String of bad news

The honeymoon for Ericsson’s new CEO Börje Ekholm is over. A string of bad news brought Ericsson’s shares down by 15.6%, the biggest negative reaction to a report since Q2 2002.

For the eleventh quarter in a row, turnover fell organically, now by 16% and all three of the company’s business areas Network, IT & Cloud and Media shrank. Lower software sales brought down gross margins to 30%, adjusted for structural costs – the lowest level for a second quarter during the 2000s and for the third quarter in a row the company reported an operating loss, this time of 1.2 billion kronor.

CEO Börje Ekholm has said that the launch of Ericsson’s focus strategy to regain Ericsson’s leadership meant tackling costs. Now they are to be lowered by 10 billion kronor by next summer. “We need to be in more of a hurry than we previously thought. The ambition is more than those ten, but that is what we must deliver.” There will be staff cuts in Sweden and abroad.

Skanska takes a hit

During 2016 Skanska’s shares improved by 30%. It went particularly well for the construction company during the second half of the year after Donald Trump was elected president in the USA and promised investment in infrastructure.

However despite great hopes for 2017, profitability has not kept up. In the first quarter operating margins were only 1.6%. On Friday the company notified of a write-down of 420 million kronor for its civil operations in the USA and a write-down of 360 million kronor for its British operations.

The profit in the group’s construction operations was only 0.2 billion kronor, which means the quarter’s profits are expected to fall to 1.5 billion kronor from 1.7 billion during Q2 last year.

Not right now

Finance Minister Magdalena Andersson has investigated several paths forward towards lowering interest rate tax deductions, she tells DI.

Experts, including the Riksbank, the Financial Supervisory Authority, the Swedish National Debt Office and the Swedish Fiscal Policy Council have been calling for these deductions as the most effective measure against Swede’s soaring debt.

The Left Party’s economic policy spokesperson Ulla Andersson, says it is time to override the Moderates on this issue, but Magdalena Andersson says that the issue is not current right now and there are other measures to stop debt growing.

Liberal economic policy spokesperson Mats Persson, says, “The Social Democrats and the Moderates are showing a lack of courage. The day that house prices fall then there will be a tough verdict against the political system, which despite warnings, did nothing.”

Johansson era almost over

Two major changes in the ownership of Ericsson in the past couple of years have dramatically changed the playing field in the telecoms giant and have now led chair Leif Johansson to throw in the towel.

The first incident was a shift of power at Ericsson’s principle owner Industrivärden in 2015. This change led indirectly to Christer Gardell, of Cevian Capital, seizing a chance to buy as many shares as it could in Ericsson, making it the largest owner in terms of capital. With Christer Gardell, who clearly wanted Leif Johansson out of the post of chair, at the top of the owners’ list, and a new management at Industrivärden with little sympathy for Johansson, it was difficult for even Investor to save the chair.

Leif Johansson’s time as chair of Ericsson has been a disaster in terms of the company’s progress and how the board has managed its duties. As he leaves the post an era in Swedish business comes to an end. For almost three decades he has been one of the heavyweights in Swedish business although his star status has dipped as it became clear the returns he brought shareholders were no longer in the top league.

Interest rate unchanged

The central bank, the Riksbank, is leaving the benchmark interest rate, the repo rate, at a negative 0.5%. The decision was expected.

Riksbank governor, Stefan Ingves, said, “It is important that inflation is more permanently at two per cent and does not just touch on two per cent. For that reason it is pressing and important to continue with an expansive monetary policy for some time longer.”

The first increase in the repo rate is expected in the middle of 2018.

Confidence in Kinberg Batra at rock bottom

A new Dagens Industri (DI) barometer shows a majority within the business world believe Moderate leader Anna Kinberg Batra should resign. According to 1,100 business leaders that took part in the survey, a majority, 52%, believe she should resign, and only 34% believe she should stay.

The barometer also shows that support for her from business has collapsed over the past year and that Centre leader Annie Lööf has more than doubled her figures, while Sweden Democrat leader Jimmie Åkesson is also closing in.

China trip to pave the way for new deals

Prime Minister Stefan Löfven is to begin a three-day trip to China next week, including a meeting with Chinese Prime Minister Li Keqiang, accompanied by Enterprise Minister Mikael Damberg, Trade Minister Ann Linde and Environment Minister Karolina Skog, along with a business delegation that includes Ericsson, ABB, Astra Zeneca, Scania and Volvo Cars and Volvo Group.

Sweden’s exports to China amounted to SKr 46 billion in 2016. During the first quarter this year exports grew by 33%, compared to the same period last year.

Mikael Damberg says that China’s efforts to move forward on the global political arena in terms of trade and climate makes it easier to find a shared agenda.

Moderates – corporate tax drop is a rise on the sly

Sweden is lowering corporate tax for the third time since 2009, now to 20% (see SPR 20/6 Early Ed.). However the Moderates are calling it a tax rise on the sly.

Finance Minister Magdalena Andersson wrote in a Dagens Industri (DI) debate article yesterday that the lower tax will be compensated for by limits to interest deductions.

The Moderates have welcomed the limits to the tax deduction, which aims to stop companies’ aggressive tax planning, although. Maria Malmer Stenergard, tax policy spokesperson for the Moderates, would have liked a larger cut in corporate tax as compensation.

Meanwhile the Confederation of Swedish Enterprise (Svenskt Näringsliv) welcomes the tax decrease but is critical of limiting the right to a tax deduction.

“We are lowering corporate tax”

Today the Ministry of Finance is putting out a memorandum on new tax for the corporate sector, write Finance Minister Magdalena Andersson and deputy Finance Minister Per Bolund in Dagens Industri (DI).

It proposes a general rule for limiting tax deductions for interest in the corporate sector in order to increase tax neutrality between different forms of financing. The memorandum also includes other proposals such as new tax rules for financial leasing, new hybrid rules, and a primary deduction for rental properties. Additionally, the current interest rate deduction rules are to be tightened. The proposals are fully financed and are proposed to come into force on 1 July 2018.

As limiting the tax deduction for interest means that the tax regulations are tighter, it is proposed that companies are compensated by lowering corporate tax from 22 to 20 per cent. This lower rate is fully financed by tightening the other rule. Thus the proposal is a redistribution of total tax within business.

The proposal is out for consultation before the government makes a final decision.

Telia receiving preferential treatment

In 2014 the Swedish government decided to open the 700 MHz band for mobile broadband, but in 2016 cancelled the auction of the frequency, which is suitable for mobile broadband services in rural areas, pending an investigation into whether the emergency services could use part of band. The government has now decided that the Post and Telecom Agency (PTS) may continue with the auction, starting 1 November. The problem now is that PTS is impairing competition on the Swedish market, writes Johan Johansson, chief executive of 3 in DI on Saturday.

Sweden has four mobile operators providing strong competition on the market, but under new PTS guidelines this will be impaired. Not only will rights cost more, which will make it harder for smaller operators to take part in the bidding process, but in reality just two actors will be able to buy the rights to the entire 700 MHz band, which will probably be used for 5G. The government is thereby giving Telia preferential treatment allowing it to offer 5G services on unequal terms, claims Johansson.