STOCKHOLM, Oct. 21, 2020 /PRNewswire/ -- Third quarter
highlights
- Sales adjusted for comparable units and currency increased by
7% YoY mainly driven by 5G sales in Mainland China. Reported sales
were SEK 57.5 (57.1) b.
- Gross margin excluding restructuring charges improved to 43.2%
(37.8%) with margin improvement in all segments. Reported gross
margin improved to 43.1% (37.7%).
- Operating income excluding restructuring charges and items
affecting comparability in Q3 2019, improved to SEK 9.0 b. (15.6% operating margin) from
SEK 6.5[1] b. (11.4% operating
margin) driven by Networks. Reported operating income SEK 8.6 (-4.2)
b.
- Networks reported sales increased by 6% YoY, with an increase
of 13% adjusted for comparable units and currency. Operating margin
excluding restructuring charges was 22.7% (18.4%).
- Net income was SEK 5.6 (-6.9[1])
b.
- Free cash flow before M&A was SEK
3.9 (4.5) b., including a
capital injection into the Swedish Pension Trust of SEK -2 b. in the quarter. Net cash Sep 30, 2020, was SEK
41.5 (37.4) b.
[1] Q3 2019 was impacted by cost provisions of SEK -11.5 b. related to the investigation by the
United States Securities and Exchange Commission (SEC) and the
United States Department of Justice (DOJ) as well as a refund of
social security costs of SEK 0.9
b.
Planning assumptions highlights (please see the quarterly
report for complete planning assumptions)
- The YTD results strengthen the Company's confidence in
delivering the Group targets for 2020. The financial targets for
2022 remain.
SEK b.
|
Q3
2020
|
Q3
2019
|
YoY
change
|
Q2
2020
|
QoQ
change
|
Jan-Sep
2020
|
Jan-Sep
2019
|
Net sales
|
57.5
|
57.1
|
1%
|
55.6
|
3%
|
162.8
|
160.8
|
Sales growth adj.
for comparable units and currency
|
-
|
-
|
7%
|
-
|
-
|
-
|
-
|
Gross
margin
|
43.1%
|
37.7%
|
-
|
37.6%
|
-
|
40.2%
|
37.5%
|
Operating income
(loss)
|
8.6
|
-4.2
|
-
|
3.9
|
124%
|
16.8
|
4.4
|
Operating
margin
|
15.0%
|
-7.3%
|
-
|
6.9%
|
-
|
10.3%
|
2.8%
|
Net income
(loss)
|
5.6
|
-6.9
|
-
|
2.6
|
115%
|
10.4
|
-2.6
|
EPS diluted,
SEK
|
1.61
|
-1.89
|
-
|
0.74
|
118%
|
3.00
|
-0.67
|
Measures excl. restructuring charges and other items affecting
comparability[1]
|
Gross margin
excluding restructuring charges
|
43.2%
|
37.8%
|
-
|
38.2%
|
-
|
40.7%
|
37.6%
|
Operating income
excl. restr. charges & items affecting comparability in
2019[2]
|
9.0
|
6.5
|
38%
|
4.5
|
98%
|
18.1
|
13.9
|
Operating margin
excl. restr. charges & items affecting comparability in
2019[2]
|
15.6%
|
11.4%
|
-
|
8.2%
|
-
|
11.1%
|
8.6%
|
Free cash flow before
M&A
|
3.9
|
4.5
|
-12%
|
3.2
|
22%
|
9.5
|
9.5
|
Net cash, end of
period
|
41.5
|
37.4
|
11%
|
37.5
|
11%
|
41.5
|
37.4
|
[1] Non-IFRS financial measures are reconciled at the end of
this report to the most directly reconcilable line items in the
financial statements.
[2] Excludes restructuring charges in all periods. No other
adjustments made in 2020. Q1 2019 excludes 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.). Q3
2019 excludes cost provisions (SEK -11.5
b.) related to the investigation by the United States
Securities and Exchange Commission and the United States Department
of Justice and a refund of social security costs (SEK 0.9 b.).
Comments from Börje Ekholm, President and CEO of Ericsson
(NASDAQ:ERIC)
Amid the continuing global Covid-19 pandemic and with more than
80% of our people working from home, we keep on executing on our
focused strategy. We continue to win footprint in several markets
leveraging our competitive 5G portfolio. The gross margin[1]
improved in all segments in the third quarter and reached 43.2%
(37.8%), the highest since 2006. With the acquisition of
Cradlepoint, expected to close in Q4, we are making further
progress in our strategy to build an enterprise business. Covid-19
has so far had limited impact on our business, but we are closely
monitoring any signs of a change in the situation. The year to date
results strengthen our confidence in delivering on the 2020 Group
target.
Networks grew organically[2] by 13% and reported a gross
margin[1] of 46.7% (41.6%). This reflects high activity levels in
North East Asia and North America.
Underlying business fundamentals remain strong in North America driven by consolidation in the
US operator market, pending spectrum auctions, and increased demand
for 5G. The 5G contracts in Mainland China have developed according
to plan, contributing positively to profits in Q3 and are expected
to improve further. Our business in Europe grew based on several footprint gains.
While the pandemic has hurt revenues for several of our customers,
and in some cases this has led to a reduction of capex, we have not
seen any negative impact on our business, largely due to footprint
gains. However, the pandemic negatively impacted our sales in
Latin America and Africa.
Digital Services continued to make good progress on the
execution of the turnaround plan, transforming the business and
increasing software sales. The gross margin[1] improved to 43.5%
(38.3%), supported by increased software sales and improvements in
the underlying business. Our cloud-native 5G core portfolio shows
very positive momentum with a high win-ratio and a significant
number of new customer contracts. We are selectively increasing
R&D investments to accelerate our growth portfolio to capture
market opportunities. However, sales in our legacy portfolio is
declining faster than earlier predicted. In the short term, this
shortfall will not be compensated by the growth in new offerings
and therefore our sales volume is lower than expected. With weaker
sales in combination with higher R&D investments, there is a
risk of further delay in reaching the 2020 operating margin target
for Digital Services.
Managed Services delivered a gross margin[1] of 20.1% (17.9%).
The 4Q rolling operating margin[1] is 7.4%. Sales declined mainly
due to the US operator consolidation. We expect our investments in
automation and AI to create future business opportunities, which
are anticipated to gradually improve the margin profile as this new
portfolio grows.
Emerging Business and Other reported a gross margin[1] of 30.5%
(20.5%). Our IoT platform sales grew by more than 40% despite an
impact on demand from Covid-19. In the quarter we announced our
plans to acquire Cradlepoint, which will strengthen our ability to
grow in the 5G enterprise market alongside our existing dedicated
networks and IoT portfolio. Cradlepoint will drive revenues for our
customers as wireless WAN gains further penetration. Cradlepoint
will operate as a standalone subsidiary within Ericsson, and we
look forward to welcoming the team at Cradlepoint to Ericsson.
Patent licensing continues to perform well based on our strong
IPR portfolio, even though revenues decreased in the third quarter
as one of our licensees experienced lower sales volumes. We are
approaching several important contract renewals. We are confident
in the value of our broad patent portfolio, including a strong
position in 5G and will seek to maximize the net present value of
our patent estate that has been built over time through our large
R&D investments. Depending on timing of the agreement renewals,
we may see gaps in IPR revenues in 2021 and 2022.
Free cash flow before M&A amounted to SEK 3.9 (4.5) b. in
the third quarter, a year-on-year improvement of SEK 1.9 b., if adjusted for a capital injection
into the Swedish Pension Trust and last year's positive effect from
a social security refund. On a 4Q rolling basis we have generated
SEK 17.7 b. of free cash flow before
M&A[3] if excluding the payments to SEC and DOJ.
We are committed to continue improving our Ethics and Compliance
program. Through driving stronger management ownership and
accountability for compliance, we are also reinforcing our
commitment to responsible business practices and a stronger
corporate culture. Our people should always be able to speak up and
we expect Ericsson leaders to operate with integrity at all
times.
Open RAN is a hot topic in our industry today and Ericsson is a
strong supporter of openness and actively engages in alliances,
such as 3GPP, ONAP and the O-RAN alliance. In the years to come,
networks will gradually evolve, as will the current open standards.
At the same time 5G is ready and happening now so focus must be on
providing early access to 5G networks to enable the broader
ecosystem to innovate at scale.
We remain positive on the longer-term outlook for the industry
and Ericsson. The year to date results strengthen our confidence in
delivering on the 2020 Group target.
Stay healthy and well.
Börje Ekholm
President and CEO
[1] Excluding restructuring charges
[2] Sales adjusted for comparable units and currency
[3] Free cash flow before M&A rolling 4Q includes; Q4 2019
(SEK -1.9 b.), Q1 2020 (SEK 2.3 b.), Q2 2020 (SEK
3.2 b.) and Q3 2020 (SEK 3.9
b.) adjusted for SEC and DOJ payments (SEK 10.1 b.) in Q4 2019.
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/2020/9month20-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 CEST (8:00 AM
BST London, 3:00 AM EDT New
York).
To join the conference call, please phone one of the following
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FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
Peter Nyquist, Head of Investor
Relations
Phone: +46 70 575 29 06
E-mail: peter.nyquist@ericsson.com
Additional contacts
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President, Marketing and Corporate Relations
Phone: +46 73 095 65 39
E-mail: media.relations@ericsson.com
Investors
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Phone: +46 72 593 27 78
E-mail: lena.haggblom@ericsson.com
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E-mail: stefan.jelvin@ericsson.com
Media
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E-mail: media.relations@ericsson.com
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|
Ericsson third
quarter report 2020
|