Nokia Corporation Financial Report for Q4 and full year 2021

Nokia Corporation
Financial Statement Release
3 February 2022 at 08:00 EET

Nokia Corporation Financial Report for Q4 and full year 2021

Solid end to a transformational year

• 2021 was a transformational year for Nokia, including refocusing on and strengthening our technology leadership.

• In Q4, Nokia’s underlying business performed largely as expected with other operating income being above expectations.

• Q4 net sales declined 5% y-o-y in constant currency as expected with strong growth in Network Infrastructure of +10% offset by Mobile Networks at -16%. Full year net sales grew 3% y-o-y in constant currency.

• Comparable operating margin of 14.2% (reported 11.5%) in Q4 declined 190bps y-o-y (reported +480bps) due to lower Q4 seasonality as expected.

• Full year comparable operating margin of 12.5% (reported 9.7%) expanded 300bps y-o-y (reported +570bps) but also benefited from approximately 150bps of one-offs.

• Comparable diluted EPS of EUR 0.13 in Q4; reported diluted EPS of EUR 0.12.

• Continued strong free cash flow generation of EUR 0.4bn in Q4. Full year free cash flow of EUR 2.4bn.

• Guidance for 2022 net sales of EUR 22.6-23.8bn and a comparable operating margin in the range 11-13.5%.

• New long-term targets to grow revenue faster than the market and a comparable operating margin of ≥14%.

• Board proposes dividend authorization of EUR 0.08 per share. Share buyback program to be initiated to return EUR 600m over 2 years.

This is a summary of the Nokia Corporation financial report for Q4 and full year 2021 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 Q4 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 Q4 AND FULL YEAR 2021 RESULTS

2021 was a strong year for Nokia driven by our growing technology leadership, robust demand and a faster than expected reset of our business. This enabled us to deliver 3% constant currency net sales growth and a comparable operating margin of 12.5%. Thanks to a solid Q4 capping off a strong 2021, we have created an excellent foundation as we begin to move into the next phase of our strategy to deliver growth and expand profitability.

All our business groups made significant progress this year to make us more competitive in all the markets in which we compete. Mobile Networks largely closed the gap to competition in 5G and improved its gross margin while continuing to step up R&D investments. Network Infrastructure extended its technology leadership with significant growth driven by Fixed Networks and Submarine Networks. Cloud and Network Services continued to rebalance its portfolio and saw encouraging growth in its key focus areas. Nokia Technologies made good progress expanding in areas such as automotive and consumer electronics.

The progress we have made with cash generation in the business has strengthened our balance sheet to the point we can look to reinstate shareholder distributions through both a dividend and share buyback program.

Nokia enters 2022 in a strong position with improved margins, faster than expected strategy execution and a high order backlog, although the global supply chain situation remains tight. We see opportunities in the 5G roll out and growing enterprise market. Accordingly, we expect 2022 to bring another year of sales growth and we are targeting a comparable operating margin of 11-13.5% in 2022.

Considering how quickly we have executed on our strategy, we are now introducing new long-term targets. We still expect to deliver progress in 2023 but we want to emphasize that is not the end of our ambition. Our long-term target is to grow faster than the market and to achieve a comparable operating margin of at least 14%. The pace of delivery will depend on both the market environment and decisions we may make on R&D investments to secure our long-term competitiveness and sustainable profitability.

Finally, I want to thank our employees whose excellence, resilience and adaptability have been critical in delivering this performance in 2021. We recognise how valuable each person is to Nokia’s performance and we will increase investment in our people through our renewed people strategy.

FINANCIAL RESULTS

SHAREHOLDER DISTRIBUTION

Dividend policy and 2021 proposal

In line with Nokia’s dividend policy as stated below, Nokia’s Board of Directors proposes that the Annual General Meeting authorizes the Board to resolve on a dividend of EUR 0.08 per share be paid to investors in respect of financial year 2021. If the resolution is approved the dividend would be paid in quarterly installments starting after the AGM.

Our dividend policy is to target recurring, stable and over time growing ordinary dividend payments, taking into account the previous year’s earnings as well as the company’s financial position and business outlook.

Share buyback program

In 2020 and 2021, Nokia has generated strong cash flow which has significantly improved the cash position of the company. To manage the company’s capital structure, Nokia’s Board of Directors is initiating a share buyback program under the current authorization from the AGM to repurchase shares, with purchases expected to begin in Q1. The program targets to return up to EUR 600m of cash to shareholders in tranches over a period of two years, subject to continued authorization from the AGM.

OUTLOOK

¹ Assuming the rate 1 EUR = 1.13 USD as of 31 Dec 2021 continues throughout 2022.
² Please refer to Note 10, Performance measures, in the Financial statement information section included in Nokia Corporation Financial Report for Q4 and full year 2021 for a full explanation of how these terms are defined.

OUTLOOK ASSUMPTIONS

The outlook, the long-term targets (3-5 years) and all of the underlying outlook assumptions described below are subject to risk factors as described in the Risk Factors section later in this release. All of the below outlook assumptions are new as they now refer to 2022 and over the longer-term.

• 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 over the longer-term;

• 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;

• Capital expenditures are expected to be approximately EUR 650 million in full year 2022 and around EUR 600 million over the longer-term; 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 Q4 and full year 2021 for details), we expect that a 10% increase in the EUR/USD exchange rate would have an impact of…