Ericsson Nikola Tesla Group business results for 2018 published

Ericsson Nikola Tesla Group business results achieved in 2018 and the forecast for 2019 were published at the press conference.

Gordana Kovačević, the President of Ericsson Nikola Tesla commented:

“Ericsson Nikola Tesla Group sales revenue in 2018 amounted to MHRK 1,558.2, up by 5.2 percent year-over-year, despite a very demanding business year. Other key performance indicators also showed growth. Domestic market recorded a significant growth in sales revenue due to operators’ investment in mobile networks modernization and digital transformation projects. Export markets recorded lower sales revenue affected primarily by the ramping down of network modernization projects and challenging economic and political environments in some markets. Ericsson market continuously records solid growth and contributes to the overall stability of financial performance. Export accounts for 65% of the Group’s total sales revenue.

In terms of business and technology, last year was dynamic, full of challenges and important achievements. In 2018, ICT Industry strongly focused on mobile networks modernization and preparation for the upcoming 5G technology, revealing a trend that will intensify in the period to come. In line with global trends and domestic market demands, in March 2018, we were the first in Croatia to demonstrate the possibilities of 5G technology, only a month after the global presentation at the Mobile World Congress in Barcelona. Furthermore, during summer we supported the leading Croatian operators, Hrvatski Telekom and A1 Hrvatska in their 5G demos in real environment, focusing on end-user services. In non-operator segment, we continued to cooperate with numerous customers in state administration bodies, primarily in the area of eHealth, land registry and cadaster, and on the implementation of the state border control project.

In the markets of Southeast Europe, our continuous focus on customer requirements resulted in several new agreements in the operator segment, primarily related to modernization and maintenance of the radio network. I would like to highlight the continuation of good cooperation with the operators HT Mostar, Crnogorski Telekom, and Ipko. Furthermore, we opened an office in Mostar, to provide more efficient customer support, and signed an agreement with the University of Mostar on collaboration in ICT and R&D segment.

In the market of the Commonwealth of Independent States, the project of healthcare system informatization in Kazakhstan stands out by its significance and business impact. In 2018, we delivered the latest eHealth software solution aimed at modernization of the healthcare sector, and we continue to work with the Ministry of Healthcare of the Republic of Kazakhstan on Electronic Health Passport pilot project. In operator segment, I would like to highlight the activities on mobile networks build and modernization with beCloud (Belarus), Ucom (Armenia), and IDC (Moldova).

Ericsson market shows a continuous growth. Ericsson Nikola Tesla’s R&D Center currently employs approximately 1,400 out of total 3,200 Group’s employees and is the largest R&D Center in Croatia. The Center is focused on expanding responsibilities in the field of 5G, competencies development, and technology transfer. Over the years, the largest increase in activities and responsibilities was recorded in the radio segment on the development of 3G/4G/5G functionalities which are important for Ericsson’s strategic plans within the Networks segment. In 2018, along with extension of our R&D activities in Zagreb and Split, we opened an office in Osijek, which is in line with our gaining of new responsibilities for global Ericsson. Owing to R&D activities, as well as expert centers for Networks and Digital services, Ericsson Nikola Tesla has been Croatia’s leading exporter of knowledge for many years.

Apart from marketing and R&D activities, Ericsson Nikola Tesla fosters long term cooperation with universities and the academia, with the aim to raise interest in STEM among young people. An example of good practice, and one of the most successful projects of collaboration between business and academia is Ericsson Nikola Tesla’s Summer Camp, which was launched in cooperation with the Faculty of Electrical Engineering and Computing in Zagreb in 2001. In 2018, 57 students from 16 different universities from Croatia and abroad participated in Ericsson Nikola Tesla’s Summer Camp. Assisted by their mentors, the students worked in teams on projects regarding Internet of Things (IoT), 5G technology, machine learning, radio networks, and tools for faster software development and testing. Furthermore, we continue to work on projects in the field of analytics and Internet of Things (IoT) within Ericsson ONE, a global innovation platform, with the aim to secure new areas for business growth.

As a socially responsible company, we pay special attention to sustainable business. One of the examples is an energy efficiency project concerning the Company’s buildings and plants, worth more than MHRK 73. The project is co-funded by the EU “Competitiveness and Cohesion” Operational Program 2014-2020, as per the call for proposals “Increasing Energy Efficiency and Renewable Energy Sources in Manufacturing Industries”, for which the Company received the maximum grant amount of MHRK 20. After project completion (end of 2020), the Company’s annual energy savings are projected to amount to more than 4.6 million kWh, with the simultaneous CO2 emissions reduction by almost 1400 tonnes. Furthermore, within the European LIFE Clim’Foot project, completed towards the end of 2018, Ericsson Nikola Tesla was the only private company in Croatia that calculated its carbon footprint and, based on that analysis, created a corresponding plan to reduce the Company’s impact on the environment and has undertaken a range of activities.

In terms of financial results, gross profit is up by 7%, while operating profit increased by 56.3%. A strong growth in operating profit is due to higher gross profit, lower sales and administrative costs, and projects realized in line with the Investment Promotion Act. Net profit rose by 67.4% to MHRK 113.6. End of year was concluded with a lean balance sheet and an equity ratio of 36.3%. A positive cash flow from operating activities was realized primarily as a result of proactive collection of customer receivables. At the end of 2018, total cash and cash equivalents, including short-term financial assets, amounted to MHRK 236.3. Group’s Working capital efficiency, expressed in Working Capital Days (WCD), was 34, however if we exclude services to Ericsson, working capital efficiency was 87. Cash conversion rate was 38.9%.

During Q3, we initiated a new cycle of strategic planning for the period 2019 – 2023. In the upcoming period we expect new business opportunities, as well as challenges. As a response to a demanding market environment, we closely cooperate with customers to fully understand their needs, we adjust our organization and ways of working, and invest in our employees’ competencies development and our technology leadership. We remain focused on cost and operating efficiency, capital efficiency and strategic risk management. Even though costs related to strategic contracts and 5G field trials will impact profitability short term, they will strengthen our business and market position in the long term.

Towards the end of this year, we will mark the 70th anniversary of Ericsson Nikola Tesla. We believe this confirms that we are a reliable company that has been continuously drawing on its thought leadership and has been achieving highly set goals, which makes us ready for new challenges.“

Communications Ericsson Nikola Tesla