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Entering a new chapter of growth and profitability

Ericsson provides high-performing solutions to enable its customers to capture the full value of connectivity. The company supplies communication infrastructure, services and software to the telecom industry and other sectors. Ericsson has approximately 100,000 employees and serves customers in more than 180 countries. Ericsson is listed on Nasdaq Stockholm, and the Ericsson ADS trades on NASDAQ New York. The company’s headquarters are located in Stockholm, Sweden.

Ericsson India Private Limited
Jan–June 2021. Ericsson’s share of sales from the India market doubled in the first half of the current year 2021 to 4 percent, making the country the third-highest revenue contributor for the group, according to the company’s financial performance report. This was primarily driven by 4G investment in India. India had contributed 2 percent to the global sales for Ericsson during January–June 2020. Ericsson India net sales was ₹1912.72 cr in April-June 2021, up from ₹902.94 cr in April-June 2020, and was ₹2565.11 cr in January-June 2021, a decline from ₹2735.81 cr in January-June 2020. The vendor has maintained its market share when the merger with Vodafone and Idea happened. When it comes to Bharti Airtel, Ericsson has increased market share substantially in the last few years.

Ericsson India Pvt Ltd
Net sales ₹crore
Jan-June 2021 2565.11
Jan-June 2020 2735.81
AMJ 2021 1912.72
AMJ 2020 902.94

“India is a strategic market for Ericsson, and for us our presence here is important. We are committed to the country and will continue to invest. To this effect, we have participated in the government’s PLI scheme for the telecom sector and the additional investments made under this scheme will help us scale our Pune facility. We look forward to the opportunity of helping Indian service providers seamlessly evolve their networks from 4G to 5G.” says Nitin Bansal, MD, India & Head-Networks, South East Asia, Oceania and India, Ericsson.

Ericsson India Private Limited’s Annual General Meeting (AGM) was last held on September 30, 2020 and as per records from Ministry of Corporate Affairs (MCA), its balance sheet was last filed on March 31, 2020.

In CY2020, South East Asia, Oceania and India was 13 percent of net sales in 2020, value is SEK 30048 million out of total SEK 232,390 million (it was SEK 29776 mn in 2019). In 2020, sales grew by 1 percent in South East Asia, Oceania and India.

Ericsson
January–September 2021. Reported sales decreased by 1 percent. Sales adjusted for comparable units and currency increased by 6 percent, driven primarily by sales in market area North America and in Europe and Latin America. Networks sales adjusted for comparable units and currency increased by 8 percent, and Digital Services increased by 1 percent. Sales in Mainland China in Networks and Digital Services declined by SEK 5.8 billion, impacting the Group growth rate adjusted for comparable units and currency by 4 percent, with the same impact in Networks and Digital Services. Sales adjusted for comparable units and currency increased by 9 percent in Emerging Business and Others, while Managed Services declined by 5 percent.

Ericsson

Financial statement

SEK million – January-September
Particulars 2021 2020 YoY change
Net sales 161 162.8 1%
Gross income 69.9 65.5 7
Gross margin (%) 43.4 40.2
EBIT 19.9 16.8 19%
  of which  Networks 25.5 20.2 26%
  of which Digital  services (3.9) (2.7)
  of which Managed services 1.1 1.2 4%
  of which Emerging Business and Other (2.8) (1.9)
EBIT margin (%) 12.4 10.3
Net income 12.8 10.4 23%
EPS diluted, SEK 3.79 3.0 0.26%
Gross margin excluding restructuring charges (%) 43.5 40.7
EBIT margin excluding restructuring charges (%) 12.4 11.1
EBITA excluding restructuring charges 21.0 19.1 10%
EBITA margin excluding restructuring charges (%) 13.1 11.7

Reported gross margin increased to 43.4 percent (40.2 percent), driven primarily by strengthened operational leverage in Networks.

Reported EBIT increased to SEK 19.9 (16.8) billion as a result of improved gross income.

Reported EBITA increased to SEK 21.0 (17.7) billion. EBITA, excluding restructuring charges, was SEK 21.0 (19.1) billion, corresponding to an EBITA margin excluding restructuring charges of 13.1 percent (11.7 percent).

Net income year-to-date improved to SEK 12.8 (10.4) billion, with the improved gross income partly offset by the financial net.

Networks sales were stable YoY, despite considerably lower volumes from Mainland China, reflecting market share gains in other markets. Excluding sales in Mainland China, Networks sales increased by 8 percent in the third quarter, compared to the same period last year. However, late in 3Q, the company experienced some impact on sales from disturbances in the supply chain, and such issues will continue to pose a risk.

Gross margin improved to 47.8 percent (46.7 percent), driven by operational leverage and higher IPR revenues. Digital Services sales grew by 1 percent despite a stark sales reduction in Mainland China. Excluding sales in Mainland China, Digital Services sales increased by 6 percent in the third quarter compared to the same period last year.

Initial revenues from 5G contracts are seen driving growth in the Core business.

Gross margin was 42.3 percent (43.5 percent), impacted mainly by initial deployment costs in cloud-native 5G Core projects. Increase in R&D investments in the 5G portfolio, including Core and orchestration continues, further strengthening its competitive position.

With increasing sales, in combination with a higher share of software sales, the company expects profitability to gradually improve and over time exceed the original target of EBIT margin of 10 percent–12 percent.

South East Asia, Oceania, and India. Currency-adjusted sales decreased by 16 percent YoY. Networks sales declined YoY due to accelerated rollouts in the second half of 2020, and timing of orders in 2021. Sales declined YoY in Digital Services due to timing of orders and project milestones. Managed Services declined YoY, mainly due to contract renegotiations and timing of variable sales. Market area sales decreased by 17 percent, from SEK 7.8 billion in 3Q2020 to SEK 6.5 billion in 3Q2021.

Ericsson

Consolidated income statement

SEK million 2021 2021
Net sales 2,32,390 2,27,216
Cost of sales (1,38,666) (1,42,392)
Gross income 93,724 84,824
Operating expenses (66,280) (64,215)
Operating income 27,808 10,564
Financial income and expenses net (596) (1,802)
Income after financial items (loss) 27,212 8,762
Income tax (9,589) (6,922)
Net income (loss) 17,623 1840
EPS (SEK) 5.26 0.67

Consolidated balance sheet

SEK million 2021 2021
Current assets 1,49,795 1,53,914
Non-current assets 1,21,736 1,22,469
Total assets 2,71,530 2,76,383
Total equity 85,177 81,878
Total liabilities 1,86,353 1,94,505
Total equity and liabilities 2,71,530 2,76,383


January–December 2020.
Despite a challenging environment in 2020, Ericsson completed its turnaround, delivered on its financial targets, and established a leadership position in 5G. More importantly, the people continued to deliver and to serve the customers with no disruptions. The pandemic showed the criticality of the digital infrastructure for society. Looking ahead, this infrastructure will increasingly drive global sustainable growth and Ericsson is well positioned to create value from the ongoing digital transformation.

Net sales. Reported sales increased by SEK 5.2 billion or 2 percent to SEK 232.4 (227.2) billion. Networks sales increased by SEK 11.0 billion or 7 percent, Digital Services sales decreased by SEK 2.5 billion or 6 percent, Managed Services sales decreased by SEK 3.0 billion or 12 percent and Emerging Business and Other sales decreased by SEK 0.3 billion or 4 percent. Sales adjusted for comparable units and currency increased by 5 percent.

Sales by region

(SEK b) Jan-Sep 2021
North America 55.2
Europe and Latin America 41.0
South East Asia, Oceania, and India 20.2
North East Asia 19.3
Middle East and Africa 13.8
Others 11.4
Total 161.0

 

Sales by segment

January-September
(SEK b) 2021 2021 YoY change
Networks 116.7 116.6
Digital services 23.4 24.7 (5)%
Managed services 15.0 16.8 (10)%
Emerging Business and Other 5.8 4.8 22%
Total 160.9 162.9 (1)%

IPR licensing revenues increased to SEK 10.0 (9.6) billion as lower volumes with one licensee were offset by new contracts. Sales growth in Networks was primarily driven by higher hardware deliveries following increased footprint. In the geographical dimension, sales growth was primarily driven by North-East Asia, North America, and Europe.

Sales growth adjusted for comparable units and currency increased by 10 percent. Digital Services sales declined mainly due to lower sales in the legacy portfolio, primarily in hardware. Sales grew in South-East Asia, Oceania, and India and in North-East Asia. Sales adjusted for comparable units and currency declined by 3 percent.

Sales declined in Managed Services, mainly due to lower variable sales in a managed services contract in North America, post the merger between two large operators and transfer of a managed services contract to an associated company. Sales adjusted for comparable units and currency decreased by 10 percent.

Sales in Emerging Business and Others declined due to reduced sales in the media businesses. Sales adjusted for comparable units and currency decreased by 4 percent.

In the market area dimension, sales growth in North-East Asia, North America as well as in South-East Asia, Oceania, and India offset a decline in the two remaining market areas.

The sales mix by commodity was: software 22 percent (21 percent), hardware 41 percent (38 percent) and services 37 percent (41 percent).

Gross margin. Reported gross margin was 40.3 percent (37.3 percent). Gross margin excluding restructuring charges improved to 40.6 percent (37.5 percent) with strong margin improvements in all segments. A lower share of services sales had a positive impact on the gross margin. Networks margin was supported by operational leverage. Digital Services margin improved due to increased share of software as well as limited impact from the critical contracts in 2020. Managed Services gross margin improved mainly as an effect of efficiency gains. The gross margin in Emerging Business and Others increased driven by Emerging Business (IoT platforms, Edge Gravity exit, and Cradlepoint).

Restructuring charges included in the gross margin increased to SEK 0.7 (0.3) billion.

Operating expenses increased to SEK 66.3 (64.2) billion with increases in research and development expenses, selling and administrative expenses, and reduced provision release from impairment losses on trade receivables.

Research and development (R&D) expenses increased to SEK 39.7 (38.8) billion. Higher R&D expenses in segment Networks driven by investments in a broader portfolio of antenna and site solutions and in 5G, while R&D investments in Digital Services decreased. Restructuring charges impacted R&D expenses by SEK 0.4 (0.3) billion.

Selling and administrative (SG&A) expenses increased to SEK 26.7 (26.1) billion mainly due to the acquired Cradlepoint business as well as continued investments in compliance and digital transformation. Revaluation of customer financing was SEK 0.3 (0.7) billion. Restructuring charges impacted SG&A expenses by SEK 0.2 (0.1) billion. Impairment losses on trade receivables.

Impairment losses on trade receivables were SEK 0.1 (0.7) billion.

Other operating income and expenses was SEK 0.7 (9.7) billion. Costs of SEK 10.7 billion related to the resolution of the US SEC and DOJ investigations impacted 2019 negatively. Share in earnings of JVs and associated companies was SEK 0.3 (0.3) billion.

Restructuring charges increased to SEK 1.3 (0.8) billion. The restructuring charges were mainly related to restructuring of the acquired antenna and filter business in segment Networks and to organizational changes as a consequence of the operator merger in North America.

Operating income and margin. Reported operating income improved to SEK 27.8 (10.6) billion. Operating margin in 2019 was impacted by costs of SEK 10.7 billion related to the resolution of the investigations by US SEC and DOJ. Operating income, excluding restructuring charges and the SEC and DOJ resolution regarding the investigation costs in 2019, improved to SEK 29.1 (22.1) billion, with an operating margin excluding restructuring charges of 12.5 percent (9.7 percent). The improvement was primarily driven by hardware sales in segment Networks.

Net income and EPS. Net income improved to SEK 17.6 (1.8) billion driven by stronger operating income. EPS diluted was SEK 5.26 (0.67) and adjusted EPS was SEK 5.83 (1.07).

Börje Ekholm
President & CEO,
Ericsson

“We continue to win footprint across our business by leveraging our competitive 5G portfolio. The 5G contracts now awarded by all three Tier-I US carriers are the largest in Ericsson’s history.

Through continuous measures for global supply chain resilience, we avoided customer impact during the first half of the year. However, late in 3Q, we saw some impact on sales from disturbances in the supply chain, and such issues will continue to pose a risk.

While we continued to gain share in a growing market, the expected sales reduction in Mainland China, lower variable sales in Managed Services and some supply chain disturbances, led to a negative organic sales development of 1 percent. As a consequence of the reduced market share in Mainland China, the company is planning to resize its sales and delivery organization in the country, starting in 4Q, adding to its restructuring charges.

The company increased IPR revenues to SEK 2.6 (2.2), driven by new agreements, with retroactive impact, confirming the company’s IPR position. With the significant value of its broad patent portfolio and strong position in 5G, reaffirmed by the recent agreement with Samsung, the company believes it is well positioned to conclude pending and future patent license renewals. The timing of agreement renewals may cause temporary gaps in IPR revenues.

In 3Q2021, the company signed a USD 2-billion sustainability-linked revolving credit facility, further integrating its sustainability ambitions by linking its climate action targets to its financial activities.

5G for Enterprise provides an exciting opportunity for Ericsson. The acquired Cradlepoint business is developing favorably, contributing to gross-margin improvement for the Group in 3Q2021. Building on the strong foundations of its core business, the company will continue to invest in the Enterprise business, aiming at Enterprise becoming a sizeable part of Ericsson’s business in a few years.”

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