Nokia Corporation
Financial Statement Release
February 1, 2018 at 08:00 (CET +1)
Nokia Corporation Financial Report for Q4 and full-year 2017
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.
This is a summary of the Nokia Corporation financial report for Q4 and full-year
2017 published today. The complete financial report for Q4 and full-year 2017
with tables is available at www.nokia.com/financials. Investors should not rely
on summaries of our financial reports only, but should review the complete
reports with tables.
FINANCIAL HIGHLIGHTS
* Non-IFRS net sales in 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)
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EUR million YoY Q1- YoY
(except for Q4'17 Q4'16 change Q3'17 QoQ change Q1-Q4'17 Q4'16 change
EPS in EUR)
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Net sales 6 668 6 731 (1)% 5 537 20% 23 223 23 972 (3)%
(non-IFRS)
change in
constant 5% 21% (1)%
currency
Nokia's
Networks 5 827 6 086 (4)% 4 823 21% 20 523 21 830 (6)%
business
change in
constant 2% 22% (4)%
currency
Ultra
Broadband 2 471 2 586 (4)% 2 099 18% 8 970 9 758 (8)%
Networks
change in
constant 2% 19% (6)%
currency
Global 1 642 1 759 (7)% 1 359 21% 5 810 6 036 (4)%
Services
change in
constant (1)% 22% (2)%
currency
IP Networks
and 1 714 1 740 (1)% 1 365 26% 5 742 6 036 (5)%
Applications
change in
constant 5% 27% (3)%
currency
Nokia 554 309 79% 483 15% 1 654 1 053 57%
Technologies
change in
constant 80% 15% 57%
currency
Group Common 302 340 (11)% 251 20% 1 115 1 142 (2)%
and Other
change in
constant (12)% 19% (5)%
currency
Gross profit 2 762 2 842 (3)% 2 365 17% 9 674 9 657 0%
(non-IFRS)
Gross margin % 41.4% 42.2% (80)bps 42.7% (130)bps 41.7% 40.3% 140bps
(non-IFRS)
Operating
profit (non- 1 004 940 7% 668 50% 2 587 2 172 19%
IFRS)
Nokia's
Networks 647 858 (25)% 334 94% 1 711 1 943 (12)%
business
Ultra
Broadband 267 333 (20)% 78 242% 781 922 (15)%
Networks
Global 121 230 (47)% 110 10% 411 406 1%
Services
IP Networks
and 259 294 (12)% 146 77% 519 615 (16)%
Applications
Nokia 389 158 146% 390 0% 1 124 579 94%
Technologies
Group Common (31) (76) (59)% (56) (45)% (248) (350) (29)%
and Other
Operating
margin % (non- 15.1% 14.0% 110bps 12.1% 300bps 11.1% 9.1% 200bps
IFRS)
Financial
income and (73) (72) 1% (63) 16% (280) (246) 14%
expenses (non-
IFRS) (2)
Taxes (non- (232) (204) 14% (90) 158% (443) (695) (36)%
IFRS) (2)
Profit (non- 716 676 6% 516 39% 1 875 1 250 50%
IFRS)
Profit
attributable
to the equity
holders 709 672 6% 514 38% 1 869 1 276 46%
of the
parent (non-
IFRS)
Non-
controlling 6 4 50% 2 6 (26)
interests
(non-IFRS)
EPS, EUR
diluted (non- 0.13 0.12 8% 0.09 44% 0.33 0.22 50%
IFRS)
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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)
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EUR million YoY QoQ Q1- Q1- YoY
(except for Q4'17 Q4'16 change Q3'17 change Q4'17 Q4'16 change
EPS in EUR)
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Net Sales -
constant 6% 22% 0%
currency
Net sales 6 651 6 657 0% 5 500 21% 23 147 23 641 (2)%
Nokia's
Networks 5 827 6 086 (4)% 4 823 21% 20 523 21 830 (6)%
business
Ultra
Broadband 2 471 2 586 (4)% 2 099 18% 8 970 9 758 (8)%
Networks
Global 1 642 1 759 (7)% 1 359 21% 5 810 6 036 (4)%
Services
IP Networks
and 1 714 1 740 (1)% 1 365 26% 5 742 6 036 (5)%
Applications
Nokia 554 309 79% 483 15% 1 654 1 053 57%
Technologies
Group Common 302 340 (11)% 251 20% 1 115 1 142 (2)%
and Other
Non-IFRS (17) (74) (77)% (38) (55)% (75) (331) (77)%
exclusions
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 419 317 32% (230) (282)% 16 (1 100) (101)%
profit/(loss)
Nokia's
Networks 647 858 (25)% 334 94% 1 711 1 943 (12)%
business
Ultra
Broadband 267 333 (20)% 78 242% 781 922 (15)%
Networks
Global 121 230 (47)% 110 10% 411 406 1%
Services
IP Networks
and 259 294 (12)% 146 77% 519 615 (16)%
Applications
Nokia 389 158 146% 390 0% 1 124 579 94%
Technologies
Group Common (31) (76) (59)% (56) (45)% (248) (350) (29)%
and Other
Non-IFRS (585) (622) (6)% (898) (35)% (2 571) (3 272) (21)%
exclusions
Operating 6.3% 4.8% 150bps (4.2)% 1 050bps 0.1% (4.7)% 480bps
margin %
Financial
income and (41) (72) (43)% (63) (35)% (537) (287) 87%
expenses (2)
Taxes (2) (772) 401 102 (927) 457
(Loss)/Profit (378) 658 (190) 99% (1 437) (912) 58%
(Loss)/Profit
attributable
to the equity (384) 659 (192) 100% (1 473) (751) 96%
holders of
the parent
Non-
controlling 6 0 2 36 (161)
interests
EPS, EUR (0.07) 0.11 (0.03) 133% (0.26) (0.13) 100%
diluted
Net cash and
other liquid 4 514 5 299 (15)% 2 731 65% 4 514 5 299 (15)%
assets
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(1) Results are as reported unless otherwise specified. The financial
information in this report is unaudited. Non-IFRS results exclude costs
related to the acquisition of Alcatel-Lucent and related integration, goodwill
impairment charges, intangible asset amortization and other purchase price
fair value adjustments, restructuring and associated charges and certain other
items that may not be indicative of Nokia's underlying business performance.
For details, please refer to the non-IFRS exclusions section included in
discussions of both the quarterly and year to date performance and note 2,
"Non-IFRS to reported reconciliation", in the notes in the Financial statement
information in this report. Change in net sales at constant currency excludes
the impact of changes in exchange rates in comparison to euro, our reporting
currency. For more information on currency exposures, please refer to note 1,
"Basis of Preparation", in the "Financial statement information" section in
this report.
(2 )Reported Q1-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
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Nokia Non-IFRS 9-11% for full Nokia expects non-IFRS
operating margin year 2018 and operating margin and non-
IFRS diluted earnings per
12-16% for full share to expand between
year 2020 full year 2018 and full
year 2020 primarily due
to:
------------------------------------
Non-IFRS diluted EUR 0.23 - 0.27 a. Improved results in
earnings per in full year Nokia's Networks
share 2018 and business, which are
expected from:
EUR 0.37 - 0.42
in full year 2020 * 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;
b. 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
c. Lower Nokia support
function costs,
including IT and site
costs within Nokia's
Networks business and
Group Common and
Other.
-------------------------------------------------------------
Dividend Approximately Nokia's Board of
40% to 70% of Directors is committed to
non-IFRS EPS on a proposing a growing
long-term basis 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 Slightly positive Recurring free cash flow
cash flow in full year is expected to improve
2018 and clearly over the longer-term, due
positive in full to lower cash outflows
year 2020 related to restructuring
and network equipment
swaps(1) and improved
operational results over
time.
-------------------------------------------------------------
Recurring annual Approximately EUR Relative to the combined
cost savings for 1.2 billion of non-IFRS cost of sales
Nokia, excluding recurring annual and operating expenses of
Nokia cost savings in Nokia and Alcatel-Lucent
Technologies full year 2018, for full year 2015,
of which excluding Nokia
approximately EUR Technologies.
800 million are The combined operating
expected from expenses of Nokia and
operating Alcatel-Lucent for full
expenses(1 ) 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 Approximately EUR The charges related to
equipment swaps 1.4 billion of network equipment swaps
charges and cash are being recorded as
outflows in non-IFRS exclusions, and
total(1) 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 Expense of Nokia's outlook for non-
financial income approximately EUR IFRS financial income and
and expenses 300 million in expenses in full year
full year 2018 2018 and over the longer-
and over the term is expected to be
longer-term 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 Approximately Nokia's outlook for non-
rate 30% for full year IFRS tax rate for full
2018 and 25% over year 2018 and over the
the longer-term 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 Approximately EUR Primarily attributable to
expenditures 700 million in Nokia's Networks
full year 2018 business, and consistent
and approximately with the depreciation of
EUR 600 million property, plant and
over the longer- equipment over the
term longer-term.
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Net sales Decline For Nokia's Networks
Nokia's Networks approximately in- business, Nokia expects
business line with its net sales to grow faster
primary than its primary
addressable addressable market over
market in 2018 the longer-term and
and grow faster operating margin to
than its primary expand between full year
addressable 2018 and full year 2020
market over the primarily due to:
longer-term * Improved scale, as
commercial 5G network
deployments are
------------------------------------ expected to begin in
Operating margin 6-9% for full 2019 and increase in
year 2018 and 2020;
9-12% for full * Focus on targeted
year 2020 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.
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Nokia Licensing Recurring net Grow at a Due to risks and
within Nokia sales compound annual uncertainties in
Technologies growth rate determining the timing
(CAGR) of and value of significant
approximately patent, brand and
10% over the 3- technology licensing
year period agreements, Nokia
ending 2020 believes it is not
appropriate to provide
annual outlook ranges for
------------------------------------Nokia Licensing within
Operating margin Expand to Nokia Technologies.
approximately Although annual results
85% for full year are difficult to
2020 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.
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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, Net % Gross Other Operating Change in
non-IFRS sales change profit (R&D) (SG&A) income and profit operating
(expenses) margin %
-------------------------------------------------------------------------------
Networks (259) (4)% (297) (2) 52 36 (211) (300)bps
business
Nokia 245 79% 237 14 (22) 2 231 1 910bps
Technologies
Group Common (38) (11)% (20) 14 (1) 50 45 1 210bps
and Other
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, Net % Gross Other Operating Change in
non-IFRS Sales change profit (R&D) (SG&A) income and profit operating
(expenses) margin %
-------------------------------------------------------------------------------
Networks 1 004 21% 333 (35) 24 (10) 313 420bps
business
Nokia 71 15% 51 2 (60) 6 (1) (1
Technologies 050)bps
Group Common 51 20% 13 (1) (11) 24 25 1 200bps
and Other
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
Profit
EUR Operating Financial Non- attributable
million, profit income and Taxes Profit controlling to the equity
non-IFRS expenses interests holders of the
parent
-------------------------------------------------------------------------------
Nokia 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
Profit
EUR Operating Financial Non- attributable
million, profit income and Taxes Profit controlling to the equity
non-IFRS expenses interests holders of the
parent
-------------------------------------------------------------------------------
Nokia 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 (1 094) (13) 8 315% (706) 55%
shareholders of the parent
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, | | | | FY 2018 |FY 2019 and | Total
approximately | 2016 | 2017 |Cumulative| as of the | beyond | as of the
rounded to the| | | | end of | as of the | end of
nearest EUR | | | | | end of |
50 million | | | | | |
| | | | | |
| | | |Q3'17 Q4'17|Q3'17 Q4'17|Q3'17 Q4'17
---------------+------+------+----------+------------+------------+------------
Recurring | | | | | |
annual cost | 550| 250| 800| 400 400| 0 0|1 200 1 200
savings | | | | | |
| | | | | |
- operating | 350| 150| 500| 300 300| 0 0| 800 800
expenses | | | | | |
| | | | | |
- cost of | 200| 100| 300| 100 100| 0 0| 400 400
sales | | | | | |
| | | | | |
Restructuring | | | | | |
and associated| 750| 550| 1 300| 500 600| 0 0|1 900 1 900
charges | | | | | |
| | | | | |
Restructuring | | | | | |
and associated| 400| 550| 950| 650 650| 600 650|2 250 2 250
cash outflows | | | | | |
| | | | | |
Charges | | | | | |
related to | | | | | |
network | 150| 450| 600| 550 650| 150 150|1 400 1 400
equipment | | | | | |
swaps | | | | | |
| | | | | |
Cash outflows | | | | | |
related to | | | | | |
network | 150| 450| 600| 500 650| 150 150|1 400 1 400
equipment | | | | | |
swaps | | | | | |
---------------+------+------+----------+------------+------------+------------
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.
Media and Investor Contacts:
Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations, tel. +358 4080 3 4080 email: investor.relations@nokia.com
* Nokia plans to publish its "Nokia in 2017" annual report, which includes the
review by the Board of Directors and the audited annual accounts, in week
12 of 2018. The annual report will be available at www.nokia.com/financials.
* Nokia plans to publish its first quarter 2018 results on April 26, 2018.
* Nokia's Annual General Meeting 2018 is planned to be held on May 30, 2018.
* Nokia plans to publish its second quarter and half year 2018 results on July
26, 2018.
* Nokia plans to publish its third quarter and January-September 2018 results
on October 25, 2018.
About Nokia
We create the technology to connect the world. Powered by the research and
innovation of Nokia Bell Labs, we serve communications service providers,
governments, large enterprises and consumers, with the industry's most complete,
end-to-end portfolio of products, services and licensing.
From the enabling infrastructure for 5G and the Internet of Things, to emerging
applications in digital health, we are shaping the future of technology to
transform the human experience. www.nokia.com
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