fourth QUARTER 2013
January 30, 2014
Helena norrman Senior Vice President Communications
fourth QUARTER 2013
January 30, 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 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 6
key developments 2013
› Growth in mobile broadband puts focus on improved user experience
› Operators seek differentiation through network performance and quality
› Continued transformation of operator and vendor business models
› Growing momentum for IT related services business
Total mobile subscriptions 6.7 b, +6% Mobile broadband subscriptions 2.1 b, 40%
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 7
Ericsson in 2013
› Solidified core business – Redefined small cell market – Ericsson Radio Dot – Technology partner for LTE in China – Strengthened services footprint in North America
› Steps to build a leadership position in new and targeted key areas.
– TV&Media - Mediaroom, IP, Cloud, OSS and BSS
› Refocused strategic modem operation – Dissolved ST-Ericsson – Set up of new modem business
› Strengthened position in Europe – Major part of negative margin impact now behind us
› IPR agreement with Samsung
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 8
› Illustrates Ericsson's commitment to FRAND principles
– Ends all ongoing patent related legal disputes – Includes global patent cross licensing of cellular
technologies – Impacts on Q4 sales and operating income by
SEK 4.2 b. and net income by SEK 3.3 b.
› Multi-year agreement includes initial payment and ongoing royalty payments
Ipr agreement with samsung
Annual IPR revenues, SEK b.
*One-off patent sales included
Grow IPR revenue – IPR strategy • Enforce wireless royalties • Generate value from the whole patent portfolio • Licensing to 50 b connected devices
5.0 4.3 4.66.2 6.6
10.6
2008* 2009 2010 2011* 2012 2013
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 9
40%
116%79%
2011 2012 2013
17.910.5
17.8
8%
5%
8%
0
0
0
0
0
0
5
10
15
20
25
2011 2012 2013
226.9 227.8 227.4
2011 2012 2013
Ericsson in 2013
› Organic FX adjusted sales +5% – Business mix started to shift towards more capacity – New IPR agreement with Samsung – Continued structural decline in GSM in China, circuit
switched core and CDMA – Sales under some pressure 2H from peaking projects –
North America and Japan
› Focus on profitability started to pay off – gradual improvement of operating margin
– Stable profitability in Professional Services – Gradual improvement in Networks
› Net income SEK 12.2 (5.9) b. › EPS SEK 3.69 (1.78) › Cash conversion strong, above target
– 98% excl Samsung agreement
Net sales SEK b.
Operating income SEK b.
Cash conversion
OM %
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 10
0
10
20
30
40
50
60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2010 2011 2012 2013
› Organic FX adjusted sales +4% YoY › Reported sales currently under some
pressure – Negative currency impact – Strong mobile broadband sales in China and
Russia – Samsung agreement added to sales – Lower project activity in North America and
Japan – Continued decline in CDMA in North America as
well as in GSM in China
› Organic FX adjusted sales +27% QoQ – Reported sales increased +27% – Samsung agreement added to sales – Mobile broadband deliveries in China – All segments grew sequentially
NET SALES Q4
Net sales Q413 Y/Y Q/Q
SEK 67.0 b. 0%
+27%
Organic and FX adjusted
Q413/Q412
+4%
SEK b.
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 11
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
-8
-6
-4
-2
0
2
4
6
8
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010 2011 2012 2013
Profitability Q4
Net income
Q413 Y/Y Q/Q
SEK 6.4 b. --
+114%
Net income
EPS, diluted
Net income excl. ST-Ericsson charge
Net income incl. divestment of Sony Ericsson
› Gross margin improved to 37.1% (31.1%) – Excl Samsung 32.9% – Negative impact from FX
› Operating margin including JV increased YoY to 13.5% (-5.7%)
– Excluding Samsung 7.7% – Networks operating margin, including Airvana
charge of SEK -0.4 b., improved to 17% (8%), excl Samsung 9%
› Net income SEK 6.4 (-6.31) b. – Samsung agreement added SEK 3.3 b. – EPS diluted SEK 1.97 (-1.99) excl Samsung 0.96
1 Including an ST-Ericsson charge of SEK -8.0 b.
SEK SEK b.
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 12
0
10
20
30
40
50
0%
5%
10%
15%
20%
25%
30%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010 2011 2012 2013
0123456789
10
North America North E Asia Latin America Middle East
Q412 Q313 Q413
Networks
Operating margin
Q413 +17% Q412 +8% Q313 +10%
SEK b.
SEK b.
Net sales
Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges
Sales Q413 Y/Y Q/Q
SEK 34.8 b. -1%
+30%
Networks sales
Networks Operating margin
› Organic FX adjusted sales +3% YoY – Samsung added sales of SEK 2.9 b. – Strong mobile broadband sales in China and
Russia did not fully offset lower sales in North America and Japan
– Continued structural decline in GSM in China, CDMA and circuit switched core
– 18 new SSR contracts, incl six for fixed networks
› Sales increased +30% QoQ – Excl Samsung +19%
› 2013 Full year sales – Organic FX adjusted sales +5% – Growth in Latin America, Europe and the Middle
East – Lower sales in North America and North East
Asia
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 13
Networks SEK b.
SEK b.
Net sales
Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges
Networks sales
Networks Operating margin
› Operating income SEK 5.9 b. (2.8) b. – Samsung added SEK 2.9 b.
› Operating margin 17% (8%) – Excl Samsung 9% – Improved business mix – Cost adaptation and portfolio streamlining – No dilutive impact from European network
modernization projects – Negative impact from FX – One-time charge of SEK -0.4 b. related to
Airvana
Operating margin
Q413 +17% Q412 +8% Q313 +10%
Sales Q413 Y/Y Q/Q
SEK 34.8 b. -1%
+30%
0
10
20
30
40
50
0%
5%
10%
15%
20%
25%
30%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010 2011 2012 2013
0123456789
10
North America North E Asia Latin America Middle East
Q412 Q313 Q413
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 14
0%
5%
10%
15%
20%
25%
0
6
12
18
24
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2010 2011 2012 2013
0
2
4
6
8
North America North E Asia India
Q412 Q313 Q413
Global services
Global Services Operating margin Q413 +8% Q412 +6% Q313 +8%
Sales Q413 Y/Y Q/Q
SEK 27.2 b. -3%
+13%
Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges
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
• 31 (24) significant consulting and systems integration contracts signed in 2013 of which 9 (8) in the quarter
• 84 (52) Managed Services contracts signed in 2013 of which 25 (15) in the quarter
› Organic FX adjusted sales +1% YoY – Negative FX – Professional Services sales declined -1% YoY – Network Rollout sales declined -8% YoY
› Strong growth 1H
› Sales increased +13% QoQ › 2013 Full year sales
– Organic FX adjusted sales +5% – Professional Services -1%, with Managed
Services +1% – Network Rollout +4% – strong growth 1H, decline
2H
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 15
Global services
Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges
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 2.1 (1.8) b. › Operating margin 8% (6%)
– Improved Network Rollout margins, despite negative impact from European network modernization projects
– Restructuring charges from ongoing service delivery strategy execution SEK -0.6 (-0.6) b.
– Professional Services margin stable – Operating margin flat QoQ
Global Services Operating margin Q413 +8% Q412 +6% Q313 +8%
Sales Q413 Y/Y Q/Q
SEK 27.2 b. -3%
+13%
0%
5%
10%
15%
20%
25%
0
6
12
18
24
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2010 2011 2012 2013
0
2
4
6
8
North America North E Asia India
Q412 Q313 Q413
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 16
-20%-10%0%10%20%30%40%
0123456
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010 2011 2012 2013
0.0
0.2
0.4
0.6
0.8
1.0
1.2
North America Latin America Middle East
Q412 Q313 Q413
Support solutions
Operating margin Q413 +37% Q412 +8% Q313 -5%
Sales Q413 Y/Y Q/Q
SEK 5.1 b. +41%
+117%
SEK b.
SEK b.
Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges
Support Solutions sales
Support Solutions Operating margin
› Organic FX adjusted sales +35% YoY – Samsung added sales of SEK 1.3 b.
› Reported sales +117% QoQ – Samsung impact – Acquired Mediaroom business, strengthened
position – High software license revenue
› Operating margin 37% (8%) – Excl Samsung 16% – High software license sales – Portfolio streamlining and efficiencies
› 2013 Full year sales – Organic FX adjusted sales flat, incl Samsung – Portfolio changes and lower sales of TV
compression technology – Stable development for OSS and BSS
Net sales
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 17
modems
› A focused thin-modem operation with industry-leading technology and intellectual property
– A new segment was established as of October 1, 2013, and the modems business is now consolidated into Ericsson
› Segment Modems generated an operating loss of SEK 0.5 b. in the quarter,
– Mainly R&D expenses. – The new product M7450 released for commercial
use.
› Operating expenses for Modems in 2014 is estimated to approximately SEK 2.6 b.
From ST-Ericsson to segment Modems
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 18
North America FY +5% Q4 -19%
(Sales growth 2013, Q4 YoY)
regional overview
Latin America FY 0%
Q4 +4%
W & C Europe FY +6% Q4 -4%
N Europe & C Asia FY +2%
Q4 +23%
Mediterranean FY +4% Q4 0%
Middle East FY +12% Q4 +17%
India FY -5%
Q4 +23%
Sub-Saharan Africa FY -11% Q4 -28%
North East Asia FY -24% Q4 -16%
S E Asia & Oceania FY +5% Q4 -5%
Other FY +22%
Q4 +141%
JAN FRYKHAMMAR CFO and Executive Vice President
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 20
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
0
10
20
30
40
50
60
70
80
Q112 Q212 Q312 Q412 Q113 Q213 Q313 Q413
Net sales, SEK b. Reported growth YoY, % Organic FX adjusted growth YoY, %
Sales growth – FX impact Sales growth FY 2013
Reported
Organic FX adjusted
Networks 0% 5%
Global Services 0% 5%
Support Solutions -9% 0%
Group 0% 5%
5%-points difference in 2013 on sales: ~SEK -10 b.
SEK b.
• Major FX impact from USD, EUR, JPY and BRL • Change of accounting of hedges since Jan 1, 2013 • Currency depreciations and devaluation in
several countries • Significant negative impact on operating income vs
2012
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 21
28%
30%
32%
34%
36%
38%
40%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2010 2011 2012 2013
P/L comments
Business mix – coverage/capacity
Modernization projects in Europe
Service share
Drivers
Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges
Business mix key to gross margin dynamics
› Gross margin increased YoY to 37.1% (31.1%) – Excl Samsung initial payment 32.9% – Reduced negative effect from network modernization
projects in Europe – Improved business mix – Higher IPR and licensing revenues
› Gross margin increased QoQ from 32.0% – Higher IPR & Licensing revenues, also excluding
Samsung initial payment – Strong sales in Support Solutions – Lower service share, Network rollout continue to decline – Major part of negative margin impact from network
modernization projects in Europe now behind us – Improved business mix
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 22
Increased Service share
Higher Restructuring
Negative F/X
-Business mix incl modernization contracts in Europe
-Efficiencies
› Negative impact from FX on operating income (mainly gross margin) › European modernization contracts executed according to plan › Gradual business mix improvements during 2013
Lower Sales Support
Solutions and Core
Gross margin development Full Year
25%
Samsung initial payment
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 23
-10%
-5%
0%
5%
10%
15%
20%
25%
-6
-4
-2
0
2
4
6
8
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2009 2010 2011 2012 2013
02468
1012141618
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42009 2010 2011 2012 2013
P/L comments
R&D
SG&A
SEK b.
SEK b.
Operating margin incl JVs
Operating income incl JVs EBITA margin incl JVs
Numbers 2011-2012 include restructuring charges, numbers 2009-2010 exclude restructuring charges
› Operating expenses SEK 16.1 (16.4) b. – Excl restructuring charges and acquisitions down -6%
› Excl restructuring charges and acquisitions R&D expenses down -9%
› More efficient R&D › One-time charge of SEK -0.4 b. related to Airvana › Modems added SEK -0.5 b. in expenses in Q4 › Mediaroom acquisition increased expenses
› Operating income including JV, SEK 9.1 (-3.8) b.
– Samsung added SEK 4.2 b. – Q412 incl charge of SEK -8.0 b. related to ST-Ericsson – Underlying profit improved
› Continued negative currency effect For 2014, R&D expenses, excluding expenses related to Modems, Mediaroom and restructuring, are expected to increase somewhat, mainly due to investments in IP
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 24
Operating Income Bridge Q4
-3.8
4.7 7.0%
5.3 8.4%
9.1 13.5%
OI impact: SEK +0.6 b. or +1.4%
SEK b.
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 25
101 99106
91104 111
101
86
108 103 10997
87 89 9178
88 84 8273 76 73 72
6270 68 67 62 64 63 59 57 55 55 53 53
0
20
40
60
80
100
120
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42011 2012 2013
Balance sheet comments
DSO
Inventory days
Payables days
DSO target <90 days
Inventory days target <65 days
Payable days target >60 days
› Trade receivables increased QoQ to SEK 71.0 (64.9) b. – Samsung added SEK 4.2 b. – DSO decreased 12 days to 97 days
› Customer financing – SEK 3.4 (3.2) b., decreased compared to SEK 5.3 b. Q412
Days
› Inventory decreased QoQ to SEK 22.8 (28.1) b. – Improved business mix and efficiency measures – ITO improved from 72 days to 62 days
› Payable days flat QoQ at 53 days › Provisions decreased YoY to SEK 5.4 (8.6) b.
– The reduction mainly related to the 2012 ST-Ericsson provision
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 26
60.7
+12.5
+2.4-0.3
-1.9 3.5
0.2
77.1
50
55
60
65
70
75
80
Gross cash 1309A Net Incomereconciled to cash
Change Netoperating assets
Restructuring Investing activities Financing activities FX on cash Gross cash 1312A
Change in gross cash SEK +16.4 b
Change in gross cash Q413
Change in net cash SEK +13.1 b. (from SEK 24.7 to 37.8 b.)
1 Excl Short term investments 2 New EIB loan SEK 4.4 b.
Investing1 -1.9
Financing2 3.5
FX on cash 0.2
Operating cash flow 14.6
SEK b.
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 27
1.85 2.00
2.25 2.50
2.75 3.00
2008 2009 2010 2011 2012 2013proposal
Proposed dividend by board of directors
› SEK 3.00 (2.75)
› In total ~SEK 9.9 (8.9) b.
› April 16, 2014, record day for payment
› In accordance with Ericsson’s dividend policy the proposed dividend reflects 2013 year’s earnings and balance sheet structure, as well as coming years’ business plans and expected economic development
SEK
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 28
Focus going forward
Strategy execution – profitable growth
Cost and efficiency
Technology and services leadership
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 29
Monday February 24 Media & analyst conference 08:30-9:30 am CET Ericsson’s hall, Fira Gran Via, Hall 2 Ericsson speaker: Hans Vestberg RSVP: [email protected] Media & industry analyst mingle 6:00-9:00 pm CET Carrer Còrcega 286, Downtown Barcelona Ericsson event apartment MAP RSVP: [email protected] Investor & financial analyst dinner 7:00-10:00 pm CET By invitation, Ericsson’s hall, Fira Gran Via, Hall 2 RSVP: [email protected] Tuesday February 25 Ericsson customer keynote 6:30 pm CET (By invitation. GSMA badge required) Ericsson’s hall, Fira Gran Via, Hall 2 Ericsson speaker: Hans Vestberg
Wednesday February 12 Financial analyst & investor pre-briefing 3:00-4:00 pm CET Ericsson guides you through its focus areas and launches. Phone briefing RSVP: [email protected] Industry analyst & media pre-briefing 5:00-6:00 pm CET Ericsson guides you through its focus areas and launches. Phone briefing RSVP: [email protected]
Media and analyst activities Mobile World Congress
To attend activities at Fira Gran Via, MWC-pass is required. Please register on: www.mobileworldcongress.com/press-registration
© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2013 | JAN 30, 2014 | Page 30
Q&A
fourth QUARTER 2014
January 30, 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.