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© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Third quarter report 2009
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Henry sténsonSenior Vice President Communications
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 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.
Third quarter report 2009
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Henry sténsonSenior Vice President Communications
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Carl-Henric SvanbergPresident and CEO
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Networks GSM
Development 2003-2009
CAGR 12% - New opportunities to emerge
Platforms
Multimedia
HSPA
Converged networks
LTEWCDMA
ServicesManaged
TRA
NSF
OR
MA
TIO
N
Handsets
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
2003 -
2009
From To
700 million subscribers 4.5 billion subscribers
Voice telephony Internet and multimedia
Many competitors Few competitors
Hardware Software
Equipment Service
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Sustainability in focus for ICT – technology is key
4 billion users – 50 billion devices
Communication for all – bridging the digital divide
Broadband Everywhere – our society’s new highways
Internet goes mobile – always connected
2010-
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Ericsson has evolved
From To
Equipment lead Services lead
Telecom IP
Hardware Software
Our ability to develop culture and competence remains key
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Q3
in summary
-
market
› 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
This slide contains forward looking statements
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Q3
in summary
-
market
› 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
This slide contains forward looking statements
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Hans vestbergExecutive Vice President
and CFO
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Q3 financial
highlights
› 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
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Q3 financial
highlights
› 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
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Change in net cash + 6.0 B (from 27.9 to 33.9 B)
CHANGE IN GROSS CASH Q3 2009
Adjusted cash flow SEK 6.9 b.
Change in gross cash SEK +4.3 b
79.875.5
85
80
75
70
65
60
55
50
45
40
Operating Cash Flow 5.7 b Investing -0.7 b Financial 0.5 b FX -1.3 b
Gross Cash0906A
Net Incomereconciled to
cash
Change in Net operating
assets (excl. Restructuring)
Restructuring Investingactivities
FX on cash Gross Cash0909A
Financingactivities
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
2009 Cost
reductions
ahead
of plan
› 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
› Further efficiency potential uncovered– Additional cost savings and related charges next three quarters
Please note that not all restructuring charges lead to cash outAll restructuring numbers exclude joint ventures
2009
SEK b. YTD Q3 Q2 Q1Restructuring 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
2008 savings program of SEK 6.5 b completed
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Networks
› 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
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Professional
Services
› 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
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) -
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Multimedia
› 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
All numbers adjusted for comparable units and excluding restructuring charges
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% -
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
› 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
Joint ventures
– new ceo’s in place
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
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
© Ericsson AB 2009 | Third Quarter Report | Oct. 22, 2009
Third quarter report 2009Q & a