SECOND
QUARTER 2015
July 17, 2015
HELENA NORRMAN
Senior Vice President Communications
SECOND
QUARTER 2015
July 17, 2015
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
key developments
Market
›
›
›
›
Strong focus on 5G and digitalization of industries
Consolidation continues – customers and vendors
Continued currency movements
Ericsson Mobility Report released in June
– 55% growth in data traffic Q114 to Q115
– Smartphone subscriptions to double by 2020
– 3.7 billion LTE subscriptions by 2020
Ericsson
›
›
›
›
›
North America business stabilized in the quarter
Continued fast pace of 4G deployments in Mainland China
Further steps taken in IPR litigation process
Networks profitability recovered
Company transformation accelerates
– Good growth in targeted areas, especially OSS & BSS
– Global cost and efficiency program – according to plan
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 5
Ericsson q2 2015
Net sales and sales development
SEK b.
13%
80
9%
› Reported sales up 11% YoY
60
› Organic FX adjusted sales down 6% YoY
40
– North America and Japan at lower levels
– Growth in Mainland China, Middle East, India
and South East Asia
0%
0%
20
1%
-1%
-3%
11%
-9%
0
Q2
Q3
Q4
Q1
2013
Q2
Q3
Q4
Q1
2014
Q2
2015
› Organic FX adjusted sales up 12% QoQ
› Operating income, excluding restructuring
charges improved to SEK 6.3 (4.2) b.
– Improved in all segments
– Networks margin recovered from Q1
– Supported by increased sales and FX
10
14%
8
9%
8%
6
4
Sales change, YoY
Operating income and margin
SEK b.
Tusental
– Mobile broadband business in North America
stabilized
– Mainland China and the Middle East developed
strongly
– Sales declined in India and Japan
Net sales
7%
6%
4%
7%
6%
4%
2
0
Q2
Q3
2013
Q4
Q1
Q2
Q3
2014
Q4
Q1
Q2
2015
Operating income
Operating margin
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 6
Regional sales
Q2 YoY
44%
85%
34%
41%
SEK 54.8 b.
-4%
-6%
-6%
1%
7%
8%
12%
Growth driven by currency – adjusted sales down 6%
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 7
SEK 60.7 b.
Regional sales
Q2 qoq
19%
44%
15%
18%
SEK 53.5 b. -14%
-10%
-6%
8%
11%
23%
15%
Growth in North America – partly offset by India and Japan
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 8
SEK 60.7 b.
JAN FRYKHAMMAR
CFO and Executive Vice President
second quarter
Gross margin
› Restructuring SEK 2.7 (0.2) b.
– Mainly related to activities in Sweden
36.5%
32.4%
32.0%
Q2
Q3
36.4%
35.2%
36.6%
35.4%
33.2%
32.9%
› Gross margin, excluding restructuring, 35.1% (36.6%)
– Lower capacity business and continued coverage deployments
– Lower IPR revenues and higher share of services
› Gross margin decreased QoQ
Q4
– Operating margin of 10.4% (7.7%)
– Positive currency effect, hedge impact SEK 0.6 (-0.5) b.
– Capital gain of SEK 0.3 b.
Q2
Q3
Q4
2014
2013
– Lower IPR revenues and increased share of hardware sales
› Operating income, excluding restructuring, improved
YoY to SEK 6.3 (4.2) b.
Q1
Q1
Q2
2015
Q4 2013 Excluding Samsung agreement, SEK 4.2 b.
Operating expenses
SEK b.
16.1
14.4
13.5
Q2
Q3
17.8
14.7
15.6
15.3
Q1
Q2
Q3
17.7
15.6
› Operating expenses, excluding restructuring, increased
YoY to SEK 16.1 (15.5) b.
– Excluding currency effects, operating expenses were slightly
down
2013
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 10
Q4
2014
Q4
Q1
Q2
2015
Operating Income YoY
SEK b.
Q2 2014
Q2 2015
10.4%
Lower IPR
revenues
Sales increase
+11% YoY
7.7%
7.3%
4.0
4.2
Q214 Reported
Excl restr.
Mainly
North America
&
China
development
Due to FX.
FX adjusted
expenses
down YoY
Efficiencies
Capital gain
5.9%
6.3
3.6
Hedge impact
Volume
IPR
Business Mix
Expenses
Other
Excl restr.
Q215 Reported
Improved operating income despite more China business and lower IPR revenue
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 11
Operating Income QoQ
SEK b.
Q1 2015
Q2 2015
10.4%
Lower IPR
revenues
Increased HW
share sales +4% QoQ
Capital gain
Sales
increase
+13% QoQ
5.1%
5.9%
6.3
4.0%
2.1
Q115 Reported
3.6
2.7
Excl restr.
Hedge impact
Volume
IPR
Business Mix
Expenses
Other
Improved operating income driven by volume leverage
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 12
Excl restr.
Q215 Reported
Sales growth – FX impact
SEK b.
Sales YoY change, Q2 2015
80
Reported
Organic and FX adj.
Networks
8%
-9%
Global Services
14%
-2%
1%
Support Solutions
9%
-13%
-2%
Group
11%
-6%
13%
60
11%
9%
7%
40
3%
4%
3%
0%
0%
-1%
-3%
20
-7%
-9%
-6%
-6%
Q1
Q2
0
Q2
Q3
Q4
Q1
2013
Net sales
Q2
Q3
Q4
2014
Sales growth (YoY)
2015
Changed method for translating FX exposure into
SEK for income statement items.
For details on method and currency rates, see
ericsson.com/thecompany/investors
Sales growth (adj for FX & Hedge)
Currency continues to be a major driver
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 13
Change in gross cash Q2
SEK b.
Investing1
-2.9 b
Operating cash flow
+3.1 b
Financing
-10.6 b
FX on cash
-1.9 b
80
70
+0.1
-0.5
+3.4
-2.4
-0.5
+0.4
60
-11.0
66.1
50
-1.9
Change in gross cash SEK -12.3 b
53.8
40
Gross cash
1503A
Net income
reconciled to
cash
Change Net
operating
assets
Restructuring
CAPEX
Acquisitions, Other financing
divestments &
activities
other
Dividend
FX on cash
Gross cash
1506A
Change in net cash SEK -12.1 b. (from SEK 15.6 to 3.5 b.)
Cash flow recovered after a weak quarter – Full year cash conversion target remains
1Excluding
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 14
Short term investments
HANS VESTBERG
President and CEO
Networks
SEK b.
Net sales and sales development
40
13%
30
› Reported sales up 8% YoY
› Organic FX adjusted sales down 9% YoY
– Lower business activity in North America and Japan
– Strong sales in Mainland China, the Middle East and India
1%
20
– Higher sales and positive currency effects
– Somewhat increased operating expenses and lower IPR
-1%
-1%
Q1
Q2
-2%
-13%
0
Q2
Q3
Q4
Q1
2013
– Stabilized mobile broadband business in North America
– Increased sales in Mainland China and the Middle East
– Sales declined in India
Q2
Q3
Q4
2014
2015
Net sales
Sales change, YoY
SEK b.
Tusental
› Operating margin, excluding restructuring, improved
sequentially to 14% from 3%
8%
3%
10
› Organic FX adjusted sales up 16% QoQ
› Operating income, excluding restructuring, SEK 4.3
(3.7) b.
8%
Operating income and margin
8
17%
6
12%
4
2
10%
10%
13%
11%
8%
5%
2%
0
Q2
Q3
2013
Q4
Q1
Q2
Q3
2014
Q4
Q1
Q2
2015
Operating income
Operating margin
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 16
Global services
SEK b.
Net sales and sales development
30%
30
20%
20
› Reported sales up 14% YoY
› Organic FX adjusted sales down 2% YoY
– Network rollout continued to decline
10%
10
0%
-10%
0
Q2
› Professional Services good momentum
– Good growth in Consulting and Systems Integration
› Operating income, excluding restructuring, improved
YoY to SEK 2.3 (1.6) b.
– Stable margin in Professional Services
– Reduced losses in Network Rollout
Q4
Q1
2013
– 26% growth in Managed Services – 30 contracts signed
– OSS & BSS drives Consulting and Systems Integration
› Organic FX adjusted sales up 10% QoQ
Q3
Q3
Q4
Q1
2014
Global Services
sales
Q2
2015
Global Services
sales change, YoY
Professional Services
sales change, YoY
Operating income and margin
SEK b.
2.5
Q2
14%
14%
14%
13%
13%
12%
12%
12%
6%
7%
7%
7%
Q2
Q3
Q4
Q1
2.0
12%
1.5
1.0
0.5
6%
8%
8%
5%
6%
0.0
Q2
Q3
Q4
2013
Global Services
operating income
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 17
Q1
2014
Global Services
operating margin
Q2
2015
Professional Services
operating margin
Support solutions
Net sales and sales development
SEK b.
6
40%
5
30%
21%
4
11%
13%
3
2
-21%
-29%
-33%
1
0
› Reported sales up 9% YoY
› Organic FX adjusted sales down 13% YoY
– Continued good development in OSS & BSS
– TV & Media declined
Q2
Q3
Q4
Q1
2013
Q2
Q3
Q4
Q1
2014
9%
Q2
2015
› Organic FX adjusted sales down 3% QoQ
Net sales
Sales change, YoY
› Operating income, excluding restructuring,
improved YoY to SEK 0.0 (-0.3) b.
Tusental
– Driven by sales growth in OSS & BSS
– Partly offset by lower IPR sales
Operating income and margin
SEK b.
37%
2.0
1.5
1.0
11%
0%
0.5
0.0
-0.5
3%
-5%
-4%
Q2
-8%
-13%
-12%
Q3
2013
Q4
Q1
Q2
Q3
2014
Q4
Q1
Q2
2015
Operating income
Operating margin
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 18
Closing remarks
› North America business stabilized, but at
lower level than last year
› Continued 4G coverage deployments in
Mainland China
› Strong demand for Professional Services –
Sales growth across all regions
› Lower IPR revenues
› Full year 2015 restructuring is expected to be
SEK 4-5 b.
› High pace in company transformation
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 19
© Telefonaktiebolaget LM Ericsson 2015 | SECOND QUARTER REPORT 2015 | JULY 17, 2015 | Page 20
SECOND
QUARTER 2015
July 17, 2015
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.