2015-10-29 07:00:00 CET
2015-10-29 07:01:04 CET
REGLERAD INFORMATION
Nokia - Interim report (Q1 and Q3)
Nokia Corporation Interim Report for Q3 2015 and January-September 2015
Nokia Corporation
Interim Report
October 29, 2015 at 08:00 (CET +1)
Nokia Corporation Interim Report for Q3 2015 and January-September 2015
Nokia raises full year outlook for Networks based on strong Q3
This is a summary of the Nokia Corporation interim report for third quarter
2015 and January-September 2015 published today. The complete interim report for
third quarter 2015 and January-September 2015 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 FOR NOKIA'S CONTINUING OPERATIONS
* Net sales in Q3 2015 of EUR 3.0 billion (EUR 3.1 billion in Q3 2014), down
2% year-on-year (down 10% year-on-year on a constant currency basis)
* Non-IFRS diluted EPS in Q3 2015 of EUR 0.08 (EUR 0.09 in Q3 2014), a
decrease of 11% year-on-year; reported diluted EPS in Q3 2015 of EUR 0.05
(EUR 0.57 in Q3 2014). Reported diluted EPS in Q3 2014 benefitted from the
recognition of a deferred tax asset due to Nokia's improved operating
performance
Nokia Networks
* 2% year-on-year net sales decrease (11% year-on-year decrease on a constant
currency basis), as strong net sales growth in Greater China partially
offset decreases in North America and Europe. On a sequential basis, strong
net sales growth in Greater China also helped to offset the impact of
industry seasonality
* Strong non-IFRS gross margin of 39.5% due to both Global Services and Mobile
Broadband, with particular strength in the systems integration business line
within Global Services
* Non-IFRS operating margin of 13.6% reflected strong operational performance
and continued focus on execution excellence. Non-IFRS operating profit
decreased 2% year-on-year
Nokia Technologies
* 7% year-on-year net sales growth, primarily due to higher intellectual
property licensing income
* 4% year-on-year decrease in non-IFRS operating profit, primarily due to
higher investments in business activities which target long-term growth
opportunities
Reported January-
Reported third quarter 2015 results(1) September 2015
results(1)
-------------------------------------------------------------------------------
EUR million Q3'15 Q3'14 YoY Q2'15 QoQ Q1- Q1- YoY
change change Q3'15 Q3'14 change
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Continuing
operations
Net sales -
constant (10)% 6% (2)%
currency
Net sales 3 036 3 088 (2)% 2 919 4% 8 890 8 253 8%
Nokia 2 877 2 940 (2)% 2 730 5% 8 280 7 833 6%
Networks
Nokia 162 152 7% 193 (16)% 621 430 44%
Technologies
Gross margin % 42.7% 42.1% 60bps 43.9% (120)bps 42.1% 42.1% 0bps
(non-IFRS)
Operating
profit (non- 475 457 4% 494 (4)% 1 215 1 097 11%
IFRS)
Nokia 391 397 (2)% 313 25% 789 894 (12)%
Networks
Nokia 94 98 (4)% 112 (16)% 398 280 42%
Technologies
Group Common (10) (38) 69 27 (77)
Functions
Operating
margin % (non- 15.6% 14.8% 80bps 16.9% (130)bps 13.7% 13.3% 40bps
IFRS)
Profit (non- 297 354 (16)% 336 (12)% 816 727 12%
IFRS)
Profit 188 2 302 (92)% 338 (44)% 695 2 393 (71)%
EPS, EUR
diluted (non- 0.08 0.09 (11)% 0.09 (11)% 0.21 0.18 17%
IFRS)
EPS, EUR 0.05 0.57 (91)% 0.09 (44)% 0.18 0.58 (69)%
diluted
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Discontinued
operations(2)
Net sales 283 262 8% 290 (2)% 834 3 129 (73)%
Profit (37) (1 552) 10 (19) 638
EPS, EUR (0.01) (0.42) 0.00 0.00 0.15
diluted
(1) Results are as reported unless otherwise specified. The results information
in this report is unaudited. As highlighted in the announcement regarding the
proposed sale of HERE on August 3, 2015, Nokia reports HERE as part of
discontinued operations from the third quarter 2015 onwards. Please refer to"Notes to financial statements - Basis of preparation" for more information.
Non-IFRS results exclude transaction and other related costs resulting from both
the sale of substantially all of Nokia's Devices & Services business to
Microsoft (the "Sale of the D&S Business"), as well as the proposed sale of
HERE, 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 refer to the year to date discussion and the non-IFRS to
reported reconciliation note to the financial statements. A reconciliation of
our Q2 2015 non-IFRS results to our reported results can be found in our
complete Q2 2015 interim report with tables on page 33 published on July
30, 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.
(2) HERE net sales amounted to EUR 283 million in the third quarter 2015,
compared to EUR 236 million in the third quarter 2014. In the first nine months
of 2015, HERE net sales amounted to EUR 834 million, compared to EUR 677 million
in the first nine months of 2014. HERE operating profit amounted to EUR 20
million in the third quarter 2015, compared to an operating loss of EUR 1 215
million in the third quarter 2014. In the first nine months of 2015, HERE
operating profit amounted to EUR 48 million, compared to an operating loss of
EUR 1 227 million in the first nine months of 2014. On a non-IFRS basis and
excluding the positive impact of stopping amortization and depreciation, HERE
operating margin in the third quarter 2015 was 13.2%, compared to 0.0% in the
third quarter 2014. On a non-IFRS basis and excluding the positive impact of
stopping amortization and depreciation, HERE operating margin in the first nine
months of 2015 was 10.1%, compared to 1.6% in the first nine months of 2014.
CEO STATEMENT
Nokia's third-quarter can be summarized in two words: progress and performance.
Progress in moving the Alcatel-Lucent transaction closer to completion and solid
performance across all of our businesses.
The performance at Nokia Networks was the highlight of the quarter, and allowed
us to raise our full-year outlook for that business. Even if I am not pleased
with the overall sales development, our strong profitability is testament to the
strength of our operating model. We said earlier in the year that we would
redouble our efforts to ensure our cost structure was aligned to market
conditions, and the success of those efforts is very clear in our results.
Nokia Technologies also had a solid quarter, with year-on-year growth in
licensing revenues. Our commitment to bringing innovative new products to market
was apparent with the announcement of the OZO virtual-reality camera. OZO has
been extremely well-received and will be launched officially before the end of
the year.
During the quarter we made significant progress towards the closing of our
transaction with Alcatel-Lucent. This progress was reflected in our announcement
on October 21 that we had received all the necessary regulatory approvals to
allow us to proceed with the public exchange offer. The Nokia Board of Directors
has recently called for an Extraordinary General Meeting, to be held on December
2, to request shareholder approval for the transaction. We currently expect the
settlement date of the initial exchange offer to be in the first quarter of
2016.
In advance of that offer, we announced a planned EUR 7 billion capital structure
optimization program. That program, in my view, provides an excellent balance of
significant capital return to shareholders while still ensuring we have
strategic flexibility for the future.
Progress was also clear in our integration planning work. As announced
separately, we now have the confidence to target the achievement of our synergy
savings goals one year earlier than originally planned. I continue to believe
that the acquisition of Alcatel-Lucent provides a very strong long-term value
creation opportunity.
Rajeev Suri
President and CEO
NOKIA'S CONTINUING OPERATIONS IN Q3 2015
FINANCIAL DISCUSSION
The following discussion is of Nokia's continuing operations reported results
for the third quarter 2015, which comprise the results of Nokia's two continuing
businesses - Nokia Networks and Nokia Technologies, as well as Group Common
Functions. Comparisons are given to the third quarter 2014 and second quarter
2015 results, unless otherwise indicated.
Net sales
Nokia's continuing operations net sales decreased 2% year-on-year and increased
4% sequentially. At constant currency, Nokia's continuing operations net sales
would have decreased 10% year-on-year and would have increased 6% sequentially.
Year-on-year discussion
The year-on-year decrease in Nokia's continuing operations net sales in the
third quarter 2015 was primarily due to lower net sales in Nokia Networks,
partially offset by growth in Nokia Technologies.
Sequential discussion
The sequential increase in Nokia's continuing operations net sales in the third
quarter 2015 was primarily due to growth in Nokia Networks, partially offset by
lower net sales in Nokia Technologies.
Non-IFRS Operating profit
Year-on-year discussion
Nokia's continuing operations non-IFRS operating profit increased 4% year-on-
year in the third quarter 2015, primarily due to a lower non-IFRS operating loss
in Group Common Functions, partially offset by lower non-IFRS operating profit
in Nokia Networks and Nokia Technologies.
Nokia's continuing operations non-IFRS other income and expenses was an income
of EUR 20 million in third quarter 2015, compared to an expense of EUR 17
million in the third quarter 2014. This change was primarily due to higher other
income in Group Common Functions related to Nokia's investments made through its
venture funds. During the second quarter 2015, Nokia Growth Partners sold its
holdings in Ganji.com, a major online local services marketplace platform in
China, to 58.com. Related to the transaction, Nokia recorded a gain of
approximately EUR 10 million in the third quarter 2015. The final amount and
timing of additional income or expense will depend on the value and date at
which the venture funds liquidate the portion of the consideration that was
received in shares.
On a year-on-year basis, foreign exchange fluctuations had a significantly
positive impact on non-IFRS gross profit, and a negative impact on non-IFRS
operating expenses, resulting in a significantly positive net impact on non-IFRS
operating profit in the third quarter 2015.
Sequential discussion
Nokia's continuing operations non-IFRS operating profit decreased 4%
sequentially in the third quarter 2015, primarily due to Group Common Functions
shifting from a non-IFRS operating profit in the second quarter 2015 to a non-
IFRS operating loss in the third quarter 2015 and, to a lesser extent, lower
non-IFRS operating profit in Nokia Technologies, partially offset by higher non-
IFRS operating profit in Nokia Networks.
Nokia's continuing operations non-IFRS other income and expenses was an income
of EUR 20 million in the third quarter 2015, compared to income of EUR 114
million in the second quarter 2015. This change was primarily due to lower other
income in Group Common Functions related to Nokia's investments made through its
venture funds. During the second quarter 2015, Nokia Growth Partners sold its
holdings in Ganji.com, a major online local services marketplace platform in
China, to 58.com. Related to the transaction, Nokia recorded a gain of
approximately EUR 10 million in the third quarter 2015, compared to a gain of
approximately EUR 110 million in the second quarter 2015. The final amount and
timing of additional income or expense will depend on the value and date at
which the venture funds liquidate the portion of the consideration that was
received in shares.
On a sequential basis, foreign exchange fluctuations had a negative impact on
non-IFRS gross profit, and a slightly positive impact on non-IFRS operating
expenses, resulting in a slightly negative net impact on non-IFRS operating
profit in the third quarter 2015.
Non-IFRS Profit
Year-on-year discussion
Nokia's continuing operations non-IFRS profit decreased 16% on a year-on-year
basis in the third quarter 2015, primarily due to net negative fluctuation in
non-IFRS financial income and expenses and higher non-IFRS tax expense,
partially offset by higher non-IFRS operating profit.
The net negative fluctuation in non-IFRS financial income and expenses was
primarily due to higher foreign exchange related losses and higher net interest
expense.
Nokia's continuing operations non-IFRS tax expense in the third quarter 2015 was
based on a tax rate of approximately 24%, and this resulted in a higher non-IFRS
tax expense than in the third quarter 2014. However, the tax expenses in the
third quarter of 2014 and 2015 are not directly comparable, primarily due to
Nokia's deferred tax assets in Finland and Germany that were subject to
valuation allowances during the third quarter of 2014 and re-recognized at the
end of the third quarter 2014.
Sequential discussion
Sequentially, Nokia's continuing operations non-IFRS profit decreased 12% in the
third quarter 2015, primarily due to net negative fluctuation in non-IFRS
financial income and expenses and lower non-IFRS operating profit, partially
offset by lower non-IFRS tax expense.
The net negative fluctuation in non-IFRS financial income and expenses was
primarily due to higher foreign exchange related losses, lower other financial
income and higher net interest expense.
Nokia's non-IFRS tax expense in the third quarter 2015 was based on a tax rate
of approximately 24% compared to a tax rate of approximately 27% in the second
quarter 2015.
OUTLOOK
Metric Guidance Commentary
-------------------------------------------------------------------------------
Nokia Networks FY15 Net sales Increase YoY
------------------------------------------------------------
FY15 Non-IFRS op. Around or Based on factors
margin slightly below including
the high end competitive industry
of the long- dynamics, product
term range of and regional mix,
8% - 11% for expected industry
the full year seasonality in the
(update) second half of
2015, the timing of major network
deployments, and
expected continued
operational
improvement.
This is an update to
the earlier FY15
non-IFRS op. margin
outlook of around
the midpoint of the
long-term range of
8% - 11% for the
full year.
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Nokia Technologies FY15 Net sales Increase YoY Excludes potential
----------------------------------------amounts related to
FY15 quarterly non-IFRS Approx. in the expected
op. expense line with resolution of our
Q2'15 level 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's continuing FY15 Capital Approx. EUR Primarily
operations expenditure 250 million attributable to
Nokia Networks.
------------------------------------------------------------
FY15 Financial income Expense of Subject to changes
and expense approx. EUR in FX rates and
160 million interest-bearing
liabilities.
------------------------------------------------------------
FY15 Group Common Approx. EUR
Functions non-IFRS op. 120 million
expense
------------------------------------------------------------
Estimated long-term Approx. 25%
effective tax rate
------------------------------------------------------------
Annual cash tax Approx. EUR May vary due to
obligation 250 million profit levels in
per annum different
until deferred jurisdictions and
tax assets amount of license
fully utilized income subject to withholding tax.
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HERE FY15 Net No guidance Nokia is reporting HERE as part
sales (update) of discontinued operations, and
-----------------------------is no longer providing guidance
FY 15 Non- No guidance for HERE. This is an update to
IFRS op. (update) the earlier FY15 net sales
margin outlook to increase YoY and the
earlier FY15 non-IFRS op.
margin outlook of 9% - 12%.
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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 impact, 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 and synergies; B)
satisfaction of conditions precedent, including closing conditions, related to
the Proposed transaction in a timely manner, or at all, including 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; D) the impact ,outcome,
transaction timeline and closing of the proposed sale of HERE; E) satisfaction
of conditions precedent, including closing conditions, related to the sale of
the HERE business to the consortium, in a timely manner, or at all, including
obtaining required regulatory approvals, as well as any expectations, plans or
benefits related to the sale of the HERE business as announced on August
3, 2015; F) expectations, plans or benefits related to future performance of
Nokia's businesses; G) 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 of the Combined company; H) expectations regarding
market developments, general economic conditions and structural changes; I)
expectations and targets regarding performance, including those related to
market share, prices, net sales and margins; J) timing of the deliveries of our
products and services; K) 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; L) expectations
and targets regarding collaboration and partnering arrangements, including the
expected customer reach of the Combined company; M) outcome of pending and
threatened litigation, arbitration, disputes, regulatory proceedings or
investigations by authorities; N) 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 O) 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. 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 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 and synergies 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) the
inability to close the proposed sale of HERE in a timely manner, or at all, for
instance due to the inability or delays in obtaining the necessary regulatory
approvals; 4) 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; 5) our
ability to sustain or improve the operational and financial performance of our
businesses and correctly identify or successfully pursue new business
opportunities; 6) our dependence on general economic and market conditions,
including the capacity for growth in internet and technology usage; 7) our
exposure to regulatory, political or other developments in various countries or
regions; 8) 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; 9) 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, and
litigation related to IPR; 10) 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;
11) our ability to retain, motivate, develop and recruit appropriately skilled
employees, for instance due to possible disruption caused by the Proposed
transaction; 12) 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 in obtaining or maintaining the contractual
relationships; 13) 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; 14) the impact of unfavorable
outcome of litigation, arbitration, contract-related disputes or allegations of
health hazards associated with our businesses; 15) any inefficiency, malfunction
or disruption of a system or network that our operations rely on or any impact
of a possible cybersecurity breach; 16) 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; 17) 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; 18) our ability to optimize our capital structure as planned
and re-establish our investment grade credit rating; 19) 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; 20) 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; 21) Nokia
Networks' dependence on a limited number of customers and large multi-year
agreements and adverse effects as a result of further operator consolidation;
22) Nokia Networks' ability to manage its manufacturing, service creation and
delivery, as well as our logistics efficiently and without interruption; 23)
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 its customers' needs; 24) adverse developments
with respect to customer financing or extended payment terms Nokia Networks
provides to customers; 25) Nokia Technologies' ability to maintain its existing
sources of intellectual property related revenue or establish new sources; 26)
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; 27) Nokia
Technologies' dependence on adequate regulatory protection for patented or other
proprietary technologies; 28) 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; and
29) and the impact on the Combined company (after giving effect to the Proposed
transaction and the proposed sale of HERE) 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" 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. 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.
These financial statements were authorized for issue by management on October
28, 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 email:
investor.relations@nokia.com
* Nokia will hold an Extraordinary General Meeting on December 2, 2015. The
notice of the meeting and more information can be found at www.nokia.com/gm
* Nokia plans to publish its fourth quarter and annual 2015 results on January
28, 2016
[HUG#1962197]
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