Telefonaktiebolaget LM Ericsson Class A · OMXSTO:ERIC_A
Telefonaktiebolaget LM Ericsson Class A — Ericsson — Q2 2002 Earnings Presentation
27 slides from Telefonaktiebolaget LM Ericsson Class A's earnings presentation, Jul 19, 2002
Slide 1: Second Quarter Report
Second Quarter Report July 19 | 2002
Slide 2: Second Quarter Report – Kurt Hellström, President and CEO
Second Quarter Report July 19 | 2002 Kurt Hellström President and CEO
Slide 3: Market view 2002
Market view 2002 • Mobile systems market to decline by more than 15% • Mobile phone market flat to slightly down • Subscriber growth in line with expectations, approx. 45 million new subscribers in second quarter 2002 Second Quarter Report | July 19 | 2002 This outlook contains forward-looking state
Slide 4: Second quarter performance
Second quarter performance • Adjusted income before taxes of SEK -3.5 b. compared to SEK -5.4 b. in Q1 • Cost reductions ahead of plan • Mobile Systems sales up 6% sequentially • Improved cash flow • Funds from rights offering fully secured Maintains profit target with cost reductions ahead of sched
Slide 5: Outlook
Outlook • Sales to develop in line with the market • Continue cost reductions until we can break-even at sales levels around SEK 120 b. • Maintain target of returning to profit at some point in 2003 Second Quarter Report | July 19 | 2002 This outlook contains forward-looking statements. Actual resul
Slide 6: Financials
Financials Second Quarter Report July 19 | 2002
Slide 7: Evolution of Orders Booked
Evolution of Orders Booked By Market Area (SEK b.) 90 80 70 60 50 40 30 20 10 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 1999 2000 2001 2002 Western Europe Latin America CEMA Asia Pacific North America Weak quarter despite increase in Western Europe
Slide 8: Ericsson – Second quarter financial summary
Ericsson – Second quarter financial summary (SEK b.) Q201 Q102 Q202 Q202/Q201 Orders 54.4 41.9 35.3 -35% Sales 55.5 37.0 38.5 -31% Adj. Operating margin % -7.3% -12.2% -7.0% Adj. Income before taxes -5.1 -5.4 -3.5 • Excluding restructuring costs of SEK 1.5 b, primarily employee-related Cost-cutting
Slide 9: Cash flow Summary
Cash flow Summary Q1 Q2 Net income -3,7 -3,5 Adj Income to cash -2,6 -2,3 Income to cash -6,3 -5,8 Inventory -0,2 -0,8 Receivables 4,8 1,8 Payables, provisions and other working cap -3,1 -0,1 Customer financing 2,0 -0,8 Net +1.3 Working capital 3,5 0,1 Collateral for customer financing debt 2,1 Dive
Slide 10: Working capital
Working capital Q201 Q301 Q401 Q102 Q202 Accounts Receivable – Days Sales Outstanding 97 102 88 108 101 Inventory Turnover* 4.0 4.1 4.7 4.1 4.2 Customer financing outstanding exposure (SEK b.) 23.1 21.9 26.4 27.7 27.8 * Quarters in 2001adjusted for transferred activities to Sony Ericsson Effective w
Slide 11: Implemented, initiated & further cost-reductions
Implemented, initiated & further cost-reductions • Efficiency program SEK 20 b – Successfully implemented • Opex SEK 20 b - Initiated activities - R&D (SEK 10 b), streamlining product portfolio, concentration of R&D organization - SG&A (SEK 10 b), Merging Wireless & Wireline; consolidating Services
Slide 12: Implemented, initiated & further cost-reductions
Implemented, initiated & further cost-reductions • Efficiency program SEK 20 b – Successfully implemented - Full impact from Q1 2002 • Opex SEK 20 b - Initiated activities - Full impact from Q2 2003, ahead of previous target Q1 2004 • Opex SEK 10 b - Further planned adaptation - Full impact from Q4
Slide 13: Break-even analysis
Break-even analysis Yearly run-rate, SEK b. SEK 68 b. Opex SEK 38 b. Opex Q1 02 Q4 03 l Break-even level around SEK 120 b Q403 compared to SEK 180 b Q102 Gradual decrease of break-even point This outlook contains forward-looking statements. Actual result may be materially different
Slide 14: Development of number of employees
Development of number of employees Employees (‘000) 107 85 82 76 Q1 2001 Q4 2001 Q1 2002 Q2 2002 In line with cost-reduction
Slide 15: Rights offering
Rights offering • Certain shareholders and underwriters have agreed to subscribe for the total amount of the offering • Total offering amounts to approximately SEK 30 billion • One A- or B-share entitles the holder to receive a right to subscribe for one new B-share at SEK 3.80 The rights offering f
Slide 16: Key Planning Assumptions (Next six quarters)
Key Planning Assumptions (Next six quarters) Market for mobile systems declines by more than 15% in 2002 and stabilizes in 2003 Cash outlays for restructuring of SEK 17 billion Continued working capital improvements targeting > SEK12 b. Days sales outstanding (DSO) better than 90 days Inventory turn
Slide 17: Key Planning Assumptions (Next six quarters)
Key Planning Assumptions (Next six quarters) Return to profit at some point in 2003 Up to SEK 22 billion of debts to be repaid - Short-term borrowing SEK 8 billion - Long-term debt SEK 14 billion This outlook contains forward-looking statements. Actual result may be materially different
Slide 18: Rights Offering Provides Financial Strength
Rights Offering Provides Financial Strength Based on these assumptions and a reasonable margin for uncertainties we expect the following outcome: Expected Actual Pro Forma Outcome Q2 02 Q2 02 Q4 03 Net cash 26 55 Back-up facilities 15 15 Payment Readiness (SEK b.) 41 70 >Q202 Actual Equity Ratio 32%
Slide 19: In summary
In summary By using the proceeds for • funding of further restructuring activities and • repayment of debt, we will become a more cost-effective company with a strong balance sheet Well prepared when industry recovers This outlook contains forward-looking statements. Actual result may be materially
Slide 20: Sony Ericsson
Sony Ericsson Q1 02 Q2 02 Unit volumes 5.8 million 5.0 million Concentrated to high-end Sales 10.3 SEK b. 8.7 SEK b. High ASP maintained Income before taxes - -0.8 SEK b. Caused by volume shortfall, investment in brandbuilding Number of employees ~ 4,000 ~ 4,000 (Financials represent here 100% of So
Slide 21: Maturity profile of our debt portfolio
Maturity profile of our debt portfolio Appendix Q202 Repayments Q402 Repayments Q403 Short-term borrowing 10.5 -7.9 2.6 0 2.6 Current maturities 10.6 -1.0 12.7 -12.7 8.0 of L-T debt Total repayments -8.9 -12.7 Transfer to current Transfer to current + + - - Long-term debt 47.6 3.1 44.5 8.0 36.5 68.7
Slide 22: Definitions
Appendix Definitions • Net cash - cash and short-term investments less short- term borrowings • Back-up facilities - long-term unused credit commitments • Payment Readiness - Cash and short-term investments less short-term borrowings plus long-term unused credit commitments as a percentage of annual
Slide 23: Financial Impact of Potential Downgrade
Appendix Financial Impact of Potential Downgrade One notch down from the lower of present long-term ratings Financing arrangements Cost Other Comment cash impact Euro Medium Term Notes 55 0 Per notch and agency Vendor credit financings 18 0 Potential negative cash impact of approx. SEK 7 billion due
Slide 24: Customer credits - unutilized commitments
Customer credits - unutilized commitments Appendix SEK b. Q1 02 Q2 02 Change Commitments 28.1 25.3 - 2.8 • Commitments are transferred into exposure (drawn), cancelled or taken over by banks • Most commitments are for Ericsson providing a guarantee to lending bank • During 2001 we transferred a port
Slide 25: Implemented, initiated & further cost-reductions
Appendix Implemented, initiated & further cost-reductions In SEK b. 2001 2002 2003 2004 Total Restructuring charges -11.1 -11.5 -6.0 -28.6 - of which cash impact -10.1 -9.8 -5.3 -25.2 - of which non-cash -1.0 -1.7 -0.7 -3.4 Timing of Cash Outlay -4.1 -8.4 -12.3 -0.4 -25.2 This outlook contains forwa
Slide 26: Remaining activities – Consumer Products
Remaining activities – Consumer Products Appendix One-time items in 1H 2002 (SEK b.) Insurance compensation for the fire *) in the US Philips factory (spring 2000) +1.8 Inventory write-off -0.6 A/R Write-off -0.3 Warranty repair -0.4 Closing down -0.3 -1.6 Income impact (net) 0.2 **) Provisions 2001
Slide 27: Registration statement notice
•A registration statement relating to our securities has been filed with the Securities and Exchange Commission but has not yet become effective. The securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This release shall not co