Nokia said on the occasion of its Capital Markets Day that it expects its comparable operating margin to rise to between 10 percent and 13 percent in 2023, and to grow faster than the market in full-year 2023. It announced three stages toward sustainable, profitable growth and technology leadership, with a "new company purpose" and new ways of working. It reiterates its financial outlook for FY 2021.
The equipment vendor still expects net sales adjusted for currency fluctuations to be between EUR 20.5 billion and EUR 21.8 billion in 2021, and a comparable operating margin between 7 percent and 10 percent. It will have positive free cash flow this year, and its return on invested capital (ROIC) in 2021 will be between 10 percent and 15 percent.
Targets FY 2023 comparable operating margin at 10-13%
In FY 2023, it expects net sales to grow faster than the market, with a comparable operating margin between 10 percent and 13 percent, as well as "clearly" positive free cash flow and ROIC at between 15 percent and 10 percent.
Aims for stable but eventually growing dividends
Nokia said its new dividend policy is to aim for recurring, stable and eventually growing ordinary dividend payments, taking into account the previous year’s earnings and the company’s financial position and business outlook. As already announced, no dividend or pay-out authorisation has been proposed for FY 2020. After Q4 2021, the board will assess the possibility of proposing a dividend distribution for the financial year 2021.
Outlook for four new divisions
Turning to prospects for the four new divisions that it announced earlier in the week, Nokia said Mobile Networks are expected to have a comparable operating margin in FY 2021 at between negative 1 percent and positive 2 percent, rising to positive rates between 5 percent and 8 percent in 2023.
Network Infrastructure’s operating margin this year will be 7-10 percent, growing to 9-12 percent in FY 2023. The Cloud and Network Services operating margin is predicted at 3-6 percent in 2021 and at 8-11 percent in 2023.
Nokia Technologies is forecast to have a comparable operating margin greater than 75 percent in both 2021 and 2023. This division is still expected to have a slight improvement in comparable operating profit in 2021 over 2020 and stable performance over the longer term.
As well as the four new business groups, Nokia will have a Group Common and Other division, which primarily will provide support functions. Where possible, Nokia has now embedded support function costs directly into its business groups, so it expects the net negative impact of Group Common and Other to fall from previous levels to approximately EUR 200 million in 2021 and 2023.
Between 2021 and 2023, each business group will contribute to shareholder value creation and to improving capital allocation and technology leadership in 2021, positioning Nokia to grow profitably in 2022 and beyond. Eventually, each business group should generate a return on capital employed (ROCE) greater than Nokia’s weighted average cost of capital (WACC) of 7 percent.
President and CEO Pekka Lundmark said Nokia is repositioning itself for sustainable, profitable growth. It has moved away from end-to-end provision and has instead set up four fully accountable business groups, arranged according to how customers buy. In the next few years, Nokia expects trends such as next-generation FTTH access and optimised transport technologies. There will be significant growth in the enterprise market, too. Nokia estimates that the peak of the 5G market will last roughly twice as long as the peak for 4G.
Three phases for growth
Nokia is setting out three phases to achieving above-market growth, namely re-set, accelerate and scale. The re-setting phase involves reaching technology leadership, bringing in a new operating model to cut complexity and raise accountability, reaching full portfolio competitiveness in Mobile Networks, re-setting its cost base, and changing its ways of working.
In the acceleration stage, it will speed up competitiveness from 2022 and aims to expand its margins through enhanced technology leadership, digitising its own operations, and automating and capturing "emerging opportunities".
In the scaling phase, Nokia intends to scale up to support growth in new use cases and business models including in enterprise and private wireless, in order to expand faster than the market.
Outlook for addressable market growth 2020-2023
Looking at market development between 2020 and 2023, Nokia expects its total addressable market to have a compound annual growth rate (CAGR) of approximately 1 percent from 2020 to 2023. The CAGR for the Mobile Networks division is expected at about 1 percent, the Network Infrastructure arm should have a global addressable market CAGR of approximately 2 percent, and the Cloud and Network Services is likely to have a global addressable market CAGR of 2 percent, too.
New company purpose
Turning to its new company purpose, Nokia said it believes technology is central to solving the problems of increasing pressure on the planet, stalling productivity and inequality of opportunity. Nokia said it aims to boost its role as a trusted partner for critical networks, focus on technology leadership in each of its businesses, and capture the value shift to cloud and new business models as critical networks evolve.
Nokia also aims to create value through long-term research and intellectual property.
New ways of working
In addition, Nokia is changing its ways of working and promoting a culture where workers are open to continuous development, "fearless to experiment", and able to act with clear accountability.
