third quarter 2016 - ericsson.com · chief marketing and communications officer . third ......

THIRD QUARTER 2016

Oct 21, 2016

HElena norrman Senior Vice President

Chief Marketing and Communications Officer

THird QUARTER 2016

Oct 21, 2016

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.

Jan Frykhammar President and CEO

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© Telefonaktiebolaget LM Ericsson 2016 | THIRD QUARTER REPORT 2016 | OCT 21, 2016 |

Third quarter 2016

› Negative industry trends accelerated – weaker demand for

mobile broadband in some markets

‒ FX adjusted sales declined -14% YoY and -7% YoY in Q2

‒ Networks FX adjusted sales declined -20% YoY and -11%

YoY in Q2

› Gross margin impacted by lower capacity sales

› Cost and efficiency program on track

‒ Targeting opex run rate of SEK 53 b. by 2H17

‒ Reducing cost of sales – further short-term actions to adapt

operations to weaker mobile broadband demand

› Current industry trends indicate a somewhat weaker than

normal seasonal growth between Q3 and Q4

› Current business mix of coverage and capacity sales is

anticipated to prevail in the short term

SEK b. 16Q3 15Q3 16Q2

Sales 51.1 59.2 54.1

Gross margin, % 28.3 33.9 32.3

Operating income 0.3 5.1 2.8

Operating cash flow -2.3 1.6 -0.7

EPS (Non-IFRS), SEK 0.34 1.34 0.83

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Regional sales Q3 YoY

SEK 59.2 b.

SEK 51.1 b.

-22%

-8%

-28%

-21%

-17% -25%

-19% -8% -4% 6%

Negative trend for mobile broadband demand accelerated further

-25%

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Net sales Q3 YoY

59.2

51.1

Q315 Regions impactedby macro-economics

EU countries India NorthAmerica

North East Asia Other Q316

SEK b.

Regions Middle East,

Latin America,

Sub Saharan Africa +

Russia

Delayed

spectrum auctions Mainly

Services

Major decline in countries impacted by weak macro

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Regional sales Q3 qoq

SEK 54.1 b.

SEK 51.1 b.

-20%

-16%

-13%

-13% -4%

-2% -4% -2% 2% 1% 7%

Lower capacity sales in Europe

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› Sales down -11%

› Lower OSS and BSS sales

› Op margin declined to -12% (0%)

› Lower software sales

› Transition to recurrent license

revenue contracts continues

› Sales down -8%

› Lower PS and NRO sales

› Op margin declined QoQ

› PS stable at 10% excl restructuring

› NRO declined to -5% excl restructuring

› Sales down -19%

› Lower mobile broadband demand

› Op margin declined to -1% (10%)

› Lower sales, lower share of capacity

sales

› Partly offset by lower opex

segment summary

SEK b. 16Q3 15Q3 16Q2

Sales 23.3 28.8 26.8

Op Inc -0.3 2.8 1.6

SEK b. 16Q3 15Q3 16Q2

Sales 24.8 27.1 24.5

Op Inc 1.0 2.4 1.5

SEK b. 16Q3 15Q3 16Q2

Sales 2.9 3.3 2.9

Op Inc -0.4 0.0 -0.4

Networks Global Services Support Solutions

Lower mobile broadband demand PS margin stable QoQ Milestone-driven sales

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On customers’ agenda

› Increased focus on 5G and IoT

›Digital transformation

›Core network transformation

Carl mellander Chief Financial Officer

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5.1

0.3

Q315 Expenses Volume Grossmargin

Restructuring Q316

Operating Income Q3 YoY

Increased

restructuring

Sales decline

-14%

SEK b.

Cost and

efficiency

program

Gross margin

excl restr YoY

34.5% 29.4%

OM 8.6%

OM 0.7%

Cost reductions did not offset lower sales and gross margin

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Gross Margin Q3 QoQ, ex restructuring

33.2%

29.4%

Q216 Q316

Services share

from 45% to 49%

Driven by lower share of

capacity sales

in regions impacted

by macro-economics

Mainly lower capacity

sales in Europe

Current business mix anticipated to prevail short term

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58.9 61.0 59.4 58.9 57.6 56.7

63.0 64.4 61.4

59.8 57.7 56.7

53.0

2014Full Year

2015 June rolling 4quarters

2015Full Year

2016 Marchrolling 4quarters

2016 Junerolling 4quarters

2016 Seprolling 4quarters

2017 2Hannualrunrate

Underlying expenses Other*

› Cost and efficiency program tracking towards opex

target of SEK 53 b. – Headcount reduction initiated in; Sweden, the US, Finland,

Spain and the UK

› Operating expenses (excl restr) decreased YoY to

SEK 13.4 (14.3) b. – Mainly related to cost and efficiency program

› Cost of sales reductions – Further short-term actions are being implemented to adapt to

a weaker mobile broadband market

› Restructuring charges – Unchanged estimate for 2016 at SEK 4-5 b.

– High pace of restructuring anticipated also in 2017

Cost Savings

SEK b.

* Net of: capitalized and depreciated development expenses, and amortized intangible assets.

Operating expenses,

excl restructuring

This slide contains forward-looking statements. Actual result may be materially different.

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Change in gross cash Q3

Operational and structural actions are being taken to improve cash flow

1) Excluding Interest-bearing securities

Investing1

-2.7 b

Financing

-1.5 b

FX on cash

+1.3 bb

Operating Cash Flow

-2.3 b

16Q3A

SEK b.

Change in net cash SEK -4.6 b

48.8

+1.5

-3.3 -0.5 -1.3

-1.4 -1.3 -0.2 +1.3

43.6

30

35

40

45

50

55

Gross Cash1606A

Net incomereconciled to

cash

Change netoperating

assets

Restructuring CAPEX Acquisitions,divestments &

Other

Other financingactivities

Dividend FX on cash Gross Cash1609A

Change in gross cash SEK -5.2 b

Jan Frykhammar President and CEO

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SHORT TERM

› The current industry trends indicate a somewhat

weaker than normal seasonal sales growth

between Q3 and Q4

› A renewed managed services contract in North

America, with reduced scope, will impact sales

negatively

› Current business mix of coverage and capacity

sales in mobile broadband is anticipated to prevail

in the short term, 2-3 quarters

MID TERM

› Annual opex run rate to be reduced to SEK 53 b.

(ex restructuring) in 2H 2017, compared with SEK

63 b. in 2014

› The estimate for total restructuring charges in 2016

remains at SEK 4-5 b. The high pace of

restructuring activities is anticipated to remain in

2017

Planning assumptions extracted from the q3 report

Based on current visibility, assessments and FX rates 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.

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November 10, New York

Ericsson investor update

third QUARTER 2016

Oct 21, 2016

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.

third quarter 2016 - ericsson.com · chief marketing and communications officer . third ......

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