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Nokia Corporation Interim Report for Q1 2015Strong year-on-year sales growth; Weak Nokia Networks profitability compensated by good performance in Nokia Technologies and HERE | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
India FINANCIAL HIGHLIGHTS:
Nokia Networks
HERE
Nokia Technologies
(1) Results are as reported unless otherwise specified. The results information in this report is unaudited. Please see "Notes to financial statements - Basis of preparation" in our complete Q1 2015 interim report for more information. Non-IFRS results exclude transaction and other related costs resulting from the sale of substantially all of Nokia's Devices & Services business to Microsoft, goodwill impairment charges, intangible asset amortization and purchase price related items, restructuring related costs, and certain other items that may not be indicative of Nokia's underlying business performance. For a detailed discussion, please see the year to date discussion and the non-IFRS to reported reconciliation note to the financial statements in our complete Q1 2015 interim report. A reconciliation of our Q4 2014 non-IFRS results to our reported results can be found in our complete Q4 2014 interim report with tables on pages 20-25 published on January 29, 2015. A reconciliation of our Q3 2014 non-IFRS results to our reported results can be found in our complete Q3 2014 interim report with tables on pages 22-27 published on October 23, 2014. A reconciliation of our Q2 2014 non-IFRS results to our reported results can be found in our complete Q2 2014 interim report with tables on pages 22-27 published on July 24, 2014.
After the end of the first quarter 2015, Nokia announced it had entered into a memorandum of understanding regarding a combination with Alcatel-Lucent, and that it had initiated a strategic review process related to HERE. Additionally, there were positive developments in Nokia's venture fund investments after the end of the first quarter. Please refer to page 5 in Nokia's complete Q1 2015 interim report for additional information related to these events.
CEO statement Nokia delivered a 20% increase in net sales and 25% increase in earnings per share in the first quarter. Underlying these results was excellent performance from HERE and Nokia Technologies, while good growth at Nokia Networks was offset by unsatisfactory profitability.
I remain confident that our lean operating model, ongoing focus on cost management, and the current strength of our portfolio will enable us to meet our 2015 goals for Nokia Networks. The business delivered healthy year-on-year growth even after adjusting for currency fluctuations, although a number of factors in the quarter had a negative impact on profitability. We expect some of these negative factors to ease, particularly in the second half of 2015.
HERE's excellent momentum in the automotive sector continued, helping the business deliver 25% year-on-year growth and improved profitability. As we proceed with the strategic review that we announced on April 15, we are considering our options in order to determine what is best for Nokia shareholders and best for HERE. I am very pleased with HERE's performance and firmly believe that it will have a bright future, either with Nokia or with new ownership.
Nokia Technologies also had a strong quarter with year on year sales up more than 100% and operating margin up sharply both year-on-year and sequentially. The business benefitted in the quarter from some non-recurring effects and revenue share from previously divested intellectual property rights. I am more confident than ever that licensing activities are tracking well and that there is a robust pipeline of potential new licensees. In addition, I believe that we are focusing on the right innovation opportunities and that the necessary cost discipline is in place.
Shortly after the end of the quarter, we announced a landmark deal with Alcatel-Lucent. The strategic logic of this proposed transaction is strong and we believe that it will provide long term benefits to shareholders of both Nokia and Alcatel-Lucent. We are moving fast on the necessary integration planning, and have already established a structure designed to minimize disruption to our ongoing business. We will bring the same operational discipline to our integration activities that we have successfully applied to the earlier transformation at Nokia Networks.
Rajeev Suri
The following discussion is of Nokia Group's reported results for the first quarter 2015 which comprise the results of Nokia's three businesses - Nokia Networks, HERE and Nokia Technologies, as well as Group Common Functions. Comparisons are given to the first quarter 2014 and fourth quarter 2014 results, unless otherwise indicated.
Financial discussion Net sales Nokia's net sales increased 20% year-on-year and declined 16% sequentially. At constant currency, Nokia's net sales would have increased 11% year-on-year and declined 21% sequentially.
Year-on-year discussion The year-on-year increase in Nokia's net sales in the first quarter 2015 was primarily due to higher net sales in Nokia Networks, Nokia Technologies and, to a lesser extent, in HERE.
Sequential discussion The sequential decline in Nokia's net sales in the first quarter 2015 was primarily due to seasonally lower net sales in Nokia Networks and, to a lesser extent, in HERE. This was partially offset by higher net sales in Nokia Technologies.
Non-IFRS Operating profit Year-on-year discussion Nokia's non-IFRS operating profit declined 13% year-on-year in the first quarter 2015, primarily due to a decline in non-IFRS operating profit in Nokia Networks, partially offset by increases in non-IFRS operating profit in Nokia Technologies and, to a lesser extent, in HERE.
Nokia's non-IFRS other income and expenses was an expense of EUR 19 million in the first quarter 2015, compared to an income of EUR 11 million in the first quarter 2014. On a year-on-year basis, the change in Nokia's non-IFRS other income and expenses was primarily due to lower other income in Group Common Functions and higher foreign exchange hedging related losses.
Sequential discussion Nokia's non-IFRS operating profit declined 49% sequentially in the first quarter 2015, primarily due to a decline in non-IFRS operating profit in Nokia Networks, partially offset by an increase in non-IFRS operating profit in Nokia Technologies.
Nokia's non-IFRS other income and expenses was an expense of EUR 19 million in the first quarter 2015, compared to an expense of EUR 2 million in the fourth quarter 2014. On a sequential basis, the change in Nokia's non-IFRS other income and expenses was primarily due to foreign exchange hedging related losses.
Non-IFRS Profit The share of results of associated companies in the first quarter 2015 includes an approximately EUR 25 million out of period adjustment. Nokia has historically accounted for the results of the associated company in arrears as the results have not been material. Due to an increase in the entity's earnings, the amounts reflected in the first quarter 2015 should have been recorded in the fourth quarter 2014.
Year-on-year discussion Nokia's non-IFRS profit increased 16% on a year-on-year basis in the first quarter 2015, primarily due to lower non-IFRS financial expenses and the approximately EUR 25 million out of period adjustment mentioned above, partially offset by lower non-IFRS operating profit and, to a lesser extent, higher non-IFRS tax expenses. In the first quarter 2015 Nokia's non-IFRS tax expense was based on an effective tax rate of approximately 25%, and this resulted in a higher non-IFRS tax expense than in the first quarter 2014. However, the tax expenses in the first quarter of 2014 and 2015 are not directly comparable due to the fact that Nokia's deferred tax assets in Finland and Germany were subject to valuation allowances until the third quarter of 2014.
Sequential discussion Sequentially, Nokia's non-IFRS profit declined 44% in the first quarter 2015, primarily due to a decline in non-IFRS operating profit, partially offset by lower non-IFRS tax expenses, the approximately EUR 25 million out of period adjustment mentioned above and lower non-IFRS financial expenses.
For more information and tables, click here |
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