Ericsson Nikola Tesla Group - H1 2022 business results
Solid business performance despite negative circumstances
Gordana Kovačević, the President of Ericsson Nikola Tesla, commented:
„In H1 2022, we continued to implement many projects in the domestic and export markets and achieved sales revenue of more than one billion HRK. We had a solid business performance despite the extremely turbulent political environment, inflation, increase in the prices of labor, energy and materials, disruptions in supply, as well as lack of STEM experts. The war in Ukraine has a significant impact on our business in Belarus, as well as in the surrounding markets. Due to the sanctions imposed by EU, the termination of eHealth implementation contract for the Republic of Belarus was initiated. We have stopped the signing of the already agreed new contracts and postponed the implementation of the previously signed multi-year contracts with telecom operators in Belarus, the further implementation of which will depend on the development of the situation with sanctions, that we continuously monitor.
The domestic market was marked by the continuation of investment of the leading operators in the network infrastructure. Accordingly, in the observed period we have continued with the deliveries related to 5G network and fiber-optic network for Hrvatski Telekom, which recently once again received the umlaut 'Best in Test' awards for the best and fastest fixed and mobile network. The results of umlaut analysis were certainly positively impacted by the quality implementation of projects, in which our experts have participated. With our strategic partner A1 Hrvatska, we have continued the cooperation on the expansion of coverage and capacity of radio 5G network, expansion of capacity of 4G network, and modernization of convergent 5G core network.
Furthermore, as part of a pilot project, in cooperation with the company Odašiljači i veze, we have implemented a private 5G network at a factory in the Šibenik-Knin County, based on Ericsson Private 5G solution. This solution represents a fully independent 5G network of high performance, high level of security, with remote control and automation capabilities. One of the possible applications of 5G private networks is the automated monitoring of warehouse conditions using drones, and the factory is provided with reliable wireless mobile technology for various types of devices.
In the Digital Society segment, activities on e-health, e-business and public safety projects continued, and new contracts were also signed. Based on the two-year frame agreement with the State Geodetic Administration and the Ministry of Justice and Public Administration, which we announced in June 2021, we have contracted the continuation of cooperation related to support services for the application system of the Joint Information System of Land Registry and Cadaster (JIS).
As regards innovative solutions, our Research and Development (R&D) Center, as well as our expert centers for services and solutions have been recognized for excellence by Ericsson corporation and have been continuously given new responsibilities, thus significantly contributing to the Group's business results. We are proud that Ericsson Nikola Tesla Group has more than 1,800 employees, who work on software design, out of total of more than 3,500 employees and there is a potential for further growth.
With the aim of further development of the company, in addition to the expansion of the existing offices in Zagreb, Split and Osijek, we opened a new office in Rijeka at the beginning of June. In this way, we optimize our business activities and ensure the necessary professional capacities, and we make it possible for our experts to stay in Croatia and continuously develop their skills by working in the dynamic ICT industry, on the latest technologies and interesting projects in cooperation with top experts from all over the world. By opening our offices in other Croatian cities, we additionally boost economic and technological development, and as a socially responsible entrepreneur we contribute to the equal development of Croatia.
In export markets, despite numerous challenges, we have continued a quality cooperation with long-term customers in the neighboring markets on mobile networks modernization. I would like to highlight a contract with HT Mostar on providing support for the maintenance of fixed and mobile network until the end of 2023, further activities on the modernization of Crnogorski Telekom's mobile network which include the increase of capacities, expansion and coverage of the entire Montenegro with 5G signal, as well as putting into operation the first 5G pilot network in Kosovo with the operator IPKO.
In H1 2022, more than 130 employees joined our Group, mainly highly educated STEM experts. Engagement in our company enables ICT experts to positively impact the life and work of millions of people through their daily work. Therefore, I believe that also in the future, STEM experts will recognize Ericsson Nikola Tesla as an employer of their choice.
Compared to H1 2021, sales revenue increased by 4.7% at Group level, mainly due to sales increase in services to Ericsson. Gross margin decreased to 9.7%, due to sanctions against Belarus, increase of salaries as a response to inflationary pressure and rising prices of energy, raw materials and materials, while operating profit decreased by 35.6%, amounting to MHRK 76.9. A positive cash flow from operating activities was realized, amounting to MHRK 20.5, which is in line with the expectations, considering the market environment. We have concluded Q2 with a healthy balance sheet, with equity ratio of 30.9%. At the end of Q2, cash and cash equivalents, including short-term financial assets, amounted to MHRK 515.1 (41.0% of the total assets).
In order to mitigate risks, we continuously monitor the situation in all markets and business segments and take appropriate measures. Diversification of business enables us to have a stable performance and to mitigate the negative impacts of crisis by increasing our experts’ engagement within the global organization in research and development as well as other high-value services, and we actively work on the development of existing and new business segments.
In 2022, we expect the demand for digital solutions to continue, which opens new opportunity for the company's business development. Therefore, regardless of all the challenges, we shall continue to invest in 5G and new technologies, Industry 4.0/5.0, new solutions, markets and customers, development of our employees’ knowledge and skills, digital transformation of Ericsson Nikola Tesla Group, and open new jobs in order to secure the company's long-term development. We are also preparing for our additional quality contribution to the full development of Digital Croatia in the upcoming decade.„