Ericsson reports third quarter results 2016
(Thomson Reuters ONE) -
THIRD QUARTER HIGHLIGHTS
* Reported sales and sales adjusted for comparable units and currency
decreased by -14% YoY, mainly driven by segment Networks where reported
sales declined by -19%.
* The negative industry trends from the first half of 2016 have further
accelerated. The main reason is weaker demand for mobile broadband,
especially in markets with a weak macro-economic environment.
* Gross margin declined to 28.3% (33.9%) YoY following lower mobile broadband
capacity sales, a higher share of services sales and lower sales in segment
Networks.
* Operating margin decreased to 0.7% (8.6%) YoY, due to lower gross margin and
lower sales, partly offset by lower operating expenses.
* The current industry trends indicate a somewhat weaker than normal seasonal
sales growth between the third and fourth quarters. In addition, a renewed
managed services contract in North America, with reduced scope, will impact
sales negatively. Current business mix of coverage and capacity sales in
mobile broadband is anticipated to prevail in the short term.
* The cost and efficiency program is tracking towards target. Further short-
term actions, mainly to reduce cost of sales, are being implemented in order
to adapt operations to weaker mobile broadband demand.
* Cash flow from operating activities was SEK -2.3 (1.6) b. Operational and
structural actions are being taken to improve cash flow in the short and
long term.
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| | Q3| Q3| YoY| Q2| QoQ| 9 months| 9 months|
|SEK b. | 2016| 2015|change| 2016| change| 2016| 2015|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|Net sales | 51.1| 59.2| -14%| 54.1| -6%| 157.4| 173.4|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Sales growth | | | | | | | |
|adj. for | | | | | | | |
|comparable units | | | | | | | |
|and currency | -| -| -14%| -| -9%| -8%| -7%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|Gross margin |28.3%|33.9%| -|32.3%| -| 31.4%| 34.1%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Gross margin | | | | | | | |
|excluding | | | | | | | |
|restructuring | | | | | | | |
|charges |29.4%|34.5%| -|33.2%| -| 32.2%| 35.3%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|Operating income | 0.3| 5.1| -93%| 2.8| -88%| 6.6| 10.8|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Operating income| | | | | | | |
|excluding | | | | | | | |
|restructuring | | | | | | | |
|charges | 1.6| 6.1| -73%| 3.8| -58%| 9.5| 15.1|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|Operating margin | 0.7%| 8.6%| -| 5.1%| -| 4.2%| 6.2%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
| Operating margin| | | | | | | |
|excluding | | | | | | | |
|restructuring | | | | | | | |
|charges | 3.1%|10.2%| -| 7.0%| -| 6.0%| 8.7%|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|Net income | -0.2| 3.1| -106%| 1.6| -111%| 3.5| 6.7|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|EPS diluted, SEK |-0.07| 0.94| -107%| 0.48| -115%| 1.01| 1.98|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|EPS (Non-IFRS), | | | | | | | |
|SEK (1)) | 0.34| 1.34| -75%| 0.83| -59%| 2.04| 3.56|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|Cash flow from | | | | | | | |
|operating | | | | | | | |
|activities | -2.3| 1.6| -249%| -0.7| 225%| -5.4| -1.3|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
|Net cash, end of | | | | | | | |
|period (2)) | 16.3| 25.8| -37%| 21.0| -22%| 16.3| 25.8|
+------------------+-----+-----+------+-----+-----------+-----------+----------+
1) EPS, diluted, excl. amortizations and write-downs of
acquired intangible assets, and excluding restructuring
charges.
2) The definition of Net cash was changed in Q1 2016
and now excludes 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 Jan Frykhammar, President and CEO of Ericsson (NASDAQ:ERIC)
The negative industry trends from the first half of 2016 have further
accelerated, impacting Q3 sales, primarily relating to mobile broadband. The
decline, in both mobile broadband coverage and capacity sales, was particularly
strong in markets with a weak macro-economic environment. In addition, capacity
sales in Europe were lower than a year ago. Gross margin declined YoY, following
lower mobile broadband capacity sales, a higher share of services sales and
lower sales in segment Networks.
Business
In the first half of 2016, a number of important markets, in regions such as
Latin America, Middle East and Sub-Saharan Africa, were impacted by a weak
macro-economic environment. This negative development accelerated in the third
quarter and had a negative effect on both mobile broadband coverage and capacity
sales in these markets. In addition, capacity sales in Europe were lower than a
year ago. Combined, this led to a significant deviation from what the company
expected and communicated in conjunction with the Q2 report, and resulted in
early announcement of preliminary sales and margins for the third quarter on
October 12, 2016.
Both reported sales and sales adjusted for comparable units and currency
declined by -14% YoY and sales were particularly weak at the end of the quarter.
This shows an acceleration of the negative sales trends compared with the second
quarter when the decline in sales, adjusted for comparable units and currency,
was -7% YoY. The decline was driven by segment Networks where the reported sales
decline worsened from -14% in Q2 to -19% in Q3.
As anticipated, sales in North America declined, mainly due to lower sales in
Professional Services. In addition, one customer continued to reduce their
investments in mobile broadband. Sales in Mainland China declined by -7% YoY
mainly due to lower 3G sales, while 4G deployments continued on a high level.
In India the delayed spectrum auctions led to another slow quarter. The
transition from 3G to 4G continued to contribute to sales growth in region South
East Asia and Oceania.
Sales in the targeted growth areas showed resilience and grew by 3% YoY, driven
by Cloud, IP and services related to OSS and BSS. In total, the targeted growth
areas now account for 21% of group sales. The strategic partnership with Cisco
has to date generated more than 60 deals.
The current industry trends indicate a somewhat weaker than normal seasonal
sales growth between the third and fourth quarters. In addition a renewed
managed services contract in North America, with reduced scope, will impact
sales negatively. The current business mix of coverage and capacity sales in
mobile broadband is anticipated to prevail in the short term.
Profitability
Operating income declined to SEK 0.3 (5.1) b. following lower sales in segment
Networks and a lower gross margin. The positive effect of the cost and
efficiency program did not offset the sharp decline in gross income.
Gross margin declined to 28% (34%) following lower mobile broadband capacity
sales, a higher share of services sales and lower sales in segment Networks.
IPR licensing revenues declined YoY and declined slightly QoQ. The IPR revenues
in the quarter represent the current licensing contract portfolio.
Cost reductions to secure resilience and competitiveness
The cost and efficiency program was first initiated in November 2014 and then
expanded in the second quarter of 2016. We are taking action in all dimensions
of the program. Actions in the quarter included headcount reduction activities
which were announced and initiated in Sweden, the US, Finland, Spain and the UK.
We are tracking towards our target to reduce the annual run rate of operating
expenses, excluding restructuring charges, to SEK 53 b. in the second half of
2017.
We will implement further short-term actions mainly to reduce cost of sales, in
order to adapt our operations to weaker mobile broadband demand.
Cash flow
Cash flow from operating activities was SEK -2.3 b. in the quarter, mainly due
to lower trade payables following lower demand. As cash flow is volatile between
quarters it should be viewed on a full-year basis. We are taking operational and
structural actions to improve cash flow both in the short and long term. Net
cash at the end of quarter was SEK 16.3 b.
Strategy execution
Ericsson is in the middle of a significant company transformation. In addition,
the rapid technology development, different and new customer requirements, as
well as the convergence of IT, Media and Telecom, are posing both challenges and
opportunities. Focus is on speed and fine-tuning of execution, supported by the
new company structure which is designed for efficiency and effectiveness.
In short, the strategy builds on three key elements; efficiency and scale of our
core business, investments in new revenue base and strong cash flow generation.
Combined this will enable us to secure leadership also in the emerging broader
5G market - from technology to new business models and services - enabling us to
be a strong business partner to existing and new customers.
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/2016/09month16-
en.pdf or on www.ericsson.com/investors
Ericsson invites media, investors and analysts to a briefing at the Ericsson
Studio, Grönlandsgatan 8, Stockholm, at 09.00 (CET), October 21, 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. The information was
submitted for publication, through the agency of the contact person set out
above, at 07:30 CET on October 21, 2016.
Ericsson third quarter report 2016:
http://hugin.info/1061/R/2050464/766985.pdf
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 responsible for the content, accuracy and originality of the information contained therein.
Source: Ericsson via GlobeNewswire
Unternehmensinformation / Kurzprofil:
Datum: 21.10.2016 - 07:29 Uhr
Sprache: Deutsch
News-ID 501990
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