Ericsson has raised its long-term group EBITA margin target at its Capital Markets Day. The company said that it has completed its turn-around to establish a strong platform for accelerating growth and investments in 5G enterprise applications.
The vendor has set a new group long-term EBITA margin target, excluding restructuring, of between 15 percent and 18 percent, and a new long-term free cash flow target before M&A of between 9 percent and 12 percent of sales. Its 2022 operating (EBIT) margin target, excluding restructuring, remains at between 12 percent and 14 percent but there are some adjustments among sectors.
The 2022 EBIT margin target for the main Networks division, excluding restructuring, has been lifted to between 16 percent and 18 percent, from the old target of 15-17 percent. The higher target is because of Ericsson’s footprint gains in the market, it said.
In Managed Services, the target has been raised to between 9 percent and 11 percent, from the old goal of 8-10 percent. This will be achieved through R&D investment in Artificial Intelligence (AI) and automation.
In Digital Services, the target has been lowered to between 4 percent and 7 percent, from 10-12 percent previously. It said the priority in this division remains restoring profitability. It has cut the target because of rising expenditure for research and development, combined with lower legacy sales.
No target has been set for Emerging Business and Other. Ericsson said the focus in this division will be on establishing new businesses that support organic growth. It aims to lift revenue via rapid and disciplined product development in 5G and IoT, as well as the recent acquisition of Cradlepoint.
Beyond 2022, the long-term group profitability target of an EBITA margin excluding restructuring charges of 15-18 percent should be achieved through improvement activities throughout the group. Growth and gross margin improvements will be supported by software sales and “operational leverage”.
President and CEO Borje Ekholm called the Covid-19 pandemic a “humbling reminder” that wireless connectivity fundamentally underpins future world growth, making urgent deployment critical.
Ericsson cautioned that geopolitical and trade uncertainty may have a material adverse impact on its business and our ability to meet its targets. Uncertainties include trade disputes between the US and China, and the change in the US administration after the 2020 Presidential Election there. There is also uncertainty about the trading relationship between Sweden and China following the decision of the Swedish communications regulator PTS to exclude Chinese vendors from participation in 5G.
