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A good operating performance in Q2 despite still disappointing revenues

  • 17 Jul 15

Q2 reported sales increased by 11% to SEK60.7bn. But sales, adjusted for comparable units and currency, decreased by 6% yoy, exactly as in...Q1 ! This poor performance is once again due to the US market still slowing as operators remain focused on cash flow optimisation in order to finance major acquisitions and spectrum auctions. But we note, however, the mobile broadband business in North America stabilised in the quarter even if it remained at a lower level than a year ago. The revenue decline in North America (around -25% at constant change but offset by FX considering the reported figures) was partly compensated by the continued fast pace of 4G deployments in China. Sales growth was strong in the Middle East, India and South East Asia, while it continued to be weak in Japan. Excluding restructuring charges, the gross margin declined to 35.1% (vs 36.6% a year ago and 35.4% in Q1) but this is quite a good margin given the lower capacity business in North America and continued 4G coverage deployments in Mainland China (mobile broadband capacity projects have better margins than the network roll-out). Operating income, excluding restructuring charges, improved to SEK6.3bn with an operating margin of 10.4% (vs 7.7% a year ago and 5.1% in Q1). The improvement was driven by higher sales and positive currency hedge effects, partly offset by the lower gross margin. But we note that after a weak Q1, the Networks segment's profitability recovered (to 13.5% excluding restructuring charges vs 3% in Q1). So quite disappointing revenues, as in Q1, but a good operating performance.