REG - Telefon AB Ericsson - Ericsson reports second quarter results 2023

Telefonaktiebolaget LM EricssonAnnouncement

14/07/2023 10:45

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RNS Number : 0829G  Telefonaktiebolaget Lm Ericsson  14 July 2023

Ericsson reports second quarter results 2023

 

Second quarter highlights - In line with expectations

Group organic sales 1  declined by -9% YoY. Segment Networks sales 1  declined
by -13%, while segment Enterprise sales 1  grew by 20%. Reported sales was SEK
64.4 (62.5) b.

The sharp decline in sales in North America was partly offset by strong sales
development in India.

Gross income excluding restructuring charges decreased to SEK 24.7 (26.3) b.
as a result of lower sales and margins in Networks. Gross income increased in
Enterprise, mainly driven by the consolidation of Vonage. Reported gross
income was SEK 24.1 (26.3) b.

Gross margin excluding restructuring charges was 38.3% (42.2%) primarily
impacted by changed business mix in Networks. Reported gross margin was 37.4%
(42.1%).

EBITA excluding restructuring charges amounted to SEK 3.7 (7.5) b. with an
EBITA margin of 5.7% (12.0%). Reported EBITA was SEK 0.5 (7.5) b. with
restructuring charges amounting to SEK -3.1 (0.0) b.

Net loss was SEK -0.6 (4.7) b. primarily due to restructuring charges. EPS
diluted was SEK -0.21 (1.35).

Free cash flow before M&A was SEK -5.0 (4.4) b., impacted by lower EBIT,
payment to U.S. Department of Justice (DOJ) and increased working capital. Net
cash on June 30, 2023, was SEK 1.9 b. compared with SEK 13.6 b. on March 31,
2023.

 

 SEK b.                                                       Q2     Q2     YoY      Q1     QoQ      Jan-Jun  Jan-Jun  YoY
2023
2022
change
2023
change
2023
2022
change
 Net sales                                                    64.4   62.5   3%       62.6   3%       127.0    117.5    8%
  Sales growth adj. for comparable units and currency 2       -      -      -9%      -      -        -        -        -5%
 Gross margin 2                                               37.4%  42.1%  -        38.6%  -        38.0%    42.2%    -
 EBIT                                                         -0.3   7.3    -        3.0    -        2.7      12.1     -77%
 EBIT margin 2                                                -0.5%  11.7%  -        4.9%   -        2.2%     10.3%    -
 EBITA 2                                                      0.5    7.5    -93%     3.8    -86%     4.4      12.4     -65%
 EBITA margin 2                                               0.8%   12.0%  -        6.2%   -        3.5%     10.6%    -
 Net income (loss)                                            -0.6   4.7    -        1.6    -        1.0      7.6      -87%
 EPS diluted, SEK                                             -0.21  1.35   -        0.45   -        0.25     2.23     -89%
 Measures excl. restructuring charges 2 
 Gross margin excluding restructuring charges                 38.3%  42.2%  -        39.8%  -        39.0%    42.2%    -
 EBIT excluding restructuring charges                         2.8    7.4    -62%     4.0    -30%     6.8      12.1     -44%
 EBIT margin excluding restructuring charges                  4.4%   11.8%  -        6.4%   -        5.4%     10.3%    -
 EBITA excluding restructuring charges                        3.7    7.5    -51%     4.8    -24%     8.5      12.5     -32%
 EBITA margin excluding restructuring charges                 5.7%   12.0%  -        7.7%   -        6.7%     10.6%    -
 Free cash flow before M&A                                    -5.0   4.4    -        -8.0   -        -13.0    2.8      -
 Net cash, end of period                                      1.9    70.3   -97%     13.6   -86%     1.9      70.3     -97%

 

 1  Sales adjusted for comparable units and currency

 2  Non-IFRS financial measures are reconciled at the end of this report to
the most directly comparable IFRS measures.

 

Comments from Börje Ekholm, President and CEO of Ericsson (NASDAQ:ERIC)

Building on our strong position and despite challenging market conditions we
delivered a solid quarter - meeting expectations. We continue to execute with
discipline and focus without losing sight of the long term. We are leveraging
our 5G technology, growing our enterprise business and driving our cultural
transformation to accelerate our growth trajectory and shape the
communications industry landscape.

Q2 in line with our expectations

Performance in Q2 was in line with our expectations, despite the uncertain
macro backdrop and significant changes in market mix. This is a testament to
our strategy, the excellence of our portfolio, and our ability to adapt and
execute.

Group organic sales declined by -9%, as a Networks decline of -13% was partly
mitigated by a 20% organic growth in Enterprise. Group EBITA excluding
restructuring charges was SEK 3.7 (7.5) b. or 5.7% (12.0%) of sales.

In Networks, we saw strong execution with record build-out speed in India,
where we now have a leading market share. Sales growth in India partly offset
the expected softening we saw in other markets, notably in North America,
where build-out pace moderated and customer inventory levels were reduced.
Despite the business mix change and several large rollout contracts, Networks
had a gross margin 2  of over 39%.

In Cloud Software and Services, we continue to execute on the turnaround,
including exiting subscale business and improving delivery efficiency. We are
on track to deliver an EBITA 2  of at least break-even for the full year 2023.

In Enterprise we saw continued strong growth in Enterprise Wireless Solutions,
and we recorded positive EBITA in the Global Communications Platform business.

We landed another important 5G licensing agreement with a device vendor,
further validating our IPR portfolio strength, positioning us well for
continued IPR growth as we license vendors previously unlicensed for 5G.

We are well on track to reduce our annual run rate by at least SEK 11 b. by
year-end, which will positively impact the P&L over the coming quarters
with full effect during 2024.

Free cash flow before M&A was SEK -5.0 (4.4) b. primarily driven by lower
EBIT 2  and increased working capital including the payment to the US
Department of Justice. We expect an improvement in cash flow during the second
part of the year and gradually move towards our long-term target of 9-12% of
Net sales.

Driving execution of our strategy

Ericsson is shaping the industry landscape by leveraging the full value of 5G
and creating the world's most powerful innovation platform. We remain focused
on three priorities: i) bolstering our leadership in mobile networks; ii)
growing our enterprise business; and iii) driving our cultural transformation.

Leadership in mobile networks is the cornerstone of our success. Our
competitive advantage is clear - we deliver leading performance, energy
efficiency and cost optimization. Our radios carry about half of the world's
5G traffic outside China.

Building on this position and our market leading technologies, we are
expanding into the fast-growing enterprise segment, substantially increasing
our addressable market and diversifying our portfolio. 5G offers advanced
capabilities such as Quality of Service, speed, latency, and location, and our
platform allows these capabilities to be monetized in new ways by exposing
them through network APIs. Operators and enterprises are showing great
interest, as our platform will enable operators to offer differentiated
performance levels and allow developers to integrate these capabilities into
both existing and innovative new use cases.

We continue our relentless focus on enhancing our ethics and compliance
program. Our compliance program and controls have been significantly enhanced
since 2019 and our monitorship is entering its final year. We conduct testing
to ensure our compliance program is effective and fully embedded across the
company.

Looking ahead

For Q3 we expect similar market mix and trends as in Q2. In addition, Q3 will
benefit from an early impact of our strong focus on cost-out execution.
Overall, we thus expect Q3 EBITA margin 2  to be in line with or slightly
higher than Q2, followed by a seasonally stronger Q4.

As we look ahead, a fundamental driver of network capex is the continued rapid
data traffic growth. Average smartphone usage is expected to exceed 20
GB/month in 2023 with strong growth. 240 operators have launched 5G, bringing
new revenue growth with pricing model innovation. We forecast 5G subscriptions
to top 1.5 billion by end-2023 and reach 4.6 billion by 2028. Fixed Wireless
Access (FWA) also grows quickly, driving further traffic growth.

Traffic growth and operators' desire to meet expectations for network quality
with cost and energy efficiency, will stimulate investments. We estimate 75%
of all base station sites outside China are not yet updated with 5G mid-band,
and migration to 5G standalone will continue in order to deliver on 5G's full
potential.

We are confident that the market will recover as a consequence of these
fa4ctors, and Ericsson is well positioned to benefit from increased
investments. The exact timing of these increased network investments is, of
course, in the hands of our customers, but we expect that the market will see
a gradual recovery in late 2023 and improve in 2024.

Our technology leadership, solid performance and growth potential, position us
well for the future. We are navigating the current environment with discipline
and focus, and we tackle areas within our control. We execute on the Cloud
Software and Services turnaround, portfolio adjustments, enhanced R&D
productivity, IPR growth and cost reductions. Based on the expected recovery
of the mobile networks market towards the end of the year, we remain focused
on reaching the lower end of the 15-18% EBITA margin 2  long-term target range
in 2024.

 

Börje Ekholm

President and CEO

 

 1  Sales adjusted for comparable units and currency

 2  Excluding restructuring charges

 

NOTES TO EDITORS

You find the complete report with tables in the attached PDF or
on www.ericsson.com/investors (http://www.ericsson.com/investors)

Video webcast for analysts, investors and journalists

President and CEO Börje Ekholm and CFO Carl Mellander will comment on the
report and take questions at a video webcast at 9:00 AM CEST (8:00 AM BST
London, 3:00 AM EDT New York).

Join the webcast (https://edge.media-server.com/mmc/p/4huxsr5f/)  or please
go to www.ericsson.com/investors (http://www.ericsson.com/investors)

To ask a question: Access dial-in information here
(https://register.vevent.com/register/BIe204536357be4fbcb22b32381dfc4336)

The webcast will be available on-demand after the event and can be viewed at
www.ericsson.com/investors (http://www.ericsson.com/investors) .

 

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 (mailto:media.relations@ericsson.com)

 

This is information that Telefonaktiebolaget LM Ericsson is obliged to make
public pursuant to the EU Market Abuse Regulation and the Swedish Securities
Markets Act. The information was submitted for publication, through the agency
of the contact person set out above, at 07:00 CEST on July 14, 2023.

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