2014-04-29 07:00:01 CEST
2014-04-29 07:00:08 CEST
REGULATED INFORMATION
Nokia - Interim report (Q1 and Q3)
Nokia Corporation Interim Report for Q1 2014
Nokia Corporation
Interim report
April 29, 2014 at 08.00 (CET+1)
This is a summary of the first quarter 2014 interim report published today. The
complete first quarter 2014 interim report with tables is available at
http://company.nokia.com/financials. Investors should not rely on summaries of
our interim reports only, but should review the complete interim reports with
tables.
FINANCIAL AND OPERATING HIGHLIGHTS
First quarter 2014 highlights for continuing operations*:
Nokia's non-IFRS diluted EPS in Q1 2014 of EUR 0.04 (0.01 in Q1 2013); reported
diluted EPS of EUR 0.03 (-0.03 in Q1 2013)
Nokia's net sales in Q1 2014 were EUR 2.7 billion, down 15% compared to Q1 2013.
-- In Q1 2014, underlying operating profitability for Nokia's continuing
operations increased to EUR 304 million, or 11.4% of net sales, compared to
EUR 254 million, or 8.1% of net sales, in Q1 2013.
-- Networks achieved solid underlying operating profitability, with Q1 2014
non-IFRS operating profit of EUR 216 million, or 9.3% of net sales,
compared to EUR 196 million, or 7.0%, in Q1 2013. This was primarily due to
a higher gross margin which benefitted from a higher proportion of software
sales, significant efficiency improvements in Global Services and a higher
proportion of Mobile Broadband sales.
-- HERE's external net sales were EUR 185 million, an increase of 13%
year-on-year, driven by strong sales to vehicle customers.
-- Technologies entered in to an agreement with HTC, validating Nokia's
implementation patents and enabling Technologies to focus on further
licensing opportunities.
*See note 4 to our Summary Financial Information table below concerning our
current operational and reporting structure
Balance sheet highlights:
-- Nokia Group ended Q1 2014 with a strong balance sheet and solid cash
position with gross cash of EUR 6.9 billion and net cash of EUR 2.1 billion
compared to EUR 9.0 billion and EUR 2.3 billion, respectively, at the end
of Q4 2013. The sequential decline in Nokia's gross cash was primarily due
to repayment of certain debt facilities totalling approximately EUR 1.8
billion during the first quarter 2014.
-- If the transaction to sell to Microsoft substantially all of our Devices& Services business would have closed before the end of the first
quarter 2014, Nokia would have ended the quarter with gross cash of
approximately EUR 10.5 billion and net cash of approximately EUR 7.1
billion.
Risto Siilasmaa, Nokia Chairman, commented on the company's progress:
With the closing of our transaction with Microsoft, Nokia begins a new era. We
are confident in our future. Nokia's vision is to be a leader in technologies
which will be important in a world of billions of intelligent connected
devices. With our strategic direction now set, our highly talented teams can
focus fully on realizing our vision by building on Nokia's three strong
businesses - Networks, HERE, and Technologies. In all three businesses, Nokia
has a solid foundation and we continue to see attractive opportunities to
invest in growth. Additionally, we will focus on managing our capital
effectively, and we have announced a comprehensive EUR 5 billion program to
optimize our capital structure.
In the first quarter of 2014, all three of our businesses delivered solid
performance. In particular, we were pleased by the continued strength of
Networks' underlying operating profitability. Under the leadership of Rajeev
Suri, Networks has become an innovation leader, with tremendously improved
strategic focus and financial results. I believe Rajeev is the right person to
lead Nokia forward, and that his passion for technology will help ensure that
Nokia continues to deliver technologies that have a positive impact on people's
lives.
SUMMARY FINANCIAL INFORMATION
-------------------------------------------------------------
Reported and Non-IFRS
first quarter 2014 results1-4
EUR million Q1/14 Q1/13 YoY Q4/13 QoQ
Change Change
-------------------------------------------------------------
-------------------------------------------------------------
Continuing
Operations
Net sales 2 664 3 140 -15% 3 476 -23%
Gross margin % 45.7% 39.3% 42.5 %
(non-IFRS)
Operating expenses - 925 -1 004 -8% -1 018 -9%
(non-IFRS)
Operating profit 304 254 20% 409 -26%
(non-IFRS)
Non-IFRS 62 283 134
exclusions
Operating profit 242 - 30 274 -12%
EPS, EUR diluted 0.04 0.01 300% 0.08 -50%
(non-IFRS)
EPS, EUR diluted 0.03 -0.03 0.05 -40%
(reported)
Net cash from 198 498 -60%
operating activities6
Net cash and 2 075 4 479 -54% 2 308 -10%
other liquid assets5
-------------------------------------------------------------
Networks
Net sales 2 328 2 804 -17% 3 105 -25%
Mobile Broadband 1 250 1 244 0% 1 563 -20%
net sales
Global Services 1 069 1 423 -25% 1 540 -31%
net sales
Gross margin % 39.6% 34.0% 37.6%
(non-IFRS)
Operating profit 216 196 10% 349 -38%
(non-IFRS)
Operating 9.3% 7.0% 11.2%
margin %
(non-IFRS)
-------------------------------------------------------------
HERE
Net sales 209 216 -3% 255 -18%
Gross margin % 77.5% 75.5% 75.6%
(non-IFRS)
Operating profit 10 -5 25 -60%
(non-IFRS)
Operating margin % 4.8% -2.3% 9.8%
(non-IFRS)
-------------------------------------------------------------
Technologies
Net sales 131 123 7% 121 8%
Gross margin % 98.5% 99.2% 98.4%
(non-IFRS)
Operating profit 86 73 18% 81 6%
(non-IFRS)
Operating 65.6% 59.3% 66.9%
margin %
(non-IFRS)
-------------------------------------------------------------
Discontinued
Operations
Net sales 1 929 2 765 -30% 2 633 -27%
Operating profit -306 -73 -191
(non-IFRS)
Operating profit -326 -120 -198
Operating margin % -15.9% -2.6% -7.3%
(non-IFRS)
Operating margin % -16.9% -4.3% -7.5%
Net cash from -336 -292
operating activities6
-------------------------------------------------------------
Nokia Group
(continuing and
discontinued
operations)
EPS, EUR diluted -0.04 -0.02 0.03
(non-IFRS)
EPS, EUR diluted -0.06 -0.07 -0.01
(reported)
Net cash from -138 206 53
operating activities
Net cash and 2 075 4 479 -54% 2 308 -10%
other liquid assets5
-------------------------------------------------------------
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, other purchase price accounting related items and inventory
value adjustments arising from (i) the formation of Networks (formerly NSN) and
(ii) all business acquisitions completed after June 30, 2008. 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. See note 2 below for information about the exclusions
from our non-IFRS results. More information, including a reconciliation of our
Q1 2014 and Q1 2013 non-IFRS results to our reported results, can be found in
our complete Q1 2014 report with tables on pages 19-23. A reconciliation of our
Q4 2013 non-IFRS results to our reported results can be found in our complete
Q4 interim report with tables on pages 21-22 and 35-40 published on January 23,
2014.
Note 2 relating to non-IFRS exclusions/special items for continuing operations:
Q1 2014 - EUR 62 million (net) consisting of:
-- EUR 15 million restructuring charge and other associated items in Networks
-- EUR 3 million restructuring charge in HERE
-- EUR 9 million of transaction and other related costs in Corporate Common
resulting from the sale of Devices & Services business to Microsoft
-- EUR 3 million of transaction and other related costs in Technologies
resulting from the sale of Devices & Services business to Microsoft
-- EUR 6 million of transaction and other related costs in HERE resulting from
the sale of Devices & Services business to Microsoft
-- EUR 22 million of intangible asset and other purchase price accounting
related items arising from the acquisition of Motorola Solutions' networks
assets
-- EUR 3 million of intangible asset and other purchase price accounting
related items arising from the acquisition of NAVTEQ
Q4 2013 — EUR 134 million (net) consisting of:
-- EUR 95 million restructuring charge and other associated items in Networks
-- EUR 4 million restructuring charge in HERE
-- EUR 22 million of transaction and other related costs resulting from the
sale of Devices & Services business to Microsoft
-- EUR 11 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of Motorola
Solutions' networks assets
-- EUR 3 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
Q1 2013 - EUR 283 million (net) consisting of:
-- EUR 129 million restructuring charge and other associated items in
Networks, including EUR 53 million of net charges related to country and
contract exits based on the strategy that focuses on key markets and
product segments
-- EUR 5 million restructuring charge in HERE
-- EUR 64 million of intangible asset and other purchase price accounting
related items arising from the formation of Networks (formerly Nokia
Siemens Networks and Nokia Solutions and Networks) and the acquisition of
Motorola Solutions' networks assets
-- EUR 87 million of intangible asset and other purchase price accounting
related items arising from the acquisition of NAVTEQ
Note 3 relating to non-IFRS exclusions for discontinuing operations:
Q1 2014 - EUR 19 million (net) consisting of:
-- EUR 19 million of transaction and other related costs resulting from the
sale of Devices & Services business to Microsoft
Q4 2013 - EUR 7 million (net) consisting of:
-- EUR 7 million of transaction and other related costs resulting from the
sale of Devices & Services business to Microsoft
Q1 2013 - EUR 47 million (net) consisting of:
-- EUR 72 million restructuring charge
-- EUR 27 million gain on a cartel claim settlement
Note 4 relating to operational and reporting structure: We have three
businesses: Networks, HERE, and Technologies, and four operating and reportable
segments for financial reporting purposes: Mobile Broadband and Global Services
within Networks, HERE, and Technologies. We also present certain segment data
for discontinued operations. Below is a description of our four reportable
segments. Mobile Broadband provides mobile operators with radio and core
network software together with the hardware needed to deliver mobile voice and
data services. Global Services provides mobile operators with a broad range of
services, including network implementation, care, managed services, network
planning and optimization as well as systems integration. HERE focuses on the
development of location intelligence, location-based services and local
commerce. Technologies is built on Nokia's Chief Technology Office and
intellectual property rights and licensing activities. Networks also contains
Networks Other, which includes net sales and related cost of sales and
operating expenses of non-core businesses, as well as Optical Networks business
until May 6, 2013, when its divestment was completed. It also includes
restructuring and associated charges for Networks business. Additionally, as a
result of the transaction announced on September 3, 2013 and closed on April
25, 2014 whereby Nokia sold substantially all of Nokia's Devices & Services
business to Microsoft (“Sale of the D&S Business”), we report certain separate
information for Discontinued Operations. On August 7, 2013 Nokia completed the
acquisition of Siemens' stake in Nokia Siemens Networks, which was a joint
venture between Nokia and Siemens and renamed the company Nokia Solutions and
Networks, also referred to as NSN. NSN was consolidated by Nokia prior to this
transaction. After the closing of the Sale of the D&S Business, NSN was renamed
Networks. Beginning in the third quarter of 2013, Nokia has reported financial
information for the two operating and reportable segments within Networks;
Mobile Broadband and Global Services. Beginning in the fourth quarter of 2013,
the Devices & Services business has been reported as Discontinued Operations.
To reflect these changes, historical results information for past periods have
been regrouped for historical comparative purposes. As is customary, certain
judgments have been made when regrouping historical results information and
allocating items in the regrouped results. When presenting financial
information as at and related comparative information for previous periods, we
generally refer to the names of the businesses and reportable segments as they
are named currently. However, the terms “Networks” and “Nokia Solutions and
Networks, or “NSN”, as well as “Technologies” and “Advanced Technologies” can
be used interchangeably in this report.
Note 5 relating to Nokia net cash and other liquid assets: Calculated as total
cash and other liquid assets less interest-bearing liabilities. For selected
information on Nokia Group interest-bearing liabilities, please see the table
on pages 35-36 of the complete Q1 2014 report with tables.
Note 6 relating to continuing and discontinuing operations net cash from
operating activities: No comparative data available for Q4 2013. For the full
year 2013 the net cash from operations was an inflow of EUR 1 133 million for
continuing operations and an outflow of EUR 1 062 million for the discontinued
operations.
NOKIA OUTLOOK
Continuing Operations
-- Nokia continues to expect Networks' non-IFRS operating margin for the full
year 2014 to be towards the higher end of Networks' targeted long term
non-IFRS operating margin range of 5% to 10%. In addition, Nokia now
expects Networks' net sales to grow on a year-on-year basis in the second
half of 2014. This outlook is based on Nokia's expectations regarding a
number of factors, including:
-- competitive industry dynamics
-- product and regional mix;
-- the timing of major new network deployments; and
-- expected continued improvement under Networks' transformation programs.
-- Nokia expects software sales to comprise a lower proportion of Networks'
second quarter 2014 net sales compared to the first quarter 2014, which is
expected to negatively affect Networks' second quarter 2014 non-IFRS
operating margin.
-- During 2014, Nokia continues to expect HERE to invest to capture longer
term transformational growth opportunities. This is expected to negatively
affect HERE's 2014 non-IFRS operating margin.
-- Nokia continues to expect the Technologies annualized net sales run rate to
expand to approximately EUR 600 million during 2014, now that Microsoft has
become a more significant intellectual property licensee in conjunction
with the sale of substantially all of our Devices & Services business.
-- Nokia expects cash flow in the second quarter 2014 to be negatively
affected by incentive-related cash outflows related to Networks' strong
business performance in 2013.
-- On a non-IFRS basis, until a pattern of tax profitability is re-established
in Finland, Nokia continues to expect to record approximately EUR 250
million of annualized tax expense for the continuing operations. This
corresponds to the anticipated cash tax obligations for Networks, HERE and
Technologies. After a pattern of tax profitability is re-established in
Finland, Nokia expects to record tax expenses at a long term effective tax
rate of approximately 25%, however Nokia's cash tax obligations are
expected to remain at approximately EUR 250 million annually until Nokia's
currently unrecognized Finnish deferred tax assets have been fully
utilized. At the end of the first quarter Nokia had approximately EUR 2.4
billion of unrecognized Finnish deferred tax assets that would be available
against approximately EUR 11.8 billion of taxable profits. Nokia expects to
utilize approximately EUR 200 million of these unrecognized Finnish
deferred tax assets against the expected gain on sale of our Devices &
Services business to Microsoft, and thus have available EUR 2.2 billion of
unrecognized Finnish deferred tax assets after the transaction that would
be available against EUR 10.8 billion of taxable profits.
-- Nokia continues to expect full year 2014 capital expenditures for
continuing operations to be approximately EUR 200 million, primarily
attributable to Networks.
COMPLETION OF THE SALE OF SUBSTANTIALLY ALL OF THE DEVICES & SERVICES BUSINESS
TO MICROSOFT
On April 25, 2014 Nokia completed the sale of substantially all of its Devices& Services business to Microsoft.
As earlier communicated, the transaction was subject to potential purchase
price adjustments. At closing, the agreed transaction price of EUR 5.44 billion
was increased by approximately EUR 170 million as a result of the estimated
adjustments made for net working capital and cash earnings. However this
adjustment is based on an estimate which will be finalized when the final cash
earnings and net working capital numbers are available during the second
quarter 2014.
Nokia expects to book a gain on sale of approximately EUR 3.0 billion from the
transaction, of which approximately EUR 1.0 billion is expected to be taxable
income in Finland. As a result of the gain, Nokia expects to record tax
expenses of approximately EUR 180 million and to utilize approximately EUR 200
million of Nokia's unrecognized deferred tax assets in Finland.
Additionally, as is customary for transactions of this size, scale and
complexity, Nokia and Microsoft made certain adjustments to the scope of the
assets originally planned to transfer. These adjustments have no impact on the
material deal terms of the transaction and Nokia will be materially compensated
for any retained liabilities.
In India, our manufacturing facility remains part of Nokia following the
closing of the transaction. Nokia and Microsoft have entered into a service
agreement whereby Nokia would produce mobile devices for Microsoft for a
limited time. In Korea, Nokia and Microsoft agreed to exclude the Masan
facility from the scope of the transaction and Nokia is taking steps to close
the facility, which employs approximately 200 people. Altogether, and
accounting for these adjustments, Nokia transferred approximately 25 000
employees to Microsoft at the closing.
The EUR 1.5 billion convertible bonds issued by Nokia to Microsoft following
the announcement of the transaction have been redeemed and netted against the
deal proceeds by the amount of principal and accrued interest. Related to this
redemption, the accounting treatment of the equity component of the convertible
bonds negatively impacted Nokia's net cash by approximately EUR 150 million.
If the transaction to sell Microsoft substantially all of our Devices &
Services business would have closed before the end of the first quarter 2014,
Nokia would have ended the quarter with gross cash of approximately EUR 10.5
billion and net cash of approximately EUR 7.1 billion. In addition to the
proceeds from the transaction and other transaction related items, this
estimate includes approximately EUR 250 million of payments from Nokia to
Microsoft relating to the timing of platform support payments received, as part
of the previous agreement between the two companies.
This compares to reported gross cash of EUR 6.9 billion and net cash of EUR 2.1
billion at the end of the first quarter 2014.
ANNOUNCEMENT OF NEW STRATEGY, STRUCTURE AND LEADERSHIP TEAM
The completion of the transaction with Microsoft has provided Nokia with a
solid basis for future investment. It has also significantly strengthened our
financial position, supporting our target of returning to being an investment
grade company. On April 29, 2014, and shortly prior to the publication of this
Q1 2014 interim report, Nokia outlined its next steps and future plans. These
included:
-- The appointment of Rajeev Suri as President and CEO, effective May 1, 2014;
-- A vision to be a leader in technologies important in a connected world;
-- A strategy to realize that vision by building on Nokia's three strong
businesses in Networks, HERE and Technologies;
-- Plans for a EUR 5 billion program to optimize capital structure, including
the Nokia Board's proposal to the Annual General Meeting 2014 for the
dividend and for an authorization for the Board to repurchase shares; and
-- A new governance structure and the appointment of a new leadership team,
effective May 1, 2014.
More details about our announcement can be found in our stock exchange release
issued today entitled: “Nokia appoints Rajeev Suri as President and CEO and
announces new strategy, program to optimize capital structure, and leadership
team”. The release is available at http://company.nokia.com/press.
NOKIA'S ANNUAL GENERAL MEETING 2014
Nokia's Annual General Meeting 2014 is scheduled to be held on June 17, 2014.
The Nokia Board of Directors will convene the meeting and publish the notice
and related proposals later today.
FIRST QUARTER 2014 FINANCIAL AND OPERATING DISCUSSION
NOKIA'S CONTINUING OPERATIONS
See note 4 to our Summary Financial Information table above concerning our
current operational and reporting structure. The following discussion includes
information on a non-IFRS, or underlying business performance, basis. See notes
1 and 2 to our Summary Financial Information table above for information about
our underlying non-IFRS results and the non-IFRS exclusions for the periods
discussed below.
Net sales
The following table sets forth the year-on-year and sequential growth rates in
our net sales on a reported basis and at constant currency for the periods
indicated.
FIRST QUARTER 2014 NET SALES,
REPORTED & CONSTANT
CURRENCY1
-----------------------------------------------
YoY QoQ
Change Change
----------------------------------------------
Continuing operations -15% -23%
net sales - reported
Continuing operations -11 % -22%
net sales - constant currency1
Networks net sales -17% -25%
- reported
Networks net sales -13% -23%
- constant currency1
HERE net sales -3% -18%
- reported
HERE net sales -2% -18%
- constant currency1
----------------------------------------------
Note 1: Change in net sales at constant currency excludes the impact of changes
in exchange rates in comparison to the Euro, our reporting currency.
Nokia's continuing operations net sales decreased 15% year-on-year and 23%
sequentially. At constant currency Nokia's continuing operations net sales
would have decreased 11% year-on-year and 22% sequentially.
The year-on-year decrease in Nokia's continuing operations net sales in the
first quarter 2014 was primarily due to lower net sales in Networks and, to a
lesser extent, lower net sales in HERE. This was partially offset by a slight
increase in net sales in Technologies. The decrease in Networks' net sales in
the first quarter 2014 was primarily driven by lower net sales in Global
Services and the divestments of businesses not consistent with its strategic
focus, as well as the exiting of certain customer contracts and countries.
The sequential decrease in Nokia's continuing operations net sales in the first
quarter 2014 was primarily due to lower net sales in Networks and, to a lesser
extent, lower net sales in HERE. This was partially offset by a slight increase
in net sales in Technologies. The sequential decrease in net sales for Networks
and HERE in the first quarter 2014 was primarily due to typical industry
seasonality.
Gross Margin
Nokia's continuing operations gross margin in the first quarter 2014 improved
year-on-year to 45.7% compared to 39.3% in the first quarter 2013. The
year-on-year increase in Nokia's continuing operations gross margin in the
first quarter 2014 was primarily due to a higher gross margin in Networks and,
to a lesser extent, a higher gross margin in HERE. The year-on-year increase in
Networks gross margin in the first quarter 2014 was primarily due to a higher
proportion of software mainly in Japan, a higher gross margin in Global
Services related to significant efficiency improvements as a result of
Networks' transformation program, and a higher proportion of Mobile Broadband
in the overall sales mix.
Nokia's continuing operations gross margin in the first quarter increased
sequentially to 45.7%, compared to 42.5% in the fourth quarter 2013. The
sequential increase in Nokia's continuing operations gross margin in the first
quarter 2014 was primarily due to a higher gross margin in Networks and, to a
lesser extent, a higher gross margin in HERE. The sequential increase in
Networks gross margin in the first quarter 2014 was primarily due to a higher
proportion of software mainly in Japan, a higher gross margin in Global
Services related to significant efficiency improvements as a result of
Networks' transformation program, and a higher proportion of Mobile Broadband
in the overall sales mix.
Operating expenses
Nokia's continuing operations research and development expenses decreased
year-on-year in the first quarter 2014 primarily due to a decrease in research
and development expenses in HERE and Networks, primarily due to lower purchase
price accounting related expenses.
Nokia's continuing operations research and development expenses decreased
sequentially in the first quarter 2014 primarily due to a decrease in research
and development expenses in Networks and Technologies.
Nokia's continuing operations selling, general and administrative expenses
decreased year-on-year and sequentially in the first quarter 2014 primarily due
to a decrease in selling, general and administrative expenses in Networks and,
to a lesser extent, HERE and Technologies.
Non-IFRS Operating profit
Nokia's continuing operations non-IFRS operating profit increased year-on-year
in the first quarter 2014 primarily due to increases in non-IFRS operating
profit for Networks and, to a lesser extent, HERE and Technologies.
Nokia's continuing operations non-IFRS operating profit decreased sequentially
in the first quarter 2014 primarily due to decreases in non-IFRS operating
profit for Networks and, to a lesser extent, HERE, partially offset by an
increase in Technologies non-IFRS operating profit.
Nokia's non-IFRS other income and expenses was an income of EUR 11 million in
the first quarter 2014, compared to an income of EUR 24 million in the first
quarter 2013 and an expense of EUR 52 million in the fourth quarter 2013. On a
sequential basis, the change in Nokia's non-IFRS other income and expenses was
primarily due to the absence of the following factors which resulted in
elevated expense levels in the fourth quarter 2013: a non-recurring litigation
provision, a write down of a VAT receivable, an increase in doubtful account
allowances, and asset retirement charges.
Operating profit
Nokia's continuing operations operating profit increased year-on-year in the
first quarter 2014 primarily due to an increase in operating profit for
Networks and, to a lesser extent, HERE and Technologies.
Nokia's continuing operations operating profit decreased sequentially in the
first quarter 2014 primarily due to decrease in operating profit for Networks
and, to a lesser extent, HERE, partially offset by an increase in Technologies
operating profit.
Nokia's other income and expenses was an expense of EUR 3 million in the first
quarter 2014, compared to an expense of EUR 108 million in the first quarter
2013 and an expense of EUR 155 million in the fourth quarter 2013. On a
year-on-year basis Nokia's other income and expenses was a lower expense
primarily due to lower restructuring charges. On a sequential basis Nokia's
other income and expenses was a lower expense primarily due to the absence of
the following factors which resulted in elevated expense levels in the fourth
quarter 2013: a non-recurring litigation provision, a write down of a VAT
receivable, an increase in doubtful account allowances, and asset retirement
charges.
Financial income and expenses
In the first quarter 2014, Nokia's continuing operations financial income and
expenses was a net expense of EUR 74 million, compared to a net expense of EUR
111 million in the first quarter 2013 and a net expense of EUR 50 million in
the fourth quarter 2013. On a year-on-year basis, the improvement was primarily
due to lower net foreign exchange-related losses, partially offset by higher
interest expenses. On a sequential basis, the increase in net expense was
primarily due to the recognition of income related to one of our investments in
the fourth quarter of 2013, partially offset by lower net foreign
exchange-related losses.
Taxes
At the end of the first quarter 2014, Nokia's continuing operations in Finland
had approximately EUR 2.4 billion (calculated at the Finnish corporate tax rate
of 20%) of net deferred tax assets that have not been recognized in the
financial statements. A significant portion of Nokia's Finnish deferred tax
assets are indefinite in nature and available against future Finnish taxable
income. Nokia will continue to closely monitor its ability to utilize these
deferred tax assets, including assessing the future financial performance of
Nokia's continuing operations in Finland. Should the recent improvements in
Nokia's continuing operations financial results be sustained, all or part of
the unrecognized deferred tax assets may be recognized in the future.
Cash and cash flow
The following table sets forth Nokia's continuing operations financial position
at the end of the periods indicated, as well as the year-on-year and sequential
growth rates.
NOKIA'S CONTINUING
OPERATIONS FINANCIAL
POSITION
-----------------------------------------------------------------
EUR million Q1/2014 Q1/2013 YoY Q4/2013 QoQ
Change Change
----------------------------------------------------------------
----------------------------------------------------------------
Total cash 6 859 10 102 -32% 8 971 -24%
and other liquid
assets
Networks Contribution 2 870 2 753 4% 2 768 4%
----------------------------------------------------------------
Net cash and 2 075 4 479 -54% 2 308 -10%
other liquid
assets1
----------------------------------------------------------------
Networks Contribution 1 868 1 484 26% 1 678 11%
----------------------------------------------------------------
Note 1: Total cash and other liquid assets minus interest-bearing liabilities.
In the first quarter 2014, Nokia's total cash and other liquid assets decreased
by EUR 2 112 million and Nokia's net cash and other liquid assets decreased by
EUR 233 million, compared to the fourth quarter 2013. The sequential decline in
Nokia's total cash and other liquid assets was primarily due to repayment of
certain debt facilities totaling EUR 1 750 million during the first quarter
2014.
The sequential decline of EUR 233 million in Nokia's net cash and other liquid
assets in the first quarter 2014 was primarily due to cash outflows from
discontinued operations, which more than offset cash inflows from Nokia's
continuing operations. The cash inflows from Nokia's continuing operations were
primarily driven by Networks cash inflows.
In the first quarter 2014, Nokia's continuing operations adjusted net profit
was EUR 272 million. In the first quarter 2014, Nokia's continuing operations
had cash inflows of approximately EUR 50 million related to Networks other
receivables and approximately EUR 40 million related to net working capital,
which included approximately EUR 110 million of restructuring-related cash
outflows. In addition, Nokia's continuing operations had cash outflows of
approximately EUR 100 million related to taxes, approximately EUR 60 million
negative foreign exchange impact from translation of net cash and approximately
EUR 50 million related to capital expenditures. Nokia's discontinued operations
cash outflow totaled approximately EUR 380 million in the first quarter 2014.
At the end of the first quarter 2014, Networks' contribution to Nokia's total
cash and other liquid assets was approximately EUR 2.9 billion and its
contribution to Nokia's net cash and other liquid assets was approximately EUR
1.9 billion, a sequential increase of approximately EUR 102 million and EUR 190
million, respectively.
NETWORKS
The following table sets forth a summary of the results for Networks and its
reportable segments, Mobile Broadband and Global Services, for the periods
indicated, as well as the year-on-year and sequential growth rates.
NETWORKS RESULTS SUMMARY
-------------------------------------------------------------------------
EUR million Q1/2014 Q1/2013 YoY Q4/2013 QoQ Change Change
------------------------------------------------------------------------
Net sales 2 328 2 804 -17% 3 105 -25%
------------------------------------------------------------------------
Mobile Broadband 1 250 1 244 0% 1 563 -20%
net sales
------------------------------------------------------------------------
Global Services 1 069 1 423 -25% 1 540 -31%
net sales
------------------------------------------------------------------------
Non-IFRS gross 39.6% 34.0% 37.6%
margin (%)
------------------------------------------------------------------------
Non-IFRS operating -704 -762 -8% -770 -9%
expenses
------------------------------------------------------------------------
Research and -421 -463 -9% -452 -7%
development expenses
------------------------------------------------------------------------
Non-IFRS operating 216 196 10% 349 -38%
profit
------------------------------------------------------------------------
Mobile Broadband 103 129 -20% 117 -12%
non-IFRS operating profit
------------------------------------------------------------------------
Global Services non-IFRS 115 80 44% 234 -51%
operating profit
------------------------------------------------------------------------
Non-IFRS operating margin (%) 9.3% 7.0% 11.2%
------------------------------------------------------------------------
Mobile Broadband 8.2% 10.4% 7.5%
non-IFRS operating margin (%)
------------------------------------------------------------------------
Global Services non-IFRS 10.8% 5.6% 15.2%
operating margin (%)
------------------------------------------------------------------------
Net Sales
The following table sets forth Networks net sales for the periods indicated, as
well as the year-on-year and sequential growth rates, by geographic area.
NETWORKS NET SALES BY
GEOGRAPHIC AREA
------------------------------------------------------------
EUR million Q1/2014 Q1/2013 YoY Q4/2013 QoQ
Change Change
--------------------------- ---------
------------------------------------------------------------
Europe 630 731 -14% 834 -24%
Middle East & 181 259 -30% 337 -46%
Africa
Greater China 278 223 25% 424 -34%
Asia Pacific 766 872 -12% 907 -16%
North America 262 424 -38% 263 0%
Latin America 211 295 -28% 340 -38%
------------------ -------- -------
Total 2 328 2 804 -17% 3 105 -25%
------------------------------------------------------------
The year-on-year decrease of 17% in Networks net sales in the first quarter
2014 was partially due to divestments of businesses not consistent with its
strategic focus, as well as the exiting of certain customer contracts and
countries. Excluding these two factors, Networks net sales in the first quarter
2014 declined year-on-year by approximately 10% primarily due to lower net
sales in Global Services. Mobile Broadband net sales increased slightly
year-on-year. Additionally, Networks net sales were negatively affected by
foreign currency fluctuations. Excluding the negative effect of foreign
currency fluctuations and the divestments of businesses not consistent with its
strategic focus, as well as the exiting of certain customer contracts and
countries, Networks net sales would have decreased approximately 6%
year-on-year.
The year-on-year decrease of 25% in Global Services net sales in the first
quarter 2014 was primarily due to a reduction in network implementation and
maintenance activity, consistent with lower levels of large scale network
deployments, and the exiting of certain customer contracts and countries. In
the first quarter 2014, Mobile Broadband net sales benefitted from higher net
sales in core networks and LTE offset by lower net sales in other radio
technologies, resulting in a slight net sales increase year-on-year.
Additionally, Mobile Broadband net sales were adversely affected by shortages
of certain components which we expect to continue to impact our business at
least through the end of the second quarter 2014.
On a regional basis compared to the first quarter of 2013, net sales in North
America declined 38% primarily due to a cyclical slow-down in LTE roll-outs; in
Middle East and Africa, net sales declined 30% primarily due to the focus on a
specific set of countries, in Latin America net sales declined by 28% primarily
due to constrained operator spending and the exit of certain projects in line
with Networks' strategy; in Europe net sales declined by 14%, primarily due to
contract exits in line with Networks' strategy and operator spending that, on
balance, was constrained; in Asia Pacific, net sales declined 12% primarily due
to a decline from the height of the LTE network roll-outs in the first quarter
of 2013 in Korea and net sales in Greater China increased 25% primarily due to
the new TD-LTE network roll-outs.
The sequential decrease of 25% in Networks net sales in the first quarter 2014
reflects a seasonal decrease in sales in both Global Services and Mobile
Broadband. The sequential decrease in Global Services was primarily due to a
reduction in network implementation and maintenance activity. The decrease in
Mobile Broadband net sales was driven by decline in legacy radio technologies.
On a regional basis, Networks' net sales decreased sequentially primarily due
to Greater China, Middle East & Africa, Asia Pacific and Latin America.
In the first quarter 2014, Global Services represented 46% of Networks net
sales, compared to 51% in the first quarter 2013 and 50% in the fourth quarter
2013. In the first quarter 2014, Mobile Broadband represented 54% of Networks
net sales, compared to 44% in the first quarter 2013 and 50% in the fourth
quarter 2013.
At constant currency, Networks net sales would have decreased 13% year-on-year
and decreased 23% sequentially. Excluding the negative effect of foreign
currency fluctuations and the divestments of businesses not consistent with its
strategic focus, as well as the exiting of certain customer contracts and
countries, Networks net sales would have decreased 6% year-on-year and
decreased 23% sequentially.
Non-IFRS Gross Margin
On a year-on-year basis, the increase in Networks non-IFRS gross margin in the
first quarter 2014 was primarily due to a higher proportion of software sales
mainly in Japan, a higher gross margin in Global Services related to
significant efficiency improvements as a result of Networks' transformation
program, and a higher proportion of Mobile Broadband in the overall sales mix.
On a sequential basis, the increase in Networks non-IFRS gross margin in the
first quarter 2014 was primarily due to a higher proportion of software sales
mainly in Japan, and a higher proportion of Mobile Broadband in the overall
sales mix. The improved margin within Mobile Broadband was primarily due to
lower costs in connection with the technology shift to TD-LTE in China.
Non-IFRS Operating Expenses
Networks non-IFRS research and development expenses decreased 9% year-on-year
in the first quarter 2014. On a year-on-year basis, non-IFRS research and
development expenses were lower primarily due to business divestments and
reduced investments in business activities that are not consistent with
Networks' focused strategy, as well as increased research and development
efficiency, partially offset by higher investments in areas that are consistent
with Networks' focused strategy, most notably LTE. On a sequential basis,
non-IFRS research and development expenses decreased 7% primarily due to lower
accrued incentive expenses which were at an elevated level in the fourth
quarter 2013 as well as improved research and development efficiency.
On a year-on-year basis, Networks non-IFRS selling, general and administrative
expenses decreased 5% primarily due to structural cost savings from Networks'
global restructuring program. On a sequential basis, Networks non-IFRS selling,
general and administrative expenses decreased by 11% consistent with seasonally
lower net sales and lower accrued incentive expenses which were at an elevated
level in the fourth quarter 2013.
Non-IFRS Operating Profit
The year-on-year increase in Networks non-IFRS operating profit in the first
quarter 2014 was primarily due to the higher non-IFRS operating profit in
Global Services partially offset by a lower non-IFRS operating profit in Mobile
Broadband. On a year-on-year basis, the increase in Global Services non-IFRS
operating profit was primarily due to higher gross profit. On a year-on-year
basis, the decrease in Mobile Broadband non-IFRS operating profit was primarily
due to lower gross profit.
The sequential decrease in Networks non-IFRS operating profit in the first
quarter 2014 was primarily due to the lower non-IFRS operating profit in Global
Services and to a lesser degree a lower non-IFRS operating profit in Mobile
Broadband. On a sequential basis, the decrease in Global Services non-IFRS
operating profit was primarily due to seasonally lower net sales contributing
to lower gross profit partially offset by lower operating expenses. On a
sequential basis, the decrease in Mobile Broadband non-IFRS operating profit
was primarily due to seasonally lower net sales contributing to lower gross
profit partially offset by lower operating expenses.
Networks non-IFRS other income and expenses was an expense of EUR 2 million in
the first quarter 2014, compared to an income of EUR 7 million in the first
quarter 2013 and an expense of EUR 50 million in the fourth quarter 2013. On a
sequential basis Networks non-IFRS other income and expenses was a lower
expense due to the absence of the following factors which resulted in elevated
expense levels in the fourth quarter 2013: a non-recurring litigation
provision, a write down of a VAT receivable, an increase in doubtful account
allowances, and asset retirement charges.
Global Restructuring Program (announced in November 2011)
During the first quarter 2014, restructuring related charges were approximately
EUR 15 million and the related cash outflows were approximately EUR 110
million. At March 31 2014, since the commencement of the global restructuring
program, cumulative restructuring charges amounted to approximately EUR 1 850
million, and cumulative related cash outflows amounted to approximately EUR 1
350 million. We continue to estimate cumulative restructuring related charges
and related cash outflows to be approximately EUR 1 950 million and EUR 1 700
million, respectively, by the end of 2014. Changes in estimates of timing or
amounts of costs to be incurred and associated cash flows may become necessary
as the transformation and restructuring program is being completed.
At the end of the first quarter 2014, Networks had approximately 48 500
employees, a reduction of approximately 8 200 employees compared to the end of
the first quarter 2013, and a reduction of approximately 100 employees compared
to the end of the fourth quarter 2013.
HERE
The following table sets forth a summary of the results for HERE for the
periods indicated, as well as the year-on-year and sequential growth rates.
HERE RESULTS SUMMARY
-------------------------------------------------------------------------
EUR million Q1/2014 Q1/2013 YoY Q4/2013 QoQ
Change Change
------------------------------------------------------------------------
Net sales 209 216 -3% 255 -18%
------------------------------------------------------------------------
External net sales 185 163 13% 225 -18%
------------------------------------------------------------------------
Internal net sales 24 52 -54% 30 -20%
------------------------------------------------------------------------
Non-IFRS gross margin (%) 77.5% 75.5% 75.6%
------------------------------------------------------------------------
Non-IFRS operating expenses -154 -168 -8% -167 -8%
------------------------------------------------------------------------
Research and development -117 -122 -4% -120 -3%
expenses
------------------------------------------------------------------------
Non-IFRS operating profit 10 -5 25 -60%
------------------------------------------------------------------------
Non-IFRS operating margin (%) 4.8% -2.3% 9.8%
------------------------------------------------------------------------
HERE internal sales refers to sales that HERE made to our Discontinued
Operations (formerly Devices & Services business) that used certain HERE
services in its mobile devices. The internal net sales have not been eliminated
in the continuing operations consolidated income statements for all periods
presented. After the closing of the Sale of the D&S Business, HERE no longer
generates such internal sales, however it will continue to recognize deferred
revenue related to this business for up to 24 months after the closing of the
Sale of the D&S Business. As part of the Sale of the D&S Business, Microsoft
will become a strategic licensee of the HERE platform, and will separately pay
HERE for a four-year license that will be recognized ratably as external net
sales.
Net Sales
In the first quarter 2014, the year-on-year increase in external HERE net sales
was primarily due to higher sales to vehicle customers and a benefit related to
the conversion of a contract to a perpetual license. This increase was
partially offset by lower sales to personal navigation device (PND) customers
consistent with declines in the PND industry.
In the first quarter 2014, the sequential decrease in external HERE net sales
was primarily due to lower seasonal sales to PND and vehicle customers,
partially offset by a benefit related to the conversion of a contract to a
perpetual license.
In the first quarter 2014, HERE had sales of new vehicle licenses of 2.8
million units, compared to 2.2 million units in the first quarter 2013 and 3.2
million units in the fourth quarter 2013. On a year-on-year basis, unit sales
to vehicle customers increased primarily due to higher consumer uptake of
in-vehicle navigation and higher vehicle sales. On a sequential basis unit
sales to vehicle customers decreased primarily due to lower seasonal vehicle
sales.
Sales to vehicle customers represented well over 50% of external HERE net sales
in the first quarter 2014, as well as in the first quarter 2013 and the fourth
quarter 2013.
In the first quarter 2014, the year-on-year and sequential declines in internal
HERE net sales were primarily due to lower recognition of deferred revenue
related to our smartphone sales.
At constant currency HERE's overall net sales would have decreased 2%
year-on-year and 18 % sequentially.
Non-IFRS Gross Margin
On a year-on-year basis, the increase in HERE non-IFRS gross margin in the
first quarter 2014 was primarily due to a benefit related to the conversion of
a contract to a perpetual license and an overall positive mix shift towards
sales to vehicle customers.
On a sequential basis, the increase in HERE non-IFRS gross margin in the first
quarter 2014 was primarily due to a benefit related to the conversion of a
contract to a perpetual license and the absence of a non-recurring licensing
expense that negatively affected the fourth quarter 2013.
Non-IFRS Operating Expenses
HERE non-IFRS research and development expenses decreased 4% year-on-year and
3% sequentially primarily due to cost reduction actions and improvements in R&D
efficiency, such as greater use of automation in map creation. These factors
were partially offset by higher investments in targeted growth areas.
HERE non-IFRS selling, general, and administrative expenses decreased 20%
year-on-year primarily due to cost reduction actions. On a sequential basis,
selling, general, and administrative expenses decreased 21% in the first
quarter 2014, primarily due to lower seasonal marketing expenses.
Non-IFRS Operating Profit
The year-on-year increase in HERE non-IFRS operating profit in the first
quarter 2014 was primarily due to lower operating expenses.
The sequential decrease in HERE non-IFRS operating profit in the first quarter
2014 was primarily due to lower gross profit, partially offset by lower
operating expenses.
HERE non-IFRS other income and expenses was income of EUR 1 million in the
first quarter 2014, compared to approximately zero the first quarter 2013 and
the fourth quarter 2013.
TECHNOLOGIES
The following table sets forth a summary of the results for Technologies, for
the periods indicated, as well as the year-on-year and sequential growth rates.
TECHNOLOGIES RESULTS SUMMARY
---------------------------------------------------------------------
EUR million Q1/2014 Q1/2013 YoY Q4/2013 QoQ
Change Change
--------------------------------------------------------------------
Net sales 131 123 7% 121 8%
--------------------------------------------------------------------
Non-IFRS gross margin (%) 98.5% 99.2% 98.4%
--------------------------------------------------------------------
Non-IFRS operating -40 -48 -17% -37 8%
expenses
--------------------------------------------------------------------
Research and -32 -36 -11% -27 19%
development expenses
--------------------------------------------------------------------
Non-IFRS operating 86 73 18% 81 6%
profit
--------------------------------------------------------------------
Non-IFRS operating 65.6% 59.3% 66.9%
margin (%)
--------------------------------------------------------------------
Net Sales
The year-on-year increase in Technologies net sales in the first quarter 2014
was primarily due to higher intellectual property licensing income from certain
licensees primarily related to new agreements. This increase was partially
offset by the absence of an intellectual property rights divestment transaction
that benefitted net sales in the first quarter 2013 and declines in licensing
income from certain licensees that experienced lower levels of business
activity.
The sequential increase in Technologies net sales in the first quarter 2014 was
primarily due to higher intellectual property licensing income from certain
licensees primarily related to new agreements and revenue share related to
previously divested intellectual property rights, partially offset by declines
in licensing income from certain licensees that experienced lower levels of
business activity.
Non-IFRS Gross Margin
On both a year-on-year and sequential basis, Technologies non-IFRS gross margin
was stable.
Non-IFRS Operating Expenses
Technologies non-IFRS research and development expenses decreased by 11%
year-on-year and increased by 19% sequentially, primarily due to timing of
research and development projects.
Technologies non-IFRS selling, general and administrative expenses decreased
38% year-on-year and decreased by 20% sequentially, primarily due to a decline
in intellectual property licensing related litigation expenses.
Non-IFRS Operating Profit
The year-on-year increase in Technologies non-IFRS operating profit in the
first quarter 2014 was primarily due to higher gross profit and lower operating
expenses.
The sequential increase in Technologies non-IFRS operating profit in the first
quarter 2014 was primarily due to higher gross profit, partially offset by
higher operating expenses.
Technologies non-IFRS other income and expenses was an expense of EUR 2 million
in the first quarter 2014, compared to EUR 0 million in the first quarter 2013
and in the fourth quarter 2013.
DISCONTINUED OPERATIONS
The following table sets forth a summary of the results for discontinued
operations, for the periods indicated, as well as the year-on-year and
sequential growth rates.
DISCONTINUED OPERATIONS
RESULTS SUMMARY
----------------------------------------------------------------
EUR million Q1/2014 Q1/2013 YoY Q4/2013 QoQ
Change Change
---------------------------------------------------------------
Net sales 1 929 2 765 -30% 2 633 -27%
---------------------------------------------------------------
Non-IFRS gross 16.2% 21.9% 20.3%
margin (%)
---------------------------------------------------------------
Non-IFRS operating -597 -660 -10% -717 -17%
expenses
---------------------------------------------------------------
Non-IFRS operating -15.9% -2.6% -7.3%
margin (%)
---------------------------------------------------------------
Operating margin (%) -16.9% -4.3% -7.5%
---------------------------------------------------------------
Net Sales
The year-on-year and sequential declines in discontinued operations net sales
in the first quarter 2014 were primarily due to lower Mobile Phones net sales
and, to a lesser extent, lower Smart Devices net sales.
On both a year-on-year and sequential basis, our Mobile Phones net sales were
affected by competitive industry dynamics, including intense smartphone
competition at increasingly lower price points and intense competition at the
low end of our product portfolio. Our Smart Devices net sales were affected by
competitive industry dynamics including the strong momentum of competing
smartphone platforms.
On both a year-on-year and sequential basis, discontinued operations unit
volumes declined in the first quarter 2014. The year-on-year decline in
discontinued operations unit volumes was due to lower Mobile Phones unit
volumes, partially offset by higher Smart Devices unit volumes. Sequentially,
the decline in discontinued operations unit volumes was primarily due to lower
Mobile Phones unit volumes and, to a lesser extent, lower Smart Devices unit
volumes.
Discontinued operations Average Selling Price (ASP) declined on both a
year-on-year and sequential basis in the first quarter 2014. The year-on-year
and sequential declines in discontinued operations ASP were due to lower ASPs
for both Smart Devices and Mobile Phones.
Discontinued operations ended the first quarter 2014 within our normal 4 to 6
week channel inventory range.
Non-IFRS Gross Margin
The year-on-year decline in discontinued operations non-IFRS gross margin in
the first quarter 2014 was primarily due to lower Smart Devices gross margin
and, to a lesser extent, lower Mobile Phones gross margin. Compared to the
first quarter 2013, Smart Devices non-IFRS gross margin was negatively impacted
by the absence of the reversal of approximately EUR 50 million of previously
recognized inventory related allowances for our Windows Phone 7-based Lumia
products which benefitted Smart Devices non-IFRS gross margin in the first
quarter 2013 as well as approximately EUR 20 million of allowances related to
excess components in the first quarter 2014. Compared to the first quarter
2013, Mobile Phones non-IFRS gross margin in the first quarter 2014 benefitted
from lower warranty costs, mainly offset by the negative affect of
approximately EUR 40 million of allowances related to excess components.
On a sequential basis, the decline in discontinued operations non-IFRS gross
margin in the first quarter 2014 was primarily due to lower Mobile Phones gross
margin and, to a lesser extent, lower Smart Devices gross margin. On a
sequential basis, Smart Devices non-IFRS gross margin in the first quarter 2014
benefitted from the absence of approximately EUR 50 million of net allowances
related to excess component inventory, future purchase commitments and an
inventory revaluation that negatively impacted Smart Devices non-IFRS gross
margin in the fourth quarter 2013, partially offset by approximately EUR 20
million of allowances related to excess components in the first quarter 2014.
Compared to the previous quarter, Mobile Phones non-IFRS gross margin in the
first quarter 2014 benefitted from lower warranty costs, mainly offset by the
negative affect of approximately EUR 40 million of allowances related to excess
components.
Non-IFRS Operating Expenses
On both a year-on-year and sequential basis, the decline in discontinued
operations non-IFRS operating expenses in the first quarter 2014 was due to
lower operating expenses in both Mobile Phones and Smart Devices.
Non-IFRS Operating Profit
The year-on-year decline in discontinued operations non-IFRS operating profit
in the first quarter 2014 was primarily due to lower Smart Devices and Mobile
Phones non-IFRS operating profit. On a sequential basis, the decline in
discontinued operations non-IFRS operating profit in the first quarter 2014 was
due to lower Mobile Phones non-IFRS operating profit, partially offset by
higher Smart Devices non-IFRS operating profit.
Discontinued operations non-IFRS other income and expenses was an expense of
EUR 22 million in the first quarter 2014, compared to an expense of EUR 18
million in the first quarter 2013 and an expense of EUR 9 million in the fourth
quarter 2013.
Operating Profit
The year-on-year decline in discontinued operations operating profit in the
first quarter 2014 was primarily due to lower Smart Devices and Mobile Phones
operating profit. On a sequential basis, the decline in discontinued operations
operating profit in the first quarter 2014 was due to lower Mobile Phones
operating profit, partially offset by higher Smart Devices operating profit.
Discontinued operations other income and expenses was an expense of EUR 32
million in the first quarter 2014, compared to an expense of EUR 65 million in
the first quarter 2013 and an expense of EUR 15 million in the fourth quarter
2013. On a year-on-year basis discontinued operations other income and expenses
was a lower expense primarily due to lower restructuring charges.
FIRST QUARTER 2014 OPERATING HIGHLIGHTS
NOKIA Q1 OPERATING HIGHLIGHTS
-- During the first quarter, Nokia focused on making progress with respect to
obtaining the relevant regulatory approvals needed to ensure it could close
the transaction with Microsoft, which was originally announced on September
3, 2013. Since the end of the quarter, the two companies were able to
obtain the remaining approvals needed and meet customary closing conditions
in order to close the transaction on April 25, 2014.
-- During the first quarter, Nokia continued attempts to resolve the future of
its manufacturing facility in India whose transfer to Microsoft as part of
the transaction between the two companies was prevented owing to an asset
freeze relating to Nokia's ongoing tax proceedings in the country. Nokia
continues to contest the claims it believes are meritless made by the
Indian tax authorities.
NETWORKS Q1 OPERATING HIGHLIGHTS
-- Network's strong deal momentum in mobile broadband and related services
continued. During the quarter Networks was granted a five-year contract
with Vodafone for the SingleRAN and Subscriber Data Management solutions in
the operator's Project Spring network upgrade and was selected by
Everything Everywhere in the UK to support the continued expansion of its
LTE network. Networks was also selected as the sole supplier of Elisa's LTE
network in Finland. Other contracts in the quarter included VimpelCom's LTE
radio access networks in the central region of Russia, Siberia, South and
most of the Volga and Ural regions; the implementation of an LTE network
and modernization of the existing GSM and 3G networks for TELE Greenland;
the implementation of Taiwan Mobile's multi-band LTE and LTE-Advanced
network; the upgrade of Telkomsel's GSM and 3G HSPA+ network in Indonesia;
the modernization and expansion of Mobily's 2G, 3G WCDMA and TD-LTE
networks in Saudi Arabia; and LTE infrastructure for Avantel in Colombia.
At the end of the first quarter of 2014, Networks had 138 commercial LTE
contracts.
-- Networks continues to lead in 4G radio technology, demonstrating 2.6 Gbps
throughput over a single sector in Sprint's TD-LTE network. In the live
network of Optus in Australia, the operator and Networks built the world's
first ‘Gigasite' attaining an aggregate downlink capacity of 1.7 Gbps.
-- Networks announced the world's first TDD-FDD carrier aggregation
demonstration together with two South Korean operators, Korea Telecom and
SK Telecom; and together with Broadcom Corporation and Elisa in Finland the
first ever demonstration of LTE Advanced carrier aggregation on a live
commercial network.
-- Networks continues to invest in innovation and further evolved the Networks
Smart Scheduler that is now able to provide up to 30 percent faster
downlink speeds at the cell edge; and announced new Centralized RAN
software capable of doubling the uplink capacity of existing LTE networks.
Networks also demonstrated its FutureWorks 5G research concept, which
enables ultra-dense networks, a mobile network ‘on demand' for mega events,
and a self-learning network that analyzes big data in real time and
responds in an instant.
-- Networks extended its Flexi Zone small cell architecture and introduced the
Flexi Zone controller, which supports the integration of Networks
Liquid Applications
to deliver services directly from small cell base station clusters.
-- Networks announced the first telco cloud based IP Multimedia Subsystem
(IMS); launched the
Telco Cloud
Management solution for operators; and extended its Services to help
operators prepare, implement and run their own telco clouds and migrate
existing telco services to cloud-based networks.
-- Tele2 Sweden chose Networks' Serve atOnce Traffica Customer Experience
Management (CEM) solution, and Networks announced CEM for Loyalty Scores
and the CEM Umbrella Solution for a customized overview of customer
experience across an operator group's countries or regions.
-- Networks renewed the managed services contract with Saudi Telecom Company,
covering the operator's GSM, 3G and LTE network. Networks launched
Predictive Operations, the world's first managed service for predicting
mobile broadband service and network degradations; LTE Service Management
that helps ensure the quality of mobile broadband services running over LTE
networks; and Services for OTT management, which helps operators improve
the delivery of OTT content.
-- Telecommunication Development Industry Alliance (TDIA) awarded Networks'
contribution to time division (TD) technology; Networks' Liquid
Applications won a Global TD-LTE Initiative (GTI) Award in the “Innovative
Solutions” category; at the GSMA Global Mobile Awards 2014, Networks and O2
(Telefónica UK) won the top prize in the “Best Mobile Infrastructure”
category for the deployment of iSON Automation for Operations.
HERE Q1 OPERATING HIGHLIGHTS
-- During the first quarter, HERE continued to expand its reach, delivering
the latest maps, platform services and location experiences to more people
and businesses across screens and operating systems. New, renewed and
expanded partnerships with companies from various industries demonstrate
that HERE is a valued and preferred partner for maps and location
intelligence.
-- HERE introduced the HERE Maps experience with true offline maps and
integrated turn-by-turn navigation to more people and new markets on the
newly introduced Nokia X family of devices.
-- HERE made HERE Maps available to the whole Windows 8.1 ecosystem, including
tablets and desktops.
-- HERE introduced the HERE Mobile SDK for Business enabling companies and
government agencies to quickly and easily develop native location-based
applications tailored to their specific needs.
-- HERE opened up its community-editing tool Map Creator, available in more
than 100 countries, to expert communities in North America and Western
Europe, enabling them to add new roads, trails or places and updating road
or place information, to keep HERE maps up to date.
-- HERE was selected by ARS Traffic & Transport Technology to advance and
streamline the UK Highway Agency's logistics for vehicles that exceed
standard dimensions. Accurate location content from HERE will allow
haulers, police, and road and bridge authorities to plot the most efficient
route and assess the suitability of the route for the vehicle.
-- HERE and Continental announced that they will intensify their collaboration
in bringing the Connected Car to life, focusing on Electronic Horizon,
future Automated Driving functionalities and Intelligent Transportation
Systems (ITS).
-- Garmin reinforced its long term global commitment to HERE Traffic by
extending its contract by three years and expanding Automotive OEM map
update distribution relationships beyond North America and the European
Union. Additionally, Garmin switched its Places mobile search offering to
the HERE Location Platform to enhance its consumers' search experience.
-- Honda unveiled its first signature suite of connected apps called HondaLink
Navigation in Thailand and Australia. The applications are powered by
cloud-based dynamic content, traffic and Web search provided through the
HERE Platform.
-- HERE Traffic was selected to provide the Missouri Department of
Transportation with real-time traffic data. The data will be used to
analyze road conditions, track incidents or events, and distribute
travel-time information to the public in real-time.
-- HERE launched its real-time Traffic service through Mitsubishi Electric
Corporation to Mitsubishi Motors vehicles in North America, Europe, and
Russia. HERE map content and updates also have expanded to Australia and
New Zealand.
-- HERE announced that QNX Software Systems will add support for HERE Auto to
the QNX CAR Platform for Infotainment.
-- Volvo Cars launched new navigation platforms - Sensus Navigation and Sensus
Connect - that incorporate HERE Automotive Cloud connected services to
provide seamless and connected navigation to drivers. These platforms make
use of advanced navigation maps, content and services, providing innovative
navigation solutions to consumers.
-- Yahoo! integrated full venue maps powered by HERE for places like shopping
malls, travel interchanges and sports stadiums. HERE venue maps are
available for more than 75 000 buildings worldwide.
TECHNOLOGIES Q1 OPERATING HIGHLIGHTS
-- Nokia and HTC settled all pending patent litigation between them, and
entered into a patent and technology collaboration agreement. HTC is making
payments to Nokia and the collaboration involves HTC's LTE patent
portfolio, further strengthening Nokia's licensing offering. The companies
also announced that they are exploring future technology collaboration
opportunities.
DISCONTINUED OPERATIONS Q1 OPERATING HIGHLIGHTS
-- Nokia introduced five new affordable handsets, including the Nokia X, a
family of smartphones that run Android(TM) apps, Microsoft services and
signature Nokia experiences.
PERSONNEL
PERSONNEL END OF
QUARTER
--------------------------------------------------------
Q1/2014 Q1/2013 YoY Q4/2013 QoQ
Change Change
-------------------------------------------------------
Networks 48 505 56 670 -14% 48 628 0%
-------------------------------------------------------
HERE 5 936 6 030 -2% 5 741 3%
-------------------------------------------------------
Technologies 852 920 -7% 875 -3%
and
corporate
common
-------------------------------------------------------
Nokia's 55 293 63 620 -13% 55 244 0%
continuing
operations
-------------------------------------------------------
The average number of Nokia's continuing operations employees during the period
from January to March 2014 was 54 914, of which the average number of employees
at HERE and Networks was 5 839 and 48 567 respectively.
SHARES
The total number of Nokia shares on March 31, 2014, was 3 744 994 342. On March
31, 2014, Nokia and its subsidiary companies owned 31 196 362 Nokia shares,
representing approximately 0.8% of the total number of Nokia shares and the
total voting rights.
RISKS AND FORWARD-LOOKING STATEMENTS
It should be noted that Nokia and its business 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 new strategy; B)
expectations, plans or benefits related to future performance of Nokia's
continuing businesses Networks, HERE and 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) the
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) the outcome of pending and
threatened litigation, 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
announced on September 3, 2013 where Nokia sold substantially all of Nokia's
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 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 new strategy 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 continuing businesses
and correctly identify business opportunities or successfully pursue new
business opportunities; 3) our ability to execute 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 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, establish a successful location-based platform
and extend our location-based services across devices and operating systems; 8)
effects of impairments or charges to carrying values of assets, including
goodwill, or liabilities; 9) 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; 10) our Networks business'
dependence on a limited number of customers and large, multi-year contracts;
11) our ability to retain, motivate, develop and recruit appropriately skilled
employees; 12) 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; 13) 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; 14) 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 to us; 15) any inefficiency, malfunction or disruption of a system
or network that our operations rely on or any impact of a possible
cybersecurity breach; 16) our ability to reach targeted results or improvements
by managing and improving our financial performance, cost savings and
competitiveness; 17) management of Networks' customer financing exposure; 18)
the performance of the parties we partner and collaborate with, and our ability
to achieve successful collaboration or partnering arrangements; 19) 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;
20) the impact of regulatory, political or other developments on our operations
and sales in those various countries or regions where we do business; 21)
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; 22) 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; 23) the impact of unfavorable outcome of litigation,
contract related disputes or allegations of health hazards associated with our
business, as well as the risk factors specified in the most recent Nokia's
annual report on Form 20-F in 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, Helsinki - April 29, 2014
Media and Investor Contacts:
Corporate Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations Europe, tel. +358 4080 34080
Investor Relations US, tel. +1 408 663 5685
Planned publication dates for interim reports in 2014
- report for Q2 2014 and January-June 2014: July 24, 2014
- report for Q3 2014 and January-September 2014: October 23, 2014
Publication of "Nokia in 2013" and Nokia Form 20-F 2013
Nokia plans to publish its "Nokia in 2013" annual report, which includes the
audited financial statements and the Board's annual review on April 30, 2014.
Nokia plans to file its annual report on Form 20-F for 2013 with the US
Securities and Exchange Commission on April 30, 2014.
The annual reports will be available at http://company.nokia.com/financials,
where you may also access our past quarterly and annual financial reports.
Nokia's Annual General Meeting 2014
Nokia's Annual General Meeting 2014 will be held on June 17, 2014.
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