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Nokia Corporation Report for Q4 2016 and Full Year 2016

Nokia Corporation 
Financial Statement Release
February 2, 2017 at 08:00 (CET +1)

Nokia Corporation Report for Q4 2016 and Full Year 2016

Operating margin for Nokia's Networks business at the high end of our guidance range for full year 2016

This is a summary of the Nokia Corporation report for fourth quarter 2016 and full year 2016 published today. The complete fourth quarter 2016 and full year 2016 report with tables is available at www.nokia.com/financials. Investors should not rely on summaries of our interim reports only, but should review the complete reports with tables.

FINANCIAL HIGHLIGHTS

  • Non-IFRS net sales in Q4 2016 of EUR 6.7bn (reported: EUR 6.6bn). In the year-ago quarter, non-IFRS net sales would have been EUR 7.7bn on a comparable combined company basis (reported: EUR 3.6bn on a Nokia stand-alone basis).
  • Non-IFRS diluted EPS in Q4 2016 of EUR 0.12 (reported: EUR 0.11) benefited by approximately EUR 0.02-0.03 due to the Q4 2016 non-IFRS tax rate coming in at 23% compared to our guidance.
  • Non-IFRS diluted EPS in full year 2016 of EUR 0.22 (reported: negative EUR 0.13).
  • Nokia's Board of Directors will propose a dividend of EUR 0.17 per share for 2016 (EUR 0.16 per share for 2015).

Nokia's Networks business

  • 14% year-on-year net sales decrease in Q4 2016, reflecting challenging market conditions in Q4 2016 and the difficult comparison against the strong performance by Alcatel-Lucent in Q4 2015.
  • Strong Q4 2016 gross margin of 40.6% and operating margin of 14.1%, supported by continued focus on operational excellence and cost controls.
  • Operating margin of 8.9% in full year 2016, at the high end of our guidance range of 7-9%.

Nokia Technologies

  • 25% year-on-year net sales decrease and 49% operating profit decrease in Q4 2016, primarily due to the absence of the Samsung arbitration award, which benefited Q4 2015. The declines were partially offset by the expanded intellectual property rights ("IPR") license agreement with Samsung announced in Q3 2016 and divested IPR. In addition, the acquisition of Withings helped to offset the decline in net sales.

Group Common and Other

  • 34% year-on-year net sales increase in Q4 2016, with particularly strong growth in Alcatel Submarine Networks.

Q4 and January-December 2016 non-IFRS results. Refer to note 1 in the Financial statement information for further details 1,2
    Combined
company histori-
cals2
        Combined
company histori-
cals2
 
EUR million Q4'16 Q4'15 YoY change Q3'16 QoQ change Q1-Q4'16 Q1-
Q4'15
YoY change
Net sales -
constant currency
(non-IFRS)
    (13)%   11%     (10)%
Net sales
(non-IFRS)
6 715 7 719 (13)% 5 950 13% 23 945 26 606 (10)%
  Nokia's Networks
business
6 069 7 057 (14)% 5 322 14% 21 799 24 634 (12)%
Ultra Broadband
Networks
4 332 5 081 (15)% 3 903 11% 15 770 18 079 (13)%
IP Networks and
Applications
1 737 1 976 (12)% 1 419 22% 6 029 6 555 (8)%
  Nokia Technologies 309 413 (25)% 353 (12)% 1 053 1 074 (2)%
  Group Common
and Other
341 254 34% 298 14% 1 145 921 24%
Gross profit
(non-IFRS)
2 818 3 272 (14)% 2 365 19% 9 589 10 441 (8)%
Gross margin %
(non-IFRS)
42.0% 42.4% (40)bps 39.7% 230bps 40.0% 39.2% 80bps
Operating profit
(non-IFRS)
940 1 279 (27)% 556 69% 2 172 2 887 (25)%
  Nokia's Networks
 business
854 1 097 (22)% 432 98% 1 935 2 496 (22)%
Ultra Broadband
Networks
574 702 (18)% 326 76% 1 362 1 656 (18)%
IP Networks and
Applications
280 396 (29)% 106 164% 573 840 (32)%
  Nokia Technologies 158 311 (49)% 225 (30)% 579 692 (16)%
  Group Common
and Other
(73) (129)   (101)   (341) (301)  
Operating margin %
(non-IFRS)
14.0% 16.6% (260)bps 9.3% 470bps 9.1% 10.9% (180)bps

Q4 and January-December 2016 reported results, unless otherwise specified. Refer to note 1 in the Financial statement information for further details 1,3
    Nokia stand-
alone histori-
cals3
        Nokia stand-
alone histori-
cals3
 
EUR million
(except for EPS
in EUR)
Q4'16 Q4'15 YoY change Q3'16 QoQ change Q1-Q4'16 Q1-Q4'15 YoY change
Net Sales -
constant currency
    84%   10%     89%
Net sales 6 641 3 609 84% 5 890 13% 23 614 12 499 89%
  Nokia's Networks
business
6 069 3 210 89% 5 322 14% 21 799 11 486 90%
Ultra Broadband
Networks
4 332 2 815 54% 3 903 11% 15 770 10 158 55%
IP Networks and
Applications
1 737 395 340% 1 419 22% 6 029 1 328 354%
  Nokia Technologies 309 403 (23)% 353 (12)% 1 053 1 027 3%
  Group Common
and Other
341 0   298 14% 1 145 0  
  Non-IFRS
exclusions
(74) 0   (60) 23% (331) 0  
Gross profit 2 659 1 693 57% 2 216 20% 8 456 5 536 53%
Gross margin % 40.0% 46.9% (690)bps 37.6% 240bps 35.8% 44.3% (850)bps
Operating profit 317 643 (51)% 55 476% (1 100) 1 697  
  Nokia's Networks
business
854 495 73% 432 98% 1 935 1 349 43%
Ultra Broadband
Networks
574 405 42% 326 76% 1 362 1 210 13%
IP Networks and
Applications
280 90 211% 106 164% 573 138 315%
  Nokia Technologies 158 316 (50)% 225 (30)% 579 698 (17)%
  Group Common
and Other
(73) (74)   (101)   (341) (89)  
  Non-IFRS exclusions (622) (93) 569% (501) 24% (3 272) (261) 1 154%
Operating margin % 4.8% 17.8% (1 300)bps 0.9% 390bps (4.7)% 13.6% (1 830)bps
Profit (non-IFRS) 676 575 18% 264 156% 1 250 1 392 (10)%
Profit/(Loss) 4 658 499 32% (133) (595)% (912) 1 194  
EPS, diluted
(non-IFRS)
0.12 0.15 (20)% 0.04 200% 0.22 0.36 (39)%
EPS, diluted 4 0.11 0.13 (15)% (0.02) (650)% (0.13) 0.31  
Net cash and other
liquid assets
5 299 7 775 (32)% 5 539 (4)% 5 299 7 775 (32)%
1Results are as reported unless otherwise specified. The results information in this report is unaudited. Non-IFRS results exclude costs related to the Alcatel-Lucent transaction 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 details, please refer to the Non-IFRS Exclusions section included in discussions of both the quarterly and year to date performance and note 2, "Non-IFRS to reported reconciliation", in the notes in the Financial statement information in this report. A reconciliation of the Q4 2015 non-IFRS combined company results to the reported results can be found in the "Nokia provides recast segment results for 2015 reflecting new financial reporting structure" stock exchange release published on April 22, 2016. Change in net sales at constant currency excludes the impact of changes in exchange rates in comparison to Euro, our reporting currency. For more information on currency exposures, please refer to note 1, "Basis of Preparation", in the Financial statement information section in this report.
2Combined company historicals reflect Nokia's new operating and financial reporting structure, including Alcatel-Lucent, and are presented as additional information as described in the stock exchange release published on April 22, 2016. For more information on the combined company historicals, please refer to note 1, "Basis of Preparation", in the Financial statement information section in this report.
3Nokia standalone historicals are the recasting of Nokia's historical standalone financial results, reflecting Nokia's updated segment reporting structure, excluding Alcatel-Lucent. Beginning from the first quarter 2016, Nokia results include those of Alcatel-Lucent on a consolidated basis. Accordingly, Nokia results beginning from the first quarter 2016 are not directly comparable to prior period Nokia standalone results.
4Reported Q1-Q4'16 result is not comparable to the reported results published previously due to an update to the Alcatel-Lucent purchase price allocation in Q3'16 which resulted in an adjustment to the reported Q1'16 income tax benefit. Refer to note 6, "Acquisitions", in the Financial statement information section in this report.


Nokia and Apple patent license renewal

In December 2016, Nokia announced that it had begun filing complaints against Apple, alleging that Apple products infringe Nokia patents. As of today, in actions across 11 countries in Asia, Europe and the US, there are now more than 50 Nokia patents in suit, covering technologies such as display, user interface, software, antenna, chipsets, video coding, as well as 3G & 4G cellular standards. Apple has also filed certain complaints against Nokia.

As one of the world's leading innovators, and following the acquisition of full ownership of Nokia Siemens Networks in 2013 and Alcatel-Lucent in 2016, Nokia now owns three valuable portfolios of intellectual property. Built on more than EUR 115 billion invested in research and development ("R&D") over the past twenty years, the tens of thousands of patents cover many important technologies used in smartphones, tablets, personal computers and similar devices.

The previous license agreement between Nokia and Apple, covering some patents from the Nokia Technologies portfolio, expired at the end of 2016 and Apple currently has no license under Nokia patents. Despite sustained efforts by Nokia, Apple has not accepted any licensing offers Nokia has made for the previously licensed patents, as well as for other patented inventions used by many of Apple's products.

Non-IFRS results provide meaningful supplemental information regarding underlying business performance

In addition to information on our reported IFRS results, we provide certain information on a non-IFRS, or underlying business performance, basis. We believe that our non-IFRS results provide meaningful supplemental information to both management and investors regarding Nokia's underlying business performance by excluding the below-described items that may not be indicative of Nokia's business operating results. These non-IFRS financial measures should not be viewed in isolation or as substitutes to the equivalent IFRS measure(s), but should be used in conjunction with the most directly comparable IFRS measure(s) in the reported results.

Non-IFRS results exclude costs related to the Alcatel-Lucent transaction 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. The non-IFRS exclusions are not allocated to the segments, and hence they are reported only at the Nokia consolidated level.

Financial discussion

The financial discussion included in this financial report of Nokia's results comprises the results of Nokia's businesses - Nokia's Networks business and Nokia Technologies, as well as Group Common and Other. For more information on the changes to our reportable segments, please refer to note 3, "Segment information and eliminations", in the Financial statement information section in this financial report.

In the discussion of Nokia's results in the fourth quarter 2016 comparisons are given to the fourth quarter 2015 and third quarter 2016 results on a combined company basis, unless otherwise indicated. This data has been prepared to reflect the financial results of the continuing operations of Nokia as if the new financial reporting structure had been in operation for the full year 2015. Certain accounting policy alignments, adjustments and reclassifications have been necessary, and these are explained in the "Basis of preparation" section of Nokia's stock exchange release published on April 22, 2016. These adjustments also include reallocation of items of costs and expenses based on their nature and changes to the definition of the line items in the combined company accounting policies, which also affect numbers presented in this financial report for 2015.

In the discussion of Nokia's reported results for the fourth quarter 2016 and full year 2016 comparisons are given to the fourth quarter 2015 and full year 2015 Nokia standalone historical results, which have been recast to reflect Nokia's updated segment reporting structure excluding Alcatel-Lucent, unless otherwise indicated. From the beginning of 2016, Nokia's results include those of Alcatel-Lucent on a consolidated basis and, accordingly, are not directly comparable to Nokia standalone historical results.

CEO STATEMENT

2016 was a time of transition for Nokia, a year in which we moved forward deliberately and successfully to execute our strategy and broaden our scope.

At the start of the year, Nokia was focused primarily on mobile networks.  We ended the year as a company with a complete portfolio spanning mobile, fixed, routing, optical, stand-alone software and more; with solid opportunities to drive higher returns through expansion into new customer segments; with emerging businesses in digital health and digital media; and with greatly expanded patent and brand licensing activities.

Pleasingly, we saw growing customer support for Nokia's strategy. Our sales pipeline with customers beyond our traditional communication service provider base accelerated over the course of the year, we saw an increasing share of our Networks pipeline coming from opportunities covering products and services from two or more of our business groups, and the potential of cross-selling started to become a reality.

We also ended the year having successfully concluded the integration of Alcatel-Lucent faster than anticipated, allowing us to shift our full focus to cost savings, continuous improvement programs and the execution of our strategy. In terms of financial performance, we were able to deliver solid results for the full year, with profitability in our Networks business coming in at the high end of our guidance range. Our ongoing intense focus on execution, cost management and pricing discipline was critical to offset the impact of challenging market conditions over the course of the year.  While I remain disappointed with our topline development in 2016, we continue to expect our performance to improve in 2017 and see the potential for margin expansion in 2017 and beyond, as market conditions improve and our sales transformation programs gain further traction.

In short, we ended 2016 positioned well for the future, with well-integrated operations, a powerful end-to-end portfolio and our disciplined operating model still delivering robust results. In addition, we remain in a position of financial strength, with a strong balance sheet and the flexibility to invest in opportunities that we believe will create shareholder value.

Rajeev Suri
President and CEO


NOKIA IN Q4 2016 - NON-IFRS

Non-IFRS net sales and non-IFRS operating profit

Nokia non-IFRS net sales decreased 13% year-on-year and increased 13% sequentially. On a constant currency basis, Nokia non-IFRS net sales would have decreased 13% year-on-year and increased 11% sequentially.

Year-on-year changes

EUR million, non-IFRS Net Sales % change Gross profit (R&D) (SG&A) Other income and (expenses) Operating profit Change in operating margin %
Networks business (988) (14)% (364) 79 72 (30) (243) (140)bps
Nokia Technologies (104) (25)% (122) 3 (30) (3) (152) (2 410)bps
Group Common and Other 87 34% 33 4 0 19 56 2 940bps
Eliminations 1   0 0 0 0 0  
Nokia (1 003) (13)% (454) 86 42 (14) (340) (260)bps

Sequential changes

EUR million, non-IFRS Net Sales % change Gross profit (R&D) (SG&A) Other income and (expenses) Operating profit Change in operating margin %
Networks business 747 14% 484 (50) (19) 7 422 600bps
Nokia Technologies (45) (12)% (54) (4) (13) 4 (67) (1 260)bps
Group Common and Other 43 14% 23 (3) 3 5 29 1 250bps
Eliminations 19   0 0 0 0 0  
Nokia 765 13% 453 (58) (29) 16 384 470bps

Non-IFRS financial income and expenses

In the fourth quarter 2016, non-IFRS financial income and expenses was an expense of EUR 72 million. This includes an impairment charge of EUR 63 million related to the performance of certain private funds investing in IPR, which was largely offset by foreign exchange gains mainly resulting from US dollar appreciation against Chinese yuan, as well as gains from venture fund distributions.

Non-IFRS taxes

In the fourth quarter 2016, non-IFRS income taxes were an expense of EUR 204 million. In the fourth quarter 2016, Nokia's non-IFRS tax rate of 23% was lower than the approximately 40% outlook we previously provided. This was primarily related to two factors. First, there was a favorable change in Nokia's regional profitability mix, the majority of which was non-recurring in nature and related to a change of estimate in Q4 2016. Second, compared to the expected profitability underlying Nokia's non-IFRS tax rate guidance, the level of realized profitability was higher, resulting in a lower non-IFRS tax rate due to a relatively larger portion of taxable profit being attributable to tax jurisdictions with lower tax rates.

NOKIA IN Q4 2016 - REPORTED                                          

FINANCIAL DISCUSSION

Net sales

Nokia net sales increased 84% year-on-year, compared to Nokia standalone net sales, and increased 13% sequentially. On a constant currency basis, Nokia net sales would have increased 84% year-on-year, compared to Nokia standalone net sales, and 10% sequentially.

Year-on-year discussion

The year-on-year increase in Nokia net sales in the fourth quarter 2016, compared to Nokia standalone net sales, was primarily due to growth in Nokia's Networks business and Group Common and Other, both of which primarily related to the acquisition of Alcatel-Lucent. This was partially offset by Nokia Technologies and a purchase price allocation adjustment related to a reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance sheet at the time of the acquisition.

Sequential discussion

The sequential increase in Nokia net sales in the fourth quarter 2016 was primarily due to growth in Nokia's Networks business and Group Common and Other. This was partially offset by Nokia Technologies and the negative impact related to a purchase price allocation adjustment associated with a reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance sheet at the time of the acquisition.

Operating profit

Year-on-year discussion

The year-on-year decrease in Nokia operating profit, compared to Nokia standalone operating profit, was primarily due to higher research and development ("R&D") expenses, higher selling, general and administrative ("SG&A") expenses and a net negative fluctuation in other income and expenses, partially offset by higher gross profit, all of which primarily related to the acquisition of Alcatel-Lucent.

The increase in gross profit was primarily due to Nokia's Networks business and, to a lesser extent, Group Common and Other, partially offset by non-IFRS exclusions related to both product portfolio integration costs and deferred revenue, as well as Nokia Technologies.

The increase in R&D expenses was primarily due to Nokia's Networks business, non-IFRS exclusions related to both amortization of intangible assets and product portfolio integration costs and, to a lesser extent, Group Common and Other and Nokia Technologies.

The increase in SG&A expenses was primarily due to Nokia's Networks business, non-IFRS exclusions related to both amortization of intangible assets and transaction and integration related costs and, to a lesser extent, Nokia Technologies and Group Common and Other.

Nokia's other income and expenses was an expense of EUR 110 million in the fourth quarter 2016, compared to an expense of EUR 3 million in the year-ago period. The net negative fluctuation was primarily related to non-IFRS exclusions attributable to higher restructuring and associated charges, partially offset by the absence of an approximately EUR 20 million loss recorded in the fourth quarter 2015, which related to certain of Nokia's investments made through its venture funds.

Sequential discussion

Nokia operating profit increased primarily due to higher gross profit, partially offset by a net negative fluctuation in other income and expenses, as well as higher R&D and SG&A expenses.

The increase in gross profit was primarily due to Nokia's Networks business and, to a lesser extent, Group Common and Other, partially offset by Nokia Technologies and non-IFRS exclusions.

The increase in R&D expenses was primarily due to Nokia's Networks business.

The increase in SG&A expenses was primarily due to Nokia's Networks business, non-IFRS exclusions and Nokia Technologies.

Nokia's other income and expenses was an expense of EUR 110 million in the fourth quarter 2016, compared to an expense of EUR 39 million in the third quarter 2016. The net negative fluctuation was primarily due to higher restructuring and associated charges.

Description of non-IFRS exclusions in Q4 2016

Non-IFRS exclusions consist of costs related to the Alcatel-Lucent transaction 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, Continuing Operations (unaudited)", in the Financial statement information section in this financial report.

    Nokia standalone historicals1      
EUR million Q4'16 Q4'15 YoY change Q3'16 QoQ change
Net sales (74) 0   (60) 23%
Gross profit (159) 0   (149) 7%
R&D (185) (9) 1 956% (179) 3%
SG&A (162) (70) 131% (145) 12%
Other income and expenses (116) (14) 729% (29) 300%
Operating profit/(loss) (622) (93) 569% (501) 24%
Financial income and expenses 0 0   (1) (100)%
Taxes 605 17 3 459% 105 476%
Profit/(loss) (17) (76) (78)% (397) (96)%
Profit/(loss) attributable to the shareholders of the parent (13) (76) (83)% (378) (97)%
Non-controlling interests (5) 0   (20) (75)%
1Nokia standalone historicals are the recasting of Nokia's historical standalone financial results, reflecting Nokia's updated segment reporting structure, excluding Alcatel-Lucent. Beginning from the first quarter 2016, Nokia results include those of Alcatel-Lucent on a consolidated basis. Accordingly, Nokia results beginning from the first quarter 2016 are not directly comparable to prior period Nokia standalone results.

Non-IFRS exclusions in net sales

In the fourth quarter 2016, non-IFRS exclusions in net sales amounted to EUR 74 million, and related to a purchase price allocation adjustment related to a reduced valuation of deferred revenue that existed on Alcatel-Lucent's balance sheet at the time of the acquisition.

Non-IFRS exclusions in operating profit

In the fourth quarter 2016, non-IFRS exclusions in operating profit amounted to EUR 622 million, and were primarily due to non-IFRS exclusions that negatively affected gross profit, R&D, SG&A and other income and expenses as follows:

In the fourth quarter 2016, non-IFRS exclusions in gross profit amounted to EUR 159 million, and were primarily due to product portfolio integration costs related to the acquisition of Alcatel-Lucent, and the deferred revenue.

In the fourth quarter 2016, non-IFRS exclusions in R&D expenses amounted to EUR 185 million, and were primarily due to the amortization of intangible assets resulting from the acquisition of Alcatel-Lucent and, to a lesser extent, product portfolio integration costs related to the acquisition of Alcatel-Lucent.

In the fourth quarter 2016, non-IFRS exclusions in SG&A expenses amounted to EUR 162 million, and were primarily due to the amortization of intangible assets resulting from the acquisition of Alcatel-Lucent, as well as integration and transaction related costs.

In the fourth quarter 2016, non-IFRS exclusions in other income and expenses amounted to EUR 116 million, and were primarily due to EUR 107 million of restructuring and associated charges for Nokia's cost reduction and efficiency improvement initiatives.


Financial income and expenses

In the fourth quarter 2016, financial income and expenses was an expense of EUR 72 million. This includes an impairment charge of EUR 63 million related to the performance of certain private funds investing in IPR, which was largely offset by foreign exchange gains mainly resulting from US dollar appreciation against Chinese yuan, as well as gains from venture fund distributions.

Taxes

In the fourth quarter 2016, income taxes were a benefit of EUR 401 million. This was primarily related to two factors. First, following the completion of the squeeze-out of the remaining Alcatel-Lucent shares, Nokia has launched actions to integrate the former Alcatel-Lucent and Nokia operating models. In the fourth quarter 2016, in connection with these integration activities, Nokia transferred certain intellectual property to its US operations, recording a tax benefit and additional deferred tax assets of EUR 348 million. Second, for US tax purposes Nokia elected to treat the acquisition of Alcatel-Lucent's US operations as an asset purchase. The impact of this election was to utilize or forfeit existing deferred tax assets and record new deferred tax assets with a longer amortization period than the life of those forfeited assets. As a result of this, we recorded EUR 91 million of additional deferred tax assets in the fourth quarter 2016. In addition, there was a favorable change in Nokia's regional profitability mix, the majority of which was non-recurring in nature and related to a change of estimate in the fourth quarter 2016.

Nokia will continue to make changes in its operating model in 2017. Due to this, in full year 2017, Nokia expects to record a reduction in deferred tax assets of approximately EUR 250 million, which will have a negative non-recurring impact on tax expenses of approximately EUR 250 million, partly offsetting the recorded non-recurring tax benefit of EUR 348 million in the fourth quarter 2016. The operating model changes, including the transfers of intellectual property and certain tax elections that Nokia has made, resulted in non-recurring cash outflows of approximately EUR 90 million in the fourth quarter 2016 and are expected to result in additional non-recurring cash outflows in 2017 of approximately EUR 150 million. The changes are expected to create more future cash tax savings than the additional non-recurring cash tax outflows in 2016 and 2017.

Cost savings program

The following table summarizes the financial information related to our cost savings program, as of the end of the fourth quarter 2016. Balances related to previous Nokia and Alcatel-Lucent restructuring and cost savings programs have been included as part of this overall cost savings program as of the second quarter 2016.

 In EUR million, approximately Q4'16
Opening balance of restructuring and associated liabilities 810
 + Charges in the quarter 110
 - Cash outflows in the quarter 130
 = Ending balance of restructuring and associated liabilities 790
  of which restructuring provisions 710
  of which other associated liabilities 80
   
Total expected restructuring and associated charges 1 700
 - Cumulative recorded 750
 = Charges remaining to be recorded 950
   
Total expected restructuring and associated cash outflows 2 150
 - Cumulative recorded 410
 = Cash outflows remaining to be recorded 1 740

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

In EUR
million,
approximately,
rounded to the
nearest EUR
50 million
2016 2017 2018 2019 Total  
 
  Previ-
ous expect-
ation
Actual Previ-
ous expect-
ation
Cur-
rent expect-
ation
Previ-
ous expect-
ation
Cur-
rent expect-
ation
Cur-
rent expect-
ation
Cur-
rent expect-
ation
 
Total cost savings 400 550 400 250 400 400 0 1 200  
 - operating
  expenses
250 350 200 100 350 350 0 800  
 - cost of sales 150 200 200 150 50 50 0 400  
Restructuring and
associated charges
700 750 800 750 200 200 0 1 700  
Restructuring and
associated cash
outflows
500 400 700 750 500 550 450 2 150  
Charges and cash
outflows related to
network equipment
swaps
300 150 300 450 300 300 0 900  

In full year 2016, the actual total cost savings benefitted from lower incentive accruals, related to the financial performance in full year 2016. Lower incentive accruals drove more than half of the higher than previously expected decrease in total costs in 2016, and this is expected to reverse in 2017, assuming full year 2017 financial performance in-line with our expectations. On a cumulative basis, Nokia continues to be well on track to achieve the targeted EUR 1.2 billion of total cost savings in full year 2018. To the extent that our actual full year 2016 charges and cash flows deviated from our previous expectations, future expectations have been adjusted accordingly.

OUTLOOK

  Metric Guidance Commentary
Nokia Annual cost savings for Nokia, excluding Nokia Technologies Approximately EUR 1.2 billion of total annual cost savings to be achieved in full year 20181 Compared to the combined non-IFRS operating costs of Nokia and Alcatel-Lucent for full year 2015, excluding Nokia Technologies. Nokia expects approximately EUR 800 million of the cost savings to come from operating expenses and approximately EUR 400 million from cost of sales.

 

Restructuring and associated charges are expected to total approximately EUR 1.7 billion. Restructuring and associated cash outflows are expected to total approximately EUR 2.15 billion.
  Network equipment swaps Approximately EUR 900 million in total1 The charges related to network equipment swaps are being recorded as non-IFRS exclusions, and therefore do not affect Nokia's non-IFRS operating profit.
  Non-IFRS financial income and expenses Expense of approximately EUR 300 million in full year 2017 Primarily includes net interest expenses related to interest-bearing liabilities, interest costs related to the defined benefit pension and other post-employment benefit plans, as well as the impact of foreign exchange rate fluctuations on certain balance sheet items.

 

Nokia expects cash outflows related to financial income and expenses to be approximately EUR 200 million in full year 2017.
  Non-IFRS tax rate Between 30% and 35% for full year 20172 Nokia expects its non-IFRS tax rate for full year 2017 to be around the midpoint of the guidance range, with the non-IFRS tax rate for Q1 2017 between 35% and 40%.
(This is an update to earlier commentary for the non-IFRS tax rate for full year 2017 to be at the high end of the guidance range.)

 

Nokia expects cash outflows related to taxes to be approximately EUR 600 million for full year 2017.
(This is an update to earlier commentary for cash outflows related to taxes to be approximately EUR 400 million for full year 2017.)
  Capital expenditures Approximately EUR 500 million in full year 2017 Primarily attributable to Nokia's Networks business.
Nokia's Networks business Net sales Decline in line with the primary addressable market in full year 2017 Nokia's outlook for net sales and operating margin for Nokia's Networks business in full year 2017 are expected to be influenced by factors including:

  • A low single digit percentage decline in the primary addressable market for Nokia's Networks business;
  • Competitive industry dynamics;
  • Product and regional mix;
  • The timing of major network deployments; and
  • Execution of cost savings and reinvestment plans, with operating expenses down on a year-on-year basis.
The 2017 outlook for Nokia's Networks business was provided on November 15, 2016 assuming constant foreign exchange rates.
Operating margin 8-10% in full year 2017

 
Nokia Technologies Net sales

 
Not provided Due to risks and uncertainties in determining the timing and value of significant licensing agreements, Nokia believes it is not appropriate to provide an annual outlook for full year 2017. If no new licensing agreements are signed, the annualized net sales run rate for patent and brand licensing would be approximately EUR 800 million in 2017, representing approximately 30% of the global smartphone market, by value, under license.

 

Nokia expects total net sales from Digital Health and Digital Media to grow year-on-year in full year 2017, primarily influenced by increased consumer adoption of our Digital Health and Digital Media products.


1 For further details related to the cost savings and network equipment swaps guidance, please refer to the "Cost savings program" section above.

2 For further details related to the tax guidance, please refer to the "Taxes" section above.

RISKS AND FORWARD-LOOKING STATEMENTS

It should be noted that Nokia and its businesses are exposed to various risks and uncertainties and certain statements herein that are not historical facts are forward-looking statements, including, without limitation, those regarding:  A) our ability to integrate Alcatel-Lucent into our operations and achieve the targeted business plans and benefits, including targeted synergies in relation to the acquisition of Alcatel-Lucent; 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) timing of the deliveries of our products and services; H) expectations and targets regarding collaboration and partnering arrangements, joint ventures or the creation of joint ventures, as well as our expected customer reach; I) outcome of pending and threatened litigation, arbitration, disputes, regulatory proceedings or investigations by authorities; J) 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 K) 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 management's best assumptions and beliefs in light of the information currently available to it. Because they involve risks and uncertainties, actual results may differ materially from the results that we currently expect. Factors, including risks and uncertainties that could cause these differences include, but are not limited to:  1) our ability to execute our strategy, sustain or improve the operational and financial performance of our business and correctly identify and successfully pursue business opportunities or growth; 2) our ability to achieve the anticipated benefits, synergies, cost savings and efficiencies of the Alcatel-Lucent acquisition, and our ability to implement our organizational and operational structure efficiently; 3) general economic and market conditions and other developments in the economies where we operate; 4) competition and our ability to effectively and profitably compete and invest in new competitive high-quality products, services, upgrades and technologies and bring them to market in a timely manner; 5) our dependence on the development of the industries in which we operate, including the cyclicality and variability of the information technology and telecommunications industries; 6) 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; 7) our ability to manage and improve our financial and operating performance, cost savings, competitiveness and synergies after the acquisition of Alcatel-Lucent; 8) our dependence on a limited number of customers and large multi-year agreements; 9) exchange rate fluctuations, as well as hedging activities; 10) Nokia Technologies' ability protect its IPR and to maintain and establish new sources of patent licensing income and IPR-related revenues, particularly in the smartphone market; 11) 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; 12) 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; 13) our reliance on third-party solutions for data storage and service distribution, which expose us to risks relating to security, regulation and cybersecurity breaches; 14) inefficiencies, breaches, malfunctions or disruptions of information technology systems; 15) Nokia Technologies' ability to generate net sales and profitability through licensing of the Nokia brand, particularly in digital media and digital health, and the development and sales of products and services, as well as other business ventures which may not materialize as planned; 16) our exposure to various legislative frameworks and jurisdictions that regulate fraud and enforce economic trade sanctions and policies, and the possibility of proceedings or investigation that result in fines, penalties or sanctions; 17) adverse developments with respect to customer financing or extended payment terms we provide to customers; 18) the potential complex tax issues, tax disputes and tax obligations we may face in various jurisdictions, including the risk of obligations to pay additional taxes; 19) our actual or anticipated performance, among other factors, which could reduce our ability to utilize deferred tax assets; 20) our ability to retain, motivate, develop and recruit appropriately skilled employees; 21) disruptions to our manufacturing, service creation, delivery, logistics and supply chain processes, and the risks related to our geographically-concentrated production sites; 22) the impact of litigation, arbitration, agreement-related disputes or product liability allegations associated with our business; 23) our ability to optimize our capital structure as planned and re-establish our investment grade credit rating or otherwise improve our credit ratings; 24) our ability to achieve targeted benefits from or successfully implement planned transactions, as well as the liabilities related thereto; 25) our involvement in joint ventures and jointly-managed companies; 26) the carrying amount of our goodwill may not be recoverable; 27) uncertainty related to the amount of dividends and equity return we are able to distribute to shareholders for each financial period; 28) pension costs, employee fund-related costs, and healthcare costs; and 29) risks related to undersea infrastructure, as well as the risk factors specified on pages 69 to 87 of our annual report on Form 20-F filed on April 1, 2016 under "Operating and financial review and prospects-Risk factors", and in Nokia's other filings with the U.S. Securities and Exchange Commission. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. We do not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.

The financial statements were authorized for issue by management on February 1, 2017

Media and Investor Contacts:

Communications, tel. +358 10 448 4900 email: press.services@nokia.com
Investor Relations, tel. +358 4080 3 4080 email: investor.relations@nokia.com

  • Nokia plans to publish its "Nokia in 2016" annual report, which includes the review by the Board of Directors and the audited annual accounts, in week 12 of 2017. The annual report will be available at www.nokia.com/financials.
  • Nokia plans to publish its first quarter 2017 results on April 27, 2017.
  • Nokia's Annual General Meeting 2017 is planned to be held on May 23, 2017.
  • Nokia plans to publish its second quarter and half year 2017 results on July 27, 2017.
  • Nokia plans to publish its third quarter 2017 results on October 26, 2017.
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