TIDMNOKIA
Nokia Corporation
Financial Statement Release
February 6, 2020 at 08:00 (CET +1)
Nokia Corporation Financial Report for Q4 and Full Year 2019
Full year 2019 non-IFRS diluted EPS of EUR 0.22 driven by strong net
sales and operating margin in Q4
-- Net cash of EUR 1.7 billion, driven by Q4 free cash flow of EUR 1.4
billion
-- 5G deal momentum continues, with 66 commercial deals and 19 live networks
-- Strong momentum in strategic focus areas of software and enterprise
-- Year-on-year operational improvement expected over the course of 2020
This is a summary of the Nokia Corporation financial report for Q4 and
full year 2019 published today. The complete financial report for Q4 and
full year 2019 with tables is available at
https://www.globenewswire.com/Tracker?data=wbQTF9EipaPE1C2rNdZiezm1XeFsvi5tL346ujv1Y-gDSCw009uzIbZcaH8TU-ahFV-_VGdLjUF3SYx95zCDev2NjiMTtQLkoAxStqlGRIg=
www.nokia.com/financials. Investors should not rely on summaries of our
financial reports only, but should review the complete financial reports
with tables.
RAJEEV SURI, PRESIDENT AND CEO, ON Q4 AND FULL YEAR 2019 RESULTS
Nokia's fourth quarter 2019 results were a strong end to a challenging
year. We saw strength in many parts of our business in the quarter,
delivered a slightly better operating profit than the same period in
2018, generated solid free cash flow, and increased our net cash balance
to EUR 1.7 billion.
When I look at Nokia's full-year 2019 performance, we saw good progress
in our strategic focus areas of enterprise and software. Nokia
Enterprise delivered exceedingly well on its target of double-digit
sales growth, considerably outpacing the market. Nokia Software showed
its long-term promise, with exceptional profitability expansion compared
to 2018. In addition, IP Routing continued its remarkable momentum,
gaining significant share and increasing profitability in a difficult
market; and Nokia Technologies continued to generate robust
profitability.
We recognize, however, that we have faced challenges in Mobile Access
and in cash generation. We will have a sharp focus on these two areas
over the course of 2020, which we believe to be a year of progressive
improvement as the actions we have underway start to deliver results. In
Mobile Access, we expect improvements to be driven by increasing
shipments of our "5G Powered by ReefShark" portfolio; product cost
reductions; better commercial management; and strengthened operational
performance in services.
In terms of cash generation, we have extensive operational actions
underway to improve performance. As we noted in our third quarter
announcement, our Board said it expects to resume dividend distributions
after Nokia's net cash position increases to approximately EUR 2
billion. Given typical cash seasonality, we would not expect to reach
that level in the first three quarters of this year. Should we exceed
the EUR 2 billion level after that point, the Board will assess the
possibility of proposing a dividend distribution for financial year
2020.
While I believe that 2020 will present its share of challenges, I am
confident that we are taking the right steps to deliver progressive
improvement over the course of this year and to position us for a
stronger 2021.
Q4 2019 and January-December 2019 reported and non-IFRS results. Refer
to note 1, "Basis of Preparation", note 2, "Non-IFRS to reported reconciliation"
and note 13, "Performance measures", in the "Financial statement information"
section for details.
Constant Constant
EUR million (except YoY currency YoY currency
for EPS in EUR) Q4'19 Q4'18 change YoY change Q1-Q4'19 Q1-Q4'18 change YoY change
----- ----- ------ ----------- -------- -------- -------- -----------
Net sales 6 903 6 869 0% (1)% 23 315 22 563 3% 1%
Operating profit/(loss) 803 552 45% 485 (59)
Operating margin % 11.6% 8.0% 360bps 2.1% (0.3)% 240bps
EPS, diluted 0.10 0.03 233% 0.00 (0.10)
Operating profit/(loss)
(non-IFRS) 1 134 1 120 1% 2 003 2 180 (8)%
Operating margin %
(non-IFRS) 16.4% 16.3% 10bps 8.6% 9.7% (110)bps
EPS, diluted (non-IFRS) 0.15 0.13 15% 0.22 0.23 (4)%
Net cash and current
financial investments(1) 1 730 3 053 (43)% 1 730 3 053 (43)%
----- ----- ------ ----------- -------- -------- --------
(1) Net cash and current financial investments does not include lease
liabilities.
-- Full year 2019 results for non-IFRS diluted EPS, non-IFRS operating
margin, and recurring free cash flow were in line with our guidance.
-- Net sales in Q4 2019 were EUR 6.9 billion, approximately flat compared to
Q4 2018. On a constant currency basis, net sales decreased 1%. Excluding
one-time licensing net sales in Q4 2019 and Q4 2018, net sales grew 1%,
reflecting improved overall industry demand and particularly strong
growth with enterprise customers, driven by increased demand for
mission-critical networking solutions. In full year 2019, net sales were
EUR 23.3 billion, compared to EUR 22.6 billion in full year 2018.
-- Non-IFRS diluted EPS in Q4 2019 was EUR 0.15, compared to EUR 0.13 in Q4
2018, primarily driven by continued progress related to our cost savings
program, which resulted in lower operating expenses across Networks,
Nokia Software and Nokia Technologies. This was partially offset by lower
gross profit, particularly in Mobile Access within Networks. In full year
2019, Nokia's non-IFRS diluted EPS was EUR 0.22, compared to EUR 0.23 in
full year 2018.
-- Reported diluted EPS in Q4 2019 was EUR 0.10, compared to EUR 0.03 in Q4
2018, primarily driven by continued progress related to our cost savings
program, lower transaction and integration costs, a net positive
fluctuation in financial income and expenses, lower income taxes and a
net positive fluctuation in other income and expenses. This was partially
offset by lower gross profit, primarily due to our business performance.
In full year 2019, on a reported basis, Nokia generated a profit of EUR
18 million and a diluted EPS of EUR 0.00, compared to a loss of EUR 549
million and a diluted EPS of negative EUR 0.10 in full year 2018.
-- In Q4 2019, net cash and current financial investments increased
sequentially by approximately EUR 1.4 billion, resulting in a net cash
balance of approximately EUR 1.7 billion.
DIVID
Beginning with the distribution for the financial year 2018, Nokia
started paying dividends in quarterly instalments. The Annual General
Meeting held on May 21, 2019, authorized the Board of Directors to
resolve an aggregate maximum annual distribution of EUR 0.20 per share
to be paid quarterly during the authorization period, unless the Board
decides otherwise for a justified reason. Under this authorization, the
Board resolved to distribute the first and second instalments of the
dividend, totaling EUR 0.10. On October 24, 2019, the Board resolved to
pause dividend distributions and to not distribute the third and fourth
quarterly instalments of the dividend for the financial year 2018, in
order to: a) guarantee Nokia's ability to increase 5G investments, b)
continue investing in growth in strategic focus areas of enterprise and
software and c) strengthen Nokia's cash position. This was done in
accordance with Nokia's dividend policy, which states that dividend
decisions are made taking into account Nokia's cash position and
expected cash flow generation.
The Board expects to resume dividend distributions after Nokia's net
cash position improves to approximately EUR 2 billion, taking into
account Nokia's expected cash flow generation. The Board would make
separate resolutions on each distribution and such resolutions would be
separately disclosed in connection with our quarterly financial reports.
As we expect our 2020 cash flows to show similar seasonality as in 2019,
we expect net cash to be below EUR 2 billion in the three first quarters
of 2020. Since the earliest we would be paying dividends would be in Q1
2021, we believe it is pragmatic to include that potential dividend
paying capacity to the dividend proposal for the financial year 2020.
Therefore, the board does not propose a dividend or dividend
authorization for the financial year 2019. After Q4 2020, the Board will
assess the possibility of proposing a dividend distribution for the
financial year 2020, taking into account the net cash position, as well
as the outlook for 2021.
OPERATIONAL KEY PERFORMANCE INDICATORS FOR MOBILE ACCESS WITHIN NETWORKS
During 2020, Nokia intends to provide operational key performance
indicators ("KPIs") for Mobile Access, which is within our Networks
reportable segment. Mobile Access includes our product-focused Mobile
Networks operating segment and our Global Services operating segment.
While these operational KPIs are not measures of Nokia's financial
performance, they provide greater transparency regarding our operational
progress in Mobile Access.
Within Mobile Access, our focus is on addressing profitability through
four key actions:
-- First, driving consistent product cost reductions;
-- Second, maintaining the necessary scale to be competitive;
-- Third, improving commercial management and deal discipline; and,
-- Fourth, further strengthening operational performance in services.
We intend to provide updates on the following two operational KPIs in
each interim report of 2020:
-- First, the proportion of our 5G shipments that are "5G Powered by
ReefShark", in order to show our progress in driving 5G product cost
reductions. These new products made up approximately 10% of our 5G
product shipments in the fourth quarter 2019, and we expect that
percentage to increase progressively over the course of 2020, ending the
year at more than 35%. We expect to end 2021 at approximately 70%, and to
essentially complete this transition in 2022.
-- Second, our weighted 5G win rate. This metric factors in customer size
and measures how we are doing in converting our end of 2018 4G footprint,
as well as adding new 5G footprint where we did not previously have a 4G
installed base. At the end of the fourth quarter 2019, our 5G win rate
was over 100% outside of China and in the mid 90% range including China,
reflecting strong performance.
Also, we intend to provide a qualitative update on the following
operational KPI in each interim report of 2020:
-- 4G plus 5G mobile radio market share, excluding China, on a rolling four
quarter basis, in order to show that we are maintaining the necessary
scale to be competitive. In the fourth quarter 2019, our share was
approximately 27%, and we expect to end 2020 at approximately 27%.
OUTLOOK
Full Year 2020
--------------------------- ---------------------------------------------------
Non-IFRS diluted earnings
per share EUR 0.25 plus or minus 5 cents
Non-IFRS operating margin 9.5% plus or minus 1.5 percentage points
Recurring free cash
flow(1) Positive
Long term (3 to 5 years)
Non-IFRS operating margin 12 -- 14%
Annual distribution to An earnings-based growing dividend of approximately
shareholders 40% to 70% of non-IFRS diluted EPS, taking into
account Nokia's cash position and expected cash
flow generation. The annual distribution would
be paid as quarterly dividends.
1Free cash flow = net cash from 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.
KEY DRIVERS OF NOKIA'S OUTLOOK
Networks and Nokia Software are expected to be influenced by factors
including:
-- Our expectation that we will perform approximately in-line with our
primary addressable market, which is expected to be approximately flat on
a constant currency basis in full year 2020, excluding China. We have
decided to exclude China, given that pursuing market share in China
presents significant profitability challenges and the region has some
unique market dynamics (new commentary);
-- Our expectation for seasonality in 2020 to be similar to 2019, with the
majority of operating profit and free cash flow to be generated in the
fourth quarter (new commentary);
-- Competitive intensity, which is particularly impacting Mobile Access and
is expected to continue at a high level in full year 2020, as some
competitors seek to take share in the early stage of 5G;
-- Our expectation that we will accelerate our product roadmaps and cost
competitiveness through additional 5G investments in 2020, thereby
enabling us to drive product cost reductions and maintain the necessary
scale to be competitive (new commentary);
-- Our expectation that we will drive improvements in automation and
productivity through additional digitalization investments in 2020;
-- Temporary capital expenditure constraints in North America related to
customer merger activity, as well as other potential mergers or
acquisitions by our customers;
-- Customer demand could weaken and risk could increase further in India,
after the country's Supreme Court upheld a ruling that telecoms companies
must pay retroactive license and spectrum fees (new commentary);
-- The potential for a temporary disruption, particularly in our supply
chain, due to the coronavirus outbreak (new commentary);
-- The timing of completions and acceptances of certain projects;
-- Some customers are reassessing their vendors in light of security
concerns, creating near-term pressure to invest in order to secure
long-term benefits;
-- Our expectation that we will improve our R&D productivity and reduce
support function costs through the successful execution of our cost
savings program, which is explained in more detail in the Cost savings
program section of this report;
-- Our product and regional mix, including the impact of the high cost level
associated with our first generation 5G products; and
-- Macroeconomic, industry and competitive dynamics.
Nokia Technologies is expected to be influenced by factors including:
-- The timing and value of new and existing patent licensing agreements with
smartphone vendors, automotive companies and consumer electronics
companies;
-- Results in brand and technology licensing;
-- Costs to protect and enforce our intellectual property rights; and
-- The regulatory landscape.
Additionally, our outlook is based on the following assumptions:
-- Nokia's outlook for positive recurring free cash flow is expected to be
supported by an improvement in net working capital performance and
improved operational results, partially offset by a more substantial
difference in 2020 between profit and free cash flow in Nokia
Technologies (new commentary);
-- Non-IFRS financial income and expenses are expected to be an expense of
approximately EUR 350 million in full year 2020 and per annum over the
longer-term;
-- Non-IFRS income taxes are expected at a rate of approximately 26% in full
year 2020 (new commentary) and approximately 25% over the longer-term,
subject to the absolute level of profits, regional profit mix and changes
to our operating model;
-- Cash outflows related to income taxes are expected to be approximately
EUR 450 million in full year 2020 and per annum over the longer term
until our US or Finnish deferred tax assets are fully utilized; and
-- Capital expenditures are expected to be approximately EUR 600 million in
full year 2020 and per annum over the longer-term.
NOKIA FINANCIAL RESULTS
Constant Constant
EUR million (except for YoY currency YoY currency
EPS in EUR) Q4'19 Q4'18 change YoY change Q1-Q4'19 Q1-Q4'18 change YoY change
------------------------------ ----- ----- ------ ----------- -------- -------- -------- -----------
Net sales 6 903 6 869 0% (1)% 23 315 22 563 3% 1%
Networks 5 439 5 276 3% 1% 18 209 17 404 5% 2%
Nokia Software 870 938 (7)% (9)% 2 767 2 714 2% (1)%
Nokia Technologies 376 423 (11)% (11)% 1 487 1 501 (1)% (2)%
Group Common and Other 231 257 (10)% (11)% 952 1 024 (7)% (7)%
Non-IFRS exclusions 1 (3) (29) (17)
Gross profit 2 712 2 761 (2)% 8 326 8 446 (1)%
Operating profit/(loss) 803 552 45% 485 (59)
Networks 671 515 30% 665 773 (14)%
Nokia Software 304 333 (9)% 589 450 31%
Nokia Technologies 320 347 (8)% 1 239 1 203 3%
Group Common and Other (161) (74) (490) (246)
Non-IFRS exclusions (331) (568) (42)% (1 518) (2 239) (32)%
Operating margin % 11.6% 8.0% 360bps 2.1% (0.3)% 240bps
----- ----- ------ -------- -------- --------
Gross profit (non-IFRS) 2 759 2 915 (5)% 8 523 9 035 (6)%
Operating profit/(loss)
(non-IFRS) 1 134 1 120 1% 2 003 2 180 (8)%
Operating margin % (non-IFRS) 16.4% 16.3% 10bps 8.6% 9.7% (110)bps
----- ----- ------ -------- -------- --------
Financial income and expenses (15) (89) (83)% (341) (313) 9%
Income taxes (246) (278) (12)% (138) (189) (27)%
Profit/(loss) for the period 563 203 18 (549)
EPS, diluted 0.10 0.03 233% 0.00 (0.10)
----- ----- ------ -------- --------
Financial income and expenses
(non-IFRS) (46) (110) (58)% (337) (358) (6)%
Income taxes (non-IFRS) (288) (288) 0% (448) (563) (20)%
Profit/(loss) for the period
(non-IFRS) 821 741 11% 1 230 1 272 (3)%
EPS, diluted (non-IFRS) 0.15 0.13 15% 0.22 0.23 (4)%
----- ----- ------ -------- -------- --------
Results are as reported and relate to continuing operations unless
otherwise specified. The financial information in this report is unaudited.
Non-IFRS results exclude costs related to the acquisition of Alcatel-Lucent
and related integration, goodwill impairment charges, intangible asset
amortization and other purchase price fair value adjustments, restructuring
and associated charges and certain other items that may not be indicative
of Nokia's underlying business performance. For details, please refer
to note 2, "Non-IFRS to reported reconciliation", in the notes to the
Financial statement information in this report. Change in net sales
at constant currency excludes the effect of changes in exchange rates
in comparison to euro, our reporting currency. For more information
on currency exposures, please refer to note 1, "Basis of Preparation",
in the "Financial statement information" section in this report.
Net sales by region
Constant Constant
YoY currency YoY currency
EUR million Q4'19 Q4'18 change YoY change Q1-Q4'19 Q1-Q4'18 change YoY change
----- ----- ------ ----------- -------- -------- ------ -----------
Asia-Pacific 1 383 1 189 16% 13% 4 556 4 081 12% 8%
Europe 1 895 1 916 (1)% (2)% 6 620 6 489 2% 1%
Greater China 469 622 (25)% (26)% 1 843 2 165 (15)% (16)%
Latin America 467 452 3% 3% 1 472 1 380 7% 5%
Middle East &
Africa 619 564 10% 8% 1 876 1 874 0% (2)%
North America 2 070 2 126 (3)% (5)% 6 948 6 574 6% 1%
Total 6 903 6 869 0% (1)% 23 315 22 563 3% 1%
----- ----- ------ ----------- -------- -------- ------ -----------
Net sales by customer type
Constant Constant
YoY currency YoY currency
EUR million Q4'19 Q4'18 change YoY change Q1-Q4'19 Q1-Q4'18 change YoY change
----- ----- ------ ----------- -------- -------- ------ -----------
Communication service
providers 5 816 5 845 0% (3)% 19 558 18 955 3% 0%
Enterprise 499 371 35% 33% 1 409 1 167 21% 18%
Licensees 376 423 (11)% (11)% 1 487 1 476 1% 0%
Other(1) 213 230 (7)% (8)% 861 965 (11)% (11)%
Total 6 903 6 869 0% (1)% 23 315 22 563 3% 1%
(1) Includes net sales of Alcatel Submarine Networks (ASN) and Radio
Frequency Systems (RFS), both of which are being managed as separate
entities, and certain other items, such as eliminations of inter-segment
revenues and certain items related to purchase price allocation. ASN
and RFS net sales include also revenue from communication service providers
and enterprise customers.
Our Nokia Enterprise business is performing well. Net sales to
enterprise customers, excluding the third party integration business
that we are exiting, grew 35% on a reported basis and 33% on a constant
currency basis in Q4 2019, and grew 21% on a reported basis and 19% on a
constant currency basis in full year 2019.
Nokia, Q4 2019 compared to Q4 2018, non-IFRS
Nokia non-IFRS net sales were approximately flat. On a constant currency
basis, Nokia non-IFRS net sales decreased 1%. Excluding one-time
licensing net sales of approximately EUR 20 million in the fourth
quarter 2019 and EUR 70 million in the fourth quarter 2018, Nokia
non-IFRS net sales grew 1%, reflecting improved overall industry demand.
Our overall topline performance in Q4 2019 was solid, with 3% growth
excluding Greater China, where an increase in competitive intensity,
combined with our prudent approach towards deal-making, had a
particularly negative impact on Networks.
In Q4 2019, we continued to make progress with our strategy to diversify
and grow, with a particularly strong performance with enterprise
customers. The strong growth in net sales to enterprise customers was
primarily driven by increased demand for mission-critical networking
solutions in industries including utilities and the public sector, with
continued momentum in private wireless solutions. Net sales also
benefitted from the timing of completions and acceptances of certain
projects.
The overall decrease in Nokia non-IFRS gross profit was primarily
attributable to lower gross margin in Networks, particularly in Mobile
Access. We experienced relatively high 5G product costs in Mobile Access,
as well as elevated levels of deployment services, consistent with being
in the initial phase of 5G.
In Q4 2019 and Q4 2018, Nokia non-IFRS gross profit benefitted from
reductions in annual employee incentives, which are calculated based on
Nokia's business performance.
The growth in Nokia non-IFRS operating profit was driven by continued
progress related to Nokia's cost savings program, partially offset by
the lower non-IFRS gross profit.
In Q4 2019 and Q4 2018, Nokia non-IFRS operating profit benefitted
significantly from reductions in annual employee incentives, which are
calculated based on Nokia's business performance.
In Q4 2019, Nokia generated a non-IFRS profit of EUR 821 million,
compared to EUR 741 million in Q4 2018. The higher profit was primarily
due to a net positive fluctuation in financial income and expenses and
the higher operating profit.
Cash and cash flow in Q4 2019
In Q4 2019, Nokia's free cash flow was positive EUR 1 357 million,
driven by:
-- Adjusted net profit of EUR 1 309 million;
-- Cash inflows related to net working capital primarily due to a decrease
in inventories, partially offset by an increase in receivables;
-- Net interest including a one-time benefit as a result of settling certain
interest rate derivatives;
-- Continued cash outflows related to restructuring; and
-- Capital expenditures and income taxes.
Nokia has established a free cash flow program to ensure company-wide
focus on free cash flow and release of working capital, including
project asset optimization, review of contract terms and conditions, as
well as supply chain and inventory optimization. Senior leaders of Nokia
now have a significant part of their incentives tied to free cash flow
improvement targets.
EUR million, at end of period Q4'19 Q3'19 QoQ change
------- ----- -----------
Total cash and current financial
investments 6 007 4 824 25%
Net cash and current financial investments(1) 1 730 344 403%
------- ----- -----------
(1) Net cash and current financial investments does not include
lease liabilities. For details, please refer to note 7, "Net cash
and current financial investments", and note 13, "Performance measures",
in the "Financial statement information" section in this report.
During the fourth quarter 2019, Nokia's total cash and current financial
investments ("total cash") increased by EUR 1 183 million and we ended
the quarter with a solid total cash position of EUR 6 007 million. We
target to maintain a total cash position of approximately 30% of net
sales over time, and we were at approximately 26% at the end of the
fourth quarter 2019. Nokia's net cash and current financial investments
("net cash") increased by EUR 1 386 million.
Foreign exchange rates had an approximately EUR 20 million positive
impact on net cash.
In the fourth quarter 2019, net cash from operating activities was EUR 1
589 million:
-- Nokia's adjusted profit before changes in net working capital was EUR 1
309 million in the fourth quarter 2019.
-- In the fourth quarter 2019, Nokia generated an increase in net cash
related to net working capital of approximately EUR 190 million.
Excluding approximately EUR 130 million of restructuring and associated
cash outflows, Nokia generated an approximately EUR 320 million increase
in net cash related to net working capital. This increase was due to a
decrease in inventories, partially offset by an increase in receivables.
Liabilities were approximately flat.
-- The increase in receivables was approximately EUR 360 million,
primarily due to a seasonal increase in receivables, partially
offset by improved collections including higher sale of
receivables. Nokia sells trade receivables to various financial
institutions without recourse in the normal course of business, in
order to manage our credit risk and working capital cycle.
-- The decrease in inventories was approximately EUR 680 million,
primarily due to a seasonal decrease in inventories, as well as
improved inventory management.
-- Liabilities were approximately flat. In the fourth quarter 2019,
we did not see a typical seasonal increase in accounts payable due
to a combination of two items: a) already having high levels of
inventory earlier in the year, and b) our successful efforts to
improve our inventory management.
-- Cash taxes resulted in an outflow of approximately EUR 60 million.
-- Net interest resulted in an inflow of approximately EUR 150 million,
primarily due to a one-time benefit as a result of settling certain
interest rate derivatives, which accelerated cash inflows from hedging by
approximately EUR 160 million.
-- The implementation of IFRS 16 positively impacted our net cash used in
operating activities and negatively impacted our net cash from financing
activities, both by approximately EUR 30 million.
In the fourth quarter 2019, net cash used in investing activities
primarily related to capital expenditures of approximately EUR 190
million and a cash outflow related to a convertible loan to one of our
partners of approximately EUR 60 million. This was partially offset by a
cash inflow related to a sale of a property of approximately EUR 20
million.
In the fourth quarter 2019, net cash used in financing activities
primarily related to lease payments of approximately EUR 30 million
following the implementation of IFRS 16. In addition, net cash from
financing activities included a one-time benefit as a result of settling
certain interest rate derivatives, which accelerated cash inflows from
hedging by approximately EUR 30 million.
Nokia, January-December 2019 compared to January-December 2018, reported
Nokia net sales grew 3% in full year 2019. On a constant currency basis,
Nokia net sales grew 1% in full year 2019. Excluding one-time licensing
net sales of approximately EUR 90 million in full year 2019 and EUR 70
million in full year 2018, Nokia net sales grew 3%.
Our overall topline performance in full year 2019 was solid, with 5%
growth excluding Greater China, where an increase in competitive
intensity, combined with our prudent approach towards deal-making, had a
particularly negative impact on Networks. Due to the impact of Greater
China, in full year 2019, Networks and Nokia Software in total grew less
than our primary addressable market. In full year 2019 we grew in five
out of six regions and with all customer types. In full year 2019, we
continued to make progress with our strategy to diversify and grow, with
strong performances in Nokia Software and with enterprise customers.
The strong growth in net sales to enterprise customers was primarily
driven by increased demand for mission-critical networking solutions in
industries including utilities, the public sector and webscale, with
continued momentum in private wireless solutions. Net sales also
benefitted from the timing of completions and acceptances of certain
projects.
The growth in Nokia Software net sales benefitted from improved product
and go-to-market capabilities, with growth in both applications and core
networks.
The overall decrease in Nokia gross profit was primarily attributable to
lower gross margin in Networks, particularly in Mobile Access. We
experienced relatively high 5G product costs in Mobile Access, as well
as elevated levels of deployment services, consistent with being in the
initial phase of 5G. This was partially offset by lower costs related to
network equipment swaps, net sales growth in both Networks and Nokia
Software, as well as higher gross margin in Nokia Software.
In full year 2019 and full year 2018, Nokia gross profit benefitted from
reductions in annual employee incentives, which are calculated based on
Nokia's business performance.
In full year 2019, Nokia generated an operating profit, compared to an
operating loss in full year 2018. The year-on-year improvement was
primarily due to continued progress related to Nokia's cost savings
program, a gain on defined benefit plan amendments and lower transaction
and integration costs, partially offset by lower gross profit and higher
restructuring and associated charges.
In full year 2019 and full year 2018, Nokia operating profit benefitted
significantly from reductions in annual employee incentives, which are
calculated based on Nokia's business performance.
In full year 2019, Nokia generated a profit of EUR 18 million, compared
to a loss of EUR 549 million in full year 2018. The year-on-year
improvement was primarily due to higher operating profit and, to a
lesser extent, lower income taxes, partially offset by a net negative
fluctuation in financial income and expenses.
Note that Nokia sells trade receivables to various financial
institutions without recourse in the normal course of business, in order
to manage our credit risk and working capital cycle. The costs related
to the sale of receivables are included in financial income and
expenses. In full year 2019 the costs related to the sale of receivables
were approximately EUR 94 million, compared to approximately EUR 66
million in full year 2018.
Cash and cash flow in January-December 2019
In full year 2019, Nokia's free cash flow was negative EUR 297 million,
driven by:
-- Adjusted net profit of EUR 2 638 million;
-- Cash outflows related to net working capital primarily due to a decrease
in liabilities, partially offset by a decrease in receivables and
inventories;
-- Continued cash outflows related to restructuring; and
-- Capital expenditures and income taxes.
EUR million, at end of period Q4'19 Q4'18 YoY change
------- ----- -----------
Total cash and current financial
investments 6 007 6 873 (13)%
Net cash and current financial investments(1) 1 730 3 053 (43)%
------- ----- -----------
(1) Net cash and current financial investments does not include
lease liabilities. For details, please refer to note 7, "Net cash
and current financial investments", and note 13, "Performance measures",
in the "Financial statement information" section in this report.
During full year 2019, Nokia's total cash decreased by EUR 866 million
and we ended the year with a solid total cash position of EUR 6 007
million. We target to maintain a total cash position of approximately
30% of net sales over time, and we were at approximately 26% at year-end
2019. During full year 2019, Nokia's net cash decreased by EUR 1 323
million.
Foreign exchange rates had an approximately EUR 120 million negative
impact on net cash.
In full year 2019, net cash from operating activities was EUR 390
million:
-- Nokia's adjusted profit before changes in net working capital was EUR 2
638 million in full year 2019.
-- In full year 2019, Nokia generated a decrease in net cash related to net
working capital of approximately EUR 1 790 million. Excluding
approximately EUR 460 million of restructuring and associated cash
outflows, Nokia generated an approximately EUR 1 320 million decrease in
net cash related to net working capital. This decrease was due to a
decrease in liabilities, partially offset by a decrease in both
receivables and inventories.
-- The decrease in receivables was approximately EUR 160 million,
primarily due to improved collections including higher sale of
receivables. Nokia sells trade receivables to various financial
institutions without recourse in the normal course of business, in
order to manage our credit risk and working capital cycle.
-- The decrease in inventories was approximately EUR 290 million,
primarily due to improved inventory management.
-- The decrease in liabilities was approximately EUR 1 770 million,
primarily due to a decrease in accounts payable, where we did not
see a typical seasonal increase in accounts payable at the end of
the year, due to a combination of two items: a) already having
high levels of inventory earlier in the year, and b) our
successful efforts to improve our inventory management. In
addition, we saw a decrease in liabilities related to employee
benefits and a decrease in deferred revenue related to licensing
agreements.
-- Cash taxes resulted in an outflow of approximately EUR 520 million.
-- Net interest resulted in an inflow of approximately EUR 60 million,
primarily due to a one-time benefit as a result of settling certain
interest rate derivatives, which accelerated cash inflows from hedging by
approximately EUR 160 million.
-- The implementation of IFRS 16 positively impacted our net cash used in
operating activities and negatively impacted our net cash from financing
activities, both by approximately EUR 220 million.
In full year 2019, net cash used in investing activities primarily
related to capital expenditures of approximately EUR 690 million.
In full year 2019, net cash used in financing activities primarily
related to the dividend for 2018, which totaled approximately EUR 570
million and lease payments of approximately EUR 220 million following
the implementation of IFRS 16. Net cash from financing activities
included a one-time benefit as a result of settling certain interest
rate derivatives, which accelerated cash inflows from hedging by
approximately EUR 30 million.
COST SAVINGS PROGRAM
We expect our most recent cost savings program to result in a net EUR
500 million reduction of non-IFRS operating expenses and production
overheads ("fixed costs") in full year 2020 compared to full year 2018,
of which EUR 350 million is expected to come from operating expenses and
EUR 150 million is expected to come from cost of sales.
Note that, since the announcement of our most recent cost savings
program on October 25, 2018, net foreign exchange fluctuations have
resulted in an increase in estimated full year 2020 fixed costs of
approximately EUR 110 million, creating an additional headwind to
achieve the earlier net reduction. The year-on-year net foreign exchange
fluctuations resulted in an increase in full year 2019 fixed costs of
approximately EUR 125 million.
The following table summarizes the financial information related to our
cost savings program as of the end of the fourth quarter 2019.
In EUR million, approximately(1) Q4'19
-----
Balance of restructuring and associated liabilities
for prior programs 720
+ Charges in the quarter 30
- Cash outflows in the quarter 130
= Ending balance of restructuring and associated
liabilities 620
of which restructuring provisions 380
of which other associated liabilities 240
Total expected restructuring and associated charges, related
to our most recent cost savings program 900
- Cumulative recorded 470
= Charges remaining to be recorded 430
Total expected restructuring and associated cash outflows 1 550
- Cumulative recorded 460
= Cash outflows remaining to be recorded 1 090
(1) Balances related to previous restructuring and cost savings programs
have been included as part of this cost savings program. At the
beginning of Q1 2019, the balance of restructuring and associated
liabilities related to prior cost savings programs was approximately EUR
630 million. This amount is included in the total expected restructuring
and associated cash outflows of EUR 1 550 million, rounded to the
nearest EUR 50 million, in addition to the approximately EUR 900 million
of expected cash outflows related to our most recent cost savings
program.
The table below includes future expectations related to our most recent
cost savings program, as well as the remaining cash outflows related to
our previous programs and network equipment swaps. Please note that we
exclude the impact of lower incentive accruals from our definition of
"Recurring annual cost savings". In full year 2019, excluding the impact
of the lower incentive accruals, we achieved approximately EUR 200
million of recurring annual costs savings, compared to full year 2018.
In full year 2019, consistent with Nokia's business performance, annual
employee incentives for 2019 were reduced by approximately EUR 300
million, of which approximately EUR 200 million benefitted operating
expenses. Therefore, assuming business performance in full year 2020
that would support on-target annual employee incentives and the
achievement of our expected full year 2020 operating expense savings,
non-IFRS operating expenses in full year 2020 would be approximately EUR
50 million higher compared to full year 2019.
Actual Expected amounts for
Beyond
In EUR million, approximately FY 2019 FY 2020 FY 2020 Total
rounded to the nearest EUR 50 million
Recurring annual cost savings 200 300 - 500
- operating expenses 200 150 - 350
- cost of sales 0 150 - 150
Restructuring and associated charges 450 450 - 900
Restructuring and associated cash outflows 450 550 550 1 550
Charges related to network equipment swaps 100 - - 100
Cash outflows related to network equipment
swaps 100 - - 100
------------------------------------------- ------- ------- -------- -----
We have updated our expected timeline for the recurring annual cost
savings. The materialized recurring annual cost savings in full year
2019 amounted to EUR 200 million, which was in line with our
expectation. However, the EUR 200 million of recurring annual cost
savings came for operating expenses, compared to our earlier expectation
of EUR 150 million from operating expenses and EUR 50 million from cost
of sales. Consequently, in full year 2020, we now expect EUR 150 million
of recurring annual cost savings to come from operating expenses,
compared to our earlier expectation of EUR 200 million, and EUR 150
million to come from cost of sales, compared to our earlier expectation
of EUR 100 million.
We have updated our expected timeline for the related cash outflows. The
materialized cash outflows in full year 2019 amounted to EUR 450 million,
compared to our earlier expectation of EUR 550 million. The difference
of EUR 100 million moved into full year 2020. Consequently, in full year
2020, we now expect EUR 550 million of cash outflows related to our cost
savings program. We continue to expect the related restructuring charges
to total EUR 900 million.
In full year 2019, we completed our program related to network equipment
swaps and recorded all remaining charges and cash outflows. The total
charges and cash outflows related to network equipment swaps were EUR
100 million in full year 2019, compared to our earlier expectation of
EUR 150 million. Cumulatively, the charges and restructuring outflows
related to network equipment swaps as a result of the Alcatel-Lucent
acquisition were EUR 1.25 billion.
OPERATIONAL HIGHLIGHTS
The strong 5G deal momentum continued into Q4, aligning with Nokia's
commitment to execute in Mobile Access.
In the first pillar of our strategy, leading in high-performance,
end-to-end networks with Communication Service Providers:
Nokia signed 15 5G commercial contracts in the last quarter of the year,
highlighting momentum across markets.
Nokia's 5G technology also powered the launch of several live 5G
networks. Nokia launched live networks for example with O2 in the UK,
Zain in Saudi Arabia, Sprint in the US in cities such as New York City,
Los Angeles, Washington D.C. and Phoenix, as well as a nationwide 5G
network with T-Mobile. In the Asia-Pacific region, Vodafone New Zealand
launched its 5G network, which went live in just six months.
In total, Nokia now has 66 commercial 5G deals and 19 live networks, and
over 100 5G agreements.
Highlighting its market-leading technology within IP and Optical, Nokia
launched new packet-optical switches for 5G Cloud RAN which reduce the
cost and complexity of Cloud RAN deployments by enabling packet-based
transport for mobile fronthaul.
In Fixed Access, Nokia enhanced its portfolio with more options for 4G
and 5G Fixed Wireless Access deployments as well as unveiled the
Quillion chipset family to power next-generation fiber-based access
networks . We also expanded our WiFi portfolio with the introduction of
the Beacon 1; an entry level, whole-home mesh solution.
In the second pillar of our strategy, growing the Enterprise and
Webscale business and leading the digitization of industries with
private networks and industrial automation:
Nokia continued to strengthen its position with enterprises with
significant collaborations and partnerships. Nokia and Microsoft
announced a strategic collaboration to accelerate transformation and
innovation across industries with cloud, Artificial Intelligence and
Internet of Things.
Nokia will deliver and test the world's first 5G-based network for
automated rail operations with Deutsche Bahn in Germany, an essential
milestone in the development of the 5G-based Future Railway Mobile
Communication System standard.
In November, Nokia joined Sendai City in Japan for the world's first
test of private wireless connected drones for tsunami evacuation alerts.
In total, nearly 40 new customers were added in the quarter, bringing
the total number of new customers in 2019 to 122.
In the third pillar of our strategy, strengthening the Software business
with one common software foundation:
Nokia Software closed a number of agreements, including one with Amazon,
allowing Nokia's Common Software Foundation platform to support Amazon
Web Services, as well as deal-wins with Telecom South Africa and DT
Germany.
Nokia also expanded its partnership with VMware to include the
development of integrated solutions to support communications service
providers' drive for operational improvements and cost efficiency
through large-scale, multi-cloud operations.
Nokia also secured a deal with Ooredoo Tunisia to provide AirGile
cloud-native core and services to power the company's 2G/3G/4G network
in order to prepare for the crucial transition to 5G.
In the fourth pillar of our strategy, diversifying the licensing
business with new opportunities in patent, IoT and brand:
Various patent and technology licensing deals were signed during the
quarter with companies in the consumer electronics market, whilst Volvo
became a significant licensee to Nokia patents for connected cars.
Strengthening our Environmental, Social, and Governance (ESG) profile
and advancing Nokia as a trustworthy partner with clear sustainability
priorities:
Nokia launched the renewal of its climate program, aligned with limiting
global temperature rise to 1.5degC above pre-industrial levels.
Nokia renewed its human rights policy and related human rights due
diligence process to further mitigate risks related to potential
technology misuse cases.
Nokia completed its first external human rights assessment for the
Global Network Initiative, the alliance of internet and
telecommunications companies and civil society supporting the freedom of
expression and privacy rights.
Showcasing commitment to sustainability, Nokia was acknowledged by
receiving the AT&T Sustainability Award for launching the first
commercial liquid-cooled base station with the potential to reduce
carbon emissions by up to 80%.
RISKS AND FORWARD-LOOKING STATEMENTS
It should be noted that Nokia and its businesses are exposed to various
risks and uncertainties and 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 or
benefits related to our strategies, growth management and operational
key performance indicators; B) expectations, plans or benefits related
to future performance of our businesses and any expected future
dividends including timing and qualitative and quantitative thresholds
associated therewith; C) expectations and targets regarding financial
performance, cash generation, results, the timing of receivables,
operating expenses, taxes, currency exchange rates, hedging, cost
savings, product cost reductions and competitiveness, as well as results
of operations including targeted synergies, better commercial management
and those results related to market share, prices, net sales, income and
margins; D) expectations, plans or benefits related to changes in
organizational and operational structure; E) expectations regarding
competition within our market, market developments, general economic
conditions and structural and legal change globally and in national and
regional markets, such as China; F) our ability to integrate acquired
businesses into our operations and achieve the targeted business plans
and benefits, including targeted benefits, synergies, cost savings and
efficiencies; G) expectations, plans or benefits related to any future
collaboration or to business collaboration agreements or patent license
agreements or arbitration awards, including income to be received under
any collaboration or partnership, agreement or award; H) timing of the
deliveries of our products and services, including our short term and
longer term expectations around the rollout of 5G, investment
requirements with such rollout, and our ability to capitalize on such
rollout; as well as the overall readiness of the 5G ecosystem; I)
expectations and targets regarding collaboration and partnering
arrangements, joint ventures or the creation of joint ventures, and the
related administrative, legal, regulatory and other conditions, as well
as our expected customer reach; J) outcome of pending and threatened
litigation, arbitration, disputes, regulatory proceedings or
investigations by authorities; K) expectations regarding restructurings,
investments, capital structure optimization efforts, uses of proceeds
from transactions, acquisitions and divestments and our ability to
achieve the financial and operational targets set in connection with any
such restructurings, investments, capital structure optimization efforts,
divestments and acquisitions, including our current cost savings
program; L) expectations, plans or benefits related to future capital
expenditures, reduction of support function costs, temporary incremental
expenditures or other R&D expenditures to develop or rollout software
and other new products, including 5G and increased digitalization; M)
expectation regarding our customers' future capital expenditure
constraints and our ability to satisfy customer concerns; and N)
statements preceded by or including "believe", "expect", "expectations",
"consistent", "deliver", "maintain", "strengthen", "target", "estimate",
"plan", "intend", "assumption", "focus", "continue", "should", "will" 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 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 it. 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, but are not limited to: 1) our strategy is
subject to various risks and uncertainties and we may be unable to
successfully implement our strategic plans, sustain or improve the
operational and financial performance of our business groups, correctly
identify or successfully pursue business opportunities or otherwise grow
our business; 2) general economic and market conditions, general public
health conditions (including its impact on our supply chains) and other
developments in the economies where we operate, including the timeline
for the deployment of 5G and our ability to successfully capitalize on
that deployment ; 3) competition and our ability to effectively and
profitably invest in existing and new high-quality products, services,
upgrades and technologies and bring them to market in a timely manner;
4) our dependence on the development of the industries in which we
operate, including the cyclicality and variability of the information
technology and telecommunications industries and our own R&D
capabilities and investments; 5) our dependence on a limited number of
customers and large multi-year agreements, as well as external events
impacting our customers including mergers and acquisitions; 6) our
ability to maintain our existing sources of intellectual
property-related revenue through our intellectual property, including
through licensing, establishing new sources of revenue and protecting
our intellectual property from infringement; 7) our ability to manage
and improve our financial and operating performance, cost savings,
competitiveness and synergies generally, expectations and timing around
our ability to recognize any net sales and our ability to implement
changes to our organizational and operational structure efficiently; 8)
our global business and exposure to regulatory, political or other
developments in various countries or regions, including emerging markets
and the associated risks in relation to tax matters and exchange
controls, among others; 9) our ability to achieve the anticipated
benefits, synergies, cost savings and efficiencies of acquisitions; 10)
exchange rate fluctuations, as well as hedging activities; 11) our
ability to successfully realize the expectations, plans or benefits
related to any future collaboration or business collaboration agreements
and patent license agreements or arbitration awards, including income to
be received under any collaboration, partnership, agreement or
arbitration award; 12) Nokia Technologies' ability to protect its IPR
and to maintain and establish new sources of patent, brand and
technology licensing income and IPR-related revenues, particularly in
the smartphone market, which may not materialize as planned, 13) our
dependence on IPR technologies, including those that we have developed
and those that are licensed to us, and the risk of associated
IPR-related legal claims, licensing costs and restrictions on use; 14)
our exposure to direct and indirect regulation, including economic or
trade policies, and the reliability of our governance, internal controls
and compliance processes to prevent regulatory penalties in our business
or in our joint ventures; 15) our reliance on third-party solutions for
data storage and service distribution, which expose us to risks relating
to security, regulation and cybersecurity breaches; 16) inefficiencies,
breaches, malfunctions or disruptions of information technology systems,
or our customers' security concerns; 17) our exposure to various legal
frameworks regulating corruption, fraud, trade policies, and other risk
areas, and the possibility of proceedings or investigations that result
in fines, penalties or sanctions; 18) adverse developments with respect
to customer financing or extended payment terms we provide to customers;
19) the potential complex tax issues, tax disputes and tax obligations
we may face in various jurisdictions, including the risk of obligations
to pay additional taxes; 20) our actual or anticipated performance,
among other factors, which could reduce our ability to utilize deferred
tax assets; 21) our ability to retain, motivate, develop and recruit
appropriately skilled employees; 22) disruptions to our manufacturing,
service creation, delivery, logistics and supply chain processes, and
the risks related to our geographically-concentrated production sites;
23) the impact of litigation, arbitration, agreement-related disputes or
product liability allegations associated with our business; 24) our
ability to re-establish investment grade rating or maintain our credit
ratings; 25) our ability to achieve targeted benefits from, or
successfully implement planned transactions, as well as the liabilities
related thereto; 26) our involvement in joint ventures and
jointly-managed companies; 27) the carrying amount of our goodwill may
not be recoverable; 28) uncertainty related to the amount of dividends
and equity return we are able to distribute to shareholders for each
financial period; 29) pension costs, employee fund-related costs, and
healthcare costs; 30) our ability to successfully complete and
capitalize on our order backlogs and continue converting our sales
pipeline into net sales; and 31) risks related to undersea
infrastructure, as well as the risk factors specified on pages 60 to 75
of our 2018 annual report on Form 20-F published on March 21, 2019 under
"Operating and financial review and prospects-Risk factors" and in our
other filings or documents furnished with the U.S. Securities and
Exchange Commission. Other unknown or unpredictable factors or
underlying assumptions subsequently proven to be incorrect could cause
actual results to differ materially from those in the forward-looking
statements. We do not undertake any obligation to publicly update or
revise forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent legally
required.
The financial report was authorized for issue by management on February
6, 2020.
-- Nokia plans to publish its "Nokia in 2019" annual report, which includes
the review by the Board of Directors and the audited annual accounts, in
week 10 of 2020. The annual report will be available at
www.nokia.com/financials.
-- Nokia's Annual General Meeting 2020 is planned to be held on April 8,
2020.
-- Nokia plans to publish its first quarter 2020 results on April 30, 2020.
-- Nokia plans to publish its second quarter and half year 2020 results on
July 31, 2020.
-- Nokia plans to publish its third quarter and January-September 2020
results on October 29, 2020
Media Enquiries:
Nokia
Communications
Tel. +358 (0) 10 448 4900
Email:
https://www.globenewswire.com/Tracker?data=OcbL9jTfV4bfl6qbedr7Si97Yzyb26OYVkdZhMXRKGwM-XyIrtyjxFVCGkQkBgeWGeEwlo8ilEnIjphAfF4s1lsU5-Jet3NtsNDx9p03xuMhzRZLFuFsL8rL4Jyx0u-l
press.services@nokia.com
Katja Antila, Head of Media Relations
Investor Enquiries:
Nokia Investor Relations
Tel. +358 4080 3 4080
Email:
https://www.globenewswire.com/Tracker?data=ZS1WkYFNr2ZweTXqn0LFvdiWd7IBb5wlpuRDcfEWqQQjxy2gosc0evGsKumkcCOJARpT_6t3-kU-rTXYwYks0kEiMs1UBWcrlAHWLJhR1qQEVTvnZSIJXXr2NuTqGAGN
investor.relations@nokia.com
About Nokia
We create the technology to connect the world. Only Nokia offers a
comprehensive portfolio of network equipment, software, services and
licensing opportunities across the globe. With our commitment to
innovation, driven by the award-winning Nokia Bell Labs, we are a leader
in the development and deployment of 5G networks.
Our communications service provider customers support more than 6.1
billion subscriptions with our radio networks, and our enterprise
customers have deployed over 1,000 industrial networks worldwide.
Adhering to the highest ethical standards, we transform how people live,
work and communicate. For our latest updates, please visit us online
www.nokia.com and follow us on Twitter @nokia.
Attachment
-- Nokia_financial statement 2019_Q4
https://ml-eu.globenewswire.com/Resource/Download/03ac6c9c-6907-450c-8245-2b98d36c6dc0
(END) Dow Jones Newswires
February 06, 2020 01:15 ET (06:15 GMT)
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