Report on company's business situation and comments on the financial statements for 1Q 2009

• Orders booked 350.5 MHRK
• Sales revenues 294.8 MHRK
• Gross margin 17.5%
• Operating profit 11.6 MHRK
• Financial income 42.2 MHRK
• Profit before tax 53.8 MHRK
• Net profit 43 MHRK
• Earnings per share 32.65 HRK
• Return on sales before tax 18.2%
• Cash flow from operating activities 5.5 MHRK

In the performance evaluation Gordana Kovačević, president of Ericsson Nikola Tesla, pointed out the following:

 

 „Considering the present market situation, our operations in the first quarter of the year went well. Due to the current recession the operators' investments in some of our key export markets slowed down, resulting in lower sales and orders booked volumes. However, in March there were signs of a slight recovery and we expect to complete a few quite large projects in our export markets in the second quarter of 2009.
Regarding our profitability we maintained a sound margin level; with the revenues from financial activities we achieved twice as high net profit compared to the same reporting period last year. I emphasize the fact that we doubled our net profit because it is crucial for the company to maintain its financial and operational stability in the current situation. Thus we will have more room for business development and a much better position in providing projects financing support. In times of recession profitability is a competitive advantage and a good foundation for stable operations in the future. In addition, we were focused on decreasing total operational expenses through business processes optimization. Accordingly, in 1Q we established a new organizational structure in order to respond effectively to new challenges and to new business opportunities.
This year’s major challenges/ risks are slowdowns in investments by telecom operators, governmental bodies and enterprise segment in ICT solutions. We expect the products and services price pressures to continue and customer financing requirements to increase. In addition, there is uncertainty relating to EUR and USD exchange rate variation. However, we also see numerous business opportunities, regarding primarily our key customers, providing that we offer those solutions, products and services that should ensure their business growth and efficiency. We see new business opportunities in transforming existing networks into new-generation IP-based networks, in further growth of wireline and wireless broadband access, in HSPA+ and LTE based networks. We will do our best to use all the opportunities given in our traditional and in our new markets; with activities focused on strategic scenarios we will endeavor to minimize business risks.
Disregarding current trends and the financial crisis hitting the world economies, communication has a leading role in the development of sustainable prosperity in any society. All the companies and governmental bodies will have to use modern ICT technologies to adjust their operations to forthcoming change, thus providing a solid foundation for a long-term development of our industry“, said Gordana Kovačević.

 

Compared to the first quarter 2008 Ericsson Nikola Tesla performed as follows:

• Orders booked and sales revenues are lower year-over-year due to a slowdown in operators’ investments, especially in export markets. Domestic market and knowledge export to Ericsson account for the largest share of our sales; domestic market accounts for 42% and export to Ericsson for 33% of total sales revenues.  
• Operating profit amounts to 11.6 MHRK, down year-over-year because the sales revenues went down. Gross margin remained on the same level year-over-year.
• Operating costs (SG&A) amount to 38.1 MHRK, up 4% year-over-year due to higher cost of sales activities.
• Income from financial activities amounts to 42.2 MHRK, resulting primarily from positive exchange rate variation and interest income. Due to this, net profit is twice the amount year-over-year and it amounts to 43 MHRK.
• Company's liquidity remains stable. Total assets amount to 320.8 MHRK.
• Results compared per business segments show that sales of network infrastructure and multimedia went down year-over-year, whereas (sales of) services remained on the same level.

In domestic market the company continued working with the telecom operators T-HT, Tele2 and Vipnet on the modernization and expansion of telecom networks. Sales revenues achieved during the first quarter amount to 125.2 MHRK, down 11.8% year-over-year.

With T-HT the company continued to build the broadband access network, to develop the optical fiber infrastructure and to work on wireline network transformation to a new-generation network providing new, technically more demanding services. The collaboration with Vipnet covers the expansion and modernization of 2G and 3G infrastructure; also the latest mobile broadband HSPA+ was successfully tested in a demo operation at as much as 21 Mbps for downloading Internet files, the speed to be available for users in the second half of the year. With Tele2 the company continued the collaboration in upgrading the 2G and 3G systems.
Despite intensive work on several major projects and despite the first-class products and services offered in the government and enterprise ICT solutions segment, the efforts did not result in new contracts, a fact indicating an investment slowdown or postponed decision-making.

 

In the regional markets (Bosnia and Herzegovina, Montenegro and Kosovo) the sales revenues went considerably down compared to the same reporting period last year, due to the fact that operators did not start investing during the first quarter; still, we expect the business activities and operators' investments to begin in the second quarter. In these markets the company achieved total sales revenues of 42.1 MHRK, compared to 88.1 MHRK in the same period last year.

 

In the Commonwealth of Independent States, the company recorded a drop in sales due to decreased operators' investments. In the first quarter the company achieved sales revenues amounting to 29.2 MHRK, compared to 47.2 MHRK in the same reporting period last year. Despite a difficult market situation, in 1Q the company worked on several projects and signed a number of small contracts for modernization and expansion of wireline networks, broadband access to the Internet and IP-oriented enterprise solutions.

 

Ericsson Nikola Tesla's good position within the corporate Ericsson, primarily in research and development, services delivery and customer solutions and services area, had a positive impact on the company’s operational growth in Ericsson market. In the first quarter the company achieved sales revenues amounting to 98.3 MHRK, up 1.2% year-over-year.
In the reported period the Research and Development Center continued their activities relating to the next generation Core&IMS and Radio related products. The Signaling Unit had a dominant role in the development of the new generation of MSS server (MSS5.2 MSC-S Blade Cluster) and they provide support for putting these products into operation with several operators. Also the Telephony Server (TSS4.0) achieved general availability after its integration and verification in Ericsson Nikola Tesla.

Planned activities were continued in the Connectivity Packet Platforms, CPP, area. New research projects were started in the domain of new technologies and prototypes of new-generation products; we also continued work on several EU-financed research projects.

Global Service Delivery Center obtained new responsibilities in a key Ericsson technology: it is about consulting and system integration for APIO (AXE Central Processor Input – Output) core in mobile networks, access and wireline networks. GSDS also obtained additional responsibilities in optical (fiber) and microwave transport networks. Over the last three and a half years GSDC Croatia has recorded an increase in revenues and responsibilities and today it is Ericsson’s major exporter of wireline network services and also the second-ranked provider of mobile networks services in the region Europe, Middle East and Africa South.

The Annual Shareholders Meeting will take place on 26 May 2009. All shareholders and their proxies who register their presence/representation at the Meeting not later than 19 May 2009 are entitled to attend and to vote.  
The dividend shall be paid out to all shareholders who seven days prior to the Annual Shareholders Meeting (i.e. on 19 May 2009) have Company shares registered on their securities account in the Central Depository&Clearing Company. As the entire accounts settling and shares registration procedures take three days, the last day shares need to be purchased on Zagreb Stock Exchange is Thursday, 14 May 2009.  

The Agenda of the Shareholders Meeting with all proposed decisions has been published at the website http://www.ericsson.hr/investitori  and in the Official Gazette no. 37/2009.

 

Ericsson Nikola Tesla's major shareholders (as of 31 March 2009)

 

	Number of shares	Percentage of share capital
Telefonaktiebolaget LM Ericsson	653,473	49.07
Hypo Alpe-Adria-Bank d.d. / Raiffeisen Mandatory Pension Fund	112,633	8.46
Zagrebačka banka d.d. / joint trustee client account for Unicredit Bank Austria AG	38,026	2.71
PBZ d.d. / joint trustee client account	33,537	2.52
Societe Generale-Splitska banka d.d. / Erste Plavi Mandatory  Pension Fund	32,619	2.45
Hypo Alpe-Adria-Bank d.d. / PBZ Croatia osiguranje d.d. Mandatory Pension Fund	20,305	1.52
Societe Generale-Splitska banka d.d. / Allianz ZB d.o.o. for AZ Mandatory Pension Fund	19,562	1.47
Ericsson Nikola Tesla d.d.	14,689	1.10
Erste & Steiermärkische bank d.d. / CSC	13,587	1.02
Croatian Privatization Fund	11,848	0.89
Other shareholders	381,371	28.64

 

Share price variation in 1Q 2009:

 

Highest (HRK)	Lowest (HRK)	Closing (HRK)	Market capitalization (in MHRK)
1,250	820	1,135	1,511.4

 

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