fourth quarter 2013 - ericsson · quarter 2013 . january 30, 2014 . this presentation contains...

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 |

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%


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


› 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


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 %


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.


-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.


0

10

20

30

40

50

0%

5%

10%

15%

20%

25%

30%


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


Networks SEK b.

SEK b.

Net sales


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%


2009 2010 2011 2012 2013

0123456789

10

North America North E Asia Latin America Middle East

Q412 Q313 Q413


0%

5%

10%

15%

20%

25%

0

6

12

18

24

30


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%


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


Global services


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


0

2

4

6

8

North America North E Asia India

Q412 Q313 Q413


-20%-10%0%10%20%30%40%

0123456


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.


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


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


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


-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


28%

30%

32%

34%

36%

38%

40%


P/L comments

Business mix – coverage/capacity

Modernization projects in Europe

Service share

Drivers


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


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


-10%

-5%

0%

5%

10%

15%

20%

25%

-6

-4

-2

0

2

4

6

8

10


2009 2010 2011 2012 2013

02468

1012141618


P/L comments

R&D

SG&A

SEK b.

SEK b.

Operating margin incl JVs

Operating income incl JVs EBITA margin incl JVs


› 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


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.


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


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.


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


Focus going forward

Strategy execution – profitable growth

Cost and efficiency

Technology and services leadership


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

mailto:[email protected]

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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.

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