REG - Telefon AB Ericsson - Ericsson reports first quarter results 2022

Telefonaktiebolaget LM EricssonAnnouncement

14/04/2022 07:30

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RNS Number : 3948I  Telefonaktiebolaget Lm Ericsson  14 April 2022

Ericsson reports first quarter results 2022

 

First quarter highlights

Group organic sales grew by 3% YoY driven by Networks in North America and in
Europe and Latin America. Reported sales were SEK 55.1 (49.8) b.

Reported gross margin was 42.3% (42.8%) impacted by proactive investments in
supply chain resilience in Networks. Rolling four quarter gross margin was
43.2%.

Due to the indefinite suspension of affected business in Russia, a provision
for impairment of assets and other extraordinary costs of SEK -0.9 b. was
booked in the quarter as other operating expenses in segment Networks. Around
one third of this amount will impact cash flow.

EBIT amounted to SEK 5.9 b. with an EBIT margin of 10.7% when excluding the
provision and a revaluation of Ericsson Ventures investments of SEK -0.3 b.
Reported EBIT was SEK 4.7 (5.3) b.

EBITA amounted to SEK 6.1 b. with an EBITA margin of 11.0% when excluding the
provision and the revaluation of Ericsson Ventures investments. Reported EBITA
was SEK 4.9 (5.5) b.

Networks EBIT margin was 18.7% when excluding the provision related to Russia.
In addition, EBIT was negatively impacted by timing of software sales in a
large contract as well as by increased R&D. Reported EBIT margin was 16.6%
(20.0%).

Organic sales in Emerging Business and Other grew by 15% YoY driven by
Cradlepoint.

Reported net income was SEK 2.9 (3.2) b.

Free cash flow before M&A was SEK -1.7 (1.6) b. impacted primarily by
proactive inventory build-up for supply chain resilience. Net cash on March
31, 2022, was SEK 65.2 b. compared with SEK 43.0 b. on March 31, 2021.

 SEK b.                                                     Q1     Q1     YoY      Q4     QoQ

2022
2021
change
2021
change
 Net sales                                                  55.1   49.8   11%      71.3   -23%
  Sales growth adj. for comparable units and currency 1                   3%
 Gross margin 1                                             42.3%  42.8%           43.2%
 EBIT                                                       4.7    5.3    -10%     11.9   -60%
 EBIT margin 1                                              8.6%   10.6%           16.6%
 Net income                                                 2.9    3.2    -8%      10.1   -71%
 EPS diluted, SEK                                           0.88   0.96   -8%      3.02   -71%
 Measures excl. restructuring charges 1 
 Gross margin excluding restructuring charges               42.3%  42.9%           43.5%
 EBIT excluding restructuring charges                       4.8    5.3    -10%     12.3   -61%
 EBIT margin excluding restructuring charges                8.7%   10.7%           17.3%
 Free cash flow before M&A                                  -1.7   1.6             13.5
 Net cash, end of period                                    65.2   43.0   52%      65.8   -1%

 

 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)

We continue to execute on our strategy to be a leading mobile infrastructure
provider and to establish a focused enterprise business. We see strong
business momentum and our investments in technology and a resilient supply
chain have allowed us to continue to win market share and deliver on customer
commitments in spite of global supply chain challenges. In the quarter, we saw
organic sales 1  growth of 3%. Gross margin at 42.3% (42.8%) indicates
underlying stability while absorbing cost increases in the supply chain. Our
EBITA margin was 11.0%, adjusted for revaluation of holdings and provision
related to Russia.

Russia's invasion of Ukraine and the resulting humanitarian disaster is a
major setback for the world. While mobile infrastructure is essential for
communications in Russia, it has been clear from the start of the invasion
that business in Russia would have to be reconsidered. Following current
sanctions, we have announced an indefinite suspension of our affected business
in Russia and recorded a provision for impairment of assets and other
extraordinary costs of SEK -0.9 b. in Q1. We will continue to monitor and
respond to the situation day by day, with priority on the safety and
well-being of our people.

In our core mobile infrastructure business, we foresee a longer investment
cycle compared with previous mobile generations as 5G's broad application
usage will drive a continued need to increase capacity. Technology leadership
is driving our competitiveness, and in the quarter, we invested SEK -10.7
(-9.6) b. in R&D.

Networks sales 1  grew organically by 4% in Q1 reflecting our continually
strengthened market position. Gross margin was 44.7% (46.1%). Software sales
vary between quarters, and a certain SEK 1 b. annual software contract that is
normally recorded in Q1, is this year delayed into Q2. Gross margin was also
negatively impacted by proactive investments in supply chain resilience. Hard
work throughout the organization enabled us to deliver on customer commitments
despite global supply chain challenges. We also continue to increase our
R&D investments to extend our leadership. R&D increased by SEK -1 b.
YoY and was primarily related to our Cloud RAN portfolio, which gives
customers more flexible deployment options, and to next generation ASICs that
provide industry-leading radio performance, energy savings and footprint
reduction. We foresee long-term attractive return on our investments similar
to the last few years.

Digital Services organic sales 1  were down by -2% YoY in the quarter and EBIT
was SEK -1.4 b. We are building a strong platform for Digital Services and
sales development in the cloud native 5G core portfolio is encouraging with
double digit growth, albeit from a low base. However, the overall result in
the quarter is not satisfactory. The target of a limited loss for 2022 is
challenging especially in light of the increased investments in R&D in
service orchestration and 5G portfolio. We now increase focus on accelerating
sales growth and addressing efficiency to improve profitability.

To capture opportunities in the rapidly growing enterprise space, we are
focusing on two specific areas. The first focus area is wireless networks for
enterprise where we already offer easy-to-use pre-packaged solutions, with
Cradlepoint showing strong growth in the first quarter as 5G coverage
increases on the US C-band. We also see growing momentum for our 5G portfolio
in Dedicated Networks. In addition, we are increasing investments in our
enterprise go-to-market organization.

The other focus area is a Global Network Platform, which will be built on
global unified interfaces, so called APIs. Developers and enterprises will be
able to create new use cases and experiences, like high quality video or XR on
top of the 5G network, which enable operators and the industry to monetize the
network investment in new ways. Ericsson intends to play a major role in
building the API platform. With our previously announced intention to acquire
Vonage - more than 1 million developers, 120,000 enterprise customers and a
proven scaled API infrastructure - we will have a strong position to deliver
on this ambition.

Ericsson's IPR licensing revenues in Q1 were affected by several expiring
patent license agreements pending renewal and by 5G license negotiations. We
are confident in our strong 5G position and leading patent portfolio,
positioning us well to conclude pending and future license renewals. Revenues
from current IPR licensing contracts are estimated to SEK 1.0-1.5 b. in Q2.
The actual revenue impact will depend on timing as well as terms and
conditions of new agreements.

We are currently engaging with the Department of Justice (DOJ) regarding the
breach notices it issued relating to the Deferred Prosecution Agreement. The
resolution of these matters could result in a range of actions by DOJ, and may
likely include additional monetary payments, the magnitude of which cannot at
this time be reliably estimated. As this process is ongoing, we remain limited
in what we can say about the historical events covered in the Iraq
investigation and our ongoing engagement on the matter. We are fully committed
to co-operating with the DOJ and our work to further strengthen our Ethics and
Compliance program, controls and our culture remains a top priority. It was
actually our improved compliance program that allowed us to identify the
misconduct in Iraq that started at least back in 2011.

In light of the global supply chain challenges, we decided to create a buffer
of vital components in order to secure that we meet customer delivery
commitments. In the quarter this had a material impact on inventory levels and
therefore Free cash flow before M&A amounted to -1.7 (+1.6) b. We expect
elevated inventory levels to remain in the next few quarters.

We are well positioned to continue our strategic journey. The mobile
infrastructure business will remain our core and we will not spare any effort
to strengthen our position here. Our ambition is to continue to grow and
develop this business based on market growth and market share gains. In the
growing enterprise space, we are seeing good traction for our established
portfolio with Cradlepoint and Dedicated Networks. We continue to work towards
closing the Vonage acquisition in the first half of 2022 and to start
developing the Global Network Platform.

With our investments in both our core and enterprise businesses, as well as in
our culture, we are determined to continue to make Ericsson a stronger, more
resilient company while at the same time put it on a higher growth trajectory.
Our key focus is to accelerate the pace towards reaching our long-term target
of an EBITA margin of 15-18% and our ambition is to reach this target no later
than in 2-3 years.

Börje Ekholm

President and CEO

 1  Sales adjusted for comparable units and currency

 

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).

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: 57370869#

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 AM CEST on April 14, 2022.

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