23 slides from Telefonaktiebolaget Lm Ericsson Class A's earnings presentation, Oct 17, 2019
Slide 1: Ericsson Third quarter 2019
Ericsson Third quarter 2019 Oct 17, 2019 © Telefonaktiebolaget LM Ericsson 2019 | Third quarter report 2019 | Oct 17, 2019 | Page 1
Slide 2: Peter Nyquist, Vice President Investor Relations
Peter Nyquist Vice President Investor Relations © Telefonaktiebolaget LM Ericsson 2019 | Third quarter report 2019 | Oct 17, 2019 | Page 2
Slide 3: Third quarter 2019
Third 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 b
Slide 4: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2019 | Third quarter report 2019 | Oct 17, 2019 | Page 4
Slide 5: Key takeaways
Key takeaways — Increased R&D efforts have resulted in a competitive portfolio – strong momentum across business — Several important wins improving market footprint for future business — Faster than anticipated 5G rollout – North America and North East Asia leading the way — Provision for SEC/DOJ re
Slide 6: Q3 2019 in numbers
Q3 2019 in numbers Financial Performance — Free cash flow before M&A SEK 5.5 (0.7) b. Excluding restructuring charges Net cash SEK 37.4 (32.0) b. SEK b. 19Q3 18Q3 19Q2 — Organic growth 3% – Reported growth 6% Net sales 57.1 53.8 54.8 — Underlying margin 11.4% – improved YoY and QoQ Gross margin 37.8
Slide 7: Market area sales Q319, YoY
Market area sales Q319, YoY Net sales bridge — Europe & Latin America FX adjusted • Growth in Europe (Networks and Digital Services) offset by decline in Latin America (large deployments in 2018) 19% • Decline in Managed Services from exited contracts -5% — South East Asia, Oceania & India • Strong
Slide 8: Carl Mellander, Chief Financial Officer
Carl Mellander Chief Financial Officer © Telefonaktiebolaget LM Ericsson 2019 | Third quarter report 2019 | Oct 17, 2019 | Page 8
Slide 9: Q3 2019 items affecting comparability
Q3 2019 items affecting comparability — SEC/DOJ cost provision of SEK -11.5 b. Financial Performance • USD -1.2 b. Excluding restructuring charges • Handled as non tax deductible • Reported as Other operating income and expenses SEK b. 19Q3 SEC/DOJ Social 19Q3 excl provision cost adjusted in segment
Slide 10: Networks
Networks Segment Networks – Financial performance Excluding restructuring charges — Sales adjusted for FX +4% YoY SEK b. 19Q3 18Q3 19Q2 • Strong growth in North America – 4G and 5G investments Net sales 39.3 35.9 37.8 — QoQ reported growth 4% Gross margin 41.6% 41.5% 41.4% — Gross margin Operating i
Slide 11: Digital Services
Digital Services Segment Digital Services – Financial performance Excluding restructuring charges SEK b. 19Q3 18Q3 19Q2 — Sales adjusted for FX +5% • Strong sales in North America and North East Asia Net sales 9.9 9.0 9.0 • Rolling 12 months sales of new products +19% Gross margin 38.3% 36.9% 37.1%
Slide 12: Managed Services
Managed Services Segment Managed Services – Financial performance Excluding restructuring charges SEK b. 19Q3 18Q3 19Q2 — Sales adjusted for FX -5% YoY • Lower sales due to contract exits Net sales 6.4 6.5 6.3 • Growth in Network Optimization Gross margin 17.9% 12.9% 12.3% Operating income 0.6 0.4 0
Slide 13: Emerging Business & Other
Emerging Business & Other Segment EB & Other – Financial performance — Emerging Business incl iconectiv Excluding restructuring charges • Sales growth in IoT. >4,500 enterprises on platform SEK b. 19Q3 18Q3 19Q2 • Increased income in iconectiv Net sales 1.6 2.4 1.7 — Red Bee Media Gross margin 20.5%
Slide 14: Gross margin
Gross margin Excluding restructuring charges — Gross margin improved QoQ – improvements in Underlying gross margin development Managed Services and Digital Services 38.5% 37.8% • Managed Services: Higher add-on sales and Q219 36.7% 36.9% 36.3%1 36.7% 35.9% impacted by non-recurring costs 30.5% 29.8%
Slide 15: Strategic contracts impact on Networks GM
Strategic contracts impact on Networks GM Gross margin to be compared QoQ — Some contracts have lower 42.3% -0.8% 41.6% initial margins, however all 41.4% selected for their value creation — Competitive product offering and cost structure, enable us to capture opportunities without jeopardizing our
Slide 16: Operating expenses
Operating expenses Excluding restructuring charges Impairment losses on trade R&D bridge Q319 YoY (SEK b.) SG&A Q319 YoY (SEK b.) receivables (SEK b.) Excluding restructuring charges 18Q3 19Q3 18Q3 19Q3 underlying 19Q3 reported 0.6 -8.4 0.4 -0.2 Managed 0.2 0.2 0.5 Services -4.9 -4.9 -5.8 0.9 Emergi
Slide 17: Free cash flow
Free cash flow Financial Performance SEK b. 19Q3 18Q3 — Free cash flow before M&A SEK 5.5 (0.7) b. Net income reconciled to cash -4.3 2.9 Change operating net assets 11.3 -0.9 — SEK 2.2 b. cash out from provisions in Q3 Cash flow from operating activities 7.0 2.0 — Majority of the DOJ/SEC provision
Slide 18: Planning assumptions – summary
Planning assumptions – summary Please see the Q3 report for complete planning assumptions Market — RAN equipment market 5% FY 2019, 2% CAGR 2018-2023 (Dell’Oro) — Net sales • Normal seasonality Q3Q4 18%. Uncertainty of NA operator merger likely to impact spending negatively short term • Baseline fo
Slide 19: Börje Ekholm, President and CEO
Börje Ekholm President and CEO © Telefonaktiebolaget LM Ericsson 2019 | Third quarter report 2019 | Oct 17, 2019 | Page 19
Slide 20: Closing remarks
Closing remarks — Will continue to invest in R&D and leverage our leading portfolio to capture market opportunities • 5G, cloud native portfolio, AI and automation — Strong momentum in 5G business – will continue to expand footprint where strategically and financially sound — Confident in reaching 2
Slide 21: © Telefonaktiebolaget LM Ericsson 2019 | Third quarter report 2019 | Oct 17, 2019
© Telefonaktiebolaget LM Ericsson 2019 | Third quarter report 2019 | Oct 17, 2019 | Page 21
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Slide 23: 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