Solid margin performance driven by customer demand in North America
- 5% year-on-year decrease in reported net sales in Q4, primarily due to Mobile Access, as declines in network deployment and planning services were partially offset by growth in radio access products
- 1% growth in constant currency net sales in Q4
- Continued improvements in our Mobile Access portfolio; strengthening roadmaps, reducing product costs and improving product performance; commitment to invest in R&D to drive product leadership
- Increase in Mobile Access gross margin in Q4, primarily driven by improved 5G gross margin, partially offset by a project-related loss provision
- Positive operating profit, on a reported basis, in Q4 and full year 2020
- Non-IFRS operating profit in Q4 benefited by approximately EUR 250 million, due to the timing of revenue recognition and a net positive fluctuation in Nokia’s venture fund investments
- Strong free cash flow in Q4 and full year 2020 benefited from an early customer payment of approximately EUR 0.5 billion, which was expected in Q1 2021
- Derecognized EUR 2.9 billion of Finnish deferred tax assets, which are not lost
- Reiterated outlook for 2021 comparable operating margin of 7-10% and provided new outlook for net sales and free cash flow
- Board does not propose a dividend or dividend authorization for the financial year 2020
This is a summary of the Nokia Corporation financial report for Q4 and full year 2020 published today. The complete financial report for Q4 and full year 2020 with tables is available at www.nokia.com/financials. Investors should not rely on summaries of our financial reports only, but should review the complete financial reports with tables.
PEKKA LUNDMARK, PRESIDENT AND CEO, ON Q4 AND FULL YEAR 2020 RESULTS
Nokia delivered a solid Q4 to end 2020 at the high end of our Outlook range. We 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 our ongoing R&D efforts to enhance product quality and cost competitiveness.
From a business group perspective, in Q4 and full year 2020, our gross margin improvement was primarily driven by Networks, as was our full year operating margin performance. In Q4, our operating profit performance benefited by approximately EUR 250 million from two unexpected, yet significant drivers: a timing benefit of approximately EUR 150 million as we recognized net sales at the very end of the quarter, which we had expected in 2021; and we 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.
Net sales for Q4 were down 5% on a reported basis and up 1% in constant currency and for full year 2020 they were down 6% on a reported basis and down 4% in constant currency.
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. Additionally, our liquidity position continues to be solid.
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% for our KPI on shipments of our “5G Powered by ReefShark” portfolio; we ended the year at 43% and we remain on track to realize 70% 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% in reported and 5% in constant currency. For full year 2020, they were up 11% in reported and 14% 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% | ||
| 1In Q4 2020, Nokia reclassified certain items of income and expenses from other operating income and expenses to the functions. The comparative reported results for Q4’19 and Q1-Q4’19 have been revised accordingly. Refer to note 1, “Basis of preparation” in the “Financial statement information” section for details. | ||||||||
| Results are as reported and relate to continuing operations unless otherwise specified. The financial information in the Nokia Corporation Financial Report for Q4 and full year 2020 is unaudited. Non-IFRS results exclude intangible asset amortization and other fair value adjustments, goodwill impairments, restructuring related charges and certain other items affecting comparability. For details, please refer to note 2, “Non-IFRS to reported reconciliation”, in the notes to the Financial statement information in Nokia Corporation Financial Report for Q4 and full year 2020. 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 Nokia Corporation Financial Report for Q4 and full year 2020. | ||||||||
Net sales
In Q4 2020, reported net sales decreased 5%, primarily driven by lower net sales in Mobile Access, where a decline in network deployment and planning services was partially offset by growth in 5G radio access products. On a constant currency basis, Nokia net sales increased 1% in Q4 2020. In full year 2020, reported net sales decreased 6%, primarily due to network deployment and planning services in Mobile Access. In Nokia Enterprise, we continued to make great progress in full year 2020 and delivered 11% year-on-year growth in reported net sales. On a constant currency basis, Nokia net sales decreased 4% in full year 2020.
Gross margin
Reported gross margin in Q4 2020 was 39.2%, compared to 38.5% in Q4 2019. Non-IFRS gross margin was 41.8%, compared to 40.0% in Q4 2019. The improvement in gross margin was primarily driven by Mobile Access, where strong 5G gross margin expansion was partially offset by a project-related loss provision. To a lesser extent, our Q4 2020 gross margin performance was affected by mix shifts, with a higher proportion of Group Common and Other, as well as a decline in Nokia Software. In full year 2020, reported gross margin was 37.6%, compared to 35.4% in full year 2019. Non-IFRS gross margin was 39.0%, compared to 36.5% in full year 2019.
Operating profit
In Q4 2020, our non-IFRS and reported operating profit performance was positively affected by approximately EUR 250 million from two significant drivers: a timing benefit, as we recognized net sales at the very end of the quarter, which we had expected in 2021, and a net positive fluctuation in Nokia’s venture fund investments. Our non-IFRS and reported diluted EPS benefited by approximately EUR 0.035 from these items.
Earnings per share
Non-IFRS diluted EPS in Q4 2020 was EUR 0.14, compared to EUR 0.15 in Q4 2019, primarily due to lower operating profit, partially offset by a net positive fluctuation in financial income and expenses. In full year 2020, non-IFRS diluted EPS was EUR 0.26, compared to 0.22 in full year 2019.
Reported diluted EPS in Q4 2020 was negative EUR 0.46, compared to EUR 0.10 in Q4 2019. The change was primarily driven by a net negative fluctuation in income taxes related to the EUR 2.9 billion derecognition of Finnish deferred tax assets and, to a lesser extent, lower operating profit, partially offset by a net positive fluctuation in financial income and expenses. In full year 2020, reported diluted EPS was negative EUR 0.43, compared to 0.00 in full year 2019. The derecognition was required due to a regular assessment of our ability to utilize the tax assets in Finland in the foreseeable future that is done primarily based on our historical performance. These tax assets are not lost, and the derecognition can be reversed. They can still be utilized in the taxation and the derecognition is not expected to affect the overall taxation of the Nokia Group or its cash taxes. For further details on the derecognition of Finnish deferred tax assets, please refer to note 6, “Deferred taxes” in the “Financial statement information” section in Nokia Corporation Financial Report for Q4 and full year 2020.
Cash performance
Q4 2020 was the third quarter in a row of positive free cash flow. During Q4 2020, net cash increased by approximately EUR