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

Telefonaktiebolaget LM EricssonAnnouncement

17/10/2023 10:45

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RNS Number : 3986Q  Telefonaktiebolaget Lm Ericsson  17 October 2023

Ericsson reports third quarter results 2023

 

Third quarter highlights - in line with guidance

·      Group organic sales 1  declined by -10% YoY. Segment Networks
organic sales 1  declined by -16% while Enterprise and Cloud Software and
Services sales grew organically. Reported sales decreased by -5% to SEK 64.5
(68.0) b.

·      Gross margin excluding restructuring charges was 39.2% (41.4%)
primarily impacted by changed business mix in Networks. Reported gross margin
was 38.4% (41.4%).

·      Reported EBIT was SEK -28.9 (7.1) b. impacted by a SEK -31.9 b.
impairment of goodwill related to the acquisition of Vonage.

·      EBITA excluding restructuring charges amounted to SEK 4.7 (7.7)
b. with an EBITA margin of 7.3% (11.3%). Reported EBITA was SEK 3.8 (7.6) b.
with restructuring charges amounting to SEK -0.9 (-0.1) b. The goodwill
impairment does not impact EBITA.

·      Cloud Software and Services achieved EBITA 3  break-even on a
rolling four quarter basis.

·      Net income (loss) was SEK -30.5 (5.4) b. EPS diluted was SEK
-9.21 (1.56). Net inco me excluding impairment of goodwill was SEK 1.4 (5.4)
b.

·      Free cash flow before M&A was SEK -0.5 (2.5) b. impacted by
lower EBIT and higher working capital related to large deployment projects.
Net cash on September 30, 2023, was SEK 1.6 b. compared with SEK 1.9 b. on
June 30, 2023.

·      Long-term EBITA margin 3  target of 15-18% remains, and Ericsson
aims to reach it as soon as possible, subject to market mix recovery.

 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 reconcilable line items in the financial statements.

 3  Excluding restructuring charges

 

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

In a challenging operating environment, Ericsson delivered third quarter
results in line with our guidance. Consistent with the rest of our industry,
we expect the macroeconomic uncertainty to persist into 2024, which impacts
our customers' investment ability. We are addressing these challenges with a
focus on elements within our control, namely cost management and operational
efficiency. We are on a journey to fundamentally reposition our business and
we continue to execute on our strategy to extend our leadership in mobile
networks, grow our enterprise business, and drive lasting cultural
transformation.

Q3 in line with guidance

Q3 performance was in line with guidance, with an EBITA 2  margin of 7.3% and
an EBITA 2  of SEK 4.7 b. Group organic sales 1  declined by -10%, with a -16%
organic decline in Networks partly offset by 5% organic growth in Cloud
Software and Services and 11% in Enterprise.

Networks organic sales 1  in North America were down by -60% YoY from a record
quarter in Q3 2022, due to customers' inventory adjustments and a slower
deployment pace. Sequentially, Networks sales declined by -2% in line with
previous trends. The decline in North America was partly offset by growth in
India as well as some early 5G markets resuming investments.

Our efforts to increase resiliency and reduce sensitivity to mix and volume
changes pays off. Despite large market mix shifts in Networks, where North
America declined YoY from 48% to 23% of sales, our gross margin remained as
high as 40%.

Future networks need to be increasingly resilient, open, sustainable, and
intelligent. Open RAN plays an important role in achieving this vision, and we
are leading the industrialization of cloudification, open fronthaul and open
management for network programmability. More than one million Ericsson radios
in the field are hardware prepared for open fronthaul which underpins our
support for openness across our Cloud RAN and radio portfolios.

Cloud Software and Services continued executing on the turnaround. With an
EBITA 2  of SEK 0.4 b. in Q3, we have now achieved a positive EBITA on a
rolling four quarter basis. While results fluctuate between quarters due to
the nature of this business, we are well on track to deliver at least
break-even for full-year 2023 and improving from there on.

In Enterprise we saw continued strong growth in Enterprise Wireless Solutions,
and we had a second consecutive quarter of positive EBITA in Global
Communications Platform.

Last week, we announced a SEK -32 b. impairment of goodwill attributed to our
acquisition of Vonage. Since the announcement of our acquisition in 2021,
macroeconomic headwinds, including rising interest rates and changing demand
trends, have significantly impacted the market capitalization of Vonage's
publicly traded peers.

Vonage is key to our expansion in Enterprise where we are enabling the next
wave of innovation in our industry. We recently announced a significant
milestone, in partnership with Deutsche Telecom, to be the first in the
industry to unlock a market opportunity estimated at USD 20 b. by 2028 3 . By
offering communication and network APIs to developers and enterprises, we are
opening up new ways for operators to monetize their investments in mobile
networks, and for developers to leverage network capabilities to create
exciting new applications. We are seeing significant inbound interest from
operators to further develop this market.

Free cash flow before M&A decreased to SEK -0.5 (2.5) b., mainly due to
increased working capital for large deployment projects such as in India. Next
year, with reduced build-out pace in these projects, we expect working capital
to taper off and free cash flow before M&A to start gradually approaching
our long-term target of 9-12% of net sales.

Looking ahead

For Q4 we expect similar market trends as in Q3, while the cost-out impact
will increase. We expect a group Q4 EBITA margin 2  at around 10%.

We expect the underlying uncertainty impacting our Mobile Networks business to
persist into 2024. We are proactively addressing the challenges in the current
environment and are focusing on what we can control, including reducing costs.
Our cost-out actions are already impacting the P&L and we are now
expecting to yield SEK 12 b. in run-rate savings by year end, which is an
increase of SEK 1 b. compared with previous indication. We will continue to
take decisive cost-out actions to ensure Ericsson is well positioned to
deliver value for our shareholders. Key to our strategy execution is to keep
investments in technology leadership and long-term transformation intact,
while managing our balance sheet.

The mobile networks market has been flattish for two decades, but with
cyclicality, and we expect that to continue. However, the high paced mobile
data growth, further spurred by new use cases, is the underlying driver for
the market to recover to a more normal level. We are also relatively early in
the 5G cycle with 75% of all radio base station sites, outside China, not yet
updated with 5G mid-band. Competitive dynamics in our customer markets tend to
lead to relatively sharp increase in investments when the market turns, and we
are seeing some positive signs in early 5G markets.

Our long-term EBITA margin 2  target of 15-18% remains, and we aim to reach it
as soon as possible, subject to market mix recovery. Given current uncertainty
we will not give guidance beyond Q4, 2023. As timing for the market mix
recovery is in our customers' hands, we prudently plan for current market
conditions to prevail into 2024. We are managing our business accordingly,
with focus on cost management and operational efficiency. When the market
recovers, we will have significant operating leverage following the actions we
are taking.

While near-term dynamics are uncertain, we are convinced that the recovery
will come. Our goal is to make Ericsson a more profitable company, returning
to our cash flow target level and capturing the next major wave of networks
innovation with a substantial platform business.

Börje Ekholm

President and CEO

 

 1 Sales adjusted for comparable units and currency

 2 Excluding restructuring charges

 3 Network APIs Driving new revenue streams for telcos, STL Partners

 

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 live 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/zjinc3mn/)  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/BI25abc8ebfce542bf92eb0783066193c7)

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. The information was
submitted for publication, through the agency of the contact person set out
above, at 07:00 CEST on October 17, 2023.

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