2017-02-02 07:02:17 CET
2017-02-02 07:02:17 CET
REGULATED INFORMATION
Nokia - Financial Statement Release
Nokia Corporation Report for Q4 2016 and Full Year 2016
Nokia Corporation
Financial Statement Release
February 2, 2017 at 08:00 (CET +1)
Nokia Corporation Report for Q4 2016 and Full Year 2016
Operating margin for Nokia's Networks business at the high end of our guidance
range for full year 2016
This is a summary of the Nokia Corporation report for fourth quarter 2016 and
full year 2016 published today. The complete fourth quarter 2016 and full year
2016 report with tables is available at www.nokia.com/financials. Investors
should not rely on summaries of our interim reports only, but should review the
complete reports with tables.
FINANCIAL HIGHLIGHTS
* Non-IFRS net sales in Q4 2016 of EUR 6.7bn (reported: EUR 6.6bn). In the
year-ago quarter, non-IFRS net sales would have been EUR 7.7bn on a
comparable combined company basis (reported: EUR 3.6bn on a Nokia stand-
alone basis).
* Non-IFRS diluted EPS in Q4 2016 of EUR 0.12 (reported: EUR 0.11) benefited
by approximately EUR 0.02-0.03 due to the Q4 2016 non-IFRS tax rate coming
in at 23% compared to our guidance.
* Non-IFRS diluted EPS in full year 2016 of EUR 0.22 (reported: negative EUR
0.13).
* Nokia's Board of Directors will propose a dividend of EUR 0.17 per share for
2016 (EUR 0.16 per share for 2015).
Nokia's Networks business
* 14% year-on-year net sales decrease in Q4 2016, reflecting challenging
market conditions in Q4 2016 and the difficult comparison against the strong
performance by Alcatel-Lucent in Q4 2015.
* Strong Q4 2016 gross margin of 40.6% and operating margin of 14.1%,
supported by continued focus on operational excellence and cost controls.
* Operating margin of 8.9% in full year 2016, at the high end of our guidance
range of 7-9%.
Nokia Technologies
* 25% year-on-year net sales decrease and 49% operating profit decrease in Q4
2016, primarily due to the absence of the Samsung arbitration award, which
benefited Q4 2015. The declines were partially offset by the expanded
intellectual property rights ("IPR") license agreement with Samsung
announced in Q3 2016 and divested IPR. In addition, the acquisition of
Withings helped to offset the decline in net sales.
Group Common and Other
* 34% year-on-year net sales increase in Q4 2016, with particularly strong
growth in Alcatel Submarine Networks.
Q4 and January-December 2016 non-IFRS results. Refer to note 1 in the
Financial statement information for further details( 1,2)
-------------------------------------------------------------------------------
Combined Combined
company company
histori- histori-
cals(2) cals(2)
EUR million Q4'16 Q4'15 YoY Q3'16 QoQ Q1- Q1- YoY
change change Q4'16 Q4'15 change
-------------------------------------------------------------------------------
Net sales -
constant (13)% 11% (10)%
currency
(non-IFRS)
Net sales 6 715 7 719 (13)% 5 950 13% 23 945 26 606 (10)%
(non-IFRS)
Nokia's
Networks 6 069 7 057 (14)% 5 322 14% 21 799 24 634 (12)%
business
Ultra
Broadband 4 332 5 081 (15)% 3 903 11% 15 770 18 079 (13)%
Networks
IP Networks
and 1 737 1 976 (12)% 1 419 22% 6 029 6 555 (8)%
Applications
Nokia 309 413 (25)% 353 (12)% 1 053 1 074 (2)%
Technologies
Group
Common 341 254 34% 298 14% 1 145 921 24%
and Other
Gross profit 2 818 3 272 (14)% 2 365 19% 9 589 10 441 (8)%
(non-IFRS)
Gross margin
% 42.0% 42.4% (40)bps 39.7% 230bps 40.0% 39.2% 80bps
(non-IFRS)
Operating
profit 940 1 279 (27)% 556 69% 2 172 2 887 (25)%
(non-IFRS)
Nokia's
Networks 854 1 097 (22)% 432 98% 1 935 2 496 (22)%
business
Ultra
Broadband 574 702 (18)% 326 76% 1 362 1 656 (18)%
Networks
IP Networks
and 280 396 (29)% 106 164% 573 840 (32)%
Applications
Nokia 158 311 (49)% 225 (30)% 579 692 (16)%
Technologies
Group
Common (73) (129) (101) (341) (301)
and Other
Operating
margin % 14.0% 16.6% (260)bps 9.3% 470bps 9.1% 10.9% (180)bps
(non-IFRS)
-------------------------------------------------------------------------------
Q4 and January-December 2016 reported results, unless otherwise specified.
Refer to note 1 in the Financial statement information for further details
(1,3)
-------------------------------------------------------------------------------
Nokia Nokia
stand- stand-
alone alone
histori- histori-
cals(3) cals(3)
EUR million
(except for Q4'16 Q4'15 YoY Q3'16 QoQ Q1- Q1-Q4'15 YoY
EPS change change Q4'16 change
in EUR)
-------------------------------------------------------------------------------
Net Sales -
constant 84% 10% 89%
currency
Net sales 6 641 3 609 84% 5 890 13% 23 614 12 499 89%
Nokia's
Networks 6 069 3 210 89% 5 322 14% 21 799 11 486 90%
business
Ultra
Broadband 4 332 2 815 54% 3 903 11% 15 770 10 158 55%
Networks
IP Networks
and 1 737 395 340% 1 419 22% 6 029 1 328 354%
Applications
Nokia 309 403 (23)% 353 (12)% 1 053 1 027 3%
Technologies
Group Common 341 0 298 14% 1 145 0
and Other
Non-IFRS (74) 0 (60) 23% (331) 0
exclusions
Gross profit 2 659 1 693 57% 2 216 20% 8 456 5 536 53%
Gross margin % 40.0% 46.9% (690)bps 37.6% 240bps 35.8% 44.3% (850)bps
Operating 317 643 (51)% 55 476% (1 1 697
profit 100)
Nokia's
Networks 854 495 73% 432 98% 1 935 1 349 43%
business
Ultra
Broadband 574 405 42% 326 76% 1 362 1 210 13%
Networks
IP Networks
and 280 90 211% 106 164% 573 138 315%
Applications
Nokia 158 316 (50)% 225 (30)% 579 698 (17)%
Technologies
Group Common (73) (74) (101) (341) (89)
and Other
Non-IFRS (622) (93) 569% (501) 24% (3 (261) 1 154%
exclusions 272)
Operating 4.8% 17.8% (1 0.9% 390bps (4.7)% 13.6% (1
margin % 300)bps 830)bps
Profit (non- 676 575 18% 264 156% 1 250 1 392 (10)%
IFRS)
Profit/(Loss) 658 499 32% (133) (595)% (912) 1 194
(4)
EPS, diluted 0.12 0.15 (20)% 0.04 200% 0.22 0.36 (39)%
(non-IFRS)
EPS, diluted 0.11 0.13 (15)% (0.02) (650)% (0.13) 0.31
(4)
Net cash and
other 5 299 7 775 (32)% 5 539 (4)% 5 299 7 775 (32)%
liquid assets
-------------------------------------------------------------------------------
(1)Results are as reported unless otherwise specified. The results information
in this report is unaudited. Non-IFRS results exclude costs related to the
Alcatel-Lucent transaction and related integration, goodwill impairment
charges, intangible asset amortization and purchase price related items,
restructuring and associated charges, and certain other items that may not be
indicative of Nokia's underlying business performance. For details, please
refer to the Non-IFRS Exclusions section included in discussions of both the
quarterly and year to date performance and note 2, "Non-IFRS to reported
reconciliation", in the notes in the Financial statement information in this
report. A reconciliation of the Q4 2015 non-IFRS combined company results to
the reported results can be found in the "Nokia provides recast segment
results for 2015 reflecting new financial reporting structure" stock exchange
release published on April 22, 2016. Change in net sales at constant currency
excludes the impact of changes in exchange rates in comparison to Euro, our
reporting currency. For more information on currency exposures, please refer
to note 1, "Basis of Preparation", in the Financial statement information
section in this report.
(2)Combined company historicals reflect Nokia's new operating and financial
reporting structure, including Alcatel-Lucent, and are presented as additional
information as described in the stock exchange release published on April
22, 2016. For more information on the combined company historicals, please
refer to note 1, "Basis of Preparation", in the Financial statement
information section in this report.
(3)Nokia standalone historicals are the recasting of Nokia's historical
standalone financial results, reflecting Nokia's updated segment reporting
structure, excluding Alcatel-Lucent. Beginning from the first quarter 2016,
Nokia results include those of Alcatel-Lucent on a consolidated basis.
Accordingly, Nokia results beginning from the first quarter 2016 are not
directly comparable to prior period Nokia standalone results.
(4)Reported Q1-Q4'16 result is not comparable to the reported results
published previously due to an update to the Alcatel-Lucent purchase price
allocation in Q3'16 which resulted in an adjustment to the reported Q1'16
income tax benefit. Refer to note 6, "Acquisitions", in the Financial
statement information section in this report.
Nokia and Apple patent license renewal
In December 2016, Nokia announced that it had begun filing complaints against
Apple, alleging that Apple products infringe Nokia patents. As of today, in
actions across 11 countries in Asia, Europe and the US, there are now more than
50 Nokia patents in suit, covering technologies such as display, user interface,
software, antenna, chipsets, video coding, as well as 3G & 4G cellular
standards. Apple has also filed certain complaints against Nokia.
As one of the world's leading innovators, and following the acquisition of full
ownership of Nokia Siemens Networks in 2013 and Alcatel-Lucent in 2016, Nokia
now owns three valuable portfolios of intellectual property. Built on more than
EUR 115 billion invested in research and development ("R&D") over the past
twenty years, the tens of thousands of patents cover many important technologies
used in smartphones, tablets, personal computers and similar devices.
The previous license agreement between Nokia and Apple, covering some patents
from the Nokia Technologies portfolio, expired at the end of 2016 and Apple
currently has no license under Nokia patents. Despite sustained efforts by
Nokia, Apple has not accepted any licensing offers Nokia has made for the
previously licensed patents, as well as for other patented inventions used by
many of Apple's products.
Non-IFRS results provide meaningful supplemental information regarding
underlying business performance
In addition to information on our reported IFRS results, we provide certain
information on a non-IFRS, or underlying business performance, basis. We believe
that our non-IFRS results provide meaningful supplemental information to both
management and investors regarding Nokia's underlying business performance by
excluding the below-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.
Non-IFRS results exclude costs related to the Alcatel-Lucent transaction and
related integration, goodwill impairment charges, intangible asset amortization
and purchase price related items, restructuring and associated charges, and
certain other items that may not be indicative of Nokia's underlying business
performance. The non-IFRS exclusions are not allocated to the segments, and
hence they are reported only at the Nokia consolidated level.
Financial discussion
The financial discussion included in this financial report of Nokia's results
comprises the results of Nokia's businesses - Nokia's Networks business and
Nokia Technologies, as well as Group Common and Other. For more information on
the changes to our reportable segments, please refer to note 3, "Segment
information and eliminations", in the Financial statement information section in
this financial report.
In the discussion of Nokia's results in the fourth quarter 2016 comparisons are
given to the fourth quarter 2015 and third quarter 2016 results on a combined
company basis, unless otherwise indicated. This data has been prepared to
reflect the financial results of the continuing operations of Nokia as if the
new financial reporting structure had been in operation for the full year 2015.
Certain accounting policy alignments, adjustments and reclassifications have
been necessary, and these are explained in the "Basis of preparation" section of
Nokia's stock exchange release published on April 22, 2016. These adjustments
also include reallocation of items of costs and expenses based on their nature
and changes to the definition of the line items in the combined company
accounting policies, which also affect numbers presented in this financial
report for 2015.
In the discussion of Nokia's reported results for the fourth quarter 2016 and
full year 2016 comparisons are given to the fourth quarter 2015 and full year
2015 Nokia standalone historical results, which have been recast to reflect
Nokia's updated segment reporting structure excluding Alcatel-Lucent, unless
otherwise indicated. From the beginning of 2016, Nokia's results include those
of Alcatel-Lucent on a consolidated basis and, accordingly, are not directly
comparable to Nokia standalone historical results.
CEO STATEMENT
2016 was a time of transition for Nokia, a year in which we moved forward
deliberately and successfully to execute our strategy and broaden our scope.
At the start of the year, Nokia was focused primarily on mobile networks. We
ended the year as a company with a complete portfolio spanning mobile, fixed,
routing, optical, stand-alone software and more; with solid opportunities to
drive higher returns through expansion into new customer segments; with emerging
businesses in digital health and digital media; and with greatly expanded patent
and brand licensing activities.
Pleasingly, we saw growing customer support for Nokia's strategy. Our sales
pipeline with customers beyond our traditional communication service provider
base accelerated over the course of the year, we saw an increasing share of our
Networks pipeline coming from opportunities covering products and services from
two or more of our business groups, and the potential of cross-selling started
to become a reality.
We also ended the year having successfully concluded the integration of Alcatel-
Lucent faster than anticipated, allowing us to shift our full focus to cost
savings, continuous improvement programs and the execution of our strategy. In
terms of financial performance, we were able to deliver solid results for the
full year, with profitability in our Networks business coming in at the high end
of our guidance range. Our ongoing intense focus on execution, cost management
and pricing discipline was critical to offset the impact of challenging market
conditions over the course of the year. While I remain disappointed with our
topline development in 2016, we continue to expect our performance to improve in
2017 and see the potential for margin expansion in 2017 and beyond, as market
conditions improve and our sales transformation programs gain further traction.
In short, we ended 2016 positioned well for the future, with well-integrated
operations, a powerful end-to-end portfolio and our disciplined operating model
still delivering robust results. In addition, we remain in a position of
financial strength, with a strong balance sheet and the flexibility to invest in
opportunities that we believe will create shareholder value.
Rajeev Suri
President and CEO
NOKIA IN Q4 2016 - NON-IFRS
Non-IFRS net sales and non-IFRS operating profit
Nokia non-IFRS net sales decreased 13% year-on-year and increased 13%
sequentially. On a constant currency basis, Nokia non-IFRS net sales would have
decreased 13% year-on-year and increased 11% sequentially.
Year-on-year changes
EUR million, Net % Gross Other Operating Change in
non-IFRS Sales change profit (R&D) (SG&A) income and profit operating
(expenses) margin %
-------------------------------------------------------------------------------
Networks (988) (14)% (364) 79 72 (30) (243) (140)bps
business
Nokia (104) (25)% (122) 3 (30) (3) (152) (2
Technologies 410)bps
Group Common 87 34% 33 4 0 19 56 2 940bps
and Other
Eliminations 1 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia (1 (13)% (454) 86 42 (14) (340) (260)bps
003)
-------------------------------------------------------------------------------
Sequential changes
EUR million, Net % Gross Other Operating Change in
non-IFRS Sales change profit (R&D) (SG&A) income and profit operating
(expenses) margin %
-------------------------------------------------------------------------------
Networks 747 14% 484 (50) (19) 7 422 600bps
business
Nokia (45) (12)% (54) (4) (13) 4 (67) (1
Technologies 260)bps
Group Common 43 14% 23 (3) 3 5 29 1 250bps
and Other
Eliminations 19 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia 765 13% 453 (58) (29) 16 384 470bps
-------------------------------------------------------------------------------
Non-IFRS financial income and expenses
In the fourth quarter 2016, non-IFRS financial income and expenses was an
expense of EUR 72 million. This includes an impairment charge of EUR 63 million
related to the performance of certain private funds investing in IPR, which was
largely offset by foreign exchange gains mainly resulting from US dollar
appreciation against Chinese yuan, as well as gains from venture fund
distributions.
Non-IFRS taxes
In the fourth quarter 2016, non-IFRS income taxes were an expense of EUR 204
million. In the fourth quarter 2016, Nokia's non-IFRS tax rate of 23% was lower
than the approximately 40% outlook we previously provided. This was primarily
related to two factors. First, there was a favorable change in Nokia's regional
profitability mix, the majority of which was non-recurring in nature and related
to a change of estimate in Q4 2016. Second, compared to the expected
profitability underlying Nokia's non-IFRS tax rate guidance, the level of
realized profitability was higher, resulting in a lower non-IFRS tax rate due to
a relatively larger portion of taxable profit being attributable to tax
jurisdictions with lower tax rates.
NOKIA IN Q4 2016 - REPORTED
FINANCIAL DISCUSSION
Net sales
Nokia net sales increased 84% year-on-year, compared to Nokia standalone net
sales, and increased 13% sequentially. On a constant currency basis, Nokia net
sales would have increased 84% year-on-year, compared to Nokia standalone net
sales, and 10% sequentially.
Year-on-year discussion
The year-on-year increase in Nokia net sales in the fourth quarter 2016,
compared to Nokia standalone net sales, was primarily due to growth in Nokia's
Networks business and Group Common and Other, both of which primarily related to
the acquisition of Alcatel-Lucent. This was partially offset by Nokia
Technologies and a purchase price allocation adjustment related to a reduced
valuation of deferred revenue that existed on Alcatel-Lucent's balance sheet at
the time of the acquisition.
Sequential discussion
The sequential increase in Nokia net sales in the fourth quarter 2016 was
primarily due to growth in Nokia's Networks business and Group Common and Other.
This was partially offset by Nokia Technologies and the negative impact related
to a purchase price allocation adjustment associated with a reduced valuation of
deferred revenue that existed on Alcatel-Lucent's balance sheet at the time of
the acquisition.
Operating profit
Year-on-year discussion
The year-on-year decrease in Nokia operating profit, compared to Nokia
standalone operating profit, was primarily due to higher research and
development ("R&D") expenses, higher selling, general and administrative
("SG&A") expenses and a net negative fluctuation in other income and expenses,
partially offset by higher gross profit, all of which primarily related to the
acquisition of Alcatel-Lucent.
The increase in gross profit was primarily due to Nokia's Networks business and,
to a lesser extent, Group Common and Other, partially offset by non-IFRS
exclusions related to both product portfolio integration costs and deferred
revenue, as well as Nokia Technologies.
The increase in R&D expenses was primarily due to Nokia's Networks business,
non-IFRS exclusions related to both amortization of intangible assets and
product portfolio integration costs and, to a lesser extent, Group Common and
Other and Nokia Technologies.
The increase in SG&A expenses was primarily due to Nokia's Networks business,
non-IFRS exclusions related to both amortization of intangible assets and
transaction and integration related costs and, to a lesser extent, Nokia
Technologies and Group Common and Other.
Nokia's other income and expenses was an expense of EUR 110 million in the
fourth quarter 2016, compared to an expense of EUR 3 million in the year-ago
period. The net negative fluctuation was primarily related to non-IFRS
exclusions attributable to higher restructuring and associated charges,
partially offset by the absence of an approximately EUR 20 million loss recorded
in the fourth quarter 2015, which related to certain of Nokia's investments made
through its venture funds.
Sequential discussion
Nokia operating profit increased primarily due to higher gross profit, partially
offset by a net negative fluctuation in other income and expenses, as well as
higher R&D and SG&A expenses.
The increase in gross profit was primarily due to Nokia's Networks business and,
to a lesser extent, Group Common and Other, partially offset by Nokia
Technologies and non-IFRS exclusions.
The increase in R&D expenses was primarily due to Nokia's Networks business.
The increase in SG&A expenses was primarily due to Nokia's Networks business,
non-IFRS exclusions and Nokia Technologies.
Nokia's other income and expenses was an expense of EUR 110 million in the
fourth quarter 2016, compared to an expense of EUR 39 million in the third
quarter 2016. The net negative fluctuation was primarily due to higher
restructuring and associated charges.
Description of non-IFRS exclusions in Q4 2016
Non-IFRS exclusions consist of costs related to the Alcatel-Lucent transaction
and related integration, goodwill impairment charges, intangible asset
amortization and purchase price related items, restructuring and associated
charges, and certain other items that may not be indicative of Nokia's
underlying business performance. For additional details, please refer to note
2, "Non-IFRS to reported reconciliation, Continuing Operations (unaudited)", in
the Financial statement information section in this financial report.
Nokia standalone
historicals(1)
EUR million Q4'16 Q4'15 YoY change Q3'16 QoQ change
-------------------------------------------------------------------------------
Net sales (74) 0 (60) 23%
Gross profit (159) 0 (149) 7%
R&D (185) (9) 1 956% (179) 3%
SG&A (162) (70) 131% (145) 12%
Other income and (116) (14) 729% (29) 300%
expenses
Operating (622) (93) 569% (501) 24%
profit/(loss)
-------------------------------------------------------------------------------
Financial income and 0 0 (1) (100)%
expenses
Taxes 605 17 3 459% 105 476%
Profit/(loss) (17) (76) (78)% (397) (96)%
Profit/(loss)
attributable to the (13) (76) (83)% (378) (97)%
shareholders of the
parent
Non-controlling (5) 0 (20) (75)%
interests
-------------------------------------------------------------------------------
(1)Nokia standalone historicals are the recasting of Nokia's historical
standalone financial results, reflecting Nokia's updated segment reporting
structure, excluding Alcatel-Lucent. Beginning from the first quarter 2016,
Nokia results include those of Alcatel-Lucent on a consolidated basis.
Accordingly, Nokia results beginning from the first quarter 2016 are not
directly comparable to prior period Nokia standalone results.
Non-IFRS exclusions in net sales
In the fourth quarter 2016, non-IFRS exclusions in net sales amounted to EUR 74
million, and related to a purchase price allocation adjustment related to a
reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance
sheet at the time of the acquisition.
Non-IFRS exclusions in operating profit
In the fourth quarter 2016, non-IFRS exclusions in operating profit amounted to
EUR 622 million, and were primarily due to non-IFRS exclusions that negatively
affected gross profit, R&D, SG&A and other income and expenses as follows:
In the fourth quarter 2016, non-IFRS exclusions in gross profit amounted to EUR
159 million, and were primarily due to product portfolio integration costs
related to the acquisition of Alcatel-Lucent, and the deferred revenue.
In the fourth quarter 2016, non-IFRS exclusions in R&D expenses amounted to EUR
185 million, and were primarily due to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent and, to a lesser extent,
product portfolio integration costs related to the acquisition of Alcatel-
Lucent.
In the fourth quarter 2016, non-IFRS exclusions in SG&A expenses amounted to EUR
162 million, and were primarily due to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent, as well as integration and
transaction related costs.
In the fourth quarter 2016, non-IFRS exclusions in other income and expenses
amounted to EUR 116 million, and were primarily due to EUR 107 million of
restructuring and associated charges for Nokia's cost reduction and efficiency
improvement initiatives.
Financial income and expenses
In the fourth quarter 2016, financial income and expenses was an expense of EUR
72 million. This includes an impairment charge of EUR 63 million related to the
performance of certain private funds investing in IPR, which was largely offset
by foreign exchange gains mainly resulting from US dollar appreciation against
Chinese yuan, as well as gains from venture fund distributions.
Taxes
In the fourth quarter 2016, income taxes were a benefit of EUR 401 million. This
was primarily related to two factors. First, following the completion of the
squeeze-out of the remaining Alcatel-Lucent shares, Nokia has launched actions
to integrate the former Alcatel-Lucent and Nokia operating models. In the fourth
quarter 2016, in connection with these integration activities, Nokia transferred
certain intellectual property to its US operations, recording a tax benefit and
additional deferred tax assets of EUR 348 million. Second, for US tax purposes
Nokia elected to treat the acquisition of Alcatel-Lucent's US operations as an
asset purchase. The impact of this election was to utilize or forfeit existing
deferred tax assets and record new deferred tax assets with a longer
amortization period than the life of those forfeited assets. As a result of
this, we recorded EUR 91 million of additional deferred tax assets in the fourth
quarter 2016. In addition, there was a favorable change in Nokia's regional
profitability mix, the majority of which was non-recurring in nature and related
to a change of estimate in the fourth quarter 2016.
Nokia will continue to make changes in its operating model in 2017. Due to this,
in full year 2017, Nokia expects to record a reduction in deferred tax assets of
approximately EUR 250 million, which will have a negative non-recurring impact
on tax expenses of approximately EUR 250 million, partly offsetting the recorded
non-recurring tax benefit of EUR 348 million in the fourth quarter 2016. The
operating model changes, including the transfers of intellectual property and
certain tax elections that Nokia has made, resulted in non-recurring cash
outflows of approximately EUR 90 million in the fourth quarter 2016 and are
expected to result in additional non-recurring cash outflows in 2017 of
approximately EUR 150 million. The changes are expected to create more future
cash tax savings than the additional non-recurring cash tax outflows in 2016 and
2017.
Cost savings program
The following table summarizes the financial information related to our cost
savings program, as of the end of the fourth quarter 2016. Balances related to
previous Nokia and Alcatel-Lucent restructuring and cost savings programs have
been included as part of this overall cost savings program as of the second
quarter 2016.
In EUR million, approximately Q4'16
--------------------------------------------------------------------
Opening balance of restructuring and associated liabilities 810
+ Charges in the quarter 110
- Cash outflows in the quarter 130
= Ending balance of restructuring and associated liabilities 790
of which restructuring provisions 710
of which other associated liabilities 80
Total expected restructuring and associated charges 1 700
- Cumulative recorded 750
= Charges remaining to be recorded 950
Total expected restructuring and associated cash outflows 2 150
- Cumulative recorded 410
= Cash outflows remaining to be recorded 1 740
The following table summarizes our full year 2016 results and future
expectations related to our cost savings program and network equipment swaps.
In EUR | | | | |
million, | | | | |
approximately,| 2016 | 2017 | 2018 | 2019 | Total
rounded to the| | | | |
nearest EUR | | | | |
50 million | | | | |
---------------+--------------+---------------+---------------+-------+--------
| Previ- | Previ- Cur-| Previ- Cur-| Cur-| Cur-
| ous Actual| ous rent| ous rent| rent| rent
|expect- |expect- expect-|expect- expect-|expect-|expect-
| ation | ation ation| ation ation| ation| ation
---------------+--------------+---------------+---------------+-------+--------
Total cost | 400 550| 400 250| 400 400| 0| 1 200
savings | | | | |
| | | | |
- operating | 250 350| 200 100| 350 350| 0| 800
expenses | | | | |
| | | | |
- cost of | 150 200| 200 150| 50 50| 0| 400
sales | | | | |
| | | | |
Restructuring | | | | |
and | 700 750| 800 750| 200 200| 0| 1 700
associated | | | | |
charges | | | | |
| | | | |
Restructuring | | | | |
and | | | | |
associated | 500 400| 700 750| 500 550| 450| 2 150
cash | | | | |
outflows | | | | |
| | | | |
Charges and | | | | |
cash | | | | |
outflows | | | | |
related to | 300 150| 300 450| 300 300| 0| 900
network | | | | |
equipment | | | | |
swaps | | | | |
In full year 2016, the actual total cost savings benefitted from lower incentive
accruals, related to the financial performance in full year 2016. Lower
incentive accruals drove more than half of the higher than previously expected
decrease in total costs in 2016, and this is expected to reverse in 2017,
assuming full year 2017 financial performance in-line with our expectations. On
a cumulative basis, Nokia continues to be well on track to achieve the targeted
EUR 1.2 billion of total cost savings in full year 2018. To the extent that our
actual full year 2016 charges and cash flows deviated from our previous
expectations, future expectations have been adjusted accordingly.
OUTLOOK
Metric Guidance Commentary
-------------------------------------------------------------------------------
Nokia Annual cost Approximately EUR Compared to the
savings for Nokia, 1.2 billion of combined non-IFRS
excluding Nokia total annual cost operating costs of
Technologies savings to be Nokia and Alcatel-
achieved in full Lucent for full year
year 2018(1) 2015, excluding Nokia
Technologies. Nokia
expects approximately
EUR 800 million of
the cost savings to
come from operating
expenses and
approximately EUR
400 million from cost
of sales.
Restructuring and
associated charges
are expected to total
approximately EUR
1.7 billion.
Restructuring and
associated cash
outflows are expected
to total
approximately EUR
2.15 billion.
------------------------------------------------------------
Network equipment Approximately EUR The charges related
swaps 900 million in to network equipment
total(1) swaps are being
recorded as non-IFRS
exclusions, and
therefore do not
affect Nokia's non-
IFRS operating
profit.
------------------------------------------------------------
Non-IFRS financial Expense of Primarily includes
income and approximately EUR net interest expenses
expenses 300 million in related to interest-
full year 2017 bearing liabilities,
interest costs
related to the
defined benefit
pension and other
post-employment
benefit plans, as
well as the impact of
foreign exchange rate
fluctuations on
certain balance sheet
items.
Nokia expects cash
outflows related to
financial income and
expenses to be
approximately EUR
200 million in full
year 2017.
------------------------------------------------------------
Non-IFRS tax rate Between 30% and Nokia expects its
35% for full year non-IFRS tax rate for
2017(2) full year 2017 to be
around the midpoint
of the guidance
range, with the non-
IFRS tax rate for Q1
2017 between 35% and
40%.
(This is an update to
earlier commentary
for the non-IFRS tax
rate for full year
2017 to be at the
high end of the
guidance range.)
Nokia expects cash
outflows related to
taxes to be
approximately EUR
600 million for full
year 2017.
(This is an update to
earlier commentary
for cash outflows
related to taxes to
be approximately EUR
400 million for full
year 2017.)
------------------------------------------------------------
Capital Approximately EUR Primarily
expenditures 500 million in attributable to
full year 2017 Nokia's Networks
business.
-------------------------------------------------------------------------------
Nokia's Networks Net sales Decline in line Nokia's outlook for
business with the primary net sales and
addressable market operating margin for
in full year 2017 Nokia's Networks
---------------------------------------business in full year
Operating margin 8-10% in full year 2017 are expected to
2017 be influenced by
factors including:
* A low single
digit percentage
decline in the
primary
addressable
market for
Nokia's Networks
business;
* Competitive
industry
dynamics;
* Product and
regional mix;
* The timing of
major network
deployments; and
* Execution of cost
savings and
reinvestment
plans, with
operating
expenses down on
a year-on-year
basis.
The 2017 outlook for
Nokia's Networks
business was provided
on November 15, 2016
assuming constant
foreign exchange
rates.
-------------------------------------------------------------------------------
Nokia Technologies Net sales Not provided Due to risks and
uncertainties in
determining the
timing and value of
significant licensing
agreements, Nokia
believes it is not
appropriate to
provide an annual
outlook for full year
2017. If no new
licensing agreements
are signed, the
annualized net sales
run rate for patent
and brand licensing
would be
approximately EUR
800 million in 2017,
representing
approximately 30% of
the global smartphone
market, by value,
under license.
Nokia expects total
net sales from
Digital Health and
Digital Media to grow
year-on-year in full
year 2017, primarily
influenced by
increased consumer
adoption of our
Digital Health and
Digital Media
products.
-------------------------------------------------------------------------------
1 For further details related to the cost savings and network equipment swaps
guidance, please refer to the "Cost savings program" section above.
2 For further details related to the tax guidance, please refer to the "Taxes"
section above.
RISKS AND FORWARD-LOOKING STATEMENTS
It should be noted that Nokia and its businesses 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) our ability to integrate Alcatel-Lucent into our operations and achieve the
targeted business plans and benefits, including targeted synergies in relation
to the acquisition of Alcatel-Lucent; B) expectations, plans or benefits related
to our strategies and growth management; C) expectations, plans or benefits
related to future performance of our businesses; D) expectations, plans or
benefits related to changes in organizational and operational structure; E)
expectations regarding market developments, general economic conditions and
structural changes; F) expectations and targets regarding financial performance,
results, operating expenses, taxes, currency exchange rates, hedging, cost
savings and competitiveness, as well as results of operations including targeted
synergies and those related to market share, prices, net sales, income and
margins; G) timing of the deliveries of our products and services; H)
expectations and targets regarding collaboration and partnering arrangements,
joint ventures or the creation of joint ventures, as well as our expected
customer reach; I) outcome of pending and threatened litigation, arbitration,
disputes, regulatory proceedings or investigations by authorities; J)
expectations regarding restructurings, investments, uses of proceeds from
transactions, acquisitions and divestments and our ability to achieve the
financial and operational targets set in connection with any such
restructurings, investments, divestments and acquisitions; and K) statements
preceded by or including "believe," "expect," "anticipate," "foresee," "sees,"
"target," "estimate," "designed," "aim," "plans," "intends," "focus,"
"continue," "project," "should," "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) our ability to execute
our strategy, sustain or improve the operational and financial performance of
our business and correctly identify and successfully pursue business
opportunities or growth; 2) our ability to achieve the anticipated benefits,
synergies, cost savings and efficiencies of the Alcatel-Lucent acquisition, and
our ability to implement our organizational and operational structure
efficiently; 3) general economic and market conditions and other developments in
the economies where we operate; 4) competition and our ability to effectively
and profitably compete and invest in new competitive high-quality products,
services, upgrades and technologies and bring them to market in a timely manner;
5) our dependence on the development of the industries in which we operate,
including the cyclicality and variability of the information technology and
telecommunications industries; 6) our global business and exposure to
regulatory, political or other developments in various countries or regions,
including emerging markets and the associated risks in relation to tax matters
and exchange controls, among others; 7) our ability to manage and improve our
financial and operating performance, cost savings, competitiveness and synergies
after the acquisition of Alcatel-Lucent; 8) our dependence on a limited number
of customers and large multi-year agreements; 9) exchange rate fluctuations, as
well as hedging activities; 10) Nokia Technologies' ability protect its IPR and
to maintain and establish new sources of patent licensing income and IPR-related
revenues, particularly in the smartphone market; 11) our dependence on IPR
technologies, including those that we have developed and those that are licensed
to us, and the risk of associated IPR-related legal claims, licensing costs and
restrictions on use; 12) our exposure to direct and indirect regulation,
including economic or trade policies, and the reliability of our governance,
internal controls and compliance processes to prevent regulatory penalties in
our business or in our joint ventures; 13) our reliance on third-party solutions
for data storage and service distribution, which expose us to risks relating to
security, regulation and cybersecurity breaches; 14) inefficiencies, breaches,
malfunctions or disruptions of information technology systems; 15) Nokia
Technologies' ability to generate net sales and profitability through licensing
of the Nokia brand, particularly in digital media and digital health, and the
development and sales of products and services, as well as other business
ventures which may not materialize as planned; 16) our exposure to various
legislative frameworks and jurisdictions that regulate fraud and enforce
economic trade sanctions and policies, and the possibility of proceedings or
investigation that result in fines, penalties or sanctions; 17) adverse
developments with respect to customer financing or extended payment terms we
provide to customers; 18) the potential complex tax issues, tax disputes and tax
obligations we may face in various jurisdictions, including the risk of
obligations to pay additional taxes; 19) our actual or anticipated performance,
among other factors, which could reduce our ability to utilize deferred tax
assets; 20) our ability to retain, motivate, develop and recruit appropriately
skilled employees; 21) disruptions to our manufacturing, service creation,
delivery, logistics and supply chain processes, and the risks related to our
geographically-concentrated production sites; 22) the impact of litigation,
arbitration, agreement-related disputes or product liability allegations
associated with our business; 23) our ability to optimize our capital structure
as planned and re-establish our investment grade credit rating or otherwise
improve our credit ratings; 24) our ability to achieve targeted benefits from or
successfully implement planned transactions, as well as the liabilities related
thereto; 25) our involvement in joint ventures and jointly-managed companies;
26) the carrying amount of our goodwill may not be recoverable; 27) uncertainty
related to the amount of dividends and equity return we are able to distribute
to shareholders for each financial period; 28) pension costs, employee fund-
related costs, and healthcare costs; and 29) risks related to undersea
infrastructure, as well as the risk factors specified on pages 69 to 87 of our
annual report on Form 20-F filed on April 1, 2016 under "Operating and financial
review and prospects-Risk factors", and in Nokia's other filings with the U.S.
Securities and Exchange Commission. Other unknown or unpredictable factors or
underlying assumptions subsequently proven to be incorrect could cause actual
results to differ materially from those in the forward-looking statements. We do
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.
The financial statements were authorized for issue by management on February
1, 2017
Media and Investor Contacts:
Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations, tel. +358 4080 3 4080 email: investor.relations@nokia.com
* Nokia plans to publish its "Nokia in 2016" annual report, which includes the
review by the Board of Directors and the audited annual accounts, in week
12 of 2017. The annual report will be available at www.nokia.com/financials.
* Nokia plans to publish its first quarter 2017 results on April 27, 2017.
* Nokia's Annual General Meeting 2017 is planned to be held on May 23, 2017.
* Nokia plans to publish its second quarter and half year 2017 results on July
27, 2017.
* Nokia plans to publish its third quarter 2017 results on October 26, 2017.
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