Ericsson Nikola Tesla Group business results for 2020 published

Despite challenging circumstances, Ericsson Nikola Tesla Group delivered excellent business results in 2020. Due to current epidemiological measures, instead of at our regular press conference, find out more about our results and achievements in the video.

Gordana Kovačević, the President of Ericsson Nikola Tesla, commented:

“Considering the extraordinary challenges in 2020, Ericsson Nikola Tesla Group achieved excellent business results. The year was globally marked by a long-lasting fight against the coronavirus pandemic and the measures of physical distancing and restricting the movement of people and equipment continue. In addition to earthquake that hit Zagreb in March, which was the most powerful one in the last 140 years, at the end of December Sisak-Moslavina County was hit by a series of strong earthquakes. We have reacted quickly, adjusted and were innovative in order to help our employees and the community in which we operate to cope somewhat easier with the consequences of pandemic and then earthquake. The health and safety of our employees, customers, and partners has always been our main priority. We are proud of the dedication and engagement of our employees who, despite the difficult business conditions, have continued to provide services/support to our customers. Ericsson Nikola Tesla Group’s products, services and solutions, as well as the knowledge, proactivity, innovativeness and courage of our employees in the most critical moments, in cooperation with our customers, have secured the operation of telecom network and internet connections, as well as smooth operation of, among others, a strategically important Central National Information Healthcare System.

In complicated circumstances, by applying the highest standards of ethics, compliance and transparency, we have timely, and with quality, realized many projects in Croatia and in export markets, and have signed several strategic multi-year agreements. Thus, we have strengthened our market position and created a strong foundation for the future.

Sales revenue grew by 13.7% year-over-year to MHRK 2,023.0. In total revenue, export accounts for 54.2%, and therefore, with more than a billion HRK of export in 2020, Ericsson Nikola Tesla Group is positioned among the largest Croatian exporters, and as number one, when it comes to exporting knowledge.

Taking over and signing a new contract for managed services in build and maintenance of HT’s telecommunication infrastructure had a significant impact on Company’s results in 2020. The main focus was placed on securing sales revenue, cost optimization and control of operating cash flow. Such focus was also placed on other network modernization projects, as well as projects in Industry&Society segment.

In the domestic market in the operator segment, we have been supporting our long-term strategic partners HT and A1 Hrvatska on the modernization and expansion of radio access network, while in the segment of ICT for Industry&Society, we have been working on innovative solutions in e-Health, e-Business, and public safety, which additionally strengthened our results in the domestic market.

The two biggest operators in Croatia (HT and A1 Hrvatska) have started to introduce the 5th generation (5G) of mobile telephony based on Dynamic Spectrum Sharing technology, delivered by Ericsson Nikola Tesla (ESS – Ericsson Spectrum Sharing). We look forward that, by assigning 5G radio frequency spectrum, conditions will be created for full implementation of 5G in which our company will play an important role.

Export markets recorded lower sales revenue year-over-year. Realization of projects, in addition to COVID-19, is aggravated by political and economic situation in certain markets. Quality cooperation on the expansion, modernization and maintenance of telecommunication networks has been achieved with our long-term customers: HT Eronet (Bosnia and Herzegovina), Ipko (Kosovo), Crnogorski Telekom (Montenegro), beCloud (Belarus), Beltelekom (Belarus), A1 (Belarus), and Interdnestercom (Moldova). Our activities on these markets continue with a strong focus on risk mitigation. Risk management, as the key area of our business strategy, includes the mitigation of all potential business, financial and operating risks through appropriate policies and continuous improvement in the way of working. A successful cooperation with the Croatian Bank for Reconstruction and Development (HBOR) and commercial banks led to the mitigation of political and financial risks in certain markets.

When we talk about the importance of digitalization in all spheres of business and personal lives, I would like to highlight a contract for the implementation of the Central Software Platform for the Centralized e-Health System of the Republic of Belarus that we signed at the end of 2020. I am proud of such a significant e-Health contract, which additionally confirms our references in this domain, in Croatia and abroad. The fact that the World Bank and the customer have recognized us as a quality partner shows that our focused strategy in this area and long-term investment in creating a strong team of experts with the necessary domain knowledge, bring new business opportunities.

Our excellent position in global Ericsson in Research and Development (R&D), services and solutions, and new technologies and business areas, gives us a good foundation to continue to achieve planned results in 2021. I am proud that our research and development and expert teams for solutions and services in Zagreb, Split, Osijek, Mostar, Sarajevo and Minsk have been continuously gaining new responsibilities within the global organization. In 2020, 204 new employees, mostly highly educated experts in STEM, joined Ericsson Nikola Tesla Group. At the end of 2020, the Group had 3236 new employees.

At Group level, gross profit increased by 6.0% to MHRK 174.4 year-over-year, while gross margin decreased by 0.6 percentage points as a result of business mix due to taking over the full responsibility for managed services for HT and related transition and transformation costs. Operating profit increased by 1.8% year-over-year to MHRK 104.4, as a result of higher gross profit and profitability program aimed at comprehensive cost optimization. Despite an increased engagement in pre-sales activities related to 4G/5G radio access and core networks, as well as increased costs related to managed services for HT, the share of selling and administration expenses in sales revenue was stable and amounted to 4.14%. Net profit amounted to MHRK 94.5, and ROS was 4.67%. We concluded the year with a solid balance sheet, 4.1% higher compared to end of previous year, and an equity ratio of 34.8%. A strong cash flow from operating activities was realized, amounting to MHRK 308.1. Therefore, total cash and cash equivalents, including short-term financial assets, at the end of 2020 amounted to MHRK 314.0. Group's Working Capital Efficiency, measured in Working Capital Days (WCD), was 25 days, and if we exclude services to Ericsson, WCD was 44 days.

In order to achieve additional efficiency and flexibility in business performance, we have continued the digital transformation of Ericsson Nikola Tesla Group, with the aim to simplify and automate key processes, boost efficiency, and increase the satisfaction of our employees.

We dedicate special attention to sustainable business, as the foundation to realize a strategic goal of achieving a competitive and innovative economy, i.e. the development of green and digital industry through products, solutions and services that we offer to our customers, but also through internal activities in Ericsson Nikola Tesla Group.

After two and a half years, we have successfully completed the project “Improvement in energy efficiency and use of renewable energy sources in Ericsson Nikola Tesla d.d.”. This is one of the biggest energy efficiency projects in the Republic of Croatia, co-financed by the EU’s Structural and Investment Funds within the “Competitiveness and Cohesion” Operational Program 2014-2020. The total investment in this project was MHRK 63.5, of which EU grants represent MHRK 17.5, while the rest of the funds for energy efficiency were secured by Ericsson Nikola Tesla. After the project implementation, the expected calculated annual energy savings amount to more than 4.6 million kWh, with the annual reduction of CO2 by 1400 tonnes.

At the end of December, Zagreb Stock Exchange presented awards for 2020 to Ericsson Nikola Tesla in two categories: Top Price Gainer and Top Turnover Gainer. In a year of challenges, such as 2020, this is an important recognition as it shows the trust of investors and the public in what we do and how we do it.

In new circumstances, the importance of information and telecommunication technologies for the functioning of the economy and society as a whole was once again confirmed, and the ICT industry justified the position of a priority and strategic industry. In crisis situations, the quality of the telecommunications infrastructure, which ensures timely transfer of information and connectivity, is particularly pronounced. Innovative ICT solutions that are widely used in various industries and government institutions, have also shown the important role they have. We believe that the introduction of 5G technology, on which our experts also intensively work within global teams, through the development and implementation of new solutions and services, will enable positive economic impacts and the creation of jobs for the future. As an “open innovation platform” 5G will provide a quality foundation in fostering the economic, social, and creative potential of our country.

Although at the end of Q4 2020, vaccination against COVID-19 began in Croatia and worldwide, measures restricting movement, as well as certain business activities on site, are still in force. It is encouraging that at the time of reporting, according to the data of the Croatian Civil Protection Headquarters, the number of people infected by COVID-19 in Croatia is declining every day. Nevertheless, 2021 remains challenging and will require a lot of knowledge and flexibility in doing business. As the already mentioned circumstances and risks, such as delays in the implementation of existing contracts, reduction / postponement of investments and travel restrictions, are still present, the Group's strong focus remains on risk management, profitability and operating cash flow.

As a company with more than 70 years of business experience, which is Croatia's largest exporter of knowledge and a technology leader, we are motivated to additionally engage and focus even more on new areas in 2021. Considering the numerous advantages that digitalization of services brings, the Group's long-term strategy remains unchanged.

Once again, I would like to thank our customers, partners, suppliers and investors for their cooperation and their trust, and especially to our employees whose expertise and continuous motivation and dedication enable them to achieve top results even in unpredictable circumstances.”