After a lagging Q3, Ericsson NT posted a strong Q4 which sweetened the company’s FY 2018 results. Group sales are up 6% YoY, EBITDA 31% YoY and net profit amounted to HRK 113.6m (+67% YoY).
Ericsson NT held a conference yesterday during which the Management presented the company’s results and the outlook for the upcoming five years. Below we bring you an overview of Ericsson’s FY 2018 financial results and some key takes from the conference.
Sales in 2018 amounted to HRK 1.6bn, representing a 5.2% YoY increase. Sales in the domestic market amounted to HRK 372.6m, marking a high growth rate of HRK 34.7% YoY. The high growth rate can be attributed to the local operators’ investment in mobile networks modernization and digital transformation projects. In 2018 the Group worked closely with Croatia’s two largest telcoms, HT and A1, to modernize their radio access networks. The goal of the modernization is to prepare the infrastructure of those companies for the implementation of the 5G network in the upcoming years. The uptake of the new technology would be a strong push for Ericsson as the company is currently at the forefront of the new technology wave in Croatia. Meanwhile, the Group has also been working with Tele2 on increasing their voice core network capacity, with emphasis of increasing the register of 4G users.
On the flip side sales in export markets are down by 17.7% YoY to HRK 229.8m caused by the ramping down of network modernization projects and challenging economic and political environments in some markets. However, despite the decrease in sales recorded by the segment, one should highlight the project of healthcare system informatization in Kazakhstan which stands out by its significance and business impact. Services to Ericsson continued to grow, reaching HRK 955.8m (+3.2% YoY) as the Group’s s R&D Centre was awarded an expansion of responsibilities in the development of 5G network systems.
Sales-wise, one should highlight the concern regarding the high share which the parent company has in the Group’s sales. As one can see on the chart below, Ericsson NT’s parent company has been responsible for more than half of the Group’s sales for the past several years.
Ericsson NT Sales Breakdown
Source: Ericsson NT, InterCapital Research
As a result, any kind of volatility in the parent company’s business operations could have a strong impact on the Group. Furthermore, with a local market share of roughly 80% the possibilities for the domestic market to take additional share in total sales seems slim. However, the Management stated that the development of new technologies (5G in particular) could yield new projects and thus secure new income in the future.
Higher sales coupled with an improved efficiency and cost cutting led to an increase in the Group’s EBITDA which amounted to 153m (31%). EBITDA margin grew as well, ending the year at 9.8% (+1.9 p.p.).
Below the operating line the company benefited from an improved FX result which turned positive to HRK 2.3m, from a loss of HRK -2.6m recorded in 2017. This gave an additional leg up to the company’s bottom line which soared 67% YoY to HRK 113.6m. Also note that the company’s effective tax rate has decreased to 5.8% (-1.3 p.p. YoY) because of the realization of projects in line with the Investment Promotion Act.
On the balance sheet the company still maintains a strong cash position with total cash and cash equivalents, including short term financial assets, amounting to HRK 236.4m (28.1% of the total assets).
It is also worth highlighting that the cash flow from operating activities is down by 30.5% YoY to HRK 75m. According to the Management this is due to higher inventory in connection with the ongoing networks modernization projects.
When talking about their outlook until 2024 the Management stated that they will continue to uphold high standards of business efficiency and cost cutting, however investments into the further development of 5G technology could impact short term profitability. Nevertheless, the Management believes that this will be the key to securing future growth and a strong market presence.
When talking about their outlook until 2024 the Management stated that they will continue to uphold high standards of business efficiency and cost cutting, however investments into the further development of 5G technology could impact short term profitability. Nevertheless, the Management believes that this will be the key to securing future growth and a strong market presence.
Ericsson NT Key Financials (HRK m)
Source: Ericsson NT, InterCapital Research
In 2018, NLB observed a 1% increase in net operating income, a 2% decrease in earnings before tax, and a 10% decrease in net income.
| wdt_ID | Key Indicators | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 1 | L/D ratio (%) | 143 | 123 | 114,4 | 105,6 | 104,7 | 86,2 | 75,9 | 75,1 | 74,2 | 70,2 | 68,3 |
| 2 | NPL ratio (%) | 3,8 | 9 | 14,5 | 21,3 | 28,2 | 25,6 | 25,5 | 19,3 | 13,8 | 9,2 | 6,9 |
| 3 | ROE* (%) | 3,1 | n/a | n/a | n/a | n/a | n/a | 4,8 | 6,6 | 7,4 | 14,4 | 11,8 |
| 4 | Net interest margin (%) | n/a | 2,4 | 2,3 | 2,4 | 2,24 | 1,7 | 2,7 | 2,9 | 2,7 | 2,57 | 2,56 |
| 5 | Cost of risk (bps) | n/a | 200 | 255 | 315 | n/a | n/a | 171 | 75 | 38 | -62 | -43 |
*From 2009 – 2013 ROE is noted as “n/a”, as their net income was negative
As NLB published a short overview of their preliminary 2018 results, we are bringing you some key takes from it. According to the report, NLB has observed an increase in net interest income of 1% YoY, amounting to EUR 312.9m. This increase could be attributed to a rise in loan volume growth (mostly in retail) and lower interest expenses. Further, net non-interest income has also increased by 1%, amounting to EUR 180.4m, which can be attributed to a rise in fees and commissions. As a result the Group observed an increase in net operating income of 1%, amounting to EUR 493.3m.
When observing the company’s earnings before tax, they recorded a decrease of 2%, amounting to EUR 223.3m. Meanwhile, net income amounted to EUR 203.6m, which represents a decrease of 10%.The decrease in NLB’s net income could be attributed the lower release of credit impairments and provisions and higher income tax.
NLB Net Income (2008 – 2018)
Turning our attention to loans and deposits, since 2013, loans have mostly been decreasing, while deposits have continued to increase each year. This has resulted in each year lower L/D ratio, which amounts to 68.3%. Note that NLB’s management has set a target of L/D ratio to be below 95% for the years 2019 – 2023.
Furthermore, NLB continues the trend of the declining NPL ratio, which amounted to 6.9%, representing a decrease of -2.3 p.p. YoY. The management attributes the decrease to successful resolution measures and supportive macroeconomic environment.
NLB NPL ratio (2008 – 2018) (%)
The company notes that the unaudited report FY2018 is planned to be published on 8 March 2019.
In 2018, PBZ observed a decrease in net interest fees of 3% YoY, an increase in net fee and commission income of 4.7% and an increase in net income of 28%.
As PBZ published their 2018 preliminary results, we are bringing you some key takes from it. Note that their result for 2018 includes also the result of Veneto Banka which was consolidated to PBZ after the acquisition. According to the report, net interest fees amounted to HRK 2.8bn, which represents a 3% decrease YoY. The Group explains the decrease with the constant trend of lowered active and passive interest rates.
Furthermore, the company’s net fee and commission income it amounted to HRK 1.6bn, which is a 4.7% increase YoY.
When observing operations with securities and other financial instruments, including profit/loss from FX result the Group observed a positive net financial result of HRK 386m. Next, administrative expenses coupled with other operating expenses increased by 4%, amounting to HRK 2.5bn.
In 2018, PBZ also observed a decrease in value adjustments and provisions of 40%, which boosted the result by another HRK 459.2m. Such a decrease lead to higher earnings before tax which amounted HRK 1.9bn, which represents an increase of 15% YoY. Further, net income amounted to HRK 1.7bn, which is an increase of 28%.
PBZ Performance (2015 – 2018) (HRK m)
Also, the Group proposed a dividend of HRK 72.58 per share, which is based on their results achieved in 2018. At the current share price, that would make the dividend yield of 10%. Note that this would be the highest yield in the observed period. The ex-dividend date will be on 11 April 2019, while the dividend would be paid out on 18 April 2019.
PBZ Dividend Yield (2013 – 2019) (%)
*compared to the share price a day before the dividend proposal