TIDM61QS
RNS Number : 3986Q
Telefonaktiebolaget Lm Ericsson
17 October 2023
Ericsson reports third quarter results 2023
Third quarter highlights - in line with guidance
-- Group organic sales[1] declined by -10% YoY. Segment Networks
organic sales[1] declined by -16% while Enterprise and Cloud
Software and Services sales grew organically. Reported sales
decreased by -5% to SEK 64.5 (68.0) b.
-- Gross margin excluding restructuring charges was 39.2%
(41.4%) primarily impacted by changed business mix in Networks.
Reported gross margin was 38.4% (41.4%).
-- Reported EBIT was SEK -28.9 (7.1) b. impacted by a SEK -31.9
b. impairment of goodwill related to the acquisition of Vonage.
-- EBITA excluding restructuring charges amounted to SEK 4.7
(7.7) b. with an EBITA margin of 7.3% (11.3%). Reported EBITA was
SEK 3.8 (7.6) b. with restructuring charges amounting to SEK -0.9
(-0.1) b. The goodwill impairment does not impact EBITA.
-- Cloud Software and Services achieved EBITA[3] break-even on a rolling four quarter basis.
-- Net income (loss) was SEK -30.5 (5.4) b. EPS diluted was SEK
-9.21 (1.56). Net inco me excluding impairment of goodwill was SEK
1.4 (5.4) b.
-- Free cash flow before M&A was SEK -0.5 (2.5) b. impacted
by lower EBIT and higher working capital related to large
deployment projects. Net cash on September 30, 2023, was SEK 1.6 b.
compared with SEK 1.9 b. on June 30, 2023.
-- Long-term EBITA margin[3] target of 15-18% remains, and
Ericsson aims to reach it as soon as possible, subject to market
mix recovery.
[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.
[3] Excluding restructuring charges
Comments from Börje Ekholm, President and CEO of Ericsson
(NASDAQ:ERIC)
In a challenging operating environment, Ericsson delivered third
quarter results in line with our guidance. Consistent with the rest
of our industry, we expect the macroeconomic uncertainty to persist
into 2024, which impacts our customers' investment ability. We are
addressing these challenges with a focus on elements within our
control, namely cost management and operational efficiency. We are
on a journey to fundamentally reposition our business and we
continue to execute on our strategy to extend our leadership in
mobile networks, grow our enterprise business, and drive lasting
cultural transformation.
Q3 in line with guidance
Q3 performance was in line with guidance, with an EBITA[2]
margin of 7.3% and an EBITA[2] of SEK 4.7 b. Group organic sales[1]
declined by -10%, with a -16% organic decline in Networks partly
offset by 5% organic growth in Cloud Software and Services and 11%
in Enterprise.
Networks organic sales[1] in North America were down by -60% YoY
from a record quarter in Q3 2022, due to customers' inventory
adjustments and a slower deployment pace. Sequentially, Networks
sales declined by -2% in line with previous trends. The decline in
North America was partly offset by growth in India as well as some
early 5G markets resuming investments.
Our efforts to increase resiliency and reduce sensitivity to mix
and volume changes pays off. Despite large market mix shifts in
Networks, where North America declined YoY from 48% to 23% of
sales, our gross margin remained as high as 40%.
Future networks need to be increasingly resilient, open,
sustainable, and intelligent. Open RAN plays an important role in
achieving this vision, and we are leading the industrialization of
cloudification, open fronthaul and open management for network
programmability. More than one million Ericsson radios in the field
are hardware prepared for open fronthaul which underpins our
support for openness across our Cloud RAN and radio portfolios.
Cloud Software and Services continued executing on the
turnaround. With an EBITA[2] of SEK 0.4 b. in Q3, we have now
achieved a positive EBITA on a rolling four quarter basis. While
results fluctuate between quarters due to the nature of this
business, we are well on track to deliver at least break-even for
full-year 2023 and improving from there on.
In Enterprise we saw continued strong growth in Enterprise
Wireless Solutions, and we had a second consecutive quarter of
positive EBITA in Global Communications Platform.
Last week, we announced a SEK -32 b. impairment of goodwill
attributed to our acquisition of Vonage. Since the announcement of
our acquisition in 2021, macroeconomic headwinds, including rising
interest rates and changing demand trends, have significantly
impacted the market capitalization of Vonage's publicly traded
peers.
Vonage is key to our expansion in Enterprise where we are
enabling the next wave of innovation in our industry. We recently
announced a significant milestone, in partnership with Deutsche
Telecom, to be the first in the industry to unlock a market
opportunity estimated at USD 20 b. by 2028[3]. By offering
communication and network APIs to developers and enterprises, we
are opening up new ways for operators to monetize their investments
in mobile networks, and for developers to leverage network
capabilities to create exciting new applications. We are seeing
significant inbound interest from operators to further develop this
market.
Free cash flow before M&A decreased to SEK -0.5 (2.5) b.,
mainly due to increased working capital for large deployment
projects such as in India. Next year, with reduced build-out pace
in these projects, we expect working capital to taper off and free
cash flow before M&A to start gradually approaching our
long-term target of 9-12% of net sales.
Looking ahead
For Q4 we expect similar market trends as in Q3, while the
cost-out impact will increase. We expect a group Q4 EBITA margin[2]
at around 10%.
We expect the underlying uncertainty impacting our Mobile
Networks business to persist into 2024. We are proactively
addressing the challenges in the current environment and are
focusing on what we can control, including reducing costs. Our
cost-out actions are already impacting the P&L and we are now
expecting to yield SEK 12 b. in run-rate savings by year end, which
is an increase of SEK 1 b. compared with previous indication. We
will continue to take decisive cost-out actions to ensure Ericsson
is well positioned to deliver value for our shareholders. Key to
our strategy execution is to keep investments in technology
leadership and long-term transformation intact, while managing our
balance sheet.
The mobile networks market has been flattish for two decades,
but with cyclicality, and we expect that to continue. However, the
high paced mobile data growth, further spurred by new use cases, is
the underlying driver for the market to recover to a more normal
level. We are also relatively early in the 5G cycle with 75% of all
radio base station sites, outside China, not yet updated with 5G
mid-band. Competitive dynamics in our customer markets tend to lead
to relatively sharp increase in investments when the market turns,
and we are seeing some positive signs in early 5G markets.
Our long-term EBITA margin[2] target of 15-18% remains, and we
aim to reach it as soon as possible, subject to market mix
recovery. Given current uncertainty we will not give guidance
beyond Q4, 2023. As timing for the market mix recovery is in our
customers' hands, we prudently plan for current market conditions
to prevail into 2024. We are managing our business accordingly,
with focus on cost management and operational efficiency. When the
market recovers, we will have significant operating leverage
following the actions we are taking.
While near-term dynamics are uncertain, we are convinced that
the recovery will come. Our goal is to make Ericsson a more
profitable company, returning to our cash flow target level and
capturing the next major wave of networks innovation with a
substantial platform business.
Börje Ekholm
President and CEO
[1]Sales adjusted for comparable units and currency
[2]Excluding restructuring charges
[3]Network APIs Driving new revenue streams for telcos, STL
Partners
NOTES TO EDITORS
You find the complete report with tables in the attached PDF or
on 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 CEST (8:00 AM BST London, 3:00 AM EDT New York).
Join the webcast or please go to www.ericsson.com/investors
To ask a question: Access dial-in information here
The webcast will be available on-demand after the event and can
be viewed at 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
Additional contacts
Stella Medlicott, Senior Vice President, Marketing and Corporate
Relations
Phone: +46 730 95 65 39
E-mail: media.relations@ericsson.com
Investors
Lena Häggblom, Director, Investor Relations
Phone: +46 72 593 27 78
E-mail: lena.haggblom@ericsson.com
Alan Ganson, Director, Investor Relations
Phone: +46 70 267 27 30
E-mail: alan.ganson@ericsson.com
Media
Ralf Bagner, Head of Media Relations
Phone: +46 76 128 47 89
E-mail: ralf.bagner@ericsson.com
Media relations
Phone: +46 10 719 69 92
E-mail: 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 Octobe r 17,
2023.
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