FOURTH QUARTER HIGHLIGHTS
- Reported sales decreased by -11% YoY, with SEK
-5.5 b. lower IPR licensing revenues.
- Despite strong sequential sales growth in
Networks, the underlying market remained weak in the fourth
quarter.
- Gross margin was 26.1% (36.3%). Gross margin,
excluding restructuring charges, was stable QoQ, but declined to
29.4% (36.6%) YoY, following lower IPR licensing revenues and a
higher share of Global Services sales with reduced margin in the
quarter.
- Operating income was SEK -0.3 (11.0) b. Operating
income, excluding restructuring charges, decreased to SEK 4.4
(11.7) b., mainly due to lower IPR licensing revenues.
- The cost and efficiency program is tracking
towards target. The execution pace was faster than predicted in the
quarter, resulting in full-year restructuring charges of SEK 7.6 b.
compared with estimated SEK 5.5-6.5 b.
- The baseline for current IPR licensing contract
portfolio is approximately SEK 7 b. on an annual basis. Smartphone
volumes, new agreements and IoT licensing will determine growth
opportunities going forward.
- Cash flow from operating activities was SEK 19.4
(21.9) b. supported by reduced operating assets.
- Effective January 16, 2017, Börje Ekholm assumed
the position of President and CEO.
FULL YEAR HIGHLIGHTS
- Reported sales decreased by -10% mainly due to
weaker demand for mobile broadband, especially in markets with a
weak macroeconomic environment. IPR licensing revenues declined to
SEK 10.0 (14.4) b.
- Operating income declined to SEK 6.3 (21.8) b.
due to lower sales and a changed business mix in mobile broadband,
with a lower proportion of capacity business. This was partly
offset by lower operating expenses.
- Cash flow from operating activities was SEK 14.0
(20.6) b. Net cash at year-end was SEK 31.2 b.
- The Board of Directors will propose a dividend
for 2016 of SEK 1.00 (3.70) per share to the AGM.
SEK b. |
Q4
2016 |
Q4
2015 |
YoY
change |
Q3
2016 |
QoQ
change |
Full year
2016 |
Full year
2015 |
Net sales |
65.2 |
73.6 |
-11% |
51.1 |
28% |
222.6 |
246.9 |
Sales growth adj. for
comparable units and currency |
- |
- |
-15% |
- |
23% |
-10% |
-5% |
Gross margin |
26.1% |
36.3% |
- |
28.3% |
- |
29.8% |
34.8% |
Gross margin excluding
restructuring charges |
29.4% |
36.6% |
- |
29.4% |
- |
31.4% |
35.7% |
Operating income |
-0.3 |
11.0 |
-103% |
0.3 |
-182% |
6.3 |
21.8 |
Operating income excluding
restructuring charges |
4.4 |
11.7 |
-63% |
1.6 |
172% |
13.9 |
26.8 |
Operating margin |
-0.4% |
15.0% |
- |
0.7% |
- |
2.8% |
8.8% |
Operating margin excluding
restructuring charges |
6.7% |
16.0% |
- |
3.1% |
- |
6.2% |
10.9% |
Net income |
-1.6 |
7.0 |
-123% |
-0.2 |
- |
1.9 |
13.7 |
EPS diluted, SEK |
-0.48 |
2.15 |
-122% |
-0.07 |
- |
0.52 |
4.13 |
EPS (Non-IFRS), SEK1) |
0.62 |
2.50 |
-75% |
0.34 |
82% |
2.66 |
6.06 |
Cash flow from operating activities |
19.4 |
21.9 |
-11% |
-2.3 |
- |
14.0 |
20.6 |
Net cash, end of period 2) |
31.2 |
41.2 |
-24% |
16.3 |
91% |
31.2 |
41.2 |
1) EPS, diluted, excl. amortizations and write-downs of
acquired intangible assets, and excluding restructuring
charges.
2) The definition of Net cash was changed in Q1 2016 and now
excludes post-employment benefits, see accounting policies. |
|
|
Non-IFRS financial measures are
reconciled to the most directly reconcilable line items in the
financial statements at the end of this report.
Comments from Börje Ekholm,
President and CEO of Ericsson (NASDAQ:ERIC)
The negative industry trends remained in the
fourth quarter. However, sales were positively impacted by
favorable currency exchange rates combined with hardware
deliveries, previously planned for Q1 2017. Profitability declined
YoY following lower IPR licensing revenues mainly due to last
year's agreement with Apple as well as increased restructuring
charges. Operating cash flow in the fourth quarter was SEK 19.4 b.,
supported by reduced operating assets.
Business
Group sales declined by -11% YoY, primarily due to
the decrease of SEK -5.5. b in IPR licensing revenues. Full-year
IPR licensing revenues were SEK 10.0 (14.4) b.
In 2016, a number of markets, in regions such as
Latin America, the Middle East and Africa, were impacted by a weak
macroeconomic environment with a negative effect on mobile
broadband investments. The underlying market remained weak in the
fourth quarter with further weakness in Latin America. However,
hardware deliveries previously planned for Q1 2017 were made on
customer requests, and had a positive impact on sales in the fourth
quarter. In combination with a weakened SEK versus USD, this
resulted in a stronger than expected sequential sales growth in
mobile broadband. Segment Networks sales increased by 39% QoQ. The
new radio platform, Ericsson Radio System (ERS), represented almost
15% of total deliveries of radio units for 2016 and the roll-out of
the new platform is gradually ramping up.
Global Services sales declined by -4% YoY mainly
due to the reduced scope of a managed services contract in North
America. Support Solutions sales declined by -39% YoY, mainly due
to lower IPR licensing revenues. In addition, TV & Media sales
were lower than expected due to a rapid decline in legacy
products.
Sales in the targeted areas declined by -7% YoY,
mainly impacted by lower sales in OSS and BSS following the
transition from legacy to new products. We are allocating resources
into our digital transformation projects to secure important
deliveries in 2017. Full-year sales for targeted areas were flat
and accounted for 20% of group sales in 2016.
The current industry trends and business mix of
coverage and capacity sales in mobile broadband are expected to
prevail in 2017. At the Investor Update in November we presented
our estimate of the Radio Access Network (RAN) equipment market in
USD; a decline by -10% to -15% in 2016 and further decline by -2%
to -6% in 2017.
The baseline for current IPR licensing contract
portfolio is approximately SEK 7 b. on an annual basis. Smartphone
volume growth, agreements with currently unlicensed handset
manufacturers and IoT licensing will determine growth opportunities
going forward.
Profitability
Operating income decreased to SEK -0.3 (11.0) b.
in the quarter, mainly due to lower IPR licensing revenues, higher
restructuring charges and lower gross margin.
The cost and efficiency program, first initiated
in November 2014, is tracking to target of an annual run rate of
operating expenses, excluding restructuring charges, of SEK 53 b.
by second half of 2017. Full-year operating expenses, excluding
restructuring charges, amounted to SEK 56.4 b., corresponding to a
full-year reduction of SEK 5 b. The execution pace was faster than
predicted in the quarter resulting in front-loaded restructuring
charges. With current plans, we expect restructuring charges of
approximately SEK 3 b. for 2017.
Cash flow
Operating cash flow in Q4 was SEK 19.4 b.
Operating cash flow was mainly driven by reduced operating assets.
Full-year operating cash flow amounted to SEK 14.0 b. Net cash at
the end of quarter was SEK 31.2 b.
The Board will propose a dividend of SEK 1.00
(3.70) per share to the AGM. The Board believes that it is prudent
to align the dividend level with 2016 earnings adjusted for
restructuring charges and the current market outlook.
However, the Board expresses confidence in the ongoing actions to
improve Ericsson's financial performance, and has the ambition to
increase the dividend over time as our performance improves.
Focus going forward
We as well as our customers are going through a
period of rapid change. As a consequence, we are reviewing our
priorities in order to set the future direction of the company.
This work has been initiated involving key teams in the company, to
secure quality of decisions and speed in implementation once
decisions are made. Emphasis will be on refining the strategy to
focus investments into areas where we both can and must win.
Building on the suggestion from the famous ice hockey player Wayne
Gretzky; We will focus on skating where the puck will be, not where
it has been.
In the near term, stability will be key to
establishing a strong base for future growth. This means
prioritizing profitability over growth, but also to diligently
continue to work on efficiency and effectiveness across all
operations. This can and will ensure that we remain at the
forefront of technological development - building on the combined
strength across products, services and solutions.
NOTES TO EDITORS
You find the complete report with tables in the
attached PDF or by following this link
https://www.ericsson.com/res/investors/docs/q-reports/2016/12month16-en.pdf
or on www.ericsson.com/investors
Ericsson invites media, investors and analysts to
a briefing at the Ericsson Studio, Grönlandsgatan 8, Stockholm, at
09.00 (CET), January 26, 2017.
A conference call for analysts, investors and media will begin at
15.00 (CET).
Live webcast of the briefing and conference call
details, as well as supporting slides, will be available at
www.ericsson.com/press and www.ericsson.com/investors
FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
Peter Nyquist, Head of Investor
Relations
Phone: +46 10 714 64 49
E-mail: peter.nyquist@ericsson.com
Additional contacts
Helena Norrman, Senior Vice President, Marketing
and Communications
Phone: +46 10 719 34 72
E-mail: media.relations@ericsson.com
Investors
Åsa Konnbjer, Director, Investor
Relations
Phone: +46 10 713 39 28
E-mail: asa.konnbjer@ericsson.com
Stefan Jelvin, Director, Investor
Relations
Phone: +46 10 714 20 39
E-mail: stefan.jelvin@ericsson.com
Rikard Tunedal, Director, Investor
Relations
Phone: +46 10 714 54 00
E-mail: rikard.tunedal@ericsson.com
Media
Ola Rembe, Vice President, Head of External
Communications
Phone: +46 10 719 97 27
E-mail: media.relations@ericsson.com
Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com
This information 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 07:30 CET on January 26, 2017.
Ericsson fourth quarter and full
year report 2016
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Ericsson via Globenewswire
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