REG - Telefonaktiebolaget - Ericsson reports Q4 and full-year results 2021

Telefonaktiebolaget LM EricssonAnnouncement

25/01/2022 08:55

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RNS Number : 5515Z  Telefonaktiebolaget Lm Ericsson  25 January 2022

Ericsson reports fourth quarter and full-year results 2021

 

Fourth quarter highlights

Group organic sales grew by 2% YoY. Sales in Mainland China declined by SEK
-1.8 b. (-3 percentage points), meaning that excluding Mainland China organic
sales growth was 5%. Reported sales were SEK 71.3 (69.6) b.

Gross margin improved in all segments to 43.5% (40.6%) excluding restructuring
charges. Reported gross margin was 43.2% (40.6%).

EBIT excluding restructuring charges improved to SEK 12.3 b. (17.3% EBIT
margin) from SEK 11.0 b. (15.8% EBIT margin) YoY. Reported EBIT was SEK 11.9
(11.0) b.

Networks organic sales increased by 3%, despite significant market share loss
in Mainland China. EBIT margin excluding restructuring charges was 23.6%
(21.5%).

Digital Services organic sales were flat and EBIT excluding restructuring
charges was SEK 0.4 (0.5) b.

Reported net income was SEK 10.1 (7.2) b. EPS diluted was SEK 3.02 (2.26).

 

Full-year highlights

Group organic sales grew by 4%, with an increase in Networks sales of 7%.
Reported sales were stable at SEK 232.3 b. The loss of market share in
Mainland China impacted sales by SEK -7.7 b. and the growth rate by -3
percentage points, meaning that excluding Mainland China, organic sales growth
was 8%.

Gross margin excl. restructuring charges was 43.5% (40.6%), driven primarily
by strengthened operational leverage in Networks.

EBIT margin excluding restructuring charges improved to 13.9% (12.5%),
reaching the 2022 group target already in 2021.

Reported net income was SEK 23.0 (17.6) b. EPS diluted was SEK 6.81 (5.26).

Free cash flow before M&A amounted to SEK 32.1 (22.3) b. Net cash was SEK
65.8 (41.9) b. on December 31, 2021.

The Board of Directors will propose a dividend for 2021 of SEK 2.50 (2.00) per
share to the AGM.

 

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

2021
2020
change
2021
change
2021
2020
change
 Net sales                                                   71.3   69.6   3%       56.3   27%      232.3    232.4    0%
  Sales growth adj. for comparable units and currency  1     -      -      2%       -      -        -        -        4%
 Gross margin  1                                             43.2%  40.6%  -        44.0%  -        43.4%    40.3%    -
 EBIT                                                        11.9   11.0   8%       8.8    34%      31.8     27.8     14%
 EBIT margin  1                                              16.6%  15.8%  -        15.7%  -        13.7%    12.0%    -
 Net income                                                  10.1   7.2    41%      5.8    76%      23.0     17.6     30%
 EPS diluted, SEK                                            3.02   2.26   34%      1.73   75%      6.81     5.26     29%

 Measures excl. restructuring charges  1 
 Gross margin excluding restructuring charges                43.5%  40.6%  -        44.0%  -        43.5%    40.6%    -
 EBIT excluding restructuring charges                        12.3   11.0   12%      8.8    39%      32.3     29.1     11%
 EBIT margin excluding restructuring charges                 17.3%  15.8%  -        15.7%  -        13.9%    12.5%    -
 Free cash flow before M&A                                   13.5   12.8   6%       13.0   4%       32.1     22.3     44%
 Net cash, end of period                                     65.8   41.9   57%      55.7   18%      65.8     41.9     57%

 

 1  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)

Our strategy to invest in technology leadership and grow market share in our
core business underpinned a robust financial performance in 2021 and ensured a
good Q4 for Ericsson overall. Our commitment to pursue value from growth in
wireless enterprise took a significant step forward with the announcement of
our ambition to acquire Vonage, which will give us the foundation to develop a
Global Network Platform to drive innovation on top of the 5G networks. This
adds to already strong progress in 2021 in our organic enterprise portfolio -
Dedicated Networks and IoT - and follows the successful integration of
Cradlepoint. With a full-year EBIT margin 2  of 13.9%, we reached our 2022
target one year early, while absorbing significantly increased investments in
R&D, Enterprise, cybersecurity and compliance. Fourth quarter organic
sales 1  grew by 2%, gross margin 2  improved to 43.5% (40.6%), the EBIT
margin 2  reached 17.3% (15.8%) and free cash flow before M&A amounted to
SEK 13.5 (12.8) b.

Networks sales 1  grew organically by 3% in Q4, despite considerably lower
volumes in Mainland China. Gross margin 2  improved to 46.4% (43.5%). The 2021
financial performance and continued market share gains outside of Mainland
China are underpinned by our investments in technology leadership. We have so
far been able to mitigate the inflationary pressure by continuously evolving
our product portfolio. We strengthened our industry-leading portfolio during
the year with ultra-light, energy-efficient Massive MIMO radios for enhanced
network performance and our new Cloud RAN portfolio for 5G mid band.

In Q4, Digital Services organic sales 1  were stable YoY. Excluding sales in
Mainland China, where we had considerably lower volumes, sales 1  increased by
3% YoY in the fourth quarter. Fourth quarter gross margin 2  improved to 43.4%
(41.0%) with a positive EBIT 2  of SEK 0.4 b. During 2021 we continued to
invest in R&D, particularly for the cloud native offerings and our
portfolio is now substantially transformed compared with a few years ago. We
will continue to increase investments in our 5G portfolio, including in our
orchestration offerings, to further strengthen our long-term competitiveness
and position us in an open world for future standards and technologies. We
expect profitability to gradually improve and over time exceed our original
EBIT margin 2  target of 10-12%.

Managed Services delivered a gross margin 2  of 18.9% (17.7%) in Q4. For the
full year of 2021 organic sales 1  declined by -6% as new deals did not offset
lower customer demand, contract rescoping and planned exits. To grow profits,
we will accelerate the ongoing transformation towards a more software-driven
offering with higher margin potential.

Emerging Business and Other delivered an improved gross margin 2  of 35.2%
(33.8%) in Q4. For full-year 2021, gross margin 2  improved to 37.3% (28.0%),
where Cradlepoint's performance is the main contributor. We are seeing
increasing momentum for our 5G portfolio in Dedicated Networks and
Cradlepoint.

IPR revenues amounted to SEK 2.4 (2.6) b., including a new smaller agreement
with retroactive impact. With our strong position in 5G and leading, broad
patent portfolio we believe we are well positioned to conclude pending and
future patent license renewals. Ericsson's IPR licensing revenues continue to
be affected by several expiring patent license agreements pending renewal and
5G license negotiations. This will lead to estimated revenues from IPR
licensing of SEK 1.0-1.5 b. in Q1, unless renewals are signed in the first
quarter. The actual financial impact will depend on the timing as well as
terms and conditions of new agreements.

In October, we received correspondence from the Department of Justice that we
had breached our obligations under the Deferred Prosecution Agreement by
failing to provide certain documents and factual information. At this point in
time, we cannot provide further information or predict the outcome. We
continue to invest in improving our Ethics and Compliance program in
accordance with our strategy and objectives. We are firmly committed to
continuously develop and improve in the years to come to ensure a sustainable
compliance program.

Free cash flow before M&A was SEK 32.1 (22.3) b. for full-year 2021, the
highest in Ericsson's history, further strengthening the net cash position to
SEK 65.8 (41.9) b. During the last few years, our strategy has been to
increase the flexibility of our business and reduce the capital tied up in the
business. Consequently, we are now able to operate the Company with less
capital than in the past. The Board will propose a dividend of SEK 2.50 (2.00)
per share to the AGM, underlining the confidence in Ericsson's business going
forward.

Based on current business momentum, we expect fundamentals to remain strong in
our core mobile infrastructure business during 2022. We will continue to
increase investments in R&D to sustain our technology leadership and
strengthen our competitive position to take advantage of the rollout of 5G
networks. At the same time, we will continue our efforts to expand our
presence in the enterprise market. Over time, we expect the enterprise segment
to provide higher growth and profitability than our mobile infrastructure
business. The Group EBIT target 2  for 2022 of 12-14% remains, excluding the
Vonage-related segment. With the different business mix compared to when we
set the 2022 target back in 2018, the target becomes less relevant, and our
key focus is therefore now to accelerate the pace towards reaching our
long-term target of EBITA margin 2  of 15-18%. After delivering an EBITA
margin 2  of 14.6% in 2021, our ambition is to reach the long-term target no
later than in 2-3 years. At that time, we will have a higher growth profile as
a company.

2021 was a successful year for Ericsson and I want to take this opportunity to
thank all my colleagues who relentlessly delivered on customer commitments
while navigating through supply chain challenges and a raging pandemic. I am
proud to be part of this team!

Stay healthy and well.

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 by following
this
link https://www.ericsson.com/assets/local/investors/documents/financial-reports-and-filings/interim-reports-archive/2021/12month21-en.pdf
(https://www.ericsson.com/assets/local/investors/documents/financial-reports-and-filings/interim-reports-archive/2021/12month21-en.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 CET (8:00 AM GMT
London, 3:00 AM EST New York).

To join the webcast, please go to www.ericsson.com/investors
(http://www.ericsson.com/investors)

To ask a question, please call:

Sweden: +46 (0)8 566 426 51 (Toll-free Sweden: 0200 883 685)

International/UK: +44 (0)333 300 0804 (Toll-free UK: 0800 358 9473)

US: +1 631 913 1422 (Toll-free US: +1 855 85 70686)

PIN code: 67215644#

Please call in at least 15 minutes before the webcast starts.

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)

Stefan Jelvin, Director, Investor Relations

Phone: +46 709 86 02 27

E-mail: stefan.jelvin@ericsson.com (mailto:stefan.jelvin@ericsson.com)

Media

Kristoffer Edshage, Director Corporate Media

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 25, 2022.

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