Ericsson reports fourth quarter and full-year results 2023
- Solid EBITA and cash flow in a challenged market
- Sales declined organically by -17% YoY, driven by a -23% decline in Networks
- Reported sales were down by -16% to SEK 71.9 b
- Full-year sales declined organically by -10%, impacted by a -15% decrease in Networks, partly offset by an 11% growth in Enterprise
- Reported EBITA for the full year was SEK 21.4 b. with a margin of 8.1%
- Net income (loss) was SEK -26.1 b. for the year, impacted by goodwill impairment and restructuring charges
- The company remains focused on managing elements within its control, including operational efficiency and tight cost management
- Net cash decreased to SEK 7.8 b. at year-end 2023
- Free cash flow before M&A amounted to SEK -1.1 b. for the year
- The company reported a net loss of SEK -26.1 b. for the year
Insights
The reported financials highlight a contraction in organic sales and a significant decrease in Networks sales, which are critical metrics for assessing a company's performance. The decline in free cash flow before M&A, as well as the notable goodwill impairment recorded in Q3, are red flags for liquidity and asset valuation, respectively. The stable dividend proposal despite these setbacks suggests a commitment to shareholder returns, but warrants scrutiny of the sustainability of such payouts in light of the declining net cash position.
Furthermore, the EBITA margin improvement and the company's strategic focus on operational efficiency and cost management could be interpreted as positive signs of resilience in a challenging market. However, the long-term impact of the market decline outside China and the normalization of investment levels in India need to be monitored closely as they could have significant implications for future performance and strategic direction.
The detailed financials provide insights into the competitive landscape of the telecommunications industry, particularly how Ericsson is navigating a 'challenged market'. The organic sales decline indicates competitive pressures and potentially shrinking market demand. The YoY increase in gross margin, when adjusted for IPR revenues, suggests an effective cost management strategy, but this must be balanced against the broader context of a declining RAN market outside China and normalizing investments in India.
Ericsson's strategic pillars, focusing on mobile networks leadership and enterprise expansion, reflect an adaptive business model aiming to create new revenue streams and capitalize on 5G technology. The reported historic contract win is a testament to their technological leadership but must be weighed against the overall market dynamics and investment trends.
The financial results from Ericsson present a microcosmic view of the broader economic trends affecting the technology and telecommunications sectors. The organic sales decline and the decrease in Networks sales could be symptomatic of macroeconomic headwinds such as reduced capital expenditure by companies in anticipation of economic downturns or shifts in consumer demand. The significant goodwill impairment suggests a reevaluation of intangible assets, likely due to changing market conditions and future earnings potential.
Additionally, the maintenance of the dividend level in the face of declining sales and cash flow pressures could be seen as a strategic move to maintain investor confidence, but it also raises questions about the company's capital allocation strategies in the midst of a challenging fiscal environment. The expectation of market decline and uncertainties into 2024 could reflect broader industry trends of cautious investment in network infrastructure amidst geopolitical and economic uncertainties.
Fourth quarter highlights – Solid EBITA and cash flow in a challenged market
- Sales declined organically[1] by -
17% YoY, driven by a -23% decline in Networks. Reported sales were down by -16% toSEK 71.9 b. - Gross income excluding restructuring charges decreased to SEK 29.6 (35.7) b. Gross margin excluding restructuring charges was
41.1% (41.5% ). Adjusted for the retroactive element in IPR revenues in Q4 2022 the gross margin increased YoY. - Reported gross income was SEK 28.6 (35.6) b. with a gross margin of
39.8% (41.4% ). - EBITA excluding restructuring charges amounted to
SEK 8.2 (9.3) b. with an EBITA margin of11.4% (10.8% ). - EBIT excluding restructuring charges amounted to
SEK 7.4 (8.1) b. with an EBIT margin of10.3% (9.4% ). - Free cash flow before M&A was
SEK 12.5 (16.9) b. Q4 2022 was positively impacted by retroactive IPR payments.
Full-year highlights
- Sales declined organically[1] by -
10% , impacted by a -15% decrease in Networks, partly offset by an11% growth in Enterprise. Reported sales wereSEK 263.4 (271.5) b. - Gross income excluding restructuring charges was SEK 104.4 (113.5) b., mainly related to Networks. Gross margin excluding restructuring charges was
39.6% (41.8% ). Reported gross income wasSEK 101.6 (113.3) b. with a gross margin of38.6% (41.7% ). - EBITA excluding restructuring charges was
SEK 21.4 (29.5) b. with a margin of8.1% (10.9% ). EBITA wasSEK 14.9 (29.1) b. with a margin of5.7% (10.7% ). - Reported EBIT was
SEK -20.3 (27.0) b. impacted bySEK -31.9 b. of goodwill impairment recorded in Q3 related to Vonage. - Net income (loss) was SEK -26.1 (19.1) b. EPS diluted was
SEK -7.94 (5.62). Net income (loss) was impacted bySEK -31.9 b. of goodwill impairment andSEK -6.5 (-0.4) b. of restructuring charges. - Free cash flow before M&A amounted to
SEK -1.1 (22.2) b. Net cash wasSEK 7.8 (23.3) b. at year-end 2023. - A dividend for 2023 of SEK 2.70 (2.70) per share will be proposed to the AGM by the Board of Directors.
SEK b. | Q4 | Q4 | YoY | Q3 | QoQ | Jan-Dec | Jan-Dec | YoY |
Net sales | 71.881 | 85.980 | -16 % | 64.473 | 11 % | 263.351 | 271.546 | -3 % |
Sales growth adj. for comparable units and currency[2] | - | - | -17 % | - | - | - | - | -10 % |
Gross margin[2] | 39.8 % | 41.4 % | - | 38.4 % | - | 38.6 % | 41.7 % | - |
EBIT (loss) | 5.848 | 7.853 | -26 % | -28.908 | - | -20.326 | 27.020 | - |
EBIT margin[2] | 8.1 % | 9.1 % | - | -44.8 % | - | -7.7 % | 10.0 % | - |
EBITA[2] | 6.694 | 9.049 | -26 % | 3.828 | 75 % | 14.912 | 29.071 | -49 % |
EBITA margin[2] | 9.3 % | 10.5 % | - | 5.9 % | - | 5.7 % | 10.7 % | - |
Net income (loss) | 3.409 | 6.190 | -45 % | -30.491 | - | -26.104 | 19.112 | - |
EPS diluted, SEK | 1.02 | 1.82 | -44 % | -9.21 | - | -7.94 | 5.62 | - |
Measures excl. restructuring charges[2] | ||||||||
Gross margin excluding restructuring charges | 41.1 % | 41.5 % | - | 39.2 % | - | 39.6 % | 41.8 % | - |
EBIT (loss) excluding restructuring charges | 7.368 | 8.081 | -9 % | -28.020 | - | -13.805 | 27.419 | - |
EBIT margin excluding restructuring charges | 10.3 % | 9.4 % | - | -43.5 % | - | -5.2 % | 10.1 % | - |
EBIT excluding restructuring and goodwill impairments | 7.369 | 8.081 | -9 % | 3.877 | 90 % | 18.093 | 27.418 | -34 % |
EBIT margin excluding restructuring and goodwill impairments | 10.3 % | 9.4 % | - | 6.0 % | - | 6.9 % | 10.1 % | - |
EBITA excluding restructuring charges | 8.214 | 9.277 | -11 % | 4.716 | 74 % | 21.433 | 29.470 | -27 % |
EBITA margin excluding restructuring charges | 11.4 % | 10.8 % | - | 7.3 % | - | 8.1 % | 10.9 % | - |
Free cash flow before M&A | 12.464 | 16.866 | -26 % | -0.540 | - | -1.084 | 22.196 | - |
Net cash, end of period | 7.832 | 23.319 | -66 % | 1.610 | 386 % | 7.832 | 23.319 | -66 % |
[1] Sales adjusted for comparable units and currency | ||||||||
Comments from Börje Ekholm, President and CEO of Ericsson (NASDAQ: ERIC)
In 2023, we continued to execute on our strategy to strengthen our leadership in mobile networks, grow our enterprise business and drive cultural transformation. We concluded 2023 with a Q4 EBITA margin[2] of
Q4 – solid results in challenging environment
As a result of focused execution and increased resiliency, we were able to adapt in a challenging environment and delivered solid Q4 results. While Group sales[1] declined organically by -
Networks sales[1] decreased organically by -
In Cloud Software and Services, we delivered on our EBITA[2] target to reach at least breakeven in 2023 with an EBITA[2] of
Enterprise sales[1] grew by
Strong cash collection and released working capital from conclusion of large roll-out projects allowed a healthy free cash flow before M&A of
We delivered on the
[1] Sales adjusted for comparable units and currency
[2] Excluding restructuring charges
Driving execution of our strategy
Our first strategic pillar is to further enhance our leadership in mobile networks. Technology leadership is core to our strategy, enabling customers to build high-performance, programmable and open networks to deliver superior customer experience, maximize return on investment (ROI) and accelerate business innovation. With our leading technology, customers can reduce their total cost of ownership, reduce non-strategic spend and instead redirect a larger portion of capex to revenue-generating network infrastructure, enabling an accelerated network modernization - as proven by our record win in Q4.
With our second strategic pillar, expansion into Enterprise, we aim at creating new monetization opportunities for our customers. Many operators fight to earn a healthy ROI with current monetization models. By offering network APIs to developers and enterprises, we enable new revenue streams for operators, and new applications that leverage network capabilities. We see good traction with frontrunner customers who share our excitement. In addition, offerings in Enterprise Wireless Solutions expand the market for high-performance mobile technology into enterprise.
2023 has been a year in which we have continued to build and transform our culture focusing on strong decision making and risk management, effective oversight and accountability. Ethical standards shall stand in the center of everything we do and become our competitive strength.
Looking ahead
The mobile network industry remains challenging. We expect the current market uncertainties to prevail into 2024 with a further decline of the RAN market outside
Underlying demand from growing data traffic and 5G only being in the early stages of build-out will require additional network investments. In our view, the current investment levels are unsustainably low for many operators. We are therefore confident that a market recovery should materialize. However, the timing of market recovery is ultimately in the hands of our customers. It is critical for us to lead in technology while focusing on operational efficiency, to ensure we are well positioned when the market recovers. Our strong IPR portfolio with over 60,000 patents gives us great opportunities to grow our licensing revenue, with a continued emphasis on ensuring that the full value is recognized in all contracts.
Our goal is to make Ericsson a more profitable company based on a leading position in mobile infrastructure and a high-growth Enterprise platform business.
I would like to thank all my colleagues for their dedication to execute on our strategy. Together with our customers, we are well positioned to shape the future industry.
Börje Ekholm
President and CEO
NOTES TO EDITORS
You find the complete report with tables in the attached PDF or on www.ericsson.com/investors
Video webcast for analysts, investors and journalists
President and CEO Börje Ekholm and CFO Carl Mellander will comment on the report and take questions at a video webcast at 9:00 AM CET (8:00 AM GMT London, 3:00 AM EST New York).
Join the webcast or please go to www.ericsson.com/investors
To ask a question: Access dial-in information here
The webcast will be available on-demand after the event and can be viewed at www.ericsson.com/investors.
FOR FURTHER INFORMATION, PLEASE CONTACT
Contact person
Peter Nyquist, Head of Investor Relations
Phone: +46 705 75 29 06
E-mail: peter.nyquist@ericsson.com
Additional contacts
Stella Medlicott, Senior Vice President, Marketing and Corporate Relations
Phone: +46 730 95 65 39
E-mail: media.relations@ericsson.com
Investors
Lena Häggblom, Director, Investor Relations
Phone: +46 72 593 27 78
E-mail: lena.haggblom@ericsson.com
Alan Ganson, Director, Investor Relations
Phone: +46 70 267 27 30
E-mail: alan.ganson@ericsson.com
Media
Ralf Bagner, Head of Media Relations
Phone: +46 76 128 47 89
E-mail: ralf.bagner@ericsson.com
Media relations
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com
This 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 07:00 CET on January 23, 2024.
The following files are available for download:
Ericsson reports fourth quarter and full-year results 2023 |
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SOURCE Ericsson
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