2016-10-27 07:00:56 CEST
2016-10-27 07:00:56 CEST
REGULATED INFORMATION
Nokia - Interim report (Q1 and Q3)
Nokia Corporation Interim Report for Q3 2016 and January-September 2016
Nokia Corporation
Interim Report
October 27, 2016 at 08:00 (CET +1)
Solid financial and operational performance across the company
This is a summary of the Nokia Corporation interim report for third quarter
2016 and January-September 2016 published today. The complete interim report for
third quarter 2016 and January-September 2016 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 interim reports with tables.
FINANCIAL HIGHLIGHTS
* Non-IFRS net sales in Q3 2016 of EUR 6.0 billion (reported: EUR 5.9
billion). In the year-ago quarter, non-IFRS net sales would have been EUR
6.4 billion on a comparable combined company basis (reported: EUR 3.0
billion on a Nokia stand-alone basis).
* Non-IFRS diluted EPS in Q3 2016 of EUR 0.04 (reported: EUR negative 0.02).
Nokia's Networks business
* 12% year-on-year net sales decrease in Q3 2016. Consistent with our outlook
for the wireless infrastructure market, net sales were weak in Mobile
Networks within Ultra Broadband Networks, and accounted for approximately
80% of the overall decrease in Nokia's Networks business. IP Networks and
Applications also contributed to the decrease. This was partially offset by
growth in Fixed Networks within Ultra Broadband Networks.
* In Q3 2016, solid gross margin of 37.2% and operating margin of 8.1%,
supported by continued strong operational performance and cost controls.
Nokia Technologies
* 109% year-on-year net sales increase and 168% operating profit increase in
Q3 2016. Excluding the impact of non-recurring licensing income, Nokia
Technologies net sales and operating profit both would have grown by
approximately 50% year-on-year, primarily due to higher intellectual
property licensing income and, to a lesser extent, increased net sales
resulting from the acquisition of Withings.
Group Common and Other
* 41% year-on-year net sales increase in Q3 2016, with particularly strong
growth in Alcatel Submarine Networks.
Q3 and January-September 2016 non-IFRS results. Refer to note 1 to the
interim financial statements for further details( 1,2)
------------------------------------------------------------------------------
Combined Combined
company company
histori- histori-
cals(2) cals(2)
EUR million Q3'16 Q3'15 YoY Q2'16 QoQ Q1- Q1- YoY
change change Q3'16 Q3'15 change
------------------------------------------------------------------------------
Net sales -
constant (6)% 4% (8)%
currency
(non-IFRS)
Net sales 5 950 6 395 (7)% 5 676 5% 17 230 18 887 (9)%
(non-IFRS)
Nokia's
Networks 5 322 6 020 (12)% 5 228 2% 15 730 17 578 (11)%
business
Ultra
Broadband 3 903 4 469 (13)% 3 807 3% 11 438 12 999 (12)%
Networks
IP Networks
and 1 419 1 552 (9)% 1 421 0% 4 292 4 579 (6)%
Applications
Nokia 353 169 109% 194 82% 745 661 13%
Technologies
Group
Common 298 211 41% 271 10% 805 668 21%
and Other
Gross profit 2 365 2 410 (2)% 2 202 7% 6 771 7 170 (6)%
(non-IFRS)
Gross margin
% 39.7% 37.7% 200bps 38.8% 90bps 39.3% 38.0% 130bps
(non-IFRS)
Operating
profit 556 682 (18)% 332 67% 1 233 1 607 (23)%
(non-IFRS)
Nokia's
Networks 432 678 (36)% 312 38% 1 081 1 399 (23)%
business
Ultra
Broadband 326 478 (32)% 228 43% 788 954 (17)%
Networks
IP Networks
and 106 200 (47)% 84 26% 293 445 (34)%
Applications
Nokia 225 84 168% 89 153% 420 381 10%
Technologies
Group
Common (101) (80) (68) (268) (173)
and Other
Operating
margin % 9.3% 10.7% (140)bps 5.8% 350bps 7.2% 8.5% (130)bps
(non-IFRS)
------------------------------------------------------------------------------
Q3 and January-September 2016 reported results, unless otherwise specified.
Refer to note 1 to the interim financial statements for further details(1,3)
--------------------------------------------------------------------------------
Nokia Nokia
stand- stand-
alone alone
histori- histori-
cals(3) cals(3)
EUR million
(except for Q3'16 Q3'15 YoY Q2'16 QoQ Q1- Q1- YoY
EPS change change Q3'16 Q3'15 change
in EUR)
--------------------------------------------------------------------------------
Net Sales -
constant 95% 5% 91%
currency
Net sales 5 890 3 036 94% 5 583 5% 16 972 8 890 91%
Nokia's
Networks 5 322 2 877 85% 5 228 2% 15 730 8 277 90%
business
Ultra
Broadband 3 903 2 548 53% 3 807 3% 11 438 7 343 56%
Networks
IP Networks
and 1 419 329 331% 1 421 0% 4 292 934 360%
Applications
Nokia 353 163 117% 194 82% 745 624 19%
Technologies
Group
Common 298 0 271 10% 805 0
and Other
Non-IFRS (60) 0 (93) (258) 0
exclusions
Gross profit 2 216 1 316 68% 2 028 9% 5 798 3 843 51%
Gross margin 37.6% 43.3% (570)bps 36.3% 130bps 34.2% 43.2% (900)bps
%
Operating 55 333 (83)% (760) (1 1 054
profit 417)
Nokia's
Networks 432 412 5% 312 38% 1 081 854 27%
business
Ultra
Broadband 326 360 (9)% 228 43% 788 805 (2)%
Networks
IP Networks
and 106 52 104% 84 26% 293 49 498%
Applications
Nokia 225 89 153% 89 153% 420 383 10%
Technologies
Group
Common (101) (23) (68) (268) (14)
and Other
Non-IFRS (501) (145) 246% (1 092) (54)% (2 (168) 1 477%
exclusions 650)
Operating 0.9% 11.0% (1 010) (13.6)% 1 450 (8.3)% 11.9% (2 020)
margin % bps bps bps
Profit (non- 264 297 (11)% 171 54% 574 816 (30)%
IFRS)
(Loss)/profit (133) 188 (726) (82)% (1 695
(4) 570)
EPS, diluted 0.04 0.08 (50)% 0.03 33% 0.11 0.21 (48)%
(non-IFRS)
EPS, diluted (0.02) 0.05 (0.12) (0.25) 0.18
(4)
Net cash and
other liquid 5 539 4 120 34% 7 077 (22)% 5 539 4 120 34%
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 to the financial statements attached to this
report. A reconciliation of the Q3 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 notes to the financial statements
attached to 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 notes to the financial
statements attached to 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-Q3'16 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 notes to the
financial statements attached to this report for further details.
SUBSEQUENT EVENTS
New expiration date announced for Nokia's public buy-out offer for Alcatel-
Lucent securities; Squeeze-out expected to occur on November 2, 2016
On October 4, 2016, the French stock market authority (Autorité des marchés
financiers, "AMF") announced that a legal action was filed before the Paris
Court of Appeal (the "Court") on September 30, 2016 for annulment of the AMF's
clearance decision regarding Nokia's public buy-out offer (the "Public Buy-Out
Offer"), which would be followed by a squeeze-out (the "Squeeze-Out", together
with the Public Buy-Out Offer, the "Offer"), for all remaining securities of
Alcatel-Lucent.
On October 25, 2016, the AMF announced the continuation of the timetable of the
Offer and, accordingly, the Public Buy-Out Offer period will end on October
31, 2016 and the Squeeze-Out will be implemented on November 2, 2016. In
connection with the continuation of the timetable, as a precautionary measure,
Nokia has agreed to certain commitments that are in force until the decision of
the Court, and in the event that the AMF's clearance decision would be nullified
or amended by the Court.
The legal challenge filed before the Court against the AMF's clearance decision
regarding the Offer is still pending and the Court is expected to issue a
decision during the first quarter of 2017. Nokia believes that the Offer
complies with all applicable laws and regulations and that the legal challenge
is without merit.
Nokia adjusts planned share repurchase program to EUR 1.0 billion, after using
approximately EUR 560 million in cash to acquire Alcatel-Lucent securities in
order to reach the 95% squeeze-out threshold
On October 29, 2015, Nokia announced a EUR 7 billion Capital Structure
Optimization Program, including EUR 1.5 billion of share repurchases. The
shareholder distributions were calculated assuming ownership of all outstanding
shares of Alcatel-Lucent and conversion of all Nokia and Alcatel-Lucent
convertible bonds.
Nokia intended to reach the 95% squeeze-out threshold through the initial and
subsequent public share exchange offers made in Q4 2015 and Q1 2016 for all
outstanding Alcatel-Lucent securities. However, as the 95% threshold was not
reached through the exchange offers, Nokia has, in addition to using its shares,
used approximately EUR 560 million in cash to acquire Alcatel-Lucent securities
in order to reach the 95% threshold. If the Alcatel-Lucent securities that were
purchased in cash by Nokia would have instead been exchanged for Nokia shares at
the 0.55 exchange ratio for Alcatel-Lucent shares or the 0.704 exchange ratio
for the relevant Alcatel-Lucent convertible bonds, approximately 87 million more
Nokia shares would have been issued. Ultimately, including the expected cash to
be used for the Public Buy-Out Offer and Squeeze-Out of approximately EUR 630
million, Nokia expects to use a total of approximately EUR 1.2 billion in cash
to acquire Alcatel-Lucent securities; and instead of having approximately 6
billion Nokia shares outstanding at the end of the transaction, Nokia now
expects approximately 5.8 billion outstanding shares.
Nokia considers the approximately EUR 560 million in cash that was used to reach
the 95% squeeze-out threshold as indirect share repurchases, and thus, part of
the planned EUR 1.5 billion share repurchase program. Consequently, under
Nokia's Capital Structure Optimization program, Nokia has already completed EUR
560 million of indirect share repurchases and intends to proceed with EUR 1.0
billion of share repurchases, starting after the completion of the squeeze-out
and continuing through the end of 2017.
Nokia and China Huaxin continue negotiations to create a new joint venture
combining Nokia China and Alcatel-Lucent Shanghai Bell
Nokia and China Huaxin Post & Telecommunication Economy Development Center
("China Huaxin") are continuing their discussions under the memorandum of
understanding, as originally announced on August 28, 2015, to combine Nokia's
telecommunications infrastructure businesses in China ("Nokia China") and
Alcatel-Lucent Shanghai Bell into a new joint venture.
The expected time frame to reach a definitive agreement was within nine months
after completion of Nokia's proposed combination with Alcatel-Lucent in January
2016. Due to the complexity of the negotiations, Nokia and China Huaxin have not
reached final terms of how the new joint venture would be created. Therefore,
Nokia and China Huaxin continue negotiations to create a new joint venture
combining Nokia China and Alcatel-Lucent Shanghai Bell, while continuing to
operate under the existing interim operating agreement.
NON-IFRS RESULTS
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 interim 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 notes to the financial statements attached
to this report.
In the discussion of Nokia's results in the third quarter 2016 comparisons are
given to the third quarter 2015 and second 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 these interim
financial statements for 2015.
In the discussion of Nokia's reported results for the third quarter 2016 and
January-September 2016 comparisons are given to the third quarter 2015 and
January-September 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
Nokia delivered solid third quarter results. Nokia Technologies led the way,
with a sharp year-on-year increase in net sales, largely driven by revenues
related to the Samsung licensing agreement that was announced in Q3. The results
also reflect another excellent quarter from Fixed Networks, which improved both
net sales and profitability from one year ago.
When we announced our second quarter results in August, we said that we expected
to see slight sequential improvement in both net sales and operating margin in
the third quarter in our Networks business, and we delivered in both of those
areas. I was particularly pleased with our operating margin performance in the
quarter, which reflects the strong, focused execution across the organization.
We were able to deliver these solid results despite market conditions that are
softer than expected, particularly in mobile infrastructure. As we look forward,
we expect those conditions to stabilize somewhat in 2017, with the primary
addressable market in which Nokia competes likely to decline in the low single
digits for that year.
I believe that Nokia remains well-positioned for this environment. Our
disciplined operating model of tight cost controls, prudent investment and
focused innovation; our constant industrialization of best practices across the
company; our structured approach to fast integration and synergy capture -- all
help give us a competitive advantage.
In addition, the power of our broad portfolio was evident in the quarter. We
have the unique scope necessary to be able to design and deliver end-to-end
networks and thus anchor ourselves in the long-term purchasing strategies of our
customers. We also have the capability to diversify into new areas where high-
performance, end-to-end networks are increasingly required, such as for large
Internet and enterprise vertical market companies. We are seeing good growth in
these segments, and have plans to target them further as we move forward.
While the fourth quarter is expected to be soft from a topline perspective, I
believe that we will meet our guidance for our Networks business of significant
sequential sales and operating margin increase for Q4 and our full-year
operating margin guidance of 7% to 9%. In short, we remain on track in our
execution and focused on creating value for our customers and shareholders.
Rajeev Suri
President and CEO
NOKIA IN Q3 2016 - NON-IFRS
Non-IFRS Net sales and non-IFRS operating profit
Nokia non-IFRS net sales decreased 7% year-on-year and increased 5%
sequentially. On a constant currency basis, Nokia non-IFRS net sales would have
decreased 6% year-on-year and increased 4% 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 (699) (12)% (246) 23 1 (24) (246) (320)bps
business
Nokia 184 109% 175 (10) (23) 0 142 1 410bps
Technologies
Group Common 87 41% 26 (6) (10) (31) (21) 400bps
and Other
Eliminations (16) 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia (444) (7)% (46) 7 (32) (55) (126) (140)bps
-------------------------------------------------------------------------------
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 94 2% 28 44 16 33 121 210bps
business
Nokia 160 82% 154 (9) (11) 2 137 1 780bps
Technologies
Group Common 27 10% (19) (4) (5) (5) (33) (880)bps
and Other
Eliminations (6) 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia 274 5% 163 31 0 30 224 350bps
-------------------------------------------------------------------------------
Sequentially, Nokia's non-IFRS gross profit, non-IFRS other income and expense
and non-IFRS operating profit benefitted from the absence of an adverse effect
related to a customer in Latin America undergoing judicial recovery in Q2 2016.
NOKIA IN Q3 2016 - REPORTED
FINANCIAL DISCUSSION
Net sales
Nokia net sales increased 94% year-on-year, compared to Nokia standalone net
sales, and increased 5% sequentially. On a constant currency basis, Nokia net
sales would have increased 95% year-on-year, compared to Nokia standalone net
sales, and 5% sequentially.
Year-on-year discussion
The year-on-year increase in Nokia net sales in the third 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, as well as growth in Nokia Technologies. This was
partially offset by purchase price allocation adjustment related to the 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 third quarter 2016 was
primarily due to growth in Nokia Technologies and Nokia's Networks business, the
positive impact related to the purchase price allocation adjustment associated
with the reduced valuation of deferred revenue that existed on Alcatel-Lucent's
balance sheet at the time of the acquisition and growth in Group Common and
Other.
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 and higher selling, general and administrative
("SG&A") expenses, partially offset by higher gross profit, all of which related
primarily to the acquisition of Alcatel-Lucent.
The increase in gross profit was primarily due to Nokia's Networks business and,
to a lesser extent, Nokia Technologies and Group Common and Other, partially
offset by non-IFRS exclusions related to deferred revenue.
The increase in R&D expenses was primarily due to Nokia's Networks business,
non-IFRS exclusions related to amortization of intangible assets 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 amortization of intangible assets, as well as
transaction and integration related costs and, to a lesser extent, Group Common
and Other and Nokia Technologies.
Nokia's other income and expenses was an expense of EUR 39 million in the third
quarter 2016, compared to an expense of EUR 80 million in the year-ago period.
The net positive fluctuation was primarily related to non-IFRS exclusions
attributable to lower restructuring and associated charges, partially offset by
the absence of realized gains related to certain of Nokia's investments made
through its venture funds.
Sequential discussion
Nokia operating profit increased primarily due to lower restructuring and
associated charges and higher gross profit. Sequentially, Nokia's gross profit
benefitted from the absence of an adverse effect related to a customer in Latin
America undergoing judicial recovery in Q2 2016.
The increase in gross profit was primarily due to Nokia Technologies.
Nokia's other income and expenses was an expense of EUR 39 million in the third
quarter 2016, compared to an expense of EUR 643 million in the second quarter
2016. The decrease was primarily due to lower restructuring and associated
charges. Sequentially, Nokia's other income and expense benefitted from the
absence of an adverse effect related to a customer in Latin America undergoing
judicial recovery in Q2 2016.
Description of non-IFRS exclusions in Q3 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", in the notes to
the financial statements attached to this report.
Nokia standalone
historicals(1)
EUR million Q3'16 Q3'15 YoY change Q2'16 QoQ change
-------------------------------------------------------------------------------
Net sales (60) 0 (93) (35)%
Gross profit (149) 0 (174) (14)%
R&D (179) (8) 2 138% (162) 10%
SG&A (145) (37) 292% (154) (6)%
Other income and (29) (100) (602)
expenses
Operating (501) (145) (1 092) (54)%
profit/(loss)
-------------------------------------------------------------------------------
Financial income (1) 0 (3) (67)%
and expenses
Taxes 105 35 200% 200 (48)%
Profit/(loss) (397) (109) (896) (56)%
Profit/(loss)
attributable to the (378) (109) (862) (56)%
shareholders of the
parent
Non-controlling (20) 0 (34) (41)%
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.
Net sales
In the third quarter 2016, non-IFRS exclusions in net sales amounted to EUR 60
million, and related to purchase price allocation adjustment related to the
reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance
sheet at the time of the acquisition.
Operating profit
In the third quarter 2016, non-IFRS exclusions in operating profit amounted to
EUR 501 million, and were attributable to non-IFRS exclusions that negatively
affected gross profit, R&D, SG&A and other income and expenses as follows:
In the third quarter 2016, non-IFRS exclusions in gross profit amounted to EUR
149 million, and primarily due to product portfolio integration costs related to
the acquisition of Alcatel-Lucent, and the deferred revenue.
In the third quarter 2016, non-IFRS exclusions in R&D expenses amounted to EUR
179 million, and primarily related 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 third quarter 2016, non-IFRS exclusions in SG&A expenses amounted to EUR
145 million, and primarily related to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent, as well as integration and
transaction related costs.
In the third quarter 2016, non-IFRS exclusions in other income and expenses
amounted to EUR 29 million, and primarily related to EUR 34 million of
restructuring and associated charges for Nokia's cost reduction and efficiency
improvement initiatives.
Cost savings program
The following table summarizes the financial information related to our cost
savings program, as of the end of the third 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.
In EUR million, approximately Q3'16
--------------------------------------------------------------------
Opening balance of restructuring and associated liabilities 970
+ Charges in the quarter 40
- Cash outflows in the quarter 200
= Ending balance of restructuring and associated liabilities 810
of which restructuring provisions 780
of which other associated liabilities 30
Total expected restructuring and associated charges 1 200
- Cumulative recorded 640
= Charges remaining to be recorded 560
Total expected restructuring and associated cash outflows 1 650
- Cumulative recorded 280
= Cash outflows remaining to be recorded 1 370
OUTLOOK
Metric Guidance Commentary
-------------------------------------------------------------------------------
Nokia Annual cost Approximately EUR Compared to the
savings for 1.2 billion of combined non-IFRS
Nokia, excluding total annual cost operating costs of
Nokia savings to be Nokia and Alcatel-
Technologies achieved in full Lucent for full year
year 2018 2015, excluding Nokia
Technologies.
Under this expanded
cost savings program,
restructuring and
associated charges are
expected to total
approximately EUR 1.2
billion, of which
approximately EUR 640
million was recorded as
of Q3 2016.
Related restructuring
and associated cash
outflows are expected
to total approximately
EUR 1.65 billion, of
which approximately EUR
230 million was
recorded as of Q3 2016.
In addition to the
above amounts, note
that Nokia's overall
charges and cash
outflows will also
include amounts related
to network equipment
swaps. The charges
related to network
equipment swaps will be
recorded as non-IFRS
exclusions and,
therefore, will not
affect Nokia's non-IFRS
operating profit.
-------------------------------------------------------------
FY16 Non-IFRS Expense of Primarily includes net
financial income approximately EUR interest expenses
and expense 300 million related to interest-
bearing liabilities,
interest costs related
to the defined benefit
pension and other post-
employment benefit
plans, as well as the
impact from changes in
foreign exchange rates
on certain balance
sheet items. This
outlook may vary
subject to changes in
the above listed items.
-------------------------------------------------------------
FY16 Non-IFRS tax Approximately 40% The increase in the
rate for Q4 2016 and non-IFRS tax rate for
above 40% for full the combined company,
year 2016 (update) compared to Nokia on a
standalone basis, is
primarily attributable
to unfavorable changes
in the regional profit
mix as a result of the
acquisition of Alcatel-
Lucent. Nokia expects
its effective long-term
non-IFRS tax rate to be
clearly below the full
year 2016 level, and
intends to provide
further commentary
later in 2016. (This
update adds Q4 2016
guidance to unchanged
full year 2016
guidance.)
-------------------------------------------------------------
FY16 Cash Approximately EUR May vary due to profit
outflows related 400 million levels in different
to taxes jurisdictions and the
amount of licensing
income subject to
withholding tax.
-------------------------------------------------------------
FY16 Capital Approximately EUR Primarily attributable
expenditures 550 million to Nokia's Networks
(update) business. (This is an
update to the earlier
outlook for EUR 650
million.)
-------------------------------------------------------------------------------
Nokia's Networks FY16 net sales Decline YoY Combined company net
business --------------------------------------sales and operating
FY16 operating 7-9% margin are expected to
margin be influenced by
factors including:
* A declining capital
expenditure
environment in
2016 for our
overall addressable
market (this is an
update to the
earlier guidance
commentary for a
flattish capital
expenditure
environment);
* A declining
wireless
infrastructure
market in 2016;
* Significant focus
on the integration
of Alcatel-Lucent,
particularly in the
first half of 2016;
* Significant QoQ net
sales growth and
operating margin
expansion in Q4
2016;
* Net sales declining
YoY in Q4 2016 at
an approximately
similar rate as in
Q3 2016 (new
commentary);
* Competitive
industry dynamics;
* Product and
regional mix;
* The timing of major
network
deployments; and
* Execution of cost
savings plans.
-------------------------------------------------------------------------------
Nokia FY16 Net sales Not provided Due to risks and
Technologies uncertainties in
determining the timing
and value of
significant licensing
agreements, Nokia
believes it is not
appropriate to provide
an annual outlook for
fiscal year 2016. Nokia
expects annualized net
sales related to patent
and brand licensing to
grow to a run rate of
approximately EUR 950
million by the end of
2016. License
agreements which
currently contribute
approximately EUR 150
million to the
annualized net sales
run rate are set to
expire before the end
of 2016. If we do not
renew these license
agreements, nor sign
any new licensing
agreements, the
annualized net sales
run rate would be
approximately EUR 800
million in early 2017.
Furthermore, the
contribution of the
Withings acquisition to
Nokia Technologies net
sales is expected to be
approximately EUR 50
million in the second
half of 2016, with
strong Q4 seasonality.
The contribution of the
acquisition to Nokia
Technologies operating
profit is expected to
be slightly negative
for the second half of
2016.
-------------------------------------------------------------------------------
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 announced on April 15, 2015 and closed in
early 2016; B) our ability to squeeze out the remaining Alcatel Lucent
shareholders in a timely manner or at all to achieve full ownership of Alcatel
Lucent; C) expectations, plans or benefits related to our strategies and growth
management; D) expectations, plans or benefits related to future performance of
our businesses; E) expectations, plans or benefits related to changes in our
management and other leadership, operational structure and operating model,
including the expected characteristics, business, organizational structure,
management and operations following the acquisition of Alcatel Lucent; F)
expectations regarding market developments, general economic conditions and
structural changes; G) 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; H) timing of the deliveries of our products and services; I)
expectations and targets regarding collaboration and partnering arrangements,
joint-ventures or the creation of joint-ventures, as well as our expected
customer reach; J) outcome of pending and threatened litigation, arbitration,
disputes, regulatory proceedings or investigations by authorities, including the
implications of the legal action brought against the French stock market
authority's (Autorité des marchés financiers) clearance decision on Nokia's
proposed public buy-out offer followed by a squeeze-out; K) 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 L) 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. Factors, including risks
and uncertainties, that could cause such 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 or correctly identify or
successfully pursue business opportunities or growth; 2) our ability to achieve
the anticipated business and operational benefits and synergies from the Alcatel
Lucent transaction, including our ability to integrate Alcatel Lucent into our
operations and within the timeframe targeted, and our ability to implement our
organization and operational structure efficiently; 3) our ability to complete
the purchases of the remaining outstanding Alcatel Lucent securities and realize
the benefits of the public exchange offer for all outstanding Alcatel Lucent
securities, and the outcome of the decision by the French Court of Appeal in
relation to the clearance decision of Nokia's proposed public buy-out offer and
squeeze-out; 4) our dependence on general economic and market conditions and
other developments in the economies where we operate; 5) our dependence on the
development of the industries in which we operate, including the cyclicality and
variability of the telecommunications industry; 6) our 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 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; 8) our dependence
on a limited number of customers and large multi-year agreements; 9) Nokia
Technologies' ability to maintain and establish new sources of patent licensing
income and IPR-related revenues, particularly in the smartphone market; 10) 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; 11) 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; 12) our reliance on third-party solutions for data storage and the
distribution of products and services, which expose us to risks relating to
security, regulation and cybersecurity breaches; 13) Nokia Technologies' ability
to generate net sales and profitability through licensing of the Nokia brand,
the development and sales of products and services, as well as other business
ventures which may not materialize as planned; 14) our exposure to legislative
frameworks and jurisdictions that regulate fraud, economic trade sanctions and
policies, and Alcatel Lucent's previous and current involvement in anti-
corruption allegations; 15) 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; 16) our actual or anticipated performance,
among other factors, which could reduce our ability to utilize deferred tax
assets; 17) our ability to retain, motivate, develop and recruit appropriately
skilled employees; 18) our ability to manage our manufacturing, service
creation, delivery, logistics and supply chain processes, and the risk related
to our geographically concentrated production sites; 19) the impact of
unfavorable outcome of litigation, arbitration, agreement-related disputes or
allegations of product liability associated with our businesses; 20) exchange
rate fluctuations, as well as hedging activities; 21) inefficiencies, breaches,
malfunctions or disruptions of information technology systems; 22) our ability
to optimize our capital structure as planned and re-establish our investment
grade credit rating or otherwise improve our credit ratings; 23) uncertainty
related to the amount of dividends and equity return we are able to distribute
to shareholders for each financial period; 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 or failures to create planned joint ventures; 26) performance
failures by our partners or failure to agree to partnering arrangements with
third parties; 27) our ability to manage and improve our financial and operating
performance, cost savings, competitiveness and synergy benefits after the
acquisition of Alcatel Lucent; 28) adverse developments with respect to customer
financing or extended payment terms we provide to customers; 29) the carrying
amount of our goodwill may not be recoverable; 30) risks related to undersea
infrastructure; 31) unexpected liabilities with respect to pension plans,
insurance matters and employees; and 32) unexpected liabilities or issues with
respect to the acquisition of Alcatel Lucent, including pension, postretirement,
health and life insurance and other employee liabilities or higher than expected
transaction costs 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", as well as 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 October
26, 2016.
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 hold its Capital Markets Day in Barcelona on November
15, 2016.
* Nokia plans to publish its fourth quarter and annual 2016 results on
February 2, 2017.
* Nokia's Annual General Meeting 2017 is planned to be held on May 23, 2017.
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