first QUARTER 2010 23 april 2010
HENRY STÉNSON SENIOR VICE PRESIDENT COMMUNICATIONS
first QUARTER 2010 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 RISKT AND UNCERTAINTIES.
Changes in external reporting Change in segments Network Rollout moved to segment Global Services All other segments unchanged Change in geographical breakdown 10 regions replacing 5 markets EBITA replaces EBITDA Top 5 countries
HANS VESTBERG PRESIDENT AND CEO
Q1 trends Varied operator investment activities also this quarter Operators in developing markets still cautious Network quality and efficiency discussions in markets with strong data traffic uptake
RECENT EVENTS LG-Ericsson JV in Korea Acquisition of Nortel s stake, USD 242 m Cooperation with Datang on mobile technology Research, development and commercial cooperation on TDD USD 1.8 b frame agreements in China China Unicom and China Mobile USD 1.3 b network expansion contract in India with Bharti Expansion and upgrade of Airtel s network Strong Q1 performance in Sony Ericsson Return to profitability
NET SALES Good development in Global Services and CDMA Lower sales in Networks and Multimedia Net sales Q110 Y/Y SEK 45.1-9% Comparable units Y/Y: -16% Tight industry component supply impacted sales 80 SEK b Q1 Q2 Q3 Q4 70 60 50 40 30 20 10 0 2006 2007 2008 2009 2010
Adjusted operating income and margin Gross margin improved business mix and efficiency gains Operating margin stable YoY despite lower sales SEK b 10 9 Operating income excl JVs Q110 SEK 4.5 b Q109 SEK 4.7 b Operating margin excl JVs Q110 10% Q109 10% 20% 18% 8 16% 7 14% 6 12% 5 10% 4 8% 3 6% 2 4% 1 2% 0 2006 2007 2008 2009 2010 All numbers excl. restructuring charges and JVs Excl. capital gain of SEK 0.8 b. for divestment of Symbian shares Q4 2008 and EBITA margin SEK 0.8 b for divestment of TEMS Q2 2009 Operating margin 0%
REGIONAL COMMENTS
Q1 Regional sales split 10,1% 3,5% 11,6% 9,7% South East Asia and Oceania 8% China and North East Asia 11% Other 4% North America 21% 12,6% 7,3% 7,4% SEK 206.4 b 8,8% 2009 12,2% 5,8% 10,9% India 5% SEK 45.1 b 9% Latin America Sub-Saharan Africa 5% 5% Northern Europe and Central Asia 9% Middle East 11% Mediterranean 2010 Q1 12% Western and Central Europe
Regional sales comments North America +99% YoY +1% QoQ Very strong data traffic increase Further strengthened position Mediterranean -17% YoY -28% QoQ Mobile broadband Operator focus on efficiency Latin America -9% YoY -32% QoQ 3G auctions planned Good momentum in services Western and Central Europe -3% YoY -15% QoQ Northern Europe & Central Asia -20% YoY -34% QoQ Services strong LTE and network modernization Mobile broadband and modernization of fixed networks Central Asia still low investment levels
North america 4G/LTE contract with AT&T Integration of acquired CDMA assets well on track Nortel GSM business acquired Sprint in full operation from Q409 SEK b 10 9 8 7 6 5 4 3 2 1 0 SEK b 10 Q1 Q2 Q3 Q4 2006 2007 2008 2009 2010 MULTIMEDIA GLOBAL SERVICES NETWORKS 9 8 7 6 5 4 3 2 1 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2008 2009 2010
Regional sales comments Middle East +-0% YoY -22% QoQ Mixed development Networks declined good development in services Sub-Saharan Africa -48% YoY -37% QoQ Still impacted by economic climate Operator consolidation India -43% YoY -33% QoQ Investments slow pending 3G auctions Bharti USD 1.3 b agreement South East Asia and Oceania -32% YoY -32% QoQ Cautious operator investments in many markets Uncertainty around 3G licences in Bangladesh and Thailand China and North East Asia -15% YoY -33% QoQ Tough comparison YoY Cooperation with Datang on TDD LG-Ericsson JV in Korea China frame agreements USD 1.8 b
Sub-Saharan Africa Impacted by economic climate 2G rollouts in focus 3G picking up from low levels Increasing demand for services Revenue management slow in the region SEK b 6 5 4 3 2 1 0 SEK b 10 9 8 7 6 Q1 Q2 Q3 Q4 2006 2007 2008 2009 2010 MULTIMEDIA GLOBAL SERVICES NETWORKS 5 4 3 2 1 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2007 2008 2009 2010
SEGMENTS
networks Sales positively impacted by acquired CDMA assets Tight industry component supply more than offset by CDMA sales Continued decline in voice related sales Good growth in 3G sales EBITA positively impacted by efficiency gains, product mix, software SEK b 50 45 40 35 30 25 30% 25% 20% 15% Sales Y/Y -14% Q/Q -22% 20 15 10 5 10% 5% EBITA margin Q110 16% Q109 14% Q409 19% 0 2006 2007 2008 2009 2010 All numbers excl. restructuring charges 0%
global services SEK b Professional Services sales +4% YoY, local currencies +12% Managed Services sales +17% YoY, 16 contracts signed Network Rollout sales +3% YoY Global Services EBITA positively impacted from efficiency gains and improved Network Rollout margins 24 20% 18% 20 16% Sales Y/Y +3% Q/Q -22% EBITA margin Q110 +12% Q109 +10% Q409 +10% 16 12 8 4 0 2006 2007 2008 2009 2010 All numbers excl. restructuring charges 2Q2009 adjusted for divestment of TEMS Network Rollout Professional Services excl. Managed Services Managed Services 14% 12% 10% 8% 6% 4% 2% 0% Global Services EBITA Professional Services EBITA
global services 410 m subscribers managed networks 2b subscribers under support >40,000 service professionals
multimedia Slower revenue management sales in developing markets Sub-Saharan Africa, Middle East, South East Asia and Oceania Somewhat slower IPX sales Good development for TV Sales EBITA declined due to lower volumes Y/Y -29% SEK b Q/Q -31% 6 30% 5 4 3 2 20% 10% 0% EBITA margin Q110-5% Q109 +8% Q409 17% 1-10% 0 2008 2009 2010 All numbers excl. restructuring charges and adjusted for divestment of mobile platforms and PBX business in 2008 Q42008 excl. capital gain of SEK 0.8 b. for divestment of Symbian shares -20%
Joint ventures Q1 Sony Ericsson Sales of EUR 1,405 (1,736) m, down -20% sequentially NIBT EUR 21 (-358) m, up from EUR -40 m in Q4 Reduced operating expenses Successful new products ST-Ericsson Sales of USD 606 (562) m, down -18% sequentially Adjusted operating income USD -114 (-149) m Restructuring plans on track
JAN FRYKHAMMAR CFO and EXECUTIVE VICE PRESIDENt
FINANCIAL OVERVIEW
Q1 financial highlights Improved gross margin due to efficiency gains and product mix Operating margin stable YoY despite lower sales Significant improvement in share in earnings of JVs Cash flow from operations increased due to focus on capital efficiency First quarter Fourth quarter SEK b. 2010 2009 Change 2009 Change Sales 45.1 49.6-9% 58.3-23% Gross margin 39% 36% - 35% - Operating income excl JVs 4.5 4.7-4% 7.5-39% Share in earnings of JVs -0.3-2.2 - -0.4 - Net income 1.3 1.8-30% 0.7 76% EPS, diluted SEK 0.39 0.54-0.10 - Cash flow from operations 2.3-2.9-12.5 - All numbers, excl. EPS, Net income and Cash flow from operations, excl. restructuring charges.
DEBT MATURITY PROFILE No maturities within two years, thereafter even distribution over time SEK b 7.0 6.0 5.0 4.0 3.0 2.0 1.0 0.0 2010 2011 2012 2013 2014 2015 2016 2017- Notes and Bonds Other financial liabilities EIB SEK /EKN MTN Bond Undrawn back-up facility of USD 2 b available. Maturing in July 2014. Not shown in this chart.
Change in Gross Cash Q1 2010 Pension Trust Capitalizations -0.9 b Operating Cash Flow 2.3 b b Investing -1.1 b b Financial -0.1 b b FX -0.0 b b SEK b 90 85 80 75 70 65 60 76.7 Adjusted cash flow SEK 3.0 b. 77.9 55 50 Change in gross cash SEK +1.1b 45 40 Gross Cash 0912A Net Income reconciled to cash Change in Net operating assets (excl. restructuring) Restructuring Investing activities Financing activities FX on cash Gross Cash 1003A Change in net cash SEK +2.4 b From SEK 36.1 b to 38.5 b Dividend SEK 6.4 b paid in Q2
Balance sheet and ratios DSO improved YoY due to continued focus on capital efficiency Inventory increased due to seasonal build-up Return on capital employed still low due to restructuring Continued healthy equity ratio SEK b. Mar 31 2010 Dec 31 2009 Sep 30 2009 Jun 30 2009 Mar 31 2009 Trade receivables 62.7 66.4 62.4 69.4 75.2 Days sales outstanding 117 106 118 121 124 Inventory 24.1 22.7 26.8 29.0 30.7 Inventory days 75 68 77 78 83 Payable days 59 57 57 59 65 Return on capital employed 5% 4% 4% 5% 7% Equity ratio 53% 52% 52% 51% 52%
Cost reduction program Original plan announced January 2009 Total savings 2009 to mid 2010 estimated to SEK 15-16 b Total restructuring charges now estimated to SEK 15 b Approx SEK 1.5 b remains Restructuring charges SEK 2.2 b for Q1 2010 Cash outlays of SEK 4.2 b remain to be made Cash outlays also after completion of program in Q2 Please note that not all restructuring charges lead to cash out
FOCUS AREAS GROW FASTER THAN THE MARKET BEST IN CLASS MARGINS STRONG CASH CONVERSION GROWTH IN JV EARNINGS
First quarter 2010 Q & A