LM Ericsson Telephone Co. ( ERIC)

Q4 2010 Earnings Call

January 25, 2010 8:00 am ET

Executives

Åse Lindskog - VP, IR

Hans Vestberg - President and CEO

Jan Frykhammar - CFO

Johan Wibergh - EVP and Head of Business Unit Networks

Analysts

Rod Hall - JPMorgan

Janardan Menon - Liberum Capital

Edward Snyder - CER

Mark McKechnie - Gleacher

Tim Long - Bank of Montreal

Pierre Ferragu - Bernstein

Mark Sue - RBC

Kulbinder Garcha - Credit Suisse

Alexandre Peterc - Exane

Zahid Hussein - Citigroup

Presentation

Åse Lindskog

Hello, everyone, and welcome to our call today where we will comment on our fourth quarter results. With me here today I have Hans Vestberg who is our President and CEO; Jan Frykhammar, Chief Financial Officer; and also Johan Wibergh who is heading up our Business Unit Networks.

First of all, I must remind you that during the call today, we will be making forward-looking statements. These statements are based on our current expectations and certain planning assumptions, which are subject to risk and uncertainties. The actual results may therefore differ materially due to factors mentioned in today's press release and discussed in this call today. I also encourage you to read about the risks and uncertainties in the earnings report as well as our Annual Report.

With this said, I would like to hand over now to Hans Vestberg for comments on our performance and plans going forward.

Hans Vestberg

Thank you, Åse. I know that some of you have attended the press conference in the morning, so we'll be a little bit briefer about that. Let's start with the Q4 in summary.

The sales ended up at SEK62.8 billion in the fourth quarter, meaning a growth of 7%, if you exclude acquisitions and adjusted currency, which is of course given how we view the year in retro-perspective, was quite good. We had started 2010 with negative growth in the first and second quarter and basically flat in the third quarter, and then we came back.

The growth very much focus around mobile broadband, that's where we have seen the growth and you will see later on that our Networks Segment was growing 14%. The net income up SEK4.2 billion to SEK4.4 billion, compared to only SEK3.7 billion last year. In the fourth quarter three components one, Sony Ericsson of course, quite substantial improvement compared to one year ago, also is that we have less restructuring. But also on the Sony Ericsson we were almost improving SEK1 billion on operating results on bottom line, so all these contributed to a stronger fourth quarter.

On the cash flow side, on adjusted cash flow operations, cash flow SEK16.2 billion in the quarter, which was good, a lot of good work, especially on collection. And here we of course always view our cash flow on a yearly basis and we can conclude that our target of having better than 7% cash conversion was achieved. We achieved 112% cash conversion in 2010.

Little bit more details on net sales, you can see that this is one on the all-time high quarters for us. It's only on this graph to Q4 2008 that was higher. I would say that we were a little different on currency in that moment as well, so this is a big quarter for us. Demand for mobile broadband important, but also that China came back on 2G investments, which is important. And of course the 2G expansions in China are also driven from uses of data, EDGE and GPRS et cetera and not only voice.

If we take the profitability, earnings per share SEK1.34, of course an improvement, as well as the improvement of the Q4 and the full year net income. A same explanation as before on the full year improved gross margins, improved Sony Ericsson earnings and the core Ericsson improving and then also less restructuring in 2010 when compared to 2009.

The regional split, this slide we always use, so I can say, the big difference here is that North America was smaller in size has been around 20% to 29% through the year, but in the fourth quarter ending up on 22%. Not saying that we're not growing, in North America we still have 49% growth in the fourth quarter in North America.

So it's more the other the regions that are starting to grow. And if you look at the next slide, we had four regions out of 10 now growing. During the year we had one region, but also that we had all 10 regions sequentially growing, which is also an important measurement.

If you then take a deeper dive in North America, I can conclude that you will look at the (inaudible) we have establish ourselves on a total different sale flow within North America, we are main supplier to all the major operators. We are selling CDMA, HSPA, LTE as well as having doing very important breakthroughs and services, and one of them of course being running Sprint's networks up towards others service business.

All in all, you can say that in the fourth quarter we were rewarded to be part of the network evolution strategy of Sprint, which also is important. But clearly we have established us as the leader in the North American market with all these wins and of course acquisitions.

If you then look at India, we had a bumpy ride here, starting with delays on 3G auction which halted the investments and then the security concerns that has been ongoing, which also impacted us in the first half. In the second half, we have been starting gradually to increase our sales there basically because of the 3G and also that the security clearance has been there so we could deliver.

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