2017-07-27 07:01:11 CEST
2017-07-27 07:01:11 CEST
REGULATED INFORMATION
Nokia - Half Year financial report
Nokia Corporation Financial Report for Q2 and Half Year 2017
Nokia Corporation
Half Year Financial Report
July 27, 2017 at 08:00 (CET +1)
Nokia Corporation Financial Report for Q2 and Half Year 2017
Strong results in Nokia Technologies and solid performance in Nokia's Networks
business
This is a summary of the Nokia Corporation financial report for Q2 and half year
2017 published today. The complete financial report for Q2 and half year 2017
with tables is available at www.nokia.com/financials. Investors should not rely
on summaries of our financial reports only, but should review the complete
reports with tables.
FINANCIAL HIGHLIGHTS
* Non-IFRS net sales in Q2 2017 of EUR 5.6bn (EUR 5.7bn in Q2 2016). Reported
net sales in Q2 2017 of EUR 5.6bn (EUR 5.6bn in Q2 2016).
* Non-IFRS diluted EPS in Q2 2017 of EUR 0.08 (EUR 0.03 in Q2 2016). Reported
diluted EPS in Q2 2017 of negative EUR 0.07 (negative EUR 0.12 in Q2 2016).
Nokia's Networks business
* 5% year-on-year net sales decrease in Q2 2017, primarily due to Ultra
Broadband Networks. Within Ultra Broadband Networks, Mobile Networks
declined in Q2 following a strong Q1, while Fixed Networks declined at a
lower rate in Q2 compared to Q1. Within IP Networks and Applications,
IP/Optical Networks declined at a lower rate in Q2 compared to Q1, and
Applications & Analytics grew. Global Services net sales were approximately
flat.
* Strong Q2 2017 gross margin of 39.1% and operating margin of 8.2%, with
solid performance across Ultra Broadband Networks, Global Services and IP
Networks and Applications.
Nokia Technologies
* 90% year-on-year net sales increase in Q2 2017, primarily due to a new
license agreement in Q2 2017 and a license agreement that was expanded in Q3
2016. Approximately 40% of the EUR 175 million year-on-year increase was
non-recurring in nature and related to catch-up net sales for Q1 2017.
* 158% year-on-year operating profit increase in Q2 2017, primarily related to
higher net sales, partially offset by increased licensing-related litigation
costs and the ramp-up of our digital health business unit.
Second quarter and January-June 2017 non-IFRS results. Refer to note 1, "Basis
of Preparation", in the Financial statement information section for further
details( 1)
-------------------------------------------------------------------------------
EUR million YoY Q1- Q1- YoY
(except for EPS Q2'17 Q2'16 change Q1'17 QoQ change Q2'17 Q2'16 change
in EUR)
-------------------------------------------------------------------------------
Net sales -
constant currency (2)% 7% (4)%
(non-IFRS)
Net sales (non- 5 629 5 670 (1)% 5 388 4% 11 017 11 285 (2)%
IFRS)
Nokia's 4 971 5 222 (5)% 4 902 1% 9 873 10 415 (5)%
Networks business
Ultra Broadband 2 165 2 356 (8)% 2 236 (3)% 4 401 4 653 (5)%
Networks
Global Services 1 448 1 444 0% 1 361 6% 2 809 2 888 (3)%
IP Networks and 1 358 1 421 (4)% 1 304 4% 2 663 2 874 (7)%
Applications
Nokia 369 194 90% 247 49% 616 391 58%
Technologies
Group Common 307 270 14% 254 21% 562 506 11%
and Other
Gross profit 2 350 2 205 7% 2 196 7% 4 546 4 433 3%
(non-IFRS)
Gross margin % 41.7% 38.9% 280bps 40.8% 90bps 41.3% 39.3% 200bps
(non-IFRS)
Operating profit 574 332 73% 341 68% 915 677 35%
(non-IFRS)
Nokia's 406 313 30% 324 25% 730 650 12%
Networks business
Ultra Broadband 191 184 4% 245 (22)% 437 311 41%
Networks
Global Services 123 34 262% 55 124% 179 137 31%
IP Networks and 91 95 (4)% 23 296% 114 202 (44)%
Applications
Nokia 230 89 158% 116 98% 346 195 77%
Technologies
Group Common (62) (70) (99) (161) (169)
and Other
Operating margin 10.2% 5.9% 430bps 6.3% 390bps 8.3% 6.0% 230bps
% (non-IFRS)
Financial income
and expenses (63) (29) 117% (81) (22)% (144) (96) 50%
(non-IFRS)
Taxes (non-IFRS) (74) (135) (45)% (48) 54% (122) (275) (56)%
Profit (non-IFRS) 441 171 158% 203 117% 644 310 108%
Profit
attributable to
the equity 449 194 131% 196 129% 646 346 87%
holders of the
parent (non-IFRS)
Non-controlling
interests (non- (9) (24) (63)% 6 (2) (37) (95)%
IFRS)
EPS, EUR diluted 0.08 0.03 167% 0.03 167% 0.11 0.06 83%
(non-IFRS)
-------------------------------------------------------------------------------
Second quarter and January-June 2017 reported results. Refer to note 1, "Basis
of Preparation", in the Financial statement information section for further
details (1)
-------------------------------------------------------------------------------
EUR million YoY QoQ Q1- Q1- YoY
(except for Q2'17 Q2'16 change Q1'17 change Q2'17 Q2'16 change
EPS in EUR)
-------------------------------------------------------------------------------
Net Sales -
constant 0% 7% (2)%
currency
Net sales 5 619 5 576 1% 5 378 4% 10 996 11 088 (1)%
Nokia's
Networks 4 971 5 222 (5)% 4 902 1% 9 873 10 415 (5)%
business
Ultra
Broadband 2 165 2 356 (8)% 2 236 (3)% 4 401 4 653 (5)%
Networks
Global 1 448 1 444 0% 1 361 6% 2 809 2 888 (3)%
Services
IP Networks
and 1 358 1 421 (4)% 1 304 4% 2 663 2 874 (7)%
Applications
Nokia 369 194 90% 247 49% 616 391 58%
Technologies
Group Common 307 270 14% 254 21% 562 506 11%
and Other
Non-IFRS (11) (93) (88)% (11) 0% (21) (197) (89)%
exclusions
Gross profit 2 236 2 031 10% 2 125 5% 4 361 3 608 21%
Gross margin % 39.8% 36.4% 340bps 39.5% 30bps 39.7% 32.5% 720bps
Operating (45) (760) (94)% (127) (65)% (173) (1 472) (88)%
(loss)/profit
Nokia's
Networks 406 313 30% 324 25% 730 650 12%
business
Ultra
Broadband 191 184 4% 245 (22)% 437 311 41%
Networks
Global 123 34 262% 55 124% 179 137 31%
Services
IP Networks
and 91 95 (4)% 23 296% 114 202 (44)%
Applications
Nokia 230 89 158% 116 98% 346 195 77%
Technologies
Group Common (62) (70) (99) (161) (169)
and Other
Non-IFRS (620) (1 092) (43)% (468) 32% (1 (2 149) (49)%
exclusions 088)
Operating (0.8)% (13.6)% 1 280bps (2.4)% 160bps (1.6)% (13.3)% 1 170bps
margin %
Financial
income and (218) (32) 581% (146) 49% (364) (135) 170%
expenses
Taxes (2) (172) 65 (154) 12% (325) 166
(Loss)/Profit (433) (726) (40)% (435) 0% (868) (1 437) (40)%
(2)
(Loss)/Profit
attributable
to the equity (423) (667) (37)% (473) (11)% (896) (1 291) (31)%
holders of the
parent (2)
Non-
controlling (9) (58) (84)% 37 (124)% 28 (147)
interests (2)
EPS, EUR (0.07) (0.12) (42)% (0.08) (13)% (0.16) (0.23) (30)%
diluted (2)
Net cash and
other liquid 3 964 7 077 (44)% 4 409 (10)% 3 964 7 077 (44)%
assets
-------------------------------------------------------------------------------
(1) Results are as reported unless otherwise specified. The financial
information in this report is unaudited. Non-IFRS results exclude costs
related to the acquisition of Alcatel-Lucent and related integration, goodwill
impairment charges, intangible asset amortization and other purchase price
fair value adjustments, restructuring and associated charges and certain other
items that may not be indicative of Nokia's underlying business performance.
For details, please refer to the non-IFRS exclusions section included in
discussions of both the quarterly and year to date performance and note 2,
"Non-IFRS to reported reconciliation", in the notes in the Financial statement
information in this report. Change in net sales at constant currency excludes
the impact of changes in exchange rates in comparison to euro, our reporting
currency. For more information on currency exposures, please refer to note 1,
"Basis of Preparation", in the Financial statement information section in this
report.
(2) Reported Q1-Q2'16 result is not comparable to the previously published
Reported Q1-Q2'16 result due to an update to the Alcatel-Lucent purchase price
allocation in Q3'16 which resulted in an adjustment to the reported Q1'16
income tax benefit.
Changes in reporting structure, effective from April 1, 2017
On March 17, 2017, Nokia announced changes in its organizational structure
designed to accelerate the execution of its strategy, including strengthening
Nokia's ability to deliver strong financial performance, drive growth in
services, meet changing customer demands in mobile networks, achieve cost
savings and ongoing transformation goals, and enable strategic innovation across
Nokia's Networks business. These organizational changes included the separation
of Nokia's former Mobile Networks business group into two distinct
organizations: one focused on products and solutions, called Mobile Networks,
and the other on services, called Global Services.
As a result of these changes, Nokia has changed its financial reporting
structure for its Networks business. As of the second quarter 2017, Nokia's
Networks business is comprised of three reportable segments and five business
groups.
1. Ultra Broadband Networks, comprised of the Mobile Networks and Fixed
Networks business groups.
* The Mobile Networks business group is comprised of the products and
solutions that resided within the previous Mobile Networks business
group. As a result of the organization change, services no longer reside
under Mobile Networks. The Mobile Networks business group provides radio
networks, converged core networks and advanced mobile networks solutions
(see note 3, "Segment information", in the Financial statement
information sections in this report for additional details).
* The Fixed Networks business group provides broadband access, digital
home, access management solutions and Fixed Networks services (see note
3, "Segment information", in the Financial statement information
sections in this report for additional details).
2. Global Services, comprised of the Global Services business group.
* The Global Services business group is comprised of the services that
resided within the previous Mobile Networks business group, including
company-wide managed services. Global Services does not include the
services of Fixed Networks, IP/Optical Networks and Applications &
Analytics, which continue to reside within the respective business
groups. The Global Services business group provides network planning and
optimization, network implementation, system integration, company-wide
managed services and care (see note 3, "Segment information", in the
Financial statement information sections in this report for additional
details).
3. IP Networks and Applications, comprised of the IP/Optical Networks and
Applications & Analytics business groups.
* The IP/Optical Networks business group provides IP routing, optics and
IP/Optical Networks services (see note 3, "Segment information", in the
Financial statement information sections in this report for additional
details).
* The Applications & Analytics business group provides intelligent
software and services that help service providers build strong digital
businesses including business support systems, operational support
systems, service delivery platforms, network management, emerging
businesses, as well as the software and services offerings from the
Comptel acquisition (see note 3, "Segment information", in the Financial
statement information sections in this report for additional details).
Non-IFRS results provide meaningful supplemental information regarding
underlying business performance
In addition to information on our reported IFRS results, we provide certain
information on a non-IFRS, or underlying business performance, basis. We believe
that our non-IFRS results provide meaningful supplemental information to both
management and investors regarding Nokia's underlying business performance by
excluding the below-described items that may not be indicative of Nokia's
business operating results. These non-IFRS financial measures should not be
viewed in isolation or as substitutes to the equivalent IFRS measure(s), but
should be used in conjunction with the most directly comparable IFRS measure(s)
in the reported results.
Non-IFRS results exclude costs related to the acquisition of Alcatel-Lucent and
related integration, goodwill impairment charges, intangible asset amortization
and purchase price related items, restructuring and associated charges, and
certain other items that may not be indicative of Nokia's underlying business
performance. The non-IFRS exclusions are not allocated to the segments, and
hence they are reported only at the Nokia consolidated level.
Financial discussion
The financial discussion included in this financial report of Nokia's results
comprises the results of Nokia's businesses - Nokia's Networks business and
Nokia Technologies, as well as Group Common and Other. For more information on
our reportable segments, please refer to note 3, "Segment information", in the
Financial statement information section in this report.
CEO STATEMENT
I am proud of the entire Nokia team for delivering strong profitability in the
second quarter and group-level net sales that were close to flat year-on-year.
Underpinning this result was the excellent performance of Nokia Technologies, as
well as robust gross margins and continued topline improvement in Networks. With
the good work in the quarter, I remain confident that we will deliver on our
full-year guidance of an operating margin of 8-10% in our Networks business.
Additionally, we made further progress in executing on the four pillars of our
strategy in the second quarter. In terms of the first pillar, leading in high-
performance, end-to-end networks with communication service providers, we saw
year-on-year growth in orders in the first half of the year; continued to win
the majority of deals we pursued; and landed more large contracts in the first
half than we did during the same time period in 2016. Cross-selling also
continues to generate new opportunities for us, with several important wins in
the quarter, such as our contract to build three Dense Wavelength Division
Multiplexing networks for M1 in Singapore.
For the second pillar, expanding sales to new vertical markets, our work is
gaining further traction in terms of orders, customers and technology. We saw
double-digit growth in orders in most of the verticals we are targeting, and
added new customers at a significantly faster rate than one year ago. And, we
launched new IP routing products that will put us in a strong competitive
position with both our traditional customer base and our new target markets when
the products are available at scale next year. The early response from customers
to these new products has been excellent, with companies like BT Group and
Xiaomi already expressing their intent to purchase.
We are starting to see the results of the extensive work we have done in the
third pillar of our strategy, building a strong, stand-alone software business
at scale. Q2 sales in our Applications & Analytics business group were up
comfortably year-on-year and order momentum was strong.
In the fourth pillar of our strategy, creating new business and licensing
opportunities in the consumer ecosystem, the licensing and business partnership
agreement that we reached with Apple in the quarter was a clear highlight. You
could see the benefit of that agreement in Nokia Technologies' results, and we
look forward to continuing to expand our overall business with Apple in the
coming months. We also closed a licensing deal with Xiaomi, a milestone win with
a Chinese smartphone vendor, setting the stage for us to engage further with
other vendors in the country.
Finally, we expect our primary addressable market with communication service
providers to be slightly more challenging in 2017 than earlier forecast. We now
expect a decline in the market in the range of 3-5%, versus our earlier view of
a low-single digit decline. In addition, we continue to expect our Networks
sales to perform in line with the market.
Despite these headwinds, I believe Nokia's disciplined operating model puts us
in a strong position to succeed in conditions of all kinds and continue to
deliver solid shareholder value. In addition, we are seeing catalysts in the
United States, China and Japan that point to an acceleration of 5G and the
commencement of meaningful roll-outs in 2019.
In summary, a good second quarter, some challenges ahead this year, but also
reasons to be optimistic about Nokia's ability to deliver.
Rajeev Suri
President and CEO
NOKIA IN Q2 2017 - NON-IFRS
Non-IFRS net sales and non-IFRS operating profit
Nokia non-IFRS net sales decreased 1% year-on-year and increased 4%
sequentially. On a constant currency basis, Nokia non-IFRS net sales would have
decreased 2% year-on-year and increased 7% sequentially.
Year-on-year changes
EUR million, Net % Gross Other Operating Change in
non-IFRS sales change profit (R&D) (SG&A) income and profit operating
(expenses) margin %
-------------------------------------------------------------------------------
Networks (251) (5)% (21) 32 12 71 93 220bps
business
Nokia 175 90% 165 (3) (11) (10) 141 1 640bps
Technologies
Group Common 37 14% 2 4 10 (7) 8 570bps
and Other
Eliminations (2) 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia (41) (1)% 145 33 10 55 242 430bps
-------------------------------------------------------------------------------
On a year-on-year basis, Nokia's non-IFRS gross profit, non-IFRS other income
and expense and non-IFRS operating profit benefitted from the absence of an
adverse effect related to a customer in Latin America undergoing judicial
recovery in Q2 2016.
Sequential changes
EUR million, Net % Gross Other Operating Change in
non-IFRS Sales change profit (R&D) (SG&A) income and profit operating
(expenses) margin %
-------------------------------------------------------------------------------
Networks 69 1% 10 28 15 30 82 160bps
business
Nokia 122 49% 118 1 8 (12) 114 1 530bps
Technologies
Group Common 53 21% 27 10 3 (3) 37 1 880bps
and Other
Eliminations (3) 0 0 0 0 0
-------------------------------------------------------------------------------
Nokia 241 4% 154 39 26 15 233 390bps
-------------------------------------------------------------------------------
Non-IFRS profit attributable to the equity holders of the parent
Year-on-year changes
Profit
EUR Operating Financial Non- attributable
million, profit income and Taxes Profit controlling to the equity
non-IFRS expenses interests holders of the
parent
-------------------------------------------------------------------------------
Nokia 242 (34) 61 270 (15) 255
-------------------------------------------------------------------------------
Nokia's regional profit mix in the second quarter 2017 resulted in an unusually
low non-IFRS tax rate of 14%. The net negative fluctuation in financial income
and expenses was primarily related to foreign exchange fluctuations and lower
interest income.
Sequential changes
Profit
EUR Operating Financial Non- attributable
million, profit income and Taxes Profit controlling to the equity
non-IFRS expenses interests holders of the
parent
-------------------------------------------------------------------------------
Nokia 233 18 (26) 238 15 253
-------------------------------------------------------------------------------
On a sequential basis, Nokia's regional profit mix remained similar to the first
quarter 2017 and resulted in an unusually low non-IFRS tax rate of 14%. The net
positive fluctuation in financial income and expenses was primarily related to
gains from venture fund distributions.
NOKIA IN Q2 2017 - REPORTED
FINANCIAL DISCUSSION
Net sales
Nokia net sales increased 1% year-on-year and 4% sequentially. On a constant
currency basis, Nokia net sales would have been approximately flat year-on-year
and would have increased 7% sequentially.
Year-on-year discussion
The year-on-year increase in net sales in the second quarter 2017 was primarily
due to Nokia Technologies, lower non-IFRS exclusions related to deferred revenue
and higher net sales in Group Common and Other, partially offset by Nokia's
Networks business.
Sequential discussion
The sequential increase in Nokia net sales in the second quarter 2017 was
primarily due to Nokia Technologies, Nokia's Networks business and Group Common
and Other.
Operating profit
Year-on-year discussion
In the second quarter 2017, the decrease in operating loss was primarily due to
a net positive fluctuation in other income and expenses, higher gross profit
and, to a lesser extent, lower research and development ("R&D") and selling,
general and administrative ("SG&A") expenses. On a year-on-year basis, second
quarter 2017 results benefitted from the absence of an adverse effect related to
a customer in Latin America undergoing judicial recovery in the second quarter
2016.
The increase in gross profit was primarily due to Nokia Technologies and lower
non-IFRS exclusions related to deferred revenue. This was partially offset by
lower gross profit in Nokia's Networks business.
The decrease in R&D expenses was primarily due to Nokia's Networks business,
partially offset by higher non-IFRS exclusions related to intangible asset
amortization and purchase price related items and product portfolio strategy
costs.
The decrease in SG&A expenses was primarily due to Group Common and Other and
Nokia's Networks business, partially offset by higher SG&A expenses in Nokia
Technologies.
Nokia's other income and expenses was an expense of EUR 162 million in the
second quarter 2017, compared to an expense of EUR 636 million in the year-ago
period. The net positive fluctuation was primarily related to lower non-IFRS
exclusions attributable to lower restructuring and associated charges and, to a
lesser extent, Nokia's Networks business. On a year-on-year basis, second
quarter 2017 results benefitted from the absence of an adverse effect related to
a customer in Latin America undergoing judicial recovery in the second quarter
2016.
Sequential discussion
In the second quarter 2017, the decrease in operating loss was primarily due to
higher gross profit and lower R&D and SG&A expenses, partially offset by a net
negative fluctuation in other income and expenses.
The increase in gross profit was primarily due to Nokia Technologies and, to a
lesser extent, Group Common and Other and Nokia's Networks business. This was
partially offset by higher non-IFRS exclusions related to product portfolio
strategy costs.
The decrease in R&D expenses was primarily due to Nokia's Networks business and,
to a lesser extent, lower non-IFRS exclusions related to lower product portfolio
strategy costs and lower R&D expenses in Group Common and Other.
The decrease in SG&A expenses was primarily due to Nokia's Networks business and
Nokia Technologies, partially offset by higher non-IFRS exclusions related to
transaction and integration costs.
Nokia's other income and expenses was an expense of EUR 162 million in the
second quarter 2017, compared to an expense of EUR 69 million in the first
quarter 2017. The net negative fluctuation was primarily due to higher
restructuring and associated charges, higher product portfolio strategy costs
and Nokia Technologies. This was partially offset by Nokia's Networks business.
Profit/(Loss) attributable to the equity holders of the parent
Year-on-year discussion
In the second quarter 2017, the decrease in loss attributable to the equity
holders of the parent was primarily due to lower operating loss, partially
offset by higher taxes and a net negative fluctuation in financial income and
expenses.
The net negative fluctuation in financial income and expenses was primarily due
to non-IFRS exclusions related to Nokia's tender offer to purchase 6.50% notes
due January 15, 2028, the 6.45% notes due March 15, 2029 and the 5.375% notes
due May 15, 2019. The purpose of these transactions was to optimize Nokia's debt
maturity profile, to lower average interest expense run rate and to eliminate
subsidiary level external debt. In addition, the second quarter 2017 was
negatively affected by foreign exchange fluctuations and lower interest income.
The change in taxes from a benefit in the second quarter 2016 to an expense in
the second quarter 2017 was primarily due to a non-recurring change to uncertain
tax positions and a non-recurring tax expense related to deferred tax valuation
allowance. In the second quarter 2017, Nokia recorded a EUR 206 million tax
expense related to an uncertain tax position in Germany. The matter relates to
the disposal of the former Alcatel Lucent railway signaling business in 2006 to
Thales (see note 12, "Income Taxes" of our Annual Report for 2016). Based on new
facts and circumstances, management has reassessed the probability of having to
pay the taxes and concluded that recognition of an uncertain tax position was
warranted at the end of the second quarter 2017.
Sequential discussion
In the second quarter 2017, the decrease in loss attributable to the equity
holders of the parent was primarily due to lower operating loss and a net
positive fluctuation in non-controlling interests, partially offset by a net
negative fluctuation in financial income and expenses and higher taxes.
The net negative fluctuation in financial income and expenses was primarily due
to higher non-IFRS exclusions related to Nokia's tender offer to purchase the
6.50% notes due January 15, 2028, the 6.45% notes due March 15, 2029 and the
5.375% notes due May 15, 2019. The purpose of these transactions was to optimize
Nokia's debt maturity profile, to lower average interest expense run rate and to
eliminate subsidiary level external debt. This was partially offset by gains
related to venture fund investments.
The higher taxes were primarily due to a non-recurring change to uncertain tax
positions and a non-recurring tax expense related to deferred tax valuation
allowance, partially offset by the absence of a non-recurring tax expense
related to the integration of the former Alcatel-Lucent and Nokia operating
models. In the second quarter 2017, Nokia recorded a EUR 206 million tax expense
related to an uncertain tax position in Germany. The matter relates to the
disposal of the former Alcatel Lucent railway signaling business in 2006 to
Thales (see note 12, "Income Taxes" of our Annual Report for 2016). Based on new
facts and circumstances, management has reassessed the probability of having to
pay the taxes and concluded that recognition of an uncertain tax position was
warranted at the end of the second quarter 2017.
The net positive fluctuation in non-controlling interests was primarily related
to the absence of a non-recurring income in a partly-owned subsidiary in the
first quarter 2017.
Description of non-IFRS exclusions in Q2 2017
Non-IFRS exclusions consist of costs related to the acquisition of Alcatel-
Lucent and related integration, goodwill impairment charges, intangible asset
amortization and purchase price related items, restructuring and associated
charges, and certain other items that may not be indicative of Nokia's
underlying business performance. For additional details, please refer to note
2, "Non-IFRS to reported reconciliation", in the Financial statement information
section in this report.
EUR million Q2'17 Q2'16 YoY change Q1'17 QoQ change
-------------------------------------------------------------------------------
Net sales (11) (93) (88)% (11) 0%
Gross profit (114) (174) (34)% (71) 61%
R&D (173) (162) 7% (184) (6)%
SG&A (151) (154) (2)% (138) 9%
Other income and expenses (182) (602) (70)% (74) 146%
Operating (loss)/profit (620) (1 092) (43)% (468) 32%
-------------------------------------------------------------------------------
Financial income and expenses (156) (3) 5 100% (64) 144%
Taxes (98) 200 (106) (8)%
(Loss)/Profit (873) (896) (3)% (638) 37%
(Loss)/Profit attributable to the (873) (862) 1% (669) 30%
shareholders of the parent
Non-controlling interests (1) (34) (97)% 31
-------------------------------------------------------------------------------
Non-IFRS exclusions in net sales
In the second quarter 2017, non-IFRS exclusions in net sales amounted to EUR 11
million, and related to a purchase price allocation adjustment related to a
reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance
sheet at the time of the acquisition.
Non-IFRS exclusions in operating profit
In the second quarter 2017, non-IFRS exclusions in operating profit amounted to
EUR 620 million, and were primarily due to non-IFRS exclusions that negatively
affected gross profit, R&D, SG&A and other income and expenses as follows:
In the second quarter 2017, non-IFRS exclusions in gross profit amounted to EUR
114 million, and were primarily due to product portfolio strategy costs related
to the acquisition of Alcatel-Lucent, and the deferred revenue.
In the second quarter 2017, non-IFRS exclusions in R&D expenses amounted to EUR
173 million, and were primarily due to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent and, to a lesser extent,
product portfolio strategy costs related to the acquisition of Alcatel-Lucent.
In the second quarter 2017, non-IFRS exclusions in SG&A expenses amounted to EUR
151 million, and were primarily due to the amortization of intangible assets
resulting from the acquisition of Alcatel-Lucent and integration and transaction
related costs.
In the second quarter 2017, non-IFRS exclusions in other income and expenses
amounted to EUR 182 million, and were primarily due to restructuring and
associated charges for Nokia's cost reduction and efficiency improvement
initiatives and, to a lesser extent, product portfolio strategy costs.
Non-IFRS exclusions in profit/(loss) attributable to the equity holders of the
parent
In the second quarter 2017, non-IFRS exclusions in profit/(loss) attributable to
the equity holders of the parent amounted to EUR 873 million, and were primarily
due to the non-IFRS exclusions affecting operating profit, in addition to non-
IFRS exclusions that negatively affected financial income and expenses and taxes
as follows:
In the second quarter 2017, non-IFRS exclusions in financial income and expenses
amounted to EUR 156 million, and related to Nokia's tender offer to purchase the
6.50% notes due January 15, 2028, the 6.45% notes due March 15, 2029 and the
5.375% notes due May 15, 2019.
In the second quarter 2017, non-IFRS exclusions in taxes amounted to EUR 98
million, and were primarily due to a non-recurring change to uncertain tax
positions and a non-recurring tax expense related to deferred tax valuation
allowance. This was partially offset by a tax benefit of EUR 184 million related
to non-IFRS exclusions in operating profit and financial income and expenses.
Cost savings program
The following table summarizes the financial information related to our cost
savings program, as of the end of the second quarter 2017. Balances related to
previous Nokia and Alcatel-Lucent restructuring and cost savings programs have
been included as part of this overall cost savings program as of the second
quarter 2016.
In EUR million, approximately Q2'17
--------------------------------------------------------------------
Opening balance of restructuring and associated liabilities 720
+ Charges in the quarter 170
- Cash outflows in the quarter 140
= Ending balance of restructuring and associated liabilities 750
of which restructuring provisions 670
of which other associated liabilities 80
Total expected restructuring and associated charges 1 700
- Cumulative recorded 1 000
= Charges remaining to be recorded 700
Total expected restructuring and associated cash outflows 2 150
- Cumulative recorded 700
= Cash outflows remaining to be recorded 1 450
The following table summarizes our full year 2016 results and future
expectations related to our cost savings program and network equipment swaps.
|Actual| Expected amounts for
| | | | |
In EUR million,| | | | FY 2019 and |
approximately | | FY 2017 | FY 2018 | beyond | Total
rounded to the | 2016 |as of the end|as of the end|as of the end|as of the end
nearest EUR 50 | | of | of | of | of
million | | | | |
| | | | |
| |Q1'17 Q2'17|Q1'17 Q2'17|Q1'17 Q2'17|Q1'17 Q2'17
----------------+------+-------------+-------------+-------------+-------------
Total cost | 550| 250 250| 400 400| 0 0|1 200 1 200
savings | | | | |
| | | | |
- operating | 350| 100 100| 350 350| 0 0| 800 800
expenses | | | | |
| | | | |
- cost of | 200| 150 150| 50 50| 0 0| 400 400
sales | | | | |
| | | | |
Restructuring | | | | |
and associated | 750| 750 750| 200 200| 0 0|1 700 1 700
charges | | | | |
| | | | |
Restructuring | | | | |
and associated | 400| 750 750| 550 550| 450 450|2 150 2 150
cash outflows | | | | |
| | | | |
Charges and | | | | |
cash outflows | | | | |
related to | 150| 450 450| 300 300| 0 0| 900 900
network | | | | |
equipment swaps| | | | |
In full year 2016, the actual total cost savings benefitted from lower incentive
accruals, related to the financial performance in full year 2016. Lower
incentive accruals drove more than half of the higher than previously expected
decrease in total costs in 2016, and this is expected to reverse in 2017,
assuming full year 2017 financial performance in-line with our expectations. On
a cumulative basis, Nokia continues to be on track to achieve the targeted EUR
1.2 billion of total cost savings in full year 2018.
OUTLOOK
Metric Guidance Commentary
-------------------------------------------------------------------------------
Nokia Annual cost Approximately EUR Compared to the
savings for 1.2 billion of combined non-IFRS
Nokia, excluding total annual cost operating costs of
Nokia savings to be Nokia and Alcatel-
Technologies achieved in full Lucent for full year
year 2018(1) 2015, excluding Nokia
Technologies. Nokia
expects approximately
EUR 800 million of the
cost savings to come
from operating expenses
and approximately EUR
400 million from cost
of sales.
Restructuring and
associated charges are
expected to total
approximately EUR 1.7
billion. Restructuring
and associated cash
outflows are expected
to total approximately
EUR 2.15 billion.
-------------------------------------------------------------
Network equipment Approximately EUR The charges related to
swaps 900 million in network equipment swaps
total(1) are being recorded as
non-IFRS exclusions,
and therefore do not
affect Nokia's non-IFRS
operating profit.
-------------------------------------------------------------
Non-IFRS Expense of Primarily includes net
financial income approximately EUR interest expenses
and expenses 250 million in related to interest-
full year 2017 bearing liabilities and
defined benefit pension
and other post-
employment benefit
plans, as well as the
impact of foreign
exchange rate
fluctuations on certain
balance sheet items.
Nokia expects cash
outflows related to
non-IFRS financial
income and expenses to
be approximately EUR
200 million in full
year 2017.
-------------------------------------------------------------
Non-IFRS tax rate Between 25% and Nokia's non-IFRS tax
30% for full year rate in full year 2017
2017 is expected to be
influenced by factors
(update) including regional
profit mix (new
commentary).
(This is an update to
earlier guidance and
commentary for non-IFRS
tax rate for full year
2017 to be around the
midpoint of a 30% to
35% range.)
Nokia expects cash
outflows related to
taxes to be
approximately EUR 800
million for full year
2017.
(This is an update to
the earlier commentary
for cash outflows
related to taxes to be
approximately EUR 600
million for full year
2017. The update is due
to a non-recurring tax
item.(2))
-------------------------------------------------------------
Capital Approximately EUR Primarily attributable
expenditures 500 million in to Nokia's Networks
full year 2017 business.
-------------------------------------------------------------------------------
Nokia's Networks Net sales Decline in line We currently expect
business with the primary market conditions for
addressable market 2017 to be slightly
in full year 2017 more challenging than
--------------------------------------earlier anticipated
Operating margin 8-10% in full year (new commentary).
2017 Nokia's outlook for net
sales and operating
margin for Nokia's
Networks business in
full year 2017 are
expected to be
influenced by factors
including:
* A 3 to 5 percent
decline in the
primary addressable
market for Nokia's
Networks business
(This is an update
to earlier
commentary for a
low single digit
percentage
decline.);
* Uncertainty related
to the timing of
completions and
acceptances of
certain projects,
particularly in the
second half of
2017 (new
commentary);
* Competitive
industry dynamics;
* Product and
regional mix;
* The timing of major
network
deployments;
* Execution of cost
savings and
reinvestment plans,
with operating
expenses down on a
year-on-year basis;
and
* The level of R&D
investment needed
to maintain product
competitiveness and
accelerate 5G (new
commentary);
The outlook for Nokia's
Networks business is
provided assuming
constant foreign
exchange rates.
-------------------------------------------------------------------------------
Nokia Net sales Not provided Due to risks and
Technologies uncertainties in
determining the timing
and value of
significant licensing
agreements, Nokia
believes it is not
appropriate to provide
an annual outlook for
full year 2017.
For patent and brand
licensing, Nokia is now
disclosing net sales on
a quarterly basis,
rather than providing
an annualized net sales
run rate.
Nokia expects total net
sales from digital
health and digital
media to grow year-on-
year in full year
2017, primarily
influenced by increased
consumer adoption of
our digital health and
digital media products.
-------------------------------------------------------------------------------
(1)For further details related to the cost savings and network equipment swaps
guidance, please refer to the "Cost savings program" section above.
(2)For further details related to the non-recurring tax item, please refer to
the "Nokia in Q2 2017 - Reported" section above.
RISKS AND FORWARD-LOOKING STATEMENTS
It should be noted that Nokia and its businesses are exposed to various risks
and uncertainties and certain statements herein that are not historical facts
are forward-looking statements, including, without limitation, those regarding:
A) our ability to integrate Alcatel-Lucent into our operations and achieve the
targeted business plans and benefits, including targeted synergies in relation
to the acquisition of Alcatel-Lucent; B) expectations, plans or benefits related
to our strategies and growth management; C) expectations, plans or benefits
related to future performance of our businesses; D) expectations, plans or
benefits related to changes in organizational and operational structure; E)
expectations regarding market developments, general economic conditions and
structural changes; F) expectations and targets regarding financial performance,
results, operating expenses, taxes, currency exchange rates, hedging, cost
savings and competitiveness, as well as results of operations including targeted
synergies and those related to market share, prices, net sales, income and
margins; G) expectations, plans or benefits related to any future collaboration
or to the business collaboration agreement and the patent license agreement
between Nokia and Apple announced on May 23, 2017, including income to be
received under any collaboration or partnership or agreement; H) timing of the
deliveries of our products and services; I) expectations and targets regarding
collaboration and partnering arrangements, joint ventures or the creation of
joint ventures, and the related administrative, legal, regulatory and other
conditions, as well as our expected customer reach; J) outcome of pending and
threatened litigation, arbitration, disputes, regulatory proceedings or
investigations by authorities; K) expectations regarding restructurings,
investments, capital structure optimization efforts, uses of proceeds from
transactions, acquisitions and divestments and our ability to achieve the
financial and operational targets set in connection with any such
restructurings, investments, capital structure optimization efforts, divestments
and acquisitions; and L) statements preceded by or including "believe,"
"expect," "anticipate," "foresee," "sees," "target," "estimate," "designed,"
"aim," "plans," "intends," "focus," "continue," "project," "should," "is to,"
"will" or similar expressions. These statements are based on management's best
assumptions and beliefs in light of the information currently available to it.
Because they involve risks and uncertainties, actual results may differ
materially from the results that we currently expect. Factors, including risks
and uncertainties that could cause these differences include, but are not
limited to: 1) our ability to execute our strategy, sustain or improve the
operational and financial performance of our business and correctly identify and
successfully pursue business opportunities or growth; 2) our ability to achieve
the anticipated benefits, synergies, cost savings and efficiencies of the
acquisition of Alcatel-Lucent, and our ability to implement our organizational
and operational structure efficiently; 3) general economic and market conditions
and other developments in the economies where we operate; 4) competition and our
ability to effectively and profitably compete and invest in new competitive
high-quality products, services, upgrades and technologies and bring them to
market in a timely manner; 5) our dependence on the development of the
industries in which we operate, including the cyclicality and variability of the
information technology and telecommunications industries; 6) our global business
and exposure to regulatory, political or other developments in various countries
or regions, including emerging markets and the associated risks in relation to
tax matters and exchange controls, among others; 7) our ability to manage and
improve our financial and operating performance, cost savings, competitiveness
and synergies generally or after the acquisition of Alcatel-Lucent; 8) our
dependence on a limited number of customers and large multi-year agreements; 9)
exchange rate fluctuations, as well as hedging activities; 10) Nokia
Technologies' ability to protect its IPR and to maintain and establish new
sources of patent licensing income and IPR-related revenues, particularly in the
smartphone market; 11) our ability to successfully realize the expectations,
plans or benefits related to any future collaboration or to the business
collaboration agreement and the patent license agreement between Nokia and Apple
announced on May 23, 2017, including income to be received under any
collaboration or partnership or agreement; 12) our dependence on IPR
technologies, including those that we have developed and those that are licensed
to us, and the risk of associated IPR-related legal claims, licensing costs and
restrictions on use; 13) our exposure to direct and indirect regulation,
including economic or trade policies, and the reliability of our governance,
internal controls and compliance processes to prevent regulatory penalties in
our business or in our joint ventures; 14) our ability to identify and remediate
material weaknesses in our internal control over financial reporting; 15) our
reliance on third-party solutions for data storage and service distribution,
which expose us to risks relating to security, regulation and cybersecurity
breaches; 16) inefficiencies, breaches, malfunctions or disruptions of
information technology systems; 17) Nokia Technologies' ability to generate net
sales and profitability through licensing of the Nokia brand, particularly in
digital media and digital health, and the development and sales of products and
services, as well as other business ventures which may not materialize as
planned; 18) our exposure to various legislative frameworks and jurisdictions
that regulate fraud and enforce economic trade sanctions and policies, and the
possibility of proceedings or investigations that result in fines, penalties or
sanctions; 19) adverse developments with respect to customer financing or
extended payment terms we provide to customers; 20) the potential complex tax
issues, tax disputes and tax obligations we may face in various jurisdictions,
including the risk of obligations to pay additional taxes; 21) our actual or
anticipated performance, among other factors, which could reduce our ability to
utilize deferred tax assets; 22) our ability to retain, motivate, develop and
recruit appropriately skilled employees; 23) disruptions to our manufacturing,
service creation, delivery, logistics and supply chain processes, and the risks
related to our geographically-concentrated production sites; 24) the impact of
litigation, arbitration, agreement-related disputes or product liability
allegations associated with our business; 25) our ability to optimize our
capital structure as planned and re-establish our investment grade credit rating
or otherwise improve our credit ratings; 26) our ability to achieve targeted
benefits from or successfully achieve the required administrative, legal,
regulatory and other conditions and implement planned transactions, as well as
the liabilities related thereto; 27) our involvement in joint ventures and
jointly-managed companies; 28) the carrying amount of our goodwill may not be
recoverable; 29) uncertainty related to the amount of dividends and equity
return we are able to distribute to shareholders for each financial period; 30)
pension costs, employee fund-related costs, and healthcare costs; and 31) risks
related to undersea infrastructure, as well as the risk factors specified on
pages 67 to 85 of our 2016 annual report on Form 20-F under "Operating and
financial review and prospects-Risk factors" and in our other filings with the
U.S. Securities and Exchange Commission. Other unknown or unpredictable factors
or underlying assumptions subsequently proven to be incorrect could cause actual
results to differ materially from those in the forward-looking statements. We do
not undertake any obligation to publicly update or revise forward-looking
statements, whether as a result of new information, future events or otherwise,
except to the extent legally required.
The financial report was authorized for issue by management on July 26, 2017.
MEDIA AND INVESTOR CONTACTS:
Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations, tel. +358 4080 3 4080 email: investor.relations@nokia.com
* Nokia plans to publish its third quarter 2017 results on October 26, 2017.
[]
© 2024 Nasdaq, Inc. All Rights Reserved |