REG - Telefon AB Ericsson - Publication of Annual Financial Report

Telefonaktiebolaget LM EricssonAnnouncement

23/01/2024 11:45

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RNS Number : 6223A  Telefonaktiebolaget Lm Ericsson  23 January 2024

Ericsson reports fourth quarter and full-year results 2023

 

Fourth quarter highlights - Solid EBITA and cash flow in a challenged market

·    Sales declined organically 1  by -17% YoY, driven by a -23% decline
in Networks. Reported sales were down by -16% to SEK 71.9 b.

·    Gross income excluding restructuring charges decreased to SEK 29.6
(35.7) b. Gross margin excluding restructuring charges was 41.1% (41.5%).
Adjusted for the retroactive element in IPR revenues in Q4 2022 the gross
margin increased YoY.

·    Reported gross income was SEK 28.6 (35.6) b. with a gross margin of
39.8% (41.4%).

·    EBITA excluding restructuring charges amounted to SEK 8.2 (9.3) b.
with an EBITA margin of 11.4% (10.8%).

·    EBIT excluding restructuring charges amounted to SEK 7.4 (8.1) b.
with an EBIT margin of 10.3% (9.4%).

·    Free cash flow before M&A was SEK 12.5 (16.9) b. Q4 2022 was
positively impacted by retroactive IPR payments.

 

Full-year highlights

·    Sales declined organically 1  by -10%, impacted by a -15% decrease in
Networks, partly offset by an 11% growth in Enterprise. Reported sales were
SEK 263.4 (271.5) b.

·    Gross income excluding restructuring charges was SEK 104.4 (113.5)
b., mainly related to Networks. Gross margin excluding restructuring charges
was 39.6% (41.8%). Reported gross income was SEK 101.6 (113.3) b. with a gross
margin of 38.6% (41.7%).

·    EBITA excluding restructuring charges was SEK 21.4 (29.5) b. with a
margin of 8.1% (10.9%). EBITA was SEK 14.9 (29.1) b. with a margin of 5.7%
(10.7%).

·    Reported EBIT was SEK -20.3 (27.0) b. impacted by SEK -31.9 b. of
goodwill impairment recorded in Q3 related to Vonage.

·    Net income (loss) was SEK -26.1 (19.1) b. EPS diluted was SEK -7.94
(5.62). Net income (loss) was impacted by SEK -31.9 b. of goodwill impairment
and SEK -6.5 (-0.4) b. of restructuring charges.

·    Free cash flow before M&A amounted to SEK -1.1 (22.2) b. Net cash
was SEK 7.8 (23.3) b. at year-end 2023.

·    A dividend for 2023 of SEK 2.70 (2.70) per share will be proposed to
the AGM by the Board of Directors.

 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)

In 2023, we continued to execute on our strategy to strengthen our leadership
in mobile networks, grow our enterprise business and drive cultural
transformation. We concluded 2023 with a Q4 EBITA margin 2  of 11.4% and a
historic 5-year USD 14 b. contract. Despite headwinds and a very weak mobile
networks market, we were able to generate a full-year EBITA 2  of SEK 21.4 b.
While the actions we have taken to improve performance are paying off, we are
not satisfied with our profitability and there is more work to do. As we look
to 2024, we expect the market outside China to further decline, with similar
uncertainties as experienced in 2023. In this environment, we remain laser
focused on managing elements within our control, including operational
efficiency and tight cost management. We are confident in our strategy and are
committed to driving long-term value for our shareholders.

Q4 - solid results in challenging environment

As a result of focused execution and increased resiliency, we were able to
adapt in a challenging environment and delivered solid Q4 results. While Group
sales 1  declined organically by -17% YoY, EBITA 2  reached SEK 8.2 b. with an
EBITA margin 2  of 11.4%. With strong focus on profitability, we were able to
deliver a 41.1% gross margin 2 , a YoY increase when adjusting for the
retroactive element of IPR revenues in Q4 2022. Our investments in
geopolitical resiliency continued at a high level.

Networks sales 1  decreased organically by -23% YoY as customers continued to
focus on cash flow. Sales in India declined QoQ as the market started its
transition to normalized investment levels following an unprecedented roll-out
pace. Q4 gross margin 2  grew QoQ to 43.2%.

In Cloud Software and Services, we delivered on our EBITA 2  target to reach
at least breakeven in 2023 with an EBITA 2  of SEK 2.0 b. in Q4 and SEK 1.7 b.
for the full year. We continue to increase commercial discipline, automation
and delivery efficiency, focusing on long-term profitability.

Enterprise sales 1  grew by 7% organically YoY mainly driven by Enterprise
Wireless Solutions. EBITA 2  (loss) was stable YoY, negatively impacted by an
inventory write-off in Enterprise Wireless Solutions.

Strong cash collection and released working capital from conclusion of large
roll-out projects allowed a healthy free cash flow before M&A of SEK 12.5
b. in Q4. We aim to return to our long-term target of free cash flow before
M&A of 9-12% of net sales as soon as possible.

We delivered on the SEK 12 b. gross cost run-rate savings, half of which
positively impacted the P&L in 2023, with the remainder to impact in 2024.
Considering the market outlook, we will continue our strong focus on cost
discipline.

Driving execution of our strategy

Our first strategic pillar is to further enhance our leadership in mobile
networks. Technology leadership is core to our strategy, enabling customers to
build high-performance, programmable and open networks to deliver superior
customer experience, maximize return on investment (ROI) and accelerate
business innovation. With our leading technology, customers can reduce their
total cost of ownership, reduce non-strategic spend and instead redirect a
larger portion of capex to revenue-generating network infrastructure, enabling
an accelerated network modernization - as proven by our record win in Q4.

With our second strategic pillar, expansion into Enterprise, we aim at
creating new monetization opportunities for our customers. Many operators
fight to earn a healthy ROI with current monetization models. By offering
network APIs to developers and enterprises, we enable new revenue streams for
operators, and new applications that leverage network capabilities. We see
good traction with frontrunner customers who share our excitement. In
addition, offerings in Enterprise Wireless Solutions expand the market for
high-performance mobile technology into enterprise.

2023 has been a year in which we have continued to build and transform our
culture focusing on strong decision making and risk management, effective
oversight and accountability. Ethical standards shall stand in the center of
everything we do and become our competitive strength.

Looking ahead

The mobile network industry remains challenging. We expect the current market
uncertainties to prevail into 2024 with a further decline of the RAN market
outside China as our customers remain cautious and the investment pace is
normalizing in India. The new US contract will start to ramp up in the second
half of 2024.

Underlying demand from growing data traffic and 5G only being in the early
stages of build-out will require additional network investments. In our view,
the current investment levels are unsustainably low for many operators. We are
therefore confident that a market recovery should materialize. However, the
timing of market recovery is ultimately in the hands of our customers. It is
critical for us to lead in technology while focusing on operational
efficiency, to ensure we are well positioned when the market recovers. Our
strong IPR portfolio with over 60,000 patents gives us great opportunities to
grow our licensing revenue, with a continued emphasis on ensuring that the
full value is recognized in all contracts.

Our goal is to make Ericsson a more profitable company based on a leading
position in mobile infrastructure and a high-growth Enterprise platform
business.

 

I would like to thank all my colleagues for their dedication to execute on our
strategy. Together with our customers, we are well positioned to shape the
future industry.

Börje Ekholm

President and CEO

 

 1  Sales adjusted for comparable units and currency

 2  Excluding restructuring charges

 

You can find the complete report with tables at
http://www.rns-pdf.londonstockexchange.com/rns/6223A_1-2024-1-23.pdf
(http://www.rns-pdf.londonstockexchange.com/rns/6223A_1-2024-1-23.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/uy7dtn5r/)  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/BI9d8c7db1175741f1ac4e4a4edd38b8ad)

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 CET on January 23, 2024.

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