FIRST QUARTER HIGHLIGHTS
- Reported sales decreased by -11% YoY. Sales,
adjusted for currency, decreased -16% YoY partly due to lower IPR
licensing revenues which amounted to SEK 2.0 (3.8) b.
- Provisions and adjustments related to certain
customer contracts of SEK -8.4 b., asset write-downs of SEK -3.3 b.
and restructuring charges of SEK -1.7 b. were made in the quarter,
in line with the announcement on March 28, 2017.
- Gross margin was 13.9%. Adjusted1) gross
margin declined to 30.5% (33.9%) mainly due to lower IPR licensing
revenues.
- Operating income was SEK -12.3 b.
Adjusted1) operating
income declined to SEK 1.1 (4.1) b. due to lower sales and lower
gross margin.
- Networks operating margin was -2%. Networks
adjusted1) operating
margin was solid at 12%, despite lower sales including reduced IPR
licensing revenues.
- IT & Cloud operating income was SEK -9.0 b.
Adjusted1) operating
income for IT & Cloud showed a significant negative development
YoY with increased losses. Actions have been initiated to improve
performance.
- Media operating income was SEK -2.8 b.
Adjusted1) operating
income was significantly reduced YoY. Strategic opportunities are
being explored.
- Cash flow from operating activities was SEK -1.5
(-2.4) b.
1) Restructuring, write-down of assets as well as provisions and
adjustments related to certain customer projects had a significant
negative impact on the reported Q1 2017 result. Numbers excluding
these items are referred to in the text as "adjusted", please see
page 3 for reconciliation.
SEK b. |
Q1
2017 |
Q1
2016 |
YoY
change |
Q4
2016 |
QoQ
change |
Net sales |
46.4 |
52.2 |
-11% |
65.2 |
-29% |
Sales growth adj. for
comparable units and currency |
- |
- |
-16% |
- |
-29% |
Gross margin |
13.9% |
33.3% |
- |
26.1% |
- |
Gross margin excluding
restructuring charges and adjusted for items
affecting
comparability in Q1 2017 |
30.5% |
33.9% |
- |
29.4% |
- |
Operating income |
-12.3 |
3.5 |
- |
-0.3 |
- |
Operating income excluding
restructuring charges and adjusted for items
affecting comparability in Q1 2017 |
1.1 |
4.1 |
-73% |
4.4 |
-75% |
Operating margin |
-26.6% |
6.7% |
- |
-0.4% |
- |
Operating margin excluding
restructuring charges and adjusted for items
affecting comparability in Q1 2017 |
2.3% |
7.9% |
- |
6.7% |
- |
Net income |
-10.9 |
2.1 |
- |
-1.6 |
- |
EPS diluted, SEK |
-3.29 |
0.60 |
- |
-0.48 |
- |
EPS (Non-IFRS), SEK2) |
-2.42 |
0.87 |
- |
0.62 |
- |
Cash flow from operating activities |
-1.5 |
-2.4 |
-35% |
19.4 |
-108% |
Net cash, end of period |
28.3 |
36.5 |
-22% |
31.2 |
-9% |
2) EPS diluted, excl. amortizations and
write-downs of acquired intangible assets, and excluding
restructuring charges.
Non-IFRS financial measures are
reconciled to the most directly reconcilable line items in the
financial statements at the end of this report.
Comments from Börje Ekholm,
President and CEO of Ericsson (NASDAQ:ERIC)
Our performance in the first quarter continued to
be unsatisfactory. Segment Networks delivered a solid result
despite lower sales, while losses in segments IT & Cloud and
Media increased significantly. In the quarter a more focused
business strategy and a new Executive Team were announced. The
immediate priority is to improve profitability while also taking
action to revitalize technology and market leadership.
Reported sales declined by -11%. Operating income
was SEK -12.3 b., after provisions, write-downs and restructuring
charges of SEK -13.4 b. Excluding these items the operating income
amounted to SEK 1.1 b.
Despite lower sales, Networks delivered a solid
result. Sales declined YoY due to lower investment levels in
certain markets, lower IPR licensing revenues and the renewed
managed services contract with reduced scope in North America.
Networks adjusted1) operating
margin improved sequentially and was supported by an improved
business mix and a more competitive portfolio. The new Ericsson
Radio System platform contributed to improving profitability and
stabilizing the market share position, after several years of
decline.
The concerning developments in IT & Cloud
continued with significantly increased losses. IT & Cloud
remains a strategic area for Ericsson as our customers will
digitalize their operations and invest in a future network
architecture based on software-defined logic. However, our
performance in this area is not acceptable and the new management
team is initiating actions to turn the business around. Actions
include accelerating the introduction of the new products,
streamlining the services organization and tightening the contract
scoping. We will continue to sell complete solutions in telecom
core, OSS and BSS, including hardware, software and services.
However, we are seeking alternatives for our IT cloud
infrastructure hardware business to gain necessary scale to ensure
that we can offer competitive solutions to our customers. Tangible
improvements in profitability are expected during 2018.
The accelerated losses in Media were caused by a
faster than anticipated decline in legacy product sales, not offset
by growth in the new portfolio. While continuing to develop our
media solutions we are exploring strategic opportunities for Media
to allow it to scale and succeed in the evolving media
landscape.
Of the total adjustments1) of SEK -13.4
b., write-downs were SEK -3.3 b. and restructuring charges were SEK
-1.7 b. Triggered by negative developments late in the quarter
related to certain customer contracts, provisions and adjustments
of SEK -8.4 b. were made of which SEK 5.8 b. is estimated to
negatively affect cash flow over several years.
The provisions and adjustments of SEK -8.4 b.
consist of the following items. Customer settlements and
revaluation of customer discounts, due to lower projected customer
volumes, reduced net sales by SEK -1.4 b. Operating expenses were
impacted by SEK -1.5 b. due to reassessment of the value of trade
receivables. The remaining SEK -5.5 b. is provisions for additional
project costs, mainly related to certain transformation projects in
IT & Cloud, which due to recent negative developments are not
expected to be covered by future project revenues.
In light of the current market environment and
company position we are taking a more prudent approach in assessing
risk exposures. In this work we have identified certain large,
complex transformation projects with challenging profitability and
higher inherent risks, that we are focused on mitigating.
On March 28, 2017, we presented a more focused
business strategy and a new Executive Team. The new strategy aims
to revitalize technology and market leadership, improve group
profitability and enable customer success.
The strategy builds on reallocating resources and
investments to core portfolio areas, fully leveraging the potential
of 5G, IoT and cloud. We will also refocus Managed Services and
Network Roll-out to improve profitability. By addressing
low-performing operations within Managed Services and optimizing
the offering within Network Roll-out, full-year sales are expected
to be negatively impacted by up to SEK 10 b. by 2019.
We are not satisfied with the cost structure of
the company and the existing cost and efficiency program is not
yielding sufficient results. Based on current profitability, we
will intensify our efforts to reduce cost with focus on structural
changes to generate lasting efficiency gains and increase cost
competitiveness. Our target is to surpass previous ambitions.
However, we need to increase investment in certain core areas to
develop our product portfolio, which can temporarily increase cost
levels.
The more focused business strategy is expected to
result in a significantly improved profitability already in 2018.
Beyond 2018, we believe that we can at least double the underlying
2016 operating margin.
Planning assumptions going
forward
- Industry trends and business mix in mobile
broadband from 2016 are expected to prevail in 2017.
- RAN equipment market in USD estimated to decline
by -2% to -6% in 2017.
- The earlier communicated renewed managed services
contract with reduced scope in North America will impact sales
negatively YoY in Q2 and Q3 2017.
- Addressing low-performing operations in Managed
Services and optimizing the offering within Network Rollout are
expected to reduce full-year sales by up to SEK 10 b. by 2019.
- The baseline for current IPR licensing contract
portfolio is approximately SEK 7 b. on an annual basis.
- The restructuring charges for 2017 are estimated
to be SEK 6-8 b.
1) Restructuring, write-down of assets as well as provisions and
adjustments related to certain customer projects had a significant
negative impact on the reported Q1 2017 result. Numbers excluding
these items are referred to in the text as "adjusted", please see
page 3 for reconciliation.
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/2017/3month17-en.pdf
or on www.ericsson.com/investors
Ericsson invites media, investors and analysts to
two conference calls at 9.00 (CEST) and 14.00 (CEST).
To join the conference call, please phone one of
the following numbers:
Sweden: +46 (0) 8 5664 2691 (Toll-free Sweden:
0200 883 817)
International/UK: +44 203 008 9801
(Toll-free UK: 0808 23 700 59)
US: +1 646 502 5116 (Toll-free US: +1
8557 5322 35)
Please call in at least 15 minutes before the
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callers, it may take some time before you are connected.
A live audio webcast of the conference calls will
be available at www.ericsson.com/press and
www.ericsson.com/investors
Replay of the conference calls will be available
from about one hour after it has ended until May 2, 2017.
Sweden replay number: +46 8 5664 2638
International replay number: +44 20 3426 2807
Conference number: 685945# (for 09.00 call)
686276# (for 14.00 call)
FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
Peter Nyquist, Head of Investor
Relations
Phone: +46 10 714 64 49
E-mail: peter.nyquist@ericsson.com
Additional contacts
Helena Norrman, Senior Vice President, Marketing
and Communications
Phone: +46 10 719 34 72
E-mail: media.relations@ericsson.com
Investors
Åsa Konnbjer, Director, Investor
Relations
Phone: +46 10 713 39 28
E-mail: asa.konnbjer@ericsson.com
Stefan Jelvin, Director, Investor
Relations
Phone: +46 10 714 20 39
E-mail: stefan.jelvin@ericsson.com
Rikard Tunedal, Director, Investor
Relations
Phone: +46 10 714 54 00
E-mail: rikard.tunedal@ericsson.com
Media
Ola Rembe, Vice President, Head of External
Communications
Phone: +46 10 719 97 27
E-mail: media.relations@ericsson.com
Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com
This information 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 07:30 CET on April 25, 2017.
Ericsson first quarter report
2017
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
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information contained therein.
Source: Ericsson via Globenewswire
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