TIDMNOKIA
Nokia Corporation
Inside information
12 December 2023 at 8:00 EET
Inside information: Nokia provides an update on group strategy,
2026 comparable operating margin target and preliminary assumptions
for 2024
-- Nokia's business groups will have increased autonomy to pursue growth
strategies, portfolio management, investments and strategic partnerships
-- Increases reporting transparency and will provide business group level
cash flow reporting and regional sales, beginning 2024
-- Revises comparable operating margin target to at least 13% by 2026
(previously at least 14%); remains confident in further opportunities to
increase margins beyond 2026
-- Provides initial planning assumptions by business group for 2024, group
guidance will follow with Nokia's Q4 results on January 25
-- Provides further detail on strategy for Mobile Networks to unlock
long-term value
Espoo, Finland - Today, Nokia will host an investor and analyst
event to provide an update on its execution against its group
strategy, initial planning assumptions for 2024 and a revised
comparable operating margin target for 2026. It will also outline
its strategy to give more autonomy to its four business groups. The
Presidents of Nokia's Mobile Networks and Cloud and Network
Services business groups will also present their strategies and
future opportunities.
Group strategy update -- increased autonomy for business groups
to accelerate value creation
In 2021, Nokia significantly streamlined its operating model,
moving from a matrix organization and creating four
P&L-responsible business groups structured around unique
customer offerings. Since then, its business groups have increased
investments in R&D and made significant progress in
strengthening technology leadership.
-- Network Infrastructure has extended its technology leadership position
and is growing faster than the market
-- Mobile Networks substantially improved the competitiveness of its
products, taking a leadership position in 5G and gaining significant
market share
-- Cloud and Network Services has grown faster than the market in its five
growth segments, including Enterprise private wireless, while rebalancing
its portfolio
-- Nokia Technologies has expanded into areas such as automotive, multimedia
and consumer electronics, and has signed new, long-term patent license
agreements with Apple and Samsung
During its third quarter update, the company announced increased
operational autonomy for its four business groups by embedding
dedicated sales and go-to-market teams with each one. Moving
forward, the business groups will have increased strategic autonomy
to pursue investment that supports growth, portfolio management,
and deeper strategic partnerships.
Nokia's lean corporate center will act as a strategic architect,
providing oversight in key areas, including target setting and
performance management, portfolio development, and compliance. The
company will continue its commitment to long-term research through
Nokia Bell Labs, as evidenced by its recent announcement of a new
venture studio and venture partnerships to unleash the full
commercial potential of Nokia Bell Labs technologies outside of
Nokia's strategic perimeters.
Accompanying the move towards more autonomous business groups
and to provide investors with greater transparency in assessing
their financial performance, Nokia will begin reporting cash flow
and regional sales at the business group level in 2024.
Tommi Uitto, President of Mobile Networks (MN), will today
present on how MN is revamping its strategy. It has begun to
re-baseline its operations for resilience and profitability while
maintaining its commitment to technology leadership and protecting
its R&D output. These combined actions, to be completed by
2026, will enable MN to achieve a double-digit operating margin at
net sales level of approximately EUR 10 billion, compared to the
approximately EUR 11.5 billion threshold level that would be
required today. In addition to serving CSP customers, MN will
accelerate its offerings to faster growing segments, including
Enterprise, Cloud RAN, O-RAN, and the defense sector.
Raghav Sahgal, President of Cloud and Network Services (CNS),
will present the business group's journey as it positions itself to
lead the networking software revolution towards cloud and
as-a-service deployment models. Raghav will outline next steps in
the CNS strategy, including expansion in the enterprise
connectivity segment, and maturing its business model with SaaS and
Network as Code at the core. During his presentation, Raghav will
focus on the five growth segments outlined for CNS, including
private wireless, AI and analytics, security, digital operations
and 5G Core.
Pekka Lundmark, President and CEO of Nokia said: "Today marks
another step forward in the strategic journey we started in 2021.
When I arrived at Nokia, we took the decision that end-to-end as a
core strategic idea would be replaced with one where we have
financially accountable business groups, each driving
market-leading technology. Each Nokia business group is distinct,
with different customers, R&D requirements, market cyclicality,
cash flow profiles and target margins. Therefore, this October, we
announced actions to give the business groups more autonomy and
greater agility to pursue opportunities in their respective
markets. We are also revamping the strategy for our Mobile Networks
business to capture mid to long-term value opportunities. Across
our other business groups we are seeing positive results. Network
Infrastructure is seeing improving order intake across its
business, and CNS, following a robust performance so far in 2023,
has continued to make solid progress in 5G Core, Enterprise and
network monetization. We want to provide better value for
customers' network investments and ultimately create more value for
our shareholders."
2026 comparable operating margin target revised to at least
13%
As a conclusion to Nokia's long-range planning process, the
company has decided to lower its comparable operating margin target
to be achieved by 2026 from the prior at least 14% to at least 13%.
Nokia still sees a path to achieving the at least 14% comparable
operating margin target but considering the current market
conditions in Mobile Networks, this is deemed a prudent change.
Nokia sees further opportunities to increase margins beyond 2026
and believes this 14% target remains achievable over the longer
term. Nokia targets for both NI and CNS to grow faster than the
market through 2026 while Mobile Networks will face challenges in
2024 and 2025 before returning to grow faster than the market in
2026. Nokia's other targets remain unchanged.
Revenue growth Grow faster than the market
--------------------------- ------------------------------------
Comparable operating margin >= 13%
--------------------------- ------------------------------------
Free cash flow 55 to 85% conversion from comparable
operating profit
--------------------------- ------------------------------------
The comparable operating margin target for Nokia Group is built
on the following assumptions by business group for 2026:
Network Infrastructure 12 -- 15% operating margin
-------------------------- ------------------------------
Mobile Networks 6 -- 9% operating margin
-------------------------- ------------------------------
Cloud and Network Services 7 -- 10% operating margin
-------------------------- ------------------------------
Nokia Technologies Operating profit more than EUR
1.1 billion
-------------------------- ------------------------------
Group common and other Approximately EUR 300 million
cost
-------------------------- ------------------------------
Initial planning assumptions for 2024
Nokia will provide a group financial outlook for the financial
year 2024 with its fourth quarter results on 25 January 2024.
Considering the market conditions and to help investors understand
how Nokia expects to navigate some of the obstacles it faces, the
company is providing the following high level and preliminary
planning assumptions across its business groups. The market
environment for Mobile Networks remains challenging, but the rest
of the business groups continue to make good progress towards their
long-term targets.
-- Network Infrastructure: The business group is seeing improving order
intake across its businesses. This is being driven by tailwinds in
webscale/enterprise contracts supporting IP Networks, a recovery in Fixed
Networks as government funding starts to benefit the market in H2'24 and
on-going product momentum in Optical Networks. The company currently
assumes Network Infrastructure will see a return to mid-single digit net
sales growth on a constant currency basis with all businesses
contributing and a largely stable operating margin.
-- Mobile Networks: The spending environment remains challenging due to
market decline in 2023 and a normalization in India in 2024 after rapid
5G deployment. Following that and AT&T's decision to concentrate its
radio network around a single vendor, Mobile Networks' net sales are
assumed to decline. However, MN assumes a low-single digit operating
margin due to the actions it is taking to reduce costs.
-- Cloud and Network Services: Having delivered a robust performance thus
far in 2023, CNS currently assumes modest net sales growth in constant
currency as it continues to see a measured pace of 5G Core deployments
along with continued solid growth in enterprise. The business group is
also assumed to deliver a stable to slightly increasing operating margin.
-- Nokia Technologies: Nokia Technologies remains focused on resolving the
outstanding litigation/renewal discussions with smartphone customers. If
these discussions resolve by the end of 2023, Nokia assumes Nokia
Technologies' operating profit of more than EUR 1.0bn in 2024. If the
renewal discussions are not concluded by the end of 2023, and resolved in
2024, Nokia would expect to benefit from additional catch-up payments
covering periods of non-payment.
-- Group common and other: Nokia assumes Group Common cost of approximately
EUR 350 million.
Investor Update event details
The online webcast of the event can be accessed from the Nokia
Investor Relations website
(https://www.nokia.com/about-us/investors/investor-relations-events/)
with the presentation starting at 14:00 EET / 12:00 GMT / 07:00
EST.
About Nokia
At Nokia, we create technology that helps the world act
together.
As a B2B technology innovation leader, we are pioneering
networks that sense, think and act by leveraging our work across
mobile, fixed and cloud networks. In addition, we create value with
intellectual property and long-term research, led by the
award-winning Nokia Bell Labs.
Service providers, enterprises and partners worldwide trust
Nokia to deliver secure, reliable and sustainable networks today --
and work with us to create the digital services and applications of
the future.
Inquiries:
Nokia Communications
Phone: +358 10 448 4900
Email: press.services@nokia.com
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Kaisa Antikainen, Communications Manager
Nokia
Investor Relations
Phone: +358 40 803 4080
Email: investor.relations@nokia.com
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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, 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 and the general
or regional macroeconomic conditions on our businesses, our supply
chain 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, 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 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", "commit", "estimate", "expect", "aim",
"influence", "will", "target", "likely", "intend", "may", "could",
"would" 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 specified
in our 2022 annual report on Form 20-F published on 2 March 2023
under Operating and financial review and prospects -- Risk
factors.
(END) Dow Jones Newswires
December 12, 2023 01:00 ET (06:00 GMT)
Copyright (c) 2023 Dow Jones & Company, Inc.
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