Conference call
August 4, 2016
15:00 / Helsinki
08:00
/ New York
1
© Nokia 2016
Q2 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
2
© Nokia 2016
issued on May 10, 2016 and our half year financial
report issued on August 4, 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 forwardlooking 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 costs related to the Alcatel-Lucent
transaction and related integration, 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.
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
Contents*
Introduction
Nokia, reported
Nokia, non-IFRS
Nokia’s Networks business
Ultra Broadband
IP Networks and Applications
Nokia Technologies
Group Common and Other
Nokia cash and cash flow
Capital Structure Optimization Program
Cost savings program
3
© Nokia 2016
Slides
Slide
Slide
Slides
Slide
Slide
Slide
Slide
Slide
Slide
Slide
1-4
5
6
7-8
9
10
11
12
13
14
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 second quarter 2016 financial statements published on August 4, 2016.
Presented by
Rajeev Suri
President and CEO
Timo Ihamuotila
CFO
4
© Nokia 2016
Nokia, reported
5
© Nokia 2016
Nokia, non-IFRS
Combined
company
historicals
Net sales
EUR million
8 000
254
413
254
219
211
169
236
198
271
194
4 000
0
2 220
5 895
2 184
6 020
2 500
7 057
1 919
2 039
5 181
5 228
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
6
Networks business
Nokia Technologies
Networks services
Group Common and Other
© Nokia 2016
YoY
change
Q1'16
(9)%
QoQ
change
2%
Net sales (non-IFRS)
Nokia's Networks business
Nokia Technologies
Group Common and Other
Gross profit (non-IFRS)
5 676
5 228
194
271
2 202
6 363
5 895
219
254
2 495
(11)%
(11)%
(11)%
7%
(12)%
5 603
5 181
198
236
2 205
1%
1%
(2)%
15%
0%
Gross margin % (non-IFRS)
38.8%
39.2%
(40)bps
39.4%
(60)bps
332
312
89
(68)
649
511
120
18
(49)%
(39)%
(26)%
345
337
106
(99)
(4)%
(7)%
(16)%
5.8%
10.2%
(440)bps
6.2%
(40)bps
Operating profit (non-IFRS)
Nokia's Networks business
Nokia Technologies
Group Common and Other
Operating margin % (non-IFRS)
2 000
Q2'15
Net sales – constant currency
(non-IFRS)
EUR million
6 000
Q2'16
Q2 2016 Highlights
•
Non-IFRS net sales in Q2 2016 of EUR 5.7 billion (reported: EUR 5.6 billion). In the yearago quarter, non-IFRS net sales would have been EUR 6.4 billion on a comparable
combined company basis (reported: EUR 2.9 billion on a Nokia stand-alone basis).
•
Non-IFRS diluted EPS in Q2 2016 of EUR 0.03 (reported: EUR negative 0.12).
•
Raised annual cost savings target to approximately EUR 1.2 billion of total annual cost
savings to be achieved in full year 2018, compared to the combined non-IFRS
operating costs of Nokia and Alcatel-Lucent for full year 2015, excluding Nokia
Technologies. Related to this, Nokia recorded approximately EUR 600 million of
restructuring and associated charges in the second quarter 2016.
Nokia’s Networks business
Combined
company
historicals
Net sales and margins
EUR million
Q2'16
Q2'15
Net sales
EUR million
IP Networks and Applications
8 000
Gross profit
37.9 %
6 000
1 593
40.1 %
37.0 %
1 976
38.3%
37.4%
Gross margin %
R&D
40%
1 552
Operating profit
1 452
Ultra Broadband Networks
1 421
IP Networks and Applications
Operating margin %
15.6%
4 469
5 081
6.5%
6.0%
3 729
3 807
Ultra Broadband Networks
GM%
IP Networks and Applications
OM%
© Nokia 2016
5 895
4 303
1 593
2 235
(11)%
(12)%
(11)%
(13)%
5 181
3 729
1 452
1 984
1%
2%
(2)%
(2)%
37.4%
(926)
37.9%
(975)
(50)bps
(5)%
38.3%
(951)
(90)bps
(3)%
(685)
(31)
312
228
84
(712)
(36)
511
308
203
(4)%
1%
(39)%
(26)%
(59)%
(677)
(19)
337
234
103
(8)%
(3)%
(18)%
6.0%
8.7%
(270)bps
6.5%
(50)bps
•
11% year-on-year net sales decrease in Q2 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 strong growth in Fixed Networks within Ultra
Broadband Networks.
•
In Q2 2016, solid gross margin of 37.4% and operating margin of 6.0% were adversely
affected by a customer in Latin America undergoing judicial recovery. Excluding this,
gross margin would have been approximately 38% and operating margin would have
been nearly 7%.
0%
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
7
(26)%
5 228
3 807
1 421
1 954
Q2 2016 Highlights
8.7%
4 303
Q1'16 QoQ change
20%
11.3%
0
SG&A
Other income and expenses
4 000
2 000
Ultra Broadband Networks
Margin
YoY change
(9)%
Net sales - constant currency
Nokia’s Networks business
Net sales by geographic area
Q2 2016
EUR million
Q2/2015-Q2/2016
2 500
19%
30%
2 000
1 500
23%
8%
1 000
7%
13%
500
8
Asia-Pacific
Europe
Greater China
Latin America
Middle East & Africa
North America
© Nokia 2016
0
Asia-Pacific Europe
Greater
China
Latin Middle East North
America
& Africa America
Ultra Broadband Networks
EUR million
Net sales - constant currency
Net sales
Net sales and margins
EUR million
Margin
Mobile Networks
Fixed Networks
Gross profit
Gross margin %
R&D
6 000
35.5 %
34.7 %
37.8 %
35.9%
35.5%
40%
698
4 000
580
SG&A
Other income and expenses
Operating profit
Operating margin %
•
622
20%
13.8%
•
10.7%
7.2%
6.3%
•
6.0%
•
0
3 722
3 903
4 382
3 116
3 185
0%
•
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
9
Mobile Networks
GM%
Fixed Networks
OM%
© Nokia 2016
3 807
3 185
622
1 353
4 303
3 722
580
1 527
35.5%
35.5%
6.0%
7.2%
(616)
(490)
(19)
228
(668)
(523)
(29)
308
YoY change
(9)%
(12)%
(14)%
7%
(11)%
0bps
(8)%
(6)%
(26)%
(120)bps
Q1'16
3 729
3 116
613
1 338
QoQ change
3%
2%
2%
1%
1%
35.9%
(40)bps
6.3%
(30)bps
(616)
(479)
(9)
234
0%
2%
(3)%
Q2 2016 Highlights
566
613
2 000
Q2'16
Combined
company
historicals
Q2'15
•
All portfolio integration decisions were made and communicated before the end of
Q2 2016. The long-term roadmap for the combined company is in place over one
year ahead of the previous Nokia-Siemens and Alcatel-Lucent integrations.
Nokia achieved an all-time high CPVi (Customer Perceived Value Index) score, which
surpassed the scores of all of our competitors. CPVi captures how customers
perceive their past experiences and their future expectations.
Nokia demonstrated the world’s first 5G ready network based on commerciallyavailable network platforms at the 5G World Conference in June 2016.
Nokia and China Mobile signed a one-year frame agreement, valued at up to EUR
1.36 billion.
Nokia announced plans to acquire Gainspeed, in order to extend its fixed access
portfolio to also cover the cable market. Gainspeed is a US-based company which is
widely regarded as the industry leader in DAA (Distributed Access Architecture)
solutions for the cable industry via its Virtual CCAP (Converged Cable Access
Platform) product line. Nokia completed this acquisition at the end of July, 2016.
Nokia announced a new Smart Home solution that lets network operators quickly
offer new services to residential customers seeking a digital home solution for the
Internet of Things.
IP Networks and Applications
EUR million
Net sales - constant currency
Net sales and margins
EUR million
2 000
Margin
44.4%
43.7%
46.1%
50%
44.5%
42.3%
535
417
1 000
359
345
SG&A
Other income and expenses
Operating profit
Operating margin %
•
25%
377
375
•
20.0%
7.1%
12.9%
0
333
512
12.7%
R&D
769
783
•
5.9%
•
930
717
713
0%
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
•
Optical Networks
IP Routing
GM%
10
© Nokia 2016
1 421
1 088
713
375
333
601
1 593
1 176
769
407
417
707
YoY change
(8)%
(11)%
(7)%
(7)%
(8)%
(20)%
(15)%
42.3%
44.4%
(210)bps
5.9%
12.7%
(680)bps
(309)
(195)
(12)
84
(307)
(190)
(8)
203
1%
3%
(59)%
Q1'16
1 452
1 093
717
377
359
646
QoQ change
(1)%
(2)%
0%
(1)%
(1)%
(7)%
(7)%
44.5%
(220)bps
7.1%
(120)bps
(335)
(199)
(10)
103
(8)%
(2)%
(18)%
Q2 2016 Highlights
424
407
Net sales
IP/Optical Networks
IP Routing
Optical Networks
Applications & Analytics
Gross profit
Gross margin %
Q2'16
Combined
company
historicals
Q2'15
Applications & Analytics
OM%
Nokia announced that its next-generation optical solution has been selected by Telefónica
Spain to help the operator handle the significant traffic growth attributable to consumer
adoption of quadruple-play services.
Nokia delivered IP/MPLS (Internet Protocol/Multiprotocol Label Switching) and optical
technology and services to Swiss electricity transmission system operator Swissgrid for
the management of its electrical grid.
Traction in our 7950 XRS (Extensible Routing System) IP Core router remained solid, with 3
new wins during the quarter, bringing our total number of core routing customers to 60.
Nokia extended its leadership in device management into IoT with the launch of the
Intelligent Management Platform for All Connected Things (IMPACT), which gives
operators, enterprises and governments a secure platform on which to scale new IoT
services. IMPACT handles data collection, event processing, device management, data
contextualization, data analytics, end-to-end security and applications enablement for any
device, any protocol and across any application.
Nokia announced Real-Time Mobile Network Analytics, the industry's first solution to give
operators an end-to-end view of mobile networks from individual subscribers,
applications, devices and operating systems, network elements, cells and calls. This new
approach enables operators to have a more holistic and comprehensive view of their
subscribers enabling more proactive network management.
Nokia Technologies
Net sales and margins
EUR million
Margin
100%
98.3%
99.0%
98.5%
96.4%
Net sales
Gross profit
Gross margin %
R&D
SG&A
Other income and expenses
Operating profit
Operating margin %
400
54.6%
75.3%
49.6%
53.5%
45.9%
50%
•
•
219
169
413
198
194
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
GM%
OM%
11
© Nokia 2016
219
217
(11)%
(14)%
198
195
(2)%
(4)%
96.4%
99.1%
(270)bps
98.5%
(210)bps
(57)
(39)
(2)
89
(70)
(28)
0
120
(19)%
39%
(2)%
22%
(26)%
(58)
(32)
0
106
(16)%
45.9%
54.6%
(870)bps
53.5%
(760)bps
YoY
change
Q1'16
(11)%
QoQ
change
(2)%
Q2 2016 Highlights
200
0
194
187
Net sales - constant currency
EUR million
99.1%
Q2'16
Combined
company
historicals
Q2'15
0%
11% year-on-year net sales decrease in Q2 2016. Excluding the impact of nonrecurring items that benefitted the year-ago quarter, Nokia Technologies net sales
would have grown by approximately 10% year-on-year, primarily due to higher
intellectual property licensing income from existing licensees.
Announced an expansion of the patent cross license agreement with Samsung on
July 13, 2016 to cover certain additional patent portfolios, reinforcing Nokia's
leadership in technologies for the programmable world. The expansion of the
agreement occurred subsequent to the end of the second quarter 2016, and
therefore did not impact the second quarter of 2016 financials. Instead, the
expanded agreement will have a positive impact to Nokia Technologies starting from
the third quarter of 2016. Nokia expects total annualized net sales related to patent
and brand licensing to grow to a run rate of approximately EUR 950 million by the
end of 2016.
Group Common and Other
Q2'16
Net sales and margins
Net sales - constant currency
Margin
Net sales
Gross profit
7.4%
200
0
22.5%
16.9%
254
211
YoY change
Q1'16
QoQ
change
EUR million
EUR million
400
Combined
company
historicals
Q2'15
12.6%
11.0%
254
236
30%
Gross margin %
16%
254
7%
236
15%
61
43
42%
26
135%
22.5%
16.9%
560bps
11.0%
1 150bps
R&D
(66)
(73)
(10)%
(73)
(10)%
SG&A
(56)
(61)
(8)%
(55)
2%
(7)
110
Other income and expenses
Operating loss
271
3%
271
Operating margin %
(68)
18
(25.1)%
7.1%
3
(99)
(3 220)bps
(41.9)%
1 680bps
0%
7.1%
Q2 2016 Highlights
(25.1%)
(50.8%)
(41.9%)
(30%)
•
Continued year-on-year net sales growth in Alcatel Submarine Networks, partially
offset by Radio Frequency Systems.
•
On a year-on-year basis, Group Common and Other had an operating loss, compared
to an operating profit in the year-ago quarter. The change was primarily due to a net
negative fluctuation in other income and expenses, partially offset by higher gross
profit.
•
The increase in Group Common and Other gross profit was primarily due to Alcatel
Submarine Networks, partially offset by Radio Frequency Systems.
•
Group Common and Other other income and expenses was adversely affected by
the absence of realized gains and losses related to certain of Nokia’s investments
made through its venture funds, which benefitted the year-ago quarter.
(38.%)
(60%)
Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016
GM%
OM%
12
© Nokia 2016
Nokia change in net cash and other liquid assets
(EUR billion)
13
© Nokia 2016
Nokia EUR 7 billion Capital Structure Optimization Program
all figures approximate, in EUR billion
7.0
0.9
6.0
5.0
4.0
~
0.6
0.9
>
~
1.5
* Repayment of EUR 190 million Alcatel-Lucent
bond and a EUR 74 million loan, the redemption
of Alcatel-Lucent’s USD 1.85 billion senior notes
and reduction of sale of receivables by EUR 1.0
billion.
3.0
2.0
3.0
1.0
3.0
0.9
0.0
Total Program as
announced on
October 29, 2015
De-leveraging
14
© Nokia 2016
0.6
Completed through
Q2 2016*
Share buyback
** On June 16, 2016, Nokia’s Annual General
Meeting resolved to distribute the ordinary
dividend of EUR 0.16 and special dividend of
EUR 0.10 per share. The dividends were not paid
until Q3 2016.
2015 Dividend and
Special dividend**
2015 Dividend
Special dividend
2016 Dividend
Cost savings program
all figures approximate, in EUR million
The following table summarizes the financial information related to our cost savings program, as of the end of the second 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
Opening balance of restructuring and associated liabilities
450
+ Charges in the quarter
600
- Cash outflows in the quarter
= Ending balance of restructuring and associated liabilities
970
850
of which other associated liabilities
120
1 200
- Cumulative recorded – updated program
600
= Charges remaining to be recorded – updated program
600
Total expected restructuring and associated cash outflows
- Cumulative recorded
= Cash outflows remaining to be recorded
© Nokia 2016
80
of which restructuring provisions
Total expected restructuring and associated charges – updated program
15
Q2’16
1 650
80
1 570
The Q2 2016 opening balance of restructuring and associated liabilities of approximately EUR 450 million relates to previous Nokia and
Alcatel-Lucent restructuring and cost-savings programs, and represents expected cash outflows which have been provisioned for but not
yet paid out related to these programs. The approximately EUR 450 million of restructuring and associated liabilities consists of
approximately EUR 380 million of restructuring provisions and approximately EUR 70 million of other related liabilities.