March 28, 2018 / 12:05 PM / in 4 months

Activist investor urges Ericsson to cut costs faster

STOCKHOLM (Reuters) - Activist investor Cevian Capital urged Ericsson on Wednesday to speed up cost savings, even though the Swedish mobile telecoms equipment maker said it was comfortably on track to hit its $1 billion-plus target.

FILE PHOTO: Ericsson Chief Executive Officer Borje Ekholm holds a news conference during the Mobile World Congress in Barcelona, Spain February 26, 2018. REUTERS/Yves Herman/File Photo

Ericsson has made sweeping cost cuts and replaced much of its top management to try to turn around a business hit by competition from China’s Huawei and Finland’s Nokia, falling spending by telecoms operators and the hangover from a failed plan to diversify.

But Cevian, which said in February it had 8.5 percent of the share capital and 5 percent of votes in Ericsson, said the company needed to lift the pace.

“I want the work to remove losses ... it has been a bit too slow and the speed must be raised,” managing partner Christer Gardell told Reuters ahead of Ericsson’s annual general meeting close to its north Stockholm headquarters.

Sweden's mobile telecom gear maker Ericsson CEO Borje Ekholm (L) and proposed new Ericsson's chairman Ronnie Leten attend news conference in Stockholm, Sweden March 28, 2018. REUTERS/Olof Swahnberg

Ericsson is aiming for at least 10 billion Swedish crowns ($1.2 billion) of annual savings by mid-2018. Chief Executive Borje Ekholm, told reporters on Wednesday the company would reach that “well on time”.

Cevian wants Ericsson to hit its margin targets ahead of schedule. The company has set a goal for an operating margin of at least 10 percent by 2020 and at least 12 percent beyond 2020.

Cevian’s portfolio also includes large positions in European blue-chips such as ABB and Thyssenkrupp. It recently took a stake worth around $850 million in Swedish airbag and seat belt maker Autoliv.

Ekholm said Ericsson, which is waiting for demand for next-generation mobile networks to increase, was well-placed, having won up to 50 percent of 5G contracts worldwide so far.

“We see a much faster acceleration for 5G than we thought earlier. Maybe not as fast in Europe, but incredibly fast in North America and Asia,” he said.

Flags with Ericsson logo are pictured outside company's head office in Stockholm, Sweden, October 4 , 2016. TT NEWS AGENCY/Maja Suslin via REUTERS

The former boss of high-flying mining gear maker Atlas Copco, Ronnie Leten, is due to take up his post as Ericsson’s chairman on Wednesday. The appointment of Leten, who succeeds Leif Johansson, has boosted investors’ hopes of a recovery at the company.

Ekholm said the incoming chairman favored decentralization, clear accountability, and would aim to simplify how the company works.

“He is a great industry leader who will add a new approach to the firm,” Ekholm said.

The fourth quarter of last year was Ericsson’s fifth straight quarter of operating losses. It said in January the cost-cutting program was saving around 6 billion crowns on an annual basis at that time.

The company has also pledged to deliver a gross margin of 37-39 percent. Its fourth quarter gross margin, excluding restructuring charges, was 30 percent, roughly unchanged from the third quarter.

($1 = 8.2887 Swedish crowns)

Editing by Niklas Pollard and Mark Potter

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