October 23, 2015, 07:34 (CEST)
THIRD QUARTER HIGHLIGHTS
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Reported sales increased by 3% YoY. Sales, adjusted for comparable units and currency, decreased by -9% due to lower sales in Networks. This was partly offset by sales growth in Professional Services.
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The mobile broadband business in North America remained stable QoQ, but at a lower level compared to the same period last year.
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Reported sales in Networks declined sequentially impacted by a slowdown of the 4G deployments in Mainland China.
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Gross margin declined YoY to 33.9% (35.2%). Excluding restructuring charges, gross margin decreased to 34.5% (35.5%) due to a higher share of Global Services sales.
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The global cost and efficiency program is progressing according to plan, contributing to lower cost level YoY.
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Operating margin, excluding restructuring charges, improved YoY to 10% (7%). Network Rollout, within Global Services, reached a break-even result.
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Cash flow from operating activities was SEK 1.6 (-1.4) b.
| - | Q3 2015 | Q3 2014 | YoY change | Q2 2015 | QoQ change | 9 months 2015 | 9 months 2014 |
|---|---|---|---|---|---|---|---|
| Net sales | 59.2 | 57.6 | 3% | 60.7 | -2% | 173.4 | 160 |
| Sales growth adj. for comparable units and currency | - | - | -9% | - | -2% | -7% | -2% |
| Gross margin | 33.90% | 35.20% | - | 33.20% | - | 34.10% | 36.00% |
| Gross margin excluding restructuring charges | 34.50% | 35.50% | - | 35.10% | - | 35.30% | 36.20% |
| Operating income | 5.1 | 3.9 | 31% | 3.6 | 43% | 10.8 | 10.5 |
| Operating income excluding restructuring charges | 6.1 | 4.2 | 46% | 6.3 | -4% | 15.1 | 11.2 |
| Operating margin | 8.60% | 6.70% | - | 5.90% | - | 6.20% | 6.60% |
| Operating margin excluding restructuring charges | 10.20% | 7.20% | - | 10.40% | - | 8.70% | 7.00% |
| Net income | 3.1 | 2.6 | 19% | 2.1 | 47% | 6.7 | 7 |
| EPS diluted, SEK | 0.94 | 0.81 | 16% | 0.64 | 47% | 1.98 | 2.25 |
| EPS (Non-IFRS), SEK 1) | 1.34 | 1.11 | 21% | 1.45 | -8% | 3.56 | 3.08 |
| Cash flow from operating activities | 1.6 | -1.4 | - | 3.1 | -49% | -1.3 | 10.1 |
| Net cash, end of period | -0.2 | 29.4 | -101% | 3.5 | -107% | -0.2 | 29.4 |
1) EPS, diluted, excl. amortizations and write-downs of acquired intangible assets, and restructuring.
Comments from Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC)
Reported sales increased by 3% YoY. Sales, adjusted for comparable units and currency, decreased by -9%, due to lower sales in Networks. This was partly offset by continued solid sales growth in Professional Services. Profitability improved YoY, with lower operating expenses as a significant contributor.
Business
Sales growth remained strong in India as well as in South East Asia and Oceania compared to the same period last year, while sales declined in North East Asia as well as in Northern Europe and Central Asia.
The mobile broadband business in North America remained stable QoQ, but at a lower level compared to the same period last year.
In the quarter, there was a slowdown of the 4G deployments in Mainland China. We also saw a somewhat slower pace of mobile broadband investments in markets such as Russia, Brazil and parts of the Middle East which had a weak macro development.
Professional Services sales increased by 15% YoY, with double-digit growth in eight out of ten regions, driven by strong performance across the portfolio.
Profitability
Operating income, excluding restructuring charges, increased by 46% YoY with improvements in all segments. The main contributors to the profit improvement were lower operating expenses and a break-even result in Network Rollout. The negative effect of revaluation and realization of currency hedge contracts was lower than a year ago.
Global Services operating margin increased to 9% as an effect of the improved Network Rollout profitability and a solid result in Professional Services. Segment Networks profitability remained stable in the quarter, with an operating margin of 10%, despite lower sales.
Cost and efficiency program
The global cost and efficiency program, with the target to achieve annual net savings of SEK 9 b. during 2017, is progressing according to plan. Since the announcement in November last year, a number of activities have been implemented globally, contributing to lower cost levels.
Cash flow
After a weak first quarter our cash flow from operating activities has now been positive for the last two quarters despite major payouts related to the ongoing cost and efficiency program. Cash flow year to date has been negatively impacted by increased working capital. This was driven by a business mix with a high share of coverage projects in Mainland China and emerging markets.
Targeted growth areas
Our strategic growth initiatives build on a combination of excelling in our core business and establishing leadership in targeted growth areas. We see continued good progress in these areas which had a sales growth of more than 10% YoY.
In targeted growth area TV & Media we made two important customer announcements in North America, confirming our strong position in the fast-growing TV & Media market. In addition, Ericsson signed an agreement to acquire the Nasdaq-listed company Envivio, a global leader in software-based video encoding.
There is an increased customer interest in future network architecture for 5G, virtualization, efficient video delivery and internet of things (IoT). With our ongoing strategic initiatives, we are well positioned to create value for our customers and shareholders in a transforming market.
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