Nokia Corporation Report for Q4 2015 and Full Year 2015

Continuation of strong operational performance in Nokia Networks and solid growth in Nokia Technologies
 

This is a summary of the Nokia Corporation report for fourth quarter 2015 and full year 2015 published today. The complete fourth quarter 2015 and full year 2015 report with tables is available at http://company.nokia.com/en/financials. Investors should not rely on summaries of our interim reports only, but should review the complete interim reports with tables.
 

Financial Highlights For Nokia's Continuing Operations
 

• Net sales of EUR 3.6 billion in Q4 2015 (EUR 3.5 billion in Q4 2014) and EUR 12.5 billion in full year 2015 (EUR 11.8 billion in full year 2014).
   

• Q4 2015 non-IFRS diluted EPS of EUR 0.15 (EUR 0.09 in Q4 2014), an increase of 67% year-on-year. Q4 2015 diluted EPS of EUR 0.13 (EUR 0.08 in Q4 2014).
   

• Full year 2015 non-IFRS diluted EPS of EUR 0.36 (EUR 0.27 in full year 2014), an increase of 33% year-on-year. Full year 2015 diluted EPS of EUR 0.31 (EUR 0.67 in full year 2014, benefitting from the recognition of a deferred tax asset).
   

• Nokia's Board of Directors will propose a dividend of EUR 0.16 per share for 2015 and a special dividend of EUR 0.10 per share (dividend of EUR 0.14 per share for 2014). Proposed dividend is estimated to result in a maximum payout of approximately EUR 960 million in dividend and EUR 600 million in special dividend¹.

Nokia Networks
 

• 5% year-on-year net sales decrease in Q4 2015 and 3% net sales growth in full year 2015. On a reported basis, Greater China and Middle East & Africa were the strongest regions. On a constant currency basis, 12% year-on-year net sales decrease in Q4 2015 and 6% net sales decrease in full year 2015.
   

• Strong non-IFRS gross margin of 39.6% in Q4 2015 primarily due to elevated levels of software in Mobile Broadband, partially offset by the absence of non-recurring intellectual property rights net sales which benefitted Q4 2014.
   

• Strong non-IFRS operating margin of 14.6% in Q4 2015. Nokia Networks delivered full year financial results towards the high end of its original 2015 targets, with a non-IFRS operating margin of 10.9% in full year 2015, through strong operational performance and continued focus on execution excellence.

Nokia Technologies
 

• 170% year-on-year net sales growth in Q4 2015 and 77% net sales growth in full year 2015. On a year-on-year basis, non-IFRS operating profit grew 318% in Q4 2015 and 102% in full year 2015, primarily related to the growth in net sales resulting from a settled arbitration. This was partially offset by higher non-IFRS operating expenses.

  	Reported fourth quarter 2015 results2											Reported January-December 2015 results2
  EUR million (except for EPS in EUR)	Q4'15		Q4'14	YoY change		Q3'15		QoQ change				Q1-Q4'15	Q1-Q4'14	YoY change
  Continuing operations
  Net sales - constant currency				(3)%				18%						(2)%
  Net sales	3 609		3 510	3%		3 036		19%				12 499	11 763	6%
  Nokia Networks	3 210		3 365	(5)%		2 877		12%				11 490	11 198	3%
  Nokia Technologies	403		149	170%		162		149%				1 024	578	77%
  Gross margin % (non-IFRS)	46.4%		40.8%	560bps		42.7%		370bps				43.3%	41.7%	160bps
  Operating profit (non-IFRS)	734		503	46%		475		55%				1 949	1 600	22%
  Nokia Networks	468		470	0%		391		20%				1 257	1 364	(8)%
  Nokia Technologies	322		77	318%		94		243%				720	357	102%
  Group Common Functions	(56)		(43)			(10)						(28)	(120)
  Operating margin % (non-IFRS)	20.3%		14.3%	600bps		15.6%		470bps				15.6%	13.6%	200bps
  Profit (non-IFRS)	575		331	74%		297		94%				1 392	1 058	32%
  Profit	499		325	54%		188		165%				1 194	2 718	(56)%
  EPS, EUR diluted (non-IFRS)	0.15		0.09	67%		0.08		87%				0.36	0.27	33%
  EPS, EUR diluted	0.13		0.08	63%		0.05		160%				0.31	0.67	(54)%
  Discontinued operations2
  Net sales	242		298	(19)%		283		(14)%				1 075	3 427	(69)%
  Profit	1 292		120	977%		(37)		(3 592)%				1 274	758	68%
  EPS, EUR diluted	0.33		0.03	1 000%		(0.01)		(3 400)%				0.32	0.18	78%

   

¹ Estimated total dividend amounts of EUR 960 million payable as dividend and EUR 600 million payable as special dividend are calculated assuming full ownership of all Alcatel-Lucent outstanding shares and conversion of all Alcatel-Lucent convertible bonds, resulting in a total of approximately 6 billion Nokia shares.
 

² Results are as reported unless otherwise specified. The results information in this report is unaudited. Nokia reports HERE as part of discontinued operations from the third quarter 2015 until completion of the sale on December 4, 2015. Non-IFRS results exclude the gains from both the sale of substantially all of Nokia's Devices & Services business to Microsoft ("Sale of the D&S Business"), as well as the sale of the HERE business net of transaction and other related costs resulting from these transactions. In addition, non-IFRS results exclude costs related to the Alcatel-Lucent transaction. Furthermore, non-IFRS results exclude goodwill impairment charges, intangible asset amortization and purchase price related items, restructuring related costs, and certain other items that may not be indicative of Nokia's underlying business performance. For details, please refer to the year to date discussion and the non-IFRS to reported reconciliation note to the financial statements. A reconciliation of the Q3 2015 non-IFRS results to the reported results can be found on page 31 in the complete Q3 2015 interim report with tables published on October 29, 2015. A reconciliation of the Q4 2014 non-IFRS results to the reported results can be found on pages 20-25 in the complete report for Q4 2014 and full year 2014 with tables published on January 29, 2015.

Nokia completes the sale of its HERE business in Q4 2015
 

Nokia completed on December 4, 2015 the sale of its HERE digital mapping and location services business to a consortium of leading automotive companies, comprising AUDI AG, BMW Group and Daimler AG.
 

The transaction, which was originally announced on August 3, 2015, valued HERE at an enterprise value of EUR 2.8 billion, subject to certain purchase price adjustments. Nokia received net proceeds of approximately EUR 2.55 billion from the transaction, which is consistent with Nokia's earlier estimated net proceeds of slightly above EUR 2.5 billion. In Q4 2015 Nokia booked a gain on the sale and a related release of cumulative foreign exchange translation differences totaling approximately EUR 1.1 billion as a result of the transaction. The gain was reported as part of discontinued operations.

Subsequent Event
 

On February 10, 2016, Nokia announced the results of its successful reopened public exchange offer for Alcatel-Lucent securities. Nokia will hold 91.25% of the share capital of Alcatel-Lucent, following the settlement of the securities tendered into the reopened offer, which is expected to occur on February 12, 2016. This equates to Nokia holding 88.07% of the share capital of Alcatel-Lucent on a fully diluted basis.
 

Nokia confirmed that it will issue approximately 321 million new shares as consideration for the Alcatel-Lucent securities that have been tendered into the reopened public exchange offer. Nokia expects to register these new shares with the Finnish Trade Register on February 12, 2016. After the registration, the total number of Nokia shares will equal approximately 5 769 million shares.
 

Assuming the conversion of all remaining outstanding Alcatel-Lucent shares and convertible bonds into Nokia shares at the exchange ratio offered in the public exchange offers, the total number of Nokia shares would equal approximately 6 billion shares.
 

As of the first quarter 2016, we expect to align our financial reporting under two areas: the Networks business and Nokia Technologies. The Networks business will be comprised of four business groups: Mobile Networks, Fixed Networks, Applications & Analytics and IP/Optical Networks. Nokia Technologies will continue to operate as a separate business group, with a clear focus on licensing and the incubation of new technologies, and will include the licensing and intellectual property portfolio management operations from Alcatel-Lucent. In addition, Nokia expects to operate the undersea cables business, Alcatel-Lucent Submarine Networks (ASN), and the antenna systems business, Radio Frequency Systems (RFS), as separate entities and plans to report ASN and RFS as part of Group Common Functions.

Rajeev Suri, President and CEO - Statement
 

“2015 was another year of dramatic transformation for Nokia and I am pleased that in the midst of all this change we were able to close the year with solid performances at both Nokia Networks and Nokia Technologies.
 

Nokia Networks delivered on its commitments for the full year, with a non-IFRS operating margin at the high end of the original guidance range and net sales up three percent on a reported currency basis. Pleasingly, both Mobile Networks and Global Services capped off the year with good fourth quarter results.
 

Nokia Technologies saw its net sales and operating profit grow considerably, based on strong licensing growth including a contribution from the arbitration award related to our licensing agreement with Samsung.
 

We have said consistently that we believe that our portfolio of innovation and intellectual property is second to none in the industry and that it has significant value that can be monetized. We expect to have further discussions with Samsung related to intellectual property and technology assets that were not covered by the arbitration process and will continue to pursue new licensing opportunities in a variety of sectors over the course of 2016 and beyond.
 

I was particularly pleased with our progress towards completing the Alcatel-Lucent transaction in the fourth quarter, culminating with the start of combined operations in early January. Our work as a combined company has gotten off to a strong start. Teams are preparing joint bids, we are working closely with our customers to ensure we can make fast and effective decisions about overlapping areas of our portfolio, and we are on target to deliver on our previously announced synergy savings.
 

While the competitive environment in Networks remained generally stable in the fourth quarter, we do expect some market headwinds in 2016 as 4G/LTE rollouts in China and some other markets start to slow. The first quarter, in particular, looks quite challenging as customers assess their CAPEX plans in light of increasing macro-economic uncertainty. In this environment, we will continue our sharp focus on operational and commercial discipline, ensure we deliver synergies as quickly as possible, and focus our energy on targeting the growth segments within the overall telecom market.

Nokia’s Continuing Operations in Q4 2015
 

Financial Discussion
 

The following discussion is of Nokia's continuing operations reported results for the fourth quarter 2015, which comprise the results of Nokia's two continuing businesses - Nokia Networks and Nokia Technologies, as well as Group Common Functions. Comparisons are given to the fourth quarter 2014 and third quarter 2015 results, unless otherwise indicated.
 

Net Sales
 

Nokia's continuing operations net sales increased 3% year-on-year and increased 19% sequentially. On a constant currency basis, Nokia's continuing operations net sales would have decreased 3% year-on-year and would have increased 18% sequentially.
 

Year-on-year discussion
 

The year-on-year increase in Nokia's continuing operations net sales in the fourth quarter 2015 was primarily due to growth in Nokia Technologies, partially offset by lower net sales in Nokia Networks.
 

Sequential discussion
 

The sequential increase in Nokia's continuing operations net sales in the fourth quarter 2015 was primarily due to growth in both Nokia Networks and Nokia Technologies.
 

Non-IFRS Operating profit

 

Year-on-year discussion
 

Nokia's continuing operations non-IFRS operating profit increased 46% year-on-year in the fourth quarter 2015, primarily due to higher non-IFRS operating profit in Nokia Technologies, partially offset by higher non-IFRS operating loss in Group Common Functions. Please see the Nokia Networks and Nokia Technologies sections for the non-IFRS operating profit discussions. The higher non-IFRS operating loss in Group Common Functions was primarily due to a net negative fluctuation in other income and expenses, partially offset by lower operating expenses.
 

On a year-on-year basis Group Common Functions non-IFRS other income and expenses was an expense of EUR 21 million in fourth quarter 2015, compared to an expense of EUR 8 million in the fourth quarter 2014. Within Group Common Functions, Nokia recorded a loss of approximately EUR 20 million in fourth quarter 2015 related to the sale of certain of Nokia's investments made through its venture funds.
 

On a year-on-year basis, foreign exchange fluctuations had a positive impact on non-IFRS gross profit, and a negative impact on non-IFRS operating expenses, resulting in a slightly positive net impact on non-IFRS operating profit in the fourth quarter 2015.
 

Sequential discussion
 

Nokia's continuing operations non-IFRS operating profit increased 55% sequentially in the fourth quarter 2015, primarily due to higher non-IFRS operating profit in Nokia Technologies and Nokia Networks, partially offset by higher non-IFRS operating loss in Group Common Functions. Please see the Nokia Networks and Nokia Technologies sections for the non-IFRS operating profit discussions. The higher non-IFRS operating loss in Group Common Functions was primarily due to a net negative fluctuation in other income and expenses and, to a lesser extent, higher operating expenses.
 

On a sequential basis Group Common Functions non-IFRS other income and expenses was an expense of EUR 21 million in the fourth quarter 2015, compared to income of EUR 17 million in the third quarter 2015. Within Group Common Functions, Nokia recorded a loss of approximately EUR 20 million in the fourth quarter 2015 related to the sale of certain of Nokia's investments made through its venture funds. This compares to a gain of approximately EUR 10 million in the third quarter 2015.
 

On a sequential basis, foreign exchange fluctuations had a slightly positive impact on non-IFRS gross profit, and a slightly negative impact on non-IFRS operating expenses, resulting in a slightly negative net impact on non-IFRS operating profit in the fourth quarter 2015.
 

Non-IFRS Profit
 

Year-on-year discussion
 

Nokia's continuing operations non-IFRS profit increased 74% on a year-on-year basis in the fourth quarter 2015, primarily due to higher non-IFRS operating profit.
 

Nokia's continuing operations non-IFRS tax rate in the fourth quarter 2015 was approximately 19%, compared to a rate of approximately 27% in the fourth quarter 2014. In the fourth quarter 2015, non-IFRS tax expense benefitted from the utilization of unrecognized deferred tax assets on previous losses related to Nokia's ownership interests in certain unlisted technology-related funds.
 

Sequential discussion
 

Sequentially, Nokia's continuing operations non-IFRS profit increased 94% in the fourth quarter 2015, primarily due to higher non-IFRS operating profit and a net positive fluctuation in non-IFRS financial income and expenses.
 

The net positive fluctuation in non-IFRS financial income and expenses was primarily due to lower foreign exchange related losses, receipt of higher distributions from third party venture funds and lower net interest expenses.
 

Nokia's continuing operations non-IFRS tax rate in the fourth quarter 2015 was approximately 19%, compared to a rate of approximately 24% in the third quarter 2015. In the fourth quarter 2015, non-IFRS tax expense benefitted from the utilization of unrecognized deferred tax assets on previous losses related to Nokia's ownership interests in certain unlisted technology-related funds.

Outlook for the combined company