ro 2019 Dell O'ro 2018 70% 60% 50% 40% 30% 20% 10% 0% 2018 2019 2020 2021 2022 2023 2019-10-17 | Ericsson Investor Update 2019 | | Page 15
Slide 16: US launches 5G early
US launches 5G early 2019-10-17 | Ericsson Investor Update 2019 | | Page 16
Slide 17: Large scale 5G China rollouts to begin in 2020
Large scale 5G China rollouts to begin in 2020 2019-10-17 | Ericsson Investor Update 2019 | | Page 17
Slide 18: 3% YoY growth expected in operator revenue
3% YoY growth expected in operator revenue 2019-10-17 | Ericsson Investor Update 2019 | | Page 18
Slide 19: Early 5G adoption in Middle East
Early 5G adoption in Middle East Africa low LTE coverage 2019-10-17 | Ericsson Investor Update 2019 | | Page 19
Slide 20: Geopolitical and regulatory uncertainty puts European operators under pressure
Geopolitical and regulatory uncertainty puts European operators under pressure 2019-10-17 | Ericsson Investor Update 2019 | | Page 20
Slide 21: The 5G network platform
The 5G network platform >10Gbps Data peak rates 5G 10-100X Network bandwidth 10X 10-100X Lower latency 4G Connected devices 10X Battery life Critical IoT FWA MBB Massive IoT 2019-10-17 | Ericsson Investor Update 2019 | | Page 21
Slide 22: Consumers indicate a high willingness to pay for new services
Consumers indicate a high willingness to pay for new services A consumer use case roadmap to 5G Ericsson ConsumerLab % of consumers willing to pay 80% Lowest Highest (47%) (79%) 75% 5G home wireless Consumer interest real-time translations AR/VR learning 70% VR cinema AR window 65% AR windshield 60%
Slide 23: Operators who invest for industry services could substantially grow revenues
Operators who invest for industry services could substantially grow revenues Current & 5G addressable operator revenues Arthur D. Little & Ericsson Other 16% USD T Healthcare Potential revenue growth for 21% 2.5 >35% operators from industry digitalization 2.0 Media and entertainment 10% 1.5 2030 opp
Slide 24: Ericsson invests in areas that drive traffic to mobile networks
Ericsson invests in areas that drive traffic to mobile networks and increases demand for network quality Cellular IoT connections Ericsson Mobility Report IoT Services & Solutions for Industries 4.1 ~3X Provide IoT platforms, private connectivity solutions and generate 3.4 enterprise pull for mobile
Slide 25: 5G and IoT open the door to new value pools
5G and IoT open the door to new value pools — IoT Industry services — Industry Digitalization New consumer — Home broadband services — New applications Business today — Mobile connectivity 2019-10-17 | Ericsson Investor Update 2019 | | Page 25
Slide 26: Ericsson 5G execution
Ericsson 5G execution First with commercial 5G live networks in 4 continents: Americas, Europe, Asia and Oceania 27 publicly 19 21% 4 announced contracts live networks better speed million radios 5G commercial agreements We are supporting with Ericsson is leading in We have shipped 4 with 70 operato
Slide 27: Segment priorities and financial targets
Strategy execution Market environment and 5G opportunities Segment priorities and financial targets 2019-10-17 | Ericsson Investor Update 2019 | | Page 27
Slide 28: Networks strategic priorities and achievements
Networks strategic priorities and achievements — 1st with live networks in 4 continents Customer — Largest number of supported devices on 5G networks (10+) Invest in technology and cost leadership — 70+ radios planned for 2019 Selective market — Interoperability with all 5G chipset vendors Portfolio
Slide 29: Digital Services strategic priorities and achievements
Digital Services strategic priorities and achievements Profitability over — 29 of 45 critical and non-strategic projects addressed growth Customer — World 1st cloud native core deployment in a live network Selective approach to large and complex projects — Services margin improved — New BSS strategy
Slide 30: Digital Services portfolio transformation
Digital Services portfolio transformation Portfolio distribution between classic and growth portfolio net sales (% share) 100% 90% 80% 70% 55% 59% 65% 68% 60% 50% 40% 30% 20% 45% 41% 35% 32% 10% 0% 2016 2017 2018 2019 YTD Classic Growth Excludes professional services and 3PP 2019-10-17 | Ericsson In
Slide 31: Managed Services strategic priorities and achievements
Managed Services strategic priorities and achievements — Ericsson Operations Engine launched at MWC 2019 Lead data-driven — 1st Ericsson Operations Engine contract signed managed services Customer — Continued selective growth strategy Invest in AI R&D — Shifting from event driven to data driven oper
Slide 32: Segment Emerging Business and Other
Segment Emerging Business and Other Media Business MediaKind (Media Solutions) Partnering, retaining 49% ownership Invest in businesses that leverage Red Bee Media (Broadcast services) core portfolio and have commercial Develop and manage as an independent entity traction Emerging Business iconectiv
Slide 33: Updated 2020 and 2022 ambitions and targets
Updated 2020 and 2022 ambitions and targets SEK b. USD to SEK 9.50 2020 2022 Comments Sales ambition Group 230-240 (210-220) — Sales ambition of SEK 230-240 b. for 2020 based on a SEK/USD rate of 9.50 (vs. 8.70 CMD 2018) Networks 160-164 (141-145) — Stronger market driven by 5G — Kathrein acquisitio
Slide 34: Target and financial update
Target and financial update Carl Mellander CFO
Slide 35: Financial strategy execution
Financial strategy execution Target summary and segment breakdown Free cash flow and capital structure 2019-10-17 | Ericsson Investor Update 2019 | | Page 35
Slide 36: Financial strategy execution
Financial strategy execution Target summary and segment breakdown Free cash flow and capital structure 2019-10-17 | Ericsson Investor Update 2019 | | Page 36
Slide 37: Financial strategy execution since 2017
Financial strategy execution since 2017 De-risked the balance sheet through provisions and write-downs Growth in a Secure financial Secured sufficient liquidity to execute the strategy (Gross Cash SEK 76 b. in Q3 2019) disciplined way resilience, enhance profit and cash generation abilities Increase
Slide 38: Ericsson turnaround journey since 2017
Ericsson turnaround journey since 2017 Net sales Underlying gross margin2 Operating income (SEK b. – Rolling 4Q) (% – quarterly) (SEK b. – Rolling 4Q) 230 20 39 220 15 210 37 10 200 35 5 0 190 33 -5 180 31 -10 170 29 -15 160 -20 150 27 -25 25 -30 17Q1 17Q3 18Q1 18Q3 19Q1 19Q3 17Q1 17Q3 18Q1 18Q3 19Q
Slide 39: Segment improvements
Segment improvements Networks Digital Services Managed Services Emerging Business & Other 138.6 152.2 Net sales 38.1 39.7 25.8 25.4 8.4 7.3 (SEK b.) 2018 2019 09 2018 2019 09 2018 2019 09 2018 2019 09 rolling 4Q rolling 4Q rolling 4Q rolling 4Q GM (%) 40.8% 41.7% 32.4% 37.6% 12.2% 15.0% 25.4% 19.9%
Slide 40: Positive free cash flow throughout the turnaround
Positive free cash flow throughout the turnaround Cash flow1 Cash position Credit rating Operating cash flow Gross cash Net cash Free cash flow before M&A Agency Rating Outlook Fitch BBB- Stable (Invest. grade) (Jul 2018) S&P BB+ Positive 76 68 69 (Sep 2019) 21 58 Moody’s Ba2 Positive 14 15 35 36 37
Slide 41: Target summary and segment breakdown
Financial strategy execution Target summary and segment breakdown Free cash flow and capital structure 2019-10-17 | Ericsson Investor Update 2019 | | Page 41
Slide 42: Target update 2020
Target update 2020 Increased group net sales ambition, maintained operating margin1 target CMD CMD 2018 2018 Investor Update 2019 SEK b. 2020 operating income and margin1 target ranges Comments 2020 2020 2020 Sales 210-220 230-240 Net Sales Networks 15% to 17% — Sales ambition of SEK 230-240 b. for
Slide 43: 2019 rolling 4Q vs 2020 financial targets
2019 09 rolling 4Q vs 2020 financial targets CMDInvestor 2018 Update 2019 2019 09 rolling 4Q1 SEK b. 2020 2020 SEK b. Change YoY Comments Sales 230-240 224.6 +9.6% — Business momentum on a growing market — Innovation, cost competitiveness and discipline Gross margin 37-39% 37.3% +2.5%p. — Regional s
Slide 44: Target breakdown by segment
Target breakdown by segment Networks Digital Services Managed Services Emerging Business & Other 2020 target 2020 target 2020 target 2020 target Net sales Operating margin2 Net sales Operating margin2 Net sales Operating margin2 Net sales Operating income2 SEK 160-164 b. 15-17% SEK 41-43 b. Low sing
Slide 45: Networks – development towards 2020 target
Networks – development towards 2020 target Illustrative Net sales Operating margin1 Net sales SEK b. — Kathrin acquisition closed in October — Overall RAN market (product & services) outlook up 2-3% 2020 (Dell’Oro) Ambition SEK 160-164 b. Target: — Selective and disciplined market share 15 - 17% exp
Slide 46: Networks – business and margin mix
Networks – business and margin mix Illustrative Sales split Hardware Sales SEK 152 b. — Continued R&D investments for cost & technology Sales SEK 141 b. Gross Margin 41.4% leadership, more advanced radio solution for Gross Margin 33.4% . performance, capacity, 5G and Transport — Ericsson Radio Syste
Slide 47: Strategic contracts
Strategic contracts — Building a stronger position long term — Strengthening our market position, capitalizing on the increasing Why we do it market momentum for 5G Several — Selective increase of market share where it makes business sense important — Some contracts have lower initial margins, howev
Slide 48: Digital Services – development towards 2020 target
Digital Services – development towards 2020 target Illustrative Net sales Operating margin1 Net sales SEK b. — Driven by 5G Core, virtualization, and orchestration Target: Ambition Low single — Scaling of SW business digit 8.2 SEK 41-43 b. SEK 39.7 b. Gross margin — Reducing systems integration cost
Slide 49: Digital Services turnaround – on track towards profitability
Digital Services turnaround – on track towards profitability Net sales rolling 4Q 42.0 Comments 41.0 39.7 Ambition: − Strong demand in North America and North East Asia 40.0 SEK 41-43 b 39.0 38.8 − Good business momentum across several parts of our growth SEK b 38.0 portfolio 37.0 − Cloud native and
Slide 50: Managed Services – development towards 2020 target
Managed Services – development towards 2020 target Illustrative Net sales Operating margin1 Net sales SEK b. Ambition 9.3% — Decline due to contract review 25.4 SEK 23-25 b. Target program / exit of non strategic 5-8% contracts 8.2 — Continued selected growth 6.4% strategy R&D investments — Value pr
Slide 51: Emerging Business and Other – updated 2020 target
Emerging Business and Other – updated 2020 target Illustrative Net sales Operating income1 Segment summary SEK b. SEK b. Ambition — MediaKind exit impacting Net sales, SEK 6-8 b. SEK 7.3 b. and driving Operating income 7.3 improvement — Red Bee Operating income improvement driven by operational perf
Slide 52: Free cash flow and capital structure
Financial strategy execution Target summary and segment breakdown Free cash flow and capital structure 2019-10-17 | Ericsson Investor Update 2019 | | Page 52
Slide 53: Free cash flow generation
Free cash flow generation Bridge from operating income to free cash flow 2019 Q3 Comments Illustrative Ambition YTD − Focus on delivering high conversion of Operating income1 >12% 10.1% Operating income to free cash flow − Activities ongoing to reduce costs “below OI”, - Financial net, tax and other
Slide 54: Reduced working capital and an overall improvement in capital efficiency
Reduced working capital and an overall improvement in capital efficiency Working capital (days) 145 Q3 YTD FY Working capital 126 − The trend towards fewer working capital days has continued 108 102 96 89 92 − Key drivers 100 Target − Implementation of the focused strategy − Selective deal taking −
Slide 55: Ericsson Capital Allocation – Delivering on our strategy
Ericsson Capital Allocation – Delivering on our strategy Downturn Turnaround phase Repositioning phase Capital allocation Tightening all “valves” to secure Stay the course, efficiency in generating larger than cash generation liquidity and invest in R&D cash flow, discipline in allocating capital 20
Slide 56: Capital structure strategy – moving into the next phase
Capital structure strategy – moving into the next phase Capital structure strategy Capital ambitions Status Turnaround phase Repositioning phase 2019 Q3 YTD (2017-2019) (2020-2022) Free Cash Flow SEK 11.8 b. — Secure cash position and — Secure efficiency in generating Strong (before M&A) 7.3% of NS
Slide 57: CFO Priorities
CFO Priorities Deliver strong free cash flow Solid path Allocate capital for long-term value creation in a disciplined way towards Maintain financial stability with a resilient balance sheet and ample liquidity 2020 and 2022 financial targets Accelerate transformation for competitiveness . 2019-10-1
Slide 58: Q&A
Q&A Börje Ekholm, CEO Carl Mellander, CFO To ask questions, please call: Sweden: +46 (0)8 566 426 51 UK: +44 (0)333 300 0804 US: +1 631 913 1422 PIN code: 42814345# 2019-10-17 | Ericsson Investor Update 2019 | | Page 58
Slide 59: Summary
Summary our strategy execution lays strong foundation turnaround R&D investments have created technology and cost leadership market opportunity 5G and IoT opens new value pools to operators consumer applications and industry services 5G execution first in 4 continents 19 live networks with 21% bette
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Slide 61: 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