Telefonaktiebolaget LM Ericsson Class A · OMXSTO:ERIC_A
Telefonaktiebolaget LM Ericsson Class A — Ericsson — Investor Day (2014)
49 slides from Telefonaktiebolaget LM Ericsson Class A's investor day presentation, 2014
Slide 1: Hans Vestberg, CEO and Jan Frykhammar, CFO
HANS VESTBERG CEO JAN FRYKHAMMAR CFO AY
Slide 2: Capital Markets Day 2014
CAPITAL MARKETS DAY 2914 * W
Slide 3: Growth
W GROWTH >3-5% >10% Grow faster than the market Outperform market growth in targeted areas This slide contains forward-looking statements. Actual result may be materially different.
Slide 4: Profitability
W PROFITABILITY 9b 4.5b SEK in total annual savings SEK in Opex savings from efficiency measures from efficiency measures This slide contains forward-looking statements. Actual result may be materially different.
Slide 5: The Ericsson Journey
THEE CEO, Hans Vestberg ICSSON JOURNEY W
Slide 6: Journey to a Leading ICT Transformation Partner
JOURNEY TO A LEADING ICT TRANSFORMATION PARTNER W Excel in core business Establish leadership in targeted areas Expand business in new areas Consolidate hardware platforms and software stacks Monetize footprint and secure price premium Invest and grow in targeted areas Solidify technology leadership
Slide 7: Business Mix Changing
W BUSINESS MIX CHANGING Services & Services & Software Services & Software Software Hardware Hardware Hardware 1999 2008 2013
Slide 8: Competition Transforming
W COMPETITION TRANSFORMING Several ICT Several ~10 vendors ~5 vendors Telecom Telecom Telecom 1999 2008 2013
Slide 9: Sales per Market Changing
SALES PER MARKET CHANGING North America {i Latin America Ha Europe, Middle East late WaNiater-! 1% Note: 2013 excl ding “Region Other” (SEK 15 b)
Slide 10: Our People
OUR PEOPLE Employees Employees | 50,534 employees in 2004 20,155 in Sweden in Sweden 1999 2008 W Employees 17,858 in Sweden
Slide 11: Ericsson at a glance
35,000 25,000 $5 b. 88S =. “SERVICES ~ "sens 1 billion 2.5 billion 65,000 Subscribers managed by us Subscribers R&D Employees supported by us In R&D Services professionals Ns Reet TURE ie EDIAD DELIVERY & Pry = ee mal $ 3 5 b Net Sales ) LTE market share in the # 1 world’s 100 largest cities Countri
Slide 12: Market 2014
2014 Market Increasing role of telecoms in society — the Networked Society Mobility trend and operators transforming for growth and efficiency Political unrest prevails in parts of the world Ericsson © Telefonaktiebolaget LM Ericsson | Capital Markets Day 2014 | Page 8 W
Slide 13: The Ericsson Journey
THE ERICSSON JOURNEY CFO, Jan Frykhammar W
Slide 14: Financial Performance
FINANCIAL PERFORMANCE W ™™ Net Sales (SEK b.) Operating Margin (%) 227 228 227 227 Organic and FX adj CAGR: 7%, reported CAGR: 4% (2010-2013) 203 ; : Growth in 7 out of 10 regions 2010-2013 North America fastest growing region 2010-2013 (6% CAGR) 8% FE 8% 8% feo” 2010 2011 2012 2013 2014 09 rolling
Slide 15: 2014 Q3 Financial Performance
W 2014 Q3 FINANCIAL PERFORMANCE Q4 2013 sales and Op Income impacted by Samsung initial payment SEK 4.2 b. ™™ Net Sales (SEK b.) "Operating Margin (%) Sales growth 9%, partly due to strong USD p Started to deliver on previously communicated key contracts Business activity in US slowed down Stable im
Slide 16: Financial Performance: Networks
FINANCIAL PERFORMANCE W Net Sales mm Net sales (SEK b.) Operating margin (%) >» Mobile broadband growth offset by decline in CDMA & CS/Voice Core 132 >» Dependent on fundamental drivers such as: operators differentiation, 113 mobile broadband build outs and macro economics 0, 11% 13% 2010 2011 2012
Slide 17: Financial Performance: Global Services
FINANCIAL PERFORMANCE Net sales and operating margin (SEK b.) @™ Net Sales (SEK b.) ‘Operating margin (%) 97 97 95 > CAGR 2010-2013: 7% > Increased market share >» 2013 organic & FX adjusted growth 5% 2010 2011 2012 2013 2014 09 rolling 4Q All periods include restructuring charges Strong service seg
Slide 18: Professional Services
PROFESSIONAL SERVICES Professional services @™ Net sales (SEK b.) Operating margin (%) 67 66 68 59 59 13% nae ee 13% 11% 2010 2011 2012 2013 2014 09 rolling 4Q > Steady growth with stable margin > High degree of recurring business >» Double-digit growth in Q3 2014 > > > W Network Rollout (NRO) @™ Ne
Slide 19: Financial Performance: Support Solutions
FINANCIAL PERFORMANCE W ™™ Net Sales (SEK b.) Operating margin (%) Net Sales Continued growth in OSS & BSS and strengthened position in TV & Media Acquisition of Telcordia (2011) and Microsoft Mediaroom (2013) 11 11 Streamlined portfolio 2010 2014 2012 2013 2014 09 rolling “Eo 4Q = 5% All periods in
Slide 20: Foreign Exchange Risk
FOREIGN EXCHANGE RISK GENERAL W Translation Exposure Transaction exposure wa Sales and cost incurred in foreign entities Relates to sales and costs incurred in non- when converted into SEK upon consolidation reporting currencies in individual group Primarily affect group net sales and to lesser comp
Slide 21: Foreign Exchange Risk
FOREIGN EXCHANGE RISK NeT SALES —EUR/SEK —USD/SEK —100)PY/SEK © “ 5 22010 Qa2010 © QZ2011. © GAZI © G22012,_— Qa 201222013, Qa 2013 » USD has strengthened towards several currencies, including the SEK impacting sales positively USD-related sales stable over time Capital Markets Day 2014 | Page 17 22
Slide 22: Foreign Exchange Risk
FOREIGN EXCHANGE RIS 4 | EUR OPERATING INCOME mm 7 2013 FX Transaction Exposure (SEK b.) 22 : ow » Largest income exposure in USD and JPY > Large cost base in Sweden: R&D, CoS, SG&A >» Majority of FX exposure in Swedish entities W Revaluation of unrealized hedge contracts, effect on Operating Income
Slide 23: Operating Cash Flow
OPERATING CASH FLOW & W ™™ Operating Cash Flow Cash Conversion SEK 27 b. SEK 25 b. SEK 22 b. 116% SEK 17 b. 79% Cash Conversion Target >70% 2010 2011 2012 2013 2014 09 rolling 4Q Strong cash flow generation has enabled increased dividend and investments ooking statements. Actual result may be materi
Slide 24: Total Shareholder Return
TOTAL SHAREHOLDER RETURN ™ Total Shareholder Return* ™Dividend yield 25% 15% 2011 2012 a7 4% 4% 4% 2010 -4% 2013 2014 i Oct 31 “fo *Total shareholder return is defined as share price performance including reinvested dividends 10% in average annualized total shareholder return during last 5 years © T
Slide 25: Key Takeaways
KEY TAKEAWAYS W v Grew faster than the market 2010-2013 Strong underlying profit improvement in Q3 2014 Improved earnings in core business but profit level and growth rate not satisfactory given market position Net Sales and operating - margin v - Ericsson does business in multiple currencies, highe
Slide 26: The Networked Society
THE NETWORKED SOCIETY STRATEGY CEO, Hans Vestberg W
Slide 27: The Networked Society
THE NETWORKED SOCIETY WE ARE AT THE INFLECTION POINT @ \\" Installation Deployment By year 2020: >» 9.5 billion subscriptions > 8 billion Mobile Broadband subscriptions > 2x Smartphone subscriptions » 9x LTE subscription growth More efficiently solving Applying paradigm to old problems — winners inn
Slide 28: Operator and Industry Roles
OPERATOR AND INDUSTRY ROLES Applications & Services Platforms & Systems Connectivity & Infrastructure Users, Content & Devices Operator Service Av producer Service platform developer 40% Service Service enabler creator Network developer
Slide 29: What Ericsson Offers
WHAT ERICSSON OFFERS Z Users, Content & Devices Operator Service Service 20% Innovation and platform producer Revenue growth developer OSS&BSS and Process transformation 40% Network evolution Network Service Service developer enabler creator
Slide 30: Market Outlook (USD)
W MARKET OUTLOOK (USD) USD b. 5 ae0.070 <> Growth CAGR 2013-201 NI 7-9% 224 213 215 199 Support Solutions 4-6% Telecom Services Networks H 0, Equipment Total Networks Equipment 2-4% Key (higher in key segments) segments Key segments Key segments Note: Industry & Society market excluded in this slide
Slide 31: Growing faster than the market
THAN THE MARKET # UsDb. Market growth (USD) 4% 7%
Slide 32: IPR Strategy
W IPR STRATEGY » Generating revenue by commercializing Ericsson’s IPR portfolio >» Increased revenue from cross-licensing, divestments, Offensive structured deals and partnering value Run-rate » Protecting Ericsson by signing cross-license Defensive agreements with major IPR holders value » Ensuring
Slide 33: IPR
W IPR Expanding IPR revenues (Illustrative) IPR revenues Devices Content & apps 9 a poe 6.6 (emZ9 Excluding ° ore Samsung transport a fe) a Wireline access IPR Wireless Revenues access 06 O07 O8 O09 10 11 12 13 Handset Equipment Consumer Other devices Other ST ni Set eee vendors vendors electronics
Slide 34: Competition
\ AND COMPETITION a Technology, | Bring mobility | One-to-many, R&D scale #1 2G/3G/4G performance | expertise to IP, | skills, tools & | and complete | patent portfolio and R&D scale} SDN and Cloud} capabilities portfolio NSN Juniper IBM IBM Telecom Alcatel-Lucent Alcatel-Lucent Accenture Oracle inf
Slide 35: Strategic Direction 2014
W STRATEGIC DIRECTION 2014 Future/ Modems Emerging Cloud Radio, Core recent & Transmission Telecom i Industry & Large Services Society @ Excel in core business Establish leadership Expand business in in targeted areas new areas This slide contains forward-looking statements. Actual result may be mat
Slide 36: Criteria
CRITERIA High degree of . Growth software and High degree of potential ; , recurrent revenues professional services Adjacency - fully leveraging Ericsson core business areas Ambition of targeted areas is to significantly improve Ericsson’s earnings towards 2020 W
Slide 37: Resource Allocation
RESOURCE ALLOCATION Cloud & IP Global Services Radio Support Solutions W
Slide 38: Efficiency and Cost Reduction
\\" EFFICIENCY AND COST REDUCTION ™ Opex peak in 2014 — will be reduced onwards Proactively implement efficiency measures to execute on strategy — reduce cost by SEK 9 b. This slide contains forward-looking statements. Actual result may be materially different.
Slide 39: Operational Efficiency and Profitability
OPERATIONAL EFFICIENCY AND PROFITABILITY CFO, Jan Frykhammar W
Slide 40: Profit Improvement
PROFIT IMPROVEMENT ILLUSTRATIVE W OPERATING INCOME, SEK b. Build success in targeted areas i] Monetize footprint Efficiency improvements 2013 actual 2017 © Telefonaktiebolaget LM Ericsson | Capital Markets Day 2014 | Page 2 This slide contains forward-looking statements. Actual result may be materia
Slide 41: Continued Transformation
CONTINUED TRANSFORMATION HEADCOUNT EVOLUTION 2014 W (33) Active employees (thousands) Se | 112.1 Net efficiencies: -3.2 112.6 16 _ December 2013 Leavers Services Replacements & Organic Growth M&A Managed Services Divestments September 2014 Other new and Insourcing resources Significant transformatio
Slide 42: Market 2014
2014 Market Increasing role of telecoms in society — the Networked Society Mobility trend and operators transforming for growth and efficiency Political unrest prevails in parts of the world Ericsson © Telefonaktiebolaget LM Ericsson | Capital Markets Day 2014 | Page 4 W
Slide 43: Related to Today's Announcement
W RELATED TO TODAY'S ANNOUNCEMENT All other things equal; operating income will improve with SEK 9 b. during 2017 © Telefonaktiebolaget LM Ericsson | Capital Markets Day 2014 | Page 5 This slide contains forward-looking statements. Actual result may be materially different.
Slide 44: Activities
ACTIVITIES Portfolio streamlining Structural enhancements Accelerate service delivery transformation Supply efficiencies Efficiency in G&A W
Slide 45: Savings and Restructuring Costs
SAVINGS AND RESTRUCTURING COSTS Approx. split of annual Illustrative example, distribution of cost and savings (SEK b.) savings SEK 9 b. Yearly run-rate savings related to additional restructuring costs (SEK b.) Normal Restructuring costs 2015 2016 2017 Additional restructuring costs Will report pro
Slide 46: Expenses
EXPENSES R&D and SG&A expenses, SEK b. 59 59 59 R&D 33 33 32 2011 2012 2013 2014 09 rolling 4Q Modems W =» 2015 —> All other things equal - organic expenses expected to decrease © Telefonaktiebolaget LM Ericsson | Capital Markets Day 2014 | Page 8 This slide contains forward-looking statements. Actu
Slide 47: Profit Improvement
PROFIT IMPROVEMENT ILLUSTRATIVE W OPERATING INCOME, SEK b. Build success in targeted areas Monetize footprint Efficiency improvements 2013 actual 2017 © Telefonaktiebolaget LM Ericsson | Capital Markets Day 2014 | Page 9 This slide contains forward-looking statements. Actual result may be materially
Slide 48: Key Takeaways
W KEY TAKEAWAYS > Transformation continuous, focus on cost efficiency Efficiency and cost > All other things equal; operating income will improve with SEK 9 b. during 2017 » Restructuring charges of SEK 3-4 b. expected 2015-2017 » Will report progress on quarterly basis reductions — today’s announce
Slide 49: Ericsson
ERICSSON