STOCKHOLM, Oct. 20, 2017 /PRNewswire/ -- THIRD QUARTER
HIGHLIGHTS
- Reported sales decreased by -6% YoY. Sales adjusted for
comparable units and currency declined by -3%.
- Networks sales declined by -4% YoY. Sales adjusted for
comparable units, currency and the rescoped managed services
contract in North America,
increased slightly.
- Gross margin was 25.4% (28.3%). Adjusted1) gross margin was
30.0% (29.4%) driven by increased adjusted1) gross margin in
Networks.
- Operating income was SEK -4.8
(0.3) b. Adjusted1) operating income declined to SEK 0.0 (1.6) b. Higher amortization than
capitalization of development expenses and higher recognition than
deferral of hardware costs had a negative impact on operating
income of SEK -1.5 (0.5) b.
- As communicated in the second quarter report 2017, the company
identified an increased risk of further market and customer project
adjustments. In the quarter provisions and adjustments were made
impacting operating income by SEK -2.3
b., with limited effect on cash flow.
- As a result of the ongoing cost reductions, restructuring
charges of SEK -2.8 (-1.3) b. were
taken in the quarter. This included a write-down of SEK -1.6 b. related to the decision to close and
divest the ICT center in Canada.
- Cash flow from operating activities was SEK 0.0 (-2.3) b. Free cash flow2) was
SEK -0.5 (-5.0) b. Net cash per
Sept. 30, 2017, was SEK 24.1 (16.3) b.
1) Adjusted: the
numbers are adjusted for restructuring charges and for certain
other items affecting comparability in 2017.
|
2) Free cash flow:
Cash flow from operating activities less net capital expenditures
and other investments, see APMs at the end of the
report.
|
SEK b.
|
Q3
2017
|
Q3
2016
|
YoY
change
|
Q2
2017
|
QoQ
change
|
9 months
2017
|
9 months
2016
|
Net sales
|
47.8
|
51.1
|
-6%
|
49.9
|
-4%
|
144.1
|
157.4
|
Net sales adjusted
for certain items affecting comparability in
2017
|
47.7
|
51.1
|
-7%
|
49.9
|
-5%
|
145.4
|
157.4
|
Sales growth adj.
for comparable units and currency
|
-
|
-
|
-3%
|
-
|
1%
|
-11%
|
-8%
|
Gross
margin
|
25.4%
|
28.3%
|
-
|
27.9%
|
-
|
22.6%
|
31.4%
|
Gross margin
excluding restructuring charges and adjusted for certain items
affecting comparability in 2017
|
30.0%
|
29.4%
|
-
|
29.8%
|
-
|
30.1%
|
32.2%
|
Operating
income
|
-4.8
|
0.3
|
-
|
-1.2
|
-
|
-18.4
|
6.6
|
Operating income
excluding restructuring charges and adjusted for certain items
affecting comparability in 2017
|
0.0
|
1.6
|
-102%
|
0.3
|
-114%
|
1.3
|
9.5
|
Operating
margin
|
-10.0%
|
0.7%
|
-
|
-2.5%
|
-
|
-12.7%
|
4.2%
|
Operating margin
excluding restructuring charges and adjusted for certain items
affecting comparability in 2017
|
-0.1%
|
3.1%
|
-
|
0.6%
|
-
|
0.9%
|
6.0%
|
Net income
|
-4.3
|
-0.2
|
-
|
-1.0
|
-
|
-16.2
|
3.5
|
EPS diluted,
SEK
|
-1.34
|
-0.07
|
-
|
-0.30
|
-
|
-4.93
|
1.01
|
EPS (non-IFRS),
SEK3)
|
-0.55
|
0.34
|
-262%
|
0.17
|
-
|
-2.80
|
2.04
|
Cash flow from
operating activities
|
0.0
|
-2.3
|
-99%
|
0.0
|
-
|
-1.6
|
-5.4
|
Net cash, end of
period
|
24.1
|
16.3
|
48%
|
24.0
|
0%
|
24.1
|
16.3
|
3) EPS diluted, excl.
amortizations and write-downs of acquired intangible assets, and
excluding restructuring charges.
|
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)
We continue to execute on our focused business strategy. While
more remains to be done we are starting to see some encouraging
improvements in our performance despite a continued challenging
market. Networks showed a slight sales growth year over year,
adjusted for the rescoped managed services contract in North America and for currency. Networks
adjusted1) operating margin was 11%. While losses continue in IT
& Cloud, we see increased stability in product roadmaps and
projects.
The general market conditions continue to be tough. Sales
adjusted for comparable units and currency declined by -3% YoY.
Sales in North America, adjusted
for comparable units, currency and the rescoped managed services
contract were stable. We also saw growth returning in several
countries as operators are increasing their investments in network
capacity. Sales in Mainland China declined as the market is
normalizing following a period of significant 4G deployments,
representing more than 60% of global 4G volumes in the industry. We
have managed to increase our LTE market shares in Mainland China to
position Ericsson in 5G. However, this will have a dilutive effect
on gross margin in Mainland China in Q4 2017, but the ambition is
to continue to deliver double digit adjusted operating margin in
Networks in Q4 2017.
Reported operating income was negative at SEK -4.8 (0.3) b. in the quarter while the
operating income, adjusted for restructuring, additional provisions
and adjustments as well as a gain from divestment of the power
modules business, was SEK 0.0 (1.6)
b. Operating income was negatively impacted by higher amortization
than capitalization of development expenses and higher recognition
than deferral of hardware costs of SEK
-1.5 (0.5) b. As described in the second quarter report, we
have reduced capitalization of development expenses and deferral of
hardware costs due to technology and portfolio shifts.
As communicated in the Q2 2017 report we have identified an
increased risk of further market and customer project adjustments,
considering the current market environment and our focused
strategy. In total, the negative impact on results was then
estimated to be SEK 3-5 b. until
mid-2018. In the quarter, costs of SEK 2.3
b. impacted the result, with limited effect on cash flow.
With current visibility, we believe we will be in the higher end of
the range of the risk estimate.
Restructuring charges in the quarter were SEK -2.8 b. including a write-down of
SEK -1.6 b. related to one of our
global ICT centers, as rapid technology development allows us to
consolidate test activities to the two remaining centers. For
full-year 2017 we expect restructuring charges to be approximately
SEK 9-10 b.
In the quarter, we have accelerated cost and efficiency
measures, which are key in our focused strategy. Activities to
reduce the workforce have been initiated in many markets. In the
quarter, there was a net reduction of 3,000 employees despite 1,100
new recruitments in R&D. We expect efficiency improvements to
accelerate in the fourth quarter to reach an annual run-rate effect
of at least SEK 10 b. by
mid-2018.
Sales in Networks grew, adjusted for currency and the previously
communicated rescoped managed services contract in North America. Higher hardware capacity sales
and a more competitive product portfolio resulted in an adjusted1)
operating margin of 11% (9 %). The Ericsson Radio System portfolio,
accounting for 55% of total radio volumes year to date, is proving
competitive, contributing both to improved earnings and a stronger
market position.
The work to focus the managed services business and to review
under-performing contracts continues. To date we have either
exited, renegotiated or transformed 13 out of the 42 contracts,
resulting in an annualized profit improvement of SEK 0.4 b.
In IT & Cloud, sales declined and losses increased in the
quarter. The increase in QoQ losses is largely due to higher
amortization than capitalization of development expenses of
SEK -0.7 (0.4) b. Our turn-around
plan builds on stability, profitability and growth in that order.
The initial focus has been on stabilizing both product roadmaps and
challenging contracts. We have made good progress in the quarter.
However, securing deliveries on large transformation projects puts
pressure on gross margin in the near term.
The IT & Cloud business is of strategic importance as our
customers are preparing for 5G and will digitalize their operations
and invest in a future network architecture based on
software-defined logic.
We now expand our focus to improve profitability through
increased efficiency in service delivery. In addition, we will
scale the software part of the business mix and increase the level
of pre-integration services, which will lead to a higher gross
margin but lower services sales. Positive effects on gross margin
are expected in 2018.
Despite continued decline in legacy product sales there is good
traction in our new media portfolio with several important wins in
the quarter. We have accelerated our efficiency measures and
continue to pursue strategic opportunities for this business.
Managing our cash is a top priority. Free cash flow2) in the
quarter was SEK -0.5 (-5.0) b.,
driven by reductions in working capital and lower CAPEX. Our net
cash position remained solid at SEK
24.1b.
We remain fully committed to our focused business strategy. We
continue to invest to secure technology leadership and year to date
we have recruited more than 1,000 R&D employees in Networks.
Customers give positive feedback on both our long-term strategy and
on our current 5G-ready portfolio.
1) Adjusted: the numbers are adjusted for restructuring charges
and for certain other items affecting comparability in 2017.
2) Free cash flow: Cash flow from operating activities less net
capital expenditures and other investments, see APMs at the end of
the report.
Planning assumptions going forward
Market
related
- In line with previous estimate and that of external sources,
the Radio Access Network (RAN) equipment market outlook is
estimated to decline by -8% for full-year 2017.
Ericsson related
- Focusing the business and addressing low-performing operations
in Managed Services, Industry & Society and Network Rollout is
expected to reduce full-year sales by up to SEK 10 b. by 2019.
- Sequential sales increase between Q3 and Q4 is expected to be
lower than normal seasonality (normal +24%) driven by decreased 4G
investments levels in Mainland China, primarily impacting
Networks.
- The plan is to implement cost savings with an annual run rate
effect of at least SEK 10 b. by
mid-2018.
- Expanded focus on profitability in IT & Cloud is expected
to generate positive effects on gross margin in 2018.
- The company aims to increase R&D efficiency. However, to
strengthen the technology leadership, R&D expenses will
increase primarily in Networks.
- Impact of higher amortization than capitalization of
development expenses and higher recognition than deferral of
hardware costs: Q3 2017 SEK -1.5 b.
Estimate for: Q4 2017 SEK -1.4 b.,
full-year 2018 SEK -3 b., full-year
2019 SEK -1 to -2 b.
- Restructuring charges for Q4 2017 are estimated to be
SEK 3-4 b.
- The earlier estimated risk of market and customer project
adjustments of SEK 3-5 b. from
July 1, 2017, to June 30, 2018, are now expected to be in the
higher end of the range. 30% is estimated to impact cash.
- To position Ericsson in 5G in Mainland China, the company has
managed to increase its market shares. However, this will have a
dilutive effect on gross margin in Mainland China in Q4 2017, but
the ambition is to continue to deliver double digit adjusted
operating margin in Networks in Q4 2017.
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/2017/9month17-en.pdf
or on www.ericsson.com/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 0900 CEST (0800 BST
in London, 0300 EDT in New
York and 1600 JST in Tokyo)
and the second at 1400 CEST
(1300 BST in London, 0800 EDT
in New York and 2100 JST in
Tokyo).
To join the conference call, please phone one of the following
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Please call in at least 15 minutes before the conference calls
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A live audio webcast of the conference call will be available
at: www.ericsson.com/investors and at: www.ericsson.com/press
REPLAY:
Replay of the conference calls will be available from about one
hour after it has ended until October 27,
2017.
Sweden replay number: +46 (0)85
664 2638
International replay number: +44 (0)20 3426 2807
PIN code: 691559# (for 0900 call) 691572# (for 1400 call)
FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
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Nyquist
Head of Investor Relations
Phone: +46-10-714-64-49
E-mail: peter.nyquist@ericsson.com
Additional contacts
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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
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Phone: +46-10-714-54-00
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Media
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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 CEST on October 20,
2017.
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|
Ericsson third
quarter report 2017
|