Jan 25, 2012 Categories: Corporate, Press Releases, Reports Download: Fourth quarter Third quarter Full year
SEK b. 20111) 20102) Change 20111) Change 20111) 20102) Change
Net sales 63.7 62.8 1% 55.5 15% 226.9 203.3 12%
Gross margin 30.2% 36.6% - 35.0% - 35.1% 38.2% -
EBITA margin excl JVs 8.1% 15.3% - 13.4% - 11.6% 14.4% -
Operating income excl JVs 4.1 8.4 -52% 6.3 -36% 21.7 24.4 -11%
Operating margin excl JVs 6.4% 13.4% - 11.3% - 9.6% 12.0% -
Ericsson's share in earnings in JVs -1.9 -0.3 - -0,6 - -3.8 -0.7 -
Income after financial items 1.8 7.8 - 5.9 - 18.1 23.1 -21%
Net income 1.5 4.4 -66% 3.8 -61% 12.6 11.2 12%
EPS diluted, SEK 0.36 1.34 -73% 1.18 -69% 3.77 3.46 9%
EPS (Non-IFRS), SEK 3) 0.55 1.65 -67% 1.44 -62% 4.72 4.80 -2%
Adjusted operating cash flow 4) 6.0 16.2 - 2.4 - 13.2 29.8 -
Cash flow from operations 5.5 15.2 - 1.6 - 10.0 26.6 -
Dividend, proposed SEK - - - - - 2.50 2.25 11%

1) All 2011 numbers are stated incl. restructuring charges of SEK 0.7 b. in Q4, SEK 0.4 b. Q3, SEK 1.7 b. Q2 and SEK 0.4 b. Q1
2) All 2010 numbers, excl. EPS, EPS (Non-IFRS), Net income and Cash flow from operations, are stated excl. restructuring charges. For details see section on restructuring under Financial Statements and Additional Information
3) EPS, diluted, excl. amortizations and write-downs of acquired intangible assets
4) Cash flow from operations excl. restructuring cash outlays that have been provided for.

"For the full year 2011, we had a strong sales growth and an increase in net income. In the fourth quarter, however, we saw weaker development in Networks, as well as an expected gross margin impact from a changed business mix with more coverage projects, modernization projects in Europe, and a higher services share," says Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC).

"Group sales in the quarter were flat year-over-year and grew 15% sequentially, which is weaker than normal in the fourth quarter. The sequential growth is mainly driven by a strong development of 32% in Global Services, while Networks sales were weak, up only 2%. The sales development in Networks is mainly related to North America and Russia, where the trend continued from the third quarter with slower operator spending after a period of high investments in capacity. In addition, we saw some increased operator cautiousness during the quarter due to uncertainties such as economic development and political unrest in some countries.

2011 was a year of strong sales growth of 12%, and sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 19%. In spite of weak JV results, net income increased SEK 1.3 b. to SEK 12.6 b., driven by higher sales and lower restructuring charges. The Board of Directors proposes a dividend for 2011 of SEK 2.50 (2.25), an increase by 11%.

In 2011, we have successfully executed on our strategy to leverage our strength in the growth areas mobile broadband, managed services and operating and business support systems. Many operators have had mobile broadband high on the agenda and the industry has during the year seen a shift to higher proportions of coverage buildouts. We implemented our strategy to capture new market share in the network modernization projects in Europe, despite their initial lower margins. We have further strengthened our market position in mobile networks. With 70 new managed services contracts during 2011 we are confident of our strong offering and market leadership. With the acquisition of Telcordia, now concluded, we have also gained a leadership position and skilled people in the important areas of operating and business support systems.

The quarter was challenging for our joint ventures and both reported significant losses. We have announced that Sony will acquire our 50% share in Sony Ericsson. Sony Ericsson's loss in the quarter reflects intense competition, price erosion and restructuring charges. ST-Ericsson made a loss of the same size as in the third quarter and during the quarter we announced a new CEO who has the task to review the strategy with the objective to restore profitability.

We believe that the industry fundamentals for longer-term positive development remain solid. Short-term, we expect operators to continue to be cautious with spending, reflecting factors such as macro economic and political uncertainty. We will continue to execute on our strategy which means that the business mix, with more coverage and network modernization projects than capacity projects, will prevail short-term. With our global scale and presence, as well as technology and services leadership, we are well positioned to continue to drive and lead the industry development," concludes Vestberg.

FINANCIAL HIGHLIGHTS
Income statement and cash flow
Sales in the quarter amounted to SEK 63.7 (62.8) b., was up 1% year-over-year and 15% sequentially.
Sales for comparable units, adjusted for currency exchange rate effects and hedging, increased 6% year-over-year. The sequential increase is mainly related to strong growth in services.

In 2011, sales amounted to SEK 226.9 (203.3) b., up 12%, driven by strong demand for mobile broadband along with network rollout services. Sales in 2011 for comparable units, adjusted for currency exchange rate effects and hedging, increased 19%.

Software represented 23% (24%), hardware 40% (37%) and services 37% (39%) of total sales in 2011.

In the fourth quarter 2011 restructuring charges of SEK 0.7 b. were included, while the last quarter 2010 exclude restructuring charges of SEK 1.7 b. Total restructuring charges for 2011 amounted to SEK 3.2 (6.8) b. excluding
joint ventures. For 2012, restructuring charges are estimated to approximately SEK 4 b. and the main part of activities expected in the first half of 2012.

Gross margin in the quarter was down year-over-year to 30.2% (36.6%), and down from 35.0% sequentially. As previously communicated, network modernization projects in Europe accelerated in the quarter and together with a higher proportion of coverage projects, as well as an all time high Global Services share of 42%, impacted gross margin negatively. Including restructuring charges fourth quarter 2010 gross margin amounted to 34.7%.

In 2011, gross margin declined from 38.2% to 35.1% due to higher share of coverage projects, network modernization projects in Europe and 3G rollouts in India.

All modernization projects that Ericsson has won have started by the fourth quarter 2011. The network modernization projects in Europe, with their lower margins, fully impacted the fourth quarter. Since average project duration is expected to be 18-24 months, the impact is expected to prevail for a couple of more quarters.

Total operating expenses amounted to SEK 15.6 (15.2) b. in the quarter. R&D expenses amounted to SEK 8.7 (8.3) b., an increase of 6% year-over-year. Selling and general administrative expenses (SG&A) amounted to SEK 6.8 (6.9) b., representing 10.7% of sales compared to 11.0% in the last quarter 2010. Other operating income and expenses amounted to SEK 0.4 (0.6) b. in the quarter.

In 2011, total operating expenses amounted to SEK 59.3 (55.2) b. R&D expenses amounted to SEK 32.6 (29.9) b., an increase of 9% year-over-year. The increase is a result of earlier communicated planned higher investments in radio, such as TD-LTE and IP as well as the acquired LG-Ericsson operations. SG&A amounted to SEK 26.7 (25.3) b., representing 11.8% of sales compared to 12.4% in 2010. Other operating income and expenses decreased to SEK 1.3 (2.0) b. in 2011.

Operating income, excluding joint ventures, decreased to SEK 4.1 (8.4) b. in the quarter, due to changed business mix and a larger share of services sales. Operating margin decreased to 6.4% (13.4%) year-over-year and sequentially from 11.3%.

In 2011, operating income, before joint ventures, was SEK 21.7 (24.4) b. Adjusted for restructuring charges operating income amounted to SEK 24.9 b. Operating margin before joint ventures declined to 9.6% (12.0%) due to lower gross margin and the fact that restructuring charges is included in 2011 figures. Operating margin adjusted for restructuring charges was 11.0% in 2011.

In the fourth quarter, Ericsson's share in earnings of joint ventures, before tax, was SEK -1.9 (-0.3) b., compared to SEK -0.6 b. in the third quarter 2011 due to significantly lower result in Sony Ericsson. Ericsson's share in Sony Ericsson's result was SEK -1.1 (0.2) b. and in ST-Ericsson SEK -0.8 (-0.5) b. For the full year, Ericsson's share in earnings from joint ventures decreased to SEK -3.8 (-0.7) b. as a result of negative contribution from both Sony Ericsson and ST-Ericsson. The agreed cash consideration of EUR 1.05 b. for Ericsson's 50% share in Sony Ericsson will not be impacted by 2011 year's result.

Financial net amounted to SEK -0.3 (-0.3) b. in the quarter and decreased sequentially with SEK -0.5 b., mainly related to negative currency exchange revaluation effects. For 2011 financial net was SEK 0.2 (-0.7) b. The difference is mainly attributable to a higher interest net of SEK 0.8 b. compared to 2010.

The tax rate in the quarter was 18% as a result of revalued tax assets. For the full year, the tax rate was 31%.

Net income decreased year-over-year to SEK 1.5 (4.4) b. due to lower sales volumes in networks, lower gross margin and losses related to Sony Ericsson. Sequentially net income decreased from SEK 3.8 b to 1.5 b. mainly due to lower gross margin and losses related to Sony Ericsson. For the full year, net income increased to SEK 12.6 (11.2) b. driven by higher sales and lower restructuring charges.

Earnings per share were SEK 0.36 (1.34) in the quarter. Earnings per share, Non-IFRS, diluted, i.e. excluding amortizations and write-downs of acquired intangibles, were SEK 0.55 (1.65) in the quarter, down -67%. For the full year, earnings per share increased 9% to SEK 3.77 (3.46).

The Board of Directors proposes a dividend for 2011 of SEK 2.50 (2.25), reflecting 2011 year's earnings and balance sheet structure, as well as coming years' business plans and expected economic development.

Adjusted operating cash flow was SEK 6.0 (16.2) b. in the quarter and cash flow from operations was SEK 5.5 (15.2) b. The weaker cash flow compared to the last quarter 2010 is mainly explained by a strong quarter last year, lower profit and higher working capital build up due to more projects. For the full year, adjusted cash flow was SEK 13.2 (29.8) b. and cash flow from operations was SEK 10.0 (26.6) b. During 2011, cash flow was negatively impacted by a significant increase in working capital as a result of higher sales and more projects. As a result, cash conversion ended at 40% (112%).

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