Friday 24 November 2017

Nokia returns $3.1bn to shareholders, Suri becomes CEO

A pedestrian walks past a Nokia flagship store in central Helsinki January 23, 2014. REUTERS/Roni Rekomaa/Lehtikuva/Files
A pedestrian walks past a Nokia flagship store in central Helsinki January 23, 2014. REUTERS/Roni Rekomaa/Lehtikuva/Files

Finnish telecommunication gear maker Nokia has reported higher-than-expected quarterly earnings and promoted Rajeev Suri, the head of its biggest division, to lead the company following the sale of its once-dominant phone business.

The company also announced plans to return $3.1bn to shareholders via buybacks and extra dividends, a move seen by some analysts as an attempt to retain investors as it refocuses is business.

Suri, a 46-year-old Indian national, was widely expected to become the CEO as he helped Nokia's networks business, formerly called NSN, turn profitable with cost-cuts and divestments.

Cost-cutting and profitable software deals helped the networks business report a core operating profit margin of 9.3pc in the first-quarter, well ahead of the 5.7pc average forecast by analysts polled by Reuters. The margin is also expected to remain at the higher end of a 5-10pc target for this year, Nokia added in its earnings statement.

The unit was one of three that remained after Nokia sold its mobile phone business to Microsoft (MSFT.O) for about €5.6bn in a deal that closed on Friday.

Nokia said it would focus on growing the networks unit, as well as its navigation and patents business, but did not give any specific details.

"The general strategy is not very concrete, sounds like they have just come up with a mega-trend around their three business areas. I'd expect the units to be rather independent in the future," said Mikael Rautanen, analyst with equity researchers Inderes.

The networks business last year accounted for about 90 percent of the group's sales and Nokia has vowed to make a more aggressive push this year to increase its global market share.

Analysts, however, say it may face challenges as higher research and development costs give bigger, deep-pocketed rivals such as industry leader Ericsson (ERICb.ST) and Chinese telecoms firm Huawei [HWT.UL], an advantage.

Suri, in a video posted on the company's website, said there was plenty of scope for expansion. "I have been with Nokia for almost 20 years, and the opportunities ahead of us are as great as I have ever seen," he said.

Suri, who has been with Nokia since 1995, successfully turned around the loss-making networks unit in 2012.

"Rajeev is the right person to lead the company forward," Nokia Chairman Risto Siilasmaa said in a statement. "He has a proven ability to create strategic clarity, drive innovation and growth, ensure disciplined execution, and deliver results."


Nokia's mobile phones were its most renowned product. In a bid to retain shareholders, the company said it would pay an extra €1bn in dividends for last year and start a €1.25bn share buyback programme.

The extra dividend of 0.26 euros per share is on top of the annual dividend of 0.11 euros for last year. The ordinary dividend will cost the company another €400m, or about half of Nokia's earnings for last year.

The company has also said it would cut debt by €2bn, which would save it around €100m in interest annually.

"The dividend proposal is slightly smaller than expected, but the buy-back program is quite extensive. It reflects the management's view that the stock is valued below its sum-of-parts," said analyst Rautanen.

Nokia said its net cash position at the end of March was €2.1bn, down from €2.3bn at the end of last year. Had the phone-unit sale closed in the first quarter, the net cash position would have been €7.1bn, Nokia added.

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