Q1 2016

Conference call
May 10, 2016
15:00 / Helsinki
08:00
/ New York
1
© Nokia 2016
Q1 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—
2
© Nokia 2016
Risk Factors“, our other filings with the U.S. Securities
and Exchange Commission and in our interim report
issued on May 10, 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 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
Contents*
Introduction
Nokia
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
3
© Nokia 2016
Slides
Slide
Slides
Slide
Slide
Slide
Slide
Slide
Slide
1-4
5
6-7
8
9
10
11
12
13
*All comparisons in this presentation 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 first quarter 2016 financial statements published on May 10, 2016.
Presented by
Rajeev Suri
President and CEO
Timo Ihamuotila
CFO
4
© Nokia 2016
Nokia
Net sales (non-IFRS)
EUR million
First quarter 2016 results compared to combined company historicals
Combined
Combined
company
company
historicals
historicals
Q1'16
Q1'15 YoY change
Q4'15 QoQ change
(9)%
Net sales – constant currency
Net sales (non-IFRS)
Nokia's Networks business
Nokia Technologies
Group Common and Other
Gross profit (non-IFRS)
EUR million
8 000
254
413
6 000
203
273
254
219
211
169
Gross margin % (non-IFRS)
236
198
4 000
2 000
0
Operating profit (non-IFRS)
Nokia's Networks business
Nokia Technologies
Group Common and Other
Operating margin % (non-IFRS)
2 122
2 220
5 662
5 895
2 184
6 020
1 919
5 181
Networks business
Nokia Technologies
Networks services
Group Common and Other
© Nokia 2016
(9)%
(8)%
(27)%
16%
(3)%
39.4%
36.9%
250bps
345
337
106
(99)
276
209
178
(111)
25%
61%
(40)%
6.2%
4.5%
170bps
(27)%
7 719
7 057
413
254
3 272
(27)%
(27)%
(52)%
(7)%
(33)%
1 279
1 097
311
(129)
(73)%
(69)%
(66)%
42.4% (300)bps
16.6% (1 040)bps
•
Non-IFRS net sales in Q1 2016 of EUR 5.6 billion. In the year-ago quarter, non-IFRS
net sales would have been EUR 6.1 billion on a comparable combined company basis.
•
Non-IFRS diluted EPS in Q1 2016 of EUR 0.03. Q1 2016 reflected the acquisition of
Alcatel-Lucent, which resulted in a higher share count, as well as higher non-IFRS tax
expenses due to unfavorable changes in the regional profit mix. Note that Nokia’s Q1
2016 non-IFRS diluted EPS was reported as a combined company, whereas the Q1
2015 non-IFRS diluted EPS of EUR 0.05 was reported on a Nokia stand-alone basis.
•
In Q1 2016, the net cash and other liquid assets of the combined company increased
by EUR 471 million, to EUR 8.2 billion, compared to Nokia on a standalone basis at the
end of Q4 2015, primarily due to the acquisition of Alcatel-Lucent, partially offset by
cash outflows related to working capital.
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
5
6 129
5 662
273
203
2 264
Q1 2016 Highlights
2 500
7 057
5 603
5 181
198
236
2 205
Nokia’s Networks business
Combined
company
historicals
Net sales and margins (non-IFRS)
EUR million
Margin
non-IFRS
8 000
40.1 %
6 000
34.9 %
1 435
37.0 %
1 593
1 552
40%
1 976
1 452
Operating margin % (non-IFRS)
8.7%
11.3%
4 227
4 303
4 469
5 081
3 729
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
Ultra Broadband Networks
Non-IFRS GM%
IP Networks and Applications
Non-IFRS OM%
© Nokia 2016
38.3%
(951)
(677)
(19)
337
234
103
6.5%
5 662
4 227
1 435
1 976
34.9%
(1 023)
(705)
(38)
209
168
42
3.7%
(8)%
(12)%
1%
0%
340bps
(7)%
(4)%
61%
39%
145%
280bps
Q4'15 QoQ change
7 057
5 081
1 976
2 830
(26)%
(27)%
(27)%
(27)%
(30)%
40.1% (180)bps
(1 011)
(761)
39
1 097
702
396
(6)%
(11)%
(69)%
(67)%
(74)%
15.5% (900)bps
Q1 2016 Highlights
6.5%
3.7%
6
R&D (non-IFRS)
SG&A (non-IFRS)
Other income and expenses (non-IFRS)
Operating profit (non-IFRS)
Ultra Broadband Networks
IP Networks and Applications
5 181
3 729
1 452
1 984
(9)%
20%
15.6%
0
Net sales (non-IFRS)
Ultra Broadband Networks
IP Networks and Applications
Gross profit (non-IFRS)
Gross margin % (non-IFRS)
38.3%
4 000
2 000
Q1'15 YoY change
Net sales - constant currency
EUR million
37.9 %
Q1'16
Combined
company
historicals
•
8% year-on-year net sales decrease in Q1 2016. Our performance was primarily due
to Ultra Broadband Networks, which declined 12% year-on-year and 27%
sequentially, consistent with our outlook for a greater than normal seasonal decline
in the wireless infrastructure market in Q1 2016. IP Networks and Applications grew
on a year-on-year basis.
•
Strong non-IFRS gross margin of 38.3% in Q1 2016 primarily due to improved
product mix in Ultra Broadband Networks (led by Mobile Networks) and IP Networks
and Applications (led by IP/Optical Networks), as well as efficiency gains.
•
Non-IFRS operating margin of 6.5% in Q1 2016. The year-on-year increase of 2.8
percentage points was primarily due to the higher non-IFRS gross margin, as well as
continued focus on execution excellence.
0%
Nokia’s Networks business
Net sales (non-IFRS) by geographic area
Q1 2016
EUR million
Q1/2015-Q1/2016
2 500
21%
30%
2 000
1 500
23%
8%
7%
1 000
11%
500
7
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 and margins (non-IFRS)
EUR million
Margin
non-IFRS
6 000
33.4 %
35.5 %
34.7 %
37.8 %
35.9%
40%
698
4 000
541
580
SG&A (non-IFRS)
Other income and expenses (non-IFRS)
Operating profit (non-IFRS)
Operating margin % (non-IFRS)
•
•
10.7%
7.2%
3 686
3 722
3 903
4 382
3 116
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
Mobile Networks
Non-IFRS GM%
Fixed Networks
Non-IFRS OM%
© Nokia 2016
•
6.3%
4.0%
8
R&D (non-IFRS)
20%
13.8%
0
Net sales (non-IFRS)
Mobile Networks
Fixed Networks
Gross profit (non-IFRS)
Gross margin % (non-IFRS)
3 729
3 116
613
1 338
4 227
3 686
541
1 413
YoY change
(12)%
(12)%
(15)%
13%
(5)%
Combined
company
historicals
Q4'15
5 081
4 382
698
1 920
QoQ change
(26)%
(27)%
(29)%
(12)%
(30)%
35.9%
33.4%
250bps
37.8% (190)bps
6.3%
4.0%
39%
230bps
(67)%
13.8% (750)bps
(616)
(479)
(9)
234
(702)
(514)
(29)
168
(12)%
(7)%
(682)
(552)
16
702
(10)%
(13)%
Q1 2016 Highlights
566
613
2 000
Q1'16
Combined
company
historicals
Q1'15
•
0%
•
•
•
Introduced the next generation AirScale Radio Access. This 5G-ready solution will
enable operators to satisfy future demands including the Internet of Things, virtual
reality, augmented reality, factories of the future and other advanced scenarios.
Established the Telecom Infra Project (TIP) with Facebook, Intel, Deutsche Telekom,
EE, Globe, SK Telecom and others to accelerate global growth of high quality, scalable
and affordable telecommunications infrastructure.
Announced plans with T-Mobile to conduct preliminary 5G testing, advance
technology development and trial initial use cases in 2H 2016.
Completed trials with Deutsche Telekom, amongst others, on XG-FAST, a Bell Labsdeveloped extension of Nokia's G.fast technology, which generated data throughput
speeds of more than 10 gigabits-per-second (Gbps) over traditional copper lines,
approximately 200 times faster than the average residential broadband connection.
36 customer trials for XG-FAST (copper-based) and 35 customer trials for next
generation Passive Optical Network (PON; fiber-based) technology.
Announced its Passive Optical LAN (POL) solution, which provides operators and
enterprises a high capacity, scalable alternative to traditional copper-based LANs
while being up to 50% more cost efficient.
Introduced Nokia AVA, a cognitive service platform powered by high levels of
automation, virtualization and intelligent analytics.
IP Networks and Applications
EUR million
Net sales - constant currency
Net sales and margins (non-IFRS)
EUR million
Margin
non-IFRS
2 000
44.4%
43.7%
46.1%
44.5%
50%
39.3%
417
424
407
320
345
25%
0
12.7%
12.9%
729
769
783
•
377
•
20.0%
2.9%
R&D (non-IFRS)
SG&A (non-IFRS)
7.1%
930
717
•
•
0%
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
•
•
Optical Networks
IP Routing
Non-IFRS GM%
9
© Nokia 2016
Applications & Analytics
Non-IFRS OM%
1 452
1 093
717
377
359
646
1 435
1 049
729
320
385
563
YoY change
1%
1%
4%
(2)%
18%
(7)%
15%
44.5%
39.2%
530bps
7.1%
2.9%
420bps
(335)
(199)
(10)
103
(321)
(191)
(10)
42
4%
4%
145%
Combined
company
historicals
Q4'15
1 976
1 441
930
512
535
911
QoQ change
(26)%
(27)%
(24)%
(23)%
(26)%
(33)%
(29)%
46.1% (160)bps
(329)
(209)
23
396
2%
(5)%
(74)%
20.0% (1 290)bps
Q1 2016 Highlights
359
512
1 000
Net sales (non-IFRS)
IP/Optical Networks
IP Routing
Optical Networks
Applications & Analytics
Gross profit (non-IFRS)
Gross margin % (non-IFRS)
Other income and expenses (non-IFRS)
Operating profit (non-IFRS)
Operating margin % (non-IFRS)
535
385
Q1'16
Combined
company
historicals
Q1'15
•
Introduced a significant expansion of its 1830 Photonic Service Switch (PSS) portfolio,
quadrupling optical fiber capacity to more than 70 terabits per second to address surging
network data traffic demand.
Announced plans to transform Telefónica's network with its IP core and virtualized service
router technology along with its services expertise to meet growing customer demand for high
performance data and HD video.
Announced the deployment of its most powerful IP core network router, the next-generation
7950 XRS (Extensible Routing System) with Bell Canada.
Traction in our 7950 XRS IP Core router remained solid, with 2 new wins, bringing the total wins
to date to 57.
Nuage gained 10 new customers in the first quarter, bringing the total to 60 wins. Over a dozen
customers, including service providers and enterprises, are deploying the Nuage Virtualized
Network Services (VNS) solution to deliver software-defined WAN (SD-WAN) services.
Acquired Nakina Systems, a security and orchestration software specialist, to reinforce Nokia’s
position in security at a time when customers are bolstering their defenses to cope with the
increasing demands of hyper connectivity, new regulations and emerging technologies.
Demonstrated a proof of concept together with Orange, using CloudBand’s NFV platform to
speed up service deployment, increase flexibility and optimize costs for on-demand and cloudbased, all-IP networks.
Nokia Technologies
Net sales and margins (non-IFRS)
EUR million
Net sales - constant currency
EUR million
Margin
non-IFRS
100%
99.3%
99.1%
98.3%
99.0%
98.5%
Net sales (non-IFRS)
Gross profit (non-IFRS)
Gross margin % (non-IFRS)
R&D (non-IFRS)
SG&A (non-IFRS)
Other income and expenses (non-IFRS)
Operating profit (non-IFRS)
Operating margin % (non-IFRS)
400
65.2%
54.6%
75.3%
49.6%
219
169
413
198
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
Non-IFRS GM%
Non-IFRS OM%
10
© Nokia 2016
273
271
(28)%
(27)%
(28)%
98.5%
99.3%
53.5%
65.2% (1 170)bps
(58)
(32)
0
106
(72)
(21)
1
178
(80)bps
(19)%
52%
(40)%
413
409
99.0%
(73)
(33)
7
311
QoQ
change
(52)%
(52)%
(52)%
(50)bps
(21)%
(3)%
(66)%
75.3% (2 180)bps
•
27% year-on-year net sales decrease in Q1 2016. Our performance was affected by
the absence of the following three items which benefitted Q1 2015: non-recurring
adjustments to accrued net sales from existing agreements, revenue share related
to previously divested intellectual property rights (“IPR”), and IPR divestments.
Excluding these three items, net sales increased year-on-year by approximately 10%
due to higher intellectual property licensing income.
•
The decision in the patent license arbitration with Samsung was received in February
2016, relating to a portion of the patent portfolio of Nokia Technologies.
•
Further discussions continued with Samsung, regarding the licensing of Nokia’s
intellectual property in areas not covered by the arbitration.
•
Announced the sales start of the OZO professional virtual reality camera in Europe,
as well as new post-production partnerships to advance end-to-end solutions for
creating next generation digital media experiences.
•
Announced plans to acquire Withings in April 2016, to accelerate its digital health
business. Withings is a pioneer and leader in the connected health revolution with a
family of award-winning products and services. The acquisition is expected to close in
early Q3 2016.
200
273
198
195
YoY change
Combined
company
historicals
Q4'15
Q1 2016 Highlights
53.5%
50%
0
Q1'16
Combined
company
historicals
Q1'15
0%
Group Common and Other
Net sales and margins (non-IFRS)
EUR million
Net sales - constant currency
EUR million
Margin
non-IFRS
Net sales (non-IFRS)
Gross profit (non-IFRS)
Gross margin % (non-IFRS)
30%
400
8.9%
R&D (non-IFRS)
SG&A (non-IFRS)
17.0%
7.4%
12.6%
Q1'16
Combined
company
historicals
Q1'15
Other income and expenses (non-IFRS)
11.0%
Operating loss (non-IFRS)
Operating margin % (non-IFRS)
YoY change
7%
Combined
company
historicals
Q4'15
QoQ
change
(5)%
236
26
203
18
16%
44%
254
32
(7)%
(19)%
11.0%
8.9%
210bps
12.6%
(160)bps
(73)
(55)
3
(99)
(70)
(48)
(11)
(111)
4%
15%
(77)
(58)
(25)
(129)
(5)%
(5)%
(54.7)% 1 280bps
(50.8)%
890bps
(41.9)%
0%
7.2%
200
Q1 2016 Highlights
-38.0%
-41.9%
-54.7%
0
203
211
254
236
Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016
Non-IFRS GM%
Non-IFRS OM%
11
© Nokia 2016
Group Common and Other includes the Alcatel Submarine Networks and
Radio Frequency Systems businesses, both of which are being managed as
separate entities. In addition, Group Common and Other includes Bell Labs'
operating expenses, as well as certain corporate-level and centrallymanaged operating expenses.
•
The year-on-year increase in Group Common and Other net sales in the first
quarter 2016 was primarily due to Alcatel Submarine Networks, partially
offset by Radio Frequency Systems.
•
On a year-on-year basis, in the first quarter 2016, Group Common and
Other non-IFRS operating loss decreased, primarily due to a net positive
fluctuation in non-IFRS other income and expenses and higher non-IFRS
gross profit.
-30%
-50.8%
254
•
-60%
Nokia change in net cash and other liquid assets
(EUR billion)
12
© Nokia 2016
Nokia EUR 7 billion Capital Structure Optimization Program
all figures approximate, in EUR billion, assuming share count of 6 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
Total Program as
announced on
October 29, 2015
De-leveraging
© Nokia 2016
** Subject to AGM approval on June 16, 2016.
1.0
0.0
13
0.6
Completed through
Q1 2016*
Share buyback
2015 Dividend and
Special dividend**
2015 Dividend
Special dividend
2016 Dividend