Nokia Corporation Report for Q4 2015 and Full Year 2015
Financial Statement Release
February 11, 2016 at 08:00 (CET +1)
Nokia Corporation Report for Q4 2015 and Full Year 2015
Continuation of strong operational performance in Nokia Networks and solid growth in Nokia Technologies
This is a summary of the Nokia Corporation report for fourth quarter 2015 and full year 2015 published today. The complete fourth quarter 2015 and full year 2015 report with tables is available at http://company.nokia.com/en/financials. Investors should not rely on summaries of our interim reports only, but should review the complete interim reports with tables.
Financial highlights for Nokia's continuing operations
Net sales of EUR 3.6 billion in Q4 2015 (EUR 3.5 billion in Q4 2014) and EUR 12.5 billion in full year 2015 (EUR 11.8 billion in full year 2014).
Q4 2015 non-IFRS diluted EPS of EUR 0.15 (EUR 0.09 in Q4 2014), an increase of 67% year-on-year. Q4 2015 diluted EPS of EUR 0.13 (EUR 0.08 in Q4 2014).
Full year 2015 non-IFRS diluted EPS of EUR 0.36 (EUR 0.27 in full year 2014), an increase of 33% year-on-year. Full year 2015 diluted EPS of EUR 0.31 (EUR 0.67 in full year 2014, benefitting from the recognition of a deferred tax asset).
Nokia's Board of Directors will propose a dividend of EUR 0.16 per share for 2015 and a special dividend of EUR 0.10 per share (dividend of EUR 0.14 per share for 2014). Proposed dividend is estimated to result in a maximum payout of approximately EUR 960 million in dividend and EUR 600 million in special dividend1.
5% year-on-year net sales decrease in Q4 2015 and 3% net sales growth in full year 2015. On a reported basis, Greater China and Middle East & Africa were the strongest regions. On a constant currency basis, 12% year-on-year net sales decrease in Q4 2015 and 6% net sales decrease in full year 2015.
Strong non-IFRS gross margin of 39.6% in Q4 2015 primarily due to elevated levels of software in Mobile Broadband, partially offset by the absence of non-recurring intellectual property rights net sales which benefitted Q4 2014.
Strong non-IFRS operating margin of 14.6% in Q4 2015. Nokia Networks delivered full year financial results towards the high end of its original 2015 targets, with a non-IFRS operating margin of 10.9% in full year 2015, through strong operational performance and continued focus on execution excellence.
170% year-on-year net sales growth in Q4 2015 and 77% net sales growth in full year 2015. On a year-on-year basis, non-IFRS operating profit grew 318% in Q4 2015 and 102% in full year 2015, primarily related to the growth in net sales resulting from a settled arbitration. This was partially offset by higher non-IFRS operating expenses.
|Reported fourth quarter 2015 results2||Reported January-December 2015 results2|
|EUR million (except for EPS in EUR)||Q4'15||Q4'14||YoY change||Q3'15||QoQ change||Q1-Q4'15||Q1-Q4'14||YoY change|
|Net sales - constant currency||(3)%||18%||(2)%|
|Net sales||3 609||3 510||3%||3 036||19%||12 499||11 763||6%|
|Nokia Networks||3 210||3 365||(5)%||2 877||12%||11 490||11 198||3%|
|Nokia Technologies||403||149||170%||162||149%||1 024||578||77%|
|Gross margin % (non-IFRS)||46.4%||40.8%||560bps||42.7%||370bps||43.3%||41.7%||160bps|
|Operating profit (non-IFRS)||734||503||46%||475||55%||1 949||1 600||22%|
|Nokia Networks||468||470||0%||391||20%||1 257||1 364||(8)%|
|Group Common Functions||(56)||(43)||(10)||(28)||(120)|
|Operating margin % (non-IFRS)||20.3%||14.3%||600bps||15.6%||470bps||15.6%||13.6%||200bps|
|Profit (non-IFRS)||575||331||74%||297||94%||1 392||1 058||32%|
|Profit||499||325||54%||188||165%||1 194||2 718||(56)%|
|EPS, EUR diluted (non-IFRS)||0.15||0.09||67%||0.08||87%||0.36||0.27||33%|
|EPS, EUR diluted||0.13||0.08||63%||0.05||160%||0.31||0.67||(54)%|
|Net sales||242||298||(19)%||283||(14)%||1 075||3 427||(69)%|
|Profit||1 292||120||977%||(37)||(3 592)%||1 274||758||68%|
|EPS, EUR diluted||0.33||0.03||1 000%||(0.01)||(3 400)%||0.32||0.18||78%|
1 Estimated total dividend amounts of EUR 960 million payable as dividend and EUR 600 million payable as special dividend are calculated assuming full ownership of all Alcatel-Lucent outstanding shares and conversion of all Alcatel-Lucent convertible bonds, resulting in a total of approximately 6 billion Nokia shares.
2 Results are as reported unless otherwise specified. The results information in this report is unaudited. Nokia reports HERE as part of discontinued operations from the third quarter 2015 until completion of the sale on December 4, 2015. Non-IFRS results exclude the gains from both the sale of substantially all of Nokia's Devices & Services business to Microsoft ("Sale of the D&S Business"), as well as the sale of the HERE business net of transaction and other related costs resulting from these transactions. In addition, non-IFRS results exclude costs related to the Alcatel-Lucent transaction. Furthermore, non-IFRS results exclude goodwill impairment charges, intangible asset amortization and purchase price related items, restructuring related costs, and certain other items that may not be indicative of Nokia's underlying business performance. For details, please refer to the year to date discussion and the non-IFRS to reported reconciliation note to the financial statements. A reconciliation of the Q3 2015 non-IFRS results to the reported results can be found on page 31 in the complete Q3 2015 interim report with tables published on October 29, 2015. A reconciliation of the Q4 2014 non-IFRS results to the reported results can be found on pages 20-25 in the complete report for Q4 2014 and full year 2014 with tables published on January 29, 2015.
Nokia completes the sale of its HERE business in Q4 2015
Nokia completed on December 4, 2015 the sale of its HERE digital mapping and location services business to a consortium of leading automotive companies, comprising AUDI AG, BMW Group and Daimler AG.
The transaction, which was originally announced on August 3, 2015, valued HERE at an enterprise value of EUR 2.8 billion, subject to certain purchase price adjustments. Nokia received net proceeds of approximately EUR 2.55 billion from the transaction, which is consistent with Nokia's earlier estimated net proceeds of slightly above EUR 2.5 billion. In Q4 2015 Nokia booked a gain on the sale and a related release of cumulative foreign exchange translation differences totaling approximately EUR 1.1 billion as a result of the transaction. The gain was reported as part of discontinued operations.
On February 10, 2016, Nokia announced the results of its successful reopened public exchange offer for Alcatel-Lucent securities. Nokia will hold 90.34% of the share capital of Alcatel-Lucent, following the settlement of the securities tendered into the reopened offer, which is expected to occur on February 12, 2016. This equates to Nokia holding 87.33% of the share capital of Alcatel-Lucent on a fully diluted basis.
Nokia confirmed that it will issue approximately 321 million new shares as consideration for the Alcatel-Lucent securities that have been tendered into the reopened public exchange offer. Nokia expects to register these new shares with the Finnish Trade Register on February 12, 2016. After the registration, the total number of Nokia shares will equal approximately 5 769 million shares.
Assuming the conversion of all remaining outstanding Alcatel-Lucent shares and convertible bonds into Nokia shares at the exchange ratio offered in the public exchange offers, the total number of Nokia shares would equal approximately 6 billion shares.
As of the first quarter 2016, we expect to align our financial reporting under two areas: the Networks business and Nokia Technologies. The Networks business will be comprised of four business groups: Mobile Networks, Fixed Networks, Applications & Analytics and IP/Optical Networks. Nokia Technologies will continue to operate as a separate business group, with a clear focus on licensing and the incubation of new technologies, and will include the licensing and intellectual property portfolio management operations from Alcatel-Lucent. In addition, Nokia expects to operate the undersea cables business, Alcatel-Lucent Submarine Networks (ASN), and the antenna systems business, Radio Frequency Systems (RFS), as separate entities and plans to report ASN and RFS as part of Group Common Functions.
2015 was another year of dramatic transformation for Nokia and I am pleased that in the midst of all this change we were able to close the year with solid performances at both Nokia Networks and Nokia Technologies.
Nokia Networks delivered on its commitments for the full year, with a non-IFRS operating margin at the high end of the original guidance range and net sales up three percent on a reported currency basis. Pleasingly, both Mobile Networks and Global Services capped off the year with good fourth quarter results.
Nokia Technologies saw its net sales and operating profit grow considerably, based on strong licensing growth including a contribution from the arbitration award related to our licensing agreement with Samsung.
We have said consistently that we believe that our portfolio of innovation and intellectual property is second to none in the industry and that it has significant value that can be monetized. We expect to have further discussions with Samsung related to intellectual property and technology assets that were not covered by the arbitration process and will continue to pursue new licensing opportunities in a variety of sectors over the course of 2016 and beyond.
I was particularly pleased with our progress towards completing the Alcatel-Lucent transaction in the fourth quarter, culminating with the start of combined operations in early January. Our work as a combined company has gotten off to a strong start. Teams are preparing joint bids, we are working closely with our customers to ensure we can make fast and effective decisions about overlapping areas of our portfolio, and we are on target to deliver on our previously announced synergy savings.
While the competitive environment in Networks remained generally stable in the fourth quarter, we do expect some market headwinds in 2016 as 4G/LTE rollouts in China and some other markets start to slow. The first quarter, in particular, looks quite challenging as customers assess their CAPEX plans in light of increasing macro-economic uncertainty. In this environment, we will continue our sharp focus on operational and commercial discipline, ensure we deliver synergies as quickly as possible, and focus our energy on targeting the growth segments within the overall telecom market.
President and CEO
NOKIA'S CONTINUING OPERATIONS IN Q4 2015
The following discussion is of Nokia's continuing operations reported results for the fourth quarter 2015, which comprise the results of Nokia's two continuing businesses - Nokia Networks and Nokia Technologies, as well as Group Common Functions. Comparisons are given to the fourth quarter 2014 and third quarter 2015 results, unless otherwise indicated.
Nokia's continuing operations net sales increased 3% year-on-year and increased 19% sequentially. On a constant currency basis, Nokia's continuing operations net sales would have decreased 3% year-on-year and would have increased 18% sequentially.
The year-on-year increase in Nokia's continuing operations net sales in the fourth quarter 2015 was primarily due to growth in Nokia Technologies, partially offset by lower net sales in Nokia Networks.
The sequential increase in Nokia's continuing operations net sales in the fourth quarter 2015 was primarily due to growth in both Nokia Networks and Nokia Technologies.
Non-IFRS Operating profit
Nokia's continuing operations non-IFRS operating profit increased 46% year-on-year in the fourth quarter 2015, primarily due to higher non-IFRS operating profit in Nokia Technologies, partially offset by higher non-IFRS operating loss in Group Common Functions. Please see the Nokia Networks and Nokia Technologies sections for the non-IFRS operating profit discussions. The higher non-IFRS operating loss in Group Common Functions was primarily due to a net negative fluctuation in other income and expenses, partially offset by lower operating expenses.
On a year-on-year basis Group Common Functions non-IFRS other income and expenses was an expense of EUR 21 million in fourth quarter 2015, compared to an expense of EUR 8 million in the fourth quarter 2014. Within Group Common Functions, Nokia recorded a loss of approximately EUR 20 million in fourth quarter 2015 related to the sale of certain of Nokia's investments made through its venture funds.
On a year-on-year basis, foreign exchange fluctuations had a positive impact on non-IFRS gross profit, and a negative impact on non-IFRS operating expenses, resulting in a slightly positive net impact on non-IFRS operating profit in the fourth quarter 2015.
Nokia's continuing operations non-IFRS operating profit increased 55% sequentially in the fourth quarter 2015, primarily due to higher non-IFRS operating profit in Nokia Technologies and Nokia Networks, partially offset by higher non-IFRS operating loss in Group Common Functions. Please see the Nokia Networks and Nokia Technologies sections for the non-IFRS operating profit discussions. The higher non-IFRS operating loss in Group Common Functions was primarily due to a net negative fluctuation in other income and expenses and, to a lesser extent, higher operating expenses.
On a sequential basis Group Common Functions non-IFRS other income and expenses was an expense of EUR 21 million in the fourth quarter 2015, compared to income of EUR 17 million in the third quarter 2015. Within Group Common Functions, Nokia recorded a loss of approximately EUR 20 million in the fourth quarter 2015 related to the sale of certain of Nokia's investments made through its venture funds. This compares to a gain of approximately EUR 10 million in the third quarter 2015.
On a sequential basis, foreign exchange fluctuations had a slightly positive impact on non-IFRS gross profit, and a slightly negative impact on non-IFRS operating expenses, resulting in a slightly negative net impact on non-IFRS operating profit in the fourth quarter 2015.
Nokia's continuing operations non-IFRS profit increased 74% on a year-on-year basis in the fourth quarter 2015, primarily due to higher non-IFRS operating profit.
Nokia's continuing operations non-IFRS tax rate in the fourth quarter 2015 was approximately 19%, compared to a rate of approximately 27% in the fourth quarter 2014. In the fourth quarter 2015, non-IFRS tax expense benefitted from the utilization of unrecognized deferred tax assets on previous losses related to Nokia's ownership interests in certain unlisted technology-related funds.
Sequentially, Nokia's continuing operations non-IFRS profit increased 94% in the fourth quarter 2015, primarily due to higher non-IFRS operating profit and a net positive fluctuation in non-IFRS financial income and expenses.
The net positive fluctuation in non-IFRS financial income and expenses was primarily due to lower foreign exchange related losses, receipt of higher distributions from third party venture funds and lower net interest expenses.
Nokia's continuing operations non-IFRS tax rate in the fourth quarter 2015 was approximately 19%, compared to a rate of approximately 24% in the third quarter 2015. In the fourth quarter 2015, non-IFRS tax expense benefitted from the utilization of unrecognized deferred tax assets on previous losses related to Nokia's ownership interests in certain unlisted technology-related funds.
OUTLOOK FOR THE COMBINED COMPANY
|Nokia||Annual operating cost synergies||Approximately EUR 900 million of net operating cost synergies to be achieved in full year 2018||
Compared to the combined non-IFRS operating costs of Nokia and Alcatel-Lucent for full year 2015.
Expected to be derived from a wide range of initiatives related to operating expenses and cost of sales, including:
|Annual interest expense reduction||Approximately EUR 200 million of reductions in interest expenses to be achieved on a full year basis in 2016 (update)||
Compared to the cost of debt run rate for the combined entity at year end 2014.
This is an update to the earlier annual interest expense reduction target of approximately EUR 200 million of reductions in interest expenses to be achieved on a full year basis in 2017.
FY16 Net sales
FY16 Non-IFRS operating margin
Due to the very recent acquisition of Alcatel-Lucent, Nokia believes it is not appropriate to provide an annual outlook for the new combined Networks business at the present time, and intends to provide its full year outlook in conjunction with its Q1 results announcement. Q1 2016 net sales and non-IFRS operating margin are expected to be influenced by factors including:
FY16 Net sales
||Not provided||Due to risks and uncertainties in determining the timing and value of significant licensing agreements, Nokia believes it is not appropriate to provide an annual outlook.|
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) Nokia's ability to integrate Alcatel-Lucent into its operations and achieve the targeted business plans and benefits, including targeted synergies in relation to the acquisition of Alcatel-Lucent announced on April 15, 2015 and closed in early 2016 ("Acquisition"); B) Nokia's ability to squeeze out the remaining Alcatel-Lucent shareholders in a timely manner or at all to achieve full ownership of Alcatel-Lucent; C) expectations, plans or benefits related to Nokia's strategies; D) expectations, plans or benefits related to future performance of Nokia's businesses; E) expectations, plans or benefits related to changes in our management and other leadership, operational structure and operating model, including the expected characteristics, business, organizational structure, management and operations following the Acquisition; F) expectations regarding market developments, general economic conditions and structural changes; G) expectations and targets regarding performance, including those related to market share, prices, net sales, income and margins; H) timing of the deliveries of our products and services; I) expectations and targets regarding our financial performance, results, operating expenses, taxes, cost savings and competitiveness, as well as results of operations, including targeted synergies; J) expectations and targets regarding collaboration and partnering arrangements, as well as the expected customer reach of Nokia following the Acquisition; K) outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities; L) expectations regarding restructurings, investments, uses of proceeds from transactions, acquisitions and divestments and our ability to achieve the financial and operational targets set in connection with any such restructurings, investments, divestments and acquisitions; and M) statements preceded by or including "believe," "expect," "anticipate," "foresee," "sees," "target," "estimate," "designed," "aim," "plans," "intends," "focus," "continue," "project," "should," "will" or similar expressions. These statements are based on the management's best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors, including risks and uncertainties, that could cause such differences include, but are not limited to: 1) Nokia's inability to achieve the targeted business and operational benefits and synergies or disruption caused by the Alcatel-Lucent transaction, including inability to integrate Alcatel-Lucent into Nokia operations and any negative effect from the implementation of the combination, for instance due to the loss of customers, loss of key executives or employees or reduced focus on day-to-day operations and business, or negative effects caused by delays or inability to squeeze out the remaining Alcatel-Lucent shareholders; 2) our ability to identify market trends and business opportunities to select and execute strategies successfully and in a timely manner, and our ability to successfully adjust our operations and operating models; 3) our ability to sustain or improve the operational and financial performance of our businesses and correctly identify or successfully pursue new business opportunities; 4) our dependence on general economic and market conditions, including the capacity for growth in internet and technology usage; 5) our exposure to regulatory, political or other developments in various countries or regions; 6) our ability to invent new relevant technologies, products and services, to develop and maintain our intellectual property portfolio and to maintain the existing sources of intellectual property related revenue and establish new such sources; 7) our ability to protect our intellectual property rights and defend against third-party infringements and claims that we have infringed third parties' intellectual property rights ("IPR"), as well as increased licensing costs and restrictions on our ability to use certain technologies, and litigation related to IPR; 8) the potential complex tax issues, tax disputes and tax obligations we may face, including the obligation to pay additional taxes in various jurisdictions and our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets; 9) our ability to retain, motivate, develop and recruit appropriately skilled employees, for instance due to possible disruption caused by the Acquisition and related operational and other changes; 10) the performance of the parties we partner and collaborate with, as well as that of our financial counterparties, and our ability to achieve successful collaboration or partnering arrangements, including any disruption from the transaction in obtaining or maintaining the contractual relationships; 11) exchange rate fluctuations, particularly between the euro, which is our reporting currency, and the US dollar, the Japanese yen and the Chinese yuan, as well as certain currencies; 12) the impact of unfavorable outcome of litigation, arbitration, contract-related disputes or allegations of health hazards associated with our businesses; 13) any inefficiency, malfunction or disruption of a system or network that our operations rely on or any impact of a possible cybersecurity breach; 14 our ability to achieve targeted benefits from or successfully implement planned transactions, such as acquisitions, divestments, mergers or joint ventures, and manage unexpected liabilities related thereto; 15) our ability to manage our operating expenses and reach targeted results through efforts aimed at improving our financial performance, for instance through cost savings and other efforts aimed at increased competitiveness; 16) Nokia's ability to optimize its capital structure as planned and re-establish our investment grade credit rating; 17) Nokia's ability to execute its strategy or to effectively and profitably adapt its business and operations in a timely manner to the increasingly diverse needs of its customers in the information technology and communications industries and related services market or to appropriately adapt to related technological developments; 18) Nokia's ability to effectively and profitably invest in new competitive high-quality products, services, upgrades and technologies and bring them to market in a timely manner; 19) Nokia's dependence on a limited number of customers and large multi-year agreements and adverse effects as a result of further operator consolidation; 20) Nokia's ability to manage its manufacturing, service creation and delivery, as well as our logistics efficiently and without interruption; 21) Nokia's dependence on a limited number of suppliers, who may fail to deliver sufficient quantities of fully functional products and components or deliver timely services meeting its customers' needs; 22) adverse developments with respect to customer financing or extended payment terms Nokia provides to customers; 23) Nokia Technologies' ability to maintain its existing sources of intellectual property related revenue or establish new sources; 24) Nokia Technologies' dependence on a limited number of key licensees that contribute proportionally significant patent licensing income, including the outcome of any pending arbitrations or negotiations; 25) Nokia Technologies' dependence on adequate regulatory protection for patented or other proprietary technologies; 26) Nokia Technologies' ability to execute its plans through business areas such as licensing the Nokia brand and other business ventures, including benefits and plans related to technology innovation and incubation; and 27) unexpected liabilities or issues with respect to the Acquisition, including pension and employee liabilities or higher than expected transaction costs, as well as the risk factors specified on pages 74 to 89 of Nokia's latest annual report on Form 20-F under "Operating and Financial Review and Prospects-Risk factors" as well as in Nokia's other filings with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.
The financial statements were authorized for issue by management on February 10, 2016.
Nokia plans to publish its "Nokia in 2015" annual report, which includes the review by the Board of Directors and the audited annual accounts, in week 13 of 2016. The annual report will be available at http://company.nokia.com/financials.
Nokia plans to publish its first quarter 2016 results on May 10, 2016.
Nokia's Annual General Meeting 2016 is scheduled to be held on June 16, 2016.