Third quarter report 2009
Henry sténson Senior Vice President Communications
Third quarter report 2009 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.
Henry sténson Senior Vice President Communications
Carl-Henric Svanberg President and CEO
Development 2003-2009 Multimedia Networks Services GSM WCDMA HSPA Managed LTE TRANSFORMATION Converged networks Handsets Platforms CAGR 12% - New opportunities to emerge
2003-2009 From To 700 million subscribers 4.5 billion subscribers Voice telephony Many competitors Hardware Equipment Internet and multimedia Few competitors Software Service
2010- Broadband Everywhere our society s new highways Internet goes mobile always connected 4 billion users 50 billion devices Communication for all bridging the digital divide Sustainability in focus for ICT technology is key
Ericsson has evolved From To Equipment lead Telecom Hardware Services lead IP Software Our ability to develop culture and competence remains key
Q3 in summary - market This slide contains forward looking statements Strong growth for mobile broadband continues Good growth in leading economies Continued effects on networks from economic environment Several emerging markets affected Technology shift ongoing Mobile broadband growth not yet offsetting GSM decline High demand for services Operators focus on efficiency
Q3 in summary - market This slide contains forward looking statements Network sales down Operating margin stable despite lower volumes Restructuring charges of SEK 14 b so far in 2008/09 Similar savings - further efficiency potential Services continues strong, now 40% of Group sales Stable margins despite start up costs Adjusted cash flow SEK 6.9 (2.7) b Cash conversion of 87% YTD
Regional Q3 comments Western Europe -6 % year-over-year, comparable units Growth when adjusted for decreased scope in 3 Italia contract Continued strong growth in mobile broadband Demand for new spectrum emerging Strong managed services driven growth in UK Spain remains weak
Regional Q3 comments Central Europe, Middle East, Africa -11% year-over-year The region most affected by economic decline, tight credit markets Turkey, Nigeria, Egypt and Saudi Arabia show strong growth New 3G licenses issued in region Tunisia most recent Big interest and growing demand for managed services and multimedia
Regional Q3 comments Asia Pacific up 9% year-over-year India Ericsson s largest market in Q3 China, Japan and Vietnam strongly up Pakistan and Bangladesh slow markets Indonesia delaying investments Government supported buildouts of fiber broadband and backhaul networks
Regional Q3 comments Latin America sales -18% year-over-year Slower demand across the region Mobile broadband continues to develop successfully Delays in licenses for new spectrum and consumer services
Regional Q3 comments North America up 1% year-over-year Strong market but tough comparison Domain supplier to AT&T wireline access network Sole LTE supplier to Metro PCS Sprint service agreement commenced September 21
Hans vestberg Executive Vice President and CFO
Q3 financial highlights Third quarter Second quarter SEK b. 2009 2008 % 2009 % Net sales 46.4 49.2-6% 52.1-11% Gross margin 36.2% 37.0% - 36.3% - Operating income before JVs 5.5 5.6-3% 6.9-21% Operating margin before JVs 11.7% 11.5% - 13.3% - All numbers excluding restructuring charges Net sales -12% for comparable units and constant currency Stable gross margin despite mix shift towards services Stable operating income despite lower sales - opex savings
Q3 financial highlights Third quarter Second quarter SEK b. 2009 2008 % 2009 % Share of earnings in JVs -1.5 0.0 - -2.0 - Income after financial items 4.0 6.2-35% 4.8-18% Net income 0.8 2.9-74% 0.8 0% EPS diluted, SEK 0.25 0.89-72% 0.26-4% Adjusted cash flow 6.9 2.7-9.9 - All numbers, excl. EPS, net income and cash flow are excluding restructuring charges Adjusted cash flow SEK 6.9 b Positive trend in joint ventures Net income SEK 0.8 b, including restructuring charges of SEK 2.7 b
CHANGE IN GROSS CASH Q3 2009 Operating Cash Flow 5.7 b Investing -0.7 b Financial 0.5 b FX -1.3 b 85 80 75 70 65 75.5 Adjusted cash flow SEK 6.9 b. 79.8 60 55 Change in gross cash SEK +4.3 b 50 45 40 Gross Cash 0906A Net Income reconciled to cash Change in Net operating assets (excl. Restructuring) Restructuring Investing activities Financing activities FX on cash Gross Cash 0909A Change in net cash + 6.0 B (from 27.9 to 33.9 B)
2009 Cost reductions ahead of plan SEK b. YTD Q3 Q2 Q1 Restructuring charges 7.0 2.7 3.6 0.7 Cash out 3.2 1.2 0.8 1.2 Remains to be paid 3.3 3.3 4.2 3.3 Please note that not all restructuring charges lead to cash out All restructuring numbers exclude joint ventures Transition to IP paves way for efficiency improvements Common hardware and software platforms, fewer sites 2009 planned savings of SEK 10 b from 2H 2010 SEK 6-7 b estimated restructuring charges 2009 Further efficiency potential uncovered Additional cost savings and related charges next three quarters 2008 savings program of SEK 6.5 b completed
Networks Third quarter Second quarter SEK b. 2009 2008 % 2009 % Net sales 30.3 33.0-8% 34.7-13% Of which network rollout 5.8 4.7 24% 5.9-2% EBITDA margin 15% 15% - 15% - Operating margin 11% 11% - 11% - All numbers excluding restructuring charges Several strategic wins in mobile and IP Metro PCS, AT&T Sales declined tough comparison and lower demand Strong broadband uptake not offsetting this year s GSM decline Stable margins despite lower sales Effects from efficiency programs
Professional Services Excluding restructuring charges 1) Q2 09 excludes a capital gain of SEK 0.8 b Third quarter Second quarter SEK b. 2009 2008 % 2009 % Net sales 12.8 11.8 9% 14.1-9% Of which managed services 3.6 3.5 3% 4.6-22% EBITDA margin 17% 19% - 17% 1) - Operating margin 15% 16% - 16% 1) - Good growth despite reduced scope in 3 Italia Services 40% of Group sales, incl Network rollout Strong demand for managed services and consulting in present economy Stable margins despite start-up costs and new contracts Sprint contract proof of strength of services offering
Multimedia Third quarter Second quarter SEK b. 2009 2008 % 2009 % Net sales 3.4 3.5-4% 3.3 1% EBITDA margin 19% 16% - 17% - Operating margin 11% 9% - 9% - All numbers adjusted for comparable units and excluding restructuring charges Limited sequential growth Growth in Multimedia Brokering and Consumer and Business Application Revenue management down vs very strong Q3 08 continued share gain Strong margin development maintained may still vary between quarters Continued high portion of SW expansion sales Reduction of operating expenses contributing positively
Joint ventures new ceo sin place Sony Ericsson Sales of EUR 1,619 (2,808) m, flat sequentially NIBT EUR -198 (12) m, up from EUR -283 m in Q2 Significant cost reductions well on track New products released Aino, Satio, Yari New financing in place, EUR 455 m ST-Ericsson Sales of USD 728 m, 9% up sequentially Adjusted operating income USD -77 m, up from USD -165 m in Q2 Cost reductions on track, cost alignment and synergies
Summary Effects from economic environment continues Restructuring to safeguard margins Exciting opportunities longer-term broadband and services Ericsson well prepared to lead industry forward Joint ventures turnaround under way in challenging market
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