Nokia exceeds 1Q profit targets on slightly lower sales

Nokia exceeds 1Q profit targets on slightly lower sales Better-than-expected profitability in mobile phones offsets challenging network environment First quarter 2002 compared with first quarter 2001: - Net sales decreased 12% to EUR 7 014 million (EUR 8 007 million in 1Q 2001) - Pro forma operating profit was EUR 1 286 million (EUR 1 440 million); operating margin was 18.3% (18.0%) - Pro forma adjustments EUR 52 million in goodwill amortization - Pro forma earnings per share (diluted) was EUR 0.19 (EUR 0.22) - Reported (IAS) net profit was EUR 863 million (EUR 975 million) and reported earnings per share (diluted) was EUR 0.18 (EUR 0.20) 1Q 2002 RESULTS PRO FORMA REPORTED (excludes goodwill amortization and non- recurring items) EUR (million) 1Q/200 1Q/20 Chang 1Q/20 1Q/20 Chang 2 01 e (%) 02 01 e (%) Net sales 7 014 8 007 -12 7 014 8 007 -12 Nokia Mobile Phones 5 438 5 830 -7 5 438 5 830 -7 Nokia Networks 1 436 2 022 -29 1 436 2 022 -29 Nokia Ventures 157 169 -7 157 169 -7 Organization Operating profit 1 286 1 440 -11 1 234 1 369 -10 Nokia Mobile Phones 1 208 1 207 0 1 185 1 183 0 Nokia Networks 146 364 -60 122 345 -65 Nokia Ventures -30 -102 71 -35 -130 73 Organization Common Group Expenses -38 -29 -38 -29 Operating margin 18.3% 18.0% 17.6% 17.1% Nokia Mobile Phones 22.2% 20.7% 21.8% 20.3% Nokia Networks 10.2% 18.0% 8.5% 17.1% Nokia Ventures -19.1% - - - Organization 60.3% 22.3% 76.9% Profit before tax and 1 313 1 485 1 261 1 414 minority interests Net profit 915 1 046 863 975 EPS, EUR Basic 0.19 0.22 0.18 0.21 Diluted 0.19 0.22 0.18 0.20 JORMA OLLILA, CHAIRMAN AND CEO: The company put in a solid overall performance for the first quarter 2002, with mobile phone profitability exceeding all expectations. The strong bottom line in our mobile handset business continues to be driven by Nokia's global leadership. Based on Nokia's preliminary research for the first quarter 2002, we believe we have at least maintained our estimated 37% share of the overall mobile phone market, in line with our long-term 40% share target. Continuing challenges in the network infrastructure environment led to lower-than-expected 2G investments in China and Europe, and we were unable to meet our first-quarter Nokia Networks sales estimates. However, the operating margin at Nokia Networks was as forecast, thanks to streamlining measures taken last year in this business. The transition to 3G is expected to positively impact sales in our networks business as we go into the second half of the year, and we believe we are on track to achieving our 35% targeted share of the overall mobile infrastructure market in the long-term. This is a year of renewal for our industry. Key enablers for new products and services are in place but at different stages of maturity and market penetration. We see multimedia messaging as the main driver in the current technology shift, with the majority of mobile devices in our product plan for next year being MMS-enabled. Nokia is working actively for industry renewal with a continuous flow of new products supporting a range of technologies. In the first half of this year alone, we plan to ship more models than in the whole of 2001, driving new mobile applications and services. This year will also mark the start of 3G, another key component of industry renewal, with the transition from 2G to 3G likely to span several years. We are preparing for the launch of our first 3G mobile device in the third quarter and are committed to having the very first Nokia-delivered 3G network in operation during September 2002. Over the next few years, mobility will be the major technology and lifestyle driver. A large part of personal and professional communications will be in a wireless environment with a personal mobile device as the medium. Given Nokia's solid financials, clear market leadership and long record of success in the realm of mobility, we continue to anticipate far-reaching growth opportunities as this industry unfolds. BUSINESS ENVIRONMENT AND FORECASTS As the mobile multimedia products and services market prepares to take off, the industry remains in transition. The speed of this transition has been slower than was anticipated earlier this year, which has led the company to revisit its annual growth outlook in both the networks and the handset markets. Nokia's first-quarter sales declined by 12% compared with the first quarter 2001. Sales for Nokia Mobile Phones decreased by 7% compared with the previous year, reflecting lower sales in Europe and the Americas, partially offset by growth in Asia Pacific. Sales for Nokia Networks showed a year-on-year decline of 29%, reflecting lower-than- expected 2G investments in China and Europe, partially offset by strong growth in the United States. Sales for the Nokia group in the second quarter 2002 are anticipated to grow by 2% to 7% compared with the second quarter 2001 (5% to 10% for Nokia Mobile Phones and -10% to - 5% for Nokia Networks). Overall sales growth is forecast to accelerate to 15% or more for the second half, culminating in full-year annual sales growth ranging from 4% to 9% (5% to 10% for Nokia Mobile Phones and 0% to 5% for Nokia Networks). Despite lower-than-expected sales, the company's profitability outlook remains strong, driven by increasing operating efficiencies, strong brand and leading product portfolio. Second-quarter pro forma EPS (diluted) is expected to range from EUR 0.18 to EUR 0.20. Management expects continuing healthy cash flow and is comfortable with current consensus estimates for Nokia's full-year diluted pro forma EPS of EUR 0.83. Pro forma operating margins for Nokia Mobile Phones are expected to be at around the 20% level for the remainder of 2002, while in Nokia Networks second quarter pro forma operating margins are expected to remain at least at the same level as the first quarter, increasing to the mid-teens for the balance of the year. Nokia Ventures Organization is expected to post a pro forma loss of around EUR 150 million for 2002. Based on first-quarter developments, Nokia now expects an annual decline in the GSM and overall infrastructure market in 2002. Despite robust GSM/EDGE growth in the United States, Nokia Networks will continue to experience challenging conditions in its largest market, Europe, and in China for the balance of the year. The company estimates the second half to be stronger than the first as 3G network sales enter the books. Mobile phone market volumes in the first quarter were broadly in line with company expectations. However, Nokia now believes that general weakness in all key regions will affect mobile phone demand for the remainder of the year. We are therefore lowering our total market volume estimates for 2002 to a range of 400 to 420 million units. This would reflect modest growth on last year's estimated market volume of 380 million units. NOKIA MOBILE PHONES Nokia Mobile Phones has already announced 16 new products since the beginning of 2002, with a plan during the first half to ship a record number of new mobile devices incorporating a broad range of enabling technologies. Among Nokia's announced new products scheduled for shipping this year, nine will have Javatm, five will include multimedia messaging (MMS) capability, two will use XHTML, 10 GPRS, three 1X (CDMA), and one will be enabled by GAIT (GSM/1900/TDMA). These new products also illustrate Nokia's comprehensive mobile phone portfolio in terms of lifestyle; they include new models in the categories of Expression, Active, Classic, Fashion, Premium, Imaging and Business Application phones. Of particular note are two color screen models: the Nokia 7650, the company's first imaging phone, which combines a digital camera and MMS, and the Nokia 7210, a world phone including MMS, Javatm and an FM radio. During the quarter, Nokia Mobile Phones took steps to accelerate growth and enhance both agility and scale benefits with the introduction of a new operational structure. From May 1, nine new business units will each be responsible for product and business development within a defined market segment. This will allow Nokia to optimize its activities in these vertically-focused areas, while continuing to achieve broad economies of scale from horizontal functions such as communications technology and application software development and the company's market- leading demand-supply network. Nokia is finalizing changes in its manufacturing operations to increase the company's advantage in the highly competitive mobile phone industry. The US organization will shift from building phones from start-to-finish to assembling phones made from components manufactured at Nokia's facilities abroad where the cost structure is lower. As a result, employment will decrease by approximately 625 full-time employees at Nokia's Texas manufacturing facility. Vertu, Nokia's wholly-owned subsidiary, announced the start of its operations in January. Vertu designs, manufactures and sells mobile devices for an exclusive, high-end niche market and illustrates the opportunities available to tap into completely new market segments. NOKIA NETWORKS Nokia signed four GSM contracts, most notably a USD 300 million GSM expansion deal with Voicestream, further strengthening the position of GSM technology in the US market. Deliveries of GSM/EDGE to Nokia's other US customers are proceeding according to plan. In January, Nokia became the first vendor to begin shipping EDGE network equipment in volumes. Shipments of Nokia's WCDMA networks are continuing on time, and we expect the first Nokia-delivered 3G network to be operational in the second half 2002. Nokia also signed three third-generation deals with T- Mobile International, Proximus in Belgium and E-Plus of Germany, bolstering the company's already strong position in 3G-network infrastructure. During the first quarter, Nokia launched its all-IP network strategy and related products, which combine the cost efficiencies of IP technology with the reliability of telecommunications systems. This is in preparation for our operator customers to meet future demands for higher capacity and to improve economies of scale. NOKIA VENTURES ORGANIZATION Following a decline in the Internet security market in 2001, Nokia Internet Communications revenue grew slightly from the last quarter of 2001 and its financial performance improved substantially. Building on its expanded global expertise, the unit strengthened its Internet security portfolio while continuing to deploy IP network security solutions. Nokia Home Communications launched the Nokia Mediamaster 210 T, a terrestrial digital television receiver. Nokia Venture Partners continued to invest in mobile Internet start-ups and one of its portfolio companies, PayPal, had a successful initial public stock offering. The Nokia Early Stage Technology Fund, Nokia's internal corporate venture fund, made its first three investments. NOKIA IN JANUARY-MARCH 2002 REPORTED (International Accounting Standards, IAS, comparisons given to the first quarter 2001 results unless otherwise indicated.) Nokia's net sales decreased by 12% to EUR 7 014 million (EUR 8 007 million). Sales of Nokia Mobile Phones declined by 7% to EUR 5 438 million (EUR 5 830 million). Sales of Nokia Networks decreased by 29% to EUR 1 436 million (EUR 2 022 million). Sales of Nokia Ventures Organization decreased by 7% and totaled EUR 157 million (EUR 169 million). Operating profit decreased by 10% to EUR 1 234 million (EUR 1 369 million), representing an operating margin of 17.6% (17.1%). Operating profit in Nokia Mobile Phones was virtually unchanged at EUR 1 185 million (EUR 1 183 million), representing an operating margin of 21.8% (20.3%). Operating profit in Nokia Networks decreased by 65% to EUR 122 million (EUR 345 million), representing an operating margin of 8.5% (17.1%). Nokia Ventures Organization reported an operating loss of EUR 35 million (operating loss of EUR 130 million). Common Group Expenses, which comprises Nokia Head Office and Nokia Research Center, totaled EUR 38 million (EUR 29 million). Financial income totaled EUR 35 million (EUR 47 million). Profit before tax and minority interests was EUR 1 261 million (EUR 1 414 million). Net profit totaled EUR 863 million (EUR 975 million). Earnings per share decreased to EUR 0.18 (basic) and to EUR 0.18 (diluted) compared with EUR 0.21 (basic) and EUR 0.20 (diluted). At March 31, 2002, net debt-to-equity ratio (gearing) was -48% (-41% at December 31, 2001). During the January to March period in 2002, capital expenditures amounted to EUR 158 million (EUR 305 million). At the end of March, outstanding long-term customer loans totaled EUR 1 415 million, while guarantees given on behalf of third parties totaled EUR 130 million. In addition, Nokia had financing commitments totaling EUR 3.1 billion at March 31. Of the total committed and outstanding customer financing at the end of March, EUR 3.9 billion related to 3G networks. The average number of employees during the quarter was 53 070. At March 31, Nokia employed a total of 52 875 people (53 849 people at December 31, 2001). On March 31, the Group companies owned 1 405 539 Nokia shares. The shares had an aggregate par value of EUR 84 332.34, representing 0.03% of the share capital of the company and the total voting rights. The number of issued shares on March 31 was 4 738 057 501 and the share capital was EUR 284 283 450.06. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2002/04/18/20020418BIT00680/wkr0001.DOC The full report http://www.waymaker.net/bitonline/2002/04/18/20020418BIT00680/wkr0002.pdf The full report