ericsson second quarter 2014 · quarter 2014 july 18, 2014 this presentation contains...

second QUARTER 2014

July 18, 2014

HElena norrman Senior Vice President Communications

second QUARTER 2014

July 18, 2014

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 better understanding of these risks and uncertainties.

HANS VESTBERg JAN FRYKHAMMAR

President and CEO

CFO and Executive Vice President

HANS VESTBERg

President and CEO

© Telefonaktiebolaget LM Ericsson 2014 | SECOND QUARTER REPORT 2014 | JULY 18, 2014 |

key developments

Market › Increased operator focus on network performance as a

differentiator – capacity enhancements, densification › Rapid technology transformation to 4G/LTE in China › Major operators evaluating how next generation virtualized

networks impact business and operations › Mobile data traffic grew 65% YoY – Ericsson Mobility

Report, June 2014

Ericsson › Rising demand for managed services - 21 new contracts

across nine regions › Executing on previously awarded 4G/LTE contracts in

Mainland China and Taiwan › Multi-year BSS contract signed with T-Mobile US › Acquisition of Red Bee Media completed, strengthened

position in the transforming television and media industry


World Cup total: 26.7 TB data traffic, 48.5 million photos, 4.5 million calls Final game: Germany vs. Argentina, Maracanã, Rio de Janeiro 1.5 TB data traffic, 2.6 million photos, 35 photos per person

91% of mobile internet access was for social media usage

Source: SindiTelebrasil, 4G Americas

The social world cup


1% -2%

5%

2% 0%

-3%

0%

-9% -1%

01020304050607080

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22013 2014

Net sales and sales development

› Organic FX adjusted sales -1% YoY – Sales recovered compared to previous quarter driven by

the Middle East, China and India – Continued good capacity business in North America – Lower coverage project activity in North America and Japan

› Organic FX adjusted sales 13% QoQ – Strong sales in North America, China and Brazil – Weak Q1 2014

› Gross margin improved YoY to 36.4% (32.4%) › Operating income grew YoY to SEK 4.0 (2.5) b.

– Networks operating income improved substantially – Support solution showed negative result

› Operating cash flow SEK 2.1 (4.3) b. – Improved income with maintained working capital days

Net sales

Sales change, YoY

Operating income Operating margin

Second quarter in numbers

4% 6%

-6%

4% 4% 8%

14%

6% 7%

-6-4-202468

10

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014

SEK b.

Operating income and margin

2012

2012

SEK b.


Regional overview Q2 sales YoY

SEK 52 b.

SEK 55.3.b.

SEK 54.8 b.

-29%

-11%

-4% -3%

-1% -3% 0% 1%

29%

13%

23%

Sales recovered in North America and North East Asia


Regional overview Q2 sales qoq

SEK 44 b.

SEK 47.5.b.

SEK 54.8 b.

-3% 4% 3% 5% 6% 12% 15% 17%

15%

31%

24%

Strong sequential sales development – growth in 9 out of 10 regions

JAN FRYKHAMMAR CFO and Executive Vice President


Second quarter › Net sales SEK 54.8 (55.3) b. › Gross income and margin improved YoY

– Good development in capacity business, increased IPR and lower restructuring

› Operating expenses increased YoY to SEK 15.6 b. – Added modems and Mediaroom operations – Gradual increase in organic R&D – in line with strategy – Reduction in SG&A

› Operating income SEK 4.0 (2.5) b. › Net income almost doubled to SEK 2.7 (1.5) b. › Operating cash flow SEK 2.1 (4.3) b.

– Driven by strong income – Inventory increased in preparation for new projects – Working capital days remained stable with continued efforts

for improvement

32.0% 30.4% 31.1%

32.0% 32.4% 32.0%

37.1% 36.5% 36.4%

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22013 2014

Gross margin

15.0 13.3

16.4 14.5 14.4 13.5

16.1 14.7 15.6

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22013 2014

SEK b. Operating expenses

2012

2012


Sales YoY change, Q2 2014

Reported Organic FX adjusted

Networks 3% 5%

Global Services -7% -8%

Support Solutions 21% 5%

Group -1% -1%

Sales growth – FX impact SEK b.

• Major FX exposure: USD, EUR and JPY • Negative revaluation of hedges SEK -0.5 b. mainly

driven by USD

Insignificant depreciation effects from emerging markets

1%

-2%

5%

2%

0% -3%

0%

-9%

-1%

-6%

-4%

5%

7% 7%

3%

4%

-7%

-1%

0

10

20

30

40

50

60

70

80

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014

Net sales Sales growth (YoY) Sales growth (adj for FX & Hedge)

Rule of thumb, with current USD exposure: SEK 0.25 change in SEK vs USD impacts

revaluation of hedges by approx. SEK 0.5 b. 2012


4.5%

7.3%

Q2 2013 One-timeitems

Q2 2013adjusted

Sales GrossMargin

Restructuring Expenses Other Q2 2014

Operating Income and margin development – Q2 YoY

Operating income improvement mainly driven by Gross margin

55.354.8

0.90.2

32.4%36.4%

Costs related to divestment of ACS and

exiting Cables

Mainly Modems and Mediaroom

Hedge revaluation -0.2-0.5

2.5

3.4

4.0 -0.9

SEK b.

6.1%

14.215.5

4.5%

7.3%

Gross margin


Change in gross cash Q2

1Excluding Short term investments

Change in net cash SEK -11.1 b. (from SEK 43.6 to 32.5 b.)

Execution of order-to-cash initiative continues and shows good progress

Operating Cash flow +2.1

Investing1

-2.8

Financing -12.2

FX on cash +1.5b

SEK b.

HANS VESTBERg

President and CEO


Networks

› Business highlights – Continued operator focus on network performance – Continued momentum for SSR, 120 contracts since launch

› Organic FX adjusted sales +5% YoY – Sales recovered, driven by the Middle East, China, US and

India – Growth in radio access, IP Edge and IMS – Good capacity business in advanced LTE markets

› Sales increased 19% QoQ › Operating income SEK 3.6 (1.3) b.

– Improved business mix – Continued focus on commercial excellence and operational

effectiveness – Higher IPR revenues

› Operating margin 12% (5%) – Higher sales – Fourth consecutive quarter with double-digit margin


Net sales Sales change, YoY

-17% -17%

6%

3% 1% -1% -1%

-13%

3%

0

10

20

30

40

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22013 2014

SEK b. Net sales and sales development

5% 5% 8%

6% 5%

10%

17%

10%

12%

01234567

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22013 2014

SEK b.


2012

2012


Global services

› Business highlights – Red Bee Media acquisition finalized during the quarter – 21 new Managed Services contracts in nine regions – 12 new significant Consulting and Systems Integration

contracts

› Organic FX adjusted sales -8% YoY – Professional Services sales stable – Network rollout (NRO) sales continue to decline, with reduced

activities in North America and Japan

› Sales increased 13% QoQ – Increased activities in North America – High business activity in Managed Services

› Operating income SEK 1.5 (1.6) b. – Reduced losses in NRO both YoY and QoQ – Less negative impact from European modernization projects

as well as lower temporary project costs in North America

› Operating margin 6% (6%) – Good profitability maintained in Professional Services

Global Services operating income

Professional Services operating margin

Global Services operating margin

Global Services sales

Global Services sales change, YoY

Professional Services sales change, YoY

-10%

0%

10%

20%

30%

0

10

20

30

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014


6% 8%

6% 3%

6% 8% 8%

5% 6%

13% 14% 15%

13% 14% 14% 14%

13% 13%

0,0

0,5

1,0

1,5

2,0

2,5

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014

SEK b. Operating income and margin

2012

2012


Support solutions

› Business highlights – Multi-year BSS contract signed with T-Mobile US – Transition of business models continues

› Reported sales +21% YoY – Growth from Mediaroom and OSS – Partly offset by lower BSS sales – Organic FX adjusted sales +5% YoY

› Sales increased 2% QoQ – Strong growth in North America offset by weak

sales in emerging markets

› Operating margin -13% (-12%) – Lower sales from legacy portfolio – Investments in next-generation TV solutions

Net sales

Sales change, YoY


47%

29% 6%

-19% -33% -29%

40%

13% 21%

0123456

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22013 2014


12% 14% 8%

-1%

-12%

-5%

37%

0% -13%

-0,5

0,0

0,5

1,0

1,5

2,0

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2013 2014

SEK b.


2012

2012


modems › Business highlights

– Smartphones and data devices featuring M7450 will be on the market by the end of this year

– Global operator certification is progressing as planned

› Net sales are expected 2H 2014 › Operating loss of SEK -0.5 b. in the quarter

– Mainly R&D expenses

› Operating expenses in 2014 are estimated at SEK 2.6 b.

Success will be measured in an 18-24 month timeframe after integration Q3 2013


summary › Continued good capacity business as operators focus

on network performance

› Strong sequential sales growth

› Improved profitability driven by Networks

› Good profitability maintained in Professional Services

› Transition of business models in Support Solutions continues

› Continued investments in new and targeted areas

› Well positioned to continue to be a strategic partner to our customers in a transforming market

With current visibility, key contracts awarded will gradually impact sales and business mix in 2H 2014


Q&A

second QUARTER 2014

July 18, 2014

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 better understanding of these risks and uncertainties.

ericsson second quarter 2014 · quarter 2014 july 18, 2014 this presentation contains...

Documents