STOCKHOLM, Jan. 29, 2021
STOCKHOLM, Jan. 29, 2021 /PRNewswire/ --
Fourth quarter highlights
Planning assumptions highlights (please see the quarterly report for complete planning assumptions)
Sales growth adj. for comparable units and currency
Operating income (loss)
Net income (loss)
EPS diluted, SEK
Gross margin excluding restructuring charges
Operating income excl. restr. charges & items affecting compar. in 2019
Operating margin excl. restr. charges & items affecting compar. in 2019
Free cash flow before M&A
Net cash, end of period
Non-IFRS financial measures are reconciled at the end of this report to the most directly reconcilable line items in the financial statements.
Operating income excludes restructuring charges in all periods and cost provisions related to the resolution of the SEC and DOJ investigations of SEK -11.5 b. in Q3 2019 as well as a partial release of the same provision of SEK 0.7 b. in Q4 2019.
Comments from Börje Ekholm, President and CEO of Ericsson (NASDAQ:ERIC)
As we navigate through the pandemic, health and well-being of our colleagues, customers and partners is our number one priority. Despite the challenges, our people continued to deliver and to serve our customers with very limited disturbances. Our R&D investments have continued to drive both technology leadership and cost efficiency which have led to increased market share and improved financial performance. We are today a leader in 5G with 127 commercial contracts and 79 operating networks around the world. Organic sales grew by 5% for the full year. Our operating margin of 12.5% (5.0%) exceeded our 2020 target and reached the 2022 Group target range two years early.
Networks sales grew organically by 20%, reporting a gross margin of 43.5% (41.1%) for Q4. This reflects continued high activity levels in North America and North East Asia, and also in Europe where we further increased market share. Networks delivered an operating margin of 19% for full-year 2020 - well above the 15%-17% target. Investing in R&D is fundamental to our strategy. Since 2017 we have increased R&D investment by SEK 10 b. and delivered SEK 16 b. of improved operating income. Our growth during 2020 is built on a strong and competitive 5G portfolio.
Digital Services gross margin grew to 41.0% (38.1%) in Q4. From 2017 to 2020, gross margin excluding restructuring charges and items affecting comparability increased from 29% to 42%, as a result of streamlined product portfolio, fewer critical contracts, a growing portion of software sales and lower service delivery costs. We continue to execute on the turnaround plan and the operating income of SEK 0.5 b. in Q4 is the best quarterly result to date. The cloud-native 5G portfolio has a high win ratio and significant new customer contracts will start to generate revenues during the next 12-18 months. By selective R&D investments to accelerate our growth portfolio, we aim to capture further opportunities.
Managed Services delivered a gross margin of 17.7% (15.4%) in Q4. Sales declined on operator consolidation in the US during 2020. The full-year 2020 operating margin was 8.1% - above the 5%-8% target. We expect the margin profile to improve further with increasing sales of our Operations Engine with its high value-added services, driven by R&D investments in AI and automation. We see increasingly positive response from customers to our new portfolio.
Emerging Business and Other sales are growing in enterprise offerings such as IoT Platforms, complemented by the acquisition of Cradlepoint. Gross margin improved to 33.8% (15.1%) driven by operational leverage from growth and lower cost as a result of the exited Edge Gravity business. Cradlepoint drives new revenues for mobile service providers and strengthens our position in the 5G enterprise market, alongside our existing Dedicated Networks and IoT portfolio. The underlying business in Cradlepoint develops according to plan. However, reported sales and costs for Cradlepoint are impacted by purchase price allocations and during 2021 our operating margin is expected to be negatively impacted by approximately -1 percentage point due to amortization of intangibles and increased cost for market expansion.
Free cash flow before M&A was SEK 22.3 (7.6) b. in full-year 2020. The Board will propose a dividend of SEK 2.00 (1.50) per share to the AGM, underlining the confidence in Ericsson's business and financial position. In this context it is worth noting that we decided early on not to apply for any pandemic-related government support.
Patent licensing revenues for the full year amounted to SEK 10 b. As communicated in December, we are approaching important contract renewals, which could negatively impact 2021 and 2022 earnings (see planning assumptions on operating income, page 6). We are confident in the long-term value of our patent portfolio, including a strong position in 5G. We will seek to maximize the net present value of this portfolio, established over many years on the back of R&D investments. The IPR standardization framework, based on FRAND terms, underpins the interoperability of global wireless communications with more than 8 billion mobile subscriptions.
The pandemic has fast forwarded the digitalization of societies, including remote working, by months if not years. A resilient digital infrastructure is critical. We see more signs that countries and enterprises see 5G as a key access technology, with increasing deployment speed in Australia, the Middle East, North East Asia and the US. The pandemic has exposed the digital divide and rapid deployment of 5G is a fast way to bridge the divide.
The Swedish telecom regulator's decision to exclude Chinese vendors from 5G networks may create exposure for our operations in China. Our business in 180 markets today has been built on free trade and open, competitive markets. This has also ensured the development of a single global standard for mobile communication. It is critical that responses to the geopolitical situation safeguard the extraordinary value associated with those operating standards for 5G and beyond.
During 2020 we further reinforced our strong commitment to ethics and compliance. We increased the investment with the recruitment of additional dedicated resources and the deployment of new or revised processes and controls. As a vital cornerstone, we put focus on establishing a durable ethical culture that is built on individual accountability for responsible business practices. The ongoing independent monitorship is providing valuable contributions to achieving our ambition.
Long-term business fundamentals remain strong and we will continue to invest in further strengthening our portfolio and growing our global footprint. While we expect temporary negative impact during 2021 from IPR renewals, Cradlepoint and investments to strengthen our long-term business, we remain fully committed to the 2022 target as a milestone towards the long-term EBITA target of 15%-18%.
I want to take this opportunity for a shout out to all my colleagues who have turned the business around including delivering on customer commitments during a raging pandemic. I'm proud to be part of this team!
Stay healthy and well.
President and CEO
Sales adjusted for comparable units and currency
Excluding restructuring charges
Excluding restructuring charges and amortization of intangible assets
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/2020/12month20-en.pdf or on www.ericsson.com/investors
Conference call for analysts, investors and journalists
President and CEO Börje Ekholm and CFO Carl Mellander will comment on the report and take questions. The conference call will begin at 9:00 AM CET (8:00 AM GMT London, 3:00 AM EST New York).
To join the conference call, please phone one of the following numbers:
Sweden: +46 (0)8 566 426 51 (Toll-free Sweden: 0200 883 685)
International/UK: +44 (0)333 300 0804 (Toll-free UK: 0800 358 9473)
US: +1 631 913 1422 (Toll-free US: +1 855 85 70686)
PIN code: 39453485#
Please call in at least 15 minutes before the conference call starts.
A live audio webcast of the conference call will be available at www.ericsson.com/investors.
A replay of the conference call will be available from about one hour after the conference call has ended until February 5, 2021.
Sweden replay number: +46 (0)8 519 993 85
International replay number: +44 (0)333 300 0819
US replay number: +1 (866) 931 1566
PIN code: 301335799#
FOR FURTHER INFORMATION, PLEASE CONTACT
Peter Nyquist, Head of Investor Relations
Phone: +46 705 75 29 06
Stella Medlicott, Senior Vice President, Marketing and Corporate Relations
Phone: +46 730 95 65 39
Lena Häggblom, Director, Investor Relations
Phone: +46 72 593 27 78
Stefan Jelvin, Director, Investor Relations
Phone: +46 709 86 02 27
Peter Olofsson, Head of Corporate Communications
Phone: +46 702 67 34 45
Phone: +46 10 719 69 92
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 AM CET on January 29, 2021.
This information was brought to you by Cision http://news.cision.com
The following files are available for download:
Ericsson fourth quarter and full year report 2020