Friday 31 July 2020 10:07 am

Nokia shares soar as group swings to profit during pandemic

Nokia shares rocketed almost 14 per cent this morning as the Finnish telecoms firm reported better-than-expected profitability for the first half of 2020 amid the coronavirus crisis.

Shares soared 13.9 per cent to €4.11 at 9.30am BST this morning as the mobile provider said it was in a “significantly stronger financial position” at the end of the second quarter.

The results

Nokia reported a huge spike in operating profit to £170m in the six months to June, up from a loss of €57m in the same period last year.

The group’s operating margin swelled to 3.3 per cent over the period, up from minus one per cent in June last year, driven mostly by strength in its networks.

Net sales slumped 11 per cent to €5.09bn year on year, as Nokia swallowed the impact of Covid-19 and a sharp decline in China based on its “prudent approach” to the Beijing market.

Nokia said the plunge in sales had cost it roughly €500m in the fist half of 2020, but added that it an expected surge in sales later in the year would offset the financial damage.

Nokia delivered strong free cash flow for the first half of 2020 to €265m, up from minus €1bn in 2019.

 The group raised its recurring free cash flow guidance for the year to be “clearly positive” compared to its earlier guidance of “positive”.

Why it’s interesting

Nokia said the coronavirus crisis had “made vividly clear the critical importnce of connectivity to keep society functioning”.

However, the pandemic also ate into Nokia’s bottom line, with the telco estimating a €300m blow from Covid-19 in the second quarter, bringing the total cost of the pandemic to €500m for the half-year.

The telco added that the pandemic also affected operational costs due to a slump in travel and lower inventories due to temporary disruptions.

Nokia said it took “further proactive steps” to strengthen its liquidity position, including raising €1bn of debt in the second quarter on a net basis. The group now has a robust balance sheet, with approximately €7.5bn of total cash.

The group saw “healthy improvements” in its radio portfolio, due to a rise in performance and dip in costs. 

The Finnish firm said it continued to advance its 5G roadmap during the pandemic, as it looks set to scoop up the market vacuum left by the government’s decision to ban Huawei from the UK’s 5G network.

Earlier this month, Nokia UK chief executive Cormac Whelan said: “We have the capacity and expertise to replace all of the Huawei equipment in the UK’s networks at scale and speed.”

Nokia said overall it expects to slightly underperform in its primary addressable market, which is expected to be flattish on a constant currency basis for 2020.

The group showed strong resilience to the financial turmoil sparked by the pandemic, adding that operating profit in 2020 will likely be similar to 2019, with the majority of operating profit to be generated in the fourth quarter.

What Nokia said

Rajeev Suri, president and chief executive of Nokia, said:

“Nokia delivered a strong improvement in the second quarter, with better-than-expected profitability, significant improvement in cash generation, clear indications of a return to strength in mobile radio, and a year-on-year increase in earnings-per-share, despite the challenges of Covid-19.

“These results show that our execution has improved as planned and that we are well positioned to end the year with a significantly stronger financial position.

“Nokia-level revenue was down in the quarter, with the majority of that the result of Covid-19 as well as a sharp decline in China based on the prudent approach we have taken in that market. We also saw a reduction driven by our proactive steps to reduce the volume of low margin services business. We expect that the majority of sales missed in the quarter due to Covid-19 will shift to future periods.

“This is my last quarterly announcement as chief executive of Nokia and I want to close with a note of thanks: thanks to our shareholders, thanks to our customers, thanks to our many other stakeholders, and a particular thanks to the great employees of Nokia.”