Nokia Corp. (NYSE: NOK) reported Q1 EPS of EUR0.04, in-line with the analyst estimate of EUR0.04. Revenue for the quarter came in at EUR2.66 billion versus the consensus estimate of EUR4.01 billion.

Nokia Corporation Interim Report for Q1 2014

April 29, 2014 1:07 AM EDT Send to a Friend

ESPOO, Finland, April 29, 2014 (GLOBE NEWSWIRE) -- This is a summary of the first quarter 2014 interim report published today. The complete first quarter 2014 interim report with tables is available at http://company.nokia.com/financials. Investors should not rely on summaries of our interim reports only, but should review the complete interim reports with tables.

FINANCIAL AND OPERATING HIGHLIGHTS

First quarter 2014 highlights for continuing operations*:

Nokia's non-IFRS diluted EPS in Q1 2014 of EUR 0.04 (0.01 in Q1 2013); reported diluted EPS of EUR 0.03 (-0.03 in Q1 2013) Nokia's net sales in Q1 2014 were EUR 2.7 billion, down 15% compared to Q1 2013.

• In Q1 2014, underlying operating profitability for Nokia's continuing operations increased to EUR 304 million, or 11.4% of net sales, compared to EUR 254 million, or 8.1% of net sales, in Q1 2013.
• Networks achieved solid underlying operating profitability, with Q1 2014 non-IFRS operating profit of EUR 216 million, or 9.3% of net sales, compared to EUR 196 million, or 7.0%, in Q1 2013. This was primarily due to a higher gross margin which benefitted from a higher proportion of software sales, significant efficiency improvements in Global Services and a higher proportion of Mobile Broadband sales.
• HERE's external net sales were EUR 185 million, an increase of 13% year-on-year, driven by strong sales to vehicle customers.
• Technologies entered in to an agreement with HTC, validating Nokia's implementation patents and enabling Technologies to focus on further licensing opportunities.

*See note 4 to our Summary Financial Information table below concerning our current operational and reporting structure

Balance sheet highlights:

• Nokia Group ended Q1 2014 with a strong balance sheet and solid cash position with gross cash of EUR 6.9 billion and net cash of EUR 2.1 billion compared to EUR 9.0 billion and EUR 2.3 billion, respectively, at the end of Q4 2013. The sequential decline in Nokia's gross cash was primarily due to repayment of certain debt facilities totalling approximately EUR 1.8 billion during the first quarter 2014.
• If the transaction to sell to Microsoft substantially all of our Devices & Services business would have closed before the end of the first quarter 2014, Nokia would have ended the quarter with gross cash of approximately EUR 10.5 billion and net cash of approximately EUR 7.1 billion.

Risto Siilasmaa, Nokia Chairman, commented on the company's progress:

With the closing of our transaction with Microsoft, Nokia begins a new era. We are confident in our future. Nokia's vision is to be a leader in technologies which will be important in a world of billions of intelligent connected devices. With our strategic direction now set, our highly talented teams can focus fully on realizing our vision by building on Nokia's three strong businesses - Networks, HERE, and Technologies. In all three businesses, Nokia has a solid foundation and we continue to see attractive opportunities to invest in growth. Additionally, we will focus on managing our capital effectively, and we have announced a comprehensive EUR 5 billion program to optimize our capital structure. In the first quarter of 2014, all three of our businesses delivered solid performance. In particular, we were pleased by the continued strength of Networks' underlying operating profitability. Under the leadership of Rajeev Suri, Networks has become an innovation leader, with tremendously improved strategic focus and financial results. I believe Rajeev is the right person to lead Nokia forward, and that his passion for technology will help ensure that Nokia continues to deliver technologies that have a positive impact on people's lives.

SUMMARY FINANCIAL INFORMATION

Note 1 relating to results information and non-IFRS (also referred to as "underlying") results: The results information in this report is unaudited. 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. In addition to information on our reported IFRS results, we provide certain information on a non-IFRS, or underlying business performance, basis. Non-IFRS results exclude all material special items for all periods. In addition, non-IFRS results exclude intangible asset amortization, other purchase price accounting related items and inventory value adjustments arising from (i) the formation of Networks (formerly NSN) and (ii) all business acquisitions completed after June 30, 2008. Nokia believes that our non-IFRS results provide meaningful supplemental information to both management and investors regarding Nokia's underlying business performance by excluding the above-described items that may not be indicative of Nokia's business operating results. These non-IFRS financial measures should not be viewed in isolation or as substitutes to the equivalent IFRS measure(s), but should be used in conjunction with the most directly comparable IFRS measure(s) in the reported results. See note 2 below for information about the exclusions from our non-IFRS results. More information, including a reconciliation of our Q1 2014 and Q1 2013 non-IFRS results to our reported results, can be found in our complete Q1 2014 report with tables on pages 19-23. A reconciliation of our Q4 2013 non-IFRS results to our reported results can be found in our complete Q4 interim report with tables on pages 21-22 and 35-40 published on January 23, 2014.

Note 2 relating to non-IFRS exclusions/special items for continuing operations:

Q1 2014 - EUR 62 million (net) consisting of:

• EUR 15 million restructuring charge and other associated items in Networks
• EUR 3 million restructuring charge in HERE
• EUR 9 million of transaction and other related costs in Corporate Common resulting from the sale of Devices & Services business to Microsoft
• EUR 3 million of transaction and other related costs in Technologies resulting from the sale of Devices & Services business to Microsoft
• EUR 6 million of transaction and other related costs in HERE resulting from the sale of Devices & Services business to Microsoft
• EUR 22 million of intangible asset and other purchase price accounting related items arising from the acquisition of Motorola Solutions' networks assets
• EUR 3 million of intangible asset and other purchase price accounting related items arising from the acquisition of NAVTEQ

Q4 2013 - EUR 134 million (net) consisting of:

• EUR 95 million restructuring charge and other associated items in Networks
• EUR 4 million restructuring charge in HERE
• EUR 22 million of transaction and other related costs resulting from the sale of Devices & Services business to Microsoft
• EUR 11 million of intangible asset amortization and other purchase price accounting related items arising from the acquisition of Motorola Solutions' networks assets
• EUR 3 million of intangible asset amortization and other purchase price accounting related items arising from the acquisition of NAVTEQ

Q1 2013 - EUR 283 million (net) consisting of:

• EUR 129 million restructuring charge and other associated items in Networks, including EUR 53 million of net charges related to country and contract exits based on the strategy that focuses on key markets and product segments
• EUR 5 million restructuring charge in HERE
• EUR 64 million of intangible asset and other purchase price accounting related items arising from the formation of Networks (formerly Nokia Siemens Networks and Nokia Solutions and Networks) and the acquisition of Motorola Solutions' networks assets
• EUR 87 million of intangible asset and other purchase price accounting related items arising from the acquisition of NAVTEQ

Note 3 relating to non-IFRS exclusions for discontinuing operations :

Q1 2014 - EUR 19 million (net) consisting of:

• EUR 19 million of transaction and other related costs resulting from the sale of Devices & Services business to Microsoft

Q4 2013 - EUR 7 million (net) consisting of:

• EUR 7 million of transaction and other related costs resulting from the sale of Devices & Services business to Microsoft

Q1 2013 - EUR 47 million (net) consisting of:

• EUR 72 million restructuring charge
• EUR 27 million gain on a cartel claim settlement

Note 4 relating to operational and reporting structure: We have three businesses: Networks, HERE, and Technologies, and four operating and reportable segments for financial reporting purposes: Mobile Broadband and Global Services within Networks, HERE, and Technologies. We also present certain segment data for discontinued operations. 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. Technologies is built on Nokia's Chief Technology Office and intellectual property rights and licensing activities. Networks also contains Networks Other, which includes net sales and related cost of sales and operating expenses of non-core businesses, as well as Optical Networks business until May 6, 2013, when its divestment was completed. It also includes restructuring and associated charges for Networks business. Additionally, as a result of the transaction announced on September 3, 2013 and closed on April 25, 2014 whereby Nokia sold substantially all of Nokia's Devices & Services business to Microsoft ("Sale of the D&S Business"), we report certain separate information for Discontinued Operations. On August 7, 2013 Nokia completed the acquisition of Siemens' stake in Nokia Siemens Networks, which was a joint venture between Nokia and Siemens and renamed the company Nokia Solutions and Networks, also referred to as NSN. NSN was consolidated by Nokia prior to this transaction. After the closing of the Sale of the D&S Business, NSN was renamed Networks. Beginning in the third quarter of 2013, Nokia has reported financial information for the two operating and reportable segments within Networks; Mobile Broadband and Global Services. Beginning in the fourth quarter of 2013, the Devices & Services business has been reported as Discontinued Operations. To reflect these changes, historical results information for past periods have been regrouped for historical comparative purposes. As is customary, certain judgments have been made when regrouping historical results information and allocating items in the regrouped results. When presenting financial information as at and related comparative information for previous periods, we generally refer to the names of the businesses and reportable segments as they are named currently. However, the terms "Networks" and "Nokia Solutions and Networks, or "NSN", as well as "Technologies" and "Advanced Technologies" can be used interchangeably in this report.

Note 5 relating to Nokia net cash and other liquid assets: Calculated as total cash and other liquid assets less interest-bearing liabilities. For selected information on Nokia Group interest-bearing liabilities, please see the table on pages 35-36 of the complete Q1 2014 report with tables.

Note 6 relating to continuing and discontinuing operations net cash from operating activities : No comparative data available for Q4 2013. For the full year 2013 the net cash from operations was an inflow of EUR 1 133 million for continuing operations and an outflow of EUR 1 062 million for the discontinued operations.

Nokia Outlook

Continuing Operations

• Nokia continues to expect Networks' non-IFRS operating margin for the full year 2014 to be towards the higher end of Networks' targeted long term non-IFRS operating margin range of 5% to 10%. In addition, Nokia now expects Networks' net sales to grow on a year-on-year basis in the second half of 2014. This outlook is based on Nokia's expectations regarding a number of factors, including:
  • competitive industry dynamics;
  • product and regional mix;
  • the timing of major new network deployments; and
  • expected continued improvement under Networks' transformation programs.
• Nokia expects software sales to comprise a lower proportion of Networks' second quarter 2014 net sales compared to the first quarter 2014, which is expected to negatively affect Networks' second quarter 2014 non-IFRS operating margin.
• During 2014, Nokia continues to expect HERE to invest to capture longer term transformational growth opportunities. This is expected to negatively affect HERE's 2014 non-IFRS operating margin.
• Nokia continues to expect the Technologies annualized net sales run rate to expand to approximately EUR 600 million during 2014, now that Microsoft has become a more significant intellectual property licensee in conjunction with the sale of substantially all of our Devices & Services business.
• Nokia expects cash flow in the second quarter 2014 to be negatively affected by incentive-related cash outflows related to Networks' strong business performance in 2013.
• On a non-IFRS basis, until a pattern of tax profitability is re-established in Finland, Nokia continues to expect to record approximately EUR 250 million of annualized tax expense for the continuing operations. This corresponds to the anticipated cash tax obligations for Networks, HERE and Technologies. After a pattern of tax profitability is re-established in Finland, Nokia expects to record tax expenses at a long term effective tax rate of approximately 25%, however Nokia's cash tax obligations are expected to remain at approximately EUR 250 million annually until Nokia's currently unrecognized Finnish deferred tax assets have been fully utilized. At the end of the first quarter Nokia had approximately EUR 2.4 billion of unrecognized Finnish deferred tax assets that would be available against approximately EUR 11.8 billion of taxable profits. Nokia expects to utilize approximately EUR 200 million of these unrecognized Finnish deferred tax assets against the expected gain on sale of our Devices & Services business to Microsoft, and thus have available EUR 2.2 billion of unrecognized Finnish deferred tax assets after the transaction that would be available against EUR 10.8 billion of taxable profits.
• Nokia continues to expect full year 2014 capital expenditures for continuing operations to be approximately EUR 200 million, primarily attributable to Networks.

For earnings history and earnings-related data on Nokia Corp. (NOK) click here.