Enterprise financial report

Ericsson announced Q4 in 2020 and its annual financial report, Q4 network business increased by 20% year on year

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The following is the Ericsson announced Q4 in 2020 and its annual financial report, Q4 network business increased by 20% year on year recommended by recordtrend.com. And this article belongs to the classification: Enterprise financial report.

Key points of fourth quarter financial report

Sales of SEK 69.6 billion (SEK 66.4 billion in the same period in 2019) increased by 13% on a year-on-year basis, adjusted for comparable units and currencies, mainly benefiting from sales in Northeast Asia, Europe and North America.

The gross profit margin excluding restructuring expenses increased to 40.6% (37.1% in the same period of 2019), and the gross profit margin of all business units increased. The reported gross margin increased to 40.6% (36.8% in the same period in 2019).

Driven by the network business, the operating revenue excluding restructuring expenses increased from SEK 6.5 billion (operating profit margin of 9.7%) to SEK 11 billion (operating profit margin of 15.8%). Operating revenue was skr11 billion (skr6.1 billion in the same period of 2019).

Adjusted by comparable unit and currency, the sales of network business increased by 20% year-on-year. Net of restructuring expenses, the operating profit margin of network business is 21.5% (14.5% in the same period of 2019).

Reported net profit was SEK 7.2 billion (SEK 4.5 billion in the same period in 2019).

Free cash flow before M & A was SEK 12.8 billion (sek-1.9 billion in the same period of 2019). Data for the fourth quarter of 2019 include SEK 10.1 billion payments related to the SEC and DOJ’s investigative decisions. Net cash flow at 31 December 2020 was SEK 41.9 billion (compared to SEK 34.5 billion in the same period in 2019).

Key points of annual financial report

Adjusted for comparable units and currencies, sales increased by 5%, and network business increased by 10%. Reported sales rose 2% to SEK 232.4 billion.

The gross profit margin excluding restructuring expenses was 40.6% (37.5% in the same period of 2019), and the gross profit margin of all business units increased.

Reported revenue increased to SKR 27.8 billion (SKR 10.6 billion in the same period in 2019).

Reported net profit was SEK 17.6 billion (SEK 1.8 billion in the same period in 2019).

Free cash flow before M & A reached SEK 22.3 billion (SEK 7.6 billion in the same period of 2019). The full year data for 2019 include SEK 10.1 billion payments related to the investigation decisions of the securities and Exchange Commission and the Department of justice.

The board of directors will propose a dividend of SEK 2.00 per share for 2020 (SEK 1.50 for the same period in 2019) at the AGM.

Key points of development planning (please refer to quarterly report for complete development planning)

The average seasonal change rate of sales in the three years between the fourth quarter and the first quarter was – 24%; however, due to Ericsson’s deployment of 5g in some markets, the seasonal impact may be somewhat less.

Unit: billion Swedish grams

Lang

2020

Fourth Season

degree

2019

Fourth Season

degree

Year on year

change

2020

Season 3

degree

Chain comparison

change

2020

January to December

2019

January to December

Year on year

change

Net sales

sixty-nine point six

sixty-six point four

5%

fifty-seven point five

21%

two hundred and thirty-two point four

two hundred and twenty-seven point two

2%

In comparable units and

Write off after currency adjustment

Sales increase

13%

5%

Gross profit rate

40.6%

36.8%

43.1%

40.3%

37.3%

Operating income

eleven

six point one

80%

eight point six

27%

twenty-seven point eight

ten point six

163%

Operating profit margin

15.8%

9.2%

15%

12%

4.6%

Net profit

seven point two

four point five

60%

five point six

29%

seventeen point six

one point eight

Diluted earnings per share

(SEK)

two point two six

one point three three

70%

one point six one

40%

five point two six

zero point six seven

Excluding restructuring costs and other indicators affecting comparability [1]

Deduction of restructuring expenses

Gross profit rate

40.6%

37.1%

43.2%

40.6%

37.5%

Deduction of restructuring expenses and

Comparable impact in 2019

The operation of the project

Revenue [2]

eleven

five point seven

92%

nine

23%

twenty-nine point one

twenty-two point one

32%

Deduction of restructuring expenses and

Comparable impact in 2019

The operation of the project

Profit margin [2]

15.8%

8.6%

15.6%

12.5%

9.7%

Free cash before M & A

Flow

twelve point eight

-1.9

three point nine

twenty-two point three

seven point six

192%

Net cash at the end of the period

forty-one point nine

thirty-four point five

21%

forty-one point five

1%

forty-one point nine

thirty-four point five

21%

[1] The non IFRS financial indicators are consistent with the most direct and harmonizable items in the financial statements at the end of this report.

[2] Operating income does not include restructuring costs at all stages, nor does it include the sek-11.5 billion fee provisions related to the SEC and DOJ investigation decisions in the third quarter of 2019 and the effect of the release of the sek-700 million reserve partial guarantee in the fourth quarter of 2019.

B ü rjee ekholm, Ericsson’s president and chief executive, said:

In the novel coronavirus pneumonia epidemic situation, priority among priorities is ensuring the health and safety of our colleagues, clients and partners. Despite all the difficulties, our staff still overcome all the difficulties and continue to provide high-quality service to customers. Thanks to the investment in R & D, our technical leadership and cost-effectiveness continue to rise, which drives the company’s market share and financial performance. At present, we have become a 5g technology leader, signing 127 5g business contracts in the world, serving 79 commercial networks. Our organic [1] sales increased by 5% throughout the year. Our operating profit margin [2] is 12.5% (5.0% in the same period of 2019), exceeding the target set in 2020 and reaching the target range set by the group in 2022 two years ahead of schedule.

In the fourth quarter of 2020, the network business has an organic growth [1] of 20% year-on-year, and the gross profit rate [2] is 43.5% (41.1% in the same period of 2019). This shows that the network business-related activities in North America and Northeast Asia are at a high level. At the same time, we have further increased our network business share in the European market. In 2020, the network business achieved a 19% operating profit margin [2], exceeding the target range of 15% ~ 17%. R & D investment is the foundation of the group’s development strategy. Since 2017, we have increased our R & D investment by SEK 10 billion and achieved an operating revenue growth of SEK 16 billion. Our growth in 2020 is based on a strong and competitive 5g portfolio.

In the fourth quarter, the gross margin of digital services business [2] increased to 41.0% (38.1% in the same period of 2019). From 2017 to 2020, the gross profit margin excluding restructuring costs and impact comparability items increased from 29% to 42%, thanks to a streamlined product portfolio, fewer key contracts, increased software sales and lower service delivery costs. We continue to push forward the plan of turning loss into profit. The operating revenue in the fourth quarter [2] is SEK 500 million, which is the best quarterly performance so far. The success rate of 5g core network product portfolio based on cloud origin is high, and a large number of new customer contracts will start to generate revenue in the next 12-18 months. By selectively increasing R & D investment to promote the development of our growth product portfolio, we will be able to seize more market opportunities.

In the fourth quarter, the gross margin of custody services business [2] was 17.7% (15.4% in the same period of 2019). Affected by the integration of U.S. operators, the annual sales in 2020 will decline. In 2020, the annual operating profit margin [2] is 8.1% – higher than the target of 5% – 8%. Thanks to the R & D investment in artificial intelligence technology and automation technology, we expect the profit margin of our hosting service business to be further improved with the increasing sales of our operating engines and their high value-added services. Our new product portfolio has received more and more positive response from customers after its launch.

The sales of emerging businesses and other businesses grew steadily, which was reflected in the products and services of enterprises such as Internet of things platform. The acquisition of cradlepoint also played a gain role. Gross profit rate [2] increased to 33.8% (compared with 15.1% in the same period of 2019), which was due to the operating leverage effect brought by growth and the cost reduction effect brought by withdrawing from edge gravity business. Cradlepoint not only brings revenue to mobile operators, but also helps us achieve growth in 5g enterprise business market and further promote the development of our enterprise private network and Internet of things product portfolio. Cradlepoint’s basic business integration will move forward step by step. However, cradlepoint’s reported sales and costs are affected by the apportionment of purchase price. In 2021, due to the amortization of intangible assets and the increase of market expansion costs, our operating profit margin is expected to be negatively affected by about – 1 percentage point.

In 2020, our pre acquisition free cash flow was SEK 22.3 billion (SEK 7.6 billion in the same period of 2019). The board will propose a dividend of SEK 2.00 per share (SEK 1.50 for the same period in 2019) at the AGM to boost shareholders’ confidence in Ericsson’s business and financial condition. Here we would like to point out that Ericsson has long decided not to apply to the government for any support related to the epidemic.

In 2020, the revenue of patent licensing business will reach SEK 10 billion. As announced in December, we are in the process of renewing some important contracts, which may have a negative impact on revenue in 2021 and 2022 (see planning assumptions on revenue on page 6). We are confident in the long-term value of our patented portfolio, including our strong position in the 5g sector. In addition, we will increase investment on the basis of years of R & D to maximize the net present value of patent assets. The IPR standardization framework based on the principles of fairness, reasonableness and non discrimination (frand) will effectively promote the interoperability of global wireless communication networks and provide convenience for more than 8 billion mobile subscribers.

The epidemic has accelerated the process of social digitization, including telecommuting, which is months or even years ahead of expectations. Resilient digital infrastructure becomes critical. All kinds of signs show that 5g has become the key access technology in the eyes of various countries and enterprises, and Australia, the Middle East, Northeast Asia and the United States are continuously accelerating the deployment speed of 5g. The epidemic also further exposed the digital gap between the country and society, and rapid deployment of 5g is a quick way to bridge the digital gap.

Swedish postal and Telecommunications Administration decided to exclude Chinese manufacturers from the construction of 5g network in the country, which may bring risks to our business in China. At present, our business in 180 markets around the world is based on free trade and open competitive market, which also provides a strong guarantee for the introduction of global unified mobile communication standards. Properly dealing with the geopolitical situation will help us better defend the significant value created by 5g and subsequent technology related operation standards.

In 2020, we further reiterate our strong commitment to ethics and compliance. We continue to increase investment in this field, introduce more special resources, and implement and deploy new or upgraded processes and control measures. We are committed to building an enduring moral culture, advocating individuals to take the responsibility of practicing responsible business practices, and taking this culture as an important cornerstone of enterprise development. In addition, the continuous action of the independent supervision department will also strongly promote us to achieve our grand goal.

Our long-term business fundamentals are still strong. In the future, we will continue to increase investment, enhance the strength of our product portfolio and expand our global business trajectory. Although we expect that the renewal of the intellectual property agreement, the acquisition of cradlepoint and long-term business investment will have a temporary negative impact on our performance in 2021, we will spare no effort to achieve the milestone goal in 2022 and move towards the long-term goal of 15% – 18% growth in EBITA [3].

I would like to take this opportunity to pay tribute to all my colleagues and thank you for pushing our business to turn losses into profits and firmly fulfilling our commitment to our customers during the epidemic year. I am very proud of myself as a member of Ericsson team!

I wish you all the best!

Bao Yikang

President and CEO of Ericsson

[1] Sales adjusted for comparable units and currencies

[2] Excluding restructuring costs

[3] Excluding restructuring expenses and amortization of intangible assets.

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