STOCKHOLM, April 17, 2019 /PRNewswire/ -- First quarter
highlights
- Sales were SEK 48.9 (43.4) b. Sales adjusted for comparable units and
currency increased by 7% driven by strong growth in North America. Reported sales grew by
13%.
- Gross margin was 38.4% (34.2%) driven by improvements in
Networks and Managed Services.
- Operating income was SEK 4.9
(-0.3) b. and operating margin was
10.0% (-0.7%). Operating income, excluding restructuring charges of
SEK -0.2 b. and certain positive
non-recurrent items[1] of SEK 1.6 b.
was SEK 3.5 b., which equals to an
operating margin of 7.2%.
- Net income improved to SEK 2.4
(-0.7) b.
- Free cash flow excluding M&A was SEK
4.1 (0.7) b. Net cash amounted
to SEK 36.1 (35.6) b.
- 51% of MediaKind was divested February
1, 2019. The acquisition of antenna and filter assets from
Kathrein is expected to close Q3.
SEK b.
|
Q1
2019
|
Q1
2018
|
YoY
change
|
Q4
2018
|
QoQ
change
|
Net sales
|
48.9
|
43.4
|
13%
|
63.8
|
-23%
|
Sales growth adj.
for comparable units and currency
|
-
|
-
|
7%
|
-
|
-
|
Gross
margin
|
38.4%
|
34.2%
|
-
|
25.7%
|
-
|
Operating income
(loss)
|
4.9
|
-0.3
|
-
|
-1.9
|
-
|
Operating
margin
|
10.0%
|
-0.7%
|
-
|
-2.9%
|
-
|
Net income
(loss)
|
2.4
|
-0.7
|
-
|
-6.5
|
-
|
EPS diluted
SEK
|
0.70
|
-0.25
|
-
|
-1.99
|
-
|
EPS (non-IFRS)
SEK[2]
|
0.80
|
0.11
|
-
|
-0.77
|
-
|
Free cash flow
excluding M&A
|
4.1
|
0.7
|
-
|
3.0
|
37%
|
Net cash. end of
period
|
36.1
|
35.6
|
2%
|
35.9
|
1%
|
Gross margin
excluding restructuring charges
|
38.5%
|
35.9%
|
-
|
32.0%
|
-
|
Operating income
(loss) excluding restructuring charges
|
5.1
|
0.9
|
-
|
2.6
|
99%
|
Operating margin
excluding restructuring charges
|
10.4%
|
2.0%
|
-
|
4.0%
|
-
|
[1]Certain non-recurrent items are; a capital gain related to
the divestment of 51% of MediaKind (SEK 0.7
b.), divestment of certain assets in Red Bee Media
(SEK 0.1 b.) and a reversal of an
earlier provision for impairment of trade receivables following
customer payment (SEK 0.7 b.)
[2]EPS diluted, excl. amortizations and write-downs of acquired
intangible assets, and excluding restructuring charges. Potential
ordinary shares are not considered when their conversion to
ordinary shares would increase earnings per share.
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)
For the third consecutive quarter we showed organic sales
growth[1], this quarter by 7%. Growth was mainly driven by
North America. Our strategy, to
work with lead customers in lead markets, is generating both 5G
business and hands-on experience in 5G rollout and
commercialization. To date we have publicly announced commercial 5G
deals with 18 named operator customers, which, at the moment, is
more than any other vendor.
5G services, including mobility, have been launched in
South Korea and North America. While Switzerland has released spectrum allowing
Swisscom to offer commercial 5G services, using our equipment, the
development in other parts of Europe is considerably slower primarily due to
lack of spectrum, poor investment climate and additional
uncertainties related to future vendor market access.
Gross margin[2] improved to 38.5% (35.9%) YoY, driven by
improvements in segments Networks and Managed Services, and also by
the recently signed patent license agreement with OPPO.
Segment Networks had a strong quarter with an organic sales
growth[1] of 10% YoY, driven by increased investments in
North America. Networks gross
margin[2] improved to 43.2% (40.4%) YoY, mainly due to higher
hardware capacity sales and IPR revenues. In the quarter we
announced our intent to acquire the German company Kathrein's
antenna and filters business. This will further expand our
capabilities in the advanced active and passive antenna domains,
which are growing in importance as 5G evolves.
In Managed Services, sales fell organically[1] by -5% due to
headwind from contract exits. In the quarter, our Operations Engine
was launched with good response from our customers. Gross margin[2]
improved to 17.7% (9.1%) YoY, supported by efficiency gains and
customer contract reviews. Excluding a non-recurrent positive
effect of SEK 0.7 b. from a customer
settlement, the operating margin[2] was 8.6%, exceeding the higher
range of our financial target for 2020.
Organic sales[1] in Digital Services were stable YoY. We
continue to see a good business momentum for the new portfolio of
5G-ready and cloud-native products, with many important contract
wins in the quarter. Gross margin excluding restructuring charges
and the BSS provision in Q4 2018[3] was stable QoQ and operating
income[2] improved YoY driven by reductions in operating expenses.
Gross margin[2] declined YoY as Q1 2018 was supported by a
favorable business mix. We continue to execute on our plan to turn
the Digital Services business around. Implementation of the revised
BSS strategy, announced in January
2019, is progressing well.
Organic sales growth[1] in segment Emerging Business and Other
was 38% YoY driven by growth in iconectiv. Gross margin[2] was
stable YoY. In the quarter 51% of MediaKind was divested,
generating a gain of SEK 0.7 b. In
segment Emerging Business and Other we invest in initiatives that
aim to scale and help create future business for Ericsson. With the
exception of iconectiv, the portfolio is still in an early phase.
We are also incurring extra costs as we restructure some of the
older innovation investments.
Driven by improved earnings, free cash flow excluding M&A
amounted to SEK 4.1 (0.7) b. in the quarter and with a strong cash
position we are well positioned to grow the company in a profitable
way.
As previously disclosed, we have been voluntarily cooperating
since 2013 with an investigation by the United States Securities
and Exchange Commission (SEC) and, since 2015, with an
investigation by the United States Department of Justice (DOJ) into
Ericsson's compliance with the U.S. Foreign Corrupt Practices Act
(FCPA). We continue to cooperate with the SEC and the DOJ, and have
recently begun settlement discussions. These discussions are in a
very early stage and therefore we are not able to estimate their
length. Further, as this is an ongoing legal matter we cannot
provide any detail. However, based on the current status of the
discussions it is our assessment that the resolution of these
matters will result in material financial and other measures, the
magnitude and impact of which cannot be reliably estimated or
ascertained at this time.
As previously communicated, we continue to take strategic
contracts and incur costs for 5G field trials and, in addition, by
end of 2019 we expect large-scale deployments of 5G to commence in
parts of Asia. Combined, this will
gradually impact short-term margins but strengthen our position in
the long term. The impact of strategic contracts and 5G field
trials was limited in Q1. The 5G market is gaining momentum and we
are well positioned to capture opportunities. We will continue to
make substantial investments in R&D, especially in 5G,
automation and AI. This is a key part of our focused strategy to
strengthen our long-term business and path to reaching our targets
for 2020 and 2022.
Börje Ekholm
President and CEO
[1] Organic sales growth: Sales growth adjusted for comparable
units and currency
[2] Excluding restructuring charges
[3] BSS (Business Support Systems) provision in Q4 2018 was
SEK 5.9 b.
Planning assumptions going forward
Market
related
- The Radio Access Network (RAN) equipment market is estimated to
increase by 3% for full-year 2019 with 2% CAGR for 2018-2023.
(Source: Dell'Oro.)
Ericsson related
Net sales
- Two-year average sales seasonality between Q1 and Q2 is 10%.
However, the current sales level in North
America is expected to remain, leading to lower effects from
seasonality between quarters than normally throughout 2019.
- The revenues for current IPR licensing contract portfolio is
approximately SEK 9 b. on an annual
basis.
Gross margin
- Strategic contracts in Networks, with initially low margins,
taken to strengthen the market position, will have a negative
impact on gross margins without jeopardizing the 2020 target. The
impact was limited in the quarter but is expected to start to
impact gross margin in Q2.
- Large 5G deployments in parts of Asia are expected to commence at the end of
2019 and will impact gross margin negatively in the short
term.
- The share of services sales in North
America is expected to gradually increase, impacting gross
margin negatively.
Operating expenses
- Operating expenses typically increase between Q1 and Q2 due to
seasonality.
- Costs for 5G field trials will impact SG&A and will
increase in the next few quarters.
- Networks R&D expenses are expected to flatten out.
Restructuring charges and Tax
- Restructuring charges for full-year 2019 are estimated to be
SEK -3 to -5
b.
- Tax rate in Q1 2019 was 44%. The rate is a result of forecasted
geographical distribution of profits for full-year 2019.
Currency
exposure
- Rule of thumb: A change by 10% of USD to SEK would have an
impact of approximately +/-5% on net sales and approximately +/-1
percentage point
NOTES TO EDITORS
You find the complete report with tables in the attached PDF or
by following this link
https://www.ericsson.com/assets/local/investors/documents/financial-reports-and-filings/interim-reports-archive/2019/3month19-en.pdf
or on www.ericsson.com/investors
Conference calls for journalists, analysts and
investors
The company will hold two identical conference calls for
journalists, financial analysts and investors. President and CEO
Börje Ekholm and CFO Carl Mellander
will comment on the report and take questions.
The first conference call will begin at 09:00 CEST (08:00
BST in London, 03:00 EDT in New
York and 16:00 JST in Tokyo), and the second at 13:00 CEST (12:00
BST in London, 07:00 EDT in New
York and 20:00 JST in Tokyo).
To join the conference call, please phone one of the following
numbers:
Sweden: +46(0)-8-56642651
(Toll-free Sweden:
0200-883-685)
International/UK: +44(0)-333-300-0804 (Toll-free UK:
0800-358-9473)
US: +1-631-913-1422 (Toll-free US: +1-855-85-70686)
PIN code: For 09:00 CEST call,
34974927# and for 13:00 CEST call,
33611815#
Please call in at least 15 minutes before the conference call
begin. As there is usually a large number of callers, it may take
some time before you are connected.
A live audio webcast of the conference call will be available at
www.ericsson.com/investors and www.ericsson.com/press
Replay:
Replay of the conference calls will be available from about one
hour after each has ended until April 24,
2019.
Sweden replay number:
+46(0)-8-519-993-85
International replay number: +44(0)-333-300-0819
For 09:00 CEST call, 301284111#
and for 13:00 CEST call,
301284117#
FOR FURTHER INFORMATION, PLEASE CONTACT
Peter Nyquist, Head of Investor
Relations
Phone: +46-10-714-64-99
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.konbjer@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 April
17, 2019.
This information was brought to you by Cision
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PDF
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