REG - Telefon AB Ericsson - 3rd Quarter Results

Telefonaktiebolaget LM EricssonAnnouncement

20/10/2022 12:30

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RNS Number : 5802D  Telefonaktiebolaget Lm Ericsson  20 October 2022

Ericsson reports third quarter results 2022

Third quarter highlights

Group organic sales 1  grew by 3% YoY driven primarily by Networks in North
America. Reported sales were SEK 68.0 (56.3) b., of which Vonage contributed
SEK 2.9 b. since July 21.

Gross income increased to SEK 28.1 (24.8) b. driven by higher sales primarily
in Networks, and the consolidation of Vonage.

Gross margin was 41.4% (44.0%) impacted by lower IPR revenues of SEK -1.1 b
YoY, supply chain costs and larger share of services following footprint
expansion in Networks.

EBITA amounted to SEK 7.6 (9.3) b. with an EBITA margin of 11.2% (16.5%).
EBITA was primarily impacted by increased investments in technology, selling
expenses in segment Enterprise (mainly from consolidation of Vonage) and
one-off costs of SEK -0.5 b.

EBIT amounted to SEK 7.1 (8.8) b. with an EBIT margin of 10.5% (15.7%).

Significant contracts with further increased geographic footprint have been
signed. These and earlier signed contracts will continue to increase sales in
Q4 and are expected to contribute with considerable volumes in 2023.

Net income was SEK 5.4 (5.8) b.

Free cash flow before M&A was SEK 2.5 (13.0) b. Cash flow was lower mainly
due to working capital buildup. Net cash on September 30, 2022, was SEK 13.4
b. compared with SEK 70.3 b. on June 30, 2022.

Vonage transaction completed on July 21. Vonage EBITA was positive, excluding
one-off acquisition cost and acquisition accounting.

 SEK b.                                                     Q3     Q3     YoY      Q2     QoQ      Jan-Sep  Jan-Sep  YoY

2022
2021
change
2022
change
2022
2021
change
 Net sales                                                  68.0   56.3   21%      62.5   9%       185.6    161.0    15%
  Sales growth adj. for comparable units and currency 2     -      -      3%       -      -        -        -        3%
 Gross margin 2                                             41.4%  44.0%  -        42.1%  -        41.9%    43.4%    -
 EBIT                                                       7.1    8.8    -19%     7.3    -3%      19.2     19.9     -4%
 EBIT margin 2                                              10.5%  15.7%  -        11.7%  -        10.3%    12.4%    -
 EBITA 2                                                    7.6    9.3    -18%     7.5    2%       20.0     21.0     -4%
 EBITA margin 2                                             11.2%  16.5%  -        12.0%  -        10.8%    13.0%    -
 Net income                                                 5.4    5.8    -7%      4.7    15%      12.9     12.8     1%
 EPS diluted, SEK                                           1.56   1.73   -10%     1.35   16%      3.80     3.79     0%

 Measures excl. restructuring charges 2 
 Gross margin excluding restructuring charges               41.4%  44.0%  -        42.2%  -        41.9%    43.5%    -
 EBIT excluding restructuring charges                       7.2    8.8    -19%     7.4    -2%      19.3     20.0     -3%
 EBIT margin excluding restructuring charges                10.6%  15.7%  -        11.8%  -        10.4%    12.4%    -
 EBITA excluding restructuring charges                      7.7    9.3    -17%     7.5    2%       20.2     21.0     -4%
 EBITA margin excluding restructuring charges               11.3%  16.5%  -        12.0%  -        10.9%    13.1%    -
 Free cash flow before M&A                                  2.5    13.0   -80%     4.4    -43%     5.3      18.6     -71%
 Net cash, end of period                                    13.4   55.7   -76%     70.3   -81%     13.4     55.7     -76%

 

 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)

We see robust underlying performance and strong momentum in the business as we
continue to execute on our strategy. This includes leadership in mobile
networks by growing market share. Since 2017 we have increased RAN market
share, excluding Mainland China, from 33% to 39% and we have had multiple
contract wins across geographies in this quarter. We continue to solidify our
strong position in 5G to capture the considerable opportunities presented by
the fastest scaling mobile generation. Our expansion into the exciting
high-growth Enterprise space is gaining momentum with the acquisition of
Vonage, providing us with access to a powerful range of cloud communication
services.

Group Net Sales 1  in the quarter grew by 3% organically, driven by strong
performance from Networks. EBITA 2  of SEK 7.7 b. corresponded to a margin of
11.3%, where higher gross income from business growth was offset by increased
technology investments and the consolidation of Vonage with acquisition
accounting and one-time acquisition costs.

Our Networks business saw strong organic sales 1  growth of 7% excluding IPR
(4% including IPR), with growth driven by our market leading portfolio
primarily in North America where operators continue to forcefully drive 5G
deployment. After expected record operator capex in 2022 in North America, we
anticipate RAN capex to hold up well in 2023, albeit at a lower level than
this year. We continue to further strengthen our position by increasing our
global footprint which we expect will lead to overall growth in 2023. As
previously observed, footprint gains with large-scale projects in early stages
tend to have a dilutive impact on gross margins. However, the growing gross
income will allow continued investment for technology leadership. We are
excited by the opportunities presented by our network offering underscored by
our portfolio strength.

To fully benefit from the performance and features of 5G it is crucial to
leverage on mid-band frequencies. The global 5G build-out is still in its
early stages with less than a quarter of global LTE nodes upgraded with
mid-band. We expect to see many new use cases for 5G where we already see
Fixed Wireless Access gaining increasing traction. The broader consumer and
enterprise applications of 5G will also boost demand for network performance,
hence we predict a longer investment cycle than for previous mobile
generations.

One cornerstone in our expansion into Enterprise is Vonage. 5G offers unique
capabilities such as high speed and low latency. We expect to see these
capabilities be exposed, consumed and paid for through network APIs. We are
intensively working with frontrunner operators to enable further monetization
of their network investments through our global network platform. More
broadly, we expect the acquisition to be highly accretive, enabling us to help
customers accelerate their digital transformations while also significantly
shaping how 5G networks are monetized. This will give the operators new
revenue sources driving further investments in the network. In the Enterprise
Wireless Solutions business, we have almost doubled sales in Q3 compared with
Q3 2021.

In the new Cloud Software & Services segment, revenues were impacted by
lower managed services sales and IPR revenues. Gross income was stable after
offsetting ongoing 5G Core deployment costs. We have an ambition to unleash
the great potential that we believe is present in this business. Our new
management team is taking further actions to turn around the business and
establish a satisfactory profitability. This includes strong focus on driving
down costs, including realizing synergies from combining two business areas,
while solidifying our technology and market leadership position. Improvements
in performance will be gradual.

In the current inflationary environment, we are making pricing adjustments as
well as leveraging product substitution to manage margins. We are also
simplifying operations across the company and will continue to be proactive in
reviewing options to reduce costs, whilst continuing to develop best-in-class
products and services. We are fundamentally strengthening cost competitiveness
through an intense focus on internal end-to-end efficiency gains and
structural costs. We are dedicated to our long-term target of EBITA margin of
15-18% no later than 2024 and we will take out costs to secure delivery of
this target. In order to deliver on the cost reductions, we expect
restructuring costs to increase and be more in line with our long-term
guidance of 1% of net sales, albeit varying by quarter. Cost efficiency is
also crucial to allow investments in technology leadership and to strengthen
our resilience in an uncertain market.

Strengthening the Ericsson culture is a key part of our strategic priorities.
We are dedicated to acting with integrity in everything we do and have taken
significant steps in developing our ethics and compliance program, while
enhancing our risk management framework. We have changed, but we have more to
do. We continue to engage with the Department of Justice and the Securities
and Exchange Commission in relation to the 2019 Iraq investigation report and
the DPA breach notices and are fully committed to cooperating with government
authorities.

In summary, the focused strategy, which is built on the strength of our mobile
networks business and supported by investment in R&D driving technology
leadership, is leading to increased market share and delivery of robust
financial performance. This is complemented by our high-growth Enterprise
market strategy.

I want to thank all of our fantastic team around the world for their hard work
and dedication. We look forward to discussing our strategy and execution at
our upcoming Capital Markets Day in December.

 

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/b9dggomq)  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/BIbae8bc360c174d6cbcc6575e14673332)

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

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 CEST on October 20, 2022.

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