STOCKHOLM, July 17, 2020 /PRNewswire/ --
Second quarter
highlights
- Sales were SEK 55.6 (54.8) b. Sales adjusted for comparable units and
currency were flat
YoY.
- Gross margin excluding restructuring charges improved to 38.2%
(36.7%), including the earlier communicated inventory write-down
related to Mainland China (SEK -0.9
b., which equals to -1.6 percentage
points).
- Operating income excluding restructuring charges improved to
SEK 4.5 b. (8.2% operating margin)
from SEK 3.9 b. (7.0% operating
margin) driven by improvements in segment Digital
Services.
- Networks sales[1] increased by 4% YoY. Networks operating
margin excluding restructuring charges was 14.1% (15.0%)
impacted by strategic contracts and the inventory write-down,
partly compensated by operational leverage and a favorable business
mix.
- Digital Services operating income excluding restructuring
charges was SEK -0.7 (-1.3) b. Gross margin improved driven mainly by
higher software sales while sales1 declined by
-5%.
- Net income was SEK 2.6
(1.8)
b.
- Free cash flow before M&A was SEK
3.2 (1.6) b. Net cash
June 30, 2020, was SEK 37.5 (33.8)
b.
- The Covid-19 pandemic had a limited impact on operating income
and cash flow in the quarter.
1 Adjusted for comparable units and currency.
Planning assumptions highlights (please see the quarterly
report for complete planning
assumptions)
- With current visibility Group financial targets for 2020 and
2022 are
maintained.
- R&D investments in Digital Services are accelerated to
capture additional business opportunities. In combination with
lower sales, this will likely cause a delay of some quarters in
reaching the 2020 financial target. 2022 operating margin target of
10-12% remains firm.
SEK b.
|
Q2
2020
|
Q2
2019
|
YoY
change
|
Q1
2020
|
QoQ
change
|
Jan-Jun
2020
|
Jan-Jun
2019
|
YoY
change
|
Net sales
|
55.6
|
54.8
|
1%
|
49.8
|
12%
|
105.3
|
103.7
|
2%
|
Sales growth adj.
for comparable units and currency
Gross
margin
|
-
37.6%
|
-
36.6%
|
0%
-
|
39.8%
|
-
|
38.6%
|
37.5%
|
-1%
-
|
Operating
income
Operating
margin
|
3.9
6.9%
|
3.7
6.8%
|
3%
-
|
4.3
8.7%
|
-11%
-
|
8.2
7.7%
|
8.6
8.3%
|
-6%
-
|
Net
income
|
2.6
|
1.8
|
40%
|
2.3
|
13%
|
4.9
|
4.3
|
14%
|
Measures excl. restructuring charges and other items affecting
comparability1
|
Gross margin
excluding restructuring charges
|
38.2%
|
36.7%
|
-
|
40.4%
|
-
|
39.3%
|
37.5%
|
-
|
Operating income
excl. restr. charges & items affecting comparability in
20192
|
4.5
|
3.9
|
18%
|
4.6
|
-2%
|
9.1
|
7.4
|
24%
|
Operating margin
excl. restr. charges & items affecting comparability in
20192
|
8.2%
|
7.0%
|
-
|
9.3%
|
-
|
8.7%
|
7.1%
|
-
|
Free cash flow before
M&A
|
3.2
|
1.6
|
102%
|
2.3
|
40%
|
5.6
|
5.1
|
10%
|
Net cash, end of
period
|
37.5
|
33.8
|
11%
|
38.4
|
-2%
|
37.5
|
33.8
|
11%
|
1 Non-IFRS financial measures are reconciled to the
most directly reconcilable line items in the financial statements
at the end of this report.
2 Excludes restructuring charges in all periods. No
other adjustments made in 2020. Jan-Jun
2019 excludes a capital gain related to the divestment of
51% of MediaKind (SEK 0.7 b.),
divestment of certain assets in Red Bee Media (SEK 0.1 b.) and a reversal of an earlier
provision for impairment of trade receivables following customer
payment (SEK 0.7 b.).
Comments from Börje Ekholm, President and CEO of Ericsson
(NASDAQ:ERIC)
The human toll caused by Covid-19, directly and
indirectly through a weak economy, is increasingly clear. We
continue to put safety of our people as first priority, and more
than 80% of our employees are currently working from home. Despite
the difficult environment we delivered a solid result. Q2
organic1 sales were flat and gross
margin[2] improved to 38.2% (36.7%) YoY, including
negative effects from strategic contracts. Free cash flow before
M&A improved to SEK 3.2
(1.6) b. While the effects of
Covid-19 create uncertainties, with current visibility we maintain
the full-year targets for the Group.
Networks grew by 4% organically1 and the
gross margin[2] was 40.5% (41.4%), absorbing a larger share of
strategic contracts including 5G volumes in Mainland China where we
also took an inventory write-down. The strengthened market
position in Mainland China is strategically important
as this market is expected to be a driver of critical future
requirements and provide us with important scale. The Chinese 5G
contracts are expected to be profitable over the life cycle, but
had a negative contribution to gross margin
in Q2.
Investments in R&D have established us as a leader in
5G, with proven performance and cost of ownership benefits for
our customers. We have continued to increase our market share in
several markets by leveraging our competitive product portfolio.
Profitability in earlier awarded strategic contracts has improved
according to plan. We consider strategic contracts to be a
natural part of the business and we will stop
our forward looking commentary unless there
is an extraordinary impact.
Digital Services continues to execute on its turnaround plan
with continuous improvements in the underlying business, and a Q2
gross margin2 reaching 43.6% (37.1%), supported by
increased software sales. Sales is being impacted by the declining
legacy portfolio and Covid-19-related market uncertainty and we
expect this negative impact to continue throughout the year. There
is however a strong demand for our cloud-native and 5G portfolio,
and we have recorded several important tier 1 customer wins in 5G
Core that will generate revenues in 2021 and beyond. Encouraged by
the success of our offering, we have decided to accelerate R&D
investments. These investments have a positive long-term value but
will result in increased R&D costs. We are for this reason, in
combination with the lower sales, likely to see a delay of some
quarters in reaching the 2020 target of low single-digit margin for
Digital Services, however, we are staying firm on our 2022
operating margin2 target of 10-12%.
Our patent licensing business continues
to perform well due to our strong IPR
portfolio. Licensing agreements
are often multi-year and term-based and
renewals normally require negotiations, particularly in
conjunction with introducing new standards such as
5G. Next year, certain agreements are up for renewal
and royalty payments can be temporarily affected. The
inclusion of 5G patents is expected to strengthen our IPR business
further.
At Ericsson, we are committed to conducting business responsibly
and with integrity. We continue our efforts to strengthen and
improve our Ethics and Compliance program. In the quarter, the
three-year term of the monitorship under the resolution with the
U.S. authorities started. We look forward to working together with
the independent compliance monitor and to benefit from his
extensive experience. We fully believe this will help us reach our
ambitions.
As we prepare to exit the crisis caused by Covid-19, there is a
need to restart economies and make strategic, forward looking
investments which we suggest must include the future digital
infrastructure. We see many regions around the world increasing
investments in this space and as a European company we are
concerned that Europe will fall
behind. As critical national infrastructure, 5G will be a key
determinant for long-term competitiveness of the general economy,
and act as a stimulant to accelerate economic growth, attract
future investments and speed up technology innovation. I believe
Europe must prioritize actions to
incentivize investments in the digital infrastructure, to include
lowering the cost and speeding up the availability of spectrum.
We are ready to deliver on the promises of 5G, based on our
strong 5G portfolio and a resilient balance sheet. We remain
positive on the longer-term outlook. Some customers are
accelerating their investments while others are temporarily
cautious. With current visibility we maintain
the Group targets for 2020 and 2022.
Stay healthy and well.
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
by following this
link https://www.ericsson.com/assets/local/investors/documents/financial-reports-and-filings/interim-reports-archive/2020/6month20-en.pdf or
on www.ericsson.com/investors
Conference call for analysts, investors and
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Contact person
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Relations
Phone: +46 10 714 64 99
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Additional contacts
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E-mail: media.relations@ericsson.com
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|
Ericsson second
quarter report 2020
|