conference call q3 2016 october 27, 2016 - nokia corporation · conference call q3 2016 october 27,...
TRANSCRIPT
1 © Nokia 2016
Q3 2016Conference callOctober 27, 201615:00 / Helsinki08:00 / New York
2 © Nokia 2016
Disclaimer
It should be noted that Nokia and its business 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 future business and the financial performance of Nokia and its industry and statements preceded by “believe,” “expect,” “anticipate,” “foresee,” “sees,” “target,” “estimate,” “designed,” “aim,” “plans,” “intends,” “focus,” “continue,” “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 such differences can be both external, such as general, economic and industry conditions, as well as internal operating factors. We have identified these in more detail on pages 69 to 87 of Nokia’s annual report on Form 20-F for the year ended December 31, 2015 under “Operating and Financial Review and Prospects—Risk Factors“, our other filings with the U.S. Securities
and Exchange Commission and in our interim report issued on May 10, 2016, our financial report issued on August 4, 2016 and our interim report issued on October 27, 2016. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Nokia does not undertake any obligation to publicly update or revise forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent legally required.
In addition to information on our reported IFRS results, we provide certain information on a non-IFRS, or underlying business performance, basis. Non-IFRS results exclude all material special items for all periods. In addition, non-IFRS results exclude intangible asset amortization and other purchase price accounting related items arising from business acquisitions. We believe that our non-IFRS financial measures provide meaningful supplemental information to both management and investors regarding Nokia’s
underlying business performance by excluding the aforementioned 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. A detailed explanation of the content of the non-IFRS information and a reconciliation between the non-IFRS and the reported information for historical periods can be found in Nokia’s respective results reports. Please see our issued interim reports for more information on our results and financial performance for the indicated periods as well as our operating and reporting structure.
Nokia is a registered trademark of Nokia Corporation. Other product and company names mentioned herein may be trademarks or trade names of their respective owners.
© Nokia 2016
3 © Nokia 2016
Contents*Introduction Slides 1-4Nokia, reported Slide 5Nokia, non-IFRS Slide 6
Nokia’s Networks business Slides 7-8Ultra Broadband Networks Slide 9IP Networks and Applications Slide 10
Nokia Technologies Slide 11Group Common and Other Slide 12
Nokia cash and cash flow Slide 13Capital Structure Optimization Program Slide 14Cost savings program Slide 15
*All comparisons to 2015 in this presentation, with the exception of Nokia’s reported financial performance, are made against the combined company historicals that reflect Nokia’s new operating and financial reporting structure, including Alcatel-Lucent, and are presented as additional information as described in the release published on April 22, 2016. For details on the combined company historicals, please refer to note 1, “Basis of Preparation” in the notes to the third quarter 2016 financial statements published on October 27, 2016.
4 © Nokia 2016
Presented by
Rajeev SuriPresident and CEO
Timo IhamuotilaCFO
5 © Nokia 2016
Nokia, reported
6 © Nokia 2016
6 020 7 057 5 181 5 228 5 322
169
413
198 194 353
211
254
236 271 298
2 1842 500
1 919 2 039 1 972
0
2 000
4 000
6 000
8 000
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Nokia, non-IFRS
Q3 2016 Highlights• Solid financial and operational performance across the company.
• Non-IFRS net sales in Q3 2016 of EUR 6.0 billion (reported: EUR 5.9 billion). In the year-ago quarter, non-IFRS net sales would have been EUR 6.4 billion on a comparable combined company basis (reported: EUR 3.0 billion on a Nokia stand-alone basis).
• Non-IFRS diluted EPS in Q3 2016 of EUR 0.04 (reported: EUR negative 0.02).Networks business
Group Common and Other
Nokia Technologies
Net sales
EUR million
Networks services
Combined company
historicals
EUR million Q3'16 Q3'15 YoY change Q2'16 QoQ
changeNet sales – constant currency (non-IFRS) (6)% 4%
Net sales (non-IFRS) 5 950 6 395 (7)% 5 676 5%Nokia's Networks business 5 322 6 020 (12)% 5 228 2%Nokia Technologies 353 169 109% 194 82%Group Common and Other 298 211 41% 271 10%
Gross profit (non-IFRS) 2 365 2 410 (2)% 2 202 7%Gross margin % (non-IFRS) 39.7% 37.7% 200bps 38.8% 90bpsOperating profit (non-IFRS) 556 682 (18)% 332 67%
Nokia's Networks business 432 678 (36)% 312 38%Nokia Technologies 225 84 168% 89 153%Group Common and Other (101) (80) (68)
Operating margin % (non-IFRS) 9.3% 10.7% (140)bps 5.8% 350bps
7 © Nokia 2016
4 469 5 081 3 729 3 807 3 903
1 552
1 976
1 452 1 421 1 419
37.0 %40.1 % 38.3% 37.4% 37.2%
11.3%
15.6%
6.5% 6.0%8.1%
0%
20%
40%
0
2 000
4 000
6 000
8 000
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Nokia’s Networks business
Ultra Broadband Networks
IP Networks and Applications
GM%
OM%
Net sales and margins
Q3 2016 Highlights• 12% year-on-year net sales decrease in Q3 2016. Consistent with our outlook for the
wireless infrastructure market, net sales were weak in Mobile Networks within Ultra Broadband Networks, and accounted for approximately 80% of the overall decrease in Nokia’s Networks business. IP Networks and Applications also contributed to the decrease. This was partially offset by growth in Fixed Networks within Ultra Broadband Networks.
• In Q3 2016, solid gross margin of 37.2% and operating margin of 8.1%, supported by continued strong operational performance and cost controls.
Margin
Combined company
historicals
EUR million Q3'16 Q3'15 YoY change Q2'16 QoQ change
Net sales - constant currency (11)% 1%Net sales 5 322 6 020 (12)% 5 228 2%
Ultra Broadband Networks 3 903 4 469 (13)% 3 807 3%IP Networks and Applications 1 419 1 552 (9)% 1 421 0%
Gross profit 1 982 2 228 (11)% 1 954 1%Gross margin % 37.2% 37.0% 20bps 37.4% (20)bpsR&D (882) (904) (2)% (926) (5)%SG&A (669) (670) 0% (685) (2)%Other income and expenses 1 25 (31)Operating profit 432 678 (36)% 312 38%
Ultra Broadband Networks 326 478 (32)% 228 43%IP Networks and Applications 106 200 (47)% 84 26%
Operating margin % 8.1% 11.3% (320)bps 6.0% 210bps
EUR million
8 © Nokia 2016
Nokia’s Networks business
18%
21%
15%6%
9%
31%
Asia-Pacific Europe
Greater China Latin America
Middle East & Africa North America
Q3 2016 Q3/2015-Q3/2016
0
500
1 000
1 500
2 000
2 500
Asia-Pacific Europe GreaterChina
LatinAmerica
Middle East& Africa
NorthAmerica
EUR million
Net sales by geographic area
9 © Nokia 2016
Net sales and marginsUltra Broadband Networks
Mobile Networks
Fixed Networks
GM%
OM%
3 903 4 382 3 116 3 185 3 318
566
698
613 622 585
34.7 %37.8 % 35.9% 35.5% 35.5%
10.7%13.8%
6.3% 6.0%8.4%
0%
20%
40%
0
2 000
4 000
6 000
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
EUR million Margin
Q3 2016 Highlights• The year-on-year decrease in Ultra Broadband Networks net sales in the third
quarter 2016 was due to Mobile Networks, partially offset by Fixed Networks. • The decrease in Mobile Networks net sales was primarily due to radio networks and
services. The increase in Fixed Networks net sales was primarily due to broadband access and digital home, partially offset by a decrease in services.
• On a year-on-year basis, in the third quarter 2016, Ultra Broadband Networks operating profit decreased primarily due to lower gross profit and, to a lesser extent, a net negative fluctuation in other income and expenses, partially offset by lower R&D expenses.
• The decrease in Ultra Broadband Networks gross profit was primarily due to lower gross profit in Mobile Networks, partially offset by higher gross profit in Fixed Networks. The decrease in gross profit in Mobile Networks was primarily due to lower net sales. The increase in gross profit in Fixed Networks was primarily due to higher gross margin.
• The decrease in Ultra Broadband Networks R&D expenses was primarily due to Mobile Networks, partially offset by Fixed 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 increase in Fixed Networks R&D expenses was primarily due to the ramp-up of investments into future technologies.
Combined company
historicalsEUR million Q3'16 Q3'15 YoY change Q2'16 QoQ change
Net sales - constant currency (12)% 2%Net sales 3 903 4 469 (13)% 3 807 3%
Mobile Networks 3 318 3 903 (15)% 3 185 4%Fixed Networks 585 566 3% 622 (6)%
Gross profit 1 386 1 551 (11)% 1 353 2%Gross margin % 35.5% 34.7% 80bps 35.5% 0bpsR&D (577) (604) (4)% (616) (6)%SG&A (479) (490) (2)% (490) (2)%Other income and expenses (4) 21 (19)Operating profit 326 478 (32)% 228 43%Operating margin % 8.4% 10.7% (230)bps 6.0% 240bps
10 © Nokia 2016
Net sales and marginsIP Networks and Applications
IP Routing Applications & AnalyticsOptical Networks
GM% OM%
783 930 717 713 697
345
512
377 375 351
424
535
359 333 372
43.7%46.1%
44.5%42.3% 42.0%
12.9%20.0%
7.1%5.9% 7.5%
0%
25%
50%
0
1 000
2 000
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
EUR million Margin
Combined company
historicalsEUR million Q3'16 Q3'15 YoY change Q2'16 QoQ changeNet sales - constant currency (8)% (1)%Net sales 1 419 1 552 (9)% 1 421 0%
IP/Optical Networks 1 048 1 128 (7)% 1 088 (4)%IP Routing 697 783 (11)% 713 (2)%Optical Networks 351 345 2% 375 (6)%
Applications & Analytics 372 424 (12)% 333 12%Gross profit 596 678 (12)% 601 (1)%Gross margin % 42.0% 43.7% (170)bps 42.3% (30)bpsR&D (305) (301) 1% (309) (1)%SG&A (191) (180) 6% (195) (2)%Other income and expenses 5 4 (12)Operating profit 106 200 (47)% 84 26%Operating margin % 7.5% 12.9% (540)bps 5.9% 160bps
Q3 2016 Highlights• The year-on-year decrease in IP Networks and Applications net sales in the third
quarter 2016 was due to both IP/Optical Networks and Applications & Analytics. • The decrease in IP/Optical Networks net sales was due to IP routing, partially offset
by optical networks. The decrease in Applications & Analytics net sales was due to broad based declines across most business lines and regions.
• On a year-on-year basis, in the third quarter 2016, IP Networks and Applications operating profit decreased primarily due to lower gross profit and, to a lesser extent, higher SG&A expenses.
• The decrease in IP Networks and Applications gross profit was due to both Applications & Analytics and IP/Optical Networks. The decrease in gross profit in Applications & Analytics was due to lower net sales and lower gross margin. The decrease in gross profit in IP/Optical Networks was primarily due to lower net sales.
• The increase in IP Networks and Applications SG&A expenses was primarily due to investments to support sales diversification in IP/Optical Networks.
11 © Nokia 2016
EUR million Q3'16
Combined company
historicalsQ3'15
YoY change Q2'16
QoQchange
Net sales - constant currency 109% 82%Net sales 353 169 109% 194 82%Gross profit 341 166 105% 187 82%Gross margin % 96.6% 98.2% (160)bps 96.4% 20bpsR&D (65) (55) 18% (57) 14%SG&A (50) (27) 85% (39) 28%Other income and expenses 0 0 (2)Operating profit 225 84 168% 89 153%Operating margin % 63.7% 49.6% 1 410bps 45.9% 1 780bps
Net sales and marginsNokia Technologies
169 413 198 194 353
98.3% 99.0% 98.5% 96.4% 96.6%
49.6%
75.3%
53.5%45.9%
63.7%
0%
50%
100%
0
200
400
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
Q3 2016 Highlights• The year-on-year and sequential increase in Nokia Technologies net sales in the third
quarter 2016 was primarily due to non-recurring net sales and higher intellectual property licensing income, both of which primarily related to an expanded license agreement. The non-recurring net sales totaled approximately EUR 100 million in the third quarter 2016. To a lesser extent, the year-on-year and sequential increase in Nokia Technologies net sales was also attributable to the acquisition of Withings.
• The year-on-year increase in Nokia Technologies operating profit was primarily due to higher gross profit, partially offset by higher SG&A and R&D expenses.
• The increase in Nokia Technologies gross profit was primarily due to higher net sales.• The increase in Nokia Technologies R&D expenses was primarily due to higher
investments in the areas of digital media and digital health, partially offset by lower patent portfolio costs. The higher R&D expenses in digital health was primarily due to the acquisition of Withings.
• The increase in Nokia Technologies SG&A expenses was primarily due to increased licensing activities, the ramp-up of digital health and digital media and higher business support costs. The higher SG&A expenses in digital health was primarily due to the acquisition of Withings.
EUR million Margin
GM%
OM%
12 © Nokia 2016
EUR million Q3'16
Combined company
historicalsQ3'15 YoY change Q2'16
QoQchange
Net sales - constant currency 40% 9%Net sales 298 211 41% 271 10%Gross profit 41 16 156% 61 (33)%Gross margin % 13.8% 7.6% 620bps 22.5% (870)bpsR&D (70) (64) 9% (66) 6%SG&A (61) (51) 20% (56) 9%Other income and expenses (11) 19 (7)Operating loss (101) (80) (68)Operating margin % (33.9)% (37.9)% 400bps (25.1)% (880)bps
Net sales and marginsGroup Common and Other
211 254 236 271 298
7.6%12.6% 11.0%
22.5%
13.8%
(37.9%)
(50.8%)
(41.9%)
(25.1%)
(33.9%)
(60%)
(30%)
0%
30%
0
200
400
Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016
EUR million Margin
GM%
OM%
Q3 2016 Highlights• 41% year-on-year net sales increase in Q3 2016, with particularly strong growth in
Alcatel Submarine Networks.
• Group Common and Other operating loss increased year-on-year, primarily due to a net negative fluctuation in other income and expenses and higher SG&A expenses, partially offset by higher gross profit.
• The increase in Group Common and Other gross profit was primarily due to Alcatel Submarine Networks.
• Group Common and Other other income and expenses was an expense of EUR 11 million in the third quarter 2016, compared to an income of EUR 19 million in the year-ago quarter. On a year-on-year basis, the change was primarily due to the absence of realized gains related to certain of Nokia’s investments made through its venture funds.
13 © Nokia 2016
Nokia change in net cash and other liquid assets(EUR billion)
14 © Nokia 2016
3.0 3.0 3.0
0.9 0.9 0.9
0.6 0.6 0.60.6 0.6
1.51.0
0.9 0.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
Total Program as announced onOctober 29, 2015
Total Program as announced onOctober 27, 2016
Completed through Q3 20162016 dividendShare buybackShare buyback – Cash used to acquire Alcatel-Lucent securities prior to the buy-out offerSpecial dividend2015 dividendDe-leveraging
Nokia EUR 7 billion Capital Structure Optimization Programall figures approximate, in EUR billion
~
~
>
15 © Nokia 2016
Cost savings programall figures approximate, in EUR million
The following table summarizes the financial information related to our cost savings program, as of the end of the third 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.
~ In EUR million, approximately Q3’16
Opening balance of restructuring and associated liabilities 970
+ Charges in the quarter 40
- Cash outflows in the quarter 200
= Ending balance of restructuring and associated liabilities 810
of which restructuring provisions 780 of which other associated liabilities 30
Total expected restructuring and associated charges 1 200
- Cumulative recorded 640
= Charges remaining to be recorded 560
Total expected restructuring and associated cash outflows 1 650
- Cumulative recorded 280
= Cash outflows remaining to be recorded 1 370