Information Technology
Nokia Corporation Interim Report for Q1 2024
Nokia Corporation
Interim report
18 April 2024 at 08:00 EEST
Nokia Corporation Interim Report for Q1 2024
Strong cash flow and improving orders despite market weakness
This is a summary of the Nokia Corporation Interim Report for Q1 2024 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 Q1 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 reports with tables.
PEKKA LUNDMARK, PRESIDENT AND CEO, ON Q1 2024 RESULTS
As expected, the ongoing market weakness drove a 19% year-on-year constant currency decline in net sales in the first quarter. However, we have seen continued improvement in order intake, meaning we remain confident in a stronger second half and achieving our full year outlook. Driven by the patent licensing deals signed in Nokia Technologies, we achieved a comparable operating margin of 12.8% in Q1, compared to 8.2% the year before. We also generated almost EUR 1 billion in free cash flow in the quarter, which is a very strong performance.
I'm pleased that the improving order intake we started to see in Network Infrastructure at the end of last year continued in Q1 with year-on-year growth in order intake and drove a further increase in our backlog. The outlook for Fixed Networks for 2024 has improved which is an important signal as this market often recovers first. However, we believe the recovery in Optical Networks may take somewhat longer. While we are conscious of the broader economic environment, considering the on-going order intake strength, we expect Network Infrastructure will return to net sales growth for full year 2024 with a stronger second half performance.
Mobile Networks was impacted by particularly low levels of spending in North America and India, which led to a Q1 net sales decline of 37% in constant currency. A slower pace of spending in India was anticipated following the rapid 5G deployment seen in H1 2023, and our expectations for India for the full year remain unchanged. Globally, we expect Q1 to mark the low point in demand with activity then progressively picking up through the remainder of 2024 consistent with more normal seasonality. We saw significant strength in gross margin at 42% in the quarter, which is a solid improvement from the 34% in the year-ago quarter. Approximately half of this improvement was related to improving regional and product mix, while the remainder was due to exceptionally low indirect cost of sales.
Cloud and Network Services saw a soft start to the year which was related to the challenging spending environment. However, we are seeing improving order intake and pipeline momentum. Importantly, we are also making good progress with our Network as Code platform. This platform enables operators to monetize their 5G investments, creating new revenue streams by offering developers advanced API access to the network. We now have a total of 11 operators signed up to the platform with many more in active discussions.
Nokia Technologies had a very strong start to the year as we concluded a number of outstanding licensing deals in the quarter. This meant that our annual licensing net sales run-rate improved from the EUR 0.9 to 1.0 billion we had in Q4 to approximately EUR 1.3 billion in Q1. In addition to the run-rate increase, we benefited from more than EUR 400 million of catch-up net sales in the quarter. We have now concluded our smartphone licensing renewal cycle with no major renewals due for a number of years. This means Nokia Technologies has entered a period of stability. The business will now focus its resources on expanding in new growth areas with the next goal to increase our annual licensing net sales run-rate to EUR 1.4 to 1.5 billion in the mid-term.
We have been executing quickly on the operating model changes we announced back in October along with our cost savings roadmap. These actions, combined with our expectation for improved net sales growth in the second half of the year, supported by our order backlog, mean we are solidly on track to achieve our full year comparable operating profit outlook of EUR 2.3 to 2.9 billion and free cash flow conversion of 30% to 60%.
FINANCIAL RESULTS
SHAREHOLDER DISTRIBUTION
Dividend
Under the authorization by the Annual General Meeting held on 3 April 2024, the Board of Directors may resolve on the distribution of an aggregate maximum of EUR 0.13 per share to be paid in respect of financial year 2023. 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.
On 18 April 2024, the Board resolved to distribute a dividend of EUR 0.04 per share. The dividend record date is on 23 April 2024 and the dividend will be paid on 3 May 2024. 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, the Board's remaining distribution authorization is a maximum of EUR 0.09 per share.
Share buyback program
In January 2024, Nokia's Board of Directors initiated a share buyback program to repurchase shares to return up to EUR 600 million of cash to shareholders in tranches over a period of two years. The first EUR 300 million phase of the share buyback program started in March 2024 and it will end at the latest by 18 December 2024. Under this phase, Nokia has by 31 March 2024 repurchased 3 290 248 of its own shares at an average price per share of approximately EUR 3.27.
OUTLOOK
The outlook, long-term targets and all of the underlying outlook assumptions described below are forward-looking statements subject to a number of risks and uncertainties as described or referred to in the Risk Factors section later in this release. Along with Nokia's official outlook targets provided above, below are outlook assumptions by business group that support the group level outlook.
Nokia provides the following approximate outlook assumptions for additional items concerning 2024:
2026 TARGETS
Nokia's current targets for 2026 are outlined below. Nokia sees further opportunities to increase margins beyond 2026 and believes an operating margin of 14% remains achievable over the longer term.
The comparable operating margin target for Nokia group is built on the following assumptions by business group for 2026:
RISK FACTORS
Nokia and its businesses are exposed to a number of risks and uncertainties which include but are not limited to:
as well the risk factors specified under Forward-looking statements of this release, and our 2023 annual report on Form 20-F published on 29 February 2024 under Operating and financial review and prospects-Risk factors.
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, projects, product launches, growth management, licenses, 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 potential global pandemics, geopolitical conflicts and the general or regional macroeconomic conditions on our businesses, our supply chain, the timing of market changes or turning points in demand 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 flows, cost savings, the timing of receivables, operating expenses, provisions, impairments, taxes, currency exchange rates, hedging, investment funds, inflation, product cost reductions, competitiveness, revenue generation in any specific region, and licensing income and payments; D) ability to execute, expectations, plans or benefits related to changes in organizational structure and operating model; E) impact on revenue with respect to litigation/renewal discussions; and F) any statements preceded by or including “continue”, “believe”, “commit”, “envisage”, “estimate”, “expect”, “aim”, “influence”, “will”, “target”, “likely”, “intend”, “may”, “could”, “would”, “forecast”, “plan” 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
FINANCIAL CALENDAR 2024
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