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Struggling Ericsson spends billions in bid to turn things around

A bid by troubled Swedish telecoms giant Ericsson's new chief executive to turn the company's fortunes around will hit the company's first-quarter 2017 accounts hard.

Struggling Ericsson spends billions in bid to turn things around
Ericsson CEO Börje Ekholm. Photo: Björn Ewenfeldt/TT

Ericsson – which is struggling to fend off stiff competition from rivals such as China's Huawei – said in a statement it would book up to 15 billion kronor ($1.71 billion) in restructuring costs, write-downs and provisions in the first quarter.

New chief executive Börje Ekholm, who took over in January after having served on Ericsson's board for ten years, has announced plans to slim down the company.

“For some time Ericsson has been challenged on both technology and market leadership and the group strategy has not yielded expected returns,” Ekholm said in a statement.

“Ericsson will pursue a more focused business strategy to revitalize technology and market leadership, improve group profitability and enable customer success,” Ekholm said.

He said Ericsson's improvement needed to come primarily from better internal efficiency, and said he expected the group's operating margin to improve as of next year.

Last year was an annus horribilis for Ericsson, during which it fired its previous chief executive Hans Vestberg, slashed 5,000 jobs, and posted an 86-percent plunge in net profit for the whole of 2016.

A pioneer in mobile telephony, the group has since the early 2000s been fighting off rivals such as Nokia, Alcatel-Lucent, Siemens, Huawei and ZTE to cling to its position as world leader in mobile networks.

Ericsson said it planned to reorganize to have three main business areas: networks, digital services and managed services. It also planned to restructure or sell its media and cloud divisions.

“Ericsson is doing the worst in an already weak market. And it seems as though Nokia is gaining market share. And the Chinese are tough rivals,” said Nordnet analyst Joakim Bornold.

Some observers are speculating about a possible capital hike.

“Ericsson has a really tough period ahead. There will probably be more savings programmes, and they may need more money from owners,” the analyst told news agency TT.

“Until now it has felt like a new share issue has been far off, but it's coming ever closer now,” he said.

“You definitely can't exclude the possibility that Ericsson may have to launch a new share issue before this is all over,” one unnamed analyst told financial daily Dagens Industri.

But CEO Ekholm rejected the idea.

“We have a strong balance sheet right now, we see no problem with that,” he said Tuesday, referring to 31.2 billion kronor cash flow booked at the end of December.

After the announcement, Ericsson's share price was down around 1.6 percent on the Stockholm exchange at 4pm.

The company is scheduled to present its first quarter earnings report on April 25th.

For members

EUROPEAN UNION

Pensions in the EU: What you need to know if you’re moving country

Have you ever wondered what to do with your private pension plan when moving to another European country?

Pensions in the EU: What you need to know if you're moving country

This question will probably have caused some headaches. Fortunately a new private pension product meant to make things easier should soon become available under a new EU regulation that came into effect this week. 

The new pan-European personal pension product (PEPP) will allow savers to take their private pension with them if they move within the European Union.

EU rules so far allowed the aggregation of state pensions and the possibility to carry across borders occupational pensions, which are paid by employers. But the market of private pensions remained fragmented.

The new product is expected to benefit especially young people, who tend to move more frequently across borders, and the self-employed, who might not be covered by other pension schemes. 

According to a survey conducted in 16 countries by Insurance Europe, the organisation representing insurers in Brussels, 38 percent of Europeans do not save for retirement, with a proportion as high as 60 percent in Finland, 57 percent in Spain, 56 percent in France and 55 percent in Italy. 

The groups least likely to have a pension plan are women (42% versus 34% of men), unemployed people (67%), self-employed and part-time workers in the private sector (38%), divorced and singles (44% and 43% respectively), and 18-35 year olds (40%).

“As a complement to public pensions, PEPP caters for the needs of today’s younger generation and allows people to better plan and make provisions for the future,” EU Commissioner for Financial Services Mairead McGuinness said on March 22nd, when new EU rules came into effect. 

The scheme will also allow savers to sign up to a personal pension plan offered by a provider based in another EU country.

Who can sign up?

Under the EU regulation, anyone can sign up to a pan-European personal pension, regardless of their nationality or employment status. 

The scheme is open to people who are employed part-time or full-time, self-employed, in any form of “modern employment”, unemployed or in education. 

The condition is that they are resident in a country of the European Union, Norway, Iceland or Liechtenstein (the European Economic Area). The PEPP will not be available outside these countries, for instance in Switzerland. 

How does it work?

PEPP providers can offer a maximum of six investment options, including a basic one that is low-risk and safeguards the amount invested. The basic PEPP is the default option. Its fees are capped at 1 percent of the accumulated capital per year.

People who move to another EU country can continue to contribute to the same PEPP. Whenever a consumer changes the country of residence, the provider will open a new sub-account for that country. If the provider cannot offer such option, savers have the right to switch provider free of charge.  

As pension products are taxed differently in each state, the applicable taxation will be that of the country of residence and possible tax incentives will only apply to the relevant sub-account. 

Savers who move residence outside the EU cannot continue saving on their PEPP, but they can resume contributions if they return. They would also need to ask advice about the consequences of the move on the way their savings are taxed. 

Pensions can then be paid out in a different location from where the product was purchased. 

Where to start?

Pan-European personal pension products can be offered by authorised banks, insurance companies, pension funds and wealth management firms. 

They are regulated products that can be sold to consumers only after being approved by supervisory authorities. 

As the legislation came into effect this week, only now eligible providers can submit the application for the authorisation of their products. National authorities have then three months to make a decision. So it will still take some time before PEPPs become available on the market. 

When this will happen, the products and their features will be listed in the public register of the European Insurance and Occupational Pensions Authority (EIOPA). 

For more information:

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp/consumer-oriented-faqs-pan_en 

https://www.eiopa.europa.eu/browse/regulation-and-policy/pan-european-personal-pension-product-pepp_en 

This article is published in cooperation with Europe Street News, a news outlet about citizens’ rights in the EU and the UK. 

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