Nokia CorporationStock Exchange ReleaseNovember 15, 2016 at 09:00
(CET +1)
Higher returns through focused growth: Nokia sets key
financial and strategic targets at Capital Markets Day 2016
Barcelona, Spain - Nokia today outlined its vision and strategic
priorities for ensuring sustainable growth in its core businesses
and tapping new opportunities in fast-growing markets. The company
also set key financial targets that underscore its ambition to lead
in a connected world following three years of fundamental
transformation.
President and CEO Rajeev Suri said at the company's Capital
Markets Day event in Barcelona that the pace of change at Nokia has
accelerated since the last investor event in 2014, with the company
now bigger, stronger and more agile, bolstered especially by the
acquisition of Alcatel-Lucent.
"Nokia is extremely well-positioned to win in its primary market
with communication service providers, and we aim to target superior
returns through focused growth into more attractive adjacent
markets where high-performance, end-to-end networks are
increasingly in demand," Suri said.
"We also see opportunities to renew current patent licensing
agreements at favorable terms, add new licensees in the mobile
phone area and expand licensing further into new areas such as
consumer electronics and the automotive sector. Given the appeal to
others of our innovations in Networks, virtual reality and digital
health, we are confident that we can continue to build our patent
and technology licensing business further in the coming years," he
continued.
"Simultaneously, we will remain focused on flawlessly executing
our EUR 1.2 billion cost saving program."
Nokia's new strategy builds upon its enhanced business portfolio
following the Alcatel-Lucent acquisition, and focuses on four key
priority areas:
- Lead in high-performance, end-to-end networks with
communication service providers: Use our unparalleled,
end-to-end portfolio to sustain our market and profitability
leadership.
- Expand network sales to select vertical markets needing
high-performing, secure networks: Broaden our footprint in five
select verticals: energy, transportation, public sector,
technological extra-large enterprises and webscale.
- Build a strong, standalone software business: Move
beyond our current product-attached software model and create a
software business with the margin profile of large software
companies, focused on areas including enterprise software and IoT
platforms.
- Create new business and licensing opportunities in the
consumer ecosystem: Expand successful patent licensing efforts
into areas like automotive, consumer electronics and IoT. Create
new revenue streams from technology and brand licensing, and
establish new businesses in digital media and digital
health.
"During the next two years, we aim to advance our leading
position with communications service providers, become a credible
and recognized player in our target verticals and tap growth in
software with a broader ambition to build a significant, standalone
software business. As we do this, we will continue to stick closely
to our disciplined operating model to deliver compelling financial
results that reward our shareholders," Suri said.
Long-term targets
- Nokia targets to grow net sales for Nokia's Networks business
faster over the long-term than its primary addressable market
through continued industry leadership and disciplined expansion and
diversification to adjacent markets. Nokia's primary addressable
market size is approximately EUR 113 billion in 2016, and is
expected to have a 5-year compound annual growth rate of
approximately 1%. Nokia's adjacent addressable market size is
approximately EUR 18 billion in 2016, and is expected to have a
5-year compound annual growth rate of approximately 13%.
- Nokia targets the long-term operating margin range for Nokia's
Networks business to be 10% to 15%, with all Networks business
groups expected to contribute double-digit long-term operating
margin. If the market environment and Nokia's execution are both
in-line with Nokia's expectations, Nokia expects operating margin
to be around the midpoint of this range.
- Taxes
- Nokia expects its long-term effective non-IFRS tax rate to be
approximately 30%.
- Nokia expects cash outflows related to taxes to continue at
approximately EUR 400 million annually until Nokia's deferred tax
assets have been fully utilized. The cash tax amount may vary
depending on profit levels in different jurisdictions and the
amount of license income potentially subject to withholding
tax.
- Nokia targets to maintain total cash and other liquid assets at
approximately 30% of its annual net sales over time.
Dividend
- Nokia targets to deliver an earnings-based growing dividend.
Nokia targets to grow the dividend by distributing approximately
40% to 70% of non-IFRS EPS, taking into account Nokia's cash
position and expected cash flow generation.
- For 2016, Nokia targets to propose a dividend of EUR 0.17 per
share, subject to shareholder approval in 2017.
2017 outlook for Nokia's Networks business
- Nokia expects net sales for Nokia's Networks business to
decline in line with its primary addressable market in full year
2017.
- Nokia expects operating margin for Nokia's Networks business in
full year 2017 to be in the range of 8% to 10%.
- 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 low single digit percentage decline in the primary
addressable market for Nokia's Networks business;
- Competitive industry dynamics;
- Product and regional mix;
- The timing of major network deployments; and
- Execution of cost savings and reinvestment plans, with
operating expenses down on a year-on-year basis.
2017 outlook for Nokia Technologies
- Due to risks and uncertainties in determining the timing and
value of significant licensing agreements, Nokia believes it is not
appropriate to provide an annual outlook for full year 2017. Nokia
expects annualized net sales related to patent and brand licensing
to grow to a run rate of approximately EUR 950 million by the end
of 2016. License agreements which currently contribute
approximately EUR 150 million to the annualized net sales run rate
are set to expire before the end of 2016. If we do not renew these
license agreements, nor sign any new licensing agreements, the
annualized net sales run rate for patent and brand licensing would
be approximately EUR 800 million in early 2017, with approximately
30% of the global smartphone market, by value, under license.
- 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.
Additional financial guidance
- Nokia expects its free cash flow in 2016, 2017 and 2018 to be
affected by cash outflows related to its EUR 1.2 billion cost
savings program and network equipment swaps. Consequently, Nokia's
free cash flow is expected to be clearly negative in full year
2016, slightly positive in full year 2017 and clearly positive in
full year 2018.
- Nokia's EUR 1.2 billion cost savings program
- Nokia targets approximately EUR 1.2 billion of total annual
cost savings in full year 2018 compared to the combined non-IFRS
operating costs of Nokia and Alcatel-Lucent for full year 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. The cost savings
are expected to be achieved as follows:
- approximately EUR 400 million in full year 2016 (approximately
EUR 250 million to come from operating expenses and approximately
EUR 150 million from cost of sales);
- an additional approximately EUR 400 million in full year 2017
(approximately EUR 200 million to come from operating expenses and
approximately EUR 200 million from cost of sales; and
- an additional approximately EUR 400 million in full year 2018
(approximately EUR 350 million to come from operating expenses and
approximately EUR 50 million from cost of sales).
- Under this cost savings program, restructuring and associated
charges are expected to total approximately EUR 1.7 billion, of
which approximately EUR 640 million was recorded as of Q3 2016.
Nokia expects approximately EUR 700 million of the total
restructuring and associated charges to be recorded in full year
2016, approximately EUR 800 million to be recorded in full year
2017, and approximately EUR 200 million to be recorded in full year
2018. This is an update to the earlier guidance commentary for
expected restructuring and associated charges to total
approximately EUR 1.2 billion.
- Related restructuring and associated cash outflows are expected
to total approximately EUR 2.15 billion, of which approximately EUR
280 million was recorded as of Q3 2016. Nokia expects approximately
EUR 500 million of the total restructuring and associated cash
outflows to be recorded in full year 2016, approximately EUR 700
million to be recorded in full year 2017, approximately EUR 500
million to be recorded in full year 2018, and approximately EUR 450
million of cash outflows in full year 2019 and beyond. This is an
update to the earlier guidance commentary for expected
restructuring and associated cash outflows to total approximately
EUR 1.65 billion.
- The updated guidance commentary for restructuring and
associated charges and cash outflows is primarily related to plans
to mitigate the more challenging than expected market environment
with additional transformation initiatives. These transformation
initiatives include plans to further optimize site utilization and
plans to further streamline activities that impact our cost of
sales, as well as plans to reinvest in our primary business to
maintain industry leadership and plans to reinvest to capture
growth opportunities, including in the cable access market and
targeted enterprise sectors.
- Network equipment swaps
- Nokia expects to record approximately EUR 900 million of
network equipment swaps in total. The charges and related cash
outflows are expected to be recorded as follows: approximately EUR
300 million in full year 2016, approximately EUR 300 million in
full year 2017, and approximately EUR 300 million in full year
2018. The charges related to network equipment swaps will be
recorded as non-IFRS exclusions and, therefore, will not affect
Nokia's non-IFRS operating profit.
- Financial income and expenses
- Nokia expects non-IFRS financial income and expenses to be an
expense of approximately EUR 300 million in full year 2017. This is
expected to primarily include net interest expenses related to
interest bearing liabilities, interest costs related to 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 the cash outflows related to financial income and
expenses to be approximately EUR 200 million in full year 2017.
This is expected to primarily include net interest expenses related
to interest bearing liabilities and the impact of foreign exchange
rate fluctuations on certain balance sheet items.
- Taxes
- In full year 2017 and 2018, Nokia expects its effective
non-IFRS tax rate to be between 30% and 35%. Nokia expects its
non-IFRS tax rate in full year 2017 to be at the high end of the
guidance range. Nokia expects its non-IFRS tax rate in full year
2018 to be at the low end of the guidance range.
- Nokia expects cash outflows related to taxes to be
approximately EUR 400 million in full year 2017 and 2018. The cash
tax amount may vary depending on profit levels in different
jurisdictions and the amount of license income potentially subject
to withholding tax.
- Nokia expects capital expenditures to be approximately EUR 500
million in full year 2017, primarily attributable to capital
expenditures by Nokia's Networks business.
About NokiaNokia is a global leader in creating the
technologies at the heart of our connected world. Powered by the
research and innovation of Nokia Bell Labs, we serve communications
service providers, governments, large enterprises and consumers,
with the industry's most complete, end-to-end portfolio of
products, services and licensing.
From the enabling infrastructure for 5G and the Internet of
Things, to emerging applications in virtual reality and digital
health, we are shaping the future of technology to transform the
human experience. www.nokia.com
Media Enquiries:NokiaCommunicationsTel. +358 (0) 10 448
4900Email: press.services@nokia.com
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 and cost
savings in relation to the acquisition of Alcatel Lucent announced
on April 15, 2015 and closed in early 2016; 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 our management and other leadership, operational
structure and operating model; E) expectations regarding market
developments, general economic conditions and structural changes;
F) expectations and targets regarding financial performance,
results, operating and interest 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, capital expenditures,
income and margins; G) timing of the deliveries of our products and
services; H) expectations and targets regarding collaboration and
partnering arrangements, joint-ventures or the creation of
joint-ventures, as well as our expected customer reach; I) outcome
of pending and threatened litigation, arbitration, disputes,
regulatory proceedings or investigations by authorities, including
the implications of the legal action brought against the French
stock market authority's (Autorité des marchés financiers)
clearance decision on Nokia's public buy-out offer followed by a
squeeze-out; J) expectations regarding restructurings, investments,
uses of proceeds from transactions, acquisitions and divestments
and our ability to achieve the financial and operational targets
set in connection with any such restructurings, investments,
divestments and acquisitions; and K) statements preceded by or
including "believe," "expect," "anticipate," "foresee," "sees,"
"target," "estimate," "designed," "aim," "plans," "intends,"
"focus," "continue," "project," "should," "will" or similar
expressions. These statements are based on the management's best
assumptions and beliefs in light of the information currently
available to it. Because they involve risks and uncertainties,
actual results may differ materially from the results that we
currently expect. Factors, including risks and uncertainties, that
could cause such differences include, but are not limited to: 1)
our ability to execute our strategy, sustain or improve the
operational and financial performance of our business or correctly
identify or successfully pursue business opportunities or growth;
2) our ability to achieve the anticipated business and operational
benefits and synergies from the Alcatel Lucent transaction,
including our ability to integrate Alcatel Lucent into our
operations and within the timeframe targeted, and our ability to
implement our organization and operational structure efficiently;
3) the outcome of the decision by the French Court of Appeal in
relation to the clearance decision of Nokia's public buy-out offer
and squeeze-out; 4) our dependence on general economic and market
conditions and other developments in the economies where we
operate; 5) our dependence on the development of the industries in
which we operate, including the cyclicality and variability of the
telecommunications industry; 6) our 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
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; 8) our dependence on a
limited number of customers and large multi-year agreements; 9)
Nokia Technologies' ability to maintain and establish new sources
of patent and intellectual property licensing income and
IPR-related revenues, particularly in the smartphone market; 10)
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; 11) 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; 12) our reliance on
third-party solutions for data storage and the distribution of
products and services, which expose us to risks relating to
security, regulation and cybersecurity breaches; 13) Nokia
Technologies' ability to generate net sales and profitability
through licensing of the Nokia brand, the development and sales of
products and services, as well as other business ventures which may
not materialize as planned, including in the areas of Digital
Health and Digital Media; 14) our exposure to legislative
frameworks and jurisdictions that regulate fraud, economic trade
sanctions and policies, and Alcatel Lucent's previous and current
involvement in anti-corruption allegations; 15) 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; 16) our actual or anticipated performance, among
other factors, which could reduce our ability to utilize deferred
tax assets; 17) our ability to retain, motivate, develop and
recruit appropriately skilled employees; 18) our ability to manage
our manufacturing, service creation, delivery, logistics and supply
chain processes, and the risk related to our geographically
concentrated production sites; 19) the impact of unfavorable
outcome of litigation, arbitration, agreement-related disputes or
allegations of product liability associated with our businesses;
20) exchange rate fluctuations, as well as hedging activities; 21)
inefficiencies, breaches, malfunctions or disruptions of
information technology systems; 22) our ability to optimize our
capital structure as planned, including completing intended share
repurchases, and to re-establish our investment grade credit rating
or otherwise improve our credit ratings; 23) uncertainty related to
the amount of dividends and equity return we are able to distribute
to shareholders for each financial period; 24) our ability to
achieve targeted benefits from or successfully implement planned
transactions, as well as the liabilities related thereto; 25) our
involvement in joint ventures and jointly-managed companies or
failures to create planned joint ventures; 26) performance failures
by our partners or failure to agree to partnering arrangements with
third parties; 27) our ability to manage and improve our financial
and operating performance, cost savings, competitiveness and
synergy benefits after the acquisition of Alcatel Lucent; 28)
adverse developments with respect to customer financing or extended
payment terms we provide to customers; 29) the carrying amount of
our goodwill may not be recoverable; 30) risks related to undersea
infrastructure; 31) unexpected liabilities with respect to pension
plans, insurance matters and employees; and 32) unexpected
liabilities or issues with respect to the acquisition of Alcatel
Lucent, including pension, postretirement, health and life
insurance and other employee liabilities or higher than expected
transaction costs as well as the risk factors specified on pages 69
to 87 of our annual report on Form 20-F filed on April 1, 2016
under "Operating and financial review and prospects-Risk factors",
as well as in Nokia's 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.
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