Ericsson has reported its Q4 and full-year results for 2023. Fourth quarter highlights include:

• Sales declined organically by -17 per cent YoY, driven by a -23 per cent decline in Networks. Reported sales were down by -16 per cent to SEK 71.9 billion (€6.3bn).
• Gross income excluding restructuring charges decreased to SEK 29.6 (35.7) billion. Gross margin excluding restructuring charges was 41.1 per cent (41.5 per cent ). Adjusted for the retroactive element in IPR revenues in Q4 2022 the gross margin increased YoY.
• Reported gross income was SEK 28.6 (35.6) billion. with a gross margin of 39.8 per cent (41.4 per cent).
• EBITA excluding restructuring charges amounted to SEK 8.2 (9.3) billion with an EBITA margin of 11.4 per cent (10.8 per cent).
• EBIT excluding restructuring charges amounted to SEK 7.4 (8.1) billion with an EBIT margin of 10.3 per cent  (9.4 per cent).
• Free cash flow before M&A was SEK 12.5 (16.9) billion. Q4 2022 was positively impacted by retroactive IPR payments.

Full-year highlights 

• Sales declined organically by -10 per cent , impacted by a -15 per cent decrease in Networks, partly offset by an 11 per cent growth in Enterprise. Reported sales were SEK 263.4 (271.5) billion.
• Gross income excluding restructuring charges was SEK 104.4 (113.5) billion, mainly related to Networks. Gross margin excluding restructuring charges was 39.6 per cent (41.8 per cent). Reported gross income was SEK 101.6 (113.3) billion with a gross margin of 38.6 per cent (41.7 per cent).
• EBITA excluding restructuring charges was SEK 21.4 (29.5) billion with a margin of 8.1 per cent (10.9 per cent). EBITA was SEK 14.9 (29.1) billion with a margin of 5.7 per cent (10.7 per cent).
• Reported EBIT was SEK -20.3 (27) billion impacted by SEK -31.9 billion of goodwill impairment recorded in Q3 related to Vonage.
• Net income (loss) was SEK -26.1 (19.1) billion. EPS diluted was SEK -7.94 (5.62). Net income (loss) was impacted by SEK -31.9 billion of goodwill impairment and SEK -6.5 (-0.4) billion of restructuring charges.
• Free cash flow before M&A amounted to SEK -1.1 (22.2) billion. Net cash was SEK 7.8 (23.3) billion at year-end 2023.
• A dividend for 2023 of SEK 2.70 (2.70) per share will be proposed to the AGM by the Board of Directors.

In a press statement Börje Ekholm, President and CEO of Ericsson said: In 2023, we continued to execute on our strategy to strengthen our leadership in mobile networks, grow our enterprise business and drive cultural transformation. We concluded 2023 with a Q4 EBITA margin of 11.4 per cent and a historic 5-year $14 billion contract. Despite headwinds and a very weak mobile networks market, we were able to generate a full-year EBITA of SEK 21.4 billion. While the actions we have taken to improve performance are paying off, we are not satisfied with our profitability and there is more work to do. As we look to 2024, we expect the market outside China to further decline, with similar uncertainties as experienced in 2023. In this environment, we remain laser focused on managing elements within our control, including operational efficiency and tight cost management. We are confident in our strategy and are committed to driving long-term value for our shareholders.  

Q4 – solid results in challenging environment   

As a result of focused execution and increased resiliency, we were able to adapt in a challenging environment and delivered solid Q4 results. While Group sales declined organically by -17 per cent YoY, EBITA reached SEK 8.2 billion with an EBITA margin of 11.4 per cent. With strong focus on profitability, we were able to deliver a 41.1 per cent gross margin, a YoY increase when adjusting for the retroactive element of IPR revenues in Q4 2022. Our investments in geopolitical resiliency continued at a high level.  

Networks sales decreased organically by -23 per cent YoY as customers continued to focus on cash flow. Sales in India declined QoQ as the market started its transition to normalised investment levels following an unprecedented roll-out pace. Q4 gross margin grew QoQ to 43.2 per cent.  

In Cloud Software and Services, we delivered on our EBITA target to reach at least breakeven in 2023 with an EBITA of SEK 2.0 b. in Q4 and SEK 1.7 billion for the full year. We continue to increase commercial discipline, automation and delivery efficiency, focusing on long-term profitability.    

Enterprise sales grew by 7 per cent organically YoY mainly driven by Enterprise Wireless Solutions. EBITA (loss) was stable YoY, negatively impacted by an inventory write-off in Enterprise Wireless Solutions.  

Strong cash collection and released working capital from conclusion of large roll-out projects allowed a healthy free cash flow before M&A of SEK 12.5 billion in Q4. We aim to return to our long-term target of free cash flow before M&A of 9-12 per cent of net sales as soon as possible.  

We delivered on the SEK 12 billion gross cost run-rate savings, half of which positively impacted the P&L in 2023, with the remainder to impact in 2024. Considering the market outlook, we will continue our strong focus on cost discipline.  

Driving execution of our strategy  

Our first strategic pillar is to further enhance our leadership in mobile networks. Technology leadership is core to our strategy, enabling customers to build high-performance, programmable and open networks to deliver superior customer experience, maximise return on investment (ROI) and accelerate business innovation. With our leading technology, customers can reduce their total cost of ownership, reduce non-strategic spend and instead redirect a larger portion of capex to revenue-generating network infrastructure, enabling an accelerated network modernisation – as proven by our record win in Q4.  

With our second strategic pillar, expansion into Enterprise, we aim at creating new monetisation opportunities for our customers. Many operators fight to earn a healthy ROI with current monetisation models. By offering network APIs to developers and enterprises, we enable new revenue streams for operators, and new applications that leverage network capabilities. We see good traction with frontrunner customers who share our excitement. In addition, offerings in Enterprise Wireless Solutions expand the market for high-performance mobile technology into enterprise.  

2023 has been a year in which we have continued to build and transform our culture focusing on strong decision making and risk management, effective oversight and accountability. Ethical standards shall stand in the center of everything we do and become our competitive strength.  

Looking ahead  

The mobile network industry remains challenging. We expect the current market uncertainties to prevail into 2024 with a further decline of the RAN market outside China as our customers remain cautious and the investment pace is normalising in India. The new US contract will start to ramp up in the second half of 2024.   

Underlying demand from growing data traffic and 5G only being in the early stages of build-out will require additional network investments. In our view, the current investment levels are unsustainably low for many operators. We are therefore confident that a market recovery should materialise. However, the timing of market recovery is ultimately in the hands of our customers. It is critical for us to lead in technology while focusing on operational efficiency, to ensure we are well positioned when the market recovers. Our strong IPR portfolio with over 60,000 patents gives us great opportunities to grow our licensing revenue, with a continued emphasis on ensuring that the full value is recognised in all contracts.    

Our goal is to make Ericsson a more profitable company based on a leading position in mobile infrastructure and a high-growth Enterprise platform business.   

I would like to thank all my colleagues for their dedication to execute on our strategy. Together with our customers, we are well positioned to shape the future industry.   

Categories: Articles, Business, Results

Tags: ericsson, Free cash flow