Ericsson reports first quarter results 2017
(Thomson Reuters ONE) -
FIRST QUARTER HIGHLIGHTS
* Reported sales decreased by -11% YoY. Sales, adjusted for currency,
decreased -16% YoY partly due to lower IPR licensing revenues which amounted
to SEK 2.0 (3.8) b.
* Provisions and adjustments related to certain customer contracts of SEK -8.4
b., asset write-downs of SEK -3.3 b. and restructuring charges of SEK -1.7
b. were made in the quarter, in line with the announcement on March
28, 2017.
* Gross margin was 13.9%. Adjusted(1)) gross margin declined to 30.5% (33.9%)
mainly due to lower IPR licensing revenues.
* Operating income was SEK -12.3 b. Adjusted(1)) operating income declined to
SEK 1.1 (4.1) b. due to lower sales and lower gross margin.
* Networks operating margin was -2%. Networks adjusted(1)) operating margin
was solid at 12%, despite lower sales including reduced IPR licensing
revenues.
* IT & Cloud operating income was SEK -9.0 b. Adjusted(1)) operating income
for IT & Cloud showed a significant negative development YoY with increased
losses. Actions have been initiated to improve performance.
* Media operating income was SEK -2.8 b. Adjusted(1)) operating income was
significantly reduced YoY. Strategic opportunities are being explored.
* Cash flow from operating activities was SEK -1.5 (-2.4) b.
1) Restructuring, write-down of assets as well as provisions and adjustments
related to certain customer projects had a significant negative impact on the
reported Q1 2017 result. Numbers excluding these items are referred to in the
text as "adjusted", please see page 3 for reconciliation.
+---------------------------------------------+------+-----+------+-----+------+
| | Q1| Q1| YoY| Q4| QoQ|
|SEK b. | 2017| 2016|change| 2016|change|
+---------------------------------------------+------+-----+------+-----+------+
|Net sales | 46.4| 52.2| -11%| 65.2| -29%|
+---------------------------------------------+------+-----+------+-----+------+
| Sales growth adj. for comparable units | | | | | |
|and currency | -| -| -16%| -| -29%|
+---------------------------------------------+------+-----+------+-----+------+
|Gross margin | 13.9%|33.3%| -|26.1%| -|
+---------------------------------------------+------+-----+------+-----+------+
| Gross margin excluding restructuring | | | | | |
|charges and adjusted for items affecting | | | | | |
| comparability in Q1 2017 | 30.5%|33.9%| -|29.4%| -|
+---------------------------------------------+------+-----+------+-----+------+
|Operating income | -12.3| 3.5| -| -0.3| -|
+---------------------------------------------+------+-----+------+-----+------+
| Operating income excluding restructuring | | | | | |
|charges and adjusted for items | | | | | |
| affecting comparability in Q1 2017 | 1.1| 4.1| -73%| 4.4| -75%|
+---------------------------------------------+------+-----+------+-----+------+
|Operating margin |-26.6%| 6.7%| -|-0.4%| -|
+---------------------------------------------+------+-----+------+-----+------+
| Operating margin excluding restructuring | | | | | |
|charges and adjusted for items | | | | | |
| affecting comparability in Q1 2017 | 2.3%| 7.9%| -| 6.7%| -|
+---------------------------------------------+------+-----+------+-----+------+
|Net income | -10.9| 2.1| -| -1.6| -|
+---------------------------------------------+------+-----+------+-----+------+
|EPS diluted, SEK | -3.29| 0.60| -|-0.48| -|
+---------------------------------------------+------+-----+------+-----+------+
|EPS (Non-IFRS), SEK(2)) | -2.42| 0.87| -| 0.62| -|
+---------------------------------------------+------+-----+------+-----+------+
|Cash flow from operating activities | -1.5| -2.4| -35%| 19.4| -108%|
+---------------------------------------------+------+-----+------+-----+------+
|Net cash, end of period | 28.3| 36.5| -22%| 31.2| -9%|
+---------------------------------------------+------+-----+------+-----+------+
2) EPS diluted, excl. amortizations and write-downs of acquired intangible
assets, and excluding restructuring charges.
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 Börje Ekholm, President and CEO of Ericsson (NASDAQ:ERIC)
Our performance in the first quarter continued to be unsatisfactory. Segment
Networks delivered a solid result despite lower sales, while losses in segments
IT & Cloud and Media increased significantly. In the quarter a more focused
business strategy and a new Executive Team were announced. The immediate
priority is to improve profitability while also taking action to revitalize
technology and market leadership.
Reported sales declined by -11%. Operating income was SEK -12.3 b., after
provisions, write-downs and restructuring charges of SEK -13.4 b. Excluding
these items the operating income amounted to SEK 1.1 b.
Despite lower sales, Networks delivered a solid result. Sales declined YoY due
to lower investment levels in certain markets, lower IPR licensing revenues and
the renewed managed services contract with reduced scope in North America.
Networks adjusted(1)) operating margin improved sequentially and was supported
by an improved business mix and a more competitive portfolio. The new Ericsson
Radio System platform contributed to improving profitability and stabilizing the
market share position, after several years of decline.
The concerning developments in IT & Cloud continued with significantly increased
losses. IT & Cloud remains a strategic area for Ericsson as our customers will
digitalize their operations and invest in a future network architecture based on
software-defined logic. However, our performance in this area is not acceptable
and the new management team is initiating actions to turn the business around.
Actions include accelerating the introduction of the new products, streamlining
the services organization and tightening the contract scoping. We will continue
to sell complete solutions in telecom core, OSS and BSS, including hardware,
software and services. However, we are seeking alternatives for our IT cloud
infrastructure hardware business to gain necessary scale to ensure that we can
offer competitive solutions to our customers. Tangible improvements in
profitability are expected during 2018.
The accelerated losses in Media were caused by a faster than anticipated decline
in legacy product sales, not offset by growth in the new portfolio. While
continuing to develop our media solutions we are exploring strategic
opportunities for Media to allow it to scale and succeed in the evolving media
landscape.
Of the total adjustments(1)) of SEK -13.4 b., write-downs were SEK -3.3 b. and
restructuring charges were SEK -1.7 b. Triggered by negative developments late
in the quarter related to certain customer contracts, provisions and adjustments
of SEK -8.4 b. were made of which SEK 5.8 b. is estimated to negatively affect
cash flow over several years.
The provisions and adjustments of SEK -8.4 b. consist of the following items.
Customer settlements and revaluation of customer discounts, due to lower
projected customer volumes, reduced net sales by SEK -1.4 b. Operating expenses
were impacted by SEK -1.5 b. due to reassessment of the value of trade
receivables. The remaining SEK -5.5 b. is provisions for additional project
costs, mainly related to certain transformation projects in IT & Cloud, which
due to recent negative developments are not expected to be covered by future
project revenues.
In light of the current market environment and company position we are taking a
more prudent approach in assessing risk exposures. In this work we have
identified certain large, complex transformation projects with challenging
profitability and higher inherent risks, that we are focused on mitigating.
On March 28, 2017, we presented a more focused business strategy and a new
Executive Team. The new strategy aims to revitalize technology and market
leadership, improve group profitability and enable customer success.
The strategy builds on reallocating resources and investments to core portfolio
areas, fully leveraging the potential of 5G, IoT and cloud. We will also refocus
Managed Services and Network Roll-out to improve profitability. By addressing
low-performing operations within Managed Services and optimizing the offering
within Network Roll-out, full-year sales are expected to be negatively impacted
by up to SEK 10 b. by 2019.
We are not satisfied with the cost structure of the company and the existing
cost and efficiency program is not yielding sufficient results. Based on current
profitability, we will intensify our efforts to reduce cost with focus on
structural changes to generate lasting efficiency gains and increase cost
competitiveness. Our target is to surpass previous ambitions. However, we need
to increase investment in certain core areas to develop our product portfolio,
which can temporarily increase cost levels.
The more focused business strategy is expected to result in a significantly
improved profitability already in 2018. Beyond 2018, we believe that we can at
least double the underlying 2016 operating margin.
Planning assumptions going forward
* Industry trends and business mix in mobile broadband from 2016 are expected
to prevail in 2017.
* RAN equipment market in USD estimated to decline by -2% to -6% in 2017.
* The earlier communicated renewed managed services contract with reduced
scope in North America will impact sales negatively YoY in Q2 and Q3 2017.
* Addressing low-performing operations in Managed Services and optimizing the
offering within Network Rollout are expected to reduce full-year sales by up
to SEK 10 b. by 2019.
* The baseline for current IPR licensing contract portfolio is approximately
SEK 7 b. on an annual basis.
* The restructuring charges for 2017 are estimated to be SEK 6-8 b.
1) Restructuring, write-down of assets as well as provisions and adjustments
related to certain customer projects had a significant negative impact on the
reported Q1 2017 result. Numbers excluding these items are referred to in the
text as "adjusted", please see page 3 for reconciliation.
NOTES TO EDITORS
You find the complete report with tables in the attached PDF or by following
this link https://www.ericsson.com/assets/local/investors/documents/financial-
reports-and-filings/interim-reports-archive/2017/3month17-en.pdf or on
www.ericsson.com/investors
Ericsson invites media, investors and analysts to two conference calls at 9.00
(CEST) and 14.00 (CEST).
To join the conference call, please phone one of the following numbers:
Sweden: +46 (0) 8 5664 2691 (Toll-free Sweden: 0200 883 817)
International/UK: +44 203 008 9801 (Toll-free UK: 0808 23 700 59)
US: +1 646 502 5116 (Toll-free US: +1 8557 5322 35)
Please call in at least 15 minutes before the conference calls begin. As there
is usually a large number of callers, it may take some time before you are
connected.
A live audio webcast of the conference calls will be available at
www.ericsson.com/press and www.ericsson.com/investors
Replay of the conference calls will be available from about one hour after it
has ended until May 2, 2017.
Sweden replay number: +46 8 5664 2638
International replay number: +44 20 3426 2807
Conference number: 685945# (for 09.00 call) 686276# (for 14.00 call)
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 April 25, 2017.
Ericsson first quarter report 2017:
http://hugin.info/1061/R/2098356/794706.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: 25.04.2017 - 07:29 Uhr
Sprache: Deutsch
News-ID 537965
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