Ericsson announces the first quarter financial rep

Ericsson announced the first quarter of 2021 financial report

sales of SEK 49.8 billion (the same period in 2020 was SEK 49.8 billion). Although the revenue of intellectual property licensing business decreased by SEK 1.6 billion year-on-year, the sales increased by 10% year-on-year after adjusting by comparable units and currencies, and four of the five market areas achieved double-digit growth

the gross profit margin after deducting restructuring costs increased to 42.9% (40.4% in the same period in 2020). Although the income of intellectual property licensing business decreased, the profit margin of all market segments increased. The reported gross profit margin increased to 42.8% (39.8% in the same period in 2020)

driven by the networking business, the profit before interest and tax (EBIT) excluding restructuring costs has increased from SEK 4.6 billion (EBIT margin of 9.3%) to SEK 5.3 billion (EBIT margin of 10.7%), exceeding the negative impact of the decline in intellectual property licensing business revenue. Reported EBIT of SEK 5.3 billion (SEK 4.3 billion in the same period in 2020)

driven by the rise of market share, after adjusting by comparable units and currencies, the sales volume of network business increased by 15% year-on-year. After deducting restructuring costs, the EBIT margin of the network business was 19.9% (16.8% in the same period in 2020)

reported net profit of SEK 3.2 billion (SEK 2.3 billion in the same period in 2020)

the free cash flow before the merger was SEK 1.6 billion (the same period in 2020 was SEK 2.3 billion), mainly affected by the reduction of intellectual property payment. The net cash flow as of March 31, 2021 was SEK 43billion (the same period in 2020 was SEK 38.4 billion)

[1] the financial indicators of non International Financial Reporting Standards (non IFRS) are consistent with the most direct and coordinated items in the financial statements at the end of this report

brje ekholm, President and CEO of Ericsson, said:

our strategy of increasing technology R & D investment has reduced business costs, which is also reflected in our performance in the first quarter. Mainly driven by the growth of market share of networking business, we achieved 10% organic sales growth [1]. Adjusted for the declining income from intellectual property business, organic sales increased by 14%[1]. The gross profit margin [2] increased by 42.9% year-on-year (40.4% in the same period in 2020), and the growth of gross profit margin of all businesses was higher than the decline in the income of intellectual property licensing business, thus offsetting the related impact. Although we made a lot of investment in our business and were affected by the exchange rate, our EBIT margin [2] still increased to 10.7%. With a competitive 5g product portfolio and cost structure, we will continue to grasp market trends

although the income of intellectual property licensing business has decreased, the sales volume of network business [1] has achieved an organic growth of 15%. This growth reflects the continued high level of performance in all market sectors except the Middle East and Africa. Our market share continued to grow and we received a large number of orders this quarter. The gross profit margin [2] rose to 46.0% in the first quarter (44.6% in the same period in 2020). Through active and continuous supply chain flexibility measures, we have been able to survive the global chip shortage without affecting customer delivery. Our increased R & D investment has accelerated product development. Our recently launched lightweight and energy-saving massive MIMO wireless products for 5g medium band and cloud ran product portfolio fully prove this. These products complement our wireless system portfolio, provide customers with more deployment options and get good customer feedback. We expect the overall market to develop well in 2021. For the rest of this year, we plan to continue to invest to improve the control market share of the experimental process and enhance the resilience of the supply chain

the number of contracts signed in the digital service business shows a good momentum. The contract is mainly focused on our native cloud 5g core portfolio, and we will continue to implement the plan. The gross profit margin [2] increased to 43.6% (40.1% in the same period in 2020). The profit growth of digital services has become a key driver. Although the income of intellectual property licensing business fell and the legacy business continued to decline, the sales volume [1] of this quarter still increased by 3%, which is encouraging. The reason for the loss of profit before interest and tax (EBIT) in this quarter is the low seasonal sales, the decrease of income from intellectual property licensing business and the continuous increase of R & D investment. We will continue to invest in the research and development of the new native cloud 5g core product portfolio, and the initial deployment cost will have an impact on 2021. However, we expect to earn revenue from the signed 5g core contracts and agreements from the end of 2021 or the beginning of 2022. 2021 will be the investment year of Ericsson, and the income level in the second quarter is expected to be close to that in the first quarter. We are building a strong digital service platform and will achieve the EBIT target of 4% - 7% by 2022 [2], which we are full of confidence

the gross profit rate of custody services [2] in this quarter was 21.0% (20.6% in the same period in 2020). The EBIT margin [2] fell to 8.1% (11.4% in the same period in 2020), including a one-time negative impact of 1% due to the withdrawal of non core businesses. In the future, we will continue to focus on further improving profitability by increasing R & D investment in automation and artificial intelligence

we are glad to see that cradlepoint is developing as planned in emerging businesses and other market segments

the company made a considerable contribution to net profit after sales, and the revenue of intellectual property licensing business in the quarter was SEK 800 million (SEK 2.5 billion in the same period in 2020). The decrease in revenue from this business was mainly due to the expiration of the contract and waiting for renewal, as well as a decrease in the sales volume of a licensee. At present, the largest contract waiting to be renewed has entered the legal and negotiation stage

free cash flow before mergers and acquisitions in this quarter was SEK 1.6 billion (the same period in 2020 was SEK 2.3 billion). Generally, most of the annual intellectual property licensing fees are collected in the first quarter. Excluding the impact of intellectual property rights, cash flow improved significantly year-on-year due to the increase in income and continuous restrictions on working capital. Based on our 5g investment portfolio, our balance sheet is resilient and competitive, giving us the opportunity to further achieve the company's organic growth through acquisitions

the current global epidemic has rapidly promoted the digitization process of society in which the morphemes often used by tensile testing machines are regulated by our manufacturers, so that high-quality network connections have received great attention in the economic and social fields. Resilient global digital infrastructure has become critical, and governments and enterprises are increasingly recognizing 5g as the first choice for interconnection and accelerating the deployment

we will continue to strengthen our firm commitment to ethical compliance. We are strengthening our capabilities by further increasing investment, while deploying new or modified processes and internal controls. One of the important foundations is to assume personal responsibility for negative business behavior. The independent monitoring we are carrying out has made a valuable contribution to the realization of our goals

at present, the global demand for 5g networks is strong, and the leading markets are developing rapidly, creating opportunities for us to develop our core business. To this end, we will continue to invest, further strengthen our portfolio and expand our global footprint. With the support of 5g and IOT, the enterprise market has become another attractive growth area. By investing in business in 2021, we are building a strong long-term platform to enhance our competitiveness in core business and enterprise applications

our top priority is to ensure the safety, health and well-being of our employees, customers and partners. Thank our excellent employees for their persistence in working under the difficult conditions during the epidemic, so that we can continue to carry out business and deliver products to customers

I wish you all good health and success

Ericsson president and CEO

[1] sales adjusted by comparable units and currencies

[2] excluding restructuring costs

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