Ericsson Nikola Tesla Group H1 2019 Results

Gordana Kovačević, the President of Ericsson Nikola Tesla, commented: „In H1 2019, Ericsson Nikola Tesla Group sales revenue amounted to MHRK 821.7, up by 7.8% year-over-year. In accordance with our plans, services to Ericsson increased as a result of business expansion and gaining of new responsibilities, primarily in 4G/5G. In line with that, we continue hiring, investing in equipment and testing systems, and development of our employees' competencies in R&D Center, as well as in Solution and Services Expert Centers.

Sales revenue decreased in the domestic market year-over-year due to project execution dynamics. Intensive activities with Hrvatski Telekom are ongoing on radio access network modernization, which will significantly increase network capacity and enable the introduction of 5G technology, once the necessary radio frequency spectrum is assigned. With A1 Hrvatska, we have continued to cooperate on the realization of a multi-year frame agreement which encompasses modernization and expansion of their radio access network in order to be ready for efficient and fast 5G deployment. Moreover, A1 Hrvatska put into service the NB-IoT (Narrowband Internet of Things) service for business users, based on Ericsson’s solution in radio access network. This is a technology for secure and reliable wireless connection of a large number of devices, which, due to advanced characteristics, is categorized as 5G technology.

Industry & Society projects have a significant positive impact on the business result in the domestic market. Numerous activities are ongoing on projects of informatization of healthcare system, Joint Information System of Land Registry and Cadaster and state border control.

Sales revenue in export markets increased year-over-year. The implementation of mobile networks modernization projects with the customers in Bosnia and Herzegovina, Montenegro, Kosovo and Belarus remain in focus. In line with our strategy and in order to strengthen our market position, we continue with planned sales and marketing activities in targeted business areas. At the International Business Fair – Mostar 2019, we presented the solutions for digital society. Furthermore, the promotion of 4G network of our customer, HT Eronet, was especially important for us, since the long-awaited licenses for introduction of the fourth generation of mobile telecommunications were only recently issued in Bosnia and Herzegovina. It should be highlighted that HT Eronet put 4G network into commercial operation immediately after obtaining the license.

Gross margin decreased by 1 percentage point year-over-year due to further increase of engagement and working capital on projects with key customers. Operating profit remains at the same level year-over-year. Profit before tax went up by 2.5%, while net profit increased by 15.6%. A positive cash flow from operating activities was realized, amounting to MHRK 32, and total cash and cash equivalents, including short term financial assets at the end of H1 2019 amounted to MHRK 221.5. Working Capital Efficiency, expressed in Working Capital Days (WCD), was 42 days, and if we exclude services to Ericsson, Working Capital Efficiency was 113 days. Cash conversion rate was 23%.

In line with our strategy, we remain focused on development of solutions and sales in the field of mobile broadband Internet access (4G/5G mobile solutions), digital transformation and network management, Industry & Society (healthcare, public safety, e-Business), and on strengthening our position by providing services to Ericsson. We have also initiated a Digital Transformation program on Ericsson Nikola Tesla Group level, in order to additionally simplify the Company's processes and business/project management by applying advanced technologies and automation. Accelerated technology changes and end-user needs require continued transformation and adaptation both for us and our customers. These processes are further intensified by the introduction of 5G, Internet of Things and Cloud. We have been intensively working on strategic contracts, and have been investing in 5G, which will impact margins short term, but will strengthen our market position in the long term.

In order to secure further business development and stay competitive, we remain focused on cost and operating efficiency and strategic risk management. “

Ericsson Nikola Tesla Company Communications