REG - Telefon AB Ericsson - Final Results

Telefonaktiebolaget LM EricssonAnnouncement

20/01/2023 11:30

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RNS Number : 4309N  Telefonaktiebolaget Lm Ericsson  20 January 2023

Ericsson reports fourth quarter and full-year results 2022

 

Fourth quarter highlights

The quarter was impacted by an IPR agreement resulting in total IPR revenues
of SEK 6.0 (2.4) b. and previously announced charges of SEK -4.0 b., including
DOJ provision, IoT divestment and Cloud Software and Services contract and
portfolio exits.

Group organic sales 1  grew by 1% YoY., of which IPR revenues contributed with
5 percentage points. Reported sales were SEK 86.0 (71.3) b. of which Vonage
contributed SEK 4.1 b.

Gross income increased to SEK 35.6 (30.8) b., while gross margin decreased to
41.4% (43.2%) primarily due to business mix change in Networks and previously
announced charges for contract exits and portfolio adjustments in Cloud
Software and Services.

EBITA excluding restructuring charges amounted to SEK 9.3 (12.8) b. with an
EBITA margin of 10.8% (17.9%). EBITA was impacted by the previously announced
charges.

Free cash flow before M&A was SEK 16.9 (13.5) b. mainly driven by reduced
inventory and high cash collection including IPR collection.

Return on capital employed was 15.4% (26.6%) driven by lower EBIT.

Full-year highlights

Group organic sales 1  grew by 3%, driven by a 4% increase in Networks and 16%
in Enterprise. Reported sales were SEK 271.5 (232.3) b.

Gross income increased to SEK 113.3 (100.7) b. with increases in segments
Networks, Cloud Software and Services, and Enterprise.

EBITA amounted to SEK 29.1 (33.3) b. with an EBITA margin of 10.7% (14.3%).
EBITA was negatively impacted by previously announced charges of SEK -5.5 b.,
partly compensated by increased IPR licensing revenues.

EBIT margin excl. restructuring charges was 10.1% (13.9%). Excluding Vonage
and previously announced charges during the year, EBIT margin was 12.9%,
reaching the 2022 target of 12-14%.

Net income was SEK 19.1 (23.0) b. EPS diluted was SEK 5.62 (6.81).

Free cash flow before M&A amounted to SEK 22.2 (32.1) b. Net cash was SEK
23.3 (65.8) b. at year-end 2022.

Return on capital employed was 14.0% (18.4%) driven by higher capital employed
and lower EBIT.

A dividend for 2022 of SEK 2.70 (2.50) per share will be proposed to the AGM
by the Board of Directors.

 SEK b.                                                     Q4     Q4     YoY      Q3     QoQ      Jan-Dec  Jan-Dec  YoY

2022
2021
change
2022
change
2022
2021
change
 Net sales                                                  86.0   71.3   21%      68.0   26%      271.5    232.3    17%
  Sales growth adj. for comparable units and currency 2     -      -      1%       -      -        -        -        3%
 Gross margin 2                                             41.4%  43.2%  -        41.4%  -        41.7%    43.4%    -
 EBIT                                                       7.9    11.9   -34%     7.1    10%      27.0     31.8     -15%
 EBIT margin 2                                              9.1%   16.6%  -        10.5%  -        10.0%    13.7%    -
 EBITA 2                                                    9.0    12.3   -26%     7.6    19%      29.1     33.3     -13%
 EBITA margin 2                                             10.5%  17.2%  -        11.2%  -        10.7%    14.3%    -
 Net income                                                 6.2    10.1   -39%     5.4    15%      19.1     23.0     -17%
 EPS diluted, SEK                                           1.82   3.02   -40%     1.56   17%      5.62     6.81     -17%
 Measures excl. restructuring charges 2 
 Gross margin excluding restructuring charges               41.5%  43.5%  -        41.4%  -        41.8%    43.5%    -
 EBIT excluding restructuring charges                       8.1    12.3   -34%     7.2    12%      27.4     32.3     -15%
 EBIT margin excluding restructuring charges                9.4%   17.3%  -        10.6%  -        10.1%    13.9%    -
 EBITA excluding restructuring charges                      9.3    12.8   -27%     7.7    21%      29.5     33.8     -13%
 EBITA margin excluding restructuring charges               10.8%  17.9%  -        11.3%  -        10.9%    14.6%    -
 Free cash flow before M&A                                  16.9   13.5   25%      2.5    -        22.2     32.1     -31%
 Net cash, end of period                                    23.3   65.8   -65%     13.4   74%      23.3     65.8     -65%

 

 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

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

With our fourth quarter result we are on track to deliver on our long-term
EBITA target of 15-18% by 2024. We remain fully committed to our strategic
ambitions and have full confidence in the long term. During the quarter, we
made measurable progress towards achieving these ambitions, against a backdrop
of broad macroeconomic headwinds. As we said during our Capital Markets Day,
there are near-term uncertainties, however, we are still in the early phase of
global 5G rollout and widespread enterprise digitalization.

Our strategy remains rooted in driving sustainable growth and maximizing value
across all stakeholders. We are confident that we have the right team and
strategy in place to extend our leadership in mobile networks; achieve
profitability in Cloud Software and Services; execute in our high growth
Enterprise segment; shape the industry landscape by becoming a platform
company leveraging the 5G innovation platform; and continue our unwavering
commitment to a culture of integrity.

This quarter, we signed a multiyear IPR patent license agreement with a major
licensee. This positive outcome positions us well to capture further 5G patent
license agreements among handset manufacturers and in new areas such as
consumer electronics and IoT. We expect significant IPR revenue growth over
the coming 18-24 months.

Group Net Sales 1  grew by 1% YoY, of which IPR revenues contributed with 5
percentage points. EBITA 2  of SEK 9.3 (12.8) b. corresponds to a margin 2  of
10.8% (17.9%). The positive impact from higher IPR revenues was offset by
expected business mix shift and previously announced charges of SEK -4 b. We
executed on our ambition to reduce inventory contributing to our free cash
flow before M&A of SEK 16.9 (13.5) b.

Our Networks business grew in India on the back of significant market share
gains. As anticipated, the growth from share gains in several markets could
not fully compensate for reduced operator capex and inventory reductions in
other markets, including North America. Gross margin 2  was 44.6% (46.4%),
negatively impacted by this business mix shift including a higher share of
services sales from large network rollout projects. The IPR patent license
agreement had positive margin impact.

During the quarter, we were able to largely offset the impact of high
inflation with commercial activities, including product substitution. We
continue to invest in technology to enhance performance and cost leadership,
expand our global footprint and improve productivity and capital efficiency
across the supply chain.

In Cloud Software and Services, organic sales 1  decreased by -2% excluding
IPR revenues. Sales growth in North America - mainly from 5G Core contracts -
was offset by a decline in other market areas. We remain committed to
improving profitability and are on a clear path to reaching operating profit
break-even for full-year 2023 by limiting subscale software development,
accelerating automation, and changing focus from market share gains to
profitability. In Q4, we decided to exit certain subscale business, with a
one-off charge.

Within Enterprise, we continue to leverage our strength in mobile networks to
accelerate our business. Organically, sales 1  grew by 15%. Our Enterprise
strategy is underpinned by two pillars: First, our Enterprise Wireless
Solutions business, focused on capturing the multi-billion-dollar enterprise
market opportunity for 5G optimized networking and security solutions. Second,
through the Global Communication Platform business, we will enable new ways of
monetizing 5G by transforming how network features such as speed and latency
are globally exposed, consumed and paid for. Enterprise is a growth engine for
the company, and we continue to fine-tune our portfolio to maximize
profitability. To this end, we announced the divestment of our loss-making IoT
business in Q4. We continue to invest to strengthen our enterprise
go-to-market channel and broaden our enterprise product portfolio. In
addition, we are increasing our investments in developing the network APIs
that will underpin the long-term growth in Global Communication Platform. From
2024 and beyond our enterprise business will be a major driver of Ericsson's
long-term growth and profitability, however, these investments will weigh on
profitability during 2023.

We remain positive on the long-term outlook for our business. However, the
near-term outlook, as we also described at our Capital Markets Day, remains
uncertain. We expect operators to continue to sweat assets in response to
macroeconomic headwinds. In addition, we expect operators to adjust inventory
levels as supply situation eases. These trends started to impact Networks in
Q4 and we expect them to continue at least during the first half of 2023. At
the same time, we expect good growth from market share wins, albeit not fully
offsetting the near-term headwinds. In the longer-term, capex is driven by
traffic growth. Given near-term macroeconomic headwinds, we expect Enterprise
to grow somewhat slower than during 2022.

While the quarter saw the easing of supply chain related challenges, the
inflationary environment persisted. We remain focused on navigating near-term
headwinds through our commercial initiatives but also by making Ericsson more
cost-effective. We expect to start seeing the effect of our SEK 9 b. cost
savings activities during the second quarter of 2023. We anticipate declining
margins in Networks during the first half of 2023 due to changing business
mix. In Q1 we expect the EBITA 2  for the Group to be somewhat lower than
EBITA 2  last year, with improvements during the year.

We remain focused on reaching a resolution with the US authorities regarding
the previously announced Deferred Prosecution Agreement (DPA) breach notices
received by the company. In this regard, we have this quarter booked a SEK 2.3
b. (approx. USD 220 million) provision as we are now in a position to make a
sufficiently reliable estimate of the financial penalty (and additional
monitoring costs) associated with a breach resolution.

Separately, and with respect to the past matters described in the company's
2019 Iraq investigation report, we continue to thoroughly investigate the
facts in full cooperation with the DOJ and the SEC to determine if there is
any merit to the allegations.

Building a culture of ethics and integrity remains a top priority, and I am
convinced that best-in-class compliance will give our company a competitive
advantage. Both the company's resolution with the DOJ and the SEC in 2019 and
the ongoing investigation into past conduct in Iraq clearly highlight the
importance of intelligent decision-making and effective risk management.

In conclusion, I would like to thank all my colleagues for their diligence and
efforts to deliver long-term stakeholder value as they continue to execute on
our strategy. The commitment and passion of our team is what inspires me the
most as we redefine both our company and our industry. The actions we have
taken have positioned us to be a true industry leader.

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 CET (8:00 AM GMT
London, 3:00 AM EST New York).

Join the webcast (https://edge.media-server.com/mmc/p/nxn4smde)  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/BIfcca7ab1e2aa4ac5ae59af8fe182a817)

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

Kirsty Fitzgibbon, VP, Head of External Relations, acting

Phone: +46 730 95 81 57

E-mail: kirsty.fitzgibbon@ericsson.com (mailto:kirsty.fitzgibbon@ericsson.com)

Kristoffer Edshage, Head of Regulatory and Financial Communication

Phone: +46 722 20 44 46

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

Corporate Communications

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 CET on January 20, 2023.

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