STOCKHOLM (Reuters) - Mobile telecoms gear maker Ericsson will take a 12 billion crown ($1.2 billion) hit to third-quarter results from long-running U.S. investigations into past corruption allegations, it said on Thursday.
The investigations by the U.S. Securities and Exchange Commission and the Department of Justice have been running since 2013 and 2015 respectively, and are linked to Ericsson’s compliance with the U.S. Foreign Corrupt Practices Act (FCPA).
The Swedish company said it estimated a monetary sanction of $1 billion, along with additional related costs, to settle the investigations, taking the total to $1.2 billion.
“It’s clear that we failed in our execution, and I feel personally very upset to find the company in this position,” Ericsson CEO Borje Ekholm told a conference call.
“While the financial sanctions we face are severe, it is also a critical step for our company to get closure with the U.S. authorities on these matters.”
The probes, which cover a period ending with the first quarter of 2017, revealed breaches of Ericsson’s Code of Business Ethics and the FCPA in China, Djibouti, Indonesia, Kuwait, Saudi Arabia and Vietnam, Ericsson said.
The Stockholm-based company said the breaches were the outcome of several deficiencies, including the company’s failure to react to red flags and inadequate internal controls.
While the settlement discussions with U.S authorities are still ongoing, Ekholm said they had now reached a point where a reliable cost estimate could be made.
Ericsson has staged a turnaround during Ekholm’s nearly two years at the helm, with improving profit margins and growing demand for next-generation 5G equipment.
CFO Carl Mellander said he expected payment to occur in the fourth quarter, “assuming the process runs according to current plans”.
Ericsson shares were down 0.3% by 0836 GMT in Stockholm, recovering from an early fall of nearly 3%.
“While the large penalty is clearly negative and will impact the cash position of the company, the provision also draws a line on this long drawn investigation”, analysts at Liberum said in a research note.
Handelsbanken analyst Daniel Djurberg said the anticipated fine of $1 billion was in line with market expectations, and that he didn’t the stock should drop if the market believed that would be the final amount.
The company, which also affirmed its financial targets on Thursday, had earlier this year said it expected the investigation would result in “material financial and other measures”.
The company said that disciplinary measures had been taken against 65 employees during the process of the investigations, of which 49 had left the company.
Reporting by Johannes Hellstrom and Helena Soderpalm in Stockholm; additional reporting by Sathvik N and Kanishka Singh in Bengaluru; Editing by Shri Navaratnam/Sherry Jacob-Phillips/ Emelia Sithole-Matarise/Jane Merriman