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second quarter 2012
18 July 2012
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Helena norrman Senior Vice President Communications
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second QUARTER 2012
July 18, 2012
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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HANS VESTBERg JAN FRYKHAMMAR
President and CEO
CFO and Executive Vice President
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Page 5
› Continue to stay close to customers to monitor impacts of macroeconomic development and political uncertainty
› Fundamental industry drivers unchanged
› Operator focus – Network performance and quality of service – Spectrum – Tiered pricing - monetizing mobile broadband – Efficiency
key developments
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NET SALES
Net sales Q212 Y/Y Q/Q
SEK 55.3 b +1% +9%
Organic and FX adjusted
Q212/Q211
-6%
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
SEK b
› Sales +1% YoY – +9% QoQ, normal seasonality +5% – Telcordia added SEK 1.1 b – Adjusted for comparable units and FX -6% YoY
› Strong performance in Global Services and Support Solutions
– Together represent approx. 50% of Group revenues
› Networks impacted by expected CDMA equipment decline, weaker sales in China and Russia
0
10
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60
70
80
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22008 2009 2010 2011 2012
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Profitability
Net income
EPS, diluted
Net income
Q212 Y/Y Q/Q
SEK 1.2 b -63%
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SEK SEK b
*EPS, diluted, excl. Amortizations, write-downs of acquired intangible assets and restructuring
› Net income SEK 1.2 (3.2) b – Impacted by lower profitability in Networks – ST-Ericsson loss SEK -1.3 (-0.7) b
› EPS Non-IFRS* SEK 0.78 (1.60)
› Focus on profitable growth and improved
cashflow
› Q112 includes gain from divestment of Sony Ericsson of SEK 7.7 b
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0
1
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4
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6
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9
10
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2008 2009 2010 2011 2012
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Networks
Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges
Operating margin
Q212 +5% Q211 +14% Q112 +6%
Networks sales
Networks Operating margin
Sales Q212 Y/Y Q/Q
SEK 27.8 b -17% +2%
SEK b
SEK b
› Organic FX adjusted sales -20% YoY – Unadjusted QoQ +2%
› CDMA equipment sales -50% YoY – SEK 2 b in Q212
› YoY lower GSM sales in China, reduced operator investments in Russia, India
› Operating margin +5% (+14%) – Lower volumes – Negatively impacted by underlying business mix with
more coverage than capacity projects – European modernization projects – QoQ impacted by lower sales of mobile broadband
capacity than in Q1
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
Net sales
0
2
4
6
8
10
North America Nor Eur Central Asia China North E Asia
Q2-11 Q1-12 Q2-12
0
10
20
30
40
50
0%
5%
10%
15%
20%
25%
30%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2008 2009 2010 2011 2012
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Networks
Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges
Networks sales
Networks Operating margin
› Operator focus on network performance and quality of service
– Strong fundamental drivers
› LTE reaching outside initial rollout countries – Europe, Latin America – Well proven LTE solution, outperforming competition
› Key priorities – Improve profitability - leverage installed base – Grow IP sales – 7 contracts for Smart Services Router to
date – Leverage leading LTE position also in VoLTE – Support CDMA customers in LTE migration
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
Sales Q212 Y/Y Q/Q
SEK 27.8 b -17% +2%
SEK b
SEK b
Net sales
Operating margin
Q212 +5% Q211 +14% Q112 +6%
0
2
4
6
8
10
North America Nor Eur Central Asia China North E Asia
Q2-11 Q1-12 Q2-12
0
10
20
30
40
50
0%
5%
10%
15%
20%
25%
30%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2008 2009 2010 2011 2012
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0
2
4
6
8
North America Latin America Middle East
Q2-11 Q1-12 Q2-12
› Organic FX adjusted sales +18% YoY – All areas showed strong growth – Business momentum remains
› Professional Services +26% YoY – Driven by Managed Services and Consulting and Systems
Integration – Demand driven by operators’ focus on operational
efficiency and reduced opex
› Managed Services +37% YoY – 17 new signed contracts
› Network Rollout +28% YoY – Driven by network modernization in Europe and coverage
projects in other regions
Global services
Global Services Operating margin Q212 +6% Q211 +5% Q112 +6%
Sales Q212 Y/Y Q/Q
SEK 24.1 b +26% +17%
SEK b
Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges © Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
SEK b
Net sales
Network Rollout sales
Managed Services sales
Professional Services sales excl. Managed Services sales
Global Services Operating margin
Professional Services Operating margin
0%
5%
10%
15%
20%
25%
048
12162024
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22008 2009 2010 2011 2012
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› Operating margin +6% (5%) – Increased profitability in Professional Services - increased
sales and lower restructuring charges
– Network Rollout – profitability still impacted by network modernization projects in Europe
– Impact from restructuring charges of 2%-points
› Demand driven by operators’ focus on operational efficiency and reduced opex
– Operator transformation in voice, IP and OSS/BSS
Global services
Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges © Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
Sales Q212 Y/Y Q/Q
SEK 24.1 b +26% +17%
SEK b
SEK b
Net sales
Network Rollout sales
Managed Services sales
Professional Services sales excl. Managed Services sales
Global Services Operating margin
Professional Services Operating margin
Global Services Operating margin Q212 +6% Q211 +5% Q112 +6%
0
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4
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8
North America Latin America Middle East
Q2-11 Q1-12 Q2-12
0%
5%
10%
15%
20%
25%
048
12162024
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22008 2009 2010 2011 2012
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0
200
400
600
800
North America West & Centr Europe India
Q2-11 Q1-12 Q2-12
Support solutions
Support Solutions sales
Support Solutions Operating margin
Operating margin Q212 +12% Q211 -11% Q112 -1%
Sales Q212 Y/Y Q/Q
SEK 3.5 b +47% +15%
SEK m
SEK b
Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges
› Organic FX adjusted sale +16% – Billing solutions in Middle East and Sub-Saharan Africa – Solid growth in TV- both IPTV and compression – Telcordia added sales of SEK 0.6 b in the quarter
› Operating margin +12% (-11%) – Increased volumes, favorable product mix – Software business with high fixed cost base – volume
driven
› Key priorities – Transforming the business for sustainable profit – Integration of Telcordia
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
Net sales
-20%
-10%
0%
10%
20%
30%
0123456
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2009 2010 2011 2012
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Q2 Regional sales
Latin America › YoY increase driven by services.
Network Rollout sales from project execution in Brazil, Chile and Mexico
› Strong sales for charging systems › Brazil and Mexico preparing for LTE
deployments.
China and North East Asia › YoY and QoQ decrease related to
lower GSM sales in China. Services sales driven by more turnkey projects in Japan
› Rapid change to initial LTE deployments and a larger share of services
South East Asia and Oceania › YoY growth in Networks driven by 3G
and initial LTE in parts of the region › Sequential increase from capacity
investments in Indonesia and deployments in parts of the region
Mediterranean › Growth in services and networks driven
by network modernization projects › Both Network rollout and Systems
Integration developed positively
Middle East › Growth driven by Global Services and
Support Solutions › Focus on quality and operational
efficiencies Growth in Managed Services and Systems Integration
› Impact from political unrest
Sub-Saharan Africa › Growth driven by 2G investments, 3G
increasing – Nigeria › Low cost smartphones entering the
market mobile broadband penetration starting to rise (from 4%)
India › Data traffic growth in a few areas
some recovery in network capex › YoY decline due to initial 3G
deployments peak in 1H11 › Regulatory uncertainty continues
Q212 Y/Y Q/Q
SEK 13.0 b +5% +2%
Q212 Y/Y Q/Q
SEK 5.2 b +6% +9%
Q212 Y/Y Q/Q
SEK 3.4 b -26% +47%
Q212 Y/Y Q/Q
SEK 4.1 b -6% -5%
Q212 Y/Y Q/Q
SEK 6.2 b +12% +35%
Q212 Y/Y Q/Q
SEK 3.7 b +4%
+17%
Q212 Y/Y Q/Q
SEK 2.8 b +26% +27%
Q212 Y/Y Q/Q
SEK 1.7 b -39% +20%
Q212 Y/Y Q/Q
SEK 8.4 b -7% -8%
Q212 Y/Y Q/Q
SEK 3.7 b +21% +9%
North America › CDMA continued to decline, partly
offset by 4G/LTE › Services grew YoY driven by a high
level of project execution › Momentum in OSS/BSS
Other › Licensing revenues continued to
show stable development YoY › Multimedia brokering (IPX) in Other
from Q112
Q212 Y/Y Q/Q
SEK 3.1 b +27% +10%
Northern Europe and Central Asia › Sequential growth driven by a break-in
3G contract and continued modernization projects
› YoY decrease from continued low investment levels in Russia
Western and Central Europe › Focus on OSS/BSS transformations and
continued good momentum for services Global Services and Support Solution >60% of sales All comments refer to sequential development
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JAN FRYKHAMMAR CFO and Executive Vice President
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Page 15
P/L comments
Gross margin
Business mix – coverage/capacity
Modernization projects in Europe
Service share
Drivers
Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges
Business mix key to gross margin dynamics
› Gross margin down QoQ to 32.0% – Higher Global Services share dilutive to Group – Half of YoY decline related to increased services sales – Lower sales of mobile broadband capacity than in Q112 – YoY decrease due to higher Global Services share, higher
proportion coverage and European network modernization projects
› Underlying business mix, with higher share of coverage projects than capacity projects unchanged in the quarter
– Business mix expected to prevail short-term – The negative gross margin impact from the European
network modernization projects will start to gradually decline end 2012
› Restructuring charges SEK 0.6 (1.7) b – Related to execution of services delivery strategy – Full year estimate unchanged at SEK ~4 b
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
25%
30%
35%
40%
45%
50%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22008 2009 2010 2011 2012
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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
› Operating expenses SEK 15.0 (15.8) b – Impacted from added OPEX from Telcordia
› R&D SEK 8.1 (8.1) b – FY12 R&D expenses expected at SEK 30-32 b – previous
estimate SEK 29-31 – Increase due to selective investments in key radio
technology and FX
› Sales, general & administration (SG&A) SEK 6.9 (7.7) b
– Down -8% YTD, excl restructuring and Telcordia – Restructuring SEK 0.1 (1.2) b
› Operating margin 5.9% (9.2%)* – Impacted by lower profitability in Networks – Lower restructuring cost
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
*Excl. JVs and Sony Ericsson sales
0
5
10
15
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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22008 2009 2010 2011 2012
3%
6%
13%
25%
50%
100%
0
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Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q22008 2009 2010 2011 2012
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St-ericsson
SEK b
Sales USD m
Ericsson’s share in JV earnings
ST-Ericsson sales
Numbers 2011-2012 include restructuring charges, numbers 2008-2010 exclude restructuring charges
› Focus on securing successful execution company transformation aiming at lowering break-even point
› Sales increased 19% QoQ – Significant ramp up of volumes for NovaThor platforms – Shipping to major customers
› Ericsson share in ST-Ericsson earnings – SEK -1.3 (-0.7) b
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
SEK m. March 31, 2012 June 30, 2012
Investment in ST-Ericsson 1,982 767
Loans to ST-Ericsson 3,241 4,311
Total 5,223 5,078
0200400600800
10001200
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2008 2009 2010 2011 2012
-3
-2
-1
0
1
2
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
2008 2009 2010 2011 2012
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› Inventory increased QoQ to SEK 33.1 (32.5) b – ITO improved from 88 to 84 days – Still on high level due to high project activity
› Provisions reduced by SEK 0.6 b – SEK 0.3 b related to restructuring – SEK 0.3 b relates to resolved dispute
› Trade receivables increased QoQ to SEK 67.3 (60.7) b – Reflecting changes in FX and late invoicing in the quarter – DSO up 7 days to 111
› Customer financing – SEK 3.9 (3.9) b, SEK 4.0 b Q211
Balance sheet comments
Days
DSO
Inventory days
Payables days
DSO target
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Page 19
75.6 3.1 -4.2 -0.3 -1.3-7.1 0.6 66.4
40
45
50
55
60
65
70
75
80
85
90
Gross Cash1203A
Net Incomereconciled to
cash
Change NetOperating
Assets
Restructuring InvestingActivities
Financingactivities
FX on cash Gross Cash1206A
Change in gross cash SEK -9.2 b
› Cash flow from operations SEK -1.4 (5.8) b – Late invoicing in the quarter
› Cash conversion YTD -9% – FY target >70%
› Change in net cash SEK -11.2 b – Net cash from SEK 37.1 b. to 25.9 b. – Shareholder dividends SEK 8.2 b – Operating cash flow SEK -1.4 b
Cash Flow Q212
1 Excluding short-term investments
Investing1 -1.3 b
Financing -7.1 b
FX on cash +0.6 b
Operating Cash Flow -1.4 b
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Page 20
› Extended average debt maturity profile
› Diversified funding sources
› Issue of USD denominated 1 b. 10-year bond – Interest rate 4.125%
› Repurchase of EUR 441 m EMTN bonds
› Two SEK denominated bonds repaid at maturity – Total of SEK 3 b.
Refinancing activities
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Notes and Bonds Financial Leases EIB SEK/EKN MTN Bond SEK MTN Bond
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Page 21
Strategy execution – profitable growth
Cost and efficiency
Technology and services leadership
© Telefonaktiebolaget LM Ericsson 2012 | SECOND QUARTER REPORT 2012 | July 18, 2012
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Page 23
Q&A
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second QUARTER 2012
18 July 2012
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.
second�quarter 2012Helena norrmansecond�QUARTER 2012�HANS VESTBERg���JAN FRYKHAMMAR�key developmentsNET SALESProfitabilityNetworks Networks Global services Global services Support solutionsQ2 Regional salesJAN FRYKHAMMARP/L commentsP/L commentsSt-ericssonBalance sheet commentsCash Flow Q212Refinancing activitiesSlide Number 21Slide Number 22Slide Number 23second�QUARTER 2012