Fourth QUARTER 2012 - Ericsson...Fourth QUARTER 2012 January 31, 2013 This presentation contains...

Fourth QUARTER 2012

January 31, 2013

Helena norrman Senior Vice President Communications

Fourth QUARTER 2012

January 31, 2013

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

© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2012 | January 31, 2013

Key developments 2012

› Mass market adoption of smartphones › Focus on high performance mobile

broadband networks and efficiency › Broad introduction of LTE

– Also drives demand for HSPA › Macroeconomic and political uncertainty

continued in certain regions

› Total mobile subscriptions 6.3 b, +9% › Mobile broadband subscriptions 1.5 b, +50% › 40% of phones shipped in Q4 were

smartphones


Ericsson in 2012

Note: 1Excludes gain of SEK 7.7 b. from divestment of Sony Ericsson.

› Strong growth in Global Services and Support Solutions

› Challenging year for Networks, CDMA declined 40%

› Important LTE wins with high market share

› New strategies for Support Solutions, IPRs

› Selective acquisitions and divestments to streamline portolio and fill gaps in areas of portfolio momentum

– Sony Ericsson divested

› Net income negatively impacted by – ST-Ericsson – Business mix with higher share of coverage projects than

capacity projects – European modernization projects

› EPS Non-IFRS1 SEK 3.55 (5.54)

› Cash conversion strong, above target

› Strong balance sheet

1EPS Non-IFRS, diluted, excl. amortizations, write-downs of acquired intangible assets and restructuring


Net sales SEK b.

Operating income SEK b. excl. JVs1

Cash conversion

2011 2010 2012

112%

40%

116%

2011 2010 2012

Op. margin excl. JVs1

9% 10% 6%

18 22 14

2011 2010 2012

203 227 228

Presenter

Presentation Notes

GROWTH: 2011: -Ericsson Organic FX adjusted sales increase 2011 YTD: 25% -Networks growth 2011 YTD is 30% in SEK. Driven by continued high sales in mobile broadband related equipment. -Services: Q3 2011 was the first quarter since Q3 2010 with a growth measured in SEK. -Service Sales increase 2011 YTD -1%, but currency adjusted it is +8%. 2010: -Networks 2010 growth was negative -1%. Positively impacted by the Nortel acquisition but negatively impacted by the industry wide component shortage and cautious operator spending 1H 2010. Recovery 2H 2010 with increasing demand for mobile broadband. Slight negative impact from currencies. -Services Sales growth in SEK was +1%. -The growth was driven by North America, growth 2010 107%! RECA was +2%, China & NorthEast Asia flat, remaining 7 regions were negative. 2009: -Networks -3%. Impacted by reduced operator spending in a number of markets 2H 2009. -Positive impact from currencies. -Strongest growth in Nortm America +54%. PROFITABILITY: Improvement from 2009 to 2010: -Driven by the JV result: 2010 it was -0.7 BSEK compared to -6.1 BSEK 2009. The improvement came from Sony Ericsson who went from losses 2009 to a profit 2010. -Operating Margin excl JV was flat at 12% between the years. The reduction between 2010 and 2011 YTD are due to: -Increased losses in our JV’s. 2010 result was -0.7 BSEK, 2011 YTD the result is -1.9 BSEK. Impact -0.8% on Ericsson Margin -Decreased Margins in Services, 2010 margins were 11%, 2011 YTD the margins are 7%. Main reasons are modernization contracts and supply disturbances impacting Network Rollout. -2010 excludes restructuring, 2011 includes restructuring. Impact -1.5% on the margin CAPITAL: 2011 YTD the cash conversion ratio is 25%. IMpacted by the high sales growth. For the same period 2010 (2010-09-30) the ratio was 89%. Inventories has increased due to high project acitivty and remaining effects from mitigating activities taken in connection to the events in Japan. Increased Accounts Receivables due to higher share of projects with longer payment terms.


NET SALES Q4

Net sales Q412 Y/Y Q/Q

SEK 66.9 b +5%

+23%

Organic and FX adjusted

Q412/Q411

+5%

SEK b

› Sales +5% YoY, – Growth in all segments – 5 of 10 regions show growth

› Sales +23% QoQ – Networks recovered, up +31% QoQ – Stable sales for Global Services and Support

Solutions › North America strong

– CDMA continued to decline YoY but temporary capacity needs in Q4 - will continue to decline


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 Q42008 2009 2010 2011 2012


-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

2008 2009 2010 2011 2012

Profitability Q4

Net income

EPS, diluted Net income

Q412 Y/Y Q/Q 2011 2012

SEK -6.3 b - -

SEK 12.6 b SEK 5.9 b

› Net income declined – Gross margin increased to 31.1% (30.2%) – Operating margin excl. JV increased to 7.1%

(6.4%), negative impact from restructuring -3%-points (-1%)

– ST-Ericsson charge of SEK -8.0 b. – Negative tax impact

› EPS diluted SEK -1.99 (0.36).

› EPS Non-IFRS1 and excl. ST-Ericsson charge SEK 1.07 (0.81)


Net income excl. ST-Ericsson charge

Net income incl. divestment of Sony Ericsson

1EPS Non-IFRS, diluted, excl. amortizations, write-downs of acquired intangible assets and restructuring

SEK SEK b


0

10

20

30

40

50

0%

5%

10%

15%

20%

25%

30%


2008 2009 2010 2011 2012

0

2

4

6

8

10

North America Sub Saharan Africa China North E Asia

Networks

Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges

Operating margin

Q412 +8% Q411 +8% Q312 +5%

Networks sales

Networks Operating margin

Sales Q412 Y/Y Q/Q

SEK 35.3 b +6%

+31%

SEK b

SEK b

› Q4 sales +6% YoY – Organic FX Adjusted Sales +9% YoY – High year end business activity in North America

and Japan – CDMA equipment sales -18% YoY – Continued decline in GSM sales in China

› Sales in Q4, +31% QoQ – CDMA, +58%, temporary capacity needs – 3G sales in China and LTE sales in South Korea up

› Q4 Operating margin 8% (8%) – Positive impact from higher sales – Negative impact from restructuring – QoQ improvement from higher sales including

temporary CDMA capacity business

› 2012 Full Year – Challenging year, both sales and profitability

Net sales


Q411 Q312 Q412


0

10

20

30

40

50

0%

5%

10%

15%

20%

25%

30%


2008 2009 2010 2011 2012

0

2

4

6

8

10

North America Sub Saharan Africa China North E Asia

Networks q4

› Leading position in Packet Core drives demand for SSR

– 19 new contracts signed in Q4, 39 to date

› Regained traction for microwave transport

› Recent wins in Latin America reconfirm our leading position in LTE

› World’s first commercially deployed converged multistandard radio base station for LTE FDD/TDD

› Voice over LTE (VOLTE) drives IMS sales

› Continued focus on profitability

© Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2012 | January 31, 2013 Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges

Operating margin

Q412 +8% Q411 +8% Q312 +5%

Networks sales

Networks Operating margin

Sales Q412 Y/Y Q/Q

SEK 35.3 b +6%

+31%

SEK b

SEK b

Net sales Q411 Q312 Q412


0%

5%

10%

15%

20%

25%

0

6

12

18

24

30


0

2

4

6

8

North America Nor Eur Central Asia Mediterranean Sub Saharan Africa

Global services

Global Services Operating margin Q412 +6% Q411 +6% Q312 +8%

Sales Q412 Y/Y Q/Q

SEK 28.0 b +4%

+15%

SEK b


SEK b

Net sales

Network Rollout sales

Managed Services sales

Professional Services sales excl. Managed Services sales

Professional Services Operating margin

Global Services Operating margin


› Q4 sales +4% YoY – Organic and FX adjusted sales +4% YoY – Sales +15% QoQ

› Professional Services sales +4% YoY – Growth in Managed Services and Consulting &

System Integration – Demand driven by operators’ focus on

operational efficiencies and reduced cost › Managed Services sales +12% YoY

– 15 new contracts signed › Network Rollout sales +3% YoY

– High project activity › 2012 Full Year sales

– Organic and FX adjusted +12% – Professional Services +14%

› Managed Services +20% – Network rollout +20%

Q411 Q312 Q412


0%

5%

10%

15%

20%

25%

0

6

12

18

24

30


0

2

4

6

8

North America Nor Eur Central Asia Mediterranean Sub Saharan Africa

Global services


› Q4 Operating margin 6% (6%) – QoQ decrease from 8% due to higher share Network

rollout

› Q4 Professional Services operating margin 15% (14%)

– Improved both YoY and QoQ due to increased sales and efficiency improvements

› Q4 Network Rollout operating margin -11% (-10%) – QoQ decline from -6% due to network modernization

projects in Europe and coverage projects

› 2012 Full Year – Operating margin declined to 6% (7%). European

modernization projects impacted Network Rollout negatively

– Professional services Operating margin improved to 14% (13%) from increased sales and efficiency improvements

Global Services Operating margin Q412 +6% Q411 +6% Q312 +8%

Sales Q412 Y/Y Q/Q

SEK 28.0 b +4%

+15%

SEK b


SEK b

Net sales

Network Rollout sales

Managed Services sales

Professional Services sales excl. Managed Services sales

Professional Services Operating margin

Global Services Operating margin

Q411 Q312 Q412


-20%

-10%

0%

10%

20%

30%

0123456

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2009 2010 2011 2012

0.0

0.2

0.4

0.6

0.8

1.0

North America Latin America India

Support solutions

Support Solutions sales

Support Solutions Operating margin

Operating margin Q412 +8% Q411 0% Q312 14%

Sales Q412 Y/Y Q/Q

SEK 3.6 b +6% +9%

SEK m

SEK b


Net sales


› Q4 sales +6% YoY – Organic FX Adjusted sales +4% YoY – Telcordia added sales of SEK 0.6 b. – IPX divested. IPX sales Q411 SEK 0.4 b. – Organic FX Adjusted sales +21% QoQ

› Q4 Operating margin 8% (0%) – Portfolio streamlining and efficiencies – Operating margin decline from 14% QoQ due to

higher restructuring charges and a gain in Q312 of SEK 0.2 b related to the divestment of IPX.

› 2012 Full Year – From losses 2011 into profitability – Increased sales and execution on new strategy – Demand for OSS/BSS continued to be strong driven

by operators focus to improve efficiency and adapt to mobile broadband business requirements

– Continued focus from customers on Media Delivery Solutions

Q411 Q312 Q412


Q4 Regional sales

Latin America › Networks and Global Services business

slowed down Y/Y due to low initial LTE deployment

› Services Q/Q growth from Managed Services and Systems Integration.

› Q/Q increae in Networks driven by 3G.

China and North East Asia › Continued Y/Y decline related to lower

GSM sales i China and transition to LTE in South Korea

› Services growth driven mainly by turn key projects in Japan

› Q/Q Networks grew, driven by LTE expansions in Japan and South Korea as well as 3G expansions in China

South East Asia and Oceania › Continued momentum for data traffic

drew positive development Y/Y and Q/Q particularly in Indonesia

› Global Services sales driven by network deployments in Australia

Mediterranean › YoY decline driven by current market

and macro economic conditions › Modernization projects progressing

according to plan › Q/Q improvement driven by growth in all

segments

Middle East › Networks returned to growth after

several slow quarters › Managed Services showed good growth

in the quarter

Sub-Saharan Africa › Y/Y increase driven by operator

investments in Nigeria and South Africa › 3G is increasing, majority of sales is 2G › 3 LTE networks launched in southern

Africa

India › Continued low activity levels, operator

investments only in certain areas. › Data traffic grow from a low base as

tablets and smartphones become more affordable

2012 Y/Y Q412 Y/Y Q/Q

SEK 56.7 b +16%

SEK 17.0 b +51% +21%

2012 Y/Y Q412 Y/Y Q/Q

SEK 22.0 b 0%

SEK 6.5 b -7%

+20%

2012 Y/Y Q412 Y/Y Q/Q

SEK 11.3 b -25%

SEK 3.0 b -21% +11%

2012 Y/Y Q412 Y/Y Q/Q

SEK 17.5 b -8%

SEK 5.4 b +3%

+50%

2012 Y/Y Q412 Y/Y Q/Q

SEK 23.3 b -2%

SEK 7.1 b -14% +31%

2012 Y/Y Q412 Y/Y Q/Q

SEK 15.6 b +1%

SEK 5.1 b -3%

+39%

2012 Y/Y Q412 Y/Y Q/Q

SEK 11.3 b +12%

SEK 3.6 b +11% +27%

2012 Y/Y Q412 Y/Y Q/Q

SEK6.5 b -34%

SEK 1.6 b +5% -8%

2012 Y/Y Q412 Y/Y Q/Q

SEK 36.2 b -5%

SEK 10.2 b -6%

+22%

2012 Y/Y Q412 Y/Y Q/Q

SEK 15.1 b +9%

SEK 4.5 b +13% +29%

North America › Continued high activity levels in

coverage projects All segments grew YoY and QoQ

› CDMA continued to wind down, but at a slower pace due to temporary capacity needs

Other › Licencing revenues showed stable

development. Sales full year 2012 increased to SEK 6.6 (6.2) b.

› IPX divested end of Q3 2012 › The acquired Technicolor business

contributed positively to sales

2012 Y/Y Q412 Y/Y Q/Q

SEK 12.3 b +15%

SEK 3.0 b -10% -10%

Northern Europe and Central Asia › Continued low investment levels in

Russia Networks flat Y/Y and Q/Q › Services Q/Q growth driven by Systems

Integration › Support Solutions grew both Y/Y and

Q/Q

Western and Central Europe › Q/Q growth in Networks driven by high

project activity and ongoing modernization projects

› Global Services and Support Solutions sales driven by OSS/BSS and Systems integration.

JAN FRYKHAMMAR CFO and Executive Vice President


P/L comments

Gross margin

Business mix – coverage/capacity

Modernization projects in Europe

Service share

Drivers


Business mix key to gross margin dynamics

› Gross Margin improved QoQ to 31.1% from 30.4%.

– Increased software share and lower global services share

– Temporary CDMA capacity business

› European modernization projects – The negative impact will continue to gradually decline

during 2013

› Underlying business mix – Expected to shift towards more capacity business in

the second half of 2013


26%

28%

30%

32%

34%

36%

38%

40%

42%



3%

6%

13%

25%

50%

100%

0

2

4

6

8

10

12


02468

1012141618


P/L comments

R&D

SG&A

SEK b

SEK b

Operating margin excl JVs

Operating income excl JVs EBITA margin excl JVs

Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges © Telefonaktiebolaget LM Ericsson 2013 | FOURTH QUARTER REPORT 2012 | January 31, 2013

› Q4 Operating expenses SEK 16.4 (15.6) b. – Increased restructuring charges – Excluding acquisitions and restructuring charges reduced by

-3% YoY – With current portfolio, R&D expenses 2013 are expected to

decrease somewhat

› Restructuring charges SEK 1.7 (0.7) b., excl. JVs – Full year 2012 SEK 3.4 (3.2) b. – Impact from redundancy process in Sweden anticipated in

Q1 2013

› Operating margin excl JV 7.1% (6.4%) – Increased Networks sales – Negative impact from restructuring charges – QoQ improvement from 6.7% due to higher Networks sales

and improved gross margin

› Taxes – Non tax deductable ST-Ericsson charge – Decreased corporate tax in Sweden – Market mix


-2.0

-1.5

-1.0

-0.5

0.0


2009 2010 2011 2012

0

200

400

600

800


2009 2010 2011 2012

St-ericsson q4

SEK b

USD m

ST-Ericsson sales


Ericsson’s share in ST-Ericsson earnings


› Ericsson share of ST-Ericsson result SEK -8.5 (-0.8) b.

– Write down of investments to reflect fair market value SEK -4.7 b.

– Provisions related to the strategic options at hand SEK -3.3 b.

– ST-Ericsson operating loss SEK -0.5 b.

› No remaining ST-Ericsson investments (Dec 31 2012) on Ericsson balance sheet

› Cost and cash related to strategic options at hand will be booked against provision

› Modem technology of strategic value to wireless industry


117

133

109

88101 99

106

91104

111101

8675

81 8274

87 8991

7888 84 82

73

59 61 62 6270 68 67 62 64 63 59 57

0

20

40

60

80

100

120

140

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q42010 2011 2012

› Inventory decreased QoQ to SEK 28.8 (32.4) b, - Positively impacted by higher sales

- ITO improved from 82 to 73 days QoQ

› Order to cash program launched to reduce working capital › Payable days declined to 57 from 59 days QoQ. › Provisions increased by SEK 3.4 b. QoQ, most related to ST-Ericsson.

› Trade receivables increased QoQ to SEK 63.7 (61.6) b, - Driven by strong sales

- Partly offset by good collections

- DSO improved 5 days YoY to 86 days › Customer financing

- SEK 5.3 (4.0) b, increased compared to SEK 4.2 b. Q411

Balance sheet comments

Days

DSO

Inventory days

Payables days

DSO target <90 days

Inventory days target <65 days

Payable days target >60 days


68.8+6.9

+9.0

-0.3

-6.2-1.6 0.0 76.7

50

55

60

65

70

75

80

85

90

Gross Cash 1209A Net Incomereconciled to cash

Change NetOperating Assets

Restructuring Investing Activities Financing activities FX on cash Gross Cash 1212A

Change in gross cash SEK +7.9 b

Change in gross cash Q412

Change in net cash +9.6 b SEK (from 29.0 to 38.5 b SEK)

1 Excluding Short term investments. SEK -5.0 b. was due to converting loans to investments related to ST-Ericsson

Investing1 -6.2 b

Financing -1.6 b

FX on cash -0.0 b

Operating Cash Flow +15.7 b


0

1

2

3

4

2008 2009 2010 2011 2012

DividendEPS, diluted

Proposed Dividend

› SEK 2.75 (2.50) per share – Increase of 10%

› In total ~SEK 9.1 (8.2) b.

› April 12, 2013, record day for payment

› In accordance with Ericsson’s dividend policy the proposed dividend reflects 2012 year’s earnings and balance sheet structure, as well as coming years’ business plans and expected economic development

SEK


Performance 2010-2012

LONG TERM AMBITION

203 -2%

23.71 +28%

112%

228 0%

10.5 -42%

116%

2010 2012

4-10%

5-15%

>70%

Grow faster than the market

Operating income growth - Best in class margins - Growth in JV earnings

Strong cash conversion

1 2010 excluding restructuring charges.

2010-2013

Strong cash conversion but profitability not satisfactory

2-8%

5-15%

>70%

2011-2014

227 12%

17.9 -25%

40%

2011

EXECUTIVE STOCK PERFORMANCE PLAN

Targets revised yearly and approved by Annual General Meeting. Targets for 2013 (2012-2015) will be communicated in the AGM invitation.

PERFORMANCE


Focus going forward

Strategy execution – profitable growth

Cost and efficiency

Technology and services leadership


Q&A


Tuesday, February 26 GSMA Panel - The Future of Communications 11-12:30am • GSMA Main Auditorium, Hall 4, Fira Gran Via • Speaker: including Hans Vestberg Ericsson customer keynote, 6:30-7:30 pm (by invitation, GSMA badges required) • Ericsson’s hall, Fira Gran Via, Hall 2 • Speaker: Hans Vestberg

Pre-Briefing for media and industry analysts Ericsson guides you through its focus areas and demos London, February 13 Stockholm, February 14 Phone briefing, February 18 RSVP: [email protected] Monday, February 25 Press conference, 8:30-9:30 am • Analysts welcome • Ericsson’s hall, Fira Gran Via, Hall 2 • Speaker: Hans Vestberg RSVP: [email protected] Press mingle, 6:00-9:00pm • Fabric Moritz, Ronda Sant Antoni, 41, Barcelona RSVP: [email protected]

Media activities at mobile world congress

To attend activities at Fira Gran Via MWC pass are required, please register on: www.mobileworldcongress.com/press-registration

mailto:[email protected]



http://www.mobileworldcongress.com/press-registration

Fourth QUARTER 2012

January 31, 2013

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.

Fourth QUARTER 2012 - Ericsson...Fourth QUARTER 2012 January 31, 2013 This presentation contains...

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