2015-04-30 07:00:00 CEST
2015-04-30 07:07:04 CEST
BIRTINGARSKYLDAR UPPLÝSNINGAR
Nokia - Interim report (Q1 and Q3)
Interim Report for Q1 2015
Nokia Corporation
Interim Report
April 30, 2015 at 08:00 (CET +1)
Interim Report for Q1 2015
Strong year-on-year sales growth; Weak Nokia Networks profitability compensated
by good performance in Nokia Technologies and HERE
This is a summary of the Nokia Corporation interim report for first quarter
2015 published today. The complete first quarter 2015 interim report with tables
is available at http://company.nokia.com/en/financials. Investors should not
rely on summaries of our interim reports only, but should review the complete
interim reports with tables.
FINANCIAL HIGHLIGHTS
* Net sales in Q1 2015 of EUR 3.2 billion (EUR 2.7 billion in Q1 2014), up
20% year-on-year
* Non-IFRS diluted EPS in Q1 2015 of EUR 0.05 (EUR 0.04 in Q1 2014), an
increase of 25% year-on-year; reported diluted EPS in Q1 2015 of EUR 0.05
(EUR 0.03 in Q1 2014), up 67% year-on-year
Nokia Networks
* 15% year-on-year net sales growth driven by growth in four out of our six
regions, with non-IFRS operating margin declining to 3.2% from 9.3%
* 21% year-on-year growth in Global Services net sales, primarily driven by
strong growth in the network implementation business line. 10% year-on-year
growth in Mobile Broadband net sales, primarily driven by overall radio
technologies, particularly LTE
* 61% year-on-year decline in non-IFRS operating profit primarily driven by
lower software sales, lower non-IFRS gross profit in the systems integration
business line, the short-term impact of strategic entry deals, higher non- IFRS operating expenses due to foreign exchange impacts and increased
investments in LTE, 5G and cloud core, and more challenging market
conditions
HERE
* 25% year-on-year growth in net sales, with 29% year-on-year increase in
sales of new vehicle licenses for embedded navigation systems
* 90% year-on-year growth in non-IFRS operating profit, with non-IFRS
operating margin expanding to 7.3% from 4.8%
Nokia Technologies
* 103% year-on-year growth in net sales and 124% growth in non-IFRS operating
profit, primarily due to non-recurring adjustments to accrued net sales from
existing agreements, revenue share related to previously divested
intellectual property rights, and intellectual property rights divested in
the first quarter 2015. In addition, net sales and non-IFRS operating profit
benefitted from higher intellectual property licensing income from existing
licensees
+-----------------------------+---------------------------------------+
| | Reported first quarter 2015 results(1)|
+-----------------------------+-----+-----+----------+-----+----------+
|EUR million |Q1'15|Q1'14|YoY change|Q4'14|QoQ change|
+-----------------------------+-----+-----+----------+-----+----------+
|Net sales - constant currency| | | 11%| | (21)%|
+-----------------------------+-----+-----+----------+-----+----------+
|Net sales |3 196|2 664| 20%|3 802| (16)%|
+-----------------------------+-----+-----+----------+-----+----------+
| Nokia Networks |2 673|2 328| 15%|3 365| (21)%|
+-----------------------------+-----+-----+----------+-----+----------+
| HERE | 261| 209| 25%| 292| (11)%|
+-----------------------------+-----+-----+----------+-----+----------+
| Nokia Technologies | 266| 131| 103%| 149| 79%|
+-----------------------------+-----+-----+----------+-----+----------+
|Gross margin % (non-IFRS) |42.5%|45.6%| (310)bps|43.5%| (100)bps|
+-----------------------------+-----+-----+----------+-----+----------+
|Operating profit (non-IFRS) | 265| 305| (13)%| 524| (49)%|
+-----------------------------+-----+-----+----------+-----+----------+
| Nokia Networks | 85| 216| (61)%| 470| (82)%|
+-----------------------------+-----+-----+----------+-----+----------+
| HERE | 19| 10| 90%| 20| (5)%|
+-----------------------------+-----+-----+----------+-----+----------+
| Nokia Technologies | 193| 86| 124%| 77| 151%|
+-----------------------------+-----+-----+----------+-----+----------+
| Group Common Functions | (32)| (8)| | (43)| |
+-----------------------------+-----+-----+----------+-----+----------+
|Operating margin % (non-IFRS)| 8.3%|11.4%| (310)bps|13.8%| (550)bps|
+-----------------------------+-----+-----+----------+-----+----------+
|Profit (non-IFRS) | 200| 172| 16%| 356| (44)%|
+-----------------------------+-----+-----+----------+-----+----------+
|Profit | 181| 110| 65%| 327| (45)%|
+-----------------------------+-----+-----+----------+-----+----------+
|EPS, EUR diluted (non-IFRS) | 0.05| 0.04| 25%| 0.09| (44)%|
+-----------------------------+-----+-----+----------+-----+----------+
|EPS, EUR diluted | 0.05| 0.03| 67%| 0.08| (38)%|
+-----------------------------+-----+-----+----------+-----+----------+
| | | | | | |
+-----------------------------+-----+-----+----------+-----+----------+
(1) Results are as reported unless otherwise specified. The results information
in this report is unaudited. Please see "Notes to financial statements - Basis
of preparation" in our complete Q1 2015 interim report for more information.
Non-IFRS results exclude transaction and other related costs resulting from the
sale of substantially all of Nokia's Devices & Services business to Microsoft,
goodwill impairment charges, intangible asset amortization and purchase price
related items, restructuring related costs, and certain other items that may not
be indicative of Nokia's underlying business performance. For a detailed
discussion, please see the year to date discussion and the non-IFRS to reported
reconciliation note to the financial statements in our complete Q1 2015 interim
report. A reconciliation of our Q4 2014 non-IFRS results to our reported results
can be found in our complete Q4 2014 interim report with tables on pages 20-25
published on January 29, 2015. A reconciliation of our Q3 2014 non-IFRS results
to our reported results can be found in our complete Q3 2014 interim report with
tables on pages 22-27 published on October 23, 2014. A reconciliation of our Q2
2014 non-IFRS results to our reported results can be found in our complete Q2
2014 interim report with tables on pages 22-27 published on July 24, 2014.
Subsequent events
After the end of the first quarter 2015, Nokia announced it had entered into a
memorandum of understanding regarding a combination with Alcatel-Lucent, and
that it had initiated a strategic review process related to HERE. Additionally,
there were positive developments in Nokia's venture fund investments after the
end of the first quarter. Please refer to page 5 in Nokia's complete Q1 2015
interim report for additional information related to these events.
CEO statement
Nokia delivered a 20% increase in net sales and 25% increase in earnings per
share in the first quarter. Underlying these results was excellent performance
from HERE and Nokia Technologies, while good growth at Nokia Networks was offset
by unsatisfactory profitability.
I remain confident that our lean operating model, ongoing focus on cost
management, and the current strength of our portfolio will enable us to meet our
2015 goals for Nokia Networks. The business delivered healthy year-on-year
growth even after adjusting for currency fluctuations, although a number of
factors in the quarter had a negative impact on profitability. We expect some of
these negative factors to ease, particularly in the second half of 2015.
HERE's excellent momentum in the automotive sector continued, helping the
business deliver 25% year-on-year growth and improved profitability. As we
proceed with the strategic review that we announced on April 15, we are
considering our options in order to determine what is best for Nokia
shareholders and best for HERE. I am very pleased with HERE's performance and
firmly believe that it will have a bright future, either with Nokia or with new
ownership.
Nokia Technologies also had a strong quarter with year on year sales up more
than 100% and operating margin up sharply both year-on-year and sequentially.
The business benefitted in the quarter from some non-recurring effects and
revenue share from previously divested intellectual property rights. I am more
confident than ever that licensing activities are tracking well and that there
is a robust pipeline of potential new licensees. In addition, I believe that we
are focusing on the right innovation opportunities and that the necessary cost
discipline is in place.
Shortly after the end of the quarter, we announced a landmark deal with Alcatel-
Lucent. The strategic logic of this proposed transaction is strong and we
believe that it will provide long term benefits to shareholders of both Nokia
and Alcatel-Lucent. We are moving fast on the necessary integration planning,
and have already established a structure designed to minimize disruption to our
ongoing business. We will bring the same operational discipline to our
integration activities that we have successfully applied to the earlier
transformation at Nokia Networks.
Rajeev Suri
President and CEO of Nokia
Nokia in Q1 2015
The following discussion is of Nokia Group's reported results for the first
quarter 2015 which comprise the results of Nokia's three businesses - Nokia
Networks, HERE and Nokia Technologies, as well as Group Common Functions.
Comparisons are given to the first quarter 2014 and fourth quarter 2014 results,
unless otherwise indicated.
Financial discussion
Net sales
Nokia's net sales increased 20% year-on-year and declined 16% sequentially. At
constant currency, Nokia's net sales would have increased 11% year-on-year and
declined 21% sequentially.
Year-on-year discussion
The year-on-year increase in Nokia's net sales in the first quarter 2015 was
primarily due to higher net sales in Nokia Networks, Nokia Technologies and, to
a lesser extent, in HERE.
Sequential discussion
The sequential decline in Nokia's net sales in the first quarter 2015 was
primarily due to seasonally lower net sales in Nokia Networks and, to a lesser
extent, in HERE. This was partially offset by higher net sales in Nokia
Technologies.
Non-IFRS Operating profit
Year-on-year discussion
Nokia's non-IFRS operating profit declined 13% year-on-year in the first quarter
2015, primarily due to a decline in non-IFRS operating profit in Nokia Networks,
partially offset by increases in non-IFRS operating profit in Nokia Technologies
and, to a lesser extent, in HERE.
Nokia's non-IFRS other income and expenses was an expense of EUR 19 million in
the first quarter 2015, compared to an income of EUR 11 million in the first
quarter 2014. On a year-on-year basis, the change in Nokia's non-IFRS other
income and expenses was primarily due to lower other income in Group Common
Functions and higher foreign exchange hedging related losses.
Sequential discussion
Nokia's non-IFRS operating profit declined 49% sequentially in the first quarter
2015, primarily due to a decline in non-IFRS operating profit in Nokia Networks,
partially offset by an increase in non-IFRS operating profit in Nokia
Technologies.
Nokia's non-IFRS other income and expenses was an expense of EUR 19 million in
the first quarter 2015, compared to an expense of EUR 2 million in the fourth
quarter 2014. On a sequential basis, the change in Nokia's non-IFRS other income
and expenses was primarily due to foreign exchange hedging related losses.
Non-IFRS Profit
The share of results of associated companies in the first quarter 2015 includes
an approximately EUR 25 million out of period adjustment. Nokia has historically
accounted for the results of the associated company in arrears as the results
have not been material. Due to an increase in the entity's earnings, the amounts
reflected in the first quarter 2015 should have been recorded in the fourth
quarter 2014.
Year-on-year discussion
Nokia's non-IFRS profit increased 16% on a year-on-year basis in the first
quarter 2015, primarily due to lower non-IFRS financial expenses and the
approximately EUR 25 million out of period adjustment mentioned above, partially
offset by lower non-IFRS operating profit and, to a lesser extent, higher non-
IFRS tax expenses. In the first quarter 2015 Nokia's non-IFRS tax expense was
based on an effective tax rate of approximately 25%, and this resulted in a
higher non-IFRS tax expense than in the first quarter 2014. However, the tax
expenses in the first quarter of 2014 and 2015 are not directly comparable due
to the fact that Nokia's deferred tax assets in Finland and Germany were subject
to valuation allowances until the third quarter of 2014.
Sequential discussion
Sequentially, Nokia's non-IFRS profit declined 44% in the first quarter 2015,
primarily due to a decline in non-IFRS operating profit, partially offset by
lower non-IFRS tax expenses, the approximately EUR 25 million out of period
adjustment mentioned above and lower non-IFRS financial expenses.
OUTLOOK
+------------------+-------------------+----------------+----------------------+
| |Metric |Guidance |Commentary |
+------------------+-------------------+----------------+----------------------+
|Nokia Networks |FY15 Net sales |Increase YoY | |
+------------------+-------------------+----------------+----------------------+
| |FY15 Non-IFRS op. |Around the |Based on factors |
| |margin |midpoint of the |including competitive |
| | |long-term range |industry dynamics, |
| | |of 8% - 11% for |product and regional |
| | |the full year |mix, the timing of |
| | |(update) |major network |
| | | |deployments, and |
| | | |expected continued |
| | | |operational |
| | | |improvement. |
| | | |This is an update to |
| | | |the earlier non-IFRS |
| | | |operating margin |
| | | |outlook to be in line |
| | | |with the long-term |
| | | |range of 8%-11% for |
| | | |the full year. |
+------------------+-------------------+----------------+----------------------+
|HERE |FY15 Net sales |Increase YoY | |
+------------------+-------------------+----------------+----------------------+
| |FY15 Non-IFRS op. |9% - 12% |Based on factors |
| |margin |(update) |including leading |
| | | |market position, |
| | | |positive industry |
| | | |trends and improved |
| | | |focus on cost |
| | | |efficiency. |
| | | |This is an update to |
| | | |the earlier non-IFRS |
| | | |operating margin |
| | | |outlook to be between |
| | | |7%-12% for the full |
| | | |year. |
+------------------+-------------------+----------------+----------------------+
|Nokia Technologies|FY15 Net sales |Increase YoY |Excludes potential |
+------------------+-------------------+----------------+amounts related to the|
| |FY15 Non-IFRS op. |Approx. in line |expected resolution of|
| |expense |with Q4'14 level|our arbitration with |
| | | |Samsung. Based on |
| | | |factors including |
| | | |higher investment in |
| | | |licensing activities, |
| | | |licensable |
| | | |technologies and |
| | | |business enablers, |
| | | |including go-to-market|
| | | |capabilities, which |
| | | |target new and |
| | | |significant long-term |
| | | |growth opportunities. |
+------------------+-------------------+----------------+----------------------+
|Nokia |FY15 Capital |Approx. EUR 250 |Primarily attributable|
| |expenditure |million (update)|to Nokia Networks |
| | | |This is an update to |
| | | |the earlier outlook of|
| | | |approximately EUR 200 |
| | | |million for the full |
| | | |year. |
+------------------+-------------------+----------------+----------------------+
| |FY15 Financial |Expense of |Subject to changes in |
| |income and expense |approx. EUR 160 |foreign exchange rates|
| | |million |and interest-bearing |
| | | |liabilities. |
+------------------+-------------------+----------------+----------------------+
| |FY15 Group Common |Approx. EUR 120 | |
| |Functions |million | |
| |non-IFRS op. | | |
| |expense | | |
+------------------+-------------------+----------------+----------------------+
| |Estimated long-term|Approx. 25% | |
| |effective tax rate | | |
+------------------+-------------------+----------------+----------------------+
| |Annual cash tax |Approx. EUR 250 |May vary due to profit|
| |obligation |million per |levels in different |
| | |annum until |jurisdictions and |
| | |deferred tax |amount of licence |
| | |assets fully |income subject to |
| | |utilized |withholding tax. |
+------------------+-------------------+----------------+----------------------+
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) the outcome, transaction timeline and closing of the proposed combination of
Nokia and Alcatel-Lucent pursuant to a memorandum of understanding ("MoU") as
announced on April 15, 2015 ("Proposed transaction") and the ability of Nokia to
integrate Alcatel-Lucent into Nokia operations ("Combined company") and achieve
the targeted benefits; B) satisfaction of conditions precedent including closing
conditions related to the Proposed transaction in a timely manner, or at all,
including obtaining required regulatory approvals, the confirmation and approval
of our shareholders for the Proposed transaction and successfully completing
tenders for the Alcatel-Lucent shares; C) expectations, plans or benefits
related to Nokia's strategies, including the review of strategic options for our
HERE business; D) expectations, plans or benefits related to future performance
of Nokia's businesses Nokia Networks, HERE and Nokia Technologies; E)
expectations, plans or benefits related to changes in our management and other
leadership, operational structure and operating model, including the expected
characteristics, business and operations of the Combined company; F)
expectations regarding market developments, general economic conditions and
structural changes; G) expectations and targets regarding performance, including
those related to market share, prices, net sales and margins; H) timing of the
deliveries of our products and services; I) expectations and targets regarding
our financial performance, operating expenses, taxes, cost savings and
competitiveness, as well as results of operations, including synergies related
to the Proposed transaction, the target annual run rate of cost synergies for
the Combined company and expected financial results of the Combined company; J)
expectations and targets regarding collaboration and partnering arrangements,
including the expected customer reach of the Combined company; K) outcome of
pending and threatened litigation, arbitration, disputes, regulatory proceedings
or investigations by authorities; L) 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, including any expectations, plans or benefits related to or caused
by the transaction where Nokia sold substantially all of its Devices & Services
business to Microsoft on April 25, 2014; and M) 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 the 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. We describe the risks and uncertainties that affect the Nokia
Group or are relevant to all Nokia businesses at the beginning of this section
and provide towards the end information on additional risks that are primarily
related to the individual Nokia businesses: Nokia Networks, HERE and Nokia
Technologies. Factors, including risks and uncertainties that could cause such
differences include, but are not limited to: 1) the inability to close the
Proposed transaction 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 Proposed transaction, or the occurrence of any
event, change or other circumstance that could give rise to the termination of
the MoU and successfully completing tenders for the Alcatel-Lucent shares; 2)
the inability to achieve the targeted business and operational benefits from the
Proposed transaction or disruption caused by the Proposed transaction, including
inability to integrate Alcatel-Lucent into Nokia operations and any negative
effect from the implementation of the Proposed combination or the announcement
of the Proposed transaction for instance due to the loss of customers, loss of
key executives or employees or reduced focus on day to day operations and
business; 3) our ability to identify market trends and business opportunities to
select and execute strategies successfully and in a timely manner, and our
ability to successfully adjust our operations and operating models; 4) our
ability to sustain or improve the operational and financial performance of our
businesses and correctly identify or successfully pursue new business
opportunities; 5) our dependence on general economic and market conditions,
including the capacity for growth in internet and technology usage; 6) our
exposure to regulatory, political or other developments in various countries or
regions; 7) our ability to invent new relevant technologies, products and
services, to develop and maintain our intellectual property portfolio and to
maintain the existing sources of intellectual property related revenue and
establish new such sources; 8) our ability to protect our intellectual property
rights and defend against third-party infringements and claims that we have
infringed third parties' intellectual property rights, as well as increased
licensing costs and restrictions on our ability to use certain technologies; 9)
the potential complex tax issues, tax disputes and tax obligations we may face,
including the obligation to pay additional taxes in various jurisdictions and
our actual or anticipated performance, among other factors, which could reduce
our ability to utilize deferred tax assets; 10) our ability to retain, motivate,
develop and recruit appropriately skilled employees, for instance due to
possible disruption caused by the Prosed transaction; 11) the performance of the
parties we partner and collaborate with, as well as that of our financial
counterparties, and our ability to achieve successful collaboration or
partnering arrangements, including any disruption from the Proposed transaction
to obtaining or maintaining the contractual relationships; 12) 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; 13) the impact of unfavorable outcome of litigation,
arbitration, contract-related disputes or allegations of health hazards
associated with our businesses; 14) any inefficiency, malfunction or disruption
of a system or network that our operations rely on or any impact of a possible
cybersecurity breach; 15) our ability to achieve targeted benefits from or
successfully implement planned transactions, such as acquisitions, divestments,
mergers or joint ventures, and manage unexpected liabilities related thereto;
16) our ability to manage our operating expenses and reach targeted results
through efforts aimed at improving our financial performance, for instance
through cost savings and other efforts aimed at increased competitiveness 17)
our ability to optimize our capital structure as planned and re-establish our
investment grade credit rating; 18) Nokia Networks' ability to execute its
strategy or to effectively and profitably adapt its business and operations in a
timely manner to the increasingly diverse needs of its customers in the mobile
broadband infrastructure and related services market or to such technological
developments; 19) Nokia Networks' ability to effectively and profitably invest
in new competitive high-quality products, services, upgrades and technologies
and bring them to market in a timely manner; 20) Nokia Networks' dependence on a
limited number of customers and large multi-year agreements and adverse effects
as a result of further operator consolidation; 21) Nokia Networks' ability to
manage our manufacturing, service creation and delivery, as well as our
logistics efficiently and without interruption; 22) Nokia Networks' dependence
on a limited number of suppliers, who may fail to deliver sufficient quantities
of fully functional products and components or deliver timely services meeting
our customers' needs; 23) adverse developments with respect to customer
financing or extended payment terms Nokia Networks provides to customers; 24)
adverse developments resulting from or in connection to the review of strategic
options for our HERE business, including those related to a potential divestment
of the HERE business; 25) the intense competition HERE faces and its ability to
effectively and profitably invest in new competitive high-quality services and
data and bring these to market in a timely manner or adjust its operations
efficiently; 26) HERE's dependence on the overall automotive market developments
and customer business conditions; 27) HERE's dependence, especially with respect
to sales to the automotive industry, on a limited number of customers and large
multi-year agreements; 28) Nokia Technologies' ability to maintain its existing
sources of intellectual property related revenue or establish new sources; 29)
Nokia Technologies' dependence on a limited number of key licensees that
contribute proportionally significant patent licensing income, including the
outcome of the binding arbitration with Samsung expected in 2015; 30) Nokia
Technologies' dependence on adequate regulatory protection for patented or other
propriety technologies; and 31) Nokia Technologies' ability to execute its plans
through business areas such as technology licensing, licensing the Nokia brand
and other business ventures including technology innovation and incubation; 32)
and the impact on the Combined company (after giving effect to the Proposed
transaction with Alcatel-Lucent) of any of the foregoing risks or forward-
looking statements, as well as the risk factors specified on pages 74 to 89 of
Nokia's latest annual report on Form 20-F under "Operating and Financial Review
and Prospects-Risk factors". 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. 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 management, Espoo - April 29, 2015
Media and Investor Contacts:
Corporate Communications, tel. +358 10 448 4900, email: press.services@nokia.com
Investor Relations Europe, tel. +358 4080 3 4080
* Nokia's Annual General Meeting 2015 is scheduled to be held on May 5, 2015.
* Nokia plans to publish its second quarter 2015 results on July 30, 2015.
[HUG#1916933]
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