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Nokia Corporation financial report for Q3 2021
Strong profitability and cash generation
- Constant currency sales growth of 2% constrained by expected supply chain and Mobile Networks North America headwinds
- Strong sales growth in Network Infrastructure (+6% y-o-y constant currency) and Cloud & Network Services (+12%)
- Comparable gross margin of 40.8% (reported 40.7%), reflecting continued strong execution across the business
- Mobile Networks comparable gross margin of 37.8% (+220 bps y-o-y) showed better cost competitiveness
- Comparable operating margin of 11.7% (reported 9.3%), new operating model bringing strong financial accountability
- Comparable diluted EPS of EUR 0.08; reported diluted EPS of EUR 0.06
- Strong free cash flow generation of €0.7bn
- Launched new FP5 IP routing silicon which sets new industry benchmarks particularly on power efficiency
- Continuing to manage supply chain constraints but challenges are increasing into Q4
- Reiterating our full year guidance for net sales of €21.7bn – 22.7bn and comparable operating margin of 10-12% and now expect to be towards upper-end of the margin range considering continued strong performance
All financial metrics above refer to Q3 2021
Pekka Lundmark, President and CEO, on Q3 2021 results
We delivered another great quarter driven by our increased investments in technology leadership and strong market demand. The highlight of the quarter was the launch of our next generation FP5 IP routing silicon – delivering up to three times more capacity while reducing power consumption by up to 75% per bit compared to previous generation. This will help reduce the carbon footprint of both Nokia and our customers, while also helping customers to manage their operating expenses.
The third quarter saw us achieve 2% constant currency net sales growth despite the impact of earlier communicated headwinds in North America for Mobile Networks and global supply chain constraints. These headwinds were offset by strong growth in Network Infrastructure against a tough year-on-year comparison and by Cloud and Network Services achieving double-digit growth. Our comparable operating margin for the quarter was 11.7%, which is a further testament to the accountability and financial discipline that our new operating model is driving through the organization.
We now have over 380 private wireless customers and the business continues to grow strongly. We are further increasing our investment to ensure we maintain the lead we have built with the industry’s most complete offering.
Overall, I am pleased with our strong financial performance in 2021 so far. We continue to expect seasonality to be less pronounced this year than previously and are reiterating our full year 2021 outlook. Considering our continued strength, we now expect to be towards the upper-end of our comparable operating margin range. As we look ahead, we believe we are well positioned to capitalize on strong demand in our end markets through strengthened technology leadership and improved cost competitiveness. However, the uncertainty around the global semiconductor market limits our visibility into Q4 and 2022. We are working closely not only with our suppliers to ensure component availability but also with our customers to ensure we can meet their needs and mitigate the unprecedented component cost inflation our industry faces. Coupled with the one-offs we’ve benefited from this year, this may limit our margin expansion potential in 2022.
Financial results
| EUR million (except for EPS in EUR) | Q3’21 | Q3’20 | YoY change | Constant currency YoY change | Q1–Q3’21 | Q1–Q3’20 | YoY change | Constant currency YoY change |
| Reported results | ||||||||
| Net sales | 5 399 | 5 294 | 2% | 2% | 15 788 | 15 299 | 3% | 6% |
| Gross margin %1 | 40.7% | 37.1% | 360bps | 39.9% | 36.9% | 300bps | ||
| Research and development expenses1 | (1 036) | (923) | 12% | (3 096) | (2 942) | 5% | ||
| Selling, general and administrative expenses1 | (674) | (631) | 7% | (2 034) | (2 121) | (4)% | ||
| Operating profit | 502 | 350 | 43% | 1 418 | 444 | 219% | ||
| Operating margin % | 9.3% | 6.6% | 270bps | 9.0% | 2.9% | 610bps | ||
| Profit for the period | 351 | 197 | 78% | 965 | 180 | 436% | ||
| EPS, diluted | 0.06 | 0.03 | 100% | 0.17 | 0.03 | 467% | ||
| Net cash and current financial investments | 4 300 | 1 869 | 130% | 4 300 | 1 869 | 130% | ||
| Comparable results | ||||||||
| Net sales | 5 399 | 5 294 | 2% | 2% | 15 788 | 15 301 | 3% | 6% |
| Gross margin % | 40.8% | 37.4% | 340bps | 40.5% | 37.8% | 270bps | ||
| Research and development expenses | (1 007) | (880) | 14% | (2 992) | (2 808) | 7% | ||
| Selling, general and administrative expenses | (583) | (558) | 4% | (1 719) | (1 820) | (6)% | ||
| Operating profit | 633 | 486 | 30% | 1 867 | 1 025 | 82% | ||
| Operating margin % | 11.7% | 9.2% | 250bps | 11.8% | 6.7% | 510bps | ||
| Profit for the period | 463 | 305 | 52% | 1 377 | 653 | 111% | ||
| EPS, diluted | 0.08 | 0.05 | 60% | 0.24 | 0.11 | 118% | ||
| ROIC2 | 20.2% | 11.6% | 855bps | |||||
| 1 In Q4 2020, Nokia reclassified certain items of income and expenses from other operating income and expenses to the functions. The comparative reported results for Q3’20 and Q1–Q3’20 have been recast accordingly. Refer to Note 1, Basis of preparation, in the Financial statement information section included in Nokia Corporation Financial Report for Q3 2021 for details.
2 Comparable ROIC = Comparable operating profit after tax, last four quarters / invested capital, average of last five quarters’ ending balances. Refer to Note 10, Performance measures, in the Financial statement information section included in Nokia Corporation Financial Report for Q3 2021 for details. |
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| Reconciliation of reported operating profit to comparable operating profit | ||||||
| EUR million | Q3’21 | Q3’20 | YoY change | Q1–Q3’21 | Q1–Q3’20 | YoY change |
| Reported operating profit | 502 | 350 | 43% | 1 418 | 444 | 219% |
| Amortization of acquired intangible assets | 99 | 101 | 293 | 308 | ||
| Restructuring and associated charges | 34 | 120 | 211 | 337 | ||
| Impairment of assets, net of impairment reversals | (1) | 5 | 32 | 25 | ||
| Settlement of legal disputes | 0 | 0 | (80) | 0 | ||
| Gain on defined benefit plan amendment | 0 | (90) | 0 | (90) | ||
| Other, net | (1) | 0 | (7) | 1 | ||
| Comparable operating profit | 633 | 486 | 30% | 1 867 | 1 025 | 82% |
Outlook
| Full year 2021 | Full year 2023 | |
| Net sales1 | EUR 21.7 billion to EUR 22.7 billion | Grow faster than the market |
| Comparable operating margin2 | 10 to 12% | 10 to 13% |
| Free cash flow3 | Clearly positive | Clearly positive |
| Comparable ROIC2,4 | 17 to 21% | 15 to 20% |
1 Assuming actual currency rates until Sept 2021 and end of Sept EUR/USD rate of 1.16 continues in the remainder of 2021 (adjusted from actual until June and EUR/USD rate of 1.19 in the remainder of 2021).
2 Comparable measures exclude intangible asset amortization and other purchase price fair value adjustments, goodwill impairments, restructuring related charges and certain other items affecting comparability. Refer to Note 10, Performance measures, in the Financial statement information section included in Nokia Corporation Financial Report for Q3 2021 for details.
3 Free cash flow = net cash from/(used in) operating activities – capital expenditures + proceeds from sale of property, plant and equipment and intangible assets – purchase of non-current financial investments + proceeds from sale of non-current financial investments.
4 Comparable ROIC = comparable operating profit after tax, last four quarters / invested capital, average of last five quarters’ ending balances. Refer to Note 10, Performance measures, in the Financial statement information section included in Nokia Corporation Financial Report for Q3 2021 for details.
Outlook assumptions
- Nokia’s outlook assumptions for the comparable operating margin of each business group in 2021 and 2023 are provided below:
| Full year 2021 | Full year 2023 | |
| Mobile Networks | 4 to 7% | 5 to 8% |
| Network Infrastructure | 8 to 11% | 9 to 12% |
| Cloud and Network Services | 3 to 6% | 8 to 11% |
| Nokia Technologies | >75% | >75% |
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