Nokia reported improved underlying profits in the first quarter, thanks to its cost reduction efforts and a limited impact from the Covid-19 pandemic. While revenues were down 2 percent to EUR 4.9 billion, adjusted operating profit was a positive EUR 116 million versus a loss of EUR 59 million a year ago. The company said it expects Q2 to show the most impact from the coronavirus crisis and slightly lowered the mid-point of its full-year outlook.
The company estimates that the Covid-19 outbreak took around EUR 200 million off sales in the quarter, due mainly to supply chain disruptions in China. As such, the sales are expected to shift to future periods, rather than be totally lost. Nokia said the pandemic had not impacted its 5G product development and mitigation measures had protected R&D. A global command centre is managing the impact on its supply chain and 25 factories around the world
The company's bottom line remained a loss of EUR 100 million, versus a loss of EUR 442 million a year ago. Adjusted EPS was EUR 0.01, compared to a loss of EUR 0.02 in Q1 2019, with the improvement driven by higher gross profit in Mobile Access, continued progress on cost savings and a net positive fluctuation in financial income and expenses. This was partially offset by higher investments in 5G R&D to accelerate product roadmaps and cost competitiveness in Mobile Access, Nokia said.
Nokia ended the quarter with net cash of EUR 1.3 billion, after an outflow of around EUR 0.4 billion in the seasonally weak period. The company said it drew down the EUR 500 million credit facility received from the EIB in 2018 and still has access to another EUR 1.5 billion undrawn facility, while it's also looking at other opportunities to strengthen liquidity.
For the full year, the company now expects EPS of EUR 0.23, plus of minus 5 cents, compared to a previous mid-point of EUR 0.25. The adjusted operating margin is estimated at 9.0 percent, plus or minus 1.5 percent, compared to the earlier midpoint of 9.5 percent. In Q1, the margin reached 2.4 percent. Nokia still expects positive free cash flow for the full year.
The company also downgraded its outlook for the addressable market (excluding China), to a decline on a constant currency basis compared to the previous forecast of flat. This is due largely to the Covid-19 impact, which is expected to be felt especially in Q2. Nokia still expects a stronger second half of 2020, with most of its profit and cash flow to be realised in Q4, but noted there is uncertainty still about the duration of the pandemic and subsequent economic impact.
