6-K 1 d819903d6k.htm 6-K 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

October 17, 2019

Commission File Number 000-12033

 

 

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 Form 20-F or Form 40-F. Form 20-F   ☒ Form 40-F  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ☐

Announcement of LM Ericsson Telephone Company, October 17, 2019 regarding “Third quarter report 2019”.

 

 

 


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: October 17, 2019


LOGO

Third quarter report 2019

Stockholm, October 17, 2019

 

Third quarter highlights

•  Sales were SEK 57.1 (53.8) b. Sales adjusted for comparable units and currency increased by 3% driven by strong growth in North America and North East Asia. Reported sales grew by 6%.

•  Operating income was impacted by cost provisions of USD -1.2 b. (SEK -11.5 b.) related to a resolution of the investigations by SEC and DOJ in the US and a refund of social security costs of SEK 0.9 b., referred to as “items affecting comparability” in the report.

•  Operating income was SEK 6.5 b. (11.4% operating margin) when excluding restructuring charges and items affecting comparability. Reported operating income was SEK -4.2 (3.2) b.

•  Gross margin excluding restructuring charges was 37.8% (36.9%) with improvements in Managed Services, Digital Services and Networks. Reported gross margin was 37.7% (36.5%).

•  Net income was SEK -6.9 (2.7) b., negatively impacted by items affecting comparability.

•  Free cash flow excluding M&A was SEK 5.5 (0.7) b. Net cash increased to SEK 37.4 (32.0) b.

Investor Update key messages (more details on page 13)

 

Focused business strategy remains and the Company is tracking towards the new financial targets:

•  Sales ambition of SEK 230-240 b. for 2020 (previously SEK 210-220 b.), based on a SEK/USD rate of 9.50.

•  Operating margin target for 2020, excluding restructuring charges, remains unchanged at >10% of sales. This incorporates continued dilutive impact from strategic contracts, an initially higher cost level for newly introduced 5G products and a target adjustment for segment Emerging Business and Other to SEK -1.5 to -2.0 b. (previously break-even).

•  Operating margin target of 12-14% for 2022 (previously >12%), excluding restructuring charges, based on an ambition to grow faster than the market in combination with leverage from investments in market position and R&D.

 

SEK b.

   Q3
2019
    Q3
2018
    YoY
change
    Q2
2019
    QoQ
change
    Jan-Sep
2019
    Jan-Sep
2018
 

Net sales

     57.1       53.8       6     54.8       4     160.8       147.0  

Sales growth adj. for comparable units and currency

     —         —         3 %      —         —         —         —    

Gross margin

     37.7     36.5     —         36.6     —         37.5     35.2

Gross margin excluding restructuring charges

     37.8     36.9     —         36.7     —         37.6     36.5

Operating income (loss)

     -4.2       3.2       —         3.7       —         4.4       3.1  

Operating margin

     -7.3     6.0     —         6.8     —         2.8     2.1

Operating income excl.restr.charges & items affecting comparability ¹)

     6.5       3.8       71     3.9       68     14.0       6.7  

Operating margin excl.restr.charges & items affecting comparability ¹)

     11.4     7.0     —         7.0     —         8.7     4.6

Net income (loss)

     -6.9       2.7       —         1.8       —         -2.6       0.2  

EPS diluted, SEK

     -1.89       0.83       —         0.51       —         -0.67       0.01  

Free cash flow excluding M&A

     5.5       0.7       —         2.2       147     11.8       1.3  

Net cash, end of period

     37.4       32.0       17     33.8       11     37.4       32.0  

 

1) 

Operating income excluding restructuring charges in all periods. Excluding cost provisions related to resolution of the SEC and DOJ investigations of SEK -11.5 b. and refund of social security costs of SEK 0.9 b. in Q3 2019. Excluding a capital gain related to the divestment of MediaKind of SEK 0.7 b. and a reversal of a provision for impairment of trade receivables of SEK 0.7 b. in Q1 2019.

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 | Third quarter report 2019     


CEO comments

 

We continue to see strong momentum in our business, based on the strategy to increase our investments for technology leadership, including 5G. We saw organic sales growth1 of 3% in the quarter, driven by the early adopters of 5G, in North America and North East Asia. Our operating income was SEK 6.5 b., corresponding to a margin of 11.4% excluding restructuring costs, the SEC and DOJ provision of USD -1.2 b. (SEK -11.5 b.) and the refund of social security costs of SEK 0.9 b. Free cash flow before M&A was SEK 5.5 (0.7) b. adding to our strong financial position.

Our focused strategy, introduced in 2017, is aimed at building a stronger Ericsson longer term. With clear focus on our operator customers the strategy stands on a foundation of increased investments in R&D for technology and cost leadership, and growing market footprint. Increased R&D efforts, which will continue, have resulted in a competitive portfolio driving improved gross margin. In addition, we have been able to record several important wins improving market footprint for future business. We are disciplined in the deals we take and target opportunities where we have a clear competitive advantage through technology leadership, supported by our improved cost structure in hardware and software. While we believe the strategic contracts are attractive long term, the initial margins may be challenging. This is due to high associated costs as operators change vendors.

An important indicator for our execution of the strategy is the improvement in gross margin. The gross margin2 in the quarter ended at 37.8% compared with 36.9% last year and 36.7% last quarter. Within the 0.8 percentage point3 sequential decline in Networks gross margin, we have absorbed the margin impact and inventory provisions related to strategic contracts.

The largest market for 5G infrastructure will be China where deployments are expected to start near term. We have invested to increase our market share, however it is still too early to assess possible volumes and price levels. Based on historic experience we expect to have challenging margins initially but positive margins over the lifespan of a contract.

With an organic sales growth1 of 4%, segment Networks delivered another solid quarter, with strong development in North America. Operating margin improved YoY, with continued good traction for the Ericsson Radio System.

The turnaround of Digital Services is on track for low single digit margins in 2020. Driven by strong improvement in the underlying business, the losses were substantially reduced QoQ, in spite of a negative impact from the remainder of the 45 critical contracts of SEK 0.5 b. (slightly more than in the second quarter). The

negative impact of these contracts will continue to vary between quarters as they are addressed. We continue to focus on developing a full 5G and cloud-native portfolio. It is encouraging to see that the sales growth in our new product portfolio improved from 13% to 19% rolling 12 months.

5G is taking off faster than earlier anticipated and we see initial 5G buildout as a capacity enhancer in metropolitan areas. However, over time, new exciting innovations for 5G will come with industrial and IoT use cases, leveraging the speed, latency and security characteristics of 5G. This provides opportunities for our customers to capture new revenues as they provide additional benefits to consumers and businesses.

Our IoT business is growing almost twice as fast as the estimated market growth of 20-25% per year. We have more than 4,500 enterprises on our IoT platform and the number of connected devices on the platform has more than doubled year to date. To fully leverage our position and capture new recurring revenue streams we are increasing our investments in IoT within Emerging Business. With this investment, we do not expect to reach breakeven for the segment next year, and instead incur losses of SEK -1.5 to -2.0 b.

Investor Update

In conjunction with today’s report we are hosting an Investor Update where we will discuss company strategy, including financial targets. Continued technology and market investments will remain key for long-term competitiveness and for reaching our targets for 2020 and 2022. A solid financial position and continued strong cash flow are important for our ability to deliver on our focused strategy. As a consequence of currency movements and a stronger 5G market, our sales ambition for 2020 is to reach SEK 230-240 b. compared with the previous estimate of SEK 210-220 b. Our 2020 target of reaching an operating margin of more than 10% remains. This includes the changed target for Emerging Business and Other, short-term dilutive impact from strategic contracts and the initially higher cost level for newly introduced 5G products. For 2022 the operating margin target is 12-14%2 (previously >12%) based on an ambition to grow faster than the market in combination with leverage from investments in market position and R&D.

Börje Ekholm

President and CEO

 

1 

Organic sales growth: Sales growth adjusted for comparable units and currency.

2 

Excluding restructuring charges.

3

Excluding restructuring. Networks gross margin adjusted for a license settlement cost in Q2 2019.

 

 

2    Ericsson | Third quarter report 2019    CEO comments


Planning assumptions going forward

Market related

 

    The Radio Access Network (RAN) equipment market is estimated to increase by 5% for full-year 2019 with 2% CAGR for 2018-2023. (Source: Dell’Oro)

Ericsson related

Net sales

 

    Two-year average sales seasonality between Q3 and Q4 is 18%. However, uncertainty regarding the announced operator merger in North America is likely to impact operators’ spending negatively short term.

 

    The revenues for current IPR licensing contract portfolio are approximately SEK 9 b. on an annual basis.

Gross margin

 

    Strategic contracts in Networks, with initially low margins, taken to strengthen the market position, are expected to have a somewhat increased negative impact on gross margin short term without jeopardizing the 2020 target.
    Large 5G deployments in China are expected to commence in 2020. Ericsson has invested in R&D and supply chain capacity, aiming to increase market share. Based on historic experience margins are initially challenging but turn positive over the lifespan of a contract.

 

    The acquired Kathrein antenna and filter business will initially have a negative impact on Networks margins without jeopardizing the 2020 targets.

 

    The improvements in Digital Services continue, but earnings will vary between quarters depending on business mix, sales seasonality and impact of the remainder of the 45 critical contracts.

Operating expenses

 

    Operating expenses typically increase between Q3 and Q4 due to seasonality.

Restructuring charges

 

    Restructuring charges for full-year 2019 are estimated to be ~1% of sales.

Currency exposure

 

    Rule of thumb: A change by 10% of USD to SEK would have an impact of approximately +/-5% on net sales and approximately +/-1 percentage point on operating margin.
 

 

3    Ericsson | Third quarter report 2019    Financial highlights


Financial highlights

 

SEK b.

   Q3
2019
    Q3
2018
    YoY
change
    Q2
2019
    QoQ
change
    Jan-Sep
2019
    Jan-Sep
2018
 

Net sales

     57.1       53.8       6     54.8       4     160.8       147.0  

Sales growth adj. for comparable units and currency

     —         —         3     —         —         —         —    

Gross income

     21.5       19.6       10     20.1       7     60.4       51.8  

Gross margin

     37.7     36.5     —         36.6     —         37.5     35.2

Research and development (R&D) expenses

     -9.5       -9.4       —         -9.5       —         -28.2       -28.2  

Selling and administrative expenses

     -4.9       -6.6       —         -7.0       —         -17.9       -19.8  

Impairment losses on trade receivables

     0.2       -0.4       —         0.2       32     0.9       -0.8  

Other operating income and expenses

     -11.3       0.0       —         0.1       —         -10.5       0.1  

Operating income (loss)

     -4.2       3.2       —         3.7       —         4.4       3.1  

Operating margin

     -7.3     6.0     —         6.8     —         2.8     2.1

Financial income and expenses, net

     -0.7       -0.6       —         -0.4       —         -1.7       -2.0  

Taxes

     -2.0       0.1       —         -1.5       —         -5.4       -0.9  

Net income (loss)

     -6.9       2.7       —         1.8       —         -2.6       0.2  

Restructuring charges

     -0.1       -0.6       —         -0.1       —         -0.5       -3.6  

Gross income excluding restructuring charges

     21.6       19.8       9     20.1       7     60.5       53.7  

Gross margin excluding restructuring charges

     37.8     36.9     —         36.7     —         37.6     36.5

R&D expenses excluding restructuring charges

     -9.4       -9.2       —         -9.5       —         -27.9       -27.2  

SG&A expenses excluding restructuring charges

     -4.9       -6.5       —         -6.9       —         -17.8       -19.2  

Operating income (loss) excl. restructuring charges

     -4.0       3.8       —         3.9       —         4.9       6.7  

Operating margin excluding restructuring charges

     -7.1     7.0     —         7.0     —         3.1     4.6

Operating income excl.restr.charges & items affecting comparability ¹)

     6.5       3.8       71     3.9       68     14.0       6.7  

Operating margin excl.restr.charges & items affecting comparability ¹)

     11.4     7.0     —         7.0     —         8.7     4.6

 

1 

Operating income excluding restructuring charges in all periods. Excluding cost provisions related to resolution of the SEC and DOJ investigations of SEK -11.5 b. and refund of social security costs of SEK 0.9 b. in Q3 2019. Excluding a capital gain related to the divestment of MediaKind of SEK 0.7 b. and a reversal of a provision for impairment of trade receivables of SEK 0.7 b. in Q1 2019.

 

Items affecting comparability

As previously disclosed, a provision was taken to cover a future settlement with the United States Securities and Exchange Commission (SEC) and the United States Department of Justice (DOJ), in connection with their previously reported investigations. The provision of USD -1.2 b. (SEK -11.5 b.) is reported as Other operating income and expenses in segment Emerging Business and Other. The difference compared with the earlier communicated estimate of SEK -12.0 b. is due to changed currency exchange rate. For more information see page 13.

A refund of earlier paid social security costs in Sweden of SEK 0.9 b. had a positive impact on operating income in the quarter. The refund is reported as Selling and administrative expenses in segment Emerging Business and Other.

The above two items are referred to as “items affecting comparability” in the report.

Net sales

Sales adjusted for comparable units and currency increased by 3% YoY driven by North America and North East Asia. Networks sales adjusted for comparable units and currency increased by 4% YoY, with strong sales growth in North America. Digital Services sales adjusted for comparable units and currency increased by 5% YoY, driven by North America and North East Asia The new portfolio showed growth. Managed Services sales adjusted for comparable units and currency declined by -5%

YoY, negatively impacted by earlier communicated contract exits. Sales adjusted for comparable units and currency in Emerging Business and Other decreased by -7% YoY.

Reported sales for the Group increased by 6% YoY.

Sequentially, sales increased by 4%.

 

 

4    Ericsson | Third quarter report 2019    Financial highlights


IPR licensing revenues

IPR licensing revenues increased to SEK 2.4 (2.1) b. YoY and from SEK 2.2 b. QoQ. The YoY increase was mainly due to new contracts signed and currency effects from a stronger USD versus SEK. The QoQ increase was mainly due to better performance in existing contracts.

Gross margin

Gross margin increased to 37.7% (36.5%). Gross margin excluding restructuring charges increased to 37.8% (36.9%) driven by improvements in Managed Services and Digital Services. Networks gross margin excluding restructuring charges remained stable, despite a negative margin impact and inventory provisions, both related to strategic contracts. Higher IPR licensing revenues had a positive impact on gross margin YoY.

Sequentially, gross margin increased to 37.7% from 36.6%. Gross margin excluding restructuring charges increased to 37.8% from 36.7%, driven mainly by improved gross margins in Managed Services and Digital Services. Networks gross margin excluding restructuring charges increased slightly QoQ. A negative margin impact and inventory provisions, both related to strategic contracts, were partly offset by operational leverage. Networks gross margin in Q2 2019 was negatively impacted by a license settlement cost.

Operating expenses

R&D expenses increased to SEK -9.5 (-9.4) b., mainly due to currency effects. R&D expenses increased in both Networks and Managed Services while they decreased in Digital Services as well as in Emerging Business and Other. The net impact of capitalized and amortized R&D expenses was SEK 0.1 (-0.5) b.

Selling and administrative (SG&A) expenses decreased to SEK -4.9 (-6.6) b. YoY, despite a negative impact from currency effects. A refund of earlier paid social security costs in Sweden had a positive impact of SEK 0.9 b. in the quarter. Revaluation of customer financing was SEK -0.1 (-0.9) b. Cost reductions and efficiency improvements continued, partly offset by negative currency effects.

Impairment losses on trade receivables were positive at SEK 0.2 (-0.4) b.

Sequentially, total operating expenses decreased to SEK -14.2 b. from SEK -16.3 b. SG&A expenses declined QoQ to SEK -4.9 b. from SEK -7.0 b. due to seasonality and the refund of social security costs in Sweden of SEK 0.9 b.

Other operating income and expenses

Other operating income and expenses decreased to SEK -11.3 (0.0) b. YoY and from SEK 0.1 b. QoQ, due to the cost provision related to a resolution of the SEC and DOJ investigations. Share in earnings of JV and associated companies was negative at SEK -0.2 b. (0.0 b), related to the 49% ownership in MediaKind.

Restructuring charges

Restructuring charges decreased to SEK -0.1 (-0.6) b. YoY. Restructuring charges for full-year 2019 are estimated to be ~1% of sales compared with previous estimate of SEK 2-4 b.

Operating income (loss) and margin

Reported operating income (loss) declined YoY to SEK -4.2 (3.2) b. due to items affecting comparability. The decline was partly offset by higher sales, higher gross margin and lower operating expenses.

Operating income excluding restructuring charges and items affecting comparability was SEK 6.5 b. (11.4% in operating margin).

Sequentially, operating income (loss) declined to SEK -4.2 b. from SEK 3.7 b. due to items affecting comparability. The decline was partly offset by lower operating expenses, higher sales and an improved gross margin.

 

 

5    Ericsson | Third quarter report 2019    Financial highlights


Financial income and expenses, net

The financial net decreased to SEK -0.7 (-0.6) b. YoY and from SEK -0.4 b. QoQ, mainly due to negative currency hedge effects which derive from the hedge loan balance in USD. The currency hedge effect was SEK -0.3 b. compared with SEK 0.0 b. in Q3 2018 and in Q2 2019. The SEK weakened against the USD between June 30, 2019 (SEK/USD rate 9.27) and Sep 30, 2019 (SEK/USD rate 9.81). Interest expenses on financial leases were SEK -0.1 (0.0) b. in the quarter, as an effect of IFRS 16 implementation.

Taxes

Taxes were SEK -2.0 (0.1) b. The cost provision related to a resolution of the SEC and DOJ investigations is handled as non-tax deductible. Excluding this cost, the year to date accumulated tax rate was approximately 38%. The Company has implemented IFRIC 23, which requires quarterly assessments of uncertain tax positions.

Net income (loss) and EPS

Net income decreased to SEK -6.9 (2.7) b. and EPS diluted decreased to SEK -1.89 (0.83) YoY due to items affecting comparability.

Employees

The number of employees on September 30, 2019, was 95,887, a net increase of 1,131 employees in the quarter. The increase is mainly in Service Delivery driven by business growth.

 

 

6    Ericsson | Third quarter report 2019    Financial highlights


Market area sales

 

     Q3 2019      Change  

SEK b.

   Networks      Digital
Services
     Managed
Services
     Emerging
Business
and Other
     Total      YoY     QoQ  

South East Asia, Oceania and India

     5.5        0.9        1.0        0.0        7.4        -7     7

North East Asia

     4.8        1.3        0.2        0.0        6.4        10     -2

North America

     15.1        2.7        1.2        0.0        19.0        27     7

Europe and Latin America

     8.2        3.0        3.0        0.1        14.3        -3     2

Middle East and Africa

     3.5        1.6        0.9        0.0        6.0        4     7

Other¹)

     2.1        0.4        0.0        1.4        4.0        -13     2
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

     39.3        9.9        6.4        1.6        57.1        6     4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

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 declined YoY. Managed Services sales increased, driven by add-on sales in India. Networks sales decreased slightly, due to timing of project deliveries and rollout. Digital Services sales decreased, mainly due to lower legacy product sales in India and timing of sales in Australia.

North East Asia

Sales increased YoY. Network sales increased due to continued 5G deployment in South Korea, while 4G deployment in China is slowing down. Digital Services sales grew, driven by strong sales mainly in Japan.

North America

Sales increased across all segments, driven by continued 4G and 5G investments by all major customers. Managed Services sales grew YoY, driven by strong add-on sales in large customer contracts.

Europe and Latin America

Sales declined YoY. Growth in Europe in Networks and Digital Services, driven by earlier announced contract wins, was offset by decline in Latin America due to large deployments in 2018. Managed Services sales declined due to earlier communicated customer contract exits.

Middle East and Africa

Sales increased YoY. Networks sales increased, driven by ongoing 4G and 5G deployment in key markets. Digital Services sales were stable. Managed Services sales declined due to earlier communicated customer contract exits.

Other

Sales declined YoY due to the divestment of 51% of MediaKind. IPR licensing revenues amounted to SEK 2.4 (2.1) b., supported by new contracts signed and currency effects from a stronger USD versus SEK.

 

 

7    Ericsson | Third quarter report 2019    Market area sales


Segment results

Networks

 

SEK b.

   Q3
2019
    Q3
2018
    YoY
change
    Q2
2019
    QoQ
change
    Jan-Sep
2019
    Jan-Sep
2018
 

Net sales

     39.3       35.9       9     37.8       4     110.6       96.9  

Of which products

     27.5       25.3       9     26.7       3     78.0       67.1  

Of which IPR licensing revenues

     2.0       1.8       12     1.8       7     5.9       4.8  

Of which services

     11.8       10.6       11     11.1       6     32.6       29.8  

Sales growth adjusted for comparable units and currency

     —         —         4     —         —         —         —    

Gross income

     16.3       14.8       10     15.7       4     46.5       38.5  

Gross margin

     41.6     41.3     —         41.4     —         42.0     39.7

Operating income

     7.2       5.7       28     5.7       27     18.4       12.6  

Operating margin

     18.4     15.7     —         15.0     —         16.6     13.0

Restructuring charges

     0.0       -0.1       —         0.0       —         0.0       -1.4  

Gross income excl.restructuring charges

     16.3       14.9       10     15.7       4     46.4       39.5  

Gross margin excl.restructuring charges

     41.6     41.5     —         41.4     —         42.0     40.7

Operating income excl.restructuring charges

     7.2       5.8       25     5.7       27     18.4       13.9  

Operating margin excl.restructuring charges

     18.4     16.1     —         15.0     —         16.6     14.4

 

Net sales

Reported sales increased by 9% YoY, while sales adjusted for comparable units and currency increased by 4% YoY. The increase was mainly driven by continued good traction for the Ericsson Radio System. Sales growth in North America was strong, driven by 4G and 5G investments.

Gross margin

Gross margin increased to 41.6% (41.3%) YoY. Gross margin excluding restructuring charges remained stable, despite a dilutive margin impact and inventory provisions, both related to strategic contracts.

Gross margin excluding restructuring was 41.6% compared with 41.4% in Q2 2019. Gross margin declined QoQ when adjusting Q2 for a license settlement cost. The margin impact and inventory provisions related to strategic contracts were partly offset by operational leverage, resulting in a net impact of -0.8 percentage points QoQ. The strategic contracts are taken to strengthen the market position and their dilutive impact on gross margin may vary between quarters.

Operating income and margin

Operating income increased to SEK 7.2 (5.7) b. YoY and operating margin improved to 18.4% (15.7%). Q3 2018 was negatively impacted by SEK -1.2 b. of revaluation of customer financing and impairment losses on trade receivables.

The improvement in the quarter was supported by higher sales and higher gross margin. In addition, the total impact of amortization and capitalization of development expenses and of recognition and deferral of hardware costs contributed with SEK 0.3 (-0.1) b. to operating income.

Strategy execution

The target for Networks is to generate an operating margin of 15-17% (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 shares based on technology and cost competitiveness.

At the close of the quarter Ericsson had announced commercial 5G deals with 27 named operators and, across radio and core, supplied equipment to 19 live 5G networks.

The previously announced plan to acquire Kathrein’s antenna and filter business in order to expand the Ericsson Radio System portfolio with new products, competence and capabilities was completed on October 2, 2019.

 

 

8    Ericsson | Third quarter report 2019    Segment results


Digital Services

 

SEK b.

   Q3
2019
    Q3
2018
    YoY
change
    Q2
2019
    QoQ
change
    Jan-Sep
2019
    Jan-Sep
2018
 

Net sales

     9.9       9.0       10     9.0       10     26.7       25.1  

Of which products

     5.6       4.6       22     4.6       21     14.1       13.0  

Of which IPR licensing revenues

     0.4       0.4       12     0.4       7     1.3       1.0  

Of which services

     4.3       4.4       -3     4.4       -2     12.5       12.1  

Sales growth adjusted for comparable units and currency

     —         —         5     —         —         —         —    

Gross income

     3.7       3.2       17     3.3       13     9.9       9.6  

Gross margin

     37.9     35.7     —         36.8     —         37.2     38.1

Operating income (loss)

     -0.7       -1.8       —         -1.4       —         -3.9       -6.8  

Operating margin

     -6.7     -19.9     —         -15.6     —         -14.5     -27.0

Restructuring charges

     -0.1       -0.4       —         -0.1       —         -0.4       -1.8  

Gross income excl.restructuring charges

     3.8       3.3       14     3.3       13     10.1       10.2  

Gross margin excl.restructuring charges

     38.3     36.9     —         37.1     —         37.7     40.7

Operating income (loss) excl.restructuring charges

     -0.5       -1.4       —         -1.3       —         -3.5       -4.9  

Operating margin excl.restructuring charges

     -5.4     -15.9     —         -14.6     —         -12.9     -19.7

Net sales

Reported sales increased by 10% YoY. Sales adjusted for comparable units and currency increased by 5% YoY, driven by Cloud Core and Cloud Communication sales in North America and North East Asia.

Gross margin

Gross margin increased to 37.9% (35.7%) YoY. Gross margin excluding restructuring charges increased to 38.3% (36.9%) supported by cost reductions and improved business mix, partly through a higher share of software sales.

Gross margin excluding restructuring charges increased to 38.3% from 37.1% QoQ, driven by improved business mix, partly through a higher share of software sales.

Operating income (loss)

Operating income was SEK -0.7 (-1.8) b. Operating income excluding restructuring charges was SEK -0.5 (-1.4) b., with a positive impact from higher sales and increased gross margin. The net impact of capitalized and amortized development expenses was SEK -0.2 (-0.4) b. in the quarter.

Operating income excluding restructuring charges improved QoQ to SEK -0.5 b. from SEK -1.3 b. driven by higher sales, improved gross margin and seasonally lower operating expenses.

Strategy execution

Top priority is to continue to grow the new portfolio while turning Digital Services into a profitable business, targeting low single-digit operating margin by 2020 (excluding restructuring charges).

There is good business momentum in the new portfolio of 5G and cloud-native products. Rolling 12 months sales of the new portfolio increased by 19%, driven by customer investments in 4G and 5G.

At the close of the quarter, across radio and core, Ericsson had supplied equipment to 19 live 5G networks.

A key activity for turnaround of the Digital Services business is to complete, renegotiate or exit 45 identified critical and non-strategic customer contracts. Two additional contracts were addressed in the quarter, and a total of 29 contracts have been addressed to date. This is in line with the plan to have addressed 35 of the 45 contracts (75%) by the end of 2019.

In order to capture software value and protect the services margin, there is an increased focus on reducing systems integration costs by increasing serviceability and automation.

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 market position and prepare Digital Services for profitable growth.

The execution of the new BSS strategy is progressing according to plan and the Company won several important new BSS deals in the quarter.

 

 

9    Ericsson | Third quarter report 2019    Segment results


Managed Services

 

SEK b.

   Q3
2019
    Q3
2018
    YoY
change
    Q2
2019
    QoQ
change
    Jan-Sep
2019
    Jan-Sep
2018
 

Net sales

     6.4       6.5       -2     6.3       1     18.5       18.9  

Sales growth adjusted for comparable units and currency

     —         —         -5     —         —         —         —    

Gross income

     1.1       0.8       41     0.8       46     3.0       2.1  

Gross margin

     17.9     12.5     —         12.3     —         15.9     11.1

Operating income

     0.6       0.4       37     0.2       177     2.0       0.8  

Operating margin

     8.8     6.3     —         3.2     —         10.9     4.3

Restructuring charges

     0.0       0.0       —         0.0       —         0.0       -0.2  

Gross income excl.restructuring charges

     1.1       0.8       37     0.8       47     3.0       2.3  

Gross margin excl.restructuring charges

     17.9     12.9     —         12.3     —         15.9     12.1

Operating income excl.restructuring charges

     0.6       0.4       28     0.2       179     2.0       1.0  

Operating margin excl.restructuring charges

     8.9     6.8     —         3.2     —         10.9     5.4

Operating income excl.restr.charges & items affecting comparability ¹)

     0.6       0.4       28     0.2       179     1.3       1.0  

Operating margin excl.restr.charges & items affecting comparability ¹)

     8.9     6.8     —         3.2     —         6.9     5.4

 

1 

Operating income excluding restructuring charges in all periods and excluding a reversal of a provision for impairment of trade receivables of SEK 0.7 b. in Q1 2019.

 

Net sales

Sales adjusted for comparable units and currency decreased by -5% YoY, due to earlier communicated customer contract exits. Sales in Network Design & Optimization (project business) showed growth. Add-on sales in certain large Managed Services Networks contracts increased in the quarter.

Reported sales decreased by -2% YoY. Sales increased, adjusted for customer contract exits.

Gross margin

Gross margin increased to 17.9% (12.5%) YoY, mainly as a result of efficiency gains and increased add-on sales.

Gross margin increased to 17.9% from 12.3% QoQ, mainly as a result of non-recurring costs in Q2 2019 and higher add-on sales.

Gross margin for the first nine months of 2019 was 15.9% (11.1%).

Operating income and margin

Operating income increased both YoY and QoQ, driven by higher gross margin.

Operating margin for the first nine months of 2019 was 6.9%, 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 target.

Strategy execution

The target for Managed Services is 5-8% operating margin (excluding restructuring charges) in 2020.

Artificial Intelligence (AI) and automation are essential to managing the increasing complexity of current and future networks. In Q1 Ericsson launched a new AI-based managed services offering for operators – Ericsson Operations Engine. With this offering, network and IT operations will move from reactive to proactive, data-driven operations, making sense of billions of data points and acting before network issues impact customer experience. This will enable operators to address the increasing network complexity, increasing volumes of devices, multiple technologies such as 4G, 5G and IoT and more diverse service requirements.

Further investments will be made in automation, analytics and AI-driven offerings, to support 5G, IoT and cloud as well as to increase service delivery efficiency.

 

 

10    Ericsson | Third quarter report 2019    Segment results


Emerging Business and Other (includes Emerging Business, iconectiv, Red Bee Media and Media Solutions)

 

SEK b.

   Q3
2019
    Q3
2018
    YoY
change
    Q2
2019
    QoQ
change
    Jan-Sep
2019
    Jan-Sep
2018
 

Net sales

     1.6       2.4       -33     1.7       -3     5.1       6.1  

Of which Emerging Business and iconectiv

     1.1       1.0       8     1.0       1     3.1       2.3  

Of which Red Bee Media

     0.6       0.7       -16     0.6       -6     1.8       1.8  

Of which Media Solutions

     0.0       0.7       —         0.0       —         0.1       2.0  

Sales growth adjusted for comparable units and currency

     —         —         -7     —         —         —         —    

Gross income

     0.3       0.8       -58     0.3       5     1.0       1.6  

Gross margin

     20.2     32.3     —         18.5     —         20.8     26.6

Operating income (loss)

     -11.3       -1.0       —         -0.7       —         -12.1       -3.5  

Operating margin

     -695.8     -42.9     —         -44.1     —         -239.0     -57.4

Restructuring charges

     0.0       0.0       —         0.0       —         0.0       -0.2  

Gross income excl.restructuring charges

     0.3       0.8       -57     0.3       4     1.1       1.7  

Gross margin excl.restructuring charges

     20.5     32.3     —         19.2     —         21.1     28.5

Operating income excl.restructuring charges

     -11.3       -1.0       —         -0.7       —         -12.0       -3.3  

Of which Emerging Business, iconectiv and common costs

     -0.5       -0.6       —         -0.5       —         -1.5       -1.9  

Of which Red Bee Media

     0.0       0.0       —         0.0       —         0.0       -0.2  

Of which Media Solutions

     -0.3       -0.4       —         -0.2       —         0.0       -1.2  

Of which adjustments in Q3 2019 ¹)

     -10.5       —         —         —         —         -10.5       —    

Operating margin excl.restructuring charges

     -695.1     -41.5     —         -42.8     —         -238.2     -53.8

Operating income excl.restr.charges & items affecting comparability ²)

     -0.8       -1.0       —         -0.7       —         -2.2       -3.3  

Operating margin excl.restr.charges & items affecting comparability ²)

     -46.6     -41.5     —         -42.8     —         -44.0     -53.8

 

1 

Cost provisions related to a resolution of the SEC and DOJ investigations of SEK -11.5 b. and refund of social security costs of SEK 0.9 b. in Q3 2019.

2 

Operating income excluding restructuring charges in all periods. Excluding cost provisions related to a resolution of the SEC and DOJ investigations of SEK -11.5 b. and refund of social security costs of SEK 0.9 b. in Q3 2019. Excluding a capital gain related to the divestment of MediaKind of SEK 0.7 b. in Q1 2019.

 

Net sales

Reported sales decreased by -33% YoY, mainly due to the 51% divestment of MediaKind. Sales adjusted for comparable units and currency decreased by -7% YoY, due to lower sales in Red Bee Media. The decline was partly offset by growth in Emerging Business.

Gross margin

Gross margin declined to 20.2% (32.3%) YoY. Gross margin excluding restructuring charges declined to 20.5% (32.3%). The decline was mainly due to the divestment of 51% of MediaKind.

Gross margin increased QoQ to 20.2% from 18.5%. Gross margin excluding restructuring charges increased to 20.5% from 19.2%.

Q2 2019 was negatively impacted by a provision for a customer claim.

Operating income (loss)

Operating income excluding restructuring charges and items affecting comparability was SEK -0.8 b.

Media Solutions operating income excluding restructuring charges was SEK -0.3 (-0.4) b. The operating income includes Ericsson’s 49% share in earnings of the MediaKind business.

Red Bee Media operating income excluding restructuring charges was stable at break-even.

Operating income in Emerging Business, iconectiv and common costs excluding restructuring charges was SEK -0.5 (-0.6) b. driven by improved earnings in iconectiv.

 

 

11    Ericsson | Third quarter report 2019    Segment results


Strategy execution

Emerging Business and iconectiv A lean start-up approach with selective investments has been implemented in Emerging Business, to build a position and grow sales in new areas, leveraging on Ericsson’s core business. With the exception of iconectiv (software-based solutions for number portability), the portfolio is still in an early investment phase with focus on generating sales and scaling the business. Within IoT, Ericsson offers global connectivity management for billions of IoT devices and connections. The main go-to-market model is via mobile operators, leveraging access to licensed spectrum.

In the quarter, iconectiv acquired CSF Corporation’s toll-free number management portfolio and Aerialink’s cloud-based mobile messaging platform for enterprises and for companies managing toll-free number assignments and toll-free number porting in the U.S. The acquisition strengthens the iconectiv portfolio.

Red Bee Media

The target remains to achieve a sustainable profitable business by continuing to develop 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”.

 

 

12    Ericsson | Third quarter report 2019    Segment results


Cash flow

 

SEK b.

   Q3
2019
     Q3
2018
     Q2
2019
     Jan-Sep
2019
     Jan-Sep
2018
 

Net income reconciled to cash

     -4.3        2.9        5.0        6.1        1.7  

Changes in operating net assets

     11.3        -0.9        -1.3        10.3        3.4  

Cash flow from operating activities

     7.0        2.0        3.6        16.4        5.1  

Cash flow from investing activities

     -3.1        -1.7        1.0        1.2        -1.9  

Cash flow from financing activities

     0.2        0.3        -4.6        -7.0        -3.5  

Effect of exchange rate changes on cash

     1.6        -1.6        0.0        2.2        0.6  

Net change in cash and cash equivalents

     5.7        -1.0        0.0        12.8        0.2  

Free cash flow excluding M&A

     5.5        0.7        2.2        11.8        1.3  

Free cash flow

     5.0        0.3        2.2        11.6        0.0  

 

Operating activities

Cash flow from operating activities was SEK 7.0 (2.0) b. Cash flow was supported by strong income (excluding items affecting comparability) and by decreased trade receivables following strong cash collection. Inventories and Accounts payable decreased. Additions to provisions of SEK 12.8 b. were made in the quarter, of which SEK 11.5 b. were related to a resolution of the SEC and DOJ investigations. SEK 2.2 b. of provisions were utilized in the quarter, of which SEK 0.7 b. were related to restructuring.

The cost provision related to a resolution of the SEC and DOJ investigations had no impact on cash flow in the quarter. SEK 0.4 b. out of the SEK 0.9 b. in social security costs refund had a positive impact on cash flow.

Investing activities

Cash flow from investing activities was SEK -3.1 (-1.7) b. impacted by SEK -1.1 b. due to purchases of interest-bearing securities (i.e. government/ mortgage bonds). The acquisition of CSF, a US-based company related to the iconectiv business, was made in the quarter, impacting cash flow by SEK -0.5 b. Cash flow from investments in property, plant and equipment was SEK -1.2 (-1.1) b. Cash flow from capitalized development expenses was SEK -0.3 (-0.2) b. due to R&D activities in 5G.

Financing activities

Cash flow from financing activities was SEK 0.2 (0.3) b. Ericsson drew on the credit facility of EUR 250 million, from the European Investment Bank (EIB), which was granted in 2018 to support R&D activities for 5G. The facility is set to mature in 2024.

Free cash flow

Free cash flow excluding M&A was SEK 5.5 (0.7) b. and free cash flow (including M&A) was SEK 5.0 (0.3) b.

Effects of implementation of IFRS 16 “Leases”

Cash flow from operating activities and free cash flow were positively impacted by SEK 1.1 b. from the implementation of IFRS 16 “Leases”. This includes a one-time impact of a real estate lease termination. Financing activities were negatively impacted by amortization of the leasing liability of the same amount.

 

 

13    Ericsson | Third quarter report 2019    Cash flow


Financial position

 

     Sep 30     Sep 30     Jun 30  

SEK b.

   2019     2018     2019  

+ Cash and cash equivalents

     51.2       36.1       45.5  

+ Interest-bearing securities, current

     5.9       6.6       6.4  

+ Interest-bearing securities, non-current

     19.2       23.0       17.1  
  

 

 

   

 

 

   

 

 

 

Gross cash

     76.2       65.7       69.0  

- Borrowings, current

     1.6       2.5       2.2  

- Borrowings, non-current

     37.2       31.2       33.0  
  

 

 

   

 

 

   

 

 

 

Net cash

     37.4       32.0       33.8  

Equity

     77.5       96.0       84.5  

Total assets

     288.5       264.8       280.4  

Capital turnover (times)

     1.4       1.3       1.3  

Return on capital employed (%)

     3.8     2.7     11.0

Equity ratio (%)

     26.9     36.2     30.1

Return on equity (%)

     -3.6     0.0     9.4

 

Gross cash increased by SEK 7.3 b. QoQ as a result of the positive free cash flow. In addition, Ericsson drew on the credit facility of EUR 250 million, from the European Investment Bank (EIB), which was granted in 2018 to support R&D activities for 5G. The facility is set to mature in 2024.

Net cash increased by SEK 3.7 b. QoQ as a result of the positive free cash flow. Net cash does not include lease liabilities.

Liabilities for post-employment benefits increased in the quarter, to SEK 37.3 b. from SEK 33.9 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 9.2 b. lower as of September 30, 2019.

The average maturity of long-term borrowings as of September 30, 2019, was 2.8 years, a decrease from 3.6 years 12 months earlier.

In the quarter, Ericsson solicited Fitch for credit rating services. Fitch’s long-term rating for Ericsson is BBB- (“investment grade”) with stable outlook. In the quarter, both Moody’s and Standard & Poor’s changed their rating outlook on Ericsson from stable to positive.

 

 

14    Ericsson | Third quarter report 2019    Financial position


Parent Company

 

Income after financial items was SEK -9.4 (3.3) b.

At the end of the quarter, gross cash (cash, cash equivalents, short-term investments and interest-bearing securities non-current) amounted to SEK 59.4 (55.2) b.

There was a decrease in intercompany lending of SEK 0.6 b. and in intercompany borrowing of SEK 1.7 b. in the quarter.

A provision was made in the quarter of USD 1.2 b. (SEK 11.5 b.), related to a resolution of the investigations by the United States Securities and Exchange Commission (SEC) and with the United States Department of Justice (DOJ), regarding the Company’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA).

In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 3,782,621 shares from treasury stock were distributed or sold to employees during the third quarter. The holding of treasury stock on September 30, 2019, was 25,072,497 Class B shares.

 

 

15    Ericsson | Third quarter report 2019    Parent Company


Other information

 

Investor Update on October 17, 2019 at 3:00 – 5:00 pm CET

The Investor Update, an online-only digital event, on Ericsson’s overall strategic direction and business development will be held on October 17 at 3:00 to 5:00 pm CET.

Management presentations by CEO Börje Ekholm and CFO Carl Mellander will be followed by a Q&A session with the online audience. Key messages:

 

    Focused business strategy remains and the Company is tracking towards the new financial targets.

 

    Sales ambition for 2020 is SEK 230-240 b. (compared with previous 2020 sales ambition of SEK 210-220 b.). The increase is driven by Networks, partly supported by currency effects.

 

    Operating margin target for 2020, excluding restructuring charges, remains unchanged at >10% of sales. This incorporates continued dilutive impact from strategic contracts, an initially higher cost level for newly introduced 5G products and a target adjustment for segment Emerging Business and Other to SEK -1.5 to -2.0 b. (previously break-even).

 

    Operating margin target of 12-14% for 2022 (previously >12%), excluding restructuring charges, based on an ambition to grow faster than the market in combination with leverage from investments in market position and R&D. 2022 targets by segment remain unchanged.

2020 target breakdown by segment

(compared with targets communicated at CMD 2018):

 

    

Net sales ambition,
SEK b.

  

Operating margin excl.
restructuring charges

Networks

   160-164
(141-145)
   15-17%
(unchanged)
Digital Services    41-43
(unchanged)
  

Low single digit

(unchanged)

Managed Services    23-25
(unchanged)
  

5-8%

(unchanged)

Emerging Business
and Other

   6-8
(5-7)
   SEK -1.5 b. to -2.0 b. (break-even)
Group total    230-240 (210-220)    >10% (unchanged)

Underlying assumptions:

 

    USD to SEK 9.50

 

    Managed Services addressable market: 2-4%

CAGR 2018-2022

 

    Digital Services addressable market: 1-4%

CAGR 2018-2022

 

    Network RAN equipment: 2% CAGR 2018-2023.

Changes to the Executive Team

On August 22, 2019, Ericsson announced that, effective September 1, 2019, Fadi Pharaon is appointed Senior Vice President and Head of Market Area Middle East & Africa at Ericsson, and member of Ericsson’s Executive Team, reporting to the CEO.

Fadi Pharaon previously held the position as Vice President, Networks & Managed Services within Ericsson’s Market Area Europe & Latin America.

 

 

16    Ericsson | Third quarter report 2019    Other information


SEC and DOJ inquiries

On September 26, 2019, 01:00 CEST, Ericsson announced a cost provision for the SEC and DOJ inquires. As previously disclosed, Ericsson has been co-operating voluntarily since 2013 with an investigation by the United States Securities and Exchange Commission (SEC) and, since 2015, with an investigation by the United States Department of Justice (DOJ) into Ericsson’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and the process is still ongoing. The investigations cover a period ending Q1 2017 and revealed breaches of the Company’s Code of Business Ethics and the FCPA in six countries: China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam. The Company previously communicated that the resolution of the investigations will result in material financial and other measures.

The Company announced that it would take a provision, which would impact the third quarter 2019 results by SEK 12 b. The provision constitutes the Company’s current estimate of expenditure related to a resolution of the U.S. investigations, of which the combined monetary sanctions from SEC and DOJ is estimated at USD 1 b., and the remainder pertains to other costs related to a resolution of the investigations. The provision booked in the third quarter amounts to USD 1.2 b (SEK 11.5 b.). It is booked as Other operating expenses in the income statement of segment Emerging Business and Other. The difference compared with the earlier communicated estimate of SEK 12.0 b. is due to changed currency exchange rate.

In the course of the investigations, the Company identified breaches of its Code of Business Ethics and the FCPA. It is the Company’s assessment that the breaches are the result of several deficiencies, including a failure to react to red flags and inadequate internal controls which enabled a limited number of employees to actively circumvent internal controls for illegitimate purposes. Disciplinary measures, including terminations where appropriate, have been taken against identified individuals determined to have breached the Code of Business Ethics. Ericsson has acted to address shortcomings and is significantly enhancing its Ethics & Compliance program, to ensure that the Company is equipped to do business the right way. As the process is still ongoing, Ericsson is not able to make any further comments.

Based on a thorough internal and external assessment of its Ethics and Compliance program, the Company has implemented significant reforms to address identified gaps and further strengthen the program. This work is still ongoing, and Ericsson will remain relentless in striving to improve and safeguard a strong ethical and compliance culture throughout the Company.

POST-CLOSING EVENTS

Ericsson completes acquisition of Kathrein’s antenna and filter business

On October 2, 2019, Ericsson completed its acquisition of the antenna and filter division of Kathrein, a provider of antenna and filter

technologies with headquarters in Rosenheim, Germany. The closing follows the announcement on February 25, 2019 that Ericsson intended to make the acquisition.

 

 

17    Ericsson | Third quarter report 2019    Other information


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 has been co-operating voluntarily since 2013 with an investigation by the United States Securities and Exchange Commission (SEC) and since 2015 with an investigation by the United States Department of Justice (DOJ) into Ericsson’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA) and the process is still ongoing. The investigations cover a period ending Q1 2017 and revealed breaches of the Company’s Code of Business Ethics and the FCPA in six countries: China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam. While Ericsson cannot comment in detail on the ongoing process with the U.S. authorities, the Company has made a provision for cost related to a resolution of the investigations, which impacted the third quarter 2019 results by SEK 11.5 b. The process to find a resolution is still ongoing. In addition to the estimated costs, Ericsson could experience reputational harm and other negative consequences as a result of these matters. For example, customers or suppliers may reconsider their relationships with the Company, or governmental and regulatory authorities in the relevant jurisdictions or elsewhere could seek to penalize the Company or place restrictions on its operations. Harm to reputation, or any resulting disruption in customer or supplier relationships, could have a material adverse impact on Ericsson’s business.
    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).

Stockholm, October 17, 2019

Telefonaktiebolaget LM Ericsson

Börje Ekholm, President and CEO

Org. no. 556016-0680

Date for next report: January 24, 2020

 

 

18    Ericsson | Third quarter report 2019    Risk factors


Auditors’ Review Report

 

Introduction

We have reviewed the condensed interim financial information (interim report) of Telefonaktiebolaget LM Ericsson (publ.) as of September 30, 2019, and the nine months period then ended. The board of directors and the CEO are responsible for the preparation and presentation of the interim financial report in accordance with IAS 34 and the Swedish Annual Accounts Act. Our responsibility is to express a conclusion on this interim report based on our review.

Scope of review

We conducted our review in accordance with the International Standard on Review Engagements ISRE 2410, Review of Interim Report Performed by the Independent Auditor of the Entity.

A review consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing, ISA, and other generally accepted auditing standards in Sweden. The procedures performed in a review do not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the interim report is not prepared, in all material respects, in accordance with IAS 34 and the Swedish Annual Accounts Act, regarding the Group, and with the Swedish Annual Accounts Act, regarding the Parent Company.

Stockholm, October 17, 2019

PricewaterhouseCoopers AB

Bo Hjalmarsson

Authorized Public Accountant

Auditor in Charge

Johan Engstam

Authorized Public Accountant

 

 

19    Ericsson | Third quarter report 2019    Auditors’ Review Report


Editor’s note

 

Press briefing and live webcast

Ericsson invites media, investors and analysts to a conference call on October 17, 2019 starting at 9:00 am CET.

An Investor Update, an online-only digital event, on Ericsson’s overall strategic direction and business development will be held on the same date, October 17 at 3:00 to 5:00 pm 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

 

 

20    Ericsson | Third quarter report 2019    Editor’s note


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, targets, strategies, planning assumptions and operational or financial performance expectations, such as for example the investor day key messages and our targets and strategies as described in the introductory bullets, the CEO letter, the Segment descriptions and in Other information

 

    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.

 

 

21    Ericsson | Third quarter report 2019    Forward-looking statements


Financial statements and other information

Contents

 

Financial statements

     23  

Consolidated income statement

     23  

Statement of comprehensive income (loss)

     23  

Consolidated balance sheet

     24  

Consolidated statement of cash flows

     25  

Consolidated statement of changes in equity

     26  

Consolidated income statement – isolated quarters

     26  

Consolidated statement of cash flows – isolated quarters

     27  

Parent Company income statement

     28  

Parent Company statement of comprehensive income (loss)

     28  

Parent Company balance sheet

     29  

Additional information

     30  

Accounting policies

     30  

Changes applied in Q1 2019

     33  

Changes applied in Q2 2019

     33  

Net sales by segment by quarter

     34  

Sales growth adjusted for comparable units and currency

     35  

Gross income (loss) and gross margin by segment by quarter

     35  

Operating income (loss) and operating margin by segment by quarter

     36  

EBITA and EBITA margin by segment by quarter

     37  

Net sales by market area by quarter

     38  

Top 5 countries in sales

     39  

Net sales by market area by segment

     39  

IPR licensing revenues by segment by quarter

     40  

Provisions

     40  

Information on investments

     41  

Other information

     42  

Number of employees

     42  

Items excluding restructuring charges

     43  

Restructuring charges by function

     43  

Restructuring charges by segment

     43  

Gross income and gross margin excluding restructuring charges by segment

     44  

Operating income (loss) and operating margin excluding restructuring charges by segment

     45  

Alternative performance measures

     46  

Sales growth adjusted for comparable units and currency

     46  

Items excluding restructuring charges

     47  

EBITA and EBITA margin

     48  

Cash conversion

     48  

Gross cash and net cash, end of period

     49  

Capital employed

     49  

Capital turnover

     49  

Return on capital employed

     50  

Equity ratio

     50  

Return on equity

     50  

Earnings (loss) per share (non-IFRS)

     51  

Free cash flow and free cash flow excluding M&A

     51  

 

22    Ericsson | Third quarter report 2019    Financial statements and other information


Financial statements

Consolidated income statement

 

     Q3     Jan-Sep  

SEK million

   2019     2018     Change     2019     2018     Change  

Net sales

     57,127       53,810       6     160,843       147,029       9

Cost of sales

     -35,587       -34,180       4     -100,453       -95,208       6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     21,540       19,630       10     60,390       51,821       17

Gross margin (%)

     37.7     36.5       37.5     35.2  

Research and development expenses

     -9,497       -9,388       1     -28,182       -28,244       0

Selling and administrative expenses

     -4,920       -6,625       -26     -17,915       -19,834       -10

Impairment losses on trade receivables

     200       -409       -149     910       -806       -213
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -14,217       -16,422       -13     -45,187       -48,884       -8

Other operating income and expenses ¹)

     -11,305       31       —         -10,466       126       —    

Shares in earnings of JV and associated companies

     -214       2       —         -298       31       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     -4,196       3,241       -229     4,439       3,094       43

Financial income and expenses, net

     -685       -639       7     -1,731       -1,990       -13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     -4,881       2,602       -288     2,708       1,104       145

Taxes

     -2,013       146       —         -5,352       -883       —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     -6,894       2,748       -351     -2,644       221       —    

Net income attributable to:

            

Stockholders of the Parent Company

     -6,229       2,745         -2,207       23    

Non-controlling interests

     -665       3         -437       198    

Other information

            

Average number of shares, basic (million)

     3,308       3,293         3,304       3,290    

Earnings (loss) per share, basic (SEK) ²)

     -1.89       0.84         -0.67       0.01    

Earnings (loss) per share, diluted (SEK) ³)

     -1.89       0.83         -0.67       0.01    

 

1) 

Includes a provision of SEK -11.5 billion in Q3 2019 related to the investigation by the SEC and the DOJ.

2) 

Based on net income (loss) attributable to stockholders of the Parent Company.

3) 

Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

Statement of comprehensive income (loss)

 

     Q3      Jan-Sep  

SEK Million

   2019      2018      2019      2018  

Net income (loss)

     -6,894        2,748        -2,644        221  

Other comprehensive income (loss)

           

Items that will not be reclassified to profit or loss

           

Remeasurements of defined benefits pension plans incl. asset ceiling

     -2,716        1,223        -8,166        497  

Revaluation of borrowings due to change in credit risk

     81        -292        -454        -226  

Tax on items that will not be reclassified to profit or loss

     629        -217        1,886        -270  

Items that may be reclassified to profit or loss

           

Cash flow hedge reserve

           

Gains/losses arising during the period

     -374        —          -580        —    

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

     2,092        -1,237        3,687        1,804  

Share of other comprehensive income on JV and associated companies

     68        -5        114        15  

Tax on items that may be reclassified to profit or loss

     77        —          119        —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income (loss), net of tax

     -143        -528        -3,394        1,820  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

     -7,037        2,220        -6,038        2,041  

Total comprehensive income (loss) attributable to:

           

Stockholders of the Parent Company

     -6,409        2,223        -5,656        1,807  

Non-controlling interest

     -628        -3        -382        234  

 

23    Ericsson | Third quarter report 2019    Financial statements


Consolidated balance sheet

 

     Sep 30      Jun 30      Dec 31  

SEK million

   2019      2019      2018  

Assets

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     4,024        3,971        4,237  

Goodwill

     32,565        30,964        30,035  

Intellectual property rights, brands and other intangible assets

     2,409        2,467        3,474  

Property, plant and equipment

     13,399        13,192        12,849  

Right-of-use assets

     8,617        8,227        —    

Financial assets

        

Equity in JV and associated companies

     1,556        1,766        611  

Other investments in shares and participations

     1,406        1,380        1,515  

Customer finance, non-current

     2,495        2,428        1,180  

Interest-bearing securities, non-current

     19,157        17,091        23,982  

Other financial assets, non-current

     6,452        5,986        6,559  

Deferred tax assets

     30,818        29,169        23,152  
  

 

 

    

 

 

    

 

 

 
     122,898        116,641        107,594  

Current assets

        

Inventories

     36,056        36,135        29,255  

Contract assets

     13,004        12,593        13,178  

Trade receivables

     41,228        44,956        51,172  

Customer finance, current

     1,334        1,109        1,704  

Other current receivables

     16,962        17,148        20,844  

Interest-bearing securities, current

     5,866        6,367        6,625  

Cash and cash equivalents

     51,183        45,498        38,389  
  

 

 

    

 

 

    

 

 

 
     165,633        163,806        161,167  
  

 

 

    

 

 

    

 

 

 

Total assets

     288,531        280,447        268,761  

Equity and liabilities

        

Equity

        

Stockholders’ equity

     78,200        84,488        86,978  

Non-controlling interest in equity of subsidiaries

     -725        45        792  
  

 

 

    

 

 

    

 

 

 
     77,475        84,533        87,770  

Non-current liabilities

        

Post-employment benefits

     37,345        33,919        28,720  

Provisions, non-current

     2,308        2,646        5,471  

Deferred tax liabilities

     857        1,178        670  

Borrowings, non-current

     37,153        33,040        30,870  

Lease liabilities, non-current

     7,888        7,699        —    

Other non-current liabilities

     2,163        2,160        4,346  
  

 

 

    

 

 

    

 

 

 
     87,714        80,642        70,077  

Current liabilities

        

Provisions, current

     19,699        8,712        10,537  

Borrowings, current

     1,622        2,160        2,255  

Lease liabilities, current

     2,226        2,397        —    

Contract liabilities

     34,499        37,264        29,348  

Trade payables

     30,672        31,388        29,883  

Other current liabilities

     34,624        33,351        38,891  
  

 

 

    

 

 

    

 

 

 
     123,342        115,272        110,914  
  

 

 

    

 

 

    

 

 

 

Total equity and liabilities

     288,531        280,447        268,761  

Assets pledged as collateral

     6,049        5,824        5,681  

Contingent liabilities

     1,640        1,511        1,638  

 

24    Ericsson | Third quarter report 2019    Financial statements


Consolidated statement of cash flows

 

     Q3      Jan-Sep      Jan-Dec  

SEK million

   2019      2018      2019      2018      2018  

Operating activities

              

Net income (loss)

     -6,894        2,748        -2,644        221        -6,276  

Adjustments to reconcile net income to cash

              

Taxes

     -411        -2,101        703        -5,487        -1,897  

Earnings/dividends in JV and associated companies

     278        28        373        13        -23  

Depreciation, amortization and impairment losses

     2,199        1,893        6,799        5,849        8,318  

Other

     508        348        882        1,056        1,432  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income reconciled to cash

     -4,320        2,916        6,113        1,652        1,554  

Changes in operating net assets

              

Inventories

     1,077        -1,773        -4,939        -6,496        -4,807  

Customer finance, current and non-current

     -265        1,001        -792        1,948        1,085  

Trade receivables and contract assets

     6,528        -3,503        14,211        5,474        -2,047  

Trade payables

     -2,913        953        -1,060        1,607        2,436  

Provisions and post-employment benefits

     10,719        -265        6,780        -634        6,696  

Contract liabilities

     -3,988        -220        2,834        304        -808  

Other operating assets and liabilities, net

     151        2,931        -6,770        1,200        5,233  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     11,309        -876        10,264        3,403        7,788  

Cash flow from operating activities

     6,989        2,040        16,377        5,055        9,342  

Investing activities

              

Investments in property, plant and equipment

     -1,231        -1,088        -3,643        -2,895        -3,975  

Sales of property, plant and equipment

     122        102        538        277        334  

Acquisitions/divestments of subsidiaries and other operations, net

     -466        -425        -164        -1,305        -1,285  

Product development

     -313        -151        -1,216        -730        -925  

Other investing activities

     -56        -190        -257        -427        -523  

Interest-bearing securities

     -1,114        30        5,973        3,152        2,242  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -3,058        -1,722        1,231        -1,928        -4,132  

Cash flow before financing activities

     3,931        318        17,608        3,127        5,210  

Financing activities

              

Dividends paid

     -141        -2        -4,435        -3,291        -3,425  

Lease liabilities

     -1,052        —          -2,279        —          —    

Other financing activities

     1,396        254        -294        -223        -652  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     203        252        -7,008        -3,514        -4,077  

Effect of exchange rate changes on cash

     1,550        -1,562        2,194        561        1,372  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     5,684        -992        12,794        174        2,505  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     45,499        37,050        38,389        35,884        35,884  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     51,183        36,058        51,183        36,058        38,389  

 

25    Ericsson | Third quarter report 2019    Financial statements


Consolidated statement of changes in equity

 

     Jan-Sep      Jan-Dec  

SEK million

   2019      2018      2018  

Opening balance ¹)

     87,770        97,571        97,571  

Adjustment due to new accounting standards ²)

     -249        -983        -983  
  

 

 

    

 

 

    

 

 

 

Adjusted opening balance

     87,521        96,588        96,588  

Total comprehensive income (loss)

     -6,038        2,041        -6,176  

Sale/repurchase of own shares

     125        76        107  

Stock issue, net

     —          —          —    

Long-term variable compensation plans

     303        540        677  

Dividends paid

     -4,435        -3,291        -3,425  

Transactions with non-controlling interests

     -1        -1        -1  
  

 

 

    

 

 

    

 

 

 

Closing balance

     77,475        95,953        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

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Net sales

     57,127       54,810       48,906       63,809       53,810       49,808       43,411  

Cost of sales

     -35,587       -34,739       -30,127       -47,430       -34,180       -32,475       -28,553  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     21,540       20,071       18,779       16,379       19,630       17,333       14,858  

Gross margin (%)

     37.7     36.6     38.4     25.7     36.5     34.8     34.2

Research and development expenses

     -9,497       -9,518       -9,167       -10,665       -9,388       -9,783       -9,073  

Selling and administrative expenses

     -4,920       -6,964       -6,031       -7,685       -6,625       -7,053       -6,156  

Impairment losses on trade receivables

     200       151       559       386       -409       -369       -28  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -14,217       -16,331       -14,639       -17,964       -16,422       -17,205       -15,257  

Other operating income and expenses ¹)

     -11,305       66       773       -294       31       11       84  

Shares in earnings of JV and associated companies

     -214       -67       -17       27       2       26       3  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     -4,196       3,739       4,896       -1,852       3,241       165       -312  

Financial income and expenses, net

     -685       -441       -605       -715       -639       -810       -541  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     -4,881       3,298       4,291       -2,567       2,602       -645       -853  

Taxes

     -2,013       -1,451       -1,888       -3,930       146       -1,157       128  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     -6,894       1,847       2,403       -6,497       2,748       -1,802       -725  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to:

              

Stockholders of the Parent Company

     -6,229       1,705       2,317       -6,553       2,745       -1,885       -837  

Non-controlling interests

     -665       142       86       56       3       83       112  

Other information

              

Average number of shares, basic (million)

     3,308       3,304       3,300       3,296       3,293       3,290       3,286  

Earnings (loss) per share, basic (SEK) ²)

     -1.89       0.52       0.70       -1.99       0.84       -0.58       -0.25  

Earnings (loss) per share, diluted (SEK) ³)

     -1.89       0.51       0.70       -1.99       0.83       -0.58       -0.25  

 

1) 

Includes a provision of SEK -11.5 billion in Q3 2019 related to the investigation by the SEC and the DOJ.

2) 

Based on net income (loss) attributable to stockholders of the Parent Company.

3) 

Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

 

26    Ericsson | Third quarter report 2019    Financial statements


Consolidated statement of cash flows – isolated quarters

 

     2019      2018  

Isolated quarters, SEK million

   Q3      Q2      Q1      Q4      Q3      Q2      Q1  

Operating activities

                    

Net income (loss)

     -6,894        1,847        2,403        -6,497        2,748        -1,802        -725  

Adjustments to reconcile net income to cash

                    

Taxes

     -411        310        804        3,590        -2,101        -1,071        -2,315  

Earnings/dividends in JV and associated companies

     278        71        24        -36        28        -19        4  

Depreciation, amortization and impairment losses

     2,199        2,274        2,326        2,469        1,893        2,065        1,891  

Other

     508        450        -76        376        348        568        140  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income reconciled to cash

     -4,320        4,952        5,481        -98        2,916        -259        -1,005  

Changes in operating net assets

                    

Inventories

     1,077        -3,065        -2,951        1,689        -1,773        -1,910        -2,813  

Customer finance, current and non-current

     -265        384        -911        -863        1,001        547        400  

Trade receivables and contract assets

     6,528        3,338        4,345        -7,521        -3,503        1,661        7,316  

Trade payables

     -2,913        1,833        20        829        953        1,252        -598  

Provisions and post-employment benefits

     10,719        -480        -3,459        7,330        -265        478        -847  

Contract liabilities

     -3,988        -1,641        8,463        -1,112        -220        -233        757  

Other operating assets and liabilities, net

     151        -1,698        -5,223        4,033        2,931        -94        -1,637  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     11,309        -1,329        284        4,385        -876        1,701        2,578  

Cash flow from operating activities

     6,989        3,623        5,765        4,287        2,040        1,442        1,573  

Investing activities

                    

Investments in property, plant and equipment

     -1,231        -1,098        -1,314        -1,080        -1,088        -951        -856  

Sales of property, plant and equipment

     122        184        232        57        102        52        123  

Acquisitions/divestments of subsidiaries and other operations, net

     -466        3        299        20        -425        -431        -449  

Product development

     -313        -446        -457        -195        -151        -325        -254  

Other investing activities

     -56        -36        -165        -96        -190        -398        161  

Interest-bearing securities

     -1,114        2,414        4,673        -910        30        3,656        -534  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -3,058        1,021        3,268        -2,204        -1,722        1,603        -1,809  

Cash flow before financing activities

     3,931        4,644        9,033        2,083        318        3,045        -236  

Financing activities

                    

Dividends paid

     -141        -3,308        -986        -134        -2        -3,289        —    

Lease liabilities

     -1,052        -623        -604        —          —          —          —    

Other financing activities

     1,396        -680        -1,010        -429        254        -383        -94  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     203        -4,611        -2,600        -563        252        -3,672        -94  

Effect of exchange rate changes on cash

     1,550        13        631        811        -1,562        980        1,143  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     5,684        46        7,064        2,331        -992        353        813  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     45,499        45,453        38,389        36,058        37,050        36,697        35,884  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     51,183        45,499        45,453        38,389        36,058        37,050        36,697  

 

27    Ericsson | Third quarter report 2019    Financial statements


Parent Company income statement

 

     Q3      Jan-Sep      Jan-Dec  

SEK million

   2019      2018      2019      2018      2018  

Net sales

     —          —          —          —          —    

Cost of sales

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross income

     —          —          —          —          —    

Operating expenses

     -275        -879        -1,032        -1,385        -1,686  

Other operating income and expenses ¹)

     -10,925        399        -9,957        1,153        2,111  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     -11,200        -480        -10,989        -232        425  

Financial net

     1,030        2,015        1,626        3,487        5,340  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income after financial items

     -10,170        1,535        -9,363        3,255        5,765  

Transfers to (-) / from untaxed reserves

     —          —          —          —          -1,535  

Taxes

     -189        -101        -264        -256        -36  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     -10,359        1,434        -9,627        2,999        4,194  

 

1) 

Includes a provision of SEK -11.5 billion in Q3 2019 related to the investigation by the SEC and the DOJ.

Parent Company statement of comprehensive income (loss)

 

     Q3      Jan-Sep      Jan-Dec  

SEK million

   2019      2018      2019      2018      2018  

Net income (loss)

     -10,359        1,434        -9,627        2,999        4,194  

Revaluation of borrowings due to change in credit risk

     81        292        -364        342        91  

Tax on items that will not be reclassified to profit or loss

     -17        -64        75        -75        -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

     64        228        -289        267        72  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss)

     -10,295        1,662        -9,916        3,266        4,266  

 

28    Ericsson | Third quarter report 2019    Financial statements


Parent Company balance sheet

 

SEK million

   Sep 30
2019
     Dec 31
2018
 

Assets

     

Fixed assets

     

Intangible assets

     66        139  

Tangible assets

     279        259  

Financial assets ¹) 2)

     106,712        109,177  
  

 

 

    

 

 

 
     107,057        109,575  

Current assets

     

Inventories

     —          —    

Receivables 2)

     27,078        38,760  

Short-term investments

     5,213        6,268  

Cash and cash equivalents

     34,990        27,850  
  

 

 

    

 

 

 
     67,281        72,878  
  

 

 

    

 

 

 

Total assets

     174,338        182,453  

Stockholders’ equity, provisions and liabilities

     

Equity

     

Restricted equity

     48,164        48,164  

Non-restricted equity ²)

     27,612        40,752  
  

 

 

    

 

 

 
     75,776        88,916  

Provisions

     11,499        86  

Non-current liabilities ²)

     37,280        62,581  

Current liabilities

     49,783        30,870  
  

 

 

    

 

 

 

Total stockholders’ equity, provisions and liabilities

     174,338        182,453  

¹) Of which interest-bearing securities, non-current

     19,157        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, and non-current liabilities increased by SEK 31 million.

 

29    Ericsson | Third quarter report 2019    Financial statements


Additional information

Accounting policies

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 cumulative catch-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. The right-of-use assets and liabilities were previously reported as off-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 related right-of-use assets. Impairment testing will be applied going-forward.

 

    Exclusion of initial direct costs from the measurement of the right-to-use asset at the date of initial recognition.

The Company has implemented the standard using the cumulative catch-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 contracts right-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 to low-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.

 

 

30    Ericsson | Third quarter report 2019    Additional information


The impact of right-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 recognizes right-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.

 

 

31    Ericsson | Third quarter report 2019    Additional information


In the assessment of a lease contract the lease components are separated from non-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.

The right-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 of low-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 points year-to-date, because lease interest expense is no longer a part of this measurement. The EBITA year-to-date has increased with SEK 414 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 reclassification year-to-date in 2019 is SEK 2,279 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.

Because right-of-use assets under IFRS 16 are included in total assets the APM capital employed has increased by approximately 6%. The APM equity ratio has decreased for the same reason.

 

 

32    Ericsson | Third quarter report 2019    Additional information


Changes applied in Q1 2019

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.

Changes applied in Q2 2019

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’.

 

 

33    Ericsson | Third quarter report 2019    Additional information


Net sales by segment by quarter

 

     2019     2018  

Isolated quarters, SEK million

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     39,261       37,819       33,481       41,641       35,934       32,393       28,602  

Of which Products

     27,500       26,698       23,765       29,803       25,336       22,319       19,473  

Of which Services

     11,761       11,121       9,716       11,838       10,598       10,074       9,129  

Digital Services

     9,881       8,991       7,817       13,007       8,987       8,833       7,262  

Of which Products

     5,594       4,611       3,937       7,462       4,582       4,467       3,947  

Of which Services

     4,287       4,380       3,880       5,545       4,405       4,366       3,315  

Managed Services

     6,359       6,323       5,856       6,881       6,465       6,528       5,896  

Emerging Business and Other

     1,626       1,677       1,752       2,280       2,424       2,054       1,651  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     57,127       54,810       48,906       63,809       53,810       49,808       43,411  
     2019     2018  

Sequential change, percent

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     4     13     -20     16     11     13     -23

Of which Products

     3     12     -20     18     14     15     -23

Of which Services

     6     14     -18     12     5     10     -22

Digital Services

     10     15     -40     45     2     22     -39

Of which Products

     21     17     -47     63     3     13     -39

Of which Services

     -2     13     -30     26     1     32     -38

Managed Services

     1     8     -15     6     -1     11     -15

Emerging Business and Other

     -3     -4     -23     -6     18     24     -21
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4     12     -23     19     8     15     -25
     2019     2018  

Year over year change, percent

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     9     17     17     12     13     2     -10

Of which Products

     9     20     22     17     17     5     -11

Of which Services

     11     10     6     1     5     -3     -7

Digital Services

     10     2     8     10     1     -11     -10

Of which Products

     22     3     0     16     -6     -17     -9

Of which Services

     -3     0     17     3     8     -4     -12

Managed Services

     -2     -3     -1     0     -2     -2     -6

Emerging Business and Other

     -33     -18     6     9     22     2     -7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     6     10     13     10     9     -1     -9
     2019     2018  

Year to date, SEK million

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     110,561       71,300       33,481       138,570       96,929       60,995       28,602  

Of which Products

     77,963       50,463       23,765       96,931       67,128       41,792       19,473  

Of which Services

     32,598       20,837       9,716       41,639       29,801       19,203       9,129  

Digital Services

     26,689       16,808       7,817       38,089       25,082       16,095       7,262  

Of which Products

     14,142       8,548       3,937       20,458       12,996       8,414       3,947  

Of which Services

     12,547       8,260       3,880       17,631       12,086       7,681       3,315  

Managed Services

     18,538       12,179       5,856       25,770       18,889       12,424       5,896  

Emerging Business and Other

     5,055       3,429       1,752       8,409       6,129       3,705       1,651  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     160,843       103,716       48,906       210,838       147,029       93,219       43,411  
     2019     2018  

Year over year change, percent

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     14     17     17     5     2     -4     -10

Of which Products

     16     21     22     7     3     -3     -11

Of which Services

     9     9     6     -1     -2     -5     -7

Digital Services

     6     4     8     -2     -7     -11     -10

Of which Products

     9     2     0     -3     -11     -13     -9

Of which Services

     4     8     17     -1     -2     -8     -12

Managed Services

     -2     -2     -1     -3     -3     -4     -6

Emerging Business and Other

     -18     -7     6     7     6     -2     -7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     9     11     13     3     0     -5     -9

 

34    Ericsson | Third quarter report 2019    Additional information


Sales growth adjusted for comparable units and currency

 

     2019     2018  

Isolated quarter, year over year change, percent

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     4     11     10     6     5     2     -2

Digital Services

     5     -3     0     5     -6     -12     -3

Managed Services

     -5     -6     -5     -5     -8     -3     -4

Emerging Business and Other 1)

     -7     24     38     1     11     1     -2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ¹)

     3     7     7     4     1     -1     -2
     2019     2018  

Year to date, year over year change, percent

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     8     11     10     3     2     0     -2

Digital Services

     1     -2     0     -4     -7     -8     -3

Managed Services

     -5     -6     -5     -5     -5     -3     -4

Emerging Business and Other ¹)

     15     30     38     3     3     -1     -2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total ¹)

     5     7     7     1     -1     -2     -2

 

1) 

Adjusted for MediaKind divestment.

Gross income (loss) and gross margin by segment by quarter

 

     2019     2018  

Isolated quarters, SEK million

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     16,327       15,670       14,455       16,626       14,835       12,565       11,127  

Digital Services

     3,749       3,311       2,878       -1,240       3,208       3,458       2,892  

Managed Services

     1,136       779       1,036       781       805       809       491  

Emerging Business and Other

     328       311       410       212       782       501       348  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     21,540       20,071       18,779       16,379       19,630       17,333       14,858  
     2019     2018  

Isolated quarters, as percentage of net sales

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     41.6     41.4     43.2     39.9     41.3     38.8     38.9

Digital Services

     37.9     36.8     36.8     -9.5     35.7     39.1     39.8

Managed Services

     17.9     12.3     17.7     11.4     12.5     12.4     8.3

Emerging Business and Other

     20.2     18.5     23.4     9.3     32.3     24.4     21.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     37.7     36.6     38.4     25.7     36.5     34.8     34.2
     2019     2018  

Year to date, SEK million

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     46,452       30,125       14,455       55,153       38,527       23,692       11,127  

Digital Services

     9,938       6,189       2,878       8,318       9,558       6,350       2,892  

Managed Services

     2,951       1,815       1,036       2,886       2,105       1,300       491  

Emerging Business and Other

     1,049       721       410       1,843       1,631       849       348  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     60,390       38,850       18,779       68,200       51,821       32,191       14,858  
     2019     2018  

Year to date, as percentage of net sales

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     42.0     42.3     43.2     39.8     39.7     38.8     38.9

Digital Services

     37.2     36.8     36.8     21.8     38.1     39.5     39.8

Managed Services

     15.9     14.9     17.7     11.2     11.1     10.5     8.3

Emerging Business and Other

     20.8     21.0     23.4     21.9     26.6     22.9     21.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     37.5     37.5     38.4     32.3     35.2     34.5     34.2

 

35    Ericsson | Third quarter report 2019    Additional information


Operating income (loss) and operating margin by segment by quarter

 

     2019     2018  

Isolated quarters, SEK million

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     7,216       5,680       5,472       6,850       5,656       3,544       3,371  

Digital Services

     -660       -1,405       -1,798       -7,087       -1,784       -2,374       -2,607  

Managed Services

     562       203       1,252       285       409       299       100  

Emerging Business and Other

     -11,314       -739       -30       -1,900       -1,040       -1,304       -1,176  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -4,196       3,739       4,896       -1,852       3,241       165       -312  
     2019     2018  

Isolated quarters, as percentage of net sales

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     18.4     15.0     16.3     16.5     15.7     10.9     11.8

Digital Services

     -6.7     -15.6     -23.0     -54.5     -19.9     -26.9     -35.9

Managed Services

     8.8     3.2     21.4     4.1     6.3     4.6     1.7

Emerging Business and Other

     -695.8     -44.1     -1.7     -83.3     -42.9     -63.5     -71.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -7.3     6.8     10.0     -2.9     6.0     0.3     -0.7
     2019     2018  

Year to date, SEK million

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     18,368       11,152       5,472       19,421       12,571       6,915       3,371  

Digital Services

     -3,863       -3,203       -1,798       -13,852       -6,765       -4,981       -2,607  

Managed Services

     2,017       1,455       1,252       1,093       808       399       100  

Emerging Business and Other

     -12,083       -769       -30       -5,420       -3,520       -2,480       -1,176  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4,439       8,635       4,896       1,242       3,094       -147       -312  
     2019     2018  

Year to date, as percentage of net sales

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     16.6     15.6     16.3     14.0     13.0     11.3     11.8

Digital Services

     -14.5     -19.1     -23.0     -36.4     -27.0     -30.9     -35.9

Managed Services

     10.9     11.9     21.4     4.2     4.3     3.2     1.7

Emerging Business and Other

     -239.0     -22.4     -1.7     -64.5     -57.4     -66.9     -71.2
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2.8     8.3     10.0     0.6     2.1     -0.2     -0.7

 

36    Ericsson | Third quarter report 2019    Additional information


EBITA and EBITA margin by segment by quarter

 

     2019     2018  

Isolated quarters, SEK million

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     7,253       5,716       5,552       6,916       5,722       3,618       3,461  

Digital Services

     -521       -1,268       -1,638       -6,911       -1,608       -2,204       -2,443  

Managed Services

     563       205       1,253       288       411       303       105  

Emerging Business and Other

     -11,262       -688       43       -1,524       -940       -1,202       -1,088  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -3,967       3,965       5,210       -1,231       3,585       515       35  
     2019     2018  

Isolated quarters, as percentage of net sales

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     18.5     15.1     16.6     16.6     15.9     11.2     12.1

Digital Services

     -5.3     -14.1     -21.0     -53.1     -17.9     -25.0     -33.6

Managed Services

     8.9     3.2     21.4     4.2     6.4     4.6     1.8

Emerging Business and Other

     -692.6     -41.0     2.5     -66.8     -38.8     -58.5     -65.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -6.9     7.2     10.7     -1.9     6.7     1.0     0.1
     2019     2018  

Year to date, SEK million

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     18,521       11,268       5,552       19,717       12,801       7,079       3,461  

Digital Services

     -3,427       -2,906       -1,638       -13,166       -6,255       -4,647       -2,443  

Managed Services

     2,021       1,458       1,253       1,107       819       408       105  

Emerging Business and Other

     -11,907       -645       43       -4,754       -3,230       -2,290       -1,088  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     5,208       9,175       5,210       2,904       4,135       550       35  
     2019     2018  

Year to date, as percentage of net sales

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

Networks

     16.8     15.8     16.6     14.2     13.2     11.6     12.1

Digital Services

     -12.8     -17.3     -21.0     -34.6     -24.9     -28.9     -33.6

Managed Services

     10.9     12.0     21.4     4.3     4.3     3.3     1.8

Emerging Business and Other

     -235.5     -18.8     2.5     -56.5     -52.7     -61.8     -65.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3.2     8.8     10.7     1.4     2.8     0.6     0.1

 

37    Ericsson | Third quarter report 2019    Additional information


Net sales by market area by quarter

 

     2019     2018 ³)  

Isolated quarters, SEK million

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     7,432       6,965       6,148       8,244       7,985       6,981       6,379  

North East Asia

     6,356       6,516       3,824       8,387       5,773       4,764       3,385  

North America

     18,985       17,699       16,171       17,999       14,933       14,337       11,317  

Europe and Latin America 1) 2)

     14,308       14,085       13,124       17,909       14,697       13,999       12,958  

Middle East and Africa

     6,046       5,641       5,412       6,828       5,841       5,801       5,868  

Other 1) 2)

     4,000       3,904       4,227       4,442       4,581       3,926       3,504  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     57,127       54,810       48,906       63,809       53,810       49,808       43,411  

1) Of which in Sweden

     13       149       192       375       429       596       915  

2) Of which in EU

     8,815       8,385       7,957       10,319       8,481       8,619       8,522  
     2019     2018 ³)  

Sequential change, percent

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     7     13     -25     3     14     9     -19

North East Asia

     -2     70     -54     45     21     41     -48

North America

     7     9     -10     21     4     27     -23

Europe and Latin America 1) 2)

     2     7     -27     22     5     8     -22

Middle East and Africa

     7     4     -21     17     1     -1     -25

Other 1) 2)

     2     -8     -5     -3     17     12     -20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4     12     -23     19     8     15     -25

1) Of which in Sweden

     -91     -22     -49     -13     -28     -35     5

2) Of which in EU

     5     5     -23     22     -2     1     -21
     2019     2018 ³)  

Year over year change, percent

   Q3     Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     -7     0     -4     5     2     -3     -24

North East Asia

     10     37     13     30     2     -19     -39

North America

     27     23     43     23     21     11     -6

Europe and Latin America 1) 2)

     -3     1     1     7     11     1     8

Middle East and Africa

     4     -3     -8     -13     -9     -5     6

Other 1) 2)

     -13     -1     21     2     19     -7     -17
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     6     10     13     10     9     -1     -9

1) Of which in Sweden

     -97     -75     -79     -57     -35     -24     -10

2) Of which in EU

     4     -3     -7     -5     -2     -1     2
     2019     2018 ³)  

Year to date, SEK million

   Jan-Sep     Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

South East Asia, Oceania and India

     20,545       13,113       6,148       29,589       21,345       13,360       6,379  

North East Asia

     16,696       10,340       3,824       22,309       13,922       8,149       3,385  

North America

     52,855       33,870       16,171       58,586       40,587       25,654       11,317  

Europe and Latin America 1) 2)

     41,517       27,209       13,124       59,563       41,654       26,957       12,958  

Middle East and Africa

     17,099       11,053       5,412       24,338       17,510       11,669       5,868  

Other 1) 2)

     12,131       8,131       4,227       16,453       12,011       7,430       3,504  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     160,843       103,716       48,906       210,838       147,029       93,219       43,411  

1) Of which in Sweden

     354       341       192       2,315       1,940       1,511       915