| CEO COMMENTS
“Our focus on profitable growth through intensified customer partnerships
and operational excellence is successful and is giving us a distinct competitive
advantage,” says Carl-Henric Svanberg, President and CEO of Ericsson.
“The increase in mobile infrastructure market share of two to three
percentage points last year proves the strength of our strategy.
We are seeing several exciting developments in the industry. Operator
interest in services continues to grow. Our strategic managed services
contract win with H3G in Italy during the quarter extends our leading
position further in this area. We also see encouraging signs of accelerated
infrastructure investments in both China and the U.S.
Our long and strong market presence throughout the world is unique. This
provides growth opportunities from the increased number of subscribers
and usage as well as the introduction of new exciting services. Launches
of richer, more convenient and efficient services are repeatedly rewarded
by consumers. With our consumer understanding and technology leadership
we are well positioned to support our customers in meeting consumer needs,”
concludes Carl-Henric Svanberg.
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FINANCIAL HIGHLIGHTS
2004 numbers restated in accordance to IFRS, please
see www.ericsson.com/investors/doc/ifrs_statement.pdf. IAS 39 implemented
as of January 1, 2005, related to financial instruments.
Income and cash flow
| |
First
quarter |
Fourth
quarter |
SEK b. |
2005 |
2004 |
Change |
2004 |
Change |
Net sales |
31.5 |
28.1 |
12% |
39.4 |
-20% |
Gross margin |
48.5% |
44.7% |
- |
45.6% |
- |
Operating income |
6.6 |
3.9 |
- |
8.9 |
- |
Operating margin |
21.0% |
14.0% |
- |
22.7% |
- |
Income after financial items |
6.7 |
3.7 |
- |
8.7 |
- |
Net income 1) |
4.6 |
2.6 |
- |
5.6 |
- |
Earnings per share 1) |
0.29 |
0.16 |
- |
0.35 |
- |
Cash flow before financial investing activities |
-6.5 |
2.9 |
- |
5.3 |
- |
Cash flow before financial
investing activities excl. pension trust funding |
1.8 |
2.9 |
- |
5.3 |
- |
1)
Attributable to stockholders of the parent company, excluding minority interest..
Sales were up 12% year-over-year and showed a sequential decline of 20%
due to seasonality. The year-over-year development is encouraging but
the comparison is also somewhat favorable due to a somewhat slower start
last year.
Currency exchange effects negatively impacted sales in the quarter by
5%, compared to currency exchange rates one year ago. In constant currencies
sales for the quarter grew by 17%.
Gross margin was 48.5%, a reflection of a favorable product mix as well
as continuous focus on cost of sales reductions. The operating margin
was 21.0% and includes increased R&D investments in selected areas.
Net effects of currency exchange differences on operating income compared
to the rates one year ago were SEK -0.9 b. in the quarter.
Financial net amounted to SEK 0.1 b.
Cash flow from operations was SEK 1.8 b. excluding pension trust transfers.
Work in progress increased as a result of a higher business activity level.
With the transfer of cash or cash equivalents of SEK 8.3 b. into a Swedish
pension trust cash flow was negatively affected during the quarter and
amounted to SEK -6.5 b.
Balance sheet, cash flow and other performance indicators
| |
Three months |
Full year |
| SEK b. |
2005 |
2004 |
| Net cash |
43.1 |
42.9 |
| Interest bearing provisions and liabilities |
28.4 |
33.6 |
| Days sales outstanding |
97 |
75 |
| Inventory turnover |
4.0 |
5.7 |
| Net customer financing |
4.2 |
3.6 |
| Equity ratio |
46.5% |
43.8% |
The financial position remained strong in the quarter. Net cash increased
by SEK 0.2 b. to SEK 43.1 (42.9) b.
Days sales outstanding has improved from 102 to 97 days compared to the
same period last year. Inventories were up in the quarter by SEK 4.0 b.
to SEK 18.0 (14.0) b., mainly due to work in progress reflecting the increased
activity level.
Deferred tax assets of SEK 1.5 b. were utilized in the quarter that decreased
the balance from SEK 20.8 b. at year-end to SEK 19.3 b.
Cash outlays with regards to restructuring amounted to SEK 0.7 b. for
the quarter. Approximately SEK 2.7 b. of restructuring charges remains
to be paid out during 2005 and beyond.
During the quarter the rating institute Standard & Poor’s raised
Ericsson’s credit rating to investment grade with a positive outlook.
Standard & Poor’s said that the move also reflected its view
on the medium term outlook for the industry. After the end of the quarter
rating institute Moody’s also raised Ericsson’s rating to
investment grade.
MARKET
AND BUSINESS HIGHLIGHTS
The steady increase in subscribers and usage stimulates the solid long-term
industry growth. This drives both infrastructure investments and the development
of more advanced consumer services. Ease of use and quality of service in
parallel with reducing operating expenses continues to be main priorities
for most operators.
Triple play, that is bringing together telephony, Internet and broadcast
media, is in focus, especially among fixed network operators. Our evolved
version of WCDMA with HSDPA is a key enabler within the mobile triple play
market, offering mobile broadband with data rates similar to fixed broadband.
HSDPA will be commercially available 2005 with volume shipments in 2006,
and is the natural evolution of WCDMA. In parallel, our strong GSM development
continues, especially in high growth markets where we expand our GSM footprint
and pave the way for WCDMA.
The development of IP to telecom grade quality levels enables a convergence
of fixed and mobile solutions for voice, data and video and thereby offers
consumers even richer experiences. IMS (IP Multimedia Sub-system) is a crucial
step toward a world of all-IP. The open IMS standard will enable operators
to deliver the new services in a secure and efficient way. Based on our
technology leadership we have a leading position in IMS and have to date
signed 27 contracts throughout the world.
Operators seek long-term partners to further develop their business, manage
the increased complexity and reduce operating expenses. Our services’
offering is an important competitive advantage in being able to meet this
demand. We particularly see strong demand for systems integration and managed
services, which includes hosting.
Regional overview
Western Europe sales grew 26% year-over-year. Italy and Spain continued
to show strong development and the region as a whole is benefiting from
ongoing 3G deployments and GSM capacity enhancements.
Central Europe, Middle East and Africa sales grew 20% year-over-year with
particularly good development in Africa and Eastern European markets such
as Turkey and Ukraine. The growing demand for EDGE and WCDMA continues to
stimulate the positive development in the region.
Asia Pacific sales were up by 4% year-over-year. Strong development in important
markets such as India, Indonesia, Bangladesh and Pakistan contributed to
the sales growth. The development in China has been somewhat slower in the
first quarter but should pick up going forward. Operators are evaluating
different 3G technologies and performing large-scale trials with WCDMA as
the natural choice for the dominating GSM technology. A Chinese telecom
reform is expected mid year 2005 and should trigger the issuing of 3G licenses.
Irrespective of license decisions we expect increased infrastructure spending
going forward.
North America sales continue to be affected by the temporary slow down in
capital expenditure due to operator consolidation and sales declined by
24% year-over-year. Sales should start to pick up as the 3G roll out starts
later this year. During the quarter Ericsson also announced a contract to
provide WCDMA equipment and telecom services to the U.S. Navy MUOS program.
Latin America continues to show a positive development and sales grew by
24% year-over-year through strong GSM sales. Brazil and Mexico in particular
contributed to the year over year growth .
Subscriber growth
During the quarter, five new WCDMA networks were commercially launched,
bringing the total to 61. We are a supplier to 36 of these networks. WCDMA
subscriptions grew from approximately 16 million to more than 21 million
during the quarter. The number of CDMA2000 1xEV-DO subscriptions has now
reached 12 million.
Net subscriber additions were close to 100 million in the quarter. At the
end of the quarter worldwide subscription penetration is 28% with a total
of more than 1.8 billion subscriptions, of which almost 1.4 billion are
in GSM. The strong subscriber growth continues and the global number of
subscriptions could pass 2 billion already by year-end.
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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SEGMENT RESULTS
2004 numbers restated in accordance to IFRS, please
see www.ericsson.com/investors/doc/ifrs_statement.pdf. IAS 39 implemented
as of January 1, 2005, related to financial instruments.
Systems
| |
First
quarter |
Fourth
quarter |
| SEK b. |
2005 |
2004 |
Change |
2004 |
Change |
| Net sales |
29.0 |
26.1 |
11% |
36.8 |
-21% |
| Mobile networks |
23.5 |
21.1 |
11% |
29.1 |
-19% |
| Fixed networks |
1.0 |
0.9 |
17% |
1.5 |
-31% |
| Professional Services |
4.5 |
4.1 |
9% |
6.2 |
-27% |
| Operating income |
6.2 |
3.5 |
- |
7.9 |
- |
| Operating margin |
21% |
13% |
- |
21% |
- |
Sales in Mobile Networks grew by 11% year-over-year. In constant currencies
sales grew by 16%year-over-year.
In the evolution from GSM to WCDMA most customers are deploying hybrid
networks that combine GSM and WCDMA. The growth in the GSM/WCDMA track
was approximately 11% in the quarter. Of radio access sales 42% were WCDMA/EDGE
related. The strong subscriber growth continues and supports the growth
in Mobile Networks sales.
Sales within Professional Services have developed well during the quarter
and grew approximately 9% year-over-year. In constant currencies the growth
was 14% year-over-year. The size of the managed services contract with
H3G in Italy which was announced during the quarter represents a milestone
in the industry and is Ericsson’s largest contract to date, extending
our lead even further.
Other Operations
| |
First quarter |
Fourth quarter |
SEK b. |
2005 |
2004 |
Change |
2004 |
Change |
Net sales |
2.7 |
2.4 |
11% |
3.3 |
-18% |
Operating income |
0.0 |
0.0 |
- |
0.5 |
- |
Operating margin |
2% |
1% |
- |
14% |
- |
Other Operations grew year over year. Ericsson Mobile Platforms in particular
showed good development. Seasonality impacted operating income in Other
Operations.
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SONY ERICSSON MOBILE COMMUNICATIONS
For information on transactions with Sony Ericsson
Mobile Communications please see Financial statements and additional information.
Sony Ericsson Mobile Communications (Sony Ericsson) reported units shipped
up 7% and sales decreased by 4% year-over-year. Ericsson’s share
in Sony Ericsson’s income before tax was SEK 0.3 b. for the quarter,
compared to SEK 0.5 b. in the same period previous year.
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PARENT COMPANY INFORMATION
Net sales for the quarter amounted to SEK 0.4 (0.5) b. and income after
financial items was SEK 0.5 (0.9) b.
Major changes in the company’s financial position for the first
quarter include decreased other current receivables of SEK 3.4 b. Current
and long-term commercial and financial liabilities to subsidiaries decreased
by SEK 10.0 b. At the end of the quarter, cash and short-term cash investments
amounted to SEK 66.8 (71.7) b.
The commission agreement with Ericsson Treasury Services AB has been cancelled
as per January 1, 2005, and the internal banking activities have been
transferred to the parent company.
In accordance with the conditions of the stock purchase plans and option
plans for Ericsson employees, 1,427,802 shares from treasury stock were
sold or distributed to employees during the first quarter. The holding
of treasury stock at March 31, 2005, was 298,287,315 Class B shares.
OTHER INFORMATION
The Annual General Meeting decided, as previously announced and in accordance
with the proposal from the Board of Directors, on a dividend payment of
SEK 0.25 per share for 2004. The total dividend payment amounts to SEK
4.0 b.
The Annual General Meeting decided, as previously announced and in accordance
with the proposal from the Board of Directors, to implement a Long Term
Incentive Plan 2005 (LTI 2005). The LTI 2005 is based upon the same principles
as the Stock Purchase Plan 2003, which covered all employees and was supplemented
by the LTI 2004 for key contributors and senior management. The Annual
General Meeting resolved to transfer own shares in relation to the LTI
2005.
The Annual General Meeting also resolved to transfer own shares in relation
to the company’s global Stock Incentive Plan program 2001, the Stock
Purchase Plan 2003 and the LTI 2004.
Following the completion of the public cash offer for the shares in Ericsson’s
Italian subsidiary, Ericsson S.p.A, not already owned by Ericsson, Ericsson
S.p.A has been delisted.
Stockholm, April 22, 2005
Carl-Henric Svanberg
President and CEO
Date for next report: July 21, 2005
AUDITORS’ REPORT
We have reviewed the report for the first quarter ended March 31, 2005,
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 and IAS 34.
Stockholm, April 22, 2005
Bo Hjalmarsson
Authorized Public Accountant
PricewaterhouseCoopers AB
|
Peter Clemedtson
Authorized Public Accountant
PricewaterhouseCoopers AB
|
Thomas Thiel
Authorized Public Accountant |
EDITORS’ NOTE
To read the full report, please go to: http://www.ericsson.com/investors/financial_reports/2005/3month05-en.pdf
Ericsson invites the media, investors and analysts to a press conference
at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00 (CET),
April 22.
A analyst and media conference call will begin at 14.00 (CET).
Live audio webcast of the press conference and conference call as well
as supporting slides will be available at www.ericsson.com/press
and www.ericsson.com/investors.
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FOR FURTHER INFORMATION PLEASE CONTACT
Henry Sténson, Senior Vice President, Communications
Phone: +46 8 719 40 44;
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
Susanne Andersson, Investor Relations,
Phone: +46 8 719 4631
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, Market and External Communications
Phone: +46 8 719 2864, +46 70 519 8903;
E-mail: press.relations@ericsso.com
Åse Lindskog, Head of 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
Telefonbolaget LM Ericsson (publ)
Org. number: 556016-0680
Torshamnsgatan 23
SE-164 83 Stockholm
Phone: +46 8 7190000
www.ericsson.com
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.
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