Solid results despite challenging circumstances
In the first nine months of 2022, Ericsson Nikola Tesla Group operated stably and achieved solid results despite complex geopolitical and economic environment.
Gordana Kovačević, President of Ericsson Nikola Tesla, commented:
“In the first nine months of 2022, we have continued the implementation of many projects in the domestic and export markets and have achieved solid results with sales revenue of more than 1.5 billion HRK. As well as in the previous quarters, Q3 was marked by a complex geopolitical and economic environment caused by the war in Ukraine, inflationary pressures in the form of rising prices of labor, energy and materials, disruptions in supply chains, as well as the insufficient number of ICT experts. Despite all the challenges, we have continued a stable business performance, and recorded a slight increase in sales revenue compared to the same period of the excellent 2021, because of revenue growth in the operator segment in the neighboring markets and a continuous growth of services to Ericsson. This offset lower revenue in the domestic market, as well as decline in revenue in Belarus due to sanctions.
In the domestic market, with the strategic partners Hrvatski Telekom and A1 Hrvatska, we have continued the implementation of 5G technology and the related infrastructure. Due to negative global trends, such as rising prices of electricity and inflation, the operators had adjusted the investment dynamics, which reflected on our sales revenue. In the segment Digital Society, we have signed several significant contracts with the Ministry of Justice and Public Administration, State Geodetic Administration, Ministry of the Interior, and the City of Split.
In the neighboring markets, we have continued a quality cooperation with our long-term customers, HT Mostar, Crnogorski Telekom and IPKO on the expansion and modernization of their telecommunication networks. I would like to highlight that several days ago we have also signed a five-year agreement that includes activities on the introduction of 5G technology across Montenegro, and the modernization of the entire radio network of Crnogorski Telekom, by which a long-term successful cooperation continues. In order to better position ourselves and at the same time reduce the impact of crisis on business performance, we have been strongly focused on the requirements of the existing, as well as the potential new customers.
The delivery of services to Ericsson have been continuously growing, and significantly contribute to the financial stability of the Group. This is the result of quality, knowledge and innovativeness of our teams and individuals in Research and Development (R&D) Center and expert centers for Customer Solutions and Services, Digital Society and IT & Test Environment. At the regular semi-annual R&D Management Business Review meeting, the excellence of our R&D Center in all business segments was once again confirmed, which strategically positions us in the global organization, and opens new opportunities. We are proud that Ericsson Nikola Tesla has the biggest number of software designers in Croatia, as many as 1,800 of them, and we are the country's leading company in terms of software exports and the largest research and development center with the potential for further growth.
In regard to key performance indicators, at Group level sales revenue increased by 0.8% year-over-year. Gross margin decreased to 9.0%, primarily due to sanctions in Belarus, as well as the increase of labor costs and rising prices of energy, raw materials and materials, while operating profit decreased by 22.4%, amounting to MHRK 102.6. If we exclude the one-time impact of the termination of eHealth implementation project in Belarus, gross margin is 10.7% (first nine months 2021: 11.5%), while operating profit decreased by 2.2% year-over-year, amounting to MHRK 129.3, which indicates that our exceptional effort have enabled us to secure the company's stable business performance. A positive cash flow from operating activities was realized, amounting to MHRK 64.8, which is in line with expectations, considering the market environment. We concluded the end of the third quarter with a healthy balance sheet, with equity ratio of 34.7%. Cash and cash equivalents, including short-term financial assets, at the end Q3, amounted to MHRK 462.6 (40.0% of the total assets).
In September, we marked 40 years of successful business operations of Ericsson Nikola Tesla's site in Split that employs almost 700 experts. Most of them work on the development of the latest solutions in R&D center, and along with them, there are also experts for Customer Solutions and Services, Digital Society and IT & Test Environment. We can proudly say that we have the biggest research and development center in Dalmatia, which is included in the development of the state-of-the-art technologies.
During Q3, Ericsson Nikola Tesla held its 21st Summer Camp, where approximately fifty students, with the support of their mentors, worked on projects related to Big Data domain (Augmentative Reality/XR, Digital Twin, IoT, Security, AI, Quantum computing, ML/Speech recognition, eHealth, e-Environment). Over the years, Summer Camp has become a recognized and respected brand that represents a successful model of cooperation between the economy and the academic community, which enables students to work on innovative high-tech projects, through which we contribute to raise the quality of education. We believe that also among the participants of this year’s Summer Camp, there will be those who will become our employees and together with us, continue to build an innovative organizational culture of high performance.
During 2022, we hired more than 200 new employees who, with the quality support from their mentors, are quickly included in the company’s business processes.
At the official ceremony of the Croatian Index of Sustainability (HRIO) Awards, Ericsson Nikola Tesla won the annual award for sustainable corporate governance. This award confirms our practice of integrating sustainable development in the decision-making system, and thus manage the impact of our business on the society and the environment. Furthermore, we have also won the ECO Lider Invest recognition for the investment in the new Data Center. This investment reflects our strategy and focus on sustainable business, since by switching to the new infrastructure of the Data Center, we have additionally reduced the carbon footprint and energy consumption, while at the same time increasing efficient management and flexibility for our users.
Despite the challenging geopolitical and economic environment, we believe that our technology leadership in 5G, innovative solutions in the Digital Society segment and the quality of our experts, make us ready for future challenges and new business opportunities. We are committed to further strengthening the company’s culture based on integrity, ethics and compliance management. In order to finalize 2022 in line with the plan and to prepare well for the next year, we remain strongly focused on the realization of all contractual obligations, cost and operational efficiency, and risk management.“