STOCKHOLM, Jan. 24, 2020 /PRNewswire/ -- Fourth quarter
highlights
- Sales were SEK 66.4 (63.8) b. Sales growth was 1% adjusted for
comparable units and currency. A reduction in North America was compensated by growth in
other markets, primarily in the Middle
East and North East Asia. Reported sales grew by 4%.
- Operating income[1] improved to SEK
6.5 (2.6) b., corresponding to
an operating margin of 9.7% (4.0%) excluding restructuring charges.
Reported operating income[1] was SEK
6.1 (-1.9) b.
- Gross margin was 37.1% (32.0%) excluding restructuring charges.
Reported gross margin was 36.8% (25.7%).
- Networks gross margin excluding restructuring charges was 41.1%
(41.0%). Operating margin excluding restructuring charges was 14.5%
(17.5%) following the addition of the Kathrein[2] business and
investments in R&D, digitalization, compliance and
security.
- Digital Services reported a positive operating income excluding
restructuring charges.
- Net income was SEK 4.5
(-6.5) b.
- Free cash flow excluding M&A was SEK
-1.9 (3.0) b. including
payments of SEK 10.1 b. related to
the resolution of the US SEC and DOJ[3] investigations. Net cash
decreased to SEK 34.5 (35.9) b.
Full-year highlights
- Sales increased by 4%, adjusted for comparable units and
currency, with Networks growing by 6%. Reported sales increased by
8%.
- Reported operating income improved to SEK 10.6 (1.2) b.
Operating income was SEK 22.1 b.
(operating margin 9.7%) excluding restructuring charges and
SEK -10.7 b. in costs related to the
resolution of the US SEC and DOJ investigations.
- Gross margin was 37.5% (35.2%) excl. restructuring charges,
with improvements in Networks, Digital Services and Managed
Services.
- Free cash flow excluding M&A amounted to SEK 7.6 (4.3) b.
including payments of SEK 10.1 b.
related to the resolution of the US SEC and DOJ investigations. Net
cash at year-end was SEK 34.5
(35.9) b.
- The Board of Directors will propose a dividend for 2019 of
SEK 1.50 (1.00) per share to the
AGM.
SEK b.
|
Q4
2019
|
Q4
2018
|
YoY
change
|
Q3
2019
|
QoQ
change
|
Jan-Dec
2019
|
Jan-Dec
2018
|
YoY
change
|
Net sales
|
66.4
|
63.8
|
4%
|
57.1
|
16%
|
227.2
|
210.8
|
8%
|
Sales growth adj.
for comparable units and currency
|
-
|
-
|
1%
|
-
|
-
|
-
|
-
|
4%
|
Gross
margin
|
36.8%
|
25.7%
|
-
|
37.7%
|
-
|
37.3%
|
32.3%
|
-
|
Gross margin
excluding restructuring charges
|
37.1%
|
32.0%
|
-
|
37.8%
|
-
|
37.5%
|
35.2%
|
-
|
Operating income
(loss)
|
6.1
|
-1.9
|
-
|
-4.2
|
-
|
10.6
|
1.2
|
-
|
Operating
margin
|
9.2%
|
-2.9%
|
-
|
-7.3%
|
-
|
4.6%
|
0.6%
|
-
|
Operating income
(loss) excluding restructuring charges
|
6.5
|
2.6
|
152%
|
-4.0
|
-
|
11.4
|
9.3
|
23%
|
Operating margin
excluding restructuring charges
|
9.7%
|
4.0%
|
-
|
-7.1%
|
-
|
5.0%
|
4.4%
|
-
|
Operating income
excl. restr. charges & SEC/DOJ charges[4]
|
5.7
|
2.6
|
123%
|
7.4
|
-23%
|
22.1
|
9.3
|
139%
|
Operating margin
excl. restr. charges & SEC/DOJ charges[4]
|
8.6%
|
4.0%
|
-
|
13.0%
|
-
|
9.7%
|
4.4%
|
-
|
Net income
(loss)
|
4.5
|
-6.5
|
-
|
-6.9
|
-
|
1.8
|
-6.3
|
-
|
EPS diluted,
SEK
|
1.33
|
-1.99
|
-
|
-1.89
|
-
|
0.67
|
-1.98
|
-
|
Free cash flow
excluding M&A
|
-1.9
|
3.0
|
-
|
4.5
|
-
|
7.6
|
4.3
|
79%
|
Net cash, end of
period
|
34.5
|
35.9
|
-4%
|
37.4
|
-8%
|
34.5
|
35.9
|
-4%
|
|
|
|
|
|
|
|
|
|
1 Includes a positive impact of SEK
0.7 b. from a partial release of the cost provisions made in Q3
2019 related to the resolution of the SEC and DOJ investigations.
Includes a non-cash cost of SEK -0.3 b. related to wind-down of the
ST-Ericsson legal structure.
2 The
acquisition of the Kathrein antenna and filter business is
hereinafter referred to as the acquired Kathrein
business.
3 United
States Securities and Exchange Commission (SEC) and the United
States Department of Justice (DOJ).
4
Operating income excludes restructuring charges in all periods and
cost provisions related to the resolution of the SEC and DOJ
investigations of SEK -11.5 b. in Q3 2019 as well as a partial
release of the same provision of SEK 0.7 b. in Q4 2019.
|
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)
Our performance during 2019 puts us on track to reach our
targets for 2020 and 2022. Our focused strategy with increased
investments in R&D combined with operational efficiency is
paying off. We have regained technology leadership, recovered
previously lost ground in several markets and improved the
financial results. Today, we are a leader in 5G with 78 commercial
5G agreements with unique operators and 24 live 5G networks on four
continents. Operating margin[1] excluding costs related to the
resolution of the US SEC and DOJ investigations and restructuring
charges was 9.7% for full-year 2019, almost reaching the target of
more than 10% one year early.
Operating income was impacted by increased operating expenses.
The increase is related to the Kathrein business acquisition,
increased investments in digitalization and added resources to
strengthen security as well as our Ethics and Compliance
program. For 2020 we expect somewhat higher operating
expenses, which will not jeopardize our financial targets.
Networks gross margin[2] was solid in the quarter at 41%
including effects from strategic contracts which reflects the
strong business fundamentals. Due to the uncertainty related to an
announced operator merger, we saw a slowdown in our North American
business in Q4, resulting in North
America having the lowest share of total sales for some
time. However, the underlying business fundamentals in North America remain strong. The negative
growth in North America was more
than offset by growth in Asia and
the Middle East. It is still too
early to assess possible volumes and price levels for the expected
deployment of 5G in China, and we
expect that the initial challenging margins will shift to positive
margins over the lifespan of the contracts.
The Kathrein acquisition and increased investments were the main
reasons why Networks operating margin[2] declined to 14.5% in
Q4. The acquisition is strategically important to strengthen our
capabilities in antennas. While we are executing on the integration
plan, temporarily lower production and sales had a negative impact
on margins in the quarter. We expect a gradual improvement as the
integration progresses and a new antenna portfolio is developed,
however we expect a negative contribution full-year 2020.
In segment Digital Services we continued the execution of our
plan to turn around the business and showed a positive result[2] in
Q4, despite a continued negative impact from the remaining critical
projects (provisions of SEK -0.3 b.
in Q4). We see strong development in the market, driven by the
momentum in 5G resulting in good sales growth in Packet Core and
OSS. While rationalization of the legacy portfolio will continue,
we are re-investing R&D in our 5G and cloud-native
portfolio.
The resolution of the US SEC and DOJ investigations highlights
serious shortcomings in our otherwise proud history. The events
described in the resolution are totally unacceptable. However, the
resolution represents an important step for Ericsson. We are now
fully focused on strengthening the company and making sure we are
equipped to deal with compliance challenges. We have already put in
place many important changes to our Ethics and Compliance program,
including adding further compliance and assurance competence as
well as strengthening our third-party management, leadership
vetting and internal controls. This work will not stop; our
zero-tolerance policy requires constant oversight and renewal, and
we are confident that we are on the right path.
Free cash flow in 2019 excluding M&A amounted to
SEK 7.6 (4.3)
b., after payments of SEK 10.1
b. related to the resolution of the US SEC and DOJ
investigations. The Board will propose a dividend of SEK 1.50 (1.00) per share to the AGM. The
increase underlines the Board's confidence in Ericsson delivering
on its financial targets and building a strong financial
position.
Our strategy aims at building a stronger company longer term and
we do not trade long-term strengths for short-term gains. The
foundation is our investments in R&D for both technology and
cost leadership. This has secured us a competitive advantage as
operators accelerate their 5G investments. We continue to execute
on our focused strategy. The investments in digitalizing our
business processes will increase costs in 2020 and will result in
improved productivity in 2021 and beyond, supporting improved
margins. Our competitive portfolio and cost position combined with
the current market dynamics present a unique opportunity for us and
we will continue to invest in order to further strengthen our
market position.
Our product portfolio in Networks and Digital Services continues
to gain good traction in a highly competitive market undergoing a
technology shift to 5G. We see opportunities to further strengthen
our position through our strong product offering in a market driven
by the momentum in 5G. While we are confident that these
opportunities will be value accretive in the long term, initial
margins are challenging. Our competitive product offering and
improved cost structure in hardware and services make our position
and profitability much stronger than at the time of the European
network modernization.
In 2019, we saw leading operators switch on their 5G networks.
We are tracking well towards our targets for 2020 and 2022, but
most importantly, we are making progress towards building a
stronger company long term.
Börje Ekholm
President and CEO
[1] Excluding restructuring charges and costs related to the
resolution of the US SEC and DOJ investigations.
[2] Excluding restructuring charges.
Planning assumptions going forward
Market related
- The Radio Access Network (RAN) equipment market is estimated to
grow by 4% for full-year 2020 with 2% CAGR for 2018-2023. (Source:
Dell'Oro)
Ericsson related
The financial targets for 2020 and 2022 presented at the
Investor Update in October 2019
remain unchanged.
Sales and gross margin
- Three-year average Group sales seasonality between Q4 and Q1 is
-25%. Q1 is expected to have slightly less seasonality, as the base
was lower following a weak Q4 in North America. The underlying
business fundamentals in North
America remain strong.
- The revenues from current IPR licensing contract portfolio are
approximately SEK 10 b. on an annual
basis.
- Strategic contracts, with an overall long-term positive gross
margin, but with initially low or negative margin, are expected to
continue to impact Networks.
- Large 5G deployments in China
are expected to commence in 2020. Ericsson has invested in R&D
and supply chain capacity, aiming to increase market share. Based
on experience, margins are initially challenging but turn positive
over the lifespan of a contract.
- The acquired Kathrein business is expected to have a negative
impact on Networks margins during 2020, with a gradual improvement
2H.
- The improvements in Digital Services continue, but earnings
will vary between quarters depending on business mix, sales
seasonality and impact of the remainder of the 45 critical
contracts.
Operating expenses
- Operating expenses typically decrease between Q4 and Q1 due to
seasonality. Somewhat higher operating expenses are expected for
full-year 2020 due to investments in digitalization, compliance and
security.
Restructuring charges
- Restructuring charges for full-year 2020 are estimated to be
~1% of sales.
Currency exposure
- Rule of thumb: A change by 10% of USD to SEK has an impact of
approx. +/-5% on net sales and approx. +/-1 percentage point on
operating margin.
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/2019/12month19-en.pdf
or on www.ericsson.com/investors
Conference call for analysts, investors and
journalists
President and CEO Börje Ekholm and CFO Carl Mellander will comment on the report and
take questions. The conference call will begin at 9:00 AM CET (8:00 AM
GMT London, 3:00 AM EST New
York).
To join the conference call, please phone one of the following
numbers:
Sweden: +46-(0)8-566-426-51
(Toll-free Sweden:
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International/UK: +44-(0)333-300-0804 (Toll-free UK:
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PIN code: 77615332#
Please call in at least 15 minutes before the conference call
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A live audio webcast of the conference call will be available at
www.ericsson.com/investors and https://www.ericsson.com/newsroom.
A replay of the conference call will be available
from about one hour after the conference call has ended until
January 31, 2020.
Sweden replay number:
+46-(0)8-519-993-85
International replay number: +44-(0)333-300-0819
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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
Stella
Medlicott, Senior Vice President, Marketing and Corporate
Relations
Phone: +46-10-713-65-39
E-mail: media.relations@ericsson.com
Investors
Lena Häggblom, Director, Investor
Relations
Phone: +46-10-713-27-78, +46-72-593-27-78
E-mail: lena.haggblom@ericsson.com
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Phone: +46-10-714-20-39
E-mail: stefan.jelvin@ericsson.com
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Phone: +46-10-714-54-00
E-mail: rikard.tunedal@ericsson.com
Media
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Head of Corporate Communications
Phone: +46-10-719-18-80
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 07:00 AM CET on January
24, 2020.
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|
Ericsson fourth
quarter and full year report 2019
|
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SOURCE Ericsson