26 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Jan 24, 2020
Slide 1: Ericsson Fourth quarter 2019
Ericsson Fourth quarter 2019 Jan 24, 2020 © Telefonaktiebolaget LM Ericsson 2020 | Fourth quarter report 2019 | Jan 24, 2020 | Page 1
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations © Telefonaktiebolaget LM Ericsson 2020 | Fourth quarter report 2019 | Jan 24, 2020 | Page 2
Slide 3: Fourth quarter 2019
Fourth 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 2020 | Fourth quarter report 2019 | Jan 24, 2020 | Page 4
Slide 5: 2019 – Continue to execute on our strategy
2019 – Continue to execute on our strategy — Topline organic growth FY 4% and Q4 1% • Winning footprint based on technology leadership • Fundamentals remain strong in North America while uncertainty related to the merger reduced sales in Q4 • Growth in other markets, primarily the Middle East and No
Slide 6: Market area sales Q419, YoY
Market area sales Q419, YoY Net sales bridge — North America FX adjusted • Lower capex due to delayed operator merger • Growth with other customers 19% -9% — Europe & Latin America 11% • Networks grow in Europe, offset by market decline in Latin America -5% 9% — South East Asia, Oceania & India • Al
Slide 7: Market area sales FY 2019, YoY
Market area sales FY 2019, YoY Net sales bridge — Europe & Latin America FX adjusted • Growth in Europe – earlier announced contract wins • Latin America declined due to timing of large projects 11% — South East Asia, Oceania & India • Growth in Managed Services: Add-on sales -4% 13% • Digital Servi
Slide 8: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer © Telefonaktiebolaget LM Ericsson 2020 | Fourth quarter report 2019 | Jan 24, 2020 | Page 8
Slide 9: Full-year 2019 in numbers
Full-year 2019 in numbers Financial Performance — Organic sales growth of 4% – driven by Networks Excluding restructuring charges — Gross margin of 37.5%, within the 2020 target range SEK b. 2018 2019 Target Target 2020 2022 — Operating margin 9.7% excl. SEC and DOJ settlements Net sales 210.8 227.2
Slide 10: Q4 2019 in numbers
Q4 2019 in numbers Financial Performance — Organic sales growth 1% – Reported growth 4% Excluding restructuring charges — Q4 operating margin of 9.7%, impacted by: SEK b. 19Q4 18Q4 19Q3 • Partial release of SEC and DOJ provision of SEK 0.7 b. Net sales 66.4 63.8 57.1 • ST-Ericsson non-cash cost of S
Slide 11: DOJ and SEC settlements
DOJ and SEC settlements Effect on financial numbers — Announced on 7th of December: Ericsson reaches resolution on U.S. FCPA investigations SEK b. 19Q3 19Q4 2020-2022 Income statement effect -11.5 0.7 -- — Partial provision release Cash flow impact -- -10.1 -0.6 • Cash out lay of SEK 10.1 b. in Q4 –
Slide 12: Networks
Networks Segment Networks – Financial performance Excluding restructuring charges SEK b. 19Q4 18Q4 19Q3 — Organic sales +2% YoY • Growth driven by LTE and 5G investments Net sales 44.4 41.6 39.3 • Strong growth in Japan and Saudi Arabia partly offset by Gross margin 41.1% 41.0% 41.6% weaker North Am
Slide 13: Strategic contracts impact on Networks GM
Strategic contracts impact on Networks GM Excluding restructuring charges Gross margin comparison QoQ — Some contracts have lower 41.6% -0.5% initial margins, however all are 0.0% 41.1% selected for their value creation — Competitive product offering and cost structure enable us to capture opportuni
Slide 14: Networks operating margin
Networks operating margin Excluding restructuring charges 2019 by quarter 26.6% 26.5% 27.0% Isolated quarters Opex to Sales % QoQ development 23.4% — Customer financing revaluation and AR impairment losses SEK 16.6% -0.3 b. in Q4 equal to -0.7% Accumulated 16.4% 15.7% 16.0% — Kathrein -1 %-point ope
Slide 15: Digital Services
Digital Services Segment Digital Services – Financial performance Excluding restructuring charges SEK b. 19Q4 18Q4 19Q3 — Organic sales -3% YoY • Lower 4G core sales in North East Asia Net sales 13.2 13.0 9.9 • Growth in OSS, Cloud infrastructure and services Gross margin 38.1% 16.4% 38.3% • Busines
Slide 16: Managed Services
Managed Services Segment Managed Services – Financial performance Excluding restructuring charges SEK b. 19Q4 18Q4 19Q3 — Organic sales -1% YoY • MS Networks declined Net sales 7.0 6.9 6.4 • Growth in Optimization business Gross margin 15.4% 12.4% 17.9% Operating income 0.3 0.4 0.6 — Gross margin Op
Slide 17: Emerging Business & Other
Emerging Business & Other Segment EB & Other – Financial performance Excluding restructuring charges — Full year 2019 SEK b. 19Q4 18Q4 19Q3 FY19 FY18 • Organic sales +14%, adj. for comparable units and currency Net sales 1.7 2.3 1.6 6.8 8.4 • Significantly reduced losses in all three operational uni
Slide 18: Operating expenses YoY
Operating expenses YoY Excluding restructuring charges R&D bridge Q419 (SEK b.) SG&A bridge Q419 (SEK b.) Opex to sales FY % and SEK b. 18Q4 19Q4 18Q4 19Q4 32.8% 30.7% 28.1% -9.4 28.1 26.8 26.0 -0.2 0.4 -7.6 Managed -0.2 -7.8 Services Emerging business Revaluation of customer -0.4 -8.2 35.6 37.6 38.
Slide 19: Free cash flow
Free cash flow Financial Performance SEK b. 19Q4 2019 2018 — Free cash flow before M&A SEK 7.6 (4.3) b. YoY Net income reconciled to cash 8.0 14.1 1.6 Change operating net assets -7.5 2.8 7.8 — SEC and DOJ payments of SEK 10.1 b. in Q4 Cash flow from operating activities 0.5 16.9 9.3 — SEK 7.6 (6.9)
Slide 20: Planning assumptions – summary
Planning assumptions – summary Please see the Q4 report for complete planning assumptions Market — RAN equipment market 4% FY 2020, 2% CAGR 2018-2023 (Dell’Oro) — The financial targets for 2020 and 2022 presented at the Investor Update in October 2019 remain unchanged. — Net sales and Gross margin •
Slide 21: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2020 | Fourth quarter report 2019 | Jan 24, 2020 | Page 21
Slide 22: Closing remarks
Closing remarks — Focused strategy with increased investments in R&D is paying off — A leader in 5G with 78 commercial 5G agreements with unique operators and 24 live 5G networks across four continents — SEC and DOJ investigation settled — The proposal to increase the dividend expresses the Board’s
Slide 23: Join Ericsson at MWC Barcelona 2020
Join Ericsson at MWC Barcelona 2020 February 24-25 https://www.ericsson.com/en/investors/events-and-presentations/mwc20 © Telefonaktiebolaget LM Ericsson 2020 | Fourth quarter report 2019 | Jan 24, 2020 | Page 23
Slide 24: © Telefonaktiebolaget LM Ericsson 2020 | Fourth quarter report 2019 | Jan 24, 2020
© Telefonaktiebolaget LM Ericsson 2020 | Fourth quarter report 2019 | Jan 24, 2020 | Page 24
Slide 25: W
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Slide 26: 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