Ericsson

declined organically by 10%, driven by an overall decrease of 15% in networks, with North America being down by almost 50%. We worked relentlessly to strengthen our performance and cost management. We recognized already more than a year ago the need to take costs out And during 2023, we've implemented efficiency improvement, including reducing internal and external headcount by more than 9,000. And this has actually enabled us to deliver against our cost savings target of 12 billion kroner gross out. About half of that came into effect in 2023, and the remainder will come in during 2024. Because of our efforts that we've done the past few years, and you know the importance we place on gross margin, we were able to deliver a gross margin of 39.6% and an EBITDA margin of 8.1% for the year. I would say given an almost unprecedented market environment with volume declines as well as business mix change, I think this was a very solid performance by the team here. Across our business areas, we also took critical steps in building a stronger, more profitable Ericsson. In mobile networks, we continue to extend our technology leadership. Our leading technology empowers customers to build high-performance, differentiated and programmable networks, while also leading the shift to open cloud-native networks. The contract with AT&T is a key proof point demonstrating how our technology is leveraged to advance the network architecture of the future and deliver a reduced total cost of ownership for our customers. This deal will create significant value both for our customer and for Ericsson, and we expect it to start to ramp up in the second half of 2024. In cloud software and services, we executed on the turnaround plan and we're happy to have reached that target. So for the full year, we delivered an EBITDA of 1.7 billion kronor. I really want to thank the full team for their efforts. From now on, we'll continue to increase commercial discipline, automation and delivery efficiency, focusing on long-term profitability. In enterprise wireless solutions, we continue to build out offerings, including the acquisition of Ericom, and we further strengthened our position in private networks. During Q4, we saw slower growth due to macro headwinds. And through our global network platform, we continue to work with front-runner customers to reshape the industry by transforming the network into a platform for innovation. In parallel, we've continued to drive our cultural transformation as we focus on building a culture of integrity and strengthening our governance, risk management and compliance. All these initiatives, of course, come with the short-term costs, but I would say they're essential to our long-term competitiveness and success. As I said, going forward, we expect the Rand market outside of China to decline further as our customers remain cautious and the investment pace normalizes in India. However, we expect our market share in North America to be helped by the AT&T contract in the second half of 2024. It's important to note that looking historically, large declines in the mobile network market are followed by a rebound. So operators can sweat the assets up to a point, but eventually will need to invest to manage the data traffic growth, cost, energy usage, and of course, network quality and give the customer experience that the customer demands. That is actually something we see will happen this time as well. So we fully anticipate the market will recover to more normalized levels. However, the timing is very difficult to predict. Ultimately, this will be in the hands of our customers and the investments will vary by customer and by market and their competitive position. We also see a somewhat slower growth in enterprise due as well to macroeconomic headwinds. So again, with that outlook, we will continue to prudently manage our balance sheet while keeping sight of investments critical to our long-term strategy. So as we focus on driving fundamental improvements to our cost structure, and we expect to take additional actions, including reducing headcount as we pare back some investment areas and focus our portfolio where we really can win. As you saw today as well, the board has proposed a dividend of 270 per share, corresponding to a total amount of 9 billion kroner. This is proposed to be paid out in two equal installments as in previous years. While recognizing the near-term challenges, I would say this is a testament to the confidence the board has in the longer-term outlook for us as a company. But let me now take a step back to put our achievements in the perspective of our strategy. So next slide, please. While the mobile network market is challenged, it actually provides real value to the economies around the world, from regular communication for consumers to advanced digitalization for enterprises and society. But the problem is that the return on capital has been stagnant and many operators today fight to earn cost of capital. I think to change this, there are two things we can do. We can passively wait. for market just to improve or regulation to change, or we try to address the issue head-on by changing how networks are consumed and monetized. As you know, we've chosen the latter route. We're actively working to reshape the industry by transforming the network into an innovation platform, leveraging cellular connectivity in new areas. So let me expand on that. First, We're leading the way by building high performance and differentiated networks, which will be needed to digitalize enterprises. By horizontalizing the architecture, we're allowing our customers to prioritize investments in different parts of the network at different clock cycles. This is important as it not only offers our customers advanced network architectures, but it also allows for a lower cost of ownership. Second, With enterprise wireless solutions, we extend the use of cellular connectivity through private 5G networks and wireless WAN. And third, by developing a global network platform, we enable the exposure, consumption and payment of network APIs, which extends the market beyond consumers to enterprises as well as developers. we're changing the monetization model of the industry. And this is a shift that, of course, will take some time. But we are encouraged by the progress we've made with a partnership with DT to offer network APIs to developers and enterprises. But we're also seeing very strong progress with frontrunner customers. We're confident this will create a more profitable and sustainable future for our industry and our company. So Ericsson has a clear leadership position today with leading offerings. With our strategy and the actions we're taking, we ensure that we will continue to be well positioned when the market improves. Before handing over the world to Carl, I would like also just to comment on the announcement of our new CFO, Lars Sandström. Lars will be joining us from Getinge and comes with an extensive experience and knowledge from a variety of financial and management roles. Lars will join us 1st of April, and we have also appointed Peter's successor as head of IR, Daniel Morris, who joins us from Vodafone's IR team, with a solid experience also as a sell-side analyst. So I would now just like to say a big thank you to both Carl and Peter for their time at Ericsson. It's truly been a privilege to work with both of you. Thank you both. And now, maybe for the last time, Carl, it's time for you to go through the numbers. Thanks a lot, Börje.

Thanks for kind words and very good morning to everyone. So I will address some of the key items around the financials here today and also some comments on the outlook going forward. So if you go to the next slide and look at Q4 to start with, and I would just paraphrase a bit Bury here, the challenging market we saw in telecom and this market mix shift, they were really dominant factors throughout 2023. And reported full year net sales in the US were down by 35 billion Swedish kronor year over year. But India grew by over 20 billion. So you see clearly how powerful this shift was during the year 2023. And the impact of this on both profits and cash flow is clearly visible. We have communicated around that many times. Of course, however, partly countered with the cost-out efforts and the achievements that we have done and efficiency improvements across the company. But looking at Q4 then as a solid result despite the current market conditions and the execution during this quarter, I believe demonstrates stronger increased resilience in our company and a good team effort. So group sales declined by 17% organically. to 71.9 billion in the fourth quarter. Partly the decline is due to the retroactive IPR revenue we had in the fourth quarter, 22. But I would say the primary driver here was the continued drop in North America, where sales decreased by 43% year over year in the quarter. India, meanwhile, their five-year rollout continued, but the pace slowed significantly. So we are up in sales in India by 10% year over year in Q4, but we dropped 40% sequentially as we see now the Indian market starting to normalize the investment levels following this unprecedented rollout pace that we've seen earlier in the year. Gross margin then, 41.1%, including restructuring charges. That is slightly down year over year. But interestingly, if we adjust for this large retroactive IPR revenue in the fourth quarter 22, it's actually an improvement in gross margin. And how did that come about? Well, gross margin in the fourth quarter was supported by a high share of software, thanks to the efforts in that area, but also the market mix. I would also call out the cost reductions across the mobile networks business. And one more factor to mention here, the lower variable pay accruals that we have seen, which is also impacting OPEX positively in Q4. So in networks, we achieved a gross margin of 43.2%, excluding restructuring. That's exceeding the 39 to 41% range that we had guided for. And it's really a result of the activities I mentioned to improve the sales mix with a higher share of software. Further down in the P&L, then EBITA, excluding restructuring, declined somewhat to 8.2 billion versus 9.3 billion in 2022. I mentioned already the retractive IPR revenue, which plays into the year-over-year comparison. But we also had lost Q4 several provisions moving in the opposite direction as we disclosed at the time. So if we look at year-over-year delta, the underlying reason is really lower sales and a changed mix in networks. Cloud software and services continued the positive trend, delivered an EBITDA of 2 billion in the quarter, driven by a couple of things, of course, operational improvement, but we see it in gross margin, but also in reduced OPEX. And that resulted in a fuller EBITDA of 1.7, as Borge mentioned, which is meeting, I would say, with the margin, our at least break-even ambition that we communicated earlier. Enterprise then grew by 7% organically with a stable EBITDA loss year over year. We had a negative impact in the quarter from some inventory write-offs in the enterprise wireless solutions area. Cash flow then, we delivered 12.5 billion of free cash flow before M&A in the fourth quarter. And that's really ending the year on a strong note. We had strong cash collection and we released working capital from conclusion of large deployment projects as we had expected and talked about many times. Then on cost out, to reiterate here, we have now achieved the committed run rate savings of 12 billion Swedish kronor, half of which impacted the P&L in 2023 already, and the remainder to impact in 2024. And here I just want to note that, of course, the 12 billion are gross savings and meanwhile of course as all other companies and organizations we still have a cost inflation going on not least from annual salary increases that kick in and we're likely to return in 2024 to more normalized variable pay accruals from very low levels in 2023. Restructuring provisions came to 1.5 billion in the fourth quarter and that brings the total to 6.5 billion versus the previously communicated 7 billion of restructuring in 2023. If we move on to the next slide and look at the full year in numbers, reported sales then decreased to 263.4 billion compared to 271.5 previous year. That's a decrease by 10% organically following the week run market discussed many times. IPR licensing revenues is a positive. We grew to 11.1 billion versus the 10.4 we recorded the previous year. And we see that as a result of new 5G license renewals during the year, partly offset by some expiring agreements. Gross margin and excluding structuring declined in the full year to 39.6% versus 41.8% in 2022, as Bury mentioned earlier in the introduction. Again, driven by operators' capex reductions and the market mix, as we have described many times before. If you look at cloud software and services on gross margin, we reached 36% up from 33, a bit more in 2022. That's encouraging. And of course, we continue to drive improvements in that segment. Looking at the parts of OPEX, R&D increased about a billion to 48.2%. And that's impacted by a negative currency effect of 0.9 billion. And you see that the mobile networks business, that's then the segment networks and cloud software and services, was slightly down in R&D. We do increase in enterprise and we also have the impact, of course, of the full year consolidation of Vonage now in the numbers. Turning to SG&A, excluding restructuring, 38 billion. Also a negative currency effect here, 0.7 billion in this case. Same story, we decreased in the mobile networks part, but increased in enterprise. And this has mainly to do with investments in go-to-market activities in enterprise wireless solutions. Also here, of course, we have an impact from the full year consolidation of Vonage. So that leads us then to an EBITDA of 21.4 billion, excluding restructuring in the full year. That's at 8.1% margin. Obviously not a level we can be satisfied with in absolute terms. But again, I would like to say it illustrates the strengthened resiliency in our company and our operations, considering how extremely challenged the market has been in 2023. And still we deliver more than 20 billion EBITDA. Free cash flow before M&A was 1.1, negative for the full year. And as you will remember, we flagged at the outset for this, we would see a negative cash flow in 2023. It's due to the same business mix shift that we talk about on the P&L towards big rollout projects. those projects have a longer order to cash cycle than the normal business mix so now what we saw in the fourth quarter and we will continue to see is that we move out of the intense rollout phase in those projects and therefore we see a positive effect on working capital reduction and therefore free cash flow generation Some data points going forward if we move to the next one and for the first quarter. As Börje said, we do expect the current market situation to prevail into 2024. The AT&T contract will start to ramp up during the second half. And we're expecting a gross margin here in the networks segment to land within the range of 39 to 41. There is a change in the mix from Q4 to Q1, and that is the reason for our guidance here, 39 to 41 with less software. Cloud software and services will continue to invest here. We have strategic investments in the 5G portfolio. We're doing that for competitiveness and resilience, and we expect that to remain into Q1. And please remember also when it comes to cloud software and services, the nature of that business is such that results will fluctuate between individual quarters. So we should not expect a linear development from quarter to quarter there. Then in the enterprise segment, we expect some seasonality, negatively impacting sales from Q4 to Q1 with the maintained profitability level. I want to comment also on OPEX and reiterate that the Q4 levels were low, partly due to these low accruals for variable pay, given the lower target fulfillment in the year. And we expect this to revert to more normal accrual levels in the first quarter.