Telefonaktiebolaget LM Ericsson (publ)

Hello, everyone, and welcome to the presentation of Ericsson's fourth quarter 2024 results. With me here in the studio today, Borya Ekholm, our president and CEO, and Lars Sandström, our chief financial officer. As usual, we'll have a short presentation followed by Q&A. And in order to ask a question, you'll need to join the conference by phone. Details can be found in today's earnings release and on the investor relations website. Please be advised that today's call is being recorded and that today's presentation may include forward-looking statements. These statements are based on our current expectations and certain plans. Well, thank you, Daniel, and welcome, everyone.

And first of all, of course, thank you for joining us today. So we delivered a solid Q4 results and we made good progress against our strategic priorities in the 2024 overall. Momentum around programmable networks and new ways to monetize them continue to build up. I'd like to start by focusing my comments today really on two key areas. First, the progress against our strategic initiatives. And second, how we position the business to succeed across varying market conditions. with our strategy that aims to build the networks of the future through programmable networks and open API architectures. This will enable our service provider customers to deliver differentiated performance and new applications and new cases to monetize.

The contract, and you remember that, signed with AT&T last year really paved the way for our newest agreement with Mass Orange, which we signed during the quarter.

I would say our agreement with Mass Orange was really the first open programmable network in Europe. It's a key milestone for us and the European telecoms industry. With this agreement, Ericsson and Mass Orange will collaborate to lay the foundation for open programmable infrastructure that will drive technological advances and growth moving forward. it will allow differentiated connectivity. And why is differentiated connectivity so important? Well, if you think about the whole radio stack, and we are serving a massive number of different applications. We're serving anything from mobile broadband, fixed wireless access, mission-critical communication, communication, but also AI-driven new applications. We have AR, VR glasses. All of them will require differentiated connectivity. And here, programmable connectivity plays a very important role. That's why that's a key focus for us. But besides that, we also launched a number of enhancements to our portfolio, including more sustainable massive MIMO radio with more than 25% energy savings and new RAN software capabilities that significantly boost performance and programmability. On the enterprise side, The joint venture we announced in September with 12 leading service providers to aggregate and sell network APIs represent a key milestone in redefining the telecom industry by creating the supply of network APIs across several continents. And we continue to see the momentum building for network APIs. And during the fourth quarter, We also announced the name for the new venture, Aduna, and you can expect many more announcements to come in the future here. In Enterprise Wireless Solutions, our strategic ambition is to further build out the go-to-market engine. Last year, we combined the activities under the Ericsson brand and announced a new Enterprise 5G portfolio, including neutral host solutions to enable full indoor connectivity. Overall, we saw very good traction in the new portfolio in Q4. So as you can see, we are not standing still. We're taking actions to execute on our strategy to ensure that Ericsson remains well positioned for the future, while also laying the foundation to change the overall trajectory of the RAND market. Second, I'd like to provide some comments on the overall Rand market and how we're preparing ourselves. ourselves for different market conditions and you've seen that's been critical in 2024 the overall market continued to be quite challenging and i would say continue to decline during the year however today we are starting to see some very positive indications and we have further reasons to believe that the overall market is starting to stabilize and you saw in q4 Sales returned to growth for the first time in eight quarters, increasing by 2%. We continued strong growth in North America as well as growth in Europe. Growth in data and new applications, that's what's going to drive the market over the medium to long term. But ultimately, and we've said this so many times before, the Near-term market recovery is in the hands of our customers. But our confidence in a stabilizing market is growing, driven by positive customer discussions and interactions, and that we see a return to our largest markets, the US as well as Europe. So I think the frontrunner experience we have with the U.S. market can give us comfort that we're starting to see a change in sentiment.

But regardless of the market conditions,

conditions we need to structurally improve our business through rigorous cost management of course but also improving our working capital and the capital we tie up in the business that will strengthen our cash flow and balance sheet so for example during the past few few well year and years actually We have taken a lot of actions to structurally take out costs. And you can see the results in our gross margin. Increasing by more than 500 bps to 44.9%. Market mix. IPR licensing revenue, of course, and the focus on the profitable segments in enterprise all contributed as well. In 2024, total headcount internal and external fell by 9,400 or 8%. So it's just not in our gross margin where we're structurally improving the profitability. We're actually taking OPEX out as well. And as you've all seen before, The fourth quarter included significantly higher bonus provisions than last year and clearly above normalized levels during the quarter. So underlying OPEX developed well and fell down or fell. Adjusted EBITDA margin increased by 300 bps to 11%. We're not yet where we want to be here, but we're making progress towards our long-term goal. Going forward, we're going to continue to strengthen our business and focus on operational excellence, and we remain committed to our long-term EBITDA margin target. Over the past 18 months, we have implemented actions to structurally lower our working capital, together with a change in business mix following the completion of the large rollout projects in India that we had in 2023. We generated free cash flow of 40 billion during 2024, and that puts us in a very strong financial position. Turning to capital allocation, our first priority is to invest in R&D to maintain and grow our technology leadership across networks, enterprise solutions, and network APIs. Alongside R&D, we prioritize a strong balance sheet and attractive shareholder returns. I would also say that we actually have a very well positioned portfolio today.

So we see

possibility to do some smaller add-on bolt-ons could be geographic could be technology wise but what we have positions us really well to organically develop the business and we're very satisfied with where we are so today you saw the board proposing a dividend of 285 per share, corresponding to a total amount of 9.5 billion kroner. I would say this is a testament to the confidence the board has in our strategy, as well as the longer term. So, as you can see, it was a strong end to the year. But now let me comment more specifically on some of the market developments we saw in Q4.

In North America, sales increased by 54%.

In networks, sales increased by 70%. Of course, driven by the rollout of our AT&T contract, but also strong year-end hardware demand and significant software traction with other large customers. Sales in Europe and Latin America increased by 2%. The strength in Europe in particular benefited from the market share gains and strong deliveries. Sales decreased in all other regions, specifically Latin America, continues to be a market with intense competition and lower customer network investments.

In Southeast Asia, Oceania and India, sales decreased primarily due to lower network sales in India after a record year of 2023.

Sales in Northeast Asia as well as Middle East and Africa also slowed. This was really due to investments levels slowing down following the recent 5G build-out in the front-runner markets, as well as some macro pressures in Africa that we're all aware of. At the same time, we had good customer success. in all of these regions in the quarter. So, for example, we announced a multi-year contract extension for 4G and 5G RAN with Bharti. We also had a contract win of nationwide 5G deployment for VMPT in Vietnam.

With that, I would like to hand over to Lars to go through the financial details.

All right. Thank you, Berger. Let me start by giving you some additional points on the group before discussing the segments more in detail. And net sales in Q4 amounted to 72.9 billion and organic sales were up 2%. North America growth was strong for the third quarter in a row. And we also had slight growth in Europe for the second quarter in a row. The other markets declined, particularly India, where investments level have normalized after a peak in 2023. Adjusted gross margin was 46.3% in Q4, an increase from 41.1 in the prior year here.

Margin improved with supply chain efficiency. the focus on commercial discipline and a favorable market mix.

OPEX in the quarter was 23.8 billion, up by 1.7 billion compared to the prior year, mainly because bonus accruals were above target levels in 2024, having been below in last year. The cost of activities continued to deliver savings. These balanced out salary increases and part of the higher bonuses.

Adjusted EBITDA increased to 10.2 billion with a margin of 14.1.

marking a significant expansion year on year. Cash flow was strong at 15.8 billion. The improvements came from improved profitability and lower working capital. Let's move on to the results for the full year. Net sales amounted to 247.9 billion and organic sales declined

by 5%.

Very strong growth in North America was offset by organic sales declines in all the other market areas. The sales decline, which gave a significant volume impact on gross income, was more than offset by an increase in gross margin. Adjusted gross margin was 44.9%, an increase from 39.6% in 2023. Margin improve with a favorable market mix, cost reduction initiatives, including supply chain efficiency, as well as higher IPR licensing revenues.

Focus on more profitable market segments in supply.