SECOND QUARTER REPORT 2008 - Ericsson · Title: Microsoft PowerPoint - Q208_CEO_Work doc_July...

2008-07-221© Copyright Telefon AB LM Ericsson 2008. All rights reserved SECOND QUARTER REPORT 2008

SECOND QUARTER REPORT2008


HENRY STÉNSONSenior Vice President Communications



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.



CARL-HENRIC SVANBERGPresident and CEO



Q2 in summary

Stable business activity with regional variationsStrong demand for GSM and mobile broadband

New network builds still high, continued margin pressurePositive cash flow developmentUnchanged planning assumptions

Sony Ericsson breakeven


GSM expansions, HSPA rollouts, LTE early phase– Winning technology track – Ericsson’s base stations upgradable

3.7 b mobile subscriptions, up 170 m in the quarter– 236 m WCDMA, up 31 m in the quarter

IP focus in network transformation– Paves the way to convergence– Redback technology key in Ericsson network development

352 m broadband connections, up 17 m per quarter

Market and business updateNetworks

Overall strong demand for broadband


Market and business updateServices

Continued strong interest in managed services– 210 m subscribers under Ericsson management– Over 50% in high-growth markets

Network sales increasingly driven by services– Focus on migration and network modernization– Consulting and systems integration key components

Major efficiency potential– Leveraging synergies between vendors and operators– Expanding and leveraging global resources in low cost countries


Q2 numbers in short

Sales SEK 48.5 (47.6) b, up 2%– Organic sales growth in constant currencies 7%

Operating income SEK 4.71) (9.3) b– Operating margin 9.7% (19.4%)– EBITDA of 14.9% (23.9%)– Capital gain of SEK 0.2 b from enterprise PBX divestment

Cash flow SEK 8.5 (4.2) b– Good progress in cash flow related activities– Lesser growth in turnkey markets, higher in US

1) Excluding restructuring charges of SEK 1.8 b. in second quarter 2008


Regional Q2 commentsSales year-over-year

Operator consolidation continues Strong traffic growth in HSPA networks

- Capacity still sufficientUK and Spain slow, Nordic countries strong

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SEK mWestern Europe, -3%


Mobile penetration beyond expectationsHigh business activity, 2G, 3G rolloutsAfrica strong, parts of Eastern Europe and Middle East slower


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Central Europe, Middle East, Africa, -2%


High business activityHigh growth in India, Pakistan, IndonesiaChina tough year-over-year comparisonJapan down - new major expansion order from Softbank


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Asia Pacific, -5%


Growing demand for fixed and mobile broadband Brazil, Mexico, Chile strongGood momentum in services


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Latin America, +21%


Accelerating demand for broadband servicesHSPA coverage and capacity expansionsStrong growth but easy year-over-year comparison


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SEK m

North America, +47%


HANS VESTBERGExecutive Vice President and CFO



-7.7%-16.4%9.7%Operating margin ex Sony Ericsson-9.7%-19.4%9.7%Operating margin

10%4.3-49%9.34.7Operating income-14.7%-23.9%14.9%EBITDA margin-38.6%-43.0%37.0%Gross margin

10%44.22%47.648.5Net salesChange2008Change20072008

First quarterSecond quarter

Q2 financial highlights

1) Including the capital gain of SEK 0.2 b. and excluding restructuring charges of SEK 1.8 b. in second quarter 2008 and SEK 0.8 b. in first quarter 2008

SEK b.

Net sales up 2%, 7% organic growth in constant currenciesSequential gross margin decline

– More normal software and IPR sales, accelerating turnkey volumes to IndiaSequentially stable opex – some impact from cost adjustmentsSequentially improved operating margin, excl. Sony Ericsson

1) 1)


Q2 financial highlights

-4.7-4.28.5Cash flow from operating activities

-28%0.83-70%2.020.60EPS, SEK

-28%2.6-70%6.41.9Net income

5%4.5-49%9.34.7Income after financial items

Change2008Change20072008

First quarterSecond quarter

3)

3)

Positive cash flow development– Good collections, stable working capital and increased current liabilities– Overall slower growth in markets with turnkey projects

Cash conversion of 193% (35%)Net income and EPS includes restructuring charges of SEK 1.8 b

SEK b. 1) 1)

2)

2)

1) Excluding restructuring charges of SEK 1.8 b. in second quarter 2008 and SEK 0.8 b. in first quarter 2008.2) Including restructuring charges.3) Attributable to stockholders of the Parent Company, excluding minority interest.4) Reverse split 1:5 was made June 2008. Comparable figures restated accordingly

4)

2)

2)


Networks

6%4.511%4.34.8Of which network rollout

-9%-19%10%Operating margin

-15%-24%15%EBITDA margin

11%30.0-1%33.733.3Net sales

ChangeQ1ChangeQ2Q2SEK b.

200820072008

Sequentially improved margins despite– High proportion of new network buildouts puts pressure on margins – India accelerates

Continued USD effects on sales and margins More normal level of software and IPR sales

1)

1) Excluding effects from restructuring.

1)


Multimedia

--12%-0%-1%Operating margin

--6%-5%13%EBITDA margin

2%4.216%3.64.2Net sales


200820072008

1)

1) Excluding effects from restructuring.2) First quarter 2008 is restated for the transfer of the IPX operation from Professional Services to Multimedia.3) Affected by SEK 0.2 b due to changed allocation of capitalized development expenses.

Good growth of 16% - neutral impact from acquisitions and divestitures– 10% sequential growth

Capital gain of SEK 0.2 b from enterprise PBX operation divestmentUnderlying margin development positive

– Sales and margins may vary between quartersEncouraging progress for Tandberg Television and LHS

1)2)

3)


Professional Services

-14%-15%14%Operating margin

-16%-16%16%EBITDA margin

10%3.117%2.93.4Of which managed services

10%10.07%10.311.0Net sales


200820072008

Organic growth 11% in constant currencies– IPX transfer to Multimedia impacting growth negatively by 2%-points

6 new managed services deals signed – Important wins with Telefónica and Telcel in Latin America

Stable margins

1)

1) Excluding effects from restructuring.2) First quarter 2008 is restated for the transfer of the IPX operation from Professional Services to Multimedia.

1)2)


Cost reductions on track

Savings of SEK ~4 b with full effect in 2009Charges of SEK ~4 b recognized as activities are decided

ProgressProject on plan with good progress in all areasCharges of SEK 1.8 b in Q2

– Product- and supply rationalization Consequences for capitalized development

– Lay off costs in Western Europe, including SwedenCharges of SEK 2.6 b year-to-date


Sony Ericsson Q2

Market slow down in Europe – Sony Ericsson’s key marketUnits shipped in the quarter 24.4 (24.9) m, down 2%Breakeven result in challenging marketActions to restore profitable growth - EUR 300 m in savings

A challenging year


Unchanged planning assumptions

Planning for flattish mobile infrastructure market in 2008Continued good growth for the professional services market

Industry fundamentals and consumer behavior support more positive longer-term outlook

This slide contains forward looking statements


Summary

Challenging but stable business environment– Business mix and declining dollar

Good growth in constant currencies– Strong demand for broadband

Focus on operational excellence and execution– SG&A, R&D, operations

Fundamentals support more positive longer-term outlook


Q & A



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