CORPORATE FORTUNES

Nokia Corporation Financial Report For Q4 And Full Year 2020 Shows Solid Margin Performance Driven By Customer Demand In North America

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By Oystein Bergmann, Correspondent Scandinavia

Nokia delivered a solid Q4 to end 2020 at the high end of its Outlook range. According to its President and CEO , Pekka Lundmark, Nokia saw healthy gross margin and operating margin performance for both Q4 and full year 2020, supported by a regional mix shift towards the higher margin North America region and by its ongoing R&D efforts to enhance product quality and cost competitiveness.

From a business group perspective, in Q4 and full year 2020,the company’s gross margin improvement was primarily driven by Networks, as was its full year operating margin performance. According o the President/CEO of the company, in Q4, Nokia’s operating profit performance benefited by approximately EUR 250 million(US$300.70million) from two unexpected, yet significant drivers: a timing benefit of approximately EUR 150 million as the company recognized net sales at the very end of the quarter, which it had expected in 2021; and it had a net positive fluctuation in Nokia’s venture fund investments of approximately EUR 100 million.

“The healthy close to the year does not change our earlier communicated view for Nokia-level operating margin expected in 2021,” stated Lundmark.

Net sales for Q4 were down 5 per cent on a reported basis and up 1 per cent in constant currency and for full year 2020 they were down 6 per cent on a reported basis and down 4 per cent in constant currency.

According to Lundmark, Nokia delivered strong cash performance in Q4 and full year 2020, benefitting from a large customer payment that had been expected in Q1 2021, marking the third consecutive quarter of positive free cash flow, saying additionally, Nokia’s liquidity position continued to be solid.

Hear Lundmark: “Financial improvement in Mobile Access was clear in both Q4 and full year 2020 results, reflecting our ongoing efforts to strengthen the competitiveness and cost position of our mobile radio products. Overall, we saw growth in radio access products in Q4 and full year 2020, with growth in 5G partially offset by decreases in legacy radio access products.

“5G gross margin increased due to product cost reduction, partly helped by higher ReefShark shipment volumes. Our aim was to be above 35 per cent for our KPI on shipments of our “5G Powered by ReefShark” portfolio; we ended the year at 43 per cent and we remain on track to realize 70 per cent by the end of 2021. This underlines the ongoing progress with our Mobile Networks turnaround and, as I said in Q3, we will invest whatever it takes to win in 5G. Completing the turnaround in Mobile Networks remains our top priority for 2021, and these visible signs of progress give me confidence that we are on the right track but there is still work to be done.

“Our Enterprise business delivered another good set of results giving a solid foundation to build on. Q4 Enterprise net sales were up 1 per cent in reported and 5 per cent in constant currency. For full year 2020, they were up 11 per cent in reported and 14 per cent in constant currency, reflecting our leadership position in many areas, including in private wireless. We announced key partnerships with AT&T and Verizon for private wireless and won 79 new customers in Q4. We now have 260 private wireless customers. Public sector demand remains robust and we announced a US federal government cyber deal after the quarter end in mid-January.

“At the end of 2020, we announced a new operating model to better align us with the needs of our customers and to better maintain and achieve technology leadership in the areas where we choose to compete.

“Pleasingly we already have strong technology leadership positions in many key areas of our new business groups. In Network Infrastructure we have industry-leading FP4-based products and in Cloud and Network Services we are jointly developing transformational cloud-native 5G core solutions for CSPs and Enterprise customers. In our Mobile Networks business, together with Elisa and Qualcomm, we hold the worldwide 5G speed record.

These are encouraging results, however, as I said in Q3, we expect 2021 to be challenging, a year of transition, with meaningful headwinds due to market share loss and price erosion in North America.

Additionally, as I said, delivering on our new operating model for a strong and sustainable long-term business requires us to make further 5G R&D investments in 2021, meaning we will sacrifice some short-term margin to ensure leadership in 5G.

Considering these elements, we maintain our comparable operating margin outlook for 2021 and – as new items – give an outlook for net sales and free cash flow for 2021. As previously stated, we intend to provide a long-term outlook latest at Capital Markets Day on March 18.

Regarding dividend, we are pleased with Nokia’s recent operational performance and satisfied that we have strengthened our cash position. However, with the focus on increased investments in 5G and strategic areas, while continuing to establish a track record of sustainable cash generation, the Board does not propose a dividend or dividend authorization for the financial year 2020. We intend to provide an update on our dividend policy latest at Capital Markets Day.

We took important steps in 2020 to accelerate roadmaps, improve execution and create a new way of working, which will enable Nokia to return to a sustainable long-term financial performance. We know we have our work cut out for us in 2021, but the new Group Leadership Team has hit the ground running. As announced earlier, we will go deep into each of our business groups at our Capital Markets Day to discuss specific targets and action plans.

I want to conclude by thanking everyone at Nokia. This has been a year of incredible change where our personal resilience as well as technology has been tested like never before. I am extremely proud of our team, their commitment and their achievements. Thank you.”

NOKIA FINANCIAL RESULTS

EUR million (except for EPS in EUR) Q4’20 Q4’19 YoY change Constant currency YoY change Q1-Q4’20 Q1-Q4’19 YoY change Constant currency YoY change

Net sales 6 568 6 903 (5)% 1% 21 867 23 315 (6)% (4)%

Networks 5 040 5 439 (7)% (2)% 16 865 18 209 (7)% (5)%

Nokia Software 864 870 (1)% 5% 2 658 2 767 (4)% (1)%

Nokia Technologies 382 376 2% 3% 1 402 1 487 (6)% (6)%

Group Common and Other 292 231 26% 26% 983 952 3% 2%

Non-IFRS exclusions (1) 1 (3) (29)

Eliminations (8) (13) (38) (71)

Gross margin %1 39.2% 38.5% 70bps 37.6% 35.4% 220bps

Operating profit/(loss) 475 803 (41)% 918 485 89%

Networks 533 671 (21)% 964 665 45%

Nokia Software 266 304 (13)% 511 589 (13)%

Nokia Technologies 317 320 (1)% 1 164 1 239 (6)%

Group Common and Other (27) (161) (525) (490)

Non-IFRS exclusions (615) (331) (1 196) (1 518)

Operating margin % 7.2% 11.6% (440)bps 4.2% 2.1% 210bps

Net sales (non-IFRS) 6 569 6 903 (5)% 1% 21 870 23 344 (6)% (4)%

Gross margin % (non-IFRS) 41.8% 40.0% 180bps 39.0% 36.5% 250bps

Operating profit (non-IFRS) 1 090 1 134 (4)% 2 114 2 003 6%

Operating margin % (non-IFRS) 16.6% 16.4% 20bps 9.7% 8.6% 110bps

Financial income and expenses 29 (15) (106) (341) (69)%

Income taxes (3 131) (246) (3 255) (138)

Profit/(loss) for the period (2 608) 563 (2 421) 18

EPS, diluted (0.46) 0.10 (0.43) 0.00

Financial income and expenses (non-IFRS) (13) (46) (72)% (184) (337) (45)%

Income taxes (non-IFRS) (286) (288) (1)% (488) (448) 9%

Profit for the period (non-IFRS) 811 821 (1)% 1 464 1 230 19%

EPS, diluted (non-IFRS) 0.14 0.15 (7)% 0.26 0.22 18%

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