Nokia Corporation — 2021 Form 20-F summary
Reporting period: Fiscal year ended 31 December 2021; filed 3 March 2022. This is an annual report, not a standalone 2021 Q4 earnings report. Financial statements are prepared under IFRS as issued by the IASB and adopted by the EU. Nokia supplies mobile, fixed and cloud network equipment, software and services, and licenses intellectual property.
Business context and strategy
Nokia reorganized at the start of 2021 into four reportable business groups: Mobile Networks, Network Infrastructure, Cloud and Network Services, and Nokia Technologies. Management described 2021 as a “reset” year, with plans to accelerate growth and profitability through technology leadership, cloud and software offerings, and a simpler operating model. Average employment was 87,927, down from 92,039 in 2020.
Key financial metrics
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Net sales | EUR 22.202bn | EUR 21.852bn | Up 2%; 2019 was EUR 23.315bn |
| Gross profit / margin | EUR 8.834bn / 39.8% | EUR 8.193bn / 37.5% | Margin improved 2.3 percentage points |
| Operating profit / margin | EUR 2.158bn / 9.7% | EUR 885m / 4.0% | Reported operating profit rose substantially |
| Comparable operating profit (non-IFRS) | EUR 2.775bn | EUR 2.081bn | Up about 33%; excludes specified items |
| Profit/(loss) for the year | EUR 1.645bn | Loss of EUR 2.516bn | 2020 included a EUR 2.9bn Finnish deferred-tax-asset write-down |
| EPS, basic and diluted | EUR 0.29 | Loss of EUR 0.45 | 2021 continuing-operations EPS also EUR 0.29 |
| Net cash from operating activities / free cash flow | EUR 2.625bn / EUR 2.368bn | EUR 1.759bn / EUR 1.356bn | Both increased year over year |
| Capital expenditure | EUR 560m | EUR 479m | Primarily R&D, test and network equipment, and facilities |
| Total cash and current financial investments | EUR 9.268bn | EUR 8.061bn | Cash and cash equivalents alone were EUR 6.691bn |
| Interest-bearing liabilities / net cash | EUR 4.653bn / EUR 4.615bn | EUR 5.576bn / EUR 2.485bn | Net cash improved; gearing was negative 26.43% |
| Total equity / equity ratio | EUR 17.462bn / 43.60% | EUR 12.545bn / 34.66% | Equity strengthened |
Nokia also had an undrawn EUR 1.5bn revolving credit facility with no financial covenants. Management said available liquidity was sufficient for expected needs at least through 2022. Credit ratings at year-end were BB+ (S&P), Ba2 (Moody’s) and BBB- (Fitch); Nokia aims to regain investment-grade ratings.
Segments and changes versus 2020
- Mobile Networks: Sales declined 7% to EUR 9.717bn, reflecting North American market-share losses, price erosion and supply constraints. Operating margin held at 7.9%; gross margin improved to 37.4%. Nokia increased 5G R&D investment and reported 214 commercial 5G deals.
- Network Infrastructure: Sales grew 14% to EUR 7.674bn, led by Fixed Networks and Submarine Networks. Operating margin increased to 10.2% from 6.8%.
- Cloud and Network Services: Sales were essentially flat at EUR 3.089bn. Operating margin improved to 5.4% from a 2.2% loss, principally because project-loss provisions that weighed on 2020 were absent in 2021 and operating expenses were lower.
- Nokia Technologies: Sales increased 7% to EUR 1.502bn, and operating profit rose 6% to EUR 1.185bn. New and renewed patent licenses contributed, partly offset by an expired license and lower brand licensing sales. Segment operating margin was 78.9%.
Outlook, management commentary and material items
- Management characterized 2021 as a successful reset and said the company was positioned to enter the “accelerate” phase, targeting further growth and profitability. No clear consolidated 2022 revenue or EPS guidance is provided in the supplied filing text.
- Market estimates for 2022: Mobile Networks addressable market outside China of EUR 49bn, approximately 3% growth; Network Infrastructure addressable market excluding Submarine Networks of EUR 45bn, approximately 3% growth; and Cloud and Network Services addressable market of EUR 28bn, approximately 5% growth. Nokia estimated the enterprise market would grow at 9% CAGR through 2026 and the CSP market at 1% CAGR over 2021–2026.
- The cost-base reset targets approximately EUR 600m of reductions by the end of 2023. Updated estimates were EUR 500–600m of restructuring and associated charges and EUR 1.05–1.15bn of related cash outflows; the latter includes about EUR 500m from the previous restructuring program. Restructuring proceeded more slowly than initially planned in 2021, while the overall savings plan remained unchanged.
- Reported operating profit benefited from higher gross profit and lower SG&A, as well as a favorable swing in other operating income and expenses: net income of EUR 330m in 2021 versus net expense of EUR 323m in 2020. Items included EUR 188m of gains from unlisted venture funds, EUR 90m of legal-dispute settlements, and improved trade-receivable allowance movements. The company recorded no goodwill impairment in 2021, compared with EUR 200m in 2020. These items mean reported earnings should be assessed alongside comparable operating profit.
- 2020’s net loss was primarily affected by the EUR 2.9bn Finnish deferred tax asset derecognition. Nokia said those tax attributes were not lost and the derecognition did not affect cash taxes, but at year-end 2021 it still judged utilization in Finland in the foreseeable future not probable.
- The Board proposed authorization for up to EUR 0.08 per share in dividend and/or equity repayment, subject to shareholder authorization and Board decisions. A share buyback program launched in February 2022 targets up to EUR 600m over two years.
- Supply-chain disruption, semiconductor shortages, COVID-19, inflation, geopolitical uncertainty and foreign-exchange movements affected or could affect operations. Other principal risks include intense 5G/network competition and price erosion, dependence on large customers and long-term contracts, technology execution, cybersecurity and privacy, IP disputes, regulation and sanctions, tax and pension assumptions, and possible goodwill impairment.
- Contingencies include EUR 5.006bn of purchase obligations, guarantees, litigation and customer-financing commitments, and EUR 137m of venture-fund commitments at year-end. In January 2022, Nokia separately committed USD 400m to NGP Capital Fund V over the fund’s 10-year life.
- Patent disputes included proceedings involving Oppo, OnePlus and Realme; Nokia reported that its 2021 agreements with Daimler and Lenovo resolved litigation between those parties. Deloitte issued unqualified opinions on the financial statements and internal control over financial reporting; management also concluded disclosure controls were effective.
Important facts for investors to verify
- Whether revenue growth and margin gains persist, particularly given Mobile Networks’ sales decline and the contribution of unusual items to reported operating profit.
- Whether the EUR 600m cost-base target is achieved by 2023, and the eventual restructuring cash costs and savings.
- Progress on 5G competitiveness, market share, product roadmaps and supply-chain constraints, including semiconductor availability.
- Cash conversion, working-capital needs, debt maturities, credit-rating progress and the capacity to fund R&D and shareholder returns.
- Whether the proposed distribution and buyback are authorized and completed, and whether future distributions remain consistent with cash generation and business needs.
- Developments in patent licensing, litigation and the realization of deferred tax assets, along with the material purchase, guarantee and other commitments disclosed in the notes.