Nokia CorporationInterim report18 April 2024 at 08:00
EEST
Nokia Corporation Interim
Report for Q1
2024
Strong cash flow and improving orders despite market
weakness
- As expected, a slow
start to 2024 with net sales declining 19% y-o-y in constant
currency (-20% reported) in Q1.
- Environment still
challenging but order trends continue to improve year-on-year,
particularly in Network Infrastructure.
- Comparable gross
margin in Q1 increased by 1 090bps y-o-y to 48.6% (reported
increased 1 040bps to 47.9%). Strong contribution from Nokia
Technologies which benefited from significant catch-up net sales,
in addition to significant improvements in Mobile Networks due in
part to regional and product mix.
- Q1 comparable
operating margin increased 460bps y-o-y to 12.8% (reported up
130bps to 8.6%), as licensing catch-up net sales more than made up
for low net sales coverage of operating expenses impacting other
business groups.
- Q1 comparable
diluted EPS of EUR 0.09; reported diluted EPS of EUR 0.08.
- Q1 free cash flow
almost EUR 1bn, net cash balance EUR 5.1bn.
- Nokia's full year
2024 outlook is unchanged. Nokia currently expects comparable
operating profit of between EUR 2.3 billion to 2.9 billion and free
cash flow conversion from comparable operating profit of between
30% and 60%.
This is a summary of the Nokia Corporation Interim Report for Q1
2024 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. A video interview summarizing the key
points of our Q1 results will also be published on the website.
Investors should not solely rely on summaries of Nokia's financial
reports and should also review the complete reports with
tables.
PEKKA LUNDMARK, PRESIDENT AND CEO, ON
Q1 2024
RESULTS
As expected, the ongoing market weakness drove a 19%
year-on-year constant currency decline in net sales in the first
quarter. However, we have seen continued improvement in order
intake, meaning we remain confident in a stronger second half and
achieving our full year outlook. Driven by the patent licensing
deals signed in Nokia Technologies, we achieved a comparable
operating margin of 12.8% in Q1, compared to 8.2% the year before.
We also generated almost EUR 1 billion in free cash flow in the
quarter, which is a very strong performance.
I’m pleased that the improving order intake we started to see in
Network Infrastructure at the end of last year continued in Q1 with
year-on-year growth in order intake and drove a further increase in
our backlog. The outlook for Fixed Networks for 2024 has improved
which is an important signal as this market often recovers first.
However, we believe the recovery in Optical Networks may take
somewhat longer. While we are conscious of the broader economic
environment, considering the on-going order intake strength, we
expect Network Infrastructure will return to net sales growth for
full year 2024 with a stronger second half performance.
Mobile Networks was impacted by particularly low levels of
spending in North America and India, which led to a Q1 net sales
decline of 37% in constant currency. A slower pace of spending in
India was anticipated following the rapid 5G deployment seen in H1
2023, and our expectations for India for the full year remain
unchanged. Globally, we expect Q1 to mark the low point in demand
with activity then progressively picking up through the remainder
of 2024 consistent with more normal seasonality. We saw significant
strength in gross margin at 42% in the quarter, which is a solid
improvement from the 34% in the year-ago quarter. Approximately
half of this improvement was related to improving regional and
product mix, while the remainder was due to exceptionally low
indirect cost of sales.
Cloud and Network Services saw a soft start to the year which
was related to the challenging spending environment. However, we
are seeing improving order intake and pipeline momentum.
Importantly, we are also making good progress with our Network as
Code platform. This platform enables operators to monetize their 5G
investments, creating new revenue streams by offering developers
advanced API access to the network. We now have a total of 11
operators signed up to the platform with many more in active
discussions.
Nokia Technologies had a very strong start to the year as we
concluded a number of outstanding licensing deals in the quarter.
This meant that our annual licensing net sales run-rate improved
from the EUR 0.9 to 1.0 billion we had in Q4 to approximately EUR
1.3 billion in Q1. In addition to the run-rate increase, we
benefited from more than EUR 400 million of catch-up net sales in
the quarter. We have now concluded our smartphone licensing renewal
cycle with no major renewals due for a number of years. This means
Nokia Technologies has entered a period of stability. The business
will now focus its resources on expanding in new growth areas with
the next goal to increase our annual licensing net sales run-rate
to EUR 1.4 to 1.5 billion in the mid-term.
We have been executing quickly on the operating model changes we
announced back in October along with our cost savings roadmap.
These actions, combined with our expectation for improved net sales
growth in the second half of the year, supported by our order
backlog, mean we are solidly on track to achieve our full year
comparable operating profit outlook of EUR 2.3 to 2.9 billion and
free cash flow conversion of 30% to 60%.
FINANCIAL RESULTS
EUR million (except for EPS in EUR) |
Q1'24 |
Q1'23 |
YoY change |
Constant currency YoY change |
Reported results |
|
|
|
|
Net sales |
4 667 |
5 859 |
(20)% |
(19)% |
Gross margin
% |
47.9% |
37.5% |
1 040bps |
|
Research and
development expenses |
(1 135) |
(1 108) |
2% |
|
Selling, general
and administrative expenses |
(708) |
(729) |
(3)% |
|
Operating
profit |
400 |
426 |
(6)% |
|
Operating margin
% |
8.6% |
7.3% |
130bps |
|
Profit for the
period |
438 |
289 |
52% |
|
EPS, diluted |
0.08 |
0.05 |
60% |
|
Net cash and interest-bearing financial investments |
5 137 |
4 304 |
19% |
|
Comparable results |
|
|
|
|
Net sales |
4 667 |
5 859 |
(20)% |
(19)% |
Gross margin
% |
48.6% |
37.7% |
1 090bps |
|
Research and
development expenses |
(1 086) |
(1 093) |
(1)% |
|
Selling, general
and administrative expenses |
(596) |
(642) |
(7)% |
|
Operating
profit |
597 |
479 |
25% |
|
Operating margin
% |
12.8% |
8.2% |
460bps |
|
Profit for the
period |
501 |
342 |
46% |
|
EPS, diluted |
0.09 |
0.06 |
50% |
|
ROIC(1) |
10.8% |
15.8% |
(500)bps |
|
1 Comparable ROIC = Comparable operating profit after tax, last
four quarters / invested capital, average of last five quarters
ending balances. Refer to the Performance measures section in Nokia
Corporation Interim Report for Q1 2024 for details.
Business
group results |
Network Infrastructure |
MobileNetworks |
Cloud and Network Services |
Nokia Technologies |
Group Common and Other |
EUR million |
Q1'24 |
Q1'23 |
Q1'24 |
Q1'23 |
Q1'24 |
Q1'23 |
Q1'24 |
Q1'23 |
Q1'24 |
Q1'23 |
Net sales |
1 662 |
2 248 |
1 577 |
2 567 |
652 |
760 |
757 |
242 |
23 |
48 |
YoY change |
(26)% |
|
(39)% |
|
(14)% |
|
213% |
|
(52)% |
|
Constant currency
YoY change |
(26)% |
|
(37)% |
|
(13)% |
|
216% |
|
(53)% |
|
Gross margin
% |
36.8% |
38.0% |
42.4% |
33.8% |
35.9% |
32.8% |
100.0% |
100.0% |
(4.3)% |
(12.5)% |
Operating
profit/(loss) |
82 |
344 |
(42) |
137 |
(27) |
(20) |
658 |
149 |
(75) |
(131) |
Operating margin % |
4.9% |
15.3% |
(2.7)% |
5.3% |
(4.1)% |
(2.6)% |
86.9% |
61.6% |
(326.1)% |
(272.9)% |
SHAREHOLDER DISTRIBUTION
Dividend
Under the authorization by the Annual General Meeting held on 3
April 2024, the Board of Directors may resolve on the distribution
of an aggregate maximum of EUR 0.13 per share to be paid in respect
of financial year 2023. The authorization will be used to
distribute dividend and/or assets from the reserve for invested
unrestricted equity in four installments during the authorization
period, in connection with the quarterly results, unless the Board
decides otherwise for a justified reason.
On 18 April 2024, the Board resolved to distribute a dividend of
EUR 0.04 per share. The dividend record date is on 23 April 2024
and the dividend will be paid on 3 May 2024. The actual dividend
payment date outside Finland will be determined by the practices of
the intermediary banks transferring the dividend payments.
Following this announced distribution, the Board’s remaining
distribution authorization is a maximum of EUR 0.09 per share.
Share buyback program
In January 2024, Nokia’s Board of Directors initiated a share
buyback program to repurchase shares to return up to EUR 600
million of cash to shareholders in tranches over a period of two
years. The first EUR 300 million phase of the share buyback program
started in March 2024 and it will end at the latest by 18 December
2024. Under this phase, Nokia has by 31 March 2024 repurchased 3
290 248 of its own shares at an average price per share of
approximately EUR 3.27.
OUTLOOK
|
Full Year 2024 |
Comparable operating profit(1) |
EUR 2.3 billion to EUR 2.9 billion |
Free cash flow(1) |
30% to 60% conversion from comparable operating profit |
1Please refer to Performance measures section in Nokia
Corporation Interim Report for Q1 2024 for a full explanation of
how these terms are defined.
The outlook, long-term targets and all of the underlying outlook
assumptions described below are forward-looking statements subject
to a number of risks and uncertainties as described or referred to
in the Risk Factors section later in this release. Along with
Nokia's official outlook targets provided above, below are outlook
assumptions by business group that support the group level
outlook.
|
Nokia business group assumptions (full year
2024) |
|
Net sales growth (constant currency) |
Operating margin |
Network Infrastructure |
+2% to +8% |
11.5% to 14.5% |
Mobile Networks |
-15% to -10% |
1.0% to 4.0% |
Cloud and Network Services |
-2% to +3% |
6.0% to 9.0% |
Nokia provides the following approximate outlook assumptions for
additional items concerning 2024:
|
Full year 2024 |
Comment |
Seasonality |
H2 weighted |
Nokia continues to expect weak profit generation in the first half
followed by a significantly stronger H2 in Network Infrastructure,
Mobile Networks and Cloud and Network Services in 2024. Since 2016
the average Q2 sequential increase in net sales has been 5% in
these businesses combined (driven by Network Infrastructure and
Mobile Networks) and Nokia expects to see a greater than average
sequential increase in Q2 2024 considering the low level of
activity in Q1. |
Nokia Technologies operating profit |
at leastEUR 1.4 billion |
Nokia expects cash generation in Nokia Technologies to be EUR 700
million below operating profit in 2024 due to prepayments received
in 2023. From 2025 onwards Nokia expects greater alignment between
cash generation and operating profit in Nokia Technologies. |
Group Common and Other operating expenses |
EUR 350 million |
This includes central function costs which are expected to be
largely stable at approximately EUR 200 million and an increase in
investment in long-term research to approximately EUR 150 million.
Group Common and Other will also account for any future revaluation
impacts of venture fund investments with no assumption made on this
so far. |
Comparable financial income and expenses |
EUR 0 to positive EUR 100 million (update) |
Reflecting improved cash generation in Q1 and interest rates
remaining higher than previously expected (increasing interest
income) we now expect an improved financial income and expense
result. |
Comparable income tax rate |
~25% |
|
Cash outflows related to income taxes |
EUR 450 million (update) |
|
Capital Expenditures |
EUR 600 million |
|
2026 TARGETS
Nokia's current targets for 2026 are outlined below. Nokia sees
further opportunities to increase margins beyond 2026 and believes
an operating margin of 14% remains achievable over the longer
term.
Net sales |
Grow faster than the market |
Comparable operating margin(1) |
≥ 13% |
Free cash flow(1) |
55% to 85% conversion from comparable operating profit |
1 Please refer to Performance measures section in Nokia
Corporation Interim Report for Q1 2024 report for a full
explanation of how these terms are defined.
The comparable operating margin target for Nokia group is built
on the following assumptions by business group for 2026:
Network Infrastructure |
12 - 15% operating margin |
Mobile Networks |
6 - 9% operating margin |
Cloud and Network Services |
7 - 10% operating margin |
Nokia Technologies |
Operating profit more than EUR 1.1 billion |
Group common and other |
Approximately EUR 300 million of operating expenses |
RISK FACTORS
Nokia and its businesses are exposed to a number of risks and
uncertainties which include but are not limited to:
- Competitive intensity, which is expected to continue at a high
level as some competitors seek to take share;
- Changes in customer network investments related to their
ability to monetize the network;
- Our ability to ensure competitiveness of our product roadmaps
and costs through additional R&D investments;
- Our ability to procure certain standard components and the
costs thereof, such as semiconductors;
- Disturbance in the global supply chain;
- Impact of inflation, increased global macro-uncertainty, major
currency fluctuations and higher interest rates;
- Potential economic impact and disruption of global
pandemics;
- War or other geopolitical conflicts, disruptions and potential
costs thereof;
- Other macroeconomic, industry and competitive
developments;
- Timing and value of new, renewed and existing patent licensing
agreements with licensees;
- Results in brand and technology
licensing; costs to protect and enforce our intellectual property
rights; on-going litigation with respect to licensing and
regulatory landscape for patent licensing;
- The outcomes of on-going and potential disputes and
litigation;
- Timing of completions and acceptances of certain projects;
- Our product and regional mix;
- Uncertainty in forecasting income tax expenses and cash
outflows, over the long-term, as they are also subject to possible
changes due to business mix, the timing of patent licensing cash
flow and changes in tax legislation, including potential tax
reforms in various countries and OECD initiatives;
- Our ability to utilize our Finnish deferred tax assets and
their recognition on our balance sheet;
- Our ability to meet our sustainability and other ESG targets,
including our targets relating to greenhouse gas emissions;
as well the risk factors specified under Forward-looking
statements of this release, and our 2023 annual report on Form 20-F
published on 29 February 2024 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, projects,
product launches, growth management, licenses, sustainability and
other ESG targets, operational key performance indicators and
decisions on market exits; B) expectations, plans or benefits
related to future performance of our businesses (including the
expected impact, timing and duration of potential global pandemics,
geopolitical conflicts and the general or regional macroeconomic
conditions on our businesses, our supply chain, the timing of
market changes or turning points in demand and our customers’
businesses) and any future dividends and other distributions of
profit; C) expectations and targets regarding financial performance
and results of operations, including market share, prices, net
sales, income, margins, cash flows, cost savings, the timing of
receivables, operating expenses, provisions, impairments, taxes,
currency exchange rates, hedging, investment funds, inflation,
product cost reductions, competitiveness, revenue generation in any
specific region, and licensing income and payments; D) ability to
execute, expectations, plans or benefits related to changes in
organizational structure and operating model; E) impact on revenue
with respect to litigation/renewal discussions; and F) any
statements preceded by or including “continue”, “believe”,
“commit”, “envisage”, “estimate”, “expect”, “aim”, “influence”,
“will”, “target”, “likely”, “intend”, “may”, “could”, “would”,
“forecast”, “plan” 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 webcast will begin on
18 April 2024 at 11.30 a.m. Finnish time (EEST). The webcast
will last approximately 60 minutes.
- The webcast will be a presentation followed by a Q&A
session. Presentation slides will be available for download at
www.nokia.com/financials.
- A link to the webcast will be available at
www.nokia.com/financials.
- Media representatives can listen in via the link, or
alternatively call +1-412-317-5619.
FINANCIAL CALENDAR 2024
- Nokia plans to publish its second quarter and half year 2024
results on 18 July 2024.
- Nokia plans to publish its third quarter and January-September
2024 results on 17 October 2024.
About Nokia
At Nokia, we create technology that helps the world act
together.
As a B2B technology innovation leader, we are pioneering
networks that sense, think and act by leveraging our work across
mobile, fixed and cloud networks. In addition, we create value with
intellectual property and long-term research, led by the
award-winning Nokia Bell Labs.
Service providers, enterprises and partners worldwide trust
Nokia to deliver secure, reliable and sustainable networks today –
and work with us to create the digital services and applications of
the future.
Inquiries:
NokiaCommunicationsPhone: +358 10 448 4900Email:
press.services@nokia.comMaria Vaismaa, Global Head of External
Communications
NokiaInvestor RelationsPhone: +358 4080 3 4080Email:
investor.relations@nokia.com
- 2024_Q1_Nokia_ Earnings_release_English