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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM6-K
REPORT OF FOREIGN ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
July 17, 2019
Commission File Number000-12033
LM ERICSSON TELEPHONE COMPANY
(Translation of registrant’s name into English)
Torshamnsgatan 21, Kista
SE-164 83,Stockholm, Sweden
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover Form20-F or Form40-F. Form20-F ☒Form40-F ☐
Indicate by check mark if the registrant is submitting the Form6-K in paper as permitted by RegulationS-T Rule 101(b)(1): ☐
Indicate by check mark if the registrant is submitting the Form6-K in paper as permitted by RegulationS-T Rule 101(b)(7): ☐
Announcement of LM Ericsson Telephone Company, July 17, 2019 regarding “Second quarter report 2019”.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
TELEFONAKTIEBOLAGET LM ERICSSON (publ) | ||
By: | /s/ XAVIER DEDULLEN | |
Xavier Dedullen | ||
Senior Vice President, Chief Legal Officer | ||
By: | /s/ CARL MELLANDER | |
Carl Mellander | ||
Senior Vice President, Chief Financial Officer |
Date:July 17, 2019
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Second quarter report 2019
Stockholm, July 17, 2019
Second quarter highlights
• | Sales were SEK 54.8 (49.8) b. Sales adjusted for comparable units and currency increased by 7% driven by growth in Networks in North America and North East Asia. Reported sales grew by 10%. |
• | Gross margin was 36.6% (34.8%). Gross margin excluding restructuring charges was 36.7% (36.7%). |
• | Networks gross margin excluding restructuring charges improved to 41.4% (40.2%) YoY. Sequentially, Networks gross margin decreased from 43.2%, mainly due to costs related to a previously communicated license settlement agreement, negative impact from strategic contracts and lower IPR licensing revenues. |
• | Operating income was SEK 3.7 (0.2) b. and operating margin was 6.8% (0.3%). Operating income excluding restructuring charges was SEK 3.9 (2.0) b. and operating margin excluding restructuring charges was 7.0% (4.1%). |
• | Net income improved to SEK 1.8(-1.8) b. |
• | Free cash flow before M&A was SEK 2.2(-0.2) b. Net cash amounted to SEK 33.8 (33.1) b. |
SEK b. | Q2 2019 | Q2 2018 | YoY change | Q1 2019 | QoQ change | 6 months 2019 | 6 months 2018 | |||||||||||||||||||||
Net sales | 54.8 | 49.8 | 10 | % | 48.9 | 12 | % | 103.7 | 93.2 | |||||||||||||||||||
Sales growth adj. for comparable units and currency | — | — | 7 | % | — | — | — | — | ||||||||||||||||||||
Gross margin | 36.6 | % | 34.8 | % | — | 38.4 | % | — | 37.5 | % | 34.5 | % | ||||||||||||||||
Operating income (loss) | 3.7 | 0.2 | — | 4.9 | -24 | % | 8.6 | -0.1 | ||||||||||||||||||||
Operating margin | 6.8 | % | 0.3 | % | — | 10.0 | % | — | 8.3 | % | -0.2 | % | ||||||||||||||||
Net income (loss) | 1.8 | -1.8 | — | 2.4 | -23 | % | 4.3 | -2.5 | ||||||||||||||||||||
EPS diluted SEK | 0.51 | -0.58 | — | 0.70 | -27 | % | 1.21 | -0.83 | ||||||||||||||||||||
EPS(non-IFRS) SEK1) | 0.59 | -0.09 | — | 0.80 | -26 | % | 1.39 | 0.02 | ||||||||||||||||||||
Free cash flow excluding M&A | 2.2 | -0.2 | — | 4.1 | -45 | % | 6.3 | 0.6 | ||||||||||||||||||||
Net cash, end of period | 33.8 | 33.1 | 2 | % | 36.1 | -7 | % | 33.8 | 33.1 | |||||||||||||||||||
Gross margin excluding restructuring charges | 36.7 | % | 36.7 | % | — | 38.5 | % | — | 37.5 | % | 36.3 | % | ||||||||||||||||
Operating income (loss) excluding restructuring charges | 3.9 | 2.0 | 89 | % | 5.1 | -24 | % | 9.0 | 2.9 | |||||||||||||||||||
Operating margin excluding restructuring charges | 7.0 | % | 4.1 | % | — | 10.4 | % | — | 8.6 | % | 3.1 | % |
1) | EPS diluted, excl. amortizations and write-downs of acquired intangible assets, and excluding restructuring charges. Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share. |
Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.
1 Ericsson | Second Quarter Report 2019 |
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CEO comments
Organic sales growth1) was 7% in the quarter, mainly driven by sales in North America and North East Asia. We see strong momentum in our 5G business with both new contracts and new commercial launches as well as live networks. To date, we have provided solutions for almosttwo-thirds of all commercially launched 5G networks.
5G momentum is increasing. Initially, 5G will be a capacity enhancer in metropolitan areas. However, over time, new exciting innovations for 5G will come with IoT use cases, leveraging the speed, latency and security 5G can provide. This provides opportunities for our customers to capture new revenues as they provide additional benefits to consumers and businesses.
In the quarter, gross margin2) was unchanged YoY at 36.7%, with improvements in segment Networks being offset by lower margins in Digital Services and Managed Services.
Networks had another solid quarter with an organic sales growth1) of 11% YoY, driven by 4G and 5G investments in North America and North East Asia as well as increased volumes related to strategic contracts. While the strategic contracts will be margin accretive in the long term, the impact on near-term profitability is negative. In the quarter we had a negative impact on gross margin and expect this impact to increase during the second half of the year. In addition, costs related to the previously announced license settlement agreement impacted margins negatively. Despite this, gross margin2) improved to 41.4% (40.2%) YoY mainly due to increased IPR revenues. To ensure we meet customer requirements for fast and agile deliveries, we have decided to invest in astate-of-the-art 5G production site in the US to complement our global supply chain.
In Digital Services we continue to execute on the plan to reach low single-digit margins for 2020. The improvements are not linear and will vary between quarters. Organic sales1) in Digital Services were down by-3% YoY as a result of rapid decline in legacy products. Gross margin2) was 37.1% (42.6%). The decline in gross margin was mainly driven by a change in sales mix. The mix may vary between quarters. Our 5G and Cloud native portfolio is gaining customer traction and we are increasing related R&D investments to ensure portfolio readiness. The reshaped BSS strategy is gaining momentum and contracts were signed with several new customers in the quarter. The share of recurrent business is increasing, we are tracking towards having 75% of the 45 critical andnon-strategic contracts addressed byyear-end and we have cost efficiency programs in place throughout Digital Services.
In Managed Services the strategy is to enhance the customer offering by relying more on automation, machine learning and AI, which will longer-term improve the margin profile of the business. Near-term margins are negatively impacted by the increase in R&D investments. Organic sales1) declined by-6%, mainly explained by the negative effect from the customer contract reviews. Gross margin2) declined to 12.3% (14.0%) YoY, negatively impacted by timing of costs.
Organic sales growth1) in Emerging Business and Other was 24% driven by a continued growth in iconectiv. Operating income2) improved YoY to SEK-0.7(-1.2) b. supported by increased profits in iconectiv and the divestment of MediaKind. In this segment we invest in initiatives that aim to scale and help create future business for Ericsson. With the exception of iconectiv, the portfolio is still in an early investment phase.
Driven by improved earnings, free cash flow excluding M&A improved to SEK 2.2(-0.2) b.
We are in ongoing settlement negotiations with the United States Securities and Exchange Commission (SEC) and the United States Department of Justice (DOJ) in connection with their previously reported investigation under the U.S. Foreign Corrupt Practices Act (FCPA). We are not able to estimate the length of these settlement discussions. Further, as this is an ongoing legal matter we cannot provide any detail. However, it is our current assessment that the resolution of these matters will result in material financial and other measures, the magnitude and impact of which cannot be reliably estimated or ascertained at this time.
We continue to take strategic contracts and the large-scale network deployments expected to commence in parts of Asia, will gradually impact margins negatively in the short term but strengthen our position in the long term. Continued technology and market investments, especially in 5G, automation and AI, are fundamental for long-term competitiveness and a key part of our focused strategy to strengthen our long-term business and path to reaching our targets for 2020 and 2022.
Börje Ekholm
President and CEO
1) | Organic sales growth: Sales growth adjusted for comparable units and currency |
2) | Excluding restructuring charges |
Planning assumptions going forward
Market related
• | The Radio Access Network (RAN) equipment market is estimated to increase by 3% for full-year 2019 with 2% CAGR for 2018-2023. (Source: Dell’Oro.) |
Ericsson related
Net sales
• | Two-year average sales seasonality between Q2 and Q3 is 3%. The current sales level in North America is expected to remain throughout 2019. |
• | The revenues for current IPR licensing contract portfolio is approximately SEK 9 b. on an annual basis. |
Gross margin
• | Strategic contracts in Networks, with initially low margins, taken to strengthen the market position, will have a negative impact on gross margin without jeopardizing the 2020 target. The negative impact is expected to increase in 2H 2019. |
• | Large 5G deployments in parts of Asia are expected to commence at the end of 2019 and will gradually impact gross margin negatively in the short term. |
• | The share of services sales in North America is expected to gradually increase, impacting gross margin negatively. |
• | The targeted improvements in Digital Services are not linear and will vary between quarters. |
Operating expenses
• | Operating expenses typically decrease somewhat between Q2 and Q3 due to seasonality. |
• | Costs for 5G field trials will continue to impact SG&A. |
• | Networks R&D expenses are expected to flatten out. |
Restructuring charges
• | Restructuring charges for full-year 2019 are estimated to be SEK-2 to-4 b. (the previous estimate was SEK-3 to-5 b.). |
Currency exposure
• | Rule of thumb: A change of 10% of USD to SEK would have an impact of approximately+/-5% on net sales and approximately+/-1 percentage point on operating margin. |
2 Ericsson | Second Quarter Report 2019 | CEO comments |
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Financial highlights
SEK b. | Q2 2019 | Q2 2018 | YoY change | Q1 2019 | QoQ change | 6 months 2019 | 6 months 2018 | |||||||||||||||||||||
Net sales | 54.8 | 49.8 | 10 | % | 48.9 | 12 | % | 103.7 | 93.2 | |||||||||||||||||||
Sales growth adj. for comparable units and currency | — | — | 7 | % | — | — | — | — | ||||||||||||||||||||
Gross income | 20.1 | 17.3 | 16 | % | 18.8 | 7 | % | 38.9 | 32.2 | |||||||||||||||||||
Gross margin (%) | 36.6 | % | 34.8 | % | — | 38.4 | % | — | 37.5 | % | 34.5 | % | ||||||||||||||||
Research and development (R&D) expenses | -9.5 | -9.8 | — | -9.2 | 4 | % | -18.7 | -18.9 | ||||||||||||||||||||
Selling and administrative expenses | -7.0 | -7.1 | — | -6.0 | 15 | % | -13.0 | -13.2 | ||||||||||||||||||||
Impairment losses on trade receivables | 0.2 | -0.4 | — | 0.6 | -73 | % | 0.7 | -0.4 | ||||||||||||||||||||
Other operating income and expenses | 0.1 | 0.0 | — | 0.8 | -91 | % | 0.8 | 0.1 | ||||||||||||||||||||
Operating income (loss) | 3.7 | 0.2 | — | 4.9 | -24 | % | 8.6 | -0.1 | ||||||||||||||||||||
Operating margin (%) | 6.8 | % | 0.3 | % | — | 10.0 | % | — | 8.3 | % | -0.2 | % | ||||||||||||||||
Financial income and expenses, net | -0.4 | -0.8 | -46 | % | -0.6 | -27 | % | -1.0 | -1.4 | |||||||||||||||||||
Taxes | -1.5 | -1.2 | 25 | % | -1.9 | -23 | % | -3.3 | -1.0 | |||||||||||||||||||
Net income (loss) | 1.8 | -1.8 | — | 2.4 | -23 | % | 4.3 | -2.5 | ||||||||||||||||||||
Restructuring charges | -0.1 | -1.9 | — | -0.2 | -43 | % | -0.3 | -3.1 | ||||||||||||||||||||
Gross income excluding restructuring charges | 20.1 | 18.3 | 10 | % | 18.8 | 7 | % | 38.9 | 33.9 | |||||||||||||||||||
Gross margin excluding restructuring charges | 36.7 | % | 36.7 | % | — | 38.5 | % | — | 37.5 | % | 36.3 | % | ||||||||||||||||
R&D expenses excluding restructuring charges | -9.5 | -9.3 | 2 | % | -9.0 | 5 | % | -18.5 | -18.0 | |||||||||||||||||||
SG&A expenses excluding restructuring charges | -6.9 | -6.6 | 5 | % | -6.0 | 15 | % | -12.9 | -12.7 | |||||||||||||||||||
Operating income (loss) excl. restructuring charges | 3.9 | 2.0 | 89 | % | 5.1 | -24 | % | 9.0 | 2.9 | |||||||||||||||||||
Operating margin excluding restructuring charges | 7.0 | % | 4.1 | % | — | 10.4 | % | — | 8.6 | % | 3.1 | % |
Net sales
Sales adjusted for comparable units and currency increased by 7% YoY, driven by growth in Networks. Networks sales adjusted for comparable units and currency increased by 11% YoY, with strong sales growth in North America and in North East Asia. Digital Services sales adjusted for comparable units and currency declined by-3% YoY due to lower legacy product sales. Managed Services sales adjusted for comparable units and currency declined by-6% YoY, as a result of exited contracts. Sales adjusted for comparable units and currency in Emerging Business and Other increased by 24% YoY driven by growth in iconectiv.
Reported sales increased by 10% YoY.
Sequentially, sales as well as sales adjusted for comparable units and currency increased following a seasonally weak Q1.
IPR licensing revenues
IPR licensing revenues increased to SEK 2.2 (1.8) b. YoY. The increase was mainly due to new contracts signed and currency effects of a stronger USD versus SEK. Sequentially IPR licensing revenues decreased from SEK 2.5 b. after a strong Q1.
Gross margin
Gross margin increased to 36.6% (34.8%) YoY. Gross margin excluding restructuring charges was flat at 36.7%. Networks gross margin increased, partly due to increased IPR and licensing revenues. Gross margin declined YoY in Digital Services, Managed Services as well as in Emerging Business and Other.
Sequentially, gross margin decreased to 36.6% from 38.4%. Gross margin excluding restructuring charges decreased to 36.7% from 38.5% mainly due to lower gross margin in Networks. Networks gross margin was negatively impacted by costs related to the announced license settlement agreement, lower IPR and licensing revenues as well as an increased share of strategic contracts.
Operating expenses
R&D expenses decreased to SEK-9.5(-9.8) b. YoY. R&D expenses excluding restructuring charges increased to SEK-9.5(-9.3) b., negatively impacted by currency effects. R&D expenses increased in Networks and Managed Services. The increase was however partly offset by lower R&D expenses in Digital Services and Emerging Business and Other. The net impact of capitalized and amortized development expenses was SEK 0.1(-0.3) b.
Selling and administrative (SG&A) expenses slightly decreased to SEK-7.0(-7.1) b. YoY. SG&A expenses excluding restructuring charges increased to SEK-6.9(-6.6) b. YoY, negatively impacted by costs for field trials and currency effects.
Impairment losses on trade receivables were positive at SEK 0.2(-0.4) b., due to a provision for impairment losses on trade receivables which was converted to a provision for customer financing. The corresponding negative amount was reported as SG&A expenses.
Operating expenses increased sequentially due to seasonality, lower positive impact from impairment of accounts receivables, higher provisions for variable payments and negative currency effects.
Other operating income and expenses
Other operating income and expenses was flat YoY at SEK 0.1 b.
Restructuring charges
Restructuring charges decreased to SEK-0.1(-1.9) b. YoY.
3 Ericsson | Second Quarter Report 2019 | Financial highlights |
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Operating income and margin
Operating income and margin improved YoY to SEK 3.7 (0.2) b. and 6.8% (0.3%) respectively. Operating income and margin excluding restructuring charges improved to SEK 3.9 (2.0) b. and 7.0% (4.1%) respectively, as a result of increased sales.
Sequentially, operating income and margin decreased to SEK 3.7 b. from SEK 4.9 b. and to 6.8% from 10.0% respectively. Operating income excluding restructuring charges decreased to SEK 3.9 b. from SEK 5.1 b.
In Q1 2019, operating income was significantly supported by capital gains of SEK 0.8 b. and reversal of a provision for trade receivables of SEK 0.7 b.
Financial income and expenses, net
Financial income and expenses (net) improved to SEK-0.4(-0.8) b. YoY, mainly due to lower negative effects of foreign exchange revaluation. The currency hedge effects, which derive from the hedge loan balance in USD, impacted financial income and expenses (net) by SEK 0.0(-0.3) b. The SEK was flat against the USD between March 31, 2019 (SEK/USD rate 9.26) and June 30, 2019 (SEK/USD rate 9.27).In the quarter, interest expenses on financial leases were SEK-0.1 (0.0) b. as an effect of IFRS 16 implementation.
Taxes
Taxes were SEK-1.5(-1.2) b., which equals to a tax rate of 44%, and include anon-recurring major tax provision. The Company has implemented IFRIC 23, which requires quarterly assessments of uncertain tax positions. This has led to variations of taxes between quarters. The tax rate on income before tax is calculated based on the forecasted geographical distribution of profits for 2019.
Net income (loss) and EPS
Net income increased to SEK 1.8(-1.8) b. and EPS diluted increasedto SEK 0.51(-0.58) YoY.
Employees
The number of employees on June 30, 2019, was 94,756, a net increase of 176 employees in the quarter.
4 Ericsson | Second Quarter Report 2019 | Financial highlights |
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Market area sales
Second quarter 2019 | Change | |||||||||||||||||||||||||||
SEK b. | Networks | Digital Services | Managed Services | Emerging Business and Other | Total | YoY | QoQ | |||||||||||||||||||||
South East Asia, Oceania and India | 5.0 | 0.9 | 1.0 | 0.0 | 7.0 | 0 | % | 13 | % | |||||||||||||||||||
North East Asia | 5.4 | 0.9 | 0.2 | 0.0 | 6.5 | 37 | % | 70 | % | |||||||||||||||||||
North America | 14.2 | 2.2 | 1.2 | 0.0 | 17.7 | 23 | % | 9 | % | |||||||||||||||||||
Europe and Latin America | 8.1 | 2.9 | 2.9 | 0.1 | 14.1 | 1 | % | 7 | % | |||||||||||||||||||
Middle East and Africa | 3.1 | 1.6 | 1.0 | 0.0 | 5.6 | -3 | % | 4 | % | |||||||||||||||||||
Other1) | 2.0 | 0.4 | 0.0 | 1.5 | 3.9 | -1 | % | -8 | % | |||||||||||||||||||
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Total | 37.8 | 9.0 | 6.3 | 1.7 | 54.8 | 10 | % | 12 | % | |||||||||||||||||||
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1) | Market Area “Other” includes primarily licensing revenues and the major part of segment Emerging Business and Other |
South East Asia, Oceania and India
Sales remained flat YoY. Managed Services sales increased, mainly as a result of a contract won in 2018. Digital Services sales decreased due to lower legacy product sales in India, while Networks sales were stable.
North East Asia
Sales increased YoY, primarily driven by Networks sales with 5G deliveries in South Korea and continued 4G deployment in mainland China to accommodate increased traffic demand. Digital Services sales grew, mainly through achieving project milestones. 5G commercial licenses have been issued recently in mainland China.
North America
Sales increased YoY, driven by continued 4G and 5G investments by all major customers. Managed Services sales grew, driven by strong sales of variable parts in large customer contracts.
Europe and Latin America
Sales slightly increased YoY. Networks sales increased driven by earlier announced contract wins in Europe. Managed Services sales declined due to earlier communicated customer contract exits.
Middle East and Africa
Sales declined YoY. Networks and Digital Services sales declined due to timing of project milestones. Managed Services sales declined due to earlier communicated customer contract exits.
Other
Sales were flat YoY. Growth in IPR licensing revenues and iconectiv (part of segment Emerging Business and Other) was offset by the divestment of MediaKind. IPR licensing revenues amounted to SEK 2.2 (1.8) b., supported by a new contract signed in Q1 2019 and currency effects of a stronger USD versus SEK.
5 Ericsson | Second Quarter Report 2019 | Market area sales |
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Segment results
Networks
SEK b. | Q2 2019 | Q2 2018 | YoY change | Q1 2019 | QoQ change | 6 months 2019 | 6 months 2018 | |||||||||||||||||||||
Net sales | 37.8 | 32.4 | 17 | % | 33.5 | 13 | % | 71.3 | 61.0 | |||||||||||||||||||
Of which products | 26.7 | 22.3 | 20 | % | 23.8 | 12 | % | 50.5 | 41.8 | |||||||||||||||||||
Of which IPR licensing revenues | 1.8 | 1.5 | 24 | % | 2.1 | -11 | % | 3.9 | 3.0 | |||||||||||||||||||
Of which services | 11.1 | 10.1 | 10 | % | 9.7 | 14 | % | 20.8 | 19.2 | |||||||||||||||||||
Sales growth adjusted for comparable units and currency | — | — | 11 | % | — | — | — | — | ||||||||||||||||||||
Gross income | 15.7 | 12.6 | 25 | % | 14.5 | 8 | % | 30.1 | 23.7 | |||||||||||||||||||
Gross margin | 41.4 | % | 38.8 | % | — | 43.2 | % | — | 42.3 | % | 38.8 | % | ||||||||||||||||
Operating income | 5.7 | 3.5 | 60 | % | 5.5 | 4 | % | 11.2 | 6.9 | |||||||||||||||||||
Operating margin | 15.0 | % | 10.9 | % | — | 16.3 | % | — | 15.6 | % | 11.3 | % | ||||||||||||||||
Restructuring charges | 0.0 | -0.7 | — | 0.0 | — | 0.0 | -1.2 | |||||||||||||||||||||
Gross income excl. restructuring charges | 15.7 | 13.0 | 20 | % | 14.5 | 8 | % | 30.1 | 24.6 | |||||||||||||||||||
Gross margin excl. restructuring charges | 41.4 | % | 40.2 | % | — | 43.2 | % | — | 42.2 | % | 40.3 | % | ||||||||||||||||
Operating income excl. restructuring charges | 5.7 | 4.3 | 32 | % | 5.5 | 4 | % | 11.2 | 8.1 | |||||||||||||||||||
Operating margin excl. restructuring charges | 15.0 | % | 13.3 | % | — | 16.4 | % | — | 15.7 | % | 13.4 | % |
Net sales
Sales adjusted for comparable units and currency increased by 11% YoY. The increase is mainly due to strong growth in North America and in North East Asia, driven by 4G and 5G investments.
Reported sales increased by 17% YoY.
Gross margin
Gross margin increased to 41.4% (38.8%) YoY. Gross margin excluding restructuring charges increased to 41.4% (40.2%) mainly driven by higher IPR licensing revenues and a favorable business mix. The increase was partly offset by costs related to a previously announced license settlement agreement, ending patent infringement lawsuits, and negative impact from strategic contracts. The strategic contracts are taken to strengthen the market position and their negative impact on gross margin may vary between quarters.
Gross margin decreased to 41.4% from 43.2% QoQ. The decrease was mainly due to costs related to the new license settlement agreement, certain negative impact from strategic contracts and lower IPR licensing revenues.
Operating income and margin
Operating income increased to SEK 5.7 (3.5) b. YoY and operating margin improved to 15.0% (10.9%). Operating income excluding restructuring charges increased to SEK 5.7 (4.3) b. and operating margin improved to 15.0% (13.3%). The improvement was driven by higher sales and higher gross margin but was partly offset by increased R&D and SG&A expenses. R&D expenses increased due to investments in 5G. The total impact of amortization and capitalization of development expenses and of recognition and deferral of hardware costs contributed with SEK 0.4 (0.0) b. to operating income.
Strategy execution
As presented at the 2018 Capital Markets Day, the target for Networks is to generate an operating margin of15-17% (excluding restructuring charges) by 2020. Important ongoing strategic activities are to:
• | Invest in R&D to safeguard a leading product portfolio and cost leadership |
• | Increase investments in automation and serviceability driving down costs |
• | Selectively gain market share based on technology and cost competitiveness. |
At the close of the quarter, across radio and core, Ericsson had supplied equipment to 15 live 5G networks.
6 Ericsson | Second Quarter Report 2019 | Segment results | Networks |
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Digital Services
SEK b. | Q2 2019 | Q2 2018 | YoY change | Q1 2019 | QoQ change | 6 months 2019 | 6 months 2018 | |||||||||||||||||||||
Net sales | 9.0 | 8.8 | 2 | % | 7.8 | 15 | % | 16.8 | 16.1 | |||||||||||||||||||
Of which products | 4.6 | 4.5 | 3 | % | 3.9 | 17 | % | 8.5 | 8.4 | |||||||||||||||||||
Of which IPR licensing revenues | 0.4 | 0.3 | 24 | % | 0.5 | -11 | % | 0.9 | 0.7 | |||||||||||||||||||
Of which services | 4.4 | 4.4 | 0 | % | 3.9 | 13 | % | 8.3 | 7.7 | |||||||||||||||||||
Sales growth adjusted for comparable units and currency | — | — | -3 | % | — | — | — | — | ||||||||||||||||||||
Gross income | 3.3 | 3.5 | -4 | % | 2.9 | 15 | % | 6.2 | 6.4 | |||||||||||||||||||
Gross margin | 36.8 | % | 39.1 | % | — | 36.8 | % | — | 36.8 | % | 39.5 | % | ||||||||||||||||
Operating income (loss) | -1.4 | -2.4 | — | -1.8 | — | -3.2 | -5.0 | |||||||||||||||||||||
Operating margin | -15.6 | % | -26.9 | % | — | -23.0 | % | — | -19.1 | % | -30.9 | % | ||||||||||||||||
Restructuring charges | -0.1 | -0.9 | — | -0.2 | — | -0.3 | -1.5 | |||||||||||||||||||||
Gross income excl. restructuring charges | 3.3 | 3.8 | -11 | % | 2.9 | 14 | % | 6.3 | 6.9 | |||||||||||||||||||
Gross margin excl. restructuring charges | 37.1 | % | 42.6 | % | — | 37.6 | % | — | 37.3 | % | 42.7 | % | ||||||||||||||||
Operating income (loss) excl. restructuring charges | -1.3 | -1.5 | — | -1.6 | — | -2.9 | -3.5 | |||||||||||||||||||||
Operating margin excl. restructuring charges | -14.6 | % | -16.9 | % | — | -20.6 | % | — | -17.4 | % | -21.9 | % |
Net sales
Reported sales increased by 2% YoY. Sales adjusted for comparable units and currency declined by-3% YoY impacted by lower legacy product sales, primarily in India. The decline was partly offset by growth in the new portfolio for Cloud Infrastructure and Operations Support Systems (OSS).
Gross margin
Gross margin decreased to 36.8% (39.1%) YoY. Gross margin excluding restructuring charges declined to 37.1% (42.6%), negatively impacted by a business mix with a lower share of software sales. The business mix may vary between quarters depending on project mix and timing.
Gross margin excluding restructuring charges declined to 37.1% from 37.6% QoQ, due to a business mix with a lower share of software sales.
Operating income (loss)
Operating income was SEK-1.4(-2.4) b. Operating income excluding restructuring charges was SEK-1.3(-1.5) b., with a positive impact from reduced operating expenses. Operating expenses, excluding restructuring charges and excluding the net impact from capitalized and amortized development expenses, declined by SEK 0.9 b. in the first six months 2019 despite adverse currency effects. The net impact of capitalized and amortized development expenses was SEK-0.3(-0.4) b. in the quarter.
Strategy execution
Top priority for Digital Services is to turn the segment into a profitable business, targeting low single-digit operating margin by 2020 (excluding restructuring charges).
A key activity for turnaround of the Digital Services business is to complete, renegotiate or exit 45 identified critical andnon-strategic customer contracts. Two additional contracts were addressed in the quarter, and a total of 27 contracts have been addressed to date. This is in line with the plan to have completed 75% of the 45 contracts by the end of 2019.
New ways of working and investments in automation to further improve R&D efficiency as well as investments in the new portfolio of 5G and cloud-native products will continue to strengthen the current market position and prepare Digital Services for profitable growth.
New product offerings were launched in the quarter, including Ericsson Edge NFVi (Network Function Virtualization infrastructure), an edge solution for distributed cloud services, and Ericsson Partner VNF (Virtual Network Functions) Certification Program for virtual network function vendors. These cloud and NFVi offerings are part of the Ericsson 5G Platform. Rolling 12 months sales of the new portfolio increased by 13%, driven by customer investments in 4G and 5G.
At the close of the quarter, across radio and core, Ericsson had supplied equipment to 15 live 5G networks.
7 Ericsson | Second Quarter Report 2019 | Segment results | Digital Services |
Table of Contents
Managed Services
SEK b. | Q2 2019 | Q2 2018 | YoY change | Q1 2019 | QoQ change | 6 months 2019 | 6 months 2018 | |||||||||||||||||||||
Net sales | 6.3 | 6.5 | -3 | % | 5.9 | 8 | % | 12.2 | 12.4 | |||||||||||||||||||
Sales growth adjusted for comparable units and currency | — | — | -6 | % | — | — | — | — | ||||||||||||||||||||
Gross income | 0.8 | 0.8 | -4 | % | 1.0 | -25 | % | 1.8 | 1.3 | |||||||||||||||||||
Gross margin | 12.3 | % | 12.4 | % | — | 17.7 | % | — | 14.9 | % | 10.5 | % | ||||||||||||||||
Operating income | 0.2 | 0.3 | -32 | % | 1.3 | -84 | % | 1.5 | 0.4 | |||||||||||||||||||
Operating margin | 3.2 | % | 4.6 | % | — | 21.4 | % | — | 11.9 | % | 3.2 | % | ||||||||||||||||
Restructuring charges | 0.0 | -0.1 | — | 0.0 | — | 0.0 | -0.2 | |||||||||||||||||||||
Gross income excl. restructuring charges | 0.8 | 0.9 | -15 | % | 1.0 | -25 | % | 1.8 | 1.5 | |||||||||||||||||||
Gross margin excl. restructuring charges | 12.3 | % | 14.0 | % | — | 17.7 | % | — | 14.9 | % | 11.7 | % | ||||||||||||||||
Operating income excl. restructuring charges | 0.2 | 0.4 | -52 | % | 1.3 | 1) | -84 | % | 1.5 | 0.6 | ||||||||||||||||||
Operating margin excl. restructuring charges | 3.2 | % | 6.5 | % | — | 21.4 | % | — | 12.0 | % | 4.6 | % |
1) | Q1 2019 Operating income was SEK 0.5 b., when excluding restructuring charges and reversal of a provision for impairment of trade receivables |
Net sales
Sales adjusted for comparable units and currency decreased by-6% YoY due to earlier communicated customer contract exits. Sales in Network Design & Optimization (project business) showed growth.
Reported sales decreased by-3% YoY. Sales increased adjusted for customer contract exits.
Gross margin
Gross margin was stable YoY. Gross margin excluding restructuring charges declined to 12.3% (14.0%) YoY, mainly due to timing of costs.
Gross margin decreased to 12.3% from 17.7% QoQ, mainly due to timing of costs. Gross margin in Q1 2019 was supported by seasonally lower costs.
Operating income and margin
Operating income decreased to SEK 0.2 (0.3) b. YoY. Operating income excluding restructuring charges declined to SEK 0.2 (0.4) b., mainly as a result of lower gross margin and increased investments in automation, analytics andAI-driven offerings.
Operating income declined to SEK 0.2 b. from SEK 1.3 b. QoQ. Reversal of a provision for impairment of trade receivables of SEK 0.7 b. had a significant positive impact in Q1 2019. In addition, operating expenses increased sequentially mainly as a result of continued investments in automation, analytics andAI-driven offerings.
Operating margin for the first six months 2019 was 5.8%, excluding restructuring charges and the positive effect from reversal of a provision for impairment of trade receivables, of SEK 0.7 b., in Q1 2019. This in line with the 2020 ambition.
Strategy execution
AI and automation are essential to managing the increasing complexity of current and future networks. To address and lead the evolution from network-centric towards user-experience-centric operations, in Q1 2019 Ericsson launched a newAI-based managed services offering for operators – the Ericsson Operations Engine. This offering addresses the increasing network complexity, including operators’ need to handle growing volumes of devices, multiple technologies (4G, 5G, IoT), and more diverse service requirements.
Further investments continue to be made in automation, analytics andAI-driven offerings, to support 5G, IoT and cloud as well as to increase service delivery efficiency.
As presented at the 2018 Capital Markets Day, the ambition for Managed Services is to improve operating margin to5-8% (excluding restructuring charges) in 2020.
8 Ericsson | Second Quarter Report 2019 | Segment results | Managed Services |
Table of Contents
Emerging Business and Other (includes Emerging Business, iconectiv, Red Bee Media and Media Solutions)
SEK b. | Q2 2019 | Q2 2018 | YoY change | Q1 2019 | QoQ change | 6 months 2019 | 6 months 2018 | |||||||||||||||||||||
Net sales | 1.7 | 2.1 | -18 | % | 1.8 | -4 | % | 3.4 | 3.7 | |||||||||||||||||||
Of which Emerging Business and iconectiv | 1.0 | 0.7 | 44 | % | 1.0 | 2 | % | 2.1 | 1.3 | |||||||||||||||||||
Of which Red Bee Media | 0.6 | 0.6 | 8 | % | 0.6 | 2 | % | 1.2 | 1.1 | |||||||||||||||||||
Of which Media Solutions | 0.0 | 0.7 | — | 0.1 | — | 0.1 | 1.3 | |||||||||||||||||||||
Sales growth adjusted for comparable units and currency | — | — | 24 | % | — | — | — | — | ||||||||||||||||||||
Gross income | 0.3 | 0.5 | -38 | % | 0.4 | -24 | % | 0.7 | 0.8 | |||||||||||||||||||
Gross margin | 18.5 | % | 24.4 | % | — | 23.4 | % | — | 21.0 | % | 22.9 | % | ||||||||||||||||
Operating income (loss) | -0.7 | -1.3 | — | 0.0 | — | -0.8 | -2.5 | |||||||||||||||||||||
Operating margin | -44.1 | % | -63.5 | % | — | -1.7 | % | — | -22.4 | % | -66.9 | % | ||||||||||||||||
Restructuring charges | 0.0 | -0.1 | — | 0.0 | 0.0 | -0.2 | ||||||||||||||||||||||
Gross income excl. restructuring charges | 0.3 | 0.6 | -43 | % | 0.4 | -22 | % | 0.7 | 1.0 | |||||||||||||||||||
Gross margin excl. restructuring charges | 19.2 | % | 27.4 | % | — | 23.5 | % | — | 21.4 | % | 26.0 | % | ||||||||||||||||
Operating income (loss) excl. restructuring charges | -0.7 | -1.2 | — | 0.0 | 1) | — | -0.7 | -2.3 | ||||||||||||||||||||
Of which Emerging Business, iconectiv and common costs | -0.5 | -0.7 | — | -0.5 | 18 | % | -1.0 | -1.3 | ||||||||||||||||||||
Of which Red Bee Media | 0.0 | -0.1 | — | 0.0 | — | 0.0 | -0.2 | |||||||||||||||||||||
Of which Media Solutions | -0.2 | -0.4 | — | 0.4 | — | 0.3 | -0.8 | |||||||||||||||||||||
Operating margin excl. restructuring charges | -42.8 | % | -57.4 | % | — | -1.3 | % | — | -21.6 | % | -61.9 | % |
1) | Q1 2019 Operating income was SEK-0.8 b., when excluding restructuring charges and capital gains of SEK 0.8 b. in Media Solutions and Red Bee Media |
Net sales
Reported sales decreased by-18% YoY due to the 51% divestment of MediaKind. Sales adjusted for comparable units and currency increased by 24% YoY. The increase was driven by iconectiv, specifically the number portability contract in the United States for which deliveries started in May 2018.
Reported Sales decreased QoQ, due to the 51% divestment of MediaKind in Q1 2019.
Gross margin
Gross margin declined to 18.5% (24.4%) YoY. Gross margin excluding restructuring charges declined to 19.2% (27.4%). The decline was mainly due to the divestment of 51% of MediaKind and to a provision of SEK-0.1 b. for a customer claim related to a legacy product.
Gross margin decreased QoQ to 18.5% from 23.4%. Gross margin excluding restructuring charges decreased to 19.2% from 23.5% mainly due to a provision for a customer claim related to a legacy product.
Operating income (loss)
Operating income improved to SEK-0.7(-1.3) b. YoY. Operating income excluding restructuring charges improved to SEK-0.7(-1.2) b., driven by increased profits in iconectiv and reduced losses in Media Solutions.
Media Solutions (MediaKind and transaction-related costs etc.) operating income excluding restructuring charges was SEK-0.2(-0.4) b. The quarterly result includes Ericsson’s 49% share in earnings of the Media-Kind business. Capital gains of SEK 0.7 b. from this divestment in February 2019 had a positive impact on operating income in Q1 2019.
Red Bee Media operating income excluding restructuring charges was SEK 0.0(-0.1) b. Capital gains related to the divestment of certain assets in Red Bee Media had a positive impact on operating income in Q1 2019.
Operating income for Emerging business, iconectiv and common costs excluding restructuring charges was SEK-0.5(-0.7) b. The improvement was due to increased sales in iconectiv. Operating income excluding restructuring charges declined QoQ due to lower gross margin.
Strategy execution
Emerging Business and iconectiv
Selective and disciplined investments and a lean startup approach have been implemented in Emerging Business, to build a position and grow sales in new areas. iconectiv offers software-based interconnection solutions, providing number portability between operators. With the exception of iconectiv, the portfolio is still in an early investment phase with focus on generating sales and scaling the business. The maingo-to-market model is via mobile operators, leveraging access to licensed spectrum.
Red Bee Media
The target remains; to achieve a sustainable profitable business by continuing to develop and manage the business as an independent and focused media services entity within Ericsson.
Media Solutions
51% of the MediaKind business was divested on February 1, 2019. After the transaction, Ericsson carries 49% of the MediaKind results as “share in earnings of JV and associated companies”.
9 Ericsson | Second Quarter Report 2019 | Segment results | Emerging Business and Other |
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Cash flow
SEK b. | Q2 2019 | Q2 2018 | Q1 2019 | 6 months 2019 | 6 months 2018 | |||||||||||||||
Net income reconciled to cash | 5.0 | -0.3 | 5.5 | 10.4 | -1.3 | |||||||||||||||
Changes in operating net assets | -1.3 | 1.7 | 0.3 | -1.0 | 4.3 | |||||||||||||||
Cash flow from operating activities | 3.6 | 1.4 | 5.8 | 9.4 | 3.0 | |||||||||||||||
Cash flow from investing activities | 1.0 | 1.6 | 3.3 | 4.3 | -0.2 | |||||||||||||||
Cash flow from financing activities | -4.6 | -3.7 | -2.6 | -7.2 | -3.8 | |||||||||||||||
Effect of exchange rate changes on cash | 0.0 | 1.0 | 0.6 | 0.6 | 2.1 | |||||||||||||||
Net change in cash and cash equivalents | 0.0 | 0.4 | 7.1 | 7.1 | 1.2 | |||||||||||||||
Free cash flow excluding M&A | 2.2 | -0.2 | 4.1 | 6.3 | 0.6 | |||||||||||||||
Free cash flow | 2.2 | -0.6 | 4.4 | 6.6 | -0.3 |
Operating activities
Net income reconciled to cash was SEK 5.0(-0.3) b. mainly driven by improved profitability. Cash flow from operating activities was SEK 3.6 (1.4) b. and includes SEK-1.3 b. in changes in operating net assets.
Inventory and trade payables increased due to high business activity while trade receivables decreased driven by strong collection. Sale of trade receivables continued to trend downwards and decreased YoY. Provisions decreased in the quarter, mainly as a result of cash outlays of SEK 2.1 (1.5) b. of which SEK 0.4 (0.8) b. were restructuring charges. Contract liabilities decreased by SEK 1.6 b.
Total cash outlays for 2019, related to the balance for provision as of December 31, 2018, are estimated to be SEK 10 b., of which cash outlays in the quarter were SEK 3.7 b. (including SEK 1.7 b. related to earlier BSS provision). Total cash outlays for the first six months were SEK 6.9 b.
Investing activities
Cash flow from investing activities was SEK 1.0 (1.6) b. including SEK 2.4 b. of decreased interest-bearing securities (i.e. government/ mortgage bonds). Cash flow from investments in property, plant and equipment was SEK-1.1(-1.0) b., following investments in test equipment. Cash flow from capitalized development expenses was SEK-0.4(-0.3) b. following increased R&D activities in 5G.
Financing activities
Cash flow from financing activities was SEK-4.6(-3.7) b. of which the main part relates to payment of dividends of SEK-3.3 b.
Free cash flow
Free cash flow excluding M&A was SEK 2.2(-0.2) b. and free cash flow (including M&A) was SEK 2.2(-0.6) b. The increase was mainly driven by improved net income reconciled to cash, partly offset by cash outlays for earlier made provisions.
Effects from implementation of IFRS 16 “Leases”
Cash flow from operating activities was positively impacted by SEK 0.6 b. Financing activities were negatively impacted by amortization of the leasing liability of the same amount. These effects generated a free cash flow that was positively impacted by SEK 0.6 b. through the implementation of IFRS 16.
10 Ericsson | Second Quarter Report 2019 | Cash flow |
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Financial position
SEK b. | Jun 30 2019 | Jun 30 2018 | Mar 31 2019 | |||||||||
+ Cash and cash equivalents | 45.5 | 37.0 | 45.5 | |||||||||
+ Interest-bearing securities, current | 6.4 | 8.3 | 3.2 | |||||||||
+ Interest-bearing securities,non-current | 17.1 | 21.5 | 23.0 | |||||||||
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Gross cash | 69.0 | 66.9 | 71.7 | |||||||||
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– Borrowings, current | 2.2 | 2.6 | 3.0 | |||||||||
– Borrowings,non-current | 33.0 | 31.1 | 32.5 | |||||||||
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Net cash | 33.8 | 33.1 | 36.1 | |||||||||
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Equity | 84.5 | 93.6 | 84.5 | |||||||||
Total assets | 280.4 | 265.3 | 284.0 | |||||||||
Capital turnover (times) | 1.3 | 1.2 | 1.3 | |||||||||
Return on capital employed (%) | 11.0 | % | -0.2 | % | 12.6 | % | ||||||
Equity ratio (%) | 30.1 | % | 35.3 | % | 29.8 | % | ||||||
Return on equity (%) | 9.4 | % | -5.8 | % | 10.8 | % |
Gross cash decreased by SEK-2.7 b. QoQ as a result of payments of dividends. Net cash decreased by SEK-2.4 b. QoQ. Gross cash was SEK 69.0 b. and net cash was SEK 33.8 b. Net cash does not include lease liabilities.
Liabilities for post-employments benefits increased in the quarter, to SEK 33.9 b. from SEK 30.7 b., due to lower interest rates. The Swedish defined benefit obligation (DBO) was calculated using a discount rate based on the yields of Swedish government bonds. If the discount rate had been based on Swedish covered mortgage bonds, the liability for post-employment benefits would have been approximately SEK 10.3 b. lower as of June 30, 2019.
The average maturity of long-term borrowings as of June 30, 2019, was 2.9 years, a decrease from 3.9 years 12 months earlier.
11 Ericsson | Second Quarter Report 2019 | Financial position |
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Parent Company
Income after financial items was SEK 0.8 (1.7) b.
At the end of the quarter, gross cash (cash, cash equivalents, short-term investments and interest-bearing securitiesnon-current) amounted to SEK 51.1 (53.6) b.
There was a decrease in intercompany lending of SEK 4.1 b. and in intercompany borrowing of SEK 12.7 b. in the second quarter.
In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 3,767,149 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock on June 30, 2019, was 28,855,118 Class B shares.
12 Ericsson | Second Quarter Report 2019 | Parent Company |
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Other information
Ericsson’s Nomination Committee appointed
On April 26, 2019, Ericsson announced that its Nomination Committee for the Annual General Meeting 2020 had been appointed.
The Nomination Committee consists of:
• | Johan Forssell, Investor AB |
• | Karl Åberg, AB Industrivärden and Svenska Handelsbankens Pensionsstiftelse |
• | Jonas Synnergren, Cevian Capital Partners Limited |
• | Anders Oscarsson, AMF – Försäkring och Fonder |
• | Ronnie Leten, the Chair of the Board of Directors. |
Johan Forssell is the Chair of the Nomination Committee.
Stella Medlicott appointed Senior Vice President and Head of Marketing & Corporate Relations
On June 4, 2019 Ericsson announced that, effective June 10, 2019, Stella Medlicott is appointed Senior Vice President and Head of Group Function Marketing & Corporate Relations at Ericsson. Stella Medlicott is a member of Ericsson’s Executive Team, reporting to CEO. As a member of Ericsson’s Executive Team, Stella Medlicott replaces Helena Norrman as of June 10, 2019.
Ericsson and Intellectual Ventures signed license agreement
On June 10, 2019 Ericsson announced that Ericsson and Intellectual Ventures have signed a license agreement ending all patent infringement lawsuits between the companies, including a lawsuit that went to trial earlier this year and resulted in a USD 43 million jury verdict for Intellectual Ventures. Since 2012, Intellectual Ventures has filed a number of patent infringement lawsuits against Ericsson and its customers in the U.S. and Europe seeking injunctions and monetary damages. The terms of the agreement are confidential.
SEC and DOJ inquiries
Ericsson is in ongoing settlement negotiations with the United States Securities and Exchange Commission (SEC) and the United States Department of Justice (DOJ) in connection with their previously reported investigation under the U.S. Foreign Corrupt Practices Act (FCPA). Ericsson is not able to estimate the length of these settlement discussions. Further, as this is an ongoing legal matter the Company cannot provide any detail. However, based on the current status of the discussions, it is Ericsson’s assessment that the resolution of these matters will result in material financial and other measures, the magnitude and impact of which cannot be reliably estimated or ascertained at this time. Potential future cash outflows are currently not possible to reliably estimate. Accordingly, no provisions have been recorded for such potential exposure.
13 Ericsson | Second Quarter Report 2019 | Other information |
Table of Contents
Risk factors
Ericsson is exposed to a number of risks in its activities. To stimulate identification and support cross-functional treatment within the Ericsson Group, risks are grouped in a number of categories, including for example risks relating to technology, IPR, compliance, project execution, operations, products and services, treasury and accounting, the geopolitical environment, M&A, cyber security and occupational health and safety.
Ericsson’s risk management is embedded into strategy development and operational processes and is a part of the Ericsson Group Management System to ensure accountability, effectiveness, efficiency, business continuity and compliance. Risks are defined in both a short-term and long-term perspective and are related to long-term objectives as per the strategic direction as well as to short-term objectives.
Risk factors and uncertainties of relevance to Ericsson are described in the Annual Report 2018. Updates to these risk factors and uncertainties observed by Ericsson that are deemed of short-term relevance include, but are not limited to, the following:
• | Ericsson is in ongoing settlement negotiations with the United States Securities and Exchange Commission (SEC) and the United States Department of Justice (DOJ) in connection with their previously reported investigation under the U.S. Foreign Corrupt Practices Act (FCPA). Ericsson is not able to estimate the length of these settlement discussions. Further, as this is an ongoing legal matter the Company cannot provide any detail. However, based on the current status of the discussions, it is Ericsson’s assessment that the resolution of these matters will result in material financial and other measures, the magnitude and impact of which cannot be reliably estimated or ascertained at this time. Potential future cash outflows are currently not possible to reliably estimate. Accordingly, no provisions have been recorded for such potential exposure. |
• | As with other companies across the world, cyber-attacks are targeting Ericsson’s infrastructure, products, operations, and personnel, which requires the Company to invest in defensive countermeasures throughout the organization and in Ericsson’s supply chain. As attacks continue to increase in frequency and severity, there is no guarantee that existing protections will prevent material adverse effects on Ericsson’s business, operations, financial condition, reputation and brand. |
• | Geopolitical turbulence and trade frictions, e.g. between China and the USA, and continued or increased tension in parts of the world, such as the Middle East, may continue to prevail and to increasingly be a matter to address for Ericsson and its customers. This could result in material negative impact on Ericsson’s global operations, lead to increased, unrecoverable, costs and may have a negative impact on the Company’s profitability. It may also be disruptive to Ericsson’s international supply chain and export/import activities (including component supply, manufacturing, sourcing and deliveries of products and services). |
This report has not been reviewed by Telefonaktiebolaget LM Ericsson’s auditors.
Date for next report: October 17, 2019
14 Ericsson | Second Quarter Report 2019 | Risk factors |
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Board Assurance
The Board of Directors and the CEO certify that the financial report for the six months gives a fair view of the performance of the business, position and profit or loss of the Company and the Group, and describes the principal risks and uncertainties that the Company and the companies in the Group face.
Stockholm, July 17, 2019
Telefonaktiebolaget LM Ericsson (publ)
Org. Nr. 556016-0680
Helena Stjernholm Deputy Chair | Ronnie Leten Chair | Jacob Wallenberg Deputy Chair | ||
Jon Fredrik Baksaas Member of the Board | Jan Carlson Member of the Board | Nora Denzel Member of the Board | ||
Eric A. Elzvik Member of the Board | Kurt Jofs Member of the Board | Kristin S. Rinne Member of the Board | ||
Börje Ekholm President, CEO and member of the Board | ||||
Torbjörn Nyman Member of the Board | Kjell-Åke Soting Member of the Board | Roger Svensson Member of the Board |
15 Ericsson | Second Quarter Report 2019 | Board Assurance |
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Editor’s note
Press briefing and live webcast
Ericsson invites media, investors and analysts to conference calls on July 17, 2019; one starting at 09.00 (CET) and the other at 14.00 (CET).
Live audio webcasts of the conference calls as well as supporting slides will be available at:
www.ericsson.com/investors and
www.ericsson.com/press
Replay of the conference calls will be available approximately one hour after each call has ended and will remain available for seven days.
For further information, please contact:
Carl Mellander Senior Vice President, Chief Financial Officer
Phone: +46 10 713 89 70
E-mail: investor.relations@ericsson.com or
media.relations@ericsson.com
Stella Medlicott Senior Vice President, Chief Marketing and Communications Officer
Phone: +46 10 713 65 39
E-mail: investor.relations@ericsson.com or
media.relations@ericsson.com
Telefonaktiebolaget LM Ericsson
Org. number: 556016-0680
Torshamnsgatan 21
SE-164 83 Stockholm
Phone: +46 10 719 00 00
www.ericsson.com
Investors
Peter Nyquist, Vice President,
Head of Investor Relations
Phone: +46 10 714 64 99, +46 70 575 29 06
E-mail: peter.nyquist@ericsson.com
Stefan Jelvin, Director,
Investor Relations
Phone: +46 10 714 20 39, +46 70 986 02 27
E-mail: stefan.jelvin@ericsson.com
Rikard Tunedal, Director,
Investor Relations
Phone: +46 10 714 54 00, +46 761 005 400
E-mail: rikard.tunedal@ericsson.com
Media
Ola Rembe, Vice President,
Head of External Communications
Phone: +46 10 719 97 27, +46 73 024 48 73
E-mail: media.relations@ericsson.com
Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com
16 Ericsson | Second Quarter Report 2019 | Editor’s note |
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Forward-looking statements
This report includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events, financial condition, and expected operational and financial performance, including, in particular the following:
• | Our goals, strategies, planning assumptions and operational or financial performance expectations |
• | Industry trends, future characteristics and development of the markets in which we operate |
• | Our future liquidity, capital resources, capital expenditures, cost savings and profitability |
• | The expected demand for our existing and new products and services as well as plans to launch new products and services including research and development expenditures |
• | The ability to deliver on future plans and to realize potential for future growth |
• | The expected operational or financial performance of strategic cooperation activities and joint ventures |
• | The time until acquired entities and businesses will be integrated and accretive to income |
• | Technology and industry trends including the regulatory and standardization environment in which we operate, competition and our customer structure. |
The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,” “likely,” “projects,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,” “would,” “predict,” “aim,” “ambition,” “seek,” “potential,” “target,” “might,” “continue,” or, in each case, their negative or variations, and similar words or expressions are used to identify forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.
We caution investors that these statements are subject to risks and uncertainties many of which are difficult to predict and generally beyond our control that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.
Important factors that could affect whether and to what extent any of our forward-looking statements materialize include, but are not limited to, the factors described in the section “Risk Factors”, and in “Risk Factors” in the Annual Report 2018.
These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.
17 Ericsson | Second Quarter Report 2019 | Forward-looking statements |
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18 Ericsson | Second Quarter Report 2019 | Financial statements and other information |
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SEK million | 2019 | 2018 | Change | 2019 | 2018 | Change | ||||||||||||||||||
Net sales | 54,810 | 49,808 | 10 | % | 103,716 | 93,219 | 11 | % | ||||||||||||||||
Cost of sales | -34,739 | -32,475 | 7 | % | -64,866 | -61,028 | 6 | % | ||||||||||||||||
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| |||||||||||||
Gross income | 20,071 | 17,333 | 16 | % | 38,850 | 32,191 | 21 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Gross margin (%) | 36.6 | % | 34.8 | % | 37.5 | % | 34.5 | % | ||||||||||||||||
Research and development expenses | -9,518 | -9,783 | -3 | % | -18,685 | -18,856 | -1 | % | ||||||||||||||||
Selling and administrative expenses | -6,964 | -7,053 | -1 | % | -12,995 | -13,209 | -2 | % | ||||||||||||||||
Impairment losses on trade receivables | 151 | -369 | -141 | % | 710 | -397 | -279 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating expenses | -16,331 | -17,205 | -5 | % | -30,970 | -32,462 | -5 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Other operating income and expenses | 66 | 11 | 839 | 95 | ||||||||||||||||||||
Shares in earnings of JV and associated companies | -67 | 26 | -84 | 29 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating income (loss) | 3,739 | 165 | 8,635 | -147 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial income and expenses, net | -441 | -810 | -46 | % | -1,046 | -1,351 | -23 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income after financial items | 3,298 | -645 | 7,589 | -1,498 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Taxes | -1,451 | -1,157 | 25 | % | -3,339 | -1,029 | 224 | % | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) | 1,847 | -1,802 | 4,250 | -2,527 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) attributable to: | ||||||||||||||||||||||||
Stockholders of the Parent Company | 1,705 | -1,885 | 4,022 | -2,722 | ||||||||||||||||||||
Non-controlling interests | 142 | 83 | 228 | 195 | ||||||||||||||||||||
Other information | ||||||||||||||||||||||||
Average number of shares, basic (million) | 3,304 | 3,290 | 3,302 | 3,288 | ||||||||||||||||||||
Earnings (loss) per share, basic (SEK)1) | 0.52 | -0.58 | 1.22 | -0.83 | ||||||||||||||||||||
Earnings (loss) per share, diluted (SEK)2) | 0.51 | -0.58 | 1.21 | -0.83 |
1) | Based on net income (loss) attributable to stockholders of the Parent Company. |
2) | Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share. |
Statement of comprehensive income (loss)
Apr-Jun | Jan-Jun | |||||||||||||||
SEK million | 2019 | 2018 | 2019 | 2018 | ||||||||||||
Net income (loss) | 1,847 | -1,802 | 4,250 | -2,527 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Other comprehensive income (loss) | ||||||||||||||||
Items that will not be reclassified to profit or loss | ||||||||||||||||
Remeasurements of defined benefits pension plans incl. asset ceiling | -2,624 | 123 | -5,450 | -726 | ||||||||||||
Revaluation of borrowings due to change in credit risk | -108 | 8 | -535 | 66 | ||||||||||||
Tax on items that will not be reclassified to profit or loss | 601 | -186 | 1,257 | -53 | ||||||||||||
Items that may be reclassified to profit or loss | ||||||||||||||||
Cash flow hedge reserve | ||||||||||||||||
Gains/losses arising during the period | -37 | — | -206 | — | ||||||||||||
Reclassification adjustments for gains/losses included in profit or loss | — | — | — | — | ||||||||||||
Adjustments for amounts transferred to initial carrying amount of hedged items | — | — | — | — | ||||||||||||
Revaluation of other investments in shares and participations | ||||||||||||||||
Fair value remeasurement | — | — | — | — | ||||||||||||
Changes in cumulative translation adjustments | 188 | 1,742 | 1,595 | 3,041 | ||||||||||||
Share of other comprehensive income on JV and associated companies | 8 | 9 | 46 | 20 | ||||||||||||
Tax on items that may be reclassified to profit or loss | 7 | — | 42 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total other comprehensive income (loss), net of tax | -1,965 | 1,696 | -3,251 | 2,348 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total comprehensive income (loss) | -118 | -106 | 999 | -179 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total comprehensive income (loss) attributable to: | ||||||||||||||||
Stockholders of the Parent Company | -257 | -216 | 753 | -416 | ||||||||||||
Non-controlling interest | 139 | 110 | 246 | 237 |
19 Ericsson | Second Quarter Report 2019 | Financial statements |
Table of Contents
SEK million | Jun 30 2019 | Mar 31 2019 | Dec 31 2018 | |||||||||
ASSETS | ||||||||||||
Non-current assets | ||||||||||||
Intangible assets | ||||||||||||
Capitalized development expenses | 3,971 | 3,971 | 4,237 | |||||||||
Goodwill | 30,964 | 30,870 | 30,035 | |||||||||
Intellectual property rights, brands and other intangible assets | 2,467 | 2,682 | 3,474 | |||||||||
Property, plant and equipment | 13,192 | 13,188 | 12,849 | |||||||||
Right-of-use assets | 8,227 | 8,440 | — | |||||||||
Financial assets | ||||||||||||
Equity in JV and associated companies | 1,766 | 1,830 | 611 | |||||||||
Other investments in shares and participations | 1,380 | 1,366 | 1,515 | |||||||||
Customer finance,non-current | 2,428 | 1,932 | 1,180 | |||||||||
Interest-bearing securities,non-current | 17,091 | 23,022 | 23,982 | |||||||||
Other financial assets,non-current | 5,986 | 6,056 | 6,559 | |||||||||
Deferred tax assets | 29,169 | 29,689 | 23,152 | |||||||||
|
|
|
|
|
| |||||||
116,641 | 123,046 | 107,594 | ||||||||||
|
|
|
|
|
| |||||||
Current assets | ||||||||||||
Inventories | 36,135 | 33,024 | 29,255 | |||||||||
Contract assets | 12,593 | 11,411 | 13,178 | |||||||||
Trade receivables | 44,956 | 50,529 | 51,172 | |||||||||
Customer finance, current | 1,109 | 1,955 | 1,704 | |||||||||
Other current receivables | 17,148 | 15,357 | 20,844 | |||||||||
Interest-bearing securities, current | 6,367 | 3,183 | 6,625 | |||||||||
Cash and cash equivalents | 45,498 | 45,453 | 38,389 | |||||||||
|
|
|
|
|
| |||||||
163,806 | 160,912 | 161,167 | ||||||||||
|
|
|
|
|
| |||||||
Total assets | 280,447 | 283,958 | 268,761 | |||||||||
|
|
|
|
|
| |||||||
EQUITY AND LIABILITIES | ||||||||||||
Equity | ||||||||||||
Stockholders’ equity | 84,488 | 84,619 | 86,978 | |||||||||
Non-controlling interest in equity of subsidiaries | 45 | -87 | 792 | |||||||||
|
|
|
|
|
| |||||||
84,533 | 84,532 | 87,770 | ||||||||||
|
|
|
|
|
| |||||||
Non-current liabilities | ||||||||||||
Post-employment benefits | 33,919 | 30,714 | 28,720 | |||||||||
Provisions,non-current | 2,646 | 2,670 | 5,471 | |||||||||
Deferred tax liabilities | 1,178 | 792 | 670 | |||||||||
Borrowings,non-current | 33,040 | 32,533 | 30,870 | |||||||||
Lease liabilities,non-current | 7,699 | 8,470 | — | |||||||||
Othernon-current liabilities | 2,160 | 2,118 | 4,346 | |||||||||
|
|
|
|
|
| |||||||
80,642 | 77,297 | 70,077 | ||||||||||
|
|
|
|
|
| |||||||
Current liabilities | ||||||||||||
Provisions, current | 8,712 | 9,363 | 10,537 | |||||||||
Borrowings, current | 2,160 | 3,015 | 2,255 | |||||||||
Lease liabilities, current | 2,397 | 1,776 | — | |||||||||
Contract liabilities | 37,264 | 38,605 | 29,348 | |||||||||
Trade payables | 31,388 | 30,842 | 29,883 | |||||||||
Other current liabilities | 33,351 | 38,528 | 38,891 | |||||||||
|
|
|
|
|
| |||||||
115,272 | 122,129 | 110,914 | ||||||||||
|
|
|
|
|
| |||||||
Total equity and liabilities | 280,447 | 283,958 | 268,761 | |||||||||
|
|
|
|
|
| |||||||
Assets pledged as collateral | 5,824 | 5,657 | 5,681 | |||||||||
Contingent liabilities1) | 1,511 | 1,470 | 1,638 |
1) | Contingent liabilities does not include any amounts related to investigation by the SEC and the DOJ about Ericsson’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA). For information about the investigation by the SEC and the DOJ, please refer to “Other information” on page 13 of this report. |
20 Ericsson | Second Quarter Report 2019 | Financial statements |
Table of Contents
Consolidated statement of cash flows
Apr-Jun | Jan-Jun | Jan-Dec | ||||||||||||||||||
SEK million | 2019 | 2018 | 2019 | 2018 | 2018 | |||||||||||||||
Operating activities | ||||||||||||||||||||
Net income (loss) | 1,847 | -1,802 | 4,250 | -2,527 | -6,276 | |||||||||||||||
Adjustments to reconcile net income to cash | ||||||||||||||||||||
Taxes | 310 | -1,071 | 1,114 | -3,386 | -1,897 | |||||||||||||||
Earnings/dividends in JV and associated companies | 71 | -19 | 95 | -15 | -23 | |||||||||||||||
Depreciation, amortization and impairment losses | 2,274 | 2,065 | 4,600 | 3,956 | 8,318 | |||||||||||||||
Other | 450 | 568 | 374 | 708 | 1,432 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income reconciled to cash | 4,952 | -259 | 10,433 | -1,264 | 1,554 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Changes in operating net assets | ||||||||||||||||||||
Inventories | -3,065 | -1,910 | -6,016 | -4,723 | -4,807 | |||||||||||||||
Customer finance, current andnon-current | 384 | 547 | -527 | 947 | 1,085 | |||||||||||||||
Trade receivables and contract assets | 3,338 | 1,661 | 7,683 | 8,977 | -2,047 | |||||||||||||||
Trade payables | 1,833 | 1,252 | 1,853 | 654 | 2,436 | |||||||||||||||
Provisions and post-employment benefits | -480 | 478 | -3,939 | -369 | 6,696 | |||||||||||||||
Contract liabilities | -1,641 | -233 | 6,822 | 524 | -808 | |||||||||||||||
Other operating assets and liabilities, net | -1,698 | -94 | -6,921 | -1,731 | 5,233 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
-1,329 | 1,701 | -1,045 | 4,279 | 7,788 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash flow from operating activities | 3,623 | 1,442 | 9,388 | 3,015 | 9,342 | |||||||||||||||
Investing activities | ||||||||||||||||||||
Investments in property, plant and equipment | -1,098 | -951 | -2,412 | -1,807 | -3,975 | |||||||||||||||
Sales of property, plant and equipment | 184 | 52 | 416 | 175 | 334 | |||||||||||||||
Acquisitions/divestments of subsidiaries and other operations, net | 3 | -431 | 302 | -880 | -1,285 | |||||||||||||||
Product development | -446 | -325 | -903 | -579 | -925 | |||||||||||||||
Other investing activities | -36 | -398 | -201 | -237 | -523 | |||||||||||||||
Interest-bearing securities | 2,414 | 3,656 | 7,087 | 3,122 | 2,242 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash flow from investing activities | 1,021 | 1,603 | 4,289 | -206 | -4,132 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash flow before financing activities | 4,644 | 3,045 | 13,677 | 2,809 | 5,210 | |||||||||||||||
Financing activities | ||||||||||||||||||||
Dividends paid | -3,308 | -3,289 | -4,294 | -3,289 | -3,425 | |||||||||||||||
Lease liabilities | -623 | — | -1,227 | — | — | |||||||||||||||
Other financing activities | -680 | -383 | -1,690 | -477 | -652 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash flow from financing activities | -4,611 | -3,672 | -7,211 | -3,766 | -4,077 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Effect of exchange rate changes on cash | 13 | 980 | 644 | 2,123 | 1,372 | |||||||||||||||
Net change in cash and cash equivalents | 46 | 353 | 7,110 | 1,166 | 2,505 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents, beginning of period | 45,453 | 36,697 | 38,389 | 35,884 | 35,884 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents, end of period | 45,499 | 37,050 | 45,499 | 37,050 | 38,389 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
21 Ericsson | Second Quarter Report 2019 | Financial statements |
Table of Contents
Consolidated statement of changes in equity
Jan-Jun | Jan-Dec | |||||||||||
SEK million | 2019 | 2018 | 2018 | |||||||||
Opening balance1) | 87,770 | 97,571 | 97,571 | |||||||||
Adjustment due to new accounting standards2) | -249 | -983 | -983 | |||||||||
|
|
|
|
|
| |||||||
Adjusted opening balance | 87,521 | 96,588 | 96,588 | |||||||||
|
|
|
|
|
| |||||||
Total comprehensive income (loss) | 999 | -179 | -6,176 | |||||||||
Sale/repurchase of own shares | 86 | 49 | 107 | |||||||||
Stock issue, net | — | — | — | |||||||||
Long-term variable compensation plans | 221 | 391 | 677 | |||||||||
Dividends paid | -4,294 | -3,289 | -3,425 | |||||||||
Transactions withnon-controlling interests | — | — | -1 | |||||||||
|
|
|
|
|
| |||||||
Closing balance | 84,533 | 93,560 | 87,770 | |||||||||
|
|
|
|
|
|
1) | Opening balance of 2018 has been restated for IFRS 15. |
2) | Opening balance adjustment in 2019 due to IFRS 16, and in 2018 due to IFRS 9. |
Consolidated income statement - isolated quarters
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
Cost of sales | -34,739 | -30,127 | -47,430 | -34,180 | -32,475 | -28,553 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Gross income | 20,071 | 18,779 | 16,379 | 19,630 | 17,333 | 14,858 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Gross margin (%) | 36.6 | % | 38.4 | % | 25.7 | % | 36.5 | % | 34.8 | % | 34.2 | % | ||||||||||||
Research and development expenses | -9,518 | -9,167 | -10,665 | -9,388 | -9,783 | -9,073 | ||||||||||||||||||
Selling and administrative expenses | -6,964 | -6,031 | -7,685 | -6,625 | -7,053 | -6,156 | ||||||||||||||||||
Impairment losses on trade receivables | 151 | 559 | 386 | -409 | -369 | -28 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating expenses | -16,331 | -14,639 | -17,964 | -16,422 | -17,205 | -15,257 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Other operating income and expenses | 66 | 773 | -294 | 31 | 11 | 84 | ||||||||||||||||||
Shares in earnings of JV and associated companies | -67 | -17 | 27 | 2 | 26 | 3 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Operating income (loss) | 3,739 | 4,896 | -1,852 | 3,241 | 165 | -312 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financial income and expenses, net | -441 | -605 | -715 | -639 | -810 | -541 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Income after financial items | 3,298 | 4,291 | -2,567 | 2,602 | -645 | -853 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Taxes | -1,451 | -1,888 | -3,930 | 146 | -1,157 | 128 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) | 1,847 | 2,403 | -6,497 | 2,748 | -1,802 | -725 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income (loss) attributable to: | ||||||||||||||||||||||||
Stockholders of the Parent Company | 1,705 | 2,317 | -6,553 | 2,745 | -1,885 | -837 | ||||||||||||||||||
Non-controlling interests | 142 | 86 | 56 | 3 | 83 | 112 | ||||||||||||||||||
Other information | ||||||||||||||||||||||||
Average number of shares, basic (million) | 3,304 | 3,300 | 3,296 | 3,293 | 3,290 | 3,286 | ||||||||||||||||||
Earnings (loss) per share, basic (SEK)1) | 0.52 | 0.70 | -1.99 | 0.84 | -0.58 | -0.25 | ||||||||||||||||||
Earnings (loss) per share, diluted (SEK)2) | 0.51 | 0.70 | -1.99 | 0.83 | -0.58 | -0.25 |
1) | Based on net income (loss) attributable to stockholders of the Parent Company. |
2) | Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share. |
22 Ericsson | Second Quarter Report 2019 | Financial statements |
Table of Contents
Consolidated statement of cash flows - isolated quarters
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Operating activities | ||||||||||||||||||||||||
Net income (loss) | 1,847 | 2,403 | -6,497 | 2,748 | -1,802 | -725 | ||||||||||||||||||
Adjustments to reconcile net income to cash | ||||||||||||||||||||||||
Taxes | 310 | 804 | 3,590 | -2,101 | -1,071 | -2,315 | ||||||||||||||||||
Earnings/dividends in JV and associated companies | 71 | 24 | -36 | 28 | -19 | 4 | ||||||||||||||||||
Depreciation, amortization and impairment losses | 2,274 | 2,326 | 2,469 | 1,893 | 2,065 | 1,891 | ||||||||||||||||||
Other | 450 | -76 | 376 | 348 | 568 | 140 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Net income reconciled to cash | 4,952 | 5,481 | -98 | 2,916 | -259 | -1,005 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Changes in operating net assets | ||||||||||||||||||||||||
Inventories | -3,065 | -2,951 | 1,689 | -1,773 | -1,910 | -2,813 | ||||||||||||||||||
Customer finance, current andnon-current | 384 | -911 | -863 | 1,001 | 547 | 400 | ||||||||||||||||||
Trade receivables and contract assets | 3,338 | 4,345 | -7,521 | -3,503 | 1,661 | 7,316 | ||||||||||||||||||
Trade payables | 1,833 | 20 | 829 | 953 | 1,252 | -598 | ||||||||||||||||||
Provisions and post-employment benefits | -480 | -3,459 | 7,330 | -265 | 478 | -847 | ||||||||||||||||||
Contract liabilities | -1,641 | 8,463 | -1,112 | -220 | -233 | 757 | ||||||||||||||||||
Other operating assets and liabilities, net | -1,698 | -5,223 | 4,033 | 2,931 | -94 | -1,637 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
-1,329 | 284 | 4,385 | -876 | 1,701 | 2,578 | |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash flow from operating activities | 3,623 | 5,765 | 4,287 | 2,040 | 1,442 | 1,573 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Investing activities | ||||||||||||||||||||||||
Investments in property, plant and equipment | -1,098 | -1,314 | -1,080 | -1,088 | -951 | -856 | ||||||||||||||||||
Sales of property, plant and equipment | 184 | 232 | 57 | 102 | 52 | 123 | ||||||||||||||||||
Acquisitions/divestments of subsidiaries and other operations, net | 3 | 299 | 20 | -425 | -431 | -449 | ||||||||||||||||||
Product development | -446 | -457 | -195 | -151 | -325 | -254 | ||||||||||||||||||
Other investing activities | -36 | -165 | -96 | -190 | -398 | 161 | ||||||||||||||||||
Interest-bearing securities | 2,414 | 4,673 | -910 | 30 | 3,656 | -534 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash flow from investing activities | 1,021 | 3,268 | -2,204 | -1,722 | 1,603 | -1,809 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash flow before financing activities | 4,644 | 9,033 | 2,083 | 318 | 3,045 | -236 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Financing activities | ||||||||||||||||||||||||
Dividends paid | -3,308 | -986 | -134 | -2 | -3,289 | — | ||||||||||||||||||
Lease liabilities | -623 | -604 | — | — | — | — | ||||||||||||||||||
Other financing activities | -680 | -1,010 | -429 | 254 | -383 | -94 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash flow from financing activities | -4,611 | -2,600 | -563 | 252 | -3,672 | -94 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Effect of exchange rate changes on cash | 13 | 631 | 811 | -1,562 | 980 | 1,143 | ||||||||||||||||||
Net change in cash and cash equivalents | 46 | 7,064 | 2,331 | -992 | 353 | 813 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash and cash equivalents, beginning of period | 45,453 | 38,389 | 36,058 | 37,050 | 36,697 | 35,884 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Cash and cash equivalents, end of period | 45,499 | 45,453 | 38,389 | 36,058 | 37,050 | 36,697 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
23 Ericsson | Second Quarter Report 2019 | Financial statements |
Table of Contents
Parent Company income statement
Apr-Jun | Jan-Jun | Jan-Dec | ||||||||||||||||||
SEK million | 2019 | 2018 | 2019 | 2018 | 2018 | |||||||||||||||
Net sales | — | — | — | — | — | |||||||||||||||
Cost of sales | — | — | — | — | — | |||||||||||||||
Gross income | — | — | — | — | — | |||||||||||||||
Operating expenses | -236 | -352 | -757 | -506 | -1,686 | |||||||||||||||
Other operating income and expenses | 518 | 411 | 969 | 754 | 2,111 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | 282 | 59 | 212 | 248 | 425 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Financial net | 649 | 1,295 | 596 | 1,472 | 5,340 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Income after financial items | 931 | 1,354 | 808 | 1,720 | 5,765 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Transfers to (–) / from untaxed reserves | — | — | — | — | -1,535 | |||||||||||||||
Taxes | -45 | -72 | -76 | -155 | -36 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | 886 | 1,282 | 732 | 1,565 | 4,194 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
Parent Company statement of comprehensive income
Apr-Jun | Jan-Jun | Jan-Dec | ||||||||||||||||||
SEK million | 2019 | 2018 | 2019 | 2018 | 2018 | |||||||||||||||
Net income | 886 | 1,282 | 732 | 1,565 | 4,194 | |||||||||||||||
Revaluation of borrowings due to change in credit risk | -109 | -8 | -445 | 50 | 91 | |||||||||||||||
Tax on items that will not be reclassified to profit or loss | 23 | 2 | 92 | -11 | -19 | |||||||||||||||
Available-for-sale financial assets | ||||||||||||||||||||
Gains/losses arising during the period | — | — | — | — | — | |||||||||||||||
Reclassification adjustments on gains/losses included in profit or loss | — | — | — | — | — | |||||||||||||||
Revaluation of other investments in shares and participations | ||||||||||||||||||||
Fair value remeasurement | — | — | — | — | — | |||||||||||||||
Tax on items that may be reclassified to profit or loss | — | — | — | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income, net of tax | -86 | -6 | -353 | 39 | 72 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total comprehensive income | 800 | 1,276 | 379 | 1,604 | 4,266 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
24 Ericsson | Second Quarter Report 2019 | Financial statements |
Table of Contents
Jun 30 | Dec 31 | |||||||
SEK million | 2019 | 2018 | ||||||
ASSETS | ||||||||
Fixed assets | ||||||||
Intangible assets | 74 | 139 | ||||||
Tangible assets | 275 | 259 | ||||||
Financial assets1)2) | 105,117 | 109,177 | ||||||
|
|
|
| |||||
105,466 | 109,575 | |||||||
|
|
|
| |||||
Current assets | ||||||||
Inventories | — | — | ||||||
Receivables2) | 24,182 | 38,760 | ||||||
Short-term investments | 5,844 | 6,268 | ||||||
Cash and cash equivalents | 28,179 | 27,850 | ||||||
|
|
|
| |||||
58,205 | 72,878 | |||||||
|
|
|
| |||||
Total assets | 163,671 | 182,453 | ||||||
|
|
|
| |||||
STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES | ||||||||
Equity | ||||||||
Restricted equity | 48,164 | 48,164 | ||||||
Non-restricted equity2) | 37,859 | 40,752 | ||||||
|
|
|
| |||||
86,023 | 88,916 | |||||||
|
|
|
| |||||
Provisions | 51 | 86 | ||||||
Non-current liabilities2) | 33,129 | 62,581 | ||||||
Current liabilities | 44,468 | 30,870 | ||||||
|
|
|
| |||||
Total stockholders’ equity, provisions and liabilities | 163,671 | 182,453 | ||||||
|
|
|
| |||||
1) Of which interest-bearing securities,non-current | 17,091 | 23,982 | ||||||
|
|
|
| |||||
2) The following 2018 opening balances have been adjusted due to IFRS 9: financial assets increased by SEK 8 million, receivables decreased by SEK -4 million,non-restricted equity decreased by SEK -28 million, andnon-current liabilities increased by SEK 31 million. |
|
25 Ericsson | Second Quarter Report 2019 | Financial statements |
Table of Contents
The group
This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31, 2018 and should be read in conjunction with that annual report, with exception for the accounting policies described below.
New standards as from January 1, 2019
One new IFRS standard IFRS 16 “Leases” and one new interpretation IFRIC 23 “Uncertainty over income tax treatments” are effective as from January 1, 2019. IFRIC 23, has not had a material impact on the Company’s financial statements.
IFRS 16 – Leases
Presentation in the financial statements
The Company has implemented this standard using the cumulativecatch-up method, which means that the prior periods financial statements and key ratios presented in this quarterly report have not been restated to reflect adoption of this new standard.
Based on the new requirements under IFRS 16,right-of-use assets and lease liabilities have been added as new lines in the consolidated balance sheet and lease liabilities as a new line in the statement of cash flows. Theright-of-use assets and liabilities were previously reported asoff-balance and repayment to lessors was reported as a part of cash flow from operating activities. Now the amortization of lease liabilities is reported as cash flow from financing activities.
Transition
The standard is effective for annual periods beginning on or after January 1, 2019. The Company has applied the new standard as from January 1, 2019. At transition, the Company has applied the practical expedient under IFRS 16 to not reassess whether a contract is, or contains, a lease. Therefore, the Company has applied the standard to contracts previously identified as leases, or as containing a lease under IAS 17 and IFRIC 4. The Company has also applied the following practical expedients when applying IFRS 16 at transition date:
• | The IAS 37 onerous lease contract measurement for the operating leases existing as per the transition date. This expedient has been applied as a substitute for the measurement of impairment for the relatedright-of-use assets. Impairment testing will be applied going-forward. |
• | Exclusion of initial direct costs from the measurement of theright-to-use asset at the date of initial recognition. |
The Company has implemented the standard using the cumulativecatch-up method, with the cumulative effect being adjusted to the opening retained earnings balance in equity at transition date. No restated information has been presented for previous years.
The Company has, as a lessee, recognized lease liabilities for leases previously classified as operating leases. The weighted average incremental borrowing rate applied to lease liabilities recognized in the balance sheet at the transition date was 5.4%.Right-of-use assets have for most contracts been recognized based on the amount equal to the related lease liability. For some larger real estate contractsright-of-use assets have been recognized as if IFRS 16 had been applied since the commencement date, however, using the incremental borrowing rate as per the effective date. The asset value for these contracts is SEK 249 million lower than the related liabilities. This difference causes the reduction of equity as per transition date.
Under IAS 17 operating leases were not recognized in the balance sheet of a lessee. Future undiscounted minimum lease payments obligations were however disclosed in a note, see note C3 Leasing in the annual report of 2018, amounting to SEK 13.4 billion. The lease liabilities were as per January 1st, 2019 recognized in the balance sheet with SEK 10.4 billion. The difference is mainly related to the discounting effect of the liability. The liability is calculated as the net present value of the future payments, while the numbers disclosed according to IAS 17 was not discounted – as prescribed in IAS 17. And also, the exclusion of lease payments related tolow-value assets from the balance sheet, they are instead expensed straight-line in the income statement.
Opening balance sheet impact of IFRS 16
SEK million | IFRS 16 adjustment | |||
Right-of-use assets | 8,651 | |||
Lease liabilities, current | 2,195 | |||
Lease liabilities,non-current | 8,203 | |||
Equity | 249 |
In the transition the following items have been considered: Onerous contracts with SEK 767 million, straight-lining, periodization of lease costs, with SEK 721 million and other net adjustments with SEK 10 million. The tax effect on the equity posting is deemed to be immaterial. There is no impact on the income statement.
The impact ofright-of-use assets increased the total asset value by approximately 3%.
Accounting policy—IFRS 16 Leases
Leasing when the Company is the lessee
The main types of assets leased by the Company are, in the order of materiality, real estate,IT-equipment and vehicles. Vehicles are mainly used under service contracts.
The Company recognizesright-of-use assets and lease liabilities arising from all leases in the balance sheet, with some exceptions. This model reflects that, at the start of a lease, the lessee always obtains the right to use an asset for a period of time and has an obligation to pay for that right.
26 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
In the assessment of a lease contract the lease components are separated fromnon-lease components and the lease term is defined considering any extension or termination options.
The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted normally using the Company’s incremental borrowing rate. Lease payments included in the liability are fixed payments, variable payments depending on an index or rate, residual values and penalties for termination of contracts.
Theright-of-use asset is initially measured at cost, which equals the amount of the initial measurement of lease liability adjusted for any lease payments made at or before the commencement date less any lease incentives received plus any initial direct costs, and restoration costs.
The Company applies the recognition exemption for short-term leases and leases for which the underlying asset is oflow-value recognizing the lease payments for those leases as an expense on a straight-line basis over the lease term.
Leasing when the Company is the lessor
Leasing contracts with the Company as lessor are classified as finance leases when the majority of risks and rewards are transferred to the lessee, and otherwise as operating leases. Under a finance lease, a receivable is recognized at an amount equal to the net investment in the lease and revenue is recognized in accordance with the revenue recognition principles. Under operating leases the equipment is recorded as property, plant and equipment and revenue as well as depreciation is recognized on a straight-line basis over the lease term.
APM impact in 2019
Lease interest expense is reported under finance costs according to IFRS 16, which is different from prior to 2019, when it was embedded in the lease expense for operating leases, either as costs of sales or operating expenses. This has had a positive impact on the APM operating margin of approximately 0.3 percentage pointsyear-to-date, because lease interest expense is no longer a part of this measurement. The EBITAyear-to-date has increased with SEK 276 million for the same reason.
The reported amortization of lease liabilities is reported as financing cash flows under IFRS 16 and not as operating cash flows as prior to 2019. The impact of this reclassificationyear-to-date in 2019 is SEK 1,227 million and impacts the APM Free cash flow positively. The APM Cash conversion has also improved for the same reason. The timing of the cash flows is not impacted.
Becauseright-of-use assets under IFRS 16 are included in total assets the APM capital employed has increased by approximately 5%. The APM equity ratio has decreased for the same reason.
Cash flow hedge accounting
The company has identified certain customer contracts where a fluctuation in the USD/SEK foreign exchange rate would significantly impact net sales and operating income recorded from the contracts. These contracts are multi-year contracts denominated in USD with highly probable payments at fixed points in time. From Q1 2019, the Company has entered into FX forward contracts that match the terms of the foreign exchange exposure as closely as possible and designated these as hedging instruments.
When applying hedge accounting, the effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in OCI. The gain or loss relating to an ineffective portion is recognized immediately in the Income Statement within Financial income or expenses. Upon recognition of the hedged net sales, the cumulative amount in cash flow hedge reserve is released from OCI as a reclassification adjustment and recognized in net sales.
Market area reporting
As of Q1 2019, sales reported on Morocco is reported on market area Middle East and Africa (earlier Europe and Latin America). Comparative periods have been restated to reflect this change. In Q1 2019, these sales were SEK 151 (103) million. Also “Number of employees” by market area has been updated to reflect this change.
Restatement – change to the presentation of financial income and expenses
Due to the significant variations in SEK rates in recent months, the Company has considered the change in reporting of foreign exchange effect to reflect how foreign exchange transaction risk is managed on a net basis in the Company. Previously foreign exchange effects were reported within both Financial Income and Financial Expense depending on whether they relate to assets or liabilities. In the Annual Report the foreign exchange effect will be presented as a net amount, reported separately from other financial income and expenses items.
In line with this change the Company also elected to present all financial income and expense, including the foreign exchange effect, on the Income Statement as a single line item ‘Financial income and expenses, net’. Previously, Financial Income and Financial Expenses were presented as separate line items on the Income Statement. The Income Statement for Q2 2019 and all comparative periods have been restated to reflect the new presentation of ‘Financial income and expenses, net’.
27 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Net sales by segment by quarter
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 37,819 | 33,481 | 41,641 | 35,934 | 32,393 | 28,602 | ||||||||||||||||||
Of which Products | 26,698 | 23,765 | 29,803 | 25,336 | 22,319 | 19,473 | ||||||||||||||||||
Of which Services | 11,121 | 9,716 | 11,838 | 10,598 | 10,074 | 9,129 | ||||||||||||||||||
Digital Services | 8,991 | 7,817 | 13,007 | 8,987 | 8,833 | 7,262 | ||||||||||||||||||
Of which Products | 4,611 | 3,937 | 7,462 | 4,582 | 4,467 | 3,947 | ||||||||||||||||||
Of which Services | 4,380 | 3,880 | 5,545 | 4,405 | 4,366 | 3,315 | ||||||||||||||||||
Managed Services | 6,323 | 5,856 | 6,881 | 6,465 | 6,528 | 5,896 | ||||||||||||||||||
Emerging Business and Other | 1,677 | 1,752 | 2,280 | 2,424 | 2,054 | 1,651 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Sequential change, percent | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 13 | % | -20 | % | 16 | % | 11 | % | 13 | % | -23 | % | ||||||||||||
Of which Products | 12 | % | -20 | % | 18 | % | 14 | % | 15 | % | -23 | % | ||||||||||||
Of which Services | 14 | % | -18 | % | 12 | % | 5 | % | 10 | % | -22 | % | ||||||||||||
Digital Services | 15 | % | -40 | % | 45 | % | 2 | % | 22 | % | -39 | % | ||||||||||||
Of which Products | 17 | % | -47 | % | 63 | % | 3 | % | 13 | % | -39 | % | ||||||||||||
Of which Services | 13 | % | -30 | % | 26 | % | 1 | % | 32 | % | -38 | % | ||||||||||||
Managed Services | 8 | % | -15 | % | 6 | % | -1 | % | 11 | % | -15 | % | ||||||||||||
Emerging Business and Other | -4 | % | -23 | % | -6 | % | 18 | % | 24 | % | -21 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 12 | % | -23 | % | 19 | % | 8 | % | 15 | % | -25 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year over year change, percent | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 17 | % | 17 | % | 12 | % | 13 | % | 2 | % | -10 | % | ||||||||||||
Of which Products | 20 | % | 22 | % | 17 | % | 17 | % | 5 | % | -11 | % | ||||||||||||
Of which Services | 10 | % | 6 | % | 1 | % | 5 | % | -3 | % | -7 | % | ||||||||||||
Digital Services | 2 | % | 8 | % | 10 | % | 1 | % | -11 | % | -10 | % | ||||||||||||
Of which Products | 3 | % | 0 | % | 16 | % | -6 | % | -17 | % | -9 | % | ||||||||||||
Of which Services | 0 | % | 17 | % | 3 | % | 8 | % | -4 | % | -12 | % | ||||||||||||
Managed Services | -3 | % | -1 | % | 0 | % | -2 | % | -2 | % | -6 | % | ||||||||||||
Emerging Business and Other | -18 | % | 6 | % | 9 | % | 22 | % | 2 | % | -7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 10 | % | 13 | % | 10 | % | 9 | % | -1 | % | -9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 71,300 | 33,481 | 138,570 | 96,929 | 60,995 | 28,602 | ||||||||||||||||||
Of which Products | 50,463 | 23,765 | 96,931 | 67,128 | 41,792 | 19,473 | ||||||||||||||||||
Of which Services | 20,837 | 9,716 | 41,639 | 29,801 | 19,203 | 9,129 | ||||||||||||||||||
Digital Services | 16,808 | 7,817 | 38,089 | 25,082 | 16,095 | 7,262 | ||||||||||||||||||
Of which Products | 8,548 | 3,937 | 20,458 | 12,996 | 8,414 | 3,947 | ||||||||||||||||||
Of which Services | 8,260 | 3,880 | 17,631 | 12,086 | 7,681 | 3,315 | ||||||||||||||||||
Managed Services | 12,179 | 5,856 | 25,770 | 18,889 | 12,424 | 5,896 | ||||||||||||||||||
Emerging Business and Other | 3,429 | 1,752 | 8,409 | 6,129 | 3,705 | 1,651 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year over year change, percent | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 17 | % | 17 | % | 5 | % | 2 | % | -4 | % | -10 | % | ||||||||||||
Of which Products | 21 | % | 22 | % | 7 | % | 3 | % | -3 | % | -11 | % | ||||||||||||
Of which Services | 9 | % | 6 | % | -1 | % | -2 | % | -5 | % | -7 | % | ||||||||||||
Digital Services | 4 | % | 8 | % | -2 | % | -7 | % | -11 | % | -10 | % | ||||||||||||
Of which Products | 2 | % | 0 | % | -3 | % | -11 | % | -13 | % | -9 | % | ||||||||||||
Of which Services | 8 | % | 17 | % | -1 | % | -2 | % | -8 | % | -12 | % | ||||||||||||
Managed Services | -2 | % | -1 | % | -3 | % | -3 | % | -4 | % | -6 | % | ||||||||||||
Emerging Business and Other | -7 | % | 6 | % | 7 | % | 6 | % | -2 | % | -7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 11 | % | 13 | % | 3 | % | 0 | % | -5 | % | -9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
28 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Sales growth adjusted for comparable units and currency
29 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Operating income (loss) and operating margin by segment by quarter
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 5,680 | 5,472 | 6,850 | 5,656 | 3,544 | 3,371 | ||||||||||||||||||
Digital Services | -1,405 | -1,798 | -7,087 | -1,784 | -2,374 | -2,607 | ||||||||||||||||||
Managed Services | 203 | 1,252 | 285 | 409 | 299 | 100 | ||||||||||||||||||
Emerging Business and Other | -739 | -30 | -1,900 | -1,040 | -1,304 | -1,176 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 3,739 | 4,896 | -1,852 | 3,241 | 165 | -312 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, As percentage of net sales | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 15.0 | % | 16.3 | % | 16.5 | % | 15.7 | % | 10.9 | % | 11.8 | % | ||||||||||||
Digital Services | -15.6 | % | -23.0 | % | -54.5 | % | -19.9 | % | -26.9 | % | -35.9 | % | ||||||||||||
Managed Services | 3.2 | % | 21.4 | % | 4.1 | % | 6.3 | % | 4.6 | % | 1.7 | % | ||||||||||||
Emerging Business and Other | -44.1 | % | -1.7 | % | -83.3 | % | -42.9 | % | -63.5 | % | -71.2 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 6.8 | % | 10.0 | % | -2.9 | % | 6.0 | % | 0.3 | % | -0.7 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 11,152 | 5,472 | 19,421 | 12,571 | 6,915 | 3,371 | ||||||||||||||||||
Digital Services | -3,203 | -1,798 | -13,852 | -6,765 | -4,981 | -2,607 | ||||||||||||||||||
Managed Services | 1,455 | 1,252 | 1,093 | 808 | 399 | 100 | ||||||||||||||||||
Emerging Business and Other | -769 | -30 | -5,420 | -3,520 | -2,480 | -1,176 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 8,635 | 4,896 | 1,242 | 3,094 | -147 | -312 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date As percentage of net sales | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 15.6 | % | 16.3 | % | 14.0 | % | 13.0 | % | 11.3 | % | 11.8 | % | ||||||||||||
Digital Services | -19.1 | % | -23.0 | % | -36.4 | % | -27.0 | % | -30.9 | % | -35.9 | % | ||||||||||||
Managed Services | 11.9 | % | 21.4 | % | 4.2 | % | 4.3 | % | 3.2 | % | 1.7 | % | ||||||||||||
Emerging Business and Other | -22.4 | % | -1.7 | % | -64.5 | % | -57.4 | % | -66.9 | % | -71.2 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 8.3 | % | 10.0 | % | 0.6 | % | 2.1 | % | -0.2 | % | -0.7 | % | ||||||||||||
|
|
|
|
|
|
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|
30 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
EBITA and EBITA margin by segment by quarter
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 5,716 | 5,552 | 6,916 | 5,722 | 3,618 | 3,461 | ||||||||||||||||||
Digital Services | -1,268 | -1,638 | -6,911 | -1,608 | -2,204 | -2,443 | ||||||||||||||||||
Managed Services | 205 | 1,253 | 288 | 411 | 303 | 105 | ||||||||||||||||||
Emerging Business and Other | -688 | 43 | -1,524 | -940 | -1,202 | -1,088 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 3,965 | 5,210 | -1,231 | 3,585 | 515 | 35 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters As percentage of net sales | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 15.1 | % | 16.6 | % | 16.6 | % | 15.9 | % | 11.2 | % | 12.1 | % | ||||||||||||
Digital Services | -14.1 | % | -21.0 | % | -53.1 | % | -17.9 | % | -25.0 | % | -33.6 | % | ||||||||||||
Managed Services | 3.2 | % | 21.4 | % | 4.2 | % | 6.4 | % | 4.6 | % | 1.8 | % | ||||||||||||
Emerging Business and Other | -41.0 | % | 2.5 | % | -66.8 | % | -38.8 | % | -58.5 | % | -65.9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 7.2 | % | 10.7 | % | -1.9 | % | 6.7 | % | 1.0 | % | 0.1 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 11,268 | 5,552 | 19,717 | 12,801 | 7,079 | 3,461 | ||||||||||||||||||
Digital Services | -2,906 | -1,638 | -13,166 | -6,255 | -4,647 | -2,443 | ||||||||||||||||||
Managed Services | 1,458 | 1,253 | 1,107 | 819 | 408 | 105 | ||||||||||||||||||
Emerging Business and Other | -645 | 43 | -4,754 | -3,230 | -2,290 | -1,088 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 9,175 | 5,210 | 2,904 | 4,135 | 550 | 35 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date As a percentage of net sales | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 15.8 | % | 16.6 | % | 14.2 | % | 13.2 | % | 11.6 | % | 12.1 | % | ||||||||||||
Digital Services | -17.3 | % | -21.0 | % | -34.6 | % | -24.9 | % | -28.9 | % | -33.6 | % | ||||||||||||
Managed Services | 12.0 | % | 21.4 | % | 4.3 | % | 4.3 | % | 3.3 | % | 1.8 | % | ||||||||||||
Emerging Business and Other | -18.8 | % | 2.5 | % | -56.5 | % | -52.7 | % | -61.8 | % | -65.9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 8.8 | % | 10.7 | % | 1.4 | % | 2.8 | % | 0.6 | % | 0.1 | % | ||||||||||||
|
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|
|
|
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|
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|
31 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Net sales by market area by quarter
2019 | 20183) | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
South East Asia, Oceania and India | 6,965 | 6,148 | 8,244 | 7,985 | 6,981 | 6,379 | ||||||||||||||||||
North East Asia | 6,516 | 3,824 | 8,387 | 5,773 | 4,764 | 3,385 | ||||||||||||||||||
North America | 17,699 | 16,171 | 17,999 | 14,933 | 14,337 | 11,317 | ||||||||||||||||||
Europe and Latin America1)2) | 14,085 | 13,124 | 17,909 | 14,697 | 13,999 | 12,958 | ||||||||||||||||||
Middle East and Africa | 5,641 | 5,412 | 6,828 | 5,841 | 5,801 | 5,868 | ||||||||||||||||||
Other1)2) | 3,904 | 4,227 | 4,442 | 4,581 | 3,926 | 3,504 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
1) Of which in Sweden | 149 | 192 | 375 | 429 | 596 | 915 | ||||||||||||||||||
2) Of which in EU | 8,385 | 7,957 | 10,319 | 8,481 | 8,619 | 8,522 | ||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Sequential change, percent | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
South East Asia, Oceania and India | 13 | % | -25 | % | 3 | % | 14 | % | 9 | % | -19 | % | ||||||||||||
North East Asia | 70 | % | -54 | % | 45 | % | 21 | % | 41 | % | -48 | % | ||||||||||||
North America | 9 | % | -10 | % | 21 | % | 4 | % | 27 | % | -23 | % | ||||||||||||
Europe and Latin America1)2) | 7 | % | -27 | % | 22 | % | 5 | % | 8 | % | -22 | % | ||||||||||||
Middle East and Africa | 4 | % | -21 | % | 17 | % | 1 | % | -1 | % | -25 | % | ||||||||||||
Other1)2) | -8 | % | -5 | % | -3 | % | 17 | % | 12 | % | -20 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 12 | % | -23 | % | 19 | % | 8 | % | 15 | % | -25 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
1) Of which in Sweden | -22 | % | -49 | % | -13 | % | -28 | % | -35 | % | 5 | % | ||||||||||||
2) Of which in EU | 5 | % | -23 | % | 22 | % | -2 | % | 1 | % | -21 | % | ||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year-over-year change, percent | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
South East Asia, Oceania and India | 0 | % | -4 | % | 5 | % | 2 | % | -3 | % | -24 | % | ||||||||||||
North East Asia | 37 | % | 13 | % | 30 | % | 2 | % | -19 | % | -39 | % | ||||||||||||
North America | 23 | % | 43 | % | 23 | % | 21 | % | 11 | % | -6 | % | ||||||||||||
Europe and Latin America1)2) | 1 | % | 1 | % | 7 | % | 11 | % | 1 | % | 8 | % | ||||||||||||
Middle East and Africa | -3 | % | -8 | % | -13 | % | -9 | % | -5 | % | 6 | % | ||||||||||||
Other1)2) | -1 | % | 21 | % | 2 | % | 19 | % | -7 | % | -17 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 10 | % | 13 | % | 10 | % | 9 | % | -1 | % | -9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
1) Of which in Sweden | -75 | % | -79 | % | -57 | % | -35 | % | -24 | % | -10 | % | ||||||||||||
2) Of which in EU | -3 | % | -7 | % | -5 | % | -2 | % | -1 | % | 2 | % | ||||||||||||
2019 | 20183) | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
South East Asia, Oceania and India | 13,113 | 6,148 | 29,589 | 21,345 | 13,360 | 6,379 | ||||||||||||||||||
North East Asia | 10,340 | 3,824 | 22,309 | 13,922 | 8,149 | 3,385 | ||||||||||||||||||
North America | 33,870 | 16,171 | 58,586 | 40,587 | 25,654 | 11,317 | ||||||||||||||||||
Europe and Latin America1)2) | 27,209 | 13,124 | 59,563 | 41,654 | 26,957 | 12,958 | ||||||||||||||||||
Middle East and Africa | 11,053 | 5,412 | 24,338 | 17,510 | 11,669 | 5,868 | ||||||||||||||||||
Other1)2) | 8,131 | 4,227 | 16,453 | 12,011 | 7,430 | 3,504 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
1) Of which in Sweden | 341 | 192 | 2,315 | 1,940 | 1,511 | 915 | ||||||||||||||||||
2) Of which in EU | 16,342 | 7,957 | 35,941 | 25,622 | 17,141 | 8,522 | ||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, year-over-year change, percent | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
South East Asia, Oceania and India | -2 | % | -4 | % | -6 | % | -9 | % | -15 | % | -24 | % | ||||||||||||
North East Asia | 27 | % | 13 | % | -5 | % | -19 | % | -29 | % | -39 | % | ||||||||||||
North America | 32 | % | 43 | % | 13 | % | 9 | % | 3 | % | -6 | % | ||||||||||||
Europe and Latin America1)2) | 1 | % | 1 | % | 7 | % | 6 | % | 4 | % | 8 | % | ||||||||||||
Middle East and Africa | -5 | % | -8 | % | -6 | % | -3 | % | 0 | % | 6 | % | ||||||||||||
Other1)2) | 9 | % | 21 | % | -1 | % | -2 | % | -12 | % | -17 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 11 | % | 13 | % | 3 | % | 0 | % | -5 | % | -9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
1) Of which in Sweden | -77 | % | -79 | % | -31 | % | -21 | % | -16 | % | -10 | % | ||||||||||||
2) Of which in EU | -5 | % | -7 | % | -1 | % | 0 | % | 1 | % | 2 | % |
3) | 2018 has been restated to reflect the move of Morocco from market area Europe and Latin America to Middle East and Africa. Please refer to “Changes applied in Q1 2019”. |
32 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Q2 | Jan-Jun | |||||||||||||||
Country Percentage of Net sales | 2019 | 2018 | 2019 | 2018 | ||||||||||||
United States | 33 | % | 30 | % | 34 | % | 29 | % | ||||||||
China | 7 | % | 6 | % | 6 | % | 5 | % | ||||||||
India | 4 | % | 5 | % | 4 | % | 5 | % | ||||||||
South Korea | 4 | % | 2 | % | 3 | % | 2 | % | ||||||||
Australia | 3 | % | 3 | % | 3 | % | 3 | % |
Net sales by market area by segment
Q2 2019 | Jan-Jun 2019 | |||||||||||||||||||||||||||||||||||||||
SEK million | Networks | Digital Services | Managed Services | Emerging Business and Other | Total | Networks | Digital Services | Managed Services | Emerging Business and Other | Total | ||||||||||||||||||||||||||||||
South East Asia, Oceania and India | 4,995 | 918 | 1,037 | 15 | 6,965 | 9,530 | 1,737 | 1,819 | 27 | 13,113 | ||||||||||||||||||||||||||||||
North East Asia | 5,357 | 925 | 204 | 30 | 6,516 | 8,176 | 1,625 | 469 | 70 | 10,340 | ||||||||||||||||||||||||||||||
North America | 14,243 | 2,225 | 1,199 | 32 | 17,699 | 27,513 | 4,034 | 2,269 | 54 | 33,870 | ||||||||||||||||||||||||||||||
Europe and Latin America | 8,129 | 2,940 | 2,925 | 91 | 14,085 | 15,691 | 5,533 | 5,801 | 184 | 27,209 | ||||||||||||||||||||||||||||||
Middle East and Africa | 3,104 | 1,579 | 957 | 1 | 5,641 | 6,209 | 3,021 | 1,820 | 3 | 11,053 | ||||||||||||||||||||||||||||||
Other | 1,991 | 404 | 1 | 1,508 | 3,904 | 4,181 | 858 | 1 | 3,091 | 8,131 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | 37,819 | 8,991 | 6,323 | 1,677 | 54,810 | 71,300 | 16,808 | 12,179 | 3,429 | 103,716 | ||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Share of total | 69 | % | 16 | % | 12 | % | 3 | % | 100 | % | 69 | % | 16 | % | 12 | % | 3 | % | 100 | % |
Q2 2019 | ||||||||||||||||||||
Sequential change, percent | Networks | Digital Services | Managed Services | Emerging Business and Other | Total | |||||||||||||||
South East Asia, Oceania and India | 10 | % | 12 | % | 33 | % | 25 | % | 13 | % | ||||||||||
North East Asia | 90 | % | 32 | % | -23 | % | -25 | % | 70 | % | ||||||||||
North America | 7 | % | 23 | % | 12 | % | 45 | % | 9 | % | ||||||||||
Europe and Latin America | 7 | % | 13 | % | 2 | % | -2 | % | 7 | % | ||||||||||
Middle East and Africa | 0 | % | 10 | % | 11 | % | -50 | % | 4 | % | ||||||||||
Other | -9 | % | -11 | % | — | -5 | % | -8 | % | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total | 13 | % | 15 | % | 8 | % | -4 | % | 12 | % | ||||||||||
|
|
|
|
|
|
|
|
|
|
Q2 2019 | Jan-Jun 2019 | |||||||||||||||||||||||||||||||||||||||
Year over year change, percent | Networks | Digital Services | Managed Services | Emerging Business and Other | Total | Networks | Digital Services | Managed Services | Emerging Business and Other | Total | ||||||||||||||||||||||||||||||
South East Asia, Oceania and India | 0 | % | -15 | % | 13 | % | 650 | % | 0 | % | 1 | % | -25 | % | 11 | % | 170 | % | -2 | % | ||||||||||||||||||||
North East Asia | 49 | % | 17 | % | -45 | % | 275 | % | 37 | % | 40 | % | 7 | % | -38 | % | 119 | % | 27 | % | ||||||||||||||||||||
North America | 25 | % | 4 | % | 46 | % | 52 | % | 23 | % | 33 | % | 16 | % | 60 | % | 10 | % | 32 | % | ||||||||||||||||||||
Europe and Latin America | 7 | % | 2 | % | -15 | % | 15 | % | 1 | % | 5 | % | 8 | % | -13 | % | 25 | % | 1 | % | ||||||||||||||||||||
Middle East and Africa | -2 | % | -3 | % | -4 | % | -88 | % | -3 | % | -8 | % | 1 | % | -6 | % | -75 | % | -5 | % | ||||||||||||||||||||
Other | 20 | % | 24 | % | -200 | % | -22 | % | -1 | % | 26 | % | 29 | % | — | -11 | % | 9 | % | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||
Total | 17 | % | 2 | % | -3 | % | -18 | % | 10 | % | 17 | % | 4 | % | -2 | % | -7 | % | 11 | % | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
IPR licensing revenues by segment by quarter
34 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Investments in assets subject to depreciation, amortization, impairment and write-downs
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Additions | ||||||||||||||||||||||||
Property, plant and equipment | 1,098 | 1,314 | 1,080 | 1,088 | 951 | 856 | ||||||||||||||||||
Capitalized development expenses | 446 | 457 | 195 | 151 | 325 | 254 | ||||||||||||||||||
IPR, brands and other intangible assets | — | 1 | 27 | — | 1 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 1,544 | 1,772 | 1,302 | 1,239 | 1,277 | 1,100 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Depreciation, amortization and impairment losses | ||||||||||||||||||||||||
Property, plant and equipment | 919 | 880 | 965 | 870 | 1,080 | 928 | ||||||||||||||||||
Capitalized development expenses | 449 | 520 | 884 | 678 | 635 | 616 | ||||||||||||||||||
Goodwill, IPR, brands and other intangible assets | 226 | 314 | 620 | 345 | 350 | 347 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 1,594 | 1,714 | 2,469 | 1,893 | 2,065 | 1,891 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Additions | ||||||||||||||||||||||||
Property, plant and equipment | 2,412 | 1,314 | 3,975 | 2,895 | 1,807 | 856 | ||||||||||||||||||
Capitalized development expenses | 903 | 457 | 925 | 730 | 579 | 254 | ||||||||||||||||||
IPR, brands and other intangible assets | 1 | 1 | 28 | 1 | 1 | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 3,316 | 1,772 | 4,928 | 3,626 | 2,387 | 1,110 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Depreciation, amortization and impairment losses | ||||||||||||||||||||||||
Property, plant and equipment | 1,799 | 880 | 3,843 | 2,878 | 2,008 | 928 | ||||||||||||||||||
Capitalized development expenses | 969 | 520 | 2,813 | 1,929 | 1,251 | 616 | ||||||||||||||||||
Goodwill, IPR, brands and other intangible assets | 540 | 314 | 1,662 | 1,042 | 697 | 347 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 3,308 | 1,714 | 8,318 | 5,849 | 3,956 | 1,891 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
35 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Apr-Jun | Jan-Jun | Jan-Dec | ||||||||||||||||||
SEK million | 2019 | 2018 | 2019 | 2018 | 2018 | |||||||||||||||
Number of shares and earnings per share | ||||||||||||||||||||
Number of shares, end of period (million) | 3,334 | 3,334 | 3,334 | 3,334 | 3,334 | |||||||||||||||
Of which classA-shares (million) | 262 | 262 | 262 | 262 | 262 | |||||||||||||||
Of which classB-shares (million) | 3,072 | 3,072 | 3,072 | 3,072 | 3,072 | |||||||||||||||
Number of treasury shares, end of period (million) | 29 | 43 | 29 | 43 | 37 | |||||||||||||||
Number of shares outstanding, basic, end of period (million) | 3,305 | 3,291 | 3,305 | 3,291 | 3,297 | |||||||||||||||
Numbers of shares outstanding, diluted, end of period (million) | 3,327 | 3,323 | 3,327 | 3,323 | 3,323 | |||||||||||||||
Average number of treasury shares (million) | 30 | 44 | 32 | 46 | 43 | |||||||||||||||
Average number of shares outstanding, basic (million) | 3,304 | 3,290 | 3,302 | 3,288 | 3,291 | |||||||||||||||
Average number of shares outstanding, diluted (million)1) | 3,325 | 3,322 | 3,324 | 3,321 | 3,318 | |||||||||||||||
Earnings (loss) per share, basic (SEK) | 0.52 | -0.58 | 1.22 | -0.83 | -1.98 | |||||||||||||||
Earnings (loss) per share, diluted (SEK)1) | 0.51 | -0.58 | 1.21 | -0.83 | -1.98 | |||||||||||||||
Earnings (loss) per share(Non-IFRS), diluted (SEK)2) | 0.59 | -0.09 | 1.39 | 0.02 | 0.27 | |||||||||||||||
Ratios | ||||||||||||||||||||
Days sales outstanding | — | — | 95 | 99 | 91 | |||||||||||||||
Inventory turnover days | 91 | 83 | 92 | 83 | 70 | |||||||||||||||
Payable days | 82 | 77 | 86 | 82 | 72 | |||||||||||||||
Alternative Performance Measures (APMs) | ||||||||||||||||||||
Equity ratio (%) | — | — | 30.1 | % | 35.3 | % | 32.7 | % | ||||||||||||
Return on equity (%) | 8.1 | % | -8.1 | % | 9.4 | % | -5.8 | % | -7.1 | % | ||||||||||
Return on capital employed (%) | 9.2 | % | 0.4 | % | 11.0 | % | -0.2 | % | 0.8 | % | ||||||||||
Capital turnover (times) | 1.4 | 1.3 | 1.3 | 1.2 | 1.4 | |||||||||||||||
Free cash flow | 2,230 | -611 | 6,590 | -313 | 2,968 | |||||||||||||||
Cash conversion (%) | 73.2 | % | -556.8 | % | 90.0 | % | -238.5 | % | 601.2 | % | ||||||||||
Exchange rates used in the consolidation | ||||||||||||||||||||
SEK/EUR- closing rate | — | — | 10.55 | 10.44 | 10.25 | |||||||||||||||
SEK/USD- closing rate | — | — | 9.27 | 8.97 | 8.94 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other | ||||||||||||||||||||
Market area inventory, end of period | 21,205 | 19,739 | 21,205 | 19,739 | 16,505 | |||||||||||||||
Export sales from Sweden | 28,356 | 24,978 | 50,842 | 45,657 | 109,969 |
1) | Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share. |
2) | Excluding amortizations and write-downs of acquired intangibles and restructuring charges. |
2019 | 20182) | |||||||||||||||||||||||
End of period | Jun 30 | Mar 31 | Dec 31 | Sep 30 | Jun 30 | Mar 31 | ||||||||||||||||||
South East Asia, Oceania and India | 23,942 | 24,051 | 23,959 | 23,607 | 23,516 | 23,623 | ||||||||||||||||||
North East Asia | 13,334 | 13,169 | 12,788 | 12,495 | 12,303 | 12,321 | ||||||||||||||||||
North America | 9,342 | 9,246 | 9,727 | 9,459 | 9,510 | 9,798 | ||||||||||||||||||
Europe and Latin America1) | 43,846 | 43,833 | 44,522 | 44,594 | 45,643 | 47,437 | ||||||||||||||||||
Middle East and Africa | 4,292 | 4,281 | 4,363 | 4,344 | 4,288 | 4,402 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 94,756 | 94,580 | 95,359 | 94,499 | 95,260 | 97,581 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
1) Of which in Sweden | 12,549 | 12,455 | 12,502 | 12,679 | 13,431 | 13,763 |
2) | 2018 has been restated to reflect the move of Morocco from market area Europe and Latin America to Middle East and Africa. Please refer to “Changes applied in Q1 2019”. |
36 Ericsson | Second Quarter Report 2019 | Additional information |
Table of Contents
Items excluding restructuring charges
Restructuring charges by function
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Cost of sales | -26 | -65 | -4,054 | -204 | -937 | -743 | ||||||||||||||||||
Research and development expenses | -49 | -118 | -251 | -214 | -502 | -326 | ||||||||||||||||||
Selling and administrative expenses | -43 | -23 | -106 | -134 | -441 | -103 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | -118 | -206 | -4,411 | -552 | -1,880 | -1,172 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Cost of sales | -91 | -65 | -5,938 | -1,884 | -1,680 | -743 | ||||||||||||||||||
Research and development expenses | -167 | -118 | -1,293 | -1,042 | -828 | -326 | ||||||||||||||||||
Selling and administrative expenses | -66 | -23 | -784 | -678 | -544 | -103 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | -324 | -206 | -8,015 | -3,604 | -3,052 | -1,172 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring charges by segment
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | -5 | -10 | -425 | -128 | -749 | -479 | ||||||||||||||||||
of which cost of sales | 9 | -3 | -439 | -63 | -469 | -415 | ||||||||||||||||||
of which operating expenses | -14 | -7 | 14 | -65 | -280 | -64 | ||||||||||||||||||
Digital Services | -93 | -187 | -3,545 | -358 | -882 | -581 | ||||||||||||||||||
of which cost of sales | -27 | -60 | -3,369 | -111 | -303 | -226 | ||||||||||||||||||
of which operating expenses | -66 | -127 | -176 | -247 | -579 | -355 | ||||||||||||||||||
Managed Services | 1 | -2 | -70 | -32 | -123 | -51 | ||||||||||||||||||
of which cost of sales | 3 | -1 | -69 | -28 | -103 | -48 | ||||||||||||||||||
of which operating expenses | -2 | -1 | -1 | -4 | -20 | -3 | ||||||||||||||||||
Emerging Business and Other | -21 | -7 | -371 | -34 | -126 | -61 | ||||||||||||||||||
of which cost of sales | -11 | -1 | -177 | -2 | -62 | -54 | ||||||||||||||||||
of which operating expenses | -10 | -6 | -194 | -32 | -64 | -7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | -118 | -206 | -4,411 | -552 | -1,880 | -1,172 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | -15 | -10 | -1,781 | -1,356 | -1,228 | -479 | ||||||||||||||||||
of which cost of sales | 6 | -3 | -1,386 | -947 | -884 | -415 | ||||||||||||||||||
of which operating expenses | -21 | -7 | -395 | -409 | -344 | -64 | ||||||||||||||||||
Digital Services | -280 | -187 | -5,366 | -1,821 | -1,463 | -581 | ||||||||||||||||||
of which cost of sales | -87 | -60 | -4,009 | -640 | -529 | -226 | ||||||||||||||||||
of which operating expenses | -193 | -127 | -1,357 | -1,181 | -934 | -355 | ||||||||||||||||||
Managed Services | -1 | -2 | -276 | -206 | -174 | -51 | ||||||||||||||||||
of which cost of sales | 2 | -1 | -248 | -179 | -151 | -48 | ||||||||||||||||||
of which operating expenses | -3 | -1 | -28 | -27 | -23 | -3 | ||||||||||||||||||
Emerging Business and Other | -28 | -7 | -592 | -221 | -187 | -61 | ||||||||||||||||||
of which cost of sales | -12 | -1 | -295 | -118 | -116 | -54 | ||||||||||||||||||
of which operating expenses | -16 | -6 | -297 | -103 | -71 | -7 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | -324 | -206 | -8,015 | -3,604 | -3,052 | -1,172 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
37 Ericsson | Second Quarter Report 2019 | Items excluding restructuring charges |
Table of Contents
Gross income (loss) and gross margin excluding restructuring charges by segment
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 15,661 | 14,458 | 17,065 | 14,898 | 13,034 | 11,542 | ||||||||||||||||||
Digital Services | 3,338 | 2,938 | 2,129 | 3,319 | 3,761 | 3,118 | ||||||||||||||||||
Managed Services | 776 | 1,037 | 850 | 833 | 912 | 539 | ||||||||||||||||||
Emerging Business and Other | 322 | 411 | 389 | 784 | 563 | 402 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 20,097 | 18,844 | 20,433 | 19,834 | 18,270 | 15,601 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, As percentage of net sales | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 41.4 | % | 43.2 | % | 41.0 | % | 41.5 | % | 40.2 | % | 40.4 | % | ||||||||||||
Digital Services | 37.1 | % | 37.6 | % | 16.4 | % | 36.9 | % | 42.6 | % | 42.9 | % | ||||||||||||
Managed Services | 12.3 | % | 17.7 | % | 12.4 | % | 12.9 | % | 14.0 | % | 9.1 | % | ||||||||||||
Emerging Business and Other | 19.2 | % | 23.5 | % | 17.1 | % | 32.3 | % | 27.4 | % | 24.3 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 36.7 | % | 38.5 | % | 32.0 | % | 36.9 | % | 36.7 | % | 35.9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 30,119 | 14,458 | 56,539 | 39,474 | 24,576 | 11,542 | ||||||||||||||||||
Digital Services | 6,276 | 2,938 | 12,327 | 10,198 | 6,879 | 3,118 | ||||||||||||||||||
Managed Services | 1,813 | 1,037 | 3,134 | 2,284 | 1,451 | 539 | ||||||||||||||||||
Emerging Business and Other | 733 | 411 | 2,138 | 1,749 | 965 | 402 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 38,941 | 18,844 | 74,138 | 53,705 | 33,871 | 15,601 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, As percentage of net sales | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 42.2 | % | 43.2 | % | 40.8 | % | 40.7 | % | 40.3 | % | 40.4 | % | ||||||||||||
Digital Services | 37.3 | % | 37.6 | % | 32.4 | % | 40.7 | % | 42.7 | % | 42.9 | % | ||||||||||||
Managed Services | 14.9 | % | 17.7 | % | 12.2 | % | 12.1 | % | 11.7 | % | 9.1 | % | ||||||||||||
Emerging Business and Other | 21.4 | % | 23.5 | % | 25.4 | % | 28.5 | % | 26.0 | % | 24.3 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 37.5 | % | 38.5 | % | 35.2 | % | 36.5 | % | 36.3 | % | 35.9 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
38 Ericsson | Second Quarter Report 2019 | Items excluding restructuring charges |
Table of Contents
Operating income (loss) and operating margin excluding restructuring charges by segment
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 5,685 | 5,482 | 7,275 | 5,784 | 4,293 | 3,850 | ||||||||||||||||||
Digital Services | -1,312 | -1,611 | -3,542 | -1,426 | -1,492 | -2,026 | ||||||||||||||||||
Managed Services | 202 | 1,254 | 355 | 441 | 422 | 151 | ||||||||||||||||||
Emerging Business and Other | -718 | -23 | -1,529 | -1,006 | -1,178 | -1,115 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 3,857 | 5,102 | 2,559 | 3,793 | 2,045 | 860 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, As percentage of net sales | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Networks | 15.0 | % | 16.4 | % | 17.5 | % | 16.1 | % | 13.3 | % | 13.5 | % | ||||||||||||
Digital Services | -14.6 | % | -20.6 | % | -27.2 | % | -15.9 | % | -16.9 | % | -27.9 | % | ||||||||||||
Managed Services | 3.2 | % | 21.4 | % | 5.2 | % | 6.8 | % | 6.5 | % | 2.6 | % | ||||||||||||
Emerging Business and Other | -42.8 | % | -1.3 | % | -67.1 | % | -41.5 | % | -57.4 | % | -67.5 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 7.0 | % | 10.4 | % | 4.0 | % | 7.0 | % | 4.1 | % | 2.0 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 11,167 | 5,482 | 21,202 | 13,927 | 8,143 | 3,850 | ||||||||||||||||||
Digital Services | -2,923 | -1,611 | -8,486 | -4,944 | -3,518 | -2,026 | ||||||||||||||||||
Managed Services | 1,456 | 1,254 | 1,369 | 1,014 | 573 | 151 | ||||||||||||||||||
Emerging Business and Other | -741 | -23 | -4,828 | -3,299 | -2,293 | -1,115 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 8,959 | 5,102 | 9,257 | 6,698 | 2,905 | 860 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, As percentage of net sales | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Networks | 15.7 | % | 16.4 | % | 15.3 | % | 14.4 | % | 13.4 | % | 13.5 | % | ||||||||||||
Digital Services | -17.4 | % | -20.6 | % | -22.3 | % | -19.7 | % | -21.9 | % | -27.9 | % | ||||||||||||
Managed Services | 12.0 | % | 21.4 | % | 5.3 | % | 5.4 | % | 4.6 | % | 2.6 | % | ||||||||||||
Emerging Business and Other | -21.6 | % | -1.3 | % | -57.4 | % | -53.8 | % | -61.9 | % | -67.5 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Total | 8.6 | % | 10.4 | % | 4.4 | % | 4.6 | % | 3.1 | % | 2.0 | % | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
39 Ericsson | Second Quarter Report 2019 | Items excluding restructuring charges |
Table of Contents
Alternative performance measures
This section includes a reconciliation of certain Alternative Performance Measures (APMs) to the most directly reconcilable line items in the financial statements. The presentation of APMs has limitations as analytical tools and should not be considered in isolation or as a substitute for related financial measures prepared in accordance with IFRS.
APMs are presented to enhance an investor’s evaluation of ongoing operating results, to aid in forecasting future periods and to facilitate meaningful comparison of results between periods.
Management uses these APMs to, among other things, evaluate ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of certain performance-based compensation.
The APMs presented in this report may differ from similarly titled measures used by other companies.
The implementation of IFRS 16 “Leasing” as of January 1, 2019, has had an impact on many of the APMs for 2019. For more information, see “Accounting polices” in this report. The APMs for 2018 has not changed. The definition of the APM Net cash has been clarified.
The Company has decided to change the definition of Return on capital employed (ROCE) and no longer include Financial income in the calculation from Q2 2019. The Company believes the updated definition is a better way of reflecting the underlying results of the operation of the Company. The prior periods have been restated to reflect the change.
For additional information, see Alternative Performance Measures in the Ericsson Annual Report 2018.
Sales growth adjusted for comparable units and currency
Sales growth adjusted for the impact of acquisitions and divestments as well as the effects of foreign currency fluctuations.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarter, year over year change | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Reported net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
Acquired business | — | — | — | — | — | — | ||||||||||||||||||
Net FX impact | -2,538 | -2,932 | -3,549 | -3,748 | -263 | 3,328 | ||||||||||||||||||
Comparable net sales, excluding FX impact | 52,272 | 45,974 | 60,260 | 50,062 | 49,545 | 46,739 | ||||||||||||||||||
Comparable quarter net sales adjusted for divested business1) | 49,055 | 42,961 | — | — | — | — | ||||||||||||||||||
Sales growth adjusted for comparable units and currency (%) | 7 | % | 7 | % | 4 | % | 1 | % | -1 | % | -2 | % | ||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, year over year change | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Reported net sales | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
Acquired business | — | — | — | — | — | — | ||||||||||||||||||
Net FX impact | -5,470 | -2,932 | -4,232 | -683 | 3,065 | 3,328 | ||||||||||||||||||
Comparable net sales, excluding FX impact | 98,246 | 45,974 | 206,606 | 146,346 | 96,284 | 46,739 | ||||||||||||||||||
Comparable quarter net sales adjusted for divested business1) | 92,016 | 42,961 | — | — | — | — | ||||||||||||||||||
Sales growth adjusted for comparable units and currency (%) | 7 | % | 7 | % | 1 | % | -1 | % | -2 | % | -2 | % |
1) | Adjusted for MediaKind divestment. |
40 Ericsson | Second Quarter Report 2019 | Alternative performance measures |
Table of Contents
Items excluding restructuring charges
Gross income, operating expenses, and operating income (loss) are presented excluding restructuring charges and, for certain measures, as a percentage of net sales.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Gross income | 20,071 | 18,779 | 16,379 | 19,630 | 17,333 | 14,858 | ||||||||||||||||||
Net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
Gross margin (%) | 36.6 | % | 38.4 | % | 25.7 | % | 36.5 | % | 34.8 | % | 34.2 | % | ||||||||||||
Gross income | 20,071 | 18,779 | 16,379 | 19,630 | 17,333 | 14,858 | ||||||||||||||||||
Restructuring charges included in cost of sales | 26 | 65 | 4,054 | 204 | 937 | 743 | ||||||||||||||||||
Gross income, excluding restructuring charges | 20,097 | 18,844 | 20,433 | 19,834 | 18,270 | 15,601 | ||||||||||||||||||
Net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
Gross margin, excluding restructuring charges (%) | 36.7 | % | 38.5 | % | 32.0 | % | 36.9 | % | 36.7 | % | 35.9 | % | ||||||||||||
Operating expenses | -16,331 | -14,639 | -17,964 | -16,422 | -17,205 | -15,257 | ||||||||||||||||||
Restructuring charges included in R&D expenses | 49 | 118 | 251 | 214 | 502 | 326 | ||||||||||||||||||
Restructuring charges included in selling and administrative expenses | 43 | 23 | 106 | 134 | 441 | 103 | ||||||||||||||||||
Operating expenses, excluding restructuring charges | -16,239 | -14,498 | -17,607 | -16,074 | -16,262 | -14,828 | ||||||||||||||||||
Operating income (loss) | 3,739 | 4,896 | -1,852 | 3,241 | 165 | -312 | ||||||||||||||||||
Net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
Operating margin (%) | 6.8 | % | 10.0 | % | -2.9 | % | 6.0 | % | 0.3 | % | -0.7 | % | ||||||||||||
Operating income (loss) | 3,739 | 4,896 | -1,852 | 3,241 | 165 | -312 | ||||||||||||||||||
Total restructuring charges | 118 | 206 | 4,411 | 552 | 1,880 | 1,172 | ||||||||||||||||||
Operating income (loss), excluding restructuring charges | 3,857 | 5,102 | 2,559 | 3,793 | 2,045 | 860 | ||||||||||||||||||
Net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
Operating margin, excluding restructuring charges (%) | 7.0 | % | 10.4 | % | 4.0 | % | 7.0 | % | 4.1 | % | 2.0 | % | ||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Gross income | 38,850 | 18,779 | 68,200 | 51,821 | 32,191 | 14,858 | ||||||||||||||||||
Net sales | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
Gross margin (%) | 37.5 | % | 38.4 | % | 32.3 | % | 35.2 | % | 34.5 | % | 34.2 | % | ||||||||||||
Gross income | 38,850 | 18,779 | 68,200 | 51,821 | 32,191 | 14,858 | ||||||||||||||||||
Restructuring charges included in cost of sales | 91 | 65 | 5,938 | 1,884 | 1,680 | 743 | ||||||||||||||||||
Gross income, excluding restructuring charges | 38,941 | 18,844 | 74,138 | 53,705 | 33,871 | 15,601 | ||||||||||||||||||
Net sales | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
Gross margin, excluding restructuring charges (%) | 37.5 | % | 38.5 | % | 35.2 | % | 36.5 | % | 36.3 | % | 35.9 | % | ||||||||||||
Operating expenses | -30,970 | -14,639 | -66,848 | -48,884 | -32,462 | -15,257 | ||||||||||||||||||
Restructuring charges included in R&D expenses | 167 | 118 | 1,293 | 1,042 | 828 | 326 | ||||||||||||||||||
Restructuring charges included in selling and administrative expenses | 66 | 23 | 784 | 678 | 544 | 103 | ||||||||||||||||||
Operating expenses, excluding restructuring charges | -30,737 | -14,498 | -64,771 | -47,164 | -31,090 | -14,828 | ||||||||||||||||||
Operating income (loss) | 8,635 | 4,896 | 1,242 | 3,094 | -147 | -312 | ||||||||||||||||||
Net sales | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
Operating margin (%) | 8.3 | % | 10.0 | % | 0.6 | % | 2.1 | % | -0.2 | % | -0.7 | % | ||||||||||||
Operating income (loss) | 8,635 | 4,896 | 1,242 | 3,094 | -147 | -312 | ||||||||||||||||||
Total restructuring charges | 324 | 206 | 8,015 | 3,604 | 3,052 | 1,172 | ||||||||||||||||||
Operating income (loss), excluding restructuring charges | 8,959 | 5,102 | 9,257 | 6,698 | 2,905 | 860 | ||||||||||||||||||
Net sales | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
Operating margin, excluding restructuring charges (%) | 8.6 | % | 10.4 | % | 4.4 | % | 4.6 | % | 3.1 | % | 2.0 | % |
41 Ericsson | Second Quarter Report 2019 | Alternative performance measures |
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Earnings (loss) before interest, taxes, amortization and write-downs of acquired intangibles, also expressed as a percentage of net sales.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Net income (loss) | 1,847 | 2,403 | -6,497 | 2,748 | -1,802 | -725 | ||||||||||||||||||
Taxes | 1,451 | 1,888 | 3,930 | -146 | 1,157 | -128 | ||||||||||||||||||
Financial income and expenses, net | 441 | 605 | 715 | 639 | 810 | 541 | ||||||||||||||||||
Amortization and write-downs of acquired intangibles | 226 | 314 | 621 | 344 | 350 | 347 | ||||||||||||||||||
EBITA | 3,965 | 5,210 | -1,231 | 3,585 | 515 | 35 | ||||||||||||||||||
Net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
EBITA margin (%) | 7.2 | % | 10.7 | % | -1.9 | % | 6.7 | % | 1.0 | % | 0.1 | % | ||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Net income (loss) | 4,250 | 2,403 | -6,276 | 221 | -2,527 | -725 | ||||||||||||||||||
Taxes | 3,339 | 1,888 | 4,813 | 883 | 1,029 | -128 | ||||||||||||||||||
Financial income and expenses, net | 1,046 | 605 | 2,705 | 1,990 | 1,351 | 541 | ||||||||||||||||||
Amortization and write-downs of acquired intangibles | 540 | 314 | 1,662 | 1,041 | 697 | 347 | ||||||||||||||||||
EBITA | 9,175 | 5,210 | 2,904 | 4,135 | 550 | 35 | ||||||||||||||||||
Net sales | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
EBITA margin (%) | 8.8 | % | 10.7 | % | 1.4 | % | 2.8 | % | 0.6 | % | 0.1 | % |
Cash flow from operating activities divided by the sum of net income (loss) and adjustments to reconcile net income to cash, expressed as a percentage.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Net income (loss) | 1,847 | 2,403 | -6,497 | 2,748 | -1,802 | -725 | ||||||||||||||||||
Net income reconciled to cash | 4,952 | 5,481 | -98 | 2,916 | -259 | -1,005 | ||||||||||||||||||
Cash flow from operating activities | 3,623 | 5,765 | 4,287 | 2,040 | 1,442 | 1,573 | ||||||||||||||||||
Cash conversion (%) | 73.2 | % | 105.2 | % | -4374.5 | % | 70.0 | % | -556.8 | % | -156.5 | % | ||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Net income (loss) | 4,250 | 2,403 | -6,276 | 221 | -2,527 | -725 | ||||||||||||||||||
Net income reconciled to cash | 10,433 | 5,481 | 1,554 | 1,652 | -1,264 | -1,005 | ||||||||||||||||||
Cash flow from operating activities | 9,388 | 5,765 | 9,342 | 5,055 | 3,015 | 1,573 | ||||||||||||||||||
Cash conversion (%) | 90.0 | % | 105.2 | % | 601.2 | % | 306.0 | % | -238.5 | % | -156.5 | % |
42 Ericsson | Second Quarter Report 2019 | Alternative performance measures |
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Gross cash and net cash, end of period
Gross cash: Cash and cash equivalents plus interest-bearing securities (current andnon-current).
Net cash: Cash and cash equivalents plus interest-bearing securities (current andnon-current) less borrowings (current andnon-current).
2019 | 2018 | |||||||||||||||||||||||
SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Cash and cash equivalents | 45,498 | 45,453 | 38,389 | 36,058 | 37,049 | 36,697 | ||||||||||||||||||
+ Interest-bearing securities, current | 6,367 | 3,183 | 6,625 | 6,591 | 8,304 | 5,453 | ||||||||||||||||||
+ Interest-bearing securities,non-current | 17,091 | 23,022 | 23,982 | 23,014 | 21,501 | 27,104 | ||||||||||||||||||
Gross cash, end of period | 68,956 | 71,658 | 68,996 | 65,663 | 66,854 | 69,254 | ||||||||||||||||||
- Borrowings, current | 2,160 | 3,015 | 2,255 | 2,463 | 2,642 | 2,554 | ||||||||||||||||||
- Borrowings,non-current | 33,040 | 32,533 | 30,870 | 31,187 | 31,131 | 31,134 | ||||||||||||||||||
Net cash, end of period | 33,756 | 36,110 | 35,871 | 32,013 | 33,081 | 35,566 |
Total assets lessnon-interest-bearing provisions and liabilities.
2019 | 2018 | |||||||||||||||||||||||
SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Total assets | 280,447 | 283,958 | 268,761 | 264,848 | 265,322 | 260,681 | ||||||||||||||||||
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Non-interest-bearing provisions and liabilities | ||||||||||||||||||||||||
Provisions,non-current | 2,646 | 2,670 | 5,471 | 3,420 | 2,819 | 2,597 | ||||||||||||||||||
Deferred tax liabilities | 1,178 | 792 | 670 | 1,274 | 1,332 | 1,325 | ||||||||||||||||||
Othernon-current liabilities | 2,160 | 2,118 | 4,346 | 4,456 | 4,549 | 2,792 | ||||||||||||||||||
Provisions, current | 8,712 | 9,363 | 10,537 | 5,275 | 6,715 | 6,435 | ||||||||||||||||||
Contract liabilities | 37,264 | 38,605 | 29,348 | 30,108 | 30,959 | 30,391 | ||||||||||||||||||
Trade payables | 31,388 | 30,842 | 29,883 | 28,914 | 28,563 | 26,453 | ||||||||||||||||||
Other current liabilities | 33,351 | 38,528 | 38,891 | 36,323 | 35,746 | 37,888 | ||||||||||||||||||
Capital employed | 163,748 | 161,040 | 149,615 | 155,078 | 154,639 | 152,800 |
Annualized net sales divided by average capital employed.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Net sales | 54,810 | 48,906 | 63,809 | 53,810 | 49,808 | 43,411 | ||||||||||||||||||
Annualized net sales | 219,240 | 195,624 | 255,236 | 215,240 | 199,232 | 173,644 | ||||||||||||||||||
Average capital employed | ||||||||||||||||||||||||
Capital employed at beginning of period | 161,040 | 149,615 | 155,078 | 154,639 | 152,800 | 155,625 | ||||||||||||||||||
Capital employed at end of period | 163,748 | 161,040 | 149,615 | 155,078 | 154,639 | 152,800 | ||||||||||||||||||
Average capital employed | 162,394 | 155,328 | 152,347 | 154,859 | 153,720 | 154,213 | ||||||||||||||||||
Capital turnover (times) | 1.4 | 1.3 | 1.7 | 1.4 | 1.3 | 1.1 | ||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Net sales | 103,716 | 48,906 | 210,838 | 147,029 | 93,219 | 43,411 | ||||||||||||||||||
Annualized net sales | 207,432 | 195,624 | 210,838 | 196,039 | 186,438 | 173,644 | ||||||||||||||||||
Average capital employed | ||||||||||||||||||||||||
Capital employed at beginning of period | 149,615 | 149,615 | 155,625 | 155,625 | 155,625 | 155,625 | ||||||||||||||||||
Capital employed at end of period | 163,748 | 161,040 | 149,615 | 155,078 | 154,639 | 152,800 | ||||||||||||||||||
Average capital employed | 156,682 | 155,328 | 152,620 | 155,352 | 155,132 | 154,213 | ||||||||||||||||||
Capital turnover (times) | 1.3 | 1.3 | 1.4 | 1.3 | 1.2 | 1.1 |
43 Ericsson | Second Quarter Report 2019 | Alternative performance measures |
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The annualized total of operating income (loss) as a percentage of average capital employed.
The definition is updated. Refer to the clarification provided at the beginning of the APM section.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Operating income (loss) | 3,739 | 4,896 | -1,852 | 3,241 | 165 | -312 | ||||||||||||||||||
Annualized operating income (loss) | 14,956 | 19,584 | -7,408 | 12,964 | 660 | -1,248 | ||||||||||||||||||
Average capital employed | ||||||||||||||||||||||||
Capital employed at beginning of period | 161,040 | 149,615 | 155,078 | 154,639 | 152,800 | 155,625 | ||||||||||||||||||
Capital employed at end of period | 163,748 | 161,040 | 149,615 | 155,078 | 154,639 | 152,800 | ||||||||||||||||||
Average capital employed | 162,394 | 155,328 | 152,347 | 154,859 | 153,720 | 154,213 | ||||||||||||||||||
Return on capital employed (%) | 9.2 | % | 12.6 | % | -4.9 | % | 8.4 | % | 0.4 | % | -0.8 | % | ||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Operating income (loss) | 8,635 | 4,896 | 1,242 | 3,094 | -147 | -312 | ||||||||||||||||||
Annualized operating income (loss) | 17,270 | 19,584 | 1,242 | 4,125 | -294 | -1,248 | ||||||||||||||||||
Average capital employed | ||||||||||||||||||||||||
Capital employed at beginning of period | 149,615 | 149,615 | 155,625 | 155,625 | 155,625 | 155,625 | ||||||||||||||||||
Capital employed at end of period | 163,748 | 161,040 | 149,615 | 155,078 | 154,639 | 152,800 | ||||||||||||||||||
Average capital employed | 156,682 | 155,328 | 152,620 | 155,352 | 155,132 | 154,213 | ||||||||||||||||||
Return on capital employed (%) | 11.0 | % | 12.6 | % | 0.8 | % | 2.7 | % | -0.2 | % | -0.8 | % |
Equity, expressed as a percentage of total assets.
2019 | 2018 | |||||||||||||||||||||||
SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Total equity | 84,533 | 84,532 | 87,770 | 95,953 | 93,560 | 93,466 | ||||||||||||||||||
Total assets | 280,447 | 283,958 | 268,761 | 264,848 | 265,322 | 260,681 | ||||||||||||||||||
Equity ratio (%) | 30.1 | % | 29.8 | % | 32.7 | % | 36.2 | % | 35.3 | % | 35.9 | % |
Annualized net income (loss) attributable to stockholders of the Parent Company as a percentage of average Stockholders’ equity.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Net income (loss) attributable to stockholders of the parent company | 1,705 | 2,317 | -6,553 | 2,745 | -1,885 | -837 | ||||||||||||||||||
Annualized | 6,820 | 9,268 | -26,212 | 10,980 | -7,540 | -3,348 | ||||||||||||||||||
Average stockholders’ equity | ||||||||||||||||||||||||
Stockholders’ equity, beginning of period | 84,619 | 86,978 | 95,087 | 92,689 | 92,703 | 95,952 | ||||||||||||||||||
Stockholders’ equity, end of period | 84,488 | 84,619 | 86,978 | 95,087 | 92,689 | 92,703 | ||||||||||||||||||
Average stockholders’ equity | 84,554 | 85,799 | 91,033 | 93,888 | 92,696 | 94,328 | ||||||||||||||||||
Return on equity (%) | 8.1 | % | 10.8 | % | -28.8 | % | 11.7 | % | -8.1 | % | -3.5 | % | ||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Net income (loss) attributable to stockholders of the parent company | 4,022 | 2,317 | -6,530 | 23 | -2,722 | -837 | ||||||||||||||||||
Annualized | 8,044 | 9,268 | -6,530 | 31 | -5,444 | -3,348 | ||||||||||||||||||
Average stockholders’ equity | ||||||||||||||||||||||||
Stockholders’ equity, beginning of period | 86,978 | 86,978 | 95,952 | 95,952 | 95,952 | 95,952 | ||||||||||||||||||
Stockholders’ equity, end of period | 84,488 | 84,619 | 86,978 | 95,087 | 92,689 | 92,703 | ||||||||||||||||||
Average stockholders’ equity | 85,733 | 85,799 | 91,465 | 95,520 | 94,321 | 94,328 | ||||||||||||||||||
Return on equity (%) | 9.4 | % | 10.8 | % | -7.1 | % | 0.0 | % | -5.8 | % | -3.5 | % |
44 Ericsson | Second Quarter Report 2019 | Alternative performance measures |
Table of Contents
Earnings (loss) per share (non-IFRS)
Earnings (loss) per share, diluted, excluding amortizations and write-down of acquired intangible assets and excluding restructuring charges.
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Earnings (loss) per share, diluted | 0.51 | 0.70 | -1.99 | 0.83 | -0.58 | -0.25 | ||||||||||||||||||
Restructuring charges | 0.02 | 0.05 | 1.06 | 0.12 | 0.41 | 0.30 | ||||||||||||||||||
Amortization and write-downs of acquired intangibles | 0.06 | 0.05 | 0.16 | 0.08 | 0.08 | 0.06 | ||||||||||||||||||
Earnings (loss) per share(non-IFRS) | 0.59 | 0.80 | -0.77 | 1.03 | -0.09 | 0.11 | ||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Earnings (loss) per share, diluted | 1.21 | 0.70 | -1.98 | 0.01 | -0.83 | -0.25 | ||||||||||||||||||
Restructuring charges | 0.07 | 0.05 | 1.88 | 0.82 | 0.71 | 0.30 | ||||||||||||||||||
Amortization and write-downs of acquired intangibles | 0.11 | 0.05 | 0.37 | 0.21 | 0.14 | 0.06 | ||||||||||||||||||
Earnings (loss) per share(non-IFRS) | 1.39 | 0.80 | 0.27 | 1.04 | 0.02 | 0.11 |
Free cash flow and free cash flow excluding M&A
Free cash flow: Cash flow from operating activities less net capital expenditures and other investments.
Free cash flow excluding M&A: Cash flow from operating activities less net capital expenditures and other investments (excluding M&A).
2019 | 2018 | |||||||||||||||||||||||
Isolated quarters, SEK million | Q2 | Q1 | Q4 | Q3 | Q2 | Q1 | ||||||||||||||||||
Cash flow from operating activities | 3,623 | 5,765 | 4,287 | 2,040 | 1,442 | 1,573 | ||||||||||||||||||
Net capital expenditures and other investments (excluding M&A) | ||||||||||||||||||||||||
Investments in property, plant and equipment | -1,098 | -1,314 | -1,080 | -1,088 | -951 | -856 | ||||||||||||||||||
Sales of property, plant and equipment | 184 | 232 | 57 | 102 | 52 | 123 | ||||||||||||||||||
Product development | -446 | -457 | -195 | -151 | -325 | -254 | ||||||||||||||||||
Other investing activities | -36 | -165 | -96 | -190 | -398 | 161 | ||||||||||||||||||
Free cash flow excluding M&A | 2,227 | 4,061 | 2,973 | 713 | -180 | 747 | ||||||||||||||||||
Acquisitions/divestments of subsidiaries and other operations, net | 3 | 299 | 20 | -425 | -431 | -449 | ||||||||||||||||||
Free cash flow | 2,230 | 4,360 | 2,993 | 288 | -611 | 298 | ||||||||||||||||||
2019 | 2018 | |||||||||||||||||||||||
Year to date, SEK million | Jan-Jun | Jan-Mar | Jan-Dec | Jan-Sep | Jan-Jun | Jan-Mar | ||||||||||||||||||
Cash flow from operating activities | 9,388 | 5,765 | 9,342 | 5,055 | 3,015 | 1,573 | ||||||||||||||||||
Net capital expenditures and other investments (excluding M&A) | ||||||||||||||||||||||||
Investments in property, plant and equipment | -2,412 | -1,314 | -3,975 | -2,895 | -1,807 | -856 | ||||||||||||||||||
Sales of property, plant and equipment | 416 | 232 | 334 | 277 | 175 | 123 | ||||||||||||||||||
Product development | -903 | -457 | -925 | -730 | -579 | -254 | ||||||||||||||||||
Other investing activities | -201 | -165 | -523 | -427 | -237 | 161 | ||||||||||||||||||
Free cash flow excluding M&A | 6,288 | 4,061 | 4,253 | 1,280 | 567 | 747 | ||||||||||||||||||
Acquisitions/divestments of subsidiaries and other operations, net | 302 | 299 | -1,285 | -1,305 | -880 | -449 | ||||||||||||||||||
Free cash flow | 6,590 | 4,360 | 2,968 | -25 | -313 | 298 |
45 Ericsson | Second Quarter Report 2019 | Alternative performance measures |