REG - Telefon AB Ericsson - Ericsson impairment SEK 32 billion and Q3 update

Telefonaktiebolaget LM EricssonAnnouncement

12/10/2023 07:00

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RNS Number : 8484P  Telefonaktiebolaget Lm Ericsson  11 October 2023

Ericsson announces impairment charge of SEK 32 billion and provides update on
Q3 earnings

·    Non-cash impairment of SEK 32 billion in the third quarter 2023,
relating to the impairment of goodwill attributed to the Vonage acquisition.

·    Vonage remains critical to the enterprise strategy and Ericsson's
positive outlook on the potential of the Global Network Platform remains
unchanged.

·    Ericsson also announces highlights from the Q3 results with a group
EBITA margin excluding restructuring charges of 7.3% which is in line with
previous guidance.

Ericsson (NASDAQ: ERIC) today announced that, in accordance with IFRS
accounting requirements, it will record a non-cash impairment charge of SEK 32
billion in the third quarter of 2023. The impairment charge represents 50% of
the total amount of goodwill and other intangible assets attributed to Vonage.
The impairment will be reported in segment Enterprise as an item affecting
comparability.

The impairment is a consequence of the significant drop in the market
capitalization of Vonage's publicly traded peers, increased interest rates and
overall slowdown in Vonage's core markets. Ericsson continues to advance its
enterprise strategy, with Vonage's network API capabilities being central to
this strategy and the development of a Global Network Platform (GNP). The
impairment does not alter Ericsson's positive outlook on the GNP market
potential.

Vonage remains key to Ericsson's strategy to expand in Enterprise. The
Enterprise strategy is underpinned by the development in the third quarter in
which Ericsson announced an important milestone with a major commercial
partnership in its GNP business. The development of GNP is creating a new
market for exposing 5G capabilities through network APIs and the market
opportunity is estimated at USD 20 billion by 2028 by telecom consultancy and
research firm STL Partners. This market will open up new ways for operators to
monetize their investments in networks from enterprises and in turn drive
further investments in mobile infrastructure. Ericsson expects the first
revenues from network APIs during 2023.

 

 

 

Q3 earnings in line with guidance (preliminary and unaudited numbers)

 Isolated quarters, excluding restructuring and impairment charges, SEK b.  Q3     Q3       YoY     Q2      QoQ

2023
2022
Change
2023
Change
 Net Sales                                                                  64.5   68.0    -5%      64.4    0%
  Of which Networks                                                         41.5   48.1    -14%     42.4    -2%
  Of which Cloud Software & Services                                        15.6   14.2    10%      15.1    3%
  Of which Enterprise                                                       6.7    5.0     34%      6.4     5%
 Gross Income                                                               25.3   28.2    -10%     24.7    3%
  Of which Networks                                                         16.6   21.4    -23%     16.7    -1%
  Of which Cloud Software & Services                                        5.6    4.6     23%      5.1     10%
  Of which Enterprise                                                       3.3    2.4     34%      3.0     10%
 Gross Margin                                                               39.2%  41.4%            38.3%
 Operating Expenses                                                         -21.3  -21.3   0%       -22.2   -4%
 EBITA                                                                      4.7    7.7     -39%     3.7     28%
 EBITA Margin                                                               7.3%   11.3%            5.7%
  Networks                                                                  12.6%  20.0%            11.4%
  Cloud Software & Services                                                 2.8%   -5.0%            -1.9%
  Enterprise                                                                -8.9%  -20.3%           -13.2%
 Free Cash Flow before M&A                                                  -0.5   2.5              -5.0

 Restructuring charges                                                      -0.9   -0.1             -3.1

 

Performance in Q3 was in line with guidance with an EBITA margin excluding
restructuring charges of 7.3% corresponding to an EBITA of SEK 4.7 billion.
Group organic sales (adjusted for comparable units and currency) declined by
-10%, with -16% organic decline in Networks partly offset by 5% organic growth
in Cloud Software and Services and 10% organic growth in Enterprise.

Networks organic sales were down by -60% in North America YoY, with operators
reducing their capex spend and adjusting inventories. It is worth noting that
Q3 last year was a record quarter in North America. The sharp decline in North
America was partly offset by strong sales in India.

Cloud Software and Services continued to execute on the turnaround strategy.
With an EBITA excluding restructuring charges of SEK 0.4 billion in Q3 Cloud
Software and Services has now achieved break-even on a four rolling quarters
basis.

Enterprise reported continued strong growth in Enterprise Wireless Solutions
and a slightly positive EBITA excluding restructuring charges in the Global
Communications Platform business (Vonage) in the quarter.

Free cash flow before M&A was SEK -0.5 (2.5) billion. The negative free
cash flow this year is a result of the build-up of working capital for the
large roll-out projects.

Ericsson will, as previously communicated, announce its full report for the
third quarter 2023 on October 17, at approximately 07.00 CEST.

 

FOR FURTHER INFORMATION, PLEASE CONTACT

Contact person

Peter Nyquist, Head of Investor Relations

Phone: +46 705 75 29 06

E-mail: peter.nyquist@ericsson.com (mailto:peter.nyquist@ericsson.com)

Additional contacts

Stella Medlicott, Senior Vice President, Marketing and Corporate Relations

Phone: +46 730 95 65 39

E-mail: media.relations@ericsson.com (mailto:media.relations@ericsson.com)

Investors

Lena Häggblom, Director, Investor Relations

Phone: +46 72 593 27 78

E-mail:  lena.haggblom@ericsson.com (mailto:lena.haggblom@ericsson.com)

Alan Ganson, Director, Investor Relations

Phone: +46 70 267 27 30

E-mail: alan.ganson@ericsson.com (mailto:alan.ganson@ericsson.com)

Media

Ralf Bagner, Head of Media Relations

Phone: +46 76 128 47 89

E-mail: ralf.bagner@ericsson.com (mailto:ralf.bagner@ericsson.com)

Media relations

Phone: +46 10 719 69 92

E-mail: media.relations@ericsson.com

 

Forward-looking statements

This release includes forward-looking statements, including expected
write-down of our goodwill and other asset impairments, amounts of such
impairments, effect of impairments on cash flow and dividend capacity,
financial condition, performance and results of operations, business plans,
objectives, market conditions, and assumptions upon which those statements are
based including, in particular the following risks and uncertainties:

- Final determination of the extent of the impairment based on fair value
analysis compared to carrying value

- Completion of the quarterly financial statements and review by our
independent registered public accounting firm

- Potential changes in estimated impairment amounts based on the completion of
the review process

- Extent of impairment impacts on cash flow and dividend capacity

- Our goals, strategies, planning assumptions and operational or financial
performance expectations

- Industry trends, future characteristics and development of the markets in
which we operate

- Our future liquidity, capital resources, capital expenditures, cost savings
and profitability

- The expected demand for our existing and new products and services as well
as plans to launch new products and services including research and
development expenditures

- The ability to deliver on future plans and to realize potential for future
growth

- Technology and industry trends including the regulatory and standardization
environment in which we operate, competition and our customer structure.

The words "believe," "expect," "foresee," "anticipate," "assume," "intend,"
"likely," "projects," "may," "could," "plan," "estimate," "forecast," "will,"
"should," "would," "predict," "aim," "ambition," "seek," "potential,"
"target," "might," "continue," or, in each case, their negative or variations,
and similar words or expressions are used to identify forward-looking
statements. Any statement that refers to expectations, projections or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements.

We caution investors that these statements are subject to risks and
uncertainties many of which are difficult to predict and generally beyond our
control that could cause actual results to differ materially from those
expressed in, or implied or projected by, the forward-looking information and
statements.

Important factors that could affect whether and to what extent any of our
forward-looking statements materialize include, but are not limited to, the
factors described in the section "Risk Factors" in the latest interim reports,
and in "Risk Factors" in the Annual Report 2022.

These forward-looking statements also represent our estimates and assumptions
only as of the date that they were made. We expressly disclaim a duty to
provide updates to these forward-looking statements, and the estimates and
assumptions associated with them, after the date of this release, to reflect
events or changes in circumstances or changes in expectations or the
occurrence of anticipated events, whether as a result of new information,
future events or otherwise, except as required by applicable law or stock
exchange regulations.

This 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 19:45 CEST on October 11, 2023.

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