6-K
Table of Contents

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 18, 2018

Commission File Number

000-12033

LM ERICSSON TELEPHONE COMPANY

(Translation of registrant’s name into English)

Torshamnsgatan 21, Kista

SE-164 83, Stockholm, Sweden

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F. Form 20-F  ☒ Form 40-F  ☐

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

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

 

 

 

Announcement of LM Ericsson Telephone Company, July 18, 2018 regarding “Ericsson reports second quarter results 2018”.


Table of Contents

SIGNATURES

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

 

TELEFONAKTIEBOLAGET LM ERICSSON (publ)

By:

 

/s/    XAVIER DEDULLEN        

  Xavier Dedullen
  Senior Vice President, Chief Legal Officer

By:

 

/s/    CARL MELLANDER        

  Carl Mellander
  Senior Vice President, Chief Financial Officer

Date: July 18, 2018


Table of Contents

LOGO

Second quarter report 2018

Stockholm, July 18, 2018

 

Second quarter highlights
   Sales as reported and sales adjusted for comparable units and currency both decreased by -1% YoY. Segment Networks showed a sales growth of 2% YoY, both in reported sales and sales adjusted for comparable units and currency, with strong sales growth in North America.
   Gross margin was 34.8% (29.1%). Gross margin excluding restructuring charges improved to 36.7% (30.9%), driven mainly by cost reductions and the continued ramp-up of Ericsson Radio System (ERS).
   Operating expenses were SEK 17.2 (15.4) b. Operating expenses excluding restructuring charges increased to SEK 16.3 (14.8) b. Cost reductions in SG&A were offset by increased investments in R&D, higher provision for variable compensation and an increase in provision for overdue trade receivables.
   Operating income was SEK 0.2 (-0.5) b. Operating income excluding restructuring charges was SEK 2.0 (1.0) b.
   Networks operating margin excluding restructuring charges was 13.3% (13.4%), with an improved gross margin offset by increased investments in R&D.
   Digital Services operating income (loss) excluding restructuring charges improved to SEK -1.5 (-1.8) b. due to improved gross margin to 42.6% (35.7%), mainly driven by cost reductions.
   Managed Services operating margin excluding restructuring charges improved to 6.5% (-2.1%) as a result of cost reductions and customer contract reviews.
   Cash flow from operating activities was SEK 1.4 (0.0) b. and free cash flow was SEK -0.6 (-1.3) b. Net cash increased to SEK 33.1 (24.0) b.

 

     Q2     Q2     YoY     Q1     QoQ     6 months     6 months  

SEK b.

   2018     2017     change     2018     change     2018     2017  

Net sales

     49.8       50.3       -1     43.4       15     93.2       98.1  

Sales growth adj. for comparable units and currency

     —         —         -1     —         9     —         —    

Gross margin

     34.8     29.1     —         34.2     —         34.5     22.6

Operating income (loss)

     0.2       -0.5       —         -0.3       —         -0.1       -11.8  

Operating margin

     0.3     -1.1     —         -0.7     —         -0.2     -12.0

Net income (loss)

     -1.8       -0.5       —         -0.7       —         -2.5       -10.5  

EPS diluted, SEK

     -0.58       -0.14       —         -0.25       —         -0.83       -3.22  

EPS (non-IFRS), SEK 1)

     -0.09       0.33       —         0.11       —         0.02       -1.86  

Cash flow from operating activities

     1.4       0.0       —         1.6       -8     3.0       -1.5  

Free cash flow 2)

     -0.6       -1.3       -54     0.3       —         -0.3       -4.6  

Net cash, end of period

     33.1       24.0       38     35.6       -7     33.1       24.0  

Gross margin excluding restructuring charges

     36.7     30.9     —         35.9     —         36.3     25.0

Operating income (loss) excluding restructuring charges

     2.0       1.0       109     0.9       138     2.9       -8.6  

Operating margin excluding restructuring charges

     4.1     1.9     —         2.0     —         3.1     -8.7

 

1) EPS diluted, excl. amortizations and write-downs of acquired intangible assets, and excluding restructuring charges. When a company reports a loss, the number of shares used for calculating earnings diluted per share shall be the same as for basic calculation.
2) Free cash flow: Cash flow from operating activities less net capital expenditures and other investments, see Alternative Performance Measures (APM) at the end of the report.

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 2018

  


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CEO comments

 

“We continue to execute on our focused business strategy and are tracking well towards our 2020 target of an operating margin1) of at least 10%. The investments in technology leadership have resulted in increased gross margin1) to 37% (31%) and growth in segment Networks.

Customers turn to new technology in order to manage growing demand for data with sustained quality and without increasing costs. This, together with fixed wireless access, represent the first business cases for 5G. We will continue to invest in securing leadership in 5G. This includes further investments in R&D, to solidify our complete 5G portfolio, and investments in field trials. We also intend to selectively capture new business opportunities, through our 5G-ready 4G portfolio, to extend our footprint as operators prepare for 5G. We provide solutions for all frequency bands for 5G, which strengthens our global competitiveness.

We have good market traction in Networks, with a sales growth of 2%, particularly in North America where all major operators are preparing for 5G. Networks gross margin1) improved to 40% (36%). Digital Services is tracking towards a turnaround and gross margin1) improved to 43% (36%) YoY, and was stable QoQ. However, while losses decreased both YoY and QoQ, we still have a lot of work to do. The top priority is to turn around performance in the segment, but we are in parallel accelerating investments to make the portfolio 5G ready and cloud native. In Managed Services, gross margin1) improved to 14% (2%) supported by continued efficiency gains and customer contract reviews, resulting in a positive operating income. We have also on-boarded several new contracts in the quarter.

In segment Emerging Business and Other, we invest in strategic future growth areas such as Internet of Things (IoT). We see increasing momentum with several important customer wins with our connectivity platform in the quarter. However, sales are still low. Our media business generated a loss of SEK -0.4 b. in the quarter. We expect to close the announced divestment of Media Solutions, recently renamed MediaKind, by the end of the third quarter.

The SEK 10 b. cost reduction program, launched in Q2 2017, has been successfully completed. We reduced the total workforce by more than 2,000 in the quarter and by 20,500 in total as part of the program. These are tough but necessary actions to ensure competitiveness. Run-rate savings to date amount to more than SEK 10 b., and the effect is gradually becoming visible in the earnings, mainly through lower service delivery costs and common costs. Even though the cost reduction program is completed, our estimate for restructuring charges of SEK 5-7 b. for the full year remains, as we will continue our efficiency activities throughout the year.

Free cash flow improved to SEK -0.6 (-1.3) b. and our cash position remains strong. Our work to further strengthen the balance sheet continues.

We see strengthened momentum for 5G in the quarter and it is clear that our 5G-ready portfolio is attractive and competitive in the market. We have gradually improved the cost position and will continue to have a strict cost focus in order to further increase competitiveness and efficiency. We are confident in reaching our long-term target of at least 12% operating margin1) beyond 2020.”

Börje Ekholm

President and CEO

 

1) Excluding restructuring charges
 

 

Planning assumptions going forward

Market related

 

  The Radio Access Network (RAN) equipment market is estimated to decline by -2% for full-year 2018 with 2% CAGR for 2017-2022. In 2018, the Chinese market is expected to decline due to reduced LTE investments, while there is positive momentum in North America.

Currency exposure

 

  Rule of thumb: A weakening by 10% of USD to SEK would have a negative impact of approximately -5% on net sales and approximately -1 percentage point on operating margin (based on 2017 full-year currency exposure). For historical rates, see www.ericsson.com/en/investors

Ericsson related, 2018

 

  Sales: Seasonality (5-year average sales) is -2% between Q2 and Q3 and 23% between Q3 and Q4.

 

  The current annual revenue baseline of the IPR licensing contract portfolio is approximately SEK 7 b.
  Restructuring charges for full-year 2018 are estimated to be SEK 5-7 b.

 

  Actual and estimated net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs:

 

   

Q2

2018

   

Q3

2018

   

Q3

2017

   

FY

2017

   

FY

2018

   

FY

2019

 

SEK b.

  Actual     Estimate     Actual     Actual     Estimate     Estimate  

Cost of sales

    -0.2       -0.2       -0.9       -2.6       -1    

R&D expenses

    -0.3       -0.3       -0.6       -0.3       -1    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total impact

    -0.5       -0.5       -1.5       -2.9       -2       -1 to -2  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

  The divestment of Media Solutions is expected to be closed by the end of Q3 2018 with estimated additional expenses of SEK -0.3 b. in Q3, related to the divestment. Results after the divestment will be reported as share of earnings according to the equity method. Ericsson’s holding will be 49% of the shares. Media Solutions sales were SEK 3.2 b. in 2017.

 

 

 

 

2      Ericsson  |  Second Quarter Report 2018

  

 

CEO comments


Table of Contents

Financial highlights

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6 months
2018
    6 months
2017
 

Net sales

     49.8       50.3       -1     43.4       15     93.2       98.1  

Sales growth adj. for comparable units and currency

     —         —         -1     —         9     —         —    

Gross income

     17.3       14.6       18     14.9       17     32.2       22.1  

Gross margin (%)

     34.8     29.1     —         34.2     —         34.5     22.6

Research and development expenses

     -9.8       -8.4       17     -9.1       8     -18.9       -17.4  

Selling and administrative expenses

     -7.1       -6.8       3     -6.2       15     -13.2       -15.0  

Impairment losses on trade receivables

     -0.4       -0.2       57     0.0       —         -0.4       -1.9  

Other operating income and expenses

     0.0       0.2       -95     0.1       -87     0.1       0.4  

Operating income (loss)

     0.2       -0.5       —         -0.3       —         -0.1       -11.8  

Operating margin (%)

     0.3     -1.1     —         -0.7     —         -0.2     -12.0

Financial net

     -0.8       0.1       —         -0.5       50     -1.4       -0.4  

Taxes

     -1.2       0.0       —         0.1       —         -1.0       1.7  

Net income (loss)

     -1.8       -0.5       —         -0.7       —         -2.5       -10.5  

Restructuring charges

     -1.9       -1.5       24     -1.2       60     -3.1       -3.3  

Gross income excluding restructuring charges

     18.3       15.6       17     15.6       17     33.9       24.5  

Gross margin excluding restructuring charges

     36.7     30.9     —         35.9     —         36.3     25.0

Operating expenses excluding restructuring charges

     -16.3       -14.8       10     -14.8       10     -31.1       -33.5  

Operating income (loss) excl. restructuring charges

     2.0       1.0       109     0.9       138     2.9       -8.6  

Operating margin excluding restructuring charges

     4.1     1.9     —         2.0     —         3.1     -8.7

 

Net sales

Sales as reported decreased by -1 %YoY. Sales adjusted for comparable units and currency decreased by -1% YoY. Sales as reported in Networks increased by 2% YoY, driven by strong sales growth in North America. Digital Services sales declined by -11% YoY, mainly due to continued decline in legacy product sales and lower telecom core sales in North East Asia. Managed Services sales declined by -2% YoY, mainly as a result of customer contract reviews. Sales in Emerging Business and Other increased by 2% YoY, mainly driven by growth in iconectiv and IoT partly offset by lower sales in the media solutions business.

Sequential sales increased by 15%. Sales adjusted for comparable units and currency increased by 9% QoQ.

IPR licensing revenues

IPR licensing revenues declined to SEK 1.8 (2.0) b. YoY and decreased sequentially from SEK 1.9 b.

Gross margin

Gross margin improved to 34.8% (29.1%). Gross margin excluding restructuring charges increased to 36.7% (30.9%) with significant improvements in all segments. Key drivers of the improvement were cost reductions, ramp-up of Ericsson Radio System (ERS) product platform, market mix and good progress in addressing non-strategic contracts in Managed Services. Completion in 2017 of the amortization of software release development expenses had a positive effect on gross margin YoY.

Sequentially, gross margin increased to 34.8% from 34.2%. Gross margin excluding restructuring charges improved sequentially to 36.7% from 35.9%.

Operating expenses

Operating expenses increased to SEK 17.2 (15.4) b. Operating expenses excluding restructuring charges increased to SEK 16.3 (14.8) b., mainly due to increased R&D expenses while selling and administrative expenses (SG&A) were stable YoY.

LOGO

R&D expenses were SEK 9.8 (8.4) b. R&D expenses excluding restructuring charges increased to SEK 9.3 (8.0) b., mainly due to increased 4G and 5G investments in Networks, in line with the strategy. The net effect of higher amortized than capitalized R&D expenses was SEK -0.3 (0.1) b.

SG&A increased YoY due to higher restructuring charges. SG&A excluding restructuring charges were flat at SEK 6.6 b. YoY. Cost reductions of SEK 0.7 b. YoY were offset by costs related to revaluation of customer financing of SEK -0.2 b. and higher provision for variable compensation.

 

 

 

3      Ericsson  |  Second Quarter Report 2018

  

 

Financial highlights


Table of Contents

Each quarter, 25% of the anticipated full year variable compensation is provisioned for. In Q2 2017, SG&A were positively impacted as provisions were reversed following the weak company results.

Impairment losses on trade receivables increased to SEK -0.4 (-0.2) b. Impairment testing is made continuously using a methodology where country and customer risks are assessed.

Operating expenses increased sequentially following increased investments in Networks R&D, impacted by seasonality and currency effects. Operating expenses increased by approximately SEK -0.3 b. QoQ, due to currency effects.

Other operating income and expenses

Other operating income and expenses, which comprises several minor items, were SEK 0.0 (0.2) b. Other operating income and expenses in Q1 2018 were SEK 0.1 b.

Consequences of technology and portfolio shifts

Due to technology and portfolio shifts, the company is reducing the capitalization of development expenses for product platforms and software releases as well as the deferral of hardware costs. As a consequence, higher amortization than capitalization of development expenses and higher recognition than deferral of hardware costs had a negative impact on operating income YoY. The amounts related to capitalized software releases were fully amortized in 2017.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs

 

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of sales

     -0.2        -0.4        -0.3  

R&D expenses

     -0.3        0.1        -0.4  
  

 

 

    

 

 

    

 

 

 

Total impact

     -0.5        -0.3        -0.7  
  

 

 

    

 

 

    

 

 

 

Restructuring charges

Restructuring charges were SEK -1.9 (-1.5) b. Restructuring charges in Q1 2018 were SEK -1.2 b.

Operating income and margin

Operating income increased to SEK 0.2 (-0.5) b. YoY. Operating income excluding restructuring charges increased to 2.0 (1.0) b. driven by increased gross margin partly offset by increased R&D expenses. Operating margin excluding restructuring charges improved to 4.1% (1.9%).

Operating income improved sequentially to SEK 0.2 b. from -0.3 b. Operating income excluding restructuring charges improved to SEK 2.0 b. from SEK 0.9 b., driven by higher sales and increased gross margin. This was partly offset by increased operating expenses.

Financial net

Financial net was SEK -0.8 (0.1) b. mainly due to negative revaluation and realization effects of foreign exchange forecast hedging at SEK -0.3 (0.3) b. and negative return on assets. The financial net declined sequentially from SEK -0.5 b. In Q1 2018 the revaluation and realization effects of foreign exchange forecast hedging was SEK -0.1 b.

Taxes

Taxes amounted to SEK -1.2 (0.0) b. in the quarter and were impacted by SEK -0.7 b. as a result of revaluation of deferred tax assets due to a change in Swedish corporate tax rate. Certain profits realized in foreign jurisdictions and adjustments for taxes related to prior periods also impacted taxes negatively.

Net income (loss) and EPS

The losses in net income and the negative EPS diluted increased both YoY and QoQ, following increased taxes and negative financial net, partly offset by improved operating income.

Employees

The number of employees on June 30, 2018, was 95,260 – a net reduction of 2,321 employees in the quarter and of 13,867 employees compared with June 30, 2017. The decrease is mainly a result of activities under the cost reduction program.

Focused strategy execution

The following four measures are indicators of the progress of strategy execution.

 

Area    Activity    Status Q2 2018
Networks    Transition to new Ericsson Radio System    84% (2017: 61%) YTD accumulated (ERS radio unit deliveries out of total radio unit deliveries)
Digital Services    - Growth in sales of new product portfolio - Addressing critical customer contracts    - Net sales 12 months rolling -14%
- Out of 45 contracts identified, in total 16 have been addressed (8 in Q218 isolated)
Managed Services    Addressing low- performing customer contracts    Out of a total of 42 contracts identified, 33 (2 in Q218 isolated) have been addressed to result in an annualized profit improvement of SEK 0.8 b. (Q1 2018: SEK 0.7 b.)

Changes in segment reporting

As of Q2 2018, sales related to Application Development and Maintenance (ADM) and certain sales related to Business Support Solutions (BSS) were moved between the segments Managed Services and Digital Services, with a sales increase in Managed Services and a corresponding sales decrease in Digital Services (net effect of SEK 1.9 b in 2017). The corresponding impact on 2017 gross income was SEK 0.2 b. (positive for Managed Services, negative for Digital Services). Historical data have been restated to reflect the organizational change.

 

 

 

4      Ericsson  |  Second Quarter Report 2018

  

 

Financial highlights


Table of Contents

Market area sales

 

     Second quarter 2018      Change  

SEK b.

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

South East Asia, Oceania and India

     5.0        1.1        0.9        0.0        7.0        -3     9

North East Asia

     3.6        0.8        0.4        0.0        4.8        -19     41

North America

     11.4        2.1        0.8        0.0        14.3        11     27

Europe and Latin America

     7.8        2.9        3.4        0.1        14.2        0     9

Middle East and Africa

     3.0        1.6        1.0        0.0        5.6        -2     -2

Other 1)

     1.7        0.3        0.0        1.9        3.9        -7     12
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

Total

     32.4        8.8        6.5        2.1        49.8        -1     15
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

 

 

1)  Market Area “Other” includes primarily licensing revenues and the major part of segment Emerging Business and Other

 

South East Asia, Oceania and India

Sales declined YoY. Large 4G deployments are ongoing, however timing of orders impacted Networks sales negatively YoY. Digital Services sales declined slightly YoY, due to timing of project milestones. Managed Services sales increased, partly driven by a newly signed contract.

North East Asia

Sales declined YoY due to lower Networks sales in Mainland China as a consequence of reduced LTE investments. Digital Services sales declined YoY, due to a telecom core contract delay. Sales in Japan recovered after finalization of spectrum allocations.

North America

Sales increased YoY, primarily in Networks, driven by investments in 5G readiness across all major customers. Digital Services sales declined slightly YoY, due to timing of project milestones.

Europe and Latin America

Sales were stable YoY. Continued sales growth in parts of Europe and Latin America was offset by a decline in certain markets. In addition, Managed Services sales declined YoY as a consequence of addressing non-strategic contracts.

Middle East and Africa

Sales declined slightly YoY. Networks sales were negatively impacted by monetary restrictions in a few markets in the Middle East. The decline was partly offset by growth in Digital Services.

Other

Sales declined YoY, mainly in Media Solutions. IPR licensing revenues amounted to SEK 1.8 (2.0) b.

 

 

 

5      Ericsson  |  Second Quarter Report 2018

  

 

Market area sales


Table of Contents

Segment results

Networks

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6 months
2018
    6 months
2017
 

Net sales

     32.4       31.7       2     28.6       13     61.0       63.3  

Of which products

     22.3       21.3       5     19.5       15     41.8       43.1  

Of which IPR licensing revenues

     1.5       1.7       -11     1.5       -2     3.0       3.4  

Of which services

     10.1       10.4       -3     9.1       10     19.2       20.2  

Sales growth adjusted for comparable units and currency

     —         —         2     —         7     —         —    

Gross income

     12.6       10.9       15     11.1       13     23.7       20.9  

Gross margin

     38.8     34.4     —         38.9     —         38.8     33.0

Operating income

     3.5       3.4       4     3.4       5     6.9       6.1  

Operating margin

     10.9     10.8     —         11.8     —         11.3     9.7

Restructuring charges

     -0.7       -0.8       -8     -0.5       56     -1.2       -2.2  

Gross income excl. restructuring charges

     13.0       11.4       14     11.5       13     24.6       22.6  

Gross margin excl. restructuring charges

     40.2     36.0     —         40.4     —         40.3     35.7

Operating income excl. restructuring charges

     4.3       4.2       1     3.9       12     8.1       8.3  

Operating margin excl. restructuring charges

     13.3     13.4     —         13.5     —         13.4     13.1

 

Net sales

Sales as reported and sales adjusted for comparable units and currency increased by 2% YoY. The increase is mainly due to strong growth in North America, driven by investments in 5G readiness. This was partly offset by lower sales in South East Asia, Oceania and India and in the Middle East and North East Asia.

Sales increased by 13% QoQ. Sales adjusted for comparable units and currency increased by 7% QoQ.

Gross margin

Gross margin increased to 38.8% (34.4%) YoY. Gross margin excluding restructuring charges increased to 40.2% (36.0%) due to improved margins of hardware and services, driven by cost reductions, a successful shift of the radio platform and favorable market mix.

Gross margin was flat QoQ at 38.8%. Gross margin excluding restructuring charges was 40.2%, compared with 40.4% in Q1 2018. Higher recognition than deferral of hardware costs impacted gross margin negatively by SEK -0.1 b. QoQ.

Operating margin

Operating margin was flat YoY at 10.9% (10.8%). Operating margin excluding restructuring charges was 13.3% (13.4%), with improved gross margin offset by increased R&D expenses. Restructuring charges were SEK -0.7 (-0.8) b.

Operating margin declined QoQ to 10.9% from 11.8%. Operating margin excluding restructuring charges decreased to 13.3% from 13.5% due to increased R&D expenses, partly compensated by higher sales. The change in net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs was SEK 0.2 b. QoQ.

Net impact from amortization and capitalization of development expenses and from recognition and deferral of hardware costs  

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of Sales

     -0.2        -0.1        -0.3  

R&D expenses

     0.2        0.1        0.1  
  

 

 

    

 

 

    

 

 

 

Total impact

     0.0        0.0        -0.2  
  

 

 

    

 

 

    

 

 

 

Strategy execution

As presented at the 2017 Capital Markets Day, the target for Networks is to improve the operating margin to 15%-17% by 2020. Three important activities for profitability improvements are to

- invest in R&D to safeguard a leading portfolio

- fully transition the radio unit deliveries to Ericsson Radio System (ERS) for increased competitiveness

- continue to make savings in service delivery and common costs.

The ERS, which was introduced to the market in 2015, has proven to be competitive as well as creating a strong market position. For the first half of 2018, ERS accounted for 84% of total radio unit deliveries. The plan is to have fully transitioned the radio unit deliveries to ERS by the end of 2018.

In the quarter, a divestment of a Spanish fiber service operations, with approximately 600 service engineers, was completed.

 

 

 

6      Ericsson  |  Second Quarter Report 2018

  

 

Segment results  |  Networks


Table of Contents

Digital Services

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6
months
2018
    6
months
2017
 

Net sales

     8.8       9.9       -11     7.3       22     16.1       18.0  

Of which products

     4.5       5.4       -17     3.9       13     8.4       9.7  

Of which IPR licensing revenues

     0.3       0.4       -11     0.3       -2     0.7       0.7  

Of which services

     4.4       4.5       -4     3.3       32     7.7       8.3  

Sales growth adjusted for comparable units and currency

     —         —         -12     —         16     —         —    

Gross income

     3.5       3.3       5     2.9       20     6.4       1.0  

Gross margin

     39.1     33.2     —         39.8     —         39.5     5.4

Operating income (loss)

     -2.4       -2.2       6     -2.6       -9     -5.0       -11.2  

Operating margin

     -26.9     -22.6     —         -35.9     —         -30.9     -62.4

Restructuring charges

     -0.9       -0.5       94     -0.6       52     -1.5       -0.7  

Gross income excl. restructuring charges

     3.8       3.5       7     3.1       21     6.9       1.4  

Gross margin excl. restructuring charges

     42.6     35.7     —         42.9     —         42.7     7.8

Operating income (loss) excl. restructuring charges

     -1.5       -1.8       -16     -2.0       -26     -3.5       -10.5  

Operating margin excl. restructuring charges

     -16.9     -18.0     —         -27.9     —         -21.9     -58.4

 

Net sales

Sales as reported declined by -11% YoY. Sales adjusted for comparable units and currency decreased by -12% YoY. Legacy product sales continued to decline in the quarter. New product sales declined YoY, mainly due to lower telecom core sales in North East Asia as a consequence of a contract delay. The demand for our 5G-ready and cloud-native products remains strong with several signed contracts in the quarter.

Sales increased by 22% QoQ driven by software and services, following a seasonally weaker Q1, and by increased sales in large transformation projects. Sales adjusted for comparable units and currency increased by 16% QoQ.

Gross margin

Gross margin improved to 39.1% (33.2%). Gross margin excluding restructuring charges increased to 42.6% (35.7%), supported by improved software margins and cost reductions in services. Reduced amortization of software release development expenses had a positive impact of SEK 0.3 b. on gross income YoY.

Gross margin declined QoQ to 39.1% from 39.8% . Gross margin excluding restructuring charges declined slightly QoQ to 42.6% from 42.9%, due to reduced services margins and an increased services share, driven by increased sales in large transformation contracts. This was partly compensated by continued cost reductions and improved software margins.

Operating income (loss)

Operating income (loss) decreased YoY to SEK -2.4 (-2.2) b. Operating income (loss) excluding restructuring charges improved to SEK -1.5 (-1.8) b., due to improved gross margin and reduced operating expenses partly offset by lower sales. Operating expenses decreased despite an impact from higher amortized than capitalized development expenses of SEK -0.4 (0.1) b. and impairment losses on trade receivables of SEK -0.2 (0.0) b. Total restructuring charges of SEK -0.9 (-0.5) b. had a negative impact on operating income YoY.

Operating income (loss) improved QoQ to SEK -2.4 b. from -2.6 b. Operating income excluding restructuring charges improved to SEK -1.5 b. from -2.0 b., driven by increased sales.

 

Net impact from amortization and capitalization of development expenses  

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of Sales

     0.0        -0.3        0.0  

R&D expenses

     -0.4        0.1        -0.4  
  

 

 

    

 

 

    

 

 

 

Total impact

     -0.4        -0.2        -0.4  
  

 

 

    

 

 

    

 

 

 

Strategy execution

As presented at the Capital Markets Day 2017, the target is to turn around Digital Services into low single-digit operating margin by 2020. Cost reduction activities were intensified in the quarter across the areas of service delivery, selling and administrative expenses and R&D. These activities will continue, aiming for simplicity and efficiency. While new ways of working are improving R&D efficiency, at the same time investments continue in a portfolio of 5G-ready and cloud-native products in order to defend current market position and prepare Digital Services for future growth.

A key activity for the turnaround is to manage and complete 34 identified critical multi-year customer contracts and to either exit or complete 11 identified non-strategic contracts. The plan is to complete or exit approximately 50% of the 45 contracts in 2018. 16 contracts have been addressed at the end of Q2 2018.

The ongoing digitalization drives opportunities for operators to reduce costs and be more agile by; automating operations, digitally serving and engaging with customers and building programmable core networks. Consequently, operators increasingly invest in the areas where Digital Services provide solutions. Rolling 12 months, however, sales of the new portfolio declined by -14%, mainly due to lower telecom core sales as a consequence of a contract delay in North East Asia. It is not unusual that such sales vary between quarters.

 

 

 

7      Ericsson  |  Second Quarter Report 2018

  

 

Segment results | Digital Services


Table of Contents

Managed Services

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6
months
2018
    6
months
2017
 

Net sales

     6.5       6.7       -2     5.9       11     12.4       13.0  

Sales growth adjusted for comparable units and currency

     —         —         -3     —         6     —         —    

Gross income (loss)

     0.8       0.0       —         0.5       65     1.3       -0.5  

Gross margin

     12.4     0.3     —         8.3     —         10.5     -4.0

Operating income (loss)

     0.3       -0.3       216     0.1       199     0.4       -2.1  

Operating margin

     4.6     -3.9     —         1.7     —         3.2     -16.1

Restructuring charges

     -0.1       -0.1       7     -0.1       141     -0.2       -0.2  

Gross income (loss) excl. restructuring charges

     0.9       0.1       —         0.5       69     1.5       -0.3  

Gross margin excl. restructuring charges

     14.0     2.0     —         9.1     —         11.7     -2.5

Operating income (loss) excl. restructuring charges

     0.4       -0.1       —         0.2       179     0.6       -1.9  

Operating margin excl. restructuring charges

     6.5     -2.1     —         2.6     —         4.6     -14.6

 

Net sales

Sales as reported decreased by -2% YoY, mainly as a result of contract reviews. Sales in Managed Services IT showed good growth. Sales adjusted for comparable units and currency decreased by -3% YoY.

Sales as reported increased by 11% QoQ. Sales adjusted for comparable units and currency increased by 6% QoQ.

Gross margin

Gross margin increased to 12.4% (0.3%) YoY, and sequentially from 8.3%, supported by results of efficiency measures and by reviewed and addressed contracts. In the quarter, positive adjustments of SEK 0.1 b. were made, related to reversal of earlier provisions.

Operating income

Operating income increased to SEK 0.3 (-0.3) b. YoY, due to higher gross margin. Restructuring charges were SEK -0.1 (-0.1) b.

Sequentially, operating income increased due to higher gross margin and higher net sales.

Strategy execution

As part of the focused business strategy, Managed Services has its full attention on turning the business around through addressing low-performing operations and non-strategic contracts as well as improving efficiency in the service delivery process. Investments continue in machine intelligence, automation and analytics in order to further enhance user experience, improve efficiency and better manage the increasingly complex networks of tomorrow.

As presented at the 2017 Capital Markets Day, the ambition for Managed Services is to improve the operating margin to 4%-6% in 2020. In order to focus the business and improve profitability, 42 managed services contracts (out of >300) have been identified for exit, renegotiation or transformation. At the end of Q2 2018, 33 of the 42 contracts have been addressed resulting in an annualized profit improvement of approximately SEK 0.8 b., already fully impacting gross margin.

 

 

 

8      Ericsson  |  Second Quarter Report 2018

  

 

Segment results | Managed Services


Table of Contents

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

 

SEK b.

   Q2
2018
    Q2
2017
    YoY
change
    Q1
2018
    QoQ
change
    6 months
2018
    6 months
2017
 

Net sales

     2.1       2.0       2     1.7       24     3.7       3.8  

Sales growth adjusted for comparable units and currency

     —         —         1     —         18     —         —    

Gross income

     0.5       0.4       17     0.3       44     0.8       0.8  

Gross margin

     24.4     21.3     —         21.1     —         22.9     20.1

Operating income (loss)

     -1.3       -1.5       -11     -1.2       11     -2.5       -4.6  

Operating margin

     -63.5     -73.0     —         -71.2     —         -66.9     -121.9

Restructuring charges

     -0.1       -0.1       -2     -0.1       107     -0.2       -0.2  

Gross income excl. restructuring charges

     0.6       0.5       15     0.4       40     1.0       0.9  

Gross margin excl. restructuring charges

     27.4     24.3     —         24.3     —         26.0     22.5

Operating income (loss) excl. restructuring charges

     -1.2       -1.3       -12     -1.1       6     -2.3       -4.4  

Operating margin excl. restructuring charges

     -57.4     -66.6     —         -67.5     —         -61.9     -117.3

 

Net sales

Sales as reported increased by 2% YoY. Sales adjusted for comparable units and currency increased by 1%, driven by growth in the iconectiv business. Sales and deliveries started, in the quarter, on a multi-year number portability contract in United States. This contract was awarded to iconectiv in 2015. Sales in Emerging Business continued to grow, driven by IoT.

Sales in the media business (Media Solutions and Red Bee Media) were SEK 1.3 (1.5) b. Media Solutions sales declined YoY, mainly due to lower sales in the discontinued portfolio. Red Bee Media sales declined slightly, mainly due to scope changes in contracts.

Sales increased by 24% QoQ, mainly due to growth in iconectiv, Media Solutions and Red Bee Media. Sales adjusted for comparable units and currency increased by 18% QoQ.

Gross margin

Gross margin increased YoY to 24.4% (21.3%). Gross margin excluding restructuring charges increased to 27.4% (24.3%), supported by improvements in IoT, Media Solutions and Red Bee Media.

Gross margin increased QoQ to 24.4% from 21.1%. Gross margin excluding restructuring charges increased to 27.4% from 24.3%, with a positive impact from operational improvements in Red Bee Media.

Operating income (loss)

Operating income improved YoY to SEK -1.3 (-1.5) b. Operating income excluding restructuring charges improved to SEK -1.2 (-1.3) b. driven by improved results in Media Solutions and iconectiv. Emerging Business operating income declined YoY, driven by increased investments in line with the strategy.

Media Solutions and Red Bee Media combined operating income excluding restructuring charges and corporate allocations was SEK -0.4 (-0.7) b. Results in Media Solutions improved YoY, driven by operational efficiencies, partly offset by costs related to the planned transaction for Media Solutions in Q3 2018.

Operating income declined QoQ to SEK -1.3 from -1.2 b. Operating income excluding restructuring charges declined to SEK -1.2 from -1.1 b. due to increased investments in Emerging Business in line with the strategy.

Net impact from amortization and capitalization of development expenses  

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Cost of Sales

     0.0        0.0        0.0  

R&D expenses

     -0.1        -0.1        -0.1  
  

 

 

    

 

 

    

 

 

 

Total impact

     -0.1        -0.1        -0.1  
  

 

 

    

 

 

    

 

 

 

Strategy execution

As outlined at the Capital Markets Day in 2017, the target for segment Emerging Business and Other, including iconectiv, is a break-even result by 2020.

Selective investments will continue in Emerging Business to build a position and grow sales in new areas. Main investments are on IoT, UDN (Unified Delivery Network) and Emodo (mobile advertising and data monetization platform) business. Parts of the portfolio are still in an early phase, with focus on generating sales and scale the business, and do not yet cover the required investments, hence resulting in a negative bottom-line. The acquisition of Vidscale, a subcontractor to the Ericsson UDN business, was completed in the quarter and will lower the operational cost for the business.

For the media solutions business, Ericsson is partnering with One Equity Partners (OEP) and retaining a 49% ownership stake. This allows Ericsson to capture the upside of the business while at the same time taking an active part in the expected consolidation of the industry. Activities are accelerated to complete the transaction as planned during Q3 2018. Additional expenses related to the divestment of the media solutions business is estimated to be SEK -0.3 b. in Q3.

For Red Bee Media, the target is to achieve a sustainable profitable business, by continuing to develop and manage the business as an independent and focused media services entity within Ericsson. Operations and services propositions will be further developed, in line with the Red Bee Media tactical and transformational strategic execution plans.

 

 

 

9      Ericsson  |  Second Quarter Report 2018

  

 

Segment results | Emerging Business and other


Table of Contents

Cash flow

 

SEK b.

   Q2
2018
     Q2
2017
     Q1
2018
 

Net income reconciled to cash

     -0.3        -0.1        -1.0  

Changes in operating net assets

     1.7        0.1        2.6  

Cash flow from operating activities

     1.4        0.0        1.6  

Cash flow from investing activities

     1.6        -2.0        -1.8  

Cash flow from financing activities

     -3.7        -8.9        -0.1  

Effect of exchange rate changes on cash

     1.0        -0.6        1.1  

Net change in cash and cash equivalents

     0.4        -11.5        0.8  

Free cash flow: Cash flow from operating activities less net capital expenditures and
other investments

     -0.6        -1.3        0.3  

 

Operating activities

Cash flow from operating activities was SEK 1.4 (0.0) b., driven by SEK 1.7 b. of positive change in net operating assets. Trade receivables were reduced, mainly due to good collection. Sales of trade receivables continued to trend downwards and were reduced both QoQ and YoY. Trade payables increased, mainly due to seasonal inventory build-up. Cash outlays related to restructuring charges were SEK -0.8 (-1.1) b. in the quarter.

Investing activities

Cash flow from investing activities excluding interest-bearing securities was SEK -2.1 (-1.3) b. M&A activities were SEK -0.4 (0.0) b., related to an acquisition in Emerging Business. Cash flow from investments in property, plant and equipment was SEK -1.0 (-1.0) b. and capitalized development expenses were SEK -0.3 (-0.3) b. Cash flow from interest-bearing securities was SEK 3.7 (-0.7) b. Together, the above items generated a positive cash flow from investing activities of SEK 1.6 (-2.0) b.

Financing activities

Cash flow from financing activities was negative at SEK -3.7 (-8.9) b. Dividends of SEK 3.3 (3.3) b. were paid out. Net change in cash and cash equivalents was SEK 0.4 (-11.5) b.

Free cash flow

Free cash flow improved to SEK -0.6 (-1.3) b. due to increased cash flow from operating activities partly offset by increased acquisitions.

Free cash flow decreased QoQ from SEK 0.3 b. to SEK -0.6 b. mainly due to negative effects of currency fluctuations and lower cash flow from operating activities.

 

 

 

10      Ericsson  |  Second Quarter Report 2018

  

 

Cash flow


Table of Contents

Financial position

 

SEK b.

   Jun 30
2018
    Jun 30
2017
    Mar 31
2018
 

+ Cash and cash equivalents

     37.0       21.4       36.7  

+ Interest-bearing securities, current

     8.3       10.8       5.5  

+ Interest-bearing securities, non-current

     21.5       22.1       27.1  

Gross cash

     66.9       54.3       69.3  

– Borrowings, current

     2.6       3.2       2.6  

– Borrowings, non-current

     31.1       27.1       31.1  

Net cash

     33.1       24.0       35.6  

Equity

     93.6       119.9       93.5  

Total assets

     265.3       275.2       260.7  

Capital turnover (times)

     1.2       1.1       1.1  

Return on capital employed (%)

     0.1     -13.3     -1.0

Equity ratio (%)

     35.3     43.6     35.9

Return on equity (%)

     -5.7     -16.6     -3.5

 

Gross cash decreased by SEK -2.4 b. and net cash decreased by SEK -2.5 b. in the quarter, due to payment of dividends of SEK 3.3 b. Gross cash was SEK 66.9 b. and net cash was SEK 33.1 b.

Post-employments benefits increased in the quarter, to SEK 27.3 b. from SEK 25.6 b., due to decreased interest rates in Sweden and normal service and interest costs partly offset by return on pension assets and higher interest rates in the UK.

The Swedish defined benefit obligation (DBO) has been calculated using a discount rate based on the yields of Swedish government bonds. If the discount rate had been based on Swedish covered mortgage bonds, the DBO would have been approximately SEK 8.5 b. lower as of June 30, 2018.

The average maturity of long-term borrowings as of June 30, 2018, was 3.9 years, a decrease from 4.5 years 12 months earlier.

A credit facility agreement of EUR 250 million was signed with the European Investment Bank (EIB) in the quarter but has not yet been disbursed. The credit facility will mature five years after disbursement.

LOGO

 

 

 

11      Ericsson  |  Second Quarter Report 2018

  

 

                             Financial position


Table of Contents

Parent Company

 

Income after financial items was SEK 1.7 (2.3) b. The decrease was mainly due to lower recognized dividends from subsidiaries.

At the end of the quarter, gross cash (cash, cash equivalents, short-term investments and interest-bearing securities non-current) amounted to SEK 53.6 (41.1) b.

The dividend of SEK 3.3 b. was paid out in the first week of April after decision by the Annual General Meeting on the 28th of March.

There has been a decrease in intercompany lending of SEK 6.4 b. and a decrease in intercompany borrowing of SEK 4.6 b. in the second quarter.

 

In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 3,447,302 shares from treasury stock were sold or distributed to employees during the second quarter. The holding of treasury stock at June 30, 2018, was 43,381,932 Class B shares.

    

 

 

 

12      Ericsson  |  Second Quarter Report 2018

  

 

Parent Company


Table of Contents

Other information

 

Ericsson’s Nomination Committee appointed

On April 26, 2018, Ericsson announced that the Nomination Committee for the Annual General Meeting 2019 had been appointed in accordance with the Instruction for the Nomination Committee, resolved by the Annual General Meeting 2012. The Nomination Committee consists of: Johan Forssell, Investor AB; Bengt Kjell, AB Industrivärden and Svenska Handelsbankens Pensionsstiftelse; Christer Gardell, Cevian Capital Partners Limited; Anders Oscarsson, AMF Försäkring och Fonder and Ronnie Leten, the Chairman of the Board of Directors. Johan Forssell is the Chairman of the Nomination Committee.

Ericsson signs credit facility agreement with the European Investment Bank

On May 31, 2018, Ericsson announced that it has signed a credit facility of EUR 250 million with the European Investment Bank (EIB). The funding will support research and development activities for 5G and is in line with Ericsson’s focused business strategy. The credit facility will mature five years after disbursement.

POST-CLOSING EVENTS

Ericsson to divest its field services business in Sweden to Transtema Group

On July 11, 2018, Ericsson announced that it has signed an agreement with the Swedish company Transtema Group AB to divest Ericsson Local Services AB (LSS), a subsidiary of Ericsson supplying field service operations and maintenance of fixed and mobile networks in Sweden. This divestment is in line with Ericsson’s business strategy. The transaction is expected to close in the third quarter of 2018 and is subject to customary closing conditions, including regulatory approvals.

    

 

 

 

13      Ericsson  |  Second Quarter Report 2018

  

 

Other information


Table of Contents

Risk factors

 

Ericsson’s operational and financial risk factors and uncertainties are described in our Annual Report 2017. 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 Ericsson to provide financing, or delayed auctions of spectrum

 

  Intense competition from existing competitors as well as new entrants, including IT companies entering the telecommunications market, which could have a material adverse effect on the results

 

  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 including new network build-outs and 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 and ongoing partnerships which may not be successful and expose us to future costs

 

  Changes in foreign exchange rates, in particular USD

 

  Political unrest and uncertainty in certain markets, as well as escalating trade disputes and sanctions
  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 strategy execution, specific restructuring or cost-savings initiatives, profitability restoring efforts and/or organizational changes will be sufficient, successful or executed in time to deliver any improvements in earnings

 

  Cybersecurity incidents, which may have a material negative impact

 

  Rapidly changing technologies and the ways these are brought to the market, which could be disruptive to the business

 

  Ericsson is subject to risks associated with the development and implementation of new solutions or technologies under existing customer contracts. The company may not be successful or incur delays in developing or implementing such solutions or technologies, which could result in damage claims and loss of customers which may have an adverse impact on liquidity and results of operations.

Ericsson stringently monitors the compliance with all relevant trade regulations and trade embargoes 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 auditors.

Date for next report: October 18, 2018

 

 

 

14      Ericsson  |  Second Quarter Report 2018

  

 

Risk factors


Table of Contents

Board Assurance

The Board of Directors and the CEO certify that the financial report for the six months gives a fair view of the performance of the business, position and profit or loss of the Company and the Group, and describes the principal risks and uncertainties that the Company and the companies in the Group face.

Stockholm, July 18, 2018

Telefonaktiebolaget LM Ericsson (publ)

Org. Nr. 556016-0680

 

Helena Stjernholm

  

Ronnie Leten

  

Jacob Wallenberg

Deputy Chairman

  

Chairman

  

Deputy Chairman

Jon Fredrik Baksaas

  

Jan Carlson

  

Nora Denzel

Member of the Board

  

Member of the Board

  

Member of the Board

Eric A. Elzvik

  

Kurt Jofs

  

Kristin S. Rinne

Member of the Board

  

Member of the Board

  

Member of the Board

Börje Ekholm

President, CEO and member of the Board

 

Torbjörn Nyman

  

Kjell-Åke Soting

  

Roger Svensson

Member of the Board

  

Member of the Board

  

Member of the Board

 

 

15      Ericsson  |  Second Quarter Report 2018

  

 

                             Board Assurance


Table of Contents

Editor’s note

 

Ericsson invites media, investors and analysts to conference calls on July 18, 2018; one starting at 09.00 (CET) and the other at 14.00 (CET).

Live audio webcasts of the conference calls as well as supporting slides will be available at: www.ericsson.com/press and www.ericsson.com/investors Replay of the conference calls will be available approximately one hour after each call has ended and will remain available for seven days.

For further information, please contact:

Carl Mellander Senior Vice President, Chief Financial Officer Phone: +46 10 713 89 70

E-mail: investor.relations@ericsson.com or media.relations@ericsson.com

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 99, +46 70 575 29 06
E-mail:    peter.nyquist@ericsson.com

 

Stefan Jelvin, Director,
Investor Relations
Phone:    +46 10 714 20 39, +46 70 986 02 27
E-mail:    stefan.jelvin@ericsson.com
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
 

 

 

16      Ericsson  |  Second Quarter Report 2018

  

 

                             Editor’s note


Table of Contents

Forward-looking statements

 

This report includes forward-looking statements, including statements reflecting management’s current views relating to the growth of the market, future market conditions, future events, financial condition, and expected operational and financial performance, including, in particular the following:

 

  Our goals, strategies, planning assumptions and operational or financial performance expectations

 

  Industry trends, future characteristics and development of the markets in which we operate

 

  Our future liquidity, capital resources, capital expenditures, cost savings and profitability

 

  The expected demand for our existing and new products and services as well as plans to launch new products and services including research and development expenditures

 

  The ability to deliver on future plans and to realize potential for future growth

 

  The expected operational or financial performance of strategic cooperation activities and joint ventures

 

  The time until acquired entities and businesses will be integrated and accretive to income

 

  Technology and industry trends including the regulatory and standardization environment in which we operate, competition and our customer structure.

The words “believe,” “expect,” “foresee,” “anticipate,” “assume,” “intend,” “likely,” “projects,” “may,” “could,” “plan,” “estimate,” “forecast,” “will,” “should,” “would,” “predict,” “aim,” “ambition,” “seek,” “potential,” “target,” “might,” “continue,” or, in each case, their negative or variations, and similar words or expressions are used to identify forward-looking statements. Any statement that refers to expectations, projections or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements.

We caution investors that these statements are subject to risks and uncertainties many of which are difficult to predict and generally beyond our control that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements.

Important factors that could affect whether and to what extent any of our forward-looking statements materialize include, but are not limited to, the factors described in the section “Risk Factors”, and in “Risk Factors” in the Annual Report 2017.

These forward-looking statements also represent our estimates and assumptions only as of the date that they were made. We expressly disclaim a duty to provide updates to these forward-looking statements, and the estimates and assumptions associated with them, after the date of this report, to reflect events or changes in circumstances or changes in expectations or the occurrence of anticipated events, whether as a result of new information, future events or otherwise, except as required by applicable law or stock exchange regulation.

 

 

 

17      Ericsson  |  Second Quarter Report 2018

  

 

                             Forward-looking statements


Table of Contents

Financial statements and

other information

 

Contents

Financial statements

19

  Consolidated income statement

19

  Statement of comprehensive income (loss)

20

  Consolidated balance sheet

21

  Consolidated statement of cash flows

22

  Consolidated statement of changes in equity

22

  Consolidated income statement – isolated quarters

23

  Consolidated statement of cash flows – isolated quarters

24

  Parent Company income statement

24

  Parent Company statement of comprehensive income (loss)

25

  Parent Company balance sheet

Additional information

26

  Accounting policies

28

  Segment reporting

29

  Net sales by segment by quarter

30

  Sales growth adjusted for comparable units and currency

30

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

31

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

32

  EBITA and EBITA margin by segment by quarter

33

  Net sales by market area by quarter

34

  Top 5 countries in sales

34

  Net sales by market area by segment

35

  IPR licensing revenues by segment by quarter

35

  Provisions

36

  Information on investments

37

  Other information

37

  Number of employees

Items excluding restructuring charges

38

  Restructuring charges by function

38

  Restructuring charges by segment

39

  Gross income (loss) and gross margin excluding restructuring charges by segment

40

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

Alternative performance measures

41

  Sales growth adjusted for comparable units and currency

42

  Items excluding restructuring charges

43

  EBITA and EBITA margin

43

  Cash conversion

43

  Gross cash and net cash, end of period

44

  Capital employed

44

  Capital turnover

45

  Return on capital employed

45

  Equity ratio

45

  Return on equity

46

  Earnings (loss) per share (non-IFRS)

46

  Free cash flow
 

 

 

18      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements and other information


Table of Contents

Financial statements

Consolidated income statement

 

     Apr-Jun     Jan-Jun  

SEK million

   2018     2017     Change     2018     2017     Change  

Net sales

     49,808       50,281       -1     93,219       98,084       -5

Cost of sales

     -32,475       -35,652       -9     -61,028       -75,954       -20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     17,333       14,629       18     32,191       22,130       45

Gross margin (%)

     34.8     29.1       34.5     22.6  

Research and development expenses

     -9,783       -8,364       17     -18,856       -17,430       8

Selling and administrative expenses

     -7,053       -6,818       3     -13,209       -15,041       -12

Impairment losses on trade receivables 1)

     -369       -235       57     -397       -1,875       -79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -17,205       -15,417       12     -32,462       -34,346       -5

Other operating income and expenses

     11       239         95       380    

Shares in earnings of JV and associated companies

     26       12         29       23    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     165       -537       -131     -147       -11,813       -99

Financial income

     275       -27         203       -109    

Financial expenses

     -1,085       83         -1,554       -267    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     -645       -481       34     -1,498       -12,189       -88

Taxes

     -1,157       24         -1,029       1,706    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     -1,802       -457       294     -2,527       -10,483       -76
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to:

            

Stockholders of the Parent Company

     -1,885       -471         -2,722       -10,539    

Non-controlling interests

     83       14         195       56    

Other information

            

Average number of shares, basic (million)

     3,290       3,275         3,288       3,273    

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

     -0.58       -0.14         -0.83       -3.22    

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

     -0.58       -0.14         -0.83       -3.22    

 

1)  Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.
2)  Based on net income (loss) attributable to stockholders of the Parent Company.
3) Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

Statement of comprehensive income (loss)

 

     Apr-Jun      Jan-Jun  

SEK million

   2018      2017      2018      2017  

Net income (loss)

     -1,802        -457        -2,527        -10,483  

Other comprehensive income (loss)

           

Items that will not be reclassified to profit or loss

           

Remeasurements of defined benefits pension plans incl. asset ceiling

     123        574        -726        972  

Revaluation of borrowings due to change in credit risk

     8        —          66        —    

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

     -186        -160        -53        -329  

Items that may be reclassified to profit or loss

           

Available-for-sale financial assets

           

Gains/losses arising during the period

     —          41        —          73  

Reclassification adjustments on gains/losses included in profit or loss

     —          2        —          5  

Revaluation of other investments in shares and participations

           

Fair value remeasurement

     —          —          —          2  

Changes in cumulative translation adjustments

     1,742        -2,773        3,041        -2,795  

Share of other comprehensive income on JV and associated companies

     9        -9        20        1  

Tax on items that may be reclassified to profit or loss

     —          -9        —          -18  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income (loss), net of tax

     1,696        -2,334        2,348        -2,089  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss)

     -106        -2,791        -179        -12,572  

Total comprehensive income (loss) attributable to:

           

Stockholders of the Parent Company

     -216        -2,766        -416        -12,612  

Non-controlling interest

     110        -25        237        40  

 

 

19      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements


Table of Contents

Consolidated balance sheet

 

     Jun 30      Mar 31      Dec 31  

SEK million

   2018      2018      2017  

ASSETS

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     5,458        4,229        4,593  

Goodwill

     30,145        28,777        27,815  

Intellectual property rights, brands and other intangible assets

     3,883        3,853        4,148  

Property, plant and equipment

     12,894        12,912        12,857  

Financial assets

        

Equity in JV and associated companies

     658        630        624  

Other investments in shares and participations

     1,587        1,302        1,279  

Customer finance, non-current

     1,367        1,845        2,178  

Interest-bearing securities, non-current

     21,501        27,104        25,105  

Other financial assets, non-current

     6,805        5,192        5,897  

Deferred tax assets

     23,573        23,822        21,963  
  

 

 

    

 

 

    

 

 

 
     107,871        109,666        106,459  

Current assets

        

Inventories

     30,050        29,009        25,547  

Contract assets

     12,460        11,712        13,120  

Trade receivables

     41,580        42,455        48,105  

Customer finance, current

     1,664        1,709        1,753  

Other current receivables

     26,344        23,980        22,301  

Interest-bearing securities, current

     8,304        5,453        6,713  

Cash and cash equivalents

     37,049        36,697        35,884  
  

 

 

    

 

 

    

 

 

 
     157,451        151,015        153,423  
  

 

 

    

 

 

    

 

 

 

Total assets

     265,322        260,681        259,882  
  

 

 

    

 

 

    

 

 

 

EQUITY AND LIABILITIES

        

Equity

        

Stockholders’ equity

     92,689        92,703        96,935  

Non-controlling interest in equity of subsidiaries

     871        763        636  
  

 

 

    

 

 

    

 

 

 
     93,560        93,466        97,571  

Non-current liabilities

        

Post-employment benefits

     27,306        25,646        25,009  

Provisions, non-current

     2,819        2,597        3,596  

Deferred tax liabilities

     1,332        1,325        901  

Borrowings, non-current

     31,131        31,134        30,500  

Other non-current liabilities

     4,549        2,792        2,776  
  

 

 

    

 

 

    

 

 

 
     67,137        63,494        62,782  

Current liabilities

        

Provisions, current

     6,715        6,435        6,283  

Borrowings, current

     2,642        2,554        2,545  

Contract liabilities

     30,959        30,391        29,076  

Trade payables

     28,563        26,453        26,320  

Other current liabilities

     35,746        37,888        35,305  
  

 

 

    

 

 

    

 

 

 
     104,625        103,721        99,529  
  

 

 

    

 

 

    

 

 

 

Total equity and liabilities

     265,322        260,681        259,882  
  

 

 

    

 

 

    

 

 

 

Of which interest-bearing liabilities

     33,773        33,688        33,045  

Assets pledged as collateral

     5,702        5,148        5,215  

Contingent liabilities

     1,363        1,412        1,561  

 

 

20      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements


Table of Contents

Consolidated statement of cash flows

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2018      2017      2018      2017      2017  

Operating activities

              

Net income (loss)

     -1,802        -457        -2,527        -10,483        -32,433  

Adjustments to reconcile net income to cash

              

Taxes

     -1,071        -1,826        -3,386        -5,938        -9,064  

Earnings/dividends in JV and associated companies

     -19        -8        -15        -15        56  

Depreciation, amortization and impairment losses

     2,065        2,197        3,956        7,628        27,892  

Other

     568        -48        708        479        440  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income reconciled to cash

     -259        -142        -1,264        -8,329        -13,109  

Changes in operating net assets

              

Inventories

     -1,910        -1,492        -4,723        -4,698        4,719  

Customer finance, current and non-current

     547        1,140        947        306        798  

Trade receivables and contract assets

     1,661        184        8,977        3,002        1,379  

Trade payables

     1,252        19        654        382        1,886  

Provisions and post-employment benefits

     478        315        -369        4,951        4,755  

Contract liabilities

     -233        -573        524        4,234        5,024  

Other operating assets and liabilities, net

     -94        550        -1,731        -1,388        4,149  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,701        143        4,279        6,789        22,710  

Cash flow from operating activities

     1,442        1        3,015        -1,540        9,601  

Investing activities

              

Investments in property, plant and equipment

     -951        -1,018        -1,807        -2,033        -3,877  

Sales of property, plant and equipment

     52        37        175        106        1,016  

Acquisitions/divestments of subsidiaries and other operations, net

     -431        9        -880        12        276  

Product development

     -325        -315        -579        -1,180        -1,444  

Other investing activities

     -398        -42        -237        68        -463  

Interest-bearing securities

     3,656        -676        3,122        -12,562        -11,578  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     1,603        -2,005        -206        -15,589        -16,070  

Cash flow before financing activities

     3,045        -2,004        2,809        -17,129        -6,469  

Financing activities

              

Dividends paid

     -3,289        -3,274        -3,289        -3,278        -3,424  

Other financing activities

     -383        -5,636        -477        5,266        8,902  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -3,672        -8,910        -3,766        1,988        5,478  

Effect of exchange rate changes on cash

     980        -594        2,123        -379        -91  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     353        -11,508        1,166        -15,520        -1,082  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     36,697        32,954        35,884        36,966        36,966  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     37,050        21,446        37,050        21,446        35,884  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

21      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements


Table of Contents

Consolidated statement

of changes in equity

 

     Jan-Jun      Jan-Dec  

SEK million

   2018      2017      2017  

Opening balance 1)

     97,571        135,257        135,257  

Opening balance adjustment due to IFRS 9

     -983        —          —    
  

 

 

    

 

 

    

Adjusted opening balance

     96,588        135,257        135,257  

Total comprehensive income (loss)

     -179        -12,572        -35,232  

Sale/repurchase of own shares

     49        34        -5  

Stock issue (net)

     —          15        15  

Long-term variable compensation plans

     391        431        885  

Dividends paid

     -3,289        -3,278        -3,424  

Transactions with non-controlling interests

     —          —          75  
  

 

 

    

 

 

    

Closing balance

     93,560        119,887        97,571  
  

 

 

    

 

 

    

 

1)  The opening balance adjustment for IFRS 15 on initial application date (January 1, 2016) was SEK -4,353 million. Opening balances of 2017 and 2018 have been restated for IFRS 15.

Consolidated income statement

- isolated quarters

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net sales

     49,808       43,411       57,881       49,413       50,281       47,803  

Cost of sales

     -32,475       -28,553       -45,365       -36,132       -35,652       -40,302  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     17,333       14,858       12,516       13,281       14,629       7,501  

Gross margin (%)

     34.8     34.2     21.6     26.9     29.1     15.7

Research and development expenses

     -9,783       -9,073       -9,938       -10,519       -8,364       -9,066  

Selling and administrative expenses

     -7,053       -6,156       -8,245       -5,741       -6,818       -8,223  

Impairment losses on trade receivables 1)

     -369       -28       -680       -1,094       -235       -1,640  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -17,205       -15,257       -18,863       -17,354       -15,417       -18,929  

Other operating income and expenses

     11       84       -12,926 2)      415       239       141  

Shares in earnings of JV and associated companies

     26       3       -5       6       12       11  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     165       -312       -19,278       -3,652       -537       -11,276  

Financial income

     275       -72       -124       -139       -27       -82  

Financial expenses

     -1,085       -469       -394       -182       83       -350  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     -645       -853       -19,796       -3,973       -481       -11,708  

Taxes

     -1,157       128       1,303       516       24       1,682  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     -1,802       -725       -18,493       -3,457       -457       -10,026  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to:

            

Stockholders of the Parent Company

     -1,885       -837       -18,476       -3,561       -471       -10,068  

Non-controlling interests

     83       112       -17       104       14       42  

Other information

            

Average number of shares, basic (million)

     3,290       3,286       3,283       3,279       3,275       3,272  

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

     -0.58       -0.25       -5.63       -1.09       -0.14       -3.08  

Earnings (loss) per share, diluted (SEK) 4)

     -0.58       -0.25       -5.63       -1.09       -0.14       -3.08  

 

1)  Impairment of trade receivables has been calculated according to IFRS 9 in 2018 and according to IAS 39 in 2017. Previously, these losses have been reported as selling and administrative expenses.
2)  Includes write-down of goodwill of SEK -13.0 billion.
3)  Based on net income (loss) attributable to stockholders of the Parent Company.
4)  Potential ordinary shares are not considered when their conversion to ordinary shares would increase earnings per share.

 

 

22      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements


Table of Contents

Consolidated statement

of cash flows - isolated quarters

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Operating activities

                 

Net income (loss)

     -1,802        -725        -18,493        -3,457        -457        -10,026  

Adjustments to reconcile net income to cash

                 

Taxes

     -1,071        -2,315        -1,803        -1,323        -1,826        -4,112  

Earnings/dividends in JV and associated companies

     -19        4        -2        73        -8        -7  

Depreciation, amortization and impairment losses

     2,065        1,891        16,118        4,146        2,197        5,431  

Other

     568        140        179        -218        -48        527  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income reconciled to cash

     -259        -1,005        -4,001        -779        -142        -8,187  

Changes in operating net assets

                 

Inventories

     -1,910        -2,813        8,356        1,061        -1,492        -3,206  

Customer finance, current and non-current

     547        400        36        456        1,140        -834  

Trade receivables and contract assets

     1,661        7,316        -2,246        623        184        2,818  

Trade payables

     1,252        -598        2,565        -1,061        19        363  

Provisions and post-employment benefits

     478        -847        412        -608        315        4,636  

Contract liabilities

     -233        757        2,700        -1,910        -573        4,807  

Other operating assets and liabilities, net

     -94        -1,637        3,337        2,200        550        -1,938  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,701        2,578        15,160        761        143        6,646  

Cash flow from operating activities

     1,442        1,573        11,159        -18        1        -1,541  

Investing activities

                 

Investments in property, plant and equipment

     -951        -856        -1,105        -739        -1,018        -1,015  

Sales of property, plant and equipment

     52        123        898        12        37        69  

Acquisitions/divestments of subsidiaries and other operations, net

     -431        -449        -107        371        9        3  

Product development

     -325        -254        -138        -126        -315        -865  

Other investing activities

     -398        161        -573        42        -42        110  

Interest-bearing securities

     3,656        -534        -2,772        3,756        -676        -11,886  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     1,603        -1,809        -3,797        3,316        -2,005        -13,584  

Cash flow before financing activities

     3,045        -236        7,362        3,298        -2,004        -15,125  

Financing activities

                 

Dividends paid

     -3,289        —          -1        -145        -3,274        -4  

Other financing activities

     -383        -94        2,073        1,563        -5,636        10,902  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -3,672        -94        2,072        1,418        -8,910        10,898  

Effect of exchange rate changes on cash

     980        1,143        240        48        -594        215  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net change in cash and cash equivalents

     353        813        9,674        4,764        -11,508        -4,012  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     36,697        35,884        26,210        21,446        32,954        36,966  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     37,050        36,697        35,884        26,210        21,446        32,954  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

23      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements


Table of Contents

Parent Company income statement

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2018      2017      2018      2017      2017  

Net sales

     —          —          —          —          —    

Cost of sales

     —          —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Gross income

     —          —          —          —          —    

Operating expenses

     -352        -355        -506        -644        -1,294  

Other operating income and expenses

     411        618        754        1,190        1,616  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     59        263        248        546        322  

Financial net

     1,295        2,040        1,472        1,709        -2,297  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Income after financial items

     1,354        2,303        1,720        2,255        -1,975  

Transfers to (-) / from untaxed reserves

     —          —          —          —          -120  

Taxes

     -72        -98        -155        -108        -53  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     1,282        2,205        1,565        2,147        -2,148  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Parent company statement

of comprehensive income (loss)

 

     Apr-Jun      Jan-Jun      Jan-Dec  

SEK million

   2018      2017      2018      2017      2017  

Net income (loss)

     1,282        2,205        1,565        2,147        -2,148  

Revaluation of borrowings due to change in credit risk

     -8        —          50        —          —    

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

     2        —          -11        —          —    

Available-for-sale financial assets

              

Gains/losses arising during the period

     —          41        —          73        68  

Reclassification adjustments on gains/losses included in profit or loss

     —          2        —          5        5  

Revaluation of other investments in shares and participations

              

Fair value remeasurement

     —          —          —          —          102  

Tax on items that may be reclassified to profit or loss

     —          -9        —          -17        -14  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     -6        34        39        61        161  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss)

     1,276        2,239        1,604        2,208        -1,987  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

24      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements


Table of Contents

Parent company balance sheet

 

SEK million

   Jun 30
2018
     Dec 31
2017
 

ASSETS

     

Fixed assets

     

Intangible assets

     223        329  

Tangible assets

     292        346  

Financial assets1) 2)

     114,269        119,896  
  

 

 

    

 

 

 
     114,784        120,571  

Current assets

     

Inventories

     —          1  

Receivables 2)

     42,362        41,173  

Short-term investments

     7,862        6,446  

Cash and cash equivalents

     24,219        18,715  
  

 

 

    

 

 

 
     74,443        66,335  
  

 

 

    

 

 

 

Total assets

     189,227        186,906  
  

 

 

    

 

 

 

STOCKHOLDERS’ EQUITY, PROVISIONS AND LIABILITIES

     

Equity

     

Restricted equity

     48,164        48,164  

Non-restricted equity 2)

     37,939        39,578  
  

 

 

    

 

 

 
     86,103        87,742  

Provisions

     533        602  

Non-current liabilities 2)

     62,862        60,623  

Current liabilities

     39,729        37,939  
  

 

 

    

 

 

 

Total stockholders’ equity, provisions and liabilities

     189,227        186,906  
  

 

 

    

 

 

 

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

     21,501        25,105  
  

 

 

    

 

 

 

 

2)  The following 2018 opening balances have been adjusted due to IFRS 9: financial assets increased by SEK 8 million, receivables decreased by SEK –4 million, non-restricted equity decreased by SEK –28 million, and non-current liabilities increased by SEK 31 million.

 

 

25      Ericsson  |  Second Quarter Report 2018

  

 

Financial statements


Table of Contents

Additional information

Accounting policies

The group

 

This interim report is prepared in accordance with IAS 34. The term “IFRS” used in this document refers to the application of IAS and IFRS as well as interpretations of these standards as issued by IASB’s Standards Interpretation Committee (SIC) and IFRS Interpretations Committee (IFRIC). The accounting policies adopted are consistent with those of the annual report for the year ended December 31,2017 and should be read in conjunction with that annual report, with exception for the accounting policies described below.

New standards as from January 1, 2018

Two new IFRS standards are effective as from January 1, 2018, IFRS 9 “Financial instruments” and IFRS 15 “Revenue from Customer Contracts”.

Presentation in the financial statements

For IFRS 15 the Company has adopted the full retrospective method for transition, which mean that prior year comparatives have been restated and equity has been adjusted at the initial application date (January 1, 2016). The Company has applied IFRS 9 retrospectively on the required effective date, January 1, 2018. The 2018 opening balances have been adjusted, but the previous periods have not been restated.

Based on the new requirements under IFRS 15, contract assets and contract liabilities have been added as new lines in the consolidated balance sheet and statement of cash flow. Previously, contract assets were reported as trade receivables and contract liabilities were reported as deferred revenue and as advances from customers within other current liabilities. Due to IFRS 9, impairment losses on trade receivables are reported on a separate line in the consolidated income statement. Previously, these losses have been reported as Selling and administrative expenses. In the statement of comprehensive income, a new line has been added for revaluation of borrowings due to changes in credit risk. A new line has been added to the consolidated statement of equity showing the adjustment to the opening balance.

The prior periods financial statements and key ratios presented in this quarterly report have been restated to reflect adoption of these new standards.

Accounting policy – IFRS 9 “Financial instruments”

Financial assets

The Company classifies its financial assets in the following categories: at amortized cost, at fair value through other comprehensive income (FVOCI), and at fair value through profit or loss (FVTPL). The classification depends on the characteristics of the asset and the business model in which it is held.

Financial assets at amortized cost

Financial assets are classified as amortized cost if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is to hold financial assets in order to collect contractual cash flows. These assets are subsequently measured at amortized cost using the effective interest method, minus impairment allowances.

Financial assets at fair value through other comprehensive income (FVOCI)

Assets are classified as FVOCI if the contractual terms give rise to payments that are solely payments of principal and interest on the principal amount outstanding and the financial asset is held in a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets. These assets are subsequently measured at fair value with changes in fair value recognized in other comprehensive income (OCI), except for effective interest, impairment gains and losses and foreign exchange gains and losses recognized in the income statement. Upon derecognition, the cumulative gain or loss in OCI is reclassified to the income statement.

Financial assets at fair value through profit or loss (FVTPL)

All financial assets that are not classified as either amortized cost or FVOCI are classified as FVTPL. A financial asset is classified as held for trading if it is acquired principally for the purpose of selling in the near term. Derivatives are classified as held for trading, unless they are designated as hedging instruments for the purpose of hedge accounting. Assets held for trading are classified as current assets. Debt instruments classified as FVTPL, but not held for trading, are classified on the balance sheet based on their maturity date (i.e. those with a maturity longer than one year are classified as non-current). Investments in shares and participations are classified as FVTPL and classified as non-current financial assets.

Gains or losses arising from changes in the fair values of the “Financial assets at fair value through profit or loss” category (excluding derivatives and customer financing) are presented in the income statement within Financial income in the period in which they arise. Gains and losses on derivatives are presented in the income statement either as Cost of sales, Other operating income, Financial income or Financial expense, depending on the intent with the transaction. Gains and losses on customer financing are presented in the income statement as Selling expenses.

Impairment in relation to financial assets

At each balance sheet date, financial assets classified as either amortized cost or FVOCI and contract assets are assessed for impairment based on Expected Credit Losses (ECL). Allowances for trade receivables and contract assets are always equal to lifetime ECL. The loss is recognized in the income statement. When there is no reasonable expectation of collection, the asset is written off.

Borrowings

Borrowings by the Parent Company are designated FVTPL because they are managed and evaluated on a fair value basis. Changes in fair value are recognized in the income statement, except for changes in fair value due to change in credit risk which are recognized in Other comprehensive income.

 

 

 

26      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents
Summary of changes to classification of financial assets and financial liabilities   

Type of asset

  

IAS 39 classification

  

IFRS 9 classification

  

Reason for IFRS 9 classification

Cash equivalents, interest-bearing securities, and derivatives (held for trading)    FVTPL    FVTPL    Held for trading portfolios are classified as FVTPL (no change).
Cash equivalents (not held for trading)    Loans and receivables    Amortized cost    These assets are held to collect contractual cash flows.
Interest-bearing securities (not held for trading)    Available-for-sale    FVTPL    These assets are not held for trading but are managed and evaluated on a fair value basis.
Trade receivables    Loans and receivables    FVOCI    Trade receivables are managed in a business model whose objective is achieved through both collection of contractual cash flows and selling of assets.
Customer financing    Loans and receivables    FVTPL    Customer finance assets are managed in a business model with the objective to realize cash flows through the sale of assets.
Investments in shares and participations (equity instruments)    Available-for-sale    FVTPL    This is an accounting policy choice under IFRS 9.
Borrowings by parent company    Amortized cost    Designated FVTPL    These borrowings are managed and evaluated on a fair value basis.

 

Fair value hedging and fair value hedge accounting

Fair value hedge accounting is no longer applied as of January 1, 2018.

Financial guarantees

Financial guarantee contracts are initially recognized at fair value (i.e., usually the fee received). Subsequently, these contracts are measured at the higher of:

– The expected credit losses.

– The recognized contractual fee less cumulative amortization when amortized over the guarantee period, using the straight-line-method.

Accounting policy – IFRS 15 “Revenue from Contracts with Customers”

IFRS 15, “Revenue from Contracts with Customers” establishes a new principle-based model of recognizing revenue from customer contracts. It introduces a five-step model that requires revenue to be recognized when control over goods and services are transferred to the customer.

The following paragraphs describes the types of contracts, when performance obligations are satisfied, and the timing of revenue recognition. They also describe the normal payment terms associated with such contracts and the resulting impact on the balance sheet over the duration of the contracts. The vast majority of Ericsson’s business is for the sale of standard products and services.

Standard products and services

Products and services are classified as standard solutions if they do not require significant installation and integration services to be delivered. Installation and integration services are generally completed within a short period of time, from the delivery of the related products. These products and services are viewed as separate distinct performance obligations. This type of customer contract is usually signed as a frame agreement and the customer issues individual purchase orders to commit to purchases of products and services over the duration of the agreement.

Revenue for standard products shall be recognized when control over the equipment is transferred to the customer at a point in time. This assessment shall be viewed from a customer’s perspective considering indicators such as transfer of titles and risks, customer acceptance, physical possession, and billing rights. For hardware sales, transfer of control is usually deemed to occur when the equipment arrives at the customer site and for software sales, when the licenses are made available to the customer. Contractual terms may vary, therefore judgment will be applied when assessing the indicators of transfer of control. Revenue for installation and integration services is recognized upon completion of the service.

Transaction prices under these contracts are mostly billed upon delivery of the hardware or software, and completion of installation services, although a proportion may be billed upon formal acceptance of the related installation services. This will result in a contract asset for the proportion of the transaction price that is not yet billed.

Revenue for recurring services such as customer support and managed services is recognized as the services are delivered, generally pro-rata over time. Transaction prices under these contracts are billed over time, often on a quarterly basis. Contract liabilities or receivables may arise depending on whether the quarterly billing is in advance or in arrears.

Contract for standard products and services applies to business in all segments.

Customized solution

Some products and services are sold together as part of a customized solution to the customer. This type of contract requires significant installation and integration services to be delivered within the solution, normally over a period of more than 1 year. These products and services are viewed together as a combined performance obligation. This type of contract is usually sold as a firm contract in which the scope of the solution and obligations of both parties are clearly defined for the duration of the contract.

 

 

 

27      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents

Revenue for the combined performance obligation shall be recognized over time if progress of completion can be reliably measured and enforceable right to payment exists over the duration of the contract. The progress of completion is estimated by reference to the output delivered such as achievement of contract milestones and customer acceptance. This method is considered appropriate as it reflects the nature of the customized solution and how integration service is delivered in these projects. Formal acceptance term is considered a key indicator of transfer of control for a customized solution and shall therefore be obtained prior to recognizing revenue. If the criteria above are not met, then all revenue shall be recognized upon the completion of the customized solution, when final acceptance is provided by the customer.

Transaction price under these contracts are represented by progress payments or billing milestones as defined in the contracts. In most cases, revenue recognized is limited to the progress payments or unconditional billing milestones over the duration of the contract, therefore no contract asset or contract liability arises on these contracts. In some contracts, revenue may be recognized in advance of billing milestones if enforceable payment rights exist at all times over the contract duration. This will result in a contract asset balance until billing milestones are reached.

Contract for customized solution applies to the Business Support Systems (BSS) business within the segment Digital Services and the Media Solutions business within the segment Emerging Business and Other.

Intellectual Property Rights (IPR)

This type of contract relates to the patent and licensing business. The Company has assessed that the nature of its IPR contracts is such that they provide customers a license with the right to access Ericsson intellectual properties over time, therefore revenue shall be recognized over the duration of the contract. Royalty revenue based on sales or usage is recognized when the sales and usage occurs.

The transaction price on these contracts is usually structured as a royalty fee based on sales or usage over the period, measured on a quarterly basis. This results in a receivable balance if the billing is performed the following quarter after measurement. Some contracts include lump sum amounts, payable either up front at commencement or on an annual basis. This results in a contract liability balance if payment is in advance of revenue, as revenue is recognized over time.

As described in Note C3 “Segment Information” of the Annual Report 2017, revenue from IPR licensing contracts are allocated to the segments Networks and Digital Services.

 

 

Impact of IFRS 9 and IFRS 15 on balance sheet items               
                   Restated             Adjusted  
     As reported at      IFRS 15      balance at      IFRS 9      balance at  
     31.12 2017      restatement      31.12.2017      adjustment      1.1.2018  

ASSETS

              

Non-current assets

              

Deferred tax assets

     21,228        735        21,963        288        22,251  

Current assets

              

Inventories

     24,960        587        25,547        —          25,547  

Contract assets

     —          13,120        13,120        —          13,120  

Trade receivables

     63,210        -15,105        48,105        -1,240        46,865  

EQUITY AND LIABILITIES

              

Equity

              

Stockholder’s equity

     99,540        -2,605        96,935        -983        95,952  

Non-current liabilities

              

Borrowings, non-current

     30,500        —          30,500        31        30,531  

Current liabilities

              

Provisions

     6,350        -67        6,283        —          6,283  

Contract liabilities

     —          29,076        29,076        —          29,076  

Other current liabilities

     62,370        -27,065        35,305        —          35,305  

 

Segment reporting

Changes applied in Q1 2018

As of Q1 2018, sales related to 3PP routing business are reported in Networks (earlier Digital Services). Comparative periods have been restated to reflect this change. In Q1 2018, these sales were SEK 151 (160) million.

Changes applied in Q2 2018

As of Q2 2018, sales related to Application Development and Maintenance (ADM) and certain sales related to Business Support Solution (BSS) was moved between segments Managed Services and Digital Services, with increased sales in Managed Services and a corresponding sales decrease in Digital Services (net effect of SEK 1.9 b in 2017). The corresponding impact on 2017 gross income was SEK 0.2 b (positive for Managed Services, negative for Digital Services). Historical data has been restated to reflect the organizational change.

 

 

 

 

28      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents
Net sales by segment by quarter             
     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     32,393       28,602       37,077       31,871       31,699       31,638  

Of which Products

     22,319       19,473       25,404       21,734       21,281       21,858  

Of which Services

     10,074       9,129       11,673       10,137       10,418       9,780  

Digital Services

     8,833       7,262       11,820       8,930       9,901       8,101  

Of which Products

     4,467       3,947       6,452       4,859       5,370       4,327  

Of which Services

     4,366       3,315       5,368       4,071       4,531       3,774  

Managed Services

     6,528       5,896       6,898       6,618       6,673       6,283  

Emerging Business and Other

     2,054       1,651       2,086       1,994       2,008       1,781  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     49,808       43,411       57,881       49,413       50,281       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13     -23     16     1     0     —    

Of which Products

     15     -23     17     2     -3     —    

Of which Services

     10     -22     15     -3     7     —    

Digital Services

     22     -39     32     -10     22     —    

Of which Products

     13     -39     33     -10     24     —    

Of which Services

     32     -38     32     -10     20     —    

Managed Services

     11     -15     4     -1     6     —    

Emerging Business and Other

     24     -21     5     -1     13     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     15     -25     17     -2     5     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     2     -10     —         —         —         —    

Of which Products

     5     -11     —         —         —         —    

Of which Services

     -3     -7     —         —         —         —    

Digital Services

     -11     -10     —         —         —         —    

Of which Products

     -17     -9     —         —         —         —    

Of which Services

     -4     -12     —         —         —         —    

Managed Services

     -2     -6     —         —         —         —    

Emerging Business and Other

     2     -7     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -1     -9     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Year to date, SEK million

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

Networks

     60,995       28,602       132,285       95,208       63,337       31,638  

Of which Products

     41,792       19,473       90,277       64,873       43,139       21,858  

Of which Services

     19,203       9,129       42,008       30,335       20,198       9,780  

Digital Services

     16,095       7,262       38,752       26,932       18,002       8,101  

Of which Products

     8,414       3,947       21,008       14,556       9,697       4,327  

Of which Services

     7,681       3,315       17,744       12,376       8,305       3,774  

Managed Services

     12,424       5,896       26,472       19,574       12,956       6,283  

Emerging Business and Other

     3,705       1,651       7,869       5,783       3,789       1,781  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     93,219       43,411       205,378       147,497       98,084       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Year over year change, percent

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

Networks

     -4     -10     -6     —         —         —    

Of which Products

     -3     -11     -4     —         —         —    

Of which Services

     -5     -7     -8     —         —         —    

Digital Services

     -11     -10     -9     —         —         —    

Of which Products

     -13     -9     -10     —         —         —    

Of which Services

     -8     -12     -8     —         —         —    

Managed Services

     -4     -6     -8     —         —         —    

Emerging Business and Other

     -2     -7     -9     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -5     -9     -7     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

29      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents
Sales growth adjusted for comparable units and currency*             
     2018     2017  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     7     -22     —         —         —         —    

Digital Services

     16     -38     —         —         —         —    

Managed Services

     6     -11     —         —         —         —    

Emerging Business and Other

     18     -20     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     9     -24     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2018     2017  

Isolated quarter, year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     2     -2     —         —         —         —    

Digital Services

     -12     -3     —         —         —         —    

Managed Services

     -3     -4     —         —         —         —    

Emerging Business and Other

     1     -2     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -1     -2     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Year to date, year over year change,

   2018     2017  

percent

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

Networks

     0     -2     —         —         —         —    

Digital Services

     -8     -3     —         —         —         —    

Managed Services

     -3     -4     —         —         —         —    

Emerging Business and Other

     -1     -2     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -2     -2     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

*   Sales growth adjusted for comparable units and currency has not been restated for 2017.

 

    

 

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

 

 

 
Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     12,565       11,127       11,849       10,654       10,894       10,031  

Digital Services

     3,458       2,892       1,114       2,620       3,289       -2,324  

Managed Services

     809       491       -691       -360       19       -542  

Emerging Business and Other

     501       348       245       367       427       336  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     17,333       14,858       12,517       13,281       14,629       7,501  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Isolated quarters,    2018     2017  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     38.8     38.9     32.0     33.4     34.4     31.7

Digital Services

     39.1     39.8     9.4     29.3     33.2     -28.7

Managed Services

     12.4     8.3     -10.0     -5.4     0.3     -8.6

Emerging Business and Other

     24.4     21.1     11.7     18.4     21.3     18.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     34.8     34.2     21.6     26.9     29.1     15.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

SEK million

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

Networks

     23,692       11,127       43,428       31,579       20,925       10,031  

Digital Services

     6,350       2,892       4,699       3,585       965       -2,324  

Managed Services

     1,300       491       -1,574       -883       -523       -542  

Emerging Business and Other

     849       348       1,375       1,130       763       336  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     32,191       14,858       47,928       35,411       22,130       7,501  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

As percentage of net sales

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

Networks

     38.8     38.9     32.8     33.2     33.0     31.7

Digital Services

     39.5     39.8     12.1     13.3     5.4     -28.7

Managed Services

     10.5     8.3     -5.9     -4.5     -4.0     -8.6

Emerging Business and Other

     22.9     21.1     17.5     19.5     20.1     18.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     34.5     34.2     23.3     24.0     22.6     15.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

30      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents
Operating income (loss) and operating margin by segment by quarter    
Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     3,544       3,371       1,945       2,375       3,424       2,711  

Digital Services

     -2,374       -2,607       -12,271       -3,770       -2,237       -9,004  

Managed Services

     299       100       -1,275       -727       -258       -1,829  

Emerging Business and Other

     -1,304       -1,176       -7,677       -1,530       -1,466       -3,154  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     165       -312       -19,278       -3,652       -537       -11,276  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Isolated quarters,    2018     2017  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     10.9     11.8     5.2     7.5     10.8     8.6

Digital Services

     -26.9     -35.9     -103.8     -42.2     -22.6     -111.1

Managed Services

     4.6     1.7     -18.5     -11.0     -3.9     -29.1

Emerging Business and Other

     -63.5     -71.2     -368.0     -76.7     -73.0     -177.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     0.3     -0.7     -33.3     -7.4     -1.1     -23.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

SEK million

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

Networks

     6,915       3,371       10,455       8,510       6,135       2,711  

Digital Services

     -4,981       -2,607       -27,282       -15,011       -11,241       -9,004  

Managed Services

     399       100       -4,089       -2,814       -2,087       -1,829  

Emerging Business and Other

     -2,480       -1,176       -13,827       -6,150       -4,620       -3,154  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -147       -312       -34,743       -15,465       -11,813       -11,276  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date    2018     2017  

As percentage of net sales

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

Networks

     11.3     11.8     7.9     8.9     9.7     8.6

Digital Services

     -30.9     -35.9     -70.4     -55.7     -62.4     -111.1

Managed Services

     3.2     1.7     -15.4     -14.4     -16.1     -29.1

Emerging Business and Other

     -66.9     -71.2     -175.7     -106.3     -121.9     -177.1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -0.2     -0.7     -16.9     -10.5     -12.0     -23.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

31      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents

EBITA and EBITA margin by segment by quarter

 

Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     3,618       3,461       2,032       2,460       3,509       2,892  

Digital Services

     -2,204       -2,443       -4,890       -3,577       -2,034       -8,246  

Managed Services

     303       105       -1,268       -726       -259       -1,825  

Emerging Business and Other

     -1,202       -1,088       -1,199       -1,430       -1,308       -2,222  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     515       35       -5,325       -3,273       -92       -9,401  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Isolated quarters    2018     2017  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     11.2     12.1     5.5     7.7     11.1     9.1

Digital Services

     -25.0     -33.6     -41.4     -40.1     -20.5     -101.8

Managed Services

     4.6     1.8     -18.4     -11.0     -3.9     -29.0 %

Emerging Business and Other

     -58.5     -65.9     -57.5     -71.7     -65.1     -124.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1.0     0.1     -9.2     -6.6     -0.2     -19.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

SEK million

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

Networks

     7,079       3,461       10,893       8,861       6,401       2,892  

Digital Services

     -4,647       -2,443       -18,747       -13,857       -10,280       -8,246  

Managed Services

     408       105       -4,078       -2,810       -2,084       -1,825  

Emerging Business and Other

     -2,290       -1,088       -6,159       -4,960       -3,530       -2,222  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     550       35       -18,091       -12,766       -9,493       -9,401  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date    2018     2017  

As a percentage of net sales

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

Networks

     11.6     12.1     8.2     9.3     10.1     9.1

Digital Services

     -28.9     -33.6     -48.4     -51.5     -57.1     -101.8

Managed Services

     3.3     1.8     -15.4     -14.4     -16.1     -29.0

Emerging Business and Other

     -61.8     -65.9     -78.3     -85.8     -93.2     -124.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     0.6     0.1     -8.8     -8.7     -9.7     -19.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

32      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents

Net sales by market area by quarter

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     6,981       6,379       7,844       7,858       7,234       8,410  

North East Asia

     4,764       3,385       6,465       5,653       5,901       5,564  

North America

     14,337       11,317       14,685       12,319       12,970       12,027  

Europe and Latin America 1) 2)

     14,174       13,061       16,939       13,430       14,231       12,201  

Middle East and Africa

     5,626       5,765       7,581       6,297       5,731       5,356  

Other 1) 2)

     3,926       3,504       4,367       3,856       4,214       4,245  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     49,808       43,411       57,881       49,413       50,281       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     596       915       872       660       785       1,017  

2) Of which in EU

     8,619       8,522       10,822       8,635       8,687       8,328  
     2018     2017  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     9     -19     0     9     -14     —    

North East Asia

     41     -48     14     -4     6     —    

North America

     27     -23     19     -5     8     —    

Europe and Latin America 1) 2)

     9     -23     26     -6     17     —    

Middle East and Africa

     -2     -24     20     10     7     —    

Other 1) 2)

     12     -20     13     -8     -1     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     15     -25     17     -2     5     —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -35     5     32     -16     -23     —    

2) Of which in EU

     1     -21     25     -1     4     —    
     2018     2017  

Year-over-year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     -3     -24     —         —         —         —    

North East Asia

     -19     -39     —         —         —         —    

North America

     11     -6     —         —         —         —    

Europe and Latin America 1) 2)

     0     7     —         —         —         —    

Middle East and Africa

     -2     8     —         —         —         —    

Other 1) 2)

     -7     -17     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -1     -9     —         —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -24     -10     —         —         —         —    

2) Of which in EU

     -1     2     —         —         —         —    
     2018     2017  

Year to date, SEK million

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

South East Asia, Oceania and India

     13,360       6,379       31,346       23,502       15,644       8,410  

North East Asia

     8,149       3,385       23,583       17,118       11,465       5,564  

North America

     25,654       11,317       52,001       37,316       24,997       12,027  

Europe and Latin America 1) 2)

     27,235       13,061       56,801       39,862       26,432       12,201  

Middle East and Africa

     11,391       5,765       24,965       17,384       11,087       5,356  

Other 1) 2)

     7,430       3,504       16,682       12,315       8,459       4,245  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     93,219       43,411       205,378       147,497       98,084       47,803  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     1,511       915       3,334       2,462       1,802       1,017  

2) Of which in EU

     17,141       8,522       36,472       25,650       17,015       8,328  
Year to date, year-over-year change,    2018     2017  

percent

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

South East Asia, Oceania and India

     -15     -24     0     —         —         —    

North East Asia

     -29     -39     -13     —         —         —    

North America

     3     -6     1     —         —         —    

Europe and Latin America 1) 2)

     3     7     -9     —         —         —    

Middle East and Africa

     3     8     -9     —         —         —    

Other 1) 2)

     -12     -17     -18     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     -5     -9     -7     —         —         —    
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1) Of which in Sweden

     -16     -10     -1     —         —         —    

2) Of which in EU

     1     2     -6     —         —         —    

 

 

33      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents

Top 5 countries in sales

 

Country    Q2     Jan-Jun  

Percentage of Net sales

   2018     2017     2018     2017  

United States

     30     28     29     27

China

     6     9     5     8

India

     5     4     5     5

Australia

     3     4     3     4

Japan

     3     2     3     3

Net sales by market area by segment

 

     Q2 2018     Jan-Jun 2018  

SEK million

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

South East Asia, Oceania and India

     4,987       1,077       915       2       6,981       9,406       2,304       1,640       10       13,360  

North East Asia

     3,596       792       368       8       4,764       5,839       1,524       754       32       8,149  

North America

     11,358       2,136       822       21       14,337       20,706       3,482       1,417       49       25,654  

Europe and Latin America

     7,753       2,908       3,434       79       14,174       15,203       5,207       6,678       147       27,235  

Middle East and Africa

     3,034       1,594       990       8       5,626       6,529       2,915       1,935       12       11,391  

Other

     1,665       326       -1       1,936       3,926       3,312       663       —         3,455       7,430  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     32,393       8,833       6,528       2,054       49,808       60,995       16,095       12,424       3,705       93,219  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Share of total

     65     18     13     4     100     66     17     13     4     100

 

     Q2 2018  
                       Emerging        
Sequential change,          Digital     Managed     Business        

percent

   Networks     Services     Services     and Other     Total  

South East Asia, Oceania and

          

India

     13     -12     26     -75     9

North East Asia

     60     8     -5     -67     41

North America

     22     59     38     -25     27

Europe and Latin America

     4     26     6     16     9

Middle East and Africa

     -13     21     5     100     -2

Other

     1     -3     —         27     12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     13     22     11     24     15
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

     Q2 2018     Jan-Jun 2018  
                       Emerging                             Emerging        
Year over year change,          Digital     Managed     Business                 Digital     Managed     Business        

percent

   Networks     Services     Services     and Other     Total     Networks     Services     Services     and Other     Total  

South East Asia, Oceania and India

     -5     -12     18     -33     -3     -19     -5     6     233     -15

North East Asia

     -5     -52     -17     700     -19     -28     -39     -11     967     -29

North America

     15     -2     -8     -19     11     8     -11     -19     -4     3

Europe and Latin America

     1     -1     -3     84     0     8     -5     -2     116     3

Middle East and Africa

     -5     5     -3     —         -2     5     2     -4     —         3

Other

     -12     -14     —         0     -7     -18     -13     —         -6     -12
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2     -11     -2     2     -1     -4     -11     -4     -2     -5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

34      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents

IPR licensing revenues by segment by quarter

 

Isolated quarters,    2018      2017  

SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Networks

     1,486        1,522        1,731        1,640        1,670        1,724  

Digital Services

     326        334        380        360        366        379  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,812        1,856        2,111        2,000        2,036        2,103  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

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

Networks

     3,008        1,522        6,765        5,034        3,394        1,724  

Digital Services

     660        334        1,485        1,105        745        379  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3,668        1,856        8,250        6,139        4,139        2,103  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Provisions

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Opening balance

     9,030        9,879        9,514        10,357        10,514        6,320  

Additions

     1,974        1,315        2,769        1,942        1,403        6,365  

Utilization/Cash out

     -1,486        -2,216        -2,186        -2,626        -1,324        -2,085  

Of which restructuring

     -832        -1,424        -1,204        -1,461        -1,075        -1,586  

Reversal of excess amounts

     -191        -117        -199        -32        -65        -66  

Reclassification, translation difference and other

     207        169        -19        -127        -171        -20  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Closing balance

     9,534        9,030        9,879        9,514        10,357        10,514  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Of which restructuring

     4,029        3,524        4,043        3,458        4,003        4,059  
     2018      2017  

Year to date, SEK million

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

Opening balance

     9,879        9,879        6,320        6,320        6,320        6,320  

Additions

     3,289        1,315        12,479        9,710        7,768        6,365  

Utilization/Cash out

     -3,702        -2,216        -8,221        -6,035        -3,409        -2,085  

Of which restructuring

     -2,256        -1,424        -5,326        -4,122        -2,661        -1,586  

Reversal of excess amounts

     -308        -117        -362        -163        -131        -66  

Reclassification, translation difference and other

     376        169        -337        -318        -191        -20  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Closing balance

     9,534        9,030        9,879        9,514        10,357        10,514  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Of which restructuring

     4,029        3,524        4,043        3,458        4,003        4,059  

 

 

35      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents

Information on investments

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

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Additions

                 

Property, plant and equipment

     951        856        1,105        739        1,018        1,015  

Capitalized development expenses

     325        254        138        126        315        865  

Goodwill, IPR, brands and other intangible assets

     124        421        315        1        19        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     1,400        1,531        1,558        866        1,352        1,881  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation, amortization and impairment losses

                 

Property, plant and equipment

     1,080        928        1,284        2,894        1,061        1,075  

Capitalized development expenses

     635        616        881        874        690        2,481  

Goodwill, IPR, brands and other intangible assets

     350        347        13,953        378        446        1,875  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,065        1,891        16,118        4,146        2,197        5,431  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

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

Additions

                 

Property, plant and equipment

     1,807        856        3,877        2,772        2,033        1,015  

Capitalized development expenses

     579        254        1,444        1,306        1,180        865  

Goodwill, IPR, brands and other intangible assets

     545        421        336        21        20        1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     2,931        1,531        5,657        4,099        3,233        1,881  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Depreciation, amortization and impairment losses

                 

Property, plant and equipment

     2,008        928        6,314        5,030        2,136        1,075  

Capitalized development expenses

     1,251        616        4,926        4,045        3,171        2,481  

Goodwill, IPR, brands and other intangible assets

     697        347        16,652        2,699        2,321        1,875  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     3,956        1,891        27,892        11,774        7,628        5,431  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

36      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents
Other information           
     Apr-Jun     Jan-Jun     Jan-Dec  

SEK million

   2018     2017     2018     2017     2017  

Number of shares and earnings per share

          

Number of shares, end of period (million)

     3,334       3,334       3,334       3,334       3,334  

Of which class A-shares (million)

     262       262       262       262       262  

Of which class B-shares (million)

     3,072       3,072       3,072       3,072       3,072  

Number of treasury shares, end of period (million)

     43       58       43       58       50  

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

     3,291       3,276       3,291       3,276       3,284  

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

     3,323       3,319       3,323       3,319       3,324  

Average number of treasury shares (million)

     44       58       46       59       56  

Average number of shares outstanding, basic (million)

     3,290       3,275       3,288       3,273       3,277  

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

     3,322       3,318       3,321       3,316       3,317  

Earnings (loss) per share, basic (SEK)

     -0.58       -0.14       -0.83       -3.22       -9.94  

Earnings (loss) per share, diluted (SEK) 1)

     -0.58       -0.14       -0.83       -3.22       -9.94  

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

     -0.09       0.33       0.02       -1.86       -3.24  

Ratios

          

Days sales outstanding

     —         —         99       109       96  

Inventory turnover days

     83       90       83       81       66  

Payable days

     77       66       82       61       60  

Alternative Performance Measures (APMs)

          

Equity ratio (%)

     —         —         35.3     43.6     37.5

Return on equity (%)

     -8.1     -1.6     -5.7     -16.6     -28.1

Return on capital employed (%)

     1.1     -1.3     0.1     -13.3     -20.6

Capital turnover (times)

     1.3       1.1       1.2       1.1       1.2  

Free cash flow

     -611.0       -1,328       -313       -4,567       5,109  

Cash conversion (%)

     -556.8     -0.7     -238.5     18.5     -73.2

Exchange rates used in the consolidation

          

SEK/EUR- closing rate

     —         —         10.44       9.65       9.83  

SEK/USD- closing rate

     —         —         8.97       8.46       8.20  

Other

          

Market area inventory, end of period

     19,739       20,830       19,739       20,830       14,480  

Export sales from Sweden

     24,978       21,780       45,657       43,229       87,463  

 

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.

 

Number of employees                  
     2018      2017  

End of period

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

South East Asia, Oceania and India

     23,516        23,623        24,495        26,396        26,748        27,221  

North East Asia

     12,303        12,321        12,456        12,945        12,972        12,962  

North America

     9,510        9,798        10,009        10,665        11,073        11,253  

Europe and Latin America 1)

     45,743        47,528        49,231        50,832        53,173        54,194  

Middle East and Africa

     4,188        4,311        4,544        5,014        5,161        5,268  

Total

     95,260        97,581        100,735        105,852        109,127        110,898  

1) Of which in Sweden

     13,431        13,763        13,864        14,195        14,483        14,712  

 

 

37      Ericsson  |  Second Quarter Report 2018

  

 

Additional information


Table of Contents

Items excluding restructuring charges

 

Restructuring charges by function           
     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Cost of sales

     -937        -743        -2,038        -817        -927        -1,460  

Research and development expenses

     -502        -326        147        -1,896        -344        -214  

Selling and administrative expenses

     -441        -103        -534        -106        -243        -69  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -1,880        -1,172        -2,425        -2,819        -1,514        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

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

Cost of sales

     -1,680        -743        -5,242        -3,204        -2,387        -1,460  

Research and development expenses

     -828        -326        -2,307        -2,454        -558        -214  

Selling and administrative expenses

     -544        -103        -952        -418        -312        -69  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -3,052        -1,172        -8,501        -6,076        -3,257        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Restructuring charges by segment

 

     
     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Networks

     -749        -479        -1,260        -1,409        -816        -1,343  

of which cost of sales

     -469        -415        -1,052        -430        -512        -1,153  

of which operating expenses

     -280        -64        -208        -979        -304        -190  

Digital Services

     -882        -581        -686        -1,103        -454        -270  

of which cost of sales

     -303        -226        -609        -241        -242        -195  

of which operating expenses

     -579        -355        -77        -862        -212        -75  

Managed Services

     -123        -51        -376        -99        -115        -85  

of which cost of sales

     -103        -48        -326        -94        -113        -83  

of which operating expenses

     -20        -3        -50        -5        -2        -2  

Emerging Business and Other

     -126        -61        -103        -208        -129        -45  

of which cost of sales

     -62        -54        -51        -52        -60        -29  

of which operating expenses

     -64        -7        -52        -156        -69        -16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -1,880        -1,172        -2,425        -2,819        -1,514        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2018      2017  

Year to date, SEK million

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

Networks

     -1,228        -479        -4,828        -3,568        -2,159        -1,343  

of which cost of sales

     -884        -415        -3,147        -2,095        -1,665        -1,153  

of which operating expenses

     -344        -64        -1,681        -1,473        -494        -190  

Digital Services

     -1,463        -581        -2,513        -1,827        -724        -270  

of which cost of sales

     -529        -226        -1,287        -678        -437        -195  

of which operating expenses

     -934        -355        -1,226        -1,149        -287        -75  

Managed Services

     -174        -51        -675        -299        -200        -85  

of which cost of sales

     -151        -48        -616        -290        -196        -83  

of which operating expenses

     -23        -3        -59        -9        -4        -2  

Emerging Business and Other

     -187        -61        -485        -382        -174        -45  

of which cost of sales

     -116        -54        -192        -141        -89        -29  

of which operating expenses

     -71        -7        -293        -241        -85        -16  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

     -3,052        -1,172        -8,501        -6,076        -3,257        -1,743  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

 

38      Ericsson  |  Second Quarter Report 2018

  

 

Items excluding restructuring charges


Table of Contents

Gross income (loss) and gross margin excluding restructuring charges by segment

 

     
Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13,034       11,542       12,901       11,084       11,406       11,184  

Digital Services

     3,761       3,118       1,724       2,860       3,531       -2,129  

Managed Services

     912       539       -365       -266       132       -459  

Emerging Business and Other

     563       402       295       420       488       364  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     18,270       15,601       14,555       14,098       15,557       8,960  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Isolated quarters,    2018     2017  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     40.2     40.4     34.8     34.8     36.0     35.3

Digital Services

     42.6     42.9     14.6     32.0     35.7     -26.3

Managed Services

     14.0     9.1     -5.3     -4.0     2.0     -7.3

Emerging Business and Other

     27.4     24.3     14.1     21.1     24.3     20.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     36.7     35.9     25.1     28.5     30.9     18.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

SEK million

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

Networks

     24,576       11,542       46,575       33,674       22,590       11,184  

Digital Services

     6,879       3,118       5,986       4,262       1,402       -2,129  

Managed Services

     1,451       539       -958       -593       -327       -459  

Emerging Business and Other

     965       402       1,567       1,272       852       364  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     33,871       15,601       53,170       38,615       24,517       8,960  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

As percentage of net sales

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

Networks

     40.3     40.4     35.2     35.4     35.7     35.3

Digital Services

     42.7     42.9     15.4     15.8     7.8     -26.3

Managed Services

     11.7     9.1     -3.6     -3.0     -2.5     -7.3

Emerging Business and Other

     26.0     24.3     19.9     22.0     22.5     20.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     36.3     35.9     25.9     26.2     25.0     18.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

39      Ericsson  |  Second Quarter Report 2018

  

 

Items excluding restructuring charges


Table of Contents
Operating income (loss) and operating margin excluding restructuring charges by segment  
Isolated quarters,    2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     4,293       3,850       3,205       3,784       4,240       4,054  

Digital Services

     -1,492       -2,026       -11,585       -2,668       -1,783       -8,734  

Managed Services

     422       151       -898       -628       -143       -1,744  

Emerging Business and Other

     -1,178       -1,115       -7,575       -1,321       -1,337       -3,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2,045       860       -16,853       -833       977       -9,533  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Isolated quarters,    2018     2017  

As percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13.3     13.5     8.6     11.9     13.4     12.8

Digital Services

     -16.9     -27.9     -98.0     -29.9     -18.0     -107.8

Managed Services

     6.5     2.6     -13.0     -9.5     -2.1     -27.8

Emerging Business and Other

     -57.4     -67.5     -363.1     -66.2     -66.6     -174.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4.1     2.0     -29.1     -1.7     1.9     -19.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

SEK million

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

Networks

     8,143       3,850       15,283       12,078       8,294       4,054  

Digital Services

     -3,518       -2,026       -24,770       -13,185       -10,517       -8,734  

Managed Services

     573       151       -3,413       -2,515       -1,887       -1,744  

Emerging Business and Other

     -2,293       -1,115       -13,342       -5,767       -4,446       -3,109  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2,905       860       -26,242       -9,389       -8,556       -9,533  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
Year to date,    2018     2017  

As percentage of net sales

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

Networks

     13.4     13.5     11.6     12.7     13.1     12.8

Digital Services

     -21.9     -27.9     -63.9     -49.0     -58.4     -107.8

Managed Services

     4.6     2.6     -12.9     -12.8     -14.6     -27.8

Emerging Business and Other

     -61.9     -67.5     -169.6     -99.7     -117.3     -174.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3.1     2.0     -12.8     -6.4     -8.7     -19.9
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

 

40      Ericsson  |  Second Quarter Report 2018

  

 

Items excluding restructuring charges


Table of Contents

Alternative performance measures

 

This section includes a reconciliation of certain Alternative Performance Measures (APMs) to the most directly reconcilable line items in the financial statements. The presentation of APMs has limitations as analytical tools and should not be considered in isolation or as a substitute for related financial measures prepared in accordance with IFRS.

APMs are presented to enhance an investor’s evaluation of ongoing operating results, to aid in forecasting future periods and to facilitate meaningful comparison of results between periods.

Management uses these APMs to, among other things, evaluate ongoing operations in relation to historical results, for internal planning and forecasting purposes and in the calculation of certain performance-based compensation.

The APMs presented in this report may differ from similarly titled measures used by other companies.

For additional information, see Alternative Performance Measures in the Ericsson Annual Report 2017.

 

 

Sales growth adjusted for

comparable units and currency

Sales growth adjusted for the impact of acquisitions and divestments as well as the effects of foreign currency fluctuations.

 

     2018     2017  

Isolated quarter, sequential change

   Q2     Q1     Q4      Q3      Q2      Q1  

Reported net sales

     49,808       43,411       —          —          —          —    

Acquired/divested business

     —         —         —          —          —          —    

Net FX impact

     -2,460       423       —          —          —          —    

Comparable net sales, excluding FX impact

     47,348       43,834       —          —          —          —    

Sales growth adjusted for comparable units and currency (%)

     9     -24     —          —          —          —    
     2018     2017  

Isolated quarter, year over year change

   Q2     Q1     Q4      Q3      Q2      Q1  

Reported net sales

     49,808       43,411       —          —          —          —    

Acquired/divested business

     —         —         —          —          —          —    

Net FX impact

     -263       3,328       —          —          —          —    

Comparable net sales, excluding FX impact

     49,545       46,739       —          —          —          —    

Sales growth adjusted for comparable units and currency (%)

     -1     -2     —          —          —          —    
     2018     2017  

Year to date, year over year change

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

Reported net sales

     93,219       43,411       —          —          —          —    

Acquired/divested business

     —         —         —          —          —          —    

Net FX impact

     3,065       3,328       —          —          —          —    

Comparable net sales, excluding FX impact

     96,284       46,739       —          —          —          —    

Sales growth adjusted for comparable units and currency (%)

     -2     -2     —          —          —          —    

 

 

41      Ericsson  |  Second Quarter Report 2018

  

 

Alternative performance measures


Table of Contents

Items excluding restructuring charges

Gross income, operating expenses, and operating income (loss) are presented excluding restructuring charges and, for certain measures, as a percentage of net sales.

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Gross income

     17,333       14,858       12,516       13,281       14,629       7,501  

Net sales

     49,808       43,411       57,881       49,413       50,281       47,803  

Gross margin (%)

     34.8     34.2     21.6     26.9     29.1     15.7

Gross income

     17,333       14,858       12,516       13,281       14,629       7,501  

Restructuring charges included in cost of sales

     937       743       2,038       817       927       1,460  

Gross income, excluding restructuring charges

     18,270       15,601       14,554       14,098       15,556       8,961  

Net sales

     49,808       43,411       57,881       49,413       50,281       47,803  

Gross margin, excluding restructuring charges (%)

     36.7     35.9     25.1     28.5     30.9     18.7

Operating expenses

     -17,205       -15,257       -18,863       -17,354       -15,417       -18,929  

Restructuring charges included in R&D expenses

     502       326       -147       1,896       344       214  

Restructuring charges included in selling and administrative expenses

     441       103       534       106       243       69  

Operating expenses, excluding restructuring charges

     -16,262       -14,828       -18,476       -15,352       -14,830       -18,646  

Operating income (loss)

     165       -312       -19,278       -3,652       -537       -11,276  

Net sales

     49,808       43,411       57,881       49,413       50,281       47,803  

Operating margin (%)

     0.3     -0.7     -33.3     -7.4     -1.1     -23.6

Operating income (loss)

     165       -312       -19,278       -3,652       -537       -11,276  

Total restructuring charges

     1,880       1,172       2,425       2,819       1,514       1,743  

Operating income (loss), excluding restructuring charges

     2,045       860       -16,853       -833       977       -9,533  

Net sales

     49,808       43,411       57,881       49,413       50,281       47,803  

Operating margin, excluding restructuring charges (%)

     4.1     2.0     -29.1     -1.7     1.9     -19.9
     2018     2017  

Year to date, SEK million

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

Gross income

     32,191       14,858       47,927       35,411       22,130       7,501  

Net sales

     93,219       43,411       205,378       147,497       98,084       47,803  

Gross margin (%)

     34.5     34.2     23.3     24.0     22.6     15.7

Gross income

     32,191       14,858       47,927       35,411       22,130       7,501  

Restructuring charges included in cost of sales

     1,680       743       5,242       3,204       2,387       1,460  

Gross income, excluding restructuring charges

     33,871       15,601       53,169       38,615       24,517       8,961  

Net sales

     93,219       43,411       205,378       147,497       98,084       47,803  

Gross margin, excluding restructuring charges (%)

     36.3     35.9     25.9     26.2     25.0     18.7

Operating expenses

     -32,462       -15,257       -70,563       -51,700       -34,346       -18,929  

Restructuring charges included in R&D expenses

     828       326       2,307       2,454       558       214  

Restructuring charges included in selling and administrative expenses

     544       103       952       418       312       69  

Operating expenses, excluding restructuring charges

     -31,090       -14,828       -67,304       -48,828       -33,476       -18,646  

Operating income (loss)

     -147       -312       -34,743       -15,465       -11,813       -11,276  

Net sales

     93,219       43,411       205,378       147,497       98,084       47,803  

Operating margin (%)

     -0.2     -0.7     -16.9     -10.5     -12.0     -23.6

Operating income (loss)

     -147       -312       -34,743       -15,465       -11,813       -11,276  

Total restructuring charges

     3,052       1,172       8,501       6,076       3,257       1,743  

Operating income (loss), excluding restructuring charges

     2,905       860       -26,242       -9,389       -8,556       -9,533  

Net sales

     93,219       43,411       205,378       147,497       98,084       47,803  

Operating margin, excluding restructuring charges (%)

     3.1     2.0     -12.8     -6.4     -8.7     -19.9

 

 

42      Ericsson  |  Second Quarter Report 2018

  

 

Alternative performance measures


Table of Contents

EBITA and EBITA margin

Earnings (loss) before interest, taxes, amortization and write-downs of acquired intangibles, also expressed as a percentage of net sales.

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net income (loss)

     -1,802       -725       -18,493       -3,457       -457       -10,026  

Taxes

     1,157       -128       -1,303       -516       -24       -1,682  

Financial income and expenses

     810       541       518       321       -56       432  

Amortization and write-downs of acquired intangibles

     350       347       13,953       379       445       1,875  

EBITA

     515       35       -5,325       -3,273       -92       -9,401  

Net sales

     49,808       43,411       57,881       49,413       50,281       47,803  

EBITA margin (%)

     1     0.1     -9.2     -6.6     -0.2     -19.7
     2018     2017  

Year to date, SEK million

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

Net income (loss)

     -2,527       -725       -32,433       -13,940       -10,483       -10,026  

Taxes

     1,029       -128       -3,525       -2,222       -1,706       -1,682  

Financial income and expenses

     1,351       541       1,215       697       376       432  

Amortization and write-downs of acquired intangibles

     697       347       16,652       2,699       2,320       1,875  

EBITA

     550       35       -18,091       -12,766       -9,493       -9,401  

Net sales

     93,219       43,411       205,378       147,497       98,084       47,803  

EBITA margin (%)

     1     0.1     -8.8     -8.7     -9.7     -19.7

Cash conversion

Cash flow from operating activities divided by the sum of net income (loss) and adjustments to reconcile net income to cash, expressed as a percentage.

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net income (loss)

     -1,802       -725       -18,493       -3,457       -457       -10,026  

Net income reconciled to cash

     -259       -1,005       -4,001       -779       -142       -8,187  

Cash flow from operating activities

     1,442       1,573       11,159       -18       1       -1,541  

Cash conversion (%)

     -556.8     -156.5     -278.9     2.3     -0.7     18.8
     2018     2017  

Year to date, SEK million

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

Net income (loss)

     -2,527       -725       -32,433       -13,940       -10,483       -10,026  

Net income reconciled to cash

     -1,264       -1,005       -13,109       -9,108       -8,329       -8,187  

Cash flow from operating activities

     3,015       1,573       9,601       -1,558       -1,540       -1,541  

Cash conversion (%)

     -238.5     -156.5     -73.2     17.1     18.5     18.8

Gross cash and net cash, end of period

Gross cash: Cash and cash equivalents plus interest-bearing securities (current and non-current).

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

 

     2018      2017  

SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Cash and cash equivalents

     37,049        36,697        35,884        26,210        21,446        32,954  

+ Interest-bearing securities, current

     8,304        5,453        6,713        6,526        10,754        13,548  

+ Interest-bearing securities, non-current

     21,501        27,104        25,105        22,405        22,122        19,124  

Gross cash, end of period

     66,854        69,254        67,702        55,141        54,322        65,626  

- Borrowings, current

     2,642        2,554        2,545        3,004        3,230        9,514  

- Borrowings, non-current

     31,131        31,134        30,500        28,039        27,100        27,823  

Net cash, end of period

     33,081        35,566        34,657        24,098        23,992        28,289  

 

 

43      Ericsson  |  Second Quarter Report 2018

  

 

Alternative performance measures


Table of Contents

Capital employed

Total assets less non-interest-bearing provisions and liabilities.

 

     2018      2017  

SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Total assets

     265,322        260,681        259,882        267,239        275,160        291,976  

Non-interest-bearing provisions and liabilities

                 

Provisions, non-current

     2,819        2,597        3,596        3,930        4,794        4,867  

Deferred tax liabilities

     1,332        1,325        901        1,736        1,838        1,888  

Other non-current liabilities

     4,549        2,792        2,776        2,563        2,602        2,699  

Provisions, current

     6,715        6,435        6,283        5,584        5,563        5,647  

Contract liabilities

     30,959        30,391        29,076        26,185        28,657        29,930  

Trade payables

     28,563        26,453        26,320        23,559        25,266        26,077  

Other current liabilities

     35,746        37,888        35,305        33,395        32,599        37,323  

Capital employed

     154,639        152,800        155,625        170,287        173,841        183,545  

Capital turnover

Annualized net sales divided by average capital employed.

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Net sales

     49,808        43,411        57,881        49,413        50,281        47,803  

Annualized net sales

     199,232        173,644        231,524        197,652        201,124        191,212  

Average capital employed

                 

Capital employed at beginning of period

     152,800        155,625        170,287        173,841        183,545        185,667  

Capital employed at end of period

     154,639        152,800        155,625        170,287        173,841        183,545  

Average capital employed

     153,720        154,213        162,956        172,064        178,693        184,606  

Capital turnover (times)

     1.3        1.1        1.4        1.1        1.1        1.0  
     2018      2017  

Year to date, SEK million

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

Net sales

     93,219        43,411        205,378        147,497        98,084        47,803  

Annualized net sales

     186,438        173,644        205,378        196,663        196,168        191,212  

Average capital employed

                 

Capital employed at beginning of period

     155,625        155,625        185,667        185,667        185,667        185,667  

Capital employed at end of period

     154,639        152,800        155,625        170,287        173,841        183,545  

Average capital employed

     155,132        154,213        170,646        177,977        179,754        184,606  

Capital turnover (times)

     1.2        1.1        1.2        1.1        1.1        1.0  

 

 

44      Ericsson  |  Second Quarter Report 2018

  

 

Alternative performance measures


Table of Contents

Return on capital employed

The annualized total of operating income (loss) plus financial income as a percentage of average capital employed.

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Operating income (loss)

     165       -312       -19,278       -3,652       -537       -11,276  

Financial income

     275       -72       -124       -139       -27       -82  

Annualized operating income (loss) + financial income

     1,760       -1,536       -77,608       -15,164       -2,256       -45,432  

Average capital employed

            

Capital employed at beginning of period

     152,800       155,625       170,287       173,841       183,545       185,667  

Capital employed at end of period

     154,639       152,800       155,625       170,287       173,841       183,545  

Average capital employed

     153,720       154,213       162,956       172,064       178,693       184,606  

Return on capital employed (%)

     1.1     -1.0     -47.6     -8.8     -1.3     -24.6
     2018     2017  

Year to date, SEK million

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

Operating income (loss)

     -147       -312       -34,743       -15,465       -11,813       -11,276  

Financial income

     203       -72       -372       -248       -109       -82  

Annualized operating income (loss) + financial income

     112       -1,536       -35,115       -20,951       -23,844       -45,432  

Average capital employed

            

Capital employed at beginning of period

     155,625       155,625       185,667       185,667       185,667       185,667  

Capital employed at end of period

     154,639       152,800       155,625       170,287       173,841       183,545  

Average capital employed

     155,132       154,213       170,646       177,977       179,754       184,606  

Return on capital employed (%)

     0.1     -1.0     -20.6     -11.8     -13.3     -24.6

Equity ratio

Equity, expressed as a percentage of total assets.

 

     2018     2017  

SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Total equity

     93,560       93,466       97,571       112,710       119,887       122,434  

Total assets

     265,322       260,681       259,882       267,239       275,160       291,976  

Equity ratio (%)

     35.3     35.9     37.5     42.2     43.6     41.9

Return on equity

Annualized net income (loss) attributable to stockholders of the Parent Company as a percentage of average Stockholders’ equity.

 

     2018     2017  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net income (loss) attributable to stockholders of the parent company

     -1,885       -837       -18,476       -3,561       -471       -10,068  

Annualized

     -7,540       -3,348       -73,904       -14,244       -1,884       -40,272  

Average stockholders’ equity

            

Stockholders’ equity, beginning of period

     92,703       96,935       112,095       119,177       121,698       134,582  

Stockholders’ equity, end of period

     92,689       92,703       96,935       112,095       119,177       121,698  

Average stockholders’ equity

     92,696       94,819       104,515       115,636       120,438       128,140  

Return on equity (%)

     -8.1     -3.5     -70.7     -12.3     -1.6     -31.4
     2018     2017  

Year to date, SEK million

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

Net income (loss) attributable to stockholders of the parent company

     -2,722       -837       -32,576       -14,100       -10,539       -10,068  

Annualized

     -5,444       -3,348       -32,576       -18,800       -21,078       -40,272  

Average stockholders’ equity

            

Stockholders’ equity, beginning of period

     96,935       96,935       134,582       134,582       134,582       134,582  

Stockholders’ equity, end of period

     92,689       92,703       96,935       112,095       119,177       121,698  

Average stockholders’ equity

     94,812       94,819       115,759       123,339       126,880       128,140  

Return on equity (%)

     -5.7     -3.5     -28.1     -15.2     -16.6     -31.4

 

 

45      Ericsson  |  Second Quarter Report 2018

  

 

Alternative performance measures


Table of Contents

Earnings (loss) per share (non-IFRS)

Earnings (loss) per share, diluted, excluding amortizations and write-down of acquired intangible assets and excluding restructuring charges.

 

     2018      2017  

Isolated quarters, SEK

   Q2      Q1      Q4      Q3      Q2      Q1  

Earnings (loss) per share, diluted

     -0.58        -0.25        -5.63        -1.09        -0.14        -3.08  

Restructuring charges

     0.41        0.30        0.37        0.73        0.38        0.46  

Amortization and write-downs of acquired intangibles

     0.08        0.06        4.17        0.07        0.09        0.43  

Earnings (loss) per share (non-IFRS)

     -0.09        0.11        -1.09        -0.29        0.33        -2.19  
     2018      2017  

Year to date, SEK

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

Earnings (loss) per share, diluted

     -0.83        -0.25        -9.94        -4.31        -3.22        -3.08  

Restructuring charges

     0.71        0.30        1.93        1.57        0.84        0.46  

Amortization and write-downs of acquired intangibles

     0.14        0.06        4.77        0.59        0.52        0.43  

Earnings (loss) per share (non-IFRS)

     0.02        0.11        -3.24        -2.15        -1.86        -2.19  

Free cash flow

Cash flow from operating activities less net capital expenditures and other investments.

 

     2018      2017  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Cash flow from operating activities

     1,442        1,573        11,159        -18        1        -1,541  

Net capital expenditures and other investments

                 

Investments in property, plant and equipment

     -951        -856        -1,105        -739        -1,018        -1,015  

Sales of property, plant and equipment

     52        123        898        12        37        69  

Acquisitions/divestments of subsidiaries and other operations, net

     -431        -449        -107        371        9        3  

Product development

     -325        -254        -138        -126        -315        -865  

Other investing activities

     -398        161        -573        42        -42        110  

Free cash flow

     -611        298        10,134        -458        -1,328        -3,239  
     2018      2017  

Year to date, SEK million

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

Cash flow from operating activities

     3,015        1,573        9,601        -1,558        -1,540        -1,541  

Net capital expenditures and other investments

                 

Investments in property, plant and equipment

     -1,807        -856        -3,877        -2,772        -2,033        -1,015  

Sales of property, plant and equipment

     175        123        1,016        118        106        69  

Acquisitions/divestments of subsidiaries and other operations, net

     -880        -449        276        383        12        3  

Product development

     -579        -254        -1,444        -1,306        -1,180        -865  

Other investing activities

     -237        161        -463        110        68        110  

Free cash flow

     -313        298        5,109        -5,025        -4,567        -3,239  

 

 

46      Ericsson  |  Second Quarter Report 2018

  

 

Alternative performance measures