2016-08-04 07:00:35 CEST
2016-08-04 07:00:35 CEST
BIRTINGARSKYLDAR UPPLÝSNINGAR
Nokia - Half Year financial report
Nokia Corporation Financial Report for Q2 and Half Year 2016
Nokia Corporation
Half Year Financial Report
August 4, 2016 at 08:00 (CET +1)
Nokia Corporation Financial Report for Q2 and Half Year 2016
Solid financial performance and raised cost savings target
This is a summary of the Nokia Corporation financial report for Q2 and half year
2016 published today. The complete financial report for Q2 and half year 2016
with tables is available at http://nokia.com/financials. Investors should not
rely on summaries of our financial reports only, but should review the complete
financial reports with tables.
FINANCIAL HIGHLIGHTS
* Non-IFRS net sales in Q2 2016 of EUR 5.7 billion (reported: EUR 5.6
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 2.9
billion on a Nokia stand-alone basis).
* Non-IFRS diluted EPS in Q2 2016 of EUR 0.03 (reported: EUR negative 0.12).
* Raised annual cost savings target to approximately EUR 1.2 billion of total
annual cost savings to be achieved in full year 2018, compared to the
combined non-IFRS operating costs of Nokia and Alcatel-Lucent for full year
2015, excluding Nokia Technologies. Related to this, Nokia recorded
approximately EUR 600 million of restructuring and associated charges in the
second quarter 2016.
Nokia's Networks business
* 11% year-on-year net sales decrease in Q2 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
strong growth in Fixed Networks within Ultra Broadband Networks.
* In Q2 2016, solid gross margin of 37.4% and operating margin of 6.0% were
adversely affected by a customer in Latin America undergoing judicial
recovery. Excluding this, gross margin would have been approximately 38% and
operating margin would have been nearly 7%.
Nokia Technologies
* 11% year-on-year net sales decrease in Q2 2016. Excluding the impact of non-
recurring items that benefitted the year-ago quarter, Nokia Technologies net
sales would have grown by approximately 10% year-on-year, primarily due to
higher intellectual property licensing income from existing licensees.
* Announced an expansion of the patent cross license agreement with Samsung on
July 13, 2016 to cover certain additional patent portfolios, reinforcing
Nokia's leadership in technologies for the programmable world. The expansion
of the agreement occurred subsequent to the end of the second quarter 2016,
and therefore did not impact the second quarter of 2016 financials. Instead,
the expanded agreement will have a positive impact to Nokia Technologies
starting from the third quarter of 2016. Nokia expects total 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.
Q2 and January-June 2016 non-IFRS results. See note 1 to the interim financial
statements for further details( 1,2)
-------------------------------------------------------------------------------
Combined Combined
company company
histori- histori-
cals(2) cals(2)
EUR million Q2'16 Q2'15 YoY Q1'16 QoQ Q1- Q1-Q2'15 YoY
change change Q2'16 change
-------------------------------------------------------------------------------
Net sales -
constant (9)% 2% (9)%
currency
(non-IFRS)
Net sales 5 676 6 363 (11)% 5 603 1% 11 279 12 492 (10)%
(non-IFRS)
Nokia's
Networks 5 228 5 895 (11)% 5 181 1% 10 409 11 557 (10)%
business
Ultra
Broadband 3 807 4 303 (12)% 3 729 2% 7 535 8 530 (12)%
Networks
IP Networks
and 1 421 1 593 (11)% 1 452 (2)% 2 873 3 027 (5)%
Applications
Nokia 194 219 (11)% 198 (2)% 391 492 (21)%
Technologies
Group
Common and 271 254 7% 236 15% 507 457 11%
Other
Gross profit 2 202 2 495 (12)% 2 205 0% 4 407 4 759 (7)%
(non-IFRS)
Gross margin 38.8% 39.2% (40)bps 39.4% (60)bps 39.1% 38.1% 100
% (non-IFRS) bps
Operating
profit 332 649 (49)% 345 (4)% 677 925 (27)%
(non-IFRS)
Nokia's
Networks 312 511 (39)% 337 (7)% 649 720 (10)%
business
Ultra
Broadband 228 308 (26)% 234 (3)% 462 476 (3)%
Networks
IP Networks
and 84 203 (59)% 103 (18)% 187 244 (23)%
Applications
Nokia 89 120 (26)% 106 (16)% 195 297 (34)%
Technologies
Group
Common and (68) 18 (99) (167) (92)
Other
Operating (140)
margin % 5.8% 10.2% (440)bps 6.2% (40)bps 6.0% 7.4% bps
(non-IFRS)
-------------------------------------------------------------------------------
Q2 and January-June 2016 reported results, unless otherwise specified. See note
1 to the interim financial statements for further details(1,3)
--------------------------------------------------------------------------------
Nokia Nokia
stand- stand-
alone alone
his- his-
tori- tori-
cals(3) cals(3)
EUR million YoY QoQ Q1- Q1- YoY
(except for Q2'16 Q2'15 change Q1'16 change Q2'16 Q2'15 change
EPS in EUR)
--------------------------------------------------------------------------------
Net Sales -
constant 93% 2% 89%
currency
Net sales 5 583 2 919 91% 5 499 2% 11 082 5 854 89%
Nokia's
Networks 5 228 2 729 92% 5 181 1% 10 409 5 400 93%
business
Ultra
Broadband 3 807 2 440 56% 3 729 2% 7 535 4 795 57%
Networks
IP Networks
and 1 421 289 392% 1 452 (2)% 2 873 605 375%
Applications
Nokia 194 194 0% 198 (2)% 391 461 (15)%
Technologies
Group
Common and 271 0 236 15% 507 0
Other
Non-IFRS (93) 0 (104) (197) 0
exclusions
Gross profit 2 028 1 343 51% 1 554 31% 3 582 2 527 42%
Gross margin (1
% 36.3% 46.0% (970)bps 28.3% 800bps 32.3% 43.2% 090)
bps
Operating (760) 493 (712) (1 472) 721
(loss)/profit
Nokia's
Networks 312 331 (6)% 337 (7)% 649 442 47%
business
Ultra
Broadband 228 312 (27)% 234 (3)% 462 445 4%
Networks
IP Networks
and 84 19 342% 103 (18)% 187 (3)
Applications
Nokia 89 108 (18)% 106 (16)% 195 294 (34)%
Technologies
Group
Common and (68) 57 (99) (167) 8
Other
Non-IFRS (1 092) (3) (1 057) 3% (2 149) (24)
exclusions
Operating (3 (2
margin % (13.6)% 16.9% 050)bps (12.9)% (70)bps (13.3)% 12.3% 560)
bps
Profit (non- 171 336 (49)% 139 23% 310 519 (40)%
IFRS)
(Loss)/profit (726) 338 (613) 18% (1 338) 507
EPS, diluted 0.03 0.09 (67)% 0.03 0% 0.06 0.14 (57)%
(non-IFRS)
EPS, diluted (0.12) 0.09 (0.09) (0.21) 0.13
Net cash and
other liquid 7 077 3 830 85% 8 246 (14)% 7 077 3 830 85%
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 Q2 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.
SUBSEQUENT EVENTS
Nokia and Samsung expand their intellectual property cross license
On July 13, 2016, Nokia announced that Nokia and Samsung have agreed terms to
expand their patent cross license agreement to cover certain additional patent
portfolios of both parties. This agreement is in addition to the outcome of the
arbitration between the two companies that was announced on February 1, 2016.
The agreement expands access for each company to patented technologies of the
other and reinforces Nokia's leadership in technologies for the programmable
world. With this expansion, Nokia expects a positive impact to the net sales of
Nokia Technologies starting from the third quarter of 2016.
With this expanded agreement, Nokia Technologies' total annualized net sales
related to patent and brand licensing is expected to grow to a run rate of
approximately EUR 950 million by the end of 2016.
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.
CEO STATEMENT
Nokia's second quarter results were largely as expected and reflect solid
execution in the midst of a challenging market and the ongoing integration of
Alcatel-Lucent. When we announced our first quarter results, I said that we did
not expect to see typical seasonal patterns in the first half of the year, and
that prediction proved to be correct. Net sales were slightly up sequentially in
Q2, while operating margin was slightly down, in part reflecting a meaningful
negative impact from one of our major customers in Latin America.
During the quarter we continued to make excellent progress in many areas. We
moved rapidly forward with our integration and cost savings efforts; saw robust
growth in our Fixed Networks business; announced the acquisition of Gainspeed in
order to accelerate our progress with cable operators; closed the acquisition of
Withings; reached a licensing deal that will see the Nokia brand return to
smartphones and tablets; and more.
I was particularly pleased that the work done in the second quarter to reach an
agreement with Samsung on an expanded intellectual property licensing deal came
to fruition. After the arbitration results were announced in February, we said
that there was still more to come from Samsung and have now delivered on that,
with the related financial impact starting in the third quarter.
The decline of our topline remains a concern, and reflects challenging market
conditions. While we do not expect those conditions to improve in the near term,
we believe we are well-positioned given the scope of our portfolio, focus on
operational discipline, strengthening sales execution, and opportunities in the
evolution from 4G towards 5G.
In fact, we are already starting to work with customers to help them move to 5G-
ready architectures in the core, with a focus on software-defined networking and
cloud technologies. As this process takes place, we expect there to be further
evolution of 4G radio including more carrier aggregation in order to meet
demands for capacity, speed and spectrum utilization. Our AirScale radio
platform, which can support different LTE-Advanced Pro (4.5G) technologies and
is '5G ready,' is ideally suited to this environment.
We crossed the 95% ownership threshold of Alcatel-Lucent in June, allowing us to
move to acquire the remaining shares and reach full ownership of Alcatel-Lucent,
which we expect by the end of October. As our successful integration work
continues and as we get increased granular visibility into the business, our
confidence in our ability to deliver cost savings also increases. As a result,
we are now targeting EUR 1.2 billion in total cost savings to be achieved in
full year 2018. We have also continued the strategic review of our submarine
cable business to determine the best long-term resolution for that business.
While plenty of hard work remains in front of us, we are making good progress
and expect to see slight sequential improvement in both net sales and operating
margin in our Networks business from the second quarter to the third, followed
by significant improvement from the third to the fourth quarter.
Rajeev Suri
President and CEO
NOKIA IN Q2 2016 - NON-IFRS
FINANCIAL DISCUSSION
The following discussion is of Nokia's results for the second quarter 2016,
which comprise 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 recent 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. Comparisons are given to the second quarter 2015 and first
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 the stock exchange release published on
April 22, 2016. These adjustments include also 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 affect also numbers
presented in these interim financial statements for 2015. 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.
Non-IFRS Net sales
Nokia non-IFRS net sales decreased 11% year-on-year and increased 1%
sequentially. On a constant currency basis, Nokia non-IFRS net sales would have
decreased 9% year-on-year and increased 2% sequentially.
Year-on-year discussion
The year-on-year decrease in Nokia non-IFRS net sales in the second quarter
2016 was primarily due to Nokia's Networks business.
Sequential discussion
The sequential increase in Nokia non-IFRS net sales in the second quarter 2016
was primarily due to Nokia's Networks business and Group Common and Other.
Non-IFRS Operating profit
Year-on-year discussion
Nokia non-IFRS operating profit decreased primarily due to lower non-IFRS gross
profit and a net negative fluctuation in non-IFRS other income and expenses,
partially offset by lower non-IFRS research and development ("R&D") expenses and
non-IFRS selling, general and administrative ("SG&A") expenses.
The decrease in non-IFRS gross profit was primarily due to Nokia's Networks
business and, to a lesser extent, Nokia Technologies, partially offset by Group
Common and Other. In Q2 2016, non-IFRS gross profit was adversely affected by a
customer in Latin America undergoing judicial recovery, as revenue was deferred
while the related costs of sale were expensed as incurred.
The decrease in non-IFRS R&D expenses was primarily due to Nokia's Networks
business and, to a lesser extent, Nokia Technologies and Group Common and Other.
The decrease in non-IFRS SG&A expenses was primarily due to Nokia's Networks
business and, to a lesser extent, Group Common and Other, partially offset by
Nokia Technologies.
Nokia non-IFRS other income and expenses was an expense of EUR 41 million in the
second quarter 2016, compared to an income of EUR 74 million in the year-ago
quarter. On a year-on-year basis, the change was primarily due to the absence of
realized gains and losses related to certain of Nokia's investments made through
its venture funds. In Q2 2016, non-IFRS other income and expenses were adversely
affected by a customer in Latin America undergoing judicial recovery, as certain
provisions were recorded due to the risk of asset impairment.
Sequential discussion
Nokia non-IFRS operating profit decreased primarily due to a net negative
fluctuation in non-IFRS other income and expenses and higher non-IFRS SG&A
expenses, partially offset by lower non-IFRS R&D expenses.
The slight decrease in non-IFRS gross profit was primarily due to Nokia's
Networks business, partially offset by Group Common and Other. In Q2 2016, non-
IFRS gross profit was adversely affected by a customer in Latin America
undergoing judicial recovery, as revenue was deferred while the related costs of
sale were expensed as incurred.
The decrease in non-IFRS R&D expenses was primarily due to Nokia's Networks
business.
The increase in non-IFRS SG&A expenses was primarily due to Nokia's Networks
business and Nokia Technologies.
Nokia non-IFRS other income and expenses was an expense of EUR 41 million in the
second quarter 2016, compared to an expense of EUR 15 million in the first
quarter 2016. On a sequential basis, the change was primarily due to Nokia's
Networks business, as well as the absence of realized gains and losses related
to certain of Nokia's investments made through its venture funds. In Q2 2016,
non-IFRS other income and expenses were adversely affected by a customer in
Latin America undergoing judicial recovery, as certain provisions were recorded
due to the risk of asset impairment.
NOKIA IN Q2 2016 - REPORTED
FINANCIAL DISCUSSION
Net sales
Nokia net sales increased 91% year-on-year, compared to Nokia standalone net
sales, and increased 2% sequentially. On a constant currency basis, Nokia net
sales would have increased 93% year-on-year, compared to Nokia standalone net
sales, and 2% sequentially.
Year-on-year discussion
The year-on-year increase in Nokia net sales in the second quarter 2016,
compared to Nokia standalone net sales, was primarily due to growth in Nokia's
Networks business and Group Common and Other, primarily related to the
acquisition of Alcatel-Lucent, partially offset by non-IFRS exclusions.
Sequential discussion
The sequential increase in Nokia net sales in the second quarter 2016 was
primarily due to growth in Nokia's Networks business and Group Common and Other,
as well as reduced negative impact 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
Year-on-year discussion
In the second quarter 2016, Nokia generated an operating loss, compared to a
Nokia standalone operating profit in the year-ago period. The change was
primarily due to restructuring and associated charges and other net negative
fluctuations in other income and expenses, higher R&D expenses and higher 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, Group Common and Other, partially offset by non-IFRS
exclusions related to deferred revenue and to a lesser extent, the absence of a
benefit recorded in the year-ago quarter, which related to a correction of items
previously reported as cost of sales and reductions to accounts receivable. In
Q2 2016, gross profit was adversely affected by a customer in Latin America
undergoing judicial recovery, as revenue was deferred while the related costs of
sale were expensed as incurred.
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.
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 643 million in the
second quarter 2016, compared to an income of EUR 114 million in the year-ago
period. The change was primarily related to non-IFRS exclusions attributable to
higher restructuring and associated charges and, to a lesser extent, the absence
of realized gains and losses related to certain of Nokia's investments made
through its venture funds. In Q2 2016, other income and expenses were adversely
affected by a customer in Latin America undergoing judicial recovery, as certain
provisions were recorded due to the risk of asset impairment.
Sequential discussion
Nokia operating profit decreased primarily due to restructuring and associated
charges, partially offset by higher gross profit and, to a lesser extent, lower
SG&A and R&D expenses.
The increase in gross profit was primarily due to lower non-IFRS exclusions
related to the absence of an inventory revaluation as part of the Alcatel-Lucent
purchase accounting, which negatively affected the first quarter 2016. In Q2
2016, gross profit was adversely affected by a customer in Latin America
undergoing judicial recovery, as revenue was deferred while the related costs of
sale were expensed as incurred.
The decrease in R&D expenses was primarily due to Nokia's Networks business.
The decrease in SG&A expenses was primarily due to lower non-IFRS exclusions
related to transaction and integration related costs.
Nokia's other income and expenses was an expense of EUR 643 million in the
second quarter 2016, compared to an expense of EUR 40 million in the first
quarter 2016. The increase was primarily related to non-IFRS exclusions
attributable to recognition of restructuring and associated charges related to
the overall cost savings program. In Q2 2016, other income and expenses were
adversely affected by a customer in Latin America undergoing judicial recovery,
as certain provisions were recorded due to the risk of asset impairment.
Descriptions of non-IFRS exclusions in Q2 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", in the notes to the financial
statements attached to this report.
Nokia standalone
historicals(1)
EUR million Q2'16 Q2'15 YoY change Q1'16 QoQ change
-------------------------------------------------------------------------------
Net sales (93) 0 (104) (11)%
Gross profit (174) 37 (651) (73)%
R&D (162) (13) (156) 4%
SG&A (154) (27) (224) (31)%
Other income and (602) 0 (25)
expenses
Operating (1 092) (3) (1 057) 3%
profit/(loss)
-------------------------------------------------------------------------------
Financial income (3) 0 (36) (92)%
and expenses, net
Taxes 200 5 341 (41)%
(Loss)/Profit (896) 2 (752) 19%
(Loss)/Profit
attributable to the (862) 2 (680) 27%
shareholders of the
parent
Non-controlling (34) 0 (72) (53)%
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 second quarter 2016, non-IFRS exclusions in net sales amounted to EUR 93
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 second quarter 2016, non-IFRS exclusions in operating profit amounted to
EUR 1 092 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 second quarter 2016, non-IFRS exclusions in gross profit amounted to EUR
174 million, and primarily related to the deferred revenue and, to a lesser
extent, product portfolio integration related costs resulting from the
acquisition of Alcatel-Lucent.
In the second quarter 2016, non-IFRS exclusions in R&D expenses amounted to EUR
162 million, and primarily related to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent.
In the second quarter 2016, non-IFRS exclusions in SG&A expenses amounted to EUR
154 million, and primarily related to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent, as well as transaction and
integration related costs.
In the second quarter 2016, non-IFRS exclusions in other income and expenses
amounted to EUR 602 million, and primarily related to EUR 596 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 second 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 Q2'16
----------------------------------------------------------------------------
Opening balance of restructuring and associated liabilities 450
+ Charges in the quarter 600
- Cash outflows in the quarter 80
= Ending balance of restructuring and associated liabilities 970
of which restructuring provisions 850
of which other associated liabilities 120
Total expected restructuring and associated charges - updated program 1 200
- Cumulative recorded - updated program 600
= Charges remaining to be recorded - updated program 600
Total expected restructuring and associated cash outflows 1 650
- Cumulative recorded 80
= Cash outflows remaining to be recorded 1 570
The Q2 2016 opening balance of restructuring and associated liabilities of
approximately EUR 450 million relates to previous Nokia and Alcatel-Lucent
restructuring and cost-savings programs, and represents expected cash outflows
which have been provisioned for but not yet paid out related to these programs.
The approximately EUR 450 million of restructuring and associated liabilities
consists of approximately EUR 380 million of restructuring provisions and
approximately EUR 70 million of other related liabilities.
OUTLOOK
Metric Guidance Commentary
-------------------------------------------------------------------------------
Nokia Annual cost Approximately EUR Compared to the combined
savings for Nokia, 1.2 billion of non-IFRS operating costs
excluding Nokia total annual cost of Nokia and Alcatel-
Technologies savings to be Lucent for full year
achieved in full 2015, excluding Nokia
year 2018 (update) Technologies.
Under this expanded cost
savings program,
restructuring and
associated charges are
expected to total
approximately EUR 1.2
billion, of which
approximately EUR 600
million was recorded in
Q2 2016.
Related restructuring
and associated cash
outflows are expected to
total approximately EUR
1.65 billion, which
includes the
approximately EUR 450
million balance of
restructuring and
associated cash outflows
that were provisioned
for but not yet paid as
of the beginning of Q2
2016, related to
previous Nokia and
Alcatel-Lucent
restructuring and cost
savings programs.
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.
This is an update to the
earlier outlook for
above EUR 900 million of
net operating cost
synergies to be achieved
in full year 2018.
----------------------------------------------------------------
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 Above 40% for full The increase in the non-
rate year 2016 IFRS tax rate for the
combined company,
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. This outlook is
for full year 2016; the
quarterly non-IFRS tax
rate is expected to be
subject to volatility,
primarily influenced by
fluctuations in profits
made by Nokia in
different tax
jurisdictions. 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.
----------------------------------------------------------------
FY16 Cash outflows Approximately EUR May vary due to profit
related to taxes 400 million levels in different
jurisdictions and the
amount of licensing
income subject to
withholding tax.
----------------------------------------------------------------
FY16 Capital Approximately EUR Primarily attributable
expenditures 650 million Nokia's Networks
business.
-------------------------------------------------------------------------------
Nokia's FY16 net sales Decline YoY Combined company net
Networks ----------------------------------------sales and operating
business FY16 operating 7-9% margin are expected to
margin be influenced by factors
(update) including:
* A flattish capital
expenditure
environment in 2016
for our overall
addressable market;
* A declining wireless
infrastructure
market in 2016;
* Significant focus on
the integration of
Alcatel-Lucent,
particularly in the
first half of 2016;
* Slight QoQ net sales
growth and operating
margin expansion in
Q3 2016;
* Significant QoQ net
sales growth and
operating margin
expansion in Q4
2016;
* Competitive industry
dynamics;
* Product and regional
mix;
* The timing of major
network deployments;
and
* Execution of synergy
plans.
This is an update to the
earlier FY16 operating
margin guidance of above
7%.
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Nokia Technologies FY16 Net sales Not provided Due to risks and uncertainties
in determining the timing and
value of significant licensing
agreements, Nokia believes it
is not appropriate to provide
an annual outlook for 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.
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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) 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, as
well as our expected customer reach; J) outcome of pending and threatened
litigation, arbitration, disputes, regulatory proceedings or investigations by
authorities; 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; 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; 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 August
3, 2016.
Media and Investor Contacts:
Corporate Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations, tel. +358 4080 3 4080 email: investor.relations@nokia.com
* Nokia plans to publish its third quarter 2016 results on October 27, 2016.
* Nokia plans to hold its Capital Markets Day in Barcelona on November
15, 2016.
[HUG#2033036]
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