Fourth quarter highlights
· Sales were
· Operating income[1] improved to
· Gross margin was 37.1% (32.0%) excluding restructuring charges. Reported gross margin was 36.8% (25.7%).
· Networks gross margin excluding restructuring charges was 41.1% (41.0%). Operating margin excluding restructuring charges was 14.5% (17.5%) following the addition of the Kathrein[2] business and investments in R&D, digitalization, compliance and security.
· Digital Services reported a positive operating income excluding restructuring charges.
· Net income was
· Free cash flow excluding M&A was
Full-year highlights
· Sales increased by 4%, adjusted for comparable units and currency, with Networks growing by 6%. Reported sales increased by 8%.
· Reported operating income improved to
· Gross margin was 37.5% (35.2%) excl. restructuring charges, with improvements in Networks, Digital Services and Managed Services.
· Free cash flow excluding M&A amounted to
· The Board of Directors will propose a dividend for 2019 of
SEK b. | Q4 | Q4 | YoY | Q3 | QoQ | Jan | Jan | YoY |
2019 | 2018 | change | 2019 | change | -Dec | -Dec | change | |
2019 | 2018 | |||||||
Net sales | 66.4 | 63.8 | 4% | 57.1 | 16% | 227.2 | 210.8 | 8% |
Sales growth adj. for | - | - | 1% | - | - | - | - | 4% |
comparable units and | ||||||||
currency | ||||||||
Gross margin | 36.8% | 25.7% | - | 37.7% | - | 37.3% | 32.3% | - |
Gross margin excluding | 37.1% | 32.0% | - | 37.8% | - | 37.5% | 35.2% | - |
restructuring charges | ||||||||
Operating income (loss) | 6.1 | -1.9 | - | -4.2 | - | 10.6 | 1.2 | - |
Operating margin | 9.2% | -2.9% | - | -7.3% | - | 4.6% | 0.6% | - |
Operating income (loss) | 6.5 | 2.6 | 152% | -4.0 | - | 11.4 | 9.3 | 23% |
excluding restructuring | ||||||||
charges | ||||||||
Operating margin excluding | 9.7% | 4.0% | - | -7.1% | - | 5.0% | 4.4% | - |
restructuring charges | ||||||||
Operating income excl. restr. | 5.7 | 2.6 | 123% | 7.4 | -23% | 22.1 | 9.3 | 139% |
charges & | ||||||||
Operating margin excl. restr. | 8.6% | 4.0% | - | 13.0% | - | 9.7% | 4.4% | - |
charges & | ||||||||
Net income (loss) | 4.5 | -6.5 | - | -6.9 | - | 1.8 | -6.3 | - |
EPS diluted, SEK | 1.33 | -1.99 | - | -1.89 | - | 0.67 | -1.98 | - |
Free cash flow excluding M&A | -1.9 | 3.0 | - | 4.5 | - | 7.6 | 4.3 | 79% |
Net cash, end of period | 34.5 | 35.9 | -4% | 37.4 | -8% | 34.5 | 35.9 | -4% |
[1] Includes a positive impact of
[2] The acquisition of the Kathrein antenna and filter business is hereinafter referred to as the acquired Kathrein business.
[3]
[4] Operating income excludes restructuring charges in all periods and cost provisions related to the resolution of the
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
Our performance during 2019 puts us on track to reach our targets for 2020 and 2022. Our focused strategy with increased investments in R&D combined with operational efficiency is paying off. We have regained technology leadership, recovered previously lost ground in several markets and improved the financial results. Today, we are a leader in 5G with 78 commercial 5G agreements with unique operators and 24 live 5G networks on four continents. Operating margin[1] excluding costs related to the resolution of the US SEC and DOJ investigations and restructuring charges was 9.7% for full-year 2019, almost reaching the target of more than 10% one year early.
Operating income was impacted by increased operating expenses. The increase is related to the Kathrein business acquisition, increased investments in digitalization and added resources to strengthen security as well as our Ethics and Compliance program. For 2020 we expect somewhat higher operating expenses, which will not jeopardize our financial targets.
Networks gross margin[2] was solid in the quarter at 41% including effects from strategic contracts which reflects the strong business fundamentals. Due to the uncertainty related to an announced operator merger, we saw a slowdown in our North American business in Q4, resulting in
The Kathrein acquisition and increased investments were the main reasons why Networks operating margin[2] declined to 14.5% in Q4. The acquisition is strategically important to strengthen our capabilities in antennas. While we are executing on the integration plan, temporarily lower production and sales had a negative impact on margins in the quarter. We expect a gradual improvement as the integration progresses and a new antenna portfolio is developed, however we expect a negative contribution full-year 2020.
In segment Digital Services we continued the execution of our plan to turn around the business and showed a positive result[2] in Q4, despite a continued negative impact from the remaining critical projects (provisions of
The resolution of the US SEC and DOJ investigations highlights serious shortcomings in our otherwise proud history. The events described in the resolution are totally unacceptable. However, the resolution represents an important step for
Free cash flow in 2019 excluding M&A amounted to
Our strategy aims at building a stronger company longer term and we do not trade long-term strengths for short-term gains. The foundation is our investments in R&D for both technology and cost leadership. This has secured us a competitive advantage as operators accelerate their 5G investments. We continue to execute on our focused strategy. The investments in digitalizing our business processes will increase costs in 2020 and will result in improved productivity in 2021 and beyond, supporting improved margins. Our competitive portfolio and cost position combined with the current market dynamics present a unique opportunity for us and we will continue to invest in order to further strengthen our market position.
Our product portfolio in Networks and Digital Services continues to gain good traction in a highly competitive market undergoing a technology shift to 5G. We see opportunities to further strengthen our position through our strong product offering in a market driven by the momentum in 5G. While we are confident that these opportunities will be value accretive in the long term, initial margins are challenging. Our competitive product offering and improved cost structure in hardware and services make our position and profitability much stronger than at the time of the European network modernization.
In 2019, we saw leading operators switch on their 5G networks. We are tracking well towards our targets for 2020 and 2022, but most importantly, we are making progress towards building a stronger company long term.
President and CEO
[1] Excluding restructuring charges and costs related to the resolution of the US SEC and DOJ investigations.
[2] Excluding restructuring charges.
Planning assumptions going forward
Market related
· The Radio Access Network (RAN) equipment market is estimated to grow by 4% for full-year 2020 with 2% CAGR for 2018-2023. (Source:
The financial targets for 2020 and 2022 presented at the Investor Update in
Sales and gross margin
· Three-year average Group sales seasonality between Q4 and Q1 is -25%. Q1 is expected to have slightly less seasonality, as the base was lower following a weak Q4 in North America. The underlying business fundamentals in
· The revenues from current IPR licensing contract portfolio are approximately
· Strategic contracts, with an overall long-term positive gross margin, but with initially low or negative margin, are expected to continue to impact Networks.
· Large 5G deployments in
· The acquired Kathrein business is expected to have a negative impact on Networks margins during 2020, with a gradual improvement 2H.
· The improvements in Digital Services continue, but earnings will vary between quarters depending on business mix, sales seasonality and impact of the remainder of the 45 critical contracts.
Operating expenses
· Operating expenses typically decrease between Q4 and Q1 due to seasonality. Somewhat higher operating expenses are expected for full-year 2020 due to investments in digitalization, compliance and security.
Restructuring charges
· Restructuring charges for full-year 2020 are estimated to be ~1% of sales.
Currency exposure
· Rule of thumb: A change by 10% of USD to SEK has an impact of approx. +/-5% on net sales and approx. +/-1 percentage point on operating margin.
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/2019/12month19-en.pdf or on www.ericsson.com/investors
Conference call for analysts, investors and journalists
President and CEO
To join the conference call, please phone one of the following numbers:
International/
US: +1 631 913 1422 (Toll-free US: +1 855 85 70686)
PIN code: 77615332#
Please call in at least 15 minutes before the conference call starts.
A live audio webcast of the conference call will be available at www.ericsson.com/investors and https://www.ericsson.com/newsroom.
A replay of the conference call will be available from about one hour after the conference call has ended until
International replay number: +44 (0)333 300 0819
US replay number: + 1 (866) 931 1566
PIN code: 301307611#
FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
Phone: +46 10 714 64 99
E-mail: peter.nyquist@ericsson.com
Additional contacts
Phone: +46 10 713 65 39
E-mail: media.relations@ericsson.com
Investors
Lena Häggblom, Director, Investor Relations
Phone: +46 10 713 27 78, +46 72 593 27 78
E-mail: lena.haggblom@ericsson.com
Stefan Jelvin, Director, Investor Relations
Phone: +46 10 714 20 39
E-mail: stefan.jelvin@ericsson.com
Rikard Tunedal, Director, Investor Relations
Phone: +46 10 714 54 00
E-mail: rikard.tunedal@ericsson.com
Media
Phone: +46 10 719 18 80
E-mail: media.relations@ericsson.com
Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com
This information is information that
https://news.cision.com/ericsson/r/ericsson-reports-fourth-quarter-and-full-year-results-2019,c3016065
https://mb.cision.com/Main/15448/3016065/1179086.pdf
(c) 2020 Cision. All rights reserved., source