NOKIA
Strong Q2 positions Nokia well to meet full year 2015 objectives
This is a summary of the Nokia Corporation interim report for second quarter 2015 and January-June 2015 published today. The complete interim report for second quarter 2015 and January-June 2015 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
- Net sales in Q2 2015 of EUR 3.2 billion (EUR 2.9 billion in Q2 2014), up 9% year-on-year (down 1% year-on-year on a constant currency basis)
- Non-IFRS diluted EPS in Q2 2015 of EUR 0.09 (EUR 0.06 in Q2 2014), an increase of 50% year-on-year; reported diluted EPS in Q2 2015 of EUR 0.09 (loss of EUR 0.01 in Q2 2014)
Nokia Networks
- 6% year-on-year net sales growth (4% year-on-year decline on a constant currency basis)
- 12% year-on-year growth in non-IFRS gross profit, with non-IFRS gross margin increasing to 40.0% from 38.1%, primarily driven by an elevated level of software sales within Mobile Broadband and strong performance across Global Services
- 11% year-on-year growth in non-IFRS operating profit, with non-IFRS operating margin increasing to 11.5% from 11.0%, supported by continued focus on operational excellence
HERE
- 25% year-on-year growth in net sales, with 24% growth in new vehicle licenses for embedded navigation systems
- Non-IFRS operating profit of EUR 27 million, with non-IFRS operating margin increasing year-on-year to 9.3% from 0.0%
Nokia Technologies
- 31% year-on-year growth in net sales and 17% year-on-year growth in non-IFRS operating profit, primarily due to higher intellectual property licensing income from existing and new licensees and non-recurring net sales. In addition, on a year-on-year basis, non-IFRS operating profit was negatively affected by higher non-IFRS operating expenses
Group Common Functions
- Non-IFRS operating profit of EUR 69 million benefitted from a gain of approximately EUR 110 million related to Nokia’s investments made through its venture funds
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Reported second quarter 2015 results1 |
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Reported January-June 2015 results1 |
||||||
|
EUR million |
Q2’15 |
Q2’14 |
YoY change |
Q1’15 |
QoQ change |
|
Q1-Q2’15 |
Q1-Q2’14 |
YoY change |
|
Net sales – constant currency |
|
|
(1)% |
|
(1)% |
|
|
|
5% |
|
Net sales |
3 209 |
2 942 |
9% |
3 196 |
0% |
|
6 405 |
5 606 |
14% |
|
Nokia Networks |
2 730 |
2 566 |
6% |
2 673 |
2% |
|
5 403 |
4 894 |
10% |
|
HERE |
290 |
232 |
25% |
261 |
11% |
|
551 |
441 |
25% |
|
Nokia Technologies |
193 |
147 |
31% |
266 |
(27)% |
|
459 |
278 |
65% |
|
Gross margin % (non-IFRS) |
46.7% |
44.0% |
270bps |
42.5% |
420bps |
|
44.6% |
44.8% |
(20)bps |
|
Operating profit (non-IFRS) |
521 |
346 |
51% |
265 |
97% |
|
786 |
651 |
21% |
|
Nokia Networks |
313 |
281 |
11% |
85 |
268% |
|
398 |
497 |
(20)% |
|
HERE |
27 |
0 |
|
19 |
42% |
|
46 |
10 |
360% |
|
Nokia Technologies |
112 |
96 |
17% |
193 |
(42)% |
|
305 |
182 |
68% |
|
Group Common Functions |
69 |
(31) |
|
(32) |
|
|
37 |
(39) |
|
|
Operating margin % (non-IFRS) |
16.2% |
11.8% |
440bps |
8.3% |
790bps |
|
12.3% |
11.6% |
70bps |
|
Profit (non-IFRS) |
357 |
215 |
66% |
200 |
79% |
|
556 |
386 |
44% |
|
Profit |
352 |
(27) |
|
181 |
94% |
|
533 |
84 |
535% |
|
EPS, EUR diluted (non-IFRS) |
0.09 |
0.06 |
50% |
0.05 |
80% |
|
0.15 |
0.10 |
50% |
|
EPS, EUR diluted |
0.09 |
(0.01) |
|
0.05 |
80% |
|
0.14 |
0.02 |
600% |
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” 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 (the “Sale of the D&S Business”), 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. A reconciliation of our Q1 2015 non-IFRS results to our reported results can be found in our complete Q1 2015 interim report with tables on page 29 published on April 30, 2015. 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.
CEO statement
Nokia delivered strong results in the second quarter, with each of our three businesses performing very well.
I am particularly pleased by Nokia Networks, which delivered improved performance overall, despite a year-on-year decline in net sales on a constant currency basis. Software sales were up significantly; core networking sales improved; we saw a reduced impact of strategic entry deals; Global Services had one of its best quarters in the history of the company; and costs remained well under control.
While we expect the telecom infrastructure market to remain challenging, I believe that our disciplined operating model and strong execution capabilities will continue to differentiate us in this environment. Additionally, we remain highly focused on reducing costs and improving efficiency in order to mitigate the impact of market conditions.
Nokia Technologies not only continued its licensing momentum in the quarter with a new agreement with LG, but also recently unveiled OZO, a truly game-changing virtual reality camera. The team in “Tech” has shown both disciplined execution in licensing and an entrepreneurial spirit in pursuing new growth opportunities.
HERE continued to deliver well, again showing year-on-year sales and profitability growth. Our strategic review of that business is now in an advanced stage, and I would like to reiterate that our focus is on what is in the best interests of our shareholders and the long term future of HERE.
Overall, with these results, we are well positioned to deliver on our full-year 2015 commitments.
Rajeev Suri
President and CEO
Nokia in Q2 2015
Financial discussion
The following discussion is of Nokia’s reported results for the second 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 second quarter 2014 and first quarter 2015 results, unless otherwise indicated.
Net sales
Nokia’s net sales increased 9% year-on-year and were approximately flat sequentially. At constant currency, Nokia’s net sales would have decreased 1% both on a year-on-year and sequential basis.
Year-on-year discussion
The year-on-year increase in Nokia’s net sales in the second quarter 2015 was primarily due to higher net sales in Nokia Networks and, to a lesser extent, in HERE and Nokia Technologies.
Sequential discussion
On a sequential basis, the approximately flat net sales in the second quarter 2015 were primarily due to slightly higher net sales in Nokia Networks and HERE, partially offset by lower net sales in Nokia Technologies.
Non-IFRS Operating profit
Year-on-year discussion
Nokia’s non-IFRS operating profit increased 51% year-on-year in the second quarter 2015, primarily due to an increase in non-IFRS operating profit in Group Common Functions and, to a lesser extent, in Nokia Networks, HERE and Nokia Technologies.
Nokia’s non-IFRS other income and expenses was an income of EUR 113 million in the second quarter 2015, compared to an expense of EUR 9 million in the second quarter 2014. On a year-on-year basis, the change in Nokia’s non-IFRS other income and expenses was primarily due to higher other income in Group Common Functions, related to Nokia’s investments made through its venture funds. During the second quarter 2015, Nokia Growth Partners sold its holdings in Ganji.com, a major online local services marketplace platform in China, to 58.com. BlueRun Ventures also invested in Ganji.com and participated in the transaction, which valued Nokia’s total indirect holdings in Ganji.com at approximately EUR 200 million. Related to the transaction, Nokia recorded a gain of approximately EUR 110 million in the second quarter 2015. The final amount and timing of additional income or expense will depend on the value and date at which the venture funds liquidate the portion of the consideration that was received in shares.
On a year-on-year basis, foreign exchange fluctuations had a significantly positive impact on non-IFRS gross profit, and a significantly negative impact on non-IFRS operating expenses, resulting in a slightly positive net impact on non-IFRS operating profit in the second quarter 2015.
Sequential discussion
Nokia’s non-IFRS operating profit increased 97% sequentially in the second quarter 2015, primarily due to an increase in non-IFRS operating profit in Nokia Networks and Group Common Functions, partially offset by a decrease in non-IFRS operating profit in Nokia Technologies.
Nokia’s non-IFRS other income and expenses was an income of EUR 113 million in the second quarter 2015, compared to an expense of EUR 19 million in the first quarter 2015. On a sequential basis, the change in Nokia’s non-IFRS other income and expenses was primarily due to higher other income in Group Common Functions, related to Nokia’s investments made through its venture funds. During the second quarter 2015, Nokia Growth Partners sold its holdings in Ganji.com, a major online local services marketplace platform in China, to 58.com. BlueRun Ventures also invested in Ganji.com and participated in the transaction, which valued Nokia’s total indirect holdings in Ganji.com at approximately EUR 200 million. Related to the transaction, Nokia recorded a gain of approximately EUR 110 million in the second quarter 2015. The final amount and timing of additional income or expense will depend on the value and date at which the venture funds liquidate the portion of the consideration that was received in shares.
On a sequential basis, foreign exchange fluctuations had a slightly negative impact on non-IFRS gross profit, and a slightly negative impact on non-IFRS operating expenses, resulting in a negative net impact on non-IFRS operating profit in the second quarter 2015.
Non-IFRS Profit
Year-on-year discussion
Nokia’s non-IFRS profit increased 66% on a year-on-year basis in the second quarter 2015, primarily due to higher non-IFRS operating profit and, to a lesser extent, a net positive fluctuation in non-IFRS financial income and expenses. This was partially offset by higher non-IFRS tax expense. Nokia’s non-IFRS tax expense in the second quarter 2015 was based on a tax rate of approximately 27%, and this resulted in a higher non-IFRS tax expense than in the second quarter 2014. However, the tax expenses in the second quarter of 2014 and 2015 are not directly comparable primarily due to Nokia’s deferred tax assets in Finland and Germany that were subject to valuation allowances until the third quarter of 2014.
Sequential discussion
Sequentially, Nokia’s non-IFRS profit increased 79% in the second quarter 2015, primarily due to a higher non-IFRS operating profit, partially offset by higher non-IFRS tax expenses and the absence of the approximately EUR 25 million out of period adjustment to the share of results of associated companies that benefitted the first quarter 2015.
OUTLOOK
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Metric |
Guidance |
Commentary |
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Nokia Networks |
FY15 Net sales |
Increase YoY |
|
|
|
FY15 Non-IFRS op. margin |
Around the midpoint of the long-term range of 8% – 11% for the full year |
Based on factors including competitive industry dynamics, product and regional mix, expected industry seasonality in the second half of 2015, the timing of major network deployments, and expected continued operational improvement. |
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HERE |
FY15 Net sales |
Increase YoY |
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|
|
FY15 Non-IFRS op. margin |
9% – 12% |
Based on factors including leading market position, positive industry trends and improved focus on cost efficiency. |
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Nokia Technologies |
FY15 Net sales |
Increase YoY |
Excludes potential amounts related to the expected resolution of our arbitration with Samsung. Based on factors including higher investment in licensing activities, licensable technologies and business enablers, including go-to-market capabilities, which target new and significant long-term growth opportunities. This an update to the earlier FY15 non-IFRS operating expense outlook to be approximately in line with the Q4 2014 level. |
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|
FY15 Non-IFRS op. expense |
Approx. in line with Q2’15 level (update) |
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Nokia |
FY15 Capital expenditure |
Approx. EUR 250 million |
Primarily attributable to Nokia Networks. |
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|
FY15 Financial income and expense |
Expense of approx. EUR 160 million |
Subject to changes in FX rates and interest-bearing liabilities. |
|
|
FY15 Group Common Functions |
Approx. EUR 120 million |
|
|
|
Estimated long-term effective tax rate |
Approx. 25% |
|
|
|
Annual cash tax obligation |
Approx. EUR 250 million per annum until deferred tax assets fully utilized |
May vary due to profit levels in different jurisdictions and amount of licence income subject to withholding tax. |
Nokia management, Espoo – July 29, 2015