SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 6-K

 

Report of Foreign Private Issuer

Pursuant to Rule 13a -16 or 15d -16 of

the Securities Exchange Act of 1934

 

Report on Form 6-K dated April 26, 2018

(Commission File No. 1-13202)

 

Nokia Corporation

Karaportti 3

FI-02610 Espoo

Finland

(Name and address of registrant’s principal executive office)

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

 

Form 20-F: x   Form 40-F: o

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

 

Yes: o   No: x

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

 

Yes: o   No: x

 

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes: o   No: x

 

 

 


 

Enclosures:

 

Nokia stock exchange release dated April 26, 2018: Nokia Corporation Interim Report for Q1 2018

 

2


 

INTERIM REPORT

 

 

 

April 26, 2018

 

Nokia Corporation

Interim Report

April 26, 2018 at 08:00 (CET +1)

 

Nokia Corporation Interim Report for Q1 2018

 

Solid full year results expected in Networks despite challenging Q1; continued strength in Nokia Technologies

 

·                  Nokia sees further acceleration of 5G with strong momentum building by year-end

·                  Nokia raises its primary addressable market outlook for its Networks business in full year 2018, and expects to outperform that market in full year 2018

·                  Full year 2018 Nokia-level guidance reiterated

 

This is a summary of the Nokia Corporation financial report for Q1 2018 published today. The complete financial report for Q1 2018 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 financial reports with tables.

 

FINANCIAL HIGHLIGHTS

 

·                  Net sales in Q1 2018 were EUR 4.9bn, compared to EUR 5.4bn in Q1 2017. On a constant currency basis, net sales would have been flat year-on-year.

·                  Non-IFRS diluted EPS in Q1 2018 was EUR 0.02, compared to EUR 0.03 in Q1 2017. Reported diluted EPS in Q1 2018 was negative EUR 0.06, compared to negative EUR 0.08 in Q1 2017.

 

Nokia’s Networks business net sales were EUR 4.3bn, with operating profit of EUR 43mn

 

·                  Q1 net sales and profitability were impacted primarily by lower net sales in North America. However, order intake and backlog were excellent in Q1. Therefore, Nokia expects the net sales trajectory in North America, as well as profitability, to improve significantly in the second half of 2018.

·                  Based on firm orders, Nokia sees customer demand for 5G accelerating further, particularly in North America, where we expect commercial 5G network deployments to begin near the end of 2018.

·                  Encouraging progress was made in Q1 with our strategy to diversify and grow by targeting attractive adjacent markets.  Strong momentum continued with large enterprise vertical and webscale customers, with double-digit year-on-year growth in net sales and order intake.

·                  Momentum in our end-to-end strategy continued, with one third of our sales pipeline now comprised of solutions, products and services from multiple business groups.

 

1


 

Nokia Technologies net sales were EUR 365mn, with operating profit of EUR 274mn

 

·                  Strong track record continued, with 48% year-on-year net sales growth and 136% year-on-year operating profit increase in Q1, primarily related to license agreements entered into in 2017.

·                  Nokia Technologies continued to make good progress on new patent licensing agreements, as well as brand and technology licensing agreements; no major agreements were announced in Q1.

 

Outlook

 

·                  Nokia reiterates all of its full year 2018 Nokia-level guidance, despite expected weakness in its Networks business in the first half of 2018.

·                  In its Networks business, Nokia sees market conditions improving and 5G accelerating further, with strong momentum building by year end. Nokia now sees a stronger primary addressable market for its Networks business in full year 2018 and expects its Networks business to outperform its primary addressable market in full year 2018.

·                  Nokia remains on target to deliver EUR 1.2 billion of recurring annual cost savings in full year 2018. Our active efforts to drive 5G adoption are expected to result in EUR 100 to 200 million of temporary expenses in 2018 to support 5G customer trials.

·                  Nokia continues to see opportunities to build on its track record in Nokia Licensing within Nokia Technologies and drive a compound annual growth rate of approximately 10% for recurring net sales over the 3-year period ending 2020.

·                  Please refer to the full details and other targets in the Outlook section of this press release.

 

First quarter 2018 non-IFRS results. Refer to note 1, “Basis of Preparation” and note 15, “Performance measures”, in the “Financial statement information” section for further details(1)

 

EUR million (except for EPS in EUR)

 

Q1’18

 

Q1’17

 

YoY
change

 

Constant
currency YoY
change

 

Net sales (non-IFRS)

 

4 929

 

5 388

 

(9

)%

0

%

Nokia’s Networks business

 

4 324

 

4 902

 

(12

)%

(3

)%

Nokia Technologies

 

365

 

247

 

48

%

49

%

Group Common and Other

 

252

 

254

 

(1

)%

4

%

Gross profit (non-IFRS)

 

1 941

 

2 196

 

(12

)%

 

 

Gross margin % (non-IFRS)

 

39.4

%

40.8

%

(140

)bps

 

 

Operating profit (non-IFRS)

 

239

 

341

 

(30

)%

 

 

Nokia’s Networks business

 

43

 

324

 

(87

)%

 

 

Nokia Technologies

 

274

 

116

 

136

%

 

 

Group Common and Other

 

(78

)

(99

)

(21

)%

 

 

Operating margin % (non-IFRS)

 

4.8

%

6.3

%

(150

)bps

 

 

Financial income and expenses (non-IFRS)

 

(116

)

(81

)

43

%

 

 

Income taxes (non-IFRS)

 

(36

)

(48

)

(25

)%

 

 

Profit for the period (non-IFRS)

 

83

 

203

 

(59

)%

 

 

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

 

86

 

196

 

(56

)%

 

 

Non-controlling interests (non-IFRS)

 

(3

)

6

 

 

 

 

 

EPS, EUR diluted (non-IFRS)

 

0.02

 

0.03

 

(33

)%

 

 

 

2


 

First quarter 2018 reported results. Refer to note 1, “Basis of Preparation” and note 15, “Performance measures”, in the “Financial statement information” section for further details(1)

 

EUR million (except for EPS in EUR)

 

Q1’18

 

Q1’17

 

YoY
change

 

Constant
currency YoY
change

 

Net sales

 

4 924

 

5 378

 

(8

)%

0

%

Nokia’s Networks business

 

4 324

 

4 902

 

(12

)%

(3

)%

Nokia Technologies

 

365

 

247

 

48

%

49

%

Group Common and Other

 

252

 

254

 

(1

)%

4

%

Non-IFRS exclusions

 

(5

)

(11

)

(55

)%

 

 

Gross profit

 

1 805

 

2 125

 

(15

)%

 

 

Gross margin %

 

36.7

%

39.5

%

(280

)bps

 

 

Operating loss

 

(336

)

(127

)

165

%

 

 

Nokia’s Networks business

 

43

 

324

 

(87

)%

 

 

Nokia Technologies

 

274

 

116

 

136

%

 

 

Group Common and Other

 

(78

)

(99

)

(21

)%

 

 

Non-IFRS exclusions

 

(575

)

(468

)

23

%

 

 

Operating margin %

 

(6.8

)%

(2.4

)%

(440

)bps

 

 

Financial income and expenses

 

(108

)

(146

)

(26

)%

 

 

Income taxes

 

94

 

(154

)

 

 

 

 

Loss for the period

 

(354

)

(435

)

(19

)%

 

 

Loss attributable to the equity holders of the parent

 

(351

)

(473

)

(26

)%

 

 

Non-controlling interests

 

(3

)

37

 

 

 

 

 

EPS, EUR diluted

 

(0.06

)

(0.08

)

(25

)%

 

 

Net cash and current financial investments

 

4 176

 

4 409

 

(5

)%

 

 

 

(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 discussion of the quarterly performance and note 2, “Non-IFRS to reported reconciliation”, in the notes to the Financial statement information in this report. Change in net sales at constant currency excludes the effect 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.

 

3


 

CEO STATEMENT

 

We see strong momentum building for the full year despite a slow start in Networks. I have considerable confidence that Nokia is well-positioned to out-perform a strengthening Networks market and meet our full-year 2018 guidance.

 

Our confidence is based on strong order intake and backlog in Q1; our end-to-end strategy is resonating with customers, resulting in strong cross-sell activity and a year-on-year doubling of the multi-business group pipeline; we have clear visibility to 5G deals for large-scale commercial rollouts in United States in the second half of the year; and are successfully executing our diversification strategy, with consistent double-digit profitable growth with enterprise and webscale customers.

 

On the licensing side, first quarter recurring revenue was up by 65% year-on-year, and we expect continued strong growth in the months ahead. We see further opportunities in smart phone licensing in China, in the automotive sector and in brand licensing.

 

Our end-to-end portfolio positions us very well for 5G and our efforts to accelerate global 5G adoption are clearly delivering results. We will fuel that adoption in 2018 with investments in trial costs, as needed. These investments will position us to capture opportunities in a 5G market that we believe will substantially accelerate later this year in the United States, followed by other large-scale 5G commercial rollouts starting in 2019 in multiple geographies. Given these developments, we expect to see continued softness in the first half of 2018, followed by a much stronger second half.

 

We also see a clear path to market share gains this year given our success in 4G expansion, 5G deals, IP routing in both the service provider segment and adjacent markets, and optical, driven by 5G and webscale customers.

 

While our Networks gross margin in Q1 decreased on a year-on-year basis, the primary underlying reasons for that — regional and product mix — are largely temporary in nature and expected to improve in the second half of 2018. It is also important to understand that we did not see significant degradation of margins at the overall product level. We remain on track to deliver on our EUR 1.2 billion cost savings commitment.

 

Rajeev Suri

President and CEO

 

4


 

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:

a) Improved results in Nokia’s Networks business, which are detailed below;

b) Improved results in Nokia Technologies, which are detailed below; and

c) Lower Nokia support function 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.

 

 

 

 

 

 

 

 

 

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 swaps(1) 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 expenses(1) 

 

The reference period is full year 2015, in which the combined operating expenses of Nokia and Alcatel-Lucent, excluding Nokia Technologies, were approximately EUR 7.3 billion.

As a result of active efforts to drive 5G adoption, and in the interest of our long-term strategy given the acceleration of 5G, in 2018 we expect to incur approximately EUR 100 to 200 million of temporary incremental expenses related to 5G customer trials that will partially reduce the positive impact from the recurring annual cost savings.

(This is an update to earlier commentary for approximately EUR 100 million of temporary incremental expenses.)

 

 

 

 

 

 

 

 

 

Network equipment swaps

 

Approximately EUR 1.4 billion of charges and cash outflows in total(1)

 

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.

 

 

 

 

 

 

 

 

 

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

 

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

 

5


 

 

 

 

 

600 million over the longer-term

 

 

 

 

 

 

 

 

 

Nokia’s Networks business

 

Net sales

 

Outperform its primary addressable market in 2018 and over the longer-term

(This is an update to earlier guidance for net sales to decline in-line with its primary addressable market in 2018.)

 

 

For Nokia’s Networks business, Nokia expects net sales to outperform its primary addressable market and operating margin to expand between full year 2018 and full year 2020.

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

 

·                  An approximately 1 to 3 percent decline in the primary addressable market for Nokia’s Networks business in full year 2018, compared to 2017, on a constant currency basis. 5G momentum is expected to drive growth in the primary addressable market in 2019 and 2020, on a constant currency basis.

 

 

 

 

 

 

 

 

 

Operating margin

 

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

 

(This is an update to earlier commentary for a 2 to 4 percent decline in full year 2018.);

·                  Customer demand for 5G accelerating further, with commercial 5G network deployments expected to begin near the end of 2018.

(This is an update to earlier commentary for deployments to begin in 2019.);

·                  Improved market conditions in the second half of 2018, particularly in North America, following expected weakness in the first half of 2018 (new commentary);

·                  Our ability to scale our supply chain operations to meet increasing demand (new commentary);

·                  A negative impact to reported net sales due to foreign exchange headwinds, particularly in first half 2018;

·                  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;

·                  Lower support function costs, including IT and site costs;

·                  Uncertainty related to potential mergers or acquisitions by our customers;

·                  Product and regional mix; and

·                  Competitive and other industry dynamics.

 

 

 

 

 

 

 

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.

 

 

 

Operating margin

 

Expand to approximately 85% for full year 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:

 

6


 

 

 

 

 

 

 

·                  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.

 

(1)For further details related to the cost savings and network equipment swaps guidance, please refer to the “Cost savings program”.

 

Nokia introduces a co-investment arrangement to executive compensation

 

In order to further increase alignment of management’s interests with shareholders and to maximize long-term shareholder value creation, the Board of Directors has decided to offer a co-investment arrangement, as part of the grants under the existing 2018 Performance Share Plan, to the President and CEO and a limited number of senior leaders in key positions whose contributions have a direct impact to the Company’s strategy and long-term value.

 

Under the co-investment arrangement, the participants will be offered a matching award of two 2018 Performance Shares for each Nokia share that they purchase voluntarily with their own funds from the open market, with the payout of the Performance Shares subject to actual performance. For each participant, the arrangement is offered in addition to their normal annual long-term incentive award, and the maximum investment value corresponds to their normal annual long-term incentive award set by the company.

 

This arrangement will not change existing shareholder authorizations to the Board of Directors nor the earlier disclosed dilution impact of the 2018 Nokia Equity Program. The related purchases of shares by the participants are expected to be executed mainly during Q2 and Q3 of 2018 and the shares purchased under the arrangement must be held until January 1, 2021 in order for the matching performance share award to vest.

 

Further information of the 2018 Performance Share Plan is available in the company’s stock exchange release concerning the 2018 Nokia Equity Program published on February 1, 2018.

 

7


 

NOKIA IN Q1 2018 — NON-IFRS

 

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.

 

Year-on-year changes in non-IFRS net sales and non-IFRS operating profit

 

Nokia non-IFRS net sales decreased 9% year-on-year. On a constant currency basis, Nokia non-IFRS net sales would have been approximately flat year-on-year.

 

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

 

(578

)

(12

)%

(386

)

47

 

23

 

34

 

(281

)

(560

)bps

Nokia Technologies

 

118

 

48

%

121

 

18

 

19

 

0

 

158

 

2 810

bps

Group Common and Other

 

(2

)

(1

)%

10

 

5

 

6

 

1

 

21

 

800

bps

Eliminations

 

3

 

 

 

0

 

0

 

0

 

0

 

0

 

 

 

Nokia

 

(459

)

(9

)%

(255

)

69

 

49

 

35

 

(102

)

(150

)bps

 

On a year-on-year basis, foreign exchange fluctuations had a significantly negative impact on non-IFRS gross profit, a significantly positive impact on non-IFRS operating expenses and a slightly negative net impact on non-IFRS operating profit in the first quarter 2018.

 

Year-on-year changes in non-IFRS profit attributable to the equity holders of the parent

 

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

 

(102

)

(35

)

12

 

(120

)

(9

)

(110

)

 

Non-IFRS financial income and expenses

 

The net negative fluctuation in non-IFRS financial income and expenses was primarily due to interest expenses associated with the financial liability related to Nokia Shanghai Bell, higher losses from foreign exchange fluctuations and the inclusion of new items such as costs related to the sale of receivables and financing elements from customer and other contracts as a result of the adoption of new IFRS standards in the first quarter 2018. This was partially offset by lower interest expenses.

 

8


 

NOKIA IN Q1 2018 - REPORTED

 

FINANCIAL DISCUSSION

 

Year-on year changes in net sales and operating profit

 

Nokia net sales decreased 8% year-on-year. On a constant currency basis, Nokia net sales would have been approximately flat year-on-year.

 

EUR million

 

Net
Sales

 

%
change

 

Gross
profit

 

(R&D)

 

(SG&A)

 

Other
income
and
(expenses)

 

Operating
profit

 

Change in
operating
margin %

 

Networks business

 

(578

)

(12

)%

(386

)

47

 

23

 

34

 

(281

)

(560

)bps

Nokia Technologies

 

118

 

48

%

121

 

18

 

19

 

0

 

158

 

2 810

bps

Group Common and Other

 

(2

)

(1

)%

10

 

5

 

6

 

1

 

21

 

800

bps

Eliminations

 

3

 

 

 

0

 

0

 

0

 

0

 

0

 

 

 

Non-IFRS exclusions

 

6

 

(55

)%

(64

)

28

 

22

 

(94

)

(107

)

 

 

Nokia

 

(454

)

(8

)%

(320

)

98

 

72

 

(58

)

(209

)

(440

)bps

 

Year-on-year changes in profit attributable to the equity holders of the parent

 

EUR million

 

Operating
profit

 

Financial
income and
expenses

 

Taxes

 

Profit

 

Non-
controlling
interests

 

Profit attributable to the
equity holders of the
parent

 

Nokia

 

(209

)

38

 

248

 

81

 

(40

)

122

 

 

Financial income and expenses

 

The net positive fluctuation in financial income and expenses was primarily due to the absence of expenses related to Nokia’s tender offer to repurchase certain bonds, which negatively affected the first quarter 2017, and lower interest expenses. This was partially offset by higher losses from foreign exchange fluctuations, expenses associated with the financial liability related to Nokia Shanghai Bell and the inclusion of new items such as costs related to the sale of receivables and financing elements from customer and other contracts as a result of the adoption of new IFRS standards in the first quarter 2018.

 

Taxes

 

The change in taxes was primarily due to the absence of a EUR 245 million tax expense, which negatively affected the first quarter 2017.

 

Non-IFRS exclusions in Q1 2018

 

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

 

9


 

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.

 

Cost savings program

 

The following table summarizes the financial information related to our cost savings program, as of the end of the first quarter 2018. 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

 

Q1’18

 

Opening balance of restructuring and associated liabilities

 

810

 

+ Charges in the quarter

 

140

 

- Cash outflows in the quarter

 

120

 

= Ending balance of restructuring and associated liabilities

 

830

 

of which restructuring provisions

 

740

 

of which other associated liabilities

 

90

 

 

 

 

 

Total expected restructuring and associated charges

 

1 900

 

- Cumulative recorded

 

1 460

 

= Charges remaining to be recorded

 

440

 

 

 

 

 

Total expected restructuring and associated cash outflows

 

2 250

 

- Cumulative recorded

 

1 080

 

= Cash outflows remaining to be recorded

 

1 170

 

 

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

 

Expected amounts for

 

In EUR million, approximately
rounded to the nearest EUR 50

 

Actual

 

Actual

 

Cumulative
through
the end of

 

FY 2018
as of the end of

 

FY 2019 and
beyond
as of the end of

 

Total
as of the end of

 

million

 

2016

 

2017

 

2017

 

Q4’17

 

Q1’18

 

Q4’17

 

Q1’18

 

Q4’17

 

Q1’18

 

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

 

600

 

600

 

0

 

0

 

1 900

 

1 900

 

Restructuring and associated cash outflows

 

400

 

550

 

950

 

650

 

650

 

650

 

650

 

2 250

 

2 250

 

Charges related to network equipment swaps

 

150

 

450

 

600

 

650

 

650

 

150

 

150

 

1 400

 

1 400

 

Cash outflows related to network equipment swaps

 

150

 

450

 

600

 

650

 

650

 

150

 

150

 

1 400

 

1 400

 

 

10


 

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

 

11


 

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 strategy is subject to various risks and uncertainties and we may be unable to successfully implement our strategic plans, sustain or improve the operational and financial performance of our business groups, correctly identify or successfully pursue business opportunities or otherwise grow our business; 2) general economic and market conditions and other developments in the economies where we operate; 3) competition and our 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; 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) our ability to maintain our existing sources of intellectual property-related revenue, establish new sources of revenue and protect our intellectual property from infringement; 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 reliance on third-party solutions for data storage and service distribution, which expose us to risks relating to security, regulation and cybersecurity breaches; 15) inefficiencies, breaches, malfunctions or disruptions of information technology systems; 16) 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; 17) our exposure to various legal frameworks regulating corruption, fraud, trade policies, and other risk areas, and the possibility of proceedings or investigations that result in fines, penalties or sanctions; 18) adverse developments with respect to customer financing or extended payment terms we provide to customers; 19) the potential complex tax issues, tax disputes and tax obligations we may face in

 

12


 

various jurisdictions, including the risk of obligations to pay additional taxes; 20) our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets; 21) our ability to retain, motivate, develop and recruit appropriately skilled employees; 22) disruptions to our manufacturing, service creation, delivery, logistics and supply chain processes, and the risks related to our geographically-concentrated production sites; 23) the impact of litigation, arbitration, agreement-related disputes or product liability allegations associated with our business; 24) our ability to re-establish investment grade rating or maintain our credit ratings; 25) our ability to achieve targeted benefits from, or successfully implement planned transactions, as well as the liabilities related thereto; 26) our involvement in joint ventures and jointly-managed companies; 27) the carrying amount of our goodwill may not be recoverable; 28) uncertainty related to the amount of dividends and equity return we are able to distribute to shareholders for each financial period; 29) pension costs, employee fund-related costs, and healthcare costs; and 30) risks related to undersea infrastructure, as well as the risk factors specified on pages 71 to 89 of our 2017 annual report on Form 20-F published on March 22, 2018 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 April 25, 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.

 

Media Enquiries:

Nokia

Communications

Tel. +358 (0) 10 448 4900

Email: press.services@nokia.com

Jon Peet, Vice President, Corporate Communications

 

Investor Enquiries:

Nokia Investor Relations

 

13


 

Tel. +358 4080 3 4080

Email: investor.relations@nokia.com

 

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.

 

We adhere to the highest ethical business standards as we create technology with social purpose, quality and integrity. Nokia is enabling the infrastructure for 5G and the Internet of Things to transform the human experience www.nokia.com

 

14


 

 

Interim Report for Q1 2018

 

Solid full year results expected in Networks despite challenging Q1; continued strength in Nokia Technologies

 

·                  Nokia sees further acceleration of 5G with strong momentum building by year-end

 

·                  Nokia raises its primary addressable market outlook for its Networks business in full year 2018, and expects to outperform that market in full year 2018

 

·                  Full year 2018 Nokia-level guidance reiterated

 

Financial highlights

 

·             Net sales in Q1 2018 were EUR 4.9bn, compared to EUR 5.4bn in Q1 2017. On a constant currency basis, net sales would have been flat year-on-year.

 

·             Non-IFRS diluted EPS in Q1 2018 was EUR 0.02, compared to EUR 0.03 in Q1 2017. Reported diluted EPS in Q1 2018 was negative EUR 0.06, compared to negative EUR 0.08 in Q1 2017.

 

Nokia’s Networks business net sales were EUR 4.3bn, with operating profit of EUR 43mn

 

·             Q1 net sales and profitability were impacted primarily by lower net sales in North America. However, order intake and backlog were excellent in Q1. Therefore, Nokia expects the net sales trajectory in North America, as well as profitability, to improve significantly in the second half of 2018.

 

·             Based on firm orders, Nokia sees customer demand for 5G accelerating further, particularly in North America, where we expect commercial 5G network deployments to begin near the end of 2018.

 

·             Encouraging progress was made in Q1 with our strategy to diversify and grow by targeting attractive adjacent markets.  Strong momentum continued with large enterprise vertical and webscale customers, with double-digit year-on-year growth in net sales and order intake.

 

·             Momentum in our end-to-end strategy continued, with one third of our sales pipeline now comprised of solutions, products and services from multiple business groups.

 

Nokia Technologies net sales were EUR 365mn, with operating profit of EUR 274mn

 

·             Strong track record continued, with 48% year-on-year net sales growth and 136% year-on-year operating profit increase in Q1, primarily related to license agreements entered into in 2017.

 

·             Nokia Technologies continued to make good progress on new patent licensing agreements, as well as brand and technology licensing agreements; no major agreements were announced in Q1.

 

Outlook

 

·             Nokia reiterates all of its full year 2018 Nokia-level guidance, despite expected weakness in its Networks business in the first half of 2018.

 

·             In its Networks business, Nokia sees market conditions improving and 5G accelerating further, with strong momentum building by year end. Nokia now sees a stronger primary addressable market for its Networks business in full year 2018 and expects its Networks business to outperform its primary addressable market in full year 2018.

 

·             Nokia remains on target to deliver EUR 1.2 billion of recurring annual cost savings in full year 2018. Our active efforts to drive 5G adoption are expected to result in EUR 100 to 200 million of temporary expenses in 2018 to support 5G customer trials.

 

·             Nokia continues to see opportunities to build on its track record in Nokia Licensing within Nokia Technologies and drive a compound annual growth rate of approximately 10% for recurring net sales over the 3-year period ending 2020.

 

April 26, 2018

 

1


 

·             Please refer to the full details and other targets in the Outlook section of this press release.

 

2


 

First quarter 2018 non-IFRS results. Refer to note 1, “Basis of Preparation” and note 15, “Performance measures”, in the “Financial statement information” section for further details(1)

 

EUR million (except for EPS in EUR)

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Net sales (non-IFRS)

 

4 929

 

5 388

 

(9

)%

0

%

Nokia’s Networks business

 

4 324

 

4 902

 

(12

)%

(3

)%

Nokia Technologies

 

365

 

247

 

48

%

49

%

Group Common and Other

 

252

 

254

 

(1

)%

4

%

Gross profit (non-IFRS)

 

1 941

 

2 196

 

(12

)%

 

 

Gross margin % (non-IFRS)

 

39.4

%

40.8

%

(140

)bps

 

 

Operating profit (non-IFRS)

 

239

 

341

 

(30

)%

 

 

Nokia’s Networks business

 

43

 

324

 

(87

)%

 

 

Nokia Technologies

 

274

 

116

 

136

%

 

 

Group Common and Other

 

(78

)

(99

)

(21

)%

 

 

Operating margin % (non-IFRS)

 

4.8

%

6.3

%

(150

)bps

 

 

Financial income and expenses (non-IFRS)

 

(116

)

(81

)

43

%

 

 

Income taxes (non-IFRS)

 

(36

)

(48

)

(25

)%

 

 

Profit for the period (non-IFRS)

 

83

 

203

 

(59

)%

 

 

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

 

86

 

196

 

(56

)%

 

 

Non-controlling interests (non-IFRS)

 

(3

)

6

 

 

 

 

 

EPS, EUR diluted (non-IFRS)

 

0.02

 

0.03

 

(33

)%

 

 

 

First quarter 2018 reported results. Refer to note 1, “Basis of Preparation” and note 15, “Performance measures”, in the “Financial statement information” section for further details(1)

 

EUR million (except for EPS in EUR)

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Net sales

 

4 924

 

5 378

 

(8

)%

0

%

Nokia’s Networks business

 

4 324

 

4 902

 

(12

)%

(3

)%

Nokia Technologies

 

365

 

247

 

48

%

49

%

Group Common and Other

 

252

 

254

 

(1

)%

4

%

Non-IFRS exclusions

 

(5

)

(11

)

(55

)%

 

 

Gross profit

 

1 805

 

2 125

 

(15

)%

 

 

Gross margin %

 

36.7

%

39.5

%

(280

)bps

 

 

Operating loss

 

(336

)

(127

)

165

%

 

 

Nokia’s Networks business

 

43

 

324

 

(87

)%

 

 

Nokia Technologies

 

274

 

116

 

136

%

 

 

Group Common and Other

 

(78

)

(99

)

(21

)%

 

 

Non-IFRS exclusions

 

(575

)

(468

)

23

%

 

 

Operating margin %

 

(6.8

)%

(2.4

)%

(440

)bps

 

 

Financial income and expenses

 

(108

)

(146

)

(26

)%

 

 

Income taxes

 

94

 

(154

)

 

 

 

 

Loss for the period

 

(354

)

(435

)

(19

)%

 

 

Loss attributable to the equity holders of the parent

 

(351

)

(473

)

(26

)%

 

 

Non-controlling interests

 

(3

)

37

 

 

 

 

 

EPS, EUR diluted

 

(0.06

)

(0.08

)

(25

)%

 

 

Net cash and current financial investments

 

4 176

 

4 409

 

(5

)%

 

 

 

(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 discussion of the quarterly performance and note 2, “Non-IFRS to reported reconciliation”, in the notes to the Financial statement information in this report. Change in net sales at constant currency excludes the effect 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.

 

3


 

CEO statement

 

We see strong momentum building for the full year despite a slow start in Networks. I have considerable confidence that Nokia is well-positioned to out-perform a strengthening Networks market and meet our full-year 2018 guidance.

 

Our confidence is based on strong order intake and backlog in Q1; our end-to-end strategy is resonating with customers, resulting in strong cross-sell activity and a year-on-year doubling of the multi-business group pipeline; we have clear visibility to 5G deals for large-scale commercial rollouts in United States in the second half of the year; and are successfully executing our diversification strategy, with consistent double-digit profitable growth with enterprise and webscale customers.

 

On the licensing side, first quarter recurring revenue was up by 65% year-on-year, and we expect continued strong growth in the months ahead. We see further opportunities in smart phone licensing in China, in the automotive sector and in brand licensing.

 

Our end-to-end portfolio positions us very well for 5G and our efforts to accelerate global 5G adoption are clearly delivering results. We will fuel that adoption in 2018 with investments in trial costs, as needed. These investments will position us to capture opportunities in a 5G market that we believe will substantially accelerate later this year in the United States, followed by other large-scale 5G commercial rollouts starting in 2019 in multiple geographies. Given these developments, we expect to see continued softness in the first half of 2018, followed by a much stronger second half.

 

We also see a clear path to market share gains this year given our success in 4G expansion, 5G deals, IP routing in both the service provider segment and adjacent markets, and optical, driven by 5G and webscale customers.

 

While our Networks gross margin in Q1 decreased on a year-on-year basis, the primary underlying reasons for that — regional and product mix — are largely temporary in nature and expected to improve in the second half of 2018. It is also important to understand that we did not see significant degradation of margins at the overall product level. We remain on track to deliver on our EUR 1.2 billion cost savings commitment.

 

Rajeev Suri
President and CEO

 

4


 

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:

a)             Improved results in Nokia’s Networks business, which are detailed below;

b)             Improved results in Nokia Technologies, which are detailed below; and

c)              Lower Nokia support function 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.

 

 

 

 

 

 

 

 

 

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 swaps(1) 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 expenses(1) 

 

The reference period is full year 2015, in which the combined operating expenses of Nokia and Alcatel-Lucent, excluding Nokia Technologies, were approximately EUR 7.3 billion.

As a result of active efforts to drive 5G adoption, and in the interest of our long-term strategy given the acceleration of 5G, in 2018 we expect to incur approximately EUR 100 to 200 million of temporary incremental expenses related to 5G customer trials that will partially reduce the positive impact from the recurring annual cost savings.

(This is an update to earlier commentary for approximately EUR 100 million of temporary incremental expenses.)

 

 

 

 

 

 

 

 

 

Network equipment swaps

 

Approximately EUR 1.4 billion of charges and cash outflows in total(1)

 

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.

 

 

 

 

 

 

 

 

 

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.

 

5


 

Nokia’s Networks business

 

Net sales

 

Outperform its primary addressable market in 2018 and over the longer-term

 

(This is an update to earlier guidance for net sales to decline in-line with its primary addressable market in 2018.)

 

For Nokia’s Networks business, Nokia expects net sales to outperform its primary addressable market and operating margin to expand between full year 2018 and full year 2020.

 

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

 

·                  An approximately 1 to 3 percent decline in the primary addressable market for Nokia’s Networks business in full year 2018, compared to 2017, on a constant currency basis. 5G momentum is expected to drive growth in the primary addressable market in 2019 and 2020, on a constant currency basis.

(This is an update to earlier commentary for a 2 to 4 percent decline in full year 2018.);

·                  Customer demand for 5G accelerating further, with commercial 5G network deployments expected to begin near the end of 2018.

(This is an update to earlier commentary for deployments to begin in 2019.);

·                  Improved market conditions in the second half of 2018, particularly in North America, following expected weakness in the first half of 2018 (new commentary);

·                  Our ability to scale our supply chain operations to meet increasing demand (new commentary);

·                  A negative impact to reported net sales due to foreign exchange headwinds, particularly in first half 2018;

·                  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;

·                  Lower support function costs, including IT and site costs;

·                  Uncertainty related to potential mergers or acquisitions by our customers;

·                  Product and regional mix; and

·                  Competitive and other industry dynamics.

 

 

 

 

 

 

 

 

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.

 

 

 

Operating margin

 

Expand to approximately 85% for full year 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.

 

(1) For further details related to the cost savings and network equipment swaps guidance, please refer to the “Cost savings program” on page 9.

 

6


 

Nokia introduces a co-investment arrangement to executive compensation

 

In order to further increase alignment of management’s and shareholders’ interests and to maximize long-term shareholder value creation, the Board of Directors has decided to offer a co-investment arrangement, as part of the grants under the existing 2018 Performance Share Plan, to the President and CEO and a limited number of senior leaders in key positions whose contributions have a direct impact to the Company’s strategy and long-term value.

 

Under the co-investment arrangement, the participants will be offered a matching award of two 2018 Performance Shares for each Nokia share that they purchase voluntarily with their own funds from the open market, with the payout of the Performance Shares subject to actual performance. For each participant, the arrangement is offered in addition to their normal annual long-term incentive award, and the maximum investment value corresponds to their normal annual long-term incentive award set by the company.

 

This arrangement will not change existing shareholder authorizations to the Board of Directors nor the earlier disclosed dilution impact of the 2018 Nokia Equity Program. The related purchases of shares by the participants are expected to be executed mainly during Q2 and Q3 of 2018 and the shares purchased under the arrangement must be held until January 1, 2021 in order for the matching performance share award to vest.

 

Further information of the 2018 Performance Share Plan is available in the company’s stock exchange release concerning the 2018 Nokia Equity Program published on February 1, 2018.

 

7


 

Nokia in Q1 2018 — Non-IFRS

 

 

 

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.

 

Year-on-year changes in non-IFRS net sales and non-IFRS operating profit

 

Nokia non-IFRS net sales decreased 9% year-on-year. On a constant currency basis, Nokia non-IFRS net sales would have been approximately flat year-on-year.

 

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

 

(578

)

(12

)%

(386

)

47

 

23

 

34

 

(281

)

(560

)bps

Nokia Technologies

 

118

 

48

%

121

 

18

 

19

 

0

 

158

 

2 810

bps

Group Common and Other

 

(2

)

(1

)%

10

 

5

 

6

 

1

 

21

 

800

bps

Eliminations

 

3

 

 

 

0

 

0

 

0

 

0

 

0

 

 

 

Nokia

 

(459

)

(9

)%

(255

)

69

 

49

 

35

 

(102

)

(150

)bps

 

On a year-on-year basis, foreign exchange fluctuations had a significantly negative impact on non-IFRS gross profit, a significantly positive impact on non-IFRS operating expenses and a slightly negative net impact on non-IFRS operating profit in the first quarter 2018.

 

Year-on-year changes in non-IFRS profit attributable to the equity holders of the parent

 

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

 

(102

)

(35

)

12

 

(120

)

(9

)

(110

)

 

Non-IFRS financial income and expenses

 

The net negative fluctuation in non-IFRS financial income and expenses was primarily due to interest expenses associated with the financial liability related to Nokia Shanghai Bell, higher losses from foreign exchange fluctuations and the inclusion of new items such as costs related to the sale of receivables and financing elements from customer and other contracts as a result of the adoption of new IFRS standards in the first quarter 2018. This was partially offset by lower interest expenses.

 

8


 

Nokia in Q1 2018 — Reported

 

 

 

 

Financial discussion

 

Year-on-year changes in net sales and operating profit

 

Nokia net sales decreased 8% year-on-year. On a constant currency basis, Nokia net sales would have been approximately flat year-on-year.

 

EUR million

 

Net Sales

 

% change

 

Gross
profit

 

(R&D)

 

(SG&A)

 

Other
income and
(expenses)

 

Operating
profit

 

Change in
operating
margin %

 

Networks business

 

(578

)

(12

)%

(386

)

47

 

23

 

34

 

(281

)

(560

)bps

Nokia Technologies

 

118

 

48

%

121

 

18

 

19

 

0

 

158

 

2 810

bps

Group Common and Other

 

(2

)

(1

)%

10

 

5

 

6

 

1

 

21

 

800

bps

Eliminations

 

3

 

 

 

0

 

0

 

0

 

0

 

0

 

 

 

Non-IFRS exclusions

 

6

 

(55

)%

(64

)

28

 

22

 

(94

)

(107

)

 

 

Nokia

 

(454

)

(8

)%

(320

)

98

 

72

 

(58

)

(209

)

(440

)bps

 

Year-on-year changes in profit attributable to the equity holders of the parent

 

EUR million

 

Operating
profit

 

Financial
income and
expenses

 

Taxes

 

Profit

 

Non-
controlling
interests

 

Profit attributable to the
equity holders of the
parent

 

Nokia

 

(209

)

38

 

248

 

81

 

(40

)

122

 

 

Financial income and expenses

 

The net positive fluctuation in financial income and expenses was primarily due to the absence of expenses related to Nokia’s tender offer to repurchase certain bonds, which negatively affected the first quarter 2017, and lower interest expenses. This was partially offset by higher losses from foreign exchange fluctuations, expenses associated with the financial liability related to Nokia Shanghai Bell and the inclusion of new items such as costs related to the sale of receivables and financing elements from customer and other contracts as a result of the adoption of new IFRS standards in the first quarter 2018.

 

Taxes

 

The change in taxes was primarily due to the absence of a EUR 245 million tax expense, which negatively affected the first quarter 2017.

 

Non-IFRS exclusions in Q1 2018

 

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.

 

9


 

Cost savings program

 

The following table summarizes the financial information related to our cost savings program, as of the end of the first quarter 2018. 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

 

Q1’18

 

Opening balance of restructuring and associated liabilities

 

810

 

+ Charges in the quarter

 

140

 

- Cash outflows in the quarter

 

120

 

= Ending balance of restructuring and associated liabilities

 

830

 

of which restructuring provisions

 

740

 

of which other associated liabilities

 

90

 

 

 

 

 

Total expected restructuring and associated charges

 

1 900

 

- Cumulative recorded

 

1 460

 

= Charges remaining to be recorded

 

440

 

 

 

 

 

Total expected restructuring and associated cash outflows

 

2 250

 

- Cumulative recorded

 

1 080

 

= Cash outflows remaining to be recorded

 

1 170

 

 

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

 

 

 

 

 

 

 

 

 

Cumulative

 

Expected amounts for

 

In EUR million, approximately

 

 

 

 

 

through

 

FY 2018

 

FY 2019 and beyond

 

Total

 

rounded to the nearest EUR 50

 

Actual

 

Actual

 

the end of

 

as of the end of

 

as of the end of

 

as of the end of

 

million 

 

2016

 

2017

 

2017

 

Q4’17

 

Q1’18

 

Q4’17

 

Q1’18

 

Q4’17

 

Q1’18

 

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

 

600

 

600

 

0

 

0

 

1 900

 

1 900

 

Restructuring and associated cash outflows

 

400

 

550

 

950

 

650

 

650

 

650

 

650

 

2 250

 

2 250

 

Charges related to network equipment swaps

 

150

 

450

 

600

 

650

 

650

 

150

 

150

 

1 400

 

1 400

 

Cash outflows related to network equipment swaps

 

150

 

450

 

600

 

650

 

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.

 

10


 

Nokia’s Networks business in Q1 2018

 

Operational highlights

 

The introduction of Nokia’s 5G Future X architecture, created the foundation for Nokia’s 5G technology and services portfolio. This was enhanced with the launch of the ReefShark chipset family, strengthening Nokia’s end-to-end mobile networks portfolio with the capability to increase cell site throughput by a factor of three. Nokia also launched its next-generation Photonic Service Engine (PSE) 3 chipset. By maximizing the capacity and performance of every link in optical networks, the chipset is critical to meet surging traffic demands of video, cloud, and 5G on communication service provider and webscale networks.

 

We made further progress in our mobile portfolio and product migrations with key customers, as seen by Nokia’s FL 17A software release for LTE. This software release, with extreme reliability, was deployed faster than any release before it and put into place at more than 195,000 sites by the end of March. We also remained on track with shipping our leading FP4-based IP routing products. We have nearly 70 customer FP4 trials ongoing, including multiple engagements with fast-growing webscale companies.

 

Nokia’s expansion into select new segments, or verticals, beyond communication service providers saw continued momentum on multiple fronts, including the addition of around 30 new customers in the quarter.

 

We progressed with our expansion efforts in the cable access market, and are now offering a disruptive cable solution that gives operators the flexibility to choose from a full range of options across both fiber and cable to meet their network needs. As part of that progress, Nokia signed a deal with an important cable customer shortly after the end of the first quarter.

 

We acquired Unium, a Seattle-based software company that specializes in solving complex wireless networking problems for use in mission-critical and residential Wi-Fi applications. Unium’s software and intelligent mesh wireless technology complement and enhance Nokia’s whole-home Wi-Fi solution to maximize performance and simplify network management.

 

Among the deals signed was a commercial agreement with NTT DOCOMO, Japan’s biggest mobile operator, to supply 5G baseband products for deployment in a 5G mobile network by 2020. We also announced plans with T-Mobile for the rollout of a nationwide 5G multi-band network in the United States using Nokia’s commercial 5G solution. Nokia will begin building the network in the second quarter of 2018.

 

French power utility EDF selected Nokia to test the performance of LPWA (low power, wide area) wireless networking technologies that support safe and secure Internet of Things connectivity for potentially millions of sensors and devices.  Nokia also announced plans with Facebook to work together to accelerate the adoption of 60 GHz fixed wireless access technologies to deliver gigabit services and connect more people, faster. The 60 GHz band allows high-speed broadband connectivity in urban and suburban areas, complementing fiber networks.

 

Nokia’s signed the largest-ever GSM-R contract with PKP Polskie Linie Kolejowe in Poland, a win that underscored our end-to-end portfolio strength. The deal will provide the country with one of the biggest state-of-the-art railway communication networks in Europe and includes GSM-R and mission-critical IP/MPLS and optical transport, as well as managed services, to enhance railway security and reliability.

 

Nokia appointed Sanjay Goel as President of Global Services and as a member of the Nokia Group Leadership Team, effective from April 1, 2018. Goel was most recently head of Global Services Sales.

 

11


 

 

Financial highlights

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency YoY
change

 

Net sales

 

4 324

 

4 902

 

(12

)%

(3

)%

Ultra Broadband Networks

 

1 857

 

2 236

 

(17

)%

(8

)%

Global Services

 

1 239

 

1 361

 

(9

)%

0

%

IP Networks and Applications

 

1 228

 

1 304

 

(6

)%

4

%

Gross profit

 

1 549

 

1 935

 

(20

)%

 

 

Gross margin %

 

35.8

%

39.5

%

(370

)bps

 

 

R&D

 

(897

)

(944

)

(5

)%

 

 

SG&A

 

(644

)

(667

)

(3

)%

 

 

Other income and expenses

 

34

 

0

 

 

 

 

 

Operating profit

 

43

 

324

 

(87

)%

 

 

Operating margin %

 

1.0

%

6.6

%

(560

)bps

 

 

 

 

12


 

 

 

Net sales by region

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Asia-Pacific

 

906

 

1 046

 

(13

)%

(3

)%

Europe

 

985

 

976

 

1

%

3

%

Greater China

 

474

 

556

 

(15

)%

(9

)%

Latin America

 

290

 

227

 

28

%

48

%

Middle East & Africa

 

426

 

403

 

6

%

18

%

North America

 

1 245

 

1 694

 

(27

)%

(15

)%

Total

 

4 324

 

4 902

 

(12

)%

(3

)%

 

Financial discussion

 

Year-on-year changes in net sales and operating profit

 

A discussion of our results within Ultra Broadband Networks, Global Services and IP Networks and Applications is included in the sections “Ultra Broadband Networks”, “Global Services” and “IP Networks and Applications” below.

 

EUR million

 

Net Sales

 

% change

 

Gross
profit

 

(R&D)

 

(SG&A)

 

Other
income and
(expenses)

 

Operating
profit

 

Change in
operating
margin %

 

Ultra Broadband Networks

 

(379

)

(17

)%

(252

)

27

 

36

 

29

 

(160

)

(640

)bps

Global Services

 

(122

)

(9

)%

(71

)

0

 

0

 

10

 

(61

)

(450

)bps

IP Networks and Applications

 

(76

)

(6

)%

(63

)

20

 

(12

)

(4

)

(59

)

(470

)bps

Networks business

 

(578

)

(12

)%

(386

)

47

 

23

 

34

 

(281

)

(560

)bps

 

On a year-on-year basis, the decrease in gross profit was due to both lower net sales and lower gross margin. The decrease in gross margin was primarily due to unfavorable regional and product mix.

 

On a year-on-year basis, foreign exchange fluctuations had a significantly negative impact on gross profit, a significantly positive impact on operating expenses and a slightly negative net impact on operating profit in the first quarter 2018.

 

13


 

Ultra Broadband Networks in Q1 2018

 

 

Financial highlights

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Net sales

 

1 857

 

2 236

 

(17

)%

(8

)%

Mobile Networks

 

1 413

 

1 735

 

(19

)%

(10

)%

Fixed Networks

 

445

 

501

 

(11

)%

(3

)%

Gross profit

 

879

 

1 131

 

(22

)%

 

 

Gross margin %

 

47.3

%

50.6

%

(330

)bps

 

 

R&D

 

(556

)

(583

)

(5

)%

 

 

SG&A

 

(264

)

(300

)

(12

)%

 

 

Other income and expenses

 

26

 

(3

)

 

 

 

 

Operating profit

 

85

 

245

 

(65

)%

 

 

Operating margin %

 

4.6

%

11.0

%

(640

)bps

 

 

 

 

14


 

Net sales by region

 

 

 

 

 

 

 

 

 

Constant currency YoYchange

 

EUR million

 

Q1’18

 

Q1’17

 

YoYchange

 

Ultra Broadband
Networks

 

Mobile
Networks

 

Fixed
Networks

 

Asia-Pacific

 

400

 

457

 

(12

)%

(1

)%

 

 

Europe

 

375

 

359

 

4

%

5

%

 

 

Greater China

 

188

 

241

 

(22

)%

(17

)%

 

 

Latin America

 

93

 

64

 

45

%

67

%

 

 

Middle East & Africa

 

138

 

125

 

10

%

19

%

 

 

North America

 

665

 

989

 

(33

)%

(22

)%

 

 

Total

 

1 857

 

2 236

 

(17

)%

(8

)%

 

 

 

change less than 3%

 

Financial discussion

 

Net sales

 

Ultra Broadband Networks net sales decreased 17% year-on-year. On a constant currency basis, Ultra Broadband Networks net sales would have decreased 8% year-on-year.

 

The performance in Mobile Networks was in comparison to a strong first quarter 2017, particularly in North America. The decrease in Mobile Networks net sales was primarily due to radio networks.

 

The decrease in Fixed Networks net sales was primarily due to broadband access, services and digital home.

 

Operating profit

 

The decrease in Ultra Broadband Networks gross profit was primarily due to Mobile Networks. The decrease in Mobile Networks gross profit was due to both lower net sales and a lower gross margin. The decrease in Mobile Networks gross margin was primarily due to unfavorable regional and product mix.

 

The decrease in Ultra Broadband Networks R&D expenses was primarily due to Mobile Networks. The decrease in Mobile Networks R&D expenses was primarily due to lower personnel expenses, reflecting progress related to Nokia’s cost savings program.

 

The decrease in Ultra Broadband Networks SG&A expenses was primarily due to Mobile Networks. The decrease in Mobile Networks SG&A expenses was primarily due to lower personnel expenses, reflecting progress related to Nokia’s cost savings program.

 

The net positive fluctuation in other income and expenses was primarily due to foreign exchange hedging.

 

On a year-on-year basis, foreign exchange fluctuations had a significantly negative impact on gross profit, a significantly positive impact on operating expenses and a slightly negative net impact on operating profit in the first quarter 2018.

 

15


 

Global Services in Q1 2018

 

 

Financial highlights

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Net sales

 

1 239

 

1 361

 

(9

)%

0

%

Gross profit

 

172

 

243

 

(29

)%

 

 

Gross margin %

 

13.9

%

17.9

%

(400

)bps

 

 

R&D

 

(23

)

(23

)

0

%

 

 

SG&A

 

(164

)

(164

)

0

%

 

 

Other income and expenses

 

8

 

(2

)

 

 

 

 

Operating (loss)/profit

 

(6

)

55

 

 

 

 

 

Operating margin %

 

(0.5

)%

4.0

%

(450

)bps

 

 

 

 

16


 

Net sales by region

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Asia-Pacific

 

268

 

326

 

(18

)%

(9

)%

Europe

 

276

 

271

 

2

%

4

%

Greater China

 

196

 

207

 

(5

)%

2

%

Latin America

 

100

 

87

 

15

%

31

%

Middle East & Africa

 

181

 

175

 

3

%

21

%

North America

 

217

 

295

 

(26

)%

(15

)%

Total

 

1 239

 

1 361

 

(9

)%

0

%

 

Financial discussion

 

Net sales

 

Global Services net sales decreased 9% year-on-year. On a constant currency basis, Global Services net sales would have been approximately flat year-on-year.

 

The decrease in Global Services net sales was primarily due to network implementation, care and systems integration.

 

Operating profit

 

The decrease in Global Services gross profit was due to both a lower gross margin and lower net sales. The decrease in Global Services gross margin was primarily due to unfavorable regional mix.

 

The net positive fluctuation in other income and expenses was primarily due to foreign exchange hedging.

 

On a year-on-year basis, foreign exchange fluctuations had a significantly negative impact on gross profit, a positive impact on operating expenses and a negative net impact on operating profit in the first quarter 2018.

 

17


 

IP Networks and Applications in Q1 2018

 

 

Financial highlights

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Net sales

 

1 228

 

1 304

 

(6

)%

4

%

IP/Optical Networks

 

912

 

945

 

(3

)%

7

%

IP Routing

 

550

 

621

 

(11

)%

(2

)%

Optical Networks

 

363

 

324

 

12

%

24

%

Nokia Software

 

316

 

359

 

(12

)%

(3

)%

Gross profit

 

497

 

560

 

(11

)%

 

 

Gross margin %

 

40.5

%

42.9

%

(240

)bps

 

 

R&D

 

(318

)

(338

)

(6

)%

 

 

SG&A

 

(215

)

(203

)

6

%

 

 

Other income and expenses

 

0

 

4

 

 

 

 

 

Operating (loss)/profit

 

(36

)

23

 

 

 

 

 

Operating margin %

 

(2.9

)%

1.8

%

(470

)bps

 

 

 

 

18


 

Net sales by region

 

 

 

 

 

 

 

 

 

Constant currency
YoY change

 

EUR million

 

Q1’18

 

Q1’ 17

 

YoY change

 

IP Networks and
Applications

 

IP/Optical
Networks

 

Nokia
Software

 

Asia-Pacific

 

238

 

263

 

(10

)%

1

%

 

 

Europe

 

334

 

346

 

(3

)%

(1

)%

 

 

Greater China

 

90

 

107

 

(16

)%

(10

)%

 

 

Latin America

 

97

 

76

 

28

%

51

%

 

 

Middle East & Africa

 

106

 

102

 

4

%

13

%

 

 

North America

 

362

 

410

 

(12

)%

2

%

 

 

Total

 

1 228

 

1 304

 

(6

)%

4

%

 

 

 

 

 change less than 3%

 

Financial discussion

 

Net sales

 

IP Networks and Applications net sales decreased 6% year-on-year. On a constant currency basis, IP Networks and Applications net sales would have increased 4% year-on-year.

 

The decrease in Nokia Software net sales was primarily due to services and digital experience. Net sales in the first quarter 2018 benefitted from the acquisition of Comptel.

 

The decrease in IP/Optical Networks net sales was due to IP routing, partially offset by growth in optical networks. The growth in optical networks was primarily due to progress with targeted large enterprise vertical and webscale customers and certain customers in Asia-Pacific.

 

Operating profit

 

The decrease in IP Networks and Applications gross profit was due to both Nokia Software and IP/Optical Networks. The decrease in gross profit in Nokia Software was due to both a lower gross margin and lower net sales. The lower gross margin in Nokia Software was primarily due to unfavorable product mix and higher costs, including trial costs in China. The decrease in gross profit in IP/Optical Networks was primarily due to lower net sales.

 

The decrease in IP Networks and Applications R&D expenses was primarily due to IP/Optical Networks. The decrease in IP/Optical Networks R&D expenses was primarily due to net positive foreign exchange fluctuations. On a constant currency basis, IP/Optical Networks R&D would have increased, primarily due to higher investments in our next generation FP4-based IP routing platform and PSE-3-based optical platform.

 

The increase in IP Networks and Applications SG&A expenses was due to both Nokia Software and IP/Optical Networks.

 

On a year-on-year basis, foreign exchange fluctuations had a significantly negative impact on gross profit, a significantly positive impact on operating expenses and a slightly positive net impact on operating profit in the first quarter 2018.

 

19


 

Nokia Technologies in Q1 2018

 

Operational highlights

 

Our momentum in patent licensing continued, with discussions progressing in markets including China and in new segments including automotive.

 

Nokia’s brand licensee, HMD Global, launched four new Nokia-branded smartphones and the Nokia 8110 4G featurephone at Mobile World Congress, with great feedback across all audiences.

 

In February, Nokia announced that it is reviewing its strategic options for its Digital Health business and this process continues.

 

 

Financial highlights

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Net sales

 

365

 

247

 

48

%

49

%

Gross profit

 

355

 

234

 

52

%

 

 

Gross margin %

 

97.3

%

94.7

%

260

bps

 

 

R&D

 

(43

)

(61

)

(30

)%

 

 

SG&A

 

(39

)

(58

)

(33

)%

 

 

Other income and expenses

 

0

 

0

 

 

 

 

 

Operating profit

 

274

 

116

 

136

%

 

 

Operating margin %

 

75.1

%

47.0

%

2 810

bps

 

 

 

 

20


 

Financial discussion

 

Net sales

 

Nokia Technologies net sales increased 48% year-on-year. On a constant currency basis, Nokia Technologies net sales would have increased 49% year-on-year.

 

Of the EUR 365 million of net sales in the first quarter 2018, EUR 349 million related to patent, brand and technology licensing and EUR 16 million related to digital health.

 

The increase in Nokia Technologies net sales was primarily due to recurring net sales related to license agreements entered into in 2017. This was partially offset by lower licensing income from certain existing licensees. Nokia Technologies non-recurring catch-up net sales in the first quarter 2018 amounted to approximately zero. In the first quarter 2017, non-recurring net sales were approximately EUR 20 million.

 

Operating profit

 

The increase in Nokia Technologies gross profit was primarily due to higher net sales.

 

The decrease in Nokia Technologies R&D expenses was primarily due to reduced investments in digital media and lower patent portfolio costs.

 

The decrease in Nokia Technologies SG&A expenses was primarily due to lower licensing-related litigation costs.

 

On a year-on-year basis, foreign exchange fluctuations had a slightly negative impact on gross profit, a slightly positive impact on operating expenses and a slightly positive net impact on operating profit in the first quarter 2018.

 

21


 

Group Common and Other in Q1 2018

 

 

Financial highlights

 

EUR million

 

Q1’18

 

Q1’17

 

YoY change

 

Constant currency
YoY change

 

Net sales

 

252

 

254

 

(1

)%

4

%

Gross profit

 

37

 

27

 

37

%

 

 

Gross margin %

 

14.7

%

10.6

%

410

bps

 

 

R&D

 

(71

)

(76

)

(7

)%

 

 

SG&A

 

(50

)

(56

)

(11

)%

 

 

Other income and expenses

 

7

 

6

 

 

 

 

 

Operating loss

 

(78

)

(99

)

(21

)%

 

 

Operating margin %

 

(31.0

)%

(39.0

)%

800

bps

 

 

 

 

22


 

Financial discussion

 

Net sales

 

Group Common and Other net sales decreased 1% year-on-year. On a constant currency basis, Group Common and Other net sales would have increased 4% year-on-year.

 

Operating profit

 

The increase in Group Common and Other gross profit was primarily due to Alcatel Submarine Networks.

 

On a year-on-year basis, foreign exchange fluctuations had a slightly negative impact on gross profit, a slightly positive impact on operating expenses and a slightly positive net impact on operating profit in the first quarter 2018.

 

23


 

Cash and cash flow in Q1 2018

 

Nokia change in net cash and current financial investments (EUR billion)

 

 

EUR million, at end of period

 

Q1’18

 

Q1’17

 

YoY change

 

Q4’17

 

QoQ change

 

Total cash and current financial investments(1)

 

7 897

 

8 820

 

(10

)%

8 280

 

(5

)%

Net cash and current financial investments(1)

 

4 176

 

4 409

 

(5

)%

4 514

 

(7

)%

 

(1) Total cash and current financial investments consists of cash and cash equivalents and current financial investments. Net cash and current financial investments equals total cash and current financial investments less long-term and short-term interest-bearing liabilities. For details, please refer to note 9, “Net cash and current financial investments”, in the “Financial statement information” section in this report.

 

During the first quarter 2018, Nokia’s total cash and current financial investments decreased by EUR 383 million and Nokia’s net cash and current financial investments decreased by EUR 338 million.

 

Foreign exchange rates had an approximately EUR 30 million positive impact on net cash and current financial investments.

 

In the first quarter 2018, net cash and current financial investments used in operating activities was EUR 110 million:

 

·             Nokia’s adjusted profit before changes in net working capital was EUR 170 million in the first quarter 2018.

 

·             In the first quarter 2018, Nokia experienced a decrease in net cash and current financial investments related to net working capital of approximately EUR 30 million.

 

·                  Nokia experienced a decrease in net cash and current financial investments related to restructuring and associated cash items in the first quarter 2018 of approximately EUR 130 million. Excluding this, Nokia experienced an increase in net cash and current financial investments related to net working capital of approximately EUR 100 million primarily due to a decrease in receivables, partially offset by an increase in inventories and a decrease in liabilities.

 

·                  The increase in net cash and current financial investments related to the decrease in receivables was approximately EUR 410 million, primarily due to a receipt of a payment related to a license agreement entered into in Q4 2017 and a seasonal decrease.

 

·                  The decrease in net cash and current financial investments related to the increase in inventories was approximately EUR 170 million, primarily due to a seasonal increase.

 

·                  The decrease in net cash and current financial investments related to the decrease in liabilities was approximately EUR 140 million, primarily due to a seasonal decrease, partially offset by an increase in deferred revenues and longer payment terms.

 

·             In addition, Nokia experienced a decrease in net cash and current financial investments related to income taxes of approximately EUR 190 million, of which approximately EUR 100 million was non-recurring and related to the resolution of a tax dispute in India. Also, Nokia experienced a decrease in net cash and current financial investments related to net

 

24


 

interest of approximately EUR 70 million, of which approximately EUR 30 million was non-recurring and related to the disposal of the former Alcatel Lucent railway signaling business in 2006 to Thales.

 

In the first quarter 2018, net cash and current financial investments used in investing activities primarily related to capital expenditures of approximately EUR 260 million, of which approximately EUR 100 million were non-recurring.

 

In the first quarter 2018, net cash and current financial investments used in financing activities primarily related to paid dividends of approximately EUR 20 million.

 

Shares

 

The total number of Nokia shares on March 31, 2018, equaled 5 631 506 659. On March 31, 2018, Nokia and its subsidiary companies owned 43 959 438 Nokia shares, representing approximately 0.8% of the total number of Nokia shares and voting rights.

 

25


 

Financial statement information

Consolidated income statement (condensed, unaudited)

 

 

 

Reported