Ericsson reports second quarter results 2016
(Thomson Reuters ONE) -
SECOND QUARTER HIGHLIGHTS
* Sales as reported decreased by -11% YoY. Sales, adjusted for comparable
units and currency, decreased by -7% YoY. Mobile broadband sales continued
to decline particularly in markets impacted by a weak macro-economic
environment.
* Sales grew in South East Asia and Oceania. 4G sales in Mainland China and
Networks sales in North America were stable.
* The current sales trends and business mix are expected to prevail for the
second half of the year.
* Gross margin declined to 32.3% (33.2%) YoY, mainly due to a larger share of
mobile broadband coverage business with lower hardware margins, and a higher
share of services business.
* Operating margin decreased to 5.1% (5.9%) YoY, mainly due to negative
revaluation effects of currency hedge contracts and a lower gross margin,
partly offset by lower operating expenses and restructuring charges.
* Further actions are initiated to reduce cost, targeting a new annual run
rate of operating expenses, excluding restructuring charges, of SEK 53 b. in
the second half of 2017.
* Cash flow from operating activities was SEK -0.7 (3.1) b. Cash flow from
operating activities for the first six months was SEK -3.1 (-2.8) b. Full-
year cash conversion target of more than 70% remains.
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| | Q2| Q2| YoY| Q1| QoQ| 6 months| 6 months|
|SEK b. | 2016| 2015|change| 2016| change| 2016| 2015|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Net sales | 54.1| 60.7| -11%| 52.2| 4%| 106.3| 114.2|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Sales growth | | | | | | | |
|adj. for | | | | | | | |
|comparable units | | | | | | | |
|and currency | -| -| -7%| -| 6%| -4%| -6%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Gross margin |32.3%|33.2%| -|33.3%| -| 32.8%| 34.2%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Gross margin | | | | | | | |
|excluding | | | | | | | |
|restructuring | | | | | | | |
|charges |33.2%|35.1%| -|33.9%| -| 33.6%| 35.7%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Operating income | 2.8| 3.6| -22%| 3.5| -20%| 6.2| 5.7|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Operating | | | | | | | |
|income excluding | | | | | | | |
|restructuring | | | | | | | |
|charges | 3.8| 6.3| -40%| 4.1| -8%| 7.9| 9.1|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Operating margin | 5.1%| 5.9%| -| 6.7%| -| 5.9%| 5.0%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Operating margin| | | | | | | |
|excluding | | | | | | | |
|restructuring | | | | | | | |
|charges | 7.0%|10.4%| -| 7.9%| -| 7.4%| 7.9%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Net income | 1.6| 2.1| -26%| 2.1| -26%| 3.7| 3.6|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| EPS diluted, SEK | 0.48| 0.64| -25%| 0.60| -20%| 1.08| 1.04|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| EPS (Non-IFRS), | | | | | | | |
|SEK (1)) | 0.83| 1.45| -43%| 0.87| -5%| 1.70| 2.22|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Cash flow from | | | | | | | |
|operating | | | | | | | |
|activities | -0.7| 3.1| -123%| -2.4| -70%| -3.1| -2.8|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Net cash, end of | | | | | | | |
|period (2)) | 21.0| 28.0| -25%| 36.5| -43%| 21.0| 28.0|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
1) EPS, diluted, excl. amortizations and write-downs of
acquired intangible assets, and excluding restructuring
charges.
2) The definition of Net cash is changed to exclude
post-employment benefits, see accounting policies.
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 Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC)
The negative industry trends from the first quarter have intensified impacting
demand for mobile broadband, especially in markets with a weak macro-economic
environment. We are delivering on ongoing cost reduction activities. However, in
light of market development, management has, with the support of the Board of
Directors, initiated significant actions to further reduce cost.
Business
Sales declined by -11% YoY. Sales, adjusted for comparable units and currency,
declined by -7%. Mobile broadband sales continued to decline particularly in
markets impacted by a weak macro-economic environment such as Brazil, Russia and
the Middle East. In Europe, completion of mobile broadband projects in 2015
continued to have a negative effect on sales growth YoY. 4G sales in Mainland
China were stable YoY as the fast pace of deployments continued.
Network sales in North America were stable YoY driven by continued mobile
broadband capacity investments. Global Services sales declined in North America
as activities in Professional Services were lower.
The transition from 3G to 4G continued primarily in parts of Asia, contributing
to solid sales growth in region South East Asia and Oceania.
Sales in the targeted growth areas were 20% of total sales and grew by 5% in the
quarter in constant currencies. We continue to focus on increasing software
sales and recurrent business to improve profitability over time.
In the strategic partnership with Cisco we have engaged in more than 200
customer opportunities, spanning all major geographies. To date more than 30
deals have been closed forming a good start to reach the targeted sales of USD
1 b. for 2018.
The current sales trends and business mix are expected to prevail for the second
half of the year.
Profitability
Actions have been implemented to restore Global Services profitability,
primarily to rightsize the service delivery operations. Losses in Network
Rollout have been significantly reduced and the operating margin, excluding
restructuring charges, for Professional Services has gradually improved to 10%
in the quarter.
The Networks business was impacted by lower sales and an increased share of
coverage business with a lower hardware margin. The margin decline for Support
Solutions was mainly due to lower OSS and BSS software sales.
Profitability declined sequentially mainly due to lower IPR licensing revenues.
IPR licensing revenues in the quarter were SEK 2.2 b., representing current IPR
licensing contract portfolio. Revenues in Q1 2016 were SEK 3.8 b. and included
certain one-time items.
We are delivering on ongoing cost reduction activities. Operating expenses,
excluding restructuring charges, have been reduced by SEK 2.1 b. to SEK 14.0
(16.1) b. YoY, mainly as a result of actions related to the global cost and
efficiency program.
Actions to further reduce cost
To manage the lower demand for mobile broadband investments, a set of
significant actions has been initiated to further drive efficiency improvements
and reduce cost.
The cost and efficiency program targeting savings of SEK 9 b. during 2017, is
progressing according to plan. In addition, we will reduce R&D investments in IP
and capture efficiency gains from the new company structure. Together, these
activities are expected to reduce the annual run rate of operating expenses,
excluding restructuring charges, to SEK 53 b. in the second half of 2017. This
is to be compared with SEK 63 b. for full-year 2014 and equates to double the
previously targeted savings in operating expenses.
The new company structure was implemented as of July 1 to accelerate strategy
implementation, to mirror customer ways of working and increase end-to-end
accountability for business owners. The new structure will also support cost
reductions and efficiency improvements, including removal of existing
duplications within product development.
Given current industry trends, we will intensify our activities to reduce cost
of sales and adapt our operations to a weaker mobile broadband market.
We will focus on maintaining a strong net cash position through structural
improvements in working capital and profitability. In addition, the capital
expenditure level will decline as the investments in the global ICT centers have
peaked.
Our Networked Society strategy comprises three key elements; leverage of our
installed base, investments in new revenue base for sustainable profitable
growth (targeted growth areas) and generation of strong cash flow enabling long-
term investments and securing a strong balance sheet. Digitalization creates new
opportunities with both existing and new customers and I am confident that our
strategy and the actions we now take will create future value for our
shareholders.
NOTES TO EDITORS
You find the complete report with tables in the attached PDF or by following
this link https://www.ericsson.com/res/investors/docs/q-reports/2016/06month16-
en.pdf or on www.ericsson.com/investors
Ericsson invites media, investors and analysts to a briefing at the Ericsson
Studio, Grönlandsvägen 8, Stockholm, at 09.00 (CET), July 19, 2016.
A conference call for analysts, investors and media will begin at 14.00 (CET).
Live webcast of the briefing and conference call details, as well as supporting
slides, will be available at www.ericsson.com/press and
www.ericsson.com/investors
FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
Peter Nyquist, Head of Investor Relations
Phone: +46 10 714 64 49
E-mail: peter.nyquist(at)ericsson.com
Additional contacts
Helena Norrman, Senior Vice President, Marketing and Communications
Phone: +46 10 719 34 72
E-mail: media.relations(at)ericsson.com
Investors
Åsa Konnbjer, Director, Investor Relations
Phone: +46 10 713 39 28
E-mail: asa.konnbjer(at)ericsson.com
Stefan Jelvin, Director, Investor Relations
Phone: +46 10 714 20 39
E-mail: stefan.jelvin(at)ericsson.com
Rikard Tunedal, Director, Investor Relations
Phone: +46 10 714 54 00
E-mail: rikard.tunedal(at)ericsson.com
Media
Ola Rembe, Vice President, Head of External Communications
Phone: +46 10 719 97 27
E-mail: media.relations(at)ericsson.com
Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations(at)ericsson.com
This information is information that Telefonaktiebolaget LM Ericsson is obliged
to make public pursuant to the EU Market Abuse Regulation and the Swedish
Securities Markets Act. The information was submitted for publication, through
the agency of the contact person set out above, at 07:30 CET on July 19, 2016.
Ericsson second quarter report 2016:
http://hugin.info/1061/R/2029293/754525.pdf
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Source: Ericsson via GlobeNewswire
[HUG#2029293]
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Datum: 19.07.2016 - 07:29 Uhr
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