Ericsson 2nd Quarter Net Loss SEK3.5 Billion Versus SEK14.1 Billion Loss
STOCKHOLM -(Dow Jones)- Telefon AB LM Ericsson reported a second- quarter net loss of SEK2.72 billion Friday and said it would issue around 8 billion new shares to raise SEK30 billion in new financing.
Ericsson said the shares in its previously disclosed rights issue will be priced at SEK3.80, a discount of nearly 75% to Thursday's closing price of SEK14.50 in Stockholm . The company said the rights issue has been fully underwritten by a group of shareholders and banks.
Ericsson also announced a new round of cost-cutting moves as it warned that demand for mobile systems equipment this year will be even worse than it had anticipated. Ericsson is the world's largest supplier of equipment for mobile telephony networks.
The company said it will aim to cut an additional SEK10 billion in costs - on top of the SEK20 billion that it announced in April - by the third quarter of 2003. The aim is to reach a cost level where Ericsson can break even with annual sales of around SEK120 billion, though the company said it still hopes to return to profitability sometime in 2003.
Ericsson spokeswoman Pia Gideon said the company decided to extend the cost- cutting because the steps initiated in April were ahead of schedule. She said Ericsson's work force, which was then 82,000, is already down to 76,000, which was the target for year-end 2002.
She said Ericsson's work force "can be below 60,000" in 2003. Ericsson's previous target was to cut its staff to around 65,000 by the end of 2003.
Ericsson said key owners Investor AB (S.INV) and Industrivaerden (S.IVD), as well as four other shareholders, were committed to a subscription of SEK10 billion of the rights issue. The remainder of the rights issue is being underwritten by a consortium of banks, including Morgan Stanley, SEB/Enskilda Securities, Goldman Sachs International, Handelsbanken Securities and Schroder Salomon Smith Barney, Ericsson said.
Existing shareholders will have to subscribe for one share for each share they already own if they want to avoid dilution of their ownership stake, Ericsson said.
Ericsson said it will use the new financing to repay debt and to fund its restructuring activities. It said it expects its payment readiness and equity ratio, after the rights issue, to be at least as strong as it is today.
Total restructuring costs for 2002 and 2003 will be SEK17.5 billion, including SEK7 billion for the new measures, Ericsson said.
Ericsson announced the terms of the rights issue as it cut its forecasts for its key markets. It said it now expects industry sales of mobile -systems equipment to be down more than 15% this year, as operators continue to delay spending on their networks.
It said it still expects wireline industry sales to be down more than 20%, but that sales of circuit-switching equipment are now likely to fall more than its previous estimate of 40%.
And it said it expects mobile -phone sales this year to be at or slightly below 390 million units, which is its estimate for sales last year. It had previously forecast industry sales of 400 million to 420 million.
Nokia Corp. (NYSE: NOK - News) , the world's largest mobile phone maker, cut its 2002 forecast Thursday to 400 million.
It said demand for both phones and mobile -systems gear was likely to remain weak well into 2003.
Telefon AB LM Ericsson -
3 months June 30 :
2002 -b 2001 -b, -c
Sales SEK38.545 bln SEK62.780 bln
Sales -a 38.545 bln 55.535 bln
Operating profit (3.083 bln) (19.299 bln)
Operating profit -a (4.172 bln) (19.068 bln)
Pretax profit (3.890 bln) (20.331 bln)
Pretax profit -a (4.979 bln) (20.100 bln)
Net profit (2.719 bln) (14.229 bln)
Net profit -a (3.481 bln) (14.067 bln)
Earnings per share (0.34) (1.81)
Figures in parentheses denote losses.
a. Pro-forma figures for 2002 and 2001, reflecting results with parts of phone operations transferred to the joint venture Sony Ericsson Mobile Communications.
b. The second quarter of 2002 includes restructuring costs of SEK1.482 billion, while the second quarter of 2001 included restructuring costs of SEK15.000 billion
c. Figures for the second quarter of 2001 have been restated for changed accounting principles in Sweden regarding consolidation of companies with a controlling interest.
Ericsson's second-quarter results were weak, as expected. For the three months ended June 30 , sales were SEK38.55 billion, down 31% from pro forma sales of SEK55.53 billion in the second quarter of 2001.
The pro forma figures exclude the mobile phone operations that Ericsson spun off into a joint venture with Sony Corp. (SNE) last fall.
Ericsson's orders for the period were SEK35.3 billion, with mobile systems orders of SEK31.2 billion. The mobile systems orders were down 39% from SEK51.0 billion a year earlier.
On a pretax basis, Ericsson reported a loss of SEK3.89 billion, against SEK20.33 billion a year ago when it took a restructuring charge of SEK15 billion. It booked a restructuring charge of SEK1.48 billion for the second quarter of 2002.
Ericsson's net loss was SEK2.72 billion, against SEK14.23 billion a year ago.
Analysts had expected a net loss, excluding restructuring charges, of SEK3.06 billion on sales of SEK39.68 billion, according to the consensus of a survey by SME Direkt. The consensus for the pretax loss was SEK4.37 billion.
The adjusted operating margin for Ericsson's systems unit was -3%, against 1% a year ago.
Ericsson said the phone joint venture, Sony Ericsson Mobile Communications, reported a loss of SEK800 million on revenue of SEK8.8 billion, with sales of five million phones.
Ericsson said it had a pro forma net cash outflow in the second quarter, before financing activities, of SEK2 billion.
Company Web site: http://www.ericsson.com
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