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
+1-412-717-9224.
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.
Inquiries:
Nokia
Communications
Phone: +358 10 448 4900
Email: press.services@nokia.com
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Katja Antila, Head of Media Relations
Nokia
Investor Relations
Phone: +358 40 803 4080
Email: investor.relations@nokia.com
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Attachment
-- Nokia_Results_2021_Q2
https://ml-eu.globenewswire.com/Resource/Download/37070a1c-2aa5-4937-b67b-98b51b48b734
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