| CEO COMMENTS
“We have experienced the strongest growth in mobile users ever.
With 300 million new subscribers in 2004, 27% of the world’s population
now has access to mobile communications,” says Carl-Henric Svanberg,
President and CEO of Ericsson. “This is exciting for a company with
a vision of an all-communicating world.
We are proud of our performance in 2004 with strong growth and high margins.
This has been a year with a number of strategic business wins in both
systems and professional services and we have clearly strengthened our
market position further.
2004 was a breakthrough year for WCDMA with rollouts across Europe and
parts of Asia Pacific. The total number of subscribers has now passed
16 million. In 2005 deployments will start in North America as well. Through
a number of orders in WCDMA/HSDPA operators are confirming their confidence
in our technology leadership.
The good growth of GSM and EDGE continues, especially in emerging markets,
driven by the basic need for communication. Our introduction of more cost
efficient solutions for low penetration areas as well as enhanced data
communication capabilities further expands the potential,” concludes
Carl-Henric Svanberg.
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FINANCIAL HIGHLIGHTS
Income statement
| |
Fourth
quarter |
Third
quarter |
Full
Year |
SEK b. |
2004 |
2003 |
Change |
2004 |
Change |
2004 |
2003 |
Change |
Orders booked, net |
37.9 |
29.5 |
29% |
29.0 |
31% |
133.0 |
113.0 |
18% |
Net sales |
39.4 |
36.2 |
9% |
31.8 |
24% |
132.0 |
117.7 |
12% |
Gross margin |
45.6% |
41.6% |
- |
47.1% |
- |
46.3% |
37.1% |
- |
Operating income |
9.5 |
6.3 |
- |
7.2 |
- |
28.9 |
5.2 |
- |
| Operating margin |
24.0% |
17.5% |
- |
22.7% |
- |
21.9% |
4.4% |
- |
Income after financial items |
9.3 |
5.9 |
- |
7.0 |
- |
28.4 |
4.4 |
- |
Net income |
6.0 |
0.1 |
- |
4.8 |
- |
19.0 |
-10.8 |
- |
Earnings per share |
0.38 |
0.01 |
- |
0.30 |
- |
1.20 |
-0.69 |
- |
Cash flow before financing
activities |
5.3 |
4.6 |
- |
5.2 |
- |
17.7 |
19.5 |
- |
Note: Gross margin adjusted for restructuring charges
in the fourth quarter 2003 SEK 0.8 b. and for the full year 2003 by SEK
4.8 b. Operating income, Operating margin and Income after financial items
adjusted for restructuring charges in the fourth quarter 2003, net, SEK
4.0 b. and for the full year 2003 by SEK 16.5 b.
Sales were up 24% sequentially due to seasonally strong demand and were
up 12% for the full year with especially strong growth in Mobile Networks.
All markets were up, except for North America, which was down both sequentially,
and year-over-year due to the temporary impact of mergers between operators.
Currency exchange effects negatively impacted sales in the quarter by
5% and by 6% for the full year, compared to rates one year ago. In constant
currencies sales for the full year grew by 18%.
Gross margin was slightly down sequentially, mainly due to a large number
of new network rollouts in the quarter. The operating margin improved
as a result of further decreasing operating expenses as a percentage of
sales and an increase in other operating revenues, mainly attributable
to licensing.
Net effects of currency exchange differences on operating income compared
to the rates one year ago were SEK -1.2 b. in the quarter and SEK -3.7
b. for the full year.
Financial net has been negatively affected by SEK -0.2 b. due to costs
associated with the repurchase of bonds as well as cancellation of a revolving
credit facility.
Balance sheet, cash flow and other performance indicators
| |
Full year |
Nine months |
| SEK b. |
2004 |
2003 |
Change |
2004 |
| Net cash |
42.9 |
27.0 |
59% |
36.8 |
| Interest bearing provisions and liabilities |
33.6 |
46.2 |
- |
35.8 |
| Days sales outstanding |
75 |
79 |
-4 |
88 |
| Inventory turnover |
5.7 |
6.1 |
- |
4.8 |
| Net customer financing |
3.6 |
4.0 |
- |
3.4 |
| Equity ratio |
42.8% |
34.4% |
- |
40.9% |
| Cash flow before financing activities |
17.7 |
19.5 |
-1.8 |
12.4 |
The financial position remained strong for the year, net cash increased
with SEK 15.9 b. to SEK 42.9 (27.0) b.
Inventories were down in the quarter with SEK 2.5 b. to SEK 14.0 (11.0)
b., mainly due to work in process in the field being completed. For the
full year inventories increased by SEK 3.0 b., due to higher business
activities.
Deferred tax assets were utilized by SEK 5.3 b. for the full year from
SEK 27.1 b. to SEK 21.8 at year-end.
Debt has been reduced by SEK -1.8 b. in the quarter and for the full year
by SEK 13.6 b. through repayment of maturing debt as well as repurchase
of bonds.
Cash outlays with regards to restructuring amounted to SEK 5.7 b. for
the full year. Of this SEK 1.0 b. was paid in the fourth quarter.
Ericsson has established a Swedish pension trust for the purpose of funding
the pension liabilities under the Swedish ITP plan. Cash or cash equivalents
of SEK 8.3 b. was transferred into the trust in January 2005.
MARKET AND BUSINESS
HIGHLIGHTS
Long-term growth drivers of the industry remain solid. Voice and data traffic
increases steadily as a result of new subscribers, new and improved services
and lower tariffs. Consumer behavior drives business and technology development.
Offering consumers ease of use and quality of service while reducing operating
expenses is key for operators.
Our GSM success continued in 2004, with upgrades in all markets and rollouts
especially in emerging markets. GSM is paving the way for deployment of
WCDMA. Ericsson’s leading WCDMA position was expanded further during
the year, and during the fourth quarter we gained key contracts in the U.S.,
Europe and Africa.
In close cooperation with operators we continue to add value through our
services offering. Sales growth in Professional services has accelerated
during the year, especially in systems integration, managed services and
hosting. During the year we have gained a number of strategic contracts
throughout the world.
The strong growth in fixed broadband continues and high-speed broadband
access has become the generally expected level of service in many markets.
We have won commercial agreements for delivery of 2 million next generation
IP broadband access lines, representing a 15 to 20% share of this fast growing
market.
Regional overview
Western Europe sales grew 12% for the full year. This was driven by accelerating
deployment and consumer uptake of 3G services as well as additional capacity
enhancements in GSM. Operators’ increasing tariff competition is stimulating
traffic growth. Italy and Spain in particular showed strong sequential development
in the fourth quarter.
Central Europe, Middle East and Africa sales grew 23% for the full year.
The year ended with a strong sequential performance, particularly in Central
Europe. GSM continues to be the prevailing standard in the market. However,
there is also a growing demand for EDGE and WCDMA.
The Asia Pacific region shows strong development reflecting increased usage
and number of subscribers. Sales grew 4% for the full year after a slower
start of the year. In the fourth quarter sequential development was especially
encouraging in China and India. The demand for GSM continues as operators
invest in coverage and capacity enhancements. In parallel there is a growing
demand for advanced mobile services in all markets.
North America showed a temporary slow down in capital expenditure due to
operator consolidation, which is reflected in the full year sales decline.
As competition accelerates, operators are increasing their focus on quality
and coverage as well as the introduction of new services. This paves the
way for a positive development going forward.
The activity level in Latin America has been high, with new GSM network
rollouts and capacity enhancements, following successful operator consolidation.
Argentina and Brazil have contributed strongly to make Latin America our
strongest growing region for the year with sales up 46%.
Subscriber growth
During the fourth quarter, eleven new WCDMA networks were commercially launched,
bringing the total to 56. We are a supplier to 35 of these networks. The
number of WCDMA subscriptions grew from approximately 10 million to more
than 16 million during the quarter. The number of CDMA2000 1xEV-DO subscriptions
has now reached well over 11 million.
Net subscriber additions were 300 million in 2004, the largest growth to
date. Worldwide subscription penetration is 27% with a total of 1.7 billion
subscriptions, of which almost 1.3 billion are in GSM. The global number
of subscriptions could pass 2 billion already during 2006. Approximately
50 million new fixed broadband subscriptions were added during the year,
of which 8 million were next generation IP broadband.
Top of page OUTLOOK
All estimates are measured in USD and refer to market
growth compared to previous year.
The traffic growth in the world’s mobile networks is expected to
continue as a result of new services as well as new subscribers. 2004
was a strong growth year in terms of mobile infrastructure investments
following a pent up demand. For 2005 we maintain our view that the global
mobile systems market will show slight growth compared to 2004.
We maintain our view that the addressable market for professional services
is expected to continue to show good growth.
With our technology leadership and global presence we are well positioned
to take advantage of these market opportunities.
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BUSINESS AND TECHNOLOGY
MILESTONES 2004
GSM/GPRS
New customers and expansion contracts in all regions with particular
growth in emerging markets such as Bangladesh, Brazil, China, India and
Russia. Largest GSM contract announced to date with Guangdong Mobile in
China. Contract wins for Ericsson Expander in all regions.
3G
The WCDMA footprint expanded in new regions such as Africa, Central Europe,
and the U.S.
New customers and expansion WCDMA contracts announced with Cingular, mobilkom
Austria, MTN, ONE, Polkomtel, TeliaSonera in Denmark, and 3 Scandinavia.
Strategic breakthrough contract with Cingular for WCDMA/HSDPA in the U.S.
Ongoing customer trials for HSDPA in a number of countries.
Announced EDGE contracts include AIS, Batelco, DiGi, Dishnet, EMT, Faroese
Telecom, Jiangsu Mobile, MobilCom, Swisscom Mobile, T-Mobile Hungary,
Telenor Mobil, and Ålands Mobiltelefon. New and expansion contracts
for CDMA2000 1x in China and India.
Signed 25 IMS system contracts, of which 21 in 2004, for commercial launch
or trial. The contracts are distributed over the Africa, Americas, Asia
and Europe and include GSM/GPRS, WCDMA, CDMA2000 and wireline implementations.
Ericssons’s mobile softswitch in 18 commercially deployed networks
of which nine were deployed during 2004.
Services
Announced managed services contracts include Auna, Bharti, Brasil Telecom,
Chariton Valley Wireless Services, Indigo Wireless, Orange Switzerland,
PSC Wireless and Warid Telecom. Subsequent to the close of the quarter
a managed services deal was also announced with H3G in Italy, our largest
managed services contract to date.
Announced contracts for hosting services include Tele2, Sun Cellular,
Maxis, TeliaSonera, Telefónica Móvil, PanTel, Monortel,
Invitel, Hungarotel, Emitel, Midwest Wireless, Rural Cellular Corporation,
BT Mobile World and ALLTEL. Successful launch of Ericsson’s mobile
music service M-USE.
Other business highlights
Ericsson Mobile Platforms (EMP) has strengthened its position and enjoy
a 30% global market share in WCDMA handsets. During the year EMP announced
contracts with Amoi, Bellwave, NEC and Sharp. Earlier announced contracts
include Microcell, HTC, LG Electronics, Lite-On, Sony Ericsson and TCL
Mobile.
Competitive next generation IP broadband access solution gaining momentum
with contracts announced in Brazil, Finland, FYROM, India, Indonesia and
Sweden.
Top of page
SEGMENT RESULTS
SYSTEMS
| |
Fourth quarter |
Third quarter |
Full
Year |
SEK b. |
2004 |
2003 |
Change |
2004 |
Change |
2004 |
2003 |
Change |
Orders booked |
35.3 |
27.6 |
28% |
27.4 |
29% |
125.0 |
105.4 |
19% |
Mobile networks |
27.6 |
20.5 |
35% |
22.8 |
21% |
100.8 |
79.5 |
27% |
Fixed networks |
1.6 |
1.1 |
40% |
0.7 |
136% |
4.5 |
6.3 |
-29% |
Professional Services |
6.1 |
6.0 |
2% |
3.9 |
57% |
19.7 |
19.6 |
0% |
Net sales |
36.8 |
33.6 |
10% |
29.6 |
24% |
122.9 |
108.7 |
13% |
Mobile networks |
29.1 |
25.7 |
14% |
23.8 |
22% |
98.2 |
82.1 |
20% |
Fixed networks |
1.5 |
2.2 |
-32% |
1.0 |
48% |
4.6 |
8.0 |
-43% |
Professional Services |
6.2 |
5.7 |
8% |
4.8 |
28% |
20.1 |
18.6 |
8% |
Operating income |
8.3 |
5.8 |
- |
6.5 |
- |
25.3 |
6.6 |
- |
Operating margin |
23% |
17% |
- |
22% |
- |
21% |
6% |
- |
Note: Operating income and Operating margin adjusted for restructuring
charges in the fourth quarter 2003, net, SEK 3.6 b. and for the full year
2003 by SEK 12.7 b. The growth in the GSM/WCDMA track is approximately
19% for the full year. WCDMA equipment and associated network rollout
services share of total Mobile Networks sales amounted to 15% and of radio
access sales 40% were WCDMA/EDGE related.
Sales within Professional Services has developed well during the year
and grew 14% for the full year in local currencies and now represents
approximately 16% of total Systems sales.
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OTHER OPERATIONS
| |
Fourth quarter |
Third quarter |
Full
year |
SEK b. |
2004 |
2003 |
Change |
2004 |
Change |
2004 |
2003 |
Change |
Orders booked |
2.8 |
2.3 |
22% |
2.5 |
16% |
10.4 |
9.2 |
13% |
Net sales |
3.3 |
3.2 |
4% |
2.8 |
17% |
11.4 |
10.6 |
8% |
Operating income |
0.6 |
0.3 |
- |
0.3 |
- |
1.5 |
-0.4 |
- |
Operating margin |
18% |
8% |
- |
9% |
- |
13% |
-4% |
- |
Note: Operating income and Operating margin adjusted for restructuring
charges in the fourth quarter 2003 SEK 0.8 b. and for the full year 2003
by SEK 3.8 b. Within Other operations operating margin benefited
from the reversal of provisions of SEK 0.1 b., the underlying operating
margin was 15% (8%) during the quarter.
Development in Other operations was stable during the year and Ericsson
Mobile Platforms showed positive operating income for the full year.
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SONY ERICSSON MOBILE COMMUNICATIONS
For information on transactions with Sony Ericsson Mobile
Communications please see Financial statements and additional statements.
Sony Ericsson Mobile Communications (Sony Ericsson) reported sustained
growth in sales and profits. Sales increased 40% for the full year. Ericsson’s
share in Sony Ericsson’s income before tax was SEK 2.1 b. for the
full year, compared to SEK -0.6 b. in 2003.
“I am impressed by Sony Ericsson’s performance in 2004. They
have established profitability and a product portfolio geared for further
growth,” says Carl-Henric Svanberg, President and CEO of Ericsson.
“Sony Ericsson is a strategic part of our end-to-end solutions based
on in-depth consumer understanding.”
Top of page
PARENT COMPANY INFORMATION
Net sales for the year amounted to SEK 2.6 (1.6) b. and income after financial
items was SEK 7.4 (3.2) b. Restructuring costs are excluded in income
after financial items for 2003.
Major changes in the Parent Company’s financial position for the
year include decreased investments in subsidiaries of SEK 10.1 b. and
increased short- and long-term receivables from subsidiaries of SEK 7.3
b. Current and long-term liabilities to subsidiaries increased by 14.9
b. Notes and bond loans, including short-term portion, have decreased
by SEK 11.7 b. At year-end, cash and short-term cash investments amounted
to SEK 71.7 (68.4) b.
In accordance with the conditions of the Stock Purchase Plans and Option
Plans for Ericsson employees, 2,147,417 shares from treasury stock were
sold or distributed to employees during the fourth quarter. The holding
of treasury stock at December 31, 2004, was 299,715,117 Class B shares.
EFFECTS OF IFRS 2005 ON FINANCIAL REPORTING
As from 2005 Ericsson will issue consolidated financial statements in
accordance with IFRS. A further comment on comparisons and information
about effects on consolidated financial statement can be found under Financial
statements and additional information, “Ericsson IFRS reporting,”
at the end of the full report.
If IFRS had been applied to 2004 reporting, net income would have been
adjusted negatively by SEK -1.5 b. This is mainly a net effect of increased
amortization of capitalized development costs (since they are higher under
IFRS) by SEK -2.7 b., no amortization of goodwill by SEK 0.5 b. and deferred
taxes by SEK 0.7 b. The annual amortizations of capitalized development
costs under IFRS compared to Swedish GAAP are estimated to SEK -1.1 b.
for year 2005, 2006 and 2007 respectively.
During the first quarter 2005 Ericsson will publish restated tables according
to IFRS on www.ericsson.com/investors. Time for publication will be communicated
separately.
DIVIDEND PROPOSAL
The Board of Directors will propose to the Annual General Meeting a dividend
of SEK 0.25 per share and Monday, April 11, 2005 as record day for payment
of dividend.
ANNUAL REPORT
The annual report will be made available to shareholders at the Ericsson
headquarters, Torshamnsgatan 23, Stockholm, two weeks prior to the Annual
General Meeting 2005.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of shareholders will be held on April 6, 2005,
15.00 (CET) in Stockholm Globe Arena.
OTHER INFORMATION
Following industry practice, order intake will no longer be reported as
of the first quarter 2005.
In accordance with the decision by the extraordinary general meeting on
August 31, 2004, the process of changing the difference in voting rights
between A and B shares in Ericsson has now been completed as announced
on December 22, 2004. Following the change in voting rights each A share
confers to one vote and each B share confers one tenth of a vote. The
A shares are now representing 46.9% and the B shares 53.1% of the voting
rights. The total number of shares in Ericsson is now 1,308,779,918 A
shares and 14,823,478,760 B shares..
Stockholm, February 10, 2005
Carl-Henric Svanberg
President and CEO
Date for next report: April 22, 2005
AUDITORS’ REPORT
We have reviewed the report for the twelve-month period ended December
31, 2004, for Telefonaktiebolaget LM Ericsson (publ.). We conducted our
review in accordance with the recommendation issued by FAR. A review is
limited primarily to enquiries of company personnel and analytical procedures
applied to financial data and thus provides less assurance than an audit.
We have not performed an audit and, accordingly, we do not express an
audit opinion.
Based on our review, nothing has come to our attention that causes us
to believe that the interim report does not comply with the requirements
for interim reports in the Annual Accounts Act.
Stockholm, February 10, 2005
Bo Hjalmarsson
Authorized Public Accountant
PricewaterhouseCoopers AB
|
Peter Clemedtson
Authorized Public Accountant
PricewaterhouseCoopers AB
|
Thomas Thiel
Authorized Public Accountant |
Safe Harbor Statement of Ericsson under the Private Securities Litigation
Reform Act of 1995;
All statements made or incorporated by reference in this release, other
than statements or characterizations of historical facts, are forward-looking
statements. These forward-looking statements are based on our current
expectations, estimates and projections about our industry, management's
beliefs and certain assumptions made by us. Forward-looking statements
can often be identified by words such as "anticipates", "expects",
"intends", "plans", "predicts", "believes",
"seeks", "estimates", "may", "will",
"should", "would", "potential", "continue",
and variations or negatives of these words, and include, among others,
statements regarding: (i) strategies, outlook and growth prospects; (ii)
positioning to deliver future plans and to realize potential for future
growth; (iii) liquidity and capital resources and expenditure, and our
credit ratings; (iv) growth in demand for our products and services; (v)
our joint venture activities; (vi) economic outlook and industry trends;
(vii) developments of our markets; (viii) the impact of regulatory initiatives;
(ix) research and development expenditures; (x) the strength of our competitors;
(xi) future cost savings; and (xii) plans to launch new products and services.
In addition, any statements that refer to expectations, projections or
other characterizations of future events or circumstances, including any
underlying assumptions, are forward-looking statements. These forward-looking
statements speak only as of the date hereof and are based upon the information
available to us at this time. Such information is subject to change, and
we will not necessarily inform you of such changes. These statements are
not guarantees of future performance and are subject to risks, uncertainties
and assumptions that are difficult to predict. Therefore, our actual results
could differ materially and adversely from those expressed in any forward-looking
statements as a result of various factors. Important factors that may
cause such a difference for Ericsson include, but are not limited to:
(i) material adverse changes in the markets in which we operate or in
global economic conditions; (ii) increased product and price competition;
(iii) further reductions in capital expenditure by network operators;
(iv) the cost of technological innovation and increased expenditure to
improve quality of service; (v) significant changes in market share for
our principal products and services; (vi) foreign exchange rate fluctuations;
and (vii) the successful implementation of our business and operational
initiatives.
A glossary of all technical terms is available at: http://www.ericsson.com/about
and in the Annual Report.
To read the full report, please go to: http://www.ericsson.com/investors/financial_reports/2004/12month04-en.pdf
Top of page
FOR FURTHER INFORMATION PLEASE CONTACT
Henry Sténson, Senior Vice President, Corporate Communications
Phone: +46 8 719 4044;
E-mail: investor.relations@ericsson.com
or press.relations@ericsson.com
Investors
Gary Pinkham, Vice President, Investor Relations
Phone: +46 8 719 0000;
E-mail: investor.relations@ericsson.com
Lotta Lundin, Investor Relations
Phone: +46 8 719 6553;
E-mail: investor.relations@ericsson.com
Glenn Sapadin, Investor Relations
Phone: +1 212 843 8435;
E-mail: investor.relations@ericsson.com
Media
Pia Gideon, Vice President, External Relations
Phone: +46 8 719 2864, +46 70 519 8903;
E-mail: press.relations@ericsson.com
Åse Lindskog, Director, Media Relations
Phone: +46 8 719 9725, +46 730 244 872;
E-mail: press.relations@ericsson.com
Ola Rembe, Director, Media Relations
Phone: +46 8 719 9727, +46 730 244 873;
E-mail: press.relations@ericsson.com
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