Fourth quarter highlights
Sales were SEK 66.4 (63.8) b. Sales growth was 1% adjusted for comparable units and currency. A reduction in North America was compensated by growth in other markets, primarily in the Middle East and North East Asia. Reported sales grew by 4%.
Operating income[1] improved to SEK 6.5 (2.6) b., corresponding to an operating margin of 9.7% (4.0%) excluding restructuring charges. Reported operating income[1] was SEK 6.1 (-1.9) b.
Gross margin was 37.1% (32.0%) excluding restructuring charges. Reported gross margin was 36.8% (25.7%).
Networks gross margin excluding restructuring charges was 41.1% (41.0%). Operating margin excluding restructuring charges was 14.5% (17.5%) following the addition of the Kathrein[2] business and investments in R&D, digitalization, compliance and security.
Digital Services reported a positive operating income excluding restructuring charges.
Net income was SEK 4.5 (-6.5) b.
Free cash flow excluding M&A was SEK -1.9 (3.0) b. including payments of SEK 10.1 b. related to the resolution of the US SEC and DOJ[3] investigations. Net cash decreased to SEK 34.5 (35.9) b.
Full-year highlights
Sales increased by 4%, adjusted for comparable units and currency, with Networks growing by 6%. Reported sales increased by 8%.
Reported operating income improved to SEK 10.6 (1.2) b. Operating income was SEK 22.1 b. (operating margin 9.7%) excluding restructuring charges and SEK -10.7 b. in costs related to the resolution of the US SEC and DOJ investigations.
Gross margin was 37.5% (35.2%) excl. restructuring charges, with improvements in Networks, Digital Services and Managed Services.
Free cash flow excluding M&A amounted to SEK 7.6 (4.3) b. including payments of SEK 10.1 b. related to the resolution of the US SEC and DOJ investigations. Net cash at year-end was SEK 34.5 (35.9) b.
The Board of Directors will propose a dividend for 2019 of SEK 1.50 (1.00) per share to the AGM.
SEK b. Q4
2019 Q4
2018 YoY
change Q3
2019 QoQ
change Jan-Dec
2019 Jan-Dec
2018 YoY
change
Net sales 66.4 63.8 4% 57.1 16% 227.2 210.8 8%
Sales growth adj. for comparable units and currency - - 1% - - - - 4%
Gross margin 36.8% 25.7% - 37.7% - 37.3% 32.3% -
Gross margin excluding restructuring charges 37.1% 32.0% - 37.8% - 37.5% 35.2% -
Operating income (loss) 6.1 -1.9 - -4.2 - 10.6 1.2 -
Operating margin 9.2% -2.9% - -7.3% - 4.6% 0.6% -
Operating income (loss) excluding restructuring charges 6.5 2.6 152% -4.0 - 11.4 9.3 23%
Operating margin excluding restructuring charges 9.7% 4.0% - -7.1% - 5.0% 4.4% -
Operating income excl. restr. charges & SEC/DOJ charges[4] 5.7 2.6 123% 7.4 -23% 22.1 9.3 139%
Operating margin excl. restr. charges & SEC/DOJ charges[4] 8.6% 4.0% - 13.0% - 9.7% 4.4% -
Net income (loss) 4.5 -6.5 - -6.9 - 1.8 -6.3 -
EPS diluted, SEK 1.33 -1.99 - -1.89 - 0.67 -1.98 -
Free cash flow excluding M&A -1.9 3.0 - 4.5 - 7.6 4.3 79%
Net cash, end of period 34.5 35.9 -4% 37.4 -8% 34.5 35.9 -4%
[1] Includes a positive impact of SEK 0.7 b. from a partial release of the cost provisions made in Q3 2019 related to the resolution of the SEC and DOJ investigations. Includes a non-cash cost of SEK -0.3 b. related to wind-down of the ST-Ericsson legal structure.
[2] The acquisition of the Kathrein antenna and filter business is hereinafter referred to as the acquired Kathrein business.
[3] United States Securities and Exchange Commission (SEC) and the United States Department of Justice (DOJ).
[4] Operating income excludes restructuring charges in all periods and cost provisions related to the resolution of the SEC and DOJ investigations of SEK -11.5 b. in Q3 2019 as well as a partial release of the same provision of SEK 0.7 b. in Q4 2019.
Non-IFRS financial measures are reconciled to the most directly reconcilable line items in the financial statements at the end of this report.
Comments from B rje Ekholm, President and CEO of Ericsson (NASDAQ:ERIC)
Our performance during 2019 puts us on track to reach our targets for 2020 and 2022. Our focused strategy with increased investments in R&D combined with operational efficiency is paying off. We have regained technology leadership, recovered previously lost ground in several markets and improved the financial results. Today, we are a leader in 5G with 78 commercial 5G agreements with unique operators and 24 live 5G networks on four continents. Operating margin[1] excluding costs related to the resolution of the US SEC and DOJ investigations and restructuring charges was 9.7% for full-year 2019, almost reaching the target of more than 10% one year early.
Operating income was impacted by increased operating expenses. The increase is related to the Kathrein business acquisition, increased investments in digitalization and added resources to strengthen security as well as our Ethics and Compliance program. For 2020 we expect somewhat higher operating expenses, which will not jeopardize our financial targets.
Networks gross margin[2] was solid in the quarter at 41% including effects from strategic contracts which reflects the strong business fundamentals. Due to the uncertainty related to an announced operator merger, we saw a slowdown in our North American business in Q4, resulting in North America having the lowest share of total sales for some time. However, the underlying business fundamentals in North America remain strong. The negative growth in North America was more than offset by growth in Asia and the Middle East. It is still too early to assess possible volumes and price levels for the expected deployment of 5G in China, and we expect that the initial challenging margins will shift to positive margins
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Fourth quarter highlights
