2014-10-23 07:00:03 CEST
2014-10-23 07:01:05 CEST
REGULATED INFORMATION
Nokia - Interim report (Q1 and Q3)
Nokia Corporation Interim Report for Q3 2014 and January-September 2014
Nokia Corporation
Interim Report
October 23, 2014 at 08:00 (CET+1)
This is a summary of the Nokia Corporation Interim Report for Q3 2014 and
January-September 2014 published today. The complete Interim Report with tables
for Q3 2014 and January-September 2014 is available at
http://company.nokia.com/financials. Investors should not rely on summaries of
Nokia's interim reports only, but should review the full interim reports with
tables.
FINANCIAL AND OPERATING HIGHLIGHTS
Third quarter 2014 highlights:
- Non-IFRS diluted EPS in Q3 2014 of EUR 0.09 (EUR 0.06 in Q3 2013); reported
diluted EPS of EUR 0.19 (EUR 0.04 in Q3 2013)
- Net sales in Q3 2014 of EUR 3.3 billion (EUR 2.9 billion in Q3 2013)
Nokia Networks
- Nokia Networks achieved 13% year-on-year growth in net sales, from EUR 2.6
billion in Q3 2013 to EUR 2.9 billion in Q3 2014.
- In Q3 2014, Nokia Networks achieved strong underlying operating profitability
with non-IFRS operating profit of EUR 397 million, or 13.5% of net sales,
compared to EUR 217 million, or 8.4% of net sales, in Q3 2013.
- The strong net sales and profitability improvement of Nokia Networks on a
year-on-year basis was primarily due to major new LTE network deployments in
North America and Greater China, which benefitted Mobile Broadband.
HERE
- HERE achieved 12% year-on-year growth in net sales, from EUR 211 million in
Q3 2013 to EUR 236 million in Q3 2014.
- In Q3 2014, HERE sold map data licenses for the embedded navigation systems
of 3.2 million new vehicles globally, compared to 2.6 million vehicles in Q3
2013.
Nokia Technologies
- Nokia Technologies achieved 9% year-on-year growth in net sales, from EUR 140
million in Q3 2013 to EUR 152 million in Q3 2014, primarily due to Microsoft
becoming a more significant intellectual property licensee.
Commenting on the third quarter results on a year-on-year basis, Rajeev Suri,
Nokia President and CEO, said:
Nokia's third quarter results demonstrate our strong position in a world where
technology is undergoing significant change. We saw growth in all three of our
businesses; non-IFRS earnings per share was up 50%; and we moved forward with
our capital structure optimization program, returning cash to shareholders.
Performance at Nokia Networks was particularly satisfying, with both growth and
improved profitability. Progress was widespread, with four of our six regions
increasing sales; Mobile Broadband sales and profitability were up sharply;
Global Services delivered its sixth consecutive quarter of double digit
profitability; and I was pleased to see a rebound in Europe driven by our
robust deal momentum. That said, I also want to be clear that Networks
benefited from some unique developments in the quarter, with a business mix
weighted towards Mobile Broadband and regional mix that included strong gains
in North America.
HERE also delivered a double digit sales increase in the quarter. We are
sharpening HERE's strategy in order to better balance growth and profitability
while ensuring relentless focus on priority segments such as automotive. I am
confident that this strategy, combined with a new focus on efficiency gains,
positions HERE well for the future.
Nokia Technologies continued to invest in the innovation and business
infrastructure necessary to enable future growth and renewal of our strong
patent portfolio. This work, as well as our current licensing activities, will
take time to come to fruition, but I believe that we are moving rapidly in the
right direction.
Third quarter 2014 material special items:
- In Q3 2014, we recorded a charge to operating profit of EUR 1.2 billion for
the impairment of HERE goodwill. The impairment charge is based on our estimate
that the recoverable amount of HERE is now EUR 2.0 billion. During Q3 2014, we
also recognized a non-cash tax expense of EUR 0.3 billion due to valuation
allowances related to HERE's Dutch deferred tax assets.
- At the end of Q3 2014, due to improved operating performance, Nokia
recognized EUR 2.1 billion of deferred tax assets from the reassessment of
recoverability of deferred tax assets related to Finland and Germany, of which
EUR 2.0 billion was recorded as a non-cash tax benefit in Q3 2014 reported tax
expenses.
Balance sheet highlights:
- Nokia ended Q3 2014 with a strong balance sheet and solid cash position with
gross cash of EUR 7.6 billion and net cash of EUR 5.0 billion compared to EUR
9.0 billion and EUR 6.5 billion, respectively, at the end of Q2 2014.
- In Q3 2014, Nokia paid a special dividend of EUR 966 million (EUR 0.26 per
share) and an ordinary dividend of EUR 408 million (EUR 0.11 per share). In Q3
2014, Nokia also commenced the share repurchases under its capital structure
optimization program and used EUR 220 million for such share repurchases.
- The sequential decline in Nokia's gross and net cash balances was primarily
due to the payments of special and ordinary dividends during Q3 2014 and the
commencement of share repurchasing. In addition, the sequential decline in
Nokia's cash position was driven by cash outflows related to acquisitions
completed during the quarter, amounting to EUR 159 million, partially offset by
positive cash flow from operations of EUR 399 million.
January-September 2014 highlights:
Nokia's continuing operations net sales in January-September 2014 were EUR 8.9
billion
- Nokia's continuing operations net sales for the nine months ended September
2014 decreased 3% year-on-year.
- Reported diluted EPS for the nine months ended September 2014 was EUR 0.21,
compared to EUR 0.00 in the nine months ended September 2013.
SUMMARY FINANCIAL INFORMATION
--------------------------------------------------------------------------------
Reported and Reported and Non-IFRS
Non-IFRS third quarter January - September
2014 results1 2014 results1
--------------------------------------------------------------------------------
EUR million Q3/14 Q3/13 YoY Q2/14 QoQ Q1-Q3/ Q1-Q3/ YoY
Change Change 2014 2013 Change
--------------------------------------------------------------------------------
Continuing
Operations
Net sales 3 324 2 938 13% 2 942 13% 8 930 9 232 -3%
Gross margin % 44.5% 42.9% 44.0% 44.7% 41.9%
(non-IFRS)
Operating -1 007 -963 5% -940 7% -2 872 -2 976 -3%
expenses
(non-IFRS)
Operating 457 344 33% 347 32% 1 108 1 028 8%
profit
(non-IFRS)
Non-IFRS 1 267 82 62 1 391 784
exclusions
from operating
profit
Operating -810 262 284 -283 244
profit
Profit 353 206 71% 215 64% 739 562 31%
(non-IFRS)
Non-IFRS -407 68 241 -105 705
exclusions
from profit
Profit 760 138 451% -26 844 -143
EPS, EUR 0.09 0.06 50% 0.06 50% 0.19 0.12 58%
diluted
(non-IFRS)
EPS, EUR 0.19 0.04 375% -0.01 0.21 0.00
diluted
(reported)
Net cash 406 - 1 455 -72% 2 059 -
from operating
activities
Net cash 5 025 2 413 108% 6 497 -23% 5 025 2 413 108%
and other
liquid
assets
--------------------------------------------------------------------------------
Note 1 relating to results information and non-IFRS (also referred to as
“underlying”) results: The results information in this report is unaudited.
Percentages and figures presented herein may include rounding differences and
therefore may not add up precisely to the totals presented and may vary from
previously published financial information. In addition to information on our
reported IFRS results, we provide certain information on a non-IFRS, or
underlying business performance, basis. Non-IFRS results exclude all material
special items for all periods. In addition, non-IFRS results exclude intangible
asset amortization and other purchase price accounting related items arising
from business acquisitions. Nokia believes that our non-IFRS results provide
meaningful supplemental information to both management and investors regarding
Nokia's underlying business performance by excluding the above-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. More
information, including a reconciliation of our Q3 2014 and Q3 2013 non-IFRS
results to our reported results, can be found in our complete Q3 2014 report
with tables on pages 22-27. A reconciliation of our Q2 2014 non-IFRS results to
our reported results can be found in our complete Q2 2014 interim report with
tables on pages 22-27 published on July 24, 2014.
NOKIA'S OUTLOOK
- Nokia now expects Nokia Networks' non-IFRS operating margin for the full year
2014 to be slightly above 11%. This compares to Nokia's previous outlook for
Nokia Networks' non-IFRS operating margin for the full year 2014 to be at or
slightly above the higher end of Nokia Networks' targeted long-term non-IFRS
operating margin range of 5% to 10%. In addition, Nokia continues to expect
Nokia Networks' net sales to grow on a year-on-year basis in the second half
2014. This outlook is based on Nokia's financial performance in the first nine
months of 2014, as well as Nokia's expectations regarding a number of factors,
including:
- competitive industry dynamics;
- a sequentially higher proportion of Global Services net sales in the fourth
quarter of 2014, following an elevated proportion of Mobile Broadband net sales
in the third quarter of 2014, which was primarily due to major new network
deployments;
- regional mix; and
- expected continued operational improvement.
- During 2014, Nokia continues to expect HERE to invest to capture longer-term
transformational growth opportunities while taking steps to increase our focus
on our automotive and enterprise businesses. Nokia continues to expect these
investments to negatively affect HERE's 2014 non-IFRS operating margin.
- Nokia expects Nokia Technologies' annualized net sales to continue at a run
rate of approximately EUR 600 million during 2014.
- Nokia currently expects financial income and expenses, including net interest
expenses and the impact from changes in foreign exchange rates on certain
balance sheet items, to amount to an expense of approximately EUR 40 million on
a quarterly basis, subject to changes in foreign exchange rates and the level
of interest bearing liabilities.
- Nokia now expects full year 2014 capital expenditures for continuing
operations to be approximately EUR 250 million, primarily attributable to
capital expenditures by Nokia Networks. This compares to Nokia's previous
outlook for full year 2014 capital expenditures for continuing operations of
approximately EUR 200 million. The increase in expected capital expenditures
for continuing operations for the full year 2014 is primarily due to additional
operational investments, including capacity enhancements, in Nokia Networks.
- On a non-IFRS basis, after having recognized the deferred tax assets related
to our operations in Finland and Germany in third quarter 2014, Nokia now
expects to record tax expenses at a long-term effective tax rate of
approximately 25%. However, Nokia's cash tax obligations are expected to
continue to be approximately EUR 250 million annually until Nokia's deferred
tax assets have been fully utilized. The cash tax amount may vary depending on
profit levels in different jurisdictions and the amount of license income
potentially subject to withholding tax.
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) expectations, plans or benefits related to Nokia's strategies; B)
expectations, plans or benefits related to future performance of Nokia's
businesses Nokia Networks, HERE and Nokia Technologies; C) expectations, plans
or benefits related to changes in leadership and operational structure; D)
expectations regarding market developments, general economic conditions and
structural changes; E) expectations and targets regarding performance,
including those related to market share, prices, net sales and margins; F)
timing of the deliveries of our products and services; G) expectations and
targets regarding our financial performance, cost savings and competitiveness,
as well as results of operations; H) expectations and targets regarding
collaboration and partnering arrangements; 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, including any
expectations, plans or benefits related to or caused by the transaction where
Nokia sold substantially all of the Devices & Services business to Microsoft on
April 25, 2014 ("Sale of the D&S Business"); 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 the management's best assumptions and beliefs in light of the information
currently available to it. Because they involve risks and uncertainties, actual
results may differ materially from the results that we currently expect.
Factors, including risks and uncertainties that could cause such differences
include, but are not limited to: 1) our ability to execute our strategies
successfully and in a timely manner, and our ability to successfully adjust our
operations; 2) our ability to sustain or improve the operational and financial
performance of our businesses and correctly identify business opportunities or
successfully pursue new business opportunities; 3) our ability to execute Nokia
Networks' strategy and effectively, profitably and timely adapt its business
and operations to the increasingly diverse needs of its customers and
technological developments; 4) our ability within our Nokia Networks business
to effectively and profitably invest in and timely introduce new competitive
high-quality products, services, upgrades and technologies; 5) our ability to
invent new relevant technologies, products and services, to develop and
maintain our intellectual property portfolio and to maintain the existing
sources of intellectual property related revenue and establish new such
sources; 6) our ability to protect numerous patented standardized or
proprietary technologies from third-party infringement or actions to invalidate
the intellectual property rights of these technologies; 7) our ability within
our HERE business to maintain current sources of revenue, historically derived
mainly from the automotive industry, create new sources of revenue, for
instance in the enterprise business, successfully recognize and pursue growth
opportunities and extend the reach of our location services; 8) our dependence
on the development of the mobile and communications industry in numerous
diverse markets, as well as on general economic conditions globally and
regionally; 9) Nokia Networks' dependence on a limited number of customers and
large, multi-year contracts; 10) our ability to retain, motivate, develop and
recruit appropriately skilled employees; 11) the potential complex tax issues
and obligations we may face, including the obligation to pay additional taxes
in various jurisdictions and our actual or anticipated performance, among other
factors, could result in allowances related to deferred tax assets; 12) our
ability to manage our manufacturing, service creation and delivery, and
logistics efficiently and without interruption, especially if the limited
number of suppliers we depend on fail to deliver sufficient quantities of fully
functional products and components or deliver timely services; 13) any
inefficiency, malfunction or disruption of a system or network that our
operations rely on or any impact of a possible cybersecurity breach; 14) our
ability to reach targeted results or improvements by managing and improving our
financial performance, cost savings and competitiveness; 15) management of
Nokia Networks' customer financing exposure; 16) the performance of the parties
we partner and collaborate with, as well as financial counterparties, and our
ability to achieve successful collaboration or partnering arrangements; 17) our
ability to protect the technologies, which we develop, license, use or intend
to use, from claims that we have infringed third parties' intellectual property
rights, as well as, impact of possible licensing costs, restriction on our
usage of certain technologies, and litigation related to intellectual property
rights; 18) the impact of regulatory, political or other developments,
including those caused by the impact of trade sanctions, natural disasters or
disease outbreaks on our operations and sales in those various countries or
regions where we conduct business; 19) exchange rate fluctuations, particularly
between the euro, which is our reporting currency, and the US dollar, the
Japanese yen and the Chinese yuan, as well as certain other currencies; 20)
effects of impairments or charges to carrying values of assets, including
goodwill, or liabilities; 21) our ability to successfully implement planned
transactions, such as acquisitions, divestments, mergers or joint ventures,
manage unexpected liabilities related thereto and achieve the targeted
benefits; 22) the impact of unfavorable outcome of litigation, arbitration,
contract related disputes or allegations of health hazards associated with our
business; 23) potential exposure to contingent liabilities due to the Sale of
the D&S Business and possibility that the agreements we have entered into with
Microsoft may have terms that prove to be unfavorable for us, as well as the
risk factors specified on pages 12-35 of Nokia's annual report on Form 20-F for
the year ended December 31, 2013 under Item 3D. "Risk Factors." Other unknown
or unpredictable factors or underlying assumptions subsequently proven to be
incorrect could cause actual results to differ materially from those in the
forward-looking statements. Nokia does not undertake any obligation to publicly
update or revise forward-looking statements, whether as a result of new
information, future events or otherwise, except to the extent legally required.
Nokia Management, Helsinki - October 23, 2014
Media and Investor Contacts:
Corporate Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations Europe, tel. +358 4080 3 4080
Investor Relations US, tel. +1 650 644 4709
- Nokia plans to publish its fourth quarter and annual 2014 results on January
29, 2015
- Nokia will hold a Capital Markets Day for institutional investors in London,
UK on November 14, 2014. Institutional investors who are planning to attend are
encouraged to register for the event, as space is limited. Any questions
related to Nokia's Capital Markets Day can be addressed to cmd2014@nokia.com.
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