Stockholm- On the financial front, Ericsson's Q4 and full-year 2023 report reflects a nuanced landscape, marked by both challenges and notable achievements.
Organic revenue decline stands out as a key metric, registering a significant -17% year-over-year decline, primarily driven by a significant -23% decline in Networks. Reported sales experienced a parallel decline of -16% to SEK 71.9 billion.
Gross profit excluding restructuring charges decreased to SEK 29.6 billion, with a corresponding gross margin (excluding restructuring charges) of 41.1%, slightly lower than the previous year's 41.5%. Adjusted for the retroactive element in intellectual property rights (IPR) revenues from the fourth quarter of 2002, the gross margin increased year-on-year.
Reported gross profit was SEK 28.6 billion, with a gross margin of 39.8%, compared with 41.4% in the previous year. Earnings before interest, tax and amortization (EBITA), excluding restructuring charges, amounted to SEK 8.2 billion, resulting in an EBITA margin of 11.4%, a slight improvement from the previous year's 10.8%. Similarly, earnings before interest and taxes (EBIT) excluding restructuring charges amounted to SEK 7.4 billion, with an EBIT margin of 10.3%.
Free Cash Flow before Mergers and Acquisitions (M&A) was reported at SEK 12.5 billion, a decrease from the previous year's SEK 16.9 billion, which was influenced by the positive impact of retroactive IPR payments in the fourth quarter.
Full-year performance
For the full year, organic sales declined by 10%, influenced by a significant decline of -15% in Networks, partially offset by growth of 11% in Enterprise. Reported sales amounted to SEK 263.4 billion.
Gross profit excluding restructuring charges for the full year was SEK 104.4 billion, mainly related to Networks, resulting in a gross margin (excluding restructuring charges) of 39.6%, down from 41.8% in the previous year. Reported gross profit was SEK 101.6 billion, with a gross margin of 38.6%.
EBITA, excluding restructuring charges, was reported at SEK 21.4 billion, with a corresponding margin of 8.1%, down from 10.9% in the previous year. EBITA amounted to SEK 14.9 billion, with a margin of 5.7%, down significantly from the previous year's margin of 10.7%.
Reported EBIT showed a significant decline to SEK -20.3 billion, impacted by a goodwill impairment charge of SEK -31.9 billion in Q3 related to Vonage. Net profit (loss) was SEK -26.1 billion, with diluted earnings per share (EPS) of SEK -7.94.
Free cash flow before M&A for the full year was reported at SEK -1.1 billion, a significant decrease from the previous year's SEK 22.2 billion. Net cash at the end of the year was SEK 7.8 billion. The Board of Directors has proposed a dividend of SEK 2.70 per share for 2023.
CEO Reflections
Börje Ekholm, President and CEO of Ericsson, acknowledged the execution of the strategy in 2023 amidst challenges. Notable achievements included a Q4 EBITA margin of 11.4% and securing a significant 5-year contract worth USD 14 billion. Despite acknowledging the positive results, Ekholm expressed dissatisfaction with the company's profitability and emphasized the need for continued efforts.
Looking ahead to 2024, Ekholm expected further market declines outside of China, with uncertainties mirroring those in 2023. Operational efficiency and tight cost management were highlighted as key areas of focus, with a commitment to driving long-term value for shareholders.
Q4 performance analysis
In the challenging environment of Q4, Ericsson demonstrated resilience and adaptability, resulting in solid results. Although Group revenues declined organically by -17% year-on-year, EBITA reached SEK 8.2 billion with a commendable margin of 11.4%. The strategic focus on profitability manifested itself in a gross margin of 41.1%, which increased year-on-year when taking into account the retroactive IPR revenues in Q4.
Networks revenues experienced a significant organic decline of -23% YoY, driven by customers' focus on cash flow. However, a sequential improvement in gross margin to 43.2% was notable. In Cloud Software and Services, the company achieved its EBITA target of at least break-even by 2023, reporting SEK 2.0 billion in Q4 and SEK 1.7 billion for the full year.
Enterprise sales grew organically by 7% year-on-year, driven primarily by Enterprise Wireless Solutions. Despite a stable EBITA (loss) YoY, an inventory write-down in Enterprise Wireless Solutions impacted the result.
A healthy free cash flow before M&A of SEK 12.5 billion was achieved in Q4, with efforts focused on returning to the long-term target of free cash flow before M&A of 9-12% of net sales.
Strategic pillars
Ericsson's strategic pillars focused on strengthening leadership in mobile networks and expanding into the enterprise. Technology leadership, enabling high-performance, programmable and open networks, was identified as the core of the strategy. The expansion into Enterprise was aimed at creating new monetization opportunities through network APIs and high-performance mobile technology.
Outlook to 2024
Despite the positive outlook for the mobile industry, uncertainties remain through 2024. The Radio Access Network (RAN) market outside of China is expected to continue to decline as customers exercise caution. The new US contract is expected to ramp up in the second half of 2024.
The underlying demand from growing data traffic and the early stages of 5G deployment require additional network investment. Ericsson is confident that current investment levels are unsustainably low for many operators and expects the market to recover. However, the timing of this recovery remains dependent on customer decisions.
In summary, Ericsson aims to position itself as a more profitable company, leveraging its leadership in mobile infrastructure and a high-growth enterprise platform business. The focus on technology leadership, operational efficiency and long-term profitability underlines the company's commitment to navigate the dynamic landscapes of the digital era.
