SECOND QUARTER HIGHLIGHTS
- Reported sales increased by 11% YoY. Sales, adjusted for comparable units and currency, decreased by -6% YoY.
- The mobile broadband business in North America stabilized in the quarter, but remained at a lower level than a year ago.
- Professional Services continued to deliver strong sales growth YoY.
- Sales in segment Networks recovered and showed a growth QoQ of 18%.
- Gross margin decreased YoY to 33.2% (36.4%). Excluding restructuring charges, gross margin was 35.1% (36.6%) due to lower capacity business in North America and continued 4G coverage deployments in Mainland China, lower IPR revenues and higher share of services sales.
- The global cost and efficiency program is progressing according to plan and restructuring charges in the quarter were SEK 2.7 (0.2) b., mainly related to the reductions in Sweden.
- Operating income, excluding restructuring charges, improved in all segments YoY to SEK 6.3 (4.2) b. and segment Networks operating margin recovered from last quarter.
- Cash flow from operating activities recovered to SEK 3.1 (2.1) b., after a weak first quarter.
|SEK b.|| Q2 |
| Q2 |
| YoY |
| Q1 |
| QoQ |
| Six months |
| Six months |
|Sales growth adj. for comparable units and currency||-||-||-6%||-||12%||-6%||-4%|
|Gross margin excluding restructuring charges||35.1%||36.6%||-||36.3%||-||35.7%||36.6%|
|Operating income excluding restructuring charges||6.3||4.2||49%||2.7||129%||9.1||7.0|
|Operating margin excluding restructuring charges||10.4%||7.7%||-||5.1%||-||7.9%||6.8%|
|EPS diluted, SEK||0.64||0.79||-19%||0.40||60%||1.04||1.44|
|EPS (Non-IFRS), SEK 1)||1.45||1.07||36%||0.77||88%||2.22||1.98|
|Cash flow from operating activities||3.1||2.1||50%||-5.9||-152%||-2.8||11.5|
|Net cash, end of period||3.5||32.5||-89%||15.6||-78%||3.5||32.5|
|1) EPS, diluted, excl. amortizations and write-downs of acquired intangible assets, and restructuring.|
Comments from Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC)
Reported sales increased by 11%. Sales, adjusted for comparable units and currency, decreased by -6% YoY, mainly impacted by less capacity business in North America. Profitability improved sequentially, driven by a strong development in segment Networks.
The mobile broadband business in North America stabilized in the quarter, but remained at a lower level than a year ago. The YoY decline in North America was partly offset by an increased pace of 4G deployments in Mainland China. Sales growth was strong in the Middle East, India and South East Asia, while it continued to be weak in Japan. Professional Services sales increased YoY with continued strong global demand and growth in all ten regions.
The OSS & BSS business had a favorable development YoY, contributing to sales both in Professional Services and segment Support Solutions.
Segment Networks sales increased by 18% sequentially, supported by the stabilized mobile broadband sales in North America.
Operating income, excluding restructuring charges, increased YoY by almost 50%, with improvements in all segments. After a weak first quarter, segment Networks profitability recovered, driven by increased sales and a positive currency hedge effect.
Reported IPR revenues were slightly down YoY despite a positive currency effect as a majority of the licenses contracts are in USD. The decline was primarily due to the ongoing dispute with a major customer.
Cost and efficiency program
The global cost and efficiency program is progressing according to plan. The target, to achieve savings of approximately SEK 9 b. during 2017 relative to 2014, remains. During the quarter, numerous activities were implemented globally including a reduction of 2,100 positions in Sweden, resulting in higher than normal restructuring charges. Savings related to the activities will start to impact results towards the end of this year.
After a weak first quarter, cash flow from operating activities was positive in the quarter. As cash flow is volatile between quarters it should be viewed on a full-year basis. Our full-year cash conversion target of more than 70% remains.
Targeted growth areas
Our growth strategy builds on a combination of excelling in our core business and establishing leadership in targeted growth areas. We see good progress in the targeted areas and sales continued its strong development from the first quarter. This was mainly driven by a solid sales development in OSS & BSS.
The consolidation in the industry continues, both among vendors and customers, creating opportunities and challenges. Therefore we have, during the first half of 2015, accelerated our transformation journey towards becoming a true ICT company. With our ongoing strategic initiatives we are well positioned to continue to create value for our customers in a transforming market.
NOTES TO EDITORS
You find the complete report with tables in the attached PDF or by following this link www.ericsson.com/res/investors/docs/q-reports/2015/06month15-en.pdf or on www.ericsson.com/investors
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