Ericsson Nikola Tesla Group business results for 2017 published

Ericsson Nikola Tesla Group business results achieved in 2017 and the forecast for 2018 were published at the press conference.

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

„In 2017, Ericsson Nikola Tesla Group sales revenue amounted to MHRK 1,481.6, 6.9% lower year-over-year. We continued to work on implementation of key projects, leaning on our technology leadership, employees' knowledge, and partnerships with customers. At the same time, we were implementing measures to cut costs at all organizational levels. Significant investments were made in new business opportunities to secure business sustainability in target areas. The year 2017 was also marked by increased investments related to new technology changes as a preparation for 5G mobile communication systems.

The percentage of export in Group's total sales revenue is around 70%, which makes us the largest Croatian ICT exporter, especially when it comes to export of knowledge.

In the domestic market, sales revenue increased year-over-year. I would like to highlight the continuation of excellent cooperation with our strategic partners. Vipnet selected our company for further development of their radio access network, thus allowing us to maintain sole vendor position in this business segment. With Hrvatski Telekom we expanded cooperation in Managed Services and are currently working on several strategic projects. The operators increase their focus on the demands of end-users, who want faster access to mobile Internet, “anytime, anywhere, any device”. Accordingly, capital investments are focused on network infrastructure, capacity increase and increase of speed in both fixed and mobile networks, creating prerequisites for the introduction of 5G networks, quality and digital transformation. I would like to highlight excellent results in the Industry & Society segment in Croatia, where we contracted important projects during 2017, some of which were fully implemented. These are projects related to digitization of healthcare, Joint Information System of Land Registry and Cadaster, and the build of the system for monitoring the borders of the Republic of Croatia.

We continued successful cooperation with the operators in neighboring countries, which resulted in signing several contracts in 2017. However, some projects were postponed, and thus sales revenue decreased year-over-year. We expect an increase in sales revenue in 2018, primarily in Bosnia and Herzegovina, after the regulatory framework for the introduction of 4G networks becomes effective.

In CIS market, sales revenues are significantly lower year-over-year, primarily driven by ramp-down of network modernization projects and unfavorable currency fluctuations. During the year, we focused on implementation of previously contracted projects.

Due to the complexities of a large strategic project, provisions and project adjustments were made in Q4 based on existing circumstances and in anticipation of future events, which had an impact on profit in 2017. The perceptual return on sales is higher compared to the previous year, if currency effects and provisions are excluded.

The Group’s financial position remains good and represents a solid base for the realization of all set goals. Gross margin is 10.2% and operating profit is MHRK 75.7. A positive cash flow from operating activities was achieved, amounting to MHRK 108.2. Total cash and cash equivalents, including short term financial assets, at the end of the year amounted to MHRK 243.8. Working capital efficiency, expressed in Working Capital Days (WCD), was 31. Cash conversion was at 68%. There were no tax incentives for R&D in 2017, however, we hope that in 2018, after the State Aid Act for R&D Projects comes into force, we will be able to use these incentives.  

Business performance in Ericsson market continues to grow, due to new responsibilities and competencies of our experts in Research and Development as well as solutions and services expert centers. The percentage of this market segment increased in total sales revenue. Ericsson Corporation recognized the quality, knowledge and innovativeness of our experts in various areas, from research and development to digital services and operations, convergent network solutions, professional services and managed services.

Furthermore, in 2017 we continued to hire experts, primarily in research and development, due to additional responsibilities for 4G and 5G mobile networks. At the end of 2017, our Research and Development Center had 1,267 employees, thus representing the biggest concentration of R&D experts in Croatia, while Ericsson Nikola Tesla Group had a total of 3,060 employees.

Our innovation capacity is our main advantage and we further strengthen it through various projects. Among other, attention is given to the technology incubator Ericsson Garage Croatia, which serves as a place for developing and testing new technologies and solutions. The innovations which are being developed within Ericsson Garage Croatia encompass both the ideas of our employees and the ideas which are a result of cooperation with scientific and research institutions. Our aim is also to establish the cooperation with the start-up community in Croatia. I would also like to mention Ericsson Nikola Tesla Summer Camp, which had good results this year as well. In the past seventeen years, in cooperation with the Faculty of Electrical Engineering and Computing (Zagreb), the Faculty of Electrical Engineering, Mechanical Engineering and Naval Architecture (Split), as well as many other scientific institutions from Croatia and abroad, we hosted more than 800 top students, mostly STEM students, who created studies, prototypes, analysis and solutions related to current ICT trends. Through these activities, Ericsson Nikola Tesla has an important role in Ericsson’s innovations, and encourages young people to focus their professional development towards ICT industry.

Our daughter company, Ericsson Nikola Tesla Servisi d.o.o., continued to provide high quality services of monitoring, maintenance, and build of telecommunication network to Hrvatski Telekom. During the year, key projects in build of mobile broadband network were realized, as well as projects in optical networks design and build. Furthermore, the growth trend in the segment of providing services towards other operators in Europe continued.

We are approaching the new business cycle aware of the complexity and the dynamics of ICT industry trends. Therefore, by implementing strategic initiatives/ transformation programs, we continue to strengthen our position in key areas: 4G/5G, OSS/BSS and Digital Transformation, Managed Services, and IoT, by using the latest technology and business models and concepts, such as Cloud solutions, Network Functions Virtualization (NFV), Software-Defined Networking (SDN), X as a service model (XaaS), etc. In Ericsson internal market, our aim is to keep the existing responsibilities and expand them, while maintaining high quality of delivered services. The strong focus remains on cost and operating efficiency, as well as strategic risk management.

Our long-term strategy remains focused on the mentioned strategic initiatives with the aim to achieve excellence and support our customers on their transformation journeys.“

Communications Ericsson Nikola Tesla