2017-04-27 07:00:46 CEST
2017-04-27 07:00:46 CEST
REGULATED INFORMATION
Nokia - Interim report (Q1 and Q3)
Nokia Corporation Interim Report for Q1 2017
Nokia Corporation
Interim Report
April 27, 2017 at 08:00 (CET +1)
Nokia Corporation Interim Report for Q1 2017
Solid overall results, with strong performance in Mobile Networks; full year
outlook reiterated
This is a summary of the Nokia Corporation interim report for first quarter
2017 published today. The complete first quarter 2017 interim report with tables
is available at www.nokia.com/financials. Investors should not rely on summaries
of our interim reports only, but should review the complete reports with tables.
FINANCIAL HIGHLIGHTS
* Non-IFRS net sales in Q1 2017 of EUR 5.4bn (EUR 5.6bn in Q1 2016). Reported
net sales in Q1 2017 of EUR 5.4bn (EUR 5.5bn in Q1 2016).
* Non-IFRS diluted EPS in Q1 2017 of EUR 0.03 (EUR 0.03 in Q1 2016). Reported
diluted EPS in Q1 2017 of negative EUR 0.08 (negative EUR 0.11 in Q1 2016).
Nokia's Networks business
* 6% year-on-year net sales decrease in Q1 2017 primarily due to IP/Optical
Networks and Fixed Networks, with approximately flat net sales in Mobile
Networks and Applications & Analytics.
* Strong Q1 2017 gross margin of 39.5% and solid operating margin of 6.6%,
supported by continued focus on operational excellence, with particularly
strong performance in Mobile Networks.
Nokia Technologies
* 25% year-on-year net sales increase in Q1 2017, primarily due to higher
patent and brand licensing income and the acquisition of Withings, partially
offset by the absence of licensing income related to certain expired
agreements. Approximately one third of the net increase was due to non-
recurring net sales related to a new license agreement.
* 9% year-on-year operating profit increase in Q1 2017, primarily related to
higher net sales, which were partially offset by higher operating expenses.
The year-on-year increase in operating expenses was primarily due to the
ramp-up of our digital health and digital media businesses and increased
licensing-related litigation costs.
First quarter 2017 non-IFRS results. Refer to note 1, "Basis of Preparation",
in the Financial statement information section for further details( 1)
-------------------------------------------------------------------------------
EUR million (except for Q1'17 Q1'16 YoY change Q4'16 QoQ change
EPS in EUR)
-------------------------------------------------------------------------------
Net sales - constant (6)% (21)%
currency (non-IFRS)
Net sales (non-IFRS) 5 388 5 615 (4)% 6 731 (20)%
Nokia's Networks 4 902 5 193 (6)% 6 086 (19)%
business
Ultra Broadband Networks 3 597 3 741 (4)% 4 346 (17)%
IP Networks and 1 304 1 453 (10)% 1 740 (25)%
Applications
Nokia Technologies 247 198 25% 309 (20)%
Group Common and Other 254 235 8% 340 (25)%
Gross profit (non-IFRS) 2 196 2 228 (1)% 2 842 (23)%
Gross margin % (non-IFRS) 40.8% 39.7% 110bps 42.2% (140)bps
Operating profit (non- 341 345 (1)% 940 (64)%
IFRS)
Nokia's Networks 324 337 (4)% 858 (62)%
business
Ultra Broadband Networks 301 230 31% 564 (47)%
IP Networks and 23 107 (79)% 294 (92)%
Applications
Nokia Technologies 116 106 9% 158 (27)%
Group Common and Other (99) (99) 0% (76)
Operating margin % (non- 6.3% 6.1% 20bps 14.0% (770)bps
IFRS)
Financial income and (81) (67) 21% (72) 13%
expenses (non-IFRS)
Taxes (non-IFRS) (48) (140) (66)% (204) (76)%
Profit (non-IFRS) 203 139 46% 676 (70)%
Profit attributable to the
equity holders of the 196 152 29% 672 (71)%
parent (non-IFRS)
Non-controlling interests 6 (13) 4 50%
(non-IFRS)
EPS, EUR diluted (non- 0.03 0.03 0% 0.12 (75)%
IFRS)
-------------------------------------------------------------------------------
First quarter 2017 reported results, unless otherwise specified. Refer to note
1, "Basis of Preparation", in the Financial statement information section for
further details (1)
-------------------------------------------------------------------------------
EUR million (except for Q1'17 Q1'16 YoY change Q4'16 QoQ change
EPS in EUR)
-------------------------------------------------------------------------------
Net Sales - constant (4)% (20)%
currency
Net sales 5 378 5 511 (2)% 6 657 (19)%
Nokia's Networks 4 902 5 193 (6)% 6 086 (19)%
business
Ultra Broadband Networks 3 597 3 741 (4)% 4 346 (17)%
IP Networks and 1 304 1 453 (10)% 1 740 (25)%
Applications
Nokia Technologies 247 198 25% 309 (20)%
Group Common and Other 254 235 8% 340 (25)%
Non-IFRS exclusions (11) (104) (74)
Gross profit 2 125 1 577 35% 2 683 (21)%
Gross margin % 39.5% 28.6% 1 090bps 40.3% (80)bps
Operating (loss)/profit (127) (712) (82)% 317 (140)%
Nokia's Networks 324 337 (4)% 858 (62)%
business
Ultra Broadband Networks 301 230 31% 564 (47)%
IP Networks and 23 107 (79)% 294 (92)%
Applications
Nokia Technologies 116 106 9% 158 (27)%
Group Common and Other (99) (99) 0% (76)
Non-IFRS exclusions (468) (1 057) (622)
Operating margin % (2.4)% (12.9)% 1 050bps 4.8% (720)bps
Financial income and (146) (103) 42% (72) 103%
expenses
Taxes (2) (154) 101 401
(Loss)/Profit (2) (435) (712) (39)% 658
(Loss)/Profit
attributable to the (473) (623) (24)% 659
equity holders of the
parent (2)
Non-controlling interests 37 (88) 0
(2)
EPS, EUR diluted (2) (0.08) (0.11) (27)% 0.11
Net cash and other liquid 4 409 8 246 (47)% 5 299 (17)%
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.
(2) Reported Q1'16 result is not comparable to the previously published
Reported Q1'16 result due to an update to the Alcatel-Lucent purchase price
allocation in Q3'16 which resulted in an adjustment to the reported Q1'16
income tax benefit.
Acquisition of Comptel Corporation
On February 9, 2017 Nokia announced that it had entered into a transaction
agreement with Comptel Corporation under which Nokia, through its wholly owned
indirect subsidiary Nokia Solutions and Networks Oy, undertook to make a
voluntary public cash tender offer to purchase all of the issued and outstanding
shares and option rights in Comptel not owned by Comptel, in order to advance
Nokia's software strategy and provide service providers with a comprehensive
solution to design, deliver, orchestrate and assure communications and digital
services across physical, virtual and hybrid networks. The tender offer valued
Comptel at approximately EUR 347 million, on a fully diluted basis, and resulted
in Nokia consolidating Comptel as of March 30, 2017. Together with open market
purchases, Nokia Solutions and Networks Oy held approximately 96.95% of all
Comptel shares as of April 24, 2017.
The acquisition of Comptel is part of Nokia's strategy to build a standalone
software business at scale by expanding and strengthening Nokia's go-to-market
capabilities with a software-dedicated sales force and strong partner network.
The acquisition of Comptel also supports Nokia's desire to build a software
portfolio that allows customers to automate as much of their network and
business operations as possible - including customer services, self-
optimization, management and orchestration.
Comptel is a long-time Nokia partner. It is a listed Finnish company, founded in
1986, with approximately 800 employees in 32 countries. Comptel has completed
over 1 400 customer projects in more than 90 countries. It processes 20 percent
of the world's mobile usage data every day, orchestrates communications and
digital services for more than two billion end-users daily and its largest
customer has around 300 million subscribers. In 2016, Comptel's net sales were
EUR 100 million with an 11% operating margin. The company's major sites are in
Finland, Bulgaria, Malaysia, India, the United Kingdom and Norway.
It is Nokia's intention to acquire all the shares and option rights in Comptel.
As the ownership in Comptel exceeds nine-tenths (9/10) of the shares and voting
rights in Comptel, Nokia has filed an application to initiate compulsory
redemption proceedings for the remaining Comptel shares under the Finnish
Limited Liability Companies Act and intends to redeem the remaining option
rights in accordance with their terms and conditions.
Changes in reporting structure, effective from April 1, 2017
On March 17, 2017, Nokia announced changes in its organizational structure
designed to accelerate the execution of its strategy, including strengthening
Nokia's ability to deliver strong financial performance, drive growth in
services, meet changing customer demands in mobile networks, achieve cost
savings and ongoing transformation goals, and enable strategic innovation across
Nokia's Networks business.
These organizational changes include the separation of Nokia's Mobile Networks
business group into two distinct, but closely linked, organizations: one focused
on products and solutions, called Mobile Networks, and the other on services,
called Global Services. The new Global Services business group is comprised of
the Global Services organization that resided within the Mobile Networks
business group, including company-wide managed services. In the first quarter
2017, Global Services represented approximately 70% of total services net sales
within the Networks business, with the remaining amounts reported within the net
sales of the other Networks business groups.
Starting from the second quarter 2017, Nokia will change its reporting structure
to reflect the updated organizational structure and provide additional
information on Global Services. Nokia will continue to report quarterly
financial information for Ultra Broadband Networks, IP Networks and Applications
and Nokia Technologies. Ultra Broadband Networks will be composed of the Mobile
Networks, Global Services and Fixed Networks business groups. IP Networks and
Applications will continue to be composed of the IP/Optical Networks and
Applications & Analytics business groups. Nokia will continue to disclose net
sales for total services for Nokia's Networks business on a quarterly basis.
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 and
eliminations", in the Financial statement information section in this report.
CEO STATEMENT
Nokia's first quarter 2017 results demonstrated our improving business momentum,
even if some challenges remain. We slowed the rate of topline decline and
generated healthy orders in what is typically a seasonally weak quarter for us.
We also continued to see expansion of cross-selling across our full portfolio,
delivered excellent gross margins and improved group-level profitability.
The power of our end-to-end portfolio was again evident in our first quarter
results. We saw encouraging stabilization in Mobile Networks topline, our
strategy to build a strong software business gained momentum in Applications &
Analytics, and Nokia Technologies saw significant year-on-year improvement in
sales. This progress offset relative weakness in Fixed Networks and IP/Optical
Networks, and allowed us to maintain Networks' strong gross margin - which was
among the strongest Networks has ever delivered for a Q1.
Mobile Networks was clearly the highlight of the quarter. A combination of
robust market interest in our advanced LTE solutions, including closing the
quarter with 145 4.5G customers, and ongoing cost discipline allowed us to get
closer to stabilizing our topline while delivering improved profitability.
Applications & Analytics also showed significant, even if early, signs of
improvement. Sales were roughly flat compared to the same quarter last year and
new orders were robust. As we move forward, we remain focused on improving
profitability in this business.
Fixed Networks, which had an excellent 2016, was impacted by several large
deployments coming to an end. Despite this, we are seeing growing traction in
cross-selling in markets where Nokia has traditionally been strong, and are
continuing to invest in the promising cable market.
In IP/Optical Networks our business is heavily weighted towards communication
service providers, and that market is currently quite soft. We are making good
progress in expanding our business to new customers, including large internet
companies where growth is strong, and expect that a coming IP product refresh
will strengthen our competitive position. In addition, we are taking steps to
ensure that our cost base is appropriate for current market conditions while
continuing to invest as needed to maintain long-term competitiveness. Despite
these challenges, I am confident that we are taking the right steps in the right
way to deliver medium-term improvements in both IP/Optical Networks and Fixed
Networks.
Overall, given Nokia's performance in the first quarter, I am optimistic about
the year ahead, even if cautiously so. Our competitive position is strong, we
are executing well, and, as a result, we are able to confirm our guidance for
full-year 2017.
Rajeev Suri
President and CEO
NOKIA IN Q1 2017 - NON-IFRS
Non-IFRS net sales and non-IFRS operating profit
Nokia non-IFRS net sales decreased 4% year-on-year and 20% sequentially. On a
constant currency basis, Nokia non-IFRS net sales would have decreased 6% year-
on-year and 21% sequentially.
Year-on-year changes
EUR million, Net % Gross Other Operating Change in
non-IFRS sales change profit (R&D) (SG&A) income and profit operating
(expenses) margin %
-------------------------------------------------------------------------------
Networks (291) (6)% (70) 33 2 22 (13) 10bps
business
Nokia 49 25% 38 (3) (26) 0 10 (650)bps
Technologies
Group Common 19 8% 0 (3) (9) 11 0 310bps
and Other
Eliminations (4) 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia (227) (4)% (32) 28 (33) 33 (4) 20bps
-------------------------------------------------------------------------------
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 (1 (19)% (555) 7 7 8 (534) (750)bps
business 184)
Nokia (62) (20)% (53) 9 5 (4) (42) (410)bps
Technologies
Group Common (86) (25)% (38) (2) 4 12 (23) (1
and Other 660)bps
Eliminations (12) 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia (1 (20)% (646) 15 16 16 (599) (770)bps
343)
-------------------------------------------------------------------------------
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 (4) (14) 92 64 (19) 44
-------------------------------------------------------------------------------
Nokia's regional profit mix in the first quarter 2017 resulted in an unusually
low non-IFRS tax rate of 19%, compared to Nokia's previous guidance for the Q1
2017 non-IFRS tax rate to be between 35% and 40%.
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 (599) (9) 156 (473) (2) (476)
-------------------------------------------------------------------------------
On a sequential basis, the lower taxes were primarily due to lower profit before
tax and Nokia's regional profit mix. The regional profit mix in the first
quarter 2017 resulted in an unusually low non-IFRS tax rate of 19%, compared to
Nokia's previous guidance for the Q1 2017 non-IFRS tax rate to be between 35%
and 40%.
NOKIA IN Q1 2017 - REPORTED
FINANCIAL DISCUSSION
Net sales
Nokia net sales decreased 2% year-on-year and 19% sequentially. On a constant
currency basis, Nokia net sales would have decreased 4% year-on-year, and 20%
sequentially.
Year-on-year discussion
The year-on-year decrease in net sales in the first quarter 2017 was primarily
due to Nokia's Networks business, partially offset by lower non-IFRS exclusions
related to deferred revenue, and higher net sales in Nokia Technologies and
Group Common and Other.
Sequential discussion
The sequential decrease in Nokia net sales in the first quarter 2017 was
primarily due to Nokia's Networks business, and, to a lesser extent, Group
Common and Other and Nokia Technologies. This was partially offset by lower non-
IFRS exclusions.
Operating profit
Year-on-year discussion
In the first quarter 2017, the decrease in Nokia's operating loss was primarily
due to higher gross profit and lower selling, general and administrative
("SG&A") expenses, partially offset by a net negative fluctuation in other
income and expenses.
The increase in gross profit was primarily due to the absence of non-IFRS
exclusions related to the valuation of inventory, lower non-IFRS exclusions
related to deferred revenue and, to a lesser extent, higher gross profit in
Nokia Technologies. This was partially offset by lower gross profit in Nokia's
Networks business.
Research and development ("R&D") expenses were approximately flat, primarily due
to lower R&D expenses in Nokia's Networks business, partially offset by higher
non-IFRS exclusions related to product portfolio integration costs.
The decrease in SG&A expenses was primarily due to lower non-IFRS exclusions
related to transaction and integration costs, partially offset by higher SG&A
expenses in Nokia Technologies.
Nokia's other income and expenses was an expense of EUR 69 million in the first
quarter 2017, compared to an expense of EUR 52 million in the year-ago period.
The net negative fluctuation was primarily related to higher non-IFRS exclusions
attributable to higher restructuring and associated charges, partially offset by
Nokia's Networks business and Group Common and Other.
Sequential discussion
In the first quarter 2017, Nokia recorded an operating loss, compared to an
operating profit in the fourth quarter 2016. The change was primarily due to
lower gross profit, partially offset by a net positive fluctuation in other
income and expenses and lower R&D and SG&A expenses.
The decrease in gross profit was primarily due to Nokia's Networks business and,
to a lesser extent, Nokia Technologies and Group Common and Other, partially
offset by lower non-IFRS exclusions related to deferred revenue and lower
product portfolio integration costs.
The decrease in R&D expenses was primarily due to Nokia Technologies and Nokia's
Networks business.
The decrease in SG&A expenses was primarily due to lower non-IFRS exclusions
related to transaction and integration costs.
Nokia's other income and expenses was an expense of EUR 69 million in the first
quarter 2017, compared to an expense of EUR 126 million in the fourth quarter
2016. The net positive fluctuation was primarily due to lower restructuring and
associated charges and Group Common and Other.
Profit/(Loss) attributable to the equity holders of the parent
Year-on-year discussion
In the first quarter 2017, the decrease in Nokia's loss attributable to the
equity holders of the parent was primarily due to lower operating loss,
partially offset by higher taxes, a net negative fluctuation in non-controlling
interests and a net negative fluctuation in financial income and expenses.
The net negative fluctuation in financial income and expenses was primarily due
to non-IFRS exclusions related to Nokia's tender offer to repurchase the 6.75%
notes due February 4, 2019, the 6.50% debentures due January 15, 2028 and the
6.45% debentures due March 15, 2029. The purpose of these transactions was to
optimize Nokia's debt maturity profile, to lower average interest expense run
rate and to eliminate subsidiary level external debt. In addition, the first
quarter 2017 was negatively affected by foreign exchange fluctuations, partially
offset by the absence of non-IFRS exclusions related to the early redemption of
Alcatel-Lucent high yield bonds in the first quarter of 2016 and a net positive
fluctuation in other financial income and expenses.
The higher taxes were primarily due to non-recurring tax expenses of EUR 245
million related to the integration of the former Alcatel-Lucent and Nokia
operating models.
The net negative fluctuation in non-controlling interests was primarily related
to a non-recurring income in a partly-owned subsidiary in the first quarter
2017.
Sequential discussion
In the first quarter 2017, Nokia recorded a loss attributable to the equity
holders of the parent compared to a profit in the fourth quarter 2016. The
change was primarily due to a tax expense, compared to a tax benefit in the
fourth quarter 2016, a lower operating profit and, to a lesser extent, a net
negative fluctuation in the financial income and expenses.
The change in taxes from a benefit in the fourth quarter 2016 to an expense in
the first quarter 2017 was primarily due to the absence of a non-recurring tax
benefit of EUR 439 million, which benefitted the fourth quarter 2016, and a non-
recurring tax expense of EUR 245 million in the first quarter 2017. The non-
recurring tax benefit and tax expense both related to the integration of the
former Alcatel-Lucent and Nokia operating models. This was partially offset by a
tax benefit resulting from a loss before tax.
The net negative fluctuation in financial income and expenses was primarily due
to foreign exchange fluctuations and non-IFRS exclusions related to Nokia's
tender offer to repurchase the 6.75% notes due February 4, 2019, the 6.50%
debentures due January 15, 2028 and the 6.45% debentures due March 15, 2029. The
purpose of these transactions was to optimize Nokia's debt maturity profile, to
lower average interest expense run rate and to eliminate subsidiary level
external debt. This was partially offset by the absence of an impairment charge
of EUR 63 million related to the performance of certain private funds investing
in intellectual property rights, which negatively affected the fourth quarter
2016.
Description of non-IFRS exclusions in Q1 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 Q1'17 Q1'16 YoY change Q4'16 QoQ change
-------------------------------------------------------------------------------
Net sales (11) (104) (89)% (74) (85)%
Gross profit (71) (651) (89)% (159) (55)%
R&D (184) (156) 18% (185) (1)%
SG&A (138) (224) (38)% (162) (15)%
Other income and expenses (74) (25) 196% (116) (36)%
Operating (loss)/profit (468) (1 057) (56)% (622) (25)%
-------------------------------------------------------------------------------
Financial income and expenses (64) (36) 78% 0
Taxes (106) 242 605
(Loss)/Profit (638) (851) (17)
(Loss)/Profit attributable to the (669) (775) (13)
shareholders of the parent
Non-controlling interests 31 (76) (5)
-------------------------------------------------------------------------------
Non-IFRS exclusions in net sales
In the first quarter 2017, non-IFRS exclusions in net sales amounted to EUR 11
million, and 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.
Non-IFRS exclusions in operating profit
In the first quarter 2017, non-IFRS exclusions in operating profit amounted to
EUR 468 million, and were primarily due to non-IFRS exclusions that negatively
affected gross profit, R&D, SG&A and other income and expenses as follows:
In the first quarter 2017, non-IFRS exclusions in gross profit amounted to EUR
71 million, and were primarily due to product portfolio integration costs
related to the acquisition of Alcatel-Lucent, and the deferred revenue.
In the first quarter 2017, non-IFRS exclusions in R&D expenses amounted to EUR
184 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 integration costs related to the acquisition of Alcatel-
Lucent.
In the first quarter 2017, non-IFRS exclusions in SG&A expenses amounted to EUR
138 million, and were primarily due to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent and, to a lesser extent,
integration and transaction related costs.
In the first quarter 2017, non-IFRS exclusions in other income and expenses
amounted to EUR 74 million, and were primarily due to restructuring and
associated charges for Nokia's cost reduction and efficiency improvement
initiatives.
Non-IFRS exclusions in profit/(loss) attributable to the equity holders of the
parent
In the first quarter 2017, non-IFRS exclusions in profit/(loss) attributable to
the equity holders of the parent amounted to EUR 669 million, and were primarily
due to the non-IFRS exclusions affecting operating profit, in addition to non-
IFRS exclusions that negatively affected financial income and expenses and taxes
as follows:
In the first quarter 2017, non-IFRS exclusions in financial income and expenses
amounted to EUR 64 million, and were primarily related to Nokia's tender offer
to repurchase the 6.75% notes due February 4, 2019, the 6.50% debentures due
January 15, 2028 and the 6.45% debentures due March 15, 2029.
In the first quarter 2017, non-IFRS exclusions in taxes amounted to EUR 106
million, and were primarily due to a non-recurring tax expense of EUR 245
million in the first quarter 2017 related to the integration of the former
Alcatel-Lucent and Nokia operating models. This was partially offset by a tax
benefit of EUR 139 million related to non-IFRS exclusions in operating profit
and financial income and expenses.
In the first quarter 2017, non-IFRS exclusions in non-controlling interests
included non-recurring income in a partly-owned subsidiary.
Cost savings program
The following table summarizes the financial information related to our cost
savings program, as of the end of the first 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 Q1'17
--------------------------------------------------------------------
Opening balance of restructuring and associated liabilities 790
+ Charges in the quarter 80
- Cash outflows in the quarter 150
= Ending balance of restructuring and associated liabilities 720
of which restructuring provisions 650
of which other associated liabilities 70
Total expected restructuring and associated charges 1 700
- Cumulative recorded 830
= Charges remaining to be recorded 870
Total expected restructuring and associated cash outflows 2 150
- Cumulative recorded 560
= Cash outflows remaining to be recorded 1 590
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 | | | | |
| | | | |
| |Q4'16 Q1'17|Q4'16 Q1'17|Q4'16 Q1'17|Q4'16 Q1'17
----------------+------+-------------+-------------+-------------+-------------
Total cost | 550| 250 250| 400 400| 0 0|1 200 1 200
savings | | | | |
| | | | |
- operating | 350| 100 100| 350 350| 0 0| 800 800
expenses | | | | |
| | | | |
- cost of | 200| 150 150| 50 50| 0 0| 400 400
sales | | | | |
| | | | |
Restructuring | | | | |
and associated | 750| 750 750| 200 200| 0 0|1 700 1 700
charges | | | | |
| | | | |
Restructuring | | | | |
and associated | 400| 750 750| 550 550| 450 450|2 150 2 150
cash outflows | | | | |
| | | | |
Charges and | | | | |
cash outflows | | | | |
related to | 150| 450 450| 300 300| 0 0| 900 900
network | | | | |
equipment swaps| | | | |
In full year 2016, the actual total cost savings benefitted from lower incentive
accruals, related to the financial performance in full year 2016. 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 well on track to achieve the targeted
EUR 1.2 billion of total cost savings in full year 2018.
OUTLOOK
Metric Guidance Commentary
-------------------------------------------------------------------------------
Nokia Annual cost Approximately EUR Compared to the
savings for Nokia, 1.2 billion of combined non-IFRS
excluding Nokia total annual cost operating costs of
Technologies savings to be Nokia and Alcatel-
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
1.7 billion.
Restructuring and
associated cash
outflows are expected
to total
approximately EUR
2.15 billion.
------------------------------------------------------------
Network equipment Approximately EUR The charges related
swaps 900 million in to network equipment
total(1) swaps are being
recorded as non-IFRS
exclusions, and
therefore do not
affect Nokia's non-
IFRS operating
profit.
------------------------------------------------------------
Non-IFRS financial Expense of Primarily includes
income and approximately EUR net interest expenses
expenses 250 million in related to interest-
full year 2017 bearing liabilities
and defined benefit
(update) pension and other
post-employment
benefit plans, as
well as the impact of
foreign exchange rate
fluctuations on
certain balance sheet
items.
(This is an update to
the earlier outlook
for an expense of
approximately EUR
300 million in full
year 2017. This
update is primarily
related to lower
estimated net
interest expenses, as
well as the expected
performance of
certain venture fund
investments.)
Nokia expects cash
outflows related to
financial income and
expenses to be
approximately EUR
200 million in full
year 2017.
------------------------------------------------------------
Non-IFRS tax rate Between 30% and Nokia expects its
35% for full year non-IFRS tax rate for
2017 full year 2017 to be
around the midpoint
of the guidance
range.
Nokia expects cash
outflows related to
taxes to be
approximately EUR
600 million for full
year 2017.
------------------------------------------------------------
Capital Approximately EUR Primarily
expenditures 500 million in attributable to
full year 2017 Nokia's Networks
business.
-------------------------------------------------------------------------------
Nokia's Networks Net sales Decline in line Nokia's outlook for
business with the primary net sales and
addressable market operating margin for
in full year 2017 Nokia's Networks
---------------------------------------business in full year
Operating margin 8-10% in full year 2017 are expected to
2017 be influenced by
factors including:
* A low single
digit percentage
decline in the
primary
addressable
market for
Nokia's Networks
business;
* Competitive
industry
dynamics;
* Product and
regional mix;
* The timing of
major network
deployments; and
* Execution of cost
savings and
reinvestment
plans, with
operating
expenses down on
a year-on-year
basis.
The 2017 outlook for
Nokia's Networks
business was provided
on November 15, 2016
assuming constant
foreign exchange
rates.
-------------------------------------------------------------------------------
Nokia Technologies 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 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. (This is an
update to earlier
commentary for the
annualized net sales
run rate for patent
and brand licensing
to be approximately
EUR 800 million in
2017, assuming no new
licensing agreements
are signed.)
Nokia expects 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
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; 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) timing of the deliveries of our products and services; H)
expectations and targets regarding collaboration and partnering arrangements,
joint ventures or the creation of joint ventures, as well as our expected
customer reach; I) outcome of pending and threatened litigation, arbitration,
disputes, regulatory proceedings or investigations by authorities; J)
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 K) 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 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 the acquisition of Alcatel Lucent, and our ability
to implement 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 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 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; 12) 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; 13) our ability to identify and remediate
material weaknesses in our internal control over financial reporting; 14) our
reliance on third-party solutions for data storage and service distribution,
which expose us to risks relating to security, regulation and cybersecurity
breaches; 15) inefficiencies, breaches, malfunctions or disruptions of
information technology systems; 16) Nokia Technologies' ability to generate net
sales and profitability through licensing of the Nokia brand, particularly in
digital media and digital health, and the development and sales of products and
services, as well as other business ventures which may not materialize as
planned; 17) 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; 18) adverse developments with respect to customer financing or
extended payment terms we provide to customers; 19) 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; 20) our actual or
anticipated performance, among other factors, which could reduce our ability to
utilize deferred tax assets; 21) our ability to retain, motivate, develop and
recruit appropriately skilled employees; 22) disruptions to our manufacturing,
service creation, delivery, logistics and supply chain processes, and the risks
related to our geographically-concentrated production sites; 23) the impact of
litigation, arbitration, agreement-related disputes or product liability
allegations associated with our business; 24) our ability to optimize our
capital structure as planned and re-establish our investment grade credit rating
or otherwise improve our credit ratings; 25) our ability to achieve targeted
benefits from or successfully implement planned transactions, as well as the
liabilities related thereto; 26) our involvement in joint ventures and jointly-
managed companies; 27) the carrying amount of our goodwill may not be
recoverable; 28) uncertainty related to the amount of dividends and equity
return we are able to distribute to shareholders for each financial period; 29)
pension costs, employee fund-related costs, and healthcare costs; and 30) 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 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 April 26, 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's Annual General Meeting 2017 is planned to be held on May 23, 2017.
* Nokia plans to publish its second quarter and half year 2017 results on July
27, 2017.
* Nokia plans to publish its third quarter 2017 results on October 26, 2017.
[]
© 2024 Nasdaq, Inc. All Rights Reserved |