Business results of joint stock company Ericsson Nikola Tesla in first nine months 2016

Gordana Kovačević, the President of Ericsson Nikola Tesla, comments:„During the first nine months, Ericsson Nikola Tesla continued its stable business performance. Sales revenue increased by 17% year-over-year, due to a significant increase in revenue in CIS and Ericsson market, thus neutralizing the decline in revenue in the domestic market, as well as the markets of Southeast Europe.

Despite the demanding market environment, our investments in new solutions development, as well as strong marketing and sales activities brought us success in CIS market. The main activities there concern the healthcare informatization in Kazakhstan, and the implementation of LTE networks in Belarus, Moldova and Armenia. During Q3, in collaboration with the Armenian operator Ucom, an advanced LTE network was rolled out in the capital city of Yerevan. Furthermore, the collaboration was agreed with the Belarusian company beCloud, regarding the delivery of LTE network and related services in three regions of the Republic of Belarus.  

Export of services to Ericsson is growing, due to business expansion and new responsibilities in R&D center and Service Expertise Unit, which shows that the quality and added values that we deliver have been recognized by Corporation and the customers worldwide. Since the beginning of 2016, we hired 227 experts, most of whom work on research and development of new ICT products, solutions and services that address the Networked Society requirements.

In the markets of Southeast Europe, we record a decrease in sales revenue due to negative economic trends and complex political situation. In the domestic market, strong competition, as well as global customers/operators’ consolidation and centralization of sourcing processes, pose additional challenges. In the eSystems segment, many projects have been postponed due to early parliamentary elections. 

In the first nine months 2016, net profit amounted to MHRK 58.2, representing 5.1% ROS. Gross margin is lower year-over-year, due to changing business mix and continued price pressure. We continue to exercise firm cost control. Sales and administrative costs decreased by 1.5% year-over-year. The end of the quarter was concluded with a lean balance sheet and an equity ratio of 31.6%. A positive cash flow from operating activities was realized, amounting to MHRK 75.1. The total cash, including short-term financial assets, amounts to MHRK 193.8. Working capital efficiency remains strong, expressed in working capital days of 25. The cash conversion rate is 59%.

Estimated income tax expense disclosed for the period amounts to HRK 4.2 million. Income tax is calculated based on the tax laws, which includes the use of the Program relating to tax incentives for research and development projects and accompanying tax loss. Since the Program expired on 31 December 2014, the legal basis for applying for new research and development projects does not exist. Accordingly, income tax expense was recognized based on the estimate that the remaining tax reliefs and tax loss are not sufficient to offset the income tax base.

At the end of September, we marked the closing of 16^th Ericsson Nikola Tesla Summer Camp. In this year's Summer Camp, a total of 62 students from 16 faculties from Croatia and neighboring countries participated. With the help of their mentors they worked on 26 projects in the following segments: loT, Big Data, e/m Health and SW tools. Over time, Summer Camp became a recognizable and valued brand, representing an example of quality collaboration between business and the academic community. More than 700 students, who participated in the Summer Camp during the last 16 years, had the opportunity to work in real ICT industry environment, and to participate in the process of creating the latest technology products, solutions and services.

During the third quarter we launched a new cycle of strategic planning for the period up to 2019, by analyzing the current situation in all relevant business and technology segments and trends relating to the future developments in the ICT industry. Our goal is to strengthen business performance in strategic segments through transformation programs (4G/LTE, Managed Services, Operations and Business Support Systems, Cloud, Industry & Society), as well as Ericsson internal market. It is expected that economic uncertainty and unfavorable industry trends will continue in the future period. Therefore, a significant place in our strategy is dedicated to responsible risk management and cost and efficiency.

We continue to strengthen our technology leadership through innovation and invest in knowledge and competences of our employees, because that is precisely what makes us a strong business partner to existing and new customers.“