Nokia (NOK) Reports Q3 EPS of EUR0.08; Announces EUR 7B Capital Structure Optimization Program

Nokia (NYSE: NOK) reported Q3 EPS of EUR0.08, versus EUR0.09 reported last year. Revenue for the quarter came in at EUR3 billion, versus EUR3.1 billion reported last year.

CEO STATEMENT

Nokia's third-quarter can be summarized in two words: progress and performance. Progress in moving the Alcatel-Lucent transaction closer to completion and solid performance across all of our businesses.

The performance at Nokia Networks was the highlight of the quarter, and allowed us to raise our full-year outlook for that business. Even if I am not pleased with the overall sales development, our strong profitability is testament to the strength of our operating model. We said earlier in the year that we would redouble our efforts to ensure our cost structure was aligned to market conditions, and the success of those efforts is very clear in our results.

Nokia Technologies also had a solid quarter, with year-on-year growth in licensing revenues. Our commitment to bringing innovative new products to market was apparent with the announcement of the OZO virtual-reality camera. OZO has been extremely well-received and will be launched officially before the end of the year.

During the quarter we made significant progress towards the closing of our transaction with Alcatel-Lucent. This progress was reflected in our announcement on October 21 that we had received all the necessary regulatory approvals to allow us to proceed with the public exchange offer. The Nokia Board of Directors has recently called for an Extraordinary General Meeting, to be held on December 2, to request shareholder approval for the transaction. We currently expect the settlement date of the initial exchange offer to be in the first quarter of 2016.

In advance of that offer, we announced a planned EUR 7 billion capital structure optimization program. That program, in my view, provides an excellent balance of significant capital return to shareholders while still ensuring we have strategic flexibility for the future.

Progress was also clear in our integration planning work. As announced separately, we now have the confidence to target the achievement of our synergy savings goals one year earlier than originally planned. I continue to believe that the acquisition of Alcatel-Lucent provides a very strong long-term value creation opportunity.

Rajeev Suri
President and CEO

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Nokia also announced a planned EUR 7 billion program to optimize Nokia's capital structure and return excess capital to shareholders. This program would consist of approximately EUR 4 billion in shareholder distributions and approximately EUR 3 billion of de-leveraging. In addition, Nokia today accelerated its annual operating cost synergy target related to the Alcatel-Lucent transaction. Nokia now targets to achieve approximately EUR 900 million of operating cost synergies in full year 2018, compared to its earlier target to achieve approximately EUR 900 million of operating cost synergies in full year 2019.


"Nokia is approaching the opening of its public exchange offer for Alcatel-Lucent securities from a position of strength," said Rajeev Suri, Nokia President and CEO. "We announced strong third quarter results today and raised our outlook for the full year performance of Nokia Networks. I believe that our performance, combined with the announcement of a new capital structure optimization program and accelerated synergy target, will give Alcatel-Lucent shareholders confidence in exchanging their securities for shares of Nokia."

By combining with Alcatel-Lucent, Nokia expects to create an innovation leader in next generation technology and services for an IP connected world. After the closing of the exchange offer, Nokia's Networks business would be conducted through four business groups that would provide an end-to-end portfolio of products, software and services: Mobile Networks, Fixed Networks, Applications & Analytics and IP/Optical Networks. Alongside these, Nokia Technologies would continue to operate as a separate business group with a clear focus on licensing and the incubation of new technologies. Each business group would be positioned for clear leadership in its particular market - with exceptional assets and unparalleled capabilities to accelerate industry innovation while creating long-term value for shareholders.


Planned EUR 7 billion capital structure optimization program
Following the closing of the proposed transaction, Nokia expects to have a strong balance sheet, with the financial resources to enable investments in next generation solutions and services over the long-term.


Nokia's Board of Directors has conducted a thorough analysis of Nokia's potential long-term capital structure requirements, and is today announcing plans for a two-year, EUR 7 billion program to optimize the efficiency of Nokia's capital structure, subject to the closing of the Alcatel-Lucent and HERE transactions, as well as the conversion of all Nokia and Alcatel-Lucent convertible bonds. This comprehensive capital structure optimization program would focus on shareholder distributions and de-leveraging, while maintaining Nokia's financial strength.

The program would consist of the following components:

• Shareholder distributions of approximately EUR 4 billion, calculated assuming ownership of all outstanding shares of Alcatel-Lucent and conversion of all Nokia and Alcatel-Lucent convertible bonds:
  • Planned ordinary dividend payments, as follows:
    • A planned ordinary dividend for 2015 of at least EUR 0.15 per share, subject to shareholder approval in 2016; and
    • A planned ordinary dividend for 2016 of at least EUR 0.15 per share, subject to shareholder approval in 2017;
  • A planned special dividend of EUR 0.10 per share, subject to shareholder approval in 2016; and
  • A planned two-year, EUR 1.5 billion share repurchase program, subject to shareholder approval in 2016.
    
• De-leveraging of approximately EUR 3 billion:
  • Planned reduction of interest bearing liabilities of the combined company by approximately EUR 2 billion; and
  • Planned reduction of debt-like items of the combined company by approximately EUR 1 billion in 2016.

"We are committed to effective deployment of capital to drive ongoing value creation," said Timo Ihamuotila, Executive Vice President and Group Chief Financial Officer. "We believe our planned EUR 7 billion capital structure optimization program would enable the combined company to make swift and orderly progress towards a more efficient capital structure, in alignment with the long-term interests of the shareholders of the combined company. Longer-term, we continue to target an investment grade credit rating, which would further affirm Nokia's competitive strength."

Synergy target accelerated to EUR 900 million in 2018
On April 15, 2015, in conjunction with the announcement of the Alcatel-Lucent transaction, Nokia announced that the combined company would target approximately EUR 900 million of annual operating cost synergies to be achieved on a full year basis in 2019. This target assumed the closing of the transaction in the first half of 2016.

Today, Nokia announced an accelerated target of approximately EUR 900 million of annual operating cost synergies to be achieved on a full year basis in 2018, relative to the combined non-IFRS results of Nokia and Alcatel-Lucent for full year 2015. This target is now subject to the closing of the transaction in the first quarter 2016. The associated restructuring costs are expected to be slightly higher than EUR 900 million, and the related cash outflow is expected to be approximately EUR 900 million.

The operating cost synergies are expected to be derived from a wide range of initiatives related to operating expenses and cost of sales, including:

• Streamlining of overlapping products and services, particularly within the planned Mobile Networks business group;
• Rationalization of regional and sales organizations;
• Rationalization of overhead, particularly within manufacturing, supply-chain, real estate and information technology;
• Reduction of central function and public company costs; and
• Procurement efficiencies, given the combined company's expanded purchasing power.

The operating cost synergies are expected to create a structural cost advantage and foster a corporate culture that emphasizes execution excellence. This strong foundation would enable the long-term investments that are essential to achieve the combined company's strategic objectives, serve the changing needs of customers and lead the next wave of technological change in the industry.

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