2017-10-26 07:00:57 CEST
2017-10-26 07:00:57 CEST
REGULATED INFORMATION
Nokia - Interim report (Q1 and Q3)
Nokia Corporation Financial Report for Q3 and January-September 2017
Nokia Corporation
Interim report
October 26, 2017 at 08:00 (CET +1)
Nokia Corporation Financial Report for Q3 and January-September 2017
Strong earnings driven by Nokia Technologies
This is a summary of the Nokia Corporation financial report for Q3 and January-
September 2017 published today. The complete financial report for Q3 and
January-September 2017 with tables is available at www.nokia.com/financials.
Investors should not rely on summaries of our financial reports only, but should
review the complete reports with tables.
FINANCIAL HIGHLIGHTS
* Non-IFRS net sales in Q3 2017 of EUR 5.5bn (EUR 6.0bn in Q3 2016). Reported
net sales in Q3 2017 of EUR 5.5bn (EUR 5.9bn in Q3 2016). 7% year-on-year
net sales decrease (4% decrease on a constant currency basis) in Q3 2017, on
both a non-IFRS and reported basis.
* Strong non-IFRS gross margin of 42.7% (40.0% in Q3 2016), and non-IFRS
operating margin of 12.1% (9.3% in Q3 2016), driven by Nokia Technologies
and resilience in Nokia's Networks business. Reported gross margin of 39.7%
(37.9% in Q3 2016) and reported operating margin of negative 4.2% (positive
0.9% in Q3 2016).
* Non-IFRS diluted EPS in Q3 2017 of EUR 0.09 (EUR 0.04 in Q3 2016) benefited
from a lower than expected non-IFRS tax rate of 15%. Reported diluted EPS in
Q3 2017 of negative EUR 0.03 (negative EUR 0.02 in Q3 2016).
* Given the strong year-on-year group-level performance with both gross and
operating margins up significantly and continued momentum in the execution
of our strategy, Nokia's Board of Directors plans to propose a dividend of
EUR 0.19 per share for 2017 (EUR 0.17 for 2016).
Nokia's Networks business
* 9% year-on-year net sales decrease (6% decrease on a constant currency
basis) in Q3 2017, primarily due to Ultra Broadband Networks, reflecting
challenges related to market conditions and certain projects in Mobile
Networks, primarily in North America and Greater China.
* In Q3 2017, on a constant currency basis, the year-on-year net sales
performance in IP Networks and Applications and Global Services improved,
when compared to the year-on-year performance in Q2 2017. On a constant
currency basis, year-on-year net sales grew by 2% in both Global Services
and IP Routing.
* Solid Q3 2017 gross margin of 38.6% supported by continued operational
discipline. Operating margin of 6.9% reflected weak results in Ultra
Broadband Networks, which was partially offset by improved year-on-year
performance in Global Services and IP Networks and Applications.
Nokia Technologies
* 37% year-on-year net sales increase and 73% year-on-year operating profit
increase in Q3 2017, primarily related to a settled arbitration in the third
quarter 2017. Approximately EUR 180 million of the net sales were non-
recurring in nature and related to catch-up net sales for prior periods.
With fast and effective execution against our patent licensing strategy, we
have approximately doubled our recurring license revenue from EUR 578
million in 2014.
Third quarter and January-September 2017 non-IFRS results. Refer to note 1,
"Basis of Preparation", in the Financial statement information section for
further details( 1)
-------------------------------------------------------------------------------
EUR million YoY QoQ YoY
(except for EPS Q3'17 Q3'16 change Q2'17 change Q1-Q3'17 Q1-Q3'16 change
in EUR)
-------------------------------------------------------------------------------
Net sales -
constant (4)% 2% (4)%
currency (non-
IFRS)
Net sales (non- 5 537 5 956 (7)% 5 629 (2)% 16 555 17 241 (4)%
IFRS)
Nokia's
Networks 4 823 5 329 (9)% 4 971 (3)% 14 696 15 744 (7)%
business
Ultra Broadband 2 099 2 519 (17)% 2 165 (3)% 6 500 7 171 (9)%
Networks
Global Services 1 359 1 389 (2)% 1 448 (6)% 4 168 4 277 (3)%
IP Networks and 1 365 1 421 (4)% 1 358 1% 4 028 4 295 (6)%
Applications
Nokia 483 353 37% 369 31% 1 099 745 48%
Technologies
Group Common 251 297 (15)% 307 (18)% 812 803 1%
and Other
Gross profit 2 365 2 381 (1)% 2 350 1% 6 911 6 814 1%
(non-IFRS)
Gross margin % 42.7% 40.0% 270bps 41.7% 100bps 41.7% 39.5% 220bps
(non-IFRS)
Operating
profit (non- 668 556 20% 574 16% 1 583 1 233 28%
IFRS)
Nokia's
Networks 334 435 (23)% 406 (18)% 1 064 1 085 (2)%
business
Ultra Broadband 78 278 (72)% 191 (59)% 514 589 (13)%
Networks
Global Services 110 39 182% 123 (11)% 289 175 65%
IP Networks and 146 119 23% 91 60% 260 321 (19)%
Applications
Nokia 390 226 73% 230 70% 736 421 75%
Technologies
Group Common (56) (105) (47)% (62) (10)% (217) (274) (21)%
and Other
Operating
margin % (non- 12.1% 9.3% 280bps 10.2% 190bps 9.6% 7.2% 240bps
IFRS)
Financial
income and (63) (78) (19)% (63) 0% (207) (174) 19%
expenses (non-
IFRS)
Taxes (non- (90) (216) (58)% (74) 22% (211) (491) (57)%
IFRS)
Profit (non- 516 264 95% 441 17% 1 159 574 102%
IFRS)
Profit
attributable to
the equity 514 258 99% 449 14% 1 160 605 92%
holders of the
parent (non-
IFRS)
Non-controlling
interests (non- 2 6 (67)% (9) 0 (31) (100)%
IFRS)
EPS, EUR
diluted (non- 0.09 0.04 125% 0.08 12% 0.20 0.11 82%
IFRS)
-------------------------------------------------------------------------------
Third quarter and January-September 2017 reported results. Refer to note 1,
"Basis of Preparation", in the Financial statement information section for
further details (1)
-------------------------------------------------------------------------------
EUR million YoY QoQ Q1- Q1- YoY
(except for Q3'17 Q3'16 change Q2'17 change Q3'17 Q3'16 change
EPS in EUR)
-------------------------------------------------------------------------------
Net Sales -
constant (4)% 2% (3)%
currency
Net sales 5 500 5 896 (7)% 5 619 (2)% 16 496 16 984 (3)%
Nokia's
Networks 4 823 5 329 (9)% 4 971 (3)% 14 696 15 744 (7)%
business
Ultra
Broadband 2 099 2 519 (17)% 2 165 (3)% 6 500 7 171 (9)%
Networks
Global 1 359 1 389 (2)% 1 448 (6)% 4 168 4 277 (3)%
Services
IP Networks
and 1 365 1 421 (4)% 1 358 1% 4 028 4 295 (6)%
Applications
Nokia 483 353 37% 369 31% 1 099 745 48%
Technologies
Group Common 251 297 (15)% 307 (18)% 812 803 1%
and Other
Non-IFRS (38) (60) (37)% (11) 245% (59) (258) (77)%
exclusions
Gross profit 2 185 2 233 (2)% 2 236 (2)% 6 546 5 841 12%
Gross margin % 39.7% 37.9% 180bps 39.8% (10)bps 39.7% 34.4% 530bps
Operating (230) 55 (45) 411% (403) (1 417) (72)%
(loss)/profit
Nokia's
Networks 334 435 (23)% 406 (18)% 1 064 1 085 (2)%
business
Ultra
Broadband 78 278 (72)% 191 (59)% 514 589 (13)%
Networks
Global 110 39 182% 123 (11)% 289 175 65%
Services
IP Networks
and 146 119 23% 91 60% 260 321 (19)%
Applications
Nokia 390 226 73% 230 70% 736 421 75%
Technologies
Group Common (56) (105) (47)% (62) (10)% (217) (274) (21)%
and Other
Non-IFRS (898) (501) 79% (620) 45% (1 986) (2 650) (25)%
exclusions
Operating (4.2)% 0.9% (510)bps (0.8)% (340)bps (2.4)% (8.3)% 590bps
margin %
Financial
income and (63) (80) (21)% (218) (71)% (427) (215) 99%
expenses
Taxes 102 (111) (172) (223) 56
(Loss)/Profit (190) (133) 43% (433) (56)% (1 058) (1 570) (33)%
(Loss)/Profit
attributable
to the equity (192) (119) 61% (423) (55)% (1 088) (1 410) (23)%
holders of the
parent
Non-
controlling 2 (14) (9) 30 (161)
interests
EPS, EUR (0.03) (0.02) 50% (0.07) (57)% (0.19) (0.25) (24)%
diluted
Net cash and
other liquid 2 731 5 539 (51)% 3 964 (31)% 2 731 5 539 (51)%
assets
-------------------------------------------------------------------------------
(1) Results are as reported unless otherwise specified. The financial
information in this report is unaudited. Non-IFRS results exclude costs
related to the acquisition of Alcatel-Lucent and related integration, goodwill
impairment charges, intangible asset amortization and other purchase price
fair value adjustments, restructuring and associated charges and certain other
items that may not be indicative of Nokia's underlying business performance.
For details, please refer to the non-IFRS exclusions section included in
discussions of both the quarterly and year to date performance and note 2,
"Non-IFRS to reported reconciliation", in the notes in the Financial statement
information in this report. Change in net sales at constant currency excludes
the impact of changes in exchange rates in comparison to euro, our reporting
currency. For more information on currency exposures, please refer to note 1,
"Basis of Preparation", in the Financial statement information section in this
report.
Dividend and capital structure update
Nokia's Board of Directors plans to propose a dividend of EUR 0.19 per share for
2017. The dividend is Nokia's principal method of distributing earnings to
shareholders, and Nokia targets to deliver an earnings-based growing dividend.
Over the long term, Nokia targets to grow the dividend by distributing
approximately 40% to 70% of non-IFRS EPS, taking into account Nokia's cash
position and expected cash flow generation.
On October 29, 2015, after Nokia's Board of Directors conducted a thorough
analysis of Nokia's potential long-term capital structure requirements, Nokia
announced a EUR 7 billion program to optimize the efficiency of its capital
structure. This program consists of approximately EUR 4 billion in shareholder
distributions and approximately EUR 3 billion of de-leveraging. As of the end
of the third quarter 2017, approximately EUR 6.9 billion of our capital
structure optimization program had been completed. The remaining amount of
approximately EUR 0.1 billion relates to planned share repurchases, and is
expected to be completed by the end of 2017. Following the completion of this
program, and factoring in our targeted dividend for 2017, Nokia is confident
that it will have a strong and efficient capital structure.
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 acquisition of Alcatel-Lucent and
related integration, goodwill impairment charges, intangible asset amortization
and purchase price related items, restructuring and associated charges, and
certain other items that may not be indicative of Nokia's underlying business
performance. The non-IFRS exclusions are not allocated to the segments, and
hence they are reported only at the Nokia consolidated level.
Financial discussion
The financial discussion included in this financial report of Nokia's results
comprises the results of Nokia's businesses - Nokia's Networks business and
Nokia Technologies, as well as Group Common and Other. For more information on
our reportable segments, please refer to note 3, "Segment information", in the
Financial statement information section in this report.
CEO STATEMENT
Nokia delivered excellent non-IFRS earnings-per-share in the third quarter of
EUR 0.09; strong year-on-year group-level performance, with both gross and
operating margins up significantly; and continued momentum in the execution of
our strategy. Given this good progress, Nokia's Board of Directors plans to
propose a dividend of 19 euro cents for 2017, up 2 cents from one year ago.
The performance of our patent licensing business was the clear highlight of the
quarter. We reached a favorable arbitration outcome with LG and have since
reached agreement with them on a license for a longer term than what was set out
in the arbitration. With this fast and effective execution against our patent
licensing strategy, we have approximately doubled our recurring licensing
revenue from EUR 578 million in 2014. I am also particularly pleased that in
2017 the growth in patent licensing has helped to offset the sales decline on
the Networks side. We have excellent momentum and considerable opportunity to
further develop the business in 2018 and beyond.
We also saw strength in many parts of our Networks business in the quarter. On
the sales side, we saw constant currency year-on-year growth in Global Services
and IP Routing as well as our Middle East and Africa, and Asia-Pacific regions.
Orders were up in many areas, including Applications & Analytics, which logged
its fifth consecutive quarter of order growth in Q3, showing the progress we are
making in our strategy to build a strong, stand-alone software business.
On the profitability side, the overall Networks gross margin of 38.6% was up
compared to one year ago, a remarkable achievement in the context of a market
that remains challenging. In addition, Global Services and IP Networks and
Applications delivered significant improvements in operating margin compared to
Q3 2016, at 8.1% and 10.7%, respectively.
We continued to build momentum in our strategy to expand our customer base
beyond communication service providers. Across the adjacent segments that we are
targeting, year-to-date orders were up by double-digit percentages and sales
were up by 8%, excluding the former Alcatel-Lucent third-party integration
business that we are currently winding down.
We also added more than 60 new customers in these adjacent segments so far this
year, including China Pacific Insurance Company, the first large enterprise win
for our Nuage business in China. With cable operators, we won the first customer
- WOW! in the United States - for our new products coming from the acquisition
of Gainspeed, which we are also trialing with almost a dozen customers,
including some of the industry's largest players.
These results reflect the power of our disciplined operating model and the
advantages of our end-to-end portfolio. In a market where competition remains
robust, operational discipline is a must, and it is a core strength of Nokia.
Furthermore, as the market transitions to 5G, I believe that the benefits of our
portfolio will become even more apparent given that 5G is about much more than
Radio. It requires Cloud core, IP routing, transport of many kinds, fixed
wireless access, Software-Defined Networking and more - and Nokia is one of the
very few companies that is able to meet all those needs.
Despite the progress we made in the quarter, we experienced some challenges in
our Mobile Networks business and see a continued decline in our primary
addressable market in 2018. That decline, which we estimate to be in the range
of 2% to 5%, is the result of the multiple technology transitions underway;
robust competition in China; and near-term headwinds from potential operator
consolidation in a handful of countries.
In terms of the issues we are facing in Mobile Networks, I have noted in
previous quarters that the R&D team in this business group has faced an
extraordinarily high workload. Given this situation, we have seen some issues
with the time taken to converge some products that have, unfortunately, impacted
a small number of customers. As a result, Mobile Networks has experienced both
revenue pressure and an increase in expected network equipment swap costs.
My team is fully committed to getting these things back on track and we are
already seeing meaningful improvements. Field deployments of our new AirScale
products were ramping up in all our geographies, including with key North
American customers. These products help improve operator competitiveness, not
just by addressing cost challenges, but also by setting a new standard for
performance and flexibility. We also saw a meaningful increase in customer
satisfaction scores.
I would also note that despite some additional investment required in Mobile
Networks to maintain product leadership, we are committed to our EUR 1.2 billion
cost savings plan in full-year 2018. These savings come at a slightly higher
cost than previously expected, and we continue to assess opportunities to
deliver further savings in the area of cost-of-goods sold.
Regarding our cash position, I am not satisfied with our performance in the
third quarter and we are redoubling our efforts in this area. Maintaining our
strong balance sheet is a clear priority.
In short, Q3 was a period in which we faced some challenges, but delivered good
performance in many areas as well as momentum in the execution of our strategy.
Rajeev Suri
President and CEO
NOKIA IN Q3 2017 - NON-IFRS
Non-IFRS net sales and non-IFRS operating profit
Nokia non-IFRS net sales decreased 7% year-on-year and decreased 2%
sequentially. On a constant currency basis, Nokia non-IFRS net sales would have
decreased 4% year-on-year and increased 2% sequentially.
A discussion of our results within Nokia's Networks business, Nokia Technologies
and Group Common and Other is included in the sections "Nokia's Networks
business", "Nokia Technologies" and "Group Common and Other" below.
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 (506) (9)% (138) (17) 11 43 (101) (130)bps
business
Nokia 130 37% 132 7 25 0 164 1 670bps
Technologies
Group Common (46) (15)% (10) 11 15 31 49 1 310bps
and Other
Eliminations 2 0 0 0 0 0
------------------------------------------------------------------------------
Nokia (419) (7)% (16) 3 51 75 112 280bps
------------------------------------------------------------------------------
On a year-on-year basis, foreign exchange fluctuations had a negative impact on
non-IFRS gross profit, a slightly positive impact on non-IFRS operating expenses
and a slightly positive net impact on non-IFRS operating profit in the third
quarter 2017.
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 (148) (3)% (85) (2) 6 8 (72) (130)bps
business
Nokia 114 31% 121 2 25 12 160 1 840bps
Technologies
Group Common (56) (18)% (22) 7 3 17 6 (210)bps
and Other
Eliminations (2) 0 0 0 0 0
------------------------------------------------------------------------------
Nokia (92) (2)% 15 7 34 37 94 190bps
------------------------------------------------------------------------------
On a sequential basis, foreign exchange fluctuations had a negative impact on
non-IFRS gross profit, a slightly positive impact on non-IFRS operating expenses
and a slightly positive net impact on non-IFRS operating profit in the third
quarter 2017.
Non-IFRS profit attributable to the equity holders of the parent
Year-on-year changes
Profit
EUR Operating Financial Non- attributable
million, profit income and Taxes Profit controlling to the equity
non-IFRS expenses interests holders of the
parent
-------------------------------------------------------------------------------
Nokia 112 15 126 252 4 256
-------------------------------------------------------------------------------
Non-IFRS taxes
Nokia's regional profit mix in the third quarter 2017 resulted in an
unexpectedly low non-IFRS tax rate of 15%.
Non-IFRS financial income and expenses
The net positive fluctuation in financial income and expenses was primarily due
to gains from venture fund investments, partially offset by an impairment charge
related to the performance of certain private funds investing in intellectual
property rights ("IPR").
Sequential changes
Profit
EUR Operating Financial Non- attributable
million, profit income and Taxes Profit controlling to the equity
non-IFRS expenses interests holders of the
parent
-------------------------------------------------------------------------------
Nokia 94 0 (16) 75 (11) 65
-------------------------------------------------------------------------------
Non-IFRS taxes
Nokia's regional profit mix in the third quarter 2017 resulted in an
unexpectedly low non-IFRS tax rate of 15%.
Non-IFRS financial income and expenses
The flat financial income and expenses were primarily due to income related to
gains from venture fund investments and foreign exchange fluctuations, fully
offset by an impairment charge related to the performance of certain private
funds investing in IPR.
NOKIA IN Q3 2017 - REPORTED
FINANCIAL DISCUSSION
Net sales
Nokia net sales decreased 7% year-on-year and decreased 2% sequentially. On a
constant currency basis, Nokia net sales would have decreased 4% year-on-year
and would have increased 2% sequentially.
Year-on-year discussion
The year-on-year decrease in net sales in the third quarter 2017 was primarily
due to Nokia's Networks business and Group Common and Other, partially offset by
Nokia Technologies and lower non-IFRS exclusions related to a purchase price
allocation adjustment related to a reduced valuation of deferred revenue that
existed on Alcatel-Lucent's balance sheet at the time of the acquisition.
Sequential discussion
The sequential decrease in Nokia net sales in the third quarter 2017 was
primarily due to Nokia's Networks business, Group Common and Other and higher
non-IFRS exclusions related to product portfolio strategy costs, partially
offset by Nokia Technologies.
Operating profit
Year-on-year discussion
In the third quarter 2017, Nokia recorded an operating loss compared to an
operating profit in the third quarter 2016. The change was primarily due to a
net negative fluctuation in other income and expenses and lower gross profit,
partially offset by lower selling, general and administrative ("SG&A") expenses.
The decrease in gross profit was primarily due to lower gross profit in Nokia's
Networks business, higher non-IFRS exclusions and lower gross profit in Group
Common and Other, partially offset by Nokia Technologies.
The decrease in SG&A expenses was primarily due to Nokia Technologies, Group
Common and Other and Nokia's Networks business.
The net negative fluctuation in Nokia's other income and expenses was primarily
related to higher non-IFRS exclusions attributable to higher restructuring and
associated charges and an impairment charge, partially offset by Nokia's
Networks business and Group Common and Other.
In the third quarter 2017, Nokia recorded a non-cash charge to other income and
expenses of EUR 141 million, due to the impairment of goodwill related to its
digital health business, which is part of Nokia Technologies. Following third
quarter 2017 results, Nokia adjusted its long-term cash flow projections for its
digital health cash generating unit, and recorded an impairment charge. The
impairment charge was excluded from our non-IFRS results and allocated to the
carrying amount of goodwill held within the digital health cash generating unit,
which was reduced to zero. Going forward, Nokia Technologies aims to have a
larger impact with consumers and the medical community through a more focused,
more agile digital health business.
Sequential discussion
In the third quarter 2017, the increase in operating loss was primarily due to a
net negative fluctuation in other income and expenses and lower gross profit,
partially offset by lower SG&A expenses.
The decrease in gross profit was primarily due to lower gross profit in Nokia's
Networks business, higher non-IFRS exclusions related to product portfolio
strategy costs and lower gross profit in Group Common and Other, partially
offset by Nokia Technologies.
The decrease in SG&A expenses was primarily due to Nokia Technologies and lower
non-IFRS exclusions primarily related to transaction and integration costs.
The net negative fluctuation in Nokia's other income and expenses was primarily
due to higher non-IFRS exclusions attributable to an impairment charge and
higher restructuring and associated charges, partially offset by Group Common
and Other and Nokia Technologies.
In the third quarter 2017, Nokia recorded a non-cash charge to other income and
expenses of EUR 141 million, due to the impairment of goodwill related to its
digital health business, which is part of Nokia Technologies. Following third
quarter 2017 results, Nokia adjusted its long-term cash flow projections for its
digital health cash generating unit, and recorded an impairment charge. The
impairment charge was excluded from our non-IFRS results and allocated to the
carrying amount of goodwill held within the digital health cash generating unit,
which was reduced to zero. Going forward, Nokia Technologies aims to have a
larger impact with consumers and the medical community through a more focused,
more agile digital health business.
Profit/(Loss) attributable to the equity holders of the parent
Year-on-year discussion
In the third quarter 2017, the increase in loss attributable to the equity
holders of the parent was primarily due to operating loss in the third quarter
2017 compared to an operating profit in the third quarter 2016. This was
partially offset by a tax benefit in the third quarter 2017, compared to a tax
expense in the third quarter 2016, and, to a lesser extent, a net positive
fluctuation in financial income and expenses.
The net positive fluctuation in financial income and expenses was primarily due
to gains from venture fund investments, partially offset by an impairment charge
related to the performance of certain private funds investing in IPR.
The change in taxes from an expense in the third quarter 2016 to a benefit in
the third quarter 2017 was primarily due to lower taxes resulting from a change
in Nokia's regional profit mix.
Sequential discussion
In the third quarter 2017, the decrease in loss attributable to the equity
holders of the parent was primarily due to a tax benefit in the third quarter
2017, compared to a tax expense in the second quarter 2017, and a net positive
fluctuation in financial income and expenses. This was partially offset by an
increase in operating loss.
The net positive fluctuation in financial income and expenses was primarily due
to the absence of non-IFRS exclusions related to Nokia's tender offer to
purchase the 6.50% notes due January 15, 2028, the 6.45% notes due March
15, 2029 and the 5.375% notes due May 15, 2019, which negatively affected the
second quarter 2017, as well as higher gains related to venture fund
investments. This was partially offset by an impairment charge related to the
performance of certain private funds investing in IPR.
The change in taxes from an expense in the second quarter 2017, to a benefit in
the third quarter 2017, was primarily due to the absence of both a non-recurring
change to uncertain tax positions and a non-recurring tax expense related to
deferred tax valuation allowance.
Description of non-IFRS exclusions in Q3 2017
Non-IFRS exclusions consist of costs related to the acquisition of Alcatel-
Lucent 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 Financial statement information
section in this report.
EUR million Q3'17 Q3'16 YoY change Q2'17 QoQ change
-------------------------------------------------------------------------------
Net sales (38) (60) (37)% (11) 245%
Gross profit (181) (149) 21% (114) 59%
R&D (177) (179) (1)% (172) 3%
SG&A (139) (145) (4)% (151) (8)%
Other income and expenses (401) (29) 1 283% (182) 120%
Operating (loss)/profit (898) (501) 79% (620) 45%
-------------------------------------------------------------------------------
Financial income and expenses 0 (1) (100)% (156) (100)%
Taxes 192 105 83% (98) (296)%
(Loss)/Profit (706) (397) 78% (873) (19)%
(Loss)/Profit attributable to the (706) (378) 87% (873) (19)%
shareholders of the parent
Non-controlling interests 0 (20) (100)% (1) (100)%
-------------------------------------------------------------------------------
Non-IFRS exclusions in net sales
In the third quarter 2017, non-IFRS exclusions in net sales amounted to EUR 38
million, and related to product portfolio strategy costs and a purchase price
allocation adjustment related to a reduced valuation of deferred revenue that
existed on Alcatel-Lucent's balance sheet at the time of the acquisition.
Non-IFRS exclusions in operating profit
In the third quarter 2017, non-IFRS exclusions in operating profit amounted to
EUR 898 million, and were primarily due to non-IFRS exclusions that adversely
affected gross profit, research and development ("R&D") expenses, SG&A expenses
and other income and expenses as follows:
In the third quarter 2017, non-IFRS exclusions in gross profit amounted to EUR
181 million, and were primarily due to product portfolio strategy costs related
to the acquisition of Alcatel-Lucent, and the deferred revenue.
In the third quarter 2017, non-IFRS exclusions in R&D expenses amounted to EUR
177 million, and were primarily due to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent and, to a lesser extent,
product portfolio strategy costs related to the acquisition of Alcatel-Lucent.
In the third quarter 2017, non-IFRS exclusions in SG&A expenses amounted to EUR
139 million, and were primarily due to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent and integration and transaction
related costs.
In the third quarter 2017, non-IFRS exclusions in other income and expenses
amounted to EUR 401 million, and were primarily due to restructuring and
associated charges for Nokia's cost reduction and efficiency improvement
initiatives, and a EUR 141 million impairment charge.
Non-IFRS exclusions in profit/(loss) attributable to the equity holders of the
parent
In the third quarter 2017, non-IFRS exclusions in profit/(loss) attributable to
the equity holders of the parent amounted to EUR 706 million, and were primarily
due to the non-IFRS exclusions affecting operating profit, in addition to non-
IFRS exclusions that adversely affected financial income and expenses and taxes
as follows:
In the third quarter 2017, non-IFRS exclusions in financial income and expenses
amounted to zero.
In the third quarter 2017, non-IFRS exclusions in taxes amounted to EUR 192
million, and were due to non-IFRS exclusions in operating profit.
Cost savings program
The following table summarizes the financial information related to our cost
savings program, as of the end of the third quarter 2017. Balances related to
previous Nokia and Alcatel-Lucent restructuring and cost savings programs have
been included as part of this overall cost savings program as of the second
quarter 2016.
In EUR million, approximately Q3'17
--------------------------------------------------------------------
Opening balance of restructuring and associated liabilities 750
+ Charges in the quarter 260
- Cash outflows in the quarter 130
= Ending balance of restructuring and associated liabilities 880
of which restructuring provisions 760
of which other associated liabilities 120
Total expected restructuring and associated charges 1 900
- Cumulative recorded 1 260
= Charges remaining to be recorded 640
Total expected restructuring and associated cash outflows 2 250
- Cumulative recorded 830
= Cash outflows remaining to be recorded 1 420
The following table summarizes our full year 2016 results and future
expectations related to our cost savings program and network equipment swaps.
|Actual| Expected amounts for
| | | | |
In EUR million,| | | | FY 2019 and |
approximately | | FY 2017 | FY 2018 | beyond | Total
rounded to the | 2016 |as of the end|as of the end|as of the end|as of the end
nearest EUR 50 | | of | of | of | of
million | | | | |
| | | | |
| |Q2'17 Q3'17|Q2'17 Q3'17|Q2'17 Q3'17|Q2'17 Q3'17
----------------+------+-------------+-------------+-------------+-------------
Total cost | 550| 250 250| 400 400| 0 0|1 200 1 200
savings | | | | |
| | | | |
- operating | 350| 100 150| 350 300| 0 0| 800 800
expenses | | | | |
| | | | |
- cost of | 200| 150 100| 50 100| 0 0| 400 400
sales | | | | |
| | | | |
Restructuring | | | | |
and associated | 750| 750 650| 200 500| 0 0|1 700 1 900
charges | | | | |
| | | | |
Restructuring | | | | |
and associated | 400| 750 600| 550 650| 450 600|2 150 2 250
cash outflows | | | | |
| | | | |
Charges related| | | | |
to network | 150| 450 550| 300 550| 0 150| 900 1 400
equipment swaps| | | | |
| | | | |
Cash outflows | | | | |
related to | 150| 450 600| 300 500| 0 150| 900 1 400
network | | | | |
equipment swaps| | | | |
----------------+------+-------------+-------------+-------------+-------------
In full year 2016, the actual total cost savings benefitted from lower incentive
accruals, related to the full year 2016 financial performance. Lower incentive
accruals drove more than half of the higher than previously expected decrease in
total costs in 2016, and this is expected to reverse in 2017, assuming full year
2017 financial performance in-line with our expectations. On a cumulative basis,
Nokia continues to be on track to achieve the targeted EUR 1.2 billion of total
cost savings in full year 2018.
The increase in restructuring and associated charges is expected to be
approximately EUR 200 million, approximately half of which is related to a non-
cash US pension curtailment and the other half related to a number of smaller
items, which are expected to have an approximately EUR 100 million cash impact.
The approximately EUR 500 million increase in estimated charges and cash
outflows related to network equipment swaps was primarily due to the extended
time taken to converge a limited set of products. We are now fully in the
deployment phase of our swaps program. In addition to the increase in estimated
charges and cash outflows, the program was also extended into 2019.
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(1) 2015, excluding Nokia
Technologies. Nokia
expects approximately
EUR 800 million of the
cost savings to come
from operating expenses
and approximately EUR
400 million from cost
of sales.
Restructuring and
associated charges are
expected to total
approximately EUR 1.9
billion. Restructuring
and associated cash
outflows are expected
to total approximately
EUR 2.25 billion.
(This is an update to
earlier commentary for
restructuring and
associated charges to
total approximately EUR
1.7 billion and
restructuring and
associated cash
outflows to total
approximately EUR 2.15
billion.)
-------------------------------------------------------------
Network equipment Approximately EUR The charges related to
swaps 1.4 billion in network equipment swaps
total(1) are being recorded as
non-IFRS exclusions,
(update) and therefore do not
affect Nokia's non-IFRS
operating profit.
(This is an update to
earlier guidance for
network equipment swaps
to be approximately EUR
900 million total.)
-------------------------------------------------------------
Non-IFRS Expense of Primarily includes net
financial income approximately EUR interest expenses
and expenses 250 million in related to interest-
full year 2017 bearing liabilities and
defined benefit pension
and other post-
employment benefit
plans, as well as the
impact of foreign
exchange rate
fluctuations on certain
balance sheet items.
Nokia expects cash
outflows related to
non-IFRS financial
income and expenses to
be approximately EUR
200 million in full
year 2017.
-------------------------------------------------------------
Non-IFRS tax rate Approximately 20% Nokia's non-IFRS tax
for full year 2017 rate in full year 2017
is expected to be
(update) influenced by factors
including regional
profit mix.
(This is an update to
earlier guidance and
commentary for the non-
IFRS tax rate to be
between 25% to 30% for
full year 2017.)
Nokia expects cash
outflows related to
taxes to be
approximately EUR 800
million for full year
2017.
-------------------------------------------------------------
Capital Approximately EUR Primarily attributable
expenditures 600 million in to Nokia's Networks
full year 2017 business.
(This is an update to
(update) earlier guidance for
capital expenditures to
be approximately EUR
500 million for full
year 2017.)
-------------------------------------------------------------------------------
Nokia's Networks Net sales Decline in line We currently expect
business with the primary market conditions for
addressable market full year 2017 to be
in full year 2017 slightly more
--------------------------------------challenging than
Operating margin 8-10% in full year earlier anticipated,
2017 and we are providing
new commentary on our
primary addressable
market for full year
2018. Guidance for
Nokia's Networks
business in 2018 is
planned to be provided
in conjunction with
Nokia's Report for Q4
and Full Year 2017.
Nokia's outlook for net
sales and operating
margin for Nokia's
Networks business are
expected to be
influenced by factors
including:
* An approximately 4
to 5 percent
decline in the
primary addressable
market for Nokia's
Networks business
in full year 2017,
compared to the
full year 2016, on
a constant currency
basis (This is an
update to earlier
commentary for a 3
to 5 percent
decline.);
* An approximately 2
to 5 percent
decline in the
primary addressable
market for Nokia's
Networks business
in full year 2018,
compared to the
full year 2017, on
a constant currency
basis (new
commentary for our
primary addressable
market in full year
2018);
* Uncertainty related
to the timing of
completions and
acceptances of
certain projects,
particularly in the
second half of
2017 and first half
of 2018 (new
commentary for the
first half of
2018);
* Robust competition
in China, which is
expected to
adversely affect
the fourth quarter
2017 in particular
(new commentary);
* Uncertainty related
to potential
mergers or
acquisitions by our
customers (new
commentary);
* Competitive
industry dynamics;
* Product and
regional mix;
* The timing of major
network
deployments;
* Execution of cost
savings and
reinvestment plans,
with operating
expenses down on a
year-on-year basis
in full year 2017;
and
* The level of R&D
investment needed
to maintain product
competitiveness and
accelerate 5G.
-------------------------------------------------------------------------------
Nokia 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
full year 2017.
For patent and brand
licensing, Nokia is now
disclosing net sales on
a quarterly basis,
rather than providing
an annualized net sales
run rate.
In the third quarter
2017, Nokia announced
plans to focus on
patent, brand and
technology licensing
and target faster
growth in digital
health and accelerate
growth in that market,
while optimizing
investments in virtual
reality. Due to a
reduced focus on
digital media, Nokia no
longer believes it is
appropriate to provide
an annual outlook for
digital health and
digital media for the
full year 2017 (new
commentary).
(This is an update to
earlier commentary for
total net sales from
digital health and
digital media to grow
year-on-year in full
year 2017, primarily
influenced by increased
consumer adoption of
our digital health and
digital media
products.)
-------------------------------------------------------------------------------
(1)For further details related to the cost savings and network equipment swaps
guidance, please refer to the "Cost savings program" section above.
RISKS AND FORWARD-LOOKING STATEMENTS
a 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 acquired businesses into our operations and achieve
the targeted business plans and benefits, including targeted benefits,
synergies, cost savings and efficiencies; B) expectations, plans or benefits
related to our strategies and growth management; C) expectations, plans or
benefits related to future performance of our businesses; D) expectations, plans
or benefits related to changes in organizational and operational structure; E)
expectations regarding market developments, general economic conditions and
structural changes; F) expectations and targets regarding financial performance,
results, operating expenses, taxes, currency exchange rates, hedging, cost
savings and competitiveness, as well as results of operations including targeted
synergies and those related to market share, prices, net sales, income and
margins; G) expectations, plans or benefits related to any future collaboration
or to business collaboration agreements or patent license agreements or
arbitration awards, including income to be received under any collaboration or
partnership, agreement or award; 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, and the related
administrative, legal, regulatory and other conditions, 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, capital structure
optimization efforts, 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, capital structure
optimization efforts, 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," "is to," "will" or similar expressions. These statements
are based on management's best assumptions and beliefs in light of the
information currently available to it. Because they involve risks and
uncertainties, actual results may differ materially from the results that we
currently expect. Factors, including risks and uncertainties that could cause
these differences include, but are not limited to: 1) our ability to execute our
strategy, sustain or improve the operational and financial performance of our
business and correctly identify and successfully pursue business opportunities
or growth; 2) our ability to achieve the anticipated benefits, synergies, cost
savings and efficiencies of acquisitions, including the acquisition of Alcatel-
Lucent, and our ability to implement changes to our organizational and
operational structure efficiently; 3) general economic and market conditions and
other developments in the economies where we operate; 4) competition and our
ability to effectively and profitably compete and invest in new competitive
high-quality products, services, upgrades and technologies and bring them to
market in a timely manner; 5) our dependence on the development of the
industries in which we operate, including the cyclicality and variability of the
information technology and telecommunications industries; 6) our global business
and exposure to regulatory, political or other developments in various countries
or regions, including emerging markets and the associated risks in relation to
tax matters and exchange controls, among others; 7) our ability to manage and
improve our financial and operating performance, cost savings, competitiveness
and synergies generally or after the acquisition of Alcatel-Lucent; 8) our
dependence on a limited number of customers and large multi-year agreements; 9)
exchange rate fluctuations, as well as hedging activities; 10) Nokia
Technologies' ability to protect its IPR and to maintain and establish new
sources of patent licensing income and IPR-related revenues, particularly in the
smartphone market; 11) our ability to successfully realize the expectations,
plans or benefits related to any future collaboration or business collaboration
agreements and patent license agreements or arbitration awards, including income
to be received under any collaboration, partnership, agreement or arbitration
award; 12) 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; 13) our exposure
to direct and indirect regulation, including economic or trade policies, and the
reliability of our governance, internal controls and compliance processes to
prevent regulatory penalties in our business or in our joint ventures; 14) our
ability to identify and remediate material weaknesses in our internal control
over financial reporting; 15) our reliance on third-party solutions for data
storage and service distribution, which expose us to risks relating to security,
regulation and cybersecurity breaches; 16) inefficiencies, breaches,
malfunctions or disruptions of information technology systems; 17) Nokia
Technologies' ability to generate net sales and profitability through licensing
of the Nokia brand, technology licensing and the development and sales of
products and services for instance in digital health, as well as other business
ventures, which may not materialize as planned; 18) our exposure to various
legislative frameworks and jurisdictions that regulate fraud and enforce
economic trade sanctions and policies, and the possibility of proceedings or
investigations that result in fines, penalties or sanctions; 19) adverse
developments with respect to customer financing or extended payment terms we
provide to customers; 20) 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; 21) our actual or anticipated performance,
among other factors, which could reduce our ability to utilize deferred tax
assets; 22) our ability to retain, motivate, develop and recruit appropriately
skilled employees; 23) disruptions to our manufacturing, service creation,
delivery, logistics and supply chain processes, and the risks related to our
geographically-concentrated production sites; 24) the impact of litigation,
arbitration, agreement-related disputes or product liability allegations
associated with our business; 25) our ability to optimize our capital structure
as planned and re-establish our investment grade credit rating or otherwise
improve our credit ratings; 26) our ability to achieve targeted benefits from or
successfully achieve the required administrative, legal, regulatory and other
conditions and implement planned transactions, as well as the liabilities
related thereto; 27) our involvement in joint ventures and jointly-managed
companies; 28) the carrying amount of our goodwill may not be recoverable; 29)
uncertainty related to the amount of dividends and equity return we are able to
distribute to shareholders for each financial period; 30) pension costs,
employee fund-related costs, and healthcare costs; and 31) risks related to
undersea infrastructure, as well as the risk factors specified on pages 67 to
85 of our 2016 annual report on Form 20-F under "Operating and financial review
and prospects-Risk factors" and in our other filings or documents furnished 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 report was authorized for issue by management on October 25, 2017.
MEDIA AND INVESTOR CONTACTS:
Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations, tel. +358 4080 3 4080 email: investor.relations@nokia.com
* Nokia plans to publish its fourth quarter and annual 2017 results on
February 1, 2018.
About Nokia
We create the technology to connect the world. Powered by the research and
innovation of Nokia Bell Labs, we serve communications service providers,
governments, large enterprises and consumers, with the industry's most complete,
end-to-end portfolio of products, services and licensing.
From the enabling infrastructure for 5G and the Internet of Things, to emerging
applications in digital health, we are shaping the future of technology to
transform the human experience. www.nokia.com
[]
© 2024 Nasdaq, Inc. All Rights Reserved |