Nokia Corporation Financial Report for Q3 2021
Nokia Corporation Interim report28 October 2021 at 08:00
EEST
Nokia Corporation Financial Report
for Q3 2021
Strong profitability and cash generation
- Constant currency sales growth of 2% constrained by expected
supply chain and Mobile Networks North America headwinds
- Strong sales growth in Network Infrastructure (+6% y-o-y
constant currency) and Cloud & Network Services (+12%)
- Comparable gross margin of 40.8% (reported 40.7%), reflecting
continued strong execution across the business
- Mobile Networks comparable gross margin of 37.8% (+220 bps
y-o-y) showed better cost competitiveness
- Comparable operating margin of 11.7% (reported 9.3%), new
operating model bringing strong financial accountability
- Comparable diluted EPS of EUR 0.08; reported diluted EPS of EUR
0.06
- Strong free cash flow generation of €0.7bn
- Launched new FP5 IP routing silicon which sets new industry
benchmarks particularly on power efficiency
- Continuing to manage supply chain constraints but challenges
are increasing into Q4
- Reiterating our full year guidance for net sales of €21.7bn –
22.7bn and comparable operating margin of 10-12% and now expect to
be towards upper-end of the margin range considering continued
strong performance
All financial metrics above refer to Q3 2021
This is a summary of the Nokia Corporation Financial Report for
Q3 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 Q3 results will
also be published on the website. Investors should not solely rely
on summaries of Nokia's financial reports, but should also review
the complete report with tables.
PEKKA LUNDMARK, PRESIDENT AND CEO, ON
Q3 2021 RESULTS
We delivered another great quarter driven by our increased
investments in technology leadership and strong market demand. The
highlight of the quarter was the launch of our next generation FP5
IP routing silicon – delivering up to three times more capacity
while reducing power consumption by up to 75% per bit compared to
previous generation. This will help reduce the carbon footprint of
both Nokia and our customers, while also helping customers to
manage their operating expenses.
The third quarter saw us achieve 2% constant currency net sales
growth despite the impact of earlier communicated headwinds in
North America for Mobile Networks and global supply chain
constraints. These headwinds were offset by strong growth in
Network Infrastructure against a tough year-on-year comparison and
by Cloud and Network Services achieving double-digit growth. Our
comparable operating margin for the quarter was 11.7%, which is a
further testament to the accountability and financial discipline
that our new operating model is driving through the
organization.
We now have over 380 private wireless customers and the business
continues to grow strongly. We are further increasing our
investment to ensure we maintain the lead we have built with the
industry’s most complete offering.
Overall, I am pleased with our strong financial performance in
2021 so far. We continue to expect seasonality to be less
pronounced this year than previously and are reiterating our full
year 2021 outlook. Considering our continued strength, we now
expect to be towards the upper-end of our comparable operating
margin range. As we look ahead, we believe we are well positioned
to capitalize on strong demand in our end markets through
strengthened technology leadership and improved cost
competitiveness. However, the uncertainty around the global
semiconductor market limits our visibility into Q4 and 2022. We are
working closely not only with our suppliers to ensure component
availability but also with our customers to ensure we can meet
their needs and mitigate the unprecedented component cost inflation
our industry faces. Coupled with the one-offs we’ve benefited from
this year, this may limit our margin expansion potential in
2022.
FINANCIAL RESULTS
EUR million (except for EPS in EUR) |
Q3'21 |
Q3'20 |
YoY change |
Constant currency YoY change |
Q1–Q3'21 |
Q1–Q3'20 |
YoY change |
Constant currency YoY change |
Reported results |
|
|
|
|
|
|
|
|
Net sales |
5 399 |
5 294 |
2% |
2% |
15 788 |
15 299 |
3% |
6% |
Gross margin
%1 |
40.7% |
37.1% |
360bps |
|
39.9% |
36.9% |
300bps |
|
Research and
development expenses1 |
(1 036) |
(923) |
12% |
|
(3 096) |
(2 942) |
5% |
|
Selling,
general and administrative expenses1 |
(674) |
(631) |
7% |
|
(2 034) |
(2 121) |
(4)% |
|
Operating
profit |
502 |
350 |
43% |
|
1 418 |
444 |
219% |
|
Operating
margin % |
9.3% |
6.6% |
270bps |
|
9.0% |
2.9% |
610bps |
|
Profit for the
period |
351 |
197 |
78% |
|
965 |
180 |
436% |
|
EPS,
diluted |
0.06 |
0.03 |
100% |
|
0.17 |
0.03 |
467% |
|
Net cash and
current financial investments |
4 300 |
1 869 |
130% |
|
4 300 |
1 869 |
130% |
|
Comparable results |
|
|
|
|
|
|
|
|
Net sales |
5 399 |
5 294 |
2% |
2% |
15 788 |
15 301 |
3% |
6% |
Gross margin
% |
40.8% |
37.4% |
340bps |
|
40.5% |
37.8% |
270bps |
|
Research and
development expenses |
(1 007) |
(880) |
14% |
|
(2 992) |
(2 808) |
7% |
|
Selling,
general and administrative expenses |
(583) |
(558) |
4% |
|
(1 719) |
(1 820) |
(6)% |
|
Operating
profit |
633 |
486 |
30% |
|
1 867 |
1 025 |
82% |
|
Operating
margin % |
11.7% |
9.2% |
250bps |
|
11.8% |
6.7% |
510bps |
|
Profit for the
period |
463 |
305 |
52% |
|
1 377 |
653 |
111% |
|
EPS,
diluted |
0.08 |
0.05 |
60% |
|
0.24 |
0.11 |
118% |
|
ROIC2 |
20.2% |
11.6% |
855bps |
|
|
|
|
|
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 Q3’20 and Q1–Q3'20 have been
recast accordingly. Refer to Note 1, Basis of preparation, in the
Financial statement information section included in Nokia
Corporation Financial Report for Q3 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 Q3 2021 for details. |
Reconciliation of reported operating profit to comparable
operating profit |
|
|
|
|
EUR million |
Q3'21 |
Q3'20 |
YoY change |
Q1–Q3'21 |
Q1–Q3'20 |
YoY change |
Reported operating
profit |
502 |
350 |
43% |
1 418 |
444 |
219% |
Amortization of
acquired intangible assets |
99 |
101 |
|
293 |
308 |
|
Restructuring and
associated charges |
34 |
120 |
|
211 |
337 |
|
Impairment of
assets, net of impairment reversals |
(1) |
5 |
|
32 |
25 |
|
Settlement of
legal disputes |
0 |
0 |
|
(80) |
0 |
|
Gain on defined
benefit plan amendment |
0 |
(90) |
|
0 |
(90) |
|
Other, net |
(1) |
0 |
|
(7) |
1 |
|
Comparable operating
profit |
633 |
486 |
30% |
1 867 |
1 025 |
82% |
OUTLOOK
|
Full year 2021 |
Full year 2023 |
Net sales1 |
EUR 21.7 billion to EUR 22.7 billion |
Grow faster than the market |
Comparable operating margin2 |
10 to 12% |
10 to 13% |
Free cash flow3 |
Clearly positive |
Clearly positive |
Comparable ROIC2,4 |
17 to 21% |
15 to 20% |
1 Assuming actual currency rates until Sept 2021 and end of Sept
EUR/USD rate of 1.16 continues in the remainder of 2021 (adjusted
from actual until June and EUR/USD rate of 1.19 in the remainder of
2021).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 Q3 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 Q3 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:
|
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 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 between EUR 150 and 200 million in 2021 and approximately EUR
200 million over the longer-term. The update to our 2021
expectation largely reflects the year-to-date impact from Nokia’s
venture fund investments (update);
- 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 in previous years;
- 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;
- 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 taxes and
the timing of patent licensing cash flow. Over the longer-term,
there is some uncertainty in forecasting income tax expenses, as
they are also subject to changes in tax legislation, including
potential tax reform in the U.S. and the OECD Pillar initiatives
(update);
- 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, subject to regional profit mix, net sales subject to
withholding taxes and the timing of patent licensing cash flow.
Over the longer-term, there is some uncertainty in forecasting cash
taxes, as they are also subject to changes in tax legislation,
including potential tax reform in the U.S. and the OECD Pillar
initiatives (update);
- Capital expenditures are expected to be approximately EUR 600
million over the longer-term; 2021 slightly below that level and
with some variation in future years around that level (update);
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 Q3 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;
- The disturbance in the global supply chain;
- Accelerating inflation;
- Other macroeconomic, industry and competitive dynamics;
- 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;
- The timing and value of new and existing patent licensing
agreements with smartphone vendors, automotive companies, consumer
electronics companies and other licensees;
- 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 4 March 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 the 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 and inflation, 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 28 October 2021 at 11.30
a.m. Finnish time (EEST). 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:
NokiaCommunicationsPhone: +358 10 448 4900Email:
press.services@nokia.comKatja Antila, Head of Media Relations
NokiaInvestor RelationsPhone: +358 40 803 4080Email:
investor.relations@nokia.com
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