This is a summary of the Nokia Corporation interim report for first
quarter 2016 published today. The complete interim report for first
quarter 2016 with tables is available at
http://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 Q1 2016 of EUR 5.6 billion. In the
year-ago quarter, non-IFRS net sales would have been EUR 6.1
billion on a comparable combined company basis.
- Non-IFRS diluted EPS in Q1 2016 of EUR 0.03. Q1 2016 reflected
the acquisition of Alcatel-Lucent, which resulted in a higher share
count, as well as higher non-IFRS tax expenses due to unfavorable
changes in the regional profit mix. Note that Nokia's Q1 2016
non-IFRS diluted EPS was reported as a combined company, whereas
the Q1 2015 non-IFRS diluted EPS of EUR 0.05 was reported on a
Nokia stand-alone basis.
- In Q1 2016, the net cash and other liquid assets of the
combined company increased by EUR 471 million, to EUR 8.2 billion,
compared to Nokia on a standalone basis at the end of Q4 2015,
primarily due to the acquisition of Alcatel-Lucent, partially
offset by cash outflows related to working capital.
Nokia's Networks
business
- 8% year-on-year net sales decrease in Q1 2016. Our performance
was primarily due to Ultra Broadband Networks, which declined 12%
year-on-year and 27% sequentially, consistent with our outlook for
a greater than normal seasonal decline in the wireless
infrastructure market in Q1 2016. IP Networks and Applications grew
on a year-on-year basis.
- Strong non-IFRS gross margin of 38.3% in Q1 2016 primarily due
to improved product mix in Ultra Broadband Networks (led by Mobile
Networks) and IP Networks and Applications (led by IP/Optical
Networks), as well as efficiency gains.
- Non-IFRS operating margin of 6.5% in Q1 2016. The year-on-year
increase of 2.8 percentage points was primarily due to the higher
non-IFRS gross margin, as well as continued focus on execution
excellence.
Nokia Technologies
- 27% year-on-year net sales decrease in Q1 2016. Our performance
was affected by the absence of the following three items which
benefitted Q1 2015: non-recurring adjustments to accrued net sales
from existing agreements, revenue share related to previously
divested intellectual property rights ("IPR"), and IPR divestments.
Excluding these three items, net sales increased year-on-year by
approximately 10% due to higher intellectual property licensing
income.
First
quarter 2016 results compared to combined company historicals. See
note 1 to the financial statements for further details1,2 |
|
|
Combined company
historicals2 |
|
Combined company
historicals2 |
|
EUR million |
Q1'16 |
Q1'15 |
YoY
change |
Q4'15 |
QoQ
change |
Net sales - constant currency (non-IFRS) |
|
|
(9)% |
|
(27)% |
Net sales (non-IFRS) |
5 603 |
6 129 |
(9)% |
7 719 |
(27)% |
Nokia's Networks business |
5 181 |
5 662 |
(8)% |
7 057 |
(27)% |
Ultra Broadband Networks |
3 729 |
4 227 |
(12)% |
5 081 |
(27)% |
IP Networks and
Applications |
1 452 |
1 435 |
1% |
1 976 |
(27)% |
Nokia Technologies |
198 |
273 |
(27)% |
413 |
(52)% |
Group Common and Other |
236 |
203 |
16% |
254 |
(7)% |
Gross profit (non-IFRS) |
2 205 |
2 264 |
(3)% |
3 272 |
(33)% |
Gross margin % (non-IFRS) |
39.4% |
36.9% |
250bps |
42.4% |
(300)bps |
Operating profit (non-IFRS) |
345 |
276 |
25% |
1 279 |
(73)% |
Nokia's Networks business |
337 |
209 |
61% |
1 097 |
(69)% |
Ultra Broadband Networks |
234 |
168 |
39% |
702 |
(67)% |
IP Networks and
Applications |
103 |
42 |
145% |
396 |
(74)% |
Nokia Technologies |
106 |
178 |
(40)% |
311 |
(66)% |
Group Common and Other |
(99) |
(111) |
|
(129) |
|
Operating margin %
(non-IFRS) |
6.2% |
4.5% |
170bps |
16.6% |
(1
040)bps |
First
quarter 2016 results compared to Nokia standalone historicals. See
note 1 to the financial statements for further details1,3 |
|
|
Nokia standalone
historicals3 |
|
Nokia standalone
historicals3 |
|
EUR million (except for
EPS in EUR) |
Q1'16 |
Q1'15 |
YoY
change |
Q4'15 |
QoQ
change |
Profit (non-IFRS) |
139 |
184 |
(24)% |
575 |
(76)% |
(Loss)/profit |
(613) |
169 |
|
499 |
|
EPS, diluted (non-IFRS) |
0.03 |
0.05 |
(40)% |
0.15 |
(80)% |
EPS, diluted |
(0.09) |
0.05 |
|
0.13 |
|
Net cash and other liquid
assets |
8
246 |
4
672 |
76% |
7
775 |
6% |
1 Results 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, goodwill
impairment charges, intangible asset amortization and purchase
price related items, restructuring related costs, and certain other
items that may not be indicative of Nokia's underlying business
performance. For Q1 2016 details, please refer to the year to date
discussion in the complete interim report and note 2, "Non-IFRS to
reported reconciliation", in the notes to the financial statements
attached to the complete interim report. A reconciliation of the Q1
2015 and the Q4 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.
2 Combined 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 the complete interim report.
3 Nokia 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.
SUBSEQUENT EVENTS
Nokia launches headcount reductions as part of global synergy
and transformation program
Nokia announced that it has started actions to reduce company
personnel globally as part of its synergy and transformation
program.
The headcount reductions are expected to take place between now
and the end of 2018, consistent with Nokia's synergy target
timeline. Reductions will come largely in areas where there are
overlaps, as Nokia outlined on October 29, 2015. At the same time,
Nokia is taking steps to adapt to challenging market conditions and
to shift resources to future-oriented technologies such as 5G, the
Cloud and the Internet of Things. As part of the program, Nokia
also continues to target savings in real estate, services,
procurement, supply chain and manufacturing.
Nokia plans to acquire Withings to accelerate entry into
Digital Health
Nokia announced plans to acquire Withings S.A. ("Withings"), a
pioneer and leader in the connected health revolution with a family
of award-winning digital health products and services to help
people all over the world lead healthier, happier and more
productive lives. Withings has approximately 200 employees and will
be part of our Nokia Technologies business.
With this acquisition, Nokia is strengthening its position in
the Internet of Things in a way that leverages the power of the
trusted Nokia brand, fits with the Nokia's purpose of expanding the
human possibilities of the connected world, and puts Nokia at the
heart of a very large addressable market.
The planned transaction values Withings at EUR 170 million,
would be settled in cash and is expected to close in early Q3 2016
subject to regulatory approvals and customary closing
conditions.
CEO STATEMENT
Nokia's first quarter results demonstrate the strategic value of
our combination with Alcatel-Lucent.
I am pleased that we were able to deliver solid profitability in
what is typically a seasonally weak quarter and at a time when the
risk of integration-related disruption was high. While our revenue
decline was disappointing, the shortfall was largely driven by
Mobile Networks, where the challenging environment is not a
surprise. We noted in our Q4 2015 earnings release that we expected
some market headwinds in 2016 in the wireless sector and we
continue to hold that view today.
Based on our current assessment, we expect a full year 2016
non-IFRS operating margin above 7% in the Networks business. When
looking at the first half of the year, we do not expect typical
seasonal patterns to occur given likely market conditions in the
second quarter and our ongoing integration of Alcatel-Lucent.
While integrations of the scale of Alcatel-Lucent are complex
and take time, we are now sufficiently confident in our progress
that we are targeting synergies that are both more than and faster
than our original plan. We already have agreed transition plans
that cover the most pressing areas of portfolio overlap with most
of our top customers; have begun the process of reducing
over-lapping personnel including initial reductions in the United
States and several other countries; started to consolidate our real
estate footprint with several sites already closed and thirty more
scheduled for the current quarter; and completed 40 projects with
suppliers to drive procurement savings, with 200 more projects
currently underway and plans for hundreds of additional projects to
be launched largely over the course of Q2 2016.
I am also pleased that we continue to see strong support from
our customers, including those from the former Alcatel-Lucent. We
are focused on capitalizing on these opportunities through
strengthening our sales execution, as well as bringing unique
innovation rapidly to market, such as our recently announced
5G-ready AirScale radio access family of products.
On a final note, I am excited that the team from Withings will
be joining Nokia, as part of Nokia Technologies. We have said
consistently that digital health is an area of strategic interest
to us, and with this acquisition we have an excellent opportunity
to expand in what is one of the largest markets in the Internet of
Things and build future licensing opportunities.
Rajeev Suri President and CEO
FINANCIAL DISCUSSION
The following discussion is of Nokia's results for the first
quarter 2016, which comprise the results of Nokia's businesses -
Nokia's Networks business (including Ultra Broadband Networks and
IP Networks and Applications) and Nokia Technologies, as well as
Group Common and Other. For more information on the recent changes
to our reportable segments, please refer to note 3, "Segment
information and eliminations", in the notes to the financial
statements attached to the complete interim report. Comparisons are
given to the first quarter 2015 and fourth quarter 2015 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 the stock exchange release
published on April 22, 2016. These adjustments include also
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 affect also numbers presented in
these interim financial statements for 2015. 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 the complete interim report.
Non-IFRS Net sales
Nokia non-IFRS net sales decreased 9% year-on-year and decreased
27% sequentially. On a constant currency basis, Nokia non-IFRS net
sales would have decreased 9% year-on-year and would have decreased
27% sequentially.
Year-on-year discussion
The year-on-year decrease in Nokia non-IFRS net sales in the
first quarter 2016 was primarily due to lower net sales in Nokia's
Networks business and Nokia Technologies.
Sequential discussion
The sequential decrease in Nokia non-IFRS net sales in the first
quarter 2016 was primarily due to lower net sales in Nokia's
Networks business and Nokia Technologies.
Non-IFRS Operating profit
Year-on-year discussion
Nokia non-IFRS operating profit increased primarily due to lower
non-IFRS research and development ("R&D") expenses and a net
positive fluctuation in non-IFRS other income and expenses,
partially offset by lower non-IFRS gross profit.
The lower non-IFRS gross profit was primarily due to Nokia
Technologies partially offset by Nokia's Networks business.
The lower non-IFRS R&D expenses was primarily due to Nokia's
Networks business and Nokia Technologies.
Nokia non-IFRS other income and expenses was an expense of EUR
15 million in the first quarter 2016, compared to an expense of EUR
49 million in the year-ago quarter. On a year-on-year basis, the
change was primarily due to Group Common and Other, as well as
Nokia's Networks business.
Sequential discussion
Nokia non-IFRS operating profit decreased primarily due to lower
non-IFRS gross profit, partially offset by lower non-IFRS R&D
expenses and non-IFRS selling, general and administrative
("SG&A") expenses.
The lower non-IFRS gross profit was primarily due to Nokia's
Networks business and Nokia Technologies.
The lower non-IFRS R&D expenses was primarily due to Nokia's
Networks business.
The lower non-IFRS SG&A expenses was primarily due to
Nokia's Networks business.
Nokia non-IFRS other income and expenses was an expense of EUR
15 million in the first quarter 2016, compared to an income of EUR
20 million in the fourth quarter 2015. On a sequential basis, the
change was primarily due to Nokia's Networks business, partially
offset by Group Common and Other.
OUTLOOK
|
Metric |
Guidance |
Commentary |
Nokia |
Annual operating cost synergies |
Above EUR 900 million of net operating cost synergies to be
achieved in full year 2018 (update) |
Compared to the combined non-IFRS operating costs of Nokia and
Alcatel-Lucent for full year 2015. Expected to be derived from a
wide range of initiatives related to operating expenses and cost of
sales, including: Streamlining of overlapping products and
services, particularly within the Mobile Networks business group;
Rationalization of regional and sales organizations;
Rationalization of overhead, particularly within manufacturing,
supply-chain, real estate and information technology; Reduction of
central function and public company costs; and Procurement
efficiencies, given the combined company's expanded purchasing
power. This is an update to the earlier annual operating cost
synergies outlook of approximately EUR 900 million of net operating
cost synergies to be achieved in full year 2018. |
|
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 |
Above 40% for full year 2016 |
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. This outlook is for full year
2016; the quarterly non-IFRS tax rate is expected to be subject to
volatility, primarily influenced by fluctuations in profits made by
Nokia in different tax jurisdictions. 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. |
|
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 650 million |
Primarily attributable Nokia's Networks business. |
Nokia's Networks business |
FY16 non-IFRS net sales |
Decline YoY |
Combined company non-IFRS net sales and non-IFRS
operating margin are expected to be influenced by factors
including: A flattish capex environment in 2016 for our overall
addressable market; A declining wireless infrastructure market in
2016; Significant focus on the integration of Alcatel-Lucent,
particularly in the first half of 2016; Competitive industry
dynamics; Product and regional mix; The timing of major network
deployments; and Execution of synergy plans. |
FY16 Non-IFRS operating margin |
Above 7% |
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, and
does not intend to provide an outlook in its reports during fiscal
year 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, 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, 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, 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; 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; 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; 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 May 9, 2016.
Media and Investor Contacts:
Corporate Communications, tel. +358 10 448 4900 email:
press.services@nokia.com Investor Relations, tel. +358 4080 3 4080
email: investor.relations@nokia.com
- Nokia's Annual General Meeting 2016 is scheduled to be held on
June 16, 2016.
- Nokia plans to publish its second quarter 2016 results on
August 4, 2016.
Nokia Q1 2016 Interim Report
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