22
first QUARTER 2017 Apr 25, 2017
first QUARTER 2017
Apr 25, 2017
Peter nyquist Vice President Investor Relations
first QUARTER 2017
April 25, 2017
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.
Börje Ekholm President and CEO
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˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș−≤≥fifl
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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› Unsatisfactory company performance - highlights need for the new strategy
› A challenging quarter– but mixed picture – Solid Networks result despite declining sales
– Accelerated losses in IT & Cloud and Media – additional actions initiated
› Focused strategy launched to revitalize technology and market leadership,
improve group profitability – Focus the portfolio, secure effectiveness and efficiency
– Intensify cost structure improvements – focus further on structural changes
– Selectively increase investments in certain core areas
› Significantly improved profitability already in 2018 expected
– Beyond 2018 we believe we can at least double 2016 underlying operating margin
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!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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› Sales adjusted for FX -16% YoY
– Sales adjusted for FX and IPR -12% YoY
› Significant adjustments to Q1 2017 result of SEK 13.4 b.
– Restructuring charges, asset write-downs as well as provisions and adjustments related to
certain customer projects
› Cash flow SEK -1.5 (-2.4) b.
› Cost and efficiency program not yielding sufficient result, based on current
profitability
First quarter 2017
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˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș−≤≥fifl
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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© Telefonaktiebolaget LM Ericsson 2017 | FIRST QUARTER REPORT 2017 | APR 25, 2017 | Page 7
› Sales adj. for FX -18% YoY ‒ Lower mobile broadband investments
‒ Reduced scope in MS contract
‒ Reduced IPR revenues
‒ Impacted by strong Q416
› Op margin 12% (16%) ‒ Solid result
‒ Lower IPR revenues
› Continued ramp-up of new radio ERS ‒ Stabilized market share
› Sales adj. for FX -22% YoY ‒ Lower sales of legacy products
‒ Lower IPR revenues
› Op margin -51% (-12%) ‒ Lower GM and sales
‒ Significant losses
› Exploring strategic opportunities
› Sales adj. for FX -7% YoY ‒ Lower legacy products sales
‒ Lower IPR revenues
‒ Services share 57% (51%)
› Op income SEK -2.2 (-1.8) b. ‒ Reduced services margin
› Not acceptable - turn around actions ‒ Accelerate product introductions
‒ Streamline services organization
‒ Tighten contract scoping
‒ Seeking alternatives for IT cloud
infrastructure hardware business
Tangible improvements expected 2018
segment summary
SEK b. 17Q1 16Q1 16Q4
Sales 36.2 39.9 47.8
GM 31% 33% 27%
Op. income 4.3 6.2 4.8
OM 12% 16% 10%
Networks IT & Cloud Media
Tables exclude provisions, write-downs and restructuring charges in 17Q1. 16Q1 and 16Q4 exclude restructuring.
SEK b. 17Q1 16Q1 16Q4
Sales 9.6 9.8 14.9
GM 28% 34% 36%
Op. income -2.2 -1.8 0.0
OM -23% -18% 0%
SEK b. 17Q1 16Q1 16Q4
Sales 2.0 2.4 2.5
GM 31% 45% 27%
Op. income -1.0 -0.3 -0.4
OM -51% -12% -17%
Carl mellander Chief Financial Officer
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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First quarter 2017
SEK b.
Q117
reported
Restruct.
charges
Write-
downs
Provisions
and cust.
proj. adj.
Q117
adjusted
Net sales 46.4 - - 1.4 47.8
Gross income 6.4 1.5 - 6.7 14.6
Gross margin 13.9% - - - 30.5%
Operating expenses -18.9 0.3 3.3 1.7 -13.7
Operating income -12.3 1.7 3.3 8.4 1.1
Operating margin -26.6% - - - 2.3%
› Future cash flow impact from provisions and customer project adjustments
estimated to be SEK 5.8 b., over several years
Adjusted for restructuring charges and items affecting comparability
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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› South East Asia, Oceania and India (1% YoY)
– Operator consolidations in India
– Continued MBB investments in South East Asia
› North East Asia (0% YoY)
– Mainland China decline offset by growth in Japan
and Korea
› North America (-10% YoY)
– Mainly due to reduced scope in MS contract
› Europe and Latin America (-16% YoY)
– Continued reduced MBB investments
– Slowdown in Mexico
› Middle East and Africa (-5% YoY)
– Continued challenging macroeconomic environment
Q1 sales geographical overview
South East Asia, Oceania
and India
North East Asia
North America
Europe and Latin America
Middle East and Africa
18.5%
13%
27%
29%
12.5%
Excluding Region Other
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33.9% 30.5%
17.0%
Q116 exclrestructuring
IPR licensingrevenues
SegmentNetworks
SegmentIT & Cloud
Segment Media
Q117 adjusted* Q117 exclrestructuring
GROSS MARGIN Q1 YoY
Stable
IPR revenues and margins in IT & Cloud main reasons for reduced underlying gross margin
Reduced
margins in
services and
increased
service share
Changed
business mix and
Under-absorption
in services
* Excluding restructuring charges, asset write-downs as well as provisions and adjustments related to certain customer projects
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!"#$%&'()*+,-./0123456789:;<=>?@ABCDEFGHIJKLMNOPQRSTUVWXYZ[\]^_`abcdefghijklmnopqrstuvwxyz{|}~¡¢£¤¥¦§¨©ª«¬®¯°±²³´¶·¸¹º»¼½ÀÁÂÃÄÅÆÇÈËÌÍÎÏÐÑÒÓÔÕÖ×ØÙÚÛÜÝÞßàáâãäåæçèéêëìíîïðñòóôõö÷øùúûüýþÿĀāĂăąĆćĊċČĎďĐđĒĖėĘęĚěĞğĠġĢģĪīĮįİıĶķĹĺĻļĽľŁłŃńŅņŇňŌŐőŒœŔŕŖŗŘřŚśŞşŠšŢţŤťŪūŮůŰűŲųŴŵŶŷŸŹźŻżŽžƒȘșˆˇ˘
˙˚˛˜˝ẀẁẃẄẅỲỳ–—‘’‚“”„†‡•…‰‹›⁄€™ĀĀĂĂĄĄĆĆĊĊČČĎĎĐĐĒĒĖĖĘĘĚĚĞĞĠĠĢĢĪĪĮĮİĶĶĹĹĻĻĽĽŃŃŅŅŇŇŌŌŐŐŔŔŖŖŘŘŚŚŞŞŢŢŤŤŪŪŮŮŰŰŲŲŴŴŶŶŹŹŻŻȘș−≤≥fifl
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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29.4% 30.5%
17.0%
Q416 exclrestructuring
SegmentNetworks
SegmentIT & Cloud
Segment Media
Q117 adjusted* Q117 exclrestructuring
GROSS MARGIN Q1 QoQ
Higher share of capacity
business.
Improved services
margins.
Higher share of IPR
Improved Networks margin partly offset by decline in IT & Cloud
Reduced services
margins in
large transformation
contracts and in IT
managed services
* Excluding restructuring charges, asset write-downs as well as provisions and adjustments related to certain customer projects
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4.1
1.1
-10.6
Q116 exclrestructuring
IPR revenues Volume Gross margin Expenses Other Q117 adjusted *
OPERATING INCOME Q1 YoY SEK b.
OM 8%
IPR revenues and lower volumes main drivers for the reduced underlying result
OM 2%
Q117 excl
restruct.
* Excluding restructuring charges, asset write-downs as well as provisions and adjustments related to certain customer projects
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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58.9 61.0 59.4 56.4 55.9
63.0 64.4 61.4
56.4 56.3
2014Full Year
2015 June rolling 4 quarters
2015Full Year
2016Full Year
2017 Marchrolling 4 quarters
Underlying expenses Other*
› Cost and efficiency program is not yielding
sufficient result – Focus further on structural changes for increased cost
competitiveness
› Underlying expenses reduced by SEK 0.5 b.
› Restructuring charges for 2017 – With current plans, estimated to be approximately SEK 6-8 b.
for implementation of the focused business strategy
› Our target is to surpass previous ambitions – Need to increase investments in certain core areas -
can temporarily increase cost levels
Cost Savings
SEK b.
* Net of: capitalized and depreciated development expenses, and amortized intangible assets.
Opex, excl. restructuring and Q117 adjustments1)
This slide contains forward-looking statements. Actual result may be materially different.
1) Excluding restructuring charges, asset write-downs as well as provisions and adjustments related to certain customer projects
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57.9 -9.2 +9.3
-1.6 -1.0
-0.8 +10.9
0.0 +0.2
65.6
Gross Cash1612A
Net Incomereconciled to
cash
Change NetOperating
Assets
Restructuring CAPEX Acquisitions,divestments &
Other
Otherfinancingactivities
Dividend FX on cash Gross Cash1703A
Change in gross cash SEK +7.7 b
Change in gross cash Q1
Launch of 2 new Euro bonds, together amounting to EUR 1.0 b.
1) Excluding Interest-bearing securities
Investing1
-1.8 b
Financing
+10.9 b
FX on cash
+0.2 bb
Operating cash flow
-1.5 b
Change in net cash SEK -2.9 b.
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› Renamed segments from Q2 2017
– Networks unchanged
– IT & Cloud unchanged
– Media reported as Other
› The current 10 Regions will become 5 Market areas
› In Q1 2018, at the latest, the reporting structure will be fully aligned with the new
organization
– Restated numbers will be provided in advance
Aligning reporting to new organization
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ρςΣΤΥΦΧΨΩΪΫΌΎΏ ЁЂЃЄЅІЇЈЉЊЋЌЎЏАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯАБВГДЕЖЗИЙКЛМНОПРСТУФХЦЧШЩЪЫЬЭЮЯЁЂЃЄЅІЇЈЉЊЋЌЎЏѢѢѲ
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Planning assumptions From the Q1 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.
› Industry trends and business mix in mobile broadband from 2016 are expected to prevail in 2017
› RAN equipment market in USD estimated to decline by -2% to -6% in 2017
› The renewed MS contract in North America will impact sales negatively YoY in Q2 and Q3 2017
› Addressing low-performing operations in MS and optimizing NRO offering expected to reduce
FY19 sales up to SEK 10 b.
› Baseline for current IPR licensing contract portfolio is approx. SEK 7 b. on an annual basis
› Restructuring charges for 2017 are estimated to SEK 6-8 b.
Börje Ekholm President and CEO
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› Fully leveraging the potential of 5G, IoT and
cloud.
› Increase pace of innovation and new business
development
› Restore profitability is key – start by focusing
the portfolio
› Simplify organizational structure with new
Executive Team
› Significant profit improvements already in 2018
Focused business strategy
At least double the 2016 operating margin, excluding restructuring charges, beyond 2018
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First QUARTER 2017
April 25, 2017
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.
