Business results of joint stock company Ericsson Nikola Tesla in H1 2015

Gordana Kovačević, the President of Ericsson Nikola Tesla, comments: “In H1 2015 we achieved solid business results. Sales revenues increased by 3.5% year-over-year due to sales increase in Ericsson market and the markets of South East Europe. Sales in the domestic and CIS markets decreased year-over-year.

We have a strong focus on research and development activities and services sales in the Ericsson market. This market segment records a continuous growth, and accounts for 57% of sales revenues. We have succeeded to achieve this by investing in employees' competences, IT & test equipment and by high quality of delivered services. I would like to highlight that in 2015 we continued to employ new professionals, primarily in this segment.

Unfavourable political and economic trends continue to remain present in our major export markets. In the markets of South East Europe sales revenues record an increase, thanks to realization of the previously contracted projects. New business opportunities, primarily in Bosnia & Herzegovina, are expected in the next period. In Q2 2015, we signed a strategically important contract with the Kosovo mobile operator IPKO, regarding the expansion of IPKO’s 3G network, as well as introducing 4G network, thus keeping our solo vendor position. In the CIS market many anticipated activities have been prolonged for the next period.  

In the domestic market sales revenues decreased year–over-year due to the fact that our customers in radio access network and E-Systems segments have decreased investments or delayed contracts signing. We expect capital expenditures to increase in the network modernization and optimization as well as in OSS/BSS (Operations and Business Support Systems). We also witness an increased interest in telecommunication network build and maintenance services (managed services).

Operating profit increased by 7% year-over-year and amounts to MHRK 52.3, while net profit increased 3% year-over-year to MHRK 51. The trend of declining gross margin is still present, as a result of change in the business mix (increase in services to Ericsson) and a continuous price pressure. This change in business mix put pressure on profitability but has simultaneously led to lower overall business and operational risks. Sales and administrative costs decreased by 21.6% year-over-year, as a result of our commitment to cost reduction program. 

We are focused on working capital efficiency and cash conversion. We concluded end of H1 with a solid balance sheet and an equity ratio of 44%. Cash flow from operating activities was positive, amounting to MHRK 42.2. After the dividend payment of MHRK 119.7 in June this year, the total cash and cash equivalents, including short term financial assets end of H1 2015 amounted to MHRK 117.4.  Our working capital efficiency is measured through KPI Working capital days (WCD). Showing a continuous improvement, it has been reduced to 34 days (among the best in Ericsson globally).

Ericsson Nikola Tesla collaborates for many years with numerous institutions of higher education in Croatia and abroad. This resulted in a series of innovative solutions and scientific and specialist papers. Recently, agreement was signed with the Faculty of Electrical Engineering and Computing regarding the work on research and development projects focused on the Networked Society challenges. One of the results of successful partnership is Summer Camp that will mark its successful 15^th anniversary this year.  

Our Networked Society strategy builds on a combination of growth in our core business and strengthening our position/ sales in targeted areas: IP Networks, Cloud, TV and Media, Industry and Society and OSS & BSS. Our strategic initiatives are related to the business development in all markets and profitability improvement. The cost efficiency programme is progressing ahead of plan, and already in H1 2015 shows excellent results.

The industry consolidation continues, both among vendors and customers, thus creating new opportunities as well as challenges. The results of our strategic initiatives show that we are well positioned to continue to create value for our customers in a transforming ICT market. “

Company Communications Ericsson Nikola Tesla