Nokia reported a strong improvement in profits for the fourth quarter, despite flat revenues for the period. Profits were still down over the full year, and the company said it will focus this year on its mobile access business and cash flow, with the hope of paying a dividend by year-end.
Quarterly operating profit was up 45 percent to EUR 803 million, and the adjusted operating margin reached 16.4 percent, compared to 16.3 percent a year ago. EPS more than tripled, to EUR 0.10 from EUR 0.03 in Q4 2018, driven by the cost savings programme.
Over the full year, adjusted EPS was still down slightly, to EUR 0.22 from EUR 0.23 in 2018, which Nokia blamed on lower gross profit, particularly from the Mobile Access business. Annual revenues rose 3 percent to EUR 23.3 billion, while the adjusted operating margin fell to 8.6 percent from 9.7 percent.
No dividend until 2021
CEO Rajeew Suri said the Q4 results were a strong finish to a challenging year. While the group made progress in strategic growth areas such as enterprise and software, the mobile networks business still needed work. In addition, the group continued to burn cash, with the net cash position nearly halving over the year to EUR 1.7 billion. Nokia said it aimed to pay a dividend once cash exceeded EUR 2 billion, but this is unlikely to happen in the first three quarters of 2020. This means any dividend would be authorised only in Q4 and paid out in 2021.
For the full year, Nokia aims to improve adjusted EPS to EUR 0.25, plus or minus 5 cents, reach an adjusted operating margin of 9.5 percent, plus or minus 1.5 percent, and achieve positive recurring cash flow. The long-term margin target remains 12-14 percent.
Challenging Chinese market
The outlook is based on an expected performance in line with the market, which is forecast flat on a constant currency basis in 2020 excluding China. Nokia said it's decided to exclude China, as pursuing further market share there "presents significant profitability challenges" given the market's "unique dynamics". Other risks include merger-related delays in US orders, weaker demand in India due to increased regulatory fees there and disruptions to the supply chain from the coronavirus outbreak.
Cash and profits are expected again to be weighted to Q4 in 2020, while the mobile access business will remain highly competitive in the race for 5G contracts. Nokia said it will continue to focus on cost reductions and accelerating its product roadmap, in order to maintain the scale necessary to compete.
5G win rate
The company also announced two KPIs for the Mobile Access business which it will report throughout 2020 to chart progress in improving the business. These are the proportion of 5G shipments that are '5G Powered by ReefShark', in order to show progress in driving 5G product cost reductions. These new products made up 10 percent of 5G shipments in the fourth quarter, and Nokia aims to increase this to over 35 percent by year-end and 70 percent in 2021.
The other metric is the weighted 5G win rate. This factors in customer size and measures how Nokia is doing converting its end-2018 4G footprint, as well as adding new 5G customers where it did not previously have a 4G installed base. At the end of 2019, the 5G win rate was over 100 percent outside of China and in the mid 90s range including China, reflecting strong performance, the company said.
