TIDM61QS
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
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 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
Stefan Jelvin, Director, Investor Relations
Phone: +46 709 86 02 27
E-mail: 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
Kristoffer Edshage, Head of Regulatory and Financial
Communication
Phone: +46 722 20 44 46
E-mail: media.relations@ericsson.com
Corporate Communications
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 October 20,
2022.
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END
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