TIDM61QS
RNS Number : 4309N
Telefonaktiebolaget Lm Ericsson
20 January 2023
Ericsson reports fourth quarter and full-year results 2022
Fourth quarter highlights
The quarter was impacted by an IPR agreement resulting in total
IPR revenues of SEK 6.0 (2.4) b. and previously announced charges
of SEK -4.0 b., including DOJ provision, IoT divestment and Cloud
Software and Services contract and portfolio exits.
Group organic sales[1] grew by 1% YoY., of which IPR revenues
contributed with 5 percentage points. Reported sales were SEK 86.0
(71.3) b. of which Vonage contributed SEK 4.1 b.
Gross income increased to SEK 35.6 (30.8) b., while gross margin
decreased to 41.4% (43.2%) primarily due to business mix change in
Networks and previously announced charges for contract exits and
portfolio adjustments in Cloud Software and Services.
EBITA excluding restructuring charges amounted to SEK 9.3 (12.8)
b. with an EBITA margin of 10.8% (17.9%). EBITA was impacted by the
previously announced charges.
Free cash flow before M&A was SEK 16.9 (13.5) b. mainly
driven by reduced inventory and high cash collection including IPR
collection.
Return on capital employed was 15.4% (26.6%) driven by lower
EBIT.
Full-year highlights
Group organic sales[1] grew by 3%, driven by a 4% increase in
Networks and 16% in Enterprise. Reported sales were SEK 271.5
(232.3) b.
Gross income increased to SEK 113.3 (100.7) b. with increases in
segments Networks, Cloud Software and Services, and Enterprise.
EBITA amounted to SEK 29.1 (33.3) b. with an EBITA margin of
10.7% (14.3%). EBITA was negatively impacted by previously
announced charges of SEK -5.5 b., partly compensated by increased
IPR licensing revenues.
EBIT margin excl. restructuring charges was 10.1% (13.9%).
Excluding Vonage and previously announced charges during the year,
EBIT margin was 12.9%, reaching the 2022 target of 12-14%.
Net income was SEK 19.1 (23.0) b. EPS diluted was SEK 5.62
(6.81).
Free cash flow before M&A amounted to SEK 22.2 (32.1) b. Net
cash was SEK 23.3 (65.8) b. at year-end 2022.
Return on capital employed was 14.0% (18.4%) driven by higher
capital employed and lower EBIT.
A dividend for 2022 of SEK 2.70 (2.50) per share will be
proposed to the AGM by the Board of Directors.
SEK b. Q4 Q4 YoY Q3 QoQ Jan-Dec Jan-Dec YoY
2022 2021 change 2022 change 2022 2021 change
Net sales 86.0 71.3 21% 68.0 26% 271.5 232.3 17%
------- ------- --------- ------- --------- --------- --------- ---------
Sales growth adj. for
comparable units and currency[2] - - 1% - - - - 3%
------- ------- --------- ------- --------- --------- --------- ---------
Gross margin[2] 41.4% 43.2% - 41.4% - 41.7% 43.4% -
------- ------- --------- ------- --------- --------- --------- ---------
EBIT 7.9 11.9 -34% 7.1 10% 27.0 31.8 -15%
------- ------- --------- ------- --------- --------- --------- ---------
EBIT margin[2] 9.1% 16.6% - 10.5% - 10.0% 13.7% -
------- ------- --------- ------- --------- --------- --------- ---------
EBITA[2] 9.0 12.3 -26% 7.6 19% 29.1 33.3 -13%
------- ------- --------- ------- --------- --------- --------- ---------
EBITA margin[2] 10.5% 17.2% - 11.2% - 10.7% 14.3% -
------- ------- --------- ------- --------- --------- --------- ---------
Net income 6.2 10.1 -39% 5.4 15% 19.1 23.0 -17%
------- ------- --------- ------- --------- --------- --------- ---------
EPS diluted, SEK 1.82 3.02 -40% 1.56 17% 5.62 6.81 -17%
------- ------- --------- ------- --------- --------- --------- ---------
Measures excl. restructuring
charges[2]
------- ------- --------- ------- --------- --------- --------- ---------
Gross margin excluding
restructuring charges 41.5% 43.5% - 41.4% - 41.8% 43.5% -
------- ------- --------- ------- --------- --------- --------- ---------
EBIT excluding restructuring
charges 8.1 12.3 -34% 7.2 12% 27.4 32.3 -15%
------- ------- --------- ------- --------- --------- --------- ---------
EBIT margin excluding restructuring
charges 9.4% 17.3% - 10.6% - 10.1% 13.9% -
------- ------- --------- ------- --------- --------- --------- ---------
EBITA excluding restructuring
charges 9.3 12.8 -27% 7.7 21% 29.5 33.8 -13%
------- ------- --------- ------- --------- --------- --------- ---------
EBITA margin excluding
restructuring charges 10.8% 17.9% - 11.3% - 10.9% 14.6% -
------- ------- --------- ------- --------- --------- --------- ---------
Free cash flow before M&A 16.9 13.5 25% 2.5 - 22.2 32.1 -31%
------- ------- --------- ------- --------- --------- --------- ---------
Net cash, end of period 23.3 65.8 -65% 13.4 74% 23.3 65.8 -65%
------- ------- --------- ------- --------- --------- --------- ---------
[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)
With our fourth quarter result we are on track to deliver on our
long-term EBITA target of 15-18% by 2024. We remain fully committed
to our strategic ambitions and have full confidence in the long
term. During the quarter, we made measurable progress towards
achieving these ambitions, against a backdrop of broad
macroeconomic headwinds. As we said during our Capital Markets Day,
there are near-term uncertainties, however, we are still in the
early phase of global 5G rollout and widespread enterprise
digitalization.
Our strategy remains rooted in driving sustainable growth and
maximizing value across all stakeholders. We are confident that we
have the right team and strategy in place to extend our leadership
in mobile networks; achieve profitability in Cloud Software and
Services; execute in our high growth Enterprise segment; shape the
industry landscape by becoming a platform company leveraging the 5G
innovation platform; and continue our unwavering commitment to a
culture of integrity.
This quarter, we signed a multiyear IPR patent license agreement
with a major licensee. This positive outcome positions us well to
capture further 5G patent license agreements among handset
manufacturers and in new areas such as consumer electronics and
IoT. We expect significant IPR revenue growth over the coming 18-24
months.
Group Net Sales[1] grew by 1% YoY, of which IPR revenues
contributed with 5 percentage points. EBITA[2] of SEK 9.3 (12.8) b.
corresponds to a margin[2] of 10.8% (17.9%). The positive impact
from higher IPR revenues was offset by expected business mix shift
and previously announced charges of SEK -4 b. We executed on our
ambition to reduce inventory contributing to our free cash flow
before M&A of SEK 16.9 (13.5) b.
Our Networks business grew in India on the back of significant
market share gains. As anticipated, the growth from share gains in
several markets could not fully compensate for reduced operator
capex and inventory reductions in other markets, including North
America. Gross margin[2] was 44.6% (46.4%), negatively impacted by
this business mix shift including a higher share of services sales
from large network rollout projects. The IPR patent license
agreement had positive margin impact.
During the quarter, we were able to largely offset the impact of
high inflation with commercial activities, including product
substitution. We continue to invest in technology to enhance
performance and cost leadership, expand our global footprint and
improve productivity and capital efficiency across the supply
chain.
In Cloud Software and Services, organic sales[1] decreased by
-2% excluding IPR revenues. Sales growth in North America - mainly
from 5G Core contracts - was offset by a decline in other market
areas. We remain committed to improving profitability and are on a
clear path to reaching operating profit break-even for full-year
2023 by limiting subscale software development, accelerating
automation, and changing focus from market share gains to
profitability. In Q4, we decided to exit certain subscale business,
with a one-off charge.
Within Enterprise, we continue to leverage our strength in
mobile networks to accelerate our business. Organically, sales[1]
grew by 15%. Our Enterprise strategy is underpinned by two pillars:
First, our Enterprise Wireless Solutions business, focused on
capturing the multi-billion-dollar enterprise market opportunity
for 5G optimized networking and security solutions. Second, through
the Global Communication Platform business, we will enable new ways
of monetizing 5G by transforming how network features such as speed
and latency are globally exposed, consumed and paid for. Enterprise
is a growth engine for the company, and we continue to fine-tune
our portfolio to maximize profitability. To this end, we announced
the divestment of our loss-making IoT business in Q4. We continue
to invest to strengthen our enterprise go-to-market channel and
broaden our enterprise product portfolio. In addition, we are
increasing our investments in developing the network APIs that will
underpin the long-term growth in Global Communication Platform.
From 2024 and beyond our enterprise business will be a major driver
of Ericsson's long-term growth and profitability, however, these
investments will weigh on profitability during 2023.
We remain positive on the long-term outlook for our business.
However, the near-term outlook, as we also described at our Capital
Markets Day, remains uncertain. We expect operators to continue to
sweat assets in response to macroeconomic headwinds. In addition,
we expect operators to adjust inventory levels as supply situation
eases. These trends started to impact Networks in Q4 and we expect
them to continue at least during the first half of 2023. At the
same time, we expect good growth from market share wins, albeit not
fully offsetting the near-term headwinds. In the longer-term, capex
is driven by traffic growth. Given near-term macroeconomic
headwinds, we expect Enterprise to grow somewhat slower than during
2022.
While the quarter saw the easing of supply chain related
challenges, the inflationary environment persisted. We remain
focused on navigating near-term headwinds through our commercial
initiatives but also by making Ericsson more cost-effective. We
expect to start seeing the effect of our SEK 9 b. cost savings
activities during the second quarter of 2023. We anticipate
declining margins in Networks during the first half of 2023 due to
changing business mix. In Q1 we expect the EBITA[2] for the Group
to be somewhat lower than EBITA[2] last year, with improvements
during the year.
We remain focused on reaching a resolution with the US
authorities regarding the previously announced Deferred Prosecution
Agreement (DPA) breach notices received by the company. In this
regard, we have this quarter booked a SEK 2.3 b. (approx. USD 220
million) provision as we are now in a position to make a
sufficiently reliable estimate of the financial penalty (and
additional monitoring costs) associated with a breach
resolution.
Separately, and with respect to the past matters described in
the company's 2019 Iraq investigation report, we continue to
thoroughly investigate the facts in full cooperation with the DOJ
and the SEC to determine if there is any merit to the
allegations.
Building a culture of ethics and integrity remains a top
priority, and I am convinced that best-in-class compliance will
give our company a competitive advantage. Both the company's
resolution with the DOJ and the SEC in 2019 and the ongoing
investigation into past conduct in Iraq clearly highlight the
importance of intelligent decision-making and effective risk
management.
In conclusion, I would like to thank all my colleagues for their
diligence and efforts to deliver long-term stakeholder value as
they continue to execute on our strategy. The commitment and
passion of our team is what inspires me the most as we redefine
both our company and our industry. The actions we have taken have
positioned us to be a true industry leader.
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 CET (8:00 AM GMT London, 3:00 AM EST 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
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 CET on January 20,
2023.
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END
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(END) Dow Jones Newswires
January 20, 2023 06:17 ET (11:17 GMT)
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