Interim report
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 ofEUR 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
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
The third quarter saw us achieve 2% constant currency net sales growth despite the impact of earlier communicated headwinds in
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, 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 |
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 | 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
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
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
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% |
>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 approximatelyEUR 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 ofNokia Technologies to be approximatelyEUR 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 andEUR 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 theU.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 theU.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
- 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
FORWARD-LOOKING STATEMENTS
Certain statements herein that are not historical facts are forward-looking statements. These forward-looking statements reflect
ANALYST WEBCAST
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Attachment
- Nokia_Results_2021_Q3
Source:
2021 GlobeNewswire, Inc., source