STOCKHOLM, November 8, 2017 /PRNewswire/ --
- Update on company strategy, progress in strategy execution and
planning assumptions going forward
- Long term target of more than 12% operating margin, excluding
restructuring, beyond 2020
- Robust plans in place with a target of sales of SEK 190 – 200 b. with 37 – 39% gross margin and
at least 10% operating margin, excluding restructuring, by 2020 for
the Group.
Ericsson (NASDAQ:ERIC) is today holding its Capital Markets Day.
The company is giving an overview of its focused business strategy
and deep dives in execution in all business segments.
Börje Ekholm, President and CEO, says: "Our job and commitment
is to rebuild Ericsson to be successful long-term. Near term we
will prioritize profitability over growth. Healthy profitability is
the base for long-term success and will give us the freedom and
resources to invest for the long term."
The company mission is to enable the full value of connectivity
for its service provider customers. In the work to turn around
performance, each portfolio area has a clear focus. In Networks,
the company is increasing R&D for technology and cost
leadership. In Digital Services, focus is on reaching break even by
shifting to software-led solutions and adjusting the cost base. In
Managed Services, a contract review is ongoing and investments in
automation have started. Finally, a structured approach to
technology and business innovations will over time drive new growth
in Emerging Businesses.
In this first phase of strategy execution, focus is on
simplifying and stabilizing the business. A simplified company
structure and organization has been put in place. The first results
from accelerated cost reduction activities and contract reviews are
already visible and there is good traction in the ongoing portfolio
review. At the same time, the company is taking steps to invest
into future growth as the industry transitions into 5G.
Börje Ekholm, President and CEO, Ericsson says: "5G is not just
another G. Even though we are not planning for significant 5G sales
before 2020, we are convinced it will create value for our
customers in their mobile broadband business, enabling them to
manage very high traffic growth. But even more important, it has
the potential to create new businesses and revenue streams for
service providers based on use cases such as industrial
applications. With the combination of products and capabilities
that we have in Networks and Digital Services combined, we are well
positioned to support our customers' network evolution to 5G."
Group financial targets and profitability
The target for net sales is SEK
190 – 200 b. by 2020.
The focused business strategy presented in March this year,
stated the ambition to improve returns to shareholders, including
the potential of more than 12 % operating margin on a sustainable
basis beyond 2018, excluding restructuring costs.
Ericsson remains fully committed to this ambition but the
starting point has become more challenging and therefore it will
take some additional time than originally planned for. This is due
to a weaker than expected Radio Access Network equipment market
that will have significant compound effect over the coming years,
FX movements with our reporting currency SEK strengthening against
the USD and an even more challenging situation in Digital Services
than the original assessment indicated.
However, there are robust plans in place which will take us to a
gross margin of 37 – 39% and an operating margin of at least 10%
for the Group in 2020, excluding restructuring charges. This target
does not factor in any significant 5G sales during this time
period.
Börje Ekholm continues: "We have plans in place for all segments
that combined sum up to an operating margin of between 10 – 12% by
2020, but since there are execution risks in all plans and we start
from a weaker starting point than originally planned for, we prefer
to be cautious and commit to the lower end of the range. Beyond
2020, we will drive continued improvements and capture upsides from
innovation and emerging business to reach our ambition of at least
12% operating margin for the Group."
2020 targets and planning assumptions
(see below under heading New financial reporting structure for
details on new segment structure)
SEK b.
|
|
Networks
|
Digital
Services
|
Managed
Services
|
Other
|
Total
|
Target
2020
|
Net sales
|
128 – 134
|
42 – 44
|
20 – 22
|
3 – 5
|
190 – 200
|
|
Operating margin
1)
|
15 – 17%
|
Low single
digit
|
4 – 6%
|
Breakeven
|
>10%
|
|
|
|
|
|
|
|
Baseline 2017 Q3
rolling 4Q unaudited and preliminary
|
Net sales
|
133 – 135
|
41 – 43
|
24 – 26
|
7 – 9 3)
|
211
|
|
Operating margin
2)
|
13 – 14%
|
-15 to
-17%
|
-4 to -6%
|
-57% to
-62%
3)
|
3%
|
1) Excluding restructuring charges
2) Numbers are excluding restructuring charges and extraordinary
items
3) Including Media Solutions and Broadcast & Media
Services
Note: All financial targets are based on USD/SEK at 8.20. USD to
SEK movements has a direct impact on reported sales and income. If
the USD to SEK weakens by -10% it has approximately 5% negative
impact on topline and 1 percentage point on operating margin.
Market development
In line with external analysts' market size estimates, Ericsson
expects that the Radio Access Network equipment market addressed by
segment Networks will decline by -2% during 2018, and by -1% during
2019. In 2020, the market is expected to remain flat with no
further decline.
Planning assumptions for all other key segments are based on
external sources and indicate slightly positive growth across all
segments during the same time period.
Progress on cost savings
As announced in the report for the second quarter 2017, cost
reduction activities are accelerated to achieve an annual run rate
reduction of at least SEK 10 b. by
mid-2018, split between General & Administration (30%) and Cost
of Sales (70%). At the end of Q317 a SEK 2
b. run rate reduction had been achieved, of which
SEK 1.8 b. in cost of sales.
Restructuring charges for full year 2018 are estimated to
SEK 5 – 7 b.
New financial reporting structure
Ericsson will introduce a new financial reporting structure as
of Q4 2017, based on the new company structure. Results will be
reported in four segments: Networks, Digital Services, Managed
Services and Other. Each segment includes the combined sales from
products and services except for segment Managed Services that
consists of services only.
IPR revenues will be split 82% in Networks and 18% in Digital
Services.
Segment Other will consist of Media Solutions, Broadcast &
Media Services, and Emerging Business.
The restated numbers for 2016 and 2017 will be disclosed on
December 8, 2017, ahead of the fourth
quarter and full year 2017 report.
Details of the event
President and CEO Börje Ekholm and CFO Carl Mellander will be joined by members of the
company's Executive Team. The speakers include Fredrik Jejdling,
Head of Business Area Networks, Ulf Ewaldsson, Head of Business
Area Digital Services, and Peter
Laurin, Head of Business Area Managed Services as well as
CTO Erik Ekudden and Nishant Batra, Head of Network
infrastructure.
Ericsson's Capital Markets Day event can be accessed via the
Ericsson website
https://www.ericsson.com/en/investors/events-and-presentations/CMD2017.
Presentation materials can also be downloaded from the website once
the webcast has started.
NOTES TO EDITORS
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Media Contact:
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Relations
Phone: +46-10-714-64-99
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Ericsson is a world leader in communications technology and
services with headquarters in Stockholm,
Sweden. Our organization consists of more than 111,000
experts who provide customers in 180 countries with innovative
solutions and services. Together we are building a more connected
future where anyone and any industry is empowered to reach their
full potential. Net sales in 2016 were SEK
222.6 billion (USD 24.5
billion). The Ericsson stock is listed on Nasdaq Stockholm
and on NASDAQ in New York. Read more
on www.ericsson.com.
Ericsson Forward-Looking Statement
All statements made or incorporated by reference in this
release, other than statements or characterizations of historical
facts, are forward-looking statements. These forward-looking
statements are based on our current expectations, estimates and
projections about our industry, management's beliefs and certain
assumptions made by us. Forward-looking statements can often be
identified by words such as "anticipates", "expects", "intends",
"plans", "predicts", "believes", "seeks", "estimates", "may",
"will", "should", "would", "potential", "continue", and variations
or negatives of these words, and include, among others, statements
regarding: (i) strategies, outlook and growth prospects; (ii)
positioning to deliver future plans and to realize potential for
future growth; (iii) liquidity and capital resources and
expenditure, and our credit ratings; (iv) growth in demand for our
products and services; (v) our joint venture activities; (vi)
economic outlook and industry trends; (vii) developments of our
markets; (viii) the impact of regulatory initiatives; (ix) research
and development expenditures; (x) the strength of our competitors;
(xi) future cost savings; (xii) plans to launch new products and
services; (xiii) assessments of risks; (xiv) integration of
acquired businesses; (xv) compliance with rules and regulations and
(xvi) infringements of intellectual property rights of others. In
addition, any statements that refer to expectations, projections or
other characterizations of future events or circumstances,
including any underlying assumptions, are forward looking
statements. These forward-looking statements speak only as of the
date hereof and are based upon the information available to us at
this time. Such information is subject to change, and we will not
necessarily inform you of such changes. These statements are not
guarantees of future performance and are subject to risks,
uncertainties and assumptions that are difficult to predict.
Therefore, our actual results could differ materially and adversely
from those expressed in any forward-looking statements as a result
of various factors. Important factors that may cause such a
difference for Ericsson include, but are not limited to: (i)
material adverse changes in the markets in which we operate or in
global economic conditions; (ii) increased product and price
competition; (iii) reductions in capital expenditure by network
operators; (iv) the cost of technological innovation and increased
expenditure to improve quality of service; (v) significant changes
in market share for our principal products and services; (vi)
foreign exchange rate or interest rate fluctuations; and (vii) the
successful implementation of our business and operational
initiatives.
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 14:30 CET on November 8,
2017.
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|
Ericsson Capital
Markets Day 2017
|
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SOURCE Ericsson