Gordana Kovačević, the President of Ericsson Nikola Tesla commented on the Company’s performance:
The results of the Company's performance for the first nine months of 2011 show the orders booked decrease, and a slight drop in sales revenue year-over-year. The orders booked decrease of 24% has been primarily due to considerable pressure on prices of products and services as well as reduced investments by operators and government institutions into telecom equipment, services and ICT solutions, both in domestic and export markets. On the other hand, the orders booked in Ericsson market increased year-over year. The total sales revenue trend, year-over-year, reflects 83.7% revenue increase in the regional markets and 5% revenue increase in Ericsson market, thus compensating the revenue decline in both domestic and CIS markets.
The unfavorable political and economic trends have been still present in our major export markets as well as in potential ones. The continued recession and a special tax on mobile services have negatively affected operators' investments in the domestic market. We expect that the announced abolition of this special tax will positively impact the operators' investments in 2012. Furthermore, despite clear indicators by numerous developed economies of positive ICT impact on the society development, strategic projects in Croatia have been continuously postponed. Also, the administrative procedures, including slow decision making by ministries, influence the realization of the already contracted projects.
The gross margin declined considerably year-over-year due to investments into export markets aiming at securing new business and strengthening market share. In addition, the gross margin was impacted by the product and services mix and lower margins on certain projects in the Industry and Society segment as well as further investments into development projects. Also, the already mentioned trend of price pressure has been present in all markets.
The operating profit was influenced by the withholding tax write-off amounting to MHRK 23.7 in Q3 2011, as previously communicated in our results announcements starting from Q1 2011. The tax liability forecast for 2011 and 2012 showed that the company will again be in a position of no income tax liability for the given years due to other tax reliefs (primarily due to existing R&D supports as well as the considerable tax loss carried forward), and will not be able to use the already approved tax certificates for 2009 for the income tax paid abroad. Therefore, it was necessary to write off these time limited claims, taking into account the principle of precaution.
The Company realized net income of MHRK 25.2. Cash flow from operating activities amounted to MHRK 90.5. After the dividend payment for 2010, totaling MHRK 251.3, the total cash balances, including short-term financial assets at the end of Q3, amounted to MHRK 556.3. The Company has a strong balance sheet with total assets of MHRK 1,123.4 and equity ratio of 75.4%.
In compliance with our strategic priorities, we have been focused on new responsibilities and new customers, thus maintaining and strengthening our market position. We offer the customers latest network transformation solutions and further development in the multimedia segment as well as broadband access through both mobile and fixed networks. We continue to invest into creative and advanced solutions and services, state-of-the-art testing equipment, working conditions and competence development in order to improve the employees’ knowledge and skills in the attractive technologies.
There is no doubt that our operating environment will remain challenging in the period to come, so we shall be focused on operating under unfavorable business conditions, continued strong discipline with regards to risk management and investments, and finding new business models.
Ericsson Nikola Tesla Company Communications
