Q1 2024 Nokia Oyj Earnings Call - Pre-Recorded
With me today in ESMO as Pekka Lundmark, our president and CEO.
Please note that during this discussion as we discuss Nokia's financial performance, we refer to growth rates that will be on a constant currency basis, and we refer to margins or profitability. It's related to our comparable reporting you can find a full reconciliation tables between the comparable reporting in our F. <unk> results on our financial report of Nokia Investor.
And his website with that let's get started.
<unk> could you maybe give us a quick overview of Nokia's Q1 results.
Thanks, David.
As we expected the first quarter, so a continuation of the market weakness that started in Q2 last year.
The challenging environment led to a 19% year on year decline in net sales.
Our operating margin came in at 12.8%, which was supported by a number of patent licensing deals signed in Nokia technologies during the quarter and by the ongoing cost reductions.
The high point of the quarter was undoubtedly our cash performance as we generated free cash flow of almost 1 billion Euro and ended the quarter with a net cash position of 5.1 billion Euro.
If we dig a bit deeper into each of the business groups HUD It network infrastructure during Q1.
Network infrastructure net sales declined by 26% when compared to an exceptionally strong year ago quarter, all business units and Eni declined reflecting the challenging market conditions, but it's also worth remembering that last year, we had unusual seasonality as the year ago quarter benefitted from additional shipments athletic.
Covered from the supply chain disruptions of 'twenty to 'twenty two.
Gross margin declined slightly as a result of product mix and lower net sales, while operating margin declined to four 9%, mainly because of lower net sales coverage of our operating expenses.
In Q4, you talked about some improvements in the order intake trends you were seeing particularly in network infrastructure, how did that progress as we started 2024, that's right. David We said in Q4 that we saw improving order intake trends, particularly in network infrastructure.
This trend continued in Q1 with year on year growth in networking infrastructure order intake, which drove an increase in our order backlog.
If we look at the network infrastructure business units positively the outlook for fixed networks for the year has improved which is an important signal as these market often recovers first.
However, we do believe the recovery in optical networks might take somewhat longer.
Given the strength in orders, we continue to expect that network infrastructure, we'll return to net sales growth for the full year with a stronger second half performance.
Turning to mobile networks, you were clearly expecting a challenging environment through 2024, how did that progress in the first quarter.
Well as as we expected mobile networks, so a weak start to the year with a net sales decline of 37% in Q1.
This decline was driven by very low demand from both North America and India.
The slower pace of spending in India was anticipated following the rapid five J deployments in the first half of last year.
Globally, we expect that Q1 will mark the low point in demand with activity progressed civil it picking up through the remainder of 2024.
I was pleased to see a strong gross margin performance of 42% benefiting from improving regional and product mix. However, I would note that approximately half of this improvement was due to exceptionally low indirect cost of sales.
Operating margin was negative two 7%, reflecting the reduced top line.
Could you also provide a few comments on the progress you're seeing in cloud and network services.
Cloud and network services also saw a soft start to the year, but we are seeing improving order intake and pipeline momentum also in this business and our full year assumptions remain unchanged.
We also continued to make good progress with our network is cold platform and have now signed a total of 11 agreements with operators. This remains an important strategic investment area for us as we work to empower operators to enable advanced API access to their networks and better monetize their <unk> investments.
There were also a number of partnerships announced in the quarter could you maybe highlight a little bit about each of those and why you see the most important.
That's right David It was a busy quarter in terms of partnerships, we announced a strategic partnership with Dell on the Nokia side, we will now adopt Dell as our preferred infrastructure partner for existing Nokia airframe customers, which will enable us to refocus our R&D efforts in the areas, where we can really differentiate.
As Nokia.
Secondly, our private wireless solution N deck, or Nokia digital automation cloud will become <unk> preferred private wireless platform for enterprise customers and we can see this becoming a very powerful channel to further drive growth and private wireless.
We also announced a partnership with Nvidia that will help us to broaden the compute platforms, we support without any ranch solution for cloud deployments. This will help us to accelerate the opportunities to bring AI capabilities into the ran network.
We will also partner with Nvidia on some elements of six G research.
The Nokia technologies had an extremely strong quarter, what was it that really drove this.
We were pleased to conclude the smartphone renewal cycle this quarter with the completion of a number of outstanding deals. This increases our run rate from just under 1 billion Euro in Q4 to $1 3 billion Euro in Q1 and in addition to this we benefited from a more than $400 million.
Of catch up net sales in the quarter.
This means Nokia technologies has now entered a period of stability the business will focus its resources on expanding in new growth areas with the next goal to increase our licensing net sales run rate to one point for the 1.5 billion Euro intermittent.
During the quarter, we had a very strong cash flow performance as well what drove this.
Yes, that's correct, we generated nearly 1 billion euro of free cash flow in Q1 to enter the quarter with 5.1 billion euro of net cash.
This was driven by two main factors firstly, the Nokia technologies catch up payments and secondly, the reduction in receivables as we start to see an unwind of the working capital investment we made in 2022 and 2023.
This gives us further confidence in our cash conversion target for the year of between 30 and 60%.
If we then look forward causes your outlook for 2024 volt.
While Q1 was a challenging quarter for the networks business is we are seeing some improving trends in order intake and the progress in Nokia technologies also helps to solidify our outlook.
As we look forward through the rest of the year I believe we remain solidly on track to achieve the guidance that we have laid out for 'twenty 'twenty four.
We continue to expect comparable operating profit of between 2.3, and $2 9 billion Euro and free cash flow conversion between 30 and 60%.
And before we conclude Pekka do you have any final thoughts she want to leave with the audience.
One other thing I wanted to mention is that we are making good progress on the initiatives, we announced back in October.
From January 1st onwards, we have been working in the new model where sales. Another go to market teams are embedded in the business groups and I believe this will help us to accelerate our strategy execution. This year.
We have also been moving quickly on our cost reduction program and we remain well on track to achieve 500 million euro of in year savings in total in 2024.
And finally I want to say a big thank you to the entire Nokia team for their resilience and determination, which enabled us to navigate in a highly challenging environment.
Thank you Parker for his comments and thank you to our audience for joining us today.
During this video we have made forward looking statements and these statements are predictions that involve risks and uncertainties actual results may therefore differ materially from the results. We currently expect factors that could cause such differences can be both external as well as internal operating factors wherever identified such risks in more detail in the risk factors section.
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