Information Technology
Nokia Corporation Interim Report for Q3 2024
Nokia Corporation
Interim Report
17 October 2024 at 08:00 EEST
Nokia Corporation Interim Report for Q3 2024
Strong gross margin improvement amidst ongoing market weakness
This is a summary of the Nokia Corporation Interim Report for Q3 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 Q3 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 Q3 2024 RESULTS
As I reflect on our performance in the third quarter, I am optimistic we are now turning the corner in many parts of our business, even if some continue to experience market weakness. Among the key highlights was a return to net sales growth in Network Infrastructure with Fixed Networks growing 9% in constant currency and IP Networks growing 6%. Order intake in Network Infrastructure continued to be robust with strong year-on-year growth and a growing order backlog. Additionally, we delivered a significant improvement in our gross margin at the group level and cash generation remained strong with EUR 621 million free cash flow in the quarter.
There are reasons for optimism across our portfolio. We expect a significant acceleration in growth in Q4 in Network Infrastructure and see a number of structural demand trends supporting our future growth. In Mobile Networks, although market dynamics are more challenging, we have secured several important deals in the quarter, remain confident in our competitive position and are improving our gross margin. In Cloud and Network Services we are seeing excellent momentum in 5G Core along with strong progress in network automation, cloudification and enabling network APIs. Nokia Technologies continues to benefit from greater stability following the conclusion of its smart-phone renewal cycle and is making good progress expanding into the new growth areas.
Across Nokia we are investing to create new growth opportunities outside of our traditional communications service provider market. We see a significant opportunity to expand our presence in the data center market and are investing to broaden our product portfolio in IP Networks to better address this. Our pending acquisition of Infinera will also bolster our Optical Networks exposure to this market and accelerate our growth opportunities. Additionally, we see a compelling new long-term opportunity in bringing 5G technology to the defense market and we continue to invest in private wireless networks where we are the clear market leader.
Regarding our financial performance in Q3, our net sales declined by 7% in the quarter in constant currency. Three quarters of the decline was driven by India due to a strong year-ago quarter. Importantly we delivered a significant improvement in comparable gross margin which expanded 490 basis points from the year-ago period to reach 45.7%. This was driven by a combination of improved product mix, regional mix and actions to reduce product cost. Despite continued intense competition, we remain disciplined on price while still winning deals as we remain focused on improving the profitability of our business. We also progressed our cost reduction efforts contributing to a solid improvement of 160 basis points in our comparable operating margin on a year-on-year basis.
Regarding full year 2024, our comparable operating profit outlook remains EUR 2.3 to 2.9 billion and we are currently tracking within the bottom-half of the range. The net sales recovery is happening slower than we expected previously, however, this is being partially offset by an improving gross margin and quick action on cost. We expect to be at the high end of our free cash flow target of 30% to 60% conversion from comparable operating profit.
FINANCIAL RESULTS
Comparable ROIC = Comparable operating profit after tax, last four quarters / invested capital, average of last five quarters' ending balances. Refer to the Alternative performance measures section in Nokia Corporation Interim Report for Q3 2024 for details.
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 17 October 2024, the Board resolved to distribute a dividend of EUR 0.03 per share. The dividend record date is 22 October 2024 and the dividend will be paid on 31 October 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 0.03 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 share buyback execution started on 20 March 2024. On 19 July 2024, Nokia's Board of Directors decided to accelerate the timeframe for the share buyback program with the aim of completing the full EUR 600 million program by the end of this year instead of the initial two year timeframe.
On 27 June 2024, Nokia announced its intention to acquire Infinera in a transaction that valued Infinera at US$1.7 billion equity value with up to 30% of the consideration to be paid in Nokia American depositary shares ("ADSs"), depending on the elections of Infinera shareholders. Nokia's Board of Directors is committed to repurchase additional shares on top of the on-going EUR 600 million program to offset the dilution from the transaction to Nokia shareholders.
Under the share buyback program, by 30 September 2024, Nokia had repurchased 84 295 899 of its own shares at an average price per share of approximately EUR 3.48.
OUTLOOK
Please refer to Alternative performance measures section in Nokia Corporation Interim Report for Q3 2024 for a full explanation of how these terms are defined.
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
Please refer to Alternative performance measures section in Nokia Corporation Interim Report for Q3 2024 for a full explanation of how these terms are defined.
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:
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, programs, 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 our ongoing transactions and 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”, “envisage”, “expect”, “aim”, “will”, “target”, “may”, “would”, "see", “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
• Nokia plans to publish its fourth quarter and full year 2024 results on 30 January 2025.
About Nokia
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