STOCKHOLM, April 20, 2018 /PRNewswire/ -- First
quarter highlights (In 2017, certain items affecting
comparability had a significant negative impact on the
results.)
- Reported sales decreased by -9% YoY. Sales, adjusted for
currency, decreased by -2% YoY with lower revenues in market areas
North East Asia as well as in South East
Asia, Oceania and India.
The other market areas showed growth.
- Gross margin was 34.2% (15.7%) 1). Gross margin excluding
restructuring charges improved YoY, to 35.9% (18.7%) 1), supported
by cost reductions and the continued ramp-up of Ericsson Radio
System (ERS).
- Operating income (loss) was SEK
-0.3 (-11.3) b. Operating
income (loss) excluding restructuring charges was SEK 0.9 (-9.5)
b.
- Networks operating margin excluding restructuring charges was
13.5% (12.8%) 1) with strong gross margin and increased investments
in R&D.
- Digital Services gross margin excluding restructuring charges
improved YoY, to 41.4% (-25.5%) 1), driven by improved services
margins as a result of cost reductions. Operating income (loss)
excluding restructuring charges was SEK
-2.0 (-8.8) b.
- Managed Services operating margin excluding restructuring
charges was 1.9% (-28.7%) 1) as a result of cost reductions and
customer contract reviews.
- Cash flow from operating activities was SEK 1.6 (-1.5) b.
and free cash flow was SEK 0.3
(-3.2) b. Net cash increased YoY to
SEK 35.6 (28.3) b.
1) Write-down of assets as well as provisions and adjustments
related to certain customer projects had a significant negative
impact on the 2017 results. In addition, a restate of 2016 and 2017
numbers has been made following IFRS 15 introduction.
SEK b.
|
Q1
2018
|
Q1
2017
|
YoY
change
|
Q4
2017
|
QoQ
change
|
Net sales
|
43.4
|
47.8
|
-9%
|
57.9
|
-25%
|
Sales growth adj.
for comparable units and currency
|
-
|
-
|
-2%
|
-
|
-24%
|
Gross
margin
|
34.2%
|
15.7%
|
-
|
21.6%
|
-
|
Operating income
(loss)
|
-0.3
|
-11.3
|
-
|
-19.3
|
-
|
Operating
margin
|
-0.7%
|
-23.6%
|
-
|
-33.3%
|
-
|
Net income
(loss)
|
-0.7
|
-10.0
|
-
|
-18.5
|
-
|
EPS diluted,
SEK
|
-0.25
|
-3.08
|
-
|
-5.63
|
-
|
EPS (non-IFRS), SEK
1)
|
0.11
|
-2.19
|
-
|
-1.09
|
-
|
Cash flow from
operating activities
|
1.6
|
-1.5
|
-
|
11.2
|
-86%
|
Free cash flow
2)
|
0.3
|
-3.2
|
-
|
10.1
|
-97%
|
Net cash, end of
period
|
35.6
|
28.3
|
26%
|
34.7
|
3%
|
Gross margin
excluding restructuring charges
|
35.9%
|
18.7%
|
-
|
25.1%
|
-
|
Operating income
(loss) excluding restructuring charges
|
0.9
|
-9.5
|
-
|
-16.9
|
-
|
Operating margin
excluding restructuring charges
|
2.0%
|
-19.9%
|
-
|
-29.1%
|
-
|
1) EPS diluted, excl. amortizations and write-downs of acquired
intangible assets, and excluding restructuring charges. When a
company reports a loss, the number of shares used for calculating
earnings diluted per share shall be the same as for basic
calculation.
2) Free cash flow: Cash flow from operating activities less net
capital expenditures and other investments, see APMs at the end of
the report.
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 have continued to execute on our focused business strategy
creating solutions that help our customers improve their business.
Our efforts to improve efficiency in service delivery and common
costs are starting to pay off. The gross margin1) improved to 36%
(19%) in the quarter, tracking well towards our Group target of
37-39% by 2020.
A cornerstone in our strategy is to invest in R&D for both
technology leadership and cost leadership, which will allow us to
generate higher gross margins. We continue to increase our R&D
investments in Networks to lead in 5G. In Digital Services we
continue to increase investments into our new cloud-native
portfolio as well as changing our ways of working for better
R&D efficiency. In Managed Services we continue to focus on
machine intelligence, automation and analytics to further enhance
user experience, improve efficiency and better manage the
increasingly complex networks of tomorrow.
In Networks we have seen the portfolio becoming more competitive
in the last three quarters of 2017, resulting in market share
gains, as reported by external sources. In Networks the gross
margin1) improved to 40% (35%). In Digital Services, the gross
margin 1) improved to 41% (-25%), supported by cost reductions
mainly in service delivery. However, operating income in Digital
Services remains challenging. In Managed Services the gross
margin1) improved to 9% (-7%) supported by efficiency gains in
service delivery and customer contract reviews, resulting in a
positive operating income1).
In segment Emerging Business and Other, we are gradually
increasing investments in growth areas such as IoT and Unified
Delivery Network (UDN). While the combined operating income of
Media Solutions and Red Bee Media improved YoY, these businesses
showed a loss2) of SEK -0.5 b. in the
quarter. We expect to close the announced Media Solutions
divestment by the end of the third quarter.
In the quarter we reduced the total workforce by more than
3,000. Since the reduction activities were launched in July last
year, we have reduced the total workforce by almost 18,000. To
date, the annual run-rate effect of cost savings is approximately
SEK 8.5 b., compared with the target
of SEK 10 b. for mid-2018. The
run-rate reduction does not yet fully impact the quarterly
results.
Free cash flow improved to SEK 0.3
(-3.2) b. – another step forward in
improving our financial resilience. Net cash was SEK 35.6 (28.3)b.
The improvements in the quarter are encouraging. However, more
work remains to be done. We have confidence in the strategic
direction laid out and remain fully committed to our long-term
targets.
Looking ahead, we expect the rapidly increasing focus on 5G to
continue, with initial business discussions focusing on enhanced
mobile broadband. We continue to work closely with customers to
define the optimal business models to enable them to tap into new
revenue streams and capture the full value of 5G.
1) Excluding restructuring charges
2) Excluding restructuring charges and corporate allocations
Planning assumptions going forward
Market
related
- The Radio Access Network (RAN) equipment market is estimated to
decline by -2% for full-year 2018 with 2% CAGR (2018-2022). In
2018, the Chinese market is expected to decline due to reduced LTE
investments, while there is positive momentum in North America.
Currency
exposure
- Rule of thumb: A weakening by 10% of USD to SEK would have a
negative impact of approximately -5% on net sales and approximately
-1 percentage point on operating margin (based on 2017 full-year
currency exposure). For historical rates, see
www.ericsson.com/en/investors
Ericsson related
- 5-year average sales seasonality between Q1 and Q2 is +9%
- Focusing the business and addressing low-performing operations
are expected to reduce full-year sales by up to SEK 10 b. in 2019 compared with 2016.
- The current revenue baseline of the IPR licensing contract
portfolio is approximately SEK 7 b.
on an annual basis.
- The plan is to implement cost savings with an annual run-rate
effect of at least SEK 10 b. by
mid-2018, compared with the Q2 2017 annual run rate.
- Operating expenses typically vary between quarters due to
seasonality.
- Restructuring charges for full-year 2018 are estimated to be
SEK 5-7
b and slightly higher in Q2 vs Q1.
- Actual and estimated net impact from amortization and
capitalization of development expenses and from recognition and
deferral of hardware costs:
SEK
b.
|
Q1 2018
Actual
|
Q2 2018
Estimate
|
Q2 2017
Actual
|
FY 2017
Actual
|
FY 2018
Estimate
|
FY 2019
Estimate
|
Cost of
sales
|
-0.3
|
-0.2
|
-0.4
|
-2.6
|
-1
|
|
R&D
expenses
|
-0.4
|
-0.4
|
0.1
|
-0.3
|
-2
|
|
Total
impact
|
-0.7
|
-0.6
|
-0.3
|
-2.9
|
-3
|
-1 to -2
|
- The divestment of Media Solutions is expected to be closed by
the end of Q3 2018. Results will be reported as share of earnings
according to the equity method. Ericsson's holding will be 49% of
the shares. Media Solutions sales were SEK
3.2 b. in 2017.
- Consequences of Q1 and Q2 changes in product responsibilities
between segments are described in detail in Financial highlights,
page 4 in the complete report.
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/2018/3month18-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 09:00 CEST (08:00
BST in London, 03:00 EDT in New
York and 16:00 JST in Tokyo), and the second at 14:00 CEST (13:00
BST in London, 08:00 EDT in New
York and 21:00 JST in Tokyo).
To join the conference call, please phone one of the following
numbers:
Sweden: +46(0)8-5664-2651
(Toll-free Sweden:
0200-883685)
International/UK: +44-3333-000-804 (Toll-free UK:
0800-358-9473)
US: +1-631-913-1422 (Toll-free US: +1-8558-570-686)
PIN code: For 09:00 CEST call,
55234216# and for 14:00 CEST call,
61966022#
Please call in at least 15 minutes before the conference calls
begin. As there are 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 27,
2018.
Sweden replay number:
+46(0)8-519-993-85
International replay number: +44(0)333-300-0819
For 09:00 CEST call, 301225218#
and for 14:00 CEST call,
301225221#
For Further Information, Please Contact
Contact person
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.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 CEST on April 20,
2018.
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|
Ericsson reports
first quarter results 2018
|