0001193125-15-290801.txt : 20150814 0001193125-15-290801.hdr.sgml : 20150814 20150814085231 ACCESSION NUMBER: 0001193125-15-290801 CONFORMED SUBMISSION TYPE: 6-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20150814 FILED AS OF DATE: 20150814 DATE AS OF CHANGE: 20150814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NOKIA CORP CENTRAL INDEX KEY: 0000924613 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 000000000 FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 6-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-13202 FILM NUMBER: 151052706 BUSINESS ADDRESS: STREET 1: KARAPORTTI 3 STREET 2: P O BOX 226 CITY: ESPOO FINLAND STATE: H9 ZIP: 02610 BUSINESS PHONE: 00358104488000 MAIL ADDRESS: STREET 1: KARAPORTTI 3 STREET 2: P O BOX 226 CITY: ESPOO STATE: H9 ZIP: 02610 6-K 1 d82157d6k.htm 6-K 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 6-K

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16 of

the Securities Exchange Act of 1934

Report on Form 6-K dated August 14, 2015

 

 

Nokia Corporation

Karaportti 3

FI-02610 Espoo

Finland

(Name and address of registrant’s principal executive office)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x            Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes  ¨            No   x

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes  ¨            No   x

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No   x

 

 

 


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Interim Report for Q2 2015 and January-June 2015

Nokia’s year to date performance

Nokia and Alcatel-Lucent to combine to create an innovation leader in next generation technology and services for an IP connected world

On April 15, 2015, Nokia and Alcatel-Lucent announced their intention to combine to create an innovation leader in next generation technology and services for an IP connected world. The two companies entered into a memorandum of understanding under which Nokia will make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and in the United States, on the basis of 0.55 of a new Nokia share for every Alcatel-Lucent share.

The combined company announced to target approximately EUR 900 million of operating cost synergies to be achieved on a full year basis in 2019. The operating cost synergies are expected to create a long-term structural cost advantage. The combined company would also target approximately EUR 200 million of reductions in interest expenses to be achieved on a full year basis in 2017. The transaction is expected to be accretive to Nokia earnings on a non-IFRS basis in 2017. These targets all assume closing of the transaction in the first half of 2016. The combined company is expected to have a strong balance sheet.

Nokia thus far has received antitrust clearances from the European Commission, Albania, Brazil, Canada, Colombia, India, Israel, Russia, Turkey, Serbia, Switzerland and Ukraine in addition to the expiration of the antitrust review period in the United States. Both companies will continue to cooperate with the remaining authorities to close their outstanding reviews as quickly as possible.

After the announcement of the execution of the memorandum of understanding, Alcatel-Lucent began the information process of its French Group Committee (Comité de Groupe France) as required by applicable French regulation in order to obtain its opinion on the proposed public transaction. On June 1, 2015, Alcatel-Lucent’s French Group Committee delivered its opinion, indicating that it does not oppose the proposed combination of Alcatel-Lucent with Nokia.

On June 4, 2015, following the delivery of the opinion of Alcatel-Lucent French Group Committee, the Alcatel-Lucent Board of Directors expressed its full support for the proposed combination with Nokia.

The transaction remains subject to approval by Nokia shareholders, Nokia holding over 50.00% of the share capital and voting rights of Alcatel-Lucent on a fully diluted basis upon completion of the public exchange offer, receipt of the outstanding regulatory approvals and other customary conditions. The transaction is expected to close in the first half of 2016.

 

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Further information on the transaction can be found at: www.newconnectivity.com.

 

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Financial discussion

The following discussion is of Nokia’s reported results for January-June 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 January-June 2014 results, unless otherwise indicated.

 

EUR million

   Q1-Q2’15     Q1-Q2’14     YoY change  

Net sales

     6 405        5 606        14

Nokia Networks

     5 403        4 894        10

HERE

     551        441        25

Nokia Technologies

     459        278        65

Gross margin %

     45.2     44.7     50 bps 

Operating profit

     745        526        42

Nokia Networks

     395        412        (4 )% 

HERE

     28        (12  

Nokia Technologies

     299        179        67

Group Common Functions

     22        (53  

Operating margin %

     11.6     9.4     220 bps 

Financial income and expenses, net

     (49     (335  

Taxes

     (177     (102     74

Profit

     533        84        535

EPS, EUR diluted

     0.14        0.02        600

Net sales

Nokia’s net sales increased 14% year-on-year in the first six months of 2015.

The year-on-year increase in Nokia’s net sales in the first six months of 2015 was primarily due to higher net sales in Nokia Networks, Nokia Technologies and, to a lesser extent, in HERE.

Operating profit

Nokia’s operating profit increased 42% year-on-year in the first six months of 2015, primarily due to an increase in operating profit in Nokia Technologies and Group Common Functions and, to a lesser extent, in HERE. This was partially offset by a decrease in operating profit in Nokia Networks.

During the first six months of 2015, Nokia Networks recorded amounts in order to correct items previously reported in 2014 and 2013 as cost of sales and reductions to accounts receivable. The impact of this correction was to reduce cost of sales in the current period by EUR 37 million, of which EUR 7 million related to 2014 and EUR 30 million to 2013. The error related to businesses divested in 2013 where Nokia Networks continued to operate certain accounting functions under a transitional arrangement and erroneously recorded pass through costs of the disposed businesses as costs of Nokia Networks.

 

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Nokia’s other income and expenses was an income of EUR 81 million in the first six months of 2015, compared to an expense of EUR 45 million in the first six months of 2014. On a year-on-year basis, the change in Nokia’s 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 first six months of 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 first six months of 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 gross profit, and a significantly negative impact on operating expenses, resulting in a slightly positive net impact on operating profit in the first six months of 2015.

Profit

Nokia’s profit increased to EUR 533 million in the first six months of 2015, compared to EUR 84 million in the first six months of 2014. This was primarily due to lower financial expenses and higher operating profit, partially offset by an increase in tax expenses. The lower financial expenses were primarily due to the absence of EUR 123 million of one-time expenses related to the redemption of materially all of Nokia Networks’ borrowings and the absence of a EUR 57 million accounting charge related to the repayment of EUR 1.5 billion convertible bonds issued to Microsoft, both of which negatively affected Nokia’s profit in the first six months of 2014.

The share of results of associated companies in the first six months of 2015 includes an out of period adjustment that increased profit by approximately EUR 25 million. Nokia has historically accounted for the results of a certain associated company in arrears, as the results have not been material. Primarily due to an increase in the entity’s earnings, the amounts reflected in the first six months of 2015 should have been recorded in the fourth quarter 2014.

 

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Nokia Networks

 

EUR million

   Q1-Q2’15     Q1-Q2’14     YoY change  

Net sales

     5 403        4 894        10

Mobile Broadband

     2 772        2 607        6

Global Services

     2 628        2 258        16

Gross profit

     2 028        1 899        7

Gross margin %

     37.5     38.8     (130 )bps 

R&D

     (977     (846     15

SG&A

     (652     (581     12

Other income and expenses

     (4     (60  

Operating profit

     395        412        (4 )% 

Mobile Broadband

     119        208        (43 )% 

Global Services

     280        280        0

Operating margin %

     7.3     8.4     (110 )bps 

Mobile Broadband

     4.3     8.0     (370 )bps 

Global Services

     10.7     12.4     (170 )bps 

Net sales by segment

In the first six months of 2015, Mobile Broadband represented 51% of Nokia Networks net sales, compared to 53% in the first six months of 2014. In the first six months of 2015, Global Services represented 49% of Nokia Networks net sales, compared to 46% in the first six months 2014.

The year-on-year increase of 10% in Nokia Networks net sales in the first six months of 2015 was primarily due to an increase in net sales in Global Services and, to a lesser extent, in Mobile Broadband.

Global Services net sales increased 16% year-on-year in the first six months of 2015, primarily due to particularly strong growth in the network implementation business line and, to a lesser extent, growth in care and network planning and optimization business lines. The network planning and optimization business line delivered particularly strong percentage growth on a year-on-year basis, consistent with our ongoing focus on services-led and professional services business.

Mobile Broadband net sales increased 6% year-on-year in the first six months of 2015, primarily due to growth in overall radio technologies, with particular strength in LTE. This was partially offset by a year-on-year decline in core networking technologies.

 

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Net sales by region

 

EUR million

   Q1-Q2’15      Q1-Q2’14      YoY change  

Europe

     1 322         1 296         2

Middle East & Africa

     524         422         24

Greater China

     741         584         27

Asia-Pacific

     1 642         1 590         3

North America

     739         567         30

Latin America

     436         436         0

Total

     5 403         4 894         10

On a regional basis, compared to the first six months of 2014, Nokia Networks net sales in North America increased 30%, primarily driven by higher net sales in Global Services, with particular strength in the network implementation business line, including the benefit from the acquisition of SAC Wireless. In addition, Nokia Networks net sales in North America increased, to a slightly lesser extent, due to higher net sales in Mobile Broadband. In Greater China, net sales increased 27% driven by higher net sales in Global Services and, to a lesser extent, in Mobile Broadband. The overall increase in Greater China was due to higher net sales in both China and Taiwan. In Middle East and Africa, net sales increased 24% driven by higher net sales in both Global Services and Mobile Broadband, particularly in the Middle East. In Asia-Pacific, net sales increased 3%, primarily driven by higher Global Services net sales, partially offset by a decline in Mobile Broadband net sales. The overall growth in Asia-Pacific was primarily due to higher net sales in India and Myanmar, partially offset by lower net sales in Japan and Indonesia. In Europe, net sales increased 2%, primarily driven by higher Mobile Broadband net sales, partially offset by lower Global Services net sales. The overall increase in Europe was primarily due to higher net sales in the UK, Italy and Russia, partially offset by lower net sales in Germany. In Latin America, net sales were approximately flat, primarily due to higher net sales in Argentina and Ecuador, offset primarily by lower net sales in Brazil.

Operating profit

The year-on-year decline in Nokia Networks operating profit in the first six months of 2015 was primarily due to Mobile Broadband. In the first six months of 2015, Global Services operating profit was flat on a year-on-year basis. The decline in Mobile Broadband operating profit in the first six months of 2015 was primarily due to higher operating expenses, partially offset by higher gross profit. The flat Global Services operating profit in the first six months of 2015 was primarily due to higher operating expenses, offset by higher gross profit.

On a year-on-year basis, the decline in Nokia Networks gross margin in the first six months of 2015 was primarily due to a lower gross margin in Global Services, as well as a negative mix shift due to a higher proportion of Global Services net sales and a lower proportion of Mobile Broadband net sales. The year-on-year decline in gross margin within Global Services was primarily due to lower gross margin in the systems integration and network implementation business lines, as well as a negative mix shift due to a higher proportion of network implementation and network planning and optimization net sales and a lower proportion of care net sales. Within Mobile Broadband, the gross margin in the first six months of 2015 was approximately flat on a year-on-year basis. The approximately flat gross margin within Mobile Broadband was primarily due to a lower proportion of higher gross margin core networking technologies net sales in the sales mix, as well as a lower gross margin in core networking technologies, partially offset by a higher gross margin within overall

 

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radio technologies. In addition, Nokia Networks gross margin was negatively impacted by higher costs related to the short-term impact of strategic entry deals, and challenging market conditions. The proportion of high margin software sales in the Nokia Networks sales mix was approximately flat compared to the first six months of 2014.

The year-on-year increase in gross profit in Mobile Broadband in the first six months of 2015 was primarily due to higher gross profit in overall radio technologies. In addition, gross profit in Mobile Broadband was negatively impacted by higher costs related to the short-term impact of strategic entry deals, and challenging market conditions.

The year-on-year increase in Global Services gross profit in the first six months of 2015 was primarily due to higher gross profit in the care business line, partially offset by a lower gross profit in the systems integration business line.

During the first six months of 2015, Nokia Networks recorded amounts in order to correct items previously reported in 2014 and 2013 as cost of sales and reductions to accounts receivable. The impact of this correction was to reduce cost of sales in the current period by EUR 37 million, of which EUR 7 million related to 2014 and EUR 30 million to 2013. The error related to businesses divested in 2013 where Nokia Networks continued to operate certain accounting functions under a transitional arrangement and erroneously recorded pass through costs of the disposed businesses as costs of Nokia Networks.

The year-on-year increase in Nokia Networks research and development expenses in the first six months of 2015 was primarily due to increased investments in LTE, small cells, cloud core and 5G. On a year-on-year basis, Nokia Networks selling, general and administrative expenses increased primarily due to higher personnel expenses. The year-on-year increases in both research and development and selling, general and administrative expenses in the first six months of 2015 were partially offset by continued operational improvement.

Nokia Networks other income and expenses was an expense of EUR 4 million in the first six months of 2015, compared to an expense of EUR 60 million in the first six months of 2014. On a year-on-year basis, the change in Nokia Networks other income and expenses was primarily due to the absence of restructuring charges in the first six months of 2015. Nokia Networks other income and expenses included EUR 49 million of restructuring and associated charges in the first six months of 2014.

On a year-on-year basis, foreign exchange fluctuations had a significantly positive impact on gross profit, and a significantly negative impact on operating expenses, resulting in a slightly positive net impact on operating profit in the first six months of 2015.

 

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HERE

 

EUR million

   Q1-Q2’15     Q1-Q2’14     YoY change  

Net sales

     551        441        25

Sales of new vehicle licenses (million units)

     7.7        6.1        26

Gross profit

     409        333        23

Gross margin %

     74.2     75.5     (130 )bps 

R&D

     (269     (255     5

SG&A

     (99     (85     16

Other income and expenses

     (13     (5  

Operating profit/(loss)

     28        (12  

Operating margin %

     5.1     (2.7 )%      780 bps 

Net sales

Sales to automotive customers represented well over 50% of HERE net sales in the first six months of 2015, as well as in the first six months of 2014.

In the first six months of 2015, HERE net sales increased 25% year-on-year, primarily due to higher sales to automotive customers, as well as Microsoft becoming a more significant licensee of HERE’s services and, to a lesser extent, higher sales to enterprise. This was partially offset by lower recognition of revenue related to smartphone sales by our former Devices & Services business. In addition, compared to the first six months of 2014, HERE’s year-on-year net sales were negatively affected by the absence of a benefit related to the conversion of a contract to a perpetual license.

New vehicle licences

In the first six months of 2015, HERE had sales of new vehicle licenses of 7.7 million units, compared to 6.1 million units in the first six months of 2014. On a year-on-year basis, unit sales to automotive customers increased primarily due to higher consumer uptake of in-vehicle navigation and higher vehicle sales.

Operating profit

The year-on-year improvement in HERE operating profit in the first six months of 2015 was primarily due to higher gross profit, partially offset by higher operating expenses. On a year-on-year basis, HERE research and development expenses increased primarily due to higher investments in targeted growth areas, including higher research and development expenses related to our acquisition of Medio, which was completed on July 2, 2014. This was partially offset by cost savings related to the curtailing of investments in certain higher risk longer-term growth opportunities. On a year-on-year basis, HERE selling, general, and administrative expenses increased primarily due to higher business support costs and incentive accruals, as well as an increase in certain external consultancy fees.

 

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HERE other income and expenses was an expense of EUR 13 million in the first six months of 2015, compared to an expense of EUR 5 million in the first six months of 2014. In the first six months of 2015, charges related to cost reduction programs amounted to EUR 12 million, compared to EUR 4 million of restructuring charges in the first six months of 2014.

On a year-on-year basis, foreign exchange fluctuations had a positive impact on gross profit, and a negative impact on operating expenses, resulting in a positive net impact on operating profit in the first six months of 2015.

 

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Nokia Technologies

 

EUR million

   Q1-Q2’15     Q1-Q2’14     YoY change  

Net sales

     459        278        65

Gross profit

     455        274        66

Gross margin %

     99.1     98.6     50 bps 

R&D

     (107     (69     55

SG&A

     (49     (24     104

Other income and expenses

     0        (2  

Operating profit

     299        179        67

Operating margin %

     65.1 %      64.4     70 bps 

Net sales

In the first six months of 2015, Nokia Technologies net sales increased 65% year-on-year, primarily due to two factors. First, approximately two-thirds of the year-on-year growth in Nokia Technologies net sales in the first six months of 2015 related to non-recurring net sales from existing and new agreements, revenue share related to previously divested intellectual property rights, and intellectual property rights divestments. Second, approximately one-third of the year-on-year growth in Nokia Technologies net sales in the first six months of 2015 related to higher intellectual property licensing income from existing and new licensees, which included Microsoft becoming a more significant intellectual property licensee in conjunction with the Sale of the D&S Business.

Operating profit

The year-on-year increase in Nokia Technologies operating profit in the first six months of 2015 was primarily due to higher gross profit, partially offset by higher operating expenses.

In the first six months of 2015, the year-on-year increase in Nokia Technologies research and development expenses was primarily due to investments in business activities, which target new and significant long-term growth opportunities, as well as higher patent portfolio costs. On a year-on-year basis, Nokia Technologies selling, general and administrative expenses increased primarily due to increased activities related to anticipated and ongoing patent licensing cases and, to a lesser extent, higher business support costs.

On a year-on-year basis, foreign exchange fluctuations had a positive impact on gross profit, and a negative impact on operating expenses, resulting in a slightly positive net impact on operating profit in the first six months of 2015.

 

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Cash and cash flow

Nokia, including discontinued operations, change in net cash and other liquid assets

 

EUR million, at end of period

   Q2’15      Q4’14      YTD change  

Total cash and other liquid assets

     6 618         7 715         (14 )% 

Net cash and other liquid assets1

     3 830         5 023         (24 )% 

 

1  Net cash is a non-IFRS financial measure and should not be considered as an alternative to cash and cash equivalents or other financial measure derived in accordance with the IFRS. We present net cash because we believe that it is a useful tool for investors to asses Nokia’s liquidity and capital structure. Net cash is defined as total cash and other liquid assets less interest-bearing liabilities. Total cash and other liquid assets is defined as the sum of Investments at fair value through profit and loss, liquid, Available-for-sale investments, liquid assets and Cash and cash equivalents. Interest-bearing liabilities is defined as the sum of Long-term interest bearing liabilities, Current portion of long-term interest-bearing liabilities and Short-term borrowings. Each component of net cash is presented within Nokia’s Statement of Financial Position. Net cash has limitations as an analytical tool and should not be considered in isolation or as a substitute for analysis of our liquidity position as reported under IFRS. Some of these limitations include: although we include only liquid assets in the calculation, not all assets included in the calculation constitute cash or cash equivalents; the calculation does not reflect all of our liabilities; and the calculation does not distinguish the maturity of our indebtedness included in the calculation. The following table sets forth the calculation of our net cash for the periods indicated:

 

EURm    Q2’ 15      Q14’ 14  

Investments at fair value through profit and loss, liquid assets

     570         418   

Available-for-sale investments, liquid assets

     2 065         2 127   

Cash and cash equivalents

     3 983         5 170   

Long-term interest-bearing liabilities

     2 685         2 576   

Current portion of long-term interest-bearing liabilities

     1         1   

Short-term borrowings

     102         115   

Net cash

     3 830         5 023   

In the first six months of 2015, Nokia’s total cash and other liquid assets decreased by EUR 1 097 million and Nokia’s net cash and other liquid assets decreased by EUR 1 193 million. The decrease in total and net cash and other liquid assets was primarily attributable to EUR 856 million cash outflows from net working capital, EUR 510 million cash outflow related to the payment of dividend and EUR 330 million cash outflow related to net other financial income and expenses. These cash outflows were partially offset primarily by a net profit of EUR 898 million. Foreign exchange rates had an approximately EUR 80 million positive impact on the translation of total cash and other liquid assets and approximately EUR 110 million positive impact on net cash and other liquid assets.

Cash Flow

In the first six months of 2015, Nokia’s cash outflow from operating activities equaled EUR 457 million, a change of EUR 1 109 million compared to cash inflow from operating activities of EUR 652 million in the first six months of 2014. The cash outflow from operating activities was primarily attributable to EUR 898 million net profit, adjusted for non-cash items, EUR 856 million cash outflow from net working capital, EUR 330 million cash outflow from net other financial income and expenses and EUR 175 million cash outflow from income taxes paid. The cash outflow from net working capital were primarily related to a decrease in short-term liabilities and, to a lesser extent, an increase in receivables. The decrease in short-term liabilities was primarily

 

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due to the payment of incentives related to Nokia Networks’ strong business performance in 2014, as well as a decrease in accounts payable. Cash outflow from net other financial income and expenses was primarily related to foreign exchange hedging and balance sheet related items.

In the first six months of 2015, Nokia’s cash outflow from investing activities equaled EUR 244 million, a change of EUR 1 415 million compared to EUR 1 171 million cash inflow from investing activities in the first six months of 2014. The cash outflow from investing activities was primarily attributable to EUR 158 million outflow related to capital expenditures, EUR 47 million outflow related to acquisition of businesses and EUR 10 million net cash outflows related to purchase, sales and maturities of financial investments These outflows were partially offset by EUR 46 million cash inflow from Nokia’s discontinued operations, related to the disposal of businesses.

In the first six months of 2015, Nokia’s cash outflow from financing activities equaled EUR 522 million, a decrease of EUR 2 264 million compared to EUR 2 786 million cash outflows from financing activities in the first six months of 2014. The cash outflow from financing activities was primarily attributable to the payment of dividend, which totalled approximately EUR 510 million, EUR 173 million cash outflow related to share repurchases and EUR 25 million cash outflow related to the acquisition of subsidiary shares from a non-controlling interest holder. These outflows were partially offset by EUR 180 million cash inflow related to net proceeds from long-term borrowings.

Financial assets and debt

At June 30, 2015 Nokia’s net cash equaled EUR 3 830 million and consisted of EUR 6 618 million in total cash and other liquid assets and EUR 2 788 million of long-term interest bearing liabilities and short-term borrowings.

Nokia’s interest-bearing debt consisted of a EUR 750 million convertible bond due in 2017, a EUR 500 million bond due in 2019, a USD 1 000 million bond due in 2019, a USD 500 million bond due in 2039 and EUR 197 million of other liabilities.

On April 15, 2015, Nokia and Alcatel-Lucent announced their intention to combine to create an innovation leader in next generation technology and services for an IP connected world. At the same time Nokia announced that it will suspend its capital structure optimization program. Following the closing of the transaction, Nokia intends to evaluate the resumption of a capital structure optimization program for the combined company. Nokia also announced its intention to exercise an early repayment option for its EUR 750 million convertible bond in the fourth quarter of 2015, which is expected to result in the full conversion of this convertible bond to equity prior to the closing of the transaction, with no expected cash outflow.

In June 2015, Nokia refinanced EUR 1 500 million revolving credit facility with a similar size facility maturing in 2018. The facility has two one-year extension options, no financial covenants and it remains undrawn and available for liquidity purposes.

 

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Structured Finance

At June 30, 2015 Nokia’s total customer financing, outstanding and committed equaled EUR 170 million, compared to EUR 156 million at December 31, 2014. Customer financing primarily consisted of financing commitments to network operators.

At June 30, 2015 guarantees of Nokia’s performance amounted to EUR 459 million, compared to EUR 465 million at December 31, 2014. Guarantees of Nokia’s performance consisted of guarantees that are provided to certain Nokia Networks’ customers in the form of bank guarantees, or corporate guarantees issued by Nokia Networks.

Venture fund investments and commitments

At June 30, 2015 the fair value of our venture fund investments equaled EUR 967 million, compared to EUR 778 million at December 31, 2014.

At June 30, 2015 our venture fund commitments equaled EUR 266 million, compared to EUR 274 million at December 31, 2014.

 

 

Shares

The total number of Nokia shares on June 30, 2015, equalled 3 678 338 233. On June 30, 2015, Nokia and its subsidiary companies owned 54 326 556 Nokia shares, representing approximately 1.5% of the total number of Nokia shares and voting rights.

Dividend

In the second quarter 2015, Nokia paid a dividend of approximately EUR 510 million (EUR 0.14 per share), as resolved by the shareholders at the Annual General Meeting held on May 5, 2015.

 

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Financial statements

Consolidated income statement (condensed, unaudited)

 

EUR million

   Reported     Reported     Reported     Reported     Reported  
   Q2’15     Q2’14     Q1-Q2’15     Q1-Q2’14     2014  

Net sales (notes 2, 3)

     3 209        2 942        6 405        5 606        12 732   

Cost of sales

     (1 674     (1 648     (3 512     (3 099     (7 094
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (note 2)

     1 535        1 294        2 892        2 506        5 638   

Research and development expenses

     (669     (580     (1 354     (1 169     (2 493

Selling, general and administrative expenses

     (464     (388     (875     (766     (1 634

Impairment of goodwill

     0        0        0        0        (1 209

Other income and expenses (note 7)

     106        (42     81        (45     (131
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (note 2)

     508        284        745        526        170   

Share of results of associated companies

     (5     (5     14        (6     (12

Financial income and expenses (note 7)

     (29     (261     (49     (335     (396
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) before tax

     474        17        710        185        (237

Income tax (expense)/benefit

     (121     (44     (177     (102     1 408   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) from continuing operations (note 2)

     352        (27     533        84        1 171   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the parent

     351        (28     531        80        1 163   

Non-controlling interests

     2        2        2        4        8   

(Loss)/profit from discontinued operations

     (4     2 537        (7     2 198        2 305   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Equity holders of the parent

     (4     2 539        (7     2 192        2 299   

Non-controlling interests

     0        (2     0        6        6   

Profit/(loss) (note 6)

     348        2 510        526        2 282        3 476   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Profit/(loss) attributable to equity holders of the parent

     347        2 510        524        2 272        3 462   

Non-controlling interests

     2        0        2        10        14   

Earnings per share, EUR (for profit/loss attributable to the equity holders of the parent)

          

Basic earnings per share

          

Continuing operations

     0.10        (0.01     0.15        0.02        0.31   

Discontinued operations

     0.00        0.68        0.00        0.59        0.62   

Profit/loss

     0.10        0.68        0.14        0.61        0.94   

Diluted earnings per share

          

Continuing operations

     0.09        (0.01     0.14        0.02        0.30   

Discontinued operations

     0.00        0.62        0.00        0.52        0.56   

Profit/loss

     0.09        0.61        0.14        0.54        0.85   

Average number of shares (‘000 shares)

          

Basic

          

Continuing operations

     3 623 987        3 713 990        3 631 929        3 713 523        3 698 723   

Discontinued operations

     3 623 987        3 713 990        3 631 929        3 713 523        3 698 723   

Profit/loss

     3 623 987        3 713 990        3 631 929        3 713 523        3 698 723   

Diluted

          

Continuing operations

     3 945 989        3 713 990        3 952 185        3 732 608        4 131 602   

Discontinued operations

     3 945 989        4 120 410        3 952 185        4 254 600        4 131 602   

Profit/loss

     3 945 989        4 120 410        3 952 185        4 254 600        4 131 602   

Interest expense, net of tax, on convertible bonds

     (11     (15     (22     (37     (60

From continuing operations:

          

Depreciation and amortization (note 2)

     (83     (70     (165     (150     (297

Share-based payment

     17        12        33        28        65   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The notes are an integral part of these consolidated financial statements.

 

14


LOGO

 

Consolidated statement of comprehensive income (condensed, unaudited)

 

EUR million

   Reported     Reported     Reported     Reported     Reported  
   Q2’15     Q2’14     Q1-Q2’15     Q1-Q2’14     2014  

Profit/(loss)

     348        2 510        526        2 282        3 476   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income/(expense)

          

Items that will not be reclassified to profit or loss:

          

Remeasurements on defined benefit pensions

     167        (47     104        (130     (275

Income tax related to items that will not be reclassified to profit or loss

     (48     (18     (29     (14     96   

Items that may be reclassified subsequently to profit or loss:

          

Translation differences

     (264     257        427        178        820   

Net investment hedges

     77        (26     (161     (3     (167

Cash flow hedges

     83        (30     3        (41     (30

Available-for-sale investments (note 7)

     (86     13        71        4        106   

Other increase, net

     3        43        2        40        39   

Income tax related to items that may be reclassified subsequently to profit or loss

     (30     (37     31        (37     16   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive (expense)/income, net of tax

     (98     155        448        (3     606   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

     250        2 665        974        2 279        4 082   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to:

          

Equity holders of the parent

     251        2 664        968        2 273        4 061   

Non-controlling interests

     (1     1        6        6        21   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     250        2 665        974        2 279        4 082   

Attributable to equity holders of the parent:

          

Continuing operations

     255        (119     975        (120     1 563   

Discontinued operations (note 6)

     (4     2 783        (7     2 393        2 498   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     251        2 664        968        2 273        4 061   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Attributable to non-controlling interest:

          

Continuing operations

     (1     3        6        3        16   

Discontinued operations (note 6)

     0        (2     0        3        5   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
     (1     1        6        6        21   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

The notes are an integral part of these consolidated financial statements.

 

15


LOGO

 

Consolidated statement of financial position, reported (condensed, unaudited)

 

EUR million

  Reported
June 30,
2015
    Reported
June 30,
2014
    Reported
December 31,
2014
 

ASSETS

     

Goodwill

    2 783        3 322        2 563   

Other intangible assets

    341        294        350   

Property, plant and equipment

    786        568        716   

Investments in associated companies

    69        53        51   

Available-for-sale investments (note 7)

    1 018        708        828   

Deferred tax assets

    2 721        913        2 720   

Long-term loans receivable (note 7)

    48        102        34   

Prepaid pension costs

    29        34        31   

Other non-current assets

    43        51        47   
 

 

 

   

 

 

   

 

 

 

Non-current assets

    7 837        6 045        7 339   
 

 

 

   

 

 

   

 

 

 

Inventories

    1 368        1 172        1 275   

Accounts receivable, net of allowances for doubtful accounts (note 7)

    3 602        3 089        3 429   

Prepaid expenses and accrued income

    944        1 038        913   

Social security, VAT and other indirect taxes

    268        322        362   

Divestment related receivables

    164        372        206   

Other

    511        344        344   

Current income tax assets

    200        144        124   

Current portion of long-term loans receivable (note 7)

    2        9        1   

Other financial assets (note 7)

    121        119        266   

Investments at fair value through profit and loss, liquid assets (note 7)

    570        391        418   

Available-for-sale investments, liquid assets (note 7)

    2 065        2 016        2 127   

Cash and cash equivalents

    3 983        6 611        5 170   
 

 

 

   

 

 

   

 

 

 

Current assets

    12 855        14 589        13 724   
 

 

 

   

 

 

   

 

 

 

Assets held for sale

    0        82        0   

Total assets

    20 693        20 715        21 063   
 

 

 

   

 

 

   

 

 

 

The notes are an integral part of these consolidated financial statements.

    Reported
June 30,
2015
    Reported
June 30,
2014
    Reported
December 31,
2014
 

SHAREHOLDERS’ EQUITY AND LIABILITIES

     

Share capital

    246        246        246   

Share issue premium

    401        455        439   

Treasury shares at cost

    (731     (573     (988

Translation differences

    1 395        576        1 099   

Fair value and other reserves

    168        (55     22   

Reserve for invested non-restricted equity

    3 081        3 094        3 083   

Retained earnings

    4 359        3 523        4 710   
 

 

 

   

 

 

   

 

 

 

Capital and reserves attributable to equity holders of the parent

    8 919        7 266        8 611   

Non-controlling interests

    59        89        58   
 

 

 

   

 

 

   

 

 

 

Total equity

    8 979        7 355        8 669   
 

 

 

   

 

 

   

 

 

 

Long-term interest-bearing liabilities (notes 7, 11)

    2 685        2 434        2 576   

Deferred tax liabilities

    75        298        32   

Deferred revenue and other long-term liabilities

    2 001        2 154        2 197   

Deferred revenue

    1 479        1 753        1 632   

Defined benefit pension

    426        368        530   

Other

    96        33        35   

Provisions (note 8)

    259        239        301   
 

 

 

   

 

 

   

 

 

 

Non-current liabilities

    5 019        5 125        5 107   
 

 

 

   

 

 

   

 

 

 

Current portion of interest-bearing liabilities (notes 7, 11)

    1        35        1   

Short-term borrowing (note 9)

    102        53        115   

Other financial liabilities (note 9)

    122        58        174   

Current income tax liabilities

    484        456        481   

Accounts payable (note 9)

    1 919        2 180        2 313   

Accrued expenses, deferred revenue and other liabilities

    3 560        4 786        3 632   

Advance payments

    942        895        869   

Deferred revenue

    1 130        916        960   

Salaries and wages

    580        538        807   

Other

    907        2 438        996   

Provisions (note 8)

    507        666        572   
 

 

 

   

 

 

   

 

 

 

Current liabilities

    6 695        8 235        7 288   
 

 

 

   

 

 

   

 

 

 

Liabilities of disposal groups classified as held for sale

    0        0        0   
 

 

 

   

 

 

   

 

 

 

Total shareholders’ equity and liabilities

    20 693        20 715        21 063   
 

 

 

   

 

 

   

 

 

 
     
 

 

 

   

 

 

   

 

 

 

Interest-bearing liabilities, EUR million

    2 788        2 522        2 692   

Shareholders’ equity per share, EUR

    2.46        1.96        2.36   

Number of shares (1 000 shares, shares owned by Group companies are excluded)

    3 624 012        3 714 051        3 648 143   
 

 

 

   

 

 

   

 

 

 
 

 

16


LOGO

 

Consolidated statement of cash flows, reported (condensed, unaudited)

 

EUR million

   Q2’15     Q2’14     Q1-Q2’15     Q1-Q2’14     2014  

Cash flow from/(used in) operating activities

          

Profit for the period

     348        2 511        526        2 282        3 476   

Adjustments, total (note 12)

     182        (2 414     372        (2 194     (2 262

Change in net working capital (note 12)

     (762     1 210        (856     1 269        1 153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash generated from operations (note 12)

     (232     1 307        42        1 357        2 367   

Interest received

     20        0        38        23        45   

Interest paid

     (48     (223     (32     (313     (336

Other financial income and expenses, net

     76        (53     (330     17        (165

Income taxes, net paid

     (74     (240     (175     (432     (636
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash from/(used in) operating activities

     (258     791        (457     652        1 275   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow from/(used in) investing activities

          

Acquisition of businesses, net of acquired cash

     0        (1     (47     (13     (175

Purchase of current investments, liquid assets

     (1 066     (1 683     (2 003     (1 709     (2 977

Purchase of non-current available-for-sale investments

     (26     (15     (46     (29     (73

Proceeds from (+) / payment of (-) other long-term loans receivable

     0        0        (1     0        7   

Proceeds from (+) / payment of (-) short-term loans receivable

     (9     23        14        17        20   

Capital expenditures (note 12)

     (88     (77     (158     (157     (311

Proceeds from disposal of businesses, net of disposed cash

     46        2 372        46        2 372        2 508   

Proceeds from disposal of shares in associated companies

     0        0        0        6        7   

Proceeds from maturities and sale of investments, liquid assets

     1 112        232        1 893        631        1 774   

Proceeds from sale of non-current available-for-sale investments

     51        9        54        29        62   

Proceeds from sale of property, plant and equipment and intangible assets

     0        23        2        24        44   

Dividends received

     2        0        2        0        0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash from/(used in) investing activities

     22        883        (244     1 171        886   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash flow used in financing activities

          

Purchase of treasury shares

     (9     0        (173     0        (427

Purchase of a subsidiary’s equity instruments

     (25     0        (25     0        (45

Proceeds from long-term borrowings

     (1     12        203        14        79   

Repayment of long-term borrowings

     (22     (955     (23     (2 713     (2 749

Proceeds from (+) / payment of (-) short-term borrowings

     31        (9     8        (78     (42

Dividends paid and other contributions to shareholders

     (507     0        (512     (9     (1 392
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net cash used in financing activities

     (533     (952     (522     (2 786     (4 576
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Foreign exchange adjustment

     (37     (4     36        (59     (48
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (+) / decrease (-) in cash and cash equivalents

     (806     718        (1 187     (1 022     (2 463
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at beginning of period

     4 789        5 894        5 170        7 633        7 633   

Cash and cash equivalents at end of period

     3 983        6 611        3 983        6 611        5 170   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Consolidated statement of cash flows combines cash flows from both the continuing and the discontinued operations. The figures in the consolidated statement of cash flows cannot be directly traced from the statement of financial position without additional information as a result of acquisitions and disposals of subsidiaries and net foreign exchange differences arising on consolidation.

The notes are an integral part of these consolidated financial statements.

 

17


LOGO

 

Consolidated statement of changes in shareholders’ equity, reported (condensed, unaudited)

 

EUR million

  Share
capital
    Share
issue
premium
    Treasury
shares
    Translation
difference
    Fair value
and other
reserves
    Reserve for
invested non-
restricted
equity
    Retained
earnings
    Equity
holders of
the parent
    Non-
controlling
interest
    Total equity  

January 1, 2014

    246        614        (603     434        80        3 115        2 580        6 466        193        6 659   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Remeasurements on defined benefit pension plans, net of tax

    0        0        0        0        (98     0        (47     (145     0        (145

Translation differences

    0        0        0        181        0        0        0        181        (4     177   

Net investment hedge losses, net of tax

    0        0        0        (39     0        0        0        (39     0        (39

Cash flow hedges, net of tax

    0        0        0        0        (41     0        0        (41     0        (41

Available-for-sale investments, net of tax (note 7)

    0        0        0        0        4        0        0        4        0        4   

Other increase, net

    0        0        0        0        0        0        40        40        0        40   

Profit

    0        0        0        0        0        0        2 272        2 272        10        2 282   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income/(loss)

    0        0        0        142        (135     0        2 265        2 272        6        2 278   

Share-based payment

    0        (12     0        0        0        0        0        (12     0        (12

Settlement of performance and restricted shares

    0        (15     30        0        0        (21     0        (6     0        (6

Dividends

    0        0        0        0        0        0        (1 374     (1 374     0        (1 374

Disposal of subsidiaries

    0        0        0        0        0        0        0        0        (109     (109

Convertible bond - equity component

    0        (82     0        0        0        0        0        (82     0        (82

Other movements

    0        (51     0        0        0        0        51        0        0        0   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total of other equity movements

    0        (160     30        0        0        (21     (1 322     (1 473     (109     (1 582
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2014

    246        455        (573     576        (55     3 094        3 523        7 266        89        7 355   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

January 1, 2015

    246        439        (988     1 099        22        3 083        4 710        8 611        58        8 669   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Remeasurements on defined benefit pension plans, net of tax

    0        0        0        0        73        0        0        73        0        73   

Translation differences

    0        0        0        424        0        0        0        424        5        429   

Net investment hedge losses, net of tax

    0        0        0        (129     0        0        0        (129     0        (129

Cash flow hedges, net of tax

    0        0        0        0        3        0        0        3        0        3   

Available-for-sale investments, net of tax (note 7)

    0        0        0        0        69        0        0        69        0        69   

Other increase/(decrease), net

    0        0        0        0        2        0        2        4        (1     4   

Profit

    0        0        0        0        0        0        524        524        2        526   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income

    0        0        0        296        146        0        526        968        6        974   

Share-based payment

    0        21        0        0        0        0        0        21        0        21   

Settlement of performance and restricted shares

    0        (3     3        0        0        (2     0        (1     0        (1

Acquisition of treasury shares

    0        0        (173     0        0        0        0        (173     0        (173

Cancellation of treasury shares

    0        0        427        0        0        0        (427     0        0        0   

Stock options exercise

    0        0        0        0        0        1        0        1        0        1   

Dividends

    0        0        0        0        0        0        (507     (507     (5     (512

Convertible bond - equity component

    0        (57     0        0        0        0        57        0        0        0   

Total of other equity movements

    0        (38     257        0        0        (1     (877     (660     (5     (664
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

June 30, 2015

    246        401        (731     1 395        168        3 081        4 359        8 919        59        8 979   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

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Notes to Financial statements

1. Basis of preparation

The unaudited, consolidated, condensed interim financial statements of Nokia have been prepared in accordance with International Accounting Standard 34 (“IAS 34, Interim Financial Reporting”). The condensed interim financial statements should be read in conjunction with the annual financial statements for 2014, which have been prepared in accordance with IFRS as published by the IASB. The same accounting policies, methods of computation and applications of judgement are followed in these interim financial statements as were followed in the consolidated financial statements of Nokia for 2014.

These interim financial statements were authorized for issue by management on August 14, 2015.

Percentages and figures presented herein may include rounding differences and therefore may not add up precisely to the totals presented and may vary from previously published financial information.

On January 1, 2015, the Group completed the acquisition of the wireless network business from Panasonic in Japan. The business transfer included Panasonic’s LTE/3G wireless base station system business, related wireless equipment system business, fixed assets and business contracts with Panasonic’s customers as well as more than 300 Panasonic employees. The purchase accounting was not complete at the end of Q2 2015.

On April 15, 2015 Nokia and Alcatel-Lucent announced their intention to combine to create an innovation leader in next generation technology and services for an IP connected world. The two companies have entered into a memorandum of understanding under which Nokia will make an offer for all of the equity securities issued by Alcatel-Lucent, through a public exchange offer in France and in the United States, on the basis of 0.55 of a new Nokia share for every Alcatel-Lucent share. The public exchange offer is expected to be launched and completed in the first half of 2016.

During the second quarter to 2015, the Group recorded amounts in order to correct items previously reported in 2014 and 2013 as cost of sales and reductions to accounts receivable. The impact of this correction was to reduce cost of sales in the current period by EUR 37 million, of which EUR 7 million related to 2014 and EUR 30 million to 2013. The error related to businesses divested in 2013 where the Group continued to operate certain accounting functions under a transitional arrangement and erroneously recorded pass through costs of the disposed businesses as costs of the Group. During the first quarter 2015 the Group recorded a correction which increased the results of associated companies by EUR 25 million in the current period. This correction related to the results of an associate for the fourth quarter of 2014. Nokia had historically accounted for the results of the associated company in arrears as the results have not been material. The Group evaluated these items in relation to the current period, expected 2015 annual results as well as the periods in which they originated and determined that the corrections are immaterial to the consolidated financial statements in all periods.

Improvements to IFRS 2010-2012 and 2011-2013 Cycles

On January 1, 2015, the Group adopted amendments to multiple IFRS standards, which resulted from the IASB’s annual improvement projects for the 2010-2012 and 2011-2013 cycles. They comprise amendments that result in accounting changes for presentation, recognition or measurement purposes as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments did not have a material impact on the Group’s consolidated financial statements.

 

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Currency exposures, Nokia Group, Continuing operations, approximately (unaudited)

 

    Q2’15     Q2’14     Q1’15  
  Net sales     Total costs     Net sales     Total costs     Net sales     Total costs  

EUR

    ~30     ~30     ~30     ~35     ~30     ~30

USD

    ~40     ~35     ~30     ~35     ~35     ~30

JPY

    ~5     ~5     ~10     ~5     ~10     ~5

CNY

    ~10     ~10     ~5     ~10     ~10     ~10

Other

    ~15     ~20     ~25     ~15     ~15     ~25

Total

    100     100     100     100     100     100

End of Q2’15 balance sheet rate 1 EUR = 1.12 USD

End of Q1’15 balance sheet rate 1 EUR = 1.08 USD

End of Q2’14 balance sheet rate 1 EUR = 1.35 USD

2. Segment information and eliminations, Continuing Operations (unaudited)

We have three businesses: Nokia Networks, HERE, and Nokia Technologies, and four operating and reportable segments for financial reporting purposes: Mobile Broadband and Global Services within Nokia Networks, HERE, and Nokia Technologies. We also present certain segment data for discontinued operations. Numbers are always presented for the continuing operations of Nokia, unless otherwise indicated. Below is a description of our four reportable segments. Mobile Broadband provides mobile operators with radio and core network software together with the hardware needed to deliver mobile voice and data services. Global Services provides mobile operators with a broad range of services, including network implementation, care, managed services, network planning and optimization as well as systems integration. HERE focuses on the development of location intelligence, location-based services and local commerce. Nokia Technologies is built on Nokia’s intellectual property rights (IPR) and brand and related licensing. Nokia Networks also contains Nokia Networks Other, which includes net sales and related cost of sales and operating expenses of non-core businesses, IPR net sales and related costs. It also includes restructuring and associated charges for Nokia Networks business. Additionally, as a result of the transaction announced on September 3, 2013 where Nokia sold substantially all of Nokia’s Devices & Services business to Microsoft on April 25, 2014 (“Sale of the D&S Business”), we report certain separate information for discontinued operations. After the closing of the Sale of the D&S Business, NSN (Nokia Solutions and Networks) was renamed Nokia Networks. Nokia reports financial information for the two operating and reportable segments within Nokia Networks; Mobile Broadband and Global Services. The Devices & Services business has been reported as discontinued operations.

Segment measures used by the Chief Operating Decision Maker exclude certain non-recurring items (special items) for all periods, as well as intangible asset amortization and other purchase price accounting-related items arising from business acquisitions.

 

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Q2 2015

 

EUR million

   Mobile
Broadband
Q2’15
    Global
Services
Q2’15
    Nokia
Networks
Other1
Q2’15
    Nokia
Networks
Total
Q2’15
    HERE
Q2’15
    Nokia
Technologies
Q2’15
    Group
Common
Functions
Q2’15
    Eliminations
Q2’15
    Total
Q2’15
    Reconciliation
to
Reported
Q2’15
    Nokia
Continuing
Operations
Reported
Q2’15
 

Net sales

     1 391        1 337        2        2 730        291        193        0        (4     3 210        (1     3 209   

Costs and expenses

     (1 272     (1 155     0        (2 427     (262     (81     (35     4        (2 802     (5     (2 807

Other income and expenses

     3        3        4        10        (1     0        104        0        113        (7     106   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     122        185        6        313        27        112        69        0        521        (13     508   

% of net sales

     8.8     13.8     300.0     11.5     9.3     58.0         16.2       15.8
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     (38     (10     0        (48     (11     (1     (1     0        (62     (21     (83
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Q2 2014

 

EUR million

   Mobile
Broadband
Q2’14
    Global
Services
Q2’14
    Nokia
Networks
Other1
Q2’14
    Nokia
Networks
Total
Q2’14
    HERE
Q2’14
    Nokia
Technologies
Q2’14
    Group
Common
Functions
Q2’14
    Eliminations
Q2’14
    Total
Q2’14
    Reconciliation
to
Reported
Q2’14
    Nokia
Continuing
Operations
Reported
Q2’14
 

Net sales

     1 357        1 189        20        2 566        233        147        0        (4     2 942        0        2 942   

Costs and expenses

     (1 248     (1 022     (7     (2 276     (231     (51     (33     4        (2 587     (29     (2 616

Other income and expenses

     (4     (2     (2     (9     (2     0        2        0        (9     (33     (42
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     105        165        11        281        0        96        (31     0        346        (62     284   

% of net sales

     7.7     13.9     55.0     11.0     0.0     65.3         11.8       9.7
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     (31     (8     0        (40     (12     0        0        0        (53     (17     (70
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1  Nokia Networks Other includes net sales and related cost of sales and operating expenses of non-core businesses, IPR net sales and related costs.

 

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January-June 2015

 

EUR million

   Mobile
Broadband
Q1-Q2’15
    Global
Services
Q1-Q2’15
    Nokia
Networks
Other1
Q1-Q2’15
    Nokia
Networks
Q1-Q2’15
    HERE
Q1-Q2’15
    Nokia
Technologies
Q1-Q2’15
    Group
Functions
Q1-Q2’15
    Eliminations
Q1-Q2’15
    Total
Q1-Q2’15
    Reconciliation
to Reported
Q1-Q2’15
    Nokia
Continuing
Operations
Reported
Q1-Q2’15
 

Net sales

     2 772        2 628        3        5 403        552        459        0        (7     6 406        (1     6 405   

Costs and expenses

     (2 652     (2 347     (3     (5 001     (505     (154     (61     7        (5 713     (28     (5 741

Other income and expenses

     (1     (1     (1     (4     (1     0        98        0        93        (12     81   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     119        280        (1     398        46        305        37        0        786        (41     745   

% of net sales

     4.3     10.7     (33.3 )%      7.4     8.3     66.4         12.3       11.6
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     (75     (20     0        (94     (23     (3     (4     0        (124     (41     (165
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

January-June 2014

 

EUR million

   Mobile
Broadband
Q1-Q2’14
    Global
Services
Q1-Q2’14
    Nokia
Networks
Other1
Q1-Q2’14
    Nokia
Networks
Q1-Q2’14
    HERE
Q1-Q2’14
    Nokia
Technologies
Q1-Q2’14
    Group
Functions
Q1-Q2’14
    Eliminations
Q1-Q2’14
    Total
Q1-Q2’14
    Reconciliation
to Reported
Q1-Q2’14
    Nokia
Continuing
Operations
Reported
Q1-Q2’14
 

Net sales

     2 607        2 258        29        4 894        442        278        0        (7     5 606        0        5 606   

Costs and expenses

     (2 396     (1 976     (14     (4 385     (431     (93     (57     9        (4 958     (77     (5 035

Other income and expenses

     (3     (2     (5     (11     0        (2     17        (1     2        (47     (45
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit/(loss)

     208        280        10        497        10        182        (39     0        651        (125     526   

% of net sales

     8.0     12.4     34.5     10.2     2.3     65.5         11.6       9.4
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     (65     (17     0        (83     (24     0        (1     0        (108     (42     (150
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1  Nokia Networks Other includes net sales and related cost of sales and operating expenses of non-core businesses, IPR net sales and related costs.

 

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EUR million

   Nokia
Networks
Q2’15
    HERE
Q2’15
     Nokia
Technologies
Q2’15
     Group
Common
Functions
Q2’15
     Nokia
continuing
operations
Q2’15
 

Reported Operating Profit

     331        17         107         53         508   

Restructuring, cost reduction & associated charges 1

     0        6         4         0         11   

Amortization of acquired intangible assets 2

     20        2         0         0         21   

Strategy review3

     0        2         0         0         2   

Divestment related cost of sales correction4

     (37     0         0         0         (37

Transaction and related costs, including integration costs related to Alcatel-Lucent

     0        0         0         16         16   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

Segment Operating Profit

     313        27         112         69         521   
  

 

 

   

 

 

    

 

 

    

 

 

    

 

 

 

 

1  Includes research and development costs of EUR 4 million and other income and expenses of EUR 6 million for charges related to cost reduction programs.
2  Includes research and development expenses of EUR 8 million and selling, general and administrative expenses of EUR 12 million relating to amortization of acquired intangible assets and inventory.
3  Includes research and development expenses of EUR 1 million and selling, general and administrative expenses of EUR 1 million relating to the strategic review of the business.
4  Includes divestment related cost of sales correction of EUR 37 million related to businesses divested in 2013 (refer to Note 1, Basis of preparation)

 

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EUR million

   Nokia
Networks
Q1-Q2’15
    HERE
Q1-Q2’15
     Nokia
Technologies
Q1-Q2’15
     Group
Common
Functions
Q1-Q2’15
    Nokia
continuing
operations
Q1-Q2’15
 

Reported Operating Profit

     395        28         299         22        745   

Restructuring, cost reduction & associated charges 1

     0        12         4         0        16   

Amortization of acquired intangible assets 2

     40        4         0         0        44   

Transaction and other related costs from the Sale of the D&S Business3

     0        0         1         (1     0   

Strategy review4

     0        2         0         0        2   

Divestment related cost of sales correction5

     (37     0         0         0        (37

Transaction and related costs, including integration costs related to Alcatel-Lucent

     0        0         0         16        16   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Segment Operating Profit

     398        46         305         37        786   
  

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

 

1  Includes research and development costs of EUR 4 million and other income and expenses of EUR 12 million for charges related to cost reduction programs.
2  Includes cost of sales of EUR 2 million, research and development expenses of EUR 19 million and selling, general and administrative expenses of EUR 22 million relating to amortization of acquired intangible assets and inventory.
3  Includes research and development expenses of EUR 1 million and selling, general and administrative income of EUR 1 million
4  Includes research and development expenses of EUR 1 million and selling, general and administrative expenses of EUR 1 million relating to the strategic review of the business.
5  Includes divestment related cost of sales correction of EUR 37 million related to businesses divested in 2013 (refer to Note 1, Basis of preparation)

 

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3. NET SALES BY GEOGRAPHIC AREA, NOKIA GROUP, Continuing operations, reported (unaudited)

 

EUR million

   Q2’15      Q2’14      YoY
change
    Q1’15      QoQ
change
    Q1-Q2’15      Q1-Q2’14      YoY
change
    2014  

Europe

     1 008         901         12     986         2     1 994         1 746         14     3 885   

Middle East & Africa

     307         247         24     244         26     551         440         25     1 099   

Greater China

     381         307         24     369         3     750         601         25     1 410   

Asia-Pacific

     795         836         (5 )%      901         (12 )%      1 696         1 619         5     3 364   

North America

     470         418         12     482         (2 )%      952         745         28     1 920   

Latin America

     248         232         7     214         16     461         454         2     1 053   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Total

     3 209         2 942         9     3 196         0     6 405         5 606         14     12 732   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

4. PERSONNEL BY GEOGRAPHIC AREA, NOKIA GROUP, Continuing operations (unaudited)

 

     June 30,
2015
     June 30,
2014
     YoY
change
    March 31,
2015
     QoQ
change
    December 31,
2014
 

Europe

     24 557         22 489         9     24 007         2     23 499   

Middle East & Africa

     2 425         2 455         (1 )%      2 430         0     2 434   

Greater China

     9 429         8 370         13     9 429         0     9 578   

Asia-Pacific

     18 736         15 247         23     18 329         2     17 351   

North America

     5 905         4 909         20     5 632         5     5 652   

Latin America

     2 951         3 129         (6 )%      2 956         0     3 142   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     64 003         56 599         13     62 783         2     61 656   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

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5. PERSONNEL BY SEGMENT, NOKIA GROUP, Continuing operations (unaudited) 1

 

     June 30,
2015
     June 30,
2014
     YoY
change
    March 31,
2015
     QoQ
change
    December 31,
2014
 

Nokia Networks

     56 376         49 316         14     55 315         2     54 218   

HERE

     6 454         6 047         7     6 301         2     6 257   

Nokia Technologies

     591         619         (5 )%      647         (9 )%      592   

Group Common Functions

     582         617         (6 )%      520         12     589   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

Total

     64 003         56 599         13     62 783         2     61 656   
  

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

 

 

1 Personnel by segment for Group common functions on June 30, 2014 and December 31, 2014 have been restated to account for a transfer from Nokia Networks to Group Common Functions.

 

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6. DISCONTINUED OPERATIONS

In September 2013, Nokia announced the Sale of the D&S Business. Subsequent to the approval for the sale received in the Extraordinary General Meeting in November 2013, Nokia Group has presented Devices & Services as discontinued business, including those items outside of the final scope of the transaction. The sale was completed on April 25, 2014.

Results of discontinued operations, reported (unaudited)

 

EUR million

   Q2’15     Q2’14     Q1-Q2’15     Q1-Q2’14     2014  

Net sales

     0        497        0        2 426        2 458   

Cost of sales

     0        (434     (1     (2 050     (2 086
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit/(loss)

     0        63        (1     376        372   

Research and development expenses

     0        (85     0        (354     (354

Selling, general and administrative expenses

     (3     (94     (6     (431     (447

Gain from the Sale of the D&S Business

     0        0        0        0        3 175   

Other income and expenses

     4        3 190        10        3 158        (107
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit

     2        3 074        3        2 749        2 639   

Financial income and expense1

     0        (212     0        (203     (207

Income tax expense2

     (6     (325     (10     (347     (127
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss)/profit

     (4     2 537        (7     2 198        2 305   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Depreciation and amortization

     0        0        0        0        0   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1  Financial income and expenses in 2014 include exchange differences of EUR 212 million reclassified from other comprehensive income to profit and loss as a consequence of the disposal.
2  Income taxes in 2014 include EUR 160 million of taxes resulting from the Sale of the D&S Business.

Cash flows from / used in discontinued operations (unaudited)

 

EUR million

   Reported
Q2’15
    Reported
Q2’14
    Reported
Q1-Q2’15
     Reported
Q1-Q2’14
    Reported
2014
 

Net cash used in operating activities

     (10     (664     0         (1 001     (1 054

Net cash from investing activities

     45        2 372        45         2 339        2 480   

Net cash used in financing activities

     0        0        0         (9     (9
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Net cash flow

     35        1 708        45         1 329        1 417   
  

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

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7. FAIR VALUE OF FINANCIAL INSTRUMENTS, Nokia Group, Continuing Operations, reported (unaudited)

Financial assets and liabilities recorded at fair value are categorized based on the amount of unobservable inputs used to measure their fair value. Three hierarchical levels are based on an increasing amount of judgment associated with the inputs used to derive fair valuation for these assets and liabilities; Level 1 being market values and Level 3 requiring most management judgment. At the end of each reporting period Nokia categorizes its financial assets and liabilities to appropriate level of fair value hierarchy.

 

     Carrying amounts      Fair
value1
 

At June 30, 2015, EUR million

   Current
available-for-
sale financial
assets
     Non-current
available-for-
sale financial
assets
     Financial
instruments at
fair value through
profit or loss
     Loans and
receivables
measured at
amortized cost
     Financial
liabilities
measured at
amortized
cost
     Total      Total  

Available-for-sale investments, publicly quoted equity shares

     0         13         0         0         0         13         13   

Available-for-sale investments, carried at fair value

     0         727         0         0         0         727         727   

Available-for-sale investments, carried at cost less impairment

     0         277         0         0         0         277         277   

Long-term loans receivable

     0         0         0         48         0         48         41   

Accounts receivable

     0         0         0         3 602         0         3 602         3 602   

Current portion of long-term loans receivable

     0         0         0         2         0         2         2   

Other current financial assets, derivatives

     0         0         105         0         0         105         105   

Other current financial assets, other

     0         0         0         16         0         16         16   

Investments at fair value through profit and loss, liquid assets

     0         0         570         0         0         570         570   

Available-for-sale investments, liquid assets carried at fair value

     2 065         0         0         0         0         2 065         2 065   

Cash and cash equivalents carried at fair value

     3 983         0         0         0         0         3 983         3 983   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

     6 048         1 017         675         3 668         0         11 408         11 401   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Long-term interest-bearing liabilities

     0         0         0         0         2 685         2 685         4 012   

Current portion of interest-bearing liabilities

     0         0         0         0         1         1         1   

Short-term borrowing

     0         0         0         0         102         102         102   

Other financial liabilities, derivatives

     0         0         122         0         0         122         122   

Accounts payable

     0         0         0         0         1 919         1 919         1 919   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

     0         0         122         0         4 707         4 829         6 156   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Items included in the following table are measured at fair value on a recurring basis.

 

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At June 30, 2015, EUR million

   Instruments with quoted
prices in active markets
(Level 1)
     Valuation technique using
observable data
(Level 2)
     Valuation technique using
non-observable data
(Level 3)
     Total  

Available-for-sale investments, publicly quoted equity shares

     13         0         0         13   

Available-for-sale investments, carried at fair value

     3         14         710         727   

Other current financial assets, derivatives

     0         105         0         105   

Investments at fair value through profit and loss, liquid assets

     570         0         0         570   

Available-for-sale investments, liquid assets carried at fair value

     2 053         11         0         2 064   

Cash and cash equivalents carried at fair value

     3 983         0         0         3 983   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     6 622         130         710         7 462   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other financial liabilities, derivatives

     0         122         0         122   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     0         122         0         122   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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FAIR VALUE OF FINANCIAL INSTRUMENTS, Nokia Group, Continuing Operations, reported (unaudited)

 

     Carrying amounts      Fair
value1
 

At December 31, 2014, EUR million

   Current
available-for-
sale financial
assets
     Non-current
available-for-
sale financial
assets
     Financial
instruments at
fair value through
profit or loss
     Loans and
receivables
measured at
amortized cost
     Financial
liabilities
measured at
amortized
cost
     Total      Total  

Available-for-sale investments, publicly quoted equity shares

     0         14         0         0         0         14         14   

Available-for-sale investments, carried at fair value

     0         571         0         0         0         571         571   

Available-for-sale investments, carried at cost less impairment

     0         244         0         0         0         244         244   

Long-term loans receivable

     0         0         0         34         0         34         28   

Accounts receivable

     0         0         0         3 429         0         3 429         3 429   

Current portion of long-term loans receivable

     0         0         0         1         0         1         1   

Other current financial assets, derivatives

     0         0         241         0         0         241         241   

Other current financial assets, other

     0         0         0         25         0         25         25   

Investments at fair value through profit and loss, liquid assets

     0         0         418         0         0         418         418   

Available-for-sale investments, liquid assets carried at fair value

     2 127         0         0         0         0         2 127         2 127   

Cash and cash equivalents carried at fair value

     5 170         0         0         0         0         5 170         5 170   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial assets

     7 297         829         659         3 489         0         12 274         12 268   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Long-term interest-bearing liabilities

     0         0         0         0         2 576         2 576         4 058   

Current portion of interest-bearing liabilities

     0         0         0         0         1         1         1   

Short-term borrowing

     0         0         0         0         115         115         115   

Other financial liabilities, derivatives

     0         0         174         0         0         174         174   

Accounts payable

     0         0         0         0         2 313         2 313         2 313   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total financial liabilities

     0         0         174         0         5 005         5 179         6 661   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

1  For items not carried at fair value the following fair value measurement methods are used. The fair value is set to carrying amount for available-for-sale investments carried at cost less impairment for which no reliable fair value has been possible to estimate. The fair value of loan receivables and payables is estimated based on discounted cash flow method or current market values of similar instruments. The fair values of long-term interest bearing liabilities are based on discounted cash flow analysis (level 2) or quoted prices (level 1). The fair value is estimated to be equal to the carrying amount for short-term financial assets and financial liabilities due to limited credit risk and short time to maturity.

 

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Items included in the following table are measured at fair value on a recurring basis.

 

At December 31, 2014, EUR million

   Instruments with quoted
prices in active markets
(Level 1)
     Valuation technique using
observable data
(Level 2)
     Valuation technique using
non-observable data
(Level 3)
     Total  

Available-for-sale investments, publicly quoted equity shares

     14         0         0         14   

Available-for-sale investments, carried at fair value

     1         13         557         571   

Other current financial assets, derivatives

     0         241         0         241   

Investments at fair value through profit and loss, liquid assets

     418         0         0         418   

Available-for-sale investments, liquid assets carried at fair value

     2 115         11         0         2 126   

Cash and cash equivalents carried at fair value

     5 170         0         0         5 170   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

     7 718         265         557         8 540   
  

 

 

    

 

 

    

 

 

    

 

 

 

Other financial liabilities, derivatives

     0         174         0         174   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

     0         174         0         174   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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FAIR VALUE OF FINANCIAL INSTRUMENTS, Nokia Group, Continuing Operations, reported (unaudited)

Level 3 includes a large number of investments in unlisted equities and unlisted funds, including investments managed by Nokia Growth Partners specializing in growth-stage investing and by BlueRun Ventures focusing on early stage opportunities. Within level 3 fair value is determined by using one or more valuation techniques, where the use of the market approach generally consists of using comparable market transactions, while the use of the income approach generally consists of calculating the net present value of estimated future cash flows. For unlisted funds the selection of appropriate valuation techniques by the fund managing partner may be affected by the availability and reliability of relevant inputs. In some cases, one valuation technique may provide the best indication of fair value while in other circumstances, multiple valuation techniques may be appropriate.

The inputs generally considered in determining the fair value include the original transaction price, recent transactions in the same or similar instruments, completed or pending third-party transactions in the underlying investment or comparable issuers, subsequent rounds of financing, recapitalizations or other transactions undertaken by the issuer, offerings in the equity or debt capital markets, and changes in financial ratios or cash flows, adjusted as appropriate for liquidity, credit, market and/or other risk factors. Level 3 investments are valued on a quarterly basis taking into consideration any changes, projections and assumptions, as well as any changes in economic and other relevant conditions. The fair value may be adjusted to reflect illiquidity and/or non-transferability, with the amount of such discount estimated by the managing partner in the absence of market information. Assumptions used by the managing partner due to the lack of observable inputs may significantly impact the resulting fair value of individual investments, but no individual input has a significant impact on the total fair value of Nokia’s level 3 investments. The following table shows a reconciliation of the opening and closing balances of Level 3 financial assets:

 

EUR million

   Other available-for-sale investments
carried at fair value
 

Balance at December 31, 2014

     557   
  

 

 

 

Total gains in income statement

     100   

Total gains recorded in other comprehensive income

     54   

Purchases

     25   

Sales

     (51

Other movements

     25   
  

 

 

 

Balance at June 30, 2015

     710   

 

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The gains and losses from financial assets categorized in level 3 are included in other operating income and expenses in cases where the investment and disposal objectives for these investments are business driven. In other cases the gains and losses are included in financial income and expenses. A net loss of EUR 2 million (net loss of EUR 2 million in 2014) related to level 3 financial instruments held at June 30, 2015, was included in the profit and loss during 2015.

 

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8. PROVISIONS, NOKIA GROUP, Continuing operations, reported (unaudited)

 

EUR million

   Restructuring     Divestment
related
    Warranty     Project
losses
    Litigation and
IPR
infringements
    Material
liability
    Other     Total  

At January 1, 2014

     443        0        94        152        70        19        144        922   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Translation differences

     2        0        0        0        2        0        0        4   

Reclassification1

     14        0        0        0        (14     0        0        0   

Additional provisions

     58        142        16        49        6        9        35        315   

Changes in estimates

     (22     0        (5     (22     (6     (4     (9     (68
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charged to income statement

     36        142        11        27        0        5        26        247   

Utilized during period

     (165     0        (20     (67     (1     (5     (10     (268
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At June 30, 2014

     330        142        85        112        57        19        160        905   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
                
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At January 1, 2015

     247        137        117        107        68        24        173        873   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Translation differences

     (1     (2     2        0        (3     0        7        3   

Reclassification

     (6     (5     0        0        6        0        1        (4

Additional provisions

     8        25        17        5        3        21        36        115   

Changes in estimates

     (7     (18     (11     (15     (12     (8     (8     (79
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Charged to income statement

     1        7        6        (10     (9     13        28        36   

Utilized during period

     (58     (10     (18     (16     (2     (8     (31     (143
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

At June 30, 2015

     183        127        107        81        60        29        178        765   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1  EUR 14 million has been reclassified from litigation and IPR infringements to restructuring to better reflect the nature of these items.

All other material contingencies and off-balance sheet arrangements are disclosed in note 28, Provisions, of our Annual Report on Form 20-F for 2014 and section “Operating and financial review and prospects—Liquidity and capital resources” on page 64 of our Annual Report on Form 20-F for 2014, respectively. LG Electronics has agreed to take a royalty-bearing smartphone patent license from Nokia Technologies in June 2015. The detailed royalty payment obligations will be subject to commercial arbitration. There have not occurred any other significant changes to other material contingencies and off-balance sheet arrangements.

 

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9. COMMITMENTS AND CONTINGENCIES, Nokia Group (unaudited)

 

EUR million

   June 30, 2015      June 30, 2014      December 31, 2014  

Collateral for own commitments

        

Assets pledged

     14         9         10   

Contingent liabilities on behalf of Group companies

        

Other guarantees

     667         749         673   

Contingent liabilities on behalf of associated companies

        

Financial guarantees

     14         16         13   

Contingent liabilities on behalf of other companies

        

Financial guarantees

     6         13         6   

Other guarantees

     166         117         165   

Leasing obligations

     621         536         542   

Financing commitments

        

Customer finance commitments

     156         6         155   

Venture fund commitments

     266         278         274   

The amounts above represent the maximum principal amount of commitments and contingencies.

10. RELATED PARTY TRANSACTIONS, NOKIA GROUP, Continuing operations, reported (unaudited)

Significant related party transactions with associated companies for the six months ended June 30, 2015 include Share of results of associated companies of EUR 14 million income (EUR 6 million expense for six months ended June 30, 2014, EUR 12 million expense for the year ended December 31, 2014) and Purchases from associated companies of EUR 129 million (EUR 109 million for six months ended June 30, 2014, EUR 305 million for year ended December 31, 2014).

Transactions and balances with companies over which Nokia exercises control are eliminated on consolidation. Refer to Note 1, Accounting principles and Note 33, Principal Group companies, of our Annual Report on Form 20-F for 2014.

 

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Nokia has related party transactions with a pension fund and the management and the Board of Directors. There have been no significant changes to related party transactions with the pension fund nor to management and Board of Directors’ compensation since December 31, 2014. Refer to note 34, Related party transactions, and section “Compensation” on page 92 of our Annual Report on Form 20-F for 2014.

 

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11. INTEREST-BEARING LIABILITIES, Nokia Group, Continuing operations (unaudited)

 

EUR million

 

Issuer/Borrower

 

Final Maturity

  June 30, 2015     June 30, 2014     December 31, 2014  

Revolving Credit Facility (EUR 1 500 million)1

  Nokia Corporation   June 2018     0        0        0   

USD Bond 2039 (USD 500 million 6.625%)

  Nokia Corporation   May 2039     447        369        412   

USD Bond 2019 (USD 1 000 million 5.375%)

  Nokia Corporation   May 2019     894        738        824   

EUR Bond 2019 (EUR 500 million 6.75%)

  Nokia Corporation   February 2019     500        500        500   

EUR Convertible Bond 2017 (EUR 750 million 5%)

  Nokia Corporation   October 2017     750        750        750   

Differences between Bond nominal and carrying values2

  Nokia Corporation       24        2        21   

Other liabilities3

  Nokia Corporation and various subsidiaries       173        163        185   
     

 

 

   

 

 

   

 

 

 

Total

        2 788        2 522        2 692   
     

 

 

   

 

 

   

 

 

 

 

1 In June 2015 Nokia refinanced its undrawn EUR 1 500 million Revolving Credit Facility maturing in March 2016 with new similar size Facility maturing in June 2018. The new facility has two one year extension options, no financial covenants and it remains undrawn.
2  This line includes mainly Fair Value adjustments for bonds that are designated under Fair value hedge accounting and difference between Convertible Bond nominal value and carrying value of the financial liability component.
3 This line includes also EUR 4 million (EUR 2 million and EUR 8 million, June 30, 2014 and December 31, 2014 respectively) of non-interest bearing payables relating to cash held temporarily due to the divested businesses where Nokia Solutions and Networks continues to perform services within a contractually defined scope for a specified timeframe.

Nokia Corporation is the issuer or borrower in all material Nokia Group borrowings. All of these borrowings are senior unsecured and have no financial covenants.

 

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12. NOTES TO THE CONSOLIDATED STATEMENT OF CASH FLOWS, reported (unaudited)

In 2014, cash generated from operations included EUR 1 650 million cash inflow relating to the 10 year patent license agreement with Microsoft which was paid in connection with the Sale of the D&S Business to Microsoft.

The capital expenditure cash outflow in 2014 includes EUR 33 million capital expenditure cash outflows relating to discontinued operations.

In 2014 proceeds from the Sale of the D&S Business is presented net of the amount of principal and accrued interest on the repaid convertible bonds.

 

EUR million

   Q2’15     Q2’14     Q1-Q2’15     Q1-Q2’14     2014  

Adjustments for1

          

Depreciation and amortization

     83        70        165        149        297   

(Profit)/loss on sale of property, plant and equipment and available-for-sale investments

     (127     (64     (129     (83     (56

Income tax expense/(benefit)

     126        369        187        449       
 
(1
281
  

Share of results of associated companies

     5        6        (14     6        12   

Financial income and expenses

     42        475        60        539        600   

Transfer from hedging reserve to sales and cost of sales

     36        (14     55        (31     (10

Impairment charges

     0        60        4        60        1 335   

Gain on the Sale of the D&S Business

     0        (3 399     0        (3 399     (3 386

Asset retirements

     2        3        3        4        8   

Share-based payment

     12        (11     22        9        37   

Restructuring related charges2

     0        72        0        82        115   

Other income and expenses

     3        19        19        21        67   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     182        (2 414     372        (2 194     (2 262
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Change in net working capital

          

(Increase)/decrease in short-term receivables

     (140     31        (82     187        115   

Decrease/(increase) in inventories

     8        (246     13        (389     (462

(Decrease)/increase in interest-free short-term liabilities

     (630     1 425        (787     1 471        1 500   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total

     (762     1 210        (856     1 269        1 153   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

1 Adjustments for continuing and discontinued operations.
2  The adjustments for restructuring-related charges represent the non-cash portion of the restructuring-related charges recognized in the consolidated income statement.

 

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13. RISK MANAGEMENT, NOKIA GROUP, Continuing operations, reported (continued)

There have been no significant changes to the information on risks and risk management since December 31, 2014. Refer to note 35, Risk management, of our Annual Report on Form 20-F for 2014.

14. SUBSEQUENT EVENTS

Nokia completes next stage of transformation with agreement to sell HERE to automotive industry consortium at an enterprise value of EUR 2.8 billion

On August 3, 2015, Nokia announced an agreement to sell its HERE digital mapping and location services business to a consortium of leading automotive companies, comprising AUDI AG, BMW Group and Daimler AG (the “Consortium”). The transaction values HERE at an enterprise value of EUR 2.8 billion with a normalized level of working capital and is expected to close in the first quarter of 2016, subject to customary closing conditions and regulatory approvals. Upon closing, Nokia estimates that it will receive net proceeds of slightly above EUR 2.5 billion, as the purchaser would be compensated for certain defined liabilities of HERE currently expected to be slightly below EUR 300 million as part of the transaction. Nokia expects to book an approximately EUR 1 billion gain on the sale and a related release of cumulative foreign exchange translation differences as a result of the transaction.

In April 2015, Nokia announced a review of strategic options for HERE in light of its proposed combination with Alcatel-Lucent. The announcement of this sale to the Consortium concludes that strategic review process.

HERE has been a separate operating and reportable segment for financial reporting purposes for Nokia with net sales of EUR 551 million for the first half of 2015, and EUR 969 million for the full year 2014. HERE generated an operating profit of EUR 28 million for the first half of 2015, and an operating loss of EUR 1 241 million for the full year 2014, with the latter including a EUR 1 209 million charge for the impairment of goodwill. At the end of June 2015, HERE had 6 454 employees. Nokia plans to report HERE as a discontinued operation from the third quarter of 2015 onwards. HERE will continue to operate as a business of Nokia until the closing of the transaction.

Upon closing of the HERE transaction, Nokia will consist of two businesses: Nokia Networks and Nokia Technologies. Nokia Networks will continue to be a leading provider of broadband infrastructure software and services. Nokia Technologies will continue to provide advanced technology development and licensing. Nokia’s proposed combination with Alcatel-Lucent is expected to close in the first half of 2016, subject to customary closing conditions and regulatory approvals, and will create an innovation leader in next generation technology and services for an IP connected world.

 

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RISKS AND FORWARD-LOOKING STATEMENTS

Some information included in this Interim Report contains statements that are not historical facts and are forward-looking statements, including, without limitation, those regarding: A) the outcome, transaction timeline and closing of the proposed combination of Nokia and Alcatel-Lucent pursuant to a memorandum of understanding (“MoU”) as announced on April 15, 2015 (“Proposed transaction”) and the ability of Nokia to integrate Alcatel-Lucent into Nokia operations (“Combined company”) and achieve the targeted benefits; B) satisfaction of conditions precedent, including closing conditions, related to the Proposed transaction in a timely manner, or at all, including obtaining required regulatory approvals, the confirmation and approval of our shareholders for the Proposed transaction and successfully completing tenders for the Alcatel-Lucent shares; C) expectations, plans or benefits related to Nokia’s strategies; D) the outcome, transaction timeline and closing of the proposed sale of our HERE business as announced on August 3, 2015 (the “Proposed sale”) ; E) satisfaction of conditions precedent, including closing conditions, related to the Proposed sale in a timely manner, or at all, including obtaining required regulatory approvals; F) expectations and targets regarding our financial performance, operating expenses, taxes, cost savings and competitiveness, as well as results of operations, including synergies related to the Proposed transaction, the target annual run rate of cost synergies for the Combined company and expected financial results of the Combined company; and G) any other statement preceded by or including “believe,” “expect,” “anticipate,” “foresee,” “sees,” “target,” “estimate,” “designed,” “aim,” “plans,” “intends,” “focus,” “continue,” “project,” “should,” “will” or similar expressions.

These statements are based on the 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. Risks and uncertainties that affect the Nokia Group or are relevant to Nokia businesses are described in our Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission on March 19, 2015. Additional risks and uncertainties that affect the Nokia Group or are relevant to Nokia businesses include, but are not limited to: 1) the inability to close the Proposed transaction in a timely manner, or at all, for instance due to the inability or delays in obtaining the Nokia shareholder approval or necessary regulatory approvals for the Proposed transaction, or the occurrence of any event, change or other circumstance that could give rise to the termination of the MoU and successfully completing tenders for the Alcatel-Lucent shares; 2) the inability to achieve the targeted business and operational benefits from the Proposed transaction or disruption caused by the Proposed transaction, including inability to integrate Alcatel-Lucent into Nokia operations and any negative effect from the implementation of the Proposed transaction or the announcement of the Proposed transaction, for instance due to the loss of customers, loss of key executives or employees or reduced focus on day-to-day operations and business; 3) the inability to close the Proposed sale in a timely manner, or at all, for instance due to the inability or delays in obtaining necessary regulatory approvals; 4) disruption caused by the Proposed sale, including any negative effect from the announcement of the Proposed sale, for instance due to the loss of customers, loss of key executives or employees or reduced focus on day-to-day operations and business; and 5) the deterioration of the Nokia brand due to the failure of either the Proposed transaction or the Proposed sale. Other unknown or unpredictable factors or underlying assumptions subsequently proven to be incorrect could cause actual results to differ materially from those in the forward-looking

 


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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.

These financial statements were authorised for issue by management on August 14, 2015.

Media and Investor Contacts:

Corporate Communications, tel. +358 10 448 4900 email: press.services@nokia.com

Investor Relations Europe, tel. +358 4080 3 4080 email: investor.relations@nokia.com

Nokia plans to publish its third quarter 2015 results on October 29, 2015.

 


SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant, Nokia Corporation, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

    Nokia Corporation
Date: August 14, 2015     By:  

/s/ Riikka Tieaho

      Name:   Riikka Tieaho
      Title:   Vice President, Corporate Legal

 

2

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