Nokia Corporation Financial Report for Q4 and Full-Year 2017 Released

Nokia Corporation released their financial report today for the fourth quarter of last year, and also for the full-year 2017. This is a summary of the full report that is available for download at the Nokia Financials website.

NOKIA Logo - Nokia Corporation Financial Report

Strong results driven by growth and solid performance in Nokia’s Networks business and record net sales in Nokia Technologies

  • Nokia’s Board of Directors will propose a dividend of EUR 0.19 per share for 2017 (EUR 0.17 for 2016).
  • Nokia’s Board of Directors is committed to proposing a growing dividend, including for 2018.

FINANCIAL HIGHLIGHTS

  • Non-IFRS net sales in Q4 2017 of EUR 6.7bn (EUR 6.7bn in Q4 2016). Reported net sales in Q4 2017 of EUR 6.7bn (EUR 6.7bn in Q4 2016). On a constant currency basis, non-IFRS net sales increased 5% and reported net sales increased 6%, with 2% growth in Nokia’s Networks business and 80% growth in Nokia Technologies.
  • Solid non-IFRS gross margin of 41.4% (42.2% in Q4 2016) and strong non-IFRS operating margin of 15.1% in Q4 2017 (14.0% in Q4 2016), with resilience in Nokia’s Networks business and strong performance in Nokia Technologies. Reported gross margin of 39.0% (40.3% in Q4 2016) and reported operating margin of 6.3% in Q4 2017 (4.8% in Q4 2016).
  • Non-IFRS diluted EPS in Q4 2017 of EUR 0.13 (EUR 0.12 in Q4 2016) and EUR 0.33 in 2017 (EUR 0.22 in 2016). Reported diluted EPS in Q4 2017 of negative EUR 0.07 (EUR 0.11 in Q4 2016) and negative EUR 0.26 in 2017 (negative EUR 0.13 in 2016). In Q4 2017, reported diluted EPS was adversely affected by approximately EUR 0.13 due to re-measurement of deferred tax assets following the change in tax rates, primarily in the United States.
  • Strong cash performance in Q4 2017, with a EUR 1.8 billion sequential increase in net cash to EUR 4.5 billion, resulting from strong net working capital management.

Nokia’s Networks business

  • 2% net sales growth at constant currency in Q4 2017 was driven by IP Networks and Applications and by Ultra Broadband Networks. The large year-on-year variations in foreign exchange rates had a negative impact on reported net sales, with net sales down 4% compared to the year-ago period.
  • Strong operational discipline produced a solid Q4 2017 gross margin of 37.6%, and an operating margin of 11.1%.
  • Results for full year 2017 (4% decrease in net sales on a constant currency basis and an operating margin of 8.3%) consistent with our guidance for full year 2017.

Nokia Technologies

  • 79% year-on-year net sales increase and 146% year-on-year operating profit increase in Q4 2017, primarily related to new license agreements. Approximately EUR 210 million of the net sales in Q4 2017 (zero in Q4 2016) were non-recurring in nature and related to catch-up net sales, of which approximately EUR 80 million related to 2017 and EUR 130 million related to the prior years.
  • 57% year-on-year net sales increase and 94% year-on-year operating profit increase in 2017, primarily related to new license agreements and settled arbitrations. Approximately EUR 300 million of the net sales in 2017 (zero in 2016) were non-recurring in nature and related to catch-up net sales for prior years.

Nokia Outlook for 2018 and 2020

  • Nokia targets a non-IFRS diluted EPS of EUR 0.23 to 0.27 in full year 2018 and EUR 0.37 to 0.42 in full year 2020.
  • Please refer to the full details and other targets in the Outlook section.

Fourth quarter and January-December 2017 non-IFRS results. Refer to note 1, “Basis of Preparation”, in the “Financial statement information” section for further details 1

EUR million (except for EPS in EUR)

Q4’17

Q4’16

YoY change

Q3’17

QoQ change

Q1-Q4’17

Q1-Q4’16

YoY change

Net sales (non-IFRS)

6 668

6 731

(1)%

5 537

20%

23 223

23 972

(3)%

change in constant currency

 

 

5%

 

21%

 

 

(1)%

  Nokia’s Networks business

5 827

6 086

(4)%

4 823

21%

20 523

21 830

(6)%

  change in constant currency

 

 

2%

 

22%

 

 

(4)%

Ultra Broadband Networks

2 471

2 586

(4)%

2 099

18%

8 970

9 758

(8)%

change in constant currency

 

 

2%

 

19%

 

 

(6)%

Global Services

1 642

1 759

(7)%

1 359

21%

5 810

6 036

(4)%

change in constant currency

 

 

(1)%

 

22%

 

 

(2)%

IP Networks and Applications

1 714

1 740

(1)%

1 365

26%

5 742

6 036

(5)%

change in constant currency

 

 

5%

 

27%

 

 

(3)%

  Nokia Technologies

554

309

79%

483

15%

1 654

1 053

57%

  change in constant currency

 

 

80%

 

15%

 

 

57%

  Group Common and Other

302

340

(11)%

251

20%

1 115

1 142

(2)%

  change in constant currency

 

 

(12)%

 

19%

 

 

(5)%

Gross profit (non-IFRS)

2 762

2 842

(3)%

2 365

17%

9 674

9 657

0%

Gross margin % (non-IFRS)

41.4%

42.2%

(80)bps

42.7%

(130)bps

41.7%

40.3%

140bps

Operating profit (non-IFRS)

1 004

940

7%

668

50%

2 587

2 172

19%

  Nokia’s Networks business

647

858

(25)%

334

94%

1 711

1 943

(12)%

Ultra Broadband Networks

267

333

(20)%

78

242%

781

922

(15)%

Global Services

121

230

(47)%

110

10%

411

406

1%

IP Networks and Applications

259

294

(12)%

146

77%

519

615

(16)%

  Nokia Technologies

389

158

146%

390

0%

1 124

579

94%

  Group Common and Other

(31)

(76)

(59)%

(56)

(45)%

(248)

(350)

(29)%

Operating margin % (non-IFRS)

15.1%

14.0%

110bps

12.1%

300bps

11.1%

9.1%

200bps

Financial income and expenses (non-IFRS) 2

(73)

(72)

1%

(63)

16%

(280)

(246)

14%

Taxes (non-IFRS) 2

(232)

(204)

14%

(90)

158%

(443)

(695)

(36)%

Profit (non-IFRS)

716

676

6%

516

39%

1 875

1 250

50%

Profit attributable to the equity holders
of the parent (non-IFRS)

709

672

6%

514

38%

1 869

1 276

46%

Non-controlling interests (non-IFRS)

6

4

50%

2

 

6

(26)

 

EPS, EUR diluted (non-IFRS)

0.13

0.12

8%

0.09

44%

0.33

0.22

50%

 

Fourth quarter and January-December 2017 reported results. Refer to note 1, “Basis of Preparation”, in the “Financial statement information” section for further details 1

EUR million (except for EPS in EUR)

Q4’17

Q4’16

YoY change

Q3’17

QoQ change

Q1-Q4’17

Q1-Q4’16

YoY change

Net Sales – constant currency

 

 

6%

 

22%

 

 

0%

Net sales

6 651

6 657

0%

5 500

21%

23 147

23 641

(2)%

  Nokia’s Networks business

5 827

6 086

(4)%

4 823

21%

20 523

21 830

(6)%

Ultra Broadband Networks

2 471

2 586

(4)%

2 099

18%

8 970

9 758

(8)%

Global Services

1 642

1 759

(7)%

1 359

21%

5 810

6 036

(4)%

IP Networks and Applications

1 714

1 740

(1)%

1 365

26%

5 742

6 036

(5)%

  Nokia Technologies

554

309

79%

483

15%

1 654

1 053

57%

  Group Common and Other

302

340

(11)%

251

20%

1 115

1 142

(2)%

  Non-IFRS exclusions

(17)

(74)

(77)%

(38)

(55)%

(75)

(331)

(77)%

Gross profit

2 593

2 683

(3)%

2 185

19%

9 139

8 524

7%

Gross margin %

39.0%

40.3%

(130)bps

39.7%

(70)bps

39.5%

36.1%

340bps

Operating profit/(loss)

419

317

32%

(230)

(282)%

16

(1 100)

(101)%

  Nokia’s Networks business

647

858

(25)%

334

94%

1 711

1 943

(12)%

Ultra Broadband Networks

267

333

(20)%

78

242%

781

922

(15)%

Global Services

121

230

(47)%

110

10%

411

406

1%

IP Networks and Applications

259

294

(12)%

146

77%

519

615

(16)%

  Nokia Technologies

389

158

146%

390

0%

1 124

579

94%

  Group Common and Other

(31)

(76)

(59)%

(56)

(45)%

(248)

(350)

(29)%

  Non-IFRS exclusions

(585)

(622)

(6)%

(898)

(35)%

(2 571)

(3 272)

(21)%

Operating margin %

6.3%

4.8%

150bps

(4.2)%

1 050bps

0.1%

(4.7)%

480bps

Financial income and expenses 2

(41)

(72)

(43)%

(63)

(35)%

(537)

(287)

87%

Taxes 2

(772)

401

 

102

 

(927)

457

 

(Loss)/Profit

(378)

658

 

(190)

99%

(1 437)

(912)

58%

(Loss)/Profit attributable to the equity
holders of the parent

(384)

659

 

(192)

100%

(1 473)

(751)

96%

Non-controlling interests

6

0

 

2

 

36

(161)

 

EPS, EUR diluted

(0.07)

0.11

 

(0.03)

133%

(0.26)

(0.13)

100%

Net cash and other liquid assets

4 514

5 299

(15)%

2 731

65%

4 514

5 299

(15)%

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.

Reported Q1-Q4’17 result is not comparable to the reported results published previously due to reclassification of interest related to income taxes from income taxes to financial expenses. Refer to note 1, “Basis of preparation”, for further details.

 

CEO STATEMENT

I am pleased that Nokia ended 2017 with a strong fourth quarter. We saw constant currency growth in three of our five Networks business groups as well as very strong growth in Nokia Technologies. Group profitability increased in both the quarter and the full year, and gross margin remained resilient in Networks despite the dilutive impact of robust competition in China.

This performance reflects the progress we have made since Q3 with our mobile product portfolio, and positions us well for the upcoming transition to 5G. Our recent 4G/LTE software release was the highest quality in our history; our AirScale 5G-ready base stations are shipping in volume and delivering excellent results in the field; and we are making good progress in the execution of product migrations for key customers. Shortly after the quarter ended, we launched ReefShark, our revolutionary new chipset family for mobile products, as well as our end-to-end 5G Future X architecture. Both of these provide a strong competitive advantage for Nokia.

Continued momentum in executing our strategy was also evident in the quarter. Our position with our core communication service provider market remains strong; we are seeing excellent progress in our targeted verticals; our software business is growing and now has a strong foundation; and our licensing business continues to deliver on our strategic roadmap, with expansion to another Chinese company in the quarter.  We are confident that licensing will remain a powerful value driver for Nokia, with an expected recurring revenue CAGR of 10% between now and the end of 2020. 

Looking forward on the Networks side, we expect our market to decline again in 2018, although at a slightly lower rate than our previous forecast, given early signs of improved conditions in North America. For 2019 and 2020, we expect market conditions to improve markedly, driven by full-scale rollouts of 5G networks. As those rollouts occur, Nokia is remarkably well-positioned. Unlike previous generations of technology, 5G requires a coordinated, holistic approach across all network elements, far beyond radio. That requirement plays to the strength of our end-to-end portfolio and our 5G Future X architecture.

As a result of the acceleration of investment in 5G due to the opportunity provided by the accelerated timeframe of 5G deployments, Nokia’s operating margin will come under some pressure in 2018. That investment, combined with continued strong execution of our strategy to expand to new vertical segments, build a standalone software business, and maximize the value of our licensing business, will allow us to target improved results in 2020. Therefore, the Board is committed to propose a growing dividend, including for 2018.

For the full-year 2020, we expect earnings per share of EUR 0.37 to EUR 0.42, strongly positive free cash flow, and a group-level, non-IFRS operating margin in the range of 12-16%. If we execute our strategy well, the high-end of that operating margin range is certainly possible.

As we work to deliver that sharply improved performance, we will do so in a very Nokia way: disciplined execution, relentless focus on costs and a commitment to innovation and technological leadership for our customers.


Rajeev Suri
President and CEO

 

OUTLOOK

 

Metric

Guidance

Commentary

Nokia

Non-IFRS operating margin

9-11% for full year 2018 and

12-16% for full year 2020

 

Nokia expects non-IFRS operating margin and non-IFRS diluted earnings per share to expand between full year 2018 and full year 2020 primarily due to:

  1. Improved results in Nokia’s Networks business, which are expected from:
    • Improved scale, as commercial 5G network deployments are expected to begin in 2019 and increase in 2020;
    • Targeted growth opportunities in attractive adjacent markets;
    • Building a strong standalone software business;
    • Improved R&D productivity resulting from new ways of working and the reduction of legacy platforms over time; and
    • The lack of a negative impact to our results related to approximately EUR 100 million of temporary incremental expenses to support 5G customer trials, which we expect to incur in 2018;
  2. Improved results in Nokia Technologies, which are expected from:
    • New patent licensing agreements with smartphone vendors, automotive companies and consumer electronics companies; and
    • Results in brand and technology licensing; and
  3. Lower Nokia support function costs, including IT and site costs within Nokia’s Networks business and Group Common and Other.

Non-IFRS diluted earnings per share

EUR 0.23 – 0.27 in full year 2018 and

EUR 0.37 – 0.42 in full year 2020

 

Dividend

Approximately 40% to 70% of non-IFRS EPS on a long-term basis

 

Nokia’s Board of Directors is committed to proposing a growing dividend, including for 2018. On a long-term basis, 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.

 

Recurring free cash flow

Slightly positive in full year 2018 and clearly positive in full year 2020

Recurring free cash flow is expected to improve over the longer-term, due to lower cash outflows related to restructuring and network equipment swaps1 and improved operational results over time.

 

Recurring annual cost savings for Nokia, excluding Nokia Technologies

Approximately EUR 1.2 billion of recurring annual cost savings in full year 2018, of which approximately EUR 800 million are expected from operating expenses1

Relative to the combined non-IFRS cost of sales and operating expenses of Nokia and Alcatel-Lucent for full year 2015, excluding Nokia Technologies.

The combined operating expenses of Nokia and Alcatel-Lucent for full year 2015, excluding Nokia Technologies, were approximately EUR 7.3 billion.

As a result of the acceleration of 5G and in the interest of our long-term strategy, in 2018 we expect to incur approximately EUR 100 million of temporary incremental expenses related to 5G customer trials that will partially reduce the positive impact from the recurring annual cost savings. (new commentary)

Network equipment swaps

Approximately EUR 1.4 billion of charges and cash outflows in total1

The charges related to network equipment swaps are being recorded as non-IFRS exclusions, and therefore do not affect Nokia’s non-IFRS operating profit.

As of the end of the fourth quarter 2017, approximately EUR 600 million of charges and cash outflows have been incurred in total.

 

Non-IFRS financial income and expenses

Expense of approximately EUR 300 million in full year 2018 and over the longer-term

 

Nokia’s outlook for non-IFRS financial income and expenses in full year 2018 and over the longer-term is expected to be influenced by factors including:

  • Net interest expenses related to interest-bearing liabilities and defined benefit pension and other post-employment benefit plans;
  • Foreign exchange fluctuations and hedging costs; and
  • Expenses related to the sale of receivables.

Non-IFRS tax rate

Approximately 30% for full year 2018 and 25% over the longer-term

Nokia’s outlook for non-IFRS tax rate for full year 2018 and over the longer-term is expected to be influenced by factors including the absolute level of profits, regional profit mix and any further changes to our operating model.

Nokia expects cash outflows related to taxes to be approximately EUR 450 million in full year 2018 and over the longer-term until Nokia’s US or Finnish deferred tax assets are fully utilized.

 

Capital expenditures

Approximately EUR 700 million in full year 2018 and approximately EUR 600 million over the longer-term

Primarily attributable to Nokia’s Networks business, and consistent with the depreciation of property, plant and equipment over the longer-term.

 

 

Nokia’s Networks business

Net sales

Decline approximately in-line with its primary addressable market in 2018 and grow faster than its primary addressable market over the longer-term

 

For Nokia’s Networks business, Nokia expects net sales to grow faster than its primary addressable market over the longer-term and operating margin to expand between full year 2018 and full year 2020 primarily due to:

  • Improved scale, as commercial 5G network deployments are expected to begin in 2019 and increase in 2020;
  • Focus on targeted growth opportunities in attractive adjacent markets;
  • Building a strong standalone software business;
  • Improved R&D productivity resulting from new ways of working and the reduction of legacy platforms over time;
  • The lack of a negative impact to our results related to approximately EUR 100 million of temporary incremental expenses to support 5G customer trials, which we expect to incur in 2018; and
  • Lower support function costs, including IT and site costs.

Nokia’s outlook for net sales and operating margin for Nokia’s Networks business is expected to be influenced by factors including:

  • An approximately 2 to 4 percent decline in the primary addressable market for Nokia’s Networks business in full year 2018, compared to 2017, on a constant currency basis (This is an update to earlier commentary for a 2 to 5 percent decline.);
  • A negative impact to reported net sales, particularly in first half 2018, due to foreign exchange headwinds;
  • Uncertainty related to the timing of completions and acceptances of certain projects particularly in the first half of 2018;
  • Uncertainty related to potential mergers or acquisitions by our customers;
  • Competitive industry dynamics;
  • Product and regional mix;
  • The timing of major network deployments; and
  • The level of R&D investment needed to maintain product competitiveness.

Operating margin

6-9% for full year 2018 and 9-12% for full year 2020

Nokia Licensing within Nokia Technologies

Recurring net sales

Grow at a compound annual growth rate (CAGR) of approximately 10% over the 3-year period ending 2020

 

Due to risks and uncertainties in determining the timing and value of significant patent, brand and technology licensing agreements, Nokia believes it is not appropriate to provide annual outlook ranges for Nokia Licensing within Nokia Technologies. Although annual results are difficult to forecast, Nokia expects net sales growth and operating margin expansion over the 3-year period ending 2020.

In full year 2017, licensing net sales were approximately EUR 1.6 billion, of which approximately EUR 300 million were non-recurring in nature and related to catch-up net sales for prior years.

Nokia’s outlook for net sales and operating margin for Nokia Licensing within Nokia Technologies is expected to be influenced by factors including:

  • The timing and value of new patent licensing agreements with smartphone vendors, automotive companies and consumer electronics companies;
  • Renegotiation of expiring patent licensing agreements;
  • Increases or decreases in net sales related to existing patent licensees;
  • Results in brand and technology licensing;
  • Costs to protect and enforce our intellectual property rights; and
  • The regulatory landscape.

 

Operating margin

Expand to approximately 85% for full year 2020

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. Non-IFRS operating profit is also used in determining management remuneration. 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. In order to allow full visibility on determining non-IFRS results, information on non-IFRS exclusions is presented separately for each of the components of profit or loss. 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.

NOKIA IN Q4 2017 – NON-IFRS

Non-IFRS net sales and non-IFRS operating profit

Nokia non-IFRS net sales decreased 1% year-on-year and increased 20% sequentially. On a constant currency basis, Nokia non-IFRS net sales would have increased 5% year-on-year and increased 21% sequentially.

A discussion of our results within Nokia’s Networks business, Nokia Technologies and Group Common and Other is included in the sections “Nokia’s Networks business”, “Nokia Technologies” and “Group Common and Other” below.

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

(259)

(4)%

(297)

(2)

52

36

(211)

(300)bps

Nokia Technologies

245

79%

237

14

(22)

2

231

1 910bps

Group Common and Other

(38)

(11)%

(20)

14

(1)

50

45

1 210bps

Eliminations

(13)

 

0

0

0

0

0

 

Nokia

(63)

(1)%

(80)

26

29

88

64

110bps

On a year-on-year basis, foreign exchange fluctuations had a significantly negative impact on non-IFRS gross profit, a positive impact on non-IFRS operating expenses and a slightly negative net impact on non-IFRS operating profit in the fourth quarter 2017.

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

1 004

21%

333

(35)

24

(10)

313

420bps

Nokia Technologies

71

15%

51

2

(60)

6

(1)

(1 050)bps

Group Common and Other

51

20%

13

(1)

(11)

24

25

1 200bps

Eliminations

4

 

0

0

0

0

0

 

Nokia

1 131

20%

397

(35)

(47)

20

336

300bps

On a sequential basis, foreign exchange fluctuations had a slightly negative impact on non-IFRS gross profit, a slightly positive impact on non-IFRS operating expenses and a slightly positive net impact on non-IFRS operating profit in the fourth quarter 2017.

Non-IFRS profit attributable to the equity holders of the parent

Year-on-year changes

EUR million, non-IFRS

Operating profit

Financial income and expenses

Taxes

Profit

Non-controlling interests

Profit attributable to the equity holders of the parent

Nokia

64

(1)

(28)

40

(2)

37

 

 

 

 

 

 

 

Non-IFRS financial income and expenses

The approximately flat financial income and expenses was primarily due to net negative foreign exchange fluctuations, offset by the absence of impairment charges related the performance of certain private funds investing in intellectual property rights (“IPR”), which negatively affected the fourth quarter 2016.

Non-IFRS taxes

The increase in non-IFRS taxes, compared to the fourth quarter 2016, was primarily due to a higher absolute level of profit and a higher non-IFRS tax rate. In the fourth quarter 2017, non-IFRS tax rate increased to 24%, compared to 23% in the fourth quarter 2016, primarily due to Nokia’s regional profit mix.

Sequential changes

EUR million, non-IFRS

Operating profit

Financial income and expenses

Taxes

Profit

Non-controlling interests

Profit attributable to the equity holders of the parent

Nokia

336

(10)

(142)

200

(4)

195

Non-IFRS financial income and expenses

The net negative fluctuation in financial income and expenses was primarily due to lower income related to gains from venture fund investments, which positively affected the third quarter 2017 and foreign exchange fluctuations, partially offset by the absence of an impairment charge related to the performance of certain private funds investing in IPR, which negatively affected the third quarter 2017.

Non-IFRS taxes

The increase in non-IFRS taxes, compared to the third quarter 2017, was primarily due to a higher non-IFRS tax rate and a higher absolute level of profit. In the fourth quarter 2017, non-IFRS tax rate increased to 24%, compared to 15% in the third quarter 2017, primarily due to Nokia’s regional profit mix and absolute level of profit.

NOKIA IN Q4 2017 – REPORTED

FINANCIAL DISCUSSION

Net sales

Nokia net sales were approximately flat year-on-year and increased 21% sequentially. On a constant currency basis, Nokia net sales would have increased 6% year-on-year and increased 22% sequentially.

Year-on-year discussion

The approximately flat year-on-year net sales in the fourth quarter 2017 were primarily due to a decrease in Nokia’s Networks business and Group Common and Other, partially offset by growth Nokia Technologies and lower non-IFRS exclusions 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.

Sequential discussion

The sequential increase in Nokia net sales in the fourth quarter 2017 was primarily due to Nokia’s Networks business and, to a lesser extent, Nokia Technologies, Group Common and Other and lower non-IFRS exclusions related to product portfolio strategy costs.

Operating profit

Year-on-year discussion

The increase in operating profit was primarily due to a net positive fluctuation in other income and expenses, lower research and development (“R&D”) expenses and lower selling, general and administrative (“SG&A”) expenses, partially offset by lower gross profit.

The decrease in gross profit was primarily due to Nokia’s Networks business and, to a lesser extent, Group Common and Other, partially offset by Nokia Technologies.

The decrease in R&D expenses was primarily due to lower non-IFRS exclusions, Group Common and Other and Nokia Technologies.

The decrease in SG&A expenses was primarily due to Nokia’s Networks business, partially offset by Nokia Technologies.

The net positive fluctuation in Nokia’s other income and expenses was primarily related to Group Common and Other, Nokia’s Networks business and lower non-IFRS exclusions.

In the fourth quarter 2017, Nokia recorded a non-cash impairment charge to other income and expenses of EUR 32 million related to acquired intangible assets.

Sequential discussion

In the fourth quarter 2017, Nokia recorded an operating profit, compared to an operating loss in the third quarter 2017. The change was primarily due to higher gross profit and a net positive fluctuation in other income and expenses, partially offset by higher SG&A expenses and, to a lesser extent, higher R&D expenses.

The increase in gross profit was primarily due to Nokia’s Networks business and, to a lesser extent, Nokia Technologies.

The increase in R&D expenses was primarily due to Nokia’s Networks business, partially offset by lower non-IFRS exclusions.

The increase in SG&A expenses was primarily due to Nokia Technologies, higher non-IFRS exclusions primarily related to transaction and integration costs and Group Common and Other. This was partially offset by Nokia’s Networks business.

The net positive fluctuation in Nokia’s other income and expenses was primarily due to lower non-IFRS exclusions attributable to lower restructuring and associated charges and impairment charges and, to a lesser extent, Group Common and Other.

In the fourth quarter 2017, Nokia recorded a non-cash impairment charge to other income and expenses of EUR 32 million related to acquired intangible assets. In the third quarter 2017, Nokia recorded a non-cash charge to other income and expenses of EUR 141 million, due to the impairment of goodwill related to its digital health business, which is part of Nokia Technologies.

Profit/(Loss) attributable to the equity holders of the parent

Year-on-year discussion

In the fourth quarter 2017, Nokia recorded a loss attributable to the equity holders of the parent, compared to a profit in the fourth quarter 2016. The change was primarily due to an increase in taxes, partially offset by an increase in operating profit.

The change in taxes from a benefit in the fourth quarter 2016 to an expense in the fourth quarter 2017 was primarily due to deferred tax expenses of EUR 738 million from re-measurement of deferred tax assets primarily resulting from the tax rate change in the United States and the absence of a non-recurring tax benefit of EUR 439 million related to the operating model integration, which benefitted the fourth quarter 2016.

Sequential discussion

The increase in loss attributable to the equity holders of the parent was primarily due to a tax expense in the fourth quarter 2017, compared to a tax benefit in the third quarter 2017. This was partially offset by an operating profit in the fourth quarter 2017, compared to an operating loss in the third quarter 2017.

The change in taxes from a benefit in the third quarter 2017, to an expense in the fourth quarter 2017, was primarily due to deferred tax expenses of EUR 738 million from re-measurement of deferred tax assets primarily resulting from the tax rate change in the United States.

Description of non-IFRS exclusions in Q4 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

Q4’17

Q4’16

YoY change

Q3’17

QoQ change

Net sales

(17)

(74)

(77)%

(38)

(55)%

Gross profit

(169)

(159)

6%

(181)

(7)%

R&D

(157)

(185)

(15)%

(177)

(11)%

SG&A

(163)

(162)

1%

(139)

17%

Other income and expenses

(96)

(116)

(17)%

(401)

(76)%

Operating profit/(loss)

(585)

(622)

(6)%

(898)

(35)%

Financial income and expenses

32

0

 

0

Taxes

(540)

605

 

192

 

(Loss)/Profit

(1 094)

(17)

6 335%

(706)

55%

(Loss)/Profit attributable to the shareholders of the parent

(1 094)

(13)

8 315%

(706)

55%

Non-controlling interests

0

(5)

(100)%

0

0%

Non-IFRS exclusions in net sales

In the fourth quarter 2017, non-IFRS exclusions in net sales amounted to EUR 17 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 fourth quarter 2017, non-IFRS exclusions in operating profit amounted to EUR 585 million and were due to non-IFRS exclusions that adversely affected gross profit, R&D expenses, SG&A expenses and other income and expenses as follows:

In the fourth quarter 2017, non-IFRS exclusions in gross profit amounted to EUR 169 million and were primarily due to product portfolio strategy costs related to the acquisition of Alcatel-Lucent.

In the fourth quarter 2017, non-IFRS exclusions in R&D expenses amounted to EUR 157 million and were primarily due to the amortization of intangible assets resulting from the acquisition of Alcatel-Lucent.

In the fourth quarter 2017, non-IFRS exclusions in SG&A expenses amounted to EUR 163 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 fourth quarter 2017, non-IFRS exclusions in other income and expenses amounted to EUR 96 million and were primarily due to restructuring and associated charges for Nokia’s cost reduction and efficiency improvement initiatives and a EUR 32 million impairment charge.

Non-IFRS exclusions in profit/(loss) attributable to the equity holders of the parent

In the fourth quarter 2017, non-IFRS exclusions in profit/(loss) attributable to the equity holders of the parent amounted to EUR 1 094 million and were primarily due to the non-IFRS exclusions affecting operating profit, in addition to non-IFRS exclusions that adversely affected financial income and expenses and taxes as follows:

In the fourth quarter 2017, non-IFRS exclusions in financial income and expenses amounted to EUR 32 million and were due to a change in the fair value of the financial liability to acquire Nokia Shanghai Bell (“NSB”) non-controlling interest and the loss on sale of financial assets.

In the fourth quarter 2017, non-IFRS exclusions in taxes amounted to EUR 540 million and were primarily due to deferred tax expenses of EUR 738 million from re-measurement of deferred tax assets primarily resulting from the tax rate change in the United States, partially offset by a tax benefit related to non-IFRS exclusions in operating profit.

Cost savings program        

The following table summarizes the financial information related to our cost savings program, as of the end of the fourth 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

Q4’17

Opening balance of restructuring and associated liabilities

880

 + Charges in the quarter

60

 – Cash outflows in the quarter

130

 = Ending balance of restructuring and associated liabilities

810

  of which restructuring provisions

720

  of which other associated liabilities

90

 

 

Total expected restructuring and associated charges

1 900

 – Cumulative recorded

1 320

 = Charges remaining to be recorded

580

 

 

Total expected restructuring and associated cash outflows

2 250

 – Cumulative recorded

960

 = Cash outflows remaining to be recorded

1 290

The following table summarizes our full year 2016 and 2017 results and future expectations related to our cost savings program and network equipment swaps.

 

Actual

Actual

Actual

Expected amounts for

In EUR million, approximately
rounded to the nearest EUR 50 million

2016

2017

Cumulative

FY 2018
as of the end of

FY 2019 and beyond
as of the end of

Total
as of the end of

 

 

 

 

Q3’17

Q4’17

Q3’17

Q4’17

Q3’17

Q4’17

Recurring annual cost savings

550

250

800

400

400

0

0

1 200

1 200

 – operating expenses

350

150

500

300

300

0

0

800

800

 – cost of sales

200

100

300

100

100

0

0

400

400

Restructuring and associated charges

750

550

1 300

500

600

0

0

1 900

1 900

Restructuring and associated cash outflows

400

550

950

650

650

600

650

2 250

2 250

Charges related to network equipment swaps

150

450

600

550

650

150

150

1 400

1 400

Cash outflows related to network equipment swaps

150

450

600

500

650

150

150

1 400

1 400

On a cumulative basis, Nokia continues to be on track to achieve the targeted EUR 1.2 billion of recurring annual cost savings in full year 2018.


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 acquired businesses into our operations and achieve the targeted business plans and benefits, including targeted benefits, synergies, cost savings and efficiencies; 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 business collaboration agreements or patent license agreements or arbitration awards, including income to be received under any collaboration or partnership, agreement or award; 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) general economic and market conditions and other developments in the economies where we operate; 3) 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; 4) our dependence on the development of the industries in which we operate, including the cyclicality and variability of the information technology and telecommunications industries; 5) our dependence on a limited number of customers and large multi-year agreements;  6) 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; 7) 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; 8) our ability to achieve the anticipated benefits, synergies, cost savings and efficiencies of acquisitions, including the acquisition of Alcatel Lucent, and our ability to implement changes to our organizational and operational structure efficiently;  9) our ability to manage and improve our financial and operating performance, cost savings, competitiveness and synergies generally and after the acquisition of Alcatel Lucent; 10) exchange rate fluctuations, as well as hedging activities; 11) our ability to successfully realize the expectations, plans or benefits related to any future collaboration or business collaboration agreements and patent license agreements or arbitration awards, including income to be received under any collaboration, partnership, agreement or arbitration award; 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, technology licensing and the development and sales of products and services for instance in digital health, 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 or documents furnished 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 January 31, 2018.

This report is also available in more detail as a PDF version: Download Nokia Financial Report 2017 PDF