Nokia Corporation Nokia Corporation Financial Report For Q2 And Half Year 2021

 
TIDMNOKIA 
 

Nokia Corporation

Half year report

29 July 2021 at 08:00 EET

Nokia Corporation Financial Report for Q2 and Half Year 2021

Strong first half, 2021 Outlook revised upwards

   -- Top-line strength continued in Q2, with constant currency net sales up 9% 
      year-on-year, driven by growth across all business groups, with 
      particular strength in Network Infrastructure. Reported net sales 
      increased 4%. 
 
   -- Important progress on our three-phased strategy. Mobile Networks 
      strengthening its competitiveness with major product launch, including 
      some industry leading features. Network Infrastructure continued to gain 
      share in the first half. 
 
   -- Our new operating model is delivering clear accountability and financial 
      discipline through the organization. 
 
   -- Comparable gross margin of 42.3% (reported 41.0%) in Q2, reflecting broad 
      improvements, particularly in Mobile Networks, which benefitted from a 
      one-time software deal and 5G growth. 
 
   -- Comparable operating margin of 12.8% (reported 9.1%) in Q2, with 
      improvements across all business groups, also helped by the one-time 
      software deal in Mobile Networks. 
 
   -- Q2 comparable diluted EPS of EUR 0.09; reported diluted EPS of EUR 0.06. 
 
   -- Generated positive free cash flow for the fifth quarter in a row; 
      liquidity position remains solid with EUR 3.7bn net cash. 
 
   -- Strong performance in first half 2021 with 9% constant currency sales 
      growth (reported net sales +4%) and comparable operating margin of 11.9% 
      (reported 8.8%), driving increase in our full year Outlook although 
      headwinds remain for the second half. 
 
   -- Considering our strong start to 2021, we revise our full year 2021 
      Outlook, including net sales expected to be EUR 21.7bn to 22.7bn 
      (previously EUR 20.6bn to EUR 21.8bn) with comparable operating margin in 
      the range of 10-12% (previously 7-10%). 

This is a summary of the Nokia Corporation Financial Report for Q2 and Half Year 2021 published today. Nokia only publishes a summary of its financial reports in stock exchange releases. The summary focuses on Nokia Group's financial information as well as on Nokia's outlook. The detailed, segment-level discussion will be available in the complete financial report hosted at www.nokia.com/financials. Investors should not solely rely on summaries of Nokia's financial reports, but should also review the complete reports with tables.

PEKKA LUNDMARK, PRESIDENT AND CEO, ON Q2 2021 RESULTS

I am delighted that our strong start to 2021 continued in the second quarter. Our constant currency sales growth of 9%, combined with good cost control, enabled us to deliver a comparable operating margin of 12.8%. Even excluding a one-time software deal in Mobile Networks, we saw good underlying progress in operating margin. We are already seeing the benefits of our new operating model which helped us to deliver such a strong financial performance.

The highlight of the second quarter was the Mobile Networks launch of our new AirScale baseband and radio products with up to 75% better power efficiency helping to reduce our environmental footprint and the lightest 32TRX massive MIMO active antenna in the market. In Network Infrastructure we sustained double-digit growth and have a series of product launches ahead in the second half to further strengthen our differentiation. Cloud and Network Services is making good progress on its portfolio rebalancing and Nokia Technologies continues to scale with two licensing agreements with automotive manufacturers including Daimler.

Considering our robust start to 2021, we are revising upwards our full year Outlook. We now expect a comparable operating margin between 10-12% for full year 2021, compared to our previous range of 7-10%. We have executed faster than planned on our strategy in the first half which provides us with a good foundation for the full year. We still however expect to face the earlier communicated headwinds in the second half, particularly with market share loss and price erosion in North America. Therefore, we still expect our typical quarterly earnings seasonality to be less pronounced in 2021. In addition, we continue to accelerate R&D investments and monitor risks around component availability, considering the strong demand for our products.

Overall, I am very happy with the progress made in the first half. I want to thank our entire team for their hard work and commitment.

FINANCIAL RESULTS

 
                                                        Constant                                   Constant 
EUR million (except                             YoY     currency                           YoY     currency 
 for EPS in EUR)               Q2'21   Q2'20    change  YoY change   Q1--Q2'21  Q1--Q2'20  change  YoY change 
Reported results 
----------------------------  -------  -------  ------  -----------  ---------  ---------  ------  ----------- 
Net sales                       5 313    5 092      4%           9%     10 389     10 005      4%           9% 
Gross margin %(1)               41.0%    38.1%  290bps                   39.5%      36.8%  270bps 
Research and development 
 expenses(1)                  (1 063)  (1 013)      5%                 (2 060)    (2 019)      2% 
Selling, general and 
 administrative expenses(1)     (712)    (709)      0%                 (1 360)    (1 489)    (9)% 
Operating profit                  484      170    185%                     916         94    874% 
Operating margin %               9.1%     3.3%  580bps                    8.8%       0.9%  790bps 
Profit/(loss) for 
 the period                       351       99    255%                     614       (17) 
EPS, diluted                     0.06     0.02    200%                    0.11       0.00 
Net cash and current 
 financial investments          3 688    1 550    138%                   3 688      1 550    138% 
Comparable results 
----------------------------  -------  -------  ------  -----------  ---------  ---------  ------  ----------- 
Net sales                       5 313    5 093      4%           9%     10 389     10 007      4%           9% 
Gross margin %                  42.3%    39.6%  270bps                   40.3%      38.0%  230bps 
Research and development 
 expenses                     (1 011)    (953)      6%                 (1 985)    (1 928)      3% 
Selling, general and 
 administrative expenses        (585)    (590)    (1)%                 (1 137)    (1 262)   (10)% 
Operating profit                  682      423     61%                   1 234        539    129% 
Operating margin %              12.8%     8.3%  450bps                   11.9%       5.4%  650bps 
Profit for the period             539      316     71%                     914        348    163% 
EPS, diluted                     0.09     0.06     50%                    0.16       0.06    167% 
ROIC(2)                         18.4%    11.4%  700bps 
                              -------  -------  ------ 
(1) In Q4 2020, Nokia reclassified certain items of income and expenses 
 from other operating income and expenses to the functions. The comparative 
 reported results for Q2'20 and Q1-Q2'20 have been recast accordingly. 
 Refer to Note 1, Basis of preparation, in the Financial statement 
 information section included in Nokia Corporation Financial Report 
 for Q2 and Half Year 2021 for details. 
 (2) Comparable ROIC = Comparable operating profit after tax, last 
 four quarters / invested capital, average of last five quarters' 
 ending balances. Refer to Note 10, Performance measures, in the Financial 
 statement information section included in Nokia Corporation Financial 
 Report for Q2 and Half Year 2021 for details. 
Reconciliation of reported operating profit to 
 comparable operating profit 
                                                                                              YoY 
EUR million                              Q2'21   Q2'20   YoY change  Q1--Q2'21  Q1--Q2'20  change 
Reported operating profit                  484     170         185%        916         94    874% 
-------------------------------------  -------  ------  -----------  ---------  ---------  ------ 
Restructuring and associated 
 charges                                   141     130                     177        217 
Amortization of acquired 
 intangible assets                          97     106                     194        207 
Settlement of legal disputes              (80)       0                    (80)          0 
Impairment of assets, net 
 of impairment reversals                    32      19                      33         20 
Other, net                                   8     (2)                     (6)          1 
                                       -------  ------               ---------  --------- 
Comparable operating profit                682     423          61%      1 234        539    129% 
                                       -------  ------  -----------  ---------  ---------  ------ 
 

OUTLOOK

 
                               Full year 2021                  Full year 2023 
-----------------------------  -----------------------------  ---------------- 
                               EUR 21.7 billion to EUR 22.7 
                                billion 
                                (adjusted from EUR 20.6 to    Grow faster than 
Net sales(1)                    21.8bn)                          the market 
-----------------------------  -----------------------------  ---------------- 
Comparable operating           10 to 12% (adjusted from 7 
 margin(2)                      to 10%)                                10--13% 
-----------------------------  -----------------------------  ---------------- 
                               Clearly positive (adjusted 
Free cash flow(3)               from positive)                Clearly positive 
-----------------------------  -----------------------------  ---------------- 
                               17 to 21% (adjusted from 10 

Comparable ROIC(2,4)            to 15%)                                15--20% 
-----------------------------  -----------------------------  ---------------- 
(1) Assuming actual currency rates for first half 2021 and end of 
 June EUR/USD rate of 1.19 continues in the second half 2021 (this 
 is adjusted from our previous guidance based on the year-end 2020 
 EUR/USD rate of 1.23). 
 (2) Comparable measures exclude intangible asset amortization and 
 other purchase price fair value adjustments, goodwill impairments, 
 restructuring related charges and certain other items affecting 
 comparability. Refer to Note 10, Performance measures, in the Financial 
 statement information section included in Nokia Corporation Financial 
 Report for Q2 and Half Year 2021 for details. 
 (3) Free cash flow = net cash from/(used in) operating activities 
 - capital expenditures + proceeds from sale of property, plant and 
 equipment and intangible assets -- purchase of non-current financial 
 investments + proceeds from sale of non-current financial investments.. 
 (4) Comparable ROIC = comparable operating profit after tax, last 
 four quarters / invested capital, average of last five quarters' 
 ending balances. Refer to Note 10, Performance measures, in the 
 Financial statement information section included in Nokia Corporation 
 Financial Report for Q2 and Half Year 2021 for details. 
 

OUTLOOK ASSUMPTIONS

   -- Nokia's outlook assumptions for the comparable operating margin of each 
      business group in 2021 and 2023 are provided below (updated): 
 
                             Full year 2021  Full year 2023 
---------------------------  --------------  -------------- 
Mobile Networks                     4 to 7%         5 to 8% 
---------------------------  --------------  -------------- 
Network Infrastructure             8 to 11%        9 to 12% 
---------------------------  --------------  -------------- 
Cloud and Network Services          3 to 6%        8 to 11% 
---------------------------  --------------  -------------- 
Nokia Technologies           >75%            >75% 
---------------------------  --------------  -------------- 
 
   -- We continue to maintain our expectation for Nokia Technologies to deliver 
      a slight improvement in comparable operating profit in full year 2021, 
      relative to full year 2020, and stable performance over the longer-term; 
 
   -- Group Common and Other primarily consists of support function costs. We 
      expect the net negative impact of Group Common and Other to be 
      approximately EUR 200 million in 2021 and over the longer-term; 
 
   -- In full year 2021, Nokia expects the free cash flow performance of Nokia 
      Technologies to be approximately EUR 600 million lower than its operating 
      profit, primarily due to prepayments we received from certain licensees; 
 
   -- Comparable financial income and expenses are expected to be an expense of 
      approximately EUR 200 million in full year 2021 and EUR 250 million over 
      the longer-term (updated); 
 
   -- Comparable income tax expenses are expected to be approximately EUR 450 
      million in full year 2021 and over the longer-term, subject to regional 
      profit mix, net sales subject to withholding tax and the timing of patent 
      licensing cash flow; 
 
   -- Cash outflows related to income taxes are expected to be approximately 
      EUR 350 million in full year 2021 and over the longer-term until our US 
      or Finnish deferred tax assets are fully utilized; 
 
   -- Capital expenditures are expected to be approximately EUR 650 million in 
      full year 2021 and EUR 600 million over the longer-term (updated); and 
 
   -- Rule of thumb related to currency fluctuations: Assuming our current mix 
      of net sales and total costs (refer to Note 1, Basis of Preparation, in 
      the Financial statement information section included in Nokia Corporation 
      Financial Report for Q2 and Half Year 2021 for details), we expect that a 
      10% increase in the EUR/USD exchange rate would have an impact of 
      approximately negative 4 to 5% on net sales and an approximately neutral 
      impact on operating profit. 

RISK FACTORS

Nokia and its business are exposed to a number of risks and uncertainties which include but are not limited to:

   -- Competitive intensity, which is particularly impacting Mobile Networks 
      and is expected to continue at a high level in full year 2021, as some 
      competitors seek to take share in the early stages of 5G; 
 
   -- Our ability to accelerate our product roadmaps and cost competitiveness 
      through additional 5G investments in full year 2021, thereby enabling us 
      to drive product cost reductions and maintain the necessary scale to be 
      competitive; 
 
   -- Some customers are reassessing their vendors in light of security 
      concerns, creating near-term pressure to invest in order to secure 
      long-term benefits; 
 
   -- Developments in North America following the conclusion of the C-band 
      auction, including the potential for temporary capital expenditure 
      constraints or the acceleration of 5G deployments; 
 
   -- The scope and duration of the COVID-19 impact, particularly in certain 
      countries, including India, where the pandemic has worsened, and the pace 
      and shape of the economic recovery following the pandemic; 
 
   -- Our ability to procure certain standard components and the costs thereof, 
      such as semiconductors; 
 
   -- The timing of completions and acceptances of certain projects; 
 
   -- Our product and regional mix; 
 
   -- Macroeconomic, industry and competitive dynamics; 
 
   -- The timing and value of new and existing patent licensing agreements with 
      smartphone vendors, automotive companies and consumer electronics 
      companies; 
 
   -- Results in brand and technology licensing; costs to protect and enforce 
      our intellectual property rights; and the regulatory landscape for patent 
      licensing; 

as well as the risk factors specified under Forward-looking Statements of this release, and our 2020 annual report on Form 20-F published on March 4, 2021 under Operating and financial review and prospects-Risk factors.

FORWARD-LOOKING STATEMENTS

Certain statements herein that are not historical facts are forward-looking statements. These forward-looking statements reflect Nokia's current expectations and views of future developments and include statements regarding: A) expectations, plans, benefits or outlook related to our strategies, product launches, growth management and operational key performance indicators; B) expectations, plans or benefits related to future performance of our businesses (including the expected impact, timing and duration of that impact of COVID-19 on our businesses, our supply chain and our customers' businesses) and any future dividends; C) expectations and targets regarding financial performance, cash generation, results, the timing of receivables, operating expenses, taxes, currency exchange rates, hedging, cost savings, product cost reductions and competitiveness, as well as results of operations including targeted synergies, better commercial management and those results related to market share, prices, net sales, income and margins; D) ability to execute, expectations, plans or benefits related to changes in organizational and operational structure and cash or cost savings arrangements; and (E) any statements preceded by or including "continue", "believe", "commit", "estimate", "expect", "aim", "influence", "will" or similar expressions. These forward-looking statements are subject to a number of risks and uncertainties, many of which are beyond our control, which could cause our actual results to differ materially from such statements. These statements are based on management's best assumptions and beliefs in light of the information currently available to them. These forward-looking statements are only predictions based upon our current expectations and views of future events and developments and are subject to risks and uncertainties that are difficult to predict because they relate to events and depend on circumstances that will occur in the future. Factors, including risks and uncertainties that could cause these differences, include those risks and uncertainties identified in the Risk Factors above.

ANALYST WEBCAST

Nokia's video webcast will begin on 29 July 2021 at 11:30 a.m. Finnish time. A link to the webcast will be available at www.nokia.com/financials. Media representatives can follow the presentation via the link, or alternatively call [phone].

About Nokia

At Nokia, we create technology that helps the world act together.

As a trusted partner for critical networks, we are committed to innovation and technology leadership across mobile, fixed and cloud networks. We create value with intellectual property and long-term research, led by the award-winning Nokia Bell Labs.

Adhering to the highest standards of integrity and security, we help build the capabilities needed for a more productive, sustainable and inclusive world.

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Attachment

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