Nokia Corporation Q4 and full year 2012 Interim Report
(Thomson Reuters ONE) -
Nokia Corporation
Interim report
January 24, 2013 at 13.00 (CET+1)
This is a summary of the fourth quarter and full year 2012 interim report
published today. The complete fourth quarter and full year 2012 interim report
with tables is available at
http://www.results.nokia.com/results/Nokia_results2012Q4e.pdf. Investors should
not rely on summaries of our interim reports only, but should review the
complete interim reports with tables.
FINANCIAL AND OPERATING HIGHLIGHTS
Fourth quarter 2012 highlights:
Nokia Group non-IFRS EPS in Q4 2012 was EUR 0.06; reported EPS was EUR 0.05.
- Nokia Group achieves underlying operating profitability, with Q4 non-IFRS
operating margin of 7.9%.
- Nokia Group strengthened its net cash position by approximately EUR 800
million sequentially, of which approximately EUR 650 million was generated by
Nokia Siemens Networks.
- Devices & Services Q4 non-IFRS operating margin improved quarter-on-quarter to
1.3%, due to an increase in gross margin as well as a decrease in operating
expenses.
- Nokia Siemens Networks non-IFRS operating margin improved quarter-on-quarter
and year-on-year to a 14.4% in Q4, the highest level of underlying operating
profitability since its formation in April 2007, primarily due to an increase in
gross margin.
Full year 2012 highlights:
Nokia Group full year 2012 non-IFRS EPS was EUR -0.17; reported EPS was EUR
-0.84.
- Nokia Group achieves underlying operating profitability, with full year 2012
non-IFRS operating margin of 0.4%.
- Nokia Group ends 2012 with a strong balance sheet and solid cash position.
Gross cash was EUR 9.9 billion and net cash was EUR 4.4 billion, after incurring
cash outflows related to restructuring of approximately EUR 1.5 billion and
dividend payment of approximately EUR 750 million.
- To ensure strategic flexibility, the Nokia Board of Directors will propose
that no dividend payment will be made for 2012 (EUR 0.20 per share for 2011).
Nokia's Q4 financial performance combined with this dividend proposal further
solidifies the company's strong liquidity position.
Commenting on the results, Stephen Elop, Nokia CEO, said:
"We are very encouraged that our team's execution against our business strategy
has started to translate into financial results. Most notably we are pleased
that Nokia Group reached underlying operating profitability in the fourth
quarter and for the full year 2012.
While the first half of 2012 was difficult for Nokia Group, in Q4 2012 we
strengthened our financial position, improved our underlying operating margin in
Devices & Services, introduced the HERE brand to expand our mapping and location
experiences, and drove record profitability in Nokia Siemens Networks.
We remain focused on moving through our transition, which includes continuing to
improve our product competitiveness, accelerate the way we operate and manage
our costs effectively. All of these efforts are aimed at improving our financial
performance and delivering more value to our shareholders."
SUMMARY FINANCIAL INFORMATION
+---------------+-------------------------------------+-+----------------------+
| | Reported and Non-IFRS | |Reported and Non-IFRS |
| | fourth quarter 2012 results1,2 | | full year 2012 |
| | | | results1,2 |
| +-------+-------+------+-------+------+-+------+-------+-------+
|EUR million | | | YoY| | QoQ| | | | YoY|
| |Q4/2012|Q4/2011|Change|Q3/2012|Change| | 2012| 2011|Chan-ge|
+---------------+-------+-------+------+-------+------+-+------+-------+-------+
|Nokia Group | | | | | | | | | |
| | | | | | | | | | |
|Net sales | 8 041| 10 005| -20%| 7 239| 11%| |30 176| 38 659| -22%|
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | 439| -954| | -576| | |-2 303| -1 073| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | | | | | | | | | |
|(non-IFRS) | 635| 478| 33%| 78| 714%| | 126| 1 825| -93%|
| | | | | | | | | | |
|EPS, EUR | | | | | | | | | |
|diluted | 0.05| -0.29| | -0.26| | | -0.84| -0.31| |
| | | | | | | | | | |
|EPS, EUR | | | | | | | | | |
|diluted | | | | | | | | | |
|(non-IFRS)3 | 0.06| 0.06| 0%| -0.07| | | -0.17| 0.29| |
| | | | | | | | | | |
|Net cash from | | | | | | | | | |
|operating | | | | | | | | | |
|activities | 563| 634| -11%| -429| | | -354| 1 137| |
| | | | | | | | | | |
|Net cash and | | | | | | | | | |
|other liquid | | | | | | | | | |
|assets4 | 4 360| 5 581| -22%| 3 564| 22%| | 4360| 5 581| -22%|
+---------------+-------+-------+------+-------+------+-+------+-------+-------+
|Devices & | | | | | | | | | |
|Services5 | | | | | | | | | |
| | | | | | | | | | |
|Net sales | 3 854| 5 997| -36%| 3 563| 8%| |15 686| 23 943| -34%|
| | | | | | | | | | |
|Smart Devices | | | | | | | | | |
|net sales | 1 225| 2 747| -55%| 976| 26%| | 5 446| 10 820| -50%|
| | | | | | | | | | |
|Mobile Phones | | | | | | | | | |
|net sales | 2 468| 3 040| -19%| 2 366| 4%| | 9 436| 11 930| -21%|
| | | | | | | | | | |
|Mobile device | | | | | | | | | |
|volume | | | | | | | | | |
|(million units)| 86.3| 113.5| -24%| 82.9| 4%| | 335.6| 417.1| -20%|
| | | | | | | | | | |
|Smart Devices | | | | | | | | | |
|volume | | | | | | | | | |
|(million units)| 6.6| 19.6| -66%| 6.3| 5%| | 35.1| 77.3| -55%|
| | | | | | | | | | |
|Mobile Phones | | | | | | | | | |
|volume | | | | | | | | | |
|(million units)| 79.6| 93.9| -15%| 76.6| 4%| | 300.5| 339.8| -12%|
| | | | | | | | | | |
|Mobile device | | | | | | | | | |
|ASP6 | 45| 53| -15%| 43| 5%| | 47| 57| -18%|
| | | | | | | | | | |
|Smart Devices | | | | | | | | | |
|ASP6 | 186| 140| 33%| 155| 20%| | 155| 140| 11%|
| | | | | | | | | | |
|Mobile Phones | | | | | | | | | |
|ASP6 | 31| 32| -3%| 31| 0%| | 31| 35| -11%|
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | 276| 203| 36%| -683| | |-1 100| 884| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | | | | | | | | | |
|(non-IFRS) | 52| 292| -82%| -263| | | -703| 1 683| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|margin % | 7.2%| 3.4%| | -19.2%| | | -7.0%| 3.7%| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|margin % | | | | | | | | | |
|(non-IFRS) | 1.3%| 4.9%| | -7.4%| | | -4.5%| 7.0%| |
+---------------+-------+-------+------+-------+------+-+------+-------+-------+
|Location & | | | | | | | | | |
|Commerce5 | | | | | | | | | |
| | | | | | | | | | |
|Net sales | 278| 306| -9%| 265| 5%| | 1 103| 1 091| 1%|
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | -56| -1 205| | -56| | | -301| -1 526| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | | | | | | | | | |
|(non-IFRS) | 40| 29| 38%| 37| 8%| | 154| 48| 221%|
| | | | | | | | | | |
|Operating | | | | | | | | | |
|margin % | -20.1%|-393.8%| | -21.1%| | |-27.3%|-139.9%| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|margin % | | | | | | | | | |
|(non-IFRS) | 14.4%| 9.5%| | 14.0%| | | 13.9%| 4.4%| |
+---------------+-------+-------+------+-------+------+-+------+-------+-------+
|Nokia Siemens | | | | | | | | | |
|Networks5 | | | | | | | | | |
| | | | | | | | | | |
|Net sales | 3 988| 3 815| 5%| 3 501| 14%| |13 779| 14 041| -2%|
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | 251| 67| 275%| 182| 38%| | -799| -300| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|profit | | | | | | | | | |
|(non-IFRS) | 575| 176| 227%| 323| 78%| | 778| 225| 246%|
| | | | | | | | | | |
|Operating | | | | | | | | | |
|margin % | 6.3%| 1.8%| | 5.2%| | | -5.8%| -2.1%| |
| | | | | | | | | | |
|Operating | | | | | | | | | |
|margin % | | | | | | | | | |
|(non-IFRS) | 14.4%| 4.6%| | 9.2%| | | 5.6%| 1.6%| |
+---------------+-------+-------+------+-------+------+-+------+-------+-------+
Note 1 relating to non-IFRS (also referred to as "underlying") results: 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 special items for all periods. In addition, non-IFRS results
exclude intangible asset amortization, other purchase price accounting related
items and inventory value adjustments arising from (i) the formation of Nokia
Siemens Networks and (ii) all business acquisitions completed after June
30, 2008. Nokia believes that our non-IFRS results provide meaningful
supplemental information to both management and investors regarding Nokia's
underlying business performance by excluding the above-described 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. See note 2 below
for information about the exclusions from our non-IFRS results. More
information, including a reconciliation of our Q4 2012 and Q4 2011 non-IFRS
results to our reported results, can be found in our complete Q4 2012 interim
report with tables on pages 18 and 20-24. A reconciliation of our full year
2012 and full year 2011 non-IFRS results to our reported results can be found in
the same report on pages 40-45. A reconciliation of our Q3 2012 non-IFRS
results to our reported results can be found in our complete Q3 interim report
with tables on pages 19 and 22-26 published on October 18, 2012.
Note 2 relating to non-IFRS exclusions:
Q4 2012 - EUR 196 million (net) consisting of:
- EUR 255 million restructuring charge and other associated item in Nokia
Siemens Networks, including EUR 34 million of net charges related to country and
contract exits based on new strategy that focuses on key markets and product
segments, as well as an impairment of assets of EUR 2 million.
- EUR 9 million restructuring charge in Location & Commerce
- EUR 2 million restructuring related impairments in Devices & Services
- EUR 75 million net benefit from releases of restructuring provisions in
Devices & Services
- EUR 21 million positive item from a cartel claim settlements in Devices &
Services
- EUR 52 million net gain on sale of Vertu business in Devices & Services
- EUR 79 million net gain on sale of real estate in Devices & Services
- EUR 67 million of intangible asset amortization and other purchase price
accounting related items arising from the formation of Nokia Siemens Networks
and the acquisition of Motorola Solutions' networks assets
- EUR 87 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 1 million of intangible assets amortization and other purchase price
related items arising from the acquisition of Novarra, MetaCarta and Motally in
Devices & Services
Q3 2012 - EUR 654 million (net) consisting of:
- EUR 74 million restructuring charge and other associated items in Nokia
Siemens Networks, including EUR 3 million of net charges related to country and
contract exits based on new strategy that focuses on key markets and product
segments.
- EUR 2 million restructuring charge in Location & Commerce
- EUR 454 million restructuring charge and other associated items in Devices &
Services
- EUR 67 million of intangible asset amortization and other purchase price
accounting related items arising from the formation of Nokia Siemens Networks
and the acquisition of Motorola Solutions' networks assets
- EUR 91 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 1 million of intangible assets amortization and other purchase price
related items arising from the acquisition of Novarra, MetaCarta and Motally in
Devices & Services
- EUR 35 million positive item from a cartel claim settlement in Devices &
Services
Q3 2012 taxes - EUR 157 million non-cash deferred tax expense related to
corporate reorganizations arising from Location & Commerce business integration.
Q4 2011 - EUR 1 432 million (net) consisting of:
- EUR 1 090 million partial impairment of goodwill in Location & Commerce
- EUR 25 million restructuring charge in Location & Commerce
- EUR 119 million of intangible asset amortization and other purchase price
accounting related items arising from the acquisition of NAVTEQ
- EUR 100 million restructuring charge and EUR 36 million associated impairments
in Devices & Services
- EUR 2 million of intangible assets amortization and other purchase price
related items arising from the acquisition of Novarra, MetaCarta and Motally in
Devices & Services
- EUR 86 million of intangible asset amortization and other purchase price
accounting related items arising from the formation of Nokia Siemens Networks
and the acquisition of Motorola Solutions' networks assets
- EUR 23 million restructuring charge and other associated items in Nokia
Siemens Networks
- EUR 49 million benefit from a cartel claim settlement
Note 3 relating to non-IFRS Nokia EPS:
Nokia taxes were unfavorably impacted by Devices & Services taxes as no tax
benefits are recognized for certain Devices & Services deferred tax items. If
Nokia's earlier estimated long-term tax rate of 26% had been applied, non-IFRS
Nokia EPS would have been approximately 0.5 Euro cent higher in Q4 2012. Going
forward on a non-IFRS basis, until a pattern of tax profitability is
reestablished, Nokia expects to record quarterly tax expense of approximately
EUR 50 million related to its Devices & Services business and approximately EUR
50 million related to its Nokia Siemens Networks business. Nokia expects to
continue to record taxes related to its Location & Commerce business at a 26%
rate.
Note 4 relating to Nokia net cash and other liquid assets: Calculated as total
cash and other liquid assets less interest-bearing liabilities. For selected
information on Nokia Group interest-bearing liabilities, please see the table on
page 53 of the complete Q4 2012 interim report with tables
Note 5 relating to operational and reporting structure: We adopted our current
operational structure during 2011 and have three businesses: Devices & Services,
Location & Commerce and Nokia Siemens Networks and four operating and reportable
segments: Smart Devices and Mobile Phones within Devices & Services, Location &
Commerce and Nokia Siemens Networks. Smart Devices focuses on smartphones and
Mobile Phones focuses on mass market mobile devices, including Asha full touch
smartphones. Devices & Services also contains Devices & Services Other which
includes net sales of our luxury phone business Vertu through October 12, 2012,
spare parts and related cost of sales and operating expenses, as well as
intellectual property related income and common research and development
expenses. In October 2012, we completed the divestment of Vertu to EQT VI, a
European private equity firm. Location & Commerce focuses on the development of
location-based services and local commerce. On November 13, 2012, Nokia
introduced HERE, the new brand for its location and mapping service. For
financial reporting purposes, the Location & Commerce business will be renamed
as the HERE business, starting with the first quarter 2013. Nokia Siemens
Networks is one of the leading global providers of telecommunications
infrastructure hardware, software and services. Nokia Siemens Networks completed
the acquisition of Motorola Solutions' networks assets on April 30, 2011.
Accordingly, the results of Nokia Siemens Networks for 2012 are not directly
comparable to 2011.
Note 6 relating to average selling prices (ASP): Mobile device ASP represents
total Devices & Services net sales (Smart Devices net sales, Mobile Phones net
sales, and Devices & Services Other net sales) divided by total Devices &
Services volumes. Devices & Services Other net sales includes net sales of
Nokia's luxury phone business Vertu through October 12, 2012, spare parts, as
well as intellectual property income. Smart Devices ASP represents Smart Devices
net sales divided by Smart Devices volumes. Mobile Phones ASP represents Mobile
Phones net sales divided by Mobile Phones volumes.
NOKIA OUTLOOK
- Nokia expects its Devices & Services non-IFRS operating margin in the first
quarter 2013 to be approximately negative 2 percent, plus or minus four
percentage points. This outlook is based on Nokia's expectations regarding a
number of factors, including:
- competitive industry dynamics continuing to negatively affect the Mobile
Phones and Smart Devices business units;
- the first quarter being a seasonally weak quarter;
- consumer demand, particularly for our Lumia and Asha smartphones;
- continued ramp up for our new Lumia smartphones;
- expected cost reductions under Devices & Services' restructuring program; and
- the macroeconomic environment.
- Nokia continues to target to reduce its Devices & Services non-IFRS operating
expenses to an annualized run rate of approximately EUR 3.0 billion by the end
of 2013.
- Nokia expects Location & Commerce non-IFRS operating margin in the first
quarter 2013 to be negative due to lower recognized revenue from internal sales,
which carry higher gross margin, and to a lesser extent by a negative mix shift
within external sales.
- Nokia and Nokia Siemens Networks expect Nokia Siemens Networks non-IFRS
operating margin in the first quarter 2013 to be approximately positive 3
percent, plus or minus four percentage points. This outlook is based on Nokia
Siemens Networks' expectations regarding a number of factors, including:
- competitive industry dynamics;
- the first quarter being a seasonally weak quarter;
- product and regional mix;
- expected continued improvement under Nokia Siemens Networks' restructuring
program; and
- the macroeconomic environment.
- Nokia Siemens Networks now targets to reduce its non-IFRS annualized operating
expenses and production overheads by more than EUR 1 billion by the end of
2013, compared to the end of 2011. Nokia Siemens Networks previous target was to
reduce its non-IFRS annualized operating expenses and production overheads by
EUR 1 billion by the end of 2013, compared to the end of 2011.
FOURTH QUARTER 2012 FINANCIAL AND OPERATING DISCUSSION
NOKIA GROUP
See note 5 to our Summary Financial Information table above concerning our
current operational and reporting structure which we adopted during 2011. The
following discussion includes information on a non-IFRS, or underlying business
performance, basis. See notes 1 and 2 to our Summary Financial Information table
above for information about our underlying non-IFRS results and the non-IFRS
exclusions for the periods discussed below.
The following table sets forth the year-on-year and sequential growth rates in
our net sales on a reported basis and at constant currency for the periods
indicated.
+----------------------------------------------------------------+
| FOURTH QUARTER 2012 NET SALES, |
| REPORTED & CONSTANT CURRENCY1 |
+--------------------------------------+------------+------------+
| | YoY Change | QoQ Change |
+--------------------------------------+------------+------------+
| Group net sales - reported | -20% | 11% |
| | | |
| Group net sales - constant currency1 | -23% | 12% |
| | | |
| Devices & Services | | |
| net sales -reported | -36% | 8% |
| | | |
| Devices & Services | | |
| net sales - constant currency1 | -40% | 8% |
| | | |
| Nokia Siemens Networks | | |
| net sales -reported | 5% | 14% |
| | | |
| Nokia Siemens Networks | | |
| net sales - constant currency1 | 1% | 16% |
+--------------------------------------+------------+------------+
Note 1: Change in net sales at constant currency excludes the impact of changes
in exchange rates in comparison to the Euro, our reporting currency.
At constant currency Nokia Group's net sales would have decreased 23% year-on-
year and increased 12% sequentially.
The following table sets forth Nokia Group's reported cash flow for the periods
indicated and financial position at the end of the periods indicated, as well as
the year-on-year and sequential growth rates.
+----------------------------------------------------------------------+
| NOKIA GROUP CASH FLOW |
| AND FINANCIAL POSITION |
+----------------------+---------+---------+--------+---------+--------+
| | | | YoY | | QoQ |
| EUR million | Q4/2012 | Q4/2011 | Change | Q3/2012 | Change |
+----------------------+---------+---------+--------+---------+--------+
| Net cash from | | | | | |
| operating activities | 563 | 634 | -11% | -429 | |
+----------------------+---------+---------+--------+---------+--------+
| Total cash and | | | | | |
| other liquid assets | 9 909 | 10 902 | -9% | 8 779 | 13% |
+----------------------+---------+---------+--------+---------+--------+
| Net cash and | | | | | |
| other liquid assets1 | 4 360 | 5 581 | -22% | 3 564 | 22% |
+----------------------+---------+---------+--------+---------+--------+
Note 1: Total cash and other liquid assets minus interest-bearing liabilities.
Year-on-year, net cash and other liquid assets decreased by EUR 1.2 billion in
the fourth quarter 2012, primarily due to cash outflows related to restructuring
of approximately EUR 1.5 billion, the payment of the dividend of approximately
EUR 750 million, cash outflows related to net financial expenses and taxes as
well as capital expenditures. This was partially offset by positive overall net
cash from operating activities, excluding cash outflows related to
restructuring, net financial expenses and taxes, as well as cash flows related
to the receipt of quarterly platform support payments from Microsoft (which
commenced in the fourth quarter 2011).
Sequentially, net cash and other liquid assets increased by EUR 796 million in
the fourth quarter 2012, primarily due to positive Nokia Siemens Networks
operating profits, the receipt of a USD 250 million (approximately EUR 196
million) quarterly platform support payment from Microsoft and proceeds from
real estate sales and business divestments, partially offset by cash outflows
related to restructuring, taxes and net financial expenses as well as capital
expenditures.
In the fourth quarter 2012, Nokia Siemens Networks' contribution to net cash
from operating activities was approximately EUR 740 million, primarily due to
net profit adjusted for non-cash items. At the end of the fourth quarter 2012,
Nokia Siemens Networks' contribution to the Nokia gross cash was EUR 2.4 billion
and contribution to Nokia's net cash was EUR 1.3 billion.
Our agreement with Microsoft includes platform support payments from Microsoft
to us as well as software royalty payments from us to Microsoft. In the fourth
quarter 2012, we received a quarterly platform support payment of USD 250
million (approximately EUR 196 million). Under the terms of the agreement
governing the platform support payments, the amount of each quarterly platform
support payment is USD 250 million. We have a competitive software royalty
structure, which includes annual minimum software royalty commitments. Minimum
software royalty commitments are paid quarterly. Over the life of the agreement,
both the platform support payments and the minimum software royalty commitments
are expected to measure in the billions of US dollars. Over the life of the
agreement the total amount of the platform support payments is expected to
slightly exceed the total amount of the minimum software royalty commitment
payments. To date the amount of platform support payments received by Nokia has
exceeded the amount of minimum royalty commitment payments to Microsoft. Thus
for the remainder of the life of the agreement the total amount of the minimum
software royalty commitment payments are expected to exceed the total amount of
the platform support payments. In accordance with the terms of the agreement,
the platform support payments and annual minimum software royalty commitment
payments continue for a corresponding period of time.
During fourth quarter 2012, Nokia Group performed its annual goodwill impairment
assessment. The methodology and models used for the annual impairment assessment
are consistent with our second quarter 2012 interim analysis and our last annual
assessment performed during the fourth quarter 2011. Inputs to the valuation
model, such as cash flows, discount rates and growth rates, have been updated to
reflect our most recent projections and they materially align with the interim
analysis conducted during second quarter 2012.
At the date of our 2012 annual impairment assessment, goodwill amounting to EUR
530 million, EUR 899 million, EUR 3 270 million and EUR 183 million was
allocated to Mobile Phones, Smart Devices, Location & Commerce and Nokia Siemens
Networks, respectively. No goodwill impairment charge was recorded during the
fourth quarter 2012 as a result of the goodwill impairment assessment. However a
change in any of the key assumptions used in measuring the recoverable value of
our Location & Commerce business could have resulted in goodwill impairment.
While we believe the estimated recoverable values are reasonable, actual
performance in the short-term and long-term could be materially different from
our forecasts, which could impact future estimates of recoverable value of our
reporting units and could result in impairment charges.
DEVICES & SERVICES
The following table sets forth a summary of the results for our Devices &
Services business for the periods indicated, as well as the year-on-year and
sequential growth rates.
+---------------------------------------------------------------------------+
| DEVICES & SERVICES |
| RESULTS SUMMARY |
+---------------------------+---------+---------+--------+---------+--------+
| | | | YoY | | QoQ |
| | Q4/2012 | Q4/2011 | Change | Q3/2012 | Change |
+---------------------------+---------+---------+--------+---------+--------+
| Net sales (EUR million)1 | 3 854 | 5 997 | -36% | 3 563 | 8% |
+---------------------------+---------+---------+--------+---------+--------+
| Mobile device volume | | | | | |
| (million units) | 86.3 | 113.5 | -24% | 82.9 | 4% |
+---------------------------+---------+---------+--------+---------+--------+
| Mobile device ASP (EUR) | 45 | 53 | -15% | 43 | 5% |
+---------------------------+---------+---------+--------+---------+--------+
| Non-IFRS gross margin (%) | 23.9% | 25.8% | | 18.5% | |
+---------------------------+---------+---------+--------+---------+--------+
| Non-IFRS operating | | | | | |
| expenses (EUR million) | 869 | 1 262 | -31% | 915 | -5% |
+---------------------------+---------+---------+--------+---------+--------+
| Non-IFRS operating | | | | | |
| margin (%) | 1.3% | 4.9% | | -7.4% | |
+---------------------------+---------+---------+--------+---------+--------+
Note 1: Includes IPR income recognized in Devices & Services Other net sales.
The year-on-year and sequential changes in our Devices & Services net sales,
volumes, average selling prices and gross margin are discussed below under our
Smart Devices and Mobile Phones business units.
Smartphone Volumes
In the fourth quarter 2012, Devices & Services total smartphone volumes were
15.9 million units, composed of:
- 9.3 million Asha full touch smartphones in Mobile Phones
- 4.4 million Lumia smartphones in Smart Devices
- 2.2 million Symbian smartphones in Smart Devices
Devices & Services Other
Both year-on-year and sequentially, Devices & Services Other net sales were
lower in the fourth quarter 2012 primarily due to the divestment of Vertu.
Following the divestment of Vertu, Devices & Services Other net sales are
comprised of IPR income and sales of spare parts. In the fourth quarter 2012,
Devices & Services Other net sales benefitted from non-recurring IPR income of
approximately EUR 50 million. Within Devices & Services Other, we estimate that
our current annual IPR income run-rate is approximately EUR 0.5 billion.
Channel Inventory
We ended the fourth quarter 2012 at the higher end of our normal 4 to 6 week
channel inventory range. On an absolute unit basis channel inventories increased
sequentially.
Net Sales and Volumes by Geographic Area
The following table sets forth the net sales for our Devices & Services business
for the periods indicated, as well as the year-on-year and sequential growth
rates, by geographic area. IPR income is allocated to the geographic areas
contained in this chart.
+----------------------------------------------------------------------+
| DEVICES & SERVICES NET SALES |
| BY GEOGRAPHIC AREA |
+----------------------+---------+---------+--------+---------+--------+
| | | | YoY | | QoQ |
| EUR million | Q4/2012 | Q4/2011 | Change | Q3/2012 | Change |
+----------------------+---------+---------+--------+---------+--------+
| Europe | 1 210 | 1 922 | -37% | 985 | 23% |
| | | | | | |
| Middle East & Africa | 745 | 1 065 | -30% | 682 | 9% |
| | | | | | |
| Greater China | 213 | 1 008 | -79% | 278 | -23% |
| | | | | | |
| Asia-Pacific | 941 | 1 297 | -27% | 977 | -4% |
| | | | | | |
| North America | 196 | 53 | 270% | 36 | 444% |
| | | | | | |
| Latin America | 549 | 652 | -16% | 605 | -9% |
+----------------------+---------+---------+--------+---------+--------+
| Total | 3 854 | 5 997 | -36% | 3 563 | 8% |
+----------------------+---------+---------+--------+---------+--------+
The following table sets forth the mobile device volumes for our Devices &
Services business for the periods indicated, as well as the year-on-year and
sequential growth rates, by geographic area.
+----------------------------------------------------------------------+
| DEVICES & SERVICES MOBILE DEVICE |
| VOLUMES BY GEOGRAPHIC AREA |
+----------------------+---------+---------+--------+---------+--------+
| | | | YoY | | QoQ |
| million units | Q4/2012 | Q4/2011 | Change | Q3/2012 | Change |
+----------------------+---------+---------+--------+---------+--------+
| Europe | 19.4 | 25.3 | -23% | 16.8 | 15% |
| | | | | | |
| Middle East & Africa | 21.8 | 25.9 | -16% | 19.1 | 14% |
| | | | | | |
| Greater China | 4.6 | 14.7 | -69% | 5.8 | -21% |
| | | | | | |
| Asia-Pacific | 28.7 | 34.7 | -17% | 30.1 | -5% |
| | | | | | |
| North America | 0.7 | 0.5 | 40% | 0.3 | 133% |
| | | | | | |
| Latin America | 11.1 | 12.4 | -10% | 10.8 | 3% |
+----------------------+---------+---------+--------+---------+--------+
| Total | 86.3 | 113.5 | -24% | 82.9 | 4% |
+----------------------+---------+---------+--------+---------+--------+
On a year-on-year basis, the increases in North America net sales and volumes
were primarily due to our Smart Devices business unit, most notably higher net
sales and volumes of our Lumia devices. On a year-on-year basis, the decrease in
Greater China net sales was primarily due to our Smart Devices business unit,
most notably lower net sales of our Symbian devices. On a year-on-year basis,
the decrease in Greater China volumes was primarily due to our Smart Devices
business unit, most notably lower volumes of our Symbian devices as well as
lower volumes of our Mobile Phones devices.
On a sequential basis, the increases in North America net sales and volumes were
primarily due to our Smart Devices business unit, most notably higher net sales
and volumes of our Lumia devices. On a sequential basis, the decreases in
Greater China net sales and volumes were primarily due to lower net sales and
volumes our Mobile Phones devices.
At constant currency Devices & Services' net sales would have decreased 40%
year-on-year and increased 8% sequentially.
Operating Expenses
Devices & Services non-IFRS operating expenses decreased 31% year-on-year and
5% sequentially in the fourth quarter 2012. On a year-on-year basis, operating
expenses related to Mobile Phones and Smart Devices decreased 19% and 34%
respectively, in the fourth quarter 2012. On a sequential basis, operating
expenses related to Mobile Phones decreased by 12% while Smart Devices operating
expenses increased 9%, respectively, in the fourth quarter 2012. In addition to
the factors described below, the year-on-year changes were affected by the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices. This resulted in higher and lower relative allocations to Mobile Phones
and Smart Devices, respectively.
Devices & Services non-IFRS research and development expenses decreased 34%
year-on-year in the fourth quarter 2012. On a sequential basis, Devices &
Services non-IFRS research and development expenses decreased 8% in the fourth
quarter 2012. Both the year-on-year and sequential declines were primarily due
to ramping down Symbian and MeeGo, reductions in certain Mobile Phones related
activities and overall cost controls.
Devices & Services non-IFRS sales and marketing expenses decreased 28% year-on-
year in the fourth quarter 2012. On a year-on-year basis marketing expenses
declined primarily due to lower marketing expenditure on Symbian, a lower cost
base as a result of business divestments and tight cost control, partially
offset by higher marketing expenditure related to our Lumia devices. On a
sequential basis, Devices & Services non-IFRS sales and marketing expenses
increased 3% in the fourth quarter 2012. Sequentially, marketing expenses
increased primarily due to higher expenditure on Lumia and seasonality,
partially offset by business divestments, headcount reductions and tight cost
control.
Devices & Services non-IFRS administrative and general expenses decreased 30%
year-on-year in the fourth quarter 2012 and 35% sequentially. The year-on-year
and sequential decreases are primarily related to cost savings in support
functions, business divestments and shared function cost categorization.
In the fourth quarter 2012, Devices & Services non-IFRS other income and expense
had a negative year-on-year and positive sequential impact on profitability. On
a reported basis, other income and expense was positively affected in the fourth
quarter 2012 primarily as a result of net gains from the sale of real estate of
EUR 79 million, the divestment of the Vertu business of EUR 52 million and a
positive item of EUR 21 million from a cartel claim settlement, as well as an
EUR 75 million net benefit related to restructuring provision releases as
discussed in the "Cost Reduction Activities and Planned Operational Adjustments"
section below.
Operating Margin
The lower year-on-year Devices & Services non-IFRS operating margin in the
fourth quarter 2012 was primarily due to lower net sales and gross margin,
partially offset by lower operating expenses.
The sequentially higher Devices & Services non-IFRS operating margin in the
fourth quarter 2012 was primarily due to higher gross margin and to a lesser
extent lower operating expenses.
Cost Reduction Activities and Planned Operational Adjustments
+------------------------------------------------------------------------------+
|DEVICES & SERVICES RESTRUCTURING SUMMARY |
+--------------+--------------+--------------+----------+---------+------------+
| | | | Q1/2013| 2013 | |
| | | Cumulative up| (approxi-|(approxi-| Total|
| | Q4/2012| to Q4/2012| mate| mate|(approximate|
|EUR (million) | (approximate)| (approximate)| estimate)| estimate| estimate)|
+--------------+--------------+--------------+----------+---------+------------+
|Restructuring | | | | | |
|related | | | Not| Not| |
|charges | -73| 1 400| provided| provided| 1 600|
+--------------+--------------+--------------+----------+---------+------------+
|Restructuring | | | | | |
|related cash | | | | | |
|outflows | 300| 1 100| 150| 300| 1 400|
+--------------+--------------+--------------+----------+---------+------------+
Nokia continues to target to reduce its Devices & Services non-IFRS operating
expenses to an annualized run rate of approximately EUR 3.0 billion by the end
of 2013.
At the end of the fourth quarter 2012, Devices & Services and Corporate Common
had approximately 33 200 employees, a reduction of approximately 16 500 compared
to fourth quarter 2011, and approximately 5 000 compared to third quarter 2012.
In connection with the implementation of our strategy announced in February
2011, we have announced and made a number of changes to our operations. In the
fourth quarter of 2012, we recognized a net benefit of EUR 73 million related to
restructuring provision releases and impairments related to our restructuring
activities in Devices & Services. By the end of the fourth quarter 2012, we had
recorded cumulative Devices & Services restructuring charges and other
associated items of approximately EUR 1.4 billion. In total, we expect now
cumulative Devices & Services restructuring charges of approximately EUR 1.6
billion before the end of 2013. This is approximately EUR 200 million less than
what we estimated earlier.
By the end of the fourth quarter 2012, Devices & Services had cumulative
restructuring related cash outflows of approximately EUR 1.1 billion. We expect
Devices & Services restructuring related cash outflows to be approximately EUR
150 million in first quarter 2013 and approximately EUR 300 million in full year
2013. Of the total expected charges relating to restructuring activities of
approximately EUR 1.6 billion, we expect Devices & Services non-cash charges to
be approximately EUR 200 million. This means that we also now expect total
restructuring related cash outflows to be approximately EUR 200 million less
than what we estimated earlier.
SMART DEVICES
The following table sets forth a summary of the results for our Smart Devices
business unit for the periods indicated, as well as the year-on-year and
sequential growth rates.
+--------------------------------------------------------------------------+
| SMART DEVICES |
| RESULTS SUMMARY |
+--------------------------+---------+---------+--------+---------+--------+
| | | | YoY | | QoQ |
| | Q4/2012 | Q4/2011 | Change | Q3/2012 | Change |
+--------------------------+---------+---------+--------+---------+--------+
| Net sales (EUR million)1 | 1 225 | 2 747 | -55% | 976 | 26% |
+--------------------------+---------+---------+--------+---------+--------+
| Smart Devices volume | | | | | |
| (million units) | 6.6 | 19.6 | -66% | 6.3 | 5% |
+--------------------------+---------+---------+--------+---------+--------+
| Smart Devices ASP (EUR) | 186 | 140 | 33% | 155 | 20% |
+--------------------------+---------+---------+--------+---------+--------+
| Gross margin (%) | 18.0% | 19.9% | | -3.5% | |
+--------------------------+---------+---------+--------+---------+--------+
| Operating expenses | | | | | |
| (EUR million)2 | 481 | 732 | -34% | 441 | 9% |
+--------------------------+---------+---------+--------+---------+--------+
| Contribution margin (%)2 | -21.6% | -7.0% | | -48.9% | |
+--------------------------+---------+---------+--------+---------+--------+
Note 1: Does not include IPR income. IPR income is recognized in Devices &
Services Other net sales.
Note 2: The year-on-year decrease in operating expenses was affected by the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices, resulting in lower relative allocations to Smart Devices in the first,
second, third and fourth quarters 2012. Accordingly, fourth quarter 2012
operating expenses are not directly comparable to fourth quarter 2011 operating
expenses.
Net Sales
On a year-on-year basis, the decline in our Smart Devices net sales in the
fourth quarter 2012 was due to lower volumes partially offset by higher ASPs. On
a sequential basis, the increase in our Smart Devices net sales in the fourth
quarter 2012 was due to higher ASPs and volumes.
Volume
During the fourth quarter 2012 we shipped 6.6 million Smart Devices units, of
which 4.4 million were Lumia devices. During the fourth quarter 2012 our Smart
Devices volumes were affected by supply constraints as we ramped up our
production capacity, particularly related to the Lumia 920, which have continued
into the first quarter 2013. Symbian devices accounted for 2.2 million units of
our Smart Devices volumes in the fourth quarter 2012. We expect our Symbian
devices to account for a significantly smaller portion of our overall Smart
Devices volumes in the first quarter 2013 and going forward.
The year-on-year decline in our Smart Devices volumes in the fourth quarter
2012 continued to be driven by the strong momentum of competing smartphone
platforms and our portfolio transition from Symbian devices to Lumia devices.
The decline was primarily due to lower Symbian device volumes, partially offset
by higher Lumia device volumes. On a geographical basis, the decrease in volumes
was due to lower volumes in Greater China, Europe, Asia-Pacific, Middle East and
Africa and Latin America, partially offset by an increase in volumes in North
America.
On a sequential basis, the increase in our Smart Devices volumes in the fourth
quarter 2012 was primarily due to higher Lumia device volumes, partially offset
by lower Symbian device volumes. On a geographical basis, the increase in
volumes was primarily due to higher volumes in North America and Europe,
partially offset by lower volumes in all other regions.
Average Selling Price
The year-on-year increase in our Smart Devices ASP in the fourth quarter 2012
was primarily due to a positive mix shift towards sales of our Lumia devices
which carry a higher ASP than our Symbian devices, partially offset by our
pricing actions taken in previous quarters in 2012 related to certain Lumia
devices.
Sequentially, the increase in our Smart Devices ASP in the fourth quarter 2012
was primarily due to a positive mix shift towards sales of our newly launched
Lumia devices which had a higher ASP, partially offset by general price erosion.
The ASP of our Lumia devices in the fourth quarter 2012 was EUR 192, compared to
EUR 160 in the third quarter 2012. The increase in Lumia ASPs was primarily due
to a positive mix shift towards sales of our newly launched Lumia devices which
had a higher ASP.
Gross Margin
The year-on-year decline in our Smart Devices gross margin in the fourth quarter
2012 was primarily due to greater price erosion than cost erosion, partially
offset by a positive product mix shift towards higher gross margin Lumia devices
as well as the absence of Symbian related allowances which were recognized in
the fourth quarter 2011. From an operating system perspective, the year-on-year
decline in our Smart Devices gross margin in the fourth quarter 2012 was
primarily due to a lower Symbian gross margin.
On a sequential basis, the increase in our Smart Devices gross margin in the
fourth quarter 2012 was primarily due to the absence of approximately EUR 120
million of inventory related allowances which were recognized in the third
quarter 2012 as well as a positive product mix shift towards higher gross margin
devices, and lower Symbian fixed costs per unit. From an operating system
perspective, the sequential increase in our Smart Devices gross margin in the
fourth quarter was primarily due to a higher Lumia gross margin as well as a
higher Symbian gross margin.
Increases or decreases to Smart Devices inventory related allowances may be
required in the future depending on several factors, including consumer demand
and continued ramp up particularly related to our new Lumia devices.
MOBILE PHONES
The following table sets forth a summary of the results for our Mobile Phones
business unit for the periods indicated, as well as the year-on-year and
sequential growth rates.
+--------------------------------------------------------------------------+
|MOBILE PHONES |
|RESULTS SUMMARY |
+------------------------------------+-------+-------+------+-------+------+
| | | | YoY| | QoQ|
| |Q4/2012|Q4/2011|Change|Q3/2012|Change|
+------------------------------------+-------+-------+------+-------+------+
|Net sales (EUR million)1 | 2 468| 3 040| -19%| 2 366| 4%|
+------------------------------------+-------+-------+------+-------+------+
|Mobile Phones volume (million units)| 79.6| 93.9| -15%| 76.6| 4%|
+------------------------------------+-------+-------+------+-------+------+
|Mobile Phones ASP (EUR) | 31| 32| -3%| 31| 0%|
+------------------------------------+-------+-------+------+-------+------+
|Gross margin (%) | 22.2%| 27.7%| | 21.7%| |
+------------------------------------+-------+-------+------+-------+------+
|Operating expenses (EUR million)2 | 346| 429| -19%| 393| -12%|
+------------------------------------+-------+-------+------+-------+------+
|Contribution margin (%)2 | 8.2%| 13.5%| | 4.9%| |
+------------------------------------+-------+-------+------+-------+------+
Note 1: Does not include IPR income. IPR income is recognized in Devices &
Services Other net sales.
Note 2: The year-on-year decrease in operating expenses was affected by the
proportionate allocation of operating expenses being affected by the relative
mix of sales and gross profit performance between Mobile Phones and Smart
Devices, resulting in higher relative allocations to Mobile Phones in the first,
second, third and fourth quarters 2012. Accordingly, fourth quarter 2012
operating expenses are not directly comparable to fourth quarter 2011 operating
expenses.
Net Sales
On a year-on-year basis, the decline in our Mobile Phones net sales in the
fourth quarter 2012 was due to lower volumes as well as lower ASPs. On a
sequential basis, the increase in our Mobile Phones net sales in the fourth
quarter 2012 was primarily due to higher volumes.
Volume
During the fourth quarter 2012 we shipped 79.6 million Mobile Phones units, of
which 9.3 million were Asha full touch smartphones.
On a year-on-year basis, the decrease in our Mobile Phones volumes in the fourth
quarter 2012 was primarily due to the decline in volumes of our lower priced
devices that we sell to our customers for below EUR 30. Overall volumes of our
higher priced devices that we sell to our customers for above EUR 30 also
declined, despite the addition of Asha full touch smartphone volumes in the
fourth quarter 2012.
On a sequential basis, the increase in our Mobile Phones volumes in the fourth
quarter 2012 was primarily due to the increase in volumes of our lower priced
devices that we sell to our customers for below EUR 30. Volumes of our higher
priced devices that we sell to our customers for above EUR 30 also increased,
partially due to growth in volumes of our Asha full touch smartphones.
Average Selling Price
The year-on-year decline in our Mobile Phones ASP in the fourth quarter 2012 was
primarily due to general price erosion and an increased proportion of sales of
lower priced devices, partially offset by the net positive impact related to
foreign currency fluctuations.
On a sequential basis, our Mobile Phones ASP was flat in the fourth quarter
2012 as a mix shift towards higher priced devices, including our full touch Asha
smartphones, as well as the net positive impact from foreign currency
fluctuations were offset by general price erosion.
Gross Margin
The year-on-year decline in our Mobile Phones gross margin in the fourth quarter
2012 was primarily due to a negative product mix shift towards lower gross
margin devices, as well as the net negative impact related to foreign currency
fluctuations.
On a sequential basis, the increase in our Mobile Phones gross margin in the
fourth quarter 2012 was primarily due to greater cost erosion than price
erosion, partially offset by the net negative impact related to foreign currency
fluctuations.
LOCATION & COMMERCE
On November 13, 2012, Nokia introduced HERE, the new brand for its location and
mapping service. For financial reporting purposes, the Location & Commerce
business will be renamed as the HERE business, starting with the first quarter
2013.
The following table sets forth a summary of the results for Location & Commerce
for the periods indicated, as well as the year-on-year and sequential growth
rates.
+----------------------------------------------------------------------+
|LOCATION & COMMERCE |
|RESULTS SUMMARY |
+--------------------------------+-------+-------+------+-------+------+
| | | | YoY| | QoQ|
| |Q4/2012|Q4/2011|Change|Q3/2012|Change|
+--------------------------------+-------+-------+------+-------+------+
|Net sales (EUR millions) | 278| 306| -9%| 265| 5%|
+--------------------------------+-------+-------+------+-------+------+
|External net sales (EUR million)| 204| 200| 2%| 179| 14%|
+--------------------------------+-------+-------+------+-------+------+
|Internal net sales (EUR million)| 74| 106| -30%| 86| -14%|
+--------------------------------+-------+-------+------+-------+------+
|Non-IFRS gross margin (%) | 82.0%| 77.8%| | 80.4%| |
+--------------------------------+-------+-------+------+-------+------+
|Non-IFRS operating | | | | | |
|expenses (EUR million) | 189| 206| -8%| 175| 8%|
+--------------------------------+-------+-------+------+-------+------+
|Non-IFRS operating | | | | | |
|margin (%) | 14.4%| 9.5%| | 14.0%| |
+--------------------------------+-------+-------+------+-------+------+
Net Sales
In the fourth quarter 2012, the year-on-year increase in external Location &
Commerce net sales was primarily due to higher sales of map content licenses to
vehicle customers due to higher consumer uptake of vehicle navigation systems.
In the fourth quarter 2012, the sequential increase in external Location &
Commerce net sales was primarily due to a higher consumer uptake of vehicle
navigation systems as well as seasonally higher sales to personal navigation
devices customers.
In the fourth quarter 2012, the year-on-year and sequential declines in internal
Location & Commerce net sales were due to declines in sales to our Smart Devices
business unit.
Gross Margin
On a year-on-year basis, the increase in Location & Commerce non-IFRS gross
margin in the fourth quarter 2012 was primarily due to lower deferred cost of
sales associated with internal sales and a higher gross margin within the
vehicle segment, partially offset by lower sales to personal navigation device
customers.
On a sequential basis, the increase in Location & Commerce non-IFRS gross margin
in the fourth quarter 2012 was primarily due to lower deferred cost of sales
associated with internal sales, a higher gross margin within the vehicle
segment, and seasonally higher sales to personal navigation device customers.
Operating Expenses
Location & Commerce non-IFRS research and development expenses decreased 10%
Datum: 24.01.2013 - 12:03 Uhr
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