Ericsson reports fourth quarter and full-year results 2022

Rhea-AI Summary

Ericsson's fourth quarter results for 2022 showed a 1% year-over-year organic sales growth, driven primarily by significant gains in IPR revenues, which contributed 5 percentage points. Reported sales were SEK 86.0 billion, up from SEK 71.3 billion a year ago. Despite gross income increasing to SEK 35.6 billion, the gross margin decreased to 41.4% due to a shift in business mix. EBITA was SEK 9.3 billion, significantly down from SEK 12.8 billion last year, largely impacted by charges of SEK -4 billion. The company aims for long-term EBITA margins of 15-18% by 2024, while facing macroeconomic headwinds.

Positive

• 1% YoY organic sales growth in Q4 driven by IPR revenues contributing 5 percentage points.
• Reported sales of SEK 86.0 billion, up 21% YoY.
• Gross income increased to SEK 35.6 billion.
• Free cash flow before M&A was SEK 16.9 billion, up 25% YoY.

Negative

• Gross margin decreased to 41.4% from 43.2% YoY.
• EBITA declined to SEK 9.3 billion from SEK 12.8 billion, a 27% decrease.
• Net income fell to SEK 19.1 billion from SEK 23.0 billion, a 17% decline.
• Significant provision of SEK 2.3 billion for a DPA breach due to ongoing investigations.

STOCKHOLM, Jan. 20, 2023 /PRNewswire/ -- 

Fourth quarter highlights

• The quarter was impacted by an IPR agreement resulting in total IPR revenues of SEK 6.0 (2.4) b. and previously announced charges of SEK -4.0 b., including DOJ provision, IoT divestment and Cloud Software and Services contract and portfolio exits.
• Group organic sales^[1] grew by 1% YoY., of which IPR revenues contributed with 5 percentage points. Reported sales were SEK 86.0 (71.3) b. of which Vonage contributed SEK 4.1 b. 
• Gross income increased to SEK 35.6 (30.8) b., while gross margin decreased to 41.4% (43.2%) primarily due to business mix change in Networks and previously announced charges for contract exits and portfolio adjustments in Cloud Software and Services.
• EBITA excluding restructuring charges amounted to SEK 9.3 (12.8) b. with an EBITA margin of 10.8% (17.9%). EBITA was impacted by the previously announced charges.
• Free cash flow before M&A was SEK 16.9 (13.5) b. mainly driven by reduced inventory and high cash collection including IPR collection
• Return on capital employed was 15.4% (26.6%) driven by lower EBIT.

Full-year highlights

• Group organic sales^[1] grew by 3%, driven by a 4% increase in Networks and 16% in Enterprise. Reported sales were SEK 271.5 (232.3) b.
• Gross income increased to SEK 113.3 (100.7) b. with increases in segments Networks, Cloud Software and Services, and Enterprise.
• EBITA amounted to SEK 29.1 (33.3) b. with an EBITA margin of 10.7% (14.3%). EBITA was negatively impacted by previously announced charges of SEK -5.5 b., partly compensated by increased IPR licensing revenues.
• EBIT margin excl. restructuring charges was 10.1% (13.9%). Excluding Vonage and previously announced charges during the year, EBIT margin was 12.9%, reaching the 2022 target of 12-14%.
• Net income was SEK 19.1 (23.0) b. EPS diluted was SEK 5.62 (6.81).
• Free cash flow before M&A amounted to SEK 22.2 (32.1) b. Net cash was SEK 23.3 (65.8) b. at year-end 2022.
• Return on capital employed was 14.0% (18.4%) driven by higher capital employed and lower EBIT.
• A dividend for 2022 of SEK 2.70 (2.50) per share will be proposed to the AGM by the Board of Directors.

 

SEK b.	Q4  2022	Q4  2021	YoY  change	Q3 2022	QoQ  change	Jan-Dec  2022	Jan-Dec  2021	YoY  change
Net sales	86.0	71.3	21 %	68.0	26 %	271.5	232.3	17 %
Sales growth adj. for comparable units and currency[2]	-	-	1 %	-	-	-	-	3 %
Gross margin[2]	41.4 %	43.2 %	-	41.4 %	-	41.7 %	43.4 %	-
EBIT	7.9	11.9	-34 %	7.1	10 %	27.0	31.8	-15 %
EBIT margin[2]	9.1 %	16.6 %	-	10.5 %	-	10.0 %	13.7 %	-
EBITA[2]	9.0	12.3	-26 %	7.6	19 %	29.1	33.3	-13 %
EBITA margin[2]	10.5 %	17.2 %	-	11.2 %	-	10.7 %	14.3 %	-
Net income	6.2	10.1	-39 %	5.4	15 %	19.1	23.0	-17 %
EPS diluted, SEK	1.82	3.02	-40 %	1.56	17 %	5.62	6.81	-17 %
Measures excl. restructuring charges[2]
Gross margin excluding restructuring charges	41.5 %	43.5 %	-	41.4 %	-	41.8 %	43.5 %	-
EBIT excluding restructuring charges	8.1	12.3	-34 %	7.2	12 %	27.4	32.3	-15 %
EBIT margin excluding restructuring charges	9.4 %	17.3 %	-	10.6 %	-	10.1 %	13.9 %	-
EBITA excluding restructuring charges	9.3	12.8	-27 %	7.7	21 %	29.5	33.8	-13 %
EBITA margin excluding restructuring charges	10.8 %	17.9 %	-	11.3 %	-	10.9 %	14.6 %	-
Free cash flow before M&A	16.9	13.5	25 %	2.5	-	22.2	32.1	-31 %
Net cash, end of period	23.3	65.8	-65 %	13.4	74 %	23.3	65.8	-65 %

^[1] Sales adjusted for comparable units and currency
^[2] Non-IFRS financial measures are reconciled at the end of this report to the most directly reconcilable line items in the financial statements

 

Comments from Börje Ekholm, President and CEO of Ericsson (NASDAQ:ERIC)

With our fourth quarter result we are on track to deliver on our long-term EBITA target of 15-18% by 2024. We remain fully committed to our strategic ambitions and have full confidence in the long term. During the quarter, we made measurable progress towards achieving these ambitions, against a backdrop of broad macroeconomic headwinds. As we said during our Capital Markets Day, there are near-term uncertainties, however, we are still in the early phase of global 5G rollout and widespread enterprise digitalization.

Our strategy remains rooted in driving sustainable growth and maximizing value across all stakeholders. We are confident that we have the right team and strategy in place to extend our leadership in mobile networks; achieve profitability in Cloud Software and Services; execute in our high growth Enterprise segment; shape the industry landscape by becoming a platform company leveraging the 5G innovation platform; and continue our unwavering commitment to a culture of integrity.

This quarter, we signed a multiyear IPR patent license agreement with a major licensee. This positive outcome positions us well to capture further 5G patent license agreements among handset manufacturers and in new areas such as consumer electronics and IoT. We expect significant IPR revenue growth over the coming 18-24 months.

Group Net Sales^[1] grew by 1% YoY, of which IPR revenues contributed with 5 percentage points. EBITA^[2] of SEK 9.3 (12.8) b. corresponds to a margin^[2] of 10.8% (17.9%). The positive impact from higher IPR revenues was offset by expected business mix shift and previously announced charges of SEK -4 b. We executed on our ambition to reduce inventory contributing to our free cash flow before M&A of SEK 16.9 (13.5) b.

Our Networks business grew in India on the back of significant market share gains. As anticipated, the growth from share gains in several markets could not fully compensate for reduced operator capex and inventory reductions in other markets, including North America. Gross margin^[2] was 44.6% (46.4%), negatively impacted by this business mix shift including a higher share of services sales from large network rollout projects. The IPR patent license agreement had positive margin impact.

During the quarter, we were able to largely offset the impact of high inflation with commercial activities, including product substitution. We continue to invest in technology to enhance performance and cost leadership, expand our global footprint and improve productivity and capital efficiency across the supply chain.

In Cloud Software and Services, organic sales^[1] decreased by -2% excluding IPR revenues. Sales growth in North America – mainly from 5G Core contracts – was offset by a decline in other market areas. We remain committed to improving profitability and are on a clear path to reaching operating profit break-even for full-year 2023 by limiting subscale software development, accelerating automation, and changing focus from market share gains to profitability. In Q4, we decided to exit certain subscale business, with a one-off charge.

Within Enterprise, we continue to leverage our strength in mobile networks to accelerate our business. Organically, sales^[1] grew by 15%. Our Enterprise strategy is underpinned by two pillars: First, our Enterprise Wireless Solutions business, focused on capturing the multi-billion-dollar enterprise market opportunity for 5G optimized networking and security solutions. Second, through the Global Communication Platform business, we will enable new ways of monetizing 5G by transforming how network features such as speed and latency are globally exposed, consumed and paid for. Enterprise is a growth engine for the company, and we continue to fine-tune our portfolio to maximize profitability. To this end, we announced the divestment of our loss-making IoT business in Q4. We continue to invest to strengthen our enterprise go-to-market channel and broaden our enterprise product portfolio. In addition, we are increasing our investments in developing the network APIs that will underpin the long-term growth in Global Communication Platform. From 2024 and beyond our enterprise business will be a major driver of Ericsson's long-term growth and profitability, however, these investments will weigh on profitability during 2023.

We remain positive on the long-term outlook for our business. However, the near-term outlook, as we also described at our Capital Markets Day, remains uncertain. We expect operators to continue to sweat assets in response to macroeconomic headwinds. In addition, we expect operators to adjust inventory levels as supply situation eases. These trends started to impact Networks in Q4 and we expect them to continue at least during the first half of 2023. At the same time, we expect good growth from market share wins, albeit not fully offsetting the near-term headwinds. In the longer-term, capex is driven by traffic growth. Given near-term macroeconomic headwinds, we expect Enterprise to grow somewhat slower than during 2022.

While the quarter saw the easing of supply chain related challenges, the inflationary environment persisted. We remain focused on navigating near-term headwinds through our commercial initiatives but also by making Ericsson more cost-effective. We expect to start seeing the effect of our SEK 9 b. cost savings activities during the second quarter of 2023. We anticipate declining margins in Networks during the first half of 2023 due to changing business mix. In Q1 we expect the EBITA^[2] for the Group to be somewhat lower than EBITA^[2] last year, with improvements during the year.

We remain focused on reaching a resolution with the US authorities regarding the previously announced Deferred Prosecution Agreement (DPA) breach notices received by the company. In this regard, we have this quarter booked a SEK 2.3 b. (approx. USD 220 million) provision as we are now in a position to make a sufficiently reliable estimate of the financial penalty (and additional monitoring costs) associated with a breach resolution.

Separately, and with respect to the past matters described in the company's 2019 Iraq investigation report, we continue to thoroughly investigate the facts in full cooperation with the DOJ and the SEC to determine if there is any merit to the allegations.

Building a culture of ethics and integrity remains a top priority, and I am convinced that best-in-class compliance will give our company a competitive advantage. Both the company's resolution with the DOJ and the SEC in 2019 and the ongoing investigation into past conduct in Iraq clearly highlight the importance of intelligent decision-making and effective risk management.

In conclusion, I would like to thank all my colleagues for their diligence and efforts to deliver long-term stakeholder value as they continue to execute on our strategy. The commitment and passion of our team is what inspires me the most as we redefine both our company and our industry. The actions we have taken have positioned us to be a true industry leader.

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 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

Kirsty Fitzgibbon, VP, Head of External Relations, acting
Phone: +46 730 95 81 57
E-mail: kirsty.fitzgibbon@ericsson.com 

Kristoffer Edshage, Head of Regulatory and Financial Communication
Phone: +46 722 20 44 46
E-mail: media.relations@ericsson.com

Corporate Communications
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 20, 2023.

The following files are available for download:

https://mb.cision.com/Main/15448/3700544/1793203.pdf

Ericsson fourth quarter and full year report 2022

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SOURCE Ericsson

FAQ

What were Ericsson's Q4 2022 revenues and earnings?

In Q4 2022, Ericsson reported revenues of SEK 86.0 billion and EBITA of SEK 9.3 billion.

How did Ericsson's gross margin change in Q4 2022?

Ericsson's gross margin decreased to 41.4% in Q4 2022, down from 43.2% in the previous year.

What is Ericsson's EPS for Q4 2022?

Ericsson's diluted EPS for Q4 2022 was SEK 1.82, compared to SEK 3.02 in Q4 2021.

What is the outlook for Ericsson's EBITA margin?

Ericsson aims to achieve an EBITA margin of 15-18% by 2024.

What factors impacted Ericsson's financial results in Q4 2022?

Ericsson's financial results were affected by a decline in EBITA, charges related to a DPA breach, and a shift in business mix.