2013-10-29 12:00:03 CET
2013-10-29 12:01:08 CET
REGULATED INFORMATION
Nokia - Interim report (Q1 and Q3)
Nokia Corporation Interim Report for Q3 2013 and January-September 2013
Nokia Corporation
Interim report
October 29, 2013 at 13.00 (CET+1)
This is a summary of the third quarter 2013 and January - September 2013
interim report published today. The complete third quarter 2013 and January -
September 2013 interim report with tables is available at
http://www.results.nokia.com/results/Nokia_results2013Q3e.pdf. Investors should
not rely on summaries of our interim reports only, but should review the
complete interim reports with tables.
FINANCIAL AND OPERATING HIGHLIGHTS
Third quarter 2013 highlights:
Nokia Group non-IFRS EPS in Q3 2013 was EUR 0.01; reported EPS was EUR -0.02
- Nokia Group achieved underlying operating profitability for the fifth
consecutive quarter, with a Q3 non-IFRS operating margin of 3.8%, driven by
strong performances by Nokia Solutions and Networks (NSN) and HERE.
- Nokia Group ended Q3 with a strong balance sheet and solid cash position,
with gross cash of EUR 9.1 billion and net cash of EUR 2.4 billion. Excluding
the acquisition of Siemens' stake in NSN for EUR 1.7 billion, Nokia Group net
cash was approximately flat sequentially. At the end of Q3 NSN's contribution
to Nokia Group gross and net cash was EUR 2.7 billion and EUR 1.5 billion,
respectively.
- NSN achieved underlying profitability for the sixth consecutive quarter, with
Q3 non-IFRS operating margin of 8.4%, reflecting strong gross margin and
continued progress relative to its strategy in a seasonally weak quarter.
- HERE achieved Q3 non-IFRS operating margin of 9.5%, reflecting solid gross
margin and operational efficiency.
- Devices & Services achieved Q3 non-IFRS operating margin of negative 1.6%.
Nokia Group net sales in Q3 2013 were EUR 5.7 billion, flat quarter-on-quarter
- NSN Q3 net sales decreased 7% quarter-on-quarter to EUR 2.6 billion,
primarily reflecting seasonality and NSN's strategic focus.
- HERE Q3 net sales decreased 9% quarter-on-quarter to EUR 0.2 billion,
primarily due to lower seasonal sales to vehicle customers.
- Devices & Services Q3 net sales increased 6% quarter-on-quarter to EUR 2.9
billion.
- Lumia Q3 volumes increased 19% quarter-on-quarter to 8.8 million units,
reflecting our recently broadened Lumia product range and strong customer
demand, particularly for the Lumia 520.
- Mobile Phones Q3 volumes increased 4% quarter-on-quarter to 55.8 million
units, demonstrating solid performance across the majority of our portfolio due
to recently launched devices, particularly the Nokia 105, the Asha 501, and the
Nokia 210.
Additional information
Commencing the fourth quarter 2013, and subject to shareholder approval of the
sale of substantially all of its Devices & Services business at our
Extraordinary General Meeting (EGM), Nokia expects to report substantially all
of its Devices & Services business as discontinued operations. If Nokia Group
would have reported substantially all of its Devices & Services business as
discontinued operations in the third quarter 2013 the net sales of its
continuing operations would have been EUR 2.9 billion, which is EUR 2.8 billion
lower than Nokia Group net sales of EUR 5.7 billion. However, Nokia Group's
non-IFRS operating margin of its continuing operations would have been 11.5%,
which is 7.7 percentage points higher than the third quarter 2013 non-IFRS
operating margin of 3.8%.
January-September 2013 highlights:
Nokia Group net sales in January-September 2013 were EUR 17.2 billion
- Nokia Group net sales for the nine months ended September 2013 decreased 22%
year-on-year.
- Reported EPS for the nine months ended September 2013 was EUR -0.16, compared
to EUR -0.89 in the nine months ended September 2012.
Risto Siilasmaa, Nokia Chairman and interim CEO commented on the company's
progress: "Subject to the planned completion of the Microsoft transaction,
Nokia will have three established businesses: NSN, HERE and Advanced
Technologies.
Our strategy work is making good progress and it has already become clear that
there are meaningful opportunities for all of our business areas: NSN, HERE and
Advanced Technologies. In all of these businesses, we have strong assets that
we continue to invest in for the long term benefit of our customers and
shareholders."
Commenting on the third quarter results, Timo Ihamuotila, Nokia CFO and interim
President, said: "The third quarter was among the most transformative in our company's history.
We became the full owner of NSN and we agreed on the sale of our handset
operations to Microsoft, transactions which we believe will radically reshape
the future of Nokia for the better. Subject to the completion of the Microsoft
transaction, Nokia will have significantly improved earnings profile, strong
financial position and a solid foundation from which to invest.
We are pleased that NSN and HERE both generated solid profitability in what was
a seasonally weak third quarter and at a time when we continue to make
significant R&D investments into future growth opportunities."
SUMMARY FINANCIAL INFORMATION
Reported and Non-IFRS Reported and Non-IFRS third quarter 2013 results1,2,3 January-September 2013
results1,2,3,4
--------------------------------------------------------------------------------
EUR million Q3/13 Q3/12 YoY Q2/13 QoQ Q1-Q3/1 Q1-Q3/1 YoY
Change Change 3 2 Change
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Nokia
Net sales 5 662 7 239 -22 % 5 695 -1 % 17 209 22 135 -22 %
Operating 118 -564 -115 -147 -2 726
profit
Operating 215 90 139 % 303 -29 % 699 -493
profit
(non-IFRS)
EPS, EUR -0.02 -0.26 -0.06 -0.16 -0.89
diluted
EPS, EUR 0.01 -0.07 0.00 -0.01 -0.23
diluted
(non-IFRS)5
Net cash from 9 -429 -196 19 -917
operating
activities
Net cash and 2 413 3 564 -32 % 4 067 -41 % 2 413 3 564 -32 %
other liquid
assets6
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Devices &
Services7
Net sales 2 898 3 563 -19 % 2 724 6 % 8 510 11 832 -28 %
Smart Devices 1 254 976 28 % 1 164 8 % 3 582 4 221 -15 %
net sales
Mobile 1 489 2 366 -37 % 1 405 6 % 4 484 6 968 -36 %
Phones
net sales
Mobile 64.6 82.9 -22 % 61.1 6 % 187.6 249.3 -25 %
device
volume
(mn units)
Smart 8.8 6.3 40 % 7.4 19 % 22.3 28.4 -21 %
Devices
volume
(mn units)
Mobile 55.8 76.6 -27 % 53.7 4 % 165.3 220.9 -25 %
Phones
volume
(mn units)
Mobile 45 43 5 % 45 0 % 45 47 -4 %
device
ASP8
Smart 143 155 -8 % 157 -9 % 161 149 8 %
Devices
ASP8
Mobile 27 31 -13 % 26 4 % 27 32 -16 %
Phones
ASP8
Operating -86 -672 -33 -161 -1 363
profit
Operating -47 -252 -32 -75 -742
profit
(non-IFRS)
Operating -3.0% -18.9% -1.2% -1.9% -11.5%
margin %
Operating -1.6% -7.1% -1.2% -0.9% -6.3%
margin %
(non-IFRS)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
HERE7
Net sales 211 265 -20 % 233 -9 % 660 825 -20 %
Operating 14 -56 -89 -172 -245
profit
Operating 20 37 -46 % 8 150 % 23 114 -80 %
profit
(non-IFRS)
Operating 6.6% -21.1% -38.2% -26.1% -29.7%
margin %
Operating 9.5% 14.0% 3.4% 3.5% 13.8%
margin %
(non-IFRS)
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Nokia
Solutions
and
Networks7
Net sales 2 592 3 501 -26 % 2 781 -7 % 8 177 9 791 -16 %
Mobile
Broadband 1 259 1 625 -23 % 1 281 -2 % 3 784 4 267 -11 %
net sales
Global
Services net 1 331 1 701 -22 % 1 459 -9 % 4 213 4 950 -15 %
sales
Operating 166 183 -9 % 8 177 -1 047
profit
Operating 218 324 -33 % 328 -34 % 742 206 260 %
profit
(non-IFRS)
Operating 6.4% 5.2% 0.3% 2.2% -10.7%
margin %
Operating 8.4% 9.3% 11.8% 9.1% 2.1%
margin %
(non-IFRS)
--------------------------------------------------------------------------------
Note 1 relating to results information and non-IFRS (also referred to as"underlying") results: The results information in this interim report is
unaudited. In addition to information on our reported IFRS results, we provide
certain information on a non-IFRS, or underlying business performance, basis.
Non-IFRS results exclude all material special items for all periods. In
addition, non-IFRS results exclude intangible asset amortization, other
purchase price accounting related items and inventory value adjustments arising
from (i) the formation of NSN and (ii) all business acquisitions completed
after June 30, 2008. Nokia believes that our non-IFRS results provide
meaningful supplemental information to both management and investors regarding
Nokia's underlying business performance by excluding the above-described items
that may not be indicative of Nokia's business operating results. These
non-IFRS financial measures should not be viewed in isolation or as substitutes
to the equivalent IFRS measure(s), but should be used in conjunction with the
most directly comparable IFRS measure(s) in the reported results. See note 2
below for information about the exclusions from our non-IFRS results. More
information, including a reconciliation of our Q3 2013 and Q3 2012 non-IFRS
results to our reported results, can be found in our complete Q3 2013 and
January-September 2013 interim report with tables on pages 24-25 and 27-32. A
reconciliation of our Q2 2013 non-IFRS results to our reported results can be
found in our complete Q2 interim report with tables on pages 19 and 21-25
published on July 18, 2013.
Note 2 relating to non-IFRS exclusions:
Q3 2013 - EUR 97 million (net) consisting of:
- EUR 39 million restructuring charge and other associated items in Nokia
Solutions and Networks.
- EUR 3 million restructuring charge in HERE
- EUR 15 million restructuring charge in Devices & Services
- EUR 5 million restructuring related impairments in Devices & Services
- EUR 18 million of transaction costs related to the proposed sale of Devices &
Services business to Microsoft.
- EUR 13 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of Motorola Solutions'
networks assets
- EUR 3 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 1 million of intangible assets amortization and other purchase price
related items arising from the acquisition of Novarra, MetaCarta and Motally in
Devices & Services
Q3 2013 taxes - EUR 33 million net tax expenses on prior year operations offset
by certain tax benefits related to previous year's earnings
Q2 2013 - EUR 418 million (net) consisting of:
- EUR 157 million restructuring charge and other associated items in NSN.
- EUR 151 million losses related to divestments of businesses in NSN.
- EUR 10 million restructuring charge in HERE
- EUR 12 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of Motorola Solutions'
networks assets
- EUR 87 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 1 million of intangible assets amortization and other purchase price
accounting related items arising from the acquisition of Novarra, MetaCarta and
Motally in Devices & Services
Q3 2012 - EUR 654 million (net) consisting of:
- EUR 74 million restructuring charge and other associated items in NSN,
including EUR 3 million of net charges related to country and contract exits
based on new strategy that focuses on key markets and product segments.
- EUR 2 million restructuring charge in HERE
- EUR 454 million restructuring charge in Devices & Services
- EUR 35 million positive item from a cartel claim settlement in Devices &
Services
- EUR 67 million of intangible asset amortization and other purchase price
accounting related items arising from the formation of NSN and the acquisition
of Motorola Solutions' networks assets
- EUR 91 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 1 million of intangible assets amortization and other purchase price
related items arising from the acquisition of Novarra, MetaCarta and Motally in
Devices & Services
Q3 2012 taxes - EUR 157 million non-cash deferred tax expense related to legal
reorganizations arising from HERE business integration.
Note 3 relating to changes to historical comparative financials due to revised
IFRS accounting standard, IAS19 Employee Benefits: The historical comparative
financials presented in the interim report include certain changes to
previously reported information. These changes result from the retrospective
application of a revised IFRS accounting standard IAS19, Employee Benefits and
mainly relate to consolidated statements of comprehensive income and financial
position. For more information on the adjustments between the previously
reported information and the adjusted information, please see the related
disclosure starting on page 39 of the complete Q1 2013 interim report with
tables published on April 18, 2013.
Note 4 relating to January-September 2013 results: Further information about
the results for the period from January 1 to September 30, 2013 can be found on
pages 22-23, 25, 33-34 and 37-38 of the complete Q3 2013 and January-September
2013 interim report with tables.
Note 5 relating to non-IFRS Nokia EPS: Nokia taxes were unfavorably impacted by
Devices & Services taxes as no tax benefits are recognized for certain Devices& Services deferred tax items. If Nokia's earlier estimated long-term tax rate
of 26% had been applied, non-IFRS Nokia EPS would have been approximately 2.2
Euro cent higher in Q3 2013. Going forward on a non-IFRS basis, until a pattern
of tax profitability is reestablished in Finland, Nokia expects to record
quarterly tax expense of approximately EUR 50 million related to its Devices &
Services business and approximately EUR 50 million related to its NSN business.
Nokia expects to continue to record taxes related to its HERE business at a 26%
rate.
Note 6 relating to Nokia net cash and other liquid assets: Calculated as total
cash and other liquid assets less interest-bearing liabilities. For selected
information on Nokia Group interest-bearing liabilities, please see the table
on pages 46-47 of the complete Q3 2013 and January-September 2013 interim
report with tables.
Note 7 relating to operational and reporting structure: We have three
businesses: Devices & Services, HERE and Nokia Solutions and Networks (formerly
Nokia Siemens Networks), also known as NSN, and five operating and reportable
segments: Smart Devices and Mobile Phones within Devices & Services; HERE;
Mobile Broadband and Global Services within NSN. Smart Devices focuses on
smartphones and Mobile Phones focuses on mass market mobile devices, including
Asha full-touch smartphones. Devices & Services also contains Devices &
Services Other, which includes net sales of our luxury phone business Vertu
through October 12, 2012, spare parts and related cost of sales and operating
expenses, as well as intellectual property (IPR) income and common research and
development expenses. In October 2012, we completed the divestment of Vertu to
EQT VI, a European private equity firm. Nokia has signed an agreement on
September 2, 2013 to enter into a transaction whereby Nokia will sell
substantially all of its Devices & Services business to Microsoft. Starting
with the fourth quarter of 2013, and subject to shareholder approval at our
EGM, Nokia expects to report substantially all of its Devices & Services
business as discontinued operations. HERE focuses on the development of
location-based services and local commerce. We introduced HERE as the new brand
for our location and mapping service in November 2012. As of January 1, 2013,
our Location & Commerce business and reportable segment was renamed HERE. NSN
is one of the leading global providers of telecommunications infrastructure
hardware, software and services, with the focus on the mobile broadband market.
NSN includes two reportable segments, Mobile Broadband and Global Services.
Mobile Broadband provides mobile operators with radio and core network software
together with the hardware needed to deliver mobile voice and data services.
Global Services provides mobile operators with a broad range of services,
including professional services, network implementation and customer care
services. NSN also contains NSN Other, which includes net sales and related
cost of sales and operating expenses of Non-core businesses as well as Optical
Networks through May 6, 2013 when its divestment was completed. On August 7,
2013, Nokia completed the acquisition of Siemens' stake in Nokia Siemens
Networks. In accordance with this transaction, the Siemens name is being phased
out from Nokia Siemens Networks' company name and branding. The new name and
brand is Nokia Solutions and Networks, also referred to as NSN, which is being
used also for financial reporting purposes. Until the end of the second quarter
2013, NSN has been reported as a single reportable segment for Nokia financial
reporting purposes.
Note 8 relating to average selling prices (ASP): Mobile device ASP represents
total Devices & Services net sales (Smart Devices net sales, Mobile Phones net
sales, and Devices & Services Other net sales) divided by total Devices &
Services volumes. Devices & Services Other net sales includes net sales of
Nokia's luxury phone business Vertu through October 12, 2012, spare parts, as
well as intellectual property income. Smart Devices ASP represents Smart
Devices net sales divided by Smart Devices volumes. Mobile Phones ASP
represents Mobile Phones net sales divided by Mobile Phones volumes. As IPR
income is included in Devices & Services Other net sales, we provide our total
mobile device ASP both including and excluding IPR income. The mobile device
ASP excluding IPR income in the third quarter 2013 was EUR 43, up 5% from EUR
41 in the third quarter 2012 and up 2% from EUR 42 in the second quarter 2013.
NOKIA OUTLOOK
- Nokia expects NSN's non-IFRS operating margin in the fourth quarter 2013 to
be approximately positive 12 percent, plus or minus four percentage points.
This outlook is based on Nokia's expectations regarding a number of factors,
including:
- competitive industry dynamics;
- product and regional mix;
- industry seasonality;
- the timing of major new network deployments; and
- expected continued improvement under NSN's restructuring and transformation
programs.
- In the fourth quarter 2013, Nokia expects NSN to deliver solid net sales
growth on a sequential basis, supported by strong industry seasonality.
- Nokia continues to target to reduce NSN's non-IFRS annualized operating
expenses and production overheads by more than EUR 1.5 billion by the end of
2013, compared to the end of 2011.
- Nokia has signed an agreement to enter into a transaction whereby Nokia will
sell substantially all of its Devices & Services business to Microsoft.
Commencing the fourth quarter 2013, and subject to shareholder approval of the
transaction at our EGM, Nokia expects to report substantially all of its
Devices & Services business as discontinued operations. In the fourth quarter
2013, Nokia expects the discontinued operations related to the Devices &
Services business to generate negative operating margin on a non-IFRS basis.
- Nokia continues to target to reduce its Devices & Services non-IFRS operating
expenses to an annualized run rate of approximately EUR 3.0 billion by the end
of 2013.
NSN STANDALONE INTERIM REPORT TO BE PUBLISHED TODAY
- As previously announced, as a result of the debt securities NSN issued in
March 2013, NSN is committed to making certain financial data publicly
available through its standalone reporting format. Consequently, NSN also plans
to publish its standalone third quarter 2013 and January-September 2013 interim
report on today at approximately 1.30pm Finnish time.
- The report will also be made available on NSN's website at:
www.nsn.com/about-us/company/financial/financial-results. The reported
financial results presented on a standalone basis by NSN may differ from those
reported by Nokia due to the treatment of discontinued operations and certain
accounting presentation differences. In addition, the presentation of
underlying business performance information by Nokia and NSN differs due to
presentation differences adopted by Nokia (non-IFRS information) and NSN
(information before specific items) and the items excluded by each in their
respective presentations.
NOKIA TO SELL DEVICES & SERVICES TO MICROSOFT IN EUR 5.44 BILLION ALL-CASH
TRANSACTION
On September 3, 2013, Nokia Corporation announced that it had signed an
agreement to enter into a transaction whereby Nokia will sell substantially all
of its Devices & Services business and license its patents to Microsoft for EUR
5.44 billion in cash, payable at closing. Nokia expects to book a net gain on
sale of approximately EUR 3.0 billion, and expects the transaction to be
significantly accretive to earnings.
The transaction is subject to certain purchase price adjustments, protecting
both Nokia and Microsoft. Based on Devices & Services' financial performance in
the third quarter of 2013 as well as our expectations for Devices & Services'
financial performance through the end of the first quarter 2014, we currently
expect that the purchase price adjustments related to net working capital and
aggregate cash earnings would be approximately zero. Therefore we expect that
the total purchase price will be EUR 5.44 billion as announced earlier.
The transaction is expected to close in the first quarter of 2014, subject to
approval by Nokia shareholders, regulatory approvals and other customary
closing conditions. At closing, approximately 32 000 people are expected to
transfer to Microsoft, including approximately 4 700 people in Finland. Nokia
will retain its headquarters in Finland. Of the Devices & Services related
assets, Nokia's CTO (Chief Technology Office) organization and patent portfolio
will remain within the Nokia Group. The operations that are planned to be
transferred to Microsoft generated an estimated EUR 14.9 billion, or almost
50%, of Nokia's net sales for the full year 2012.
In connection with the transaction, Nokia will grant Microsoft a 10 year
non-exclusive license to its patents as of the time of the closing, and
Microsoft will grant Nokia reciprocal rights related to HERE services. In
addition, Nokia will grant Microsoft an option to extend this mutual patent
license agreement to perpetuity. Of the total purchase price of EUR 5.44
billion, EUR 3.79 billion relates to the purchase of substantially all of the
Devices & Services business, and EUR 1.65 billion relates to the 10 year mutual
patent license agreement and the option to extend this agreement to perpetuity.
Additionally, Microsoft will become a strategic licensee of the HERE platform,
and will separately pay Nokia for a four year license. This revenue stream is
expected to substantially replace the revenue stream HERE is currently
receiving from Nokia's Devices & Services business internally. If the
transaction closes Microsoft is expected to become one of the top three
customers of HERE.
Microsoft agreed to make immediately available to Nokia EUR 1.5 billion of
financing in the form of three EUR 500 million tranches of convertible bonds to
be issued by Nokia maturing in 5, 6 and 7 years, respectively. On September 6,
2013, Nokia announced that it had decided to draw down all of this financing to
prepay financing raised for the acquisition of the shares in NSN which was
completed in August 2013 and for general corporate purposes. Microsoft has
agreed not to sell any of the bonds or convert any of the bonds to Nokia shares
prior to the closing of the sale of the Devices & Services business. If the
sale of the Devices & Services business is completed, the bonds will be
redeemed and the principal amount and accrued interest netted against the
proceeds from the transaction.
Following the transaction, Nokia plans to focus on its three established
businesses, each of which is a leader in enabling mobility in its respective
market segment: NSN, a leader in network infrastructure and services; HERE, a
leader in mapping and location services; and Advanced Technologies, which will
build on several of Nokia's current CTO and intellectual property rights
activities. At closing, this transaction is expected to provide a solid basis
for future investment in these three businesses. The transaction is also
expected to significantly strengthen Nokia's financial position and Nokia
targets to return to being an investment grade company.
Nokia's Board of Directors is conducting a strategy evaluation for Nokia Group
between signing and closing of the transaction. This evaluation will comprise
of evaluations of strategies for each of Nokia's three businesses and possible
synergies between them, as well as an evaluation of the optimal corporate and
capital structure for Nokia after the closing of the transaction. After this
evaluation is complete, deemed excess capital is planned to be distributed to
shareholders.
Under the terms of the agreement, the closing of the transaction will be
subject to approval by Nokia shareholders. Nokia plans to hold an Extraordinary
General Meeting on November 19, 2013 and has published a notice of the meeting
and made available more information on the transaction and its background. This
information can be found at www.nokia.com/gm
Nokia's Board of Directors recommends that Nokia shareholders vote to confirm
and approve the sale of the Devices & Services business at the Extraordinary
General Meeting.
The Devices & Services business has not been presented as discontinued
operations in the third quarter 2013 as the transaction is subject to
shareholder approval at our Extraordinary General Meeting combined with the
fact that Nokia's shareholder base is widely distributed. Commencing the fourth
quarter 2013, Nokia Group expects to report substantially all of its Devices &
Services business as discontinued operations.
NOKIA COMPLETES THE ACQUISITION OF SIEMENS' STAKE IN NOKIA SIEMENS NETWORKS
On August 7, 2013, Nokia announced that it had completed the acquisition of
Siemens' stake in Nokia Siemens Networks. The transaction was originally
announced on July 1, 2013.
In accordance with this transaction, the Siemens name is being phased out from
Nokia Siemens Networks' company name and branding. The new name and brand is
Nokia Solutions and Networks, also referred to as NSN.
Rajeev Suri continues as CEO and Jesper Ovesen continues as Executive Chairman
of the NSN Board of Directors. The NSN Board of Directors has been adjusted to
the new ownership structure as the Siemens-appointed directors have resigned.
To date, NSN has been reported as a single reportable segment for Nokia
financial reporting purposes. During the third quarter 2013, Nokia acquired
Siemens' stake in NSN and as a result, NSN is a wholly owned subsidiary of
Nokia. Consequently, beginning with this interim report, Nokia reports
financial information for two operating and reportable segments within NSN,
Mobile Broadband and Global Services, which reflects how Nokia management is
reviewing the NSN financial information following the completion of the
transaction.
THIRD QUARTER 2013 FINANCIAL AND OPERATING DISCUSSION
NOKIA GROUP
See note 7 to our Summary Financial Information table above concerning our
current operational and reporting structure and note 3 concerning certain
changes to historical comparative financials due to a revised IFRS accounting
standard, IAS19 Employee Benefits. The following discussion includes
information on a non-IFRS, or underlying business performance, basis. See notes
1 and 2 to our Summary Financial Information table above for information about
our underlying non-IFRS results and the non-IFRS exclusions for the periods
discussed below.
The following table sets forth the year-on-year and sequential growth rates in
our net sales on a reported basis and at constant currency for the periods
indicated.
THIRD QUARTER 2013 NET SALES,
REPORTED & CONSTANT CURRENCY1
-------------------------------------------------------------
YoY Change QoQ Change
------------------------------------------------------------
------------------------------------------------------------
Group net sales - reported -22 % -1 %
Group net sales - constant currency1 -18 % 1 %
Devices & Services -19 % 6 %
net sales - reported
Devices & Services -16 % 9 %
net sales - constant currency1
Here net sales - reported -20 % -9 %
Here net sales - constant currency1 -18 % -9 %
NSN net sales - reported -26 % -7 %
NSN net sales - constant currency1 -21 % -5 %
------------------------------------------------------------
Note 1: Change in net sales at constant currency excludes the impact of changes
in exchange rates in comparison to the Euro, our reporting currency.
At constant currency Nokia Group's net sales would have decreased 18%
year-on-year and increased 1% sequentially.
The following table sets forth Nokia Group's reported cash flow for the periods
indicated and financial position at the end of the periods indicated, as well
as the year-on-year and sequential growth rates.
NOKIA GROUP CASH FLOW
AND FINANCIAL POSITION
--------------------------------------------------------------------------
EUR million Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
-------------------------------------------------------------------------
Net cash from 9 -429 -196
operating activities
-------------------------------------------------------------------------
NSN contribution (approximate) 190 320 -41 % 90 111 %
-------------------------------------------------------------------------
Total cash and 9 134 8 779 4 % 9 453 -3 %
other liquid assets
-------------------------------------------------------------------------
NSN contribution 2 656 2 034 31 % 2 519 5 %
-------------------------------------------------------------------------
Net cash and 2 413 3 564 -32 % 4 067 -41 %
other liquid assets1
-------------------------------------------------------------------------
NSN contribution 1 536 613 151 % 1 446 6 %
-------------------------------------------------------------------------
Note 1: Total cash and other liquid assets minus interest-bearing liabilities.
If the transaction to sell Microsoft substantially all of our Devices &
Services business would have closed before the end of the third quarter 2013,
Nokia would have ended the quarter with gross cash of approximately EUR 13
billion and net cash of approximately EUR 7.5 billion. Additionally, assuming
repayment of Nokia's interest bearing debt of approximately EUR 2 billion
maturing in February 2014, Nokia would have ended the third quarter 2013 with
gross cash of approximately EUR 11 billion and net cash of approximately EUR
7.5 billion. This compares to reported gross cash of EUR 9.1 billion and net
cash of EUR 2.4 billion at the end of the third quarter 2013.
In the third quarter 2013, Nokia Group total cash and other liquid assets
decreased sequentially by EUR 319 million and Nokia Group net cash and other
liquid assets decreased sequentially by EUR 1.7 billion.
The items below are the primary drivers of the decrease in Nokia Group net cash
and other liquid assets in the third quarter 2013 of EUR 1.7 billion:
- Nokia Group level net profit adjusted for non-cash items of positive EUR 241
million;
- Nokia Group level outflow related to the acquisition of Siemens' stake in
Nokia Siemens Networks of EUR 1.7 billion;
- Nokia Group level net working capital-related cash outflows of approximately
EUR 160 million, which included approximately EUR 170 million of restructuring
related cash outflows;
- Nokia Group excluding NSN level net working capital-related outflows of
approximately EUR 60 million, which included approximately EUR 30 million of
restructuring-related cash outflows. Excluding the restructuring-related cash
outflows, Nokia Group excluding NSN level net working capital-related outflows
of approximately EUR 30 million is primarily due to an increase in receivables
and inventories, partially offset by an increase in interest free short term
liabilities.
- NSN level net working capital-related outflows of approximately EUR 100
million, which included approximately EUR 140 million of restructuring-related
cash outflows. Excluding the restructuring-related cash outflows, NSN level net
working capital-related inflows of approximately EUR 40 million is primarily
due to a reduction of receivables, partially offset by an increase in
inventories and decrease in interest free short-term liabilities;
- Nokia Group level net financial income and expense-related cash inflow of
approximately EUR 70 million,
- Nokia Group level cash tax net outflows of approximately EUR 140 million;
- Nokia Group level capital expenditure of approximately EUR 70 million;
- Nokia Group level proceeds related to distributions from unlisted venture
funds, of approximately EUR 60 million;
- Nokia Group level proceeds related to the equity component of the Microsoft
convertible bond of approximately EUR 150 million; and
- Nokia Group level negative foreign exchange impact from translation of net
cash of approximately EUR 50 million.
In the third quarter 2013, we received a quarterly platform support payment of
USD 250 million (approximately EUR 190 million) from Microsoft. Our agreement
with Microsoft includes platform support payments from Microsoft to us as well
as software royalty payments from us to Microsoft. Under the terms of the
agreement governing the platform support payments, the amount of each quarterly
platform support payment is USD 250 million. We have a competitive software
royalty structure, which includes annual minimum software royalty commitments
that vary over the life of the agreement. Software royalty payments, with
minimum commitments are paid quarterly. The platform support payments and
minimum software royalty commitment payments will continue until the proposed
sale of substantially all of our Devices & Services business to Microsoft
closes.
In the third quarter 2013, we recognized a gain of EUR 50 million in Corporate
Common other operating income and expenses due to a distribution from an
unlisted venture fund related to the disposal of the fund's investment in Waze
Ltd. On September 30, 2013 Nokia had investments of EUR 432 million in unlisted
funds that make similar investments, reported under Non-current assets,
Available-for-sale investments.
As a consequence of the purchase agreement whereby Nokia will sell
substantially all of its Devices & Services business to Microsoft, as well as
Nokia's acquisition of the Siemens' stake in Nokia Siemens Networks, we
concluded that there were sufficient indicators to require Nokia Group to
perform its annual goodwill impairment assessment as of September 30, 2013. As
a result of the noted transactions, the Group reviewed the structure of its
cash generating units for the purposes of the goodwill impairment assessment.
The Group's cash generating units in the impairment assessment were defined as
Devices & Services, HERE, NSN Global Services and NSN Mobile Broadband. As of
September 30, 2013, goodwill of EUR 1 417 million, EUR 3 219 million, EUR 91
million and EUR 88 million was allocated to Devices & Services, HERE, NSN
Global Services and NSN Mobile Broadband, respectively.
While methodology and models used in the impairment assessment with respect to
HERE and NSN cash generating units are consistent with those used in the annual
assessment performed during the fourth quarter of 2012, the Devices & Services
cash generating unit recoverable value was performed using the fair value less
costs to sell based on the agreed purchase price defined in the Microsoft
purchase agreement, excluding any consideration attributable to patents and
patent applications. Previously, a discounted cash flow analysis with value in
use basis was utilized to derive the estimated recoverable values for Smart
Devices and Mobile Phones cash generating units. Inputs to the valuation models
utilized for HERE, NSN Global Services and NSN Mobile Broadband cash generating
units, such as cash flows, discount rates and growth rates, have been updated
to reflect our most recent projections. Management does not expect that the
parameters used and results of the impairment assessment would materially
change during the fourth quarter 2013.
There was no goodwill impairment charge recorded during the third quarter 2013
as a result of the goodwill impairment assessment, however an adverse change in
any of the key assumptions used in measuring the recoverable value of our HERE
business could have resulted in goodwill impairment as the current carrying
value of this cash generating unit is only slightly lower than its' recoverable
value. While we believe the estimated recoverable values are reasonable, actual
performance in the short-term and long-term could be materially different from
our forecasts, which could impact future estimates of recoverable value of our
reporting units and may result in impairment charges.
During third quarter 2013, Nokia Group also performed as a result of the above
mentioned two transactions an assessment of the potential recoverability of
deferred tax assets currently subject to valuation allowance. The entity
recognizes a deferred tax asset arising from unused losses or tax credits only
to the extent there is convincing evidence that losses or unused tax credits
can be utilized in the future. Positive evidence of future taxable profits,
both including and excluding Devices & Services business, may be assigned
lesser weight in assessing the appropriateness of recording a deferred tax
asset when there is other unfavorable evidence, such as history of cumulative
Finnish losses in Devices & Services and NSN business. While no deferred tax
assets were recognized for Finnish tax losses and other temporary differences,
Nokia Group has at the end of the third quarter 2013 in total approximately EUR
2.7 billion (calculated at 24.5% tax rate) of net deferred tax assets which
have not been recognized in the financial statements. The majority of Nokia's
Finnish deferred tax assets are indefinite in nature and available against
future Finnish tax liabilities. There is a draft Government proposal to reduce
the Finnish corporate tax rate to 20% from January 1, 2014 which would
correspondingly reduce the amount of any recognizable net deferred tax assets
in the future.
DEVICES & SERVICES
The following table sets forth a summary of the results for our Devices &
Services business for the periods indicated, as well as the year-on-year and
sequential growth rates.
DEVICES & SERVICES
RESULTS SUMMARY ---------------------------------------------------------------------
Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
--------------------------------------------------------------------
Net sales (EUR million)1 2 898 3 563 -19 % 2 724 6 %
--------------------------------------------------------------------
Mobile device volume 64.6 82.9 -22 % 61.1 6 %
(million units)
--------------------------------------------------------------------
Mobile device ASP (EUR) 45 43 5 % 45
--------------------------------------------------------------------
Non-IFRS gross margin (%) 23.2 % 18.5 % 24.4 %
--------------------------------------------------------------------
Non-IFRS operating 707 904 -22 % 696 2 %
expenses (EUR million)
--------------------------------------------------------------------
Non-IFRS operating -1.6 % -7.1 % -1.2 %
margin (%)
--------------------------------------------------------------------
Operating margin (%) -3.0 % -18.9 % -1.2 %
--------------------------------------------------------------------
Note 1: Includes IPR income recognized in Devices & Services Other net sales.
The year-on-year and sequential changes in our Devices & Services net sales,
volumes, average selling prices and gross margin are discussed below under our
Smart Devices and Mobile Phones business units.
Smartphone Volumes
In the third quarter 2013, Devices & Services total smartphone volumes
increased sequentially to 14.7 million units, compared to 11.7 million units in
the second quarter 2013, composed of:
- 8.8 million Lumia smartphones in Smart Devices
- 5.9 million Asha full-touch smartphones in Mobile Phones
Devices & Services Other
Year-on-year Devices & Services Other net sales of EUR 155 million were lower
in the third quarter 2013, compared to EUR 221 million in the third quarter
2012, primarily due to the divestment of Vertu. Sequentially, Devices &
Services Other net sales were approximately flat.
Within Devices & Services Other, we estimate that our current annual IPR income
run-rate is approximately EUR 0.5 billion.
Channel Inventory
We ended the third quarter 2013 within our normal 4 to 6 week channel inventory
range.
Net Sales and Volumes by Geographic Area
The following table sets forth the net sales for our Devices & Services
business for the periods indicated, as well as the year-on-year and sequential
growth rates, by geographic area. IPR income is allocated to the geographic
areas contained in this chart.
DEVICES & SERVICES NET SALES
BY GEOGRAPHIC AREA
----------------------------------------------------------------
EUR million Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
---------------------------------------------------------------
---------------------------------------------------------------
Europe 846 985 -14 % 818 3 %
Middle East & Africa 428 682 -37 % 420 2 %
Greater China 215 278 -23 % 232 -7 %
Asia-Pacific 769 977 -21 % 683 13 %
North America 214 36 494 % 123 74 %
Latin America 426 605 -30 % 448 -5 %
---------------------------------------------------------------
Total 2 898 3 563 -19 % 2 724 6 %
---------------------------------------------------------------
The following table sets forth the mobile device volumes for our Devices &
Services business for the periods indicated, as well as the year-on-year and
sequential growth rates, by geographic area.
DEVICES & SERVICES MOBILE DEVICE
VOLUMES BY GEOGRAPHIC AREA
----------------------------------------------------------------
million units Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
---------------------------------------------------------------
---------------------------------------------------------------
Europe 13.2 16.8 -21 % 11.3 17 %
Middle East & Africa 14.7 19.1 -23 % 16.6 -11 %
Greater China 4.0 5.8 -31 % 4.1 -2 %
Asia-Pacific 23.6 30.1 -22 % 20.2 17 %
North America 1.4 0.3 367 % 0.5 180 %
Latin America 7.7 10.8 -29 % 8.4 -8 %
---------------------------------------------------------------
Total 64.6 82.9 -22% 61.1 6%
---------------------------------------------------------------
On a year-on-year basis, net sales decreased in all regions, except for North
America. The largest year-on-year decline in net sales was in Middle East &
Africa, followed by Asia-Pacific, Latin America, Europe and Greater China. In
Middle East & Africa, Asia Pacific, Latin America, Europe and Greater China the
year-on-year net sales declines were primarily due to lower sales in our Mobile
Phones business unit. In North America, the year-on-year sales increase was
primarily due to our Smart Devices business unit.
On a sequential basis, net sales increased in all regions except Latin America
and Greater China. The largest sequential increase in net sales was in North
America, followed by Asia-Pacific, Europe, and Middle East & Africa. In North
America and Middle East & Africa, the sequential increases were primarily due
to higher sales in our Smart Devices business. In Asia-Pacific and Europe the
sequential sales increases were primarily due to higher sales in our Mobile
Phones business. In Latin America the sequential sales decrease was primarily
due to lower sales in our Mobile Phones business unit. In Greater China the
sequential decrease was primarily due to lower sales in our Smart Devices
business unit.
At constant currency Devices & Services' net sales would have decreased 16%
year-on-year and increased 9% sequentially.
Non-IFRS Operating Expenses
Devices & Services non-IFRS operating expenses decreased 22% year-on-year and
increased 2% sequentially in the third quarter 2013. On a year-on-year basis,
operating expenses related to Mobile Phones and Smart Devices decreased 34% and
6%, respectively, in the third quarter 2013. On a sequential basis, operating
expenses related to Smart Devices increased 2% in the third quarter 2013,
whereas operating expenses related to Mobile Phones decreased 2%. In addition
to the factors described below, the year-on-year change was affected by the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices. This resulted in higher and lower relative allocations to Smart
Devices and Mobile Phones, respectively.
Devices & Services non-IFRS research and development expenses decreased 22%
year-on-year in the third quarter 2013 primarily due to reductions in certain
Mobile Phones and Symbian-related activities, a lower cost base as a result of
business divestments and overall cost controls. On a sequential basis, Devices& Services non-IFRS research and development expenses increased 5% in the third
quarter 2013 primarily due to lower accrued incentive expenses in the second
quarter of 2013 consistent with Devices & Services business performance.
Devices & Services non-IFRS sales and marketing expenses decreased 20%
year-on-year in the third quarter 2013 primarily due to lower personnel related
expenses, a lower cost base as a result of business divestments and overall
cost controls, partially offset by higher product-specific marketing in support
of recently launched Lumia and Asha products. On a sequential basis, Devices &
Services non-IFRS sales and marketing expenses were approximately flat in the
third quarter 2013 primarily due to higher product-specific marketing in
support of recently launched Lumia and Asha products offset by lower personnel
related expenses.
Devices & Services non-IFRS administrative and general expenses decreased 33%
year-on-year in the third quarter 2013 and decreased 13% sequentially in the
third quarter 2013. The year-on-year decrease was primarily related to a lower
cost base as a result of business divestments and overall cost controls,
partially offset by shared function cost categorization. The sequential
decrease was primarily due to lower personnel related expenses.
Non-IFRS Operating Margin
The higher year-on-year Devices & Services non-IFRS operating margin in the
third quarter 2013 was primarily due to a higher gross margin and lower
operating expenses as a percentage of net sales.
The sequentially lower Devices & Services non-IFRS operating margin in the
third quarter 2013 was primarily due to a lower gross margin, partially offset
by lower operating expenses as a percentage of net sales compared to the second
quarter 2013.
Devices & Services non-IFRS other income and expense for the third quarter 2013
was an expense of EUR 12 million, an expense of EUR 2 million in the second
quarter of 2013 and an expense of EUR 8 million in the third quarter 2012.
Operating Margin
The higher year-on-year Devices & Services operating margin in the third
quarter 2013 was primarily due to a higher gross margin and lower operating
expenses as a percentage of net sales. In the third quarter 2013, other income
and expenses was an expense of EUR 50 million, compared to an expense of EUR
427 million in the third quarter 2012.
The sequentially lower Devices & Services operating margin in the third quarter
2013 was primarily due to a lower gross margin, partially offset by lower
operating expenses as a percentage of net sales compared to the second quarter
2013. In the third quarter 2013, other income and expense was an expense of EUR
50 million, compared to an expense of EUR 2 million in the second quarter 2013.
Devices & Services other income and expense for the third quarter 2013 was an
expense of EUR 50 million, an expense of EUR 2 million in the second quarter of
2013 and an expense of EUR 427 million in the third quarter 2012. In the third
quarter 2013, on a year-on-year basis, Devices & Services reported other income
and expense had a positive impact on profitability due to a lower amount of
restructuring-related charges and associated items. In the third quarter 2013,
on a sequential basis, Devices & Services reported other income and expense had
a negative impact on profitability due to transaction costs related to the
proposed sale of substantially all of our Devices & Services business, higher
amount of restructuring-related charges and associated items.
Cost Reduction Activities and Planned Operational Adjustments
The following table sets forth a summary of our Devices & Services cost
reduction activities and planned operational adjustments.
DEVICES & SERVICES RESTRUCTURING SUMMARY
--------------------------------------------------------------------------------
-
EUR (million) Q3/2013 Cumulative up to Q4/2013 2013 Total
(approxima Q3/2013 (approxi (approx (approxi
te) (approximate) mate i mate
estimate) mate estimate
estimat )
e
--------------------------------------------------------------------------------
Restructuring 20 1 450 Not Not 1 500
related charges provided provide
d
--------------------------------------------------------------------------------
Restructuring 30 1 300 20 200 1 350
related cash
outflows
--------------------------------------------------------------------------------
Nokia continues to target to reduce its Devices & Services non-IFRS operating
expenses to an annualized run rate of approximately EUR 3.0 billion by the end
of 2013.
At the end of the third quarter 2013, Devices & Services and Corporate Common
had approximately 32 200 employees, a reduction of approximately 6 100 compared
to the end of the third quarter 2012, and an increase of approximately 800
compared to the end of the second quarter 2013.
By the end of the third quarter 2013, we had recorded cumulative Devices &
Services restructuring-related charges and other associated items of
approximately EUR 1.45 billion. In total, we continue to expect cumulative
Devices & Services restructuring-related charges of approximately EUR 1.5
billion before the end of 2013.
By the end of the third quarter 2013, Devices & Services had cumulative
restructuring-related cash outflows of approximately EUR 1.3 billion. Of the
total expected charges relating to restructuring activities of approximately
EUR 1.5 billion, we continue to expect Devices & Services non-cash charges to
be approximately EUR 150 million.
SMART DEVICES
The following table sets forth a summary of the results for our Smart Devices
business unit for the periods indicated, as well as the year-on-year and
sequential growth rates.
SMART DEVICES RESULTS SUMMARY
--------------------------------------------------------------------
Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
-------------------------------------------------------------------
Net sales (EUR million)1 1 254 976 28 % 1 164 8 %
-------------------------------------------------------------------
Smart Devices volume 8.8 6.3 40 % 7.4 19 %
(million units)
-------------------------------------------------------------------
Smart Devices ASP (EUR) 143 155 -8 % 157 -9 %
-------------------------------------------------------------------
Gross margin (%) 16.4% -3.5% 21.1 %
-------------------------------------------------------------------
Operating expenses 415 441 -6 % 406 2 %
(EUR million)2
-------------------------------------------------------------------
Contribution margin (%)2 -17.1 % -48.9 % -14.1 %
-------------------------------------------------------------------
Note 1: Does not include IPR income. IPR income is recognized in Devices &
Services Other net sales.
Note 2: The year-on-year changes in operating expenses were affected by the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices, resulting in higher relative allocations to Smart Devices in the
second and third quarters of 2013. Accordingly, third quarter 2013 operating
expenses are not directly comparable to third quarter 2012 operating expenses.
Net Sales
Both year-on-year and sequentially, the increase in our Smart Devices net sales
in the third quarter 2013 was due to higher volumes, partially offset by lower
ASPs.
Volume
The year-on-year increase in our Smart Devices volumes in the third quarter
2013 was primarily due to higher Lumia volumes, partially offset by lower
Symbian volumes. Symbian volumes decreased from 3.5 million units in the third
quarter 2012 to approximately zero in the third quarter 2013. Our Lumia volumes
increased from 2.9 million in the third quarter 2012 to 8.8 million in the
third quarter 2013.
On a sequential basis, the increase in our Smart Devices volumes in the third
quarter 2013 was primarily due to the Lumia 520.
Average Selling Price
The year-on-year decrease in our Smart Devices ASP in the third quarter 2013
was primarily due to lower recognition of deferred revenue related to services
sold in combination with our devices and lower sales of accessories, partially
offset by a positive mix shift towards sales of our Lumia products which carry
a higher ASP than our Symbian products and the net positive effect of foreign
currency fluctuations.
Sequentially, the decrease in our Smart Devices ASP in the third quarter 2013
was primarily due to our pricing actions, lower recognition of deferred revenue
on services sold in combination with our devices and the net negative effect of
foreign currency fluctuations, partially offset by a positive mix shift towards
the Lumia 1020 which started to ship in the third quarter 2013 and the Lumia
925 which started to ship in the second quarter 2013.
Gross Margin
The significant year-on-year increase in our Smart Devices gross margin in the
third quarter 2013 was primarily due to a positive mix shift towards sales of
our Lumia products which carry a higher gross margin than our Symbian products
as well as inventory-related allowances. Specifically, regarding
inventory-related allowances, in the third quarter 2013, Smart Devices gross
margin was negatively affected by approximately EUR 20 million of net
allowances related to excess component inventory and future purchase
commitments. In the third quarter 2012, Smart Devices gross margin was
negatively impacted by approximately EUR 120 million of net allowances related
to excess component inventory, future purchase commitments and an inventory
revaluation. In the third quarter 2013, the year-on-year increase in our Smart
Devices gross margin was also due to lower fixed costs per unit because of
higher sales volumes. The year-on-year increase in our Smart Devices gross
margin was partially offset by higher warranty costs in the third quarter 2013
due to the reversal of previously recognized warranty costs in the third
quarter 2012 related to our Symbian devices.
On a sequential basis, the decrease in our Smart Devices gross margin in the
third quarter 2013 was primarily due to inventory-related allowances.
Specifically, in the third quarter 2013, Smart Devices gross margin was
negatively affected by approximately EUR 20 million of excess component
inventory and future purchase commitments, whereas in the second quarter 2013
our Smart Devices gross margin benefited from the reversal of approximately EUR
20 million of previously recognized excess component inventory and future
purchase commitments.
Increases or decreases to Smart Devices inventory-related allowances may be
required in the future depending on several factors, including consumer demand
and continued ramp-up, particularly related to our new Lumia products.
MOBILE PHONES
The following table sets forth a summary of the results for our Mobile Phones
business unit for the periods indicated, as well as the year-on-year and
sequential growth rates.
MOBILE PHONES RESULTS SUMMARY
--------------------------------------------------------------------------------
Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
-------------------------------------------------------------------------------
Net sales (EUR million)1 1 489 2 366 -37 % 1 405 6 %
-------------------------------------------------------------------------------
Mobile Phones volume (million units) 55.8 76.6 -27 % 53.7 4 %
-------------------------------------------------------------------------------
Mobile Phones ASP (EUR) 27 31 -13 % 26 4 %
-------------------------------------------------------------------------------
Gross margin (%) 21.5 % 21.7 % 19.5%
-------------------------------------------------------------------------------
Operating expenses (EUR million)2 260 393 -34 % 266 -2 %
-------------------------------------------------------------------------------
Contribution margin (%)2 3.6 % 4.9 % 0.2%
-------------------------------------------------------------------------------
Note 1: Does not include IPR income. IPR income is recognized in Devices &
Services Other net sales.
Note 2: The year-on-year changes in operating expenses were affected by the
allocation of operating expenses being affected by the relative mix of sales
and gross profit performance between Mobile Phones and Smart Devices, resulting
in lower relative allocations to Mobile Phones in the second and third quarters
of 2013. Accordingly, third quarter 2013 operating expenses are not directly
comparable to third quarter 2012 operating expenses.
Net Sales
On a year-on-year basis, the decline in our Mobile Phones net sales in the
third quarter 2013 was due to lower volumes and lower ASPs. On a sequential
basis, the increase in our Mobile Phones net sales in the third quarter 2013
was due to higher ASPs and higher volumes.
Volume
During the third quarter 2013 we shipped 55.8 million Mobile Phones units, of
which 5.9 million were Asha full-touch smartphones.
On a year-on-year basis, our Mobile Phones volumes in the third quarter 2013
were negatively affected by competitive industry dynamics, including intense
competition at the low end of our product portfolio and intense smartphone
competition at increasingly lower price points.
On a sequential basis, our Mobile Phones volumes in the third quarter 2013 were
positively affected by solid performance across the majority of our product
portfolio due to recently launched devices, in particular the Nokia 105, the
Asha 501, and the Nokia 210.
Average Selling Price
The year-on-year decline in our Mobile Phones ASP in the third quarter 2013 was
primarily due to a higher proportion of sales of lower priced devices as well
as general price erosion and our pricing actions.
The sequential increase in our Mobile Phones ASP in the third quarter 2013 was
primarily due to a higher proportion of sales of higher priced devices,
particularly the Asha 501. The sequential increase was partially offset by the
net negative effect of foreign currency fluctuations, as well as general price
erosion and our pricing actions.
Gross Margin
On a year-on-year basis, our Mobile Phones gross margin in the third quarter
2013 was approximately flat. On a year-on-year basis, our Mobile Phones gross
margin in the third quarter 2013 benefitted from higher cost erosion than price
erosion. On a year-on-year basis, our Mobile Phones gross margin in the third
quarter 2013 was negatively impacted by higher fixed costs per unit because of
lower sales volumes as well as the net negative effect of foreign currency
fluctuations.
On a sequential basis, the increase in our Mobile Phones gross margin in the
third quarter 2013 was primarily due to a higher proportion of higher gross
margin devices, particularly the Asha 501 and the Nokia 210, and the net
positive effect of foreign currency fluctuations, partially offset by higher
warranty costs in the third quarter 2013, due to the reversal of previously
recognized warranty costs in the second quarter 2013.
HERE
The following table sets forth a summary of the results for HERE for the
periods indicated, as well as the year-on-year and sequential growth rates.
HERE RESULTS SUMMARY
---------------------------------------------------------------------------- Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
---------------------------------------------------------------------------
Net sales (EUR million) 211 265 -20 % 233 -9 %
---------------------------------------------------------------------------
External net sales (EUR million) 176 179 -2 % 195 -10 %
---------------------------------------------------------------------------
Internal net sales (EUR million) 35 86 -59 % 38 -8 %
---------------------------------------------------------------------------
Non-IFRS gross margin (%) 82.5 % 80.4 % 76.1 %
---------------------------------------------------------------------------
Non-IFRS operating 153 175 -13 % 169 -9 %
expenses (EUR million)
---------------------------------------------------------------------------
Non-IFRS operating 9.5 % 14.0 % 3.4 %
margin (%)
---------------------------------------------------------------------------
Operating margin (%) 6.6 % -21.1 % -38.2 %
---------------------------------------------------------------------------
Net Sales
In the third quarter 2013, the year-on-year decline in external HERE net sales
was primarily due to the net negative effect of foreign currency fluctuations,
lower sales to personal navigation device (PND) customers consistent with
declines in the PND industry and a non-recurring sale of data in the third
quarter 2012, partially offset by higher sales to vehicle customers and
non-recurrence of a negative sales adjustment made in the third quarter 2012
related to historical license fees in the normal course of business for a
particular customer. At constant currency, external HERE net sales would have
grown on a year-on-year basis.
In the third quarter 2013, the sequential decline in external HERE net sales
was primarily due to lower seasonal sales to vehicle customers and the net
negative effect of foreign currency fluctuations.
In the third quarter 2013, HERE had sales of new vehicle licenses of 2.6
million units, compared to 2.1 million units in the third quarter 2012 and 2.7
million units in the second quarter 2013. On a year-on-year basis, unit sales
to vehicle customers increased primarily due to higher adoption of in-vehicle
navigation, whereas on a sequential basis unit sales to vehicle customers
decreased primarily due to seasonality. Sales to vehicle customers represented
well over 50% of external HERE net sales in the third quarter 2013, as well as
in the third quarter 2012 and in the second quarter 2013.
In the third quarter 2013, the year-on-year and sequential declines in internal
HERE net sales were primarily due to lower recognition of deferred revenue
related to our Smart Devices business unit.
At constant currency HERE's overall net sales would have decreased 18%
year-on-year and 9% sequentially.
Non-IFRS Gross Margin
On a year-on-year basis, the increase in HERE non-IFRS gross margin in the
third quarter 2013 was primarily due to a higher proportion of external sales,
which generally carry a higher gross margin, and lower costs related to service
delivery.
On a sequential basis, the increase in HERE non-IFRS gross margin in the third
quarter 2013 was primarily due to lower sales of update units to vehicle
customers, which generally carry a lower margin, and lower costs related to
service delivery.
Non-IFRS Operating Expenses
HERE non-IFRS research and development expenses decreased 12% year-on-year due
to cost reduction actions. On a sequential basis, research and development
expenses decreased 7% in the third quarter 2013 primarily due to lower
personnel costs.
HERE non-IFRS sales and marketing expenses decreased 11% year-on-year due to
cost reduction actions. On a sequential basis, sales and marketing expenses
decreased 14% in the third quarter 2013, primarily due to lower travel and
marketing expenses.
HERE non-IFRS general and administrative expenses decreased 18% year-on-year
primarily due to cost reduction actions. On a sequential basis, general and
administrative expenses decreased 22% in the third quarter 2013 primarily due
to decreased expenses related to shared function cost categorization and lower
personnel costs.
Non-IFRS Operating Margin
The year-on-year decrease in HERE non-IFRS operating margin in the third
quarter 2013 was primarily due to lower internal net sales.
The sequential improvement in HERE non-IFRS operating margin in the third
quarter 2013 was primarily due to higher gross margin.
HERE non-IFRS other income and expense for the third quarter 2013 and 2012 and
second quarter 2013 was an expense of EUR 1 million.
Operating Margin
In the third quarter 2013, HERE operating margin improved significantly to
6.6%, compared to negative 21.1% in the third quarter 2012, and negative 38.2%
in the second quarter 2013. The year-on-year and sequential improvements in
HERE operating margin in the third quarter 2013 were primarily due to the
absence of significant purchase price accounting-related items arising from the
purchase of NAVTEQ, the vast majority of which had been fully amortized as of
the end second quarter 2013.
HERE other income and expense for the third quarter 2013 was an expense of EUR
4 million, an expense of EUR 11 million in the second quarter of 2013 and an
expense of EUR 3 million in the third quarter 2012.
NOKIA SOLUTIONS AND NETWORKS
The following table sets forth a summary of the results for NSN and its
reportable segments, Mobile Broadband and Global Services, for the periods
indicated, as well as the year-on-year and sequential growth rates.
NSN RESULTS SUMMARY
----------------------------------------------------------------------
Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
---------------------------------------------------------------------
Net sales (EUR million) 2 592 3 501 -26 % 2 781 -7 %
---------------------------------------------------------------------
Mobile Broadband net sales 1 259 1 625 -23 % 1 281 -2 %
(EUR million)
---------------------------------------------------------------------
Global Services net sales 1 331 1 701 -22 % 1 459 -9 %
(EUR million)
---------------------------------------------------------------------
Non-IFRS gross margin (%) 36.6 % 32.2 % 38.3 %
---------------------------------------------------------------------
Non-IFRS operating 732 796 -8 % 766 -4 %
expenses (EUR million)
---------------------------------------------------------------------
Non-IFRS operating 8.4 % 9.3 % 11.8 %
margin (%)
---------------------------------------------------------------------
Mobile Broadband 4.9 % 18.3 % 8.7 %
contribution margin (%)
---------------------------------------------------------------------
Global Services 12.3 % 2.7 % 14.7 %
contribution margin (%)
---------------------------------------------------------------------
Operating margin (%) 6.4 % 5.2 % 0.3 %
---------------------------------------------------------------------
Net Sales
The following table sets forth NSN net sales for the periods indicated, as well
as the year-on-year and sequential growth rates, by geographic area.
NSN NET SALES
BY GEOGRAPHIC AREA
----------------------------------------------------------------
EUR million Q3/2013 Q3/2012 YoY Q2/2013 QoQ
Change Change
---------------------------------------------------------------
---------------------------------------------------------------
Europe 701 918 -24 % 775 -10 %
Middle East & Africa 247 325 -24 % 268 -8 %
Greater China 278 313 -11 % 260 7 %
Asia-Pacific 791 1 266 -38 % 784 1 %
North America 299 285 5 % 348 -14 %
Latin America 276 394 -30 % 346 -20 %
---------------------------------------------------------------
Total 2 592 3 501 -26 % 2 781 -7 %
---------------------------------------------------------------
The year-on-year decrease of 26% in NSN net sales in the third quarter 2013 was
partially due to divestments of businesses not consistent with its strategic
focus as well as the exiting of certain customer contracts and countries.
Excluding these two factors, NSN net sales in the third quarter 2013 declined
by approximately 20% primarily due to reduced wireless infrastructure
deployment activity, which affected both Mobile Broadband and Global Services,
and the net negative effect of foreign currency fluctuations. The year-on-year
decrease in Mobile Broadband was primarily due to lower sales in WCDMA, GSM and
CDMA. Within Mobile Broadband, LTE was approximately flat year-on-year as
higher sales in North America, Europe and Latin America offset lower sales in
Japan and Korea. On a constant currency basis, LTE sales grew year-on-year. The
year-on-year decrease in Global Services was primarily due to a reduction in
network implementation activity, consistent with lower levels of large scale
Mobile Broadband deployments, and the exiting of certain contracts in line with
NSN's strategic focus. On a regional basis, we had lower cyclical sales in Asia
Pacific following high levels of spending a year ago. In Europe, the
year-on-year sales decline was primarily related to network modernization and
divestments in line with our strategy. The year-on-year sales decline in Latin
America was primarily driven by constrained operator spending and certain
contract exits. Finally, the year-on-year decline in Middle East and Africa was
primarily due to country exits.
The sequential decrease of 7% in NSN net sales in the third quarter 2013 was
partially due to the exiting of certain customer contracts and countries as
well as the divestments of businesses not consistent with NSN's strategic
focus. Excluding these two factors, NSN net sales in the third quarter 2013
decreased by approximately 4%, primarily due to seasonality, which affected
both Global Services and Mobile Broadband, and the net negative effect of
foreign currency fluctuations. The sequential decrease in Global Services net
sales was primarily due to lower sales in professional services and customer
care services, partially offset by higher sales in network implementation
activity. The slight sequential decrease in Mobile Broadband net sales was
primarily due to lower seasonal sales. On a regional basis, NSN net sales
decline was primarily due to Europe related to lower seasonal spending and
Latin America related to lower investments from operators.
In the third quarter 2013, Global Services represented 51% of NSN net sales,
compared to 49% in the third quarter 2012 and 52% in the second quarter 2013.
In the third quarter 2013, Mobile Broadband represented 49% of NSN net sales,
compared to 46% in the third quarter 2012 and 46% in the second quarter 2013.
At constant currency, NSN net sales would have decreased approximately 21%
year-on-year and approximately 5% sequentially.
Non-IFRS Gross Margin
On a year-on-year basis, the increase in NSN non-IFRS gross margin in the third
quarter 2013 was primarily due to a higher gross margin in Global Services
related to significant efficiency improvements as a result of NSN's
restructuring program and the positive impact related to certain customer
contract exits and the divestment of businesses which carried a lower gross
margin, partially offset by a slightly lower gross margin in Mobile Broadband.
On a sequential basis, the decrease in NSN non-IFRS gross margin in the third
quarter 2013 was primarily due to lower gross margins in Global Services and
Mobile Broadband and the absence of non-recurring IPR income of approximately
EUR 20 million that was recognized in the second quarter 2013, partially offset
by a better product mix due to a higher proportion of Mobile Broadband net
sales. The lower gross margin in Global Services was primarily driven by lower
seasonal sales and the absence of the revenue triggered by certain project
acceptances which was recognized in the second quarter 2013. The gross margin
decline in Mobile Broadband was primarily due to costs incurred in anticipation
of a technology shift to TD-LTE related to major projects in China and lower
seasonal sales.
Non-IFRS Operating Expenses
NSN non-IFRS research and development expenses decreased 7% year-on-year in the
third quarter 2013. On a year-on-year basis, non-IFRS research and development
expenses were lower primarily due to reduced investments in business activities
that are not consistent with our focused strategy as well as increased research
and development efficiency, partially offset by higher investments in areas
that are consistent with our focused strategy, most notably LTE. On a
sequential basis, non-IFRS research and development expenses were approximately
flat in the third quarter 2013.
On a year-on-year and sequential basis, NSN non-IFRS sales and marketing
expenses decreased 21% and 11% respectively in the third quarter 2013 primarily
due to structural cost savings from our transformation and restructuring
program.
NSN non-IFRS general and administrative expenses increased 11% year-on-year and
decreased 4% sequentially in the third quarter 2013. On a year-on-year basis,
non-IFRS general and administrative expenses were higher, primarily due to
consultancy fees related to information technology and other projects.
Non-IFRS Operating Margin
The year-on-year decrease in NSN non-IFRS operating margin in the third quarter
2013 was primarily due to a lower contribution margin in Mobile Broadband,
partially offset by a higher contribution margin in Global Services. On a
year-on-year basis, the 13.4 percentage point decline in Mobile Broadband
contribution margin was primarily due to higher operating expenses as a
percentage of net sales, and to a lesser extent by slightly lower gross margin.
The year-on-year 9.6 percentage point increase in Global Services contribution
margin was primarily due to higher gross margin and lower operating expenses as
a percentage of net sales.
On a sequential basis non-IFRS operating margin decreased due to lower
contribution margin for both Global Services and Mobile Broadband which
declined by 2.4 and 3.8 percentage points respectively. The sequential decline
in Global Services and Mobile Broadband contribution margin was primarily due
to lower gross margin, and to a lesser extent, higher operating expenses as a
percentage of net sales.
NSN non-IFRS other income and expenses for the third quarter 2013 was income of
EUR 1 million, compared to expense of EUR 8 million in the third quarter 2012,
and income of EUR 30 million in the second quarter 2013. On a year-on-year
basis, the change in non-IFRS other income and expenses was primarily due to a
reduction in doubtful account allowances, partially offset by the net negative
effect of foreign currency fluctuations. On a sequential basis, the change was
primarily due to positive impacts in the second quarter 2013 related to the
gain on sale of real estate and the reduction in doubtful account allowances.
Operating Margin
The year-on-year increase in NSN operating margin in the third quarter 2013 was
primarily due to higher gross margin, partially offset by higher operating
expenses as a percentage of net sales. NSN's other income and expenses was an
expense of EUR 38 million in the third quarter 2013, compared to an expense of
EUR 95 million in the third quarter 2012.
On a sequential basis NSN operating margin increased primarily due to lower
other expenses as a percentage of sales, partially offset by lower gross margin
and higher operating expenses as a percentage of net sales. NSN's other income
and expenses was an expense of EUR 38 million in the third quarter 2013,
compared to an expense of EUR 278 million in the second quarter 2013.
Global Restructuring Program
The following table sets forth a summary of NSN cost reduction activities and
planned operational adjustments.
NSN RESTRUCTURING SUMMARY
--------------------------------------------------------------------------------
-
EUR (million) Q3/2013 Cumulative up to Q4/2013 2013 2014 Total
(approxi Q3/2013 (approx (approx (approx (approx
mate) (approxi i i i i
mate) mate mate mate mate
estimat estimat estimat estimat
e) e e) e)
--------------------------------------------------------------------------------
Restructuring 39 1 750 Not Not Not 1 800
related charges provide provide provide
d d d
--------------------------------------------------------------------------------
Restructuring 140 1 100 200 650 300 1 600
related cash
outflows
--------------------------------------------------------------------------------
NSN continues to target to reduce NSN' non-IFRS annualized operating expenses
and production overheads by more than EUR 1.5 billion by the end of 2013,
compared to the end of 2011. In conjunction with this restructuring program,
NSN continues to estimate total restructuring related charges of approximately
EUR 1.8 billion as well as total restructuring related cash outflows of
approximately EUR 1.6 billion.
Non-cash charges and timing differences account for the differences between the
above charges and the corresponding cash out-flows. Changes in estimates of
timing or amounts of costs to be incurred and associated cash flows may become
necessary as the transformation and restructuring program is implemented.
At the end of the third quarter 2013, NSN had approximately 49 100 employees, a
reduction of approximately 11 500 compared to the end of the third quarter
2012, and approximately 1 400 compared to the end of the second quarter 2013.
THIRD QUARTER 2013 OPERATING HIGHLIGHTS
Operating highlights for previous quarters are available in the respective
interim reports.
NOKIA GROUP HIGHLIGHTS
- On September 3, Nokia announced that it has signed an agreement to enter into
a transaction whereby Nokia will sell substantially all of its Devices &
Services business and license its patents to Microsoft for EUR 5.44 billion in
cash. The transaction, which is subject to approval by Nokia's shareholders,
regulatory approvals and other customary closing conditions, is expected to
close in the first quarter of 2014. To avoid the perception of any potential
conflict of interest between now and the pending closure of the transaction
with Microsoft, Stephen Elop stepped aside as President and CEO of Nokia
Corporation, resigned from the Board of Directors, and continued to work for
Nokia as Executive Vice President, Devices & Services. Risto Siilasmaa assumed
the interim CEO role for Nokia while continuing to serve in his role as
Chairman of the Nokia Board of Directors, while Timo Ihamuotila became
President of Nokia for the interim period while continuing to serve as CFO. Mr.
Ihamuotila also assumed the responsibility of chairing the Nokia Leadership
Team.
- Nokia announced on September 3, 2013 that following the transaction with
respect to its Devices & Services business, Nokia plans to focus on its three
established businesses, each of which is a leader in enabling mobility in its
respective market segment: NSN, a leader in network infrastructure and
services; HERE, a leader in mapping and location services; and Advanced
Technologies, which will build on several of Nokia's current CTO and
intellectual property rights activities. Additionally, Nokia announced that its
Board of Directors is conducting a strategy evaluation for Nokia Group between
signing and closing of the transaction. This evaluation will comprise of
evaluations of strategies for each of Nokia's three businesses and possible
synergies between them, as well as an evaluation of the optimal corporate and
capital structure for Nokia after the closing of the transaction.
- On August 7, Nokia announced that it had completed the acquisition of
Siemens' stake in Nokia Siemens Networks. The transaction was originally
announced on July 1, 2013. In accordance with this transaction, the Siemens
name is being phased out from Nokia Siemens Networks' company name and
branding. The new name and brand is Nokia Solutions and Networks, also referred
to as NSN, which is being used also for financial reporting purposes. Nokia
Solutions and Networks is wholly owned by Nokia and will continue to be
consolidated by Nokia.
- Nokia issued EUR 1.5 billion of financing in the form of three EUR 500
million tranches of convertible bonds issued to Microsoft maturing in 5, 6 and
7 years respectively. On September 6, 2013, Nokia announced that it had decided
to draw down all of this financing to prepay financing raised for theacquisition of the shares in NSN which was completed in August 2013 and for
general corporate purposes. Microsoft has agreed not to sell any of the bonds
or convert any of the bonds to Nokia shares prior to the closing of the sale of
the Devices & Services business. If the sale of the Devices & Services business
is completed, the bonds will be redeemed and the principal amount and accrued
interest netted against the proceeds from the transaction. More information on
the terms of the bonds can be found in the releases issued by Nokia on
September 6, 2013 and September 24, 2013.
- Nokia ranked second within the Communications Equipment industry in the Dow
Jones Sustainability Indexes (World) released in September 2013. Nokia is also
among companies that have achieved the largest proportional improvement in
their sustainability performance within their sector.
- The Carbon Disclosure Project (CDP) listed Nokia in the CDP Nordic 260
Climate Change Report 2013 (comprising 260 largest Nordic companies). Nokia is
mentioned for the fifth year in a row in the Climate Disclosure Leadership
Index, being the only Nordic company to have been featured in the index for two
consecutive quarters.
DEVICES & SERVICES OPERATING HIGHLIGHTS
- Nokia's new manufacturing facility in Hanoi, Vietnam, became fully
operational in Q3. The new site has been established to produce our most
affordable Asha smartphones and feature phones.
SMART DEVICES
- Nokia introduced and started shipments of the Nokia Lumia 1020, the company's
new flagship in smartphones. Boasting a second generation 41 megapixel sensor,
the Nokia Lumia 1020 sets a new benchmark in smartphone imaging. Unlike any
smartphone in the market today the Nokia Lumia 1020 reinvents zoom, enabling
people to discover more detail than the eye can see. With Nokia's innovative
PureView technology, including optical image stabilization, the device is able
to produce some of the sharpest images possible by any digital camera. In
addition to the industry leading camera, the Nokia Lumia 1020 also comes with
ad and subscription free Nokia Music streaming and leading maps and location
experiences from HERE.
- Nokia announced the Nokia Lumia 625, an accessibly priced 4G smartphone. With
its 4.7-inch super-sensitive LCD screen, the Lumia 625 features the largest
smartphone screen from Nokia available in shops today. The Nokia Lumia 625 also
provides many innovations found in the Nokia Lumia 1020, including a range of
integrated camera applications like Nokia Smart Camera, offering handy features
like removing unwanted objects from pictures, and Nokia Cinemagraph, which
turns photos into living memories with added movement. The Lumia 625 also
includes Nokia Music and HERE services.
- Nokia's Lumia range of smartphones continued to attract businesses, including
Delta Air Lines which has chosen the Lumia 820 for its more than 19 000 flight
attendants to use for on-board payments. In addition, Britvic Soft Drinks, one
of the UK's leading soft drinks companies, and Gi Group, a leading Italian
multinational company dedicated to the human resources market, have chosen
Nokia Lumia as their business smartphone.
- Nokia started rolling out the Nokia Lumia Amber software update which
delivers a wide range of new and improved features and apps, such as Nokia
Glance Screen with the standby clock and an even better imaging experience for
Nokia Lumia owners.
- The Windows Phone store continued to strengthen in terms of the quantity and
quality of applications. The Windows Phone Store today offers more than 175 000
applications and games.
- Since the end of the quarter, Nokia has unveiled three new Lumia devices
alongside new accessories, Nokia experiences and third-party developer
applications, including Instagram and Vine. The new devices Nokia introduced at
Nokia World in Abu Dhabi were Nokia's first ever Windows tablet, the Nokia
Lumia 2520, and two large-screen Lumia smartphones: the Lumia 1520 and 1320.
MOBILE PHONES
- Nokia introduced a new ultra-affordable camera phone, the Nokia 108, with a
suggested retail price of around just EUR 22. Perfect for people purchasing
their first-ever camera phone, the new handsets offer more than just calls and
texts. The Nokia 108 also lets people take pictures and record video, helping
them capture life's important moments with an attractively-priced device.
- Nokia unveiled and started shipments of the Nokia 515, a premium mobile phone
with a 5 megapixel camera retailing at EUR 115. Wrapped in lightweight
aluminum, the device combines the best of Nokia - contemporary design, high
quality materials and top performance.
- Nokia expanded its portfolio of highly affordable, 3G mobile phones by
announcing and starting the shipments of the Nokia 207 and the Nokia 208. The
Nokia 207 and Nokia 208 are designed for people who like a classic phone and
traditional keypad but don't want to miss out on smartphone experiences. The
smart camera features of the Nokia 208 make taking pictures more enjoyable,
with voice-guided self-portrait, sequential shot and panorama mode giving
people more playful imaging options.
- Since the end of the quarter, Nokia has unveiled three new additions to the
Asha Platform family of devices - the Nokia Asha 500, Asha 502 and Asha 503 -
which join the already successful Asha 501 in pushing the boundaries of
affordable smartphone innovation.
HERE OPERATING HIGHLIGHTS
During the third quarter 2013 HERE made significant progress towards its goal
of becoming the leading location cloud business with the introduction of new,
innovative products for the automotive industry, updates to its signature
consumer experiences on Windows Phone and a number of new partnerships that
demonstrate that HERE is the preferred partner across industries for maps and
location-based technology:
- HERE announced a complete Connected Driving offer, including HERE Auto, HERE
Auto Cloud and HERE Auto Companion. It is the only end-to-end driving solution
on the market today, which will help car makers and in-vehicle technology
suppliers connect the car to the cloud.
- HERE has radically improved its traffic product, HERE Traffic, by building a
new system and engine that processes data even faster and more accurately than
before.
- HERE has teamed up with Mercedes-Benz to jointly develop smart maps for
connected cars and ultimately, self-driving cars leveraging cloud technology.
Connecting the car to the cloud is one of the biggest opportunities for the
automotive industry today and the ability to compute real-time information on
demand will develop an entirely new class of services for consumers.
- Magneti Marelli is working with HERE to develop an end-to-end connected
driving solution ready to use for car makers, based on Magneti Marelli's open
platform and the HERE Connected Driving offering.
- Continental Corporation will implement 3D content from HERE in its new
infotainment platform. Automotive manufactures can expand their location-based
applications to include rich 3D landmarks, satellite imagery with split screen
and current traffic information. This also will advance the multi-mobile
transportation concept another step by providing drivers the ability to synch
their route profiles across in-dash systems in their vehicles and their
smartphone, tablet or PC.
- HERE updated its signature HERE suite of location experiences on Windows
Phone. The updates include an overview of traffic conditions as well as the
introduction of My Commute for HERE Drive+, the introduction of a new feature
for the augmented reality technology LiveSight in HERE Maps to let people stop
and take a closer look at everything they find and browse in comfort, and a
redesign of the user experience of HERE Transit.
- HERE announced the global release of HERE Drive+ for all Windows Phone 8
smartphones to extend the benefits of HERE Drive+ beyond Nokia Lumia devices to
help more people navigate their lives with ease and confidence. HERE Drive+
provides access to global world-class voice-guided turn-by-turn navigation with
true offline maps, enabling people to reach their destination safely even
without a data connection.
- HERE delivers its indoor Venue Maps to Qualcomm Atheros, Inc., a subsidiary
of Qualcomm Incorporated, helping Qualcomm IZat™ location technologies deliver
more precise positioning to mobile devices inside buildings.
- Garmin continues to put their trust in HERE across the globe by recently
adopting Natural Guidance in North America and Europe which enables guidance
the way that humans provide directions to each other. This includes leveraging
local knowledge and market research to incorporate local nuances for choosing
and describing reference cues such as the color of a building or the name of a
restaurant.
- Nikon COOLPIX Cameras are the first to launch Mapviewer on digital still
cameras and also offer a digital location stamp that allows a city or POI name
to be displayed with an image by leveraging the map content from HERE.
- Recently launched new-generation navigation systems for Lexus and Toyota in
the Middle East are powered by HERE maps. This will expand coverage by adding
Jordan and Lebanon to the 6-country Arabian Gulf coverage. New platforms
integrate a range of new HERE features such as 3D Landmarks and 3D city models
to help drivers obtain a better sense of orientation on the road.
- TripAdvisor, the world's largest travel site, selected the HERE Platform for
geocoding services to offer global coverage for consumers to plan trips. HERE
offers precise location information in more than 196 countries, helping
TripAdvisor website visitors to access hotels, restaurants, and attractions
across the world.
NSN OPERATING HIGHLIGHTS
- Mobile broadband deal momentum continued and during the quarter NSN was
selected by Tele2 Netherlands to deliver 4G and related services nationwide;
appointed by Celcom in Malaysia to supply 4G network infrastructure and
services; expanded the 2G network and renewed services contracts in Southern
Iraq for Korek Telecom; launched commercial LTE services in Paris for SFR; was
appointed by Mobily in Saudi Arabia, to further modernize and expand its 2G, 3G
and 4G networks; was chosen by MTS to provide a network upgrade and services in
the Ukraine; and deployed FDD-LTE and a full range of services for MTS in the
Moscow and Central Russia regions.
- NSN continues to lead in 4G technology, and by September, had helped all
three major Korean operators - SK Telecom, LG U+ and Korea Telecom - to become
the world's first to launch LTE-Advanced commercially, using the capabilities
of NSN's Flexi Multiradio Base Stations. During September, NSN also
demonstrated the world's first 4G TD-LTE network trial showing that Authorized
Shared Access (ASA) is paving the way for future 5G networks. For the live
trial, NSN deployed its network elements - commercial Single RAN Flexi
MultiRadio 10 Base Stations, commercial Core Network and commercial NetAct
network management system - in three Finnish cities.
- In August, industry analyst firm Gartner positioned NSN in the ‘Leaders'
quadrant of the Magic Quadrant for LTE Network Infrastructure, for the second
consecutive year. The ranking - based on an evaluation of the company's product
development and innovation, financial performance, and customer references -
places NSN among the three global network suppliers best positioned to support
a mobile operator's future in LTE, TD-LTE and LTE-Advanced.
- NSN continues to invest in innovation to stay at the forefront of mobile
broadband. In July, NSN and CDNetworks began working together to accelerate the
delivery of benefits from Liquid Applications, driving a step change in the
mobile broadband experience and opening up new revenue streams for operators.
In September, SK Telecom and NSN completed world's first proof-of-concept of
Liquid Applications over LTE, achieving a major milestone for enhancing the
mobile broadband experience. The successful testing was conducted with three
advanced services over LTE: location-based mobile advertising, augmented
reality and premium application delivery.
- NSN has completed comprehensive testing of mobile voice core services running
in the Telco Cloud and in July confirmed that its cloud technology is on the
brink of commercial deployment. The company successfully demonstrated an
exhaustive set of use cases covering Voice over LTE (VoLTE) based on IP
Multimedia Subsystem (IMS) and full cloud orchestration, including cloud
application management capabilities.
- In July, NSN's Customer Experience Management (CEM) contract with Beijing
Mobile was extended to implement an extensive Quality of Experience solution,
further improving its end-user customer experience, linking network performance
with subscriber satisfaction and application behavior.
NOKIA IN JANUARY-SEPTEMBER 2013
The following discussion is of Nokia's reported results for January-September
2013. Comparisons are given to January- September 2012 results, unless
otherwise indicated.
The following table sets forth a summary of the reported results for the
periods indicated, as well as the year-on-year growth rates.
NOKIA GROUP RESULTS SUMMARY
--------------------------------------------------------
Q1-Q3/2013 Q1-Q3/2012 YoY
Change
-------------------------------------------------------
Net sales (EUR million) 17 209 22 135 -22 %
-------------------------------------------------------
Gross margin (%) 32.2 26.2
-------------------------------------------------------
Operating expenses -5 212 -6 842 -24 %
(EUR million)
-------------------------------------------------------
Operating margin (%) -0.09 -12.3
-------------------------------------------------------
Financial income -227 -274 -17 %
and expense, net
-------------------------------------------------------
Tax -346 -1028 -66 %
-------------------------------------------------------
Loss -721 -4 031 -82 %
-------------------------------------------------------
Loss attributable to -590 -3 295 -82 %
equity holders of
the parent
-------------------------------------------------------
EPS, basic -0.16 -0.89 -82 %
-------------------------------------------------------
EPS, diluted -0.16 -0.89 -82 %
-------------------------------------------------------
The decline in the Nokia Group net sales in the nine months of 2013 resulted
from lower net sales in Devices & Services, as well as lower net sales in NSN
and HERE. Within Devices & Services the net sales of Mobile Phones declined
more than net sales in Smart Devices. Mobile Phones net sales decline was due
to lower volumes and ASPs, affected by competitive industry dynamics, including
intense smartphone competition at increasingly lower price points and intense
competition at the low end of our product portfolio. The net sales decline in
Smart Devices was due to lower volumes and ASPs, affected by competitive
industry dynamics including the strong momentum of competing smartphone
platforms as well as our portfolio transition from Symbian products to Lumia
products. The decline in HERE net sales was primarily due to a decline in
internal net sales primarily related to our Smart Devices business unit,
partially offset by an increase in external net sales. The decline in NSN net
sales was primarily due to lower net sales in Global Services as well as lower
net sales in businesses not consistent with NSN strategic focus. In addition,
net sales in Mobile Broadband also declined on an overall basis, while
delivering strong growth in LTE.
The increase in Nokia Group gross margin in the first nine months of 2013 was
due to higher gross margins in NSN and Devices & Services. NSN gross margin
primarily increased due to higher gross margin in both Global Services and
Mobile Broadband, as well as a higher proportion of Mobile Broadband within the
total sales mix. Devices & Services gross margin increased primarily due to
higher gross margin in Smart Devices partially offset by lower gross margin in
Mobile Phones.
The decrease in the Nokia Group operating expenses in the first nine months of
2013 was primarily due to Devices & Services and NSN. In both Devices &
Services and NSN the decrease was primarily due to structural cost savings as
well as overall cost controls.
The Nokia Group net financial income and expense in the first nine months of
2013 was a lower expense than in the first nine months of 2012. The lower net
expense was primarily due to lower net foreign exchange-related losses.
The Nokia Group taxes in the first nine months of 2013 were significantly lower
than in the first nine months of 2012. The lower tax expense was primarily due
to the absence of a non-cash valuation allowances related to deferred tax
assets of EUR 800 million in the second quarter 2012.
The Nokia Group loss in the first nine months of 2013 was a smaller loss
primarily due to lower operating expenses, lower other expenses, and lower tax
expense primarily due to the absence of a non-cash valuation allowances related
to deferred tax assets of EUR 800 million in the second quarter 2012.
RISK AND FORWARD-LOOKING STATEMENTS
It should be noted that Nokia and its business are exposed to various risks and
uncertainties and certain statements herein that are not historical facts are
forward-looking statements, including, without limitation, those regarding: A)
the planned sale by Nokia of substantially all of Nokia's Devices & Services
business, including Smart Devices and Mobile Phones (referred to below as "Sale
of the D&S Business") pursuant to the Stock and Asset Purchase Agreement, dated
as of September 2, 2013, between Nokia and Microsoft International Holdings
B.V.(referred to below as the "Agreement"); B) the closing of the Sale of the
D&S Business; C) obtaining the confirmation and approval of our shareholders
for the Sale of the D&S Business; D) receiving timely, or at all, necessary
regulatory approvals for the Sale of the D&S Business; E) expectations, plans
or benefits related to or caused by the Sale of the D&S Business; F)
expectations, plans or benefits related to Nokia's strategies, including plans
for Nokia with respect to its continuing businesses that will not be divested
in connection with the Sale of the D&S Business; G) expectations, plans or
benefits related to changes in leadership and operational structure; H)
expectations and targets regarding our operational priorities, financial
performance or position, results of operations and use of proceeds from the
Sale of the D&S Business; I) the timing of the deliveries of our products and
services; J) our ability to innovate, develop, execute and commercialize new
technologies, products and services; K) expectations regarding market
developments and structural changes; L) expectations and targets regarding
performance, including those related to market share, prices, net sales and
margins of products and services; M) expectations and targets regarding
collaboration and partnering arrangements; N) the outcome of pending and
threatened litigation, regulatory proceedings or investigations by authorities;
O) expectations regarding the successful completion of restructurings,
investments, acquisitions and divestments on a timely basis and our ability to
achieve the financial and operational targets set in connection with any such
restructurings, investments, divestments and acquisitions, as well as any
expected plans and benefits related to or caused by such transactions; and P)
statements preceded by "believe,""expect,""anticipate,""foresee,""sees,""target,""estimate,""designed,""aim", "plans,""intends,""focus,""will" or
similar expressions. These statements are based on management's best
assumptions and beliefs in light of the information currently available to it.
Because they involve risks and uncertainties, actual results may differ
materially from the results that we currently expect. Factors, including risks
and uncertainties that could cause these differences include, but are not
limited to: 1) the inability to close the Sale of the D&S Business in a timely
manner, or at all, for instance due to the inability or delays in obtaining the
shareholder approval or necessary regulatory approvals for the Sale of the D&S
Business, or the occurrence of any event, change or other circumstance that
could give rise to the termination of the Agreement; 2) the potential adverse
effect on the sales of our mobile devices, business relationships, operating
results and business generally resulting from the announcement of the Sale of
the D&S Business or from the terms that we have agreed for the Sale of the D&S
Business; 3) any negative effect from the implementation of the Sale of the D&S
Business, as we may forego other competitive alternatives for strategies or
partnerships that would benefit our Devices & Services business and if the Sale
of the D&S Business is not closed, we may have limited options to continue the
Devices & Services business or enter into another transaction on terms
favorable to us, or at all; 4) our ability to effectively and smoothly
implement planned changes to our leadership and operational structure or
maintain an efficient interim governance structure and preserve or hire key
personnel; 5) any negative effect from the implementation of the Sale of the
D&S Business, including our internal reorganization in connection therewith,
which will require significant time, attention and resources of our senior
management and others within the company potentially diverting their attention
from other aspects of our business; 6) disruption and dissatisfaction among
employees caused by the plans and implementation of the Sale of the D&S
Business, reducing focus and productivity in areas of our business; 7) the
amount of the costs, fees, expenses and charges related to or triggered by the
Sale of the D&S Business; 8) any impairments or charges to carrying values of
assets or liabilities related to or triggered by the Sale of the D&S Business;
9) potential adverse effects on our business, properties or operations caused
by us implementing the Sale of the D&S Business; 10) the initiation or outcome
of any legal proceedings, regulatory proceedings or enforcement matters that
may be instituted against us relating to the Sale of the D&S Business; 11) the
success of our HERE strategy, including our ability to establish a successful
location-based platform and extend our location-based services across devices
and operating systems; 12) our ability to protect numerous patented
standardized or proprietary technologies from third-party infringement or
actions to invalidate the intellectual property rights of these technologies;
13) our ability to maintain the existing sources of intellectual property
related revenue and establish new such sources; 14) the intensity of
competition in the various markets where we do business and our ability to
maintain or improve our market position or respond successfully to changes in
the competitive environment; 15) our ability to keep momentum and increase our
speed of innovation, product development and execution in order to bring new
innovative and competitive products and location-based or other services to the
market in a timely manner; 16) our ability to effectively and smoothly
implement the planned changes in our operational structure and achieve targeted
efficiencies and reductions in operating expenses and our ability to complete
the planned divestments and acquisition, including obtaining any needed
regulatory approvals; 17) our ability to retain, motivate, develop and recruit
appropriately skilled employees; 18) our dependence on the development of the
mobile and communications industry, including location-based and other services
industries, in numerous diverse markets, as well as on general economic
conditions globally and regionally; 19) our ability to maintain and leverage
our position and strengths, especially if we are unable retain the loyalty of
our mobile operator and distributor customers and consumers as a result of the
implementation of our strategies or other factors; 20) the performance of the
parties we partner and collaborate with and our ability to achieve successful
collaboration or partnering arrangements; 21) our ability to deliver our
products profitably, in line with quality requirements and on time, especially
if the limited number of suppliers we depend on, many of which are
geographically concentrated with a majority based in Asia, fail to deliver
sufficient quantities of fully functional products, components, sub-assemblies,
software and services on favorable terms and in compliance with our supplier
requirements; 22) our ability to manage efficiently our manufacturing and
logistics, as well as to ensure the quality, safety, security and timely
delivery of our products and services; 23) any actual or even alleged defects
or other quality, safety and security issues in our products; 24) any
inefficiency, malfunction or disruption of a system or network that our
operations rely on; 25) the impact of cybersecurity breach or other factors
leading to an actual or alleged loss, improper disclosure or leakage of any
personal or consumer data collected by us or our partners or subcontractors,
made available to us or stored in or through our products; 26) our ability to
successfully manage the pricing of our products and services and costs related
to our products and services and our operations; 27) the potential complex tax
issues and obligations we may face, including the obligation to pay additional
taxes in various jurisdictions and our actual or anticipated performance, among
other factors, could result in allowances related to deferred tax assets; 28)
exchange rate fluctuations, particularly between the euro, which is our
reporting currency, and the US dollar, the Japanese yen and the Chinese yuan,
as well as certain other currencies; 29) our ability to protect the
technologies, which we or others develop or which we license, from claims that
we have infringed third parties' intellectual property rights, as well as our
unrestricted use on commercially acceptable terms of certain technologies in
our product and services; 30) the impact of economic, regulatory, political or
other development on our sales, manufacturing facilities and assets located in
emerging market countries as well as the impact of regulations against imports
to those countries; 31) the impact of changes in and enforcement of government
policies, technical standards, trade policies, laws or regulations in countries
where our assets are located and where we do business; 32) investigations or
claims by contracting parties in relation to exits from countries, areas or
contractual arrangements; 33) unfavorable outcome of litigation, regulatory
proceedings or investigations by authorities; 34) allegations of possible
health risks from electromagnetic fields generated by base stations and mobile
devices, and the lawsuits and publicity related to them, regardless of merit;
35) Nokia Solutions and Networks' (renamed from Nokia Siemens Networks) also
referred to as NSN success in the mobile broadband infrastructure and related
services market and its ability to effectively, profitably and timely adapt
business and operations to the diverse needs of its customers; 36) NSN's
ability to maintain and improve its market position and respond successfully to
changes and competition in the mobile broadband infrastructure and related
services market; 37) NSN's success in implementing its restructuring plan and
reducing its operating expenses and other costs; 38) NSN's ability to invest in
and timely introduce new competitive products, services, upgrades and
technologies; 39) NSN's dependence on limited number of customers and large,
multi-year contracts; 40) NSN's liquidity and its ability to meet its working
capital requirements, including access to available credit under its financing
arrangements and other credit lines as well as cash at hand; 41) the management
of NSN's customer financing exposure; 42) whether ongoing or any additional
governmental investigations of alleged violations of law by some former
employees of Siemens may involve and affect the carrier-related assets and
employees transferred by Siemens to Nokia Siemens Networks (renamed Nokia
Solutions and Networks); 43) any impairment of NSN's customer relationships
resulting from ongoing or any additional governmental investigations involving
the Siemens carrier-related operations transferred to Nokia Siemens Networks
(renamed Nokia Solutions and Networks), as well as the risk factors specified
on pages 12-47 of Nokia's annual report on Form 20-F for the year ended
December 31, 2012 under Item 3D. "Risk Factors". Other unknown or unpredictable
factors or underlying assumptions subsequently proving to be incorrect could
cause actual results to differ materially from those in the forward-looking
statements. Nokia does not undertake any obligation to publicly update or
revise forward-looking statements, whether as a result of new information,
future events or otherwise, except to the extent legally required.
Nokia, Helsinki - October 29, 2013
Media and Investor Contacts:
Nokia
Corporate Communications
tel. +358 7180 34900
email: press.services@nokia.com
Investor Relations Europe
tel. +358 7180 34927
Investor Relations US
tel. +1 914 368 0555
www.nokia.com
- Nokia plans to publish its fourth quarter 2013 and annual 2013 report on
January 23, 2014
- Nokia will hold an Extraordinary General Meeting on November 19, 2013. The
notice of the meeting and more information can be found at www.nokia.com/gm
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