Nokia Corporation Report for Q2 and Half Year 2024
Nokia Corporation
Half Year Report
18 July 2024 at 08:00 EEST
Nokia Corporation Report for Q2 and Half
Year 2024
Full year outlook reiterated in
challenging environment
- Q2 net sales declined 18% y-o-y in constant currency (-18%
reported) primarily due to strong year-ago quarter in India.
- Submarine Networks treated as discontinued operation.
- Positively, order intake trends continued to improve,
particularly in Network Infrastructure.
- Comparable gross margin in Q2 increased by 450bps y-o-y to
44.7% (reported increased 380bps to 43.3%), mainly driven by Mobile
Networks, in part benefiting from the resolution of an outstanding
contract negotiation.
- Q2 comparable operating margin decreased 190bps y-o-y to 9.5%
(reported up 110bps to 9.7%), mainly due to low net sales coverage
of operating expenses which more than offset the Mobile Networks
contract resolution.
- Q2 comparable diluted EPS of EUR 0.06; reported diluted EPS of
negative EUR 0.03. Q2 reported EPS impacted by non-cash impairment
charge of EUR 514 million related to Submarine Networks,
presented as discontinued operation.
- Q2 free cash flow of EUR 0.4bn, net cash balance EUR 5.5bn.
Buyback program planned to be accelerated.
- Significant progress with gross cost savings program, with EUR
400 million run-rate of savings already actioned.
- Nokia's full year 2024 outlook is unchanged. Nokia currently
expects comparable operating profit of between EUR 2.3 billion and
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 Report
for Q2 and Half Year 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 Q2 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 Q2 2024
RESULTS
I am pleased to confirm that the improving order
intake momentum we’ve talked about for the past couple of quarters
has continued in the second quarter across the group and most
notably in Network Infrastructure. This trend means our backlog
further expanded and we look forward to a meaningful improvement in
net sales in the second half. Generally, the market remains
uncertain, so we will continue to be agile and prudently manage our
cost base as we navigate this environment.
In Q2, we announced two significant transactions
in Network Infrastructure in support of our strategic pillar of
actively managing our portfolio. On 27 June, we announced an
agreement to sell our Submarine Networks business to the French
State. We also announced our intention to acquire Infinera to
increase the scale and profitability of our Optical Networks
business. This will enable us to deliver faster innovation and
expand our position both with webscale customers and regionally in
North America. These transactions will focus and strengthen our
Network Infrastructure business with its future built on three
market-leading units in Fixed Networks, IP Networks and Optical
Networks. We are investing in Network Infrastructure as we see a
compelling opportunity in this business to drive mid-single digit
net sales growth and improve our profitability to a mid-to-high
teens operating margin over time.
Our financial performance in the second quarter
continued to be impacted by the ongoing market weakness with net
sales declining 18% year-on-year in constant currency. The most
significant impact was the challenging year-ago comparison period
which saw the peak of India's rapid 5G deployment with India
accounting for three quarters of the decline. In the quarter there
was a benefit of EUR 150 million to both net sales and operating
profit in Mobile Networks related to a portion of our contract
resolution with AT&T. Our comparable operating margin was 9.5%
compared to 11.4% in the prior year. We have made significant
progress on our cost savings program and have already actioned
run-rate savings of EUR 400 million out of our targeted EUR 800
million to EUR 1.2 billion gross cost savings by 2026.
Q2 was another strong quarter for cash generation
with free cash flow of EUR 394 million as our working capital
position continues to normalize. Our improving cash generation
means the board now intends to accelerate our on-going EUR 600
million buyback program with the view to completing it by the end
of this year, compared to the previous end of 2025 target.
In Network Infrastructure we secured a number of
important design wins in the quarter. We won several important
fiber deals, including in the US, and received orders from a US
distributor for both Fixed and IP products as we gear up to supply
operators under the BEAD program. It is also notable that we
returned to growth in North America which was one of the first
markets where we saw the 2023 market slowdown. With the challenges
of 2023 behind us, and more normalized customer inventory levels,
we believe we can now look forward to a stronger second half and a
return to growth, which we expect to continue into 2025.
In Mobile Networks the market dynamic remains
challenging as operators continue to be cautious. However there has
been significant customer tendering activity and we have won a
number of deals this year. This has included winning new customers
such as MEO in Portugal, and increasing our footprint with existing
customers, demonstrating the strength of our product offering. We
also concluded negotiations with AT&T related to our existing
RAN contracts. This gives us clarity on the path forward and
ensures that we maintain the value agreed in the contracts.
In Cloud and Network Services we are making good
progress with winning deals and with our organic efforts to bring
new API capabilities and orchestration automation to customers. In
Q2 we signed Network as Code collaboration agreements bringing our
ecosystem total to 16, which includes new agreements with operators
such as Orange, Telefónica, and Turkcell along with ecosystem
players Google and Infobip.
In Nokia Technologies we signed an agreement with
a video streaming platform covering the use of Nokia’s multimedia
technology. This is an early step in what can be a meaningful
opportunity for Nokia in the future.
Looking forward, we believe the industry is
stabilizing and given the order intake seen in recent quarters we
expect a significant acceleration in net sales growth in the second
half. While the dynamic is improving, the net sales recovery is
happening somewhat later than we previously expected, impacting our
business group net sales assumptions for 2024. Despite this, we
remain solidly on track to achieve our full year outlook supported
by our quick action on cost. We are currently tracking towards the
mid-point or slightly below the mid-point of our comparable
operating profit guidance of EUR 2.3 to 2.9 billion and towards the
higher-end of our free cash flow conversion guidance of 30% to
60%.
FINANCIAL RESULTS
EUR million (except for EPS in EUR) |
Q2'24 |
Q2'23 |
YoY change |
Constant currency YoY change |
Q1-Q2'24 |
Q1-Q2'23 |
YoY change |
Constant currency YoY change |
Reported results |
|
|
|
|
|
|
|
|
Net sales |
4 466 |
5 438 |
(18)% |
(18)% |
8 910 |
11 013 |
(19)% |
(18)% |
Gross
margin % |
43.3% |
39.5% |
380bps |
|
46.5% |
39.1% |
740bps |
|
Research
and development expenses |
(1 134) |
(1 034) |
10% |
|
(2 259) |
(2 130) |
6% |
|
Selling,
general and administrative expenses |
(715) |
(690) |
4% |
|
(1 408) |
(1 407) |
0% |
|
Operating
profit |
432 |
469 |
(8)% |
|
836 |
890 |
(6)% |
|
Operating
margin % |
9.7% |
8.6% |
110bps |
|
9.4% |
8.1% |
130bps |
|
Profit
from continuing operations |
370 |
287 |
29% |
|
821 |
570 |
44% |
|
Profit/(loss) from discontinued operations |
(512) |
2 |
|
|
(525) |
8 |
|
|
Profit/(loss) for the period |
(142) |
289 |
|
|
296 |
578 |
(49)% |
|
EPS for
the period, diluted |
(0.03) |
0.05 |
|
|
0.05 |
0.10 |
(50)% |
|
Net cash and interest-bearing financial investments |
5 475 |
3 660 |
50% |
|
5 475 |
3 660 |
50% |
|
Comparable results |
|
|
|
|
|
|
|
|
Net sales |
4 466 |
5 438 |
(18)% |
(18)% |
8 910 |
11 013 |
(19)% |
(18)% |
Gross
margin % |
44.7% |
40.2% |
450bps |
|
47.6% |
39.6% |
800bps |
|
Research
and development expenses |
(1 064) |
(1 015) |
5% |
|
(2 140) |
(2 096) |
2% |
|
Selling,
general and administrative expenses |
(610) |
(607) |
0% |
|
(1 194) |
(1 239) |
(4)% |
|
Operating
profit |
423 |
619 |
(32)% |
|
1 023 |
1 090 |
(6)% |
|
Operating
margin % |
9.5% |
11.4% |
(190)bps |
|
11.5% |
9.9% |
160bps |
|
Profit
for the period |
328 |
409 |
(20)% |
|
840 |
741 |
13% |
|
EPS for
the period, diluted |
0.06 |
0.07 |
(14)% |
|
0.15 |
0.13 |
15% |
|
ROIC(1) |
10.0% |
13.8% |
(380)bps |
|
10.0% |
13.8% |
(380)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 Report for Q2 and
Half Year 2024 for details.
Business group results |
Network
Infrastructure |
Mobile
Networks |
Cloud
and Network Services |
Nokia
Technologies |
Group
Common and Other |
EUR million |
Q2'24 |
Q2'23 |
Q2'24 |
Q2'23 |
Q2'24 |
Q2'23 |
Q2'24 |
Q2'23 |
Q2'24 |
Q2'23 |
Net sales |
1 522 |
1 706 |
1 970 |
2 623 |
615 |
742 |
356 |
334 |
4 |
35 |
YoY
change |
(11)% |
|
(25)% |
|
(17)% |
|
7% |
|
(89)% |
|
Constant currency YoY change |
(11)% |
|
(24)% |
|
(16)% |
|
5% |
|
(89)% |
|
Gross
margin % |
38.4% |
41.1% |
43.2% |
33.4% |
33.7% |
36.5% |
100.0% |
100.0% |
|
|
Operating profit/(loss) |
97 |
252 |
171 |
206 |
(25) |
16 |
258 |
236 |
(78) |
(91) |
Operating margin % |
6.4% |
14.8% |
8.7% |
7.9% |
(4.1)% |
2.2% |
72.5% |
70.7% |
|
|
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 July 2024, the Board resolved to distribute
a dividend of EUR 0.03 per share. The dividend record date is 23
July 2024 and the dividend will be paid on 1 August 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 0.06 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. Under this phase, Nokia had
by 30 June 2024 repurchased 29 507 303 of its own shares at an
average price per share of approximately EUR 3.41.
On 27 June 2024, Nokia announced its intention to
acquire Infinera in a transaction that values Infinera at US$1.7
billion equity value with up to 30% of the consideration to be paid
in Nokia American depositary shares ("ADSs") depending on the
elections of Infinera shareholders. Nokia’s Board of Directors is
committed to repurchase additional shares on top of the on-going
EUR 600 million program to offset the dilution from the transaction
to Nokia shareholders. The Board intends to increase the scale of
the buyback program once the result of the Infinera shareholder
elections are known (between cash and Nokia ADSs). In the interim,
Nokia’s Board of Directors intends to accelerate the timeframe for
the existing EUR 600 million share buyback program with the aim of
completing the full EUR 600 million by the end of this year instead
of the initial two year timeframe.
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 Report for Q2 and Half Year 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 +3% (update) |
11.5% to 14.5% |
Mobile Networks |
-19% to -14% (update) |
4.0% to 7.0% (update) |
Cloud and Network Services |
-5% to +0% (update) |
6.0% to 9.0% |
Nokia provides the following approximate outlook
assumptions for additional items concerning 2024:
|
Full year 2024 |
Comment |
Seasonality |
H2 weighted, with strong Q4
(update) |
Average sequential increase in Network Infrastructure, Mobile
Networks and Cloud and Network Services net sales combined since
2016 has been 0% in Q3 and 20% in Q4.
Nokia expects a somewhat greater than average sequential increase
in Q3 2024 and significantly greater than average in Q4 2024 across
these combined businesses.
Nokia currently expects a largely stable operating margin in Q3 due
to the contract resolution benefit seen in Q2 and then a more
significant improvement in Q4. |
Nokia Technologies operating profit |
at least
EUR 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 |
Positive EUR 75 to EUR 125 million (update) |
Reflecting improved cash generation in the first half of 2024 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 |
|
Capital Expenditures |
EUR 550 million (update) |
|
2026 TARGETS
Nokia's current targets for its existing perimeter
of the business for 2026 are outlined below. This does not consider
pending acquisitions. The update to the Network Infrastructure
operating margin assumption is related to Submarine Networks now
being treated as a discontinued operation. 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 Report for Q2 and Half Year 2024 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 |
13 - 16% operating margin (update) |
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;
- Our ability to execute, complete and realize the expected
benefits from our ongoing transactions;
- 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,
programs, 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 our ongoing transactions and 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”, “will”, “target”, “likely”, “intend”,
“may”, “could”, “would”, "see", "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 July 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 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:
Nokia
Communications
Phone: +358 10 448 4900
Email:press.services@nokia.com
Maria Vaismaa, Global Head of External Communications
Nokia
Investor Relations
Phone: +358 4080 3 4080
Email:investor.relations@nokia.com
- Q2 2024 Nokia_ Earnings_release_English
Nokia (TG:NOA3)
Historical Stock Chart
From Sep 2024 to Oct 2024
Nokia (TG:NOA3)
Historical Stock Chart
From Oct 2023 to Oct 2024