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 17, 2020

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 17, 2020 regarding “Second quarter report 2020”.

 

 

 


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SIGNATURES

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

 

TELEFONAKTIEBOLAGET LM ERICSSON (publ)
By:  

/s/ XAVIER DEDULLEN

  Xavier Dedullen
  Senior Vice President, Chief Legal Officer
By:  

/s/ CARL MELLANDER

  Carl Mellander
  Senior Vice President, Chief Financial Officer

Date: July 17, 2020


Table of Contents

LOGO

Second quarter report 2020

Stockholm, July 17, 2020

Second quarter highlights

 

   

Sales were SEK 55.6 (54.8) b. Sales adjusted for comparable units and currency were flat YoY.

 

   

Gross margin excluding restructuring charges improved to 38.2% (36.7%), including the earlier communicated inventory write-down related to Mainland China (SEK -0.9 b., which equals to -1.6 percentage points).

 

   

Operating income excluding restructuring charges improved to SEK 4.5 b. (8.2% operating margin) from SEK 3.9 b. (7.0% operating margin) driven by improvements in segment Digital Services.

 

   

Networks sales1 increased by 4% YoY. Networks operating margin excluding restructuring charges was 14.1% (15.0%) impacted by strategic contracts and the inventory write-down, partly compensated by operational leverage and a favorable business mix.

 

   

Digital Services operating income excluding restructuring charges was SEK -0.7 (-1.3) b. Gross margin improved driven mainly by higher software sales while sales1 declined by -5%.

 

   

Net income was SEK 2.6 (1.8) b.

 

   

Free cash flow before M&A was SEK 3.2 (1.6) b. Net cash June 30, 2020, was SEK 37.5 (33.8) b.

 

   

The Covid-19 pandemic had a limited impact on operating income and cash flow in the quarter.

 

1

Adjusted for comparable units and currency.

Planning assumptions highlights (please see page 5 for complete planning assumptions)

 

   

With current visibility Group financial targets for 2020 and 2022 are maintained.

 

   

R&D investments in Digital Services are accelerated to capture additional business opportunities. In combination with lower sales, this will likely cause a delay of some quarters in reaching the 2020 financial target. 2022 operating margin target of 10-12% remains firm.

 

 

SEK b.

   Q2
2020
    Q2
2019
    YoY
change
    Q1
2020
    QoQ
change
    Jan-Jun
2020
    Jan-Jun
2019
    YoY
change
 

Net sales

     55.6       54.8       1     49.8       12     105.3       103.7       2

Sales growth adj. for comparable units and currency

     —         —         0     —         —         —         —         -1

Gross margin

     37.6     36.6     —         39.8     —         38.6     37.5     —    

Operating income

     3.9       3.7       3     4.3       -11     8.2       8.6       -6

Operating margin

     6.9     6.8     —         8.7     —         7.7     8.3     —    

Net income

     2.6       1.8       40     2.3       13     4.9       4.3       14

EPS diluted, SEK

     0.74       0.51       45     0.65       14     1.39       1.21       15

Measures excl. restructuring charges and other items affecting com parability¹

                

Gross margin excluding restructuring charges

     38.2     36.7     —         40.4     —         39.3     37.5     —    

Operating income excl. restr. charges & items affecting com parability in 2019 ²

     4.5       3.9       18     4.6       -2     9.1       7.4       24

Operating margin excl. restr. charges & items affecting com parability in 2019 ²

     8.2     7.0     —         9.3     —         8.7     7.1     —    

Free cash flow before M&A

     3.2       1.6       102     2.3       40     5.6       5.1       10

Net cash, end of period

     37.5       33.8       11     38.4       -2     37.5       33.8       11

 

1 

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

2 

Excludes restructuring charges in all periods. No other adjustments made in 2020. Jan-Jun 2019 excludes a capital gain related to the divestment of 51% of MediaKind (SEK 0.7 b.), divestment of certain assets in Red Bee Media (SEK 0.1 b.) and a reversal of an earlier provision for impairment of trade receivables following customer payment (SEK 0.7 b.).

 

   
1    Ericsson | Second quarter report 2020                        


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CEO comments

 

The human toll caused by Covid-19, directly and indirectly through a weak economy, is increasingly clear. We continue to put safety of our people as first priority, and more than 80% of our employees are currently working from home. Despite the difficult environment we delivered a solid result. Q2 organic1 sales were flat and gross margin2 improved to 38.2% (36.7%) YoY, including negative effects from strategic contracts. Free cash flow before M&A improved to SEK 3.2 (1.6) b. While the effects of Covid-19 create uncertainties, with current visibility we maintain the full-year targets for the Group.

Networks grew by 4% organically1 and the gross margin2 was 40.5% (41.4%), absorbing a larger share of strategic contracts including 5G volumes in Mainland China where we also took an inventory write-down. The strengthened market position in Mainland China is strategically important as this market is expected to be a driver of critical future requirements and provide us with important scale. The Chinese 5G contracts are expected to be profitable over the life cycle, but had a negative contribution to gross margin in Q2.

Investments in R&D have established us as a leader in 5G, with proven performance and cost of ownership benefits for our customers. We have continued to increase our market share in several markets by leveraging our competitive product portfolio. Profitability in earlier awarded strategic contracts has improved according to plan. We consider strategic contracts to be a natural part of the business and we will stop our forward looking commentary unless there is an extraordinary impact.

Digital Services continues to execute on its turnaround plan with continuous improvements in the underlying business, and a Q2 gross margin2 reaching 43.6% (37.1%), supported by increased software sales. Sales is being impacted by the declining legacy portfolio and Covid-19-related market uncertainty and we expect this negative impact to continue throughout the year. There is however a strong demand for our cloud-native and 5G portfolio, and we have recorded several important tier 1 customer wins in 5G Core that will generate revenues in 2021 and beyond. Encouraged by the success of our offering, we have decided to accelerate R&D investments. These investments have a positive long-term value but will result in increased R&D costs. We are for this reason, in combination with the lower sales, likely to see a delay of some quarters in reaching the 2020 target of low single-digit margin for Digital Services, however, we are staying firm on our 2022 operating margin2 target of 10-12%.

Our patent licensing business continues to perform well due to our strong IPR portfolio. Licensing agreements are often multi-year and term-based and renewals normally require negotiations, particularly in conjunction with introducing new standards such as 5G. Next year, certain agreements are up for renewal and royalty payments can be temporarily affected. The inclusion of 5G patents is expected to strengthen our IPR business further.

At Ericsson, we are committed to conducting business responsibly and with integrity. We continue our efforts to strengthen and improve our Ethics and Compliance program. In the quarter, the three-year term of the monitorship under the resolution with the U.S. authorities started. We look forward to working together with the independent compliance monitor and to benefit from his extensive experience. We fully believe this will help us reach our ambitions.

As we prepare to exit the crisis caused by Covid-19, there is a need to restart economies and make strategic, forward looking investments which we suggest must include the future digital infrastructure. We see many regions around the world increasing investments in this space and as a European company we are concerned that Europe will fall behind. As critical national infrastructure, 5G will be a key determinant for long-term competitiveness of the general economy, and act as a stimulant to accelerate economic growth, attract future investments and speed up technology innovation. I believe Europe must prioritize actions to incentivize investments in the digital infrastructure, to include lowering the cost and speeding up the availability of spectrum.

We are ready to deliver on the promises of 5G, based on our strong 5G portfolio and a resilient balance sheet. We remain positive on the longer-term outlook. Some customers are accelerating their investments while others are temporarily cautious. With current visibility we maintain the Group targets for 2020 and 2022.

Stay healthy and well.

Börje Ekholm

President and CEO

 

1 

Sales adjusted for comparable units and currency

 

2

Excluding restructuring charges

 

 

   
2    Ericsson | Second quarter report 2020    CEO comments


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Financial highlights

Net sales development

 

SEK b.

   Q2
2020
     Q2
2019
     YoY
change
    YoY
adj.¹
    Q1
2020
     QoQ
change
    Jan-Jun
2020
     Jan-Jun
2019
     YoY
change
    YoY
adj.¹
 

Net sales

     55.6        54.8        1     0     49.8        12     105.3        103.7        2     -1

of which Networks

     39.8        37.8        5     4     35.1        13     75.0        71.3        5     2

of which Digital Services

     8.6        9.0        -5     -5     7.3        17     15.9        16.8        -5     -7

of which Managed Services

     5.6        6.3        -12     -12     5.7        -2     11.3        12.2        -7     -9

of which Emerging Business and Other

     1.6        1.7        -4     -6     1.6        2     3.2        3.4        -8     -7

 

1 

Sales growth adjusted for comparable units and currency. Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.

 

Group reported sales increased by 1% YoY. Sales growth adjusted for comparable units and currency was 0%. 5G deployments in North East Asia contributed positively. Sales in India and Latin America declined, partly due to Covid-19 and macroeconomic instability.

Networks sales adjusted for comparable units and currency increased by 4% YoY with growth in North America and North East Asia while sales declined in Latin America and India.

Digital Services sales adjusted for comparable units and currency decreased by -5% YoY with reduced sales of services and hardware, partly offset by higher sales of software. Services sales declined partly due to Covid-19.

Managed Services sales adjusted for comparable units and currency decreased by -12% YoY, mainly due to lower variable sales in a

managed services contract in North America post the merger between two larger operators, and transfer of a managed services contract to Ericsson Nikola Tesla d.d. (an associated company where Ericsson has a 49% ownership).

Emerging Business and Other sales adjusted for comparable units and currency decreased by -6% YoY mainly due to lower sales in Red Bee Media.

IPR licensing revenues increased to SEK 2.8 (2.2) b. YoY mainly due to new contracts signed in the second half of 2019. IPR licensing revenues increased from SEK 2.5 b. QoQ mainly due to quarterly fluctuations in the timing of revenues in certain contracts.

Sequentially, Group reported sales increased by 12% following seasonality and ramp up of 5G deployments in Mainland China.

 

 

Income and margin development

 

SEK b.

   Q2
2020
    Q2
2019
    YoY
change
    Q1
2020
    QoQ
change
    Jan-Jun
2020
    Jan-Jun
2019
    YoY
change
 

Net sales

     55.6       54.8       1     49.8       12     105.3       103.7       2

Gross income

     20.9       20.1       4     19.8       6     40.7       38.9       5

Gross margin

     37.6     36.6     —         39.8     —         38.6     37.5     —    

Research and development (R&D) expenses

     -10.0       -9.5       —         -9.1       —         -19.2       -18.7       —    

Selling and administrative expenses

     -7.1       -7.0       —         -6.2       —         -13.3       -13.0       —    

Impairment losses on trade receivables

     0.0       0.2       -72     -0.2       —         -0.1       0.7       —    

Other operating income and expenses

     0.1       0.1       98     0.1       47     0.2       0.8       -74

Operating income

     3.9       3.7       3     4.3       -11     8.2       8.6       -6

of which Networks

     5.3       5.7       -7     5.8       -10     11.1       11.2       -1

of which Digital Services

     -0.7       -1.4       —         -1.4       —         -2.1       -3.2       —    

of which Managed Services

     0.3       0.2       30     0.4       -36     0.7       1.5       -54

of which Emerging Business & Other

     -1.0       -0.7       —         -0.5       —         -1.5       -0.8       —    

Operating margin

     6.9     6.8     —         8.7     —         7.7     8.3     —    

Financial income and expenses, net

     0.3       -0.4       —         -0.9       —         -0.6       -1.0       —    

Taxes

     -1.6       -1.5       —         -1.1       —         -2.7       -3.3       —    

Net income

     2.6       1.8       40     2.3       13     4.9       4.3       14

Restructuring charges

     -0.7       -0.1       —         -0.3       —         -1.0       -0.3       —    

Measures excl. restructuring charges and other items affecting comparability¹

                

Gross margin excluding restructuring charges

     38.2     36.7     —         40.4     —         39.3     37.5     —    

Operating income excl. restr. charges & items affecting com parability in 2019 ²

     4.5       3.9       18     4.6       -2     9.1       7.4       24

Operating margin excl. restr. charges & items affecting com parability in 2019 ²

     8.2     7.0     —         9.3     —         8.7     7.1     —    

Operating margin excluding restructuring charges

     8.2     7.0     —         9.3     —         8.7     8.6     —  

 

1 

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

2 

Excludes restructuring charges in all periods. No other adjustments made in 2020. Jan-Jun 2019 excludes a capital gain related to the divestment of 51% of MediaKind (SEK 0.7 b.), divestment of certain assets in Red Bee Media (SEK 0.1 b.) and a reversal of an earlier provision for impairment of trade receivables following customer payment (SEK 0.7 b.).

 

Gross margin

Gross margin was 37.6% (36.6%). Gross margin excluding restructuring charges improved to 38.2% (36.7%) YoY driven by improvements in Digital Services and Managed Services, as well as a higher share of IPR licensing revenues. A higher share of software sales contributed to the

improvement in Digital Services. Managed Services gross margin improved mainly as an effect of efficiency gains. Networks gross margin declined due to a write-down of SEK -0.9 b. for pre-commercial product inventory for the Chinese market as well as a larger share of strategic contracts including 5G in Mainland China. This was partly offset by a favorable business mix and operational leverage.

 

 

   
3    Ericsson | Second quarter report 2020    Financial highlights


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Sequentially, gross margin decreased to 37.6% from 39.8%. Gross margin excluding restructuring charges decreased to 38.2% from 40.4% impacted by the inventory write-down of SEK -0.9 b. related to Mainland China. Digital Services gross margin improved supported by lower costs for the remaining critical contracts. Managed Services gross margin declined due to timing of costs. The share of IPR licensing revenues remained stable between the quarters with no effect on gross margin QoQ.

Restructuring charges

Restructuring charges increased to SEK -0.7 (-0.1) b. YoY. Exit of the Edge Gravity business in segment Emerging Business and Other as well as the ongoing restructuring of the acquired antenna and filter business in segment Networks impacted restructuring charges in the quarter.

Research and development (R&D) expenses

R&D expenses increased to SEK -10.0 (-9.5) b. R&D expenses excluding restructuring charges were SEK -9.8 (-9.5) b. R&D expenses increased in segment Networks, while they declined in Digital Services due to a lower net negative impact from capitalized and amortized development expenses.

Selling and administrative (SG&A) expenses

SG&A expenses were SEK -7.1 (-7.0) b. SG&A expenses excluding restructuring charges were flat at SEK -6.9 (-6.9) b. with increased investments in digitalization and compliance. Revaluation of customer financing was SEK 0.0 (-0.2) b.

Impairment losses on trade receivables

Impairment losses on trade receivables were SEK 0.0 (0.2) b.

Other operating income and expenses

Other operating income and expenses was SEK 0.1 (0.1) b. Share in earnings of JVs and associated companies was SEK -0.2 (-0.1) b.

Operating income and margin

Operating income improved to SEK 3.9 (3.7) b. YoY. Operating income excluding restructuring charges improved to SEK 4.5 (3.9) b. with a corresponding operating margin improvement to 8.2% (7.0%). The income improvement was driven by Digital Services.

Sequentially, operating income declined to SEK 3.9 b. from SEK 4.3 b. Operating income excluding restructuring charges declined slightly to SEK 4.5 b. from SEK 4.6 b. Increased sales were offset by a reduced gross margin and by seasonally higher operating expenses.

Financial net

Financial net improved to SEK 0.3 (-0.4) b. YoY and from SEK -0.9 b. QoQ, mainly due to positive currency hedge effects following the strengthened SEK to USD. The currency hedge effect was SEK 0.6 b. compared with SEK 0.0 b. in Q2 2019 and SEK -0.5 b. in Q1 2020. The SEK strengthened against the USD between March 31, 2020 (SEK/USD rate 10.13) and June 30, 2020 (SEK/USD rate 9.37).

Taxes

Taxes were SEK -1.6 (-1.5) b. The tax rate in Q2 was 38% compared with 33% in Q1 2020. The increase is due to an increase in non-deductible costs this quarter.

Net income

Net income improved to SEK 2.6 (1.8) b. and EPS diluted improved to SEK 0.74 (0.51) YoY driven by the stronger operating income and the improved financial net.

Employees

The number of employees on June 30, 2020, was 99,800, a net increase of 705 employees in the quarter. The increase is mainly in R&D and service delivery.

Financial highlights, year to date (Jan-June) development

Reported sales increased by 2%. Sales adjusted for comparable units and currency decreased by -1% mainly due to lower services and legacy hardware sales in Digital Services, as well as contract exits in Managed Services. There has been limited negative impact on sales from the Covid-19 pandemic year to date. Networks sales adjusted for comparable units and currency increased by 2%. In the market area dimension, growth in North East Asia and North America has been offset by a decline in market area South East Asia, Oceania and India and in market area Europe and Latin America.

Gross margin increased to 38.6% (37.5%) driven by improvements in Digital Services, mainly due to a sales mix with a higher share of software.

Operating income declined YoY to SEK 8.2 (8.6) b. impacted by increased restructuring charges of SEK -1.0 (-0.3) b. In addition, operating income Q1 2019 was positively impacted by capital gains (SEK 0.8 b.) related to the media businesses, and a reversal of a provision for impairment of trade receivables (SEK 0.7 b.) following customer payment.

Net income year to date improved to SEK 4.9 (4.3) b. supported by an improved financial income and expenses net of SEK -0.6 (-1.0) b.

 

 

   
4    Ericsson | Second quarter report 2020    Financial highlights


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Planning assumptions

Market related

 

    The RAN equipment market is estimated to grow by 4% for full-year 2020 (Source: Dell’Oro May 2020) with 0% CAGR for 2019-2024 (Source: Dell’Oro Jan 2020).

 

    The momentum in North America remains strong and the market is estimated to grow 4% in 2020 (Source: Dell’Oro). The momentum is supported by the merger between two larger operators, upcoming spectrum auctions and an overall demand for 5G.

Ericsson related

Financial targets

 

    While the effects of Covid-19 create uncertainties, with current visibility Ericsson sees no reason to adjust 2020 and 2022 full-year targets for the Group.

 

    R&D investments in Digital Services are accelerated to capture additional business opportunities. In combination with lower sales, this will likely cause a delay of some quarters in reaching the 2020 target of low single-digit margin for the segment. The 2022 operating margin target for Digital Services of 10-12% remains firm.

Net sales

 

    Three-year average reported sales seasonality between Q2 and Q3 is 4%.

 

    The revenues from current IPR licensing contract portfolio are approximately SEK 10 b. on an annual basis.

Gross margin

 

    The acquired antenna and filter business is expected to have a negative impact on Networks margins in 2020, with a gradual improvement during 2H.

 

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

 

    In Managed Services there will be quarterly variations depending on timing of add-on sales and costs, but underlying margins have been established at a higher level.

R&D and SG&A expenses

 

    Expenses typically decrease between Q2 and Q3 due to seasonality.

 

    Investments in R&D will continue in line with the focused business strategy.

 

    Investments in digitalization, compliance and security will continue to impact SG&A. Somewhat higher expenses are expected for full-year 2020.

Restructuring charges

 

    Restructuring charges for full-year 2020 are estimated to be ~1% of sales.

Currency exposure

 

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

 

   
5    Ericsson | Second quarter report 2020    Financial highlights


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Market area sales

 

SEK b.

   Q2
2020
     Q2
2019
     YoY
change
    Q1
2020
     QoQ
change
    Jan-Jun
2020
     YoY
change
 

South East Asia, Oceania and India

     6.6        7.0        -5     5.9        11     12.5        -5

North East Asia

     7.8        6.5        20     3.9        99     11.7        13

North America

     18.4        17.7        4     17.9        3     36.3        7

Europe and Latin America

     13.1        14.1        -7     12.2        7     25.3        -7

Middle East and Africa

     5.4        5.6        -4     5.8        -7     11.3        2

Other¹

     4.3        3.9        10     3.9        9     8.3        1
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

Total

     55.6        54.8        1     49.8        12     105.3        2
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

 

 

1

Market area “Other” includes primarily IPR licensing revenues and the major part of segment Emerging Business and Other.

Sales breakdown by market area by segment is available in the back-end tables.

 

•  Ericsson 5G status on July 17; 54 live networks and 99 commercial agreements with unique operators.

 

•  Strong growth in North East Asia and continued business momentum in North America.

 

•  Networks sales continued to grow in Europe, demonstrating our strong product offering.

South East Asia, Oceania and India

Sales declined YoY in Networks due to timing of project deliveries. Sales in India declined mainly due to Covid-19. Managed Services remained stable while Digital Services sales increased YoY due to timing of project milestones.

North East Asia

Sales increased YoY. Networks sales grew, primarily driven by 5G deployment in Mainland China and increased business volumes across the market area. Digital Services sales increased driven by strong sales in Mainland China.

North America

Sales increased YoY. Networks sales grew driven by continued 5G momentum. Digital Services sales decreased due to lower hardware volumes. Managed Services sales decreased, with declining variable sales, post the merger between two larger operators.

Europe and Latin America

Sales decreased YoY due to earlier decisions on Managed Services contract exits and reduced sales in Latin America due to the macroeconomic uncertainty following Covid-19. Networks sales increased in Europe as a result of market share gains, partly offsetting the sales decline in Latin America.

Middle East and Africa

Sales decreased YoY primarily due to macroeconomic uncertainty and delayed investments in Networks and Digital Services. Continued 5G deployments in the Middle East contributed positively. Managed Services sales were stable.

Other

IPR licensing revenues grew to SEK 2.8 (2.2) b. mainly due to new contracts signed in the second half of 2019.

 

 

   
6    Ericsson | Second quarter report 2020    Market area sales


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Segment results

 

Segment Networks

 

SEK b.

   Q2
2020
    Q2
2019
    YoY
change
    Q1
2020
 

Net sales

     39.8       37.8       5     35.1  

Sales growth adj. for comparable units and FX

     —         —         4     —    

Gross income

     16.0       15.7       2     15.6  

Gross margin

     40.2     41.4     —         44.4

Operating income

     5.3       5.7       -7     5.8  

Operating margin

     13.2     15.0     —         16.6

Restructuring charges

     -0.4       0.0       —         -0.1  

Measures excl. restructuring charges

        

Gross margin excl. restructuring charges

     40.5     41.4     —         44.6

Operating income excl. restructuring charges

     5.6       5.7       -1     5.9  

Operating margin excl. restructuring charges

     14.1     15.0     —         16.8

Breakdown of sales into products, services and IPR licensing is available in the back-end tables.

 

•  Continued strong momentum for 5G.

 

•  Continued investments in technology leadership are important to drive gross margin improvements.

 

•  Operational leverage and favorable business mix partly mitigated the negative impact from strategic contracts.

Net sales

Reported sales increased by 5% YoY, while sales adjusted for comparable units and currency increased by 4%. Sales growth was strong YoY in North America and North East Asia while sales declined YoY in Latin America and India.

Sales increased by 13% QoQ. Growth is mainly driven by 5G investments in North East Asia across several countries.

Gross margin

Gross margin declined to 40.2% (41.4%) YoY. Gross margin excluding restructuring charges declined to 40.5% (41.4%), as a result of an inventory write-down of SEK -0.9 b. for pre-commercial product inventory for the Chinese market and a larger share of strategic contracts including 5G in Mainland China. A favorable business mix, operational leverage and higher IPR licensing revenues had a positive impact on gross margin YoY.

Gross margin excluding restructuring charges decreased to 40.5% from 44.6% QoQ driven by the inventory write-down in Mainland China as well as a larger share of strategic contracts.

Operating income and margin

Operating income decreased to SEK 5.3 (5.7) b. YoY while operating margin decreased to 13.2% (15.0%). Operating margin excluding restructuring charges decreased to 14.1% (15.0%), including a continued negative impact of the acquired antenna and filter business of SEK -0.3 b. Operating expenses increased by SEK -0.8 b., including SEK -0.3 b. of restructuring charges, accelerated R&D investments in 5G and in a broader portfolio of antenna and site solutions as well as an increase in SG&A expenses driven by the increased Group investments in digitalization and compliance.

Operating income excluding restructuring charges declined by SEK -0.3 b. QoQ, while operating margin excluding restructuring charges decreased to 14.1% from 16.8% QoQ. The negative impact from the acquired antenna and filter business remained flat at SEK -0.3 b. QoQ.

Net sales rolling four quarters were SEK 158.7 b. and operating margin excluding restructuring charges was 15.9%.

Segment Digital Services

 

SEK b.

   Q2
2020
    Q2
2019
    YoY
change
    Q1
2020
 

Net sales

     8.6       9.0       -5     7.3  

Sales growth adj. for comparable units and FX

     —         —         -5     —    

Gross income

     3.7       3.3       13     2.9  

Gross margin

     43.6     36.8     —         39.9

Operating income (loss)

     -0.7       -1.4       —         -1.4  

Operating margin

     -8.1     -15.6     —         -19.3

Restructuring charges

     0.0       -0.1       —         0.0  

Measures excl. restructuring charges

        

Gross margin excl. restructuring charges

     43.6     37.1     —         40.1

Operating income (loss)excl. restructuring charges

     -0.7       -1.3       —         -1.4  

Operating margin excl. restructuring charges

     -8.5     -14.6     —         -19.6

Breakdown of sales into products, services and IPR licensing is available in the back-end tables.

 

•  Gross margin improved to 43.6% (36.8%) YoY supported by a favorable sales mix with a higher share of software.

 

•  Sales declined due to lower services and hardware sales.

 

•  The new portfolio sales grew by 18% in the quarter mainly driven by Cloud Core.

Net sales

Sales as reported and sales adjusted for comparable units and currency both decreased by -5% YoY with reduced sales of services and hardware, partly offset by higher software sales. Services sales declined partly due to market uncertainty related to Covid-19.

The business momentum is strong for the new portfolio which grew by 18% in the quarter and 10% rolling 12 months. Sales of Core products were strong in the quarter and important 5G Core contracts have been signed with several tier 1 operators in 2020, expected to generate revenues in 2021 and beyond.

Gross margin

Gross margin increased to 43.6% (36.8%) YoY supported by a business mix with a higher share of software sales. In addition, increased IPR licensing revenues and lower negative impact from the critical contracts contributed positively.

Gross margin excluding restructuring charges increased to 43.6% from 40.1% QoQ. Q1 2020 was negatively impacted by SEK -0.2 b. in costs from one of the critical contracts while the impact in Q2 2020 was limited. Increased sales had a positive impact on gross margin QoQ.

Operating income (loss)

Operating income (loss) was SEK -0.7 (-1.4) b. Operating income (loss) excluding restructuring charges was SEK -0.7 (-1.3) b. The negative impact from lower sales was compensated by a stronger gross margin. Operating expenses excluding restructuring charges declined by SEK -0.2 b. YoY due to a lower net negative impact from capitalized and amortized development expenses (SEK 0.0 b. Q2 2020 compared with SEK -0.3 b. Q2 2019). While rationalization of the legacy portfolio continues, R&D investments are made in the new portfolio of 5G and cloud-native products.

Operating income excluding restructuring charges improved QoQ supported by seasonally higher sales and a stronger gross margin.

Net sales rolling four quarters were SEK 39.0 b. and operating margin excluding restructuring charges was -6.8%.

 

 

   
7    Ericsson | Second quarter report 2020    Segment results


Table of Contents

Segment Managed Services

 

SEK b.

   Q2
2020
    Q2
2019
    YoY
change
    Q1
2020
 

Net sales

     5.6       6.3       -12     5.7  

Sales growth adj. for comparable units and FX

     —         —         -12     —    

Gross income

     1.0       0.8       23     0.9  

Gross margin

     17.1     12.3     —         16.3

Operating income

     0.3       0.2       30     0.4  

Operating margin

     4.7     3.2     —         7.1

Restructuring charges

     0.0       0.0       —         -0.2  

Measures excl. restructuring charges

        

Gross margin excl. restructuring charges

     17.2     12.3     —         20.6

Operating income excl. restructuring charges

     0.3       0.2       31     0.7  

Operating margin excl. restructuring charges

     4.8     3.2     —         11.4 % 

 

•  Sales declined YoY mainly due to reduced variable sales.

 

•  Gross margin excl. restr. charges increased YoY mainly as a result of efficiency gains.

 

•  Further investments in automation, analytics and AI-driven offerings – supporting 5G and efficiency in service delivery.

Net sales

Reported sales declined by -12% YoY. Sales adjusted for comparable units and currency decreased by -12% YoY, mainly due to reduced variable sales in a large contract in North America post the merger between two larger operators, and transfer of a contract from Ericsson to Ericsson Nikola Tesla d.d. (an associated company where Ericsson has a 49% ownership).

Gross margin

Gross margin excluding restructuring charges increased to 17.2% (12.3%) YoY, mainly as a result of efficiency gains.

Gross margin excluding restructuring charges decreased to 17.2% from 20.6% QoQ due to lower sales and seasonally lower costs in Q1.

Gross margin excluding restructuring charges rolling four quarters was 17.6%, a continued increase driven by efficiency gains and automation investments.

Operating income and margin

Operating income excluding restructuring charges was SEK 0.3 (0.2) b. The improvement was driven by higher gross margin.

Operating income excluding restructuring charges declined to SEK 0.3 b. from SEK 0.7 b. QoQ due to seasonally lower costs in Q1 and continued investments in R&D.

Net sales rolling four quarters were SEK 24.7 b. Operating margin excluding restructuring charges rolling four quarters was 7.4%.

Segment Emerging Business and Other

 

SEK b.

   Q2
2020
    Q2
2019
    YoY
change
    Q1
2020
 

Net sales

     1.6       1.7       -4     1.6  

Of which Emerging Business and iconectiv

     1.1       1.0       3     1.1  

Of which Red Bee Media

     0.5       0.6       -15     0.6  

Of which Media Solutions

     0.0       0.0       —         -0.1  

Sales growth adj. for comparable units and FX

     —         —         -6     —    

Gross income

     0.2       0.3       -35     0.3  

Gross margin

     12.6     18.5     —         21.7

Operating income (loss)

     -1.0       -0.7       —         -0.5  

Of which Em. Business, iconectiv & common costs

     -0.8       -0.6       —         -0.4  

Of which Red Bee Media

     0.0       0.0       —         0.0  

Of which Media Solutions

     -0.1       -0.1       —         -0.1  

Operating margin

     -60.5     -44.1     —         -32.7

Restructuring charges

     -0.3       0.0       —         0.0  

Measures excl. restructuring charges

        

Gross margin excl. restructuring charges

     25.3     19.2     —         21.9

Operating income (loss) excl. restructuring charges

     -0.6       -0.7       —         -0.5  

Operating margin excl. restructuring charges

     -39.6     -42.8     —         -32.7

 

•  Continued sales and gross margin growth in Emerging Business.

 

•  Operating income excl. restructuring charges improved YoY.

 

•  iconectiv delivered stable sales and solid profitability.

Net sales

Reported sales decreased by -4% YoY. Sales adjusted for comparable units and currency decreased by -6% mainly due to lower sales in Red Bee Media. Sales in Emerging Business increased slightly.

Gross margin

Gross margin decreased to 12.6% (18.5%) YoY. Gross margin excluding restructuring charges increased to 25.3% (19.2%). The increase was driven by Emerging Business.

Gross margin decreased to 12.6% from 21.7% QoQ. Gross margin excluding restructuring charges increased to 25.3% from 21.9% QoQ. The improvement was driven by reduced project losses in the legacy media business.

Operating income (loss)

Operating income (loss) excluding restructuring charges was SEK -0.6 (-0.7) b.

Media Solutions operating income was SEK -0.1 (-0.1) b. Operating income includes Ericsson’s 49% share in earnings of the MediaKind business.

Red Bee Media operating income improved as a result of lower operating expenses.

Operating income included restructuring charges of SEK -0.3 b. related to the exit of Edge Gravity (edge content delivery business) in Q2 2020.

Net sales rolling four quarters were SEK 6.5 b.

 

 

   
8    Ericsson | Second quarter report 2020    Segment results


Table of Contents

Cash flow and financial position

 

SEK b.

   Q2
2020
     Q2
2019
     Q1
2020
     Jan-Jun
2020
     Jan-Jun
2019
 

Net income adjusted for non-cash items

     5.6        5.0        4.7        10.3        10.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Working capital changes (net operating assets and liabilities)

     -0.1        -1.3        -0.4        -0.6        -1.0  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from operating activities

     5.4        3.6        4.3        9.8        9.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Capex (net) including product development

     -1.5        -1.4        -1.3        -2.8        -2.9  

Other investing activities and lease liabilities

     -0.7        -0.7        -0.6        -1.4        -1.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow before M&A

     3.2        1.6        2.3        5.6        5.1  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Acquisitions/divestments, net

     0.0        0.0        -0.2        -0.3        0.3  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Free cash flow

     3.2        1.6        2.1        5.3        5.4  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -0.5        1.0        -5.0        -5.5        4.3  

Cash flow from financing activities

     -4.6        -4.6        1.4        -3.1        -7.2  

Net change in cash and cash equivalents

     -2.7        0.0        3.3        0.6        7.1  

 

SEK b.

   Jun 30
2020
    Jun 30
2019
    Mar 31
2020
 

Gross cash

     75.4       69.0       79.5  
  

 

 

   

 

 

   

 

 

 

– Borrowings, current

     15.3       2.2       17.8  

– Borrowings, non-current

     22.6       33.0       23.4  
  

 

 

   

 

 

   

 

 

 

Net cash

     37.5       33.8       38.4  
  

 

 

   

 

 

   

 

 

 

Equity

     78.5       84.5       79.1  

Total assets

     276.8       280.4       292.3  

Capital turnover (times)

     1.3       1.3       1.2  

Return on capital employed (%)

     9.9     11.0     10.2

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

 

    Free cash flow before M&A was SEK 3.2 (1.6) b.

 

    Solid net cash position at SEK 37.5 (33.8) b.

 

    Moody’s upgraded Ericsson’s ratings to Ba1 with stable outlook.

Cash flow from operating activities

Cash flow from operating activities was SEK 5.4 (3.6) b. Despite sales growth, net operating assets and liabilities remained stable in the quarter. Provisions of SEK 2.1 b. were utilized of which SEK 0.1 b. was related to restructuring. A payment of SEK -1.0 b. was made into the Swedish Pension Trust, as described under “Financial position” below.

Free cash flow

Free cash flow before M&A was SEK 3.2 (1.6) b. Investments in property, plant and equipment were SEK -1.3 (-1.1) b. and capitalized development expenses were SEK -0.2 (-0.4) b.

Free cash flow was SEK 3.2 (1.6) b.

Cash flow from investing and financing activities

Cash flow from investing activities was SEK -0.5 (1.0) b.

Cash flow from financing activities was SEK -4.6 (-4.6) b. Payment of dividends of SEK -2.5 b. were made in the quarter. The dividend is paid in two equal instalments, SEK 0.75 per share in April and SEK 0.75 per share with the record date October 2, 2020.

Cash flow, year to date (Jan-June) development

Free cash flow before M&A year to date was SEK 5.6 (5.1) b. supported by cash flow from operating activities of SEK 9.8 (9.4) b.

Cash flow from investing activities was SEK -5.5 (4.3) b. mainly due to purchase of interest-bearing securities while investments in property, plant and equipment and capitalized development expenses remained stable YoY.

Cash flow from financing activities was SEK -3.1 (-7.2) b. of which payment of dividends was SEK -2.5 (-4.3) b.

Financial position

Gross cash was SEK 75.4 (69.0) b. Gross cash declined by SEK -4.1 b. QoQ mainly as a result of the payment of dividends. Net cash was SEK 37.5 (33.8) b. and decreased by SEK -0.8 b. QoQ.

Liabilities for post-employment benefits decreased in the quarter, to SEK 38.6 b. from SEK 43.0 b., due to higher interest rates in Sweden and due to a payment of SEK -1.0 b. made into the Swedish Pension Trust. The Swedish defined benefit obligation (DBO) was calculated using a discount rate based on the yields of Swedish government bonds. If the discount rate had been based on Swedish covered mortgage bonds, the liability for post-employment benefits would have been approximately SEK 10.8 b. lower.

As reported in the Q1 2020 earnings report there is a funding need for the Swedish pension plan in 2020. The total need is approximately SEK 4 b. of which SEK 3 b. will be covered by payments into the Swedish Pension Trust. In Q2, SEK 1 b. was paid into the trust and SEK 2 b. is expected to be paid in Q3 2020. The remaining SEK 1 b. funding need is covered by providing a pledged business mortgage to PRI Pensionsgaranti. Details regarding Ericsson’s pension plans can be found in note G1 of the Annual Report.

The average maturity of long-term borrowings as of June 30, 2020, was 2.2 years, a decrease from 2.9 years 12 months earlier.

On June 15, 2020, Moody’s upgraded Ericsson’s ratings to Ba1 with stable outlook.

 

 

   
9    Ericsson | Second quarter report 2020    Cash flow


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Parent Company

 

Income after financial items Jan-June, 2020, was SEK 2.3 (0.8) b.

At the end of the quarter, gross cash (cash, cash equivalents, short-term investments and interest-bearing securities, non-current) amounted to SEK 63.3 (51.1) b.

There was a decrease in intercompany lending of SEK 1.0 b. and in intercompany borrowing of SEK 1.5 b. in the second quarter.

In accordance with the conditions of the long-term variable compensation program (LTV) for Ericsson employees, 4,923,514 shares from treasury stock were distributed or sold to employees during the second quarter. The holding of treasury stock on June 30, 2020 was 10,532,902 Class B shares.

 

 

   
10    Ericsson | Second quarter report 2020    Parent Company


Table of Contents

Other information

 

Ericsson’s Nomination Committee appointed

On April 23, 2020, Ericsson’s Nomination Committee for the Annual General Meeting 2021 was 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;

 

    Karl Åberg, AB Industrivärden and Svenska Handelsbankens Pensionsstiftelse;

 

    Jonas Synnergren, Cevian Capital Partners Limited;

 

    Anders Oscarsson, AMF – Försäkring och Fonder; and

 

    Ronnie Leten, the Chair of the Board of Directors.

Johan Forssell is the Chair of the Nomination Committee.

Arun Bansal appointed Executive Vice President of Ericsson

On June 10, 2020, it was announced that Ericsson’s Board of Directors has appointed Arun Bansal Executive Vice President (EVP). Bansal will remain in his position as Senior Vice President and Head of Market Area Europe & Latin America. Fredrik Jejdling, will remain as Executive Vice President and Head of Business Area Networks.

With the appointment of Arun Bansal, Ericsson will have two Executive Vice Presidents – one based in Sweden and one outside of Sweden, thus providing Ericsson with greater flexibility for Executive Vice President duties. Fredrik Jejdling will be the first EVP and Arun Bansal the second EVP.

Arun Bansal joined Ericsson in 1995 and is now head of a market area that spans over 110 countries across Europe and Latin America, a position he has held since 2017.

Covid-19 update

The Covid-19 pandemic continues to impact people, society and businesses around the world. The close monitoring of the situation has continued and the Ericsson Global Crisis Management Council and task forces in each Market Area have remained activated throughout the quarter. The health and safety of employees, customers, partners and other stakeholders is Ericsson’s top priority. In June, travel and event restrictions were prolonged until the end of the year and it is also anticipated that most Ericsson employees will be working from home until year-end.

Overall, a limited impact on the Ericsson business has been seen during the first half of the year. The ability to execute early on the business continuity plans secured mitigation in supply, sourcing, logistics and service delivery. Ericsson has remained close to its customers and local suppliers, building customized plans to address specific business needs and to maintain service continuity. The dual mode production strategy and regionalized supply chains have been successful, making it possible to keep the supply chain operational.

 

 

   
11    Ericsson | Second quarter report 2020    Other information


Table of Contents

Risk factors

 

Ericsson is exposed to a number of risks in its activities. To stimulate identification and support cross-functional treatment within the Ericsson Group, risks are grouped in a number of categories, including for example risks relating to technology, IPR, compliance, project execution, operations, products and services, treasury and accounting, the geopolitical environment, M&A, cyber security and occupational health and safety.

Ericsson’s risk management is embedded into strategy development and operational processes and is a part of the Ericsson Group Management System to ensure accountability, effectiveness, efficiency, business continuity and compliance. Risks are defined in both a short-term and long-term perspective and are related to long-term objectives as per the strategic direction as well as to short-term objectives.

Risk factors and uncertainties of relevance to Ericsson are described in the Annual Report 2019. Updates to these risk factors and uncertainties observed by Ericsson that are deemed of short-term relevance include, but are not limited to, the following:

Pandemics, such as for example the one caused by the novel Coronavirus, Covid-19, could severely impact our local and global operations

Pandemics, such as for example the one caused by the novel Coronavirus, could severely impact our local and global operations related to e.g. Service Delivery, Research & Development, Sales and Supply, as well as our customers and suppliers, with significant financial and other consequences. As

an example, the Coronavirus pandemic has caused challenges and risks relating to travel and lockdowns limiting access to sites, transportation and logistics and impacting the flow of goods. Although we work to put in place business continuity measures to be able to continue to support our customers’ needs and mitigate any impact to our business, disruptions to the global economy and to the operations and business of our customers, suppliers, and partners could cause disturbances in our operations and may have a material adverse effects on our business and financial position.

Our ability to benefit from intellectual property rights (IPR), may be limited by the loss of patent licenses to or from third-parties

Patent licensing agreements are generally multi-year and term based and the process for renewal of these licenses normally requires negotiations, particularly in conjunction with technology shifts and the introduction of new standards, such as 5G. Such renewals and negotiations may take time to resolve, sometimes involve litigation and may have material adverse impact on our business and financial position, including on the timing for and level of revenues from the IPR licensing contract portfolio.

This report has not been reviewed by Telefonaktiebolaget LM

Ericsson’s auditors.

Date for next report: October 21, 2020

 

 

   
12    Ericsson | Second quarter report 2020    Risk factors


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Board assurance

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

Stockholm, July 17, 2020

Telefonaktiebolaget LM Ericsson (publ)

Org. Nr. 556016-0680

 

Helena Stjernholm    Ronnie Leten    Jacob Wallenberg
Deputy Chair    Chair    Deputy Chair
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

 

   
13    Ericsson | Second quarter report 2020    Board assurance


Table of Contents

Editor’s note

 

Press briefing and live webcast

Ericsson invites media, investors and analysts to a conference call on July 17, 2020 starting at 9:00 am CET.

Live audio webcast of the conference call as well as supporting slides will be available at:

www.ericsson.com/investors and

www.ericsson.com/press

Replay of the conference call will be available approximately one hour after the call has ended and will remain available for seven days.

For further information, please contact:

Carl Mellander, Senior Vice President, Chief Financial Officer

Phone: +46 10 713 89 70

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

media.relations@ericsson.com

Stella Medlicott, Senior Vice President, Chief Marketing and Communications Officer

Phone: +46 10 713 65 39

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

media.relations@ericsson.com

Telefonaktiebolaget LM Ericsson

Org. number: 556016-0680

Torshamnsgatan 21

SE-164 83 Stockholm

Phone: +46 10 719 00 00

www.ericsson.com

 

Investors

Peter Nyquist, Vice President,

Head of Investor Relations

Phone: +46 10 714 64 99, +46 70 575 29 06

E-mail: peter.nyquist@ericsson.com

Lena Häggblom, Director,

Investor Relations

Phone: +46 10 713 27 78, +46 72 593 27 78

E-mail: lena.haggblom@ericsson.com

Stefan Jelvin, Director,

Investor Relations

Phone: +46 10 714 20 39, +46 70 986 02 27

E-mail: stefan.jelvin@ericsson.com

Rikard Tunedal, Director,

Investor Relations

Phone: +46 10 714 54 00, +46 761 005 400

E-mail: rikard.tunedal@ericsson.com

Media

Peter Olofsson, Head of Corporate Communication

Phone: +46 10 719 18 80

E-mail: media.relations@ericsson.com

Corporate Communications

Phone: +46 10 719 69 92

E-mail: media.relations@ericsson.com

 

 

   
14    Ericsson | Second quarter report 2020    Editor’s note


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Forward-looking statements

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

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

Important factors that could affect whether and to what extent any of our forward-looking statements materialize include, but are not limited to, the factors described in the section “Risk Factors”, and in “Risk Factors” in the Annual Report 2019.

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.

 

 

   
15    Ericsson | Second quarter report 2020    Forward-looking statements


Table of Contents

Financial statements

and other information

 

    

Contents

 

Financial statements

     17  

Condensed consolidated income statement

     17  

Condensed statement of comprehensive income (loss)

     17  

Condensed consolidated balance sheet

     18  

Condensed consolidated statement of cash flows

     19  

Condensed consolidated statement of changes in equity

     20  

Condensed consolidated income statement – isolated quarters

     20  

Condensed consolidated statement of cash flows – isolated quarters

     21  

Condensed Parent Company income statement

     22  

Condensed Parent Company statement of comprehensive income (loss)

     22  

Condensed Parent Company balance sheet

     23  

Additional information

     24  

Accounting policies

     24  

Net sales by segment by quarter

     25  

Sales growth adjusted for comparable units and currency

     26  

Gross income and gross margin by segment by quarter

     26  

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

     27  

EBITA and EBITA margin by segment by quarter

     28  

Net sales by market area by quarter

     29  

Top 5 countries in sales

     30  

Net sales by market area by segment

     30  

IPR licensing revenues by segment by quarter

     31  

Provisions

     31  

Information on investments

     32  

Other information

     33  

Number of employees

     33  

Items excluding restructuring charges

     34  

Restructuring charges by function

     34  

Restructuring charges by segment

     34  

Gross income and gross margin excluding restructuring charges by segment

     35  

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

     36  

Alternative performance measures

     37  

Sales growth adjusted for comparable units and currency

     37  

Items excluding restructuring charges

     38  

EBITA and EBITA margin

     39  

Cash conversion

     39  

Gross cash and net cash, end of period

     40  

Capital employed

     40  

Capital turnover

     40  

Return on capital employed

     41  

Equity ratio

     41  

Return on equity

     41  

Earnings (loss) per share (non-IFRS)

     42  

Free cash flow and free cash flow before M&A

     42  
 

 

   
16    Ericsson | Second quarter report 2020    Financial statements and other information


Table of Contents

Financial statements

Condensed consolidated income statement

 

     Q2     Jan-Jun  

SEK million

   2020     2019     Change     2020     2019     Change  

Net sales

     55,578       54,810       1     105,328       103,716       2

Cost of sales

     -34,661       -34,739       0     -64,623       -64,866       0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     20,917       20,071       4     40,705       38,850       5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin (%)

     37.6     36.6       38.6     37.5  

Research and development expenses

     -10,035       -9,518       5     -19,180       -18,685       3

Selling and administrative expenses

     -7,052       -6,964       1     -13,290       -12,995       2

Impairment losses on trade receivables

     42       151       -72     -118       710       -117
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -17,045       -16,331       4     -32,588       -30,970       5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operating income and expenses

     131       66       98     220       839       -74

Shares in earnings of JV and associated companies

     -152       -67       127     -180       -84       114
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     3,851       3,739       3     8,157       8,635       -6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial income and expenses, net

     292       -441       -166     -610       -1,046       -42
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     4,143       3,298       26     7,547       7,589       -1
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income tax

     -1,558       -1,451       7     -2,682       -3,339       -20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     2,585       1,847       40     4,865       4,250       14
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to:

            

Owners of the Parent Company

     2,452       1,705         4,608       4,022    

Non-controlling interests

     133       142         257       228    

Other information

            

Average number of shares, basic (million)

     3,322       3,304         3,320       3,302    

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

     0.74       0.52         1.39       1.22    

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

     0.74       0.51         1.39       1.21    

 

1) 

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

2) 

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

Condensed statement of comprehensive income (loss)

 

     Q2     Jan-Jun  

SEK million

   2020      2019     2020      2019  

Net income (loss)

     2,585        1,847       4,865        4,250  
  

 

 

    

 

 

   

 

 

    

 

 

 

Other comprehensive income (loss)

          

Items that will not be reclassified to profit or loss

          

Remeasurements of defined benefits pension plans incl. asset ceiling

     1,482        -2,624       -3,201        -5,450  

Revaluation of borrowings due to change in credit risk

     -1,032        -108       693        -535  

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

     -146        601       559        1,257  

Items that have been or may be reclassified to profit or loss

          

Cash flow hedge reserve

          

Gains/ losses arising during the period

     146        -37       -95        -206  

Reclassification adjustments on gains/ losses included in profit or loss

     71                141           

Changes in cumulative translation adjustments

     -3,690        188       -1,479        1,595  

Share of other comprehensive income on JV and associated companies

     -90        8       -2        46  

Tax on items that have been or may be reclassified to profit or loss

     -44        7       -9        42  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total other comprehensive income (loss), net of tax

     -3,303        -1,965       -3,393        -3,251  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total comprehensive income (loss)

     -718        -118       1,472        999  
  

 

 

    

 

 

   

 

 

    

 

 

 

Total comprehensive income (loss) attributable to:

          

Owners of the Parent Company

     -916        -257       1,246        753  

Non-controlling interests

     198        139       226        246  

 

   
17    Ericsson | Second quarter report 2020    Financial statements


Table of Contents

Condensed consolidated balance sheet

 

     Jun 30      Mar 31      Dec 31  

SEK million

   2020      2020      2019  

Assets

        

Non-current assets

        

Intangible assets

        

Capitalized development expenses

     4,078        4,217        4,040  

Goodwill

     31,130        33,082        31,200  

Intellectual property rights, brands and other intangible assets

     2,189        2,583        2,491  

Property, plant and equipment

     13,996        14,244        13,850  

Right-of-use assets

     8,251        8,589        8,487  

Financial assets

        

Equity in JV and associated companies

     1,415        1,618        1,565  

Other investments in shares and participations

     1,472        1,410        1,432  

Customer finance, non-current

     1,553        1,843        2,262  

Interest-bearing securities, non-current

     24,025        23,335        20,354  

Other financial assets, non-current

     5,944        7,682        5,614  

Deferred tax assets

     31,082        31,611        31,174  
  

 

 

    

 

 

    

 

 

 
     125,135        130,214        122,469  
  

 

 

    

 

 

    

 

 

 

Current assets

        

Inventories

     31,917        32,588        30,863  

Contract assets

     10,971        10,256        12,171  

Trade receivables

     38,325        42,572        43,069  

Customer finance, current

     1,001        1,113        1,494  

Other current receivables

     18,035        19,383        14,479  

Interest-bearing securities, current

     5,739        7,834        6,759  

Cash and cash equivalents

     45,655        48,347        45,079  
  

 

 

    

 

 

    

 

 

 
     151,643        162,093        153,914  
  

 

 

    

 

 

    

 

 

 

Total assets

     276,778        292,307        276,383  
  

 

 

    

 

 

    

 

 

 

Equity and liabilities

        

Equity

        

Stockholders’ equity

     79,005        79,841        82,559  

Non-controlling interest in equity of subsidiaries

     -533        -728        -681  
  

 

 

    

 

 

    

 

 

 
     78,472        79,113        81,878  
  

 

 

    

 

 

    

 

 

 

Non-current liabilities

        

Post-employment benefits

     38,605        43,029        35,817  

Provisions, non-current

     2,240        2,703        2,679  

Deferred tax liabilities

     1,164        1,060        1,224  

Borrowings, non-current

     22,581        23,381        28,257  

Lease liabilities, non-current

     7,400        7,705        7,595  

Other non-current liabilities

     1,813        2,178        2,114  
  

 

 

    

 

 

    

 

 

 
     73,803        80,056        77,686  
  

 

 

    

 

 

    

 

 

 

Current liabilities

        

Provisions, current

     8,363        8,357        8,244  

Borrowings, current

     15,290        17,759        9,439  

Lease liabilities, current

     2,302        2,396        2,287  

Contract liabilities

     31,532        34,265        29,041  

Trade payables

     32,182        29,840        30,403  

Other current liabilities

     34,834        40,521        37,405  
  

 

 

    

 

 

    

 

 

 
     124,503        133,138        116,819  
  

 

 

    

 

 

    

 

 

 

Total equity and liabilities

     276,778        292,307        276,383  
  

 

 

    

 

 

    

 

 

 

Assets pledged as collateral

     6,805        5,866        5,901  

Contingent liabilities

     1,164        1,446        1,527  

 

   
18    Ericsson | Second quarter report 2020    Financial statements


Table of Contents

Condensed consolidated statement of cash flows

 

     Q2      Jan-Jun      Jan-Dec
2019
 

SEK million

   2020      2019      2020      2019  

Operating activities

              

Net income

     2,585        1,847        4,865        4,250        1,840  

Adjustments to reconcile net income to cash

              

Taxes

     1,132        310        712        1,114        1,652  

Earnings/dividends in JV and associated companies

     155        71        185        95        406  

Depreciation, amortization and impairment losses

     2,156        2,274        4,276        4,600        9,089  

Other

     -440        450        294        374        1,079  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     5,588        4,952        10,332        10,433        14,066  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Changes in operating net assets

              

Inventories

     -1,253        -3,065        -1,791        -6,016        261  

Customer finance, current and non-current

     307        384        1,124        -527        -858  

Trade receivables and contract assets

     0        3,338        5,559        7,683        10,995  

Trade payables

     4,104        1,833        1,928        1,853        -372  

Provisions and post-employment benefits

     -1,189        -480        -971        -3,939        -3,729  

Contract liabilities

     -1,000        -1,641        2,987        6,822        -1,579  

Other operating assets and liabilities, net

     -1,108        -1,698        -9,417        -6,921        -1,911  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     -139        -1,329        -581        -1,045        2,807  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from operating activities

     5,449        3,623        9,751        9,388        16,873  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investing activities

              

Investments in property, plant and equipment

     -1,327        -1,098        -2,440        -2,412        -5,118  

Sales of property, plant and equipment

     69        184        95        416        744  

Acquisitions/divestments of subsidiaries and other operations, net

     -45        3        -253        302        -1,505  

Product development

     -211        -446        -473        -903        -1,545  

Other investing activities

     -126        -36        -168        -201        -331  

Interest-bearing securities

     1,141        2,414        -2,291        7,087        4,214  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -499        1,021        -5,530        4,289        -3,541  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow before financing activities

     4,950        4,644        4,221        13,677        13,332  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financing activities

              

Dividends paid

     -2,489        -3,308        -2,498        -4,294        -4,450  

Repayment of lease liabilities

     -618        -623        -1,214        -1,227        -2,990  

Other financing activities

     -1,451        -680        585        -1,690        540  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -4,558        -4,611        -3,127        -7,211        -6,900  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Effect of exchange rate changes on cash

     -3,084        13        -518        644        258  

Net change in cash and cash equivalents

     -2,692        46        576        7,110        6,690  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     48,347        45,453        45,079        38,389        38,389  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     45,655        45,499        45,655        45,499        45,079  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

   
19    Ericsson | Second quarter report 2020    Financial statements


Table of Contents

Condensed consolidated statement of changes in equity

 

     Jan-Jun      Jan-Dec
2019
 

SEK million

   2020      2019  

Opening balance

     81,878        87,770        87,770  

Adjustment due to new accounting standards 1)

     —          -249        -249  
  

 

 

    

 

 

    

 

 

 

Adjusted opening balance

     81,878        87,521        87,521  
  

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss)

     1,472        999        -1,750  

Sale/repurchase of own shares

     81        86        197  

Long-term variable compensation plans

     97        221        377  

Dividends to shareholders 2)

     -5,056        -4,294        -4,450  

Transactions with non-controlling interests

     —          —          -17  
  

 

 

    

 

 

    

 

 

 

Closing balance

     78,472        84,533        81,878  
  

 

 

    

 

 

    

 

 

 

 

1) 

Opening balance adjustment in 2019 due to IFRS 16.

2) 

SEK 0.75 per share of the dividend decided by the AGM in April will be paid out in Q3 2020.

Condensed consolidated income statement – isolated quarters

 

     2020
    2019  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Net sales

     55,578       49,750       66,373       57,127       54,810       48,906  

Cost of sales

     -34,661       -29,962       -41,939       -35,587       -34,739       -30,127  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross income

     20,917       19,788       24,434       21,540       20,071       18,779  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross margin (% )

     37.6     39.8     36.8     37.7     36.6     38.4

Research and development expenses

     -10,035       -9,145       -10,633       -9,497       -9,518       -9,167  

Selling and administrative expenses

     -7,052       -6,238       -8,222       -4,920       -6,964       -6,031  

Impairment losses on trade receivables

     42       -160       -173       200       151       559  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses

     -17,045       -15,543       -19,028       -14,217       -16,331       -14,639  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other operating income and expenses 1)

     131       89       756       -11,305       66       773  

Shares in earnings of JV and associated companies

     -152       -28       -37       -214       -67       -17  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     3,851       4,306       6,125       -4,196       3,739       4,896  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Financial income and expenses, net

     292       -902       -71       -685       -441       -605  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income after financial items

     4,143       3,404       6,054       -4,881       3,298       4,291  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Taxes

     -1,558       -1,124       -1,570       -2,013       -1,451       -1,888  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

     2,585       2,280       4,484       -6,894       1,847       2,403  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss) attributable to:

            

Owners of the Parent Company

     2,452       2,156       4,430       -6,229       1,705       2,317  

Non-controlling interests

     133       124       54       -665       142       86  

Other information

            

Average number of shares, basic (million)

     3,322       3,317       3,313       3,308       3,304       3,300  

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

     0.74       0.65       1.34       -1.89       0.52       0.70  

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

     0.74       0.65       1.33       -1.89       0.51       0.70  

 

1) 

Includes cost provisions related to the resolution of the SEC and DOJ investigations of SEK -11.5 b. in Q3 2019 and a partial release of the same provision of SEK 0.7 b. in Q4 2019.

2) 

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

3) 

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

 

   
20    Ericsson | Second quarter report 2020    Financial statements


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Condensed consolidated statement of cash flows – isolated quarters

 

     2020      2019  

Isolated quarters, SEK million

   Q2      Q1      Q4      Q3      Q2      Q1  

Operating activities

                 

Net income (loss)

     2,585        2,280        4,484        -6,894        1,847        2,403  

Adjustments to reconcile net income to cash

                 

Taxes

     1,132        -420        949        -411        310        804  

Earnings/ dividends in JV and associated companies

     155        30        33        278        71        24  

Depreciation, amortization and impairment losses

     2,156        2,120        2,290        2,199        2,274        2,326  

Other

     -440        734        197        508        450        -76  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     5,588        4,744        7,953        -4,320        4,952        5,481  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Changes in operating net assets

                 

Inventories

     -1,253        -538        5,200        1,077        -3,065        -2,951  

Customer finance, current and non-current

     307        817        -66        -265        384        -911  

Trade receivables and contract assets

     0        5,559        -3,216        6,528        3,338        4,345  

Trade payables

     4,104        -2,176        688        -2,913        1,833        20  

Provisions and post-em ployment benefits

     -1,189        218        -10,509        10,719        -480        -3,459  

Contractliabilities

     -1,000        3,987        -4,413        -3,988        -1,641        8,463  

Other operating assets and liabilities, net

     -1,108        -8,309        4,859        151        -1,698        -5,223  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     -139        -442        -7,457        11,309        -1,329        284  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from operating activities

     5,449        4,302        496        6,989        3,623        5,765  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Investing activities

                 

Investments in property, plant and equipment

     -1,327        -1,113        -1,475        -1,231        -1,098        -1,314  

Sales of property, plant and equipment

     69        26        206        122        184        232  

Acquisitions/divestments of subsidiaries and other operations, net

     -45        -208        -1,341        -466        3        299  

Product development

     -211        -262        -329        -313        -446        -457  

Other investing activities

     -126        -42        -74        -56        -36        -165  

Interest-bearing securities

     1,141        -3,432        -1,759        -1,114        2,414        4,673  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from investing activities

     -499        -5,031        -4,772        -3,058        1,021        3,268  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow before financing activities

     4,950        -729        -4,276        3,931        4,644        9,033  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financing activities

                 

Dividends paid

     -2,489        -9        -15        -141        -3,308        -986  

Repayment of lease liabilities

     -618        -596        -711        -1,052        -623        -604  

Other financing activities

     -1,451        2,036        834        1,396        -680        -1,010  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash flow from financing activities

     -4,558        1,431        108        203        -4,611        -2,600  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Effect of exchange rate changes on cash

     -3,084        2,566        -1,936        1,550        13        631  

Net change in cash and cash equivalents

     -2,692        3,268        -6,104        5,684        46        7,064  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, beginning of period

     48,347        45,079        51,183        45,499        45,453        38,389  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Cash and cash equivalents, end of period

     45,655        48,347        45,079        51,183        45,499        45,453  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

   
21    Ericsson | Second Quarter Report 2020    Financial statements


Table of Contents

Condensed Parent Company income statement

 

     Q2      Jan-Jun      Jan-Dec  

SEK million

   2020      2019      2020      2019      2019  

Net sales

     —          —          —          —          —    

Cost of sales

     —          —          —          —          —    

Gross income

     —          —          —          —          —    

Operating expenses

     -241        -236        -492        -757        -1,531  

Other operating income and expenses¹)

     354        518        934        969        -8,148  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Operating income

     113        282        442        212        -9,679  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Financial net

     1,140        649        1,833        596        6,610  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

income after financial items

     1,253        931        2,275        808        -3,069  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Transfers to (-)/from untaxed reserves

     —          —          —          —          -1,961  

Taxes

     -144        -45        -318        -76        87  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Net income (loss)

     1,109        886        1,957        732        -4,943  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1) 

Includes costs of SEK -10.7 billion in Jan-Dec 2019 related to the resolution of the SEC and DOJ investigations.

Condensed Parent Company statement of comprehensive income (loss)

 

     Q2      Jan-Jun      Jan-Dec  

SEK million

   2020      2019      2020      2019      2019  

Net income (loss)

     1,109        886        1,957        732        -4,943  

Revaluation of borrowings due to change in credit risk

     -1,032        -108        693        -535        -651  

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

     212        22        -143        110        134  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total other comprehensive income, net of tax

     -820        -86        550        -425        -517  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total comprehensive income (loss)

     289        800        2,507        307        -5,460  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

   
22    Ericsson | Second Quarter Report 2020    Financial statements


Table of Contents

Condensed Parent Company balance sheet

 

     Jun 30      Dec 31  

SEK million

   2020      2019  

Assets

     

Fixed assets

     

Intangible assets

     41        58  

Tangible assets

     369        303  

Financial assets1)

     111,319        106,156  
  

 

 

    

 

 

 
     111,729        106,517  
  

 

 

    

 

 

 

Current assets

     

Inventories

     —          —    

Receivables

     25,863        23,166  

Short-term investments

     5,508        6,328  

Cash and cash equivalents

     33,813        29,800  
  

 

 

    

 

 

 
     65,184        59,294  
  

 

 

    

 

 

 

Total assets

     176,913        165,811  
  

 

 

    

 

 

 

Stockholders’ equity, provisions and liabilities

     

Equity

     

Restricted equity

     48,164        48,164  

Non-restricted equity

     29,861        32,222  
  

 

 

    

 

 

 
     78,025        80,386  
  

 

 

    

 

 

 

Provisions

     630        668  

Non-current liabilities

     22,803        28,341  

Current liabilities

     75,455        56,416  
  

 

 

    

 

 

 

Total stockholders’ equity, provisions and liabilities

     176,913        165,811  
  

 

 

    

 

 

 

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

     24,025        20,354  
  

 

 

    

 

 

 

 

   
23    Ericsson | Second quarter report 2020    Financial statements


Table of Contents

Additional information

Accounting policies

 

The group

This interim report is prepared in accordance with IAS 34 “Interim Financial Reporting”. 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, 2019 and should be read in conjunction with that annual report. There are no amendments of IFRS during 2020 that are estimated to have a material impact on the result and financial position of the Company.

Covid-19 impacts on the Financial statements

As noted in our Q1 report, the Covid-19 pandemic has impacted certain lines within our financial statements. Fiscal stimulus provided by governments worldwide has reduced government bond yields and resulted in the significant movement in the capital and equity markets in Q1, although most of these trends have partially reversed in Q2. This meant that movements in certain line items reported in Q1 have largely been offset or reversed in Q2. Figures below are year to date.

In Sweden, the decrease in government bond yields in Q1 was partially reversed in Q2. With additional cash contribution of SEK 1.0 b. and improvement in investment returns in Q2, net pensions liability in Sweden increased by SEK 2.1 b.

Borrowings issued by the Parent Company are held at fair value with changes in value due to changes in credit risk recognized in Other comprehensive income (OCI). The widening of credit spreads for corporate bonds seen in Q1 was partially reversed in Q2, resulting in a positive impact of SEK 0.7 b. recognized in the OCI.

Foreign exchanges rates continued to fluctuate significantly during the period with USD weakening against SEK in Q2, reversing the trend in Q1. This resulted in a net gain on the hedge loan balances used to manage FX execution risk of SEK 0.1 b. recognized within Financial income and expenses in the Consolidated income statement. In general, a weaker SEK in Q1 was strengthened in Q2, resulting in a negative currency translation adjustment of SEK -1.5 b. on consolidation, recognized in the OCI.

The Company currently expect no material changes to expected future cash flows which could impact recoverability of assets such as deferred tax assets and intangible assets. Risk assessment on the business plans is carried out on a regular basis and an impairment review will be performed if conditions suggest that such assets may be impaired.

The Company also assessed the wider economic impact in the foreseeable future on the expected credit losses model for trade receivables. The Company concluded that the impact is not material but will continue to perform such analysis on a regular basis.

 

 

   
24    Ericsson | Second quarter report 2020    Additional information


Table of Contents

Net sales by segment by quarter

 

     2020     2019  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     39,827       35,126       44,448       39,261       37,819       33,481  

Of which Products

     28,966       24,748       31,159       27,500       26,698       23,765  

Of which Services

     10,861       10,378       13,289       11,761       11,121       9,716  

Digital Services

     8,575       7,345       13,168       9,881       8,991       7,817  

Of which Products

     4,598       3,798       7,338       5,594       4,611       3,937  

Of which Services

     3,977       3,547       5,830       4,287       4,380       3,880  

Managed Services

     5,573       5,714       7,027       6,359       6,323       5,856  

Emerging Business and Other

     1,603       1,565       1,730       1,626       1,677       1,752  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     55,578       49,750       66,373       57,127       54,810       48,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13     -21     13     4     13     -20

Of which Products

     17     -21     13     3     12     -20

Of which Services

     5     -22     13     6     14     -18

Digital Services

     17     -44     33     10     15     -40

Of which Products

     21     -48     31     21     17     -47

Of which Services

     12     -39     36     -2     13     -30

Managed Services

     -2     -19     11     1     8     -15

Emerging Business and Other

     2     -10     6     -3     -4     -23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     12     -25     16     4     12     -23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     5     5     7     9     17     17

Of which Products

     8     4     5     9     20     22

Of which Services

     -2     7     12     11     10     6

Digital Services

     -5     -6     1     10     2     8

Of which Products

     0     -4     -2     22     3     0

Of which Services

     -9     -9     5     -3     0     17

Managed Services

     -12     -2     2     -2     -3     -1

Emerging Business and Other

     -4     -11     -24     -33     -18     6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1     2     4     6     10     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year to date, SEK million

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

Networks

     74,953       35,126       155,009       110,561       71,300       33,481  

Of which Products

     53,714       24,748       109,122       77,963       50,463       23,765  

Of which Services

     21,239       10,378       45,887       32,598       20,837       9,716  

Digital Services

     15,920       7,345       39,857       26,689       16,808       7,817  

Of which Products

     8,396       3,798       21,480       14,142       8,548       3,937  

Of which Services

     7,524       3,547       18,377       12,547       8,260       3,880  

Managed Services

     11,287       5,714       25,565       18,538       12,179       5,856  

Emerging Business and Other

     3,168       1,565       6,785       5,055       3,429       1,752  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     105,328       49,750       227,216       160,843       103,716       48,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year over year change, percent

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

Networks

     5     5     12     14     17     17

Of which Products

     6     4     13     16     21     22

Of which Services

     2     7     10     9     9     6

Digital Services

     -5     -6     5     6     4     8

Of which Products

     -2     -4     5     9     2     0

Of which Services

     -9     -9     4     4     8     17

Managed Services

     -7     -2     -1     -2     -2     -1

Emerging Business and Other

     -8     -11     -19     -18     -7     6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2     2     8     9     11     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   
25    Ericsson | Second quarter report 2020    Additional information


Table of Contents

Sales growth adjusted for comparable units and currency

 

     2020     2019  

Isolated quarter, year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks 1)

     4     0     2     4     11     10

Digital Services

     -5     -9     -3     5     -3     0

Managed Services

     -12     -5     -1     -5     -6     -5

Emerging Business and Other 2)

     -6     -8     9     -7     24     38
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total 1)2)

     0     -2     1     3     7     7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year to date, year over year change, percent

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

Networks

     2     0     6     8     11     10

Digital Services

     -7     -9     -1     1     -2     0

Managed Services

     -9     -5     -4     -5     -6     -5

Emerging Business and Other 1)

     -7     -8     14     15     30     38
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total 1)2)

     -1     -2     4     5     7     7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1) 

Adjusted for Kathrein acquisition made in October 2019.

2) 

Adjusted for MediaKind divestment in February 2019.

Gross income and gross margin by segment by quarter

 

     2020     2019  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     16,022       15,586       18,265       16,327       15,670       14,455  

Digital Services

     3,738       2,929       4,898       3,749       3,311       2,878  

Managed Services

     955       933       1,039       1,136       779       1,036  

Emerging Business and Other

     202       340       232       328       311       410  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     20,917       19,788       24,434       21,540       20,071       18,779  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Isolated quarters, as percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     40.2     44.4     41.1     41.6     41.4     43.2

Digital Services

     43.6     39.9     37.2     37.9     36.8     36.8

Managed Services

     17.1     16.3     14.8     17.9     12.3     17.7

Emerging Business and Other

     12.6     21.7     13.4     20.2     18.5     23.4

Total

     37.6     39.8     36.8     37.7     36.6     38.4
     2020     2019  

Year to date, SEK million

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

Networks

     31,608       15,586       64,717       46,452       30,125       14,455  

Digital Services

     6,667       2,929       14,836       9,938       6,189       2,878  

Managed Services

     1,888       933       3,990       2,951       1,815       1,036  

Emerging Business and Other

     542       340       1,281       1,049       721       410  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     40,705       19,788       84,824       60,390       38,850       18,779  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year to date, as percentage of net sales

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

Networks

     42.2     44.4     41.8     42.0     42.3     43.2

Digital Services

     41.9     39.9     37.2     37.2     36.8     36.8

Managed Services

     16.7     16.3     15.6     15.9     14.9     17.7

Emerging Business and Other

     17.1     21.7     18.9     20.8     21.0     23.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     38.6     39.8     37.3     37.5     37.5     38.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   
26    Ericsson | Second quarter report 2020    Additional information


Table of Contents

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

 

     2020     2019  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     5,255       5,827       6,399       7,216       5,680       5,472  

Digital Services

     -697       -1,417       -164       -660       -1,405       -1,798  

Managed Services

     263       408       292       562       203       1,252  

Emerging Business and Other

     -970       -512       -402       -11,314       -739       -30  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     3,851       4,306       6,125       -4,196       3,739       4,896  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Isolated quarters, as percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13.2     16.6     14.4     18.4     15.0     16.3

Digital Services

     -8.1     -19.3     -1.2     -6.7     -15.6     -23.0

Managed Services

     4.7     7.1     4.2     8.8     3.2     21.4

Emerging Business and Other

     -60.5     -32.7     -23.2     -695.8     -44.1     -1.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     6.9     8.7     9.2     -7.3     6.8     10.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year to date, SEK million

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

Networks

     11,082       5,827       24,767       18,368       11,152       5,472  

Digital Services

     -2,114       -1,417       -4,027       -3,863       -3,203       -1,798  

Managed Services

     671       408       2,309       2,017       1,455       1,252  

Emerging Business and Other

     -1,482       -512       -12,485       -12,083       -769       -30  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     8,157       4,306       10,564       4,439       8,635       4,896  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year to date, as percentage of net sales

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

Networks

     14.8     16.6     16.0     16.6     15.6     16.3

Digital Services

     -13.3     -19.3     -10.1     -14.5     -19.1     -23.0

Managed Services

     5.9     7.1     9.0     10.9     11.9     21.4

Emerging Business and Other

     -46.8     -32.7     -184.0     -239.0     -22.4     -1.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     7.7     8.7     4.6     2.8     8.3     10.0
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   
27    Ericsson | Second quarter report 2020    Additional information


Table of Contents

EBITA and EBITA margin by segment by quarter

 

     2020     2019  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     5,321       5,957       6,447       7,253       5,716       5,552  

Digital Services

     -563       -1,283       -23       -521       -1,268       -1,638  

Managed Services

     264       409       293       563       205       1,253  

Emerging Business and Other

     -913       -456       -323       -11,262       -688       43  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     4,109       4,627       6,394       -3,967       3,965       5,210  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Isolated quarters, as percentage of net sales

   Q2     Q1     Q4     Q3     Q2     Q1  

Networks

     13.4     17.0     14.5     18.5     15.1     16.6

Digital Services

     -6.6     -17.5     -0.2     -5.3     -14.1     -21.0

Managed Services

     4.7     7.2     4.2     8.9     3.2     21.4

Emerging Business and Other

     -57.0     -29.1     -18.7     -692.6     -41.0     2.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     7.4     9.3     9.6     -6.9     7.2     10.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year to date, SEK million

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

Networks

     11,278       5,957       24,968       18,521       11,268       5,552  

Digital Services

     -1,846       -1,283       -3,450       -3,427       -2,906       -1,638  

Managed Services

     673       409       2,314       2,021       1,458       1,253  

Emerging Business and Other

     -1,369       -456       -12,230       -11,907       -645       43  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     8,736       4,627       11,602       5,208       9,175       5,210  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     2020     2019  

Year to date, as percentage of net sales

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

Networks

     15.0     17.0     16.1     16.8     15.8     16.6

Digital Services

     -11.6     -17.5     -8.7     -12.8     -17.3     -21.0

Managed Services

     6.0     7.2     9.1     10.9     12.0     21.4

Emerging Business and Other

     -43.2     -29.1     -180.3     -235.5     -18.8     2.5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     8.3     9.3     5.1     3.2     8.8     10.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

   
28    Ericsson | Second quarter report 2020    Additional information


Table of Contents

Net sales by market area by quarter

 

     2020     2019  

Isolated quarters, SEK million

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     6,582       5,917       9,231       7,432       6,965       6,148  

North East Asia

     7,790       3,907       9,704       6,356       6,516       3,824  

North America

     18,407       17,911       17,368       18,985       17,699       16,171  

Europe and Latin America 1)2)

     13,061       12,241       17,489       14,308       14,085       13,124  

Middle East and Africa

     5,431       5,829       8,426       6,046       5,641       5,412  

Other 1)2)

     4,307       3,945       4,155       4,000       3,904       4,227  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     55,578       49,750       66,373       57,127       54,810       48,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1)   Of which in Sweden

     284       227       235       13       149       192  

2)   Of which in EU*

     7,278       6,259       10,572       8,815       8,385       7,957  
     2020     2019  

Sequential change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     11     -36     24     7     13     -25

North East Asia

     99     -60     53     -2     70     -54

North America

     3     3     -9     7     9     -10

Europe and Latin America 1)2)

     7     -30     22     2     7     -27

Middle East and Africa

     -7     -31     39     7     4     -21

Other 1)2)

     9     -5     4     2     -8     -5
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     12     -25     16     4     12     -23
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1)   Of which in Sweden

     25     -3     1708     -91     -22     -49

2)   Of which in EU*

     16     -29     20     5     5     -23
     2020     2019  

Year over year change, percent

   Q2     Q1     Q4     Q3     Q2     Q1  

South East Asia, Oceania and India

     -5     -4     12     -7     0     -4

North East Asia

     20     2     16     10     37     13

North America

     4     11     -4     27     23     43

Europe and Latin America 1)2)

     -7     -7     -2     -3     1     1

Middle East and Africa

     -4     8     23     4     -3     -8

Other 1)2)

     10     -7     -6     -13     -1     21
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     1     2     4     6     10     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1)   Of which in Sweden

     91     18     -37     -97     -75     -79

2)   Of which in EU*

     5     -4     2     4     -3     -7
     2020     2019  

Year to date, SEK million

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

South East Asia, Oceania and India

     12,499       5,917       29,776       20,545       13,113       6,148  

North East Asia

     11,697       3,907       26,400       16,696       10,340       3,824  

North America

     36,318       17,911       70,223       52,855       33,870       16,171  

Europe and Latin America 1)2)

     25,302       12,241       59,006       41,517       27,209       13,124  

Middle East and Africa

     11,260       5,829       25,525       17,099       11,053       5,412  

Other 1)2)

     8,252       3,945       16,286       12,131       8,131       4,227  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     105,328       49,750       227,216       160,843       103,716       48,906  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1)   Of which in Sweden

     511       227       589       354       341       192  

2)   Of which in EU*

     13,537       6,259       35,729       25,157       16,342       7,957  
     2020     2019  

Year to date, year over year change, percent

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

South East Asia, Oceania and India

     -5     -4     1     -4     -2     -4

North East Asia

     13     2     18     20     27     13

North America

     7     11     20     30     32     43

Europe and Latin America 1)2)

     -7     -7     -1     0     1     1

Middle East and Africa

     2     8     5     -2     -5     -8

Other 1)2)

     1     -7     -1     1     9     21
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     2     2     8     9     11     13
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

1)   Of which in Sweden

     50     18     -75     -82     -77     -79

2)   Of which in EU*

     1     -4     -1     -2     -5     -7

 

*)

No sales to UK are included as from 2020.

 

   
29    Ericsson | Second quarter report 2020    Additional information


Table of Contents

Top 5 countries in sales

 

     Q2     Jan-Jun