[Ericsson discloses the information provided herein pursuant to the
Swedish Securities Exchange and Clearing Operations Act and/or the
Swedish Financial Instruments Trading Act. The information was
submitted for publication at 07.30 CET, on February 1, 2008.]
* Sales SEK 54.5 (54.2) b. full year SEK 187.8 (179.8) b. organic
growth 8% in constant currencies
* Operating income SEK 7.6 (12.2) b., full year SEK 30.6 (35.8) b.
* Operating margin 14% (23%), 16% (20%) for full year
* Cash flow from operations SEK 12.0 (11.0) b., SEK 19.2 (18.5) b.
full year
* Net income SEK 5.6 (9.7) b., full year SEK 21.8 (26.3) b 1)
* Earnings per share SEK 0.35 (0.61), SEK 1.37 (1.65) full year 1)
* The Board of Directors will propose an unchanged dividend of SEK
0.50 per share
CEO COMMENTS"During 2007 we continued to strengthen our competitive position,"
said Carl-Henric Svanberg, President and CEO of Ericsson
(NASDAQ:ERIC). We generated an operating income of SEK 30 b. During
the autumn we did however experience significant margin erosion in
our networks business.
The continued rapid build out of mobile communications in emerging
markets and our significant market share gains have resulted in a
higher proportion of new network builds with initial lower margins.
At the same time, we have seen a decline in network expansions and
upgrades in mature markets. All this is resulting in a lower margin.
The ongoing shift to new switching technologies, where we now build
new footprint, has similar characteristics, which adds to this
effect.
The mobile networks market growth slowed during the year. As
expected, our sales in the quarter were affected by political unrest
in certain emerging markets. Professional services continued to show
strong growth with stable margins while Multimedia is in a build-up
phase and includes areas with good growth and healthy margins as well
as investment areas. Cash flow improved in the fourth quarter leading
to a better cash conversion year-over-year.
We have steadily improved our leading position and market share in an
increasingly challenging market. Our ambition is to continue to do
so, irrespective of market fluctuations. Industry fundamentals and
consumer behavior support a positive longer-term outlook. The market
growth however slowed during last year and for 2008 we find it
prudent to plan for a flattish mobile infrastructure market. We will
intensify our operational excellence programs and reduce our cost
base to safeguard our competitive position," said Carl-Henric
Svanberg.
FINANCIAL HIGHLIGHTS
Income statement and cash flow
Fourth quarter Third quarter Full year
SEK b. 2007 2006 Change 2007 Change 2007 2006 Change
Net sales 54.5 54.2 0% 43.5 25% 187.8 179.8 4%
Gross
margin 36.1% 42.2% - 35.6% - 39.3% 41.7% -
EBITDA
margin 18.4% 26.3% - 17.4% - 20.8% 24.1% -
Operating
income 7.6 12.2 -38% 5.6 35% 30.6 35.8 -14%
Operating
margin 14.0% 22.5% - 12.9% - 16.3% 19.9% -
Operating
margin
ex Sony
Ericsson 9.8% 18.3% - 9.0% - 12.5% 16.7% -
Income after
financial items 7.6 12.2 -37% 5.6 36% 30.7 36.0 -15%
Net income1) 5.6 9.7 -42% 4.0 42% 21.8 26.3 -17%
EPS, SEK1) 0.35 0.61 -43% 0.25 40% 1.37 1.65 -17%
Cash flow
from
Operating
activities 12.0 11.0 9% -1.6 - 19.2 18.5 4%
1) Attributable to stockholders of the parent company, excluding
minority interest.
The year-over-year sales for the quarter were flat due to less
spending from operators on network infrastructure and a continued
weakened USD. About 50% of sales are USD related. For the full year,
the sales increase amounted to 4%. In constant currencies, estimated
organic growth was 8%.
Gross margin declined year-over-year mainly due to the business mix
shift, with high proportion of new network builds and less expansions
and upgrades, and the ongoing shift to new switching technologies.
Sequentially, gross margin was stable as a result of the prevailing
business conditions within mobile networks.
Operating income amounted to SEK 7.6 (12.2) b. in the quarter and SEK
30.6 (35.8) b. for the full year. Operating expenses amounted to SEK
15.2 (13.2) b in the quarter as a consequence of seasonality and
newly acquired companies. Sony Ericsson's pre-tax profit contributed
SEK 2.3 (2.2) b. to Group operating income in the quarter.
Cash flow from operating activities reached SEK 12.0 (11.0) b. in the
quarter and SEK 19.2 (18.5) b. for the full year. The working capital
decreased in the quarter as a result of a high completion rate of
turn key projects. This includes a favorable development of current
liabilities such as VAT and accrued expenses. In addition, a payment
from 3 UK of SEK 1.6 b. has been received following a renegotiated
contract. Cash conversion for the full year increased to 66% (57%).
Days sales outstanding have increased over the year, reflecting the
higher share of sales in markets with longer payment terms.
Other operating liabilities affected cash flow negatively by SEK 0.9
b. in the quarter as the advance payment from Sony Ericsson to
Ericsson Mobile Platforms was consumed.
Cash flow from investing activities was SEK -27.5 (-14.9) b.,
attributable to acquisitions of
SEK 26.3 (18.1) b. during the year. Cash flow from financing
activities was SEK 6.3 b. for the full year.
Balance sheet and other performance indicators
Twelve Nine Six Three Full
months months months months year
SEK b. 2007 2007 2007 2007 2006
Net cash 24.3 11.5 16.1 29.1 40.7
Interest-bearing
liabilities and post
employment benefits 33.4 32.5 32.6 22.6 21.6
Trade receivables 60.5 56.8 55.3 52.4 51.1
Days sales
outstanding 102 115 106 107 85
Inventory 22.5 25.6 24.6 24.1 21.5
Of which work
in progress 12.5 14.0 14.1 14.9 14.2
Inventory turnover 5.2 4.5 4.4 4.2 5.2
Payable days 57 59 64 67 54
Customer
financing, net 3.4 3.8 3.7 3.8 3.7
Return on
capital employed 21% 21% 24% 24% 27%
Equity ratio 55% 56% 54% 57% 56%
Deferred tax assets increased in the quarter by SEK 0.2 b. to SEK
11.7 (11.5) b. due to the acquisition of LHS. Deferred tax assets
increased during the year by SEK 2.0 b. due to acquisitions and were
reduced by SEK 2.5 b. through normal utilization.
During the quarter, approximately SEK 1.2 b. of provisions was
utilized, absorbing costs related to product warranties, customer
projects, restructuring and other. Additions of SEK 1.7 b. and
reversals of SEK 1.4 b. have been made as a result of risk
assessments in the ongoing business.
At year end equity amounted to SEK 135.1 b., an increase by SEK 14.2
b. compared to previous year.
Cost reductions
Cost reductions of SEK 4 b. in annual savings will be made. These
reductions will have full effect in 2009. All parts of the business
will be affected, but main focus areas are SG&A, sourcing, supply and
service delivery. One-time charges are estimated to SEK 4 b. and will
be recognized as each activity is decided.
A reduction of approximately 1,000 employees is expected in Sweden
and will be made through voluntary programs as far as possible.
SEGMENT RESULTS
Fourth quarter Third quarter Full year
SEK b. 2007 2006 Change 2007 Change 2007 2006 1) Change
Networks
sales 37.5 39.0 -4% 28.5 31% 129.0 127.7 1%
Of which
network rollout 6.4 5.6 16% 4.0 61% 18.5 16.4 13%
Operating margin 10% 21% - 8% - 13% 17% -
EBITDA margin 15% 26% - 13% - 19% 22% -
Professional
Services sales 12.1 10.6 15% 11.0 10% 42.9 36.8 16%
Of which
Managed
services 3.3 2.5 32% 3.4 -1% 12.2 9.5 28%
Operating
margin 15% 15% - 15% - 15% 14% -
EBITDA
margin 16% 16% - 17% - 16% 16% -
Multimedia
sales 4.9 4.5 7% 4.0 21% 15.9 13.9 14%
Operating
margin -9% 12% - 1% - -1% 5% -
EBITDA
margin -3% 13% - 6% - 4% 6% -
Unallocated
sales 2) - - - - - - 1.6 -
Total sales 54.5 54.2 0% 43.5 25% 187.8 179.8 4%
Of which
Mobile Systems 37.5 37.4 0% 28.5 32% 127.1 122.8 3%
1) Including cost for Marconi restructuring and career change program
of SEK 2.9 b that took place in third quarter 2006.
2) Defense business divested in third quarter 2006
Networks
Sales in Networks declined by 4% in the quarter, year-over-year. For
the full year sales grew by 1%. During the second half of 2007, sales
were affected by the shift from capacity expansions and software
upgrades to new network buildouts. This shift in business mix, as
well as the rollout of new switching technologies, has negatively
affected gross margin. Network rollout services increased 61%
sequentially, reflecting the higher proportion of large network
buildout projects.
Redback has significantly increased its international sales over the
year through leveraging Ericsson's global sales organization. In the
US, however, Redback saw a decline in business from one major
customer which impacted domestic sales. Redback full year sales grew
slightly.
Professional Services
Sales in Professional Services grew by 15% in the quarter
year-over-year and by 16% for the full year. Growth in constant
currencies amounted to 19% and 16% respectively. Managed services and
systems integration showed the fastest growth. Operating margins
remained stable at 15%.
Ericsson won the managed services contract for T-Mobile in the UK.
T-Mobile and 3 UK have agreed on network sharing. Subsequently, the 3
UK managed services contract has been adjusted and the scope somewhat
reduced to accommodate this change. Going forward this will affect
sales but not margins.
Multimedia
Sales growth amounted to 7% in the quarter year-over-year and 14% for
the full year. Operating margin in the quarter was negative 9% and
just below break-even for the full year. Multimedia is in a build-up
phase. It includes areas with good growth and healthy margins as well
as new areas with significant investments, and sales and results
fluctuate.
Sony Ericsson Mobile Communications
For information on transactions with Sony Ericsson Mobile
Communications, please see Financial statements and Additional
information.
Fourth quarter Third quarter Full year
EUR m. 2007 2006 Change 2007 Change 2007 2006 Change
Number of
units shipped
(m.) 30.8 26.0 18% 25.9 19% 103.4 74.8 38%
Average selling
price (EUR) 123 146 -16% 120 3% 125 146 -14%
Net sales 3,771 3,782 0% 3,108 21% 12,916 10,959 18%
Gross margin 32% 29% - 31% - 31% 29% -
Operating
margin 13% 13% - 13% - 12% 11% -
Income before
taxes 501 502 0% 384 30% 1,574 1,298 21%
Net income 373 447 -17% 267 40% 1,114 997 12%
Units shipped in the quarter reached 30.8 million, an 18% increase
compared to the same period last year and the company continues to
capture market share. Sales and operating income were in level with
last year. Average selling price (ASP) increased slightly
sequentially, a result of the introduction of new flag-ship Walkman
and Cyber-shot phones such as the W910 and K850 models. The trend of
lower ASPs during the year reflects the company's direction to
broaden its product portfolio.
Ericsson's share in Sony Ericsson's income before tax was SEK 2.3
(2.2) b. in the quarter and
SEK 7.1 (5.9) b. for the full year.
REGIONAL OVERVIEW
Fourth quarter Third quarter Full year
Sales, SEK b. 2007 2006 Change 2007 Change 2007 2006 Change
Western
Europe 15.4 17.2 -10% 12.3 25% 52.7 53.2 -1%
Central & Eastern
Europe, Middle
East & Africa 14.3 14.3 -1% 12.0 19% 48.7 46.4 5%
Asia
Pacific 13.7 14.0 -2% 12.0 14% 54.6 47.9 14%
Latin
America 6.8 4.8 41% 4.2 59% 18.4 16.5 12%
North
America 4.3 4.0 9% 3.0 45% 13.4 15.9 -15%
Western Europe sales declined by 10% in the quarter year-over-year
and 1% for the full year. The softer development was mainly driven by
temporary effects from operator consolidation in the UK and Italy.
There is a shift in operator investments from 2G to 3G. The momentum
for managed services continued with key wins in UK and Germany.
Central and Eastern Europe, Middle East and Africa sales were
flattish in the quarter and increased 5% for the full year. Sales
were mainly driven by network rollout and expansions. Middle East
showed a slower development in the fourth quarter. 3G rollouts have
started in large number of markets in Central Europe.
Asia Pacific sales declined by 2% for the quarter and increased by
14% for the full year. China ended strong, and grew 16% for the full
year. Pakistan, Bangladesh and Thailand were significantly affected
by political unrest. India reported strong sales growth for the full
year although growth in the fourth quarter was lower. Australia was
down in the quarter as well as for the full year after major rollouts
in 2006. The strong subscriber growth continues across the region.
Latin America sales were up 41% in the quarter and 12% for the full
year, with continued 2G expansions and accelerated 3G buildouts.
Argentina and Brazil showed strong growth in the quarter.
North America sales grew by 9% in the quarter, primarily due to
strong sales to T-Mobile. For the full year, sales declined by 15%.
US operator Verizon Wireless has officially announced LTE as their
next-generation technology choice.
MARKET DEVELOPMENT
Growth rates based on Ericsson and market estimates.
2007 was characterized by large mergers and industry consolidation
among operators. This creates short-term disruptions as well as
market opportunities. The mobile infrastructure market is estimated
to have started at mid single-digit growth but ended flattish. During
the autumn, network upgrades and expansions slowed in mature markets.
In addition, certain emerging markets have declined following
political unrest.
The change in the competitive landscape continues, including the
ongoing mergers as well as an intensified competition from Chinese
vendors.
Mobile subscriptions grew with some 150 million in the quarter to a
total of 3.3 billion. 180 million are WCDMA subscriptions, up by
close to 20 million in the fourth quarter. There are 197 WCDMA
networks in 87 countries, of which the large majority is upgraded to
HSPA. Uptake in data traffic accelerates quickly, and in 3G networks
monitored by Ericsson total data traffic now exceeds voice traffic.
In the twelve-month period ending September 30, 2007, fixed broadband
connections grew with 24% to some 320 million.
PLANNING ASSUMPTIONS
Unchanged industry fundamentals and consumer behavior support a
positive longer-term outlook. However, for 2008, we are planning for
a flattish development in the mobile infrastructure market while the
professional services market is expected to show good growth.
In the third quarter report 2007, we said that we continued to
believe that the GSM/WCDMA track within the global mobile systems
market, measured in USD, would continue to show mid-single digit
growth in 2007. We also said that we continued to believe that the
addressable market for professional services would show good growth
in 2007. And we said that our early expectation for 2008 was that the
current market conditions would prevail.
PARENT COMPANY INFORMATION
Net sales for the year amounted to SEK 3.2 (2.6) b. and income after
financial items was
SEK 14.7 (13.6) b. Patent license fees are included in net sales from
2007, instead of in other operating income and expenses, and 2006 has
been restated accordingly.
Major changes in the Parent Company's financial position for the year
include: increased investments in subsidiaries of SEK 30.3 b., mostly
attributable to the Tandberg, Redback, Entrisphere and LHS
acquisitions; decreased other current receivables of SEK 2.2 b.;
decreased cash and bank and short-term investments of SEK 8.4 b.;
increased notes and bond loans of SEK 11.1 b. through the bond issue
program; current and non-current liabilities to subsidiaries
increased by
SEK 4.7 b.
As per December 31, 2007, cash and bank and short-term investments
amounted to SEK 45.6 (54.0) b.
Major transactions with related parties include the following
transactions and balances with Sony Ericsson Mobile Communications:
revenues of SEK 3.0 (1.5) b.; receivables of SEK 0.9 (0.1) b.;
dividend of SEK 3.9 (1.2) b.
In accordance with the conditions of the Stock Purchase Plans and
Stock Option Plans for Ericsson employees, 6,408,841 shares from
treasury stock were sold or distributed to employees during the
fourth quarter and 19,022,349 shares during the year. The holding of
treasury stock at December 31, 2007, was 231,991,543 Class B shares.
DIVIDEND PROPOSAL
The Board of Directors will propose to the Annual General Meeting a
dividend of SEK 0.50 (0.50) per share, representing some SEK 8.0
(7.9) b., and Monday April 14, 2008, 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, approximately
two weeks prior to the Annual General Meeting 2008.
ANNUAL GENERAL MEETING OF SHAREHOLDERS
The Annual General Meeting of shareholders will be held on Wednesday
April 9, 2008, 15.00 (CET) in the Stockholm Globe Arena.
OTHER INFORMATION
Acquisitions 2007
On January 25, 2007, Ericsson announced the finalization of the
acquisition of Redback Networks.
On February 12, 2007, Ericsson announced its acquisition of
Entrisphere, a company providing fiber access technology.
On February 26, 2007, Ericsson announced its voluntary public cash
offer to acquire Tandberg Television for NOK 106 in cash per share.
Tandberg Television was consolidated from May 2007.
On March 15, 2007, Ericsson announced its intention to acquire the
business and assets of Mobeon AB, the world leader in IP messaging
components for mobile and fixed networks.
On June 5, Ericsson announced a voluntary public cash offer to
acquire LHS AG for approximately EUR 310 m. LHS was consolidated from
October 1, 2007.
On June 27, the acquisition of Drutt Corporation was closed. Drutt is
a leading provider of service delivery platform solutions.
On December 20, 2007, Ericsson announced the acquisition of HyC
Group, a leading Spanish company in TV consultancy and systems
integration.
Class action
In the autumn 2007, Ericsson was named as a defendant in three
putative class action suits filed in the United States District Court
for the Southern District of New York. The complaints allege
violations of the United States securities laws, principally in
connection with Ericsson's October 2007 profit warning. At the
conclusion of various pending procedural motions and after plaintiffs
file a consolidated amended class action complaint, Ericsson intends
to seek the dismissal of the lawsuits.
Assessment of risk environment
Ericsson's operational and financial risk factors and exposures are
described under "Risk factors" in our Annual Report 2006 and we have
determined that the risk environment has not materially changed.
However, the increased activities related to the new Multimedia
segment may result in a more volatile quarterly sales pattern.
Specific additional risks for the near term are associated with the
acquisitions made during 2007, as a timely and effective integration
of these is essential to make them accretive as planned.
Risk factors and exposures in focus for the Parent Company and the
Ericsson Group for the forthcoming six-month period include:
unfavorable product mix in the Networks segment with reduced sales of
software, upgrades and extensions and an increased proportion of new
network build-outs and break-in contracts, which may result in lower
gross margins and/or working capital build-up, which in turn puts
pressure on our cash conversion rate; variability in the seasonality
could make it more difficult to forecast future sales; effects of
the ongoing industry consolidation among the Company's customers as
well as between our largest competitors, e.g. intensified price
competition; changes in foreign exchange rates, in particular a
continued weakness or further deterioration of the USD/SEK rate;
increases in interest rates and the potential effect on operators'
willingness to invest in network development; and continued political
unrest or instability in certain markets.
Ericsson conducts business in certain countries which are subject to
trade restrictions or which are focused on by certain investors. We
stringently follow all relevant regulations and trade embargos
applicable to us in our dealings with customers operating in such
countries. Moreover, Ericsson operates globally in accordance with
Group level policies and directives for ethics and conduct. In no way
should our business activities in these countries be construed as
supporting a particular political agenda or regime. We have
activities in such countries mainly due to that certain customers
with multi-country operations put demands on us to support them in
all of their markets.
Please refer further to Ericsson's Annual Report 2006, where we
describe our risks and uncertainties along with our strategies and
tactics to mitigate the risk exposures or limit unfavorable outcomes.
Stockholm, February 1, 2008
Carl-Henric Svanberg
President and CEO
Telefonaktiebolaget LM Ericsson (publ)
Date for next report: April 25, 2008
REVIEW REPORT
We have reviewed this report for the period January 1 to December 31,
2007, for Telefonaktiebolaget LM Ericsson (publ). The board of
directors and the CEO are responsible for the preparation and
presentation of this interim financial information in accordance with
IAS 34 and the Annual Accounts Act. Our responsibility is to express
a conclusion on this interim financial information based on our
review.
We conducted our review in accordance with the Standard on Review
Engagements SÖG 2410, Review of Interim Financial Information
Performed by the Independent Auditor of the Entity, issued by FAR. A
review consists of making inquiries, primarily of persons responsible
for financial and accounting matters, and applying analytical and
other review procedures. A review is substantially less in scope than
an audit conducted in accordance with Standards on Auditing in
Sweden, RS, and other generally accepted auditing practices. The
procedures performed in a review do not enable us to obtain a level
of assurance that would make us aware of all significant matters that
might be identified in an audit. Therefore, the conclusion expressed
based on a review does not give the same level of assurance as a
conclusion expressed based on an audit.
Based on our review, nothing has come to our attention that causes us
to believe that the accompanying interim financial information is
not, in all material respects, in accordance with IAS 34 and the
Annual Accounts Act.
Stockholm, February 1, 2008
PricewaterhouseCoopers AB
Bo Hjalmarsson Peter Clemedtson
Authorized Public Accountant Authorized Public Accountant
Lead partner
EDITOR'S NOTE
To read the complete report with tables, please go to:
www.ericsson.com/investors/financial_reports/2007/12month07-en.pdf
Ericsson invites media, investors and analysts to a press conference
at the Ericsson headquarters, Torshamnsgatan 23, Stockholm, at 09.00
(CET), February 1.
An analysts, investors and media conference call will begin at 14.00
(CET).
Live webcasts 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.
FOR FURTHER INFORMATION, PLEASE CONTACT
Henry Sténson, Senior Vice President, Communications
Phone: +46 8 719 4044
E-mail: investor.relations.se@ericsson.com or
press.relations@ericsson.com
Investors
Gary Pinkham, Vice President,
Investor Relations
Phone: +46 8 719 0000
E-mail: investor.relations.se@ericsson.com
Susanne Andersson,
Investor Relations
Phone: +46 8 719 4631
E-mail: investor.relations.se@ericsson.com
Media
Åse Lindskog, Vice President,
Head of Media Relations
Phone: +46 8 719 9725, +46 730 244 872 E-mail:
press.relations@ericsson.com
Ola Rembe, Vice President
Phone: +46 8 719 9727, +46 730 244 873
E-mail: press.relations@ericsson.com
Telefonaktiebolaget LM Ericsson (publ)
Org. number: 556016-0680
Torshamnsgatan 23
SE-164 83 Stockholm
Phone: +46 8 719 00 00
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; (xii) plans to
launch new products and services; (xiii) assessments of risks; (xiv)
integration of acquired businesses; (xv) compliance with rules and
regulations and (xvi) infringements of intellectual property rights
of others.
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 or interest rate
fluctuations; and (vii) the successful implementation of our business
and operational initiatives.
The full report including tables attached.
