Helsinki - Nokia announced plans to return 4 billion euros ($4.4 billion) to shareholders in dividends and buybacks and moved forward a target for the savings it expects to reap from the takeover of Alcatel-Lucent. The stock jumped the most in two years.
The Finnish network-equipment maker said Thursday it will pay ordinary dividends of at least 15 cents a share for this year and next and a special dividend of 10 cents a share for 2016. It will buy back 1.5 billion euros of stock over two years and reduce its debt by 3 billion euros.
The payout to investors shows CEO Rajeev Suri expects to avoid major execution hurdles as he seeks savings and a sales boost from the $17.6 billion deal. Nokia is making the acquisition to step up a challenge to Ericsson and Huawei Technologies in a network-equipment market showing little growth.
"The 4 billion euros that will go back to shareholders should be more than the market expected -- some thought they would hold onto the cash during the integration with Alcatel,” Mathias Lundberg, an analyst at Swedbank in Stockholm, said in a phone interview. “All of this is a sign of strength."
Shares of Nokia rose as much as 11 percent, the biggest jump since the company agreed to sell its struggling handset business to Microsoft Corp. in September 2013. They were up 9.1 percent at 6.63 euros as of 10:07 a.m. in Helsinki.
Operating-cost savings of 900 million euros from the Alcatel-Lucent takeover are set to come already in 2018, a year earlier than previously forecast. Suri is also betting the acquisition will help Nokia win more contracts and broaden its product portfolio to better meet carrier demands.
Profitability goal
Nokia raised the profitability target for its networks business as cost-reduction measures are paying off. Operating margin in the unit this year will be “around or slightly below the high end” of the long-term target of 8 percent to 11 percent. It had previously said the margin at the division will be around the midpoint of the range.
In the third quarter, that margin widened to 13.6 percent from 13.5 percent a year earlier. Earnings per share from continuing operations declined to 8 cents from 9 cents, as sales fell about 2 percent to 3 billion euros. The numbers exclude the maps unit Nokia agreed to sell to BMW, Audi and Daimler in August.
Alcatel-Lucent’s third-quarter sales rose 5 percent to 3.4 billion euros, boosted by growth in Europe. Its finance chief said the company is on track to reach its targets ahead of the completion of the takeover by Nokia, including reaching positive free cash flow in 2015. Alcatel-Lucent shares rose 9.3 percent to 3.60 euros in Paris.
French and Chinese authorities gave the green light for the takeover of Alcatel-Lucent this month, the last major antitrust approvals needed. Suri said Thursday Nokia expects to complete the deal in the first quarter of next year, compared with a previous estimate of first half.
Nokia is trying to maintain profit margins at a time when the mobile broadband market is struggling to grow. Sweden’s Ericsson, the largest maker of wireless networks, fell short of analysts’ revenue and profitability estimates last week as sales slumped in Japan, Russia and Brazil and spending slowed in China on fourth-generation networks.
While Nokia’s network sales in China jumped 27 percent in the period, revenue in Europe and North America slumped. Nokia had a large contract in North America last year that bolstered past sales, while regulatory pressure in Europe is weighing on carrier spending, Suri said on a call with reporters.
“When it comes to Europe, we will probably witness a little bit of a market under pressure primarily due to the issues the operators are facing with regard to regulation, but also just not enough position for investments given revenues are under stress,” Suri said. The coverage of high-speed fourth generation networks is only 68 percent in Europe, compared with 83 percent in China and almost 100 percent in Japan, Korea and US, he said.
- With assistance from Marie Mawad in Paris.
BLOOMBERG