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.
SEK b. |
Q2
2016 |
Q2
2015 |
YoY
change |
Q1
2016 |
QoQ
change |
6 months 2016 |
6 months 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@ericsson.com
Additional contacts
Helena Norrman, Senior Vice President, Marketing
and Communications
Phone: +46 10 719 34 72
E-mail: media.relations@ericsson.com
Investors
Ã…sa Konnbjer, Director, Investor
Relations
Phone: +46 10 713 39 28
E-mail: asa.konnbjer@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
Ola Rembe, Vice President, Head of External
Communications
Phone: +46 10 719 97 27
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
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
This
announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX 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
HUG#2029293
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