Ericsson to speed up BSS business restructuring, sees provisions of SEK 6.1B
Ericsson announced that its focus on simplifying and stabilizing the business has during the three first quarters of 2018 resulted in stronger gross margins and a stabilizing topline. Focus has been on addressing underperforming areas while creating a strong platform for future growth. There has been solid progress in most portfolio areas. In Segment Digital Services, that has yet to complete its turnaround, actions proceed according to plan with efficiency improvements, cost reductions and half of the identified 45 critical and non-strategic projects addressed to date. However, the Business Support System, or BSS, area is not showing satisfactory progress jeopardizing Segment Digital Services' overall profitability target for 2020. The company has now decided to pursue additional measures to speed up the restructuring of the BSS business, including its product and contract portfolio. Provisions for the cost for executing on these planned measures will, together with necessary contract loss provisions, negatively impact operating income in Q4 2018 by SEK 6.1B, mainly impacting gross margin. Out of this amount, SEK 3.1B, is treated as restructuring charges. Further restructuring charges related to the planned measures, including related headcount reductions, estimated to SEK 1.5B are anticipated in 2019. Provisions mainly relate to estimated costs associated with expected changes in project scopes including customer compensation payments, provisions for project delays, and write-down of intangible assets. The vast majority of the provision amount will impact cash flow, starting in 2019 and continuing over several years as projects are completed. The planned measures will materially contribute to reducing losses in the BSS area already in 2019 and de-risk the plan. The company's current assessment is that the reshaped BSS strategy will set Segment Digital Services on a strong path to achieving the operating margin targets, excluding restructuring, of low single-digit in 2020 and 10%-12% no later than 2022. Under the revised strategy investments will be increased in the established portfolio, Ericsson Digital BSS - making it ready for new business models related to 5G and IoT, including technology evolution to cloud native and micro services. Developed capabilities in Revenue Manager will be added to the established portfolio. Additional detail will be presented in connection with Ericsson's fourth quarter and full year 2018 earnings report scheduled for January 25, the company said.