second quarter report 2013 - ericsson...second quarter 2013 july 18, 2013 this presentation contains...

SECOND QUARTER 2013

July 18, 2013

Helena norrman Senior Vice President Communications

SECOND QUARTER 2013

July 18, 2013

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

© Telefonaktiebolaget LM Ericsson 2013 | SECOND QUARTER REPORT 2013 | July 18, 2013 |

key developments

› Increasing operator focus on network performance as key differentiator

› Video traffic growing 60% annually – drives demand for TV & media solutions

› Vendor selection processes for 4G/LTE in Russia and China ongoing

› Continued dynamic industry environment

› Still challenges in Europe and political uncertainty in parts of Middle East

› Fundamentals for longer term positive development in the industry remain attractive


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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22009 2010 2011 2012 2013

NET SALES

Net sales Q213 Y/Y Q/Q

SEK 55.3 b +0% +6%

Organic and FX adjusted

Q213/Q212

+7%

SEK b

› Organic FX-adjusted sales +7% YoY – Reported sales flat YoY – Strong SEK impacting sales especially in JPY, USD and

EUR – Continued high project activity in Europe and North

America – services and products – North East Asia had another challenging quarter – Continued structural decline in CDMA, GSM in China

and circuit-switched core

› Organic FX-adjusted sales +6% QoQ – Reported sales +6% QoQ – Growth driven by Global Services – Starting to engage in capacity and LTE projects in

Europe


-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

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-6

-4

-2

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2

2009 2010 2011 2012 2013

Profitability

Net income

Q213 Y/Y Q/Q

SEK 1.5 b +26% +26%

Net income

EPS, diluted

Net income excl. ST-Ericsson charge

Net income incl. divestment of Sony Ericsson

› Operating margin, including JV and adjusted for one-time effects, increased to 6.1% (3.1%)

– Exiting costs for cable operations SEK -0.6 b. – Loss related to divestment of ACS SEK -0.3 b.

› Negative currency effect

› Net income SEK 1.5 (1.2) b. – EPS diluted, SEK 0.45 (0.34) – EPS Non-IFRS1), SEK 0.88 (0.78)

1) EPS diluted, excl. amortizations, write-down of acquired intangible assets and restructuring.

SEK SEK b


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30%


2009 2010 2011 2012 2013

0123456789

10

North America West & CentrEurope

Mediterranean North E Asia

Q212 Q113 Q213

Networks

Operating margin

Q213 +5% Q212 +5% Q113 +6%

SEK b

SEK b

Net sales

Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges

Sales Q213 Y/Y Q/Q

SEK 28.1 b +1% +0%

Networks sales

Networks Operating margin

› Organic FX adjusted sales up 8% YoY – MBB deployments in North and Latin America – Lower business activity in South Korea – Continued structural decline in CDMA, GSM in China and

circuit-switched core

› Sales flat QoQ – Two coverage projects peaked in H113 in North America

› Operating income, SEK 1.3 (1.3) b. – One-time items SEK -0.6 b. – Gradually decreasing negative effects from network

modernization projects in Europe – Efficiency activities on track

› Operating margin, 5% (5%) – Adjusted for one-time items 7% (5%)


Networks

Operating margin

Q213 +5% Q212 +5% Q113 +6%

SEK b

SEK b

Net sales


Sales Q213 Y/Y Q/Q

SEK 28.1 b +1% +0%

Networks sales

Networks Operating margin

› Increasing operator focus on network performance as key differentiator

› Momentum for the SSR routing platform – 66 contracts signed since launch, of which 15 in Q2 – Broadband Network Gateway contracts signed – Break in contracts for Evolved Packet Core

› Heterogeneous networks, coordinating macro and small cells, demonstrate clear performance advantage 0

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5%

10%

15%

20%

25%

30%


2009 2010 2011 2012 2013

0123456789

10

North America West & CentrEurope

Mediterranean North E Asia

Q212 Q113 Q213


0%

5%

10%

15%

20%

25%

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12

18

24

30


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North America Mediterranean Sub Saharan Africa India

Q212 Q113 Q213

Global services

Global Services Operating margin Q213 +6% Q212 +6% Q113 +3%

Sales Q213 Y/Y Q/Q

SEK 24.9 b +3%

+16%


SEK b

Net sales SEK b

Network Rollout sales

Managed Services sales

Professional Services sales excl. Managed Services sales

Professional Services Operating margin

Global Services Operating margin

› Organic and FX adjusted sales up 9% YoY – Net sales +3%

› Strong sales growth +16% QoQ – Professional services +15%

› Professional Services sales, -1% YoY – 8 (7) significant consulting and systems integration contracts

signed – 19 (17) Managed Services contracts signed – 1 billion subscribers in networks managed by Ericsson

› Network rollout sales +13% YoY – High activity, primarily in North America


Global services


SEK b

Net sales SEK b

Network Rollout sales

Managed Services sales

Professional Services sales excl. Managed Services sales

Professional Services Operating margin

Global Services Operating margin

› Operating income, SEK 1.6 (1.4) b. – One-time items SEK -0.2 b – Restructuring charges from ongoing service delivery

strategy execution SEK -0.6 (-0.4) b.

› Operating margin 6% (6%) – Professional Services operating margin 14% (13%) – Network Rollout operating margin -9% (-11%)

› Partly an effect of gradually decreasing negative effects from the network modernization projects in Europe

Global Services Operating margin Q213 +6% Q212 +6% Q113 +3%

Sales Q213 Y/Y Q/Q

SEK 24.9 b +3%

+16%

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5%

10%

15%

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25%

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North America Mediterranean Sub Saharan Africa India

Q212 Q113 Q213


-20%

-10%

0%

10%

20%

30%

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2009 2010 2011 2012 2013

0.0

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1.0

North America Latin America Middle East

Q212 Q113 Q213

Support solutions

Operating margin Q213 -12% Q212 +12% Q113 -1%

Sales Q213 Y/Y Q/Q

SEK 2.3 b -33% -4%

SEK b

SEK b


Net sales

Support Solutions sales

Support Solutions Operating margin

› Sales, organic and FX adjusted, -19% – Net sales -33% – IPX divested Q312 – Media Management sales declined following the strong

first half 2012 – BSS sales declined temporarily mainly in Latin America

and Middle East, offset by growth in OSS – Leading industry analyst firm Gartner ranked Ericsson

#1 worldwide for OSS and BSS – Demand for OSS and BSS continues to be strong – Sales cycles typically long and volumes will vary

between quarters

› Sales -4% QoQ

› Operating margin -12% (12%) – Lower sales volumes – One-time items SEK -0.2 b

› Investing in our support solutions strategy – Intention to acquire Microsoft Mediaroom to strengthen

position in growing media market


Q2 Regional sales

Latin America › Network quality investments in 3G

and initial LTE rollouts, at slow pace

› Business in several countries impacted by currency depreciations

North East Asia › Structural decline in GSM

investments in China

› Negative FX effects in Japan

› Delayed spectrum auctions in South Korea

South East Asia and Oceania › A peak in deployment of major

projects in Indonesia offset lower business activity in Australia

Mediterranean › Modernization projects in France

and high project activity in Northwest Africa

› Macroeconomic development remained weak in parts of the region

Middle East › Initial LTE deployments ongoing

› Continued good demand for professional services

› Political unrest prevails

Sub-Saharan Africa › Services growth from new

managed services contracts

› 3G and initial 4G deployments ongoing, majority of sales still 2G

India › Operator spending remains cautious

› Growth in services driven by new managed services contract

Q213 Y/Y Q/Q

SEK 15.3 b +18%

-3%

Q213 Y/Y Q/Q

SEK 5.6 b +6%

+27%

Q213 Y/Y Q/Q

SEK 2.7 b -19% +19%

Q213 Y/Y Q/Q

SEK 4.5 b +10% +4%

Q213 Y/Y Q/Q

SEK 6.2 b -1%

+17%

Q213 Y/Y Q/Q

SEK 4.0 b +7%

+26%

Q213 Y/Y Q/Q

SEK 2.7 b -5%

+24%

Q213 Y/Y Q/Q

SEK 1.3 b -25% -20%

Q213 Y/Y Q/Q

SEK 6.6 b -21% +10%

Q213 Y/Y Q/Q

SEK 3.8 b +2% -9%

North America › Two mobile broadband coverage

projects peaked in first half 2013

› Network evolution and professional services remain a growth theme

Other › Licensing revenues continued to

show stable development

› IPX divested end of Q312

Q213 Y/Y Q/Q

SEK 2.7 b -13% -6%

Northern Europe and Central Asia › LTE vendor selection in Russia

ongoing, deployment to start 2H13

› Non-operator wins Nordics & Baltics

› High project levels in Russia in Q212

Western and Central Europe › High activity level in network

modernization projects

› Growth in Systems Integration


PROFESSIONAL SERVICES

Partner in media transformation (System Integration, Managed Services)

VIDEO ENABLED NETWORKS Exchanging and delivering content in any network

Capturing the media business transformation

MULTISCREEN TV Enabling premium content on any device

Leveraging combined strength of technology and services leadership


Technicolor Broadcast Services (2012) , Microsoft Mediaroom* and Red Bee Media*

Ericsson in TV and Media INTRODUCTION

customers competence scale

› 25% IPTV market share › World first complete LTE broadcast

solution › 2.000 TV customers world wide

› World leader in Multiscreen TV › Mediaroom + Ericsson

› More than 1800 service professionals in TV and media

› World leader in compression › Multiple industry awards incl 3 Emmys

› 40% of all on demand content processed through Ericsson systems

› > 200 channels global broadcasting › > 1.5M hours of content managed › 20 years of world leading video

solutions

Strategic acquisitions:

* Intention to acquire

JAN FRYKHAMMAR CFO and Executive Vice President


-8%

-6%

-4%

-2%

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Q112 Q212 Q312 Q412 Q113 Q213

Net Sales, SEK b. Reported growth YoY, % Organic FX adjusted growth, %

Sales growth – FX impact Sales growth first half 2013

Reported

Organic FX adjusted

Networks 2% 7%

Global Services 4% 9%

Support Solutions -26% -12%

Group 1% 7%

6 %-points difference YTD on sales of SEK 107 b.

SEK b

• Major FX impact from USD, EUR, JPY • Change of hedge accounting since Jan 1, 2013 • Currency depreciations and devaluation

in several countries


26%

28%

30%

32%

34%

36%

38%

40%

42%


P/L comments

Gross margin

Business mix – coverage/capacity

Modernization projects in Europe

Service share

Drivers


Business mix key to gross margin dynamics

› Gross margin increased YoY to 32.4% (32.0%) - Improved hardware and services margins

– Declining negative impact from European network modernization projects

– The business mix, with a higher share of coverage projects than capacity projects, started to shift slightly towards more capacity during the quarter

– Partly offset by higher services share and higher restructuring charges


02468

1012141618


› One-off items SEK -0.9 (0.3) b. – Exiting cable operations SEK -0.6 b. – Loss related to divestment of ACS SEK -0.3 b. – Reported as Other operating income and expenses

› Negative impact from currency effects › Restructuring charges SEK 0.9 (0.6) b.

– Majority related to service delivery

› Operating expenses SEK 14.4 (15.0) b. – Excluding acquisitions, divestments and restructuring

charges YTD expenses down -6% YoY

› No result from ST-Ericsson included in Ericsson’s result, SEK 0.0 (-1.3) b.

– Provision made in Q412 of SEK 3.3 b. to cover for costs related to implementation of strategic option

– Ericsson net exposure SEK 1.6 b.

› Operating income including JV, SEK 2.5 (2.1) b. – Operating margin, excluding one-off items, was 6.1% (3.1%)

P/L comments

R&D

SG&A

SEK b

SEK b

Operating margin incl. JVs

Operating income incl. JVs EBITA margin incl. JVs


-10%

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25%

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Operating income bridge

Opex OI Q213 excl.

one-time items

ACS and Cable

divestm.

Op. inc. Q213

Op. inc. Q212

JVs OI Q212 excl.

one-time items

SEMC related item

Volume Gross Margin

3.8% 3.1% 6.1%

Operating margin impact: SEK +1.7 b or +3.0%

Other Restruct. Ericsson

4.5%

-0.3

1.7 0.0

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1.2

-0.3

3.4 0.9

2.5

2.1

-0.3

SEK b

Good development despite negative impact from FX


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88101 99

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91104

111101

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108 103

7581 82

7487 89 91

7888 84 82

73 76 73

59 61 62 6270 68 67 62 64 63 59 57 55 55

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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22010 2011 2012 2013

Balance sheet comments

Days

DSO

Inventory days

Payables days

DSO target <90 days

Inventory days target <65 days

Payable days target >60 days

› Inventory flat QoQ at SEK 29.7 (29.8) b. – ITO from 76 to 73 days

› Payable days flat QoQ at 55 days › Provisions decreased SEK 1.8 b.

– Mainly related to restructuring and ST-Ericsson

› Trade receivables decreased QoQ to SEK 63.1 from 65.1 b.

– DSO improved from 108 to 103 days

› Customer financing decreased QoQ to SEK 4.1 b. from 5.0 b.


72.1+3.5

+1.8 -1.0 -0.8

-4.2

+2.4-8.9 64.8

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Gross Cash 1303A Net Incomereconciled to cash

Change NetOperating Assets

Restructuring Investing Activities Financing activities Financing activities FX on cash Gross Cash 1306A

Change in gross cash SEK -7.3 b

Change in gross cash Q213

1) Excluding Short term investments

Investing1) -0.8 b

Financing -13.1 b

FX on cash +2.4 b

Operating Cash Flow 4.3 b

Change in net cash SEK -4.8 b (from 32.2 to 27.4 b)

Other financing activities

Dividend net

SEK b.


Focus going forward

Strategy execution – profitable growth

Cost and efficiency

Technology and services leadership


Q&A

SECOND QUARTER 2013

July 18, 2013

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.

second quarter report 2013 - ericsson...second quarter 2013 july 18, 2013 this presentation contains...

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