Ericsson Nikola Tesla 3Q 20 - Gross margin beats estimate

The top line came in somewhat lower than we anticipated, due to lower network segment revenues (-33% yoy), while other categories revenues were mainly in line with expectations. The growth driver were managed services revenues for Hrvatski Telekom, which were yoy more than tripled. Marketwise, the realization in Croatian market was 53% yoy lower (excluding the MS revenues), while significant decline of 44% was also recorded in export markets (excl. the internal Ericssons market). One of the reasons of the weak performance in export markets was increased political instability, especially in Belarus, Kazakhstan and Armenia, which slowed down the realization on those markets and put focus on risk reduction. The biggest surprise is the gross margin which came in yoy and qoq improved, despite the increased share of (lower margin) managed services revenues in overall revenues. SG&A expenses were yoy higher but qoq flat resulting in EBIT and net margins beat. Favourable NWC changes improved the OCF to HRK 232.9 mn vs HRK 86 mn in 3Q 19.