Nokia Corporation Interim Report for Q3 2024
Nokia Corporation
Interim Report
17 October 2024 at 08:00 EEST
Nokia Corporation Interim Report for Q3
2024
Strong gross margin improvement amidst
ongoing market weakness
- Q3 net sales declined 7% y-o-y in constant currency (-8%
reported) as growth in Network Infrastructure and Nokia
Technologies was offset by decline in Mobile Networks primarily in
India and a divestment in Cloud and Network Services.
- Order intake remained strong in Network Infrastructure, while
the sales recovery continues to be slower than expected.
- Comparable gross margin in Q3 increased by 490bps y-o-y to
45.7% (reported increased 500bps to 45.2%), with improvements
across business groups, particularly in Mobile Networks.
- Q3 comparable operating margin increased 160bps y-o-y to 10.5%
(reported up 70bps to 5.7%), mainly due to higher gross margin,
continued cost control and a benefit from the reversal of loss
allowances for certain trade receivables.
- Q3 comparable diluted EPS for the period of EUR 0.06; reported
diluted EPS for the period of EUR 0.03.
- Q3 free cash flow of EUR 0.6 billion, net cash balance EUR 5.5
billion.
- Continued to make significant progress with cost savings
program, EUR 500 million run-rate of gross savings 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 Interim
Report for Q3 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 Q3 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 Q3 2024
RESULTS
As I reflect on our performance in the third
quarter, I am optimistic we are now turning the corner in many
parts of our business, even if some continue to experience market
weakness. Among the key highlights was a return to net sales growth
in Network Infrastructure with Fixed Networks growing 9% in
constant currency and IP Networks growing 6%. Order intake in
Network Infrastructure continued to be robust with strong
year-on-year growth and a growing order backlog. Additionally, we
delivered a significant improvement in our gross margin at the
group level and cash generation remained strong with EUR 621
million free cash flow in the quarter.
There are reasons for optimism across our
portfolio. We expect a significant acceleration in growth in Q4 in
Network Infrastructure and see a number of structural demand trends
supporting our future growth. In Mobile Networks, although market
dynamics are more challenging, we have secured several important
deals in the quarter, remain confident in our competitive position
and are improving our gross margin. In Cloud and Network Services
we are seeing excellent momentum in 5G Core along with strong
progress in network automation, cloudification and enabling network
APIs. Nokia Technologies continues to benefit from greater
stability following the conclusion of its smart-phone renewal cycle
and is making good progress expanding into the new growth
areas.
Across Nokia we are investing to create new growth
opportunities outside of our traditional communications service
provider market. We see a significant opportunity to expand our
presence in the data center market and are investing to broaden our
product portfolio in IP Networks to better address this. Our
pending acquisition of Infinera will also bolster our Optical
Networks exposure to this market and accelerate our growth
opportunities. Additionally, we see a compelling new long-term
opportunity in bringing 5G technology to the defense market and we
continue to invest in private wireless networks where we are the
clear market leader.
Regarding our financial performance in Q3, our net
sales declined by 7% in the quarter in constant currency. Three
quarters of the decline was driven by India due to a strong
year-ago quarter. Importantly we delivered a significant
improvement in comparable gross margin which expanded 490 basis
points from the year-ago period to reach 45.7%. This was driven by
a combination of improved product mix, regional mix and actions to
reduce product cost. Despite continued intense competition, we
remain disciplined on price while still winning deals as we remain
focused on improving the profitability of our business. We also
progressed our cost reduction efforts contributing to a solid
improvement of 160 basis points in our comparable operating margin
on a year-on-year basis.
Regarding full year 2024, our comparable operating
profit outlook remains EUR 2.3 to 2.9 billion and we are currently
tracking within the bottom-half of the range. The net sales
recovery is happening slower than we expected previously, however,
this is being partially offset by an improving gross margin and
quick action on cost. We expect to be at the high end of our free
cash flow target of 30% to 60% conversion from comparable operating
profit.
FINANCIAL RESULTS
EUR million (except for EPS in EUR) |
Q3'24 |
Q3'23 |
YoY change |
Constant currency YoY change |
Q1-Q3'24 |
Q1-Q3'23 |
YoY change |
Constant currency YoY change |
Reported results |
|
|
|
|
|
|
|
|
Net sales |
4 326 |
4 709 |
(8)% |
(7)% |
13 236 |
15 722 |
(16)% |
(15)% |
Gross
margin % |
45.2% |
40.2% |
500bps |
|
46.1% |
39.4% |
670bps |
|
Research
and development expenses |
(1 116) |
(1 067) |
5% |
|
(3 376) |
(3 197) |
6% |
|
Selling,
general and administrative expenses |
(692) |
(697) |
(1)% |
|
(2 101) |
(2 104) |
0% |
|
Operating
profit |
246 |
237 |
4% |
|
1 082 |
1 127 |
(4)% |
|
Operating
margin % |
5.7% |
5.0% |
70bps |
|
8.2% |
7.2% |
100bps |
|
Profit
from continuing operations |
145 |
130 |
12% |
|
965 |
700 |
38% |
|
Profit/(loss) from discontinued operations |
31 |
3 |
933% |
|
(494) |
11 |
|
|
Profit
for the period |
175 |
133 |
32% |
|
471 |
711 |
(34)% |
|
EPS for
the period, diluted |
0.03 |
0.02 |
50% |
|
0.08 |
0.13 |
(38)% |
|
Net cash and interest-bearing financial investments |
5 460 |
2 960 |
84% |
|
5 460 |
2 960 |
84% |
|
Comparable results |
|
|
|
|
|
|
|
|
Net sales |
4 326 |
4 709 |
(8)% |
(7)% |
13 236 |
15 722 |
(16)% |
(15)% |
Gross
margin % |
45.7% |
40.8% |
490bps |
|
47.0% |
39.9% |
710bps |
|
Research
and development expenses |
(1 029) |
(1 024) |
0% |
|
(3 169) |
(3 119) |
2% |
|
Selling,
general and administrative expenses |
(591) |
(594) |
(1)% |
|
(1 785) |
(1 833) |
(3)% |
|
Operating
profit |
454 |
418 |
9% |
|
1 477 |
1 507 |
(2)% |
|
Operating
margin % |
10.5% |
8.9% |
160bps |
|
11.2% |
9.6% |
160bps |
|
Profit
for the period |
358 |
293 |
22% |
|
1 198 |
1 035 |
16% |
|
EPS for
the period, diluted |
0.06 |
0.05 |
20% |
|
0.21 |
0.18 |
17% |
|
ROIC(1) |
10.4% |
11.9% |
(150)bps |
|
10.4% |
11.9% |
(150)bps |
|
1 Comparable ROIC = Comparable
operating profit after tax, last four quarters / invested capital,
average of last five quarters’ ending balances. Refer to the
Alternative performance measures section in Nokia Corporation
Interim Report for Q3 2024 for details.
Business group results |
Network
Infrastructure |
Mobile
Networks |
Cloud
and Network Services |
Nokia
Technologies |
Group
Common and Other |
EUR million |
Q3'24 |
Q3'23 |
Q3'24 |
Q3'23 |
Q3'24 |
Q3'23 |
Q3'24 |
Q3'23 |
Q3'24 |
Q3'23 |
Net sales |
1 525 |
1 534 |
1 747 |
2 157 |
702 |
742 |
352 |
258 |
3 |
22 |
YoY
change |
(1)% |
|
(19)% |
|
(5)% |
|
36% |
|
(86)% |
|
Constant currency YoY change |
1% |
|
(17)% |
|
(4)% |
|
35% |
|
(86)% |
|
Gross
margin % |
42.1% |
40.5% |
39.8% |
34.8% |
40.9% |
39.1% |
100.0% |
100.0% |
|
|
Operating profit/(loss) |
180 |
165 |
92 |
99 |
65 |
36 |
242 |
181 |
(126) |
(62) |
Operating margin % |
11.8% |
10.8% |
5.3% |
4.6% |
9.3% |
4.9% |
68.8% |
70.2% |
|
|
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 17 October 2024, the Board resolved to
distribute a dividend of EUR 0.03 per share. The dividend record
date is 22 October 2024 and the dividend will be paid on 31 October
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 0.03 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 share buyback execution started on 20
March 2024. On 19 July 2024, Nokia's Board of Directors decided to
accelerate the timeframe for the share buyback program with the aim
of completing the full EUR 600 million program by the end of this
year instead of the initial two year timeframe.
On 27 June 2024, Nokia announced its intention to
acquire Infinera in a transaction that valued 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.
Under the share buyback program, by 30 September
2024, Nokia had repurchased 84 295 899 of its own shares at an
average price per share of approximately EUR 3.48.
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 Alternative
performance measures section in Nokia Corporation Interim Report
for Q3 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 |
-6% to -3% (update) |
10.0% to 12.0% (update) |
Mobile Networks |
-22% to -19% (update) |
5.0% to 7.0% (update) |
Cloud and Network Services |
-7% to -4% (update) |
6.0% to 8.0% (update) |
Nokia provides the following approximate outlook
assumptions for additional items concerning 2024:
|
Full year 2024 |
Comment |
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. |
Comparable financial income and expenses |
Positive EUR 75 to EUR 125 million |
|
Comparable income tax rate |
~25% |
|
Cash outflows related to income taxes |
EUR 450 million |
|
Capital Expenditures |
EUR 450 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 Network Infrastructure operating margin
assumption below considers Submarine Networks 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 Alternative
performance measures section in Nokia Corporation Interim Report
for Q3 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 |
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”, “envisage”, “expect”, “aim”,
“will”, “target”, “may”, “would”, "see", “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 17 October 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
• Nokia plans to publish its fourth quarter
and full year 2024 results on 30 January 2025.
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
- 2024_ Q3 Nokia_ Earnings_release_English
Nokia (BIT:NOKIA)
Historical Stock Chart
Von Sep 2024 bis Okt 2024
Nokia (BIT:NOKIA)
Historical Stock Chart
Von Okt 2023 bis Okt 2024