Nokia Corporation Financial Report for Q2 and Half Year 2022

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

• Q2 net sales increased 3% y-o-y in constant currency (+11% reported).

• Network Infrastructure net sales grew 12% in constant currency, with growth across all four businesses while Mobile Networks returned to growth despite ongoing supply chain constraints.

• Cloud and Network Services net sales were flat in constant currency while Nokia Technologies declined 25% as it continued to be impacted by expired licenses that are in the process of being renewed.

• Comparable gross margin of 40.6% and operating margin of 12.2%. Underlying profitability improved but was offset by Nokia Technologies and a one-off software deal in Mobile Networks in the prior year meaning margins declined y-o-y.

• Reported gross margin declined 80bps y-o-y to 40.2% and operating margin expanded 50bps y-o-y to 9.6% as the above factors impacting comparable margins were offset primarily by lower restructuring charges.

• Comparable diluted EPS of EUR 0.10; reported diluted EPS of EUR 0.08.

• Free cash flow negative EUR 0.1bn, net cash balance of EUR 4.5bn.

• Solid first half performance with 2% constant currency net sales growth and comparable operating margin of 11.6% (reported 8.2%), down slightly as timing effects in Nokia Technologies offset underlying profitability improvements.

• Full year 2022 net sales outlook is unchanged in constant currency. Full year net sales outlook applying 30 June 2022 exchange rates is EUR 23.5bn to EUR 24.7bn. Comparable operating margin guidance remains 11% to 13.5%.

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.

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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

OUTLOOK

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.

• We expect Nokia Technologies to deliver a largely stable operating profit performance in 2022 and over the longer-term;

• We expect the net negative impact of Group Common and Other to be EUR 250 million in 2022 and over the longer-term;

• In full year 2022, Nokia expects the free cash flow performance of Nokia Technologies to be approximately EUR 450 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 150-200 million in full year 2022 and EUR 100-150 million over the longer-term (update);

• Comparable income tax expenses are expected to be approximately EUR 450 million in full year 2022 and over the longer-term;

• Cash outflows related to income taxes are expected to be approximately EUR 400 million in full year 2022 and over the longer-term; and

• Capital expenditures are expected to be approximately EUR 650 million in full year 2022 and around EUR 600 million over the longer-term.

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…