TIDMNOKIA
Nokia Corporation
Half year report
July 31, 2020 at 08:00 (CET +1)
Nokia Corporation Financial Report for Q2 and Half Year 2020
Continued improved execution drives strong margin and cash performance
-- Strong margin expansion, primarily driven by Mobile Access
-- Clear roadmap progress, particularly related to our 5G mid-band portfolio
-- Confidence in resilient customer base and strong liquidity position
-- 11% decrease in net sales, largely driven by COVID-19 and China
-- Strong growth in Nokia Enterprise
-- Positive operating profit, on a reported basis, in both Q2 and half year
2020
-- Within previously provided Outlook ranges for full year 2020, adjusted
the non-IFRS mid-points for EPS to EUR 0.25 and operating margin to 9.5%
-- Delivered strong free cash flow year-to-date and raised 2020 recurring
free cash flow guidance to be clearly positive
This is a summary of the Nokia Corporation financial report for Q2 and
half year 2020 published today. The complete financial report for Q2 and
half year 2020 with tables is available at
https://www.globenewswire.com/Tracker?data=jg7A6XD12Wh0kKBCMkH0P-f1INZIRzS_EVnRqob_gcMSbfxx4TWakbiNirKbQZ3nsCUP9RSTwwmqp_kA_XGB8bYnvk3TX2uqXTFhj3LCmuw=
www.nokia.com/financials. Investors should not rely on summaries of our
financial reports only, but should review the complete financial reports
with tables.
RAJEEV SURI, PRESIDENT AND CEO, ON Q2 2020 RESULTS
Nokia delivered a strong improvement in Q2, with better-than-expected
profitability, significant improvement in cash generation, clear
indications of a return to strength in mobile radio, and a year-on-year
increase in earnings-per-share, despite the challenges of COVID-19.
These results show that our execution has improved as planned and that
we are well positioned to end the year with a significantly stronger
financial position. As a result, we are adjusting upward both the
midpoint of our full-year 2020 non-IFRS EPS and operating margin
guidance within our previously disclosed outlook ranges.
Profitability gains in the quarter were supported by a 4.5 percentage
point year-on-year improvement in Networks gross margin, building on a
3.5 percentage point gain in the first quarter, and driving Nokia
non-IFRS gross margin to 39.6%. Nokia Enterprise also grew year-on-year
constant currency sales by 18% compared to one year ago and expanded
margins.
Nokia-level revenue was down in the quarter, with the majority of that
the result of COVID-19 as well as a sharp decline in China based on the
prudent approach we have taken in that market. We also saw a reduction
driven by our proactive steps to reduce the volume of low margin
services business. We expect that the majority of sales missed in the
quarter due to COVID-19 will shift to future periods.
At the start of the year, we said we would have a sharp focus on our
Mobile Access business and improving cash generation. In both areas we
continue to make good progress. Free cash flow in the quarter was
positive EUR265 million, versus negative EUR1.0 billion one year ago,
and Nokia ended Q2 with EUR1.6 billion of net cash, and EUR7.5 billion
in total cash. Given our strong first-half improvement, we now expect
free cash flow for full-year 2020 to be "clearly positive" compared to
our earlier guidance of "positive".
In Mobile Access, we saw healthy improvements in our radio portfolio,
where roadmaps are strengthening, costs are coming down, and product
performance is rising. We have a particularly powerful portfolio in
mid-band mobile radio, with proven products deployed with 55 customers,
and the first live C-Band network demonstrated in the U.S. during the
quarter. Pleasingly, our "5G Powered by ReefShark" shipments continue to
increase and we believe we remain on track to reach 35% or better by
year end. And, we now have 83 5G deals.
Our continued momentum was demonstrated by the progress we announced
after the quarter ended. These included the availability of a software
upgrade that allows millions of Nokia 4G/LTE radios deployed to more
than 350 customers to be migrated seamlessly to 5G; and plans to
accelerate leadership in Open RAN. Nokia is the only global supplier
fully committed to O-RAN with commercial 5G Cloud-RAN networks. We also
announced an expansion of our IP routing business into the data center
market and highlighted that Apple was deploying our technology at its
data centers.
This is my last quarterly announcement as CEO of Nokia and I want to
close with a note of thanks: thanks to our shareholders, thanks to our
customers, thanks to our many other stakeholders, and a particular
thanks to the great employees of Nokia. You have constantly made me
proud and I expect that you will continue to do so in the many years to
come. Thank you all. It has been a pleasure and an honor.
NOKIA FINANCIAL RESULTS
Constant Constant
EUR million (except YoY currency YoY currency
for EPS in EUR) Q2'20 Q2'19 change YoY change Q1-Q2'20 Q1-Q2'19 change YoY change
------------------------ ----- ------ ------ ----------- -------- -------- ------ -----------
Net sales 5 092 5 694 (11)% (11)% 10 005 10 726 (7)% (7)%
Networks 3 955 4 393 (10)% (10)% 7 713 8 336 (7)% (8)%
Nokia Software 597 678 (12)% (12)% 1 210 1 221 (1)% (1)%
Nokia Technologies 341 383 (11)% (11)% 689 753 (8)% (9)%
Group Common and
Other 210 263 (20)% (21)% 415 484 (14)% (15)%
Non-IFRS exclusions (1) (2) (1) (27)
Eliminations (11) (21) (20) (41)
Gross profit 2 006 2 065 (3)% 3 784 3 646 4%
Operating profit/(loss) 170 (57) 94 (581)
Networks 249 119 109% 169 (135)
Nokia Software 88 137 (36)% 159 130 22%
Nokia Technologies 282 324 (13)% 572 626 (9)%
Group Common and
Other (197) (129) (361) (230)
Non-IFRS exclusions (253) (508) (445) (972)
Operating margin % 3.3% (1.0)% 430bps 0.9% (5.4)% 630bps
Net sales (non-IFRS) 5 093 5 696 (11)% (11)% 10 007 10 753 (7)% (7)%
Gross profit (non-IFRS) 2 017 2 117 (5)% 3 804 3 758 1%
Operating profit/(loss)
(non-IFRS) 423 451 (6)% 539 391 38%
Operating margin %
(non-IFRS) 8.3% 7.9% 40bps 5.4% 3.6% 180bps
----- ------ ------ -------- -------- ------
Financial income and
expenses (11) (173) (94)% (61) (228) (73)%
Income taxes (80) 46 (51) 188
Profit/(loss) for the
period 85 (191) (16) (632)
EPS, diluted 0.01 (0.03) 0.00 (0.11)
Financial income and
expenses (non-IFRS) (27) (86) (69)% (93) (178) (48)%
Income taxes (non-IFRS) (87) (101) (14)% (100) (60) 67%
Profit/(loss) for the
period (non-IFRS) 316 258 22% 348 142 145%
EPS, diluted (non-IFRS) 0.06 0.05 20% 0.06 0.02 200%
----- ------ ------ -------- -------- ------
The financial information in this report is unaudited. Non-IFRS results
exclude costs related to the acquisition of Alcatel-Lucent and related
integration, goodwill impairment charges, intangible asset amortization
and other purchase price fair value adjustments, restructuring and associated
charges and certain other items that may not be indicative of Nokia's
underlying business performance. For details, please refer to note 2,
"Non-IFRS to reported reconciliation", in the notes to the Financial
statement information included in Nokia Corporation interim report for
Q2 and Half Year 2020. Change in net sales at constant currency excludes
the effect of changes in exchange rates in comparison to euro, our reporting
currency. For more information on currency exposures, please refer to
note 1, "Basis of Preparation", in the "Financial statement information"
section included in Nokia Corporation interim report for Q2 and Half
Year 2020.
-- Both non-IFRS and reported net sales in Q2 2020 were EUR 5.1bn, compared
to EUR 5.7bn in Q2 2019. On a constant currency basis, both non-IFRS and
reported net sales decreased 11%. Excluding one-time licensing net sales
in Q2 2020 and Q2 2019, net sales decreased 10% on both a non-IFRS and
reported basis.
-- Q2 2020 net sales were impacted by COVID-19 and unique dynamics in China.
In Q2 2020, we estimate that COVID-19 had an approximately EUR 300
million negative net impact on our net sales; with the majority of these
net sales expected to be shifted to future periods, rather than being
lost.
-- In Q2 2020, Nokia's gross and operating margin both expanded year-on-year,
primarily driven by broad based strength in Networks, particularly in
Mobile Access, with IP Routing and Fixed Access also contributing
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