Solid financial and operational performance across the
company This is a summary of the Nokia Corporation interim
report for third quarter 2016 and January-September 2016 published
today. The complete interim report for third quarter 2016 and
January-September 2016 with tables is available at
www.nokia.com/financials. Investors should not rely on summaries of
our interim reports only, but should review the complete interim
reports with tables.
FINANCIAL HIGHLIGHTS
- Non-IFRS net sales in Q3 2016 of EUR 6.0 billion (reported: EUR
5.9 billion). In the year-ago quarter, non-IFRS net sales would
have been EUR 6.4 billion on a comparable combined company basis
(reported: EUR 3.0 billion on a Nokia stand-alone basis).
- Non-IFRS diluted EPS in Q3 2016 of EUR 0.04 (reported: EUR
negative 0.02).
Nokia's Networks business
- 12% year-on-year net sales decrease in Q3 2016. Consistent with
our outlook for the wireless infrastructure market, net sales were
weak in Mobile Networks within Ultra Broadband Networks, and
accounted for approximately 80% of the overall decrease in Nokia's
Networks business. IP Networks and Applications also contributed to
the decrease. This was partially offset by growth in Fixed Networks
within Ultra Broadband Networks.
- In Q3 2016, solid gross margin of 37.2% and operating margin of
8.1%, supported by continued strong operational performance and
cost controls.
Nokia Technologies
- 109% year-on-year net sales increase and 168% operating profit
increase in Q3 2016. Excluding the impact of non-recurring
licensing income, Nokia Technologies net sales and operating profit
both would have grown by approximately 50% year-on-year, primarily
due to higher intellectual property licensing income and, to a
lesser extent, increased net sales resulting from the acquisition
of Withings.
Group Common and Other
- 41% year-on-year net sales increase in Q3 2016, with
particularly strong growth in Alcatel Submarine Networks.
Q3 and
January-September 2016 non-IFRS results. Refer to note 1 to the
interim financial statements for further details 1,2 |
|
|
|
Combined company
histori-cals2 |
|
|
|
|
Combined company
histori-cals2 |
|
|
EUR million |
Q3'16 |
Q3'15 |
YoY
change |
Q2'16 |
QoQ
change |
Q1-
Q3'16 |
Q1-
Q3'15 |
YoY
change |
|
Net sales - constant currency (non-IFRS) |
|
|
(6)% |
|
4% |
|
|
(8)% |
|
Net sales (non-IFRS) |
5 950 |
6 395 |
(7)% |
5 676 |
5% |
17 230 |
18 887 |
(9)% |
|
Nokia's Networks business |
5 322 |
6 020 |
(12)% |
5 228 |
2% |
15 730 |
17 578 |
(11)% |
|
Ultra Broadband Networks |
3 903 |
4 469 |
(13)% |
3 807 |
3% |
11 438 |
12 999 |
(12)% |
|
IP Networks and
Applications |
1 419 |
1 552 |
(9)% |
1 421 |
0% |
4 292 |
4 579 |
(6)% |
|
Nokia Technologies |
353 |
169 |
109% |
194 |
82% |
745 |
661 |
13% |
|
Group Common and Other |
298 |
211 |
41% |
271 |
10% |
805 |
668 |
21% |
|
Gross profit (non-IFRS) |
2 365 |
2 410 |
(2)% |
2 202 |
7% |
6 771 |
7 170 |
(6)% |
|
Gross margin % (non-IFRS) |
39.7% |
37.7% |
200bps |
38.8% |
90bps |
39.3% |
38.0% |
130bps |
|
Operating profit (non-IFRS) |
556 |
682 |
(18)% |
332 |
67% |
1 233 |
1 607 |
(23)% |
|
Nokia's Networks business |
432 |
678 |
(36)% |
312 |
38% |
1 081 |
1 399 |
(23)% |
|
Ultra Broadband Networks |
326 |
478 |
(32)% |
228 |
43% |
788 |
954 |
(17)% |
|
IP Networks and
Applications |
106 |
200 |
(47)% |
84 |
26% |
293 |
445 |
(34)% |
|
Nokia Technologies |
225 |
84 |
168% |
89 |
153% |
420 |
381 |
10% |
|
Group Common and Other |
(101) |
(80) |
|
(68) |
|
(268) |
(173) |
|
|
Operating margin %
(non-IFRS) |
9.3% |
10.7% |
(140)bps |
5.8% |
350bps |
7.2% |
8.5% |
(130)bps |
|
Q3 and
January-September 2016 reported results, unless otherwise
specified. Refer to note 1 to the interim financial statements for
further details1,3 |
|
|
|
Nokia stand-alone
histori-cals3 |
|
|
|
|
Nokia stand-alone
histori-cals3 |
|
|
EUR million (except for
EPS in EUR) |
Q3'16 |
Q3'15 |
YoY
change |
Q2'16 |
QoQ
change |
Q1-Q3'16 |
Q1-
Q3'15 |
YoY
change |
|
Net Sales - constant currency |
|
|
95% |
|
5% |
|
|
91% |
|
Net sales |
5 890 |
3 036 |
94% |
5 583 |
5% |
16 972 |
8 890 |
91% |
|
Nokia's Networks business |
5 322 |
2 877 |
85% |
5 228 |
2% |
15 730 |
8 277 |
90% |
|
Ultra Broadband Networks |
3 903 |
2 548 |
53% |
3 807 |
3% |
11 438 |
7 343 |
56% |
|
IP Networks and
Applications |
1 419 |
329 |
331% |
1 421 |
0% |
4 292 |
934 |
360% |
|
Nokia Technologies |
353 |
163 |
117% |
194 |
82% |
745 |
624 |
19% |
|
Group Common and Other |
298 |
0 |
|
271 |
10% |
805 |
0 |
|
|
Non-IFRS exclusions |
(60) |
0 |
|
(93) |
|
(258) |
0 |
|
|
Gross profit |
2 216 |
1 316 |
68% |
2 028 |
9% |
5 798 |
3 843 |
51% |
|
Gross margin % |
37.6% |
43.3% |
(570)bps |
36.3% |
130bps |
34.2% |
43.2% |
(900)bps |
|
Operating profit |
55 |
333 |
(83)% |
(760) |
|
(1 417) |
1 054 |
|
|
Nokia's Networks business |
432 |
412 |
5% |
312 |
38% |
1 081 |
854 |
27% |
|
Ultra Broadband Networks |
326 |
360 |
(9)% |
228 |
43% |
788 |
805 |
(2)% |
|
IP Networks and
Applications |
106 |
52 |
104% |
84 |
26% |
293 |
49 |
498% |
|
Nokia Technologies |
225 |
89 |
153% |
89 |
153% |
420 |
383 |
10% |
|
Group Common and Other |
(101) |
(23) |
|
(68) |
|
(268) |
(14) |
|
|
Non-IFRS exclusions |
(501) |
(145) |
246% |
(1 092) |
(54)% |
(2 650) |
(168) |
1 477% |
|
Operating margin % |
0.9% |
11.0% |
(1 010) bps |
(13.6)% |
1 450 bps |
(8.3)% |
11.9% |
(2 020) bps |
|
Profit (non-IFRS) |
264 |
297 |
(11)% |
171 |
54% |
574 |
816 |
(30)% |
|
(Loss)/profit 4 |
(133) |
188 |
|
(726) |
(82)% |
(1 570) |
695 |
|
|
EPS, diluted (non-IFRS) |
0.04 |
0.08 |
(50)% |
0.03 |
33% |
0.11 |
0.21 |
(48)% |
|
EPS, diluted 4 |
(0.02) |
0.05 |
|
(0.12) |
|
(0.25) |
0.18 |
|
|
Net cash and other liquid
assets |
5
539 |
4
120 |
34% |
7
077 |
(22)% |
5
539 |
4
120 |
34% |
|
1Results
are as reported unless otherwise specified. The results information
in this report is unaudited. Non-IFRS results exclude costs related
to the Alcatel-Lucent transaction 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 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 to the financial statements
attached to this report. A reconciliation of the Q3 2015 non-IFRS
combined company results to the reported results can be found in
the "Nokia provides recast segment results for 2015 reflecting new
financial reporting structure" stock exchange release published on
April 22, 2016. 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 notes to the
financial statements attached to this report. |
|
2Combined
company historicals reflect Nokia's new operating and financial
reporting structure, including Alcatel-Lucent, and are presented as
additional information as described in the stock exchange release
published on April 22, 2016. For more information on the combined
company historicals, please refer to note 1, "Basis of
Preparation", in the notes to the financial statements attached to
this report. |
|
3Nokia
standalone historicals are the recasting of Nokia's historical
standalone financial results, reflecting Nokia's updated segment
reporting structure, excluding Alcatel-Lucent. Beginning from the
first quarter 2016, Nokia results include those of Alcatel-Lucent
on a consolidated basis. Accordingly, Nokia results beginning from
the first quarter 2016 are not directly comparable to prior period
Nokia standalone results. |
|
4Reported
Q1-Q3'16 result is not comparable to the reported results published
previously 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. Refer to note 6, "Acquisitions", in the
notes to the financial statements attached to this report for
further details. |
|
SUBSEQUENT EVENTS
New expiration date announced for Nokia's public buy-out
offer for Alcatel-Lucent securities; Squeeze-out expected to occur
on November 2, 2016
On October 4, 2016, the French stock market authority (Autorité
des marchés financiers, "AMF") announced that a legal action was
filed before the Paris Court of Appeal (the "Court") on September
30, 2016 for annulment of the AMF's clearance decision regarding
Nokia's public buy-out offer (the "Public Buy-Out Offer"), which
would be followed by a squeeze-out (the "Squeeze-Out", together
with the Public Buy-Out Offer, the "Offer"), for all remaining
securities of Alcatel-Lucent.
On October 25, 2016, the AMF announced the continuation of the
timetable of the Offer and, accordingly, the Public Buy-Out Offer
period will end on October 31, 2016 and the Squeeze-Out will be
implemented on November 2, 2016. In connection with the
continuation of the timetable, as a precautionary measure, Nokia
has agreed to certain commitments that are in force until the
decision of the Court, and in the event that the AMF's clearance
decision would be nullified or amended by the Court.
The legal challenge filed before the Court against the AMF's
clearance decision regarding the Offer is still pending and the
Court is expected to issue a decision during the first quarter of
2017. Nokia believes that the Offer complies with all applicable
laws and regulations and that the legal challenge is without
merit.
Nokia adjusts planned share repurchase program to EUR 1.0
billion, after using approximately EUR 560 million in cash to
acquire Alcatel-Lucent securities in order to reach the 95%
squeeze-out threshold
On October 29, 2015, Nokia announced a EUR 7 billion Capital
Structure Optimization Program, including EUR 1.5 billion of share
repurchases. The shareholder distributions were calculated assuming
ownership of all outstanding shares of Alcatel-Lucent and
conversion of all Nokia and Alcatel-Lucent convertible bonds.
Nokia intended to reach the 95% squeeze-out threshold through
the initial and subsequent public share exchange offers made in Q4
2015 and Q1 2016 for all outstanding Alcatel-Lucent securities.
However, as the 95% threshold was not reached through the exchange
offers, Nokia has, in addition to using its shares, used
approximately EUR 560 million in cash to acquire Alcatel-Lucent
securities in order to reach the 95% threshold. If the
Alcatel-Lucent securities that were purchased in cash by Nokia
would have instead been exchanged for Nokia shares at the 0.55
exchange ratio for Alcatel-Lucent shares or the 0.704 exchange
ratio for the relevant Alcatel-Lucent convertible bonds,
approximately 87 million more Nokia shares would have been issued.
Ultimately, including the expected cash to be used for the Public
Buy-Out Offer and Squeeze-Out of approximately EUR 630 million,
Nokia expects to use a total of approximately EUR 1.2 billion in
cash to acquire Alcatel-Lucent securities; and instead of having
approximately 6 billion Nokia shares outstanding at the end of the
transaction, Nokia now expects approximately 5.8 billion
outstanding shares.
Nokia considers the approximately EUR 560 million in cash that
was used to reach the 95% squeeze-out threshold as indirect share
repurchases, and thus, part of the planned EUR 1.5 billion share
repurchase program. Consequently, under Nokia's Capital Structure
Optimization program, Nokia has already completed EUR 560 million
of indirect share repurchases and intends to proceed with EUR 1.0
billion of share repurchases, starting after the completion of the
squeeze-out and continuing through the end of 2017.
Nokia and China Huaxin continue negotiations to create a new
joint venture combining Nokia China and Alcatel-Lucent Shanghai
Bell
Nokia and China Huaxin Post & Telecommunication Economy
Development Center ("China Huaxin") are continuing their
discussions under the memorandum of understanding, as originally
announced on August 28, 2015, to combine Nokia's telecommunications
infrastructure businesses in China ("Nokia China") and
Alcatel-Lucent Shanghai Bell into a new joint venture.
The expected time frame to reach a definitive agreement was
within nine months after completion of Nokia's proposed combination
with Alcatel-Lucent in January 2016. Due to the complexity of the
negotiations, Nokia and China Huaxin have not reached final terms
of how the new joint venture would be created. Therefore, Nokia and
China Huaxin continue negotiations to create a new joint venture
combining Nokia China and Alcatel-Lucent Shanghai Bell, while
continuing to operate under the existing interim operating
agreement.
NON-IFRS RESULTS
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 Alcatel-Lucent
transaction 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 interim 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 the changes to our
reportable segments, please refer to note 3, "Segment information
and eliminations", in the notes to the financial statements
attached to this report.
In the discussion of Nokia's results in the third quarter 2016
comparisons are given to the third quarter 2015 and second quarter
2016 results on a combined company basis, unless otherwise
indicated. This data has been prepared to reflect the financial
results of the continuing operations of Nokia as if the new
financial reporting structure had been in operation for the full
year 2015. Certain accounting policy alignments, adjustments and
reclassifications have been necessary, and these are explained in
the "Basis of preparation" section of Nokia's stock exchange
release published on April 22, 2016. These adjustments also include
reallocation of items of costs and expenses based on their nature
and changes to the definition of the line items in the combined
company accounting policies, which also affect numbers presented in
these interim financial statements for 2015.
In the discussion of Nokia's reported results for the third
quarter 2016 and January-September 2016 comparisons are given to
the third quarter 2015 and January-September 2015 Nokia standalone
historical results, which have been recast to reflect Nokia's
updated segment reporting structure excluding Alcatel-Lucent,
unless otherwise indicated. From the beginning of 2016, Nokia's
results include those of Alcatel-Lucent on a consolidated basis and
accordingly are not directly comparable to Nokia standalone
historical results.
CEO STATEMENT
Nokia delivered solid third quarter results. Nokia Technologies
led the way, with a sharp year-on-year increase in net sales,
largely driven by revenues related to the Samsung licensing
agreement that was announced in Q3. The results also reflect
another excellent quarter from Fixed Networks, which improved both
net sales and profitability from one year ago.
When we announced our second quarter results in August, we said
that we expected to see slight sequential improvement in both net
sales and operating margin in the third quarter in our Networks
business, and we delivered in both of those areas. I was
particularly pleased with our operating margin performance in the
quarter, which reflects the strong, focused execution across the
organization.
We were able to deliver these solid results despite market
conditions that are softer than expected, particularly in mobile
infrastructure. As we look forward, we expect those conditions to
stabilize somewhat in 2017, with the primary addressable market in
which Nokia competes likely to decline in the low single digits for
that year.
I believe that Nokia remains well-positioned for this
environment. Our disciplined operating model of tight cost
controls, prudent investment and focused innovation; our constant
industrialization of best practices across the company; our
structured approach to fast integration and synergy capture -- all
help give us a competitive advantage.
In addition, the power of our broad portfolio was evident in the
quarter. We have the unique scope necessary to be able to design
and deliver end-to-end networks and thus anchor ourselves in the
long-term purchasing strategies of our customers. We also have the
capability to diversify into new areas where high-performance,
end-to-end networks are increasingly required, such as for large
Internet and enterprise vertical market companies. We are seeing
good growth in these segments, and have plans to target them
further as we move forward.
While the fourth quarter is expected to be soft from a topline
perspective, I believe that we will meet our guidance for our
Networks business of significant sequential sales and operating
margin increase for Q4 and our full-year operating margin guidance
of 7% to 9%. In short, we remain on track in our execution and
focused on creating value for our customers and shareholders.
Rajeev Suri President and CEO
NOKIA IN Q3 2016 - NON-IFRS
Non-IFRS Net sales and non-IFRS operating profit
Nokia non-IFRS net sales decreased 7% year-on-year and increased
5% sequentially. On a constant currency basis, Nokia non-IFRS net
sales would have decreased 6% year-on-year and increased 4%
sequentially.
Year-on-year changes
EUR million,
non-IFRS |
Net
Sales |
%
change |
Gross
profit |
(R&D) |
(SG&A) |
Other
income and (expenses) |
Operating profit |
Change in operating margin % |
Networks business |
(699) |
(12)% |
(246) |
23 |
1 |
(24) |
(246) |
(320)bps |
Nokia Technologies |
184 |
109% |
175 |
(10) |
(23) |
0 |
142 |
1 410bps |
Group Common and Other |
87 |
41% |
26 |
(6) |
(10) |
(31) |
(21) |
400bps |
Eliminations |
(16) |
|
0 |
0 |
0 |
0 |
0 |
|
Nokia |
(444) |
(7)% |
(46) |
7 |
(32) |
(55) |
(126) |
(140)bps |
Sequential changes
EUR million,
non-IFRS |
Net
Sales |
%
change |
Gross
profit |
(R&D) |
(SG&A) |
Other
income and (expenses) |
Operating profit |
Change in operating margin % |
Networks business |
94 |
2% |
28 |
44 |
16 |
33 |
121 |
210bps |
Nokia Technologies |
160 |
82% |
154 |
(9) |
(11) |
2 |
137 |
1 780bps |
Group Common and Other |
27 |
10% |
(19) |
(4) |
(5) |
(5) |
(33) |
(880)bps |
Eliminations |
(6) |
|
0 |
0 |
0 |
0 |
0 |
|
Nokia |
274 |
5% |
163 |
31 |
0 |
30 |
224 |
350bps |
Sequentially, 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.
NOKIA IN Q3 2016 -
REPORTED
FINANCIAL DISCUSSION
Net sales
Nokia net sales increased 94% year-on-year, compared to Nokia
standalone net sales, and increased 5% sequentially. On a constant
currency basis, Nokia net sales would have increased 95%
year-on-year, compared to Nokia standalone net sales, and 5%
sequentially.
Year-on-year discussion
The year-on-year increase in Nokia net sales in the third
quarter 2016, compared to Nokia standalone net sales, was primarily
due to growth in Nokia's Networks business and Group Common and
Other, both of which primarily related to the acquisition of
Alcatel-Lucent, as well as growth in Nokia Technologies. This was
partially offset by purchase price allocation adjustment related to
the reduced valuation of deferred revenue that existed on
Alcatel-Lucent's balance sheet at the time of the acquisition.
Sequential discussion
The sequential increase in Nokia net sales in the third quarter
2016 was primarily due to growth in Nokia Technologies and Nokia's
Networks business, the positive impact related to the purchase
price allocation adjustment associated with the reduced valuation
of deferred revenue that existed on Alcatel-Lucent's balance sheet
at the time of the acquisition and growth in Group Common and
Other.
Operating profit
Year-on-year discussion
The year-on-year decrease in Nokia operating profit, compared to
Nokia standalone operating profit, was primarily due to higher
research and development ("R&D") expenses and higher selling,
general and administrative ("SG&A") expenses, partially offset
by higher gross profit, all of which related primarily to the
acquisition of Alcatel-Lucent.
The increase in gross profit was primarily due to Nokia's
Networks business and, to a lesser extent, Nokia Technologies and
Group Common and Other, partially offset by non-IFRS exclusions
related to deferred revenue.
The increase in R&D expenses was primarily due to Nokia's
Networks business, non-IFRS exclusions related to amortization of
intangible assets and, to a lesser extent, Group Common and Other
and Nokia Technologies.
The increase in SG&A expenses was primarily due to Nokia's
Networks business, non-IFRS exclusions related to amortization of
intangible assets, as well as transaction and integration related
costs and, to a lesser extent, Group Common and Other and Nokia
Technologies.
Nokia's other income and expenses was an expense of EUR 39
million in the third quarter 2016, compared to an expense of EUR 80
million in the year-ago period. The net positive fluctuation was
primarily related to non-IFRS exclusions attributable to lower
restructuring and associated charges, partially offset by the
absence of realized gains related to certain of Nokia's investments
made through its venture funds.
Sequential discussion
Nokia operating profit increased primarily due to lower
restructuring and associated charges and higher gross profit.
Sequentially, Nokia's gross profit benefitted from the absence of
an adverse effect related to a customer in Latin America undergoing
judicial recovery in Q2 2016.
The increase in gross profit was primarily due to Nokia
Technologies.
Nokia's other income and expenses was an expense of EUR 39
million in the third quarter 2016, compared to an expense of EUR
643 million in the second quarter 2016. The decrease was primarily
due to lower restructuring and associated charges. Sequentially,
Nokia's other income and expense benefitted from the absence of an
adverse effect related to a customer in Latin America undergoing
judicial recovery in Q2 2016.
Description of non-IFRS exclusions in Q3 2016
Non-IFRS exclusions consist of costs related to the
Alcatel-Lucent transaction 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, Continuing
Operations", in the notes to the financial statements attached to
this report.
|
|
Nokia standalone
historicals1 |
|
|
|
EUR million |
Q3'16 |
Q3'15 |
YoY
change |
Q2'16 |
QoQ
change |
Net sales |
(60) |
0 |
|
(93) |
(35)% |
Gross profit |
(149) |
0 |
|
(174) |
(14)% |
R&D |
(179) |
(8) |
2 138% |
(162) |
10% |
SG&A |
(145) |
(37) |
292% |
(154) |
(6)% |
Other income and expenses |
(29) |
(100) |
|
(602) |
|
Operating
profit/(loss) |
(501) |
(145) |
|
(1
092) |
(54)% |
Financial income and expenses |
(1) |
0 |
|
(3) |
(67)% |
Taxes |
105 |
35 |
200% |
200 |
(48)% |
Profit/(loss) |
(397) |
(109) |
|
(896) |
(56)% |
Profit/(loss) attributable to the shareholders
of the parent |
(378) |
(109) |
|
(862) |
(56)% |
Non-controlling interests |
(20) |
0 |
|
(34) |
(41)% |
1Nokia standalone historicals are the recasting of
Nokia's historical standalone financial results, reflecting Nokia's
updated segment reporting structure, excluding Alcatel-Lucent.
Beginning from the first quarter 2016, Nokia results include those
of Alcatel-Lucent on a consolidated basis. Accordingly, Nokia
results beginning from the first quarter 2016 are not directly
comparable to prior period Nokia standalone results. |
Net sales
In the third quarter 2016, non-IFRS exclusions in net sales
amounted to EUR 60 million, and related to purchase price
allocation adjustment related to the reduced valuation of deferred
revenue that existed on Alcatel-Lucent's balance sheet at the time
of the acquisition.
Operating profit
In the third quarter 2016, non-IFRS exclusions in operating
profit amounted to EUR 501 million, and were attributable to
non-IFRS exclusions that negatively affected gross profit, R&D,
SG&A and other income and expenses as follows:
In the third quarter 2016, non-IFRS exclusions in gross profit
amounted to EUR 149 million, and primarily due to product portfolio
integration costs related to the acquisition of Alcatel-Lucent, and
the deferred revenue.
In the third quarter 2016, non-IFRS exclusions in R&D
expenses amounted to EUR 179 million, and primarily related to the
amortization of intangible assets resulting from the acquisition of
Alcatel-Lucent and, to a lesser extent, product portfolio
integration costs related to the acquisition of Alcatel-Lucent.
In the third quarter 2016, non-IFRS exclusions in SG&A
expenses amounted to EUR 145 million, and primarily related to the
amortization of intangible assets resulting from the acquisition of
Alcatel-Lucent, as well as integration and transaction related
costs.
In the third quarter 2016, non-IFRS exclusions in other income
and expenses amounted to EUR 29 million, and primarily related to
EUR 34 million of restructuring and associated charges for Nokia's
cost reduction and efficiency improvement initiatives.
Cost savings program
The following table summarizes the financial information related
to our cost savings program, as of the end of the third quarter
2016. Balances related to previous Nokia and Alcatel-Lucent
restructuring and cost savings programs have been included as part
of this overall cost savings program.
In EUR million,
approximately |
Q3'16 |
Opening balance of restructuring and associated
liabilities |
970 |
+ Charges in the quarter |
40 |
- Cash outflows in the quarter |
200 |
= Ending balance of restructuring and
associated liabilities |
810 |
of which restructuring provisions |
780 |
of which other associated liabilities |
30 |
|
|
Total expected restructuring and associated
charges |
1 200 |
- Cumulative recorded |
640 |
= Charges remaining to be recorded |
560 |
|
|
Total expected restructuring and associated cash
outflows |
1 650 |
- Cumulative recorded |
280 |
= Cash outflows remaining to be
recorded |
1 370 |
OUTLOOK
|
Metric |
Guidance |
Commentary |
Nokia |
Annual cost savings for Nokia, excluding Nokia Technologies |
Approximately EUR 1.2 billion of total annual cost savings to be
achieved in full year 2018 |
Compared to the combined non-IFRS operating costs of Nokia and
Alcatel-Lucent for full year 2015, excluding Nokia Technologies.
Under this expanded cost savings program, restructuring and
associated charges are expected to total approximately EUR 1.2
billion, of which approximately EUR 640 million was recorded as of
Q3 2016. Related restructuring and associated cash outflows are
expected to total approximately EUR 1.65 billion, of which
approximately EUR 230 million was recorded as of Q3 2016. In
addition to the above amounts, note that Nokia's overall charges
and cash outflows will also include amounts related to network
equipment swaps. 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. |
|
FY16 Non-IFRS financial income and expense |
Expense of approximately EUR 300 million |
Primarily includes net interest expenses related to
interest-bearing liabilities, interest costs related to the defined
benefit pension and other post-employment benefit plans, as well as
the impact from changes in foreign exchange rates on certain
balance sheet items. This outlook may vary subject to changes in
the above listed items. |
|
FY16 Non-IFRS tax rate |
Approximately 40% for Q4 2016 and above 40% for full year 2016
(update) |
The increase in the non-IFRS tax rate for the combined company,
compared to Nokia on a standalone basis, is primarily attributable
to unfavorable changes in the regional profit mix as a result of
the acquisition of Alcatel-Lucent. Nokia expects its effective
long-term non-IFRS tax rate to be clearly below the full year 2016
level, and intends to provide further commentary later in 2016.
(This update adds Q4 2016 guidance to unchanged full year 2016
guidance.) |
|
FY16 Cash outflows related to taxes |
Approximately EUR 400 million |
May vary due to profit levels in different jurisdictions and the
amount of licensing income subject to withholding tax. |
|
FY16 Capital expenditures |
Approximately EUR 550 million (update) |
Primarily attributable to Nokia's Networks business. (This is an
update to the earlier outlook for EUR 650 million.) |
Nokia's Networks business |
FY16 net sales |
Decline YoY |
Combined company net sales and operating margin are
expected to be influenced by factors including: A declining capital
expenditure environment in 2016 for our overall addressable market
(this is an update to the earlier guidance commentary for a
flattish capital expenditure environment); A declining wireless
infrastructure market in 2016; Significant focus on the integration
of Alcatel-Lucent, particularly in the first half of 2016;
Significant QoQ net sales growth and operating margin expansion in
Q4 2016; Net sales declining YoY in Q4 2016 at an approximately
similar rate as in Q3 2016 (new commentary); Competitive industry
dynamics; Product and regional mix; The timing of major network
deployments; and Execution of cost savings plans. |
FY16 operating margin |
7-9% |
Nokia Technologies |
FY16 Net sales |
Not provided |
Due to risks and uncertainties in determining the timing and value
of significant licensing agreements, Nokia believes it is not
appropriate to provide an annual outlook for fiscal year 2016.
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 would be approximately EUR 800
million in early 2017. Furthermore, the contribution of the
Withings acquisition to Nokia Technologies net sales is expected to
be approximately EUR 50 million in the second half of 2016, with
strong Q4 seasonality. The contribution of the acquisition to Nokia
Technologies operating profit is expected to be slightly negative
for the second half of 2016. |
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 announced on April
15, 2015 and closed in early 2016; B) our ability to squeeze out
the remaining Alcatel Lucent shareholders in a timely manner or at
all to achieve full ownership of Alcatel Lucent; C) expectations,
plans or benefits related to our strategies and growth management;
D) expectations, plans or benefits related to future performance of
our businesses; E) expectations, plans or benefits related to
changes in our management and other leadership, operational
structure and operating model, including the expected
characteristics, business, organizational structure, management and
operations following the acquisition of Alcatel Lucent; F)
expectations regarding market developments, general economic
conditions and structural changes; G) 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; 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, as well as our expected customer reach;
J) 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 proposed public buy-out offer
followed by a squeeze-out; K) 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 L)
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) our ability to complete the purchases of the
remaining outstanding Alcatel Lucent securities and realize the
benefits of the public exchange offer for all outstanding Alcatel
Lucent securities, and the outcome of the decision by the French
Court of Appeal in relation to the clearance decision of Nokia's
proposed 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 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; 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 and 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.
The financial statements were authorized for issue by management
on October 26, 2016.
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 hold its Capital Markets Day in Barcelona on
November 15, 2016.
- Nokia plans to publish its fourth quarter and annual 2016
results on February 2, 2017.
- Nokia's Annual General Meeting 2017 is planned to be held on
May 23, 2017.
Nokia Q3 2016 Interim Report
http://hugin.info/3009/R/2051916/767888.pdf
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