Cash flow and balance sheet Financial resilience

Transcription

1 Cash flow and balance sheet Financial resilience Capital markets day 2017 N O V E M B E R 7-8, N E W Y O R K Ericsson Internal Page 1

2 Carl Mellander CFO Ericsson Internal Page 2

3 Securing Financial resilience Operational dimension Financial dimension Operating income Free cash flow Capital structure Ericsson Internal Page 3

4 Securing Financial resilience Operational dimension Financial dimension Operating income Free cash flow Capital structure Ericsson Internal Page 4

5 Working capital efficiency Working capital days 2016 and ambition Inventory Payable Sales outstanding Changing business mix and new portfolio reduce capital requirement Collection and credit management < 65 < 90 > 60 Release cash through sourcing and supply chain management Balance sheet accountability and cash-oriented incentives 2016 Ambition Working capital: Inventory + Sales outstanding Payable Net sales: Rolling 12 months Long-term ambition to reach below 100 working capital days Ericsson Internal Page 5 This slide contains forward-looking statements, actual result may be materially different

6 Free Cash flow and usage of cash Cash flow and usage 2013 to Q (SEK b.) Capex PP&E & development ~3% of net sales per annum Planning assumption going forward ~2% Limited capitalization of development expected Net income reconciled to cash Change in working capital Operating cash flow Capex (PP&E) 18 M&A* 16 Free cash flow before dividend Dividend Acquisitions and divestments M&A* on average SEK 4.5 b. per annum Divestment of power modules in 2017 Selective acquisitions and divestments going forward Cost & capital efficiency and capex discipline to deliver positive free cash flow * Including Other investing activities Ericsson Internal Page 6

7 Securing Financial resilience Operational dimension Financial dimension Operating income Free cash flow Capital structure Ericsson Internal Page 7

8 Debt maturity profile Debt maturity profile (SEK b.) Refinanced Well-diversified debt maturity profile Successfully refinanced the EUR 2017 maturity in Q217 and issued one additional EUR 500 m. bond at attractive terms Good access to the debt capital markets Opportunistic approach to available funding alternatives Ericsson Internal Page 8

9 Credit rating Credit rating history Moody's S&P Fitch Investment grade (Baa3/BBB-) A1/A+ 12 A3/A- 10 Baa2/BBB 8 Ba1/BB+ 6 Recent downgrade to BB+ and Ba2 by S&P and Moody s, respectively Drivers for downgrades according to agencies: Declining RAN market Earnings level Timing of turnaround Ba3/BB- 4 B2/B 2 0 However, rating supported by strong balance sheet with ample liquidity and committed owners Executing on the strategy and restoring profitability key to regain Investment grade rating Ericsson Internal Page 9

10 Eps and dividend development EPS and dividend (SEK/share) EPS Dividend Equity ratio 50% 52% 49% 50% Dividend policy takes into account last year s earnings and balance sheet structure, as well as coming years business plans and economic development Ambition to increase dividend over time as financial performance improves Ericsson Internal Page 10

11 Capital structure strategy 2020 Safeguard liquidity position and provide flexibility to invest in R&D and execution Several actions taken 2017 to preserve capital and establish strong cash position USD 2 b. Revolving credit facility extended to 2022 and opportunistic approach to funding Positive free cash flow Optimize the capital structure based on improved business performance Restore Investment grade rating Deliver strong free cash flow enabling dividend growth Strong free cash flow Ericsson Internal Page 11

12 Financial ambition Operational dimension Financial dimension Target Q3 rolling 4Q Ambition 2017 Q3 Op margin 1 Free cash flow >10% (2020) >12% (>2020) Positive (<2020) Strong (>2020) 2.9% SEK 9 b. Equity ratio Net cash Cash conversion 3 >40% >Pension liability >70% 43% SEK 24.1 b. n/a Credit rating Solid inv. grade BB+/Ba2 Incentives on economic profit and total shareholder return 1 Excluding restructuring charges and XO items 2 Excluding restructuring charges 3 Cash conversion: Operating cash flow divided by net income reconciled to cash. Ericsson Internal Page 12 This slide contains forward-looking statements, actual result may be materially different

13 CFO focus areas Secure resilience Improve visibility and accountability Drive focus on profit and cash Ericsson Internal Page 13