6-K
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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

July 20, 2016

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  x 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):  ¨

THIS REPORT ON FORM 6-K SHALL BE DEEMED TO BE INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENTS ON FORM F-3 (NO. 333-203977) AND ON FORM S-8 (Nos. 333-196453, 333-161683 AND 333-161684) OF TELEFONAKTIEBOLAGET LM ERICSSON (PUBL.) AND TO BE A PART THEREOF FROM THE DATE ON WHICH THIS REPORT IS FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION, TO THE EXTENT NOT SUPERSEDED BY DOCUMENTS OR REPORTS SUBSEQUENTLY FILED WITH OR FURNISHED TO THE SECURITIES AND EXCHANGE COMMISSION.


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

TELEFONAKTIEBOLAGET LM ERICSSON (publ)
By:  

/s/    NINA MACPHERSON        

  Nina Macpherson
  Senior Vice President and
  General Counsel
By:  

/s/    HELENA NORRMAN        

  Helena Norrman
  Senior Vice President
  Corporate Communications

Date: July 20, 2016


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LOGO

SECOND QUARTER

REPORT 2016, AS ADJUSTED FOR INCORPORATION BY REFERENCE

Stockholm, July 19, 2016

 

SECOND QUARTER HIGHLIGHTS

 

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(page)

   Sales as reported decreased by -11% YoY. Sales, adjusted for comparable units and currency*, decreased by -7% YoY. Mobile broadband sales continued to decline particularly in markets impacted by a weak macro-economic environment.   3
   Sales grew in South East Asia and Oceania. 4G sales in Mainland China and Networks sales in North America were stable.   3
   The current sales trends and business mix are expected to prevail for the second half of the year.   3
   Gross margin declined to 32.3% (33.2%) YoY, mainly due to a larger share of mobile broadband coverage business with lower hardware margins, and a higher share of services business.   3
   Operating margin decreased to 5.1% (5.9%) YoY, mainly due to negative revaluation effects of currency hedge contracts and a lower gross margin, partly offset by lower operating expenses and restructuring charges.   4
   Further actions are initiated to reduce cost, targeting a new annual run rate of operating expenses, excluding restructuring charges, of SEK 53 b. in the second half of 2017.   3
   Cash flow from operating activities was SEK -0.7 (3.1) b. Cash flow from operating activities for the first six months was SEK -3.1 (-2.8) b. Full-year cash conversion target of more than 70% remains.   9

 

SEK b.

  Q2
2016
    Q2
2015
    YoY
change
    Q1
2016
    QoQ
change
    6 months
2016
    6 months
2015
 

Net sales

    54.1        60.7        -11     52.2        4     106.3        114.2   

Sales growth adj. for comparable units and currency *

    —          —          -7     —          6     -4     -6

Gross margin

    32.3     33.2     —          33.3     —          32.8     34.2

Gross margin excluding restructuring charges *

    33.2     35.1     —          33.9     —          33.6     35.7

Operating income

    2.8        3.6        -22     3.5        -20     6.2        5.7   

Operating income excluding restructuring charges *

    3.8        6.3        -40     4.1        -8     7.9        9.1   

Operating margin

    5.1     5.9     —          6.7     —          5.9     5.0

Operating margin excluding restructuring charges *

    7.0     10.4     —          7.9     —          7.4     7.9

Net income

    1.6        2.1        -26     2.1        -26     3.7        3.6   

EPS diluted, SEK

    0.48        0.64        -25     0.60        -20     1.08        1.04   

EPS (Non-IFRS), SEK 1) *

    0.83        1.45        -43     0.87        -5     1.70        2.22   

Cash flow from operating activities

    -0.7        3.1        -123     -2.4        -70     -3.1        -2.8   

Net cash, end of period 2) *

    21.0        28.0        -25     36.5        -43     21.0        28.0   

 

1)  EPS, diluted, excl. amortizations and write-downs of acquired intangible assets, and excluding restructuring charges.
2)  The definition of Net cash is changed to exclude post-employment benefits, see accounting policies.
* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

 

1      Ericsson  |  Second Quarter Report 2016


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CEO COMMENTS

 

The negative industry trends from the first quarter have intensified impacting demand for mobile broadband, especially in markets with a weak macro-economic environment. We are delivering on ongoing cost reduction activities. However, in light of market development, management has, with the support of the Board of Directors, initiated significant actions to further reduce cost.

Business

Sales declined by -11% YoY. Sales, adjusted for comparable units and currency*, declined by -7%. Mobile broadband sales continued to decline particularly in markets impacted by a weak macro-economic environment such as Brazil, Russia and the Middle East. In Europe, completion of mobile broadband projects in 2015 continued to have a negative effect on sales growth YoY. 4G sales in Mainland China were stable YoY as the fast pace of deployments continued.

Network sales in North America were stable YoY driven by continued mobile broadband capacity investments. Global Services sales declined in North America as activities in Professional Services were lower.

The transition from 3G to 4G continued primarily in parts of Asia, contributing to solid sales growth in region South East Asia and Oceania.

Sales in the targeted growth areas were 20% of total sales and grew by 5% in the quarter in constant currencies. We continue to focus on increasing software sales and recurrent business to improve profitability over time.

In the strategic partnership with Cisco we have engaged in more than 200 customer opportunities, spanning all major geographies. To date more than 30 deals have been closed forming a good start to reach the targeted sales of USD 1 b. for 2018.

The current sales trends and business mix are expected to prevail for the second half of the year.

Profitability

Actions have been implemented to restore Global Services profitability, primarily to rightsize the service delivery operations. Losses in Network Rollout have been significantly reduced and the operating margin, excluding restructuring charges, for Professional Services has gradually improved to 10% in the quarter.

The Networks business was impacted by lower sales and an increased share of coverage business with a lower hardware margin. The margin decline for Support Solutions was mainly due to lower OSS and BSS software sales.

 

* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

Profitability declined sequentially mainly due to lower IPR licensing revenues. IPR licensing revenues in the quarter were SEK 2.2 b., representing current IPR licensing contract portfolio. Revenues in Q1 2016 were SEK 3.8 b. and included certain one-time items.

We are delivering on ongoing cost reduction activities. Operating expenses, excluding restructuring charges*, have been reduced by SEK 2.1 b. to SEK 14.0 (16.1) b. YoY, mainly as a result of actions related to the global cost and efficiency program.

Actions to further reduce cost

To manage the lower demand for mobile broadband investments, a set of significant actions has been initiated to further drive efficiency improvements and reduce cost.

The cost and efficiency program targeting savings of SEK 9 b. during 2017, is progressing according to plan. In addition, we will reduce R&D investments in IP and capture efficiency gains from the new company structure. Together, these activities are expected to reduce the annual run rate of operating expenses, excluding restructuring charges, to SEK 53 b. in the second half of 2017. This is to be compared with SEK 63 b. for full-year 2014 and equates to double the previously targeted savings in operating expenses.

The new company structure was implemented as of July 1 to accelerate strategy implementation, to mirror customer ways of working and increase end-to-end accountability for business owners. The new structure will also support cost reductions and efficiency improvements, including removal of existing duplications within product development.

Given current industry trends, we will intensify our activities to reduce cost of sales and adapt our operations to a weaker mobile broadband market.

We will focus on maintaining a strong net cash position through structural improvements in working capital and profitability. In addition, the capital expenditure level will decline as the investments in the global ICT centers have peaked.

Our Networked Society strategy comprises three key elements; leverage of our installed base, investments in new revenue base for sustainable profitable growth (targeted growth areas) and generation of strong cash flow enabling long-term investments and securing a strong balance sheet. Digitalization creates new opportunities with both existing and new customers and I am confident that our strategy and the actions we now take will create future value for our shareholders.

Hans Vestberg

President and CEO

 

 

2      Ericsson  |  Second Quarter Report 2016


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FINANCIAL HIGHLIGHTS

 

SEK b.

   Q2
2016
    Q2
2015
    YoY
change
    Q1
2016
    QoQ
change
    6 months
2016
    6 months
2015
 

Net sales

     54.1        60.7        -11     52.2        4     106.3        114.2   

Of which Networks

     26.8        31.2        -14     25.8        4     52.6        57.6   

Of which Global Services

     24.5        26.4        -7     23.0        6     47.5        50.3   

Of which Support Solutions

     2.9        3.1        -7     3.4        -15     6.2        6.2   

Of which Modems

     —          0.0        —          —          —          —          0.1   

Gross income

     17.5        20.1        -13     17.4        1     34.9        39.1   

Gross margin (%)

     32.3     33.2     —          33.3     —          32.8     34.2

Research and development expenses

     -7.4        -9.9        -25     -7.5        -1     -14.9        -18.4   

Selling and administrative expenses

     -7.1        -7.8        -8     -6.7        6     -13.8        -14.9   

Other operating income and expenses

     -0.2        1.1        -122     0.3        -184     0.0        -0.2   

Operating income

     2.8        3.6        -22     3.5        -20     6.2        5.7   

Operating margin

     5.1     5.9     —          6.7     —          5.9     5.0

for Networks

     6     8     —          11     —          8     5

for Global Services

     6     6     —          3     —          4     7

for Support Solutions

     -15     -8     —          7     —          -3     -3

for Modems

     —          —          —          —          —          —          —     

Financial net

     -0.5        -0.5        0     -0.5        13     -1.0        -0.6   

Taxes

     -0.7        -0.9        -26     -0.9        -26     -1.6        -1.5   

Net income

     1.6        2.1        -26     2.1        -26     3.7        3.6   

Restructuring charges

     -1.0        -2.7        -63     -0.6        62     -1.7        -3.4   

SECOND QUARTER COMMENTS

 

Net sales

Sales as reported decreased by -11% YoY. Sales, adjusted for comparable units and currency*, decreased by -7%.

Segment Networks sales declined YoY mainly due to lower mobile broadband sales in markets with a weak macro-economic environment. A further delayed spectrum auction in India and completion of major projects in Europe in 2015 impacted mobile broadband sales negatively YoY. Sales in Mainland China declined YoY due to lower 3G sales. 4G sales in Mainland China were stable YoY with continued fast pace of deployments. Sales continued to grow in South East Asia, driven by large mobile broadband deployment projects. Sales in North America remained stable YoY.

Sales in Segment Global Services declined YoY, impacted by currency. Despite growth in Consulting and Systems Integration, Professional Services sales declined due to lower Managed Services sales following the re-scoping and exiting of specific contracts. Network Rollout sales continued to decline YoY due to lower mobile broadband activities.

Sales in Support Solutions decreased YoY due to lower sales in OSS and BSS partly because of lower software licensing sales in transformation projects. Sales increased in TV & Media, driven by compression business. Since the acquisition of Envivio last year, Ericsson offers both hardware and software compression.

Sales increased slightly QoQ partly offset by lower IPR licensing revenues.

 

* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

Gross margin

Gross margin declined YoY mainly due to a larger share of mobile broadband coverage business with lower hardware margins and a higher share of services business.

Gross margin declined sequentially, mainly due to lower IPR licensing revenues and a higher share of services sales, partly offset by improved Global Services margins in both Professional Services and Network Rollout.

IPR licensing revenues in the quarter were SEK 2.2 b., representing current IPR licensing contract portfolio. Revenues were SEK 3.8 b. in Q1, 2016, and included certain one-time items.

Cost and efficiency program and restructuring charges

The cost and efficiency program, with the target to achieve net annual savings of SEK 9 b. during 2017 relative to 2014, is progressing according to plan. Total savings remains equally distributed between cost of sales and operating expenses.

In addition, the company will capture efficiency gains from the new company structure as well as reduce R&D investments in IP. The annual run rate for operating expenses, excluding restructuring charges, is thereby expected to decline to SEK 53 b. in the second half of 2017. This is to be compared with SEK 63 b. for full-year 2014.

Given current industry trends, the company will also intensify its activities to reduce cost of sales and adapt our operations to a weaker mobile broadband market.

The estimate for total restructuring charges in 2016 remains at SEK 4-5 b.

 

 

3      Ericsson  |  Second Quarter Report 2016


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LOGO

 

Operating expenses

Operating expenses decreased YoY, mainly in R&D expenses due to savings related to the cost and efficiency program and lower restructuring charges. Lower amortization of intangible assets and increased capitalized development expenses also contributed to lower expenses. Operating expenses, excluding restructuring charges, were SEK 14.0. (16.1) b.

Other operating income and expenses

Other operating income and expenses declined YoY due to negative revaluation effects of currency hedge contracts in the quarter and a capital gain of SEK 0.3 b. in Q2, 2015. The revaluation and realization effects of currency hedge contracts were SEK -0.5 b. This is to be compared with SEK 0.2 b. in Q1, 2016 and SEK 0.6 b. in Q2, 2015.

The main part of the currency hedge contract balance is in USD. The SEK weakened against the USD between June 30, 2016 (SEK/USD rate 8.45) and March 31, 2016 (SEK/USD rate 8.11).

Operating income

Operating income decreased YoY, due to lower sales, negative revaluation effects of currency hedge contracts and a lower gross margin. The decrease in operating income was partly offset by lower operating expenses and lower restructuring charges.

Operating income decreased QoQ due to negative effects from currency hedge contracts, a lower gross margin and higher restructuring charges. The decrease in operating income was partly offset by higher sales.

Financial net

Financial net remained stable at SEK -0.5 b., both YoY and QoQ. Financial income improved YoY and QoQ while financial expenses increased YoY and QoQ. The financial net was impacted by low interest rates and depreciated local currencies in certain markets.

Taxes

The tax rate was stable YoY and QoQ.

Net income and EPS

Net income and EPS diluted decreased YoY and QoQ, following lower operating income. EPS diluted was SEK 0.48 (0.64) and EPS (Non-IFRS)* was SEK 0.83 (1.45).

Employees

The number of employees on June 30, 2016 was 116,507 compared with 115,300 on March 31, 2016. Almost 4,000 employees left the company in the quarter. The acquisition of Ericpol, adding 2,300 resources, contributed to the total increase in the headcount of the company.

Modems

The discontinuation of the modems business was completed in Q3 2015.

 
* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.
 

 

4      Ericsson  |  Second Quarter Report 2016


Table of Contents

REGIONAL SALES

 

     Second quarter 2016      Change  

SEK b.

   Networks      Global
Services
     Support
Solutions
     Total      YoY     QoQ  

North America

     6.6         6.1         0.7         13.4         -8     2

Latin America

     2.1         2.3         0.2         4.5         -10     12

Northern Europe and Central Asia

     1.0         1.1         0.1         2.1         -18     -6

Western and Central Europe

     1.7         2.6         0.1         4.5         -13     13

Mediterranean

     2.1         3.1         0.2         5.4         -8     26

Middle East

     1.9         2.8         0.3         4.9         -24     38

Sub-Saharan Africa

     1.0         1.2         0.1         2.3         -13     9

India

     1.0         1.3         0.2         2.4         -20     -10

North East Asia

     4.2         1.8         0.1         6.0         -13     8

South East Asia and Oceania

     3.2         2.0         0.1         5.3         8     1

Other 1)

     2.0         0.3         0.8         3.2         -6     -41
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

     26.8         24.5         2.9         54.1         -11     4
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

1)  Region “Other” includes licensing revenues, broadcast services, power modules, mobile broadband modules, Ericsson-LG Enterprise and other businesses.

 

North America

Networks sales in North America were stable YoY driven by continued mobile broadband capacity investments. Sales in Professional Services were lower, YoY, following strong sales in Q2, 2015, and lower CDMA services sales. However, deployments in new spectrum, preparation for 5G and ICT transformation are high on customer agendas.

Latin America

Mobile broadband investments continued to decline, impacted by a weak macro-economic environment and local currency depreciation. However, mobile broadband investments in Mexico continued to increase YoY.

Northern Europe and Central Asia

Lower Networks sales were driven by further declining mobile broadband investments, especially in Russia. The macro-economic environment remains challenging in the region. Professional Services sales continued to develop favorably with growth in Managed Services in the Nordics.

Western and Central Europe

Completion of mobile broadband projects in 2015 continued to have a negative effect on sales growth YoY. Operators continued to focus on investments in capacity and quality in order to improve end-user experience. Professional Services sales remained stable.

Mediterranean

Sales declined due to lower investments in mobile broadband infrastructure as major projects were completed. However there is an increasing share of capacity investments. ICT transformation of TV & Media developed favorably.

Middle East

Networks sales declined mainly due to completion of a deployment project in Ethiopia and continued macro-economic challenges, resulting in lower mobile broadband investments. The services business developed favorably, mainly in the Professional Services domains.

Sub-Saharan Africa

Sales declined mainly due to a lower level of investments, impacted by lower oil prices, and the ramping down of a sizable mobile broadband project in South Africa. Floating of the Nigerian currency resulted in a devaluation of more than 40% in June, also impacting investment decisions negatively. However, mobile broadband sales increased somewhat as certain markets are investing in network improvements and introduction of 4G.

India

A further delayed spectrum auction slowed investments, impacting sales YoY negatively. Professional Services continued to progress positively.

North East Asia

4G deployments in Mainland China continued as projected, while core network deployments increased QoQ. In Korea and Japan, investments continued on lower levels as the initial 4G networks were built with high density as well as good capacity.

South East Asia and Oceania

Sales growth was primarily driven by mobile broadband investments in Thailand and Indonesia, moving from coverage projects to capacity business. Professional Services developed favorably, mainly driven by Managed Services.

Other

IPR licensing revenues in the quarter were SEK 2.2 b., representing the current IPR licensing contract portfolio. Revenues in Q1 2016 were SEK 3.8 b. and included certain one-time items.

 

 

5      Ericsson  |  Second Quarter Report 2016


Table of Contents

SEGMENT RESULTS

NETWORKS

LOGO

 

SEK b.

   Q2
2016
    Q2
2015
    YoY
change
    Q1
2016
    QoQ
change
    6 months
2016
    6 months
2015
 

Net sales

     26.8        31.2        -14     25.8        4     52.6        57.6   

Operating income

     1.6        2.4        -35     2.7        -42     4.3        3.0   

Operating margin

     6     8     —          11     —          8     5

Restructuring charges

     -0.6        -1.8        -67     -0.3        106     -0.9        -2.0   

 

Net sales

Sales as reported decreased by -14% YoY mainly due to lower mobile broadband sales in markets with a weak macro-economic environment. A further delayed spectrum auction in India slowed investments and completion of major projects in Europe in 2015 impacted mobile broadband sales negatively YoY. Sales in Mainland China declined YoY due to lower 3G sales. 4G sales in Mainland China were stable YoY with continued fast pace of deployments. Sales continued to grow in South East Asia, driven by large mobile broadband deployment projects. Sales in North America remained stable YoY.

Sales increased QoQ, primarily driven by growth in regions North East Asia and Mediterranean, but was partly offset by a sales decline in region Northern Europe and Central Asia as well as in India.

Deliveries of Ericsson Radio System started at the end of 2015 and will scale to larger volumes during the latter part of this year.

The company has engaged in more than 200 customer opportunities, together with Cisco, spanning all major geographies, except for Brazil where regulatory approval is still pending. To date more than 30 deals have been closed.

Operating income and margin

Operating income and margin decreased YoY mainly due to lower sales volumes, a higher share of coverage business with lower hardware margins and negative revaluation effects of currency hedge contracts. Operating expenses declined significantly YoY, mainly as a result of the ongoing cost and efficiency program.

Sequentially, operating income and margin decreased due to lower IPR licensing revenues.

The effects of revaluation and realization of currency hedge contracts were negative at SEK -0.4 (0.5) b. in the quarter. In Q1, 2016, the effects of currency hedge contracts were positive at SEK 0.2 b.

 

 

6      Ericsson  |  Second Quarter Report 2016


Table of Contents

GLOBAL SERVICES

LOGO

 

SEK b.

   Q2
2016
    Q2
2015
    YoY
change
    Q1
2016
    QoQ
change
    6 months
2016
    6 months
2015
 

Net sales

     24.5        26.4        -7     23.0        6     47.5        50.3   

Of which Professional Services

     18.7        20.0        -7     17.9        4     36.6        38.1   

Of which Managed Services

     7.3        8.2        -10     7.4        0     14.7        15.7   

Of which Network Rollout

     5.8        6.4        -9     5.1        14     10.9        12.2   

Operating income

     1.5        1.6        -10     0.6        130     2.1        3.3   

Of which Professional Services

     1.7        2.4        -30     1.3        30     3.0        4.5   

Of which Network Rollout

     -0.2        -0.8        -75     -0.6        -70     -0.8        -1.2   

Operating margin

     6     6     —          3     —          4     7

for Professional Services

     9     12     —          7     —          8     12

for Network Rollout

     -3     -12     —          -13     —          -8     -10

Restructuring charges

     -0.3        -0.7        -50     -0.3        10     -0.7        -1.1   

 

Net sales

Sales as reported decreased -7% YoY. Despite growth in Consulting and Systems Integration, Professional Services sales declined with lower Managed Services sales following the re-scoping and exiting of specific contracts. In North America, Professional Services sales declined YoY following strong sales in Q2, 2015, and lower CDMA services sales

Network Rollout sales continued to decline YoY due to lower mobile broadband activities.

Sales increased by 6% QoQ following a seasonally weak Q1.

Operating income and margin

Operating income decreased slightly YoY in Global Services with reduced profitability in Professional Services while Network Rollout operating income improved.

Sequentially, Global Services operating income improved significantly driven by rightsizing activities in service delivery operations and performance improvement in transformation projects. However, Professional Services margin continues to be negatively impacted by a large number of systems integration transformation projects in a start-up phase. QoQ, the operating margin, excluding restructuring charges, gradually improved to 10% (9%).

Network Rollout operating margin, excluding restructuring charges, improved QoQ to -2% (-11%). Activities continued in order to adapt the service delivery operations to current mobile broadband project volumes.

 

 

     Q2
2016
     Q1
2016
     Full year
2015
 

Number of signed Managed Services contracts

     20         21         101   

Number of signed significant consulting & systems integration contracts 1)

     18         13         66   

 

1)  In the areas of OSS and BSS, IP, Service Delivery Platforms and data center build projects.

 

7      Ericsson  |  Second Quarter Report 2016


Table of Contents

SUPPORT SOLUTIONS

LOGO

 

SEK b.

   Q2
2016
    Q2
2015
    YoY
change
    Q1
2016
    QoQ
change
    6 months
2016
    6 months
2015
 

Net sales

     2.9        3.1        -7     3.4        -15     6.2        6.2   

Operating income

     -0.4        -0.2        75     0.2        -277     -0.2        -0.2   

Operating margin

     -15     -8     —          7     —          -3     -3

Restructuring charges

     -0.1        -0.2        -65     0.0        —          -0.1        -0.2   

 

Net sales

Sales as reported decreased -7% YoY due to lower sales in OSS and BSS partly because of lower software licensing sales in transformation projects. The underlying demand for OSS and BSS remains as operators continue to prioritize digital transformation and cost optimization. A multi-country, multi-year BSS infrastructure contract with Vimpelcom, estimated to generate more than USD 1 b. in net sales, was signed in the quarter. The overall transition of business models continues, from traditional telecom software licenses to recurrent license revenue deals.

Sales increased in TV & Media, driven by compression business. Since the acquisition of Envivio last year, Ericsson now offers both hardware and software compression.

Sales declined QoQ, following strong IPR licensing revenues in the previous quarter.

Operating income and margin

Operating income and margin declined YoY, mainly due to lower OSS and BSS software sales. Lower restructuring charges partly offset the decline in operating income.

Operating income declined sequentially, mainly as an effect of lower IPR licensing revenues.

 

 

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CASH FLOW

 

SEK b.

   Q2
2016
    Q2
2015
    Q1
2016
 

Net income reconciled to cash

     1.3        3.4        3.6   

Changes in operating net assets

     -2.0        -0.3        -6.0   

Cash flow from operating activities

     -0.7        3.1        -2.4   

Cash flow from investing activities

     1.4        7.0        -1.0   

Cash flow from financing activities

     -9.3        -10.6        0.1   

Net change in cash and cash equivalents

     -7.0        -2.3        -4.3   

Cash conversion (%) *

     -54     90     -65

 

Cash flow from operating activities was SEK -0.7 (3.1) b. The decline was due to increased inventory and large tax payments. The inventory increase is an effect of lower demand for mobile broadband investments in markets negatively impacted by a weak macro-economic environment and the inventory is expected to decrease in the second half of 2016. Year to date, cash flow from operating activities was SEK -3.1 (-2.8) b. The full-year cash conversion target of more than 70% remains.

Cash outlays related to restructuring charges were SEK -0.6 b. in the quarter.

 

Cash flow from investing activities was impacted by investments in property, plant and equipment of SEK -1.5 b., mainly related to continued investments in Global ICT centers. The capital expenditure level will decline as the investments in the Global ICT centers have peaked.

Development expenses of SEK -1.1 b. were capitalized. Several small acquisitions, such as Ericpol and NodePrime, were made in the quarter.

Cash flow from financing activities amounted to SEK -9.3 b. and were impacted by the dividend payout of SEK -12.1 b.

 

 

Working capital KPIs, number of days

   Jan-Jun
2016
     Jan-Mar
2016
     Jan-Dec
2015
     Jan-Sep
2015
     Jan-Jun
2015
 

Sales outstanding (target: <90)

     115         108         87         113         112   

Inventory (target: <65)

     81         80         64         72         74   

Payable (target: >60)

     59         58         53         55         57   

 

* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

 

9      Ericsson  |  Second Quarter Report 2016


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FINANCIAL POSITION

 

SEK b.

   Jun 30
2016
    Jun 30
2015
    Mar 31
2016
 

+ Short-term investments

     19.8        20.8        25.1   

+ Cash and cash equivalents

     28.9        33.0        35.9   

Gross cash

     48.8        53.8        61.0   

- Interest bearing liabilities

     27.8        25.8        24.5   

Net cash *

     21.0        28.0        36.5   

Equity

     136.7        136.7        145.6   

Total assets

     277.4        278.9        280.3   

Capital turnover (times) *

     1.1        1.3        1.1   

Return on capital employed (%) *

     6.5     6.9     6.9

Equity ratio (%) *

     49.3     49.0     52.0

Return on equity (%) *

     5.0     5.9     5.4

 

Net cash decreased by SEK -15.5 b. in the quarter mainly as a result of the dividend payout of SEK -12.1 b., increased working capital and large tax payments. The net cash position was SEK 21.0 b.

Post-employment benefits were SEK 27.3 b., compared with SEK 25.7 b. on March 31, 2016, following lower discount rates.

The average maturity of long-term borrowings as of June 30, 2016, was 4.3 years, compared with 5.3 years 12 months earlier.

In the quarter, the revolving Credit Facility of USD 2.0 b. was extended with one year. The facility will expire in 2021.

Debt maturity profile, Parent Company

LOGO

 

 

* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

 

10      Ericsson  |  Second Quarter Report 2016


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OTHER INFORMATION

 

Ericsson resolved on an acquisition offer for C shares for LTV 2016

On April 28, 2016, Ericsson announced that, in accordance with the resolution by the Annual General Meeting 2016, the company expands its treasury stock in order to provide shares for the Long-Term Variable Compensation Program (LTV) 2016 for employees in Ericsson.

The Board of Directors of Ericsson has resolved, by virtue of an authorization given by the Annual General Meeting on April 13, 2016, to direct an acquisition offer to all holders of C shares to acquire these shares. Acquisition shall be made during the period May 5 - May 20, 2016. Payment for acquired shares shall be made in cash with SEK 5 per share.

The offer is part of the financing of Ericsson’s Long-Term Variable Compensation Program 2016 and includes all 26,100,000 C shares which Ericsson has previously decided to issue to AB Industrivärden and Investor AB for the program.

AB Industrivärden and Investor AB have informed Ericsson that they intend to accept the offer.

Once all 26,100,000 C shares have been acquired by Ericsson, the Board intends to convert them to B shares. After the conversion, the number of B shares in issue will amount to 3,069,395,752. On April 28, 2016, Ericsson held 46,002,257 B shares as treasury stock.

Ericsson’s Nomination Committee appointed

On May 18, 2016, Ericsson announced that the Nomination Committee for the Annual General Meeting (AGM) 2017 had been appointed in accordance with the instruction for the Nomination Committee, resolved by the Annual General Meeting 2012. The Nomination Committee consists of: Petra Hedengran, Investor AB; Johan Held, Afa Försäkring, Leif Johansson, the Chairman of the Board of Directors, Bengt Kjell, AB Industrivärden and Handelsbankens Pensionsstiftelse; and Anders Oscarsson, AMF - Försäkring och Fonder. Petra Hedengran is the Chairman of the Nomination Committee.

Increase in the total number of shares and votes in Telefonaktiebolaget LM Ericsson

On May 31, 2016, Ericsson confirmed that the company’s share capital amounts to SEK 16,655,758,678 and the total number of shares is 3,331,151,735, of which 261,755,983 are A shares and 3,069,395,752 are B shares. The total number of votes is 568,695,558.2, of which class A shares represent 261,755,983 votes and class B shares represent 306,939,575.2 votes. The increase in the number of shares and votes is caused by the company’s recent issue of 26,100,000 C shares, which shares have subsequently been repurchased by the company and converted into B shares, by virtue of a conversion clause in the articles of association. This is in accordance with the resolution by the Annual General Meeting 2016 to expand the treasury stock as part of the financing of Ericsson’s Long-Term Variable Compensation Program (LTV) 2016. On May 31, 2016, the company held 69,331,486 shares as treasury stock.

Voluntary request from US Authorities

On June 17, 2016, after speculation in media regarding alleged corruption investigations, Ericsson issued a statement commenting on the media reports. Ericsson clarified that in March 2013, it received a voluntary request from US Authorities to answer a number of questions relating to Ericsson’s operations, confirmed by the company already in 2013. Ericsson cooperates with US Authorities to answer these and additional questions. Ericsson has not provided any detailed comments on the request or the questions as such, or if they relate to specific regions or countries, but confirms that it relates to Ericsson’s anti-corruption program and questions related to the Foreign Corrupt Practices Act.

Greek investigation into contract from 1999

On June 19, 2016, Ericsson gave an update about an investigation in Greece relating to a defense agreement signed in 1999 in which Ericsson Microwave Systems delivered an airborne radar system to Greece. Ericsson commented publicly on this case more than two years ago, including in conjunction with its Annual General Meeting. Ericsson Microwave Systems was sold by Ericsson in 2006. Recently, as part of the ongoing investigation, seven current and former Ericsson employees have been served with summons in preliminary investigation proceedings by a Greek prosecutor involving allegations of possible corruption. Ericsson has not been contacted by any authority in this matter.

DISCLOSURE PURSUANT TO SECTION 219 OF THE IRAN THREAT REDUCTION AND SYRIA HUMAN RIGHTS ACT OF 2012 (ITRA)

During the second quarter of 2016, Ericsson made sales of telecommunications infrastructure related products and services in Iran to MTNIrancell, Mobile Communication Company of Iran and to Hiweb, which generated gross revenues (reported as net sales) of approximately SEK 677 million. Ericsson does not normally allocate quarterly net profit (reported as net income) on a country-by-country or activity-by-activity basis, other than as set forth in Ericsson’s consolidated financial statements prepared in accordance with IFRS as issued by the IASB. However, Ericsson has estimated that its operating income (income before taxes and financial net) from such sales, after internal cost allocation, during the second quarter of 2016 would be substantially lower than such gross revenues. During the second quarter of 2016, Eghtesad Novin Bank (local bank in Iran) issued a letter of credit to one of Ericsson’s banks outside Iran, to secure an Iranian customer’s payment obligations to Ericsson.

 

 

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RISK FACTORS

 

Ericsson’s operational and financial risk factors and uncertainties are described in our Annual Report 2015.

Risk factors and uncertainties in focus short term for the Parent Company and the Ericsson Group include, but are not limited to:

 

  Potential negative effects on operators’ willingness to invest in network development due to uncertainty in the financial markets and a weak economic business environment, or reduced consumer telecom spending, or increased pressure on us to provide financing, or delayed auctions of spectrums;

 

  Uncertainty regarding the financial stability of suppliers, for example due to lack of financing;

 

  Effects on gross margins and/or working capital of the business mix in the Networks segment between capacity sales and new coverage build-outs;

 

  Effects on gross margins of the business mix in the Global Services segment including proportion of new network build-outs and share of new managed services or digital transformation deals with initial transition costs;

 

  Effects of the ongoing industry consolidation among our customers as well as between our largest competitors, e.g. with postponed investments and intensified price competition as a consequence;

 

  New JV arrangements or partnerships which may not be successful and expose us to future costs;

 

  Changes in foreign exchange rates, in particular USD;

 

  Political unrest or instability in certain markets;

 

  Effects on production and sales from restrictions with respect to timely and adequate supply of materials, components and production capacity and other vital services on competitive terms;
  No guarantees that specific restructuring or cost-savings initiatives will be sufficient, successful or executed in time to deliver any improvements in short-term earnings;

 

  Brexit might lead to economic uncertainty which may impact operators’ investment levels. Various geopolitical forces may impact the global economy and our business

 

  Cyber security incidents, which may have material negative impact.

Ericsson stringently monitors the compliance with all relevant trade regulations and trade embargos applicable to dealings with customers operating in countries where there are trade restrictions or trade restrictions are discussed. Ericsson operates globally in accordance with Group policies and directives for business ethics and conduct and has a dedicated anti-corruption program. However, in some of the countries where the company operates, corruption risks can be high and compliance failure could have a material adverse impact on our business, financial condition and brand.

This report has not been reviewed by Telefonaktiebolaget LM Ericsson’s auditor.

Date for next report: October 21, 2016

 

 

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EDITOR’S NOTE

 

For further information, please contact:

Helena Norrman, Senior Vice President, Chief Marketing and Communications Officer

Phone: +46 10 719 34 72

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 49, +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
Åsa Konnbjer, Director,
Investor Relations
Phone:    +46 10 713 39 28, +46 73 082 59 28
E-mail:    asa.konnbjer@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
 

 

13      Ericsson  |  Second Quarter Report 2016


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SAFE HARBOR STATEMENT

 

All statements made or incorporated by reference in this release, other than statements or characterizations of historical facts, are forward-looking statements. These forward-looking statements are based on our current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by us. Forward-looking statements can often be identified by words such as “anticipates”, “expects”, “intends”, “plans”, “predicts”, “believes”, “seeks”, “estimates”, “may”, “will”, “should”, “would”, “potential”, “continue”, and variations or negatives of these words, and include, among others, statements regarding: (i) strategies, outlook and growth prospects; (ii) positioning to deliver future plans and to realize potential for future growth; (iii) liquidity and capital resources and expenditure, and our credit ratings; (iv) growth in demand for our products and services; (v) our joint venture activities; (vi) economic outlook and industry trends; (vii) developments of our markets; (viii) the impact of regulatory initiatives; (ix) research and development expenditures; (x) the strength of our competitors; (xi) future cost savings; (xii) plans to launch new products and services; (xiii) assessments of risks; (xiv) integration of acquired businesses; (xv) compliance with rules and regulations and (xvi) infringements of intellectual property rights of others.

In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. These forward-looking statements speak only as of the date hereof and are based upon the information available to us at this time. Such information is subject to change, and we will not necessarily inform you of such changes. These statements are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict. Therefore, our actual results could differ materially and adversely from those expressed in any forward-looking statements as a result of various factors. Important factors that may cause such a difference for Ericsson include, but are not limited to: (i) material adverse changes in the markets in which we operate or in global economic conditions; (ii) increased product and price competition; (iii) reductions in capital expenditure by network operators; (iv) the cost of technological innovation and increased expenditure to improve quality of service; (v) significant changes in market share for our principal products and services; (vi) foreign exchange rate or interest rate fluctuations; and (vii) the successful implementation of our business and operational initiatives.

 

 

14      Ericsson  |  Second Quarter Report 2016


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FINANCIAL STATEMENTS AND

ADDITIONAL INFORMATION

 

Contents   

Financial statements

  

Consolidated income statement

     16   

Statement of comprehensive income

     16   

Consolidated balance sheet

     17   

Consolidated statement of cash flows

     18   

Consolidated statement of changes in equity

     19   

Consolidated income statement – isolated quarters

     19   

Consolidated statement of cash flows – isolated quarters

     20   

Additional information

  

Accounting policies

     21   

Net sales by segment by quarter

     22   

Sales growth adjusted for comparable units and currency

     23   

Operating income by segment by quarter

     24   

Operating margin by segment by quarter

     24   

Net sales by region by quarter

     25   

Net sales by region by quarter (cont.)

     26   

Top 5 countries in sales

     26   

Net sales by region by segment

     27   

Provisions

     28   

Information on investments

     28   

Other information

     29   

Number of employees

     29   

Restructuring charges by function

     30   

Restructuring charges by segment

     30   

Reconciliation tables, non-IFRS measures

     31   
 

 

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CONSOLIDATED INCOME STATEMENT

 

     Apr-Jun     Jan-Jun  

SEK million

   2016     2015     Change     2016     2015     Change  

Net sales

     54,108        60,671        -11     106,317        114,191        -7

Cost of sales

     -36,613        -40,536        -10     -71,432        -75,092        -5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     17,495        20,135        -13     34,885        39,099        -11

Gross margin (%)

     32.3     33.2       32.8     34.2  

Research and development expenses

     -7,405        -9,896        -25     -14,890        -18,383        -19

Selling and administrative expenses

     -7,109        -7,765        -8     -13,829        -14,896        -7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -14,514        -17,661        -18     -28,719        -33,279        -14

Other operating income and expenses

     -230        1,059          43        -181     

Shares in earnings of JV and associated companies

     12        27          29        54     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     2,763        3,560        -22     6,238        5,693        10

Financial income

     139        -238          50        446     

Financial expenses

     -666        -290          -1,043        -1,030     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     2,236        3,032        -26     5,245        5,109        3

Taxes

     -670        -909          -1,573        -1,532     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1,566        2,123        -26     3,672        3,577        3
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

            

Stockholders of the Parent Company

     1,587        2,094          3,553        3,413     

Non-controlling interests

     -21        29          119        164     

Other information

            

Average number of shares, basic (million)

     3,261        3,247          3,259        3,246     

Earnings per share, basic (SEK) 1)

     0.49        0.64          1.09        1.05     

Earnings per share, diluted (SEK) 1)

     0.48        0.64          1.08        1.04     

 

1)  Based on Net income attributable to stockholders of the Parent Company.

STATEMENT OF COMPREHENSIVE INCOME

 

     Apr-Jun      Jan-Jun  

SEK million

   2016      2015      2016      2015  

Net income

     1,566         2,123         3,672         3,577   

Other comprehensive income

           

Items that will not be reclassified to profit or loss

           

Remeasurements of defined benefits pension plans incl. asset ceiling

     -941         -1,562         -4,443         -4,773   

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

     235         610         1,188         1,304   

Items that may be reclassified to profit or loss

           

Cash flow hedges

           

Gains/losses arising during the period

     —           —           —           —     

Reclassification adjustments for gains/losses included in profit or loss

     —           —           —           —     

Revaluation of other investments in shares and participations

           

Fair value remeasurement

     —           —           -4         181   

Changes in cumulative translation adjustments

     1,981         -2,626         848         1,783   

Share of other comprehensive income on JV and associated companies

     10         -92         -366         -96   

Tax on items that may be reclassified to profit or loss

     —           —           —           —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     1,285         -3,670         -2,777         -1,601   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income

     2,851         -1,547         895         1,976   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income attributable to:

           

Stockholders of the Parent Company

     2,843         -1,515         750         1,790   

Non-controlling interest

     8         -32         145         186   

 

16      Ericsson  |  Second Quarter Report 2016


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CONSOLIDATED BALANCE SHEET

 

SEK million

   Jun 30
2016
     Mar 31
2016
     Dec 31
2015
 

ASSETS

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     7,064         6,349         5,493   

Goodwill

     41,913         40,316         41,087   

Intellectual property rights, brands and other intangible assets

     8,035         8,400         9,316   

Property, plant and equipment

     16,856         16,127         15,901   

Financial assets

        

Equity in JV and associated companies

     787         851         1,210   

Other investments in shares and participations

     1,178         1,090         1,275   

Customer finance, non-current

     2,315         1,663         1,739   

Other financial assets, non-current

     5,061         4,997         5,634   

Deferred tax assets

     14,451         14,117         13,183   
  

 

 

    

 

 

    

 

 

 
     97,660         93,910         94,838   

Current assets

        

Inventories

     34,660         32,252         28,436   

Trade receivables

     68,461         66,701         71,069   

Customer finance, current

     2,532         2,346         2,041   

Other current receivables

     25,297         24,105         21,709   

Short-term investments

     19,846         25,077         26,046   

Cash and cash equivalents

     28,931         35,934         40,224   
  

 

 

    

 

 

    

 

 

 
     179,727         186,415         189,525   
  

 

 

    

 

 

    

 

 

 

Total assets

     277,387         280,325         284,363   
  

 

 

    

 

 

    

 

 

 

EQUITY AND LIABILITIES

        

Equity

        

Stockholders’ equity

     135,746         144,699         146,525   

Non-controlling interest in equity of subsidiaries

     945         945         841   
  

 

 

    

 

 

    

 

 

 
     136,691         145,644         147,366   

Non-current liabilities

        

Post-employment benefits

     27,323         25,715         22,664   

Provisions, non-current

     245         158         176   

Deferred tax liabilities

     2,036         2,098         2,472   

Borrowings, non-current

     18,164         22,110         22,744   

Other non-current liabilities

     2,030         1,834         1,851   
  

 

 

    

 

 

    

 

 

 
     49,798         51,915         49,907   

Current liabilities

        

Provisions, current

     3,142         3,374         3,662   

Borrowings, current

     9,653         2,414         2,376   

Trade payables

     23,709         21,549         22,389   

Other current liabilities

     54,394         55,429         58,663   
  

 

 

    

 

 

    

 

 

 
     90,898         82,766         87,090   
  

 

 

    

 

 

    

 

 

 

Total equity and liabilities

     277,387         280,325         284,363   
  

 

 

    

 

 

    

 

 

 

Of which interest-bearing liabilities

     27,817         24,524         25,120   

Of which net cash *

     20,960         36,487         41,150   

Assets pledged as collateral

     2,523         2,513         2,526   

Contingent liabilities

     1,003         918         922   

 

* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

 

17      Ericsson  |  Second Quarter Report 2016


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CONSOLIDATED STATEMENT

OF CASH FLOWS

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2016      2015      2016      2015      2015  

Operating activities

              

Net income

     1,566         2,123         3,672         3,577         13,673   

Adjustments to reconcile net income to cash

              

Taxes

     -3,410         -1,360         -4,618         -3,281         -2,835   

Earnings/dividends in JV and associated companies

     73         49         57         27         130   

Depreciation, amortization and impairment losses

     2,104         2,579         4,201         5,260         10,206   

Other

     988         22         1,640         966         3,110   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,321         3,413         4,952         6,549         24,284   

Changes in operating net assets

              

Inventories

     -1,667         383         -5,879         -3,636         -366   

Customer finance, current and non-current

     -816         405         -1,067         147         824   

Trade receivables

     -564         3,630         2,844         5,667         7,000   

Trade payables

     2,457         -1,400         1,840         -3,068         -2,676   

Provisions and post-employment benefits

     218         1,685         204         1,519         544   

Other operating assets and liabilities, net

     -1,662         -5,038         -5,979         -10,000         -9,013   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     -2,034         -335         -8,037         -9,371         -3,687   

Cash flow from operating activities

     -713         3,078         -3,085         -2,822         20,597   

Investing activities

              

Investments in property, plant and equipment

     -1,572         -2,424         -3,046         -4,791         -8,338   

Sales of property, plant and equipment

     50         1,075         94         1,150         1,301   

Acquisitions/divestments of subsidiaries and other operations, net

     -480         -169         -588         -227         -2,200   

Product development

     -1,099         -843         -2,307         -1,137         -3,302   

Other investing activities

     -890         -280         -155         -162         -543   

Short-term investments

     5,355         9,678         6,368         10,077         5,095   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     1,364         7,037         366         4,910         -7,987   

Cash flow before financing activities

     651         10,115         -2,719         2,088         12,610   

Financing activities

              

Dividends paid

     -12,067         -11,035         -12,100         -11,060         -11,337   

Other financing activities

     2,761         431         2,855         1,330         627   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -9,306         -10,604         -9,245         -9,730         -10,710   

Effect of exchange rate changes on cash

     1,652         -1,860         671         -384         -2,664   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     -7,003         -2,349         -11,293         -8,026         -764   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     35,934         35,311         40,224         40,988         40,988   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     28,931         32,962         28,931         32,962         40,224   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

18      Ericsson  |  Second Quarter Report 2016


Table of Contents

CONSOLIDATED STATEMENT

OF CHANGES IN EQUITY

 

     Jan-Jun      Jan-Dec  

SEK million

   2016      2015      2015  

Opening balance

     147,366         145,309         145,309   

Total comprehensive income

     895         1,976         12,362   

Sale/repurchase of own shares

     -74         88         169   

Stock issue (net)

     131         —           —     

Stock purchase plan

     472         414         865   

Dividends paid

     -12,099         -11,060         -11,337   

Transactions with non-controlling interests

     —           -2         -2   
  

 

 

    

 

 

    

 

 

 

Closing balance

     136,691         136,725         147,366   
  

 

 

    

 

 

    

 

 

 

CONSOLIDATED INCOME STATEMENT

- ISOLATED QUARTERS

 

     2016     2015  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net sales

     54,108        52,209        73,568        59,161        60,671        53,520   

Cost of sales

     -36,613        -34,819        -46,899        -39,110        -40,536        -34,556   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     17,495        17,390        26,669        20,051        20,135        18,964   

Gross margin (%)

     32.3     33.3     36.3     33.9     33.2     35.4

Research and development expenses

     -7,405        -7,485        -7,921        -8,540        -9,896        -8,487   

Selling and administrative expenses

     -7,109        -6,720        -7,996        -6,393        -7,765        -7,131   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -14,514        -14,205        -15,917        -14,933        -17,661        -15,618   

Other operating income and expenses

     -230        273        254        80        1,059        -1,240   

Shares in earnings of JV and associated companies

     12        17        29        -121        27        27   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     2,763        3,475        11,035        5,077        3,560        2,133   

Financial income

     139        -89        -109        188        -238        684   

Financial expenses

     -666        -377        -619        -809        -290        -740   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     2,236        3,009        10,307        4,456        3,032        2,077   

Taxes

     -670        -903        -3,329        -1,338        -909        -623   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     1,566        2,106        6,978        3,118        2,123        1,454   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

            

Stockholders of the Parent Company

     1,587        1,966        7,056        3,080        2,094        1,319   

Non-controlling interests

     -21        140        -78        38        29        135   

Other information

            

Average number of shares, basic (million)

     3,261        3,258        3,254        3,251        3,247        3,244   

Earnings per share, basic (SEK) 1)

     0.49        0.60        2.17        0.95        0.64        0.41   

Earnings per share, diluted (SEK) 1)

     0.48        0.60        2.15        0.94        0.64        0.40   

 

1)  Based on Net income attributable to stockholders of the Parent Company.

 

19      Ericsson  |  Second Quarter Report 2016


Table of Contents

CONSOLIDATED STATEMENT

OF CASH FLOWS - ISOLATED QUARTERS

 

     2016      2015  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Operating activities

                 

Net income

     1,566         2,106         6,978         3,118         2,123         1,454   

Adjustments to reconcile net income to cash

                 

Taxes

     -3,410         -1,208         395         51         -1,360         -1,921   

Earnings/dividends in JV and associated companies

     73         -16         -33         136         49         -22   

Depreciation, amortization and impairment losses

     2,104         2,097         2,521         2,425         2,579         2,681   

Other

     988         652         1,092         1,052         22         944   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,321         3,631         10,953         6,782         3,413         3,136   

Changes in operating net assets

                 

Inventories

     -1,667         -4,212         3,496         -226         383         -4,019   

Customer finance, current and non-current

     -816         -251         302         375         405         -258   

Trade receivables

     -564         3,408         2,754         -1,421         3,630         2,037   

Trade payables

     2,457         -617         886         -494         -1,400         -1,668   

Provisions and post-employment benefits

     218         -14         -673         -302         1,685         -166   

Other operating assets and liabilities, net

     -1,662         -4,317         4,141         -3,154         -5,038         -4,962   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     -2,034         -6,003         10,906         -5,222         -335         -9,036   

Cash flow from operating activities

     -713         -2,372         21,859         1,560         3,078         -5,900   

Investing activities

                 

Investments in property, plant and equipment

     -1,572         -1,474         -1,740         -1,807         -2,424         -2,367   

Sales of property, plant and equipment

     50         44         92         59         1,075         75   

Acquisitions/divestments of subsidiaries and other operations, net

     -480         -108         -945         -1,028         -169         -58   

Product development

     -1,099         -1,208         -1,183         -982         -843         -294   

Other investing activities

     -890         735         -418         37         -280         118   

Short-term investments

     5,355         1,013         -8,613         3,631         9,678         399   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     1,364         -998         -12,807         -90         7,037         -2,127   

Cash flow before financing activities

     651         -3,370         9,052         1,470         10,115         -8,027   

Financing activities

                 

Dividends paid

     -12,067         -33         —           -277         -11,035         -25   

Other financing activities

     2,761         94         -669         -34         431         899   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -9,306         61         -669         -311         -10,604         874   

Effect of exchange rate changes on cash

     1,652         -981         -2,109         -171         -1,860         1,476   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     -7,003         -4,290         6,274         988         -2,349         -5,677   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     35,934         40,224         33,950         32,962         35,311         40,988   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     28,931         35,934         40,224         33,950         32,962         35,311   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

20      Ericsson  |  Second Quarter Report 2016


Table of Contents

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, 2015, and should be read in conjunction with that annual report.

There is no significant difference between IFRS effective as per June 30, 2016 and IFRS as endorsed by the EU.

Amendments applied as from the first quarter of 2016

Net Cash

The definition of Net Cash has been adjusted in order to more clearly represent Ericsson’s ability to meet financial obligations. Post-employment benefits will no longer be included in the calculation of Net Cash. Net Cash for prior periods has been recalculated using the new definition. The revised definition is as follows:

Net Cash: Cash and cash equivalents plus short-term investments less interest-bearing liabilities (which include: non-current borrowings and current borrowings).

Accounting for bonds

Due to the conditions in the market for government and mortgage bonds in Sweden, Ericsson now intends to hold bonds purchased in its “Asset management” portfolio until maturity instead of intending to hold them for trading. Bonds purchased in this portfolio after January 1, 2016 will be classified as available-for-sale. There were no purchases made in the first six months of 2016. The impact of this change on the financial statements will be disclosed in the interim report following the first purchase of bonds.

Amendments applied as from the second quarter of 2016

APMs

As from the second quarter, Ericsson has applied the new guidelines issued by ESMA* on APMs (Alternative Performance Measures). In summary, an APM is understood as a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in IFRS. The APMs presented in the interim report will be reconciled to the most directly reconcilable line items in the financial statements at the end of the interim report.

 

* European Securities and Markets Authority – a European supervisory authority
 

 

21      Ericsson  |  Second Quarter Report 2016


Table of Contents

NET SALES BY SEGMENT BY QUARTER

 

     2016     2015  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     26,765        25,820        37,304        28,817        31,163        26,436   

Global Services

     24,481        23,018        30,670        27,055        26,392        23,901   

Of which Professional Services

     18,670        17,932        23,072        20,545        20,001        18,131   

Of which Managed Services

     7,330        7,352        8,214        7,976        8,150        7,501   

Of which Network Rollout

     5,811        5,086        7,598        6,510        6,391        5,770   

Support Solutions

     2,862        3,371        5,594        3,289        3,092        3,074   

Modems

     —          —          —          —          24        109   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     54,108        52,209        73,568        59,161        60,671        53,520   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     4     -31     29     -8     18     -22

Global Services

     6     -25     13     3     10     -20

Of which Professional Services

     4     -22     12     3     10     -15

Of which Managed Services

     0     -10     3     -2     9     -3

Of which Network Rollout

     14     -33     17     2     11     -31

Support Solutions

     -15     -40     70     6     1     -23

Modems

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4     -29     24     -2     13     -21
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015  

Year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     -14     -2     9     -4     8     8

Global Services

     -7     -4     3     11     14     17

Of which Professional Services

     -7     -1     8     15     21     20

Of which Managed Services

     -10     -2     6     11     26     30

Of which Network Rollout

     -9     -12     -9     -2     -2     9

Support Solutions

     -7     10     40     8     9     11

Modems

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -11     -2     8     3     11     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015  

Year to date, SEK million

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

Networks

     52,585        25,820        123,720        86,416        57,599        26,436   

Global Services

     47,499        23,018        108,018        77,348        50,293        23,901   

Of which Professional Services

     36,602        17,932        81,749        58,677        38,132        18,131   

Of which Managed Services

     14,682        7,352        31,841        23,627        15,651        7,501   

Of which Network Rollout

     10,897        5,086        26,269        18,671        12,161        5,770   

Support Solutions

     6,233        3,371        15,049        9,455        6,166        3,074   

Modems

       —          133        133        133        109   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     106,317        52,209        246,920        173,352        114,191        53,520   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015  

Year to date, year over year change, percent

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

Networks

     -9     -2     5     4     8     8

Global Services

     -6     -4     11     14     16     17

Of which Professional Services

     -4     -1     15     19     21     20

Of which Managed Services

     -6     -2     17     22     28     30

Of which Network Rollout

     -10     -12     -2     1     3     9

Support Solutions

     1     10     19     9     10     11

Modems

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -7     -2     8     8     12     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

22      Ericsson  |  Second Quarter Report 2016


Table of Contents

SALES GROWTH ADJUSTED FOR

COMPARABLE UNITS AND CURRENCY

 

     2016     2015  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     6     -30     30     -6     16     -28

Global Services

     8     -23     17     2     10     -26

Support Solutions

     -13     -39     70     7     -3     -31
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total *

     6     -28     26     -2     12     -28
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015  

Isolated quarter, year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     -11     -3     0     -15     -9     -9

Global Services

     -3     0     -4     -2     -2     -2

Support Solutions

     -6     5     22     -8     -13     -11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total *

     -7     -1     -1     -9     -6     -6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015  

Year to date, year over year change, percent

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

Networks

     -7     -3     -8     -11     -9     -9

Global Services

     -2     0     -2     -2     -2     -2

Support Solutions

     0     5     0     -10     -12     -11
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total *

     -4     -1     -5     -7     -6     -6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

 

23      Ericsson  |  Second Quarter Report 2016


Table of Contents

OPERATING INCOME

BY SEGMENT BY QUARTER

 

     2016      2015  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Networks

     1,593         2,724         7,154         2,764         2,435         590   

Global Services

     1,484         644         2,530         2,364         1,640         1,681   

Of which Professional Services

     1,676         1,293         2,712         2,386         2,403         2,109   

Of which Network Rollout

     -192         -649         -182         -22         -763         -428   

Support Solutions

     -421         238         1,668         -6         -240         82   

Modems

     —           —           1         -1         7         0   

Unallocated 1)

     107         -131         -318         -44         -282         -220   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,763         3,475         11,035         5,077         3,560         2,133   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2016      2015  

Year to date, SEK million

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

Networks

     4,317         2,724         12,943         5,789         3,025         590   

Global Services

     2,128         644         8,215         5,685         3,321         1,681   

Of which Professional Services

     2,969         1,293         9,610         6,898         4,512         2,109   

Of which Network Rollout

     -841         -649         -1,395         -1,213         -1,191         -428   

Support Solutions

     -183         238         1,504         -164         -158         82   

Modems

     —           —           7         6         7         0   

Unallocated 1)

     -24         -131         -864         -546         -502         -220   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     6,238         3,475         21,805         10,770         5,693         2,133   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1)  “Unallocated” consists mainly of costs for corporate staff, non-operational capital gains and losses.

OPERATING MARGIN

BY SEGMENT BY QUARTER

 

As percentage of net sales, isolated quarters

   2016     2015  
   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     6     11     19     10     8     2

Global Services

     6     3     8     9     6     7

Of which Professional Services

     9     7     12     12     12     12

Of which Network Rollout

     -3     -13     -2     0     -12     -7

Support Solutions

     -15     7     30     0     -8     3

Modems

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     5     7     15     9     6     4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2016     2015  

As percentage of net sales, year to date

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

Networks

     8     11     10     7     5     2

Global Services

     4     3     8     7     7     7

Of which Professional Services

     8     7     12     12     12     12

Of which Network Rollout

     -8     -13     -5     -6     -10     -7

Support Solutions

     -3     7     10     -2     -3     3

Modems

     —          —          —          —          —          —     
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     6     7     9     6     5     4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

24      Ericsson  |  Second Quarter Report 2016


Table of Contents

NET SALES

BY REGION BY QUARTER

 

     2016     2015  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

North America

     13,426        13,182        17,082        14,355        14,578        12,246   

Latin America

     4,542        4,040        6,106        5,610        5,067        4,574   

Northern Europe & Central Asia 1) 2)

     2,093        2,222        2,847        2,520        2,556        2,726   

Western & Central Europe 2)

     4,466        3,953        5,320        4,540        5,131        4,741   

Mediterranean 2)

     5,427        4,296        6,971        5,470        5,887        4,982   

Middle East

     4,921        3,567        6,089        5,728        6,515        4,517   

Sub Saharan Africa

     2,313        2,120        2,847        2,691        2,653        2,158   

India

     2,426        2,683        3,172        3,629        3,049        3,531   

North East Asia

     6,041        5,579        8,916        6,348        6,943        6,030   

South East Asia & Oceania

     5,272        5,199        5,329        4,750        4,897        4,259   

Other 1) 2)

     3,181        5,368        8,889        3,520        3,395        3,756   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     54,108        52,209        73,568        59,161        60,671        53,520   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     477        1,113        972        1,135        598        1,091   

2) Of which in EU

     9,635        9,229        12,644        10,584        11,453        10,904   
     2016     2015  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

North America

     2     -23     19     -2     19     -6

Latin America

     12     -34     9     11     11     -30

Northern Europe & Central Asia 1) 2)

     -6     -22     13     -1     -6     -33

Western & Central Europe 2)

     13     -26     17     -12     8     -22

Mediterranean 2)

     26     -38     27     -7     18     -34

Middle East

     38     -41     6     -12     44     -34

Sub Saharan Africa

     9     -26     6     1     23     -17

India

     -10     -15     -13     19     -14     49

North East Asia

     8     -37     40     -9     15     -35

South East Asia & Oceania

     1     -2     12     -3     15     -14

Other 1) 2)

     -41     -40     153     4     -10     -19
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4     -29     24     -2     13     -21
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -57     15     -14     90     -45     4

2) Of which in EU

     4     -27     19     -8     5     -24
     2016     2015  

Year-over-year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

North America

     -8     8     31     2     -4     0

Latin America

     -10     -12     -7     -5     -6     -3

Northern Europe & Central Asia 1) 2)

     -18     -18     -30     -20     -6     12

Western & Central Europe 2)

     -13     -17     -13     -2     12     8

Mediterranean 2)

     -8     -14     -7     5     7     4

Middle East

     -24     -21     -11     -5     44     17

Sub Saharan Africa

     -13     -2     9     10     41     19

India

     -20     -24     34     81     85     108

North East Asia

     -13     -7     -3     -10     8     23

South East Asia & Oceania

     8     22     8     25     34     24

Other 1) 2)

     -6     43     91     4     1     15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -11     -2     8     3     11     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -20     2     -7     4     -41     9

2) Of which in EU

     -16     -15     -12     -1     11     12

 

25      Ericsson  |  Second Quarter Report 2016


Table of Contents

NET SALES

BY REGION BY QUARTER, CONT.

 

     2016     2015  

Year to date, SEK million

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

North America

     26,608        13,182        58,261        41,179        26,824        12,246   

Latin America

     8,582        4,040        21,357        15,251        9,641        4,574   

Northern Europe & Central Asia 1) 2)

     4,315        2,222        10,649        7,802        5,282        2,726   

Western & Central Europe 2)

     8,419        3,953        19,732        14,412        9,872        4,741   

Mediterranean 2)

     9,723        4,296        23,310        16,339        10,869        4,982   

Middle East

     8,488        3,567        22,849        16,760        11,032        4,517   

Sub Saharan Africa

     4,433        2,120        10,349        7,502        4,811        2,158   

India

     5,109        2,683        13,381        10,209        6,580        3,531   

North East Asia

     11,620        5,579        28,237        19,321        12,973        6,030   

South East Asia & Oceania

     10,471        5,199        19,235        13,906        9,156        4,259   

Other 1) 2)

     8,549        5,368        19,560        10,671        7,151        3,756   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     106,317        52,209        246,920        173,352        114,191        53,520   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     1,590        1,113        3,796        2,824        1,689        1,091   

2) Of which in EU

     18,864        9,229        45,585        32,941        22,357        10,904   

Year to date, year-over-year change, percent

   2016     2015  
   Jan-Jun     Jan-Mar     Jan-Dec     Jan-Sep     Jan-Jun     Jan-Mar  

North America

     -1     8     7     -1     -2     0

Latin America

     -11     -12     -5     -5     -5     -3

Northern Europe & Central Asia 1) 2)

     -18     -18     -14     -6     3     12

Western & Central Europe 2)

     -15     -17     0     6     10     8

Mediterranean 2)

     -11     -14     1     5     6     4

Middle East

     -23     -21     7     16     32     17

Sub Saharan Africa

     -8     -2     18     22     30     19

India

     -22     -24     74     91     97     108

North East Asia

     -10     -7     2     5     15     23

South East Asia & Oceania

     14     22     21     28     29     24

Other 1) 2)

     20     43     33     7     8     15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -7     -2     8     8     12     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -6     2     -8     -9     -16     9

2) Of which in EU

     -16     -15     1     7     12     12

TOP 5 COUNTRIES IN SALES

 

Country    Q2     Jan-Jun  

As percentage of net sales

   2016     2015     2016     2015  

United States

     26     24     26     24

China

     8     9     9     8

India

     5     5     5     6

United Kingdom

     3     3     3     3

Italy

     3     3     3     3

 

26      Ericsson  |  Second Quarter Report 2016


Table of Contents

NET SALES

BY REGION BY SEGMENT

 

     Q2 2016     Jan-Jun 2016  

SEK million

   Networks     Global
Services
    Support
Solutions
    Total     Networks     Global
Services
    Support
Solutions
    Total  

North America

     6,606        6,080        740        13,426        12,947        12,158        1,503        26,608   

Latin America

     2,096        2,257        189        4,542        4,119        4,072        391        8,582   

Northern Europe & Central Asia

     970        1,071        52        2,093        2,312        1,878        125        4,315   

Western & Central Europe

     1,711        2,633        122        4,466        3,006        5,155        258        8,419   

Mediterranean

     2,114        3,114        199        5,427        3,573        5,804        346        9,723   

Middle East

     1,871        2,777        273        4,921        3,278        4,673        537        8,488   

Sub Saharan Africa

     989        1,217        107        2,313        1,858        2,304        271        4,433   

India

     991        1,259        176        2,426        2,270        2,487        352        5,109   

North East Asia

     4,203        1,756        82        6,041        7,747        3,673        200        11,620   

South East Asia & Oceania

     3,189        2,010        73        5,272        6,374        3,938        159        10,471   

Other

     2,025        307        849        3,181        5,101        1,357        2,091        8,549   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     26,765        24,481        2,862        54,108        52,585        47,499        6,233        106,317   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share of Total

     50     45     5     100     49     45     6     100
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Q2 2016  

Sequential change, percent

   Networks     Global
Services
    Support
Solutions
    Total  

North America

     4     0     -3     2

Latin America

     4     24     -6     12

Northern Europe & Central Asia

     -28     33     -29     -6

Western & Central Europe

     32     4     -10     13

Mediterranean

     45     16     35     26

Middle East

     33     46     3     38

Sub Saharan Africa

     14     12     -35     9

India

     -23     3     0     -10

North East Asia

     19     -8     -31     8

South East Asia & Oceania

     0     4     -15     1

Other

     -34     -71     -32     -41
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4     6     -15     4
  

 

 

   

 

 

   

 

 

   

 

 

 
     Q2 2016  

Year over year change, percent

   Networks     Global
Services
    Support
Solutions
    Total  

North America

     -1     -14     -13     -8

Latin America

     -7     -14     4     -10

Northern Europe & Central Asia

     -37     13     -22     -18

Western & Central Europe

     -10     -15     -16     -13

Mediterranean

     -12     -5     4     -8

Middle East

     -54     29     -15     -24

Sub Saharan Africa

     -20     -3     -31     -13

India

     -46     18     11     -20

North East Asia

     -12     -10     -58     -13

South East Asia & Oceania

     27     -12     -28     8

Other

     3     -55     17     -6
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -14     -7     -7     -11
  

 

 

   

 

 

   

 

 

   

 

 

 
     Jan-Jun 2016  

Year over year change, percent

   Networks     Global
Services
    Support
Solutions
    Total  

North America

     10     -9     -8     -1

Latin America

     -6     -16     -2     -11

Northern Europe & Central Asia

     -31     5     -11     -18

Western & Central Europe

     -15     -14     -18     -15

Mediterranean

     -17     -7     2     -11

Middle East

     -49     14     6     -23

Sub Saharan Africa

     -7     -5     -31     -8

India

     -42     15     -27     -22

North East Asia

     -12     -7     -21     -10

South East Asia & Oceania

     29     -3     -12     14

Other

     24     -3     38     20
  

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -9     -6     1     -7
  

 

 

   

 

 

   

 

 

   

 

 

 

 

27      Ericsson  |  Second Quarter Report 2016


Table of Contents

PROVISIONS

 

     2016      2015  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Opening balance

     3,532         3,838         4,331         5,354         4,056         4,427   

Additions

     839         492         589         695         2,777         915   

Utilization/Cash out

     -794         -667         -1,096         -1,545         -1,217         -1,204   

Of which restructuring

     -639         -487         -754         -1,103         -472         -437   

Reversal of excess amounts

     -240         -67         87         -168         -161         -236   

Reclassification, translation difference and other

     50         -64         -73         -5         -101         154   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Closing balance

     3,387         3,532         3,838         4,331         5,354         4,056   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2016      2015  

Year to date, SEK million

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

Opening balance

     3,838         3,838         4,427         4,427         4,427         4,427   

Additions

     1,331         492         4,976         4,387         3,692         915   

Utilization/Cash out

     -1,461         -667         -5,062         -3,966         -2,421         -1,204   

Of which restructuring

     -1,126         -487         -2,766         -2,012         -909         -437   

Reversal of excess amounts

     -307         -67         -478         -565         -397         -236   

Reclassification, translation difference and other

     -14         -64         -25         48         53         154   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Closing balance

     3,387         3,532         3,838         4,331         5,354         4,056   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

INFORMATION ON INVESTMENTS

Investments in assets subject to depreciation, amortization, impairment and write-downs

 

     2016      2015  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Additions

                 

Property, plant and equipment

     1,572         1,474         1,739         1,807         2,424         2,367   

Capitalized development expenses 1)

     1,099         1,208         1,183         982         843         294   

IPR, brands and other intangible assets

     13         5         23         10         26         11   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,684         2,687         2,945         2,799         3,293         2,672   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation, amortization and impairment losses

                 

Property, plant and equipment

     1,083         1,062         1,194         1,129         1,152         1,214   

Capitalized development expenses

     386         351         349         354         333         342   

IPR, brands and other intangible assets, etc.

     635         684         978         942         1,094         1,125   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,104         2,097         2,521         2,425         2,579         2,681   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1)  Including reclassification

 

28      Ericsson  |  Second Quarter Report 2016


Table of Contents

OTHER INFORMATION

 

     Apr-Jun     Jan-Jun     Jan-Dec  

SEK million

   2016     2015     2016     2015     2015  

Number of shares and earnings per share

          

Number of shares, end of period (million)

     3,331        3,305        3,331        3,305        3,305   

Of which class A-shares (million)

     262        262        262        262        262   

Of which class B-shares (million)

     3,069        3,043        3,069        3,043        3,043   

Number of treasury shares, end of period (million)

     69        57        69        57        49   

Number of shares outstanding, basic, end of period (million)

     3,262        3,248        3,262        3,248        3,256   

Numbers of shares outstanding, diluted, end of period (million)

     3,298        3,281        3,298        3,281        3,289   

Average number of treasury shares (million)

     55        58        55        59        56   

Average number of shares outstanding, basic (million)

     3,261        3,247        3,259        3,246        3,249   

Average number of shares outstanding, diluted (million) 1)

     3,297        3,280        3,296        3,278        3,282   

Earnings per share, basic (SEK)

     0.49        0.64        1.09        1.05        4.17   

Earnings per share, diluted (SEK) 1)

     0.48        0.64        1.08        1.04        4.13   

Earnings per share (Non-IFRS), diluted (SEK) 2) *

     0.83        1.45        1.70        2.22        6.06   

Ratios

          

Days sales outstanding

     —          —          115        112        87   

Inventory turnover days

     83        74        81        74        64   

Payable days

     56        52        59        57        53   

Equity ratio (%) *

     —          —          49.3     49.0     51.8

Return on equity (%) *

     4.5     5.9     5.0     4.9     9.3

Return on capital employed (%) *

     6.0     6.9     6.5     6.5     11.6

Capital turnover (times) *

     1.1        1.3        1.1        1.2        1.3   

Cash conversion (%) *

     -54.0     90.2     -62.3     -43.1     84.8

Exchange rates used in the consolidation 3)

          

SEK/EUR- closing rate

     —          —          9.42        9.22        9.17   

SEK/USD- closing rate

     —          —          8.45        8.24        8.40   

Other

          

Regional inventory, end of period

     18,749        18,778        18,749        18,778        15,453   

Export sales from Sweden

     27,797        29,813        51,051        55,964        117,486   

 

1)  Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.
2)  Excluding amortizations and write-downs of acquired intangibles and restructuring charges.
3)  Translation method changed from 2015. Monthly rates used to translate transactions are available on www.ericsson.com/thecompany/investors
* Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

NUMBER OF EMPLOYEES

 

     2016      2015  

End of period

   Jun 30      Mar 31      Dec 31      Sep 30      Jun 30      Mar 31  

North America

     13,838         14,081         14,548         14,669         14,975         15,156   

Latin America

     9,616         9,836         10,412         10,754         10,823         10,970   

Northern Europe & Central Asia 1)

     20,177         20,167         20,700         20,953         21,441         21,556   

Western & Central Europe

     13,727         12,100         12,220         12,042         12,400         12,575   

Mediterranean

     12,957         12,906         12,702         12,748         12,925         13,363   

Middle East

     3,573         3,608         3,639         3,634         3,717         3,813   

Sub Saharan Africa

     2,347         2,377         2,301         2,306         2,389         2,442   

India

     22,541         22,424         21,999         21,343         21,353         21,215   

North East Asia

     13,547         13,623         13,706         13,782         13,104         13,488   

South East Asia & Oceania

     4,184         4,178         4,054         4,009         4,056         4,128   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     116,507         115,300         116,281         116,240         117,183         118,706   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

1) Of which in Sweden

     16,190         16,290         17,041         17,242         17,560         17,569   

 

29      Ericsson  |  Second Quarter Report 2016


Table of Contents

RESTRUCTURING CHARGES BY FUNCTION

 

     2016      2015  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Cost of sales

     -461         -328         -282         -351         -1,157         -484   

Research and development expenses

     -422         -257         -305         -547         -1,118         -51   

Selling and administrative expenses

     -138         -47         -117         -80         -469         -79   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -1,021         -632         -704         -978         -2,744         -614   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2016      2015  

Year to date, SEK million

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

Cost of sales

     -789         -328         -2,274         -1,992         -1,641         -484   

Research and development expenses

     -679         -257         -2,021         -1,716         -1,169         -51   

Selling and administrative expenses

     -185         -47         -745         -628         -548         -79   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -1,653         -632         -5,040         -4,336         -3,358         -614   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

RESTRUCTURING CHARGES BY SEGMENT

 

     2016      2015  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Networks

     -607         -295         -259         -565         -1,842         -173   

Global Services

     -346         -315         -213         -358         -691         -419   

Of which Professional Services

     -273         -237         -60         -316         -175         -140   

Of which Network Rollout

     -73         -78         -153         -42         -516         -279   

Support Solutions

     -68         -22         -230         -37         -194         -19   

Modems

     —           —           1         -1         -12         -3   

Unallocated

     —           —           -3         -17         -5         —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -1,021         -632         -704         -978         -2,744         -614   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2016      2015  

Year to date, SEK million

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

Networks

     -902         -295         -2,839         -2,580         -2,015         -173   

Global Services

     -661         -315         -1,681         -1,468         -1,110         -419   

Of which Professional Services

     -510         -237         -691         -631         -315         -140   

Of which Network Rollout

     -151         -78         -990         -837         -795         -279   

Support Solutions

     -90         -22         -480         -250         -213         -19