Nokia(NOK) - 2024 Q2 - Quarterly Report

Financial and Operational Highlights (H1 2024 vs H1 2023) Nokia's H1 2024 performance saw a sales decline but improved gross margin, with strong cash flow generation and strategic portfolio adjustments Financial Performance Summary Nokia's H1 2024 net sales declined 19% to EUR 8,910 million, yet gross margin improved to 46.5%, while diluted EPS decreased to EUR 0.05 due to a significant impairment charge Nokia Group Performance (H1 2024 vs H1 2023) | Metric | H1 2024 (EUR million) | H1 2023 (EUR million) | Change | | :--- | :--- | :--- | :--- | | Net Sales | 8,910 | 11,013 | -19% | | Gross Margin | 46.5% | 39.1% | +740 bps | | Operating Profit | 836 | 890 | -6% | | Operating Margin | 9.4% | 8.1% | +130 bps | | Profit from Continuing Operations | 821 | 570 | +44% | | (Loss)/Profit from Discontinued Operations | (525) | 8 | - | | Diluted EPS (EUR) | 0.05 | 0.10 | -50% | - Net sales decline was primarily driven by Mobile Networks, Network Infrastructure, and Cloud and Network Services, partially offset by Nokia Technologies' growth, and impacted by negative foreign exchange fluctuations[2] - The EUR 525 million loss from discontinued operations in H1 2024 was mainly due to a EUR 514 million impairment charge related to the Submarine Networks business being classified as held for sale[3] Cash Performance Nokia's H1 2024 cash position strengthened, with net cash increasing 27% to EUR 5,475 million and free cash flow turning positive at EUR 1,349 million Cash Position as of June 30, 2024 | Metric | 30 June 2024 (EUR million) | 31 December 2023 (EUR million) | Change | | :--- | :--- | :--- | :--- | | Cash and cash equivalents | 6,853 | 6,234 | +10% | | Total cash and interest-bearing financial investments | 9,154 | 8,514 | +8% | | Net cash and interest-bearing financial investments | 5,475 | 4,323 | +27% | - Free cash flow for H1 2024 was a positive EUR 1,349 million, compared to a negative EUR 609 million in H1 2023[6][53] Cash Flow Analysis Nokia's H1 2024 cash flow significantly improved, driven by strong operating cash flow from reduced receivables, while investing and financing activities reflected strategic disposals and shareholder returns Net Cash Flows from Operating Activities Net cash from operating activities was a strong EUR 1,556 million inflow in H1 2024, driven by positive working capital changes, notably a EUR 1,190 million decrease in receivables - Net cash flow from operating activities was EUR 1,556 million in H1 2024[19] - Positive working capital change was primarily driven by a EUR 1,190 million decrease in receivables, largely from 5G deployments in India[4] - Restructuring and associated cash outflows amounted to approximately EUR 270 million[4] Net Cash Flows from Investing Activities Net cash from investing activities was an inflow of EUR 179 million in H1 2024, driven by disposals of shares and businesses, partially offset by capital expenditures - Net cash flow from investing activities was EUR 179 million in H1 2024[19] - Major inflows included EUR 180 million from disposal of shares in associated companies and EUR 100 million from disposal of businesses[4] - Capital expenditures amounted to an outflow of approximately EUR 210 million[4] Net Cash Flows from Financing Activities Net cash used in financing activities totaled EUR 1,095 million in H1 2024, primarily for long-term debt repayment, dividend payments, and treasury share acquisitions - Net cash used in financing activities was EUR 1,095 million in H1 2024[19] - Key cash outflows included EUR 460 million for long-term debt repayment, EUR 390 million for dividends, and EUR 100 million for share buybacks[6] Shareholder Distribution Nokia's H1 2024 shareholder distributions included a dividend payment and an accelerated share buyback program, reflecting a commitment to return capital Dividend The Board approved a EUR 0.03 per share dividend for Q2 2024, part of a EUR 0.13 per share total authorized for FY2023, with EUR 0.06 per share remaining - The Board approved a dividend of EUR 0.03 per share for Q2 2024[7] - This distribution is part of a total authorized amount of EUR 0.13 per share for FY2023, with a remaining authorization of EUR 0.06 per share[7] Share Buyback Program Nokia initiated a EUR 600 million share buyback program in January 2024, now accelerated for completion by year-end 2024 and expanded to offset Infinera acquisition dilution - A share buyback program of up to EUR 600 million over two years was initiated in January 2024[8][9] - By June 30, 2024, Nokia repurchased 29.5 million shares for approximately EUR 100 million[8] - The program will be accelerated to complete the full EUR 600 million by end of 2024 and increased to offset dilution from the Infinera acquisition[8] Significant Events and Corporate Actions Nokia's H1 2024 was marked by key strategic moves including successful patent licensing, the divestment of ASN, the acquisition of Infinera, and the exit from TD Tech Patent Licensing Nokia successfully concluded its smartphone patent license renewal cycle in early 2024, securing stability for Nokia Technologies with no major agreements expiring for several years - Nokia concluded its smartphone patent license renewal cycle, signing agreements with Honor, OPPO, and vivo in early 2024, complementing prior agreements with Apple, Samsung, and Huawei[9] Sale of Alcatel Submarine Networks (ASN) Nokia agreed to sell its Alcatel Submarine Networks (ASN) business to the French State for EUR 350 million, recording a EUR 514 million impairment charge in Q2 2024 - Nokia agreed to sell its ASN business to the French State for an enterprise value of EUR 350 million[9][11] - A non-cash impairment charge of EUR 514 million was recorded in Q2 2024 related to the sale[11] - The transaction is expected to close by the end of 2024 or early 2025[9] Acquisition of Infinera Nokia announced the acquisition of Infinera for an enterprise value of US$2.3 billion, aiming to enhance its optical networking scale and profitability - Nokia will acquire Infinera in a transaction with an enterprise value of US$2.3 billion[10] - The consideration will be at least 70% cash, with Infinera shareholders having the option to receive up to 30% in Nokia ADSs[10] Update on TD Tech Nokia's TD Tech joint venture completed the divestment of its operating subsidiaries, resulting in a EUR 186 million gain and EUR 173 million net proceeds for Nokia - The TD Tech joint venture sold its operating subsidiaries, and Nokia is exiting its shareholding[11] - Nokia recorded a gain of EUR 186 million and received net proceeds of EUR 173 million from the transaction[11] Risk Factors and Forward-Looking Statements Nokia faces diverse risks including intense competition, macroeconomic volatility, and the successful integration of strategic transactions Risk Factors Summary Nokia faces operational risks from intense competition and supply chain issues, macroeconomic risks from inflation and geopolitical conflicts, and business-specific risks from patent licensing and litigation outcomes - Key operational risks include intense competition, customer investment changes, R&D competitiveness, and supply chain disruptions, particularly for semiconductors[14] - Macroeconomic risks include inflation, currency fluctuations, higher interest rates, and geopolitical conflicts[14] - Business-specific risks involve the timing of patent licensing agreements, litigation outcomes, and the ability to realize benefits from ongoing transactions like acquisitions and divestitures[14] Consolidated Financial Statements (Condensed) Nokia's H1 2024 condensed financial statements reflect a decline in sales, an impairment loss from discontinued operations, and a strengthened cash position Consolidated Income Statement Nokia's H1 2024 income statement shows net sales of EUR 8,910 million, operating profit of EUR 836 million, and a diluted EPS of EUR 0.05, impacted by discontinued operations Income Statement Highlights (H1 2024 vs H1 2023) | EUR million | Q1-Q2'24 | Q1-Q2'23 | | :--- | :--- | :--- | | Net sales | 8,910 | 11,013 | | Gross profit | 4,146 | 4,308 | | Operating profit | 836 | 890 | | Profit from continuing operations | 821 | 570 | | (Loss)/profit from discontinued operations | (525) | 8 | | (Loss)/Profit for the period | 296 | 578 | | Diluted EPS (EUR) | 0.05 | 0.10 | Consolidated Statement of Financial Position As of June 30, 2024, Nokia's total assets were EUR 38,859 million, with total equity increasing to EUR 21,018 million, and assets held for sale rising to EUR 828 million Balance Sheet Highlights (as of June 30, 2024) | EUR million | 30 June 2024 | 31 December 2023 | | :--- | :--- | :--- | | Total non-current assets | 20,844 | 21,694 | | Total current assets | 17,186 | 18,087 | | Assets held for sale | 828 | 79 | | Total assets | 38,859 | 39,860 | | Total equity | 21,018 | 20,628 | | Total non-current liabilities | 7,131 | 8,299 | | Total current liabilities | 9,909 | 10,933 | | Liabilities associated with assets held for sale | 801 | — | | Total equity and liabilities | 38,859 | 39,860 | Consolidated Statement of Cash Flows Nokia's H1 2024 cash flow statement shows a net operating cash inflow of EUR 1,556 million, a net investing inflow of EUR 179 million, and a net financing outflow of EUR 1,095 million Cash Flow Summary (H1 2024) | EUR million | Q1-Q2'24 | Q1-Q2'23 | | :--- | :--- | :--- | | Net cash flows from operating activities | 1,556 | (250) | | Net cash flows from investing activities | 179 | 839 | | Net cash flows used in financing activities | (1,095) | (876) | | Net increase/(decrease) in cash and cash equivalents | 647 | (361) | | Cash and cash equivalents at end of period | 6,881 | 5,106 | Notes to Financial Statements Key notes to Nokia's H1 2024 financial statements detail segment performance, the impact of discontinued operations, net sales breakdown by region and customer, and significant commitments and legal proceedings Note 2: Segment Information In H1 2024, Mobile Networks led sales at EUR 3,545 million despite a 32% decline, while Nokia Technologies saw a 93% sales increase to EUR 1,113 million with EUR 916 million operating profit Segment Performance (H1 2024) | Segment | Net Sales (EUR million) | YoY Change | Operating Profit/(Loss) (EUR million) | | :--- | :--- | :--- | :--- | | Network Infrastructure | 2,961 | -19% | 183 | | Mobile Networks | 3,545 | -32% | 129 | | Cloud and Network Services | 1,265 | -16% | (52) | | Nokia Technologies | 1,113 | +93% | 916 | Note 3: Discontinued Operations (ASN) The ASN business is classified as discontinued, incurring a EUR 514 million impairment loss in Q2 2024, contributing to a EUR 525 million loss from discontinued operations in H1 2024 Results of Discontinued Operations (H1 2024) | EUR million | Q1-Q2'24 | Q1-Q2'23 | | :--- | :--- | :--- | | Net sales | 460 | 556 | | Operating (loss)/profit | (7) | 9 | | Impairment loss | (514) | — | | (Loss)/profit from discontinued operations | (525) | 8 | - Assets held for sale related to ASN totaled EUR 828 million as of June 30, 2024, with associated liabilities of EUR 801 million[32] Note 4: Net Sales Breakdown H1 2024 net sales of EUR 8,910 million saw a 45% decline in APAC due to India's 5G slowdown, while EMEA grew 6% and Licensee sales surged 93% Group Net Sales by Region (H1 2024 vs H1 2023) | Region | Q1-Q2'24 (EUR million) | Q1-Q2'23 (EUR million) | YoY Change | | :--- | :--- | :--- | :--- | | Americas | 2,763 | 3,421 | (19)% | | APAC | 2,015 | 3,681 | (45)% | | EMEA | 4,133 | 3,912 | 6% | | Total | 8,910 | 11,013 | (19)% | - The sharp decline in the APAC region was primarily due to a 69% decrease in sales in India, from EUR 1,896 million in H1 2023 to EUR 594 million in H1 2024[34] Net Sales by Customer Type (H1 2024 vs H1 2023) | Customer Type | Q1-Q2'24 (EUR million) | Q1-Q2'23 (EUR million) | YoY Change | | :--- | :--- | :--- | :--- | | Communications service providers (CSP) | 6,816 | 9,286 | (27)% | | Enterprise | 959 | 1,076 | (11)% | | Licensees | 1,113 | 576 | 93% | Note 10: Commitments and Legal Proceedings As of June 30, 2024, Nokia's guarantees totaled EUR 2,359 million, with new patent infringement proceedings initiated against Amazon, HP, and Verifone - Nokia initiated patent infringement proceedings against Amazon and HP for video technologies, and against Verifone for cellular technologies[48] - A legal action brought by Continental Automotive Systems against Nokia has been withdrawn[48] Commitments and Contingencies (June 30, 2024) | EUR million | 30 June 2024 | | :--- | :--- | | Commercial guarantees | 1,824 | | Non-commercial guarantees | 535 | | Venture fund commitments | 365 | Alternative Performance Measures (Non-IFRS) Nokia's H1 2024 non-IFRS measures highlight a strong net cash position and positive free cash flow, providing additional insights into liquidity and operational efficiency Reconciliation of Non-IFRS Measures Nokia's non-IFRS reconciliation shows net cash of EUR 5,475 million and positive free cash flow of EUR 1,349 million for H1 2024, reflecting strong liquidity Reconciliation of Net Cash (June 30, 2024) | EUR million | Amount | | :--- | :--- | | Total cash and interest-bearing financial investments | 9,154 | | Less: Total interest-bearing liabilities | (3,679) | | Net cash and interest-bearing financial investments | 5,475 | Reconciliation of Free Cash Flow (H1 2024) | EUR million | Amount | | :--- | :--- | | Net cash flows from operating activities | 1,556 | | Less: Capital expenditures | (207) | | Free cash flow | 1,349 |