TIDM61QS
RNS Number : 5905W
Telefonaktiebolaget Lm Ericsson
18 April 2023
Ericsson reports first quarter results 2023
First quarter highlights - Executing in a challenging market
Group organic sales[1] were unchanged YoY. As expected, segment
Networks organic sales[1] declined by -2%, driven by lower operator
capex and inventory optimization among multiple customers. The
decline was offset by growth in other business segments. Reported
sales increased to SEK 62.6 (55.1) b.
Gross income excluding restructuring charges increased to SEK
24.9 (23.3) b. mainly driven by Enterprise as well as Cloud
Software and Services. Reported gross income was SEK 24.2 (23.3)
b.
Gross margin excluding restructuring charges was 39.8% (42.3%)
primarily impacted by changed business mix in Networks. Reported
gross margin was 38.6% (42.3%).
EBITA excluding restructuring charges amounted to SEK 4.8 (5.0)
b. EBITA was SEK 3.8 (4.9) b.
Net income was SEK 1.6 (2.9) b. EPS diluted was SEK 0.45
(0.88).
Free cash flow before M&A was SEK -8.0 (-1.7) b. Cash flow
was impacted by an increase in working capital. Net cash on March
31, 2023, was SEK 13.6 b. compared with SEK 23.3 b. on December 31,
2022.
SEK b. Q1 Q1 YoY Q4 QoQ
2023 2022 change 2022 change
Net sales 62.6 55.1 14% 86.0 -27%
------- ------- --------- ------- ---------
Sales growth adj. for comparable - - 0% - -
units and currency[2]
------- ------- --------- ------- ---------
Gross margin[2] 38.6% 42.3% - 41.4% -
------- ------- --------- ------- ---------
EBIT 3.0 4.7 -36% 7.9 -61%
------- ------- --------- ------- ---------
EBIT margin[2] 4.9% 8.6% - 9.1% -
------- ------- --------- ------- ---------
EBITA[2] 3.8 4.9 -22% 9.0 -57%
------- ------- --------- ------- ---------
EBITA margin[2] 6.2% 9.0% - 10.5% -
------- ------- --------- ------- ---------
Net income 1.6 2.9 -46% 6.2 -75%
------- ------- --------- ------- ---------
EPS diluted, SEK 0.45 0.88 -49% 1.82 -75%
------- ------- --------- ------- ---------
Measures excl. restructuring charges[2]
------- ------- --------- ------- ---------
Gross margin excluding restructuring
charges 39.8% 42.3% - 41.5% -
------- ------- --------- ------- ---------
EBIT excluding restructuring charges 4.0 4.8 -16% 8.1 -50%
------- ------- --------- ------- ---------
EBIT margin excluding restructuring
charges 6.4% 8.7% - 9.4% -
------- ------- --------- ------- ---------
EBITA excluding restructuring charges 4.8 5.0 -3% 9.3 -48%
------- ------- --------- ------- ---------
EBITA margin excluding restructuring
charges 7.7% 9.1% - 10.8% -
------- ------- --------- ------- ---------
Free cash flow before M&A -8.0 -1.7 - 16.9 -
------- ------- --------- ------- ---------
Net cash, end of period 13.6 65.2 -79% 23.3 -42%
------- ------- --------- ------- ---------
[1] Sales adjusted for comparable units and currency
[2] Non-IFRS financial measures are reconciled at the end of
this report to the most directly reconcilable line items in the
financial statements.
Comments from Börje Ekholm, President and CEO of Ericsson
(NASDAQ:ERIC)
We are on a journey to shape the future industry landscape and
extend our addressable market by leveraging our 5G capabilities. We
continue to execute on our strategy to strengthen our leadership in
Mobile Networks, grow our enterprise business, and drive continued
cultural transformation.
Q1 in line with expectations
Group organic sales[1] were flat, as the expected decline in
Networks was offset by growth in other business segments, including
a 19% organic growth1 in Enterprise. EBITA excluding restructuring
charges was SEK 4.8 (5.0) b.
Organic sales[1] in Networks decreased by -2% YoY. As expected,
customers in early 5G markets have slowed the deployment pace
somewhat. Our effect on sales is bigger as some customers have also
lowered the elevated inventory levels built up in a tight supply
environment. We expect this inventory adjustment to be mostly
completed during Q2 but may spill into Q3. Significant growth from
large roll-out projects did not fully offset the sales impact from
early 5G markets. As expected, the increased share of large
roll-out projects pressured the gross margin in Networks, however
it positions us well for future growth. In Cloud Software and
Services, we continued to execute on our turnaround strategy and
reduced our loss slightly more than plan. With this progress, we
are on track to reaching the important milestone of break-even in
2023.
Following the strong cash flow in Q4, the first quarter cash
flow was negative. Compared to last year working capital grew
related to the changed business mix with the two components:
increased customer financing for large roll-out projects in new 5G
markets and reduced trade payables. As usual, Q1 cash flow was
seasonally impacted by pay-out of accrued employee-related
expenses.
Cost saving initiatives accelerated and increased
Cost efficiency is crucial for our long-term competitiveness. We
have accelerated our cost-out execution and have identified
additional savings opportunities of SEK 2 b. and now plan to reduce
cost run rate by SEK 11 b. by year-end. Our early estimate, given
the increased scope and more costly programs in Europe, indicates
that restructuring charges may amount to around SEK 7 b. for the
full year, of which more than half is likely to be booked in Q2.
For 2024, we expect restructuring charges to normalize to about
0.5% of sales.
Progress in responsible business and integrity
As announced in the quarter, we reached a resolution with the
Department of Justice (DOJ) regarding the breaches of the 2019
Deferred Prosecution Agreement (DPA). We reiterate, that these
breaches were contractual and non-criminal in nature, and that the
DOJ has not identified any new criminal conduct after 2016. The DOJ
noted Ericsson's significant progress in building a compliance
program that is fit for purpose and works in practice, validating
the positive changes. The resolution is an important step and
enables us to focus on strategic execution and cultural change. We
continue our efforts to simplify the company, increase
accountability and strengthen risk management. We are fully
dedicated to embedding integrity into everything we do, and we
believe this is a competitive advantage.
Driving execution of our strategy
Leadership in Mobile Networks based on technology leadership is
a top priority. In Networks we introduced many new market leading
products at Mobile World Congress (MWC). Cloud Software and
Services is focused on executing the turnaround plan.
We are capitalizing on our leadership position in Mobile
Networks and are building momentum towards our vision of a network
API platform. Last year we tested Ericsson Dynamic End-user Boost
with SmarTone in Hong Kong. At MWC, we showcased the world's first
multi-operator quality-of-service network API on commercial
networks, in cooperation with Telefonica, Orange and Vodafone. This
demonstrated how advanced mobile network functionality can be
exposed to, and easily consumed by, the global developer community.
We are working with front-runner customers to establish the market
for network APIs, and we see great interest from early adopters. We
anticipate the first revenues late this year, positioning us for
revenue ramp-up in 2024 and 2025 as our transformation into a
platform company accelerates. It will take some time to build this
new network API market, but we believe it can develop faster and
grow bigger than the market for traditional communication APIs.
With the acquisition of Ericom with its advanced cloud-based
security and zero-trust technology, we will accelerate our security
offering in Enterprise Wireless Solutions. We now have the
capabilities to build a full-stack security service optimized for
5G. A cornerstone in our Enterprise Wireless Solutions is to build
a dedicated go-to-market organization which in the short term
requires investments. These investments, in combination with the
subscription model with deferred revenue, impact reported
profitability in the short term. Longer term the business area has
an attractive profitability profile.
We continue to finetune our portfolio to optimize profitability
across our business. By end of Q1, we closed the divestiture of our
IoT platform business, which reduces quarterly losses by about SEK
250 m. going forward. This was an important step in improving
financial performance in our Enterprise business.
Managing choppy 2023
We continue to see a choppy environment during 2023 with poor
visibility. In Q2, we expect operators to remain cautious with
capex investments and continue to adjust inventories. We expect
this dynamic to largely be offset by growth from large roll-out
projects which, as noted earlier, will be dilutive to gross margin
in the short term. In the Enterprise segment, we remain confident
of the long-term growth trajectory, and we expect the slower growth
we saw in Q1, caused by the slower global economy, to continue in
Q2. For Q2, we expect Group EBITA[2] margin to reach
mid-single-digit level. We expect a gradual recovery in the second
half of 2023, primarily as we expect the inventory adjustments to
be completed and our cost reduction activities to start flowing
through the P&L. Long-term, previous experience tells us that
when operators are seeing underlying traffic growth, this leads to
investments in networks in order to avoid deteriorating
quality.
Our strategy is paying off and we are excited about our position
to capitalize on the full value of 5G. We are driving our
transformation to a platform company with a focus on creating a
stronger and more profitable Ericsson with a larger addressable
market. With the expected recovery by 2024 of the Mobile Networks
market, the turnaround of Cloud Software and Services, portfolio
adjustments, enhanced R&D productivity, increased IPR revenues
and cost reductions, we are on track to reaching the lower end of
the long-term EBITA[2] target range of 15-18% by 2024.
Börje Ekholm
President and CEO
[1] Sales adjusted for comparable units and currency
[2] Excluding restructuring charges
NOTES TO EDITORS
You find the complete report with tables in the attached PDF or
on www.ericsson.com/investors
Video webcast for analysts, investors and journalists
President and CEO Börje Ekholm and CFO Carl Mellander will
comment on the report and take questions at a video webcast at 9:00
AM CEST (8:00 AM BTS London, 3:00 AM EDT New York).
Join the webcast or please go to www.ericsson.com/investors
To ask a question: Access dial-in information here
The webcast will be available on-demand after the event and can
be viewed at www.ericsson.com/investors .
FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
Peter Nyquist, Head of Investor Relations
Phone: +46 705 75 29 06
E-mail: peter.nyquist@ericsson.com
Additional contacts
Stella Medlicott, Senior Vice President, Marketing and Corporate
Relations
Phone: +46 730 95 65 39
E-mail: media.relations@ericsson.com
Investors
Lena Häggblom, Director, Investor Relations
Phone: +46 72 593 27 78
E-mail: lena.haggblom@ericsson.com
Alan Ganson, Director, Investor Relations
Phone: +46 70 267 27 30
E-mail: alan.ganson@ericsson.com
Media
Ralf Bagner, Head of Media Relations
Phone: +46 76 128 47 89
E-mail: ralf.bagner@ericsson.com
Media relations
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com
This is information that Telefonaktiebolaget LM Ericsson is
obliged to make public pursuant to the EU Market Abuse Regulation.
The information was submitted for publication, through the agency
of the contact person set out above, at 07:00 CEST on April 18,
2023.
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END
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