Ericsson reports fourth quarter and full year results 2014

Fourth quarter highlights¹)

• Sales in the quarter were SEK 68.0 (67.0) b., a growth of 1% YoY and 18% QoQ.
• Sales, adjusted for comparable units and currency, declined -2% YoY.
• The sales growth YoY was mainly driven by the Middle East, Europe and Asia, offset by sales decline in North America.
• Gross margin increased YoY to 36.6% with improved margins across all segments despite normal high share of project completions in the quarter.
• Operating income improved to SEK 6.3 b. driven primarily by higher software sales and efficiency enhancements. Increased operating expenses, and losses related to currency hedge contracts, impacted operating income negatively.

Full year highlights ¹)

• Sales were 228.0 (227.4) b., flat YoY. Sales, adjusted for comparable units and currency, decreased by -2%.
• Operating income was SEK 16.8 (17.8) b. with an operating margin of 7.4% (7.8%). Gross margin improved due to a higher share of capacity business, offset by increased operating expenses and currency hedge losses.
• Segment Networks showed an operating margin of 12% (10%) driven by improved business mix and earlier actions to improve commercial and operational efficiency.
• Cash flow from operating activities was SEK 18.7 (17.4) b. Cash conversion was 84%, above the target of 70%.
• The Board of Directors proposes a dividend for 2014 of SEK 3.40 (3.00) per share.

Comments from Hans Vestberg, President and CEO of Ericsson (NASDAQ:ERIC)

Reported sales in the quarter increased by 1% YoY and sales, adjusted for comparable units and currency, declined by -2% with improved operating income in the core business.

In the quarter, strong sales growth in the Middle East, Europe and Asia was offset by a continued decline in North America.

Mobile broadband sales increased both YoY and QoQ as we continued to deliver on previously communicated key contracts. These contracts contributed to sales growth in mainland China, Taiwan, Japan, India and parts of Europe. In mainland China the majority of the business in the quarter was related to the continued LTE deployments.

Sales in North America were mainly driven by operator investments in capacity and quality enhancements also this quarter, although at a slower pace. Business activity slowed further in the quarter as operators remained focused on cash flow optimization in order to finance major acquisitions and spectrum auctions.

Consumer demand and mobile data traffic growth continues to be strong in North America. However, with current visibility, and for the reasons above, we anticipate the North American mobile broadband business to remain slow in the short-term.

Global Services showed stable growth with momentum for professional services driven by managed services and systems integration sales. During the quarter, 17 new managed services contracts were signed, including a pan-India contract.

Operating income in the fourth quarter improved YoY, primarily driven by higher software sales and efficiency enhancements. This was partly offset by higher operating expenses, related to the planned ramp up of investments in targeted areas. The net currency effect, when considering both transaction and translation exposure as well as volatility reductions, contributed somewhat positively to the operating income.

For the full year 2014, Ericsson showed stable sales development with solid operating margin. A sales decline in North America of -8% was compensated by growth in the Middle East, Europe and Asia. Operating margin improved in the core business driven by higher share of capacity sales and efficiency enhancements. This was partly offset by currency hedge losses, investments in targeted areas as well as losses related to the modems operations.

The more than 100 IPR licensing agreements signed to date show the value of our R&D investments and enable industry players to continue to innovate and bring exciting products to the market. In 2014, IPR revenues showed a steady positive development. We remain committed to licensing our standard-essential patents on fair, reasonable and non-discriminatory (FRAND) terms.

At the Capital Markets Day (CMD) in November we outlined the progress on our Networked Society strategy, with focus on market development, growth agenda, transformation and profitability. In line with our strategy, we have invested into our targeted areas; IP networks, Cloud, TV & Media, Industry & Society and OSS & BSS. Sales in targeted areas showed a growth of more than 10% in 2014.

We continue to proactively identify efficiency opportunities in the Company. The cost and efficiency program presented at the CMD, with the ambition to achieve savings of approximately SEK 9 b. with full effect during 2017, is progressing. Activities for the discontinuation of the modems business are included in the program and are ahead of plan.

We improved cash flow from operating activities in 2014 and generated a full-year cash flow of SEK 18.7 (17.4) b. For the third consecutive year we have exceeded our cash conversion target of more than 70%. This resulted in a solid balance sheet, enabling us to continue to implement our strategy and to deliver consistent returns to our shareholders. The Board of Directors proposes a dividend for 2014 of SEK 3.40 (3.00) per share, an increase of 13%.

NOTES TO EDITORS

You find the complete report with tables in the attached PDF or by following this link:
http://www.ericsson.com/res/investors/docs/q-reports/2014/12month14-en.pdf or on to: www.ericsson.com/investors

Ericsson invites media, investors and analysts to a briefing at the Ericsson Studio, Grönlandsgången 4, Stockholm, at 09.00 (CET), January 27, 2015.
A conference call for analysts, investors and media will begin at 14.00 (CET).

Live webcast of the briefing and conference call details, as well as supporting slides, will be available at www.ericsson.com/press and www.ericsson.com/investors

Video material will be published during the day on www.ericsson.com/press

FOR FURTHER INFORMATION, PLEASE CONTACT

Helena Norrman, Senior Vice President, Communications
Phone: +46 10 719 34 72
E-mail: media.relations@ericsson.com

Investors

Peter Nyquist, Head of Investor Relations
Phone: +46 10 714 64 49
E-mail: peter.nyquist@ericsson.com

Åsa Konnbjer, Director, Investor Relations
Phone: +46 10 713 39 28
E-mail: asa.konnbjer@ericsson.com

Stefan Jelvin, Director, Investor Relations
Phone: +46 10 714 20 39
E-mail: stefan.jelvin@ericsson.com

Rikard Tunedal, Director, Investor Relations
Phone: +46 10 714 54 00
E-mail: rikard.tunedal@ericsson.com

Media

Ola Rembe, Vice President, Head of External Communications
Phone: +46 10 719 97 27
E-mail: media.relations@ericsson.com

Corporate Communications
Phone: +46 10 719 69 92
E-mail: media.relations@ericsson.com

Ericsson discloses the information provided herein pursuant to the Securities Markets Act. The information was submitted for publication at 07.30 CET, on January 27, 2015.