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Nokia Corporation
Half year report
21 July 2022 at 08:00 EEST
Nokia Corporation Financial Report for Q2 and Half Year 2022
Good profitability supports full year outlook
This is a summary of the Nokia Corporation Financial Report for Q2 and Half Year 2022 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 report with tables.
PEKKA LUNDMARK, PRESIDENT AND CEO, ON Q2 2022 RESULTS
I am pleased to say we continued to execute well in the second quarter. We improved net sales growth to 3% in constant currency despite ongoing supply chain constraints. We delivered another quarter of robust profitability with a 12.2% comparable operating margin, slightly down year-on-year due to timing effects of contract renewals in Nokia Technologies and a one-off software deal last year. Excluding these factors, we can see continued strong improvement in the underlying profitability of the business.
Network Infrastructure maintained its strong growth momentum with net sales up 12% in constant currency more than offsetting the decline in Nokia Technologies. I was pleased to see Mobile Networks returned to growth with a 1% increase in constant currency despite supply chain constraints, while Cloud and Network Services was stable year-on-year.
Momentum continues to build in Enterprise with growing order intake and returned to growth with an 8% increase in net sales in constant currency which are important for our long-term aspirations in the space. Since the start of this year we have been making further investments into private wireless both in R&D and go-to-market to capitalise on our early market leadership. We expect these investments will deliver strong financial returns for us in the mid-term as indicated by double-digit net sales growth in private wireless in the quarter.
While we recognize the increased global macroeconomic uncertainty and currency fluctuations impacting some emerging markets, I am confident we have the right strategy in place to navigate these challenges along with support from structural technology adoption trends in 5G and fiber. However, we will not become complacent; we remain focused on building technology leadership and improving cost-efficiency to deliver on our strategic goals for the years ahead.
We have had a strong first half and with our renewed competitiveness, we are well placed to deliver our full year 2022 guidance. There remain risks around timing of Nokia Technologies' contract renewals, potential COVID-19 lockdowns and the supply chain which remains challenging but is showing signs of improvement. We are currently tracking towards the higher-end of our net sales guidance and towards the mid-point of our operating margin guidance as we manage ongoing inflation and currency headwinds.
FINANCIAL RESULTS
EUR million (except for EPS in EUR) | Q2'22 | Q2'21 | YoY change | Constant currency YoY change | Q1–Q2'22 | Q1–Q2'21 | YoY change | Constant currency YoY change | |||||||||||
Reported results |
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Net sales | 5 873 | 5 313 | 11% | 3% | 11 220 | 10 389 | 8% | 2% | |||||||||||
Gross margin % | 40.2% | 41.0% | (80)bps |
| 40.4% | 39.5% | 90bps |
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Research and development expenses | (1 091) | (1 063) | 3% |
| (2 163) | (2 060) | 5% |
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Selling, general and administrative expenses | (728) | (712) | 2% |
| (1 403) | (1 360) | 3% |
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Operating profit | 564 | 484 | 17% |
| 918 | 916 | 0% |
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Operating margin % | 9.6% | 9.1% | 50bps |
| 8.2% | 8.8% | (60)bps |
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Profit for the period | 460 | 351 | 31% |
| 679 | 614 | 11% |
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EPS, diluted | 0.08 | 0.06 | 33% |
| 0.12 | 0.11 | 9% |
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Net cash and interest-bearing financial investments | 4 546 | 3 688 | 23% |
| 4 546 | 3 688 | 23% |
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Comparable results |
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Net sales | 5 873 | 5 313 | 11% | 3% | 11 220 | 10 389 | 8% | 2% | |||||||||||
Gross margin % | 40.6% | 42.3% | (170)bps |
| 40.7% | 40.3% | 40bps |
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Research and development expenses | (1 069) | (1 011) | 6% |
| (2 122) | (1 985) | 7% |
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Selling, general and administrative expenses | (623) | (585) | 6% |
| (1 204) | (1 137) | 6% |
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Operating profit | 714 | 682 | 5% |
| 1 296 | 1 234 | 5% |
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Operating margin % | 12.2% | 12.8% | (60)bps |
| 11.6% | 11.9% | (30)bps |
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Profit for the period | 585 | 539 | 9% |
| 1 001 | 914 | 10% |
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EPS, diluted | 0.10 | 0.09 | 11% |
| 0.17 | 0.16 | 6% |
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ROIC1 | 18.5% | 18.4% | 10bps |
| 18.5% | 18.4% | 10bps |
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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 Financial Report for Q2 and Half Year 2022 for details. | |||||||||||||||||||
Business group results | Mobile | Network | Cloud and | Nokia | Group Common |
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EUR million | Q2'22 | Q2'21 | Q2'22 | Q2'21 | Q2'22 | Q2'21 | Q2'22 | Q2'21 | Q2'22 | Q2'21 |
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Net Sales | 2 593 | 2 380 | 2 153 | 1 778 | 753 | 703 | 305 | 401 | 77 | 62 |
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YoY change | 9% |
| 21% |
| 7% |
| (24)% |
| 24% |
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Constant currency YoY change | 1% |
| 12% |
| 0% |
| (25)% |
| 16% |
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Gross margin % | 40.2% | 40.9% | 35.4% | 35.3% | 37.2% | 35.7% | 99.7% | 99.8% | (5.2)% | (4.8)% |
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Operating profit/(loss) | 291 | 249 | 247 | 162 | (5) | 10 | 217 | 332 | (36) | (70) |
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Operating margin % | 11.2% | 10.5% | 11.5% | 9.1% | (0.7)% | 1.4% | 71.1% | 82.8% | (46.8)% | (112.9)% |
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OUTLOOK
| Full year 2022 |
Net sales1 | EUR 23.5 billion to EUR 24.7 billion (constant currency unchanged, adjusted for currency)1 |
Comparable operating margin2 | 11 to 13.5% |
Free cash flow2 | 25-55% conversion from comparable operating profit |
1 Assuming the rate 1 EUR = 1.04 USD as of 30 June 2022 continues for the remainder of 2022 along with year-to-date actual foreign exchange rates (adjusted from prior 1 EUR = 1.11 USD rate as of 31 Mar 2022). Assuming the year-end 2021 exchange rate, the net sales outlook would continue to be EUR 22.6bn to EUR 23.8bn.
2 Please refer to Performance measures section in Nokia Corporation Financial Report for Q2 and Half Year 2022 for a full explanation of how these terms are defined.
The outlook, the long-term targets (3-5 years) and all of the underlying outlook assumptions described below are forward-looking statements subject to a number of risks and uncertainties as described in the Risk Factors section later in this release.
| 2022 total addressable market (€bn) | Constant currency growth |
Mobile Networks | 51 | +5% |
Network Infrastructure | 47 | +5% |
Cloud and Network Services | 27 | +3% |
Nokia total addressable market | 125 | +4% |
| Full year 2022 |
Mobile Networks | 6.5 to 9.5% |
Network Infrastructure | 9.5 to 12.5% |
Cloud and Network Services | 4.0 to 7.0% |
Nokia Technologies | >75% |
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 2022 for details), we expect that a 10% strengthening in the USD vs. the EUR would have an impact of approximately positive 5% on net sales, a positive impact on operating profit and a slight positive impact to our operating margin, before hedging. In the current financial year, due to the impact of hedging, we expect an approximately neutral impact on operating profit and a slightly negative impact to operating margin (update).
Nokia's long-term targets as published with our fourth quarter 2021 results remain unchanged.
SHAREHOLDER DISTRIBUTION
Dividend
Under the authorization by the Annual General Meeting held on 5 April 2022, the Board of Directors may resolve an aggregate maximum distribution of EUR 0.08 per share. 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.
Under the authorization, a EUR 0.02 dividend was paid in Q2 2022 totaling EUR 113 million.
On 21 July 2022, the Board resolved to distribute a dividend of EUR 0.02 per share. The dividend record date is on 26 July 2022 and the dividend will be paid on 4 August 2022. 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 of the second installment and the executed payment of the first installment in Q2 2022, the Board's remaining distribution authorization is a maximum of EUR 0.04 per share.
The payment of the second installment of the distribution is expected to total approximately EUR 112 million in Q3 2022.
Share buyback program
In 2020 and 2021, Nokia generated strong cash flow which significantly improved the cash position of the company. To manage the company's capital structure, the Board of Directors initiated a share buyback program under the authorization from the AGM to repurchase shares. Purchases began in February 2022. By the end of June 2022, Nokia has repurchased 30 335 608 shares for a total purchase price of approximately EUR 144 million, with weighted average purchase price of EUR 4.73 per share. The program targets to return up to EUR 600 million of cash to shareholders in tranches over a period of two years.
RISK FACTORS
Nokia and its businesses are exposed to a number of risks and uncertainties which include but are not limited to:
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, 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 COVID-19 on our businesses, our supply chain 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 generation, the timing of receivables, operating expenses, provisions, impairments, taxes, currency exchange rates, hedging, investment funds, inflation, product cost reductions and competitiveness; D) ability to execute, expectations, plans or benefits related to changes in organizational structure and operating model; 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 webcast will begin on 21 July 2022 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.
FINANCIAL CALENDAR 2022
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
Maria Vaismaa, Global Head of Public Relations
Nokia
Investor Relations
Phone: +358 40 803 4080
Email: investor.relations@nokia.com
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