FOURTH QUARTER 2015 - Ericsson€¦ · FOURTH QUARTER 2015 January 27, 2016 This presentation...

FOURTH QUARTER 2015

January 27, 2016

HElena norrman Senior Vice President

Chief Marketing and Communications Officer

FOURTH QUARTER 2015

January 27, 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.

HANS VESTBERg

President and CEO

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© Telefonaktiebolaget LM Ericsson 2016 | FOURTH QUARTER REPORT 2015 | JANUARY 27, 2016 | Page 5

key market developments

› Strong focus on 5G and Internet of

Things (IoT)

› Transition from 3G to 4G in emerging

markets

› Accelerating ICT transformation in

mature 4G markets

› Currency movements and weaker

macro in parts of the world impact

customer investments

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key ericsson developments

› Important IPR agreements signed

› Stable investments in North America

› Good growth in targeted areas

› Strategic partnership with Cisco

› Cost and efficiency program on track

› NRO closer to sustainable profitability

› Cash conversion target achieved

› Proposed dividend of SEK 3.70

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Regional sales full year 2015 YoY

Sales impacted by strong USD

SEK 228 b.

SEK 247 b.

-14% -5% 0% 1% 2%

7% 18% 21%

7%

33%

74%

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18 17 22

8%7%

9%

10%

8%

11%

2013 2014 2015

Ericsson FY 2015

› Organic FX adjusted sales -5%

– North America impacted by operators’

focus on cash flow

– Growth in Professional Services and IPR

licensing business

› Operating margin, excluding

restructuring, 11% (8%)

– Improvements in all segments

› EPS (Non-IFRS) SEK 6.06 (4.80)

› Cash conversion 85%, above target

Net sales, SEK b.

Cash conversion

Operating income, SEK b.

OM%

OM%, excl.

restructuring

227 228 247

2013 2014 2015

79% 84% 85%

2013 2014 2015

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Regional sales Q4 YoY

Strong growth in IPR licensing and North America. Emerging markets slowed down.

SEK 68 b.

SEK 74 b.

-13% -11% -7% -7% -3% 9% 8%

34%

31%

91%

-30%

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14%

6%7% 7%

9%

4%6%

9%

15%

0

2

4

6

8

10

12

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b.

Tu

sen

tal

Operating income and margin

0%

-9%

-1%

9%

1%

13%11%

3%

8%

0

20

40

60

80

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b. Net sales and sales developmentEricsson Q4 2015

› Reported sales up 8% YoY – Organic FX adjusted sales down -1% YoY

› Reported sales up 24% QoQ – Additional hardware sales in North America

– Mainland China recovered

– Higher IPR revenues

– Macro development impacts some emerging markets

› Operating income, excluding restructuring,

improved to SEK 11.7 (7.1) b. – Higher IPR revenues and lower operating expenses

– Improved income, excluding IPR, in all segments

– NRO continued on its path to sustainable profitability

Net sales

Sales change, YoY

Operating income

Operating margin

2013

2013

JAN FRYKHAMMAR Executive Vice President and CFO

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4.6

6.2 6.6

10.69.9

14.4

2010 2011 2012 2013 2014 2015

IPR revenues

› IPR licensing revenues SEK 14.4 (9.9) b.

– Contract signed with Apple

› Initial payment

› Ongoing royalties

– Cross license agreements signed with all major

handset and infrastructure suppliers

– Tripled IPR revenues in 5 years

› The majority of IPR contracts in USD

IPR licensing business

SEK b.

6.4 1

2

Excluding

Samsung

Including

Apple

agreement

1) One-off patent sales included

2) Includes initial payment from Samsung of 4.2 b

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3

6

9

-2 -2 -2-3

-1.5

› Cost and efficiency program on track – Target to achieve net annual savings of SEK 9 b. during 2017

– Increased efforts to further reduce cost of sales

› Operating expenses, excluding restructuring,

decreased YoY to SEK 15.5 (17.6) b. – Almost 10% decline 2H 2015 compared to 2H 2014

– Main part of savings related to R&D

– Driven by the cost and efficiency program

› Restructuring charges for 2016 – Estimated to be SEK 3-4 b.

– Includes both cost and efficiency program and normal

restructuring charges

Cost and efficIency program

Yearly run-rate savings related

to additional restructuring

charges (SEK b.)

Normal

restructuring

charges

Additional

restructuring

charges

2015A 2016E 2017E

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16.114.7

15.6 15.3

17.8

15.617.7

14.915.9

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b. Operating expenses

37.1% 36.5% 36.4%35.2%

36.6%35.4%

33.2% 33.9%

36.3%

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

Gross margin

FOURTH quarter

All comments exclude restructuring charges

› Gross margin 36.6% (37.6%) YoY

– Lower mobile broadband software sales

– Strong sales of hardware

– One-time inventory write-down, SEK -0.4 b.

› Gross margin increased QoQ


– Partly offset by larger share of hardware sales with a lower margin

› Operating income improved YoY to SEK 11.7 (7.1) b.

– Operating margin 16% (10%)

– Higher sales and lower operating expenses

– Improvements in all segments

– Break-even in Network Rollout

– Net FX positive with reduced effect from hedge contracts

2013

2013

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Operating Income Q4 YoY

Improvements in all segments, adjusted for IPR and restructuring

9.3%

15.0%

10.5%

16.0%

Q4 2015 Q4 2014

6.3 7.1

11.7 11.0

Q414 Reported Excl restr. Volume Grossmargin

Expenses Hedge impact Other Excl restr. Q415 Reported

Cost and

efficiency

program Reported sales

+8%

GM excl

restructuring

slightly down

SEK b.

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Operating Income Full year 2015 YoY

Improvements in all segments

7.4%

8.8%

8.0%

10.9%

2015 2014

SEK b.

16.8 18.3

26.8

21.8

2014 Reported Excl restr. Networks ProfessionalServices

Network Rollout Support Solutions Modems + Other Excl restr. 2015 Reported

Operating margin

excl. restructuring

13%

Global Services

operating margin

excl. restructuring 9%

Operating margin

excl. restructuring

13%

Exit Modems

business

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72.2

+24.3

-3.7

-8.3 -4.8 +0.6

-11.3 -2.7

66.3

30

40

50

60

70

80

90

100

Gross Cash 1412A

Net Income reconciled to

cash

Change Net Operating Assets

CAPEX Acquisitions, divestments &

Other

Other financing activities

Dividend FX on cash Gross Cash 1512A

Change in gross cash SEK -5.9 b

Change in gross cash FY 2015

Cash conversion 85%

1) Excluding Short Term investments

Change in net cash SEK -9.1 b

Investing1

-13.1 b

Financing

-10.7 b

FX on cash

-2.7 bb

Operating Cash Flow

+20.6 b

1512A

SEK b.

HANS VESTBERg

President and CEO

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-1%

-13%

3%

13%

-2%

8% 8%

-4%

9%

0

10

20

30

40

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b.Net sales and sales development

Networks

› Organic FX adjusted sales flat YoY

– Higher IPR revenues, additional hardware sales in North America

– Strong growth in Mexico, India and Nigeria

– Macro economic developments impact Russia, Brazil, parts of the

Middle East

– Increased investments in core networks driven by VoLTE

› Organic FX adjusted sales increased 30% QoQ

– Mainland China recovered

› Operating income, excluding restructuring, SEK 7.4 (4.5) b.

– Higher IPR

– Lower R&D driven by cost and efficiency program

– One-time inventory write-down of SEK -0.4 b.

› 2015 full year

– Reported sales increased by 5%

– Higher IPR revenues and strong sales growth in India and China

– Organic FX adjusted sales -8%

– Operating income, excluding restructuring, SEK 15.8 (14.0) b.

– Higher share of mobile broadband coverage business

Operating income

Operating margin

Net sales

Sales change, YoY

2013

2013

17%

10%12%

11%13%

2%

8%10%

19%

0

2

4

6

8

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b.


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0%

5%

10%

15%

0

1

2

3

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b.Operating income and margin

-10%

0%

10%

20%

30%

0

10

20

30

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b.

Net sales and sales development

› Organic FX adjusted sales -4% YoY

– Sales declined in Latin America and Sub-Saharan Africa

– Reduced sales in Network Rollout

– Growth in Professional Services driven by Consulting and Systems

Integration


– Growth in both Professional Services and Network Rollout


– Improved earnings in Network Rollout

› 2015 full year

– Sales SEK 108 b., up 11%

– Growth in Professional Services across all regions and portfolio

– Reduced Network Rollout sales in Japan, North America and Latin

America

– Organic FX adjusted sales -2%


– Network Rollout operating income, excluding restructuring,

improved to SEK -0.4 (-2.2) b.

Global 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

2013

2013

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37%

0%

-13%

-4%

11%

3%

-8%

0%

30%

-0.5

0.0

0.5

1.0

1.5

2.0

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b.

Tu

se

nta

l


40%

13%

21%30%

-21%

11% 9% 8%

40%

0

2

4

6

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015

SEK b.

Net sales and sales developmentSupport solutions

› Organic FX adjusted sales up 22% YoY


– Strong TV & Media sales in North America




– Increased TV & Media sales

› 2015 full year

– Reported sales increased by 19%

– Strong sales growth in IPR revenues, India and North America

– Organic FX adjusted sales flat


Net sales

Sales change, YoY

Operating income

Operating margin

2013

2013

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Proposed dividend by board of directors

› SEK 3.70 (3.40)

– Growth of 9%

› In total ~SEK 12.2 (11.0) b.

› Record date: April 15, 2016

The proposed dividend reflects the earnings and balance sheet structure in 2015, as well as coming years’

business plans and expected economic development – in line with Ericsson’s dividend policy

2.00 2.25

2.50 2.75

3.00 3.40

3.70

2009 2010 2011 2012 2013 2014 proposal2015

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2014 2015Year-end 2014 Reductions Increases Year-end 2015

transformation

Good traction in strategy implementation

Active employees Net sales – Targeted areas1

1 IP Networks, OSS & BSS, Cloud, TV & Media, Industry & Society

SEK b.

~35 ~45

Thousands

116 114

-17 +15

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1. Core business – While market conditions are

challenging in parts of the world, we will

continue to capture business opportunities in

4G and extend technology leadership in 5G.

2. Targeted growth areas – After a period of

investing, we need to improve earnings with

higher software sales and recurring business.

3. Cost and efficiency – Confident to achieve

net annual savings of SEK 9 b. during 2017.

We will take necessary actions to remain

competitive.

FOCUS 2016

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FOURTH QUARTER 2015

January 27, 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.

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